UNITED BANCSHARES INC /PA - FORM 10-Q

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EX-31.2 - EXHIBIT 31.2 - UNITED BANCSHARES INC /PA	ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - UNITED BANCSHARES INC /PA	ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - UNITED BANCSHARES INC /PA	ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - UNITED BANCSHARES INC /PA	ex32-1.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

FORM 10-Q

(Mark One)

_X_

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011 OR

___

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO _____________

UNITED BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

0-25976

Commission File Number

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

30 S. 15th Street, Suite 1200, Philadelphia, PA	19102
(Address of principal executive office)	(Zip Code)

(215) 351-4600

(Registrant's telephone number, including area code)

N/A

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Registration S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ____ No____

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

Large accelerated filer___

Accelerated filer___

Non-accelerated filer_X_

Smaller Reporting Company ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes_____ No_X__

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes _____ No _____ Not Applicable.

Applicable only to corporate issuers:

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.

United Bancshares, Inc. (sometimes herein also referred to as the “Company” or “UBS”) has two classes of capital stock authorized - 2,000,000 shares of $.01 par value Common Stock and 500,000 shares of $0.01 par value Series A Preferred Stock.

The Board of Directors designated a subclass of the common stock, Class B Common Stock, by filing of Articles of Amendment to its Articles of Incorporation on September 30, 1998. This Class B Common Stock has all of the rights and privileges of Common Stock with the exception of voting rights. Of the 2,000,000 shares of authorized Common Stock, 250,000 have been designated Class B Common Stock. There is no market for the Common Stock. As of May 4, 2011, the aggregate number of the shares of the Registrant’s Common Stock issued was 1,068,588 (including 191,667 Class B non-voting).

The Series Preferred Stock consists of 500,000 authorized shares of stock of which 250,000 have been designated as Series A Preferred stock of which 136,842 shares are issued as of May 4, 2011.

FORM 10-Q

Index

Item No.	Page


PART I-FINANCIAL INFORMATION

1. Financial Statements	4
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
3. Quantitative and Qualitative Disclosures about Market Risk	33
4. Controls and Procedures	34

PART II-OTHER INFORMATION


1. Legal Proceedings	34
1A. Risk Factors	34
2. Unregistered Sales of Equity Securities and Use of Proceeds	34
3. Defaults upon Senior Securities	35
4. Reserved	35
5. Other Information	35
6. Exhibits	35

Item 1. Consolidated Statements of Condition--unaudited)


	March 31,			December 31,
	2011			2010
Assets
Cash and due from banks	$	2,055,525		$	2,144,390
Interest bearing deposits with banks		304,890			304,721
Federal funds sold		9,372,000			6,247,000
Cash & cash equivalents		11,732,415			8,696,111

Investment securities:
Held-to-maturity, at amortized cost (fair value of $15,342,230
and $15,242,856 at March 31, 2011 and December 31, 2010, respectively)		15,341,670			15,138,389
Available-for-sale, at fair value		1,259,874			1,338,898

Loans, net		41,938,033			45,612,217
Less: allowance for loan losses		(743,965	)		(925,905	)
Net loans		41,194,068			44,686,312

Bank premises & equipment, net		1,105,518			1,143,347
Accrued interest receivable		377,241			363,348
Other real estate owned		2,015,112			1,416,543
Core deposit intangible		447,370			491,889
Prepaid expenses and other assets		631,158			690,878
Total Assets	$	74,104,426		$	73,965,715

Liabilities & Shareholders' equity
Demand deposits, non-interest bearing	$	13,714,391		$	13,528,781
Demand deposits, interest bearing		13,896,219			13,802,602
Savings deposits		14,061,139			13,856,033
Time deposits, $100,000 and over		18,290,783			17,975,595
Other time deposits		7,782,491			8,047,679
		67,745,023			67,210,690

Accrued interest payable		60,449			56,907
Accrued expenses and other liabilities		310,786			400,702
Total Liabilities		68,116,258			67,668,299

Shareholders' equity:
Preferred Stock, Series A, non-cumulative., 6%, $.01 par value,		1,368			1,368
500,000 shares authorized., 136,842 issued and outstanding
Common stock, $.01 par value; 2,000,000 shares authorized;
876,921 shares issued and outstanding		8,769			8,769
Class B Non-voting common stock; 250,000 shares authorized; $0.01 par value;
191,667 shares issued and outstanding		1,917			1,917
Additional-paid-in-capital		14,749,852			14,749,852
Accumulated deficit		(8,815,549	)		(8,508,591	)
Net unrealized gain on available-for-sale securities		41,811			44,101
Total shareholders' equity		5,988,168			6,297,416
	$	74,104,426		$	73,965,715

See Accompanying Notes to Consolidated Financial Statements which are an integral part of the unaudited consolidated financial statements.

