UNITED BANCSHARES INC/OH - FORM 10-K - EX-13 - EXHIBIT 13

Attached files

file	filename
EX-23 - EXHIBIT 23 - UNITED BANCSHARES INC/OH	v429674_ex23.htm
EX-21 - EXHIBIT 21 - UNITED BANCSHARES INC/OH	v429674_ex21.htm
EX-31.2 - EXHIBIT 31.2 - UNITED BANCSHARES INC/OH	v429674_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - UNITED BANCSHARES INC/OH	v429674_ex32-1.htm
EX-99 - EXHIBIT 99 - UNITED BANCSHARES INC/OH	v429674_ex99.htm
EX-32.2 - EXHIBIT 32.2 - UNITED BANCSHARES INC/OH	v429674_ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - UNITED BANCSHARES INC/OH	v429674_ex31-1.htm
10-K - 10-K - UNITED BANCSHARES INC/OH	v429674_10k.htm

Exhibit 13

Table of Contents

	Page(s)
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 Comprehensive Income (Loss)	21
Consolidated Statements of Shareholders’ Equity	22

Consolidated Statements of Cash Flows	23
Notes to Consolidated Financial Statements	24

Directors and Officers	60

Shareholders, Clients and Team Members:

I am pleased to report that your Company had another prosperous year in 2015. In addition to reporting pre-tax income of approximately $7.3 million, a 36% increase over 2014, the Company also reported improvements in return on average equity (8.51%), return on average assets (0.94%), net interest margin (3.71%), and efficiency ratio (68.13%). These positive results were only possible because of the trust our clients have placed in us and the hard work and dedication of our team members.

While we are thankful for the successes in 2015, we are excited about 2016 and its opportunities. During 2016, we plan to continue looking for the best places for capital allocation to further improve the value of your investment. We will do this through strategic initiatives which include deepening our relationships with existing clients, the increase of our customer base, continuation of our share repurchase program, dividends, redesign and added functionality to our electronic footprint, expanding our wellness initiatives for our team members, and further development of our abilities to analyze and utilize market data and trends to increase our effectiveness and efficiencies while expanding our market share.

The effective use of technology continues to be a significant driver of our strategic vision. As part of the planning process for 2016 we invested in new technologies that allowed us to combine financial and market analysis to reach objective conclusions to help optimize the bank’s performance in its markets and maximize the bank’s franchise value. These new tools are allowing us to more specifically identify and implement the correct strategies to ensure appropriate capital allocation.

We continue to believe that a solid, established, and financially strong community bank is essential to the success of our communities; just as strong communities are critical to the success of your Company. Consequently, we take seriously the opportunity we have been given to make a difference in our communities and improve the lives of its residents. That belief, and the desire to serve our neighbors, has led your Company to make many financial contributions that promote health, education, public safety, and economic development in addition to countless hours by our staff members to make our communities a better place. This desire to build better, lasting relationships, is part of our strong corporate values of respect for and accountability to our shareholders, customers, colleagues, and communities.

As always, we greatly appreciate your continued support and the trust you have placed in us.

Respectfully,

Brian D. Young

President & CEO

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. 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. Effective, December 4, 2009, the Bank formed a wholly-owned subsidiary UBC Property, Inc. to hold and manage certain property that was acquired in lieu of foreclosure. Through its subsidiary, the Bank, the Corporation is engaged in the business of commercial banking and offers a full range of commercial banking services.

The Union Bank Company is an Ohio state-chartered bank, which serves Allen, Delaware, Hancock, Marion, Putnam, Sandusky, Van Wert and Wood Counties, with office locations in Bowling Green, Columbus Grove, Delaware, Delphos, Findlay, Gibsonburg, Kalida, Leipsic, Lima, Marion, 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. As of February 17, 2016, the common stock was held by 1,243 shareholders of record. Below are the trading highs and lows for the periods noted.

Year 2015	High		Low
First Quarter	$	15.37	$	14.30
Second Quarter	$	16.00	$	14.37
Third Quarter	$	16.00	$	15.12
Fourth Quarter	$	18.50	$	15.40

Year 2014	High		Low
First Quarter	$	16.32	$	14.25
Second Quarter	$	16.00	$	13.07
Third Quarter	$	15.73	$	13.54
Fourth Quarter	$	15.00	$	14.14

Dividends declared by United Bancshares, Inc. on its common stock during the past two years were as follows:

	2015		2014
First Quarter	$	0.09	$	0.15
Second Quarter		0.09		0.05
Third Quarter		0.09		0.07
Fourth Quarter		0.09		0.08
Total	$	0.36	$	0.35

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

800-837-8111

UNITED BANCSHARES, INC.

FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA

	Years ended December 31,
	2015			2014			2013			2012			2011
	(Dollars in thousands, except per share data)

Statements of income:
Total interest income	$	22,836		$	19,620		$	19,854		$	22,591		$	26,461
Total interest expense		2,077			2,668			3,250			4,675			7,326
Net interest income		20,759			16,952			16,604			17,916			19,135
Provision (credit) for loan losses		382			(430	)		(833	)		200			4,375

Net interest income after provision for loan losses		20,377			17,382			17,437			17,716			14,760
Total non-interest income		4,637			4,387			4,468			4,353			3,831
Total non-interest expenses		17,692			16,375			16,024			16,513			15,546
Income before federal income taxes		7,322			5,394			5,881			5,556			3,045
Federal income taxes		1,405			1,083			1,240			1,071			102

Net income	$	5,917		$	4,311		$	4,641		$	4,485		$	2,943
Per share of common stock:
Net income - basic	$	1.77		$	1.27		$	1.35		$	1.30		$	0.85
Dividends		0.36			0.35			0.20			0.05			-
Book value	$	21.62		$	20.12		$	18.31		$	18.62		$	17.34

Average shares outstanding - basic		3,309,339			3,406,194			3,446,662			3,446,133			3,445,469

Year end balances:
Loans (1)	$	354,597		$	361,167		$	295,737		$	307,402		$	340,700
Securities (2)		187,759			211,291			201,974			182,502			156,850
Total assets		608,665			650,200			556,235			572,448			587,045
Deposits		518,419			565,445			468,000			471,199			480,486
Shareholders' equity		71,561			67,772			63,008			64,170			59,748

Average balances:
Loans (1)		358,368			310,237			299,379			325,114			260,669
Securities (2)		207,738			201,447			192,578			167,766			151,736
Total assets		628,858			589,710			561,757			568,466			593,465
Deposits		531,929			498,224			462,368			464,448			481,600
Shareholders' equity		69,555			64,869			63,364			62,034			57,429

Selected ratios:
Net yield on average interest earning assets (3)		3.71	%		3.29	%		3.38	%		3.55	%		3.64	%
Return on average assets		0.94	%		0.73	%		0.83	%		0.79	%		0.50	%
Return on average shareholders equity		8.51	%		6.65	%		7.33	%		7.23	%		5.12	%

Net loan charge-offs (recoveries) as a percentage of average outstanding net loans		0.11	%		-0.08	%		0.71	%		0.58	%		1.07	%
Allowance for loan losses as a percentage of year end loans		1.08	%		1.06	%		1.36	%		2.27	%		2.51	%
Shareholders' equity as a percentage of total assets		11.04	%		10.42	%		11.33	%		11.21	%		10.18	%

Notes:

1) Includes loans held for sale.

2) Includes Restricted Bank Stock.

3) Net yield on average interest-earning assets was computed on a tax-equivalent basis.

4) Financial data for 2015 and 2014 includes the impact of The Ohio State Bank acquisition.

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. Statements that do not describe historical or current facts, including statements about beliefs and expectations, are forward-looking statements. Forward-looking statements may be identified by words such as expect, anticipate, believe, intend, estimate, plan, target, goal, or similar expressions, or future or conditional verbs such as will, may, might, should, would, could, or similar variations. 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.

The following discussion provides additional information relating to the financial condition and results of operations of United Bancshares, Inc. Results for 2014 and 2015 were affected by the completion of the acquisition of The Ohio State Bank on November 14, 2014. This section should be read in conjunction with the consolidated financial statements and the supplemental data contained elsewhere in the Annual Report on Form 10-K.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

United Bancshares, Inc. (the “Corporation”) is a one-bank holding company that conducts business through its wholly-owned subsidiary, The Union Bank Company (the “Bank”). The Bank is an Ohio state-chartered commercial bank that provides financial services to communities based in northwest Ohio and central Ohio, where it operates fifteen full-service branches.

As a commercial bank, the Bank concentrates its efforts on serving the financial needs of the businesses in and around the counties it serves. The Bank also provides financing to customers seeking to purchase or build their own homes. The Bank provides deposit, treasury management, wealth management, and other traditional banking products through its full-service branch office network and its electronic banking services.

Financial Condition

The Corporation and the Bank consolidated assets totaled $608.7 million at December 31, 2015, compared to $650.2 million at December 31, 2014, representing a decrease of $41.5 million or 6.4% from the year-ago period. The asset categories driving the overall decrease in assets from the year-ago period include cash and cash equivalents, available-for-sale securities, certificates of deposit, gross loans, premises and equipment, other intangible assets, other real estate owned and other assets with decreases from the year-ago period of $9.4 million (29.2%), $23.5 million (11.4%), $0.5 million (20.0%), $6.7 million (1.85%), $0.3 million (2.7%), $0.1 million (13.2%), $0.4 million (67.7%) and $1.1 million (17.4%), respectively. The decrease in total assets from the year-ago period was offset by increases in loans held for sale and cash surrender value of life insurance of $.1 million (51.2%) and $0.4 million (2.6%).

Deposits decreased from the year-ago period by $47.0 million (8.3%).

Loans

At December 31, 2015, total loans, including loans held for sale, amounted to $354.6 million compared to $361.2 million at December 31, 2014, a decrease of $6.6 million (1.8%). The following categories within the loan portfolio represent the majority of the change during 2015: residential real estate decreased $2.3 million (2.8%), commercial loans increased $1.3 million (0.6%), agriculture loans decreased $4.8 million (12.0%), and consumer loans decreased $0.9 million (19.6%).

Securities

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 Federal Home Loan Bank of Cincinnati (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.

Securities, including restricted bank stock, totaled $187.8 million at December 31, 2015 compared to $211.3 million at December 31, 2014, a decrease of $23.5 million (11.1%). The amortized cost of the securities portfolio also decreased $23.5 million in 2015, and the Corporation experienced net unrealized losses on securities of $23,000 during 2015.

The Corporation 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. There were no changes to the FHLB stock balance during 2015. In 2014, the FHLB stock balance was reduced by $749,600 as a result of a stock repurchase initiated by FHLB. The Corporation also acquired $641,600 in FHLB stock, and $43,740 in other bank restricted stock with The Ohio State Bank acquisition.

At December 31, 2015, the Corporation’s investment securities portfolio included $73.5 million in U.S. states and political subdivisions, which exceeded shareholders’ equity by 2.7%. The largest exposure to any one state is $11.3 million, or 16%, issued within the state of Wisconsin. The Corporation’s procedures for evaluating investments in securities issued by states, municipalities and political subdivisions are in accordance with guidance issued by the Board of Governors of the Federal Reserve System, “Investing in Securities without Reliance on Nationally Recognized Statistical Rating Agencies” (SR 12-15) and other regulatory guidance. Credit ratings are considered in our analysis only as a guide to the historical default rate associated with similarly-rated bonds. There have been no significant differences in our internal analyses compared with the ratings assigned by the third party credit rating agencies.

At December 31, 2015 and 2014, net unrealized gains on available-for-sale securities amounted to $2.1 million. At December 31, 2015, the Corporation held seventy-four securities which were in a loss position with the fair value and gross unrealized losses of such securities amounting to $63.0 million and $0.9 million, respectively. Management has considered the current interest rate environment, typical volatilities in the bond market, and the Corporation’s liquidity needs in the near term in concluding that the impairment on these securities is temporary.

Other Assets

During 2015, other real estate owned (OREO) decreased $363,000 to $173,000 at December 31, 2015, compared to $536,000 at December 31, 2014. During 2015, $427,000 was transferred to OREO. Throughout 2015, the Corporation evaluated its OREO portfolio and made $228,000 of impairment adjustments.

Deposits

Total deposits at December 31, 2015 amounted to $518.4 million, a decrease of $47.0 million (8.3%) compared with total deposits of $565.4 million at December 31, 2014. The decrease in deposits includes a $48.0 million decrease in interest bearing deposits and a $1.0 million increase in non-interest bearing deposits.

Other Borrowings

The Corporation 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 amounted to $2.1 million at December 31, 2015 (none at December 31, 2014).

Results of Operation – 2015 Compared to 2014

Performance Summary

Consolidated net income for the Corporation and the Bank was $5.9 million in 2015 compared to $4.3 million in 2014 and $4.6 million in 2013.

Net income in 2015 as compared to 2014 was favorably impacted by a $3,807,000 increase in net interest income and a $250,000 increase in non-interest income offset by an $812,000 increase in the provision for loan losses, a $1,317,000 increase in non-interest expenses and a $322,000 increase in the provision for income taxes. The increase in the provision for loan losses is more fully explained in the “Provision for Loan Losses and the Allowance for Loan Losses” section.

The Corporation’s return on average assets was .94% in 2015, compared to .73% in 2014, and .83% in 2013. The Corporation’s return on average shareholders’ equity was 8.51% in 2015, 6.65% in 2014, and 7.33% in 2013. Basic net income per share was $1.77 per share in 2015, an increase of $0.50 per share from $1.27 in 2014. Basic net income per share of $1.27 in 2014 represented a decrease of $0.08 per share from $1.35 in 2013. Changes in these amounts from year to year were generally reflective of changes in the level of net income.

Net Interest Income

Net interest income, which represents the revenue generated from interest-earning assets in excess of the interest cost of funding those assets, is the Corporation's principal source of income. Net interest income is influenced by market interest rate conditions and the volume and mix of interest-earning assets and interest-bearing liabilities. Many external factors affect net interest income and typically include the strength of client loan demand, client preference for individual deposit account products, competitors’ loan and deposit product offerings, the national and local economic climates, and Federal Reserve monetary policy.

Net interest income for 2015 was $20.8 million, an increase of $3,807,000 (22.5%) from 2014. The increase in net interest income was primarily due to an increase in the net interest margin. The net interest yield on average interest-earning assets, on a tax-equivalent basis, increased in 2015 to 4.07% from 3.78% in 2014. A majority of this increase was a result of the average yield on loans for 2015 increasing to 5.11% compared to 4.82% in 2014. Additionally, the average rate on interest-bearing liabilities decreased to 0.47% in 2015 from 0.61% in 2014.

