<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
2000 OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________
TO _____________
UNITED BANCSHARES, INC.
-----------------------
(Exact name of registrant as specified in its charter)
0-25976
-------
SEC File Number
Pennsylvania 23-2802415
------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 North 3rd Street, Philadelphia, PA 19106
-------------------------------------- -----
(Address of principal executive office) (Zip Code)
(215) 829-2265
--------------
(Registrant's telephone number, including area code)
N/A
--------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or such shorter period that the registrant was
required to filed such reports), and (2) has been subject to such filing
requirements for the past 90 day. Yes X No____
---
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _____ No _____
Page 1 of 22
<PAGE>
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Registrant has two classes of capital stock authorized - 2,000,000 shares
of $.01 par value Common stock and Series Preferred Stock (Series A Preferred
Stock). The Board of Directors designated a subclass of the common stock,
designated Class B Common Stock, by filing of Articles of Amendment on September
30, 1998. This Class of stock has all of the rights and privileges of Common
Stock with the exception of voting. Of the 2,000,000 shares of Common Stock
authorized, 250,000 have been designated Class B Common Stock. As of November
14, 2000, 1,063,070 (191,667 Class B Non voting) shares were issued and
outstanding.
The Board of Directors of United Bancshares, Inc. designated one series of
the Series Preferred Stock (the "Series A Preferred Stock"), 500,000 authorized
of which 143,150 shares were outstanding as of November 14, 2000.
Page 2 of 22
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
----------------------------
Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-----------------------------------
<S> <C> <C>
Asset
Cash and due from banks 833,375 9,396,669
Interest bearing deposits with banks 242,849 365,547
Federal funds sold 3,832,000 7,158,000
-----------------------------------
Cash & cash equivalents 4,908,224 16,920,216
Investments securities:
Held-to-maturity, at amortized cost 23,943,909 32,303,774
Available-for-sale, at market value 12,062,726 19,129,535
Loans, net of unearned discount 50,719,369 61,010,995
Less: allowance for loan losses (711,192) (1,566,642)
-----------------------------------
Net loans 50,008,177 59,444,353
Bank premises & equipment, net 3,466,392 3,825,321
Accrued interest receivable 1,386,557 1,221,679
Other real estate owned 52,600 397,641
Core deposit intangible 2,343,947 2,428,524
Prepaid expenses and other assets 272,811 1,578,036
-----------------------------------
Total Assets 98,445,343 137,249,079
===================================
Liabilities & Shareholders' Equity
Demand deposits, non-interest bearing 21,484,719 26,206,219
Demand deposits, interest bearing 20,166,335 29,119,779
Savings deposits 27,306,269 33,342,400
Time deposits, $100,000 and over 5,055,067 12,633,964
Time deposits 13,889,321 23,464,035
-----------------------------------
87,901,711 124,766,397
Obligations under capital leases 1,423,522 1,444,607
Accrued interest payable 249,065 600,546
Accrued expenses and other liabilities 410,164 1,410,214
-----------------------------------
Total Liabilities 89,984,462 128,221,764
Shareholders' Equity:
Preferred Stock, Series A, non-cum., 6%, $.01 par value
500,000 shares authorized, 143,150 issued and outstanding at September
30, 2000 and December 31, 1999, respectively 1,432 1,432
Common stock, $.01 par value; 2,000,000 shares authorized;
1,063,070 and 1,028,753 shares issued and outstanding at September 30, 2000
and December 31, 1999, respectively. 10,631 10,288
Additional-paid-in capital 14,281,636 13,870,170
Accumulated deficit (5,696,676) (4,658,392)
Net unrealized gain on available-for-sale securities (136,142) (196,183)
-----------------------------------
Total Shareholders' Equity 8,460,881 9,027,315
-----------------------------------
98,445,343 137,249,079
===================================
</TABLE>
Page 3 of 22
<PAGE>
<TABLE>
<CAPTION>
Statements of Operations
Unaudited
Quarter ended Quarter ended Nine months ended Nine months ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $1,123,044 1,289,534 3,603,695 $4,223,275
Interest on investment securities 732,374 389,654 2,569,349 $1,097,294
Interest on Federal Funds sold 45,172 202,996 317,394 $ 425,968
Interest on time deposits with other banks 0 7,915 10,408 $ 17,249
----------------------------------------------------------------------
Total interest income 1,900,590 1,890,099 6,500,846 5,763,786
Interest Expense:
Interest on time deposits 288,438 423,268 1,140,558 $1,252,443
Interest on demand deposits 131,620 195,743 515,896 $ 464,563
Interest on savings deposits 121,478 34,246 390,891 $ 231,596
Interest on borrowed funds 98,499 0 241,382 $ 19,093