Consolidated Statements of Operations—(unaudited)

	Quarter ended			Quarter ended
	March 31,			March 31,
	2011			2010
Interest Income:
Interest and fees on loans	$	668,282		$	693,231
Interest on investment securities		153,231			115,982
Interest on Federal Funds sold		3,244			2,079
Interest on time deposits with other banks		173			726
Total interest income		824,930			812,018

Interest Expense:
Interest on time deposits		39,793			52,508
Interest on demand deposits		17,710			19,615
Interest on savings deposits		3,420			3,735
Total interest expense		60,923			75,858

Net interest income		764,007			736,160

Provision for loan losses		30,000			30,000
Net interest income less provision for
loan losses		734,007			706,160

Noninterest income:
Customer service fees		97,285			105,611
ATM activity fees		86,174			90,829
Loan syndication fees		-			30,000
Other income		30,218			40,900
Total noninterest income		213,677			267,340

Non-interest expense
Salaries, wages, and employee benefits		429,738			428,846
Occupancy and equipment		270,145			254,015
Office operations and supplies		77,356			72,805
Marketing and public relations		22,792			3,264
Professional services		70,731			68,052
Data processing		126,017			115,776
Deposit insurance assessments		42,138			35,324
Loan collection and other real estate		47,572			27,306
Other noninterest expense		168,153			158,577
Total non-interest expense		1,254,642			1,163,965

Net loss	$	(306,958	)	$	(190,465	)

Loss per share-basic	$	(0.29	)	$	(0.18	)
Loss per share-diluted	$	(0.29	)	$	(0.18	)

Weighted average number of shares		1,065,088			1,065,088

See Accompanying Notes to Consolidated Financial Statements which are an integral part of the unaudited consolidated financial statements.

Consolidated Statements of Cash Flows--(unaudited)


	Three Months Ended			Three Months Ended
	March 31,			March 31,
	2011			2010
Cash flows from operating activities
Net loss	$	(306,958	)	$	(190,465	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for loan losses		30,000			30,000
Depreciation expense		63,018			71,430
Amortization expense		53,398			54,662
Increase in accrued interest receivable and other assets		45,827			41,559
Decrease in accrued interest payable and other liabilites		(86,374	)		(170,380	)
Net cash used in operating activities		(201,089	)		(163,194	)

Cash flows from investing activities
Purchase of investments-Held-to-Maturity		(1,767,805	)		(1,765,902	)
Proceeds from maturity & principal reductions of investments-Available-for-Sale		80,000			262,533
Proceeds from maturity & principal reductions of investments-Held-to-Maturity		1,555,911			1,976,391
Net decrease in loans		2,860,144			330,011
Purchase of premises and equipment		(25,190	)		(32,384	)
Net cash provided by investing activities		2,703,060			770,649

Cash flows from financing activities
Net increase (decrease) in deposits		534,333			(716,356	)
Net cash provided by (used in) financing activities		534,333			(716,356	)

Increase (decrease) in cash and cash equivalents		3,036,304			(108,901	)

Cash and cash equivalents at beginning of period		8,696,111			6,289,844

Cash and cash equivalents at end of period	$	11,732,415		$	6,180,943

Supplemental disclosures of cash flow information
Cash paid during the period for interest	$	57,381		$	69,028
Noncash transfer of loans to other real estate owned	$	602,100		$	474,697

See Accompanying Notes to Consolidated Financial Statements which are an integral part of the unaudited consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(unaudited)

1. Significant Accounting Policies

United Bancshares, Inc. (the "Company") is a bank holding company registered under the Bank Holding Company Act of 1956. The Company's principal activity is the ownership and management of its wholly owned subsidiary, United Bank of Philadelphia (the "Bank").

During interim periods, the Company follows the accounting policies set forth in its Annual Report on Form 10-K filed with the Securities and Exchange Commission. Readers are encouraged to refer to the Company's Form 10-K for the fiscal year ended December 31, 2010 when reviewing this Form 10-Q. Quarterly results reported herein are not necessarily indicative of results to be expected for other quarters.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the Company's consolidated financial position as of March 31, 2011 and December 31, 2010 and the consolidated results of its operations for the three month periods ended March 31, 2011 and 2010, and its consolidated cash flows for the three months ended March 31, 2011 and 2010.

Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates. An estimate that is particularly susceptible to change in the near term is the allowance for loan losses.

Commitments

In the general course of business, there are various outstanding commitments to extend credit, such as letters of credit and un-advanced loan commitments, which are not reflected in the accompanying financial statements. Management does not anticipate any material losses as a result of these commitments.

Contingencies

The Company is from time to time a party to routine litigation in the normal course of its business. Management does not believe that the resolution of this litigation will have a material adverse effect on the financial condition or results of operations of the Company. However, the ultimate outcome of any such litigation, as with litigation generally, is inherently uncertain and it is possible that some litigation matters may be resolved adversely to the Company.

Income Taxes

Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities. Deferred tax assets are subject to management’s judgment based upon available evidence that future realization is more likely than not. For financial reporting purposes, a valuation allowance of 100% of the net deferred tax asset has been recognized to offset the net deferred tax assets related to cumulative temporary differences and tax loss carryforwards. If management determines that the Company may be able to realize all or part of the deferred tax asset in the future, an income tax benefit may be required to increase the recorded value of the net deferred tax asset to the expected realizable amount.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that ultimately would be sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more-likely-than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions. Tax positions that meet the more-likely-than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest and penalties associated with unrecognized tax benefits, if any, would be recognized in income tax expense in the consolidated statements of operations.

Subsequent Events

In accordance with FASB ASC Topic 855, Subsequent Events, management has evaluated subsequent events through May 16, 2011 and has determined that no recognized or non-recognized subsequent events warranted inclusion or disclosure in the interim financial statements as of March 31, 2011.

2. Comprehensive Loss

Total comprehensive loss includes net loss and other comprehensive income or loss that is comprised of unrealized gains and losses on investment securities available for sale, net of taxes. The Company’s total comprehensive loss for the three months ended March 31, 2011 and 2010 was $(309,248) and $(193,892), respectively. The difference between the Company’s net loss and total comprehensive loss for these periods relates to the change in net unrealized gains and losses on investment securities available for sale during the applicable period of time.

3. Net Loss Per Share

The calculation of net loss per share follows:

	Three Months Ended March 31, 2011			Three Months Ended March 31, 2010
Basic:
Net loss available to common shareholders	$	(306,958	)	$	(190,465	)
Average common shares outstanding-basic		1,065,588			1,065,588
Net loss per share-basic	$	(0.29	)	$	(0.18	)
Fully Diluted:
Average common shares-fully diluted		1,065,588			1,065,588
Net loss per share-fully diluted	$	(0.29	)	$	(0.18	)

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

4. New Authoritative Accounting Guidance

FASB ASC Topic 310, “Receivables.” New authoritative accounting guidance (Accounting Standards Update No. 2011-01) under ASC Topic 310, "Receivables", temporarily delayed the effective date of the disclosures about troubled debt restructurings in Update 20 10-20. The delay was intended to allow the Board time to complete its deliberations on what constituted a troubled debt restructuring. In April 2011, new authoritative guidance (Accounting Standards Update No. 2011-02) under ASC Topic 310 was released to assist creditors in determining whether a restructuring is a troubled debt restructuring. This update clarifies the guidance on a whether a creditor has made a concession and whether a debtor is experiencing financial difficulties. In addition, the disclosures that were deferred under ASU 2011-01 will now be required. ASU 2011-02 is effective for the first interim or annual period beginning after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. Early adoption is permitted. The Company will evaluate this new disclosure guidance, but does not expect it to have any effect on the Company's reported financial condition or results of operations.