Provision for Loan and Lease Losses and the Allowance for Loan and Lease Losses

The Corporation’s loan policy provides guidelines for managing both credit risk and asset quality. The policy details acceptable lending practices, establishes loan-grading classifications, and prescribes the use of a loan review process. The Corporation has a credit administration department that performs regular credit file reviews which facilitate the timely identification of problem or potential problem credits, ensure sound credit decisions, and assist in the determination of the allowance for loan losses. The Corporation also engages an outside credit review firm to supplement the credit analysis function and to provide an independent assessment of the loan review process. The loan policy, loan review process, and credit analysis function facilitate management's evaluation of the credit risk inherent in the lending function.

As mentioned, ongoing reviews are performed to identify potential problem and nonperforming loans and also provide in-depth analysis with respect to the quarterly allowance for loan losses calculation. Part of this analysis involves assessing the need for specific reserves relative to impaired loans. This evaluation typically includes a review of the recent performance history of the credit, a comparison of the estimated collateral value in relation to the outstanding loan balance, the overall financial strength of the borrower, industry risks pertinent to the borrower, and competitive trends that may influence the borrower’s future financial performance. Loans are considered to be impaired when, based upon the most current information available, it appears probable that the borrower will not be able to make payments according to the contractual terms of the loan agreement. Impaired loans are recorded at the observable market price of the loan, the fair value of the underlying collateral (if the loan is collateral dependent), or the present value of the expected future cash flows discounted at the loan's effective interest rate. Given that the Corporation’s impaired loans are typically collateralized by real estate or other borrower assets, the fair value of individual impaired loans is most often based upon the underlying collateral value net of estimated selling costs. Large groups of smaller balance homogenous loans are collectively evaluated for impairment.

To determine the allowance for loan losses, the Corporation prepares a detailed analysis that focuses on delinquency trends, the status of nonperforming loans (i.e., impaired, nonaccrual, restructured, and past due 90 days or more), current and historical trends of charged-off loans within each loan category (i.e., commercial, real estate, and consumer), existing local and national economic conditions, and changes within the volume and mix in each loan category. Higher loss rates are applied in calculating the allowance for loan losses relating to potential problem loans. Loss rates are periodically evaluated considering historic loss rates in the respective potential problem loan categories (i.e., special mention, substandard, doubtful) and current trends.

Regular provisions are made in amounts sufficient to maintain the balance in the allowance for loan losses at a level considered by management to be adequate for losses within the portfolio. Even though management uses all available information to assess possible loan losses, future additions or reductions to the allowance may be required as changes occur in economic conditions and specific borrower circumstances. The regulatory agencies that periodically review the Corporation’s allowance for loan losses may also require additions to the allowance or the charge-off of specific loans based upon the information available to them at the time of their examinations.

The allowance for loan losses at December 31, 2015 was $3.8 million, or 1.08% of total loans, compared to $3.8 million, or 1.06% of total loans at December 31, 2014. The change in the allowance for loan losses during 2015 included a $382,000 provision for loan losses charged to operations and loan charge-offs, net of recoveries, of $387,000.

Impaired loans, principally consisting of commercial and commercial real estate credits, amounted to $6.0 million at December 31, 2015 compared to $3.7 million at December 31, 2014, an increase of $2.3 million. Impaired loans at December 31, 2015 included $6.0 million in loans with specific reserves of $1.4 million (no impaired loans without any specific reserves) included in the Corporation’s allowance for loan losses at December 31, 2015. Impaired loans at December 31, 2014 included $1.0 million of loans with no specific reserves included in the allowance for loan losses and $2.7 million of loans with specific reserves of $807,000 included in the Corporation’s allowance for loan losses at December 31, 2014.

In addition to impaired loans, the Corporation had other potential problem credits of $15.0 million at December 31, 2015 compared to $18.7 million at December 31, 2014, a decrease of $3.7 million (19.8%). The Corporation’s credit administration department continues to closely monitor these credits.

Non-Interest Income

Total non-interest income increased $250,000 (5.7%) to $4.64 million in 2015 from $4.39 million in 2014. With the exception of net securities gains, most of the components of non-interest income are recurring, although certain components are more susceptible to change than others. Net securities gains decreased in 2015 to $116,000 compared to $400,000 in 2014.

Significant recurring components of non-interest income include service charges on deposit accounts, secondary market lending activities, and increases in the cash surrender value of life insurance. Service charges on deposit accounts increased $190,000 (14.3%) to $1,515,000 in 2015 compared to $1,325,000 in 2014.

The Corporation has elected to sell in the secondary market substantially all fixed rate residential real estate loans originated, and typically retains the servicing rights relating to such loans. During 2015, gain on sale of loans was $586,000, including $252,000 of capitalized servicing rights. Gain on sale of loans was $610,000 in 2014, including $134,000 of capitalized servicing rights. The decrease in gain on sale of loans was minimized by an increase in loan demand during 2015 with loan sales in 2015 amounting to $28.4 million compared to $15.6 million in 2014. The Corporation’s serviced portfolio increased $2.2 million during 2015 to $173.5 million at December 31, 2015.

The Corporation reports its mortgage servicing rights using the fair value measurement method. As a result, the Corporation recognized a $263,000 increase in the fair value of mortgage servicing rights during 2015, compared to a $147,000 decrease in the fair value of mortgage servicing rights in 2014. Prepayment assumptions are a key valuation input used in determining the fair value of mortgage servicing rights. While prepayment assumptions are constantly subject to change, such changes typically occur within a relatively small parameter from period to period. The prepayment assumptions used in determining the fair value of servicing are based on the Public Securities Association (PSA) Standard Prepayment Model. At December 31, 2015 the PSA factor was 170 compared to 195 at December 31, 2014.

Other operating income decreased $100,000 (5.6%) to $1.7 million in 2015 from $1.8 million in 2014. The increase in non-interest income for the year ended December 31, 2015 was primarily attributable to a $21,000 increase in debit card fee income, a $45,000 gain on sale of OREO, a $27,000 increase in income generated by the investment department, a $30,000 increase in cash surrender value of BOLI policies, a $410,000 increase in MTM adjustment of mortgage servicing rights, a $101,000 increase in recoveries of OSB loans and a $156,000 increase in debit card fee income offset by a $39,000 decrease in miscellaneous income.

Non-Interest Expenses

Total non-interest expenses amounted to $17,692,000 in 2015, compared to $16,375,000 in 2014, an increase of $1,317,000 (8.0%). Expense increases for the year ended December 31, 2015 included increases of $875,000 in salary and benefits, $549,000 in occupancy expenses, $353,000 in data processing and $131,000 in media expense. These increases were partially offset by a $73,000 decrease in stationary and printing as well as a $139,000 decrease in legal fees. Additionally, miscellaneous expenses were $455,000 lower in 2015 than in 2014 due to prepayment penalties incurred in 2014 as a result of the payoff of Federal Home Loan Bank advances as of December 31, 2014.

The significant components of other operating expenses are summarized in Note 11 to the consolidated financial statements.

Provision for Income Taxes

The provision for income taxes for 2015 was $1,405,000, an effective tax rate of 19.2%, compared to $1,083,000 in 2014, an effective rate of 20.1%. The Corporation’s effective tax rate was reduced from the federal statutory rate of 34% as a result of tax-exempt securities and loan interest income (7.9%) and life insurance contracts (2.0%) as well as a one-time accounting method change relating to bad debt reserve recapture (4.5%). At December 31, 2015, the Corporation has available alternative minimum tax credits of $792,700 which can be used in the future to the extent regular tax exceeds the alternative minimum tax.

Results of Operation – 2014 Compared to 2013

Performance Summary

Consolidated net income for the Corporation and the Bank was $4.3 million in 2014 compared to $4.6 million in 2013 and $4.5 million in 2012.

Net income in 2014 as compared to 2013 was negatively impacted by a $430,000 increase in the provision for loan losses, a $351,000 increase in non-interest expenses and an $80,000 decrease in non-interest income, and favorably impacted by a $348,000 increase in net interest income and a $157,000 decrease in the provision for income taxes. The increase in the provision for loan losses is more fully explained in the “Provision for Loan Losses and the Allowance for Loan Losses” section. The increase in net interest income is primarily due to decreased interest expense on borrowings offset by a decline in the Corporation’s net interest margin from 3.38% in 2013 to 3.29% in 2014.

The Corporation’s return on average assets was .73% in 2014, compared to .83% in 2013, and .79% in 2012. The Corporation’s return on average shareholders’ equity was 6.65% in 2014, 7.33% in 2013, and 7.23% in 2012. Basic net income per share was $1.27 per share in 2014, a decrease of $0.08 per share from $1.35 in 2013. Basic net income per share of $1.35 in 2013 represented an increase of $0.05 per share from $1.30 in 2012. Changes in these amounts from year to year were generally reflective of changes in the level of net income.

Net Interest Income

Net interest income for 2014 was $16.9 million, an increase of $300,000 (1.8%) from 2013. The increase in net interest income was primarily due to the Corporation paying off borrowings which reduced interest expense. Although net interest income increased, it was negatively impacted by a decrease in the net interest margin. The net interest yield on average interest-earning assets, on a tax-equivalent basis, decreased in 2014 to 3.78% from 3.99% in 2013. A majority of this decrease was a result of the average yield on loans for 2014 decreasing to 4.82% compared to 5.09% in 2013. The average rate on interest-bearing liabilities decreased to 0.61% in 2014 from 0.77% in 2013.

Provision for Loan and Lease Losses and the Allowance for Loan and Lease Losses

The allowance for loan losses at December 31, 2014 was $3.8 million, or 1.06% of total loans, compared to $4.0 million, or 1.36% of total loans at December 31, 2013. The 2014 ratio was impacted by the loans acquired in The Ohio State Bank acquisition. The change in the allowance for loan losses during 2014 included a $430,000 negative provision for loan losses charged to operations and loan recoveries, net of charge-offs, of $255,000.

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 negative provision for loan losses of $430,000 in 2014 compares to a negative provision of $833,000 in 2013. The negative provisions have been warranted as a result of improving market values on certain collateral, and impaired loans with specific reserves becoming pass-rated or paying off.

Impaired loans, principally consisting of commercial and commercial real estate credits, amounted to $3.7 million at December 31, 2014 compared to $2.8 million at December 31, 2013, an increase of $900,000. Impaired loans at December 31, 2014 included $1.0 million of loans with no specific reserves included in the allowance for loan losses and $2.7 million of loans with specific reserves of $807,000 included in the Corporation’s December 31, 2014 allowance for loan losses. Impaired loans at December 31, 2014 with no specific reserves include $181,000 of loan charge-offs during 2014. Impaired loans at December 31, 2013 included $2.1 million of loans with no specific reserves included in the allowance for loan losses and $660,000 of loans with specific reserves of $179,000 included in the Corporation’s December 31, 2013 allowance for loan losses. Impaired loans at December 31, 2013 with no specific reserves include $2.2 million of loan charge-offs during 2013.

In addition to impaired loans, the Corporation had other potential problem credits of $18.7 million at December 31, 2014 compared to $13.4 million at December 31, 2013, an increase of $5.3 million (39.6%). The Corporation’s credit administration department continues to closely monitor these credits.

Non-Interest Income

Total non-interest income decreased $80,000 (1.8%) to $4.39 million in 2014 from $4.47 million in 2013. With the exception of net securities gains, most of the components of non-interest income are recurring, although certain components are more susceptible to change than others. Net securities gains increased in 2014 to $400,000 compared to $134,000 in 2013.

Significant recurring components of non-interest income include service charges on deposit accounts, secondary market lending activities, and increases in the cash surrender value of life insurance. Service charges on deposit accounts increased $73,000 (5.8%) to $1,325,000 in 2014 compared to $1,252,000 in 2013.

The Corporation has elected to sell in the secondary market substantially all fixed rate residential real estate loans originated, and typically retains the servicing rights relating to such loans. During 2014, gain on sale of loans was $610,000, including $134,000 of capitalized servicing rights. Gain on sale of loans was $719,000 in 2013, including $313,000 of capitalized servicing rights. The decrease in gain on sale of loans was attributable to a decrease in loan demand during 2014 with loan sales in 2014 amounting to $15.6 million compared to $31.9 million in 2013. The Corporation’s serviced portfolio decreased $5.5 million during 2014 to $171.3 million at December 31, 2014.

The Corporation reports its mortgage servicing rights using the fair value measurement method. As a result, the Corporation recognized a $147,000 decrease in the fair value of mortgage servicing rights during 2014, compared to a $316,000 increase in the fair value of mortgage servicing rights in 2013. Prepayment assumptions are a key valuation input used in determining the fair value of mortgage servicing rights. While prepayment assumptions are constantly subject to change, such changes typically occur within a relatively small parameter from period to period. The prepayment assumptions used in determining the fair value of servicing are based on the Public Securities Association (PSA) Standard Prepayment Model. At December 31, 2014 the PSA factor was 195 compared to 164 at December 31, 2013.

Other operating income increased $168,000 (10.3%) to $1.8 million in 2014 from $1.6 million in 2013. The increase in non-interest income for the year ended December 31, 2014 was primarily attributable to an $87,000 increase in income generated by the investment department and a $63,000 increase in debit card fee income offset by a $30,000 decrease in miscellaneous income.

Non-Interest Expenses

Total non-interest expenses amounted to $16,375,000 in 2014, compared to $16,024,000 in 2013, an increase of $351,000 (2.2%). Expense increases for the quarter and year ended December 31, 2014 included increases of $549,000 and $735,000, respectively, in acquisition related costs from The Ohio State Bank acquisition. These increases were partially offset by a $456,000 decrease in miscellaneous expenses resulting from prepayment penalties on Federal Home Loan Bank advances in 2014 that were lower than such prepayment penalties in 2013.

The significant components of other operating expenses are summarized in Note 11 to the consolidated financial statements.

Provision for Income Taxes

The provision for income taxes for 2014 was $1,083,000, an effective tax rate of 20.1%, compared to $1,240,000 in 2013, an effective rate of 21.1%. The Corporation’s effective tax rate was reduced from the federal statutory rate of 34% as a result of tax-exempt securities and loan interest income (10.6%) and life insurance contracts (2.5%). At December 31, 2014, the Corporation has available alternative minimum tax credits of $657,300 which can be used in the future to the extent regular tax exceeds the alternative minimum tax.

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 that are available to be sold. Certain other loans within the Corporation’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 2015, 2014, and 2013 follows.

