UNITED BANCSHARES INC/OH - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

Commission file number 000-29283

UNITED BANCSHARES, INC.

(Exact name of Registrant as specified in its charter)

Ohio

(State or other jurisdiction of incorporation or organization)

100 S. High Street, Columbus Grove, Ohio

(Address of principal executive offices)

34-1516518

(I.R.S. Employer Identification Number)

45830

(Zip Code)

(419) 659-2141

(Registrant’s telephone number, including area code)

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

Yes X

No ________

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

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of November 1, 2004: 3,679,660

UNITED BANCSHARES, INC.

Table of Contents

	Page

Part I – Financial Information	3

*Item 1* – Financial Statements	3

*Item 2* – Management’s Discussion and Analysis of Financial Condition and Results of Operations	11

*Item 3* – Quantitative and Qualitative Disclosures about Market Risk	19

*Item 4* – Controls and Procedures	19


Part II - Other Information	19

PART 1 - FINANCIAL INFORMATION

ITEM 1

United Bancshares, Inc. and Subsidiaries

Consolidated Balance Sheets (Unaudited)

(Dollars in thousands, except share data)

		September 30,	December 31,
		2004	2003
ASSETS

CASH AND CASH EQUIVALENTS
	Cash and due from banks	$ 10,240	$ 10,533
	Interest-bearing deposits in other banks	384	31
	Federal funds sold	160	531
Total cash and cash equivalents		10,784	11,095

SECURITIES, available-for-sale		200,551	170,505
FEDERAL HOME LOAN BANK STOCK, at cost		4,180	4,055
LOANS HELD FOR SALE		795	2,760

LOANS		302,658	289,461
Allowance for loan losses		(2,595)	(2,768)
Net loans		300,063	286,693

PREMISES AND EQUIPMENT, net		6,858	7,222
GOODWILL		7,282	7,282
OTHER ASSETS, including accrued interest receivable
	and other intangible assets	9,324	9,083

TOTAL ASSETS		$ 539,837	$ 498,695

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES
Deposits
	Non-interest bearing	$ 32,649	$ 32,144
	Interest bearing	335,158	356,156
Total deposits		367,807	388,300

Federal Home Loan Bank borrowings Securities sold under agreements to repurchase		59,867 54,000	54,446 -0-
Junior subordinated deferrable interest debentures		10,300	10,300
Accrued expenses and other liabilities		3,062	2,939

	Total liabilities	495,036		455,985

SHAREHOLDERS' EQUITY
Common stock, $1 stated value, 4,750,000 shares
	authorized, 3,760,557 shares issued as of September 30, 2004 and 3,740,468 shares issued as of December 31, 2003.	3,761		3,740
Surplus		14,537		14,460
Retained earnings		26,188		24,697
Accumulated other comprehensive income		1,457	1,056
Treasury stock, 80,897 shares at September 30, 2004 and 88,064 shares at December 31, 2003, at cost		(1,142)		(1,243)
	Total shareholders' equity	44,801		42,710

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$ 539,837		$ 498,695

See notes to consolidated financial statements

United Bancshares, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(Dollars in thousands, except per share data)

			Three months ended September 30,		Nine months ended September 30,
			2004	2003	2004	2003
INTEREST INCOME
	Loans, including fees		$ 4,765	$ 4,764	$ 13,990	$ 13,927
	Securities:
		Taxable	1,779	1,020	3,930	3,433
		Tax-exempt	536	425	1,710	1,235
	Other		3	37	8	82
Total interest income			7,083	6,246	19,638	18,677

INTEREST EXPENSE
	Deposits		1,481	1,856	5,043	5,548
	Other borrowings		1,286	730	2,778	2,113
Total interest expense			2,767	2,586	7,821	7,661

NET INTEREST INCOME			4,316	3,660	11,817	11,016

PROVISION FOR LOAN LOSSES			50	450	275	450
NET INTEREST INCOME AFTER
	PROVISION FOR LOAN LOSSES		4,266	3,210	11,542	10,566

NON-INTEREST INCOME
		Gain on sales of loans	178	697	621	2,130
		Gain on sales of securities Other	142 450	202 123	427 1,218	323 520
Total non-interest income			770	1,022	2,266	2,973

NON-INTEREST EXPENSES			3,558	3,340	10,470	9,930

Income before income taxes			1,478	892	3,338	3,609
PROVISION FOR INCOME TAXES			381	144	633	885
NET INCOME			$ 1,097 =========	$ 748 ===========	$ 2,705 ===========	$ 2,724 ===========

NET INCOME PER SHARE
		Basic	$ 0.30	$ 0.21	$ 0.74	$ 0.75
		Weighted average common shares outstanding	3,679,440	3,642,763	3,666,842	3,642,027

		Diluted:	$ 0.30	$ 0.20	$ 0.73	$ 0.74
		Weighted average common shares outstanding	3,706,850	3,690,415	3,701,354	3,686,968

See notes to consolidated financial statements

United Bancshares, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity (Unaudited)
Nine months ending September 30, 2004 and 2003
(Dollars in thousands)

	Common Stock	Surplus	Retained Earnings	Accumulated other Comprehensive Income	Treasury Stock	Total
BALANCE AT DECEMBER 31, 2003	$ 3,740	$ 14,460	$ 24,697	$ 1,056	$ (1,243)	$ 42,710
Comprehensive income:
Net income			2,705			2,705
Change in unrealized gain on securities, net of tax				401		401
Total comprehensive income						3,106