5. Investment Securities

The following is a summary of the Company's investment portfolio as of March 31, 2011:

	Amortized Cost		Gross unrealized gains		Gross unrealized losses			Fair Value
Available-for-sale:
Government Sponsored Enterprises residential mortgage-backed securities	$	1,068,432	$	62,405	$	-		$	1,130,837
Investments in mutual funds		129,037		-		-			129,037
	$	1,197,469	$	62,405		-		$	1,259,874
Held-to-maturity:
U.S. government agencies	$	9,905,505	$	49,297	$	(197,210	)	$	9,757,592
Government Sponsored Enterprises residential mortgage-backed securities		5,436,165		156,962		(8,489	)		5,584,638
	$	15,341,670	$	206,259	$	(205,699	)	$	15,342,230

The following is a summary of the Company's investment portfolio as of December 31, 2010:

	Amortized Cost		Gross unrealized gains		Gross unrealized losses			Fair Value
Available-for-sale:
Government Sponsored Enterprises residential mortgage-backed securities	$	1,144,091	$	65,822		-		$	1,209,913
Investments in mutual funds		128,915		-		-			128,915
	$	1,273,006	$	65,822		-		$	1,338,828
Held-to-maturity:
U.S. government agencies	$	10,401,918	$	90,281	$	(145,356	)	$	10,346,843
Government Sponsored Enterprises residential mortgage-backed securities		4,736,472		165,675		(6,134	)		4,896,013
	$	15,138,390	$	255,956	$	(151,490	)	$	15,242,856

The amortized cost and fair value of debt securities classified as available-for-sale and held-to-maturity, by contractual maturity, as of March 31, 2011, are as follows:

	Amortized Cost		Fair Value
Available-for-Sale
Due within one year	$	-	$	-
Due after one year through three years		-		-
Due after three years through five years		-		-
Due five years through ten years		-		-
Due after 10 years		-		-
Government Sponsored Enterprises residential mortgage-backed securities		1,068,432		1,130,837
Total debt securities		1,068,432		1,130,837
Investments in mutual funds		129,037		129,037
	$	1,197,469	$	1,259,874

Held to maturity
Due within one year	$	-	$	-
Due after one year through three years		-		-
Due after three years through five years		250,000		249,103
Due five years through ten years		8,623,965	$	8,509,848
Due after 10 years		1,031,540		998,641
Government Sponsored Enterprises residential mortgage-backed securities		5,436,165		5,584,638
	$	15,341,670	$	15,342,230

Expected maturities will differ from contractual maturities because the issuers of certain debt securities do have the right to call or prepay their obligations without any penalties.

The table below indicates the length of time individual securities, have been in a continuous unrealized loss position at March 31, 2011:

(in 000’s)	Less Than 12 Months					12 Months or Greater				Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Held to maturity:
U.S. government agencies	$	5,671	$	(197	)	$	-	$	-	$	5,671	$	(197	)

Government Sponsored Enterprises residential mortgage-backed securities		1,026		(9	)		-		-		1,026		(9	)
Total	$	6,697	$	(206	)	$	-	$	-	$	6,697	$	(206	)

The table below indicates the length of time individual securities, have been in a continuous unrealized loss position at December 31, 2010:

(in 000’s)	Less Than 12 Months					12 Months or Greater				Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Held-to-maturity:
U.S. government agencies	$	5,398	$	(145	)	$	-	$	-	$	5,398	$	(145	)
Government Sponsored Enterprises residential mortgage-backed securities		536		(6	)		-		-		536		(6	)
Total	$	5,934	$	(151	)	$	-	$	-	$	5,934	$	(151	)

U.S. government and agencies. Unrealized losses on the Company’s investments in direct obligations of U.S. government agencies were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2011.

Government Sponsored Enterprises residential mortgage-backed securities. Unrealized losses on the Company’s investment in federal agency mortgage-backed securities may be caused by interest rate increases. The Company purchased those investments at a discount relative to their face amount, and the contractual cash flows of those investments are guaranteed by an agency of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost bases of the Company’s investments. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2011.

The Company has a process in place to identify debt securities that could potentially have a credit impairment that is other than temporary. This process involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit issues. On a quarterly basis, we review all securities to determine whether an other-than-temporary decline in value exists and whether losses should be recognized. We consider relevant facts and circumstances in evaluating whether a credit or interest rate-related impairment of a security is other than temporary. Relevant facts and circumstances considered include: (1) the extent and length of time the fair value has been below cost; (2) the reasons for the decline in value; (3) the financial position and access to capital of the issuer, including the current and future impact of any specific events and (4) for fixed maturity securities, our intent to sell a security or whether it is more likely than not we will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity and for equity securities, our ability and intent to hold the security for a period of time that allows for the recovery in value.