The Corporation generated cash from operating activities of $8.5 million in 2015, $4.8 million in 2014, and $5.1 million in 2013.

Net cash flows from investing activities amounted to $29.3 million in 2015, $2.0 million in 2014, and $(18.1) million in 2013. Significant investing cash inflow activities in 2015 included $22.7 million of net cash inflows resulting from securities purchases, net of proceeds received from sales and maturities as well as a $5.8 million decrease in loans. Significant investing cash inflow activities in 2014 included $1.3 million of net cash inflows resulting from securities purchases, net of proceeds received from sales and maturities, along with $6.7 million in net proceeds from the bank acquisition. Significant investing cash outflow activities in 2014 included a $6.6 million increase in loans. Significant investing cash flow activities in 2013 included $27.8 million of net cash outflows resulting from securities purchases, net of proceeds received from sales and maturities. Significant investing cash inflow activities in 2013 resulted from a $9.6 million decrease in loans.

Net cash flows from financing activities amounted to $(47.2) million in 2015, $3.1 million in 2014, and $(14.5) million in 2013. Net cash used in financing activities in 2015 primarily resulted from a $47.0 decrease in deposits, a $0.9 million purchase of treasury stock and a $1.2 million in cash dividends paid. Net cash provided by financing activities included an increase of $2.1 million in borrowings from FHLB. Net cash used in financing activities in 2014 primarily resulted from $16.2 million of repayment on FHLB borrowings, a $4.6 million decrease in customer repurchase agreements, a $1.1 million purchase of treasury stock, and $1.2 million in cash dividends paid. Net cash provided by financing activities included a $26.3 million increase in deposits. Net cash used in financing activities in 2013 primarily resulted from $10 million of repayment on FHLB borrowings and a $3.2 million decrease in deposits.

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 (ratio of risk-sensitive assets to risk-sensitive liabilities) at December 31, 2015 is approximately 90% which means the Corporation has more liabilities than assets re-pricing within one year. Under the current abnormally low interest rate environment, the Corporation’s liabilities do not have the ability to reprice down the full 100 bps which is why the margin decreases in a 100 bps down shock scenario.

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 accounting principles generally accepted in the United States, 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.

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, valuation of goodwill and mortgage servicing rights, and fair value of securities and other financial instruments 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.

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.

Management considers the valuation of goodwill resulting from the 2003 Gibsonburg and Pemberville branches, the 2010 Findlay branch acquisitions and the 2014 acquisition of The Ohio State Bank branches in Marion and Delaware through an annual impairment test which considers, among other things, the assets and equity of the Corporation as well as price multiples for sales transactions involving other local financial institutions. Management engaged an independent valuation specialist to perform a goodwill impairment evaluation as of September 30, 2015, which supported management’s assessment that no impairment adjustments to goodwill were warranted. To date, none of the goodwill evaluations have revealed the need for an impairment charge. Management does not believe that any significant conditions have changed relating to the goodwill assessment through December 31, 2015.

Mortgage servicing rights are recognized when acquired through sale of mortgage loans and are reported at fair value. Changes in fair value are reported in net income for the period the changes occur. The Corporation 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, earnings rate and discount rates commensurate with the risks involved. The Corporation has engaged an independent consultant to calculate the fair value of mortgage servicing rights on a quarterly basis. Management regularly reviews the calculation, including assumptions used in making the calculation, and discusses with the consultant. Management also reconciles information used by the consultant, with respect to the Corporation’s serviced portfolio, to the Corporation’s accounting records.

The Corporation reviews securities prices and fair value estimates of other financial instruments supplied by an independent pricing service, as well as their underlying pricing methodologies, for reasonableness and to ensure such prices are aligned with traditional pricing matrices. The Corporation’s securities portfolio primarily consists of U.S. Government agencies, and political subdivision obligations, and mortgage backed securities. Pricing for such instruments is typically based on models with observable inputs. From time to time, the Corporation will validate, on a sample basis, prices supplied by the independent pricing service by comparison to prices obtained from other third-party sources or derived using internal models. The Corporation also considers the reasonableness of inputs for financial instruments that are priced using unobservable inputs.

Impact of Recent Accounting Pronouncements

A summary of new accounting standards adopted or subject to adoption in 2015, as well as newly-issued but not effective accounting standards at December 31, 2015, is presented in Note 2 to the consolidated financial statements.

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, 2015:

	Amount of commitment to expire per period
	Total		Less than		1 - 3		4 - 5		Over
	Amount		1 year		years		Years		5 years
	(Dollars in thousands)
Type of Commitment
Commercial lines-of-credit	$	40,619	$	40,239	$	217	$	-	$	163
Real estate lines-of-credit		43,105		5,213		4,792		7,019		26,081
Consumer lines-of-credit		345		-		-		-		345
Letters of Credit		325		295		30		-		-

Total commitments	$	84,394	$	45,747	$	5,039	$	7,019	$	26,589

As indicated in the preceding table, the Corporation had $84.4 million in total loan commitments at December 31, 2015, with $45.7 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.

Off-balance Sheet Arrangements, Contractual Obligations, and Contingent Liabilities and Commitments – Continued

The following table summarizes the Corporation’s contractual obligations as of December 31, 2015:

	Payments due by period
	Total		Less than		1 - 3		4 - 5		Over
	Amount		1 year		years		Years		5 years
	(Dollars in thousands)
Contractual obligations
Long-term debt	$	12,772	$	-	$	-	$	-	$	12,772
Capital leases		-		-		-		-		-
Operating leases		22,500		22,500		-		-		-
Unconditional purchase obligations		-		-		-		-		-
Time deposits		148,486		73,560		62,800		11,819		307
Deposits without stated maturities		369,933		-		-		-		369,933
Future deferred compensation payments, including interest		1,671		116		298		282		975

Total obligations	$	555,362	$	96,176	$	63,098	$	12,101	$	383,987

Long-term debt presented in the preceding table is comprised of $12.8 million of junior subordinated deferrable interest debentures. $10.4 million was issued by the Corporation, and $2.4 million was assumed from The Ohio State Bank acquisition.

Time deposits and deposits without stated maturities included in the preceding table are comprised of customer deposit accounts. Management believes that they have the ability to attract and retain deposit balances by adjusting the interest rates offered.

The future deferred compensation payments, including interest, as noted in the preceding table, includes the Corporation’s agreement with its current Chairman of the Board of Directors to provide for retirement compensation benefits. A deferred compensation liability was also assumed with The Ohio State Bank acquisition for the benefit of the Bank’s retired president, with payment that began on May 1, 2010. At December 31, 2015, the net present value of future deferred compensation payments amounted to $953,000, which is included in other liabilities in the December 31, 2015 consolidated balance sheet.

As indicated in the table, the Corporation had no capital lease obligations as of December 31, 2015. The Corporation also has a non-qualified deferred compensation plan covering certain directors and officers, and has provided an estimated liability of $625,000 at December 31, 2015 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 most 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 Corporation’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 100, 200 and 300 and up 400 basis points.

Quantitative and Qualitative Disclosures About Market Risk - Continued

The following table shows the Corporation’s estimated earnings sensitivity profile as of December 31, 2015:

Change in Interest Rates			Percentage Change in			Percentage Change in
(basis points)			Net Interest Income			Net Income

	+100			-2.7	%		-6.6	%
	(100	)		-5.1	%		-13.0	%

	+200			-5.7	%		-14.2	%
	(200	)		-9.3	%		-23.9	%

	+300			-8.9	%		-22.2	%
	(300	)		N/A			N/A

	+400			-12.1	%		-30.3	%

Given a linear 100bp increase in the yield curve used in the simulation model, it is estimated that net interest income for the Corporation would decrease by 2.7% and net income would decrease by 6.6%. A 100bp decrease in interest rates would decrease net interest income by 5.1% and decrease net income by 13.0%. 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 decrease by 5.7% and net income would decrease by 14.2%. A 200bp decrease in interest rates would decrease net interest income by 9.3% and decrease net income by 23.9%. Given a linear 300bp increase in the yield curve used in the simulation model, it is estimated that net interest income for the Corporation would decrease by 8.9% and net income would decrease by 22.2%. A 300bp decrease in interest rates cannot be simulated at this time due to the historically low interest rate environment. A 400bp increase in interest rates would decrease net interest income by 12.1% and decrease net income by 30.3%. Management does not expect any significant adverse effect to net interest income in 2016 based on the composition of the portfolio and anticipated trends in rates.

Other Information

The Dodd-Frank Act, enacted in 2010, is complex and several of its provisions are still being implemented. The Dodd-Frank Act established the Consumer Financial Protection Bureau, which has extensive regulatory and enforcement powers over consumer financial products and services, and the Financial Stability Oversight Council, which has oversight authority for monitoring and regulating systemic risk. In addition, the Dodd-Frank Act altered the authority and duties of the federal banking and securities regulatory agencies, implemented certain corporate governance requirements for all public companies including financial institutions with regard to executive compensation, proxy access by shareholders, and certain whistleblower provisions, and restricted certain proprietary trading and hedge fund and private equity activities of banks and their affiliates. The Dodd-Frank Act also required the issuance of numerous regulations, many of which have not yet been issued. The regulations will continue to take effect over several more years, continuing to make it difficult to anticipate the overall impact.

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 subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income (loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2015. United Bancshares, Inc.’s management is responsible for these financial statements. 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. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

/s/ CliftonLarsonAllen LLP

Toledo, Ohio

March 9, 2016

UNITED BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

	2015			2014
ASSETS
CASH AND CASH EQUIVALENTS
Cash and due from banks	$	11,482,114		$	11,444,096
Interest-bearing deposits in other banks		11,440,251			20,910,484

Total cash and cash equivalents		22,922,365			32,354,580

SECURITIES, available-for-sale		182,929,038			206,461,063
RESTRICTED BANK STOCK, at cost		4,829,540			4,829,540
CERTIFICATES OF DEPOSIT, at cost		1,992,000			2,490,000
LOANS HELD FOR SALE		346,900			229,425

LOANS & LEASES		354,250,015			360,937,164
Less allowance for loan and lease losses		3,834,466			3,839,508

Net loans & leases		350,415,549			357,097,656

PREMISES AND EQUIPMENT, net		12,048,680			12,385,556
GOODWILL		10,072,399			10,072,399
CORE DEPOSIT INTANGIBLE ASSETS, net		903,220			1,040,547
CASH SURRENDER VALUE OF LIFE INSURANCE		16,833,950			16,406,846
OTHER REAL ESTATE OWNED		173,047			535,999
OTHER ASSETS, including accrued interest receivable		5,198,421			6,296,050

TOTAL ASSETS	$	608,665,109		$	650,199,661

LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES
Deposits:
Non-interest bearing	$	93,476,408		$	92,499,725
Interest-bearing		424,942,934			472,945,234

Total deposits		518,419,342			565,444,959

Other borrowings		2,118,000			-
Junior subordinated deferrable interest debentures		12,772,401			12,738,549
Other liabilities		3,794,189			4,243,876

Total liabilities		537,103,932			582,427,384

SHAREHOLDERS’ EQUITY

Common stock, stated value $1.00, authorized 10,000,000 shares; issued 3,760,557 shares		3,760,557			3,760,557
Surplus		14,669,087			14,665,845
Retained earnings		58,641,837			53,925,768
Accumulated other comprehensive income		1,397,130			1,412,115

Treasury stock, at cost, 451,218 shares in 2015 and 392,822 shares in 2014		(6,907,434	)		(5,992,008	)

Total shareholders’ equity		71,561,177			67,772,277

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	608,665,109		$	650,199,661

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

UNITED BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2015, 2014 and 2013

	Year Ended December 31,
	2015		2014			2013
INTEREST INCOME
Loans & leases, including fees	$	18,322,649	$	14,965,582		$	15,243,402
Securities:
Taxable		2,548,789		2,610,954			2,429,043
Tax-exempt		1,686,099		1,688,577			1,858,801
Other		278,769		354,695			322,681

Total interest income		22,836,306		19,619,808			19,853,927

INTEREST EXPENSE
Deposits		1,579,796		1,969,296			2,142,274
Borrowings		497,719		698,434			1,107,098

Total interest expense		2,077,515		2,667,730			3,249,372

Net interest income		20,758,791		16,952,078			16,604,555

PROVISION (CREDIT) FOR LOAN AND LEASE LOSSES		382,000		(430,000	)		(832,925	)

Net interest income after provision (credit) for loan and lease losses		20,376,791		17,382,078			17,437,480

NON-INTEREST INCOME
Service charges on deposit accounts		1,515,104		1,325,440			1,252,379
Gain on sale of loans		586,375		610,419			719,289
Net securities gains		115,616		399,760			134,177
Change in fair value of mortgage servicing rights		263,114		(147,050	)		315,758
Increase in cash surrender value of life insurance		427,104		396,646			411,955
Other operating income		1,729,729		1,802,288			1,634,438

Total non-interest income		4,637,042		4,387,503			4,467,996

NON-INTEREST EXPENSES
Salaries, wages and employee benefits		9,290,177		8,414,792			8,237,152
Occupancy expenses		2,133,735		1,584,863			1,555,242
Other operating expenses		6,268,036		6,375,428			6,231,878

Total non-interest expenses		17,691,948		16,375,083			16,024,272

Income before income taxes		7,321,885		5,394,498			5,881,204

PROVISION FOR INCOME TAXES		1,405,000		1,083,000			1,240,000

NET INCOME	$	5,916,885	$	4,311,498		$	4,641,204

NET INCOME PER SHARE (basic and diluted)	$	1.77	$	1.27		$	1.35

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

UNITED BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Years Ended December 31, 2015, 2014 and 2013

	Year Ended December 31,
	2015			2014			2013

NET INCOME	$	5,916,885		$	4,311,498		$	4,641,204

OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) during period		92,930			4,597,215			(7,525,775	)
Reclassification adjustments for gains included in net income		(115,616	)		(399,760	)		(134,177	)
Other comprehensive income (loss), before income taxes		(22,686	)		4,197,455			(7,659,952	)
Income tax benefit (expense) related to items of other comprehensive income (loss)		7,701			(1,427,135	)		2,604,384
Other comprehensive income (loss)		(14,985	)		2,770,320			(5,055,568	)

COMPREHENSIVE INCOME (LOSS)	$	5,901,900		$	7,081,818		$	(414,364	)

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

UNITED BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Years Ended December 31, 2015, 2014 and 2013

	Common stock		Surplus		Retained earnings			Accumulated other comprehensive income (loss)			Treasury stock			Total
BALANCE AT DECEMBER 31, 2012	$	3,760,557	$	14,661,664	$	46,855,865		$	3,697,363		$	(4,805,244	)	$	64,170,205