Dividends declared ($0.33 per share)			(1,212)			(1,212)
Sale of treasury stock (7,167 shares)			(2)		101	99
Exercise of stock options (20,089 shares)	21	77				98
BALANCE AT SEPTEMBER 30, 2004	$ 3,761 ==========	$ 14,537 ==========	$ 26,188 ==========	$ 1,457 ==========	$ (1,142) ==========	$ 44,801 ==========

				Accumulated other
	Common Stock	Surplus	Retained Earnings	Comprehensive Income (loss)	Treasury Stock	Total
BALANCE AT DECEMBER 31, 2002	$ 3,718	$ 14,374	$ 22,612	$ 1,497	$ (1,243)	$ 40,958
Comprehensive income:
Net income			2,724			2,724
Change in unrealized gain on securities, net of tax				(707)		(707)
Total comprehensive income						2,017

Dividends declared ($0.33 per share)			(1,204)			(1,204)
Exercise of stock options (22,191 shares)	22	86				108
BALANCE AT SEPTEMBER 30, 2003	$ 3,740 ==========	$ 14,460 ==========	$ 24,132 ==========	$ 790 ==========	$ (1,243) ==========	$ 41,879 ==========

See notes to consolidated financial statements

United Bancshares, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands)

			Nine months ended September 30,
			2004	2003

Cash flows from operating activities			$ 3,643	$ 1,917

Cash flows from investing activities:
	Purchases of available-for-sale securities, net of proceeds
		from sales or maturities	(30,046)	(4,766)
	Net cash received from acquisition of RFCBC branches		---	5,749
	Net decrease(increase) in loans		(11,781)	4,993
	Expenditures for premises and equipment		(284)	(549)
		Net cash from investing activities	(42,111)	5,427

Cash flows from financing activities:
	Net change in deposits		(20,249)	(19,309)
	Federal Home Loan Bank borrowings, net of repayments Proceeds from sale of securities sold under repurchase agreements, net of repayments		5,421 54,000	98 ---
	Proceeds from issuance of junior subordinated deferrable interest debentures		---	10,300
	Fees paid on issuance of trust preferred securities Proceeds from exercise of stock options Proceeds from the sale of treasury stock		--- 98 99	(265) 108 ---
	Cash dividends paid		(1,212)	(1,204)
		Net cash from financing activities	38,157	(10,272)

Net change in cash and cash equivalents			(311)	(2,928)

Cash and cash equivalents:
	At beginning of period		11,095	16,734
	At end of period		$ 10,784 =========	$ 13,806 ==========

Cash paid during period:

Interest			$ 7,259	$ 7,641

Income Taxes			$ 170	$ 900

See notes to consolidated financial statements

United Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

For the period ended September 30, 2004

Note 1 - Consolidated Financial Statements

The consolidated financial statements of United Bancshares, Inc. and subsidiaries (the “Company”) reflect all adjustments (which include normal recurring adjustments) necessary to present fairly such information for the periods and dates indicated. Since the unaudited financial statements have been prepared in accordance with instructions to Form 10-Q, they do not contain all information and footnotes typically included in financial statements prepared in conformity with generally accepted accounting principles. Operating results for the nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. Complete audited consolidated financial statements with footnotes thereto are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Significant inter-company accounts and transactions have been eliminated in consolidation. The accounting and reporting policies of the Company conform to generally accepted practices within the banking industry. The Company considers all of its principal activities to be banking related.

Note 2 - Branch Acquisitions

In December 2002, the Company’s wholly-owned subsidiary, The Union Bank Company “Union”, entered into a purchase and assumption agreement to purchase certain assets and assume certain liabilities assigned to the branch offices of RFC Banking Company “RFCBC” in Pemberville and Gibsonburg, Ohio. The acquisition received approval from regulatory authorities, and was completed on March 28, 2003. The acquisition was accounted for as a business combination since the Company acquired substantially all operating assets and liabilities of the branches and retained most of the branch employees. Consequently, assets acquired and liabilities assumed in connection with the acquisition were recorded at fair value and included the following: Cash ($5,749,000), loans ($56,006,000), premises and equipment ($1,033,000), and deposits ($71,955,000). Based on the negotiated purchase price, the transaction resulted in the recording of a deposit base premium of $1,778,000 and goodwill of $7,282,000. The results of operations of the branches have been included for the period subsequent to the acquisition.

In accordance with Statement No. 142, “Goodwill and Other Intangible Assets”, issued by the Financial Accounting Standards Board, the goodwill arising from the RFCBC acquisition is not amortized but is subject to an annual impairment test. The deposit base premium is being amortized over a period of 7 years.

NOTE 3 - Securities

The amortized cost and fair value of available-for-sale securities as of September 30, 2004 and December 31, 2003 are as follows (dollars in thousands):

	2004		2003
	Amortized cost	Fair value	Amortized cost	Fair value
U.S. Treasury and agencies	$ 20,582	$ 20,501	$ 21,952	$ 21,770
Obligations of states and political subdivisions	48,850	50,084	64,934	66,246
Mortgage-backed	128,859	129,913	81,966	82,436
Other	53	53	53	53

Total	$ 198,344 ========	$ 200,551 =======	$ 168,905 =======	$ 170,505 =======