6. Allowance for Loan Losses

The Company considers that the determination of the allowance for loan losses involves a higher degree of judgment and complexity than its other significant accounting policies. The balance in the allowance for loan losses is determined based on management's review and evaluation of the loan portfolio in relation to past loss experience, the size and composition of the portfolio, current economic events and conditions, and other pertinent factors, including management's assumptions as to future delinquencies, recoveries and losses. All of these factors may be susceptible to significant change. To the extent actual outcomes differ from management’s estimates, additional provisions for loan losses may be required that would adversely impact earnings in future periods. The following table presents an analysis of the allowance for loan losses.

	For the three months ended March 31, 2011
(in 000's)
	Commercial and industrial			Commercial real estate			Residential mortgages		Consumer real estate		Consumer loans other			Total
Beginning balance	$	301		$	553		$	36	$	36	$	-		$	926
Provision for possible loan losses		-			23			-		-		7			30

Charge-offs		(62	)		(148	)		-		-		(13	)		(223	)
Recoveries		-			2			-		3		6			11
Net charge-offs		(62	)		(146	)		-		3		(7	)		(212	)

Ending balance	$	239		$	430		$	36	$	39	$	-		$	744

Period-end amount allocated to:

Loans indivdually evaluated for impairment	$	-		$	22		$	-	$	-	$	-		$	22
Loans collectively evaluated for impairment		239			408			36		39		-			722
	$	239		$	430		$	36	$	39	$	-		$	744

Loans, ending balance:
Loans indivdually evaluated for impairment	$	439		$	1,261		$	-	$	129	$	-		$	1,829
Loans collectively evaluated for impairment		3,366			28,503			3,847		2,271		2,122			40,109
Total	$	3,805		$	29,764		$	3,847	$	2,400	$	2,122		$	41,938

							For the three months ended March 31, 2010

Allowance for credit losses
Beginning balance														$	727
Charge-offs:															(131	)
Recoveries:															16
Net charge-offs															(115	)
Provisions for loan losses charged to expense															30
Ending balance														$	642

Nonperforming and Nonaccrual and Past Due Loans

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

An age analysis of past due loans, segregated by class of loans, as of March 31, 2011 follows:


(In thousands)			Accruing
	Loans		Loans 90 or
	30-89 Days		More Days				Total Past		Current
	Past Due		Past Due		Nonaccrual		Due Loans		Loans		Total Loans
Commercial and industrial:
Commercial	$	97,644	$	10,614	$	441,234		549,492	$	1,131,772	$	1,681,264
SBA loans		-		-		18,223		18,223		195,328		213,551
Asset-based				100,941		-		100,941		1,809,539		1,910,480
Total Commercial and industrial		97,644		111,555		459,457		668,656		3,136,639		3,805,295

Commercial real estate:
Commercial mortgages		150,743		-		741,693		892,436		14,073,818		14,966,254
SBA loans		4,499		11,100		58,123		73,722		481,110		554,832
Construction										492,825		492,825
Religious organizations		-		125,908		314,702		440,610		13,309,274		13,749,884
Total Commercial real estate		155,242		137,008		1,114,518		1,406,768		28,357,027		29,763,795

Consumer real estate:
Home equity loans		155,040		291,616		128,785		575,441		1,198,888		1,774,329
Home equity lines of credit		39,118		-		-		39,118		586,415		625,533
1-4 family residential mortgages		-		-		303,028		303,028		3,544,113		3,847,141
Total consumer real estate		194,158		291,616		431,813		917,587		5,329,416		6,247,003

Total real estate		349,400		428,624		1,546,331		2,324,355		33,686,443		36,010,798

Consumer and other:
Consumer installment		3,176		-		-		3,176		68,233		71,409
Student loans		80,537		83,159		-		163,696		1,668,594		1,832,290
Other		7,489		18,590		-		26,079		192,162		218,241
Total consumer and other		91,202		101,749		-		192,951		1,928,989		2,121,940

Total loans	$	538,246	$	641,928	$	2,005,788	$	3,185,962	$	38,752,071	$	41,938,033

An age analysis of past due loans, segregated by class of loans, as of December 31, 2010 follows:


			Accruing
	Loans		Loans 90 or
	30-89 Days		More Days				Total Past		Current
	Past Due		Past Due		Nonaccrual		Due Loans		Loans		Total Loans
Commercial and industrial:
Commercial	$	441,507	$	-	$	504,660		946,166	$	2,187,239	$	3,133,405
SBA loans		12,234		-		18,223		30,457		198,265		228,722
Asset-based		-		-		-		-		2,367,443		2,367,443
Total Commercial and industrial		453,741		-		522,883		976,623		4,752,947		5,729,570