Comprehensive income:
Net income		-		-		4,641,204			-			-			4,641,204
Other comprehensive loss		-		-		-			(5,055,568	)		-			(5,055,568	)
Repurchase of 5,000 shares		-		-		-			-			(72,200	)		(72,200	)
Sale of 746 treasury shares		-		2,197		-			-			11,407			13,604
Cash dividends declared, $0.20 per share		-		-		(689,380	)		-			-			(689,380	)

BALANCE AT DECEMBER 31, 2013		3,760,557		14,663,861		50,807,689			(1,358,205	)		(4,866,037	)		63,007,865

Comprehensive income:
Net income		-		-		4,311,498			-			-			4,311,498
Other comprehensive income		-		-		-			2,770,320			-			2,770,320
Repurchase of 75,000 shares		-		-		-			-			(1,136,430	)		(1,136,430	)
Sale of 684 treasury shares		-		1,984		-			-			10,459			12,443
Cash dividends declared, $0.35 per share		-		-		(1,193,419	)		-			-			(1,193,419	)

BALANCE AT DECEMBER 31, 2014		3,760,557		14,665,845		53,925,768			1,412,115			(5,992,008	)		67,772,277

Comprehensive income:
Net income		-		-		5,916,885			-			-			5,916,885
Other comprehensive loss		-		-		-			(14,985	)		-			(14,985	)
Repurchase of 59,111 shares		-		-		-			-			(926,328	)		(926,328	)
Sale of 715 treasury shares		-		3,242		-			-			10,901			14,143
Cash dividends declared, $0.36 per share		-		-		(1,200,815	)		-			-			(1,200,815	)

BALANCE AT DECEMBER 31, 2015	$	3,760,557	$	14,669,087	$	58,641,838		$	1,397,130		$	(6,907,435	)	$	71,561,177

UNITED BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2015, 2014 and 2013

	Years Ended December 31,
	2015			2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	5,916,885		$	4,311,498		$	4,641,204
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		625,380			701,025			649,056
Amortization and accretion for purchase accounting		(1,495,486	)		-			-
Deferred income taxes		859,100			298,500			1,032,000
Provision (credit) for loan losses		382,000			(430,000	)		(832,925	)
Gain on sale of loans		(586,375	)		(610,419	)		(719,289	)
Net securities gains		(115,616	)		(399,760	)		(134,177	)
Change in fair value of mortgage servicing rights		(263,114	)		147,050			(315,758	)
Loss on sale or write-down of other real estate owned		183,224			183,955			205,775
Increase in cash surrender value of life insurance		(427,104	)		(396,646	)		(411,955	)
Net amortization of security premiums and discounts		925,285			764,073			791,464
Change in fair value of junior subordinated deferrable interest debentures		33,852			-			-
Deferred compensation Expense		76,362			63,724			33,806
Loss on disposal or write-down of premises and equipment and other assets		49,030			-			-
Proceeds from sale of loans held for sale		28,767,355			16,089,781			32,273,717
Originations of loans held for sale		(28,433,268	)		(15,613,686	)		(31,867,179	)
(Increase) decrease in other assets		1,613,031			1,224,349			(446,316	)
Increase (decrease) in other liabilities		(1,223,692	)		(1,499,003	)		197,896

Net cash provided by operating activities		6,886,849			4,834,441			5,097,319

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of available-for-sale securities		28,437,199			9,121,368			8,821,116
Proceeds from maturities of available-for-sale securities, including paydowns on mortgage-backed securities		30,796,690			27,222,959			36,658,316
Purchases of available-for-sale securities		(36,534,220	)		(35,010,991	)		(73,268,830	)
Proceeds from sale of FHLB stock		-			749,600			-
Net proceeds from (purchase of) certificates of deposits		498,000			249,000			(249,000	)
Proceeds from acquisition		-			6,628,035			-
Net (increase) decrease in loans and leases		7,306,405			(6,638,114	)		9,595,280
Purchases of premises and equipment		(311,625	)		(314,059	)		(394,982	)
Proceeds from sale of other real estate owned		551,441			-			694,271

Net cash provided by (used in) investing activities		30,743,890			2,007,798			(18,143,829	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits	$	(46,914,198	)	$	26,348,871		$	(3,199,049	)
Other borrowings:
Change in net borrowings		2,118,000			(16,240,666	)		(10,000,000	)
Change in customer repurchase agreements		-			(4,600,552	)		(456,668	)
Purchase of treasury shares		(926,328	)		(1,136,430	)		(72,200	)
Proceeds from sale of treasury shares		14,143			12,443			13,604
Payments of deferred compensation		(153,756	)		(85,364	)		(54,146	)
Cash dividends paid		(1,200,815	)		(1,193,419	)		(689,380	)

Net cash provided by (used in) financing activities		(47,062,954	)		3,104,883			(14,457,839	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(9,432,215	)		9,947,122			(27,504,349	)

CASH AND CASH EQUIVALENTS
At beginning of year		32,354,580			22,407,458			49,911,807
At end of year	$	22,922,365		$	32,354,580		$	22,407,458

SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the year for:
Interest	$	2,226,892		$	2,687,135		$	3,256,188
Federal income taxes	$	665,000		$	660,000		$	350,000
Non-cash operating activity:
Change in deferred income taxes on net unrealized gain or loss on available-for-sale securities	$	(7,701	)	$	1,427,135		$	(2,604,383	)
Non-cash investing activities:
Transfer of loans to other real estate owned	$	371,713		$	-		$	-

Change in net unrealized gain or loss on available-for-sale securities	$	22,686		$	(4,197,455	)	$	7,659,952

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

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 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 Bank has also formed a wholly-owned subsidiary, UBC Property, Inc. to hold and manage certain property that is acquired in lieu of foreclosure.

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, Delaware, Delphos, Findlay, Gibsonburg, Kalida, Leipsic, Lima, Marion, Ottawa, and Pemberville Ohio.

The primary source of revenue of the Corporation 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 accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues and expenses during each reporting period. Actual results could differ from those estimates. The estimates most susceptible to significant change in the near term include the determination of the allowance for loan losses, valuation of servicing assets and goodwill, and fair value of securities and other financial instruments.

Principles of Consolidation

The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiary, the Bank, and its wholly-owned subsidiaries. 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 Corporation was required to maintain cash on hand or on deposit with the Federal Reserve Bank in the amount of $1,351,000 and $2,623,000 at December 31, 2015 and 2014, respectively, to meet regulatory reserve and clearing requirements.

Securities, Federal Home Loan Bank Stock and Certificates of Deposits

The Corporation has designated all securities as available-for-sale. Such securities are 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 debt 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. In estimating other-than-temporary impairment losses, management considers (1) the intent to sell the securities and the more likely than not requirement that the Corporation will be required to sell the securities prior to recovery, (2) the length of time and the extent to which the fair value has been less than cost, and (3) the financial condition and near-term prospects of the issuer. 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.

Investments in certificates of deposit are carried at cost and evaluated for impairment annually or when circumstances change that may have a significant effect on fair value.

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. The Corporation had no unrealized losses at December 31, 2015 and 2014.

Loans and Leases

Loans and leases that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are generally stated at its outstanding principal amount adjusted for charge-offs and the allowance for loan and lease losses. Interest is accrued as earned based upon the daily outstanding principal balance. Loan and lease 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 and leases that are placed on nonaccrual or charged-off is reversed against interest income. Interest on these loans and leases is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans and leases are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan and Lease Losses

The allowance for loan and lease losses (“allowance”) is established as losses are estimated to have occurred through a provision for loan and lease losses charged to income. Loan and lease losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan and lease losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of loans and leases in light of historical experience, the nature and volume of the loan and lease 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 consolidated financial statements.

The allowance consists of specific, general and unallocated components. The specific component relates to impaired loans and leases when the discounted cash flows, collateral value, or observable market price of the impaired loan and lease is lower than the carrying value of that loan or lease. The general component covers classified loans and leases (substandard or special mention) without specific reserves, as well as non-classified loans and leases, 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 or lease is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan or lease 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 and leases 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 or lease 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 individually for commercial 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.

Under certain circumstances, the Corporation will provide borrowers relief through loan restructurings. A restructuring of debt constitutes a troubled debt restructuring (TDR) if the Corporation, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. Restructured loans typically present an elevated level of credit risk as the borrowers are not able to perform according to the original contractual terms. Loans that are reported as TDRs are considered impaired and measured for impairment as described above. TDR concessions can include reduction of interest rates, extension of maturity dates, forgiveness of principal or interest due, or acceptance of other assets in full or partial satisfaction of the debt.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Corporation does not separately identify individual consumer and residential loans for impairment disclosures.

Acquired Loans

Purchased loans acquired in a business combination are segregated into three types: pass rated loans with no discount attributable to credit quality, non-impaired loans with a discount attributable at least in part to credit quality and impaired loans with evidence of significant credit deterioration.

•	Pass rated loans (typically performing loans) are accounted for in accordance with ASC 310-20 “Nonrefundable Fees and Other Costs” as these loans do not have evidence of credit deterioration since origination.
•	Non-impaired loans (typically past-due loans, special mention loans and performing substandard loans) are accounted for in accordance with ASC 310-30 “Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality” as they display at least some level of credit deterioration since origination.

•	Impaired loans (typically substandard loans on non-accrual status) are accounted for in accordance with ASC 310-30 as they display significant credit deterioration since origination.

In accordance with ASC 310-30, for both purchased non-impaired loans and purchased impaired loans, the difference between contractually required payments at acquisition and the cash flows expected to be collected is referred to as the non-accretable difference. This amount is not recognized as a yield adjustment or as a loss accrual or a valuation allowance. Further, any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows.

Increases in expected cash flows subsequent to the initial investment are recognized prospectively through adjustment of the yield on the loan over its remaining estimated life. Decreases in expected cash flows are recognized immediately as impairment. If the Corporation does not have the information necessary to reasonably estimate cash flows to be expected, it may use the cost recovery method or cash basis method of income recognition. Valuation allowances on these impaired loans reflect only losses incurred after the acquisition (meaning the present value of all cash flows expected at acquisition that ultimately are not to be received).

Other Real Estate Owned

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 estimated cost to sell, at the date of foreclosure, establishing a new cost basis with loan balances in excess of fair value charged to the allowance for loan losses. Subsequent to foreclosure, valuations are periodically performed and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and subsequent valuation adjustments are included in other operating expenses.

Loan Sales and Servicing

Certain mortgage loans are sold with mortgage servicing rights retained or released by the Corporation. The 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. The Corporation 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, earnings rate, and discount rates commensurate with the risks involved.

Capitalized servicing rights are reported at fair value and changes in fair value are reported in net income for the period the change occurs.

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 charged against loan servicing fee income.

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 primarily using the straight-line method.

Premises and equipment is reviewed for impairment when events indicate the carrying amount may not be recoverable from future undiscounted cash flows. If impaired, premises and equipment is recorded at fair value and any corresponding write-downs are charged against current year earnings.

Off-Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, the Corporation 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. The Corporation maintains a separate allowance for off-balance sheet commitments. Management estimates anticipated losses using historical data and utilization assumptions. The allowance for off-balance sheet commitments is included in other liabilities.

Goodwill and Core Deposit Intangible Assets

Goodwill arising from acquisitions is not amortized, but is subject to an annual impairment test to determine if an impairment loss has occurred. Significant judgment is applied when goodwill is assessed for impairment. This judgment includes developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables, incorporating general economic and market conditions, and selecting an appropriate control premium. At December 31, 2015, the Corporation believes the Bank does not have any indicators of potential impairment based on the estimated fair value of this reporting unit.

The core deposit intangible asset resulting from the Findlay branch acquisition was determined to have a definite life and is being amortized on a straight-line basis over seven years through March 2017. The remaining amortization of the core deposit intangible asset is $40,857 for 2016 and $10,215 in 2017. The core deposit intangible asset resulting from The Ohio State Bank acquisition was also determined to have a definite life and is being amortized on a straight-line basis over ten years through October 2024. Future amortization of the core deposit intangible asset is $96,470 annually for years 2016 through 2023 and $80,388 in 2024.

Supplemental Retirement Benefits

Annual provisions are made for the estimated liability for accumulated supplemental retirement benefits under agreements with certain officers and directors. These provisions are determined based on the terms of the agreements, as well as certain assumptions, including estimated service periods and discount rates.

Advertising Costs

All advertising costs are expensed as incurred.

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 its 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 Corporation is not currently subject to state or local income taxes.

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 Corporation, (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 Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

The transfer of a participating interest in an entire financial asset must also meet the definition of a participating interest. A participating interest in a financial asset has all of the following characteristics: (1) from the date of transfer, it must represent a proportionate (pro rata) ownership interest in the financial asset, (2) from the date of transfer, all cash flows received, except any cash flows allocated as any compensation for servicing or other services performed, must be divided proportionately among participating interest holders in the amount equal to their share ownership, (3) the rights of each participating interest holder must have the same priority, (4) no party has the right to pledge or exchange the entire financial asset unless all participating interest holders agree to do so.

Comprehensive Income

Recognized revenue, expenses, gains and losses are 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.

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.

The weighted average number of shares used for the years ended December 31, 2015, 2014 and 2013:

	2015		2014		2013
Basic		3,339,242		3,406,194		3,446,662
Diluted		3,339,242		3,406,194		3,446,662

Dividends per share are based on the number of shares outstanding at the declaration date.

Rate Lock Commitments

Loan commitments related to the origination or acquisition of mortgage loans that will be held for sale are accounted for as derivative instruments. The Corporation 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, 2015 and 2014, derivative assets and liabilities relating to rate lock commitments were not material to the consolidated financial statements.

Fair Values of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully discussed in Note 18. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Subsequent Events

Management evaluated subsequent events through the date the consolidated financial statements were issued. Events or transactions occurring after December 31, 2015, but prior to when the consolidated financial statements were issued, that provided additional evidence about conditions that existed at December 31, 2015, have been recognized in the financial statements for the year ended December 31, 2015. Events or transactions that provided evidence about conditions that did not exist at December 31, 2015 but arose before the financial statements were issued, have not been recognized in the consolidated financial statements for the year ended December 31, 2015.

On January 20, 2016, United Bancshares, Inc. issued a release announcing that its Board of Directors increased its dividend by 22.2% from the fourth quarter of 2014, approving a cash dividend of $0.11 per common share payable March 15, 2016 to shareholders of record at the close of business on February 29, 2016.