----------------------------------------------------------------------
Total interest expense 640,035 653,257 2,288,727 1,967,695
Net interest income 1,260,555 1,236,842 4,212,119 3,796,091
Provision for loan losses 460,000 75,000 640,00 215,000
----------------------------------------------------------------------
Net interest income less provision for
loan losses 800,555 1,161,842 3,572,119 3,581,091
----------------------------------------------------------------------
Noninterest income:
Gain on sale of loans 0 0 17,783 $ 43,857
Customer service fees 685,925 477,016 2,025,772 $1,303,113
Realized gain (loss) on investments (66,761) 0 (194,224) $ 0
Other income 68,098 36,407 433,831 $ 98,951
----------------------------------------------------------------------
Total noninterest income 687,262 513,423 2,283,162 1,445,900
Non-interest expense
Salaries, wages, and employee benefits 750,345 704,096 2,461,581 $2,017,568
Occupancy and equipment 464,519 391,766 1,364,252 $1,011,287
Office operations and supplies 186,150 161,248 644,273 $ 422,566
Marketing and public relations 47,099 65,399 108,006 $ 179,325
Professional services 72,443 90,681 437,176 $ 233,889
Data processing 238,264 161,803 732,921 $ 612,893
Deposit insurance assessments 77,107 31,206 109,454 $ 74,439
Other noninterest expense 331,932 297,551 1,035,902 $ 692,993
----------------------------------------------------------------------
Total non-interest expense 2,167,859 1,903,750 6,893,565 5,244,960
----------------------------------------------------------------------
Net income (loss) ($680,042) (228,485) ($1,038,284) ($217,969)
======================================================================
Earnings per common share-basic ($0.64) ($0.23) ($0.98) ($0.22)
Earnings per common share-diluted ($0.64) ($0.23) ($0.98) ($0.22)
======================================================================
Weighted average number of shares 1,044,215 986,244 1,044,215 986,244
======================================================================
</TABLE>
Page 4 of 22
<PAGE>
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine months Nine months
ended ended
September 30, September 30,
2000 1999
---------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) ($1,038,284) ($217,969)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for loan losses 640,000 215,000
Gain on sale of loans (17,783) (43,857)
Depreciation and amortization 750,388 401,429
Realized investment securities losses 194,224 0
Decrease (increase) in accrued interest receivable and other assets 1,485,388 (2,024,689)
(Decrease) increase in accrued interest payable and other liabilities (1,351,551) (82,465)
-------------------------------
Net cash provided by operating activities 662,382 (1,752,551)
Cash flows from investing activities
Purchase of investments Available-for-Sale (1,484,473) (5,796,957)
Purchase of investments Held-to-Maturity (2,636,746) (35,878,655)
Proceeds from maturity & principal reductions of investments Available-for-Sale 697,522 2,280,204
Proceeds from maturity & principal reductions of investments Held-to-Maturity 727,124 23,881,820
Proceeds from sale of investment securities 17,929,738 0
Purchase of automobile loans 0 (21,982,333)
Net decrease in loans 6,392,323 13,346,781
Sale of deposits (6,544,666) 0
Purchase of premises and equipment (268,622) (1,060,148)
Proceeds from sale of student loans 2,421,636 3,059,985
-------------------------------
Net cash provided by (used in) investing activities 17,233,836 (22,149,303)
Cash flows from financing activities
Net increase (decrease) in deposits (30,320,020) 29,078,680
Repayments on long-term debt 0 (11,191)
Reverse repurchase agreement 0 (1,557,755)
Proceeds from issuance of preferred stock 0 1,071,514
Net proceeds from issuance of common stock 411,810 234,168
-------------------------------
Net cash provided by (used in) financing activities (29,908,210) 28,815,416
Increase (decrease) in cash and cash equivalents (12,011,992) 4,913,562
Cash and cash equivalents at beginning of period 16,920,216 16,343,034
Cash and cash equivalents at end of period 4,908,224 21,256,596
===============================
Supplemental disclosures of cash flows information
Cash paid during the period for interest 1,295,319 1,940,564
===============================
</TABLE>
Page 5 of 22
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-------------------------------------------------------------------------------
of Operations.
-------------
United Bank of Philadelphia (the Bank) was founded in 1991 and commenced
operations in March 1992. In April 1993, the shareholders of the Bank voted in
favor of the formation of a bank holding company, United Bancshares, Inc. (the
Company). Accordingly, in October 1994 the Company became a bank holding company
in conjunction with the issuance of its common shares in exchange for the common
shares of the Bank. The financial statements are prepared on a consolidated
basis to include the accounts of the Company and the Bank.