Commercial real estate:
Commercial mortgages		125,348		-		1,494,690		1,620,038		14,154,137		15,774,175
SBA loans						58,123		58,123		1,252,909		1,311,032
Religious organizations		125,908		-		314,702		440,610		13,211,819		13,652,429
Total Commercial real estate		251,256		-		1,867,515		2,118,771		28,618,865		30,737,636

Consumer real estate:
Home equity loans		154,686		142,138		130,181		427,005		1,385,890		1,812,894
Home equity lines of credit		-		-		-		-		714,392		714,392
1-4 family residential mortgages		-		-		260,597		260,597		4,171,454		4,432,051
Total consumer real estate		154,686		142,138		390,778		687,602		6,271,736		6,959,337

Total real estate		405,941		142,138		2,258,293		2,806,373		34,890,600		37,696,973

Consumer and other:
Consumer installment		7,564		-		-		7,564		73,815		81,379
Student loans		87,464		43,731		-		131,195		1,781,180		1,912,375
Other		12,793		19,238		-		32,031		159,889		191,920
Total consumer and other		107,821		62,969		-		170,790		2,014,884		2,185,674

Total loans	$	967,503	$	205,107	$	2,781,176	$	3,953,786	$	41,658,431	$	45,612,217

Loan Origination/Risk Management. The Bank has lending policies and procedures in place to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with periodic reports related to loan origination, asset quality, concentrations of credit, loan delinquencies and non-performing and emerging problem loans. Diversification in the portfolio is a means of managing risk with fluctuations in economic conditions.

Credit Quality Indicators. For commercial loans, management uses internally assigned risk ratings as the best indicator of credit quality. Each loan’s internal risk weighting is assigned at origination and updated at least annually and more frequently if circumstances warrant a change in risk rating. The Bank uses a 1 through 7 loan grading system that follows regulatory accepted definitions as follows:

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

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

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

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

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

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

For consumer and residential mortgage loans, management uses performing versus nonperforming as the best indicator of credit quality. Nonperforming loans consist of loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more or when the ability to collect principal and interest according to contractual terms is in doubt. These credit quality indicators are updated on an ongoing basis. A loan is placed on nonaccrual status as soon as management believes there is doubt as to the ultimate ability to collect interest on a loan, but no later than 90 days past due.

The table below details the Bank’s loans by class according to their credit quality indictors discussed above.


	March 31, 2011
	Good/Excellent		Satisfactory		Pass		Special Mention		Subtandard		Total



Commercial and industrial:
Commercial	$	379,003	$	720,704	$	45,659	$	94,664	$	441,234	$	1,681,264
SBA loans		-		90,000		55,643		-		67,908		213,551
Asset-based		-		1,739,605		69,934		100,941		-		1,910,480
		379,003		2,550,309		171,236		195,605		509,142		3,805,295
Commercial real estate:
Commercial mortgages		-		12,799,133		668,759		644,364		853,998		14,966,254
SBA Loans				485,609		-		-		69,223		554,832
Construction		-		492,825		-		-		-		492,825
Religious organizations		-		9,945,021		3,004,253		360,000		440,610		13,749,884
		-		23,722,588		3,673,012		1,004,364		1,363,831		29,763,795

Total commercial loans	$	379,003	$	26,272,897	$	3,844,248	$	1,199,969	$	1,872,973	$	33,569,090


		March 31,2011
	Residential Mortgage & Consumer Loans- Performing/Nonperforming
	Performing				Nonperforming				Total

Consumer Real Estate:
Home equity	$	1,645,544			$	128,785			$	1,774,329
Home equity line of credit		625,533				-				625,533
1-4 family residential mortgages		3,544,113				303,028				3,847,141
		5,815,190				431,813				6,247,003

Consumer Other:
Consumer Installment		71,409				-				71,409
Student loans		1,832,290				-				1,832,290
Other		218,240				-				218,240
		2,121,939				-				2,121,939

Total consumer loans	$	7,937,129			$	431,813			$	8,368,942

Total loans											$	41,938,032


	December 31, 2010
	Good/Excellent		Satisfactory		Pass		Special Mention	Substandard	Total



Commercial and industrial:
Commercial	$	379,003	$	2,078,992	$	72,641	$

UNITED BANCSHARES INC /PA - FORM 10-Q - May 16, 2011

Attached files