Reclassifications

Certain reclassifications of prior period amounts have been made to conform to the current presentation.

NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS

In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors. The FASB issued ASU 2014-04 to reduce diversity by clarifying when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real property recognized. The amendments in this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The Corporation has determined the provisions for ASU 2014-04 did not have a material impact on future financial statements.

In June 2014, the FASB issued ASU 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, amending ASC topic 860. The FASB issued ASU 2014-11 to change the accounting for repurchase-to-maturity transactions and linked repurchase financials to secure borrowing accounting, which is consistent with the accounting for other repurchase agreements. The amendments also require two new disclosures. The first disclosure requires an entity to disclose information on transfers accounted for as sales in transactions that are economically similar to repurchase agreements. The second disclosure provides increased transparency about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The amendments in this update are effective for the first interim or annual period beginning after December 15, 2014, and the Corporation has determined the provisions for ASU 2014-11 did not have a material impact on future financial statements.

In August 2014, the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors. The FASB issued ASU 2014-14 to reduce the diversity of how creditors classify government-guaranteed mortgage loans, including FHA or VA guaranteed loans, upon foreclosure. The amendments in this update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: 1) The loan has a government guarantee that is not separable from the loan before foreclosure.; 2) At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim.; and 3) At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. The amendments in this update are effective for annual periods, and interim periods within those periods, beginning after December 15, 2014. The Corporation has determined the provisions for ASU 2014-04 did not have a material impact on future financial statements.

In November 2014, the FASB issued ASU 2014-17, Business Combinations – Pushdown Accounting. The FASB issued ASU 2014-17 to provide guidance on whether and at what threshold an acquired entity that is a business or nonprofit activity can apply pushdown accounting in its separate financial statements. The amendments in this update provide an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. The amendments in this update were effective on November 18, 2014. The Corporation has determined the provisions for ASU 2014-17 did not have a material impact on the financial statements.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, amending ASU Subtopic 825-10. The amendments in this update make targeted improvements to generally accepted accounting principles (GAAP) as follows: 1). Require equity investments to be measured at fair value with changes in fair value recognized in net income.; 2). Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment.; 3). Eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities.; 4). Eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.; 5). Require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.; 6). Require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.; 7). Require separate presentation of financial assets and financial liabilities my measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements.; 8). Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this update are effective for fiscal years beginning after December 15, 2017. The Corporation has not yet made a determination of the impact on the financial statements of the provisions for ASU 2016-01.

NOTE 3 – ACQUISITION

On July 1, 2014, the Corporation, Ohio State Bancshares, Inc. (“OSB”) and Rbancshares, Inc. (“Rbancshares”) entered into a Stock Purchase Agreement (the “Purchase Agreement”) pursuant to which the Corporation purchased from OSB all of the issued and outstanding shares of The Ohio State Bank (“The Ohio State Bank”), an Ohio banking corporation and wholly-owned subsidiary of OSB (the “Acquisition”). Immediately following the acquisition, The Ohio State Bank was merged into the Bank. The Ohio State Bank operated three full-service branches with a main office and one other facility in Marion, Ohio and one branch in Delaware, Ohio. These offices became branches of the Bank after the acquisition. The transaction was completed in November, 2014 with assets acquired and deposits assumed being recorded at their estimated fair values as follows:

Cash	$	6,628,035
Loans		58,536,569
Securities		6,881,331
Other stock, at cost		685,340
Premises and equipment		3,382,316
Goodwill		1,517,420
Cash surrender value of life insurance		1,837,062
Other intangible assets		964,697
Other real estate owned		52,000
Other assets, including accrued interest receivable		3,003,090
Total assets acquired	$	83,487,860

Deposits assumed	$	71,096,023
Federal Home Loan Bank borrowings		8,740,666
Junior subordinated deferrable interest debentures		2,438,549
Accrued expenses and other liabilities		1,212,622
Total liabilities assumed	$	83,487,860

Consideration paid for the transaction was $1,197,237, which included the repayment of debt of $1,190,856 that was owed by The Ohio State Bank. Cash acquired at closing is presented above net of the repayment of debt that occurred at closing. Acquisition-related costs of approximately $935,000 are included in other non-interest operating expenses in the accompanying 2014 consolidated statements of income. This acquisition is intended to expand the geographical footprint of the Corporation, which will help grow the balance sheet and future earnings.

Cash proceeds from the acquisition were used to repay the Federal Home Loan Bank borrowings that were assumed in the acquisition.

Goodwill of $1,517,420 arising from the acquisition consists largely of synergies and the cost savings expected to result from the combining of operations and is not expected to be deductible for income tax purposes.

NOTE 4 – SECURITIES

The amortized cost and fair value of securities as of December 31, 2015 and 2014 are as follows:

	2015				2014
	Amortized cost		Fair value		Amortized cost		Fair value
Available-for-sale:
U.S. Government and agencies	$	3,998,025	$	3,966,390	$	9,640,249	$	9,537,052
Obligations of states and political subdivisions		71,589,038		73,481,892		56,605,455		58,098,524
Mortgage-backed		104,223,205		104,479,413		137,073,902		137,818,544
Other		1,001,888		1,001,343		1,001,888		1,006,943

Total	$	180,812,156	$	182,929,038	$	204,321,494	$	206,461,063

A summary of unrealized gains and losses on securities at December 31, 2015 and 2014 follows:

	2015				2014
	Gross unrealized gains		Gross unrealized losses		Gross unrealized gains		Gross unrealized losses
Available-for-sale:
U.S. Government and agencies	$	-	$	31,635	$	-	$	103,197
Obligations of states and political subdivisions		1,959,662		66,808		1,674,221		181,152
Mortgage-backed		1,070,629		814,421		1,556,536		811,894
Other		-		545		5,055		-

Total	$	3,030,291	$	913,409	$	3,235,812	$	1,096,243

The amortized cost and fair value of securities at December 31, 2015, 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 Cost		Fair value

Due in one year or less	$	1,124,806	$	1,136,513
Due after one year through five years		16,503,553		16,738,420
Due after five years through ten years		53,752,354		55,277,996
Due after ten years		108,429,555		108,774,766
Other securities having no maturity date		1,001,888		1,001,343
Total	$	180,812,156	$	182,929,038

Securities with a carrying value of approximately $22,606,000 at December 31, 2015 and $20,168,000 at December 31, 2014 were pledged to secure public deposits and for other purposes as required or permitted by law.

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, 2015 and 2014:

	Securities in a continuous unrealized loss position
	Less than 12 months				12 months or more				Total
2015	Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses		Total Fair value
U.S. Government and agencies	$	31,635	$	3,966,390	$	-	$	-	$	31,635	$	3,966,390
Obligations of states and political subdivisions		44,058		6,034,425		22,750		1,448,020		66,808		7,482,445
Mortgage-backed		230,224		26,676,316		584,197		23,859,250		814,421		50,535,566
Other		545		1,001,343		-		-		545		1,001,343
Total temporarily impaired securities	$	306,462	$	37,678,474	$	606,947	$	25,307,270	$	913,409	$	62,985,744

	Less than 12 months				12 months or more				Total
2014	Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses		Total Fair value
U.S. Government and agencies	$	9,932	$	990,000	$	93,265	$	8,547,052	$	103,197	$	9,537,052
Obligations of states and political subdivisions		9,008		2,523,529		172,145		11,140,718		181,152		13,664,247
Mortgage-backed		47,257		14,086,483		764,637		37,948,535		811,894		52,035,018
Total temporarily impaired securities	$	66,197	$	17,600,012	$	1,030,047	$	57,636,305	$	1,096,243	$	75,236,317

There were 74 securities in an unrealized loss position at December 31, 2015, 29 of which were in a continuous unrealized loss position for 12 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 prospects, the Corporation’s ability and intent to hold securities to maturity, and volatility in the bond market, in concluding that the unrealized losses as of December 31, 2015 were primarily the result of customary and expected fluctuations in the bond market. As a result, all security impairments as of December 31, 2015 are considered to be temporary.

Gross realized gains from sale of securities, including securities calls, amounted to $141,318 in 2015, $412,812 in 2014, and $134,848 in 2013, with the income tax provision applicable to such gains amounting to $48,048 in 2015, $140,356 in 2014, and $45,848 in 2013. Gross realized losses from sale of securities amounted to $25,702 in 2015, $13,052 in 2014, and $671 in 2013 with related income tax effect of $8,739 in 2015, $4,438 in 2014, and $228 in 2013.

NOTE 5 – LOANS AND LEASES

Loans and leases at December 31, 2015 and 2014 consist of the following:

	2015		2014

Residential real estate	$	78,095,566	$	80,367,773
Commercial		237,299,236		235,988,490
Agriculture		34,997,920		39,781,326
Consumer		3,857,293		4,799,575
Total loans and leases	$	354,250,015	$	360,937,164

Fixed rate loans and leases approximated $60,131,000 at December 31, 2015 and $65,287,000 at December 31, 2014. Certain commercial and agricultural loans and leases are secured by real estate.

Most of the Corporation’s lending activities are with customers located in Northwestern and West Central Ohio. As of December 31, 2015 and 2014, the Corporation’s loans and leases from borrowers in the agriculture industry represent the single largest industry and amounted to $34,997,920 and $39,781,326, respectively. Agriculture loans and leases are generally secured by property and equipment. Repayment is primarily expected from cash flow generated through the harvest and sale of crops or milk production for dairy products. 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 evaluation of agricultural lending is based on an evaluation of cash flow coverage of principal and interest payments and the adequacy of collateral received.

The Corporation originates 1-4 family real estate and consumer loans and leases utilizing credit reports to supplement the underwriting process. The Corporation’s underwriting standards for 1-4 family loans and leases are generally in accordance with the Federal Home Loan Mortgage Corporation (FHLMC) manual underwriting guidelines. Properties securing 1-4 family real estate loans and leases are appraised by fee appraisers, which is independent of the loan and lease origination function and has been approved by the Board of Directors and the Loan Policy Committee. The loan-to-value ratios normally do not exceed 80% without credit enhancements such as mortgage insurance. The Corporation will lend up to 100% of the lesser of the appraised value or purchase price for conventional 1-4 family real estate loans, provided private mortgage insurance is obtained. The underwriting standards for consumer loans and leases include a determination of the applicant’s payment history on other debts and an assessment of their ability to meet existing obligations and payments on the proposed loan or lease. To monitor and manage loan and lease risk, policies and procedures are developed and modified, as needed by management. This activity, coupled with smaller loan and lease amounts that are spread across many individual borrowers, minimizes risk. Additionally, market conditions are reviewed by management on a regular basis. The Corporation’s 1-4 family real estate loans and leases are secured primarily by properties located in its primary market area.

Commercial and agricultural real estate loans and leases are subject to underwriting standards and processes similar to commercial and agricultural operating loans and leases, in addition to those unique to real estate loans and leases. These loans and leases are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial and agricultural real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Loan to value is generally 75% of the cost or appraised value of the assets. Appraisals on properties securing these loans are performed by fee appraisers approved by the Board of Directors. Because payments on commercial and agricultural real estate loans are often dependent on the successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. Management monitors and evaluates commercial and agricultural real estate loans and leases based on collateral and risk rating criteria. The Corporation may require guarantees on these loans and leases. The Corporation’s commercial and agricultural real estate loans and leases are secured primarily by properties located in its primary market area.

Commercial and agricultural operating loans and leases are underwritten based on the Corporation’s examination of current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. This underwriting includes the evaluation of cash flows of the borrower, underlying collateral, if applicable and the borrower’s ability to manage its business activities. The cash flows of borrowers and the collateral securing these loans and leases may fluctuate in value after the initial evaluation. A first priority lien on the general assets of the business normally secures these types of loans and leases. Loan to value limits vary and are dependent upon the nature and type of the underlying collateral and the financial strength of the borrower. Crop and/or hail insurance may be required for agricultural borrowers. Loans are generally guaranteed by the principal(s). The Corporation’s commercial and agricultural operating lending is primarily in its primary market area.

The Corporation maintains an internal audit department that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management and the audit committee. The internal audit process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Corporation’s policies and procedures.

The following tables present the activity in the allowance for loan and lease losses by portfolio segment for the years ended December 31, 2015, 2014 and 2013:

	Commercial			Commercial and multi-family real estate			Residential 1 – 4 family real estate			Consumer			Total

Balance at December 31, 2014	$	198,367		$	3,255,148		$	362,895		$	23,098		$	3,839,508
Provision (credit) charged to expenses		971,187			(767,134	)		165,745			12,202			382,000
Losses charged off		(348,613	)		(97,959	)		(175,656	)		(16,014	)		(638,242	)
Recoveries		71,645			150,338			20,356			8,861			251,200

Balance at December 31, 2015	$	892,586		$	2,540,393		$	373,340		$	28,147		$	3,834,466

	Commercial			Commercial and multi-family real estate			Residential 1 – 4 family real estate			Consumer			Total

Balance at December 31, 2013	$	305,434		$	3,346,286		$	344,803		$	17,868		$	4,014,391
Provision (credit) charged to expenses		(563,961	)		(4,254	)		125,961			12,254			(430,000	)
Losses charged off		(97,901	)		(270,032	)		(116,812	)		(12,197	)		(496,942	)
Recoveries		554,795			183,148			8,943			5,173			752,059

Balance at December 31, 2014	$	198,367		$	3,255,148		$	362,895		$	23,098		$	3,839,508

	Commercial			Commercial and multi-family real estate			Residential 1 – 4 family real estate			Consumer			Total

Balance at December 31, 2012	$	1,027,837		$	5,240,175		$	602,291		$	47,302		$	6,917,605
Provision (credit) charged to expenses		(518,117	)		(25,938	)		(264,301	)		(24,569	)		(832,925	)
Losses charged off		(218,394	)		(2,394,884	)		(3,896	)		(23,305	)		(2,640,479	)
Recoveries		14,108			526,933			10,709			18,440			570,190

Balance at December 31, 2013	$	305,434		$	3,346,286		$	344,803		$	17,868		$	4,014,391

The following tables present the balance in the allowance for loan and lease losses and the recorded investment in loans and leases by portfolio segment and based on impairment method as of December 31, 2015 and 2014:

	Commercial		Commercial and multi-family real estate		Residential 1 – 4 family real estate		Consumer		Total
2015
Allowance for loan and lease losses:
Attributable to loans and leases individually evaluated for impairment	$	527,940	$	842,643	$	-	$	-	$	1,370,583
Collectively evaluated for impairment		364,646		1,697,750		373,340		28,147		2,463,883
Total allowance for loan and lease losses	$	892,586	$	2,540,393	$	373,340	$	28,147	$	3,834,466

Loans and leases:
Individually evaluated for impairment	$	2,192,266	$	3,819,786	$	-	$	-	$	6,012,052
Acquired with deteriorated credit quality		42,733		669,336		73,625		-		785,694
Collectively evaluated for impairment		64,091,775		201,481,260		78,021,941		3,857,293		347,452,269
Total ending loans and leases balance	$	66,326,774	$	205,970,382	$	78,095,566	$	3,857,293	$	354,250,015

	Commercial		Commercial and multi-family real estate		Residential 1 – 4 family real estate		Consumer		Total
2014
Allowance for loan and lease losses:
Attributable to loans and leases individually evaluated for impairment	$	-	$	806,944	$	-	$	-	$	806,944
Collectively evaluated for impairment		198,367		2,448,204		362,895		23,098		3,032,564
Total allowance for loan and lease losses	$	198,367	$	3,255,148	$	362,895	$	23,098	$	3,839,508

Loans and leases:
Individually evaluated for impairment	$	197,803	$	3,483,640	$	-	$	-	$	3,681,443
Acquired with deteriorated credit quality		20,573		1,060,927		201,343		652		1,283,495
Collectively evaluated for impairment		63,604,790		207,402,083		80,166,430		4,798,923		355,972,226
Total ending loans and leases balance	$	63,823,166	$	211,946,650	$	80,367,773	$	4,799,575	$	360,937,164

The following is a summary of the activity in the allowance for loan and lease losses of impaired loans, which is a part of the Corporation’s overall allowance for loan and lease losses for the years ended December 31, 2015, 2014, and 2013:

	2015			2014			2013

Balance at beginning of year	$	806,944		$	179,016		$	2,921,950
Provision charged to expenses		852,126			262,834			(573,330	)
Loans charged off		(326,801	)		(230,905	)		(2,419,873	)
Recoveries		38,314			595,999			250,269
Balance at end of year	$	1,370,583		$	806,944		$	179,016

No additional funds are committed to be advanced in connection with impaired loans and leases.