The purpose of this discussion is to focus on information about the Bank's
financial condition and results of operations which is not otherwise apparent
from the consolidated financial statements included in this quarterly report.
This discussion is intended to enable the reader to assess the material changes
in the financial condition and results of operations for the quarter ending
September 30, 2000. Reference should be made to those statements and the
selected financial data presented elsewhere in this report for an understanding
of the following discussion and analysis.
Selected Financial Data
The following table sets forth-selected financial data for the each of the
following periods:
<TABLE>
<CAPTION>
(Thousands of dollars, except per share data) Quarter ended Quarter ended
------------- -------------
September 30, 2000 September 30, 1999
------------------ ------------------
<S> <C> <C>
Net interest income $ 1,261 $ 1,237
Provision for loan losses 460 75
Noninterest income 687 513
Noninterest expense 2,168 1,904
Net income (loss) ($680) ($228)
Earnings per share-basic and diluted ($.64) ($.23)
<CAPTION>
Balance sheet totals: September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Total assets $ 98,445 $ 137,249
Loans, net $ 50,008 $ 59,444
Investment securities $ 36,006 $ 51,433
Deposits $ 87,902 $ 124,766
Shareholders' equity $ 8,460 $ 9,027
Ratios
Return on assets (.81)% (1.03)%
Return on equity (12.08)% (12.71)%
Equity to assets ratio 6.70% 8.08%
</TABLE>
Financial Condition
Sources and Uses of Funds
The Bank's financial condition can be evaluated in terms of trends in its
sources and uses of funds. The comparison of average balances in the following
table indicates how the Bank has managed these elements. Average funding sources
decreased approximately $20.6 million, or 16.90%, during the
Page 6 of 22
<PAGE>
quarter ending September 30, 2000. Average funding uses decreased $17.8 million,
or 16.6%, for the same quarter. In late June 2000, the Bank implemented asset
management/capital improvement strategies that included the sale of loans and
investments as well as deposit sales/reductions. (Refer to Capital Resources
below)
Sources and Uses of Funds Trends
<TABLE>
<CAPTION>
September 30, 2000 June 30, 2000
------------------ -------------
Average Increase (Decrease) Average
------- ------------------ -------
Balance Amount % Balance
------- ------ - -------
<S> <C> <C> <C> <C>
Funding uses:
Loans $ 54,756 ($3,826) (6.53)% $ 58,592
Investment securities
Held-to-maturity 24,085 (10,097) (29.54) 34,182
Available-for-sale 19,700 (1,045) (5.04) 20,745
Federal funds sold 2,806 (5,645) (66.80) 8,451
--------- -------- ---------
Total uses $ 101,347 ($20,613) $ 121,960
========= ======== =========
Funding sources:
Demand deposits
Noninterest-bearing $ 26,280 ($2,443) (8.5l)% $ 28,723
Interest-bearing 9,697 (3,615) (27.16) 13,312
Savings deposits 27,590 (2,294) (7.68) 29,884
Time deposits 21,667 (12,122) (35,88) 33,789
Other borrowed funds 4,110 2,676 186.61% 1,434
--------- ------- -------
Total sources $ 89,344 ($17,798) $ 107,142
========= ======== =========
</TABLE>
Loans
Average loans decreased approximately $3.8 million, or 6.53%, during the quarter
ended September 30, 2000. This decrease was primarily in the Bank's consumer
loan portfolio due to repayments in an automobile loan portfolio purchased in
February 1999. Paydowns in this portfolio are averaging $500 thousand per month.
In June 2000, the Bank sold approximately $2.1 million in student loans as part
of its ongoing strategy to originate and sell these loans to generate gains and
minimize its data processing costs. The Bank's mortgage loan portfolio continues
to decline because of payoffs/paydowns for which there were no new originations
to replace. The Bank is strategically shifting out of mortgage loans into more
profitable consumer and business loans.
Further, in September 2000, the Bank charged-off commercial and consumer loans
totaling $498 thousand. Collection of these loans will be pursued through
alternative means. These charge-offs were in-line with the Bank's current
strategy to "scrub" its loan portfolio by removing any loans for which payment
is unlikely.
The following table shows the composition of the Bank's loan portfolio by type
of loan.
(Thousands of Dollars)
September December
--------- --------
30, 2000 31, 1999
-------- --------
Commercial and industrial $13,956 $13,644
Commercial real estate 657 1,288
Consumer loans 12,487 19,822
Residential mortgages 23,619 26,237
------- -------
Total Loans $50,719 $61,011
======= =======
Allowance for Loan Losses
The allowance for loan losses reflects management's continuing evaluation of the
loan portfolio, assessment of economic conditions, the