Exhibit 13  Table of Contents Page  Presidents Letter 1  Market Price and Dividends on Common Stock. 2  Five-Year Summary of Selected Financial Data. 3  Managements Discussion and Analysis of Financial Condition and Results of Operations . 4  Report of Independent Registered Public Accounting Firm 18  Financial Statements  Consolidated Balance Sheets 19  Consolidated Statements of Income.. 20  Consolidated Statements of Shareholders Equity 21  Consolidated Statements of Cash Flows 22  Notes to Consolidated Financial Statements... 24  Directors and Officers. 55        Dear Shareholder:  As I am sure you are aware, 2008 was a challenging year for the banking industry.  We were not immune from the current economic events, but with that in mind we are pleased with our results.  Because of the efforts of all those associated with United Bancshares, I am pleased to report that the Corporation was able to achieve net earnings of $4.4 million ($1.28 per share) in 2008.  Also, dividends were increased 7.1% from $0.56 per share in 2007 to $0.60 in 2008.  We are also pleased to report that we had significant growth in 2008, including increases in the loan portfolio which increased approximately $59.0 million (16.4%) to $418.1 million at December 31, 2008.  Shareholders equity increased 3.8% to $50.7 million at December 31, 2008.  Total assets for the Corporation increased from $548.0 million at December 31, 2007 to $616.1 million at December 31, 2008, a $68.1 million (12.4%) increase.  From a facility standpoint, our new Ottawa branch officially opened in November 2008.  We are very pleased with the way it is functioning and believe it provides us with an excellent office to serve our existing and future customers in that community and surrounding area.  In the Lima area, we had an opportunity to purchase a bank branch in Shawnee, which we renovated and moved our downtown office to that location in December 2008.  We invite you to stop and view both of these new locations, if you are in the area.  At this time we believe that, under the current economic conditions, 2009 will be another difficult year for the banking industry.  We continue to be committed to placing our resources and banking knowledge to best serve the interests of our shareholders, customers and communities.  Respectfully,   /s/Daniel W. Schutt Daniel W. Schutt President & CEO  1


UNITED BANCSHARES, INC.  DESCRIPTION OF THE CORPORATION  United Bancshares, Inc., an Ohio corporation (the Corporation), is a bank holding company registered under the Bank Holding Company Act of 1956, as amended, and is subject to regulation by the Board of Governors of the Federal Reserve System (the Federal Reserve Board).  The Corporation was incorporated and organized in 1985.  The executive offices of the Corporation are located at 100 S. High Street, Columbus Grove, Ohio 45830.  Following the merger of the Companys other two bank subsidiaries into The Union Bank Company, Columbus Grove, Ohio (Bank) in March 2003, the Company is now a one-bank holding company, as that term is defined by the Federal Reserve Board.  Effective February 1, 2007, the Bank formed a wholly-owned subsidiary, UBC Investments, Inc. (UBC) to hold and manage its securities portfolio.  The operations of UBC are located in Wilmington, Delaware. Through its subsidiary, the Bank, the Corporation is engaged in the business of commercial banking and offers a full range of commercial banking services. Union is an Ohio state-chartered bank, which serves Allen, Putnam, Sandusky, Van Wert and Wood Counties, with office locations in Bowling Green, Columbus Grove, Delphos, Gibsonburg, Kalida, Leipsic, Lima, Ottawa, and Pemberville, Ohio.  MARKET PRICE AND DIVIDENDS ON COMMON STOCK  United Bancshares, Inc. has traded its common stock on the Nasdaq Markets Exchange under the symbol UBOH since March 2001.  From January 2000 to March 2001, the Corporations common stock was traded on the Nasdaq Over-The-Counter Bulletin Board.  Prior to January 2000, there was no established public trading market for United Bancshares, Inc. common stock.  As of February 28, 2009, the common stock was held by 1,541 shareholders of record.  Below are the trading highs and lows for the periods noted.  Year 2008 High Low First Quarter $14.66 $12.57 Second Quarter  14.39 14.39 Third Quarter 12.87 12.10 Fourth Quarter 11.00 9.30  Year 2007 High Low First Quarter $17.50 $15.50 Second Quarter  16.50 14.37 Third Quarter 15.41 14.01 Fourth Quarter 15.00 12.40  Dividends declared by United Bancshares, Inc. on its common stock during the past two years were as follows: 2008 2007 First Quarter $  .15 $  .14 Second Quarter  .15 .14 Third Quarter .15 .14 Fourth Quarter .15 .14 Total $  .60 $  .56  AVAILABILITY OF MORE INFORMATION  To obtain a copy, without charge, of the United Bancshares, Inc.s annual report (Form 10-K) filed with the Securities and Exchange Commission, please write to: Heather Oatman, Secretary United Bancshares, Inc. 100 S. High Street Columbus Grove, Ohio 45830 419-659-2141


2


UNITED BANCSHARES, INC. FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA  Years ended December 31,20082007200620052004(Dollars in thousands, except per share data)Statements of income:Total interest income$  35,208$  34,849$  32,790$  30,058$  26,985Total interest expense15,79517,43115,42711,98010,334Net interest income19,41317,41817,36318,07816,651Provision for loan losses2,195625340612577Net interest income afterprovision for loan losses17,21816,79317,02317,46616,074Total non-interest income2,6742,9653,1572,6113,023Total non-interest expense (2)14,46214,01814,00114,22215,533Income before federal income taxes5,4305,7406,1795,8553,564Federal income taxes1,0111,1611,2521,233476Net income$   4,419$   4,579$   4,927$   4,622$   3,088Per share of common stock:Net income - basic$     1.28$     1.30$     1.37$     1.26$     0.84Dividends0.600.560.520.480.44Book value14.7213.9912.9312.0911.99Average shares outstanding  basic3,447,5363,527,0933,598,7473,674,3523,670,981Year end balances:Loans (3)$  418,385$  359,560$  335,549$  310,005$  306,591Securities (4)141,392142,607172,778187,791217,841Total assets616,064547,975550,375536,209559,323Deposits464,792393,203377,430356,921369,767Shareholders' equity50,66048,81946,15243,79344,229Average balances:Loans (3)$  400,823$  345,532$  323,802$  311,107$  297,732Securities (4)133,409155,773180,572200,903195,444Total assets600,749549,694543,247548,463526,065Deposits443,174386,572361,670365,142378,485Shareholders' equity49,79547,27044,21244,20843,250Selected ratios:Net yield on average interest-earningAssets (1)3.64%3.61%3.63%3.67%3.59%Return on average assets0.74%0.83%0.91%0.84%0.59%Return on average shareholders equity8.87%9.69%11.14%10.46%7.14%Net loan charge-offs as a percentageof average outstanding net loans0.31%0.19%0.19%0.24%0.20%Allowance for loan lossesas a percentage of year end loans0.76%0.62%0.68%0.82%0.90%Shareholders' equity as a percentage oftotal assets8.22%8.91%8.39%8.17%7.91%Notes:1)  Net yield on average interest-earning assets was computed on a tax-equivalent basis.2)  Non-interest expense in 2004 includes a payment to the Companys former CEO and a provision related to the Companys stock option accounting.  These two items reduced net income $825,000 ($0.23 per share).3)  Includes loans held for sale.4)  Includes Federal Home Loan Bank Stock.


3   UNITED BANCSHARES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   The following discussion provides additional information relating to the financial condition and results of operations of United Bancshares, Inc.  EARNINGS SUMMARY  Consolidated net income for United Bancshares, Inc. (the Corporation) and its wholly-owned subsidiary, The Union Bank Company (the Bank) for 2008 was $4.4 million compared to $4.6 million in 2007 and $4.9 million in 2006.  Basic net income per share was $1.28 in 2008, a decrease of $.02 per share (1.5%) from $1.30 in 2007.  Basic net income per share was $1.30 in 2007, a decrease of $.07 per share (5.1%) from $1.37 in 2006.   FINANCIAL POSITION AND RESULTS OF OPERATIONS  2008 Compared With 2007  Net interest income for 2008 was $19.4 million, an increase of $2.0 million (11.5%) from 2007. The increase in net interest income primarily resulted from a $1.6 million decrease in interest expense.  The average yield on loans for 2008 decreased to 7.15% compared to 7.89% in 2007, and the average rate on interest-bearing liabilities decreased to 3.12% in 2008 from 3.77% in 2007.  The net effect of these and other factors resulted in the net interest yield on average interest-earning assets, on a tax-equivalent basis, increasing slightly in 2008 to 3.64% from 3.61% in 2007.  At December 31, 2008, total loans (including loans held for sale) amounted to $418.4 million compared to $359.6 million December 31, 2007, an increase of $58.8 million (16.4%).  Loans held for sale decreased to $242,000 at December 31, 2008 from $350,000 at December 31, 2007.  Within the loan portfolio, residential real estate loans increased $19.6 million (17.8%), commercial loans increased $37.5 million (24.0%), and agriculture loans increased $8.4 million (12.7%), while consumer loans decreased $6.6 million (25.0%) during 2008.  Most of the loan growth in 2008 was considered within the Corporations primary lending area, defined as being less than 100 miles from one of the Corporations banking centers.  The decrease in consumer loans was partially due to the decision in late 2007 to limit indirect automobile lending.  The Corporation, through its bank subsidiary, elects to sell in the secondary market a substantial portion of the fixed rate residential real estate loans originated, and typically retains the servicing rights relating to such loans.  During 2008, the net gain on sale of loans was $346,000, including $147,000 of capitalized servicing rights.  The net gain on sale of loans was $330,000 in 2007, including $153,000 of capitalized servicing rights.  Securities, including Federal Home Loan Bank of Cincinnati (FHLB) stock, totaled $141.4 million at December 31, 2008, representing a decrease of $1.2 million (0.8%) from the comparative total of $142.6 million at December 31, 2007.  The Bank is required to maintain a certain level of FHLB stock based on outstanding borrowings from the FHLB.  FHLB stock is considered a restricted security which is carried at cost and evaluated periodically for impairment.  4   UNITED BANCSHARES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED   FINANCIAL POSITION AND RESULTS OF OPERATIONS (CONTINUED)  2008 Compared With 2007, Continued  Management monitors the earnings performance and liquidity of the securities portfolio on a regular basis through Asset/Liability Committee (ALCO) meetings.  As a result, all securities except FHLB stock have been designated as available-for-sale and may be sold if needed for liquidity, asset-liability management or other reasons.  Such securities are reported at fair value, with any net unrealized gains or losses reported as a separate component of shareholders equity, net of related income taxes.  At December 31, 2008, net unrealized losses on available-for-sale securities, net of income taxes, amounted to $412,000.  At December 31, 2008, the Bank held 76 securities which were in a loss position with the fair value and gross unrealized losses of such securities amounting to $43.4 million and $2.2 million, respectively.  Management has considered the current interest rate environment, typical volatilities in the bond market, and the Banks liquidity needs in the near term in concluding that the impairment on these securities is temporary.  Total deposits at December 31, 2008 amounted to $464.8 million, an increase of $71.6 million (18.2%) compared with total deposits of $393.2 million at December 31, 2007.  Of this increase, $32.6 million was attributable to brokered time deposits and only $377,000 was related to non-interest bearing deposits.  The Bank also utilizes other borrowings as an alternative source of funding, as necessary, to support asset growth and periodic deposit shrinkage.  Other borrowings, consisting of FHLB advances, securities sold under agreements to repurchase, and customer repurchase agreements, amounted to $86.3 million at December 31, 2008, compared to $91.9 million at December 31, 2007, a decrease of $5.6 million (6.1%).  The allowance for loan losses at December 31, 2008 was $3.2 million, or 0.76% of total loans, compared to $2.2 million, or 0.62% of total loans at December 31, 2007.  The change in the allowance for loan losses during 2008 included a $2.2 million provision for loan losses charged to operations and  loan charge-offs, net of recoveries, of $1.2 million.  The provision for loan losses charged to operations is determined by management after considering the amount of net losses incurred as well as managements estimation of losses inherent in the portfolio based on an evaluation of loan portfolio risk and current economic factors.  The provision for loan losses of $2.2 million in 2008 compared to a provision of $625,000 in 2007.  The increase in the provision for loan losses in 2008, as compared to 2007, resulted from many factors including an increase in the level of net loan charge-offs ($1.2 million in 2008 compared to $668,000 in 2007), loan portfolio growth, and an increase in the level of impaired loans during the year.  Impaired loans and the amount of allowance for loan losses allocated to such loans amounted to $5.6 million and $1.1 million, respectively, at December 31, 2008, compared to $3.2 million and $367,000, respectively, at December 31, 2007.  Total non-interest income decreased $290,000 (9.8%) to $2.7 million in 2008 from $3.0 million in 2007.  Significant non-recurring components of non-interest income include a gain from the sale of the Banks credit card portfolio of $355,000 in 2007, as well as securities gains or losses. Security gains (losses) had a positive impact of $275,000 on income before income taxes with the Bank recognizing net securities gains of $49,000 in 2008 and net security losses of $226,000 in 2007.  5   UNITED BANCSHARES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED   FINANCIAL POSITION AND RESULTS OF OPERATIONS (CONTINUED)  2008 Compared With 2007, Continued  Significant recurring components of non-interest income include service charges on deposit accounts, gains from the sale of loans, and other income, which includes increases in the cash surrender value of life insurance.  Service charges on deposit accounts increased $43,000 (2.9%) to $1,515,000 in 2008 compared to $1,472,000 in 2007.  The net gain on sale of residential real estate loans increased $17,000 to $347,000 in 2008 from $330,000 in 2007 due to increased loan origination volume.  During 2008, the Bank sold $22.2 million of residential real estate loans compared to $14.8 million in 2007.  The increased loan sales activity in 2008 resulted from lower interest rates, especially during the latter part of the year, which caused an increase in refinancing and mortgage loan origination activity.  The Bank has elected to record mortgage servicing rights using the fair value measurement method.  In 2008, the Corporation recognized a $649,000 decrease in the fair value of mortgage servicing rights compared to a $364,000 decrease in 2007.  Prepayment assumptions are a significant assumption used in determining the fair value of the Banks mortgage servicing rights. Due to the declines in the secondary market mortgage rates experienced during the fourth quarter of 2008, the prepayment assumptions used to determine the fair value of servicing increased dramatically which caused a significant decrease in the fair value of the Banks servicing rights.  Income from the increase in cash surrender value of life insurance increased $45,000 to $493,000 in 2008 from $448,000 in 2007.  Total non-interest expenses increased $445,000 (3.2%) to $14,463,000 in 2008.  Included in non-interest expenses in 2008 was a $235,000 impairment loss relating to the Banks downtown Lima branch office.  Salaries, wages and benefits increased $387,000 (5.3%) to $7,628,000 in 2008 from $7,241,000 in 2007.  Occupancy expenses, which include costs relating to the operation and maintenance of buildings, furnishings, and equipment, decreased $78,000 (5.2%) to $1,430,000 in 2008, from $1,508,000 in 2007. Other operating expenses increased $137,000 (2.6%) to $5,405,000 in 2008 compared to $5,268,000 in 2007.  The significant components of other operating expenses are summarized in Note 12 to the consolidated financial statements.  The provision for income taxes for 2008 was $1,011,000 (effective rate of 18.6%) compared to $1,161,000 (effective rate of 20.2%) in 2007.  This decrease resulted from a $311,000 decrease in income before taxes.  2007 Compared With 2006  Net interest income for 2007 was $17,418,000, an increase of $55,000 (0.3%) from 2006.  Net interest income remained steady primarily due to the Corporations ability to maintain net interest margin.  The average yield on loans for 2007 increased to 7.89% compared to 7.55% in 2006, while the average rate on interest-bearing liabilities increased to 3.77% in 2007 from 3.34% in 2006.  The net effect of these and other factors resulted in the net interest yield on average interest-earning assets, on a tax-equivalent basis, decreasing slightly in 2007 to 3.61% from 3.63% in 2006.  6   UNITED BANCSHARES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED   FINANCIAL POSITION AND RESULTS OF OPERATIONS (CONTINUED)  2007 Compared With 2006, Continued  At December 31, 2007, total loans (including loans held for sale) amounted to $359.6 million compared to $335.5 million at December 31, 2006, an increase of $24.1 million (7.2%).  Loans held for sale decreased to $350,000 at December 31, 2007 from $426,000 at December 31, 2006.  Within the loan portfolio, residential real estate loans increased $5.8 million (5.6%), commercial loans increased $16.4 million (11.7%), agriculture loans increased $7.4 million (12.5%) and consumer loans decreased $4.0 million (13.3%) during 2007.  During 2007, the Bank originated $5.3 million of consumer loans under the indirect automobile loan programs compared to $10.9 million in 2006.  Also during 2007, the Bank sold its credit card portfolio, which amounted to $1,527,000 at December 31, 2006, and the sale resulted in gain of $355,000.  Net gain on sale of loans in 2007 was $330,000, including $153,000 of capitalized servicing rights, compared to $335,000 in 2006, including $207,000 of capitalized servicing rights.  Securities, including Federal Home Loan Bank of Cincinnati (FHLB) stock, totaled $142.6 million at December 31, 2007, representing a decrease of $30.2 million (17.5%) from total securities of $172.8 million at December 31, 2006.  As part of its overall asset/liability management strategy, the Bank permitted the securities portfolio to shrink throughout 2007 as proceeds from the sale or maturity of securities were generally used to fund loan growth or repay long-term debt. Consequently, securities purchases were only $2.0 million in 2007 compared to $10.7 million in 2006.  As part of the overall asset/liability management strategy, in 2007 the Bank approved managements plan to restructure the balance sheet which included the sale of $15.3 million in securities.  While the sale of securities resulted in a loss of $226,000, the Bank used proceeds from the sale to pay down other borrowings.  At December 31, 2007, net unrealized losses on available-for-sale securities, net of income taxes, amounted to $576,000.  At December 31, 2007, the Bank held 83 securities which were in a loss position with the fair value and gross unrealized losses of such securities amounting to $80.0 million and $1.3 million, respectively.  Management has considered the current interest rate environment, typical volatilities in the bond market, and the Banks liquidity needs in the near term in concluding that the impairment on such securities is temporary.  Total deposits at December 31, 2007 amounted to $393.2 million, an increase of $15.8 million (4.2%) compared with total deposits of $377.4 million at December 31, 2006.  Of this increase, $3.4 million (8.9%) was related to non-interest bearing deposits.  Other borrowings, consisting of FHLB advances, securities sold under agreements to repurchase, and customer repurchase agreements, amount to $91.9 million at December 31, 2007 compared to $113.7 million at December 31, 2006, a decrease of $21.8 million (19.1%).  The allowance for loan losses at December 31, 2007 was $2.2 million (0.62% of total loans) compared to $2.3 million (0.68% of total loans) at December 31, 2006.  The change in the allowance for loan losses during 2007 included a $625,000 provision for loan losses charged to operations, and  loan charge-offs, net of recoveries, of $668,000.  7   UNITED BANCSHARES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED   FINANCIAL POSITION AND RESULTS OF OPERATIONS (CONTINUED)  2007 Compared With 2006, Continued  The provision for loan losses of $625,000 in 2007 compared to $340,000 in 2006.  The increase in the provision for loan losses in 2007 was largely due to an increase in total loans as well as an increase in the level of impaired loans from the beginning of 2007 to the end of 2007.  Impaired loans and the amount of allowance for loan losses allocated to such loans amounted to $3.2 million and $367,000, respectively, at December 31, 2007, compared to $2.4 million and $286,000, respectively, at December 31, 2006.  Total non-interest income decreased $193,000 to $3.0 million in 2007 from $3.2 million in 2006. Service charges on deposit accounts increased $138,000 (10.4%) to $1,472,000 in 2007 compared to $1,334,000 in 2006 largely due to an increase in 2007 from non-sufficient funds and overdraft fees of $151,000 (12.9%) to $1.3 million in 2007 compared to $1.2 million in 2006.  The net gain on sale of residential real estate loans decreased $5,000 to $330,000 in 2007 from $335,000 in 2006 due to decreased loan origination volume.  During 2007, the Bank sold $14.8 million of residential real estate loans compared to $20.8 million in 2006.  The lower loan sales activity in 2007 resulted from a slower housing market and steady interest rates during 2007 resulting in less refinancing and mortgage loan origination activity.  In addition to the aforementioned sale of the credit card portfolio and securities sales, the Corporation also recognized a $364,000 decrease in the fair value of mortgage servicing rights during 2007.  The Bank elected to record its mortgage servicing rights using the fair value measurement method effective January 1, 2007, as more fully described in Note 2 to the consolidated financial statements.  As a result, the Corporation recognized a mark-to-market value adjustment of $786,954 effective January 1, 2007, representing the difference between fair market value and amortized cost, adjusted for impairment valuation, as of that date.  Due to various factors in the secondary mortgage and national real estate markets, the fair value of the servicing rights declined during 2007.  Income from the change in the cash surrender value of life insurance decreased $22,000 to $448,000 in 2007 from $470,000 in 2006.  Total non-interest expenses increased $16,000 (0.1%) to $14,017,000 in 2007.  Salaries, wages and benefits, increased $127,000 (1.8%) to $7,241,000 in 2007 from $7,114,000 in 2006. Occupancy expenses, including costs relating to the operation and maintenance of buildings, furnishings, and equipment, increased $68,000 (4.7%) to $1,508,000 in 2007 from $1,440,000 in 2006.  Other operating expenses decreased $179,000 (3.3%) to $5,268,000 in 2007 compared to $5,447,000 in 2006.  The significant components of other operating expenses are summarized in Note 12 to the consolidated financial statements.  Data processing costs decreased $74,000 (7.6%) to $896,000 in 2007 from $970,000 in 2006.  Advertising costs decreased $59,000 (13.5%) to $382,000 in 2007 compared to $441,000 in 2006.  The provision for income taxes for 2007 was $1,161,000 (effective rate of 20.2%) compared to $1,252,000 (effective rate of 20.3%) in 2006.  This decrease resulted from a $438,000 decrease in income before taxes.  8   UNITED BANCSHARES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED   LIQUIDITY  Liquidity relates primarily to the Corporations ability to fund loan demand, meet the withdrawal requirements of deposit customers, and provide for operating expenses.  Assets used to satisfy these needs consist of cash and due from banks, federal funds sold, securities available-for-sale, and loans held for sale.  A large portion of liquidity is provided by the ability to sell or pledge securities.  Accordingly, the Corporation has designated all securities other than FHLB stock as available-for-sale.  A secondary source of liquidity is provided by various lines of credit facilities available through correspondent banks and the Federal Reserve.  Another source of liquidity is represented by loans held for sale.  Certain other loans within the Banks loan portfolio are also available to collateralize borrowings.  The consolidated statements of cash flows for the years presented provide an indication of the Corporations sources and uses of cash as well as an indication of the ability of the Corporation to maintain an adequate level of liquidity.  A discussion of cash flows for 2008, 2007, and 2006 follows.  The Corporation generated cash from operating activities of $8.3 million in 2008, $7.1 million in 2007, and $5.4 million in 2006.  Net cash flows provided by (used in) investing activities amounted to $(60.9) million in 2008, $4.9 million in 2007, and $(13.8) million in 2006.  Investing cash outflows of $60.4 in 2008 were used to fund loan growth.  Other significant investing cash flow activities in 2008 included $1.7 million of net cash inflows from securities activity, and $2.5 million of premises and equipment purchases.  Most of the 2008 premises and equipment additions were related to the reconstruction of the Ottawa branch office and the purchase and renovation of the new Lima Shawnee branch office.  Cash flows used for investing activities in 2007 included $26.8 million of loan portfolio growth offset by $31.1 million in proceeds from the sales or maturities of available-for-sale securities, net of related purchases.  Generation of cash flows from investing activities in 2006 included $26.3 million of loan portfolio growth offset by $13.5 million in proceeds from the sales or maturities of available-for-sale securities, net of related purchases.  Net cash flows provided by (used in) financing activities amounted to $63.2 million in 2008, $(9.2) million in 2007, and $10.6 million in 2006.  Deposit growth provided a $71.6 million financing funding source in 2008.  Cash outflows from financing activities in 2008 included a $5.6 million net reduction in other borrowings, $775,000 for the purchase of 55,000 shares of stock under the Corporations stock buyback program, and the payment of $2.1 million ($.60 per share) of cash dividends.  The use of cash flow for financing activities in 2007 primarily resulted from a $21.8 million net reduction in other borrowings, $1.3 million for the purchase of 86,500 shares of stock under the Corporations stock buyback program, and the payment of $2.0 million ($.56 per share) of cash dividends, offset by customer deposit growth of $15.8 million.  The net cash provided by financing activities in 2006 primarily resulted from customer deposit growth of $20.8 million offset by $7.2 million of principal payments on long-term debt, net of borrowings, $1.1 million for the purchase of 71,177 shares of stock under the Corporations stock buyback program, and the payment of $1.9 million ($.52 per share) of cash dividends.  9   UNITED BANCSHARES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED   ASSET LIABILITY MANAGEMENT  Closely related to liquidity management is the management of interest-earning assets and interest-bearing liabilities.  The Corporation manages its rate sensitivity position to avoid wide swings in net interest margins and to minimize risk due to changes in interest rates.  The difference between a financial institutions interest rate sensitive assets (assets that will mature or reprice within a specific time period) and interest rate sensitive liabilities (liabilities that will mature or reprice within the same time period) is commonly referred to as its interest rate sensitivity gap or, simply, its gap.  An institution having more interest rate sensitive assets than interest rate sensitive liabilities within a given time interval is said to have a positive gap.  This generally means that when interest rates increase, an institutions net interest income will increase and when interest rates decrease, the institutions net interest income will decrease. An institution having more interest rate sensitive liabilities than interest rate sensitive assets within a given time interval is said to have a negative gap.  This generally means that when interest rates increase, the institutions net interest income will decrease and when interest rates decrease, the institutions net interest income will increase. The Corporations one year cumulative gap at December 31, 2008 is approximately 102% which means the Bank has more assets than it does liabilities re-pricing within one year.   EFFECTS OF INFLATION  The assets and liabilities of the Corporation are primarily monetary in nature and are more directly affected by fluctuations in interest rates than inflation.  Movement in interest rates is a result of the perceived changes in inflation as well as monetary and fiscal policies.  Interest rates and inflation do not necessarily move with the same velocity or within the same period; therefore, a direct relationship to the inflation rate cannot be shown.  The financial information presented in the Corporations consolidated financial statements has been presented in accordance with generally accepted accounting principles, which require that the Corporation measure financial position and operating results primarily in terms of historical dollars.   SIGNIFICANT ACCOUNTING POLICIES  The Corporations consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices within the commercial banking industry.  Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements.  These estimates, assumptions, and judgments are based upon the information available as of the date of the financial statements.  10   UNITED BANCSHARES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)  The Corporations most significant accounting policies are presented in Note 1 to the consolidated financial statements.  These policies, along with other disclosures presented in the Notes to Consolidated Financial Statements and Managements Discussion and Analysis, provide information about how significant assets and liabilities are valued in the financial statements and how those values are determined.  Management has identified the determination of the allowance for loan losses, the valuation of mortgage servicing right and goodwill as the areas that require the most subjective and complex estimates, assumptions and judgments and, as such, could be the most subjective to revision as new information becomes available.  The Bank utilizes an outside consultant to provide a valuation of Mortgage Servicing Rights on a quarterly basis.  Management reviews the valuation, including assumptions used in making the valuation and discusses with the outside consultant.  Annually, Management performs an impairment analysis on goodwill which was acquired as a result of the 2003 RFCBC branch acquisitions by estimating the Corporations implied value based upon recent financial institution merger and acquisition transactions.  To date, none of the goodwill evaluations have revealed the need for an impairment charge.    As previously noted, a detailed analysis to assess the adequacy of the allowance for loan losses is performed.  This analysis encompasses a variety of factors including the potential loss exposure for individually reviewed loans, the historical loss experience for each loan category, the volume of non-performing loans, the volume of loans past due 30 days or more, a segmentation of each loan category by internally-assigned risk grades, an evaluation of current local and national economic conditions, any significant changes in the volume or mix of loans within each category, a review of the significant concentrations of credit, and any legal, competitive, or regulatory concerns.  Servicing assets are recognized as separate assets when rights are acquired through sale of mortgage loans.  Effective January 1, 2007, capitalized servicing rights are carried at fair value. Under the fair value measurement method, servicing assets are measured at fair value at each reporting date and changes in fair value are reported in net income for the period the change occurs.  The Bank generally estimates fair value for servicing rights based on the present value of future expected cash flows, using managements best estimates of the key assumptions  credit losses, prepayment speeds, servicing costs, and discount rates commensurate with the risks involved.   IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS  As described in Note 20 to the consolidated financial statements, in  February 2007 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (Statement 159).  Statement 159 provides an option to report selected financial assets and liabilities at fair value and requires entities to display the fair value of those assets and liabilities for which the entity has chosen to use fair value on the face of the balance sheet.  There was no impact on the Corporations 2008 consolidated financial statements as a result of Statement 159 since the Corporation did not elect the fair value option for any eligible items.  11   UNITED BANCSHARES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED   IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)  Also as described in Note 20 to the consolidated financial statements, the Corporation adopted the provisions of SFAS No. 157, Fair Value Measurements (Statement 157) in 2008. Statement 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  Statement 157 defines fair value as the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants.  The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs.  An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities. Market participants are buyers and sellers in the principal market that are independent, knowledgeable, and both able and willing to transact.  Statement 157 requires the use of valuation techniques that are consistent with the market, income, and/or the cost approach.  The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities.  The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis.  The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).  Inputs to valuation techniques may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources.  Unobservable inputs reflect the reporting entitys own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  In that regard, Statement 157 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The fair value hierarchy is as follows:  Level 1  Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date.  Level 2  Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.  Level 2 inputs include:  quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.  Level 3  Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date.  Unobservable inputs reflect the Corporations own assumptions about what market participants would use to price the asset or liability.  The inputs are developed based on the best information available in the circumstances, which might include the Corporations own financial data such as internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment.  12   UNITED BANCSHARES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED   IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)  Financial assets (there were no financial liabilities) measured at fair value as of December 31, 2008 consisted of securities available-for-sale, mortgage servicing rights (recurring) and impaired loans (non-recurring).  The Corporations available-for-sale securities, amounting to $136.5 million at December 31, 2008, are all classified as Level 2.  Examples of securities which would generally be classified within Level 2 include corporate and municipal bonds, mortgage-backed securities, and asset-backed securities.  The Corporations mortgage servicing rights, amounting to $704,000 at December 31, 2008, are classified as Level 3 because of the extent of significant unobservable inputs used to calculate their fair value.  The Corporation does not record impaired loans at fair value on a recurring basis.  However, periodically, loans are identified by management as impaired as part of the ongoing analysis of the allowance for loan losses.  These loans are generally reported at the fair value of the underlying collateral, less estimated costs to sell, if repayment is expected solely from the collateral.  Collateral values are estimated using Level 2 inputs, including recent appraisals and Level 3 inputs based on customized discounting criteria.  Due to the significance of the Level 3 inputs, the fair value of impaired loans, amounting to $4.5 million at December 31, 2008, has been classified as level 3.  Nonfinancial assets and nonfinancial liabilities measured at fair value on a recurring basis include reporting units measured at fair value in the first step of a goodwill impairment test. Nonfinancial assets measured at fair value on a nonrecurring basis include nonfinancial assets and nonfinancial liabilities measured at fair value in the second step of a goodwill impairment test, as well as intangible assets and other nonfinancial long-lived assets measured at fair value for impairment assessment. In accordance with Financial Accounting Standards Board Staff Position (FSP) No. 157-2, Effective Date of FASB Statement No. 157, the Corporation has delayed application of Statement 157 for nonfinancial assets and nonfinancial liabilities until January 1, 2009.   OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, AND CONTINGENT LIABILITIES AND COMMITMENTS    The following table summarizes loan commitments, including letters of credit, as of December 31, 2008:  Amount of commitment to expire per periodTotalLess than1  34  5OverAmount1 yearyearsyears5 years(Dollars in thousands)Type of commitmentCommercial lines-of-credit$  44,091$  39,420$   2,627$   1,310$     734Real estate lines-of-credit41,6825,7806,4138,34721,142Consumer lines-of-credit19811--Letters of Credit1,8451,845Guarantees-----Total commitments$  87,637$  47,053$   9,051$   9,657$  21,876   13   UNITED BANCSHARES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED   OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, AND CONTINGENT LIABILITIES AND COMMITMENTS (CONTINUED)  As indicated in the preceding table, the Corporation had $87.6 million in total loan commitments at December 31, 2008, with $47.1 million of that amount expiring within one year.  All lines-of-credit represent either fee-paid or legally binding loan commitments for the loan categories noted.  Letters-of-credit are also included in the amounts noted in the table since the Corporation requires that each letter-of-credit be supported by a loan agreement.  The commercial and consumer lines represent both unsecured and secured obligations.  The real estate lines are secured by mortgages in residential and nonresidential property.  Many of the commercial lines are due on a demand basis, and are established for seasonal operating purposes.  It is anticipated that a significant portion of these lines will expire without being drawn upon.  The following table summarizes the Corporations contractual obligations as of December 31, 2008:  Payments due by periodTotalLess than1 34  5OverAmount1 yearyearsyears5 years(Dollars in thousands)Contractual obligationsLong-term debt$  90,964$  19,490$  38,565$   5,053$  27,856Capital leases-----Operating leases-----Unconditional purchaseobligations-----Other long-term liabilitiesreflected under GAAP328114361213Total obligations$  91,292$   19,501$  38,608$   5,114$  28,069  Long-term debt presented in the preceding table is comprised of $75.7 million in borrowings from the FHLB, $5.0 million in securities sold under agreements to repurchase and $10.3 million from the issuance of junior subordinated deferrable interest debentures.  FHLB borrowings include notes that require monthly interest payments, with principal on most issues due at maturity.  The remaining FHLB issues require monthly principal payments as disclosed in Note 10 to the consolidated financial statements. FHLB borrowings include $64.2 million in advances with fixed interest rates and $11.5 million in advances with variable interest rates.  While the variable rate obligations may be prepaid without penalty, certain of the fixed rate obligations have variable options, that stipulate a prepayment penalty if the notes interest rate exceeds the current market rate for similar borrowings at the time of repayment.  As a note matures, the Bank evaluates the liquidity and interest-rate circumstances at that point in time to determine whether to pay-off or renew the note.  The evaluation process typically includes the strength of current and projected customer loan demand, the current federal funds sold or purchased position, projected cash flows from maturing securities, the current and projected market interest rate environment, local and national economic conditions, and customer demand for deposit product offerings.  Fixed rate advances include $22.5 million in advances that can be put back at the option of the FHLB.  14   UNITED BANCSHARES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED   OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, AND CONTINGENT LIABILITIES AND COMMITMENTS (CONTINUED)  The other long-term liabilities reflected under GAAP, as noted in the preceding table, represents the Banks agreement with its current Chairman of the Board of Directors to provide for retirement compensation benefits as more fully described in Note 15 of the consolidated financial statements.  At December 31, 2008, the net present value of future deferred compensation payments amounted to $328,000.  Such amount is included in other liabilities in the December 31, 2008 consolidated balance sheet.  As indicated in the table, the Corporation had no capital lease obligations as of December 31, 2008.  The Corporation has certain operating lease obligations, including photocopying equipment, which is considered immaterial and not included in the preceding table.  The Bank also has a non-qualified deferred compensation plan covering certain directors and officers, and has provided an estimated liability of $518,000 at December 31, 2008 for supplemental retirement benefits.  Since substantially all participants under the plan are still active, it is not possible to determine the terms of the contractual obligations and, consequently, such liability is not included in the table.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  The only significant market risk to which the Corporation is exposed is interest rate risk.  The business of the Corporation and the composition of its balance sheet consist of investments in interest-earning assets (primarily loans and securities), which are funded by interest bearing liabilities (deposits and borrowings).  These financial instruments have varying levels of sensitivity to changes in the market rates of interest, resulting in market risk.  None of the Corporations financial instruments are held for trading purposes.  The Corporation manages interest rate risk regularly through its Asset Liability Committee.  The Committee meets on a regular basis and reviews various asset and liability management information, including but not limited to, the banks liquidity positions, projected sources and uses of funds, interest rate risk positions and economic conditions.  The Corporation monitors its interest rate risk through a sensitivity analysis, whereby it measures potential changes in its future earnings and the fair values of its financial instruments that may result from one or more hypothetical changes in interest rates, this analysis is performed by estimating the expected cash flows of the Corporations financial instruments using interest rates in effect at year-end.  For the fair value estimates, the cash flows are then discounted to year-end to arrive at an estimated present value of the Corporations financial instruments.  Hypothetical changes in interest rates are then applied to the financial instruments, and the cash flows and fair values are again estimated using these hypothetical rates.  For the net interest income estimates, the hypothetical rates are applied to the financial instruments based on the assumed cash flows.  The Corporation applies these interest rate shocks to its financial instruments up and down 200 basis points.  15   UNITED BANCSHARES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (CONTINUED)  The following table shows the Corporations estimated earnings sensitivity profile as of December 31, 2008:  Change in
Interest Rates
(basis points)Percentage Change in
Net Interest IncomePercentage Change in
Net Income+2001.6%7.1%-2001.9%6.5%  Given a linear 200bp increase in the yield curve used in the simulation model, it is estimated that net interest income for the Corporation would increase by 1.6% and net income would increase by 7.1%.  A 200bp decrease in interest rates would increase net interest income by 1.9% and increase net income by 6.5%.  Management does not expect any significant adverse effect to net interest income in 2009 based on the composition of the portfolio and anticipated trends in rates.  OTHER INFORMATION  The global and U.S. economies are experiencing significantly reduced business activity as a result of, among other factors, disruptions in the financial system during the past year.  Dramatic declines in the housing market, along with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks.  These write-downs have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail.  Reflecting concern about the stability of the financial markets, many national and regional lenders have reduced, and in some cases, ceased to provide funding to borrowers, including other financial institutions.  The availability of credit, confidence in the financial sector, and level of volatility in the financial markets have been significantly adversely affected as a result.  In recent months, volatility and disruption in the capital and credit markets have reached unprecedented levels.  In some cases, the markets have produced downward pressure on stock prices and credit capacity for certain issuers without regard to those issuers underlying financial strength.  In response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, the Emergency Economic Stabilization Act of 2008 (EESA) was signed into law on October 3, 2008.  The EESA authorizes the U.S. Treasury Department (Treasury) to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets.  The EESA also provides a temporary increase in deposit insurance coverage from $100,000 to $250,000 per insured account until December 31, 2009.  16   UNITED BANCSHARES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED   OTHER INFORMATION (CONTINUED)  On October 14, 2008, Secretary Paulson, after consulting with the Federal Reserve and the FDIC, announced that the Treasury will purchase equity stakes in certain banks and thrifts. Under this program, known as the Troubled Asset Relief Program Capital Purchase Program (the TARP Capital Purchase Program), the Treasury will make capital available to U.S. financial institutions in the form of preferred stock (from the $700 billion authorized by EESA).  In conjunction with the purchase of preferred stock, the Treasury will receive warrants to purchase common stock with an aggregate market price equal to 15% of the preferred investment. Participating financial institutions will be required to adopt the Treasurys standards for executive compensation and corporate governance for the period during which the Treasury holds equity issued under the TARP Capital Purchase Program.  The Corporation received preliminary approval from the Treasury to participate in the TARP Capital Purchase Program on February 5, 2009.  Following preliminary approval, the Corporation and Treasury began negotiating terms of a letter agreement that will govern the transaction under the program.  However, before executing the letter agreement with Treasury, the Corporation must have the ability to issue the preferred shares that will be issued to Treasury under the program.  Thus, in order for the Corporation to participate in the program, its shareholders must first approve an amendment to Article IV of the Corporations Amended and Restated Articles of Incorporation authorizing the Corporation to issue preferred shares. Following shareholder approval of the proposed amendment, if obtained, the Corporation and Treasury will finalize and execute the letter agreement and related documents necessary to consummate the transaction.  Shortly thereafter, the Board of Directors will file an additional amendment to the Corporations Amended and Restated Articles of Incorporation to designate the terms of the preferred shares that will be issued to Treasury.  The Corporation will then issue the shares of preferred stock and a warrant to purchase shares of common stock to Treasury in exchange for approximately $13,000,000.  For more information on the Corporations possible participation in the TARP Capital Purchase Program, see the discussions in the Corporations Notice of Annual Meeting of Shareholders for the meeting to be held April 22, 2009.   FORWARD-LOOKING STATEMENTS  This report includes certain forward-looking statements by the Corporation relating to such matters as anticipated operating results, prospects for new lines of business, technological developments, economic trends (including interest rates), and similar matters.  The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements, and the purpose of this paragraph is to secure the use of the safe harbor provisions.  While the Corporation believes that the assumptions underlying the forward looking statements contained herein and in other public documents are reasonable, any of the assumptions could prove to be inaccurate, and accordingly, actual results and experience could differ materially from the anticipated results or other expectations expressed by the Corporation in its forward-looking statements.  Factors that could cause actual results or experience to differ from results discussed in the forward-looking statements include, but are not limited to:  economic conditions, volatility and direction of market interest rates, governmental legislation and regulation, material unforeseen changes in the financial condition or results of operations of the Corporations customers, customer reaction to and unforeseen complications with respect to the integration of acquisition, product design initiative, and other risks identified, from time-to-time in the Corporations other public documents on file with the Securities and Exchange Commission.  17


Report of Independent Registered Public Accounting Firm     Shareholders and Board of Directors United Bancshares, Inc. Columbus Grove, Ohio   We have audited the accompanying consolidated balance sheets of United Bancshares, Inc. and its subsidiary as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders equity, and cash flows for each of the years in the three-year period ended December 31, 2008.  These consolidated financial statements are the responsibility of the Corporations management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.  In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of United Bancshares, Inc. and its subsidiary as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.    /s/Clifton Gunderson LLP  Toledo, Ohio March 11, 2009  Offices in 16 states and Washington, DC 18


UNITED BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS December 31, 2008 and 2007  ASSETS20082007CASH AND CASH EQUIVALENTSCash and due from banks$ 18,554,222$ 11,627,842Interest-bearing deposits in other banks6,932,4463,290,372Federal funds sold135,625161,000Total cash and cash equivalents25,622,29315,079,214SECURITIES, available-for-sale136,498,302137,904,385FEDERAL HOME LOAN BANK STOCK,at cost4,893,8004,703,100LOANS HELD FOR SALE241,838350,353LOANS418,143,370359,209,925Less allowance for loan losses3,198,1302,232,708Net loans414,945,240356,977,217PREMISES AND EQUIPMENT,net9,296,6147,902,911GOODWILL7,282,0137,282,013OTHER INTANGIBLE ASSETS,net317,555571,535CASH SURRENDER VALUE OF LIFE INSURANCE11,889,83211,396,781OTHER ASSETS, including accrued interest receivable5,076,4965,807,281TOTAL ASSETS$  616,063,983$  547,974,790LIABILITIES AND SHAREHOLDERS EQUITYLIABILITIESDeposits:Non-interest bearing$ 41,710,057$ 41,333,497Interest-bearing423,081,587351,869,746Total deposits464,791,644393,203,243Other borrowings86,252,38391,887,907Junior subordinated deferrable interest debentures10,300,00010,300,000Other liabilities4,060,2413,765,056Total liabilities565,404,268499,156,206SHAREHOLDERS EQUITYCommon stock, stated value $1.00.  Authorized 10,000,000shares; issued 3,760,557 shares3,760,5573,760,557Surplus14,659,66114,659,661Retained earnings37,528,02635,187,304Accumulated other comprehensive loss(412,304)(576,065)Treasury stock, at cost, 318,894 shares in 2008and 271,152 shares in 2007(4,876,225)(4,212,873)Total shareholders equity50,659,71548,818,584TOTAL LIABILITIES AND SHAREHOLDERS EQUITY$ 616,063,983$ 547,974,790  The accompanying notes are an integral part of the consolidated financial statements.  19


UNITED BANCSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 2008, 2007 and 2006   200820072006INTEREST INCOMELoans, including fees$  28,671,468$  27,244,143$  24,454,275Securities:Taxable4,208,5415,383,2636,371,083Tax-exempt1,911,6301,848,0891,890,500Other416,252373,24973,862Total interest income35,207,89134,848,74432,789,720INTEREST EXPENSEDeposits11,114,85312,002,1169,191,978Borrowings4,680,3435,428,5006,234,505Total interest expense15,795,19617,430,61615,426,483Net interest income19,412,69517,418,12817,363,237PROVISION FOR LOAN LOSSES2,195,000625,000340,000Net interest income after
provision for loan losses17,217,69516,793,12817,023,237NON-INTEREST INCOMEService charges on deposit accounts1,515,4411,471,7971,333,666Gain on sale of loans346,267329,584334,707Gain from sale of credit card portfolio-355,366-Net securities gains (losses)49,055(226,416)(4,180)Change in fair value of mortgage
servicing rights(649,091)(363,943)-Increase in cash surrender value
of life insurance493,051447,691470,012Other operating income919,684950,6041,023,126Total non-interest income2,674,4072,964,6833,157,331NON-INTEREST EXPENSESSalaries, wages and employee benefits7,627,7307,241,1027,113,970Occupancy expenses1,430,0371,508,3371,440,626Other operating expenses5,404,7385,267,9945,447,167Total non-interest expenses14,462,50514,017,43314,001,763Income before income taxes5,429,5975,740,3786,178,805PROVISION FOR INCOME TAXES1,011,0001,161,0001,252,000NET INCOME$    4,418,597$    4,579,378$   4,926,805NET INCOME PER SHARE (basic and diluted)$  1.28$  1.30$  1.37


The accompanying notes are an integral part of the consolidated financial statements.  20


UNITED BANCSHARES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY Years Ended December 31, 2008, 2007 and 2006   Common
stockSurplusRetained earningsAccumulated
other
compre-
hensive
lossTreasury
stockTotalBALANCE AT
DECEMBER 31, 2005$
3,760,557$
14,651,596$
29,026,911$
(1,521,648)$
(2,124,903)$
43,792,513Comprehensive Income:Net income--4,926,805--4,926,805Change in net unrealized
loss, net of
reclassification
adjustment and
income taxes---169,617-169,617Total comprehensive
income5,096,422Exercise of stock options 
9,802 treasury shares-8,065--150,559158,624Sale of 7,975 treasury shares--(12,045)-122,053110,008Purchase of 71,177 shares----(1,135,944)(1,135,944)Cash dividends declared,
$.52 per share--(1,869,135)--(1,869,135)BALANCE AT
DECEMBER 31, 20063,760,55714,659,66132,072,536(1,352,031)(2,988,235)46,152,488Cumulative effect of change
in accounting principle, net of income taxes--519,152--519,152Comprehensive income:Net income--4,579,378--4,579,378Change in net unrealized
loss, net of
reclassification
adjustments and
income taxes---775,966-775,966Total comprehensive
income5,355,344Sale of 7,856 treasury shares--(14,355)-122,512108,157Purchase of 86,500 shares----(1,347,150)(1,347,150)Cash dividends declared,
$.56 per share--(1,969,407)--(1,969,407)BALANCE AT
DECEMBER 31, 20073,760,55714,659,66135,187,304(576,065)(4,212,873)48,818,584Comprehensive income:Net income--4,418,597--4,418,597Change in net unrealized
loss, net of
reclassification
adjustments and
income taxes---163,761-163,761Total comprehensive
income4,582,358Sale of 7,258 treasury shares--(13,189)-111,89898,709Purchase of 55,000 shares----(775,250)(775,250)Cash dividends declared,
$0.60 per share--(2,064,686)--(2,064,686)BALANCE AT
DECEMBER 31, 2008$  3,760,557$  14,659,661$  37,528,026$    (412,304)$   (4,876,225)$  50,659,715  The accompanying notes are an integral part of the consolidated financial statements. 21


UNITED BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2008, 2007 and 2006  200820072006CASH FLOWS FROM OPERATING ACTIVITIESNet income$   4,418,597$   4,579,378$   4,926,805Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization1,127,1821,242,8591,098,767Provision (credit) for accrued
compensation  stock options(11,286)(42,141)13,858Deferred income taxes(543,362)(202,482)221,922Provision for loan losses2,195,000625,000340,000Gain on sale of loans(346,267)(329,584)(334,707)Gain from sale of credit card portfolio-(355,366)-Net securities losses (gains)(49,055)226,4164,180Change in fair value of mortgage
servicing rights649,091363,943-Federal Home Loan Bank stock
dividends(190,700)-(263,500)Loss (gain) on sale or write-down of
other real estate owned68,716(38,421)-Increase in cash surrender value of
life insurance(493,051)(447,691)(470,012)Net amortization (accretion) of security
premiums and discounts(9,578)(20,658)23,643Provision for deferred compensation144,98866,45073,813Loss on disposal or write-down of
premises and equipment275,92570,5121,076Proceeds from sale of loans
held-for-sale16,300,34314,845,90520,790,433Originations of loans held-for-sale(15,992,527)(14,593,279)(20,648,310)Decrease (increase) in other assets248,732549,280(674,372)Increase in other liabilities502,285509,978251,051Net cash provided by operating
activities8,295,0337,050,0995,354,647CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sales of available-for-sale
securities1,565,93015,303,7413,665,673Proceeds from maturities of available-for-sale
securities, including paydowns on
mortgage-backed securities28,149,76717,791,60220,546,021Purchases of available-for-sale securities(28,002,858)(1,955,062)(10,681,334)Proceeds from sale of credit card portfolio-1,671,538-Net increase in loans(60,379,189)(26,280,256)(26,338,386)Proceeds from sale of premises and
equipment15,634100,344-Proceeds from sale of other real estate owned179,299241,421-Purchases of premises and equipment(2,464,385)(1,944,256)(991,969)Net cash provided by (used in)
investing activities(60,935,802)4,929,072(13,799,995)   22


UNITED BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2008, 2007 and 2006  200820072006CASH FLOWS FROM FINANCING ACTIVITIESNet increase in deposits$ 71,588,401$ 15,773,370$ 20,590,240Other borrowings:Proceeds37,000,00022,500,00035,000,000Repayments(45,684,111)(46,593,130)(42,246,027)Change in customer repurchase
agreements3,048,5872,329,998209,672Purchase of common stock(775,250)(1,347,150)(1,135,944)Proceeds from sale of treasury shares98,709108,157110,008Payments of deferred compensation(27,802)(12,414)(17,215)Cash dividends paid(2,064,686)(1,969,407)(1,869,135)Net cash provided by (used in)
financing activities63,183,848(9,210,576)10,641,599NET INCREASE IN CASH AND CASH
EQUIVALENTS10,543,0792,768,5952,196,251CASH AND CASH EQUIVALENTSAt beginning of year15,079,21412,310,61910,114,368At end of year$ 25,622,293$ 15,079,214$ 12,310,619SUPPLEMENTAL CASH FLOW DISCLOSURESCash paid during the year for:Interest$ 15,678,869$ 17,363,004$ 14,979,544Federal income taxes$   1,655,000$   1,000,000$   1,264,799Non-cash operating activity:
Change in deferred income taxes on net
unrealized loss on available-for-sale
securities$      (84,362)$     (399,740)$       (87,378)Cumulative effect of change in accounting
principle  adjust mortgage servicing
rights to fair value, net of deferred
income taxes$            -$      519,152$            -Non-cash investing activities:Transfer of loans to foreclosed assets$     140,740$      148,000$       50,000Transfer of premises classified as
held for sale to other assets$     320,309$              -$           -Change in net unrealized gain or loss on
available-for-sale securities$      248,123$   1,175,706$     256,995Non-cash financing activities:Treasury stock issued for accrued
compensation  stock options$             -$            -$     158,624  The accompanying notes are an integral part of the financial statements.  23


UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  United Bancshares, Inc. (the Corporation) was incorporated in 1985 in the state of Ohio as a single-bank holding company for The Union Bank Company (the Bank).  The Corporation subsequently acquired the Bank of Leipsic Company (Leipsic) in 2000, and Citizens Bank of Delphos (Citizens) in 2001.  The Bank acquired the Gibsonburg and Pemberville, Ohio branch offices of RFC Banking Company in 2003.  Effective February 1, 2007, the Bank formed a wholly-owned subsidiary, UBC Investments, Inc. (UBC) to hold and manage its securities portfolio.  The operations of UBC are located in Wilmington, Delaware.  The Corporation, through its wholly-owned subsidiary, the Bank, operates in one industry segment, the commercial banking industry.  The Bank, organized in 1904 as an Ohio-chartered bank, is headquartered in Columbus Grove, Ohio, with branch offices in Bowling Green, Delphos, Gibsonburg, Kalida, Leipsic, Lima, Ottawa, and Pemberville, Ohio.  The primary source of revenue of the Bank is providing loans to customers primarily located in Northwestern and West Central Ohio.  Such customers are predominately small and middle-market businesses and individuals.  Significant accounting policies followed by the Corporation are presented below.  Use of Estimates in Preparing Financial Statements  The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during each reporting period.  Actual results could differ from those estimates.  The most significant estimates susceptible to significant change in the near term relate to the determination of the allowance for loan losses, and the valuation of goodwill and servicing assets.  Principles of Consolidation  The consolidated financial statements include the accounts of the Corporation and Bank, including UBC.  All significant intercompany balances and transactions have been eliminated in consolidation.  Cash and Cash Equivalents  For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold which mature overnight or within four days.  Restrictions on Cash  The Bank was required to maintain cash on hand or on deposit with the Federal Reserve Bank in the amount of $389,000 at December 31, 2008 and $353,000 at December 31, 2007 to meet regulatory reserve and clearing requirements.  24     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)  Securities and Federal Home Loan Bank Stock Securities are classified as available-for-sale and recorded at fair value, with unrealized gains and losses, net of applicable income taxes, excluded from income and reported as accumulated other comprehensive income (loss).  The cost of available-for-sale securities is adjusted for amortization of premiums and accretion of discounts to maturity.  Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.  Declines in fair value of securities below their cost that are deemed to be other than temporary are reflected in income as realized losses.  Gains and losses on the sale of securities are recorded on the trade date, using the specific identification method, and are included in non-interest income.  Investment in Federal Home Loan Bank of Cincinnati stock is classified as a restricted security, carried at cost, and evaluated for impairment.  Loans Held for Sale Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate.  Estimated fair value is determined based on quoted market prices in the secondary market.  Any net unrealized losses are recognized through a valuation allowance by charges to income.  Such valuation allowance amounted to $7,354 at December 31, 2007 (none at December 31, 2008).  Mortgage loans held for sale are sold with mortgage servicing rights retained or released by the Bank.  The carrying value of mortgage loans sold with servicing rights retained is reduced by the cost allocated to the associated mortgage servicing rights.  Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold.  Loans Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are generally stated at their outstanding principal amount adjusted for charge-offs and the allowance for loan losses.  Interest is accrued as earned based upon the daily outstanding principal balance.  Loan origination fees and certain direct obligation costs are capitalized and recognized as an adjustment of the yield of the related loan.  The accrual of interest on mortgage and commercial loans is generally discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection.  Personal loans are typically charged-off no later than when they become 150 days past due.  Past due status is based on contractual terms of the loan.  In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.  All interest accrued but not collected for loans that are placed on nonaccrual or charged-off is reversed against interest income.  Interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.  25     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)  Allowance for Loan Losses  The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income.  Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is probable.  Subsequent recoveries, if any, are credited to the allowance.  The allowance for loan losses is evaluated on a regular basis by management and is based upon managements periodic review of the collectibility of loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.  Due to potential changes in conditions, it is at least reasonably possible that changes in estimates will occur in the near term and that such changes could be material to the amounts reported in the Corporations financial statements.  The allowance consists of specific, general and unallocated components.  The specific component relates to impaired loans when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers classified loans (doubtful, substandard or special mention) without specific reserves, as well as non-classified loans, and is based on historical loss experience adjusted for qualitative factors.  An unallocated component is maintained to cover uncertainties that could affect managements estimate of probable losses.  The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.  A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent.  Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures.  26     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)  Foreclosed Assets  Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the lower of cost or fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and fair value adjustments are included in other operating expenses.  Foreclosed assets amounting to $250,000 and $357,274 at December 31, 2008 and 2007, respectively, are included in other assets in the accompanying consolidated balance sheets.  Off-Balance Sheet Credit Related Financial Instruments  In the ordinary course of business, the Bank has entered into commitments to extend credit, including commitments under commercial letters of credit, and standby letters of credit.  Such financial instruments are recorded when they are funded.  Loan Sales and Servicing  When the Bank sells mortgage loans it may retain the servicing rights that are initially measured at fair value.  Gain or loss on the sale of loans depends in part on both the previous carrying value of the amount of the financial assets involved in the sale, allocated between assets sold and the interests that continue to be held based on their relative fair values at the date of the sale.  The Bank generally estimates fair value for servicing rights based on the present value of future expected cash flows, using managements best estimates of the key assumptions  credit losses, prepayment speeds, servicing costs, and discount rates commensurate with the risks involved.  Effective January 1, 2007, capitalized servicing rights are carried at fair value, as described in Note 2.  Under the fair value measurement method, servicing assets are measured at fair value at each reporting date and changes in fair value are reported in net income for the period the change occurs.  Prior to January 1, 2007, capitalized servicing rights were carried at amortized cost, with amortization in proportion to, and over the period of, the estimated future net servicing income of the underlying mortgage loans.  Servicing assets were evaluated for impairment based upon the fair value of the rights as compared to amortized cost.  Impairment was determined by stratifying rights by predominant characteristics, such as interest rates and terms.  Impairment was recognized through a valuation allowance for an individual stratum, to the extent that fair value is less than the capitalized amount for the stratum.  Servicing fee income is recorded for servicing loans, based on a contractual percentage of the outstanding principal, and is reported as other operating income.  Amortization of mortgage servicing rights is netted against loan servicing fee income.  27     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)  Premises and Equipment  Premises and equipment is stated at cost, less accumulated depreciation.  Upon the sale or disposition of the assets, the difference between the depreciated cost and proceeds is charged or credited to income.  Depreciation is determined based on the estimated useful lives of the individual assets (typically 20 to 40 years for buildings and 3 to 10 years for equipment) and is computed using both accelerated and straight-line methods.  Goodwill and Other Intangible Assets  Goodwill arising from the Gibsonburg and Pemberville branch acquisitions is not amortized, but is subject to an annual impairment test to determine if an impairment loss has occurred.  Other intangible assets determined to have a definite life are amortized on a straight-line basis over the estimated useful lives of the individual assets which range from 7 to 10 years.  Supplemental Retirement Benefits  Annual provisions are made for the estimated liability for accumulated supplemental retirement benefits under agreements with certain officers and directors.  Advertising Costs  All advertising costs are expensed as incurred.  Federal Income Taxes  Deferred income taxes are provided on temporary differences between financial statement and income tax reporting.  Temporary differences are differences between the amounts of assets and liabilities reported for financial statement purposes and their tax bases.  Deferred tax assets are recognized for temporary differences that will be deductible in future years tax returns and for operating loss and tax credit carryforwards.  Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that some or all of the deferred tax assets will not be realized.  Deferred tax liabilities are recognized for temporary differences that will be taxable in future years tax returns.  Benefits from tax positions taken or expected to be taken in a tax return are not recognized if the likelihood that the tax position would be sustained upon examination by a taxing authority is considered to be 50% or less.  The Corporation has adopted the policy of classifying any interest and penalties resulting from the filing of its income tax returns in the provision for income taxes.  The Bank is not currently subject to state and local income taxes.  28     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)  Transfers of Financial Assets  Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered.  Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Bank, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Bank does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.  Per Share Data  Basic net income per share is computed based on the weighted average number of shares of common stock outstanding during each year.  Diluted net income per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued.  Potential common shares that may be issued by the Corporation relate solely to outstanding stock options, and are determined using the treasury stock method.  The weighted average number of shares used for the years ended December 31, 2008, 2007 and 2006 were as follows:  200820072006Basic3,447,5363,527,0933,598,747Diluted3,448,4673,527,7293,605,739  Dividends per share are based on the number of shares outstanding at the declaration date.  Comprehensive Income  Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the consolidated balance sheet, such items, along with net income, are components of comprehensive income.  29     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)  Rate Lock Commitments  The Financial Accounting Standards Board has determined that loan commitments related to the origination or acquisition of mortgage loans that will be held for sale must be accounted for as derivative instruments.  The Bank enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments).  Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives.  Accordingly, such commitments, along with any related fees received from potential borrowers, are to be recorded at fair value as derivative assets or liabilities, with changes in fair value recorded in the net gain or loss on sale of mortgage loans.  Fair value is based on fees currently charged to enter into similar agreements, and for fixed-rate commitments also considers the difference between current levels of interest rates and the committed rates.  At December 31, 2008 and 2007, derivative assets and liabilities relating to rate lock commitments were not material to the consolidated financial statements.   NOTE 2 - CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE  In March 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 156, Accounting for Servicing of Financial Assets, an Amendment of Statement No. 140 (Statement 156).  Statement 156 requires that all separately recognized servicing assets and liabilities be initially measured at fair value, if practicable, and subsequently measured using either the amortization method or fair value measurement method.  Under the amortization method, servicing assets and liabilities are amortized over the period of estimated net servicing income or loss, and servicing assets are evaluated for impairment at each reporting date.  Under the fair value measurement method, servicing assets and liabilities are measured at fair value at each reporting date and changes in fair value are reported in earnings for the period the changes occur.  Effective January 1, 2007, the Bank adopted Statement 156 and elected to record its mortgage servicing rights using the fair value measurement method.  As a result, the Corporation recorded effective January 1, 2007, a cumulative effect adjustment to retained earnings of $519,152 representing the difference between fair value and carrying value of the mortgage servicing rights at January 1, 2007 of $786,594, net of deferred income taxes of $267,442.  30     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 3 - SECURITIES  The amortized cost and fair value of securities as of December 31, 2008 and 2007 are as follows:  20082007Amortized
costFair
valueAmortized
costFair
valueAvailable-for-sale:U.S. Government and
agencies$          -$          -$ 13,210,944$ 13,234,748Obligations of states and
political subdivisions47,296,09646,522,55744,286,65644,362,186Mortgage-backed89,325,02189,475,74681,277,72380,305,563Other501,888499,9991,8881,888Total$ 137,123,005$ 136,498,302$ 138,777,211$ 137,904,385  A summary of unrealized gains and losses on investment securities at December 31, 2008 and 2007 follows: 20082007Gross
unrealized
gainsGross
unrealized
lossesGross
unrealized
gainsGross
unrealized
lossesAvailable-for-sale:U.S. Government and
agencies$        -$        -$      28,209$        4,405Obligations of states and
political subdivisions330,2241,103,763322,052246,522Mortgage-backed1,282,4871,131,762102,4581,074,618Other-1,889--Total$   1,612,711$   2,237,414$    452,719$ 1,325,545  The amortized cost and fair value of securities at December 31, 2008, by contractual maturity, are shown below.  Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  Amortized
costFair
valueDue in one year or less$
737,071$
748,618Due after one year through five years8,553,1998,672,438Due after five years through ten years19,465,50119,536,743Due after ten years107,865,346107,040,504Other securities having no maturity date501,888499,999Total$137,123,005$136,498,302  Securities with a carrying value of approximately $90,153,000 at December 31, 2008 and $97,160,000 at December 31, 2007 were pledged to secure public deposits and for other purposes as required or permitted by law, including those described in Note 10.  31     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 3 - SECURITIES (CONTINUED)  The following table presents gross unrealized losses and fair value of debt securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2008 and 2007:  Securities in a continuous unrealized loss positionLess than
12 months12 months
or moreTotal2008Unrealized
lossesFair
valueUnrealized
LossesFair
valueUnrealized
lossesFair
valueU.S. Government
and agencies$              -$              -$              -$              -$              -$              -Obligations of
states and
political
subdivisions1,080,38522,266,31223,378364,6221,103,76322,630,934Mortgage-backed712,04514,482,783419,7176,331,4911,131,76220,814,274Total temporarily
impaired
securities$1,792,430$36,749,095$   443,095$ 6,696,113$2,235,525$43,445,2082007U.S. Government
and agencies$              -$              -$       4,405$    495,595$      4,405$     495,595Obligations of
states and
political
subdivisions204,36816,424,79242,1543,342,502246,52219,767,294Mortgage-backed73,71912,090,3591,000,89947,680,7921,074,61859,771,151Total temporarily
impaired
securities$278,087$28,515,151$1,047,458$51,518,889$1,325,545$80,034,040 There were 76 securities in an unrealized loss position at December 31, 2008, 12 of which were in a continuous unrealized loss position for twelve months or more.  Management has considered industry analyst reports, whether downgrades by bond rating agencies have occurred, sector credit reports, issuers financial condition and volatility in the bond market in concluding that the unrealized losses as of December 31, 2008 were primarily the result of customary and expected fluctuations in the bond market.  As a result, all security impairments as of December 31, 2008 are considered to be temporary.  Gross realized gains from sale of securities, including securities calls, amounted to $50,887 in 2008, $181 in 2007, and $2,167 in 2006, with the income tax provision applicable to such gains amounting to $17,301 in 2008, $62 in 2007, and $737 in 2006.  Gross realized losses from sale of securities amounted to $1,832 in 2008, $226,597 in 2007 and $6,347 in 2006 with related income tax effect of $623 in 2008, $77,043 in 2007 and $2,158 in 2006.  32     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  NOTE 4 - LOANS Loans at December 31, 2008 and 2007 consist of the following: 20082007Residential real estate$130,047,210$110,420,280Commercial193,781,134156,299,179Agriculture74,651,95166,266,595Consumer19,663,07526,223,871Total loans$418,143,370$359,209,925  In March 2007, the Bank entered into an agreement to sell its credit card portfolio.  Under the terms of the agreement, the buyer will service the credit card portfolio and provide the Bank's former credit card customers with credit cards branded with the Bank's name.  Based on the proceeds received under the terms of the agreement, the Bank recognized a gain from sale of the credit card portfolio of $355,366.  Fixed rate loans approximated $83,364,000 at December 31, 2008 and $95,564,000 at December 31, 2007, including loans classified as held-for-sale.  Certain commercial and agricultural loans are secured by real estate.  Impaired loans were as follows as of December 31, 2008 and 2007:  20082007Loans with no allowance for loan losses allocated$184,791$1,204,974Loans with allowance for loan losses allocated5,403,0772,040,308Total impaired loans$5,587,868$3,245,282Amount of the allowance allocated to impaired loans$1,054,518$366,500   The following is a summary of the activity in the allowance for loan losses of impaired loans, which is part of the banks overall allowance for loan losses summarized in Note 5, for the years ended December 31, 2008, 2007, and 2006:  200820072006Balance at beginning of year$   366,500$   286,093$   164,283Provision charged to operations1,281,943195,151244,059Loans charged-off(593,925)(114,744)(122,249)Balance at end of year$1,054,518$   366,500$   286,093  No additional funds are committed to be advanced in connection with impaired loans.  The average balance of impaired loans approximated $3,617,000 in 2008, $2,649,000 in 2007, and $2,372,000 in 2006.  The amount of interest income reported and received on a cash basis relating to impaired loans approximated $32,000 in 2006 (none in 2008 and 2007).  33     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 4 - LOANS (CONTINUED) Certain directors and executive officers, including their immediate families and companies in which they are principal owners, are loan customers of the Bank.  Such loans are made in the ordinary course of business in accordance with the normal lending policies of the Bank, including the interest rate charged and collateralization, and do not represent more than a normal collection risk.  Such loans amounted to $ 3,988,374 and $3,657,288 at December 31, 2008 and 2007, respectively.  The following is a summary of activity during 2008, 2007, and 2006 for such loans: 200820072006Beginning of year$
3,657,288$
3,835,612$
3,845,453Additions629,002294,523327,915Repayments(297,916)(472,847)(337,756)End of year$
3,988,374$
3,657,288$
3,835,612  Additions and repayments include loan renewals, as well as net borrowings and repayments under revolving lines-of-credit.  Most of the Banks lending activities are with customers located in Northwestern and West Central Ohio.  As of December 31, 2008 and 2007, the Banks loans from borrowers in the agriculture industry represent the single largest industry and amounted to $74,651,951 and $66,266,595, respectively.  Agriculture loans are generally secured by property, equipment, livestock, and crop income.  Repayment is primarily expected from cash flow generated through the harvest and sale of crops; milk production for dairy products; or the breeding, development, and sale of livestock.  Agriculture customers are subject to various risks and uncertainties which can adversely impact the cash flow generated from their operations, including weather conditions; milk production; health and stability of livestock; costs of key operating items such as fertilizer, fuel, seed, or animal feed; and market prices for crops, milk, and livestock.  Credit losses arising from the Banks lending experience in the agriculture industry compare favorably with the Banks loss experience on their loan portfolio as a whole.  Credit evaluation of agricultural lending is based on an evaluation of cash flow coverage of principal and interest payments and the adequacy of collateral received.  Loans on non-accrual of interest approximated $3,074,000 and $2,613,000 at December 31, 2008 and 2007, respectively.  Loans past due 90 days or more and still accruing interest approximated $2,387,000 and $824,000 at December 31, 2008 and 2007, respectively.   NOTE 5 - ALLOWANCE FOR LOAN LOSSES The following represents a summary of the activity in the allowance for loan losses for the years ended December 31, 2008, 2007 and 2006: 200820072006Balance at beginning of year$
2,232,708$
2,275,486$
2,540,301Provision charged to operations2,195,000625,000340,000Loans charged-off(1,538,749)(923,307)(817,590)Recoveries of loans charged-off309,171255,529212,775Total$
3,198,130$
2,232,708$
2,275,486  34     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  NOTE 6 - PREMISES AND EQUIPMENT The following is a summary of premises and equipment at December 31, 2008 and 2007:  20082007Land and improvements$  2,106,258$  2,117,583Buildings8,190,0467,017,191Equipment4,348,3993,844,73814,644,70312,979,512Less accumulated depreciation5,348,0895,076,601Premises and equipment, net$9,296,614$7,902,911  During 2008, the Bank opened a new branch office on the southwestern side of Lima and closed its downtown Lima branch office.  As a result of closing the facility, the Bank recognized an impairment loss of $235,000 in 2008. The cost of the facility, net of the impairment loss, is included in other assets at December 31, 2008 since it is being held for sale.  Depreciation expense amounted to $458,814 in 2008, $546,157 in 2007 and $513,692 in 2006.   NOTE 7 - SERVICING Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets.  The unpaid principal balance of mortgage loans serviced for others approximated $187,534,000 and $196,322,000 at December 31, 2008 and 2007, respectively.  As described in Note 2, the Bank has elected to record its mortgage servicing rights using the fair value measurement method effective January 1, 2007.  Mortgage servicing rights are included in other assets in the accompanying consolidated balance sheets.  Significant assumptions used in determining the fair value of servicing rights include:  Prepayment assumptions: Based on the PSA Standard Prepayment Model Internal rate of return: 8% to 10% Servicing costs: $40  $55 per loan, annually, increased at the rate of $1 per 1% delinquency based on loan count Inflation rate of servicing costs: 3%  Following is a summary of mortgage servicing rights activity for the years ended December 31, 2008 and 2007: 20082007Fair value at beginning of year$1,531,225$2,070,433Capitalized servicing rights  new loan sales146,966152,646Disposals (amortization based on loan payments
and payoffs)(325,712)(327,911)Change in fair value(649,091)(363,943)Fair value at end of year$703,388$1,531,225  35     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 7  SERVICING (CONTINUED)  The change in fair value of servicing rights for the year ended December 31, 2008 resulted from changes in external market conditions, including conditions that dramatically increased the prepayment assumptions, which is a key valuation input used in determining the fair value of servicing.  While prepayment assumptions are constantly changing, such changes are typically within a relatively small parameter from period to period.  However, due to the declines in the secondary market mortgage rates experienced during the fourth quarter of 2008, the prepayment assumptions used in determining the fair value of servicing at December 31, 2008 was 630 compared to 244 at December 31, 2007.  The following table summarizes mortgage servicing rights capitalized and related amortization, along with activity in the related valuation allowance for the year ended December 31, 2006, prior to adoption of Statement 156:  Mortgage servicing rights capitalized$  206,975Mortgage servicing rights amortization221,975Valuation allowance:Beginning of year$  258,581Reduction110,084End of year$  148,497  NOTE 8 - OTHER INTANGIBLE ASSETS  Intangible assets other than goodwill consist of deposit base premiums resulting from the 2003 Gibsonburg and Pemberville branch acquisitions, as well as a branch acquisition completed by Leipsic in 1996.  Amortization of other intangible assets amounted to $253,980 in 2008 and 2007, and $266,491 in 2006.  Expected amortization for years subsequent to 2008 is as follows: 2009, $253,980 and 2010, $63,575.   NOTE 9 - DEPOSITS  Time deposits at December 31, 2008 and 2007 include individual deposits of $100,000 or more approximating $106,921,000 and $56,734,000, respectively, including brokered deposits approximating $34,990,000 and $2,384,000.  Interest expense on time deposits of $100,000 or more approximated $2,202,000 for 2008, $1,763,000 for 2007, and $1,148,000 for 2006.  At December 31, 2008, time deposits approximated $313,362,000 and were scheduled to mature as follows: 2009, $222,318,000; 2010, $31,964,000; 2011, $36,482,000; 2012, $18,944,000; 2013, $2,887,000; and thereafter, $767,000.  36     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 10  OTHER BORROWINGS  Other borrowings consists of the following at December 31, 2008 and 2007:  20082007Federal Home Loan Bank borrowings:Secured note, with floating rate based on 1 month LIBOR
plus 10 basis points (5.35% at December 31, 2007),
due October 6, 2008$
-$
5,000,000Secured note, with interest at 5.35%, due October 10, 2008-5,000,000Secured note, with interest at 3.81%, due October 10, 2008-2,500,000Secured note, with interest at 5.14% through June 2003,
thereafter convertible to variable rate at the option
of the holder, due December 4, 2008-5,000,000Secured note, with interest at 4.82%, due
December 5, 2008-10,000,000Secured note, with interest at 3.25%, due March 6, 20094,000,0004,000,000Secured $2,500,000 term note with interest at 3.08%, with
monthly principal and interest payments of $45,011,
due May 1, 2009223,331747,789Secured $2,500,000 term note with interest at 3.08%, with
monthly principal and interest payments of $45,011,
due May 1, 2009223,331747,789Secured note, with interest at 6.55% through June 2003,
thereafter convertible to variable rate at the option
of the holder, due June 16, 20106,500,0006,500,000Secured note, with interest at 6.46% through June 2003,
thereafter convertible to variable rate at the option
of the holder, due July 28, 20105,000,0005,000,000Secured note, with interest at 4.25% through February 28,
2008, thereafter putable back at the option of the
holder, due August 28, 20125,000,0005,000,000Secured note, with interest at 4.20% through February 28,
2008, thereafter putable back at the option of the
holder, due February 28, 201710,000,00010,000,000Secured note, with interest at 3.95% through
September 11, 2008, thereafter putable back
at the option of the  holder, due September 11, 20177,500,0007,500,000Secured note, with interest at 1.34%, due July 3, 20095,000,000-Secured note, with interest at 1.30%, due
December 4, 20095,000,000-Secured note, with interest at 1.95%, due June 4, 20105,000,000-Secured note, with interest at 3.61%, due July 16, 20105,000,000-Secured note, with interest at 4.28%, due June 24, 201117,000,000-Advances secured by individual residential mortgages
under blanket agreement217,564352,759Total Federal Home Loan Bank borrowings75,664,22667,348,337  37     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 10  OTHER BORROWINGS (CONTINUED) 20082007Securities sold under agreements to repurchase:4.01%, due October 13, 2009$
5,000,000$
5,000,0004.28%, due June 24, 2008-12,000,0004.07%, due June 24, 2008-5,000,000Total securities sold under agreements
to repurchase5,000,00022,000,000Customer repurchase agreements with an averageoutstanding rate of .68% at December 31, 2008and 2.50% at December 31, 20075,588,1572,539,570Total other borrowings$
86,252,383$
91,887,907  Federal Home Loan Bank borrowings are secured by Federal Home Loan Bank stock, securities with an aggregate carrying value of $5,359,831 and eligible mortgage loans totaling $155,891,006 at December 31, 2008.  Interest on advances outstanding at December 31, 2008 secured by individual mortgages under blanket agreement ranged from 5.62% to 8.80%, with varying maturities through July 2019.  At December 31, 2008, the Bank had $16,913,000 of borrowing availability under various line-of-credit agreements with the Federal Home Loan Bank and other financial institutions.  Securities sold under agreements to repurchase are secured by securities with an aggregate carrying value approximating $5,006,000 at December 31, 2008.  The Bank may be required to provide additional collateral based on the fair value of the underlying securities.  Future contractual maturities of other borrowings are as follows at December 31, 2008:  2009, $25,078,398; 2010, $21,533,121; 2011, $17,032,490; 2012, $5,031,011; 2013, $21,587; and thereafter, $17,555,776.   NOTE 11 - JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES  The Corporation has formed and invested $300,000 in a business trust, United (OH) Statutory Trust (United Trust) which is not consolidated by the Corporation.  United Trust issued $10,000,000 of trust preferred securities, which are guaranteed by the Corporation, and are subject to mandatory redemption upon payment of the debentures.  United Trust used the proceeds from the issuance of the trust preferred securities, as well as the Corporations capital investment, to purchase $10,300,000 of junior subordinated deferrable interest debentures issued by the Corporation.  The debentures have a stated maturity date of March 26, 2033.  As of March 26, 2008, and quarterly thereafter, the debentures may be shortened at the Corporations option.  The interest rate of the debentures was fixed at 6.40% for a five-year period through March 26, 2008.  Effective March 27, 2008, interest is at a floating rate adjustable quarterly and equal to 315 basis points over the 3-month LIBOR amounting to 4.62% at December 31, 2008. Interest is payable quarterly.  The Corporation has the right, subject to events in default, to defer payments of interest on the debentures by extending the interest payment period for a period not exceeding 20 consecutive quarterly periods.  Interest expense on the debentures amounted to $626,897 in 2008 and $640,000 in 2007 and 2006, and is included in interest expense-borrowings in the accompanying consolidated statements of income.  38     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 11 - JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES(CONTINUED)  Each issue of the trust preferred securities carries an interest rate identical to that of the related debenture.  The securities have been structured to qualify as Tier I capital for regulatory purposes and the dividends paid on such are tax deductible.  However, the securities cannot be used to constitute more than 25% of the Corporations Tier I capital inclusive of these securities under Federal Reserve Board guidelines.   NOTE 12 - OTHER OPERATING EXPENSES  Other operating expenses consisted of the following for the years ended December 31, 2008, 2007 and 2006:  200820072006Data processing$
598,547$
895,688$
969,723Professional fees550,374486,477379,468Franchise tax570,468561,434520,054Advertising410,406381,524441,215ATM processing and other fees367,339276,020233,522Amortization of other intangible assets253,980253,980266,491Postage186,894182,108177,533Stationery and supplies140,208156,104168,939Loss on disposal or write-down of
premises and equipment275,92570,5121,076Other2,050,5972,004,1472,289,146Total other operating expenses$
5,404,738$
5,267,994$
5,447,167   NOTE 13 - OTHER COMPREHENSIVE INCOME  The components of other comprehensive income and related tax effects are as follows for the years ended December 31, 2008, 2007 and 2006:  200820072006Unrealized holding gains onavailable-for-sale securities$
297,178$
949,290$
252,815Reclassification adjustments for net securitieslosses (gains) realized in income(49,055)226,4164,180Net unrealized gains248,1231,175,706256,995Tax effect84,362399,74087,378Net-of-tax amount$
163,761$
775,966$
169,617  39     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 14 - INCOME TAXES  The provision for income taxes for the years ended December 31, 2008, 2007 and 2006 consist of the following:  200820072006Current$
1,554,362$
1,363,482$
1,030,078Deferred(543,362)(202,482)221,922Total provision for income taxes$
1,011,000$
1,161,000$
1,252,000  The income tax provision attributable to income from operations differed from the amounts computed by applying the U.S. federal income tax rate of 34% to income before income taxes as a result of the following:  200820072006Expected tax using statutory tax rate of 34%$
1,846,100$
1,951,700$
2,100,800Increase (decrease) in tax resulting from:Tax-exempt income on state and municipalsecurities and political subdivision loans(666,800)(644,000)(654,700)Interest expense associated with carryingcertain state and municipal securitiesand political subdivision loans76,40093,10086,000Tax-exempt income on life insurancecontracts(167,600)(152,200)(159,800)Deductible dividends paid to UnitedBancshares, Inc. ESOP(54,500)(47,400)(41,300)Other, net(22,600)(40,200)(79,000)Total provision for income taxes$
1,011,000$
1,161,000$
1,252,000  The deferred income tax credit of $543,362 in 2008 and $202,482 in 2007, and the deferred income tax provision of $221,922 in 2006, resulted from the tax effects of temporary differences. There was no impact for changes in tax laws and rates or changes in the valuation allowance for deferred tax assets.  40     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 14 - INCOME TAXES (CONTINUED)  The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2008 and 2007 are presented below:  20082007Deferred tax assets:Unrealized loss on securities available-for-sale$212,399$296,761Allowance for loan losses1,125,200781,000Deferred compensation287,900248,000Accrued expenses and other474,101210,739Total deferred tax assets2,099,6001,536,500Deferred tax liabilities:Federal Home Loan Bank stock dividends877,500812,700Capitalized mortgage servicing rights239,200520,600Depreciation and amortization770,700452,400Other66,20063,800Total deferred tax liabilities1,953,6001,849,500Net deferred tax assets (liabilities)$146,000$(313,000)  Net deferred tax assets at December 31, 2008 are included in other assets and net deferred tax liabilities at December 31, 2007 are included in other liabilities in the accompanying consolidated balance sheets.  Management believes it is more likely than not that the benefit of deferred tax assets will be realized.  Consequently, no valuation allowance for deferred tax assets is deemed necessary as of December 31, 2008 and 2007.  The Corporation had unrecognized tax benefits of $154,200 and $82,300 at December 31, 2008 and 2007, respectively.  Additions based on tax positions related to the current year amounted to $71,900 in 2008 and $82,300 in 2007.  Such unrecognized tax benefits, if recognized, would favorably affect the effective income tax rate in future periods.  The Corporation does not expect the total amount of unrecognized tax benefits to significantly change in the next twelve months.  The amount of accrued interest related to the Corporations uncertain tax positions was $2,600 at December 31, 2008 (none at December 31, 2007).  The Corporation and its subsidiaries are subject to U.S. federal income tax. The Corporation and its subsidiaries are no longer subject to examination by taxing authorities for years before 2005.   41     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 15 - EMPLOYEE AND DIRECTOR BENEFITS  The Corporation and Bank sponsor a salary deferral, defined contribution plan which provides for both profit sharing and employer matching contributions.  The plan permits the investing in the Corporations stock subject to certain limitations.  Participants who meet certain eligibility conditions are eligible to participate and defer a specified percentage of their eligible compensation subject to certain income tax law limitations.  The Corporation and Bank make discretionary matching and profit sharing contributions, as approved annually by the Board of Directors, subject to certain income tax law limitations.  Contribution expense for the plan amounted to $491,502, $465,329, and $463,850 in 2008, 2007 and 2006, respectively.  At December 31, 2008, the Plan owned 283,791 shares of the Corporations common stock.  The Bank also sponsors nonqualified deferred compensation plans, covering certain directors and employees, which have been indirectly funded through the purchase of split-dollar life insurance policies.  In connection with the policies, the Bank has provided an estimated liability for accumulated supplemental retirement benefits amounting to $518,353 at December 31, 2008 and $391,238 at December 31, 2007 which is included in other liabilities in the accompanying consolidated balance sheets.  The Bank has also purchased split-dollar life insurance policies for investment purposes to fund other employee benefit plans.  The combined cash values of these policies aggregated $11,358,947 and $10,885,971 at December 31, 2008 and 2007, respectively.  Under an employee stock purchase, eligible employees may defer a portion of their compensation and use the proceeds to purchase stock of the Corporation at a discount determined semi-annually by the Board of Directors as stipulated in the plan.  The Corporation sold from treasury 7,258 shares in 2008, 7,856 shares in 2007 and 7,975 shares in 2006 under the plan.  The Bank has an agreement with Leipsics former President, who is the Corporations current Chairman of the Board of Directors, to provide for retirement compensation benefits.  Such benefits are to be paid over a period of twenty years commencing upon retirement effective December 31, 2001.  At December 31, 2008 and 2007, the net present value (based on the 12% discount rate in effect at the time of origination of the agreement) of future deferred compensation payments amounted to $328,426 and $338,357, respectively.  Such amounts are included in other liabilities in the December 31, 2008 and 2007 consolidated balance sheets.  A split-dollar life insurance policy has been purchased and is available to fund a portion of the future deferred compensation payments.  The cash value of the policy amounted to $530,885 and $510,810 at December 31, 2008 and 2007, respectively.  The Chief Executive Officer and Chief Financial Officer of the Corporation have employment agreements which provide certain compensation and benefits as specified in the agreements. The agreement of the Chief Executive Officer expires in January 2010 after which time the Corporation has agreed to enter into a change of control agreement if the Chief Executive Officer is still employed by the Corporation. The agreement of the Chief Financial Officer provides for certain compensation and benefits should any triggering events occur, as specified in the agreement, including change of control or termination without cause.  42     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 16 - STOCK OPTIONS  In connection with its acquisition in March 2001 of Citizens, the Corporation issued options to certain directors and a senior officer of Citizens under the terms of Citizens Amended and Restated Stock-Based Incentive Plan (the Plan).  The Plan provides that options may be exercised through an alternative option payment mechanism referred to in the Plan as using pyramiding transactions where options are exercised, the shares gained through the exercise rate are tendered back to the Corporation as payment for a greater number of options, and the process is repeated as needed until all options are exercised.  Ultimately, the holder of the option ends up with a lower number of shares than exercised but at essentially no cash outlay.  During 2006, two of the option holders collectively exercised 27,440 options resulting in 9,802 shares being tendered under the pyramiding transactions exercise method.  At December 31, 2007, 812 shares (none at December 31, 2008) could be tendered from the 5,146 remaining outstanding options under the pyramiding transactions exercise method.  The fair value of the shares that could be tendered, amounted to $11,286 at December 31, 2007.  The following summarizes the stock options activity for the years ended December 31, 2008, 2007 and 2006:  200820072006SharesWeighted
average
exercise
priceSharesWeighted
average
exercise
priceSharesWeighted
average
exercise
priceOutstanding atbeginning of year12,006$12.9512,006$12.9539,446$11.18Exercised----(27,440)10.40Expired(6,860)15.42----Outstanding andexercisableat end of year5,146$9.6612,006$12.9512,006$12.95       Options outstanding at December 31, 2008 were all at an exercise price of $9.66 and have a two year remaining contractual life.   NOTE 17 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK  The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments are primarily loan commitments to extend credit and letters of credit.  These instruments involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the consolidated balance sheets.  The contract amount of these instruments reflects the extent of involvement the Bank has in these financial instruments.  43     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 17 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED) The Banks exposure to credit loss in the event of the nonperformance by the other party to the financial instruments for loan commitments to extend credit and letters of credit is represented by the contractual amounts of these instruments.  The Bank uses the same credit policies in making loan commitments as it does for on-balance sheet loans.  The following financial instruments whose contract amount represents credit risk were outstanding at December 31, 2008 and 2007: Contract amount20082007Commitments to extend credit$
85,792,000$
75,638,000Letters of credit$
1,845,000$
2,096,000  Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.  The Bank evaluates each customers credit worthiness on a case-by-case basis.  The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based on managements credit evaluation of the customer.  Collateral held varies but may include accounts receivable; inventory; property, plant, and equipment; and income-producing commercial properties.  Letters of credit are written conditional commitments issued by the Bank to guarantee the performance of a customer to a third party and are reviewed for renewal at expiration.  All letters of credit outstanding at December 31, 2008 expire in 2009.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.  The Bank requires collateral supporting these commitments when deemed necessary.  NOTE 18 - REGULATORY MATTERS The Corporation (on a consolidated basis) and Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies.  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 Corporations and Banks financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.  Prompt corrective action provisions are not applicable to bank holding companies.  Quantitative measures established by regulation to ensure capital adequacy require the Corporation and Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to average assets (as defined).  Management believes, as of December 31, 2008 and 2007, that the Corporation and Bank meet all capital adequacy requirements to which they are subject.  44     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 18  REGULATORY MATTERS(CONTINUED)  As of December 31, 2008, the most recent notification from federal and state banking agencies categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following table.  There are no conditions or events since that notification that management believes have changed the Banks category.  The actual capital amounts and ratios of the Corporation and Bank as of December 31, 2008 and 2007 are presented in the following table: Minimum to be well capitalized Minimum under prompt capital corrective Actual requirement action provisions Amount Ratio Amount Ratio Amount Ratio (Dollars in Thousands) As of December 31, 2008 Total Capital (to Risk- Weighted Assets) Consolidated $ 56,899 12.6% $ 36,249 > 8.0% N/A N/A Bank 52,943 11.8% 36,175 > 8.0% $ 45,219 10.0% Tier I Capital (to Risk- Weighted Assets) Consolidated $ 53,701 11.9% $ 18,125 > 4.0% N/A N/A Bank 49,745 11.0% 18,088 > 4.0% $ 27,131 6.0% Tier I Capital (to Average Assets) Consolidated $ 53,701 8.7% $ 24,576 > 4.0% N/A N/A Bank 49,745 8.2% 24,326 > 4.0% $ 30,408 5.0%  As of December 31, 2007 Total Capital (to Risk- Weighted Assets) Consolidated $ 53,921 13.4% $ 32,105 > 8.0% N/A N/A Bank 49,581 12.4% 32,036 > 8.0% $ 40,046 10.0% Tier I Capital (to Risk- Weighted Assets) Consolidated $ 51,688 12.9% $ 16,053 > 4.0% N/A N/A Bank 47,348 11.8% 16,018 > 4.0% $ 24,027 6.0% Tier I Capital (to Average Assets) Consolidated $ 51,688 9.4% $ 21,985 > 4.0% N/A N/A Bank 47,348 8.6% 21,985 > 4.0% $ 27,482 5.0%  45     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 18  REGULATORY MATTERS(CONTINUED) On a parent company only basis, the Corporations primary source of funds is dividends paid by the Bank.  The ability of the Bank to pay dividends is subject to limitations under various laws and regulations, and to prudent and sound banking principles.  Generally, subject to certain minimum capital requirements, the Bank may declare dividends without the approval of the State of Ohio Division of Financial Institutions, unless the total dividends in a calendar year exceed the total of the Banks net profits for the year combined with its retained profits of the two preceding years.  The Board of Governors of the Federal Reserve System generally considers it to be an unsafe and unsound banking practice for a bank holding company to pay dividends except out of current operating income, although other factors such as overall capital adequacy and projected income may also be relevant in determining whether dividends should be paid.   NOTE 19 - CONDENSED PARENT COMPANY FINANCIAL INFORMATION A summary of condensed financial information of the parent company as of December 31, 2008 and 2007 and for each of the three years in the period ended December 31, 2008 is as follows:  CONDENSED BALANCE SHEETS20082007Assets:Cash$
2,418,309$
3,411,346Investment in bank subsidiary57,003,81654,778,521Premises and equipment, net of accumulated depreciation446,126471,914Other assets, including income taxes receivable from banksubsidiary of $799,870 in 2008 and $158,263 in 20071,210,029623,090Total assets$
61,078,280$
59,284,871Liabilities:Accrued expenses, including accrued compensationfor stock options of $11,286 in 2007$
118,565$
166,287Junior subordinated deferrable interest debentures10,300,00010,300,000Total liabilities10,418,56510,466,287Shareholders equity:Common stock3,760,5573,760,557Surplus14,659,66114,659,661Retained earnings37,528,02635,187,304Accumulated other comprehensive loss(412,304)(576,065)Treasury stock, at cost(4,876,225)(4,212,873)Total shareholders equity50,659,71548,818,584Total liabilities and shareholders equity$
61,078,280$
59,284,871  46     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 19 - CONDENSED PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)  CONDENSED STATEMENTS
OF INCOME200820072006Income  including dividends from bank subsidiary$3,000,000$3,016,595$2,524,898Expenses  interest expense, professional fees
and other expenses, net of federal income
tax benefit(642,937)(678,129)(664,865)Income before equity in undistributed
net income of bank subsidiary2,357,0632,338,4661,860,033Equity in undistributed net income of
bank subsidiaries2,061,5342,240,9123,066,772Net income$4,418,597$4,579,378$4,926,805  CONDENSED STATEMENTS
OF CASH FLOWSCash flows from operating activities:
Net income$4,418,597$4,579,378$4,926,805Adjustments to reconcile net income to net
cash provided by operating activities:Equity in undistributed net income
of bank subsidiary(2,061,534)(2,240,912)(3,066,772)Provision (credit) for accrued
compensation  stock options(11,286)(42,141)13,858Depreciation and amortization39,03879,34879,457Decrease (increase) in other assets(600,189)193,117(85,517)Increase (decrease) in accrued expenses(36,436)32,847(32,009)Net cash provided by operating
activities1,748,1902,601,6371,835,822Cash flows from investing activities:Purchases of premises and equipment--(20,060)Proceeds from sale of security-51,121-Net cash provided by (used in)
investing activities-51,121(20,060)   47     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 19 - CONDENSED PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)  CONDENSED STATEMENTS
OF CASH FLOWS200820072006Cash flows from financing activities:Purchase of common stock$ (775,250)$(1,347,150)$(1,135,944)Proceeds from sale of treasury shares98,709108,157110,008Cash dividends paid(2,064,686)(1,969,407)(1,869,135)Net cash used in financing activities(2,741,227)(3,208,400)(2,895,071)Net decrease in cash(993,037)(555,642)(1,079,309)Cash at beginning of the year3,411,3463,966,9885,046,297Cash at end of the year$2,418,309$3,411,346$3,966,988  During 2005, the Board of Directors approved a program whereby the Corporation purchases shares of its common stock in the open market.  The decision to purchase shares, the number of shares to be purchased, and the price to be paid depends upon the availability of shares, prevailing market prices, and other possible considerations which may impact the advisability of purchasing shares.  The Corporation purchased 55,000 shares in 2008, 86,500 shares in 2007, and 71,177 shares in 2006 under the program.   NOTE 20 - FAIR VALUE MEASUREMENTS  On February 15, 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (Statement 159).  Statement 159 provides an option to report selected financial assets and liabilities at fair value.  Statement 159 requires additional information that will help investors and other users of financial statements to more easily understand the effect of an entitys choice to use fair value on its earnings.  Statement 159 also requires entities to display the fair value of those assets and liabilities for which the entity has chosen to use fair value on the face of the balance sheet.  Statement 159 does not eliminate disclosure requirements included in other accounting standards.  There was no impact on the accompanying consolidated financial statements as a result of Statement 159 since the Corporation has not elected the fair value option for any eligible items.  Effective January 1, 2008, the Corporation adopted the provisions of SFAS No. 157, Fair Value Measurements (Statement 157).  Statement 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  48     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 20 - FAIR VALUE MEASUREMENTS (CONTINUED)  Statement 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.  The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs.  An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are independent, knowledgeable, and both able and willing to transact.  Statement 157 requires the use of valuation techniques that are consistent with the market approach, the income approach, and/or the cost approach.  The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities.  The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis.  The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).  Valuation techniques should be consistently applied.  Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability.  Inputs may be observable or unobservable.  Observable inputs reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources.  Unobservable inputs reflect the reporting entitys own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  In that regard, Statement 157 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The fair value hierarchy is as follows:  Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date.  Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.  Level 2 inputs include:  quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.  Level 3  Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date.  Unobservable inputs reflect the Corporations own assumptions about what market participants would use to price the asset or liability.  The inputs are developed based on the best information available in the circumstances, which might include the Corporations own financial data such as internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment.  49     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 20 - FAIR VALUE MEASUREMENTS (CONTINUED)  The following table summarizes financial assets (there were no financial liabilities) measured at fair value as of December 31, 2008, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:  Level 1Level 2Level 3Totalinputsinputsinputsfair valueRecurring:Securities available-for-sale$     -$136,498,302$        -$136,498,302Mortgage servicing rights--703,388703,388Total recurring$     -$136,498,302$   703,388$137,201,690Nonrecurring:Impaired loans$     -$            -$4,533,350$   4,533,350  There were no financial instruments measured at fair value that moved to a lower level in the fair value hierarchy during 2008 due to the lack of observable quotes in inactive markets for those instruments at December 31, 2008.  The table below presents a reconciliation and income statement classification of gains and losses for mortgage servicing rights, which is measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2008:  Balance at beginning of year$
1,531,225Gains or losses, including realized and unrealized:Disposals  amortization based on loan payments and payoffs(325,712)Purchases, issuances, and settlements146,966Other changes in fair value(649,091)Balance at end of year$
703,388  A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, follows.  In general, fair value is based upon quoted market prices, where available.  If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters.  Valuation adjustments may be made to ensure that financial instruments are recorded at fair value.  These adjustments may include amounts to reflect counterparty credit quality, the Corporations creditworthiness, among other things, as well as unobservable parameters.  Any such valuation adjustments are applied consistently over time.  The Corporations valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Corporations valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.  50     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 20 - FAIR VALUE MEASUREMENTS (CONTINUED)  Securities Available-for-Sale  Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.  Level 1 securities would typically include government bonds and exchange traded equities.  If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.  Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include corporate and municipal bonds, mortgage-backed securities, and asset-backed securities.  In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.  The Corporation did not have any securities classified as Level 1 or Level 3 at December 31, 2008.  Impaired Loans  The Corporation does not record impaired loans at fair value on a recurring basis.  However, periodically, a loan is considered impaired and is reported at the fair value of the underlying collateral, less estimated costs to sell, if repayment is expected solely from the collateral. Collateral values are estimated using level 2 inputs, including recent appraisals and Level 3 inputs based on customized discounting criteria.  Due to the significance of the level 3 inputs, impaired loans fair values have been classified as level 3.  Losses included in earnings before income taxes amounted to $1,281,943 in 2008 relating to impaired loans.  Such losses were determined in accordance with FAS 114 and are included in the provision for loan losses.  There were no gains or losses relating to securities available-for-sale included in earnings before income taxes that were attributable to changes in fair values of securities held at December 31, 2008.  Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment.  Financial assets and financial liabilities, excluding impaired loans, measured at fair value on a nonrecurring basis were not significant at December 31, 2008.  Nonfinancial assets and nonfinancial liabilities measured at fair value on a recurring basis include reporting units measured at fair value in the first step of a goodwill impairment test. Nonfinancial assets measured at fair value on a nonrecurring basis include nonfinancial assets and nonfinancial liabilities measured at fair value in the second step of a goodwill impairment test, as well as intangible assets and other nonfinancial long-lived assets measured at fair value for impairment assessment.  In accordance with Financial Accounting Standards Board Staff Position (FSP) No. 157-2, Effective Date of FASB Statement No. 157, the Corporation has delayed the application of Statement 157 for the fair value measurement of nonfinancial assets and nonfinancial liabilities until January 1, 2009.  51     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS The Financial Accounting Standards Boards Statement of Financial Accounting Standards No. 107, Disclosures About Fair Value of Financial Instruments, requires that the estimated fair value of financial instruments, as defined by the Statement, be disclosed.  Statement 107 also requires disclosure of the methods and significant assumptions used to estimate the fair value of financial instruments.  The estimated fair values of recognized financial instruments at December 31, 2008 and 2007 are as follows: 2008 2007 Carrying Estimated Carrying Estimated amount value amount value (dollars in thousands) FINANCIAL ASSETS Cash and cash equivalents $ 25,622 $ 25,622 $ 15,079 $ 15,079 Securities, including Federal Home Loan Bank stock 141,392 141,392 142,607 142,607 Net loans, including loans held for sale 415,187 439,018 357,328 358,121 Mortgage servicing rights 703 703 1,531 1,531  $ 582,904 $ 606,735 $ 516,545 $ 517,338  FINANCIAL LIABILITIES Deposits $ 464,792 $ 471,588 $ 393,203 $ 393,368 Other borrowings 86,252 90,617 91,888 93,349 Junior subordinated deferrable interest debentures 10,300 6,232 10,300 9,898 Other liabilities 4,060 4,160 3,765 3,875  $ 565,404 $ 572,597 $ 499,156 $ 500,490  The above summary does not include accrued interest receivable and cash surrender value of life insurance which are also considered financial instruments.  The estimated fair value of such items is considered to be their carrying amounts.  There are also unrecognized financial instruments at December 31, 2008 and 2007 which relate to commitments to extend credit and letters of credit.  The contract amount of such financial instruments amounts to $87,637,000 at December 31, 2008 and $77,734,000 at December 31, 2007.  Such amounts are also considered to be the estimated fair values.  The following methods and assumptions were used to estimate the fair value of each class of financial instruments shown above:  Cash and cash equivalents: Fair value is determined to be the carrying amount for these items (which include cash on hand, due from banks, and federal funds sold) because they represent cash or mature in 90 days or less and do not represent unanticipated credit concerns.  Securities: The fair value of securities is determined based on quoted market prices of the individual securities or, if not available, estimated fair value was obtained by comparison to other known securities with similar risk and maturity characteristics.  Such value does not consider possible tax ramifications or estimated transaction costs.  52     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS(CONTINUED)  Loans:  Fair value for loans was estimated for portfolios of loans with similar financial characteristics. For adjustable rate loans, which re-price at least annually and generally possess low risk characteristics, the carrying amount is believed to be a reasonable estimate of fair value.  For fixed rate loans the fair value is estimated based on a discounted cash flow analysis, considering weighted average rates and terms of the portfolio, adjusted for credit and interest rate risk inherent in the loans.  Fair value for nonperforming loans is based on recent appraisals or estimated discounted cash flows.  Mortgage servicing rights:  The fair value for mortgage servicing rights is determined based on an analysis of the portfolio by an independent third party.  Deposit liabilities:  The fair value of core deposits, including demand deposits, savings accounts, and certain money market deposits, is the amount payable on demand.  The fair value of fixed-maturity certificates of deposit is estimated using the rates offered at year end for deposits of similar remaining maturities.  The estimated fair value does not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the marketplace.  Other financial instruments:  The fair value of commitments to extend credit and letters of credit is determined to be the contract amount, since these financial instruments generally represent commitments at existing rates.  The fair value of other borrowings is determined based on a discounted cash flow analysis using current interest rates.  The fair value of the junior subordinated deferrable interest debentures is determined based on quoted market prices of similar instruments.  The fair value of other liabilities is generally considered to be carrying value except for the deferred compensation agreement described in Note 15.  The fair value of the contract is determined based on a discounted cash flow analysis using a current interest rate for a similar instrument.  The fair value estimates of financial instruments are made at a specific point in time based on relevant market information.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument over the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.  Since no ready market exists for a significant portion of the financial instruments, fair value estimates are largely based on judgments after considering such factors as future expected credit losses, current economic conditions, risk characteristics of various financial instruments, and other factors.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions could significantly affect these estimates.  53     UNITED BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   NOTE 22 - CONTINGENT LIABILITIES  In the normal course of business, the Corporation and its subsidiary may be involved in various legal actions, but in the opinion of management and legal counsel, the ultimate disposition of such matters is not expected to have a material adverse effect on the consolidated financial statements.   NOTE 23 - QUARTERLY FINANCIAL DATA (UNAUDITED)  The following represents a summary of selected unaudited quarterly financial data for 2008 and 2007: Net Earnings per Interest interest Net common share income income income Basic Diluted (Dollars in thousands, except per share data) 2008 First quarter $ 8,666 $ 4,499 $ 945 $ .27 $ .27 Second quarter 8,892 4,947 1,749 .51 .51 Third quarter 8,975 5,048 1,127 .33 .33 Fourth quarter 8,675 4,919 598 .17 .17  2007 First quarter $ 8,465 $ 4,128 $ 977 $ .27 $ .27 Second quarter 8,800 4,394 1,455 .42 .42 Third quarter 8,671 4,348 935 .26 .26 Fourth quarter 8,913 4,548 1,212 .35 .35   NOTE 24 -NEW ACCOUNTING PRONOUNCEMENTS  In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (FAS 161).  FAS 161 is an amendment of FASB 133, Accounting for Derivative Instruments and Hedging Activities, and is intended to improve financial reporting transparency regarding derivative instruments and hedging activities.  FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early adoption encouraged.  The Corporation is currently evaluating the impact of FAS 161, but does not believe that it will have a material impact on the consolidated financial statements.  Also in December 2008, the FASB issued Staff Position FAS 140-4 and FIN 46(R)-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.  FIN 46(R)-8 does not apply to the Corporation.  FAS 140-4 requires public entities to provide enhanced disclosures about the transfer of financial assets including securitization or asset-based financing arrangements, any restrictions on assets reported that relate to a transferred financial asst and how servicing assets and servicing liabilities are reported.  The disclosures are effective for the first reporting period (interim or annual) ending after December 31, 2008.  The Corporation does not expect the adoption of FAS 140-4 will have a significant impact on the consolidated financial statements.  54


UNITED BANCSHARES, INC. Columbus Grove, Ohio   DIRECTORS  UNITED BANCSHARES, INC.  DIRECTOR DIRECTOR NAME AGE SINCE NAME AGE SINCE Robert L. Benroth 46 2003 David P. Roach 58 2001 Putnam County Auditor Vice-President/GM, First Family Broadcasting of Ohio  Robert L. Dillhoff 62 2001 Daniel W. Schutt 61 2005 Retired Administrator, Department of Transportation President/CEO  James N. Reynolds 71 2000 R. Steven Unverferth 56 2005 Chairman, Retired Banker President, Unverferth Manufacturing Corporation, Inc.  H. Edward Rigel 66 2000 Farmer, Rigel Farms, Inc.    DIRECTORS  THE UNION BANK COMPANY   DIRECTOR  DIRECTOR NAME AGE SINCE (a) NAME AGE SINCE (a) Robert L. Benroth 46 2001 H. Edward Rigel 66 1979 Putnam County Auditor Farmer, Rigel Farms, Inc.  Robert L. Dillhoff 62 1991 David P. Roach 58 1997 Retired Administrator, Dept. of Transportation Vice-President/GM, First Family Broadcasting of Ohio  Herbert H. Huffman 58 1993 Robert M. Schulte, Sr. 76 1994 Retired - Educator Businessman/Spherion Services  Kevin L. Lammon 54 1996 Daniel W. Schutt 61 2005 Insurance and Real Estate Sales Chairman, President and Chief Executive Officer  William R. Perry 50 1990 R. Steven Unverferth 56 1993 Farmer President, Unverferth Manufacturing Corporation, Inc  James N. Reynolds 71 1966 Brian D. Young 42 2008 Retired Banker Chief Financial Officer, Executive Vice President  (a) Indicates year first elected or appointed to the board of The Union Bank Company or any of the former affiliate banks, Bank of Leipsic or the Citizens Bank of Delphos.


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OFFICERS  UNITED BANCSHARES, INC.   James N. Reynolds  Chairman       Daniel W. Schutt  President / Chief Executive Officer Heather M. Oatman  Secretary       Brian D. Young  Chief Financial Officer, EVP & Treasurer   OFFICERS  THE UNION BANK COMPANY  Daniel W. Schutt - President/CEO/ChairmanBrian D. Young - Executive Vice President/CFO  Nancianne CarrollSenior Vice PresidentLewis R. RenolletSenior Vice PresidentRonald J. McNeelySenior Vice PresidentNorman V. SchnipkeSenior Vice PresidentHeather M. OatmanSenior Vice President, Sec.Mark G. HonigfordVice PresidentJeffrey L. PointVice PresidentDana F. LawrenceVice PresidentRicardo RosadoVice PresidentMax E. LongVice PresidentMary L. SchroederVice PresidentDonald W. MillerVice PresidentBarry J. von der EmbseVice PresidentJohn P. MillerVice PresidentAmy E. BlankemeyerAssistant Vice PresidentAmy E. ReeseAssistant Vice PresidentKimberly K. DrayAssistant Vice PresidentKevin E. RiceAssistant Vice PresidentVicky K. GilbertAssistant Vice PresidentGary G. RickerAssistant Vice PresidentErin W. HardestyAssistant Vice PresidentM. Chris SandersonAssistant Vice PresidentElizabeth A. KahlenbergAssistant Vice PresidentDeborah R. SoldenwagnerAssistant Vice PresidentKimberly J. KandikAssistant Vice PresidentCraig R. StechschulteAssistant Vice PresidentAmy L. LaibeAssistant Vice PresidentTheresa A. Stein-MoenterAssistant Vice PresidentDoris A. NeumeierAssistant Vice PresidentKimberly S. VerhoffAssistant Vice PresidentBrent D. NussbaumAssistant Vice PresidentTroy M. VerhoffAssistant Vice PresidentJames C. OsmonAssistant Vice PresidentVikki L. WilliamsAssistant Vice PresidentPeter J. RafanielloAssistant Vice PresidentLisa D. WiswasserAssistant Vice PresidentRose Ann ReckerAssistant Vice PresidentPatricia S. ChristmanAccounting OfficerJane M. StirnAssistant Manager ofAmy C. FelterControllerLoan OperationsApril L. OlmsteadSenior Credit AnalystLeAnn WilkinsMortgage Underwriter


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