The average balance of impaired loans and leases (excluding loans and leases acquired with deteriorated credit quality) approximated $5,579,000 $3,851,000, and $9,761,000 during 2015, 2014, and 2013, respectively. There was approximately $339,000, $197,000, and $203,000 in interest income recognized by the Corporation on impaired loans and leases on an accrual or cash basis during 2015, 2014, and 2013, respectively.

The following table presents loans and leases individually evaluated for impairment by class of loans as of December 31, 2015 and 2014:

	2015				2014
	Recorded investment		Allowance for loan and lease losses allocated		Recorded investment		Allowance for loan and lease losses allocated

With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	-
Commercial and multi-family real estate		-		-		1,005,067		-
Agriculture		-		-		-		-
Agricultural real estate		-		-		-		-
Consumer		-		-		-		-
Residential 1-4 family real estate		-		-		-		-
With an allowance recorded:
Commercial		2,192,266		527,940		197,803		85,561
Commercial and multi-family real estate		3,819,787		842,643		2,478,573		721,383
Agriculture		-		-		-		-
Agricultural real estate		-		-		-		-
Consumer		-		-		-		-
Residential 1-4 family real estate		-		-		-		-
Total	$	6,012,053	$	1,370,583	$	3,681,443	$	806,944

The following table presents the recorded investment in nonaccrual loans and leases, loans and leases past due over 90 days still on accrual and troubled debt restructurings by class of loans as of December 31, 2015 and 2014:

	2015						2014
	Nonaccrual		Loans and leases past due over 90 days still accruing		Troubled Debt Restructurings		Nonaccrual		Loans and leases past due over 90 days still accruing		Troubled Debt Restructurings
Commercial	$	355,415	$	-	$	-	$	199,160	$	25,284	$	-
Commercial real estate		4,112,605		-		1,403,187		3,351,521		1,253,936		1,967,898
Agricultural real estate		52,061		259,858		-		78,640		-		-
Agriculture		19,312		-		-		-		-		-
Consumer		11,977		-		-		4,450		758		-
Residential:
1 – 4 family		1,393,568		-		392,455		1,355,060		210,793		153,260
Home equity		-		-		-		231,885		22,228		-
Total	$	5,944,938	$	259,858	$	1,795,642	$	5,220,716	$	1,512,999	$	2,121,158

The nonaccrual balances in the table above include troubled debt restructurings that have been classified as nonaccrual.

The following table presents the aging of the recorded investment in past due loans and leases as of December 31, 2015 and 2014 by class of loans and leases:

	30 – 59 days past due		60 – 89 days past due		Greater than 90 days past due		Total past due		Loans and leases not past due		Total
2015
Commercial	$	80,898	$	50,000	$	121,057	$	251,955	$	53,210,222	$	53,462,177
Commercial real estate		643,541		15,422		1,225,385		1,884,348		181,952,711		183,837,059
Agriculture		150,064		-		19,312		169,376		12,695,221		12,864,597
Agricultural real estate		93,871		-		259,858		353,729		21,779,594		22,133,323
Consumer		49,389		301		4,824		54,514		3,802,779		3,857,293
Residential real estate		2,146,892		244,123		388,584		2,779,599		75,315,967		78,095,566
Total	$	3,164,655	$	309,846	$	2,019,020	$	5,493,521	$	348,756,494	$	354,250,015

	30 – 59 days past due		60 – 89 days past due		Greater than 90 days past due		Total past due		Loans and leases not past due		Total
2014
Commercial	$	212,495	$	210,541	$	36,494	$	459,530	$	48,300,122	$	48,759,652
Commercial real estate		1,150,611		1,852,191		3,053,809		6,056,611		181,172,227		187,228,838
Agriculture		49,312		-		-		49,312		15,014,202		15,063,514
Agricultural real estate		-		-		17,535		17,535		24,700,277		24,717,812
Consumer		26,295		44,537		2,941		73,773		4,725,802		4,799,575
Residential real estate		249,963		386,278		732,913		1,369,154		78,998,619		80,367,773
Total	$	1,688,676	$	2,493,547	$	3,843,692	$	8,025,915	$	352,911,249	$	360,937,164

Credit Quality Indicators:

The Corporation categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans and leases individually by classifying the loans and leases as to the credit risk. This analysis generally includes loans and leases with an outstanding balance greater than $500,000 (increased from $250,000 in 2015) and non-homogenous loans and leases, such as commercial and commercial real estate loans and leases. This analysis is performed on a quarterly basis. The Corporation uses the following definitions for risk ratings:

Special Mention: Loans and leases which possess some credit deficiency or potential weakness which deserves close attention, but which do not yet warrant substandard classification. Such loans and leases pose unwarranted financial risk that, if not corrected, could weaken the loan and lease and increase risk in the future. The key distinctions of a Special Mention classification are that (1) it is indicative of an unwarranted level of risk, and (2) weaknesses are considered "potential", versus "defined", impairments to the primary source of loan repayment.

Substandard: These loans and leases are inadequately protected by the current sound net worth and paying ability of the borrower. Loans and leases of this type will generally display negative financial trends such as poor or negative net worth, earnings or cash flow. These loans and leases may also have historic and/or severe delinquency problems, and Corporation management may depend on secondary repayment sources to liquidate these loans and leases. The Corporation could sustain some degree of loss in these loans and leases if the weaknesses remain uncorrected.

Doubtful: Loans and leases in this category display a high degree of loss, although the amount of actual loss at the time of classification is undeterminable. This should be a temporary category until such time that actual loss can be identified, or improvements made to reduce the seriousness of the classification.

Loans and leases not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans and leases. Loans and leases listed as not rated are generally either less than $500,000 (increased from $250,000 in 2015) or are included in groups of homogenous loans and leases. As of December 31, 2015 and 2014, and based on the most recent analysis performed, the risk category of loans by class of loans and leases is as follows:

	Pass		Special Mention		Substandard		Doubtful		Not rated

2015
Commercial	$	41,184,348	$	2,806,324	$	2,656,154	$	-	$	19,679,948
Commercial and multi-family real estate		139,351,079		7,562,337		5,975,868		-		53,081,098
Residential 1 - 4 family		222,552		-		-		-		77,873,014
Consumer		-		-		-		-		3,857,293
Total	$	180,757,979	$	10,368,661	$	8,632,022	$	-	$	154,491,353

	Pass		Special Mention		Substandard		Doubtful		Not rated

2014
Commercial	$	53,737,496	$	1,515,485	$	180,574	$	197,803	$	8,191,808
Commercial and multi-family real estate		172,674,560		9,780,593		8,902,162		110,202		20,479,134
Residential 1 - 4 family		-		-		110,759		-		80,257,013
Consumer		-		-		758		-		4,798,817
Total	$	226,412,056	$	11,296,078	$	9,194,253	$	308,005	$	113,726,772

The Corporation considers the performance of the loan and lease portfolio and its impact on the allowance for loan and lease losses. For all loan classes that are not rated, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. Generally, all loans not rated that are 90 days past due or are classified as nonaccrual and collectively evaluated for impairment, are considered nonperforming. The following table presents the recorded investment in all loans that are not risk rated, based on payment activity as of December 31, 2015 and 2014:

	Commercial		Commercial and multi-family real estate		Residential 1-4 family		Consumer
2015
Performing	$	19,539,579	$	52,249,417	$	77,484,430	$	3,852,469
Nonperforming		140,369		831,681		388,584		4,824
Total	$	19,679,948	$	53,081,098	$	77,873,014	$	3,857,293

	Commercial		Commercial and multi-family real estate		Residential 1-4 family		Consumer
2014
Performing	$	8,166,789	$	19,307,124	$	78,045,118	$	4,788,985
Nonperforming		25,019		1,172,010		2,211,895		9,832
Total	$	8,191,808	$	20,479,134	$	80,257,013	$	4,798,817

Modifications:

The Corporation’s loan and lease portfolio also includes certain loans and leases that have been modified in a TDR, where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Corporation’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. All TDRs are also classified as impaired loans and leases.

When the Corporation modifies a loan or lease, management evaluates any possible concession based on the present value of expected future cash flows, discounted at the contractual interest rate of the original loan or lease agreement, except when the sole (remaining) source of repayment for the loan or lease is the operation or liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs, instead of discounted cash flows. If management determines that the value of the modified loan or lease is less than the recorded investment in the loan or lease (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), an impairment is recognized through a specific reserve in the allowance or a direct write down of the loan or lease balance if collection is not expected.

The following table includes the recorded investment and number of modifications for TDR loans and leases during the years ended December 31, 2015 and December 31, 2014

	Number of modifications		Recorded investment		Allowance for loan and lease losses allocated
2015
Residential Real Estate		8	$	245,016	$	-
Commercial Real Estate		8		416,403
Total		16	$	661,419	$	-

2014
Commercial Real Estate		1	$	1,967,706	$	606,179

The concessions granted during 2015 included the following: the bank extended the current due dates and payments on seven loans, extended the maturity and re-amortized the payments on two loans, re-amortized the payments on five loans, granted an interest only period on one loan and converted a line of credit to a term loan on one loan. In 2014, the concession granted which resulted in the TDR was the Bank agreed to extend an interest only period to the borrower.

The following is additional information with respect to loans and leases acquired with The Ohio State Bank acquisition as of December 31, 2015 and December 31, 2014:

	Contractual
	Principal			Accretable			Carrying
	Receivable			Difference			Amount
Purchased Performing Loans and Leases
Balance at December 31, 2014	$	58,436,586		$	(3,143,613	)	$	55,292,973
Accretion of loan discounts		(16,555,787	)		1,332,920			(15,222,867	)
Transfer to foreclosed real estate		-			-			-
Change due to loan charge-off		(7,120	)		1,225			(5,895	)
Balance at December 31, 2015	$	41,873,679		$	(1,809,468	)	$	40,064,211

	Contractual			Non
	Principal			Accretable			Carrying
	Receivable			Difference			Amount
Purchased Impaired Loans and Leases
Balance at December 31, 2014	$	2,688,709		$	(1,788,138	)	$	900,571
Change due to payments received		(367,624	)		241,261			(126,363	)
Transfer to foreclosed real estate		(213,675	)		207,043			(6,632	)
Change due to loan charge-off		(147,983	)		145,650			(2,333	)
Balance at December 31, 2015	$	1,959,427		$	(1,194,184	)	$	765,243

As a result of The Ohio State Bank acquisition, the Corporation has loans, for which there was at acquisition, evidence of deterioration of credit quality since origination and for which it was probable at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans as of December 31, 2015, December 31, 2014 as well as the date of acquisition, November 14, 2014 was $765,243, $900,571 and $958,744, respectively.

No provision for loan and lease losses was recognized during the year ended December 31, 2015 related to the acquired loans as there was no significant change to the valuation of loans acquired from the date of acquisition of November 14, 2014 to December 31, 2015.

Certain directors and executive officers, including their immediate families and companies in which they are principal owners, are loan and lease customers of the Corporation. Such loans and leases are made in the ordinary course of business in accordance with the normal lending policies of the Corporation, including the interest rate charged and collateralization. Such loans amounted to $63,285, $34,391, and $45,480 at December 31, 2015, 2014, and 2013, respectively. The following is a summary of activity during 2015, 2014, and 2013 for such loans:

	2015			2014			2013
Beginning of year	$	34,391		$	45,480		$	989,194
Additions		160,000			4,045			-
Repayments		(131,106	)		(15,134	)		(943,714	)
End of year	$	63,285		$	34,391		$	45,480

Additions and repayments include loan and lease renewals, as well as net borrowings and repayments under revolving lines-of-credit.

NOTE 6 - PREMISES AND EQUIPMENT

The following is a summary of premises and equipment at December 31, 2015 and 2014:

	2015		2014
Land and improvements	$	3,401,312	$	3,401,312
Buildings		11,652,345		11,587,176
Equipment		4,244,864		4,295,575
		19,298,521		19,284,063
Less accumulated depreciation		7,249,841		6,898,507
Premises and equipment, net	$	12,048,680	$	12,385,556

Depreciation expense amounted to $599,471 in 2015, $450,729 in 2014, and $447,326 in 2013.

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 $173,464,000 and $171,255,000 at December 31, 2015 and 2014, respectively.

Mortgage servicing rights are included in other assets in the accompanying consolidated balance sheets. The Corporation has elected to record its mortgage servicing rights using the fair value measurement method. Significant assumptions used in determining the fair value of servicing rights as of December 31, 2015 and 2014 include:

Prepayment assumptions:	Based on the PSA Standard Prepayment Model
Internal rate of return:	9% to 11%
Servicing costs:	$50 – $65 per loan, annually, increased at the rate of $1 per 1% delinquency based on loan count
Inflation rate of servicing costs:	3%
Earnings rate:	0.25% in 2015 and 2014

Following is a summary of mortgage servicing rights activity for the years ended December 31, 2015, 2014 and 2013:

	2015			2014			2013
Fair value at beginning of year	$	1,217,931		$	1,398,396		$	930,760
Capitalized servicing rights – new loan sales		252,288			134,324			312,751
Disposals (amortization based on loan payments and payoffs)		(551,846	)		(167,739	)		(160,873	)
Change in fair value		263,114			(147,050	)		315,758
Fair value at end of year	$	1,181,487		$	1,217,931		$	1,398,396

The change in fair value of servicing rights for the year ended December 31, 2015 resulted from changes in external market conditions, including 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. The prepayment assumption factor used in determining the fair value of servicing at December 31, 2015 was 170 compared to 195 at December 31, 2014 and 164 at December 31, 2013. The earnings rate used in determining the fair value of servicing at December 31, 2015 was 0.25% and was 0.25% in 2014 and 2013 as well.

NOTE 8 - DEPOSITS

Time deposits at December 31, 2015 and 2014 include individual deposits greater than $250,000 approximating $3,392,941 and $3,046,208, respectively. Interest expense on time deposits greater than $250,000 approximated $22,912 for 2015, and $37,123 for 2014.

At December 31, 2015, time deposits approximated $148,485,689 and were scheduled to mature as follows: 2016, $73,559,404; 2017, $49,891,270; 2018, $7,724,583; 2019, $5,184,146; 2020, $11,702,146; and thereafter, $424,140.

Certain directors and executive officers, including their immediate families and companies in which they are principal owners, are depositors of the Corporation. Such deposits amounted to $3,704,947, and $4,616,970 at December 31, 2015, and 2014, respectively.

Overdrafted deposit accounts reclassified as loans amounted to $63,654 and $126,804 at December 31, 2015 and 2014, respectively.

NOTE 9 – OTHER BORROWINGS

Other borrowings consists of the following at December 31, 2015 (none at December 31, 2014):

	2015		2014
Federal Home Loan Bank borrowings:
Secured note, with interest at .45%, due March 25, 2016	$	645,000	$	-
Secured note, with interest at .45%, due March 28, 2016		1,473,000		-

Total other borrowings	$	2,118,000	$	-

Federal Home Loan Bank borrowings are secured by Federal Home Loan Bank stock and eligible mortgage loans approximating $71,817,093 at December 31, 2015. The interest rate on the advance outstanding at December 31, 2015, secured by individual mortgages under blanket agreement was 0.45%, with maturity in March 2016. At December 31, 2015, the Corporation had $76,510,327 of borrowing availability under various line-of-credit agreements with the Federal Home Loan Bank and other financial institutions.

NOTE 10 - 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 3.57% at December 31, 2015 and 3.40% at December 31, 2014 and 2013, with interest 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.

The Corporation assumed $3,093,000 of trust preferred securities from The Ohio State Bank acquisition. $3,000,000 of the liability is guaranteed by the Corporation, and the remaining $93,000 is secured by an investment in the trust preferred securities. The trust preferred securities have a carrying value of $2,472,401 at December 31, 2015 and $2,438,549 at December 31, 2014. The difference between the principal owed and the carrying value is due to the below-market interest rate on the debentures. The debentures have a stated maturity date of April 23, 2034. Interest is at a floating rate adjustable quarterly and equal to 285 basis points over the 3-month LIBOR amounting to 3.27% at December 31, 2015. The effective cost of the debentures was 6.61% at December 31, 2015.

Interest expense on the debentures amounted to $446,000, in 2015, $355,000 in 2014, and $353,000 in 2013, and is included in interest expense-borrowings in the accompanying consolidated statements of income.

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 11 - OTHER OPERATING EXPENSES

Other operating expenses consisted of the following for the years ended December 31, 2015, 2014 and 2013:

	2015		2014			2013
Data processing	$	1,052,995	$	699,942		$	434,175
Professional fees		906,921		1,053,907			692,375
Franchise tax		453,278		436,530			436,955
Advertising		483,885		404,558			462,758
ATM processing and other fees		437,676		448,250			446,017
Amortization of core deposit intangible asset		137,327		56,935			40,857
Postage		42,772		100,241			165,439
Stationery and supplies		99,440		172,303			177,947
FDIC assessment		358,132		330,479			379,587
Loan closing fees		190,544		233,068			174,564
Other real estate owned		354,337		273,243			250,632
Deposit losses (recoveries), net		35,448		(19,928	)		28,720
Prepayment penalty on borrowings		-		528,750			984,566
Other		1,715,281		1,657,150			1,557,286
Total other operating expenses	$	6,268,036	$	6,375,428		$	6,231,878

NOTE 12 - INCOME TAXES

The provision for income taxes for the years ended December 31, 2015, 2014 and 2013 consist of the following:

	2015		2014		2013
Current	$	545,900	$	784,500	$	208,000
Deferred		859,100		298,500		1,032,000
Total provision for income taxes	$	1,405,000	$	1,083,000	$	1,240,000

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:

	2015			2014			2013
Expected tax using statutory tax rate of 34%	$	2,489,400		$	1,834,100		$	1,999,600

Increase (decrease) in tax resulting from:
Tax-exempt income on state and municipal securities and political subdivision loans		(577,200	)		(574,200	)		(630,600	)
Tax-exempt income on life insurance contracts		(145,200	)		(134,900	)		(140,100	)
Deductible dividends paid to United Bancshares, Inc. ESOP		(39,300	)		(39,600	)		(23,700	)
Uncertain tax position reserves		(24,700	)		(29,800	)		7,600
Merger and acquisition costs		-			52,800			-
Accounting method change relating to bad debt reserve recapture		(331,500	)		-			-
Other, net		33,500			(25,400	)		27,200

Total provision for income taxes	$	1,405,000		$	1,083,000		$	1,240,000

The deferred income tax expense of $859,100 in 2015, $298,500 in 2014, and $1,032,000 in 2013 resulted from the tax effects of temporary differences. There was no impact for changes in tax rates or changes in the valuation allowance for deferred tax assets; however, there was a one-time tax benefit of $331,000 recognized in 2015 due to I.R.S. Revenue Procedures 2015-13 and 2015-14 released in January 2015.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2015 and 2014 are presented below:

	2015		2014
Deferred tax assets:
Allowance for loan losses	$	1,318,900	$	1,318,700
Deferred compensation		534,300		560,600
Alternative minimum tax credits		792,700		657,300
Nonaccrual loan interest		320,600		408,600
Deferred loan fees		143,500		154,400
Other real estate owned		318,600		367,500
Accrued vacation expense		130,600		126,500
Accrued profit sharing		160,300		117,300
Loans fair value adjustments		919,400		1,534,800
Other		53,400		209,800
Net operating loss carryforward		750,700		852,200

Total deferred tax assets		5,443,000		6,307,700
Deferred tax liabilities:
Unrealized gain on securities available-for- sale		719,700		727,500
Federal Home Loan Bank stock dividends		849,200		769,600
Capitalized mortgage servicing rights		401,700		414,100
Prepaid expenses		87,600		55,800
Acquisition intangibles		2,470,600		2,230,300
Bad debt reserve recapture		-		298,400
Trust preferred fair value adjustment		211,000		222,500
Other		20,500		55,500
Total deferred tax liabilities		4,760,300		4,773,700
Net deferred tax assets	$	682,700	$	1,534,000

Net deferred tax assets at December 31, 2015 and 2014 are included in other assets in the consolidated balance sheets. At December 31, 2015, the Corporation had $792,700 of federal alternative minimum tax credits with an indefinite life.

The Corporation acquired over $15 million in federal loss carryforwards with the acquisition of The Ohio State Bank, which losses expire in years ranging from 2026 to 2033. Use of these losses is limited to $126,000 per year under Section 382 of the Internal Revenue Code; therefore Management has recorded in deferred tax assets the tax benefit of only $2.5 million of the losses that are more likely than not to be utilized before expiration. There are no other acquired OSB tax losses that will be limited by Section 382. The benefit of $2.2 million of these losses is reflected in deferred tax assets at December 31, 2015.

Management believes it is more likely than not that the benefit of recorded deferred tax assets will be realized. Consequently, no valuation allowance for deferred tax assets is deemed necessary as of December 31, 2015 and 2014.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2015			2014
Balance at January 1	$	43,300		$	72,100
Additions based on tax positions related to the current year		-			3,200
Reductions due to the statute of limitation		(22,900	)		(32,000	)
Balance at December 31	$	20,400		$	43,300

The Corporation had unrecognized tax benefits of $20,400, and $43,300 at December 31, 2015 and 2014, respectively. 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, net of federal tax, related to the Corporation’s uncertain tax positions was $1,700 at December 31, 2015 and $3,500 at December 31, 2014, respectively.

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 2012. There are no current federal examinations of the Corporation’s open tax years.

NOTE 13 - EMPLOYEE AND DIRECTOR BENEFITS

The Corporation sponsors a salary deferral, defined contribution plan which provides for both profit sharing and employer matching contributions. The plan permits 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 makes 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 $617,405, $542,160, and $530,989, in 2015, 2014, and 2013, respectively. At December 31, 2015, the Plan owned 323,323 shares of the Corporation’s common stock.

The Corporation 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 Corporation has provided an estimated liability for accumulated supplemental retirement benefits amounting to $1,571,377 and $1,648,770 at December 31, 2015 and 2014, respectively, which is included in other liabilities in the accompanying consolidated balance sheets. The Corporation 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 $16,138,484 and $15,738,797 at December 31, 2015 and 2014, respectively.

Under an employee stock purchase plan, 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 715 shares in 2015, 684 shares in 2014, and 746 shares in 2013 under the plan.

The Chief Executive Officer of the Corporation has an employment agreement which provides for certain compensation and benefits should any triggering events occur, as specified in the agreement, including change of control or termination without cause.

NOTE 14 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Corporation 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 Corporation has in these financial instruments.

The Corporation’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 Corporation 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, 2015 and 2014:

	Contract amount
	2015		2014
Commitments to extend credit	$	84,069,000	$	91,861,000
Letters of credit	$	325,000	$	1,060,000

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 Corporation evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Corporation 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 Corporation to guarantee the performance of a customer to a third party and are reviewed for renewal at expiration. Of the total letters of credit outstanding at December 31, 2015, $295,000 expires in 2016 with the remaining $30,000 expiring in 2017. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Corporation requires collateral supporting these commitments when deemed necessary.

NOTE 15 - 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 Common Equity Tier 1 Capital (CET1) to risk-weighted assets (as defined in the regulations and effective January 1, 2015), 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, 2015 and 2014, that the Corporation and Bank meet all capital adequacy requirements to which they are subject. Furthermore, the Board of Directors of the Bank has adopted a resolution to maintain Tier I capital at or above 8% of total assets.

As of December 31, 2015, 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 CET1, 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.

In July 2013 the U.S federal banking authorities approved the final rules (the “Basel III Capital Rules”) which established a new comprehensive capital framework for U.S. banking organizations. The Basel III Capital Rules have maintained the general structure of the current prompt corrective action framework, while incorporating provisions which will increase both the quality and quantity of the Bank’s capital. Generally, the Bank became subject to the new rules on January 1, 2015 with phase-in periods for many of the new provisions. Management believes the Bank is complying with the new capital requirements as they are phased-in.

In February of 2015, the Board of Governors of the Federal Reserve System adopted final amendments to the Small Bank Holding Company Policy Statement (Regulation Y, Appendix C) (the “Policy Statement”) that, among other things, raised from $500 million to $1 billion the asset threshold to qualify for the Policy Statement. The Company qualifies for treatment under the Policy Statement and is no longer subject to consolidated capital rules.

The actual capital amounts and ratios of the Corporation and Bank as of December 31, 2015 and 2014 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, 2015
Common Equity Tier 1 Capital
(CET1) (to Risk Weighted Assets) *
Consolidated	$	72,202		16.3	%	$	19,951	≥4.5	%		N/A		N/A
Bank	$	70,428		15.9	%	$	19,905	≥4.5	%	$	28,751		6.5	%
Total Capital (to Risk Weighted Assets)
Consolidated	$	75,517		17.0	%	$	35,469	≥8.0	%		N/A		N/A
Bank	$	74,307		16.8	%	$	35,386	≥8.0	%	$	44,233		10.0	%
Tier 1 Capital (to Risk weighted Assets)
Consolidated	$	72,202		16.3	%	$	26,602	≥6.0	%		N/A		N/A
Bank	$	70,428		15.9	%	$	26,540	≥6.0	%		35,386		8.0	%
Tier 1 Capital (to Average Assets)
Consolidated	$	72,202		11.7	%	$	24,704	≥4.0	%		N/A		N/A
Bank	$	70,428		11.8	%	$	23,978	≥4.0	%	$	29,972		5.0	%

As of December 31, 2014
Total Capital (to Risk Weighted Assets )
Consolidated	$	71,742		15.8	%	$	36,307	≥8.0	%		N/A		N/A
Bank	$	70,319		15.5	%	$	36,191	≥8.0	%	$	45,239		10.0	%
Tier 1 Capital (to Risk Weighted Assets )
Consolidated	$	67,863		15.0	%	$	18,154	≥4.0	%		N/A		N/A
Bank	$	66,440		14.7	%	$	18,096	≥4.0	%		27,143		6.0	%
Tier 1 Capital (to Average Assets)
Consolidated	$	67,863		11.0	%	$	24,624	≥4.0	%		N/A		N/A
Bank	$	66,440		10.7	%	$	24,735	≥4.0	%	$	30,919		5.0	%

* CET1 is effective as of January 1, 2015

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.

NOTE 16 - CONDENSED PARENT COMPANY FINANCIAL INFORMATION

A summary of condensed financial information of the parent company as of December 31, 2015 and 2014 and for each of the three years in the period ended December 31, 2015, 2014 and 2013 is as follows:

Condensed Balance Sheets

	2015			2014
Assets:
Cash	$	334,272		$	118,632
Investment in bank subsidiary		82,564,196			79,085,666
Premises and equipment, net of accumulated depreciation		266,774			292,396
Other assets, including income taxes receivable from bank subsidiary of $804,962 and $632,480 in 2015 and 2014, respectfully.		1,238,591			1,185,649
Total assets	$	84,403,833		$	80,682,343

Liabilities:
Accrued expenses		70,255		$	54,968
Federal income taxes payable		-			116,548
Junior subordinated deferrable interest debentures		12,772,401			12,738,550

Total liabilities		12,842,656			12,910,066

Shareholders’ equity:
Common stock		3,760,557			3,760,557
Surplus		14,669,087			14,665,845
Retained earnings		58,641,837			53,925,768
Accumulated other comprehensive income		1,397,130			1,412,115
Treasury stock, at cost		(6,907,434	)		(5,992,008	)

Total shareholders’ equity		71,561,177			67,772,277

Total liabilities and shareholders’ equity	$	84,403,833		$	80,682,343

Condensed Statements of Income	2015			2014			2013
Income – including dividends from bank subsidiary	$	3,000,104		$	3,200,105		$	975,356
Expenses – interest expense, professional fees and other expenses, net of federal income tax benefit		(576,734	)		(587,451	)		(523,271	)
Income before equity in undistributed net income of bank subsidiary		2,423,370			2,612,654			452,085
Equity in undistributed net income of bank subsidiaries		3,493,515			1,698,844			4,189,119
Net income	$	5,916,885		$	4,311,498		$	4,641,204

Condensed Statements of Cash Flows	2015			2014			2013
Cash flows from operating activities:
Net income	$	5,916,885		$	4,311,498		$	4,641,204
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net income of bank subsidiary		(3,493,515	)		(1,698,844	)		(4,189,119	)
Depreciation and amortization		25,622			25,622			25,622
Discount accretion on junior subordinated deferrable interest debentures		33,851			-			-
(Increase) in other assets		(52,942	)		(4,412	)		(665,429	)
Increase (decrease) in other liabilities, including accrued expenses		(101,261	)		(70,785	)		201,086
Net cash provided by operating activities		2,328,640			2,563,079			13,364

Cash flows from investing activities:
Payment for acquisition		-			(1,197,237	)		-

Net cash used in investing activities investing activities operating activities		-			(1,197,237	)		-

Cash flows from financing activities:
Purchase treasury stock		(926,328	)		(1,136,430	)		(72,200	)
Proceeds from sale of treasury shares		14,143			12,443			13,604
Cash dividends paid		(1,200,815	)		(1,193,419	)		(689,380	)
Net cash used by financing activities		(2,113,000	)		(2,317,406	)		(747,976	)
Net increase (decrease) in cash		215,640			(951,564	)		(734,612	)
Cash at beginning of the year		118,632			1,070,196			1,804,808
Cash at end of the year	$	334,272		$	118,632		$	1,070,196

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 59,111 shares in 2015, 75,000 shares in 2014 and 5,000 shares in 2013 under the program.

NOTE 17 - FAIR VALUE MEASUREMENTS

Fair value is defined 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.

FASB ASC 820-10, Fair Value Measurements (ASC 820-10) 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, ASC 820-10 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 – Unadjusted quoted prices 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.

The following table summarizes financial assets (there were no financial liabilities) measured at fair value as of December 31, 2015 and 2014, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

2015	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
Recurring:
Securities available-for-sale:
U.S. Government and Agencies	$	-	$	3,966,390	$	-	$	3,966,390
Obligations of state and political subdivisions		-		71,093,028		2,388,864		73,481,892
Mortgage-backed		-		104,479,413		-		104,479,413
Other		999,455		1,888		-		1,001,343
Mortgage servicing rights		-		-		1,181,487		1,181,487

Total recurring	$	999,455	$	179,540,719	$	3,570,351	$	184,110,525

Nonrecurring:
Impaired loans, net	$	-	$	-	$	4,641,469	$	4,641,469
Other real estate owned		-		-		173,047		173,047

Total nonrecurring	$	-	$	-	$	4,814,516	$	4,814,516

2014	Level 1 inputs		Level 2 inputs		Level 3 inputs		Total fair value
Recurring:
Securities available-for-sale:
U.S. Government and Agencies	$	-	$	9,537,052	$	-	$	9,537,052
Obligations of state and political subdivisions		-		55,562,707		2,535,817		58,098,524
Mortgage-backed		-		137,818,544		-		137,818,544
Other		1,005,055		1,888		-		1,006,943
Mortgage servicing rights		-		-		1,217,931		1,217,931

Total recurring	$	1,005,055	$	202,920,191	$	3,753,748	$	207,678,994

Nonrecurring:
Impaired loans, net	$	-	$	-	$	2,874,499	$	2,874,499
Other real estate owned		-		-		535,999		535,999

Total nonrecurring	$	-	$	-	$	3,410,498	$	3,410,498

There was one security measured at fair value included in the Level 3 hierarchy during 2015 and 2014 due to the lack of observable quotes in inactive markets for the instrument. This security moved from Level 2 to Level 3 during 2013.

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 years ended December 31, 2015, 2014 and 2013:

	2015			2014			2013
Mortgage Servicing Rights
Balance at beginning of year	$	1,217,931		$	1,398,396		$	930,760
Gains or losses, including realized and unrealized:
Purchases, issuances, and settlements		252,288			134,324			312,751
Disposals – amortization based on loan payments and payoffs		(551,846	)		(167,739	)		(160,873	)
Changes in fair value		263,114			(147,050	)		315,758
Balance at end of year	$	1,181,487		$	1,217,931		$	1,398,396

Securities valued using Level 3 inputs
Balance at beginning of year	$	2,535,817		$	2,673,424
Principal payments received		(145,158	)		(139,400	)
Changes in fair value		(1,795	)		1,793
Balance at end of year	$	2,388,864		$	2,535,817

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, and disclosure of unobservable inputs 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.

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 U.S. Government and agencies, 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 may be classified within Level 3 of the valuation hierarchy.

Mortgage Servicing Rights

The Corporation records mortgage servicing rights at estimated fair value based on a discounted cash flow model which includes discount rates between 9% and 11%, in addition to assumptions disclosed in Note 7 that are considered to be unobservable inputs. Due to the significance of the level 3 inputs, mortgage servicing rights have been classified as level 3.

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 cost to sell, if repayment is expected solely from collateral. Collateral values are estimated using level 2 inputs, including recent appraisals and level 3 inputs based on customized discounting criteria such as additional appraisal adjustments to consider deterioration of value subsequent to appraisal date and estimated cost to sell. Additional appraisal adjustments range between 15% and 35% of appraised value, and estimated selling cost ranges between 10% and 20% of the adjusted appraised value. Due to the significance of the level 3 inputs, impaired loans fair values have been classified as level 3.

Other Real Estate Owned

The Corporation values other real estate owned at the estimated fair value of the underlying collateral less appraisal adjustments between 10% and 70% of appraised value, and expected selling costs between 10% and 20% of adjusted appraised value. Such values are estimated primarily using appraisals and reflect a market value approach. Due to the significance of the Level 3 inputs, other real estate owned has been classified as Level 3.

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 and other real estate owned, measured at fair value on a nonrecurring basis were not significant at December 31, 2015.

NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values of recognized financial instruments at December 31, 2015 and 2014 are as follows:

	2015				2014
	Carrying Amount		Estimated Value		Carrying Amount		Estimated Value		Input Level
	(dollars in thousands)
FINANCIAL ASSETS
Cash and cash equivalents	$	22,922	$	22,922	$	32,355	$	32,355		1
Securities, including Federal Home Loan Bank stock		187,759		187,759		211,291		211,291		2
Certificates of deposit		1,992		1,992		2,490		2,490		2
Loans held for sale		347		347		229		229		3
Net loans		350,416		350,374		357,098		357,066		3
Mortgage servicing rights		1,181		1,181		1,218		1,218		3
	$	564,617	$	564,575	$	604,681	$	604,649

	2015				2014
	Carrying Amount		Estimated Value		Carrying Amount		Estimated Value		Input Level
	(dollars in thousands)
FINANCIAL LIABILITIES
Deposits
Maturity	$	148,486	$	147,164	$	174,929	$	174,263		3
Non-maturity		369,934		369,934		390,516		390,516		1
Other borrowings		2,118		2,118		-		-		3
Junior subordinated deferrable interest debentures		12,772		8,265		12,739		12,627		3
	$	533,310	$	527,481	$	578,184	$	577,406

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, and would be considered level 1 inputs.

There are also unrecognized financial instruments at December 31, 2015 and 2014 which relate to commitments to extend credit and letters of credit. The contract amount of such financial instruments amounts to $84,394,000 at December 31, 2015 and $92,921,000 at December 31, 2014. 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:

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 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 may be classified within Level 3 of the valuation hierarchy. The Corporation had one security that was classified as Level 3 at December 31, 2015 and 2014.

Certificates of deposit:

Carrying value of certificates of deposit estimates fair value.

Loans and leases:

Fair value for loans and leases was estimated for portfolios of loans and leases 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 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.

NOTE 19 – LEASING ARRANGEMENTS

The Corporation acquired a branch that is operated from a facility that is leased under a twenty-year cancelable operating lease expiring in June 2016. There is an option to renew the lease for two successive periods of five years each, but otherwise on the same terms.

The following is a schedule of future minimum rental payments required under the above operating lease as of December 31, 2015:

Year ending December 31				Amount
	2016			$	22,500

NOTE 20 - 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 21 - QUARTERLY FINANCIAL DATA (UNAUDITED)

The following represents a summary of selected unaudited quarterly financial data for 2015 and 2014:

			Net				Net Income
	Interest		Interest		Net		Per Share
	Income		Income		Income		Basic		Diluted
	(Dollars in thousands, except per share data)
2015
First quarter	$	5,710	$	5,056	$	1,122	$	0.333	$	0.333
Second quarter	$	5,670	$	5,143	$	1,903	$	0.569	$	0.569
Third quarter	$	5,755	$	5,259	$	1,503	$	0.451	$	0.451
Fourth quarter	$	5,701	$	4,919	$	1,389	$	0.419	$	0.419

2014
First quarter	$	4,859	$	4,188	$	901	$	0.262	$	0.262
Second quarter	$	4,814	$	4,013	$	1,325	$	0.387	$	0.387
Third quarter	$	4,799	$	4,144	$	1,038	$	0.306	$	0.306
Fourth quarter	$	5,148	$	5,037	$	1,047	$	0.311	$	0.311

UNITED BANCSHARES, INC.

Columbus Grove, Ohio

DIRECTORS – UNITED BANCSHARES, INC.

		DIRECTOR			DIRECTOR
NAME	AGE	SINCE	NAME	AGE	SINCE
Robert L. Benroth	53	2003	Daniel W. Schutt	68	2005
Putnam County Auditor			Vice Chairman, Retired Banker

James N. Reynolds	78	2000	R. Steven Unverferth	63	2005
Chairman, Retired Banker			President, Unverferth Manufacturing Corporation, Inc.

H. Edward Rigel	73	2000	Brian D. Young	49	2012
Farmer, Rigel Farms, Inc.			President/CEO

David P. Roach	65	2001
Vice-President/GM, First Family Broadcasting of Ohio

DIRECTORS – THE UNION BANK COMPANY

		DIRECTOR			DIRECTOR
NAME	AGE	SINCE (a)	NAME	AGE	SINCE (a)
Robert L. Benroth	53	2001	David P. Roach	65	1997
Putnam County Auditor			Vice-President/GM, First Family Broadcasting of Ohio

Herbert H. Huffman	65	1993	Robert M. Schulte, Sr.	83	1994
Retired – Educator			Businessman/Spherion Services

Kevin L. Lammon	61	1996	Daniel W. Schutt	68	2005
Village Administrator, Village of Leipsic			Retired Banker

William R. Perry	57	1990	R. Steven Unverferth	63	1993
Farmer			President, Unverferth Manufacturing Corporation, Inc.

James N. Reynolds	78	1966	Brian D. Young	49	2008
Retired Banker			President/CEO/Chairman

H. Edward Rigel	73	1979
Farmer, Rigel Farms, Inc.

(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.

OFFICERS – UNITED BANCSHARES, INC.

James N. Reynolds – Chairman

	Daniel W. Schutt – Vice Chairman	Brian D. Young – President / Chief Executive Officer
	Heather M. Oatman – Secretary	Anthony M.V. Eramo – Chief Financial Officer

OFFICERS – THE UNION BANK COMPANY

Brian D. Young – President/CEO/Chairman

Curtis E. Shepherd – Executive Vice President

Teresa M. Deitering	Senior Vice President	Heather M. Oatman	Senior Vice President, Sec.
Anthony M.V. Eramo	Senior Vice President, CFO	Norman V. Schnipke	Senior Vice President
John P. Miller	Senior Vice President

Janice C. Acerro	Vice President	Doris A. Neumeier	Vice President
Dan M. Best	Vice President	Brent D. Nussbaum	Vice President
Donna J. Brown	Vice President	C. Christopher Ramsey	Vice President
Paul M. Cira	Vice President	Amy E. Reese	Vice President
Vicky K. Gilbert	Vice President	David E. Stuthard	Vice President
Erin W. Hardesty	Vice President	J. Kevin Taylor	Vice President
Max E. Long	Vice President	Jason R. Thornell	Vice President
Karen M. Maag	Vice President	Paul A. Walker	Vice President

Kathi J. Amstutz	Assistant Vice President	Matthew K. McCracken	Assistant Vice President
Nancianne Carroll	Assistant Vice President	Bart H. Mills	Assistant Vice President
Elizabeth J. Cooper	Assistant Vice President	Ellen M. Neiling	Assistant Vice President
David M. Cornwell	Assistant Vice President	Peter J. Rafaniello	Assistant Vice President
Chase H. Doll	Assistant Vice President	Jason A. Recker	Assistant Vice President
Adina S. Fugate	Assistant Vice President	Craig R. Stechschulte	Assistant Vice President
Deborah A. Gaines	Assistant Vice President	Theresa A. Stein-Moenter	Assistant Vice President
Teresa J. Hawkey	Assistant Vice President	Stacia R. Thompson	Assistant Vice President
Christina J. Hegemier	Assistant Vice President	Matthew J. Tway	Assistant Vice President
Machiel K. Hindall	Assistant Vice President	Kimberly S. Verhoff	Assistant Vice President
Susan A. Hojnacki	Assistant Vice President	Vikki L. Williams	Assistant Vice President
Sarah E. Klausing	Assistant Vice President	Pamela J. Workman	Assistant Vice President
Daniel J. Lucke	Assistant Vice President

Mary Jo Horstman	Assistant Controller, Officer	Zachary P. Nycz	Trainer, Officer

UNITED BANCSHARES INC/OH - FORM 10-K - EX-13 - EXHIBIT 13 - March 9, 2016

Attached files

UNITED BANCSHARES INC/OH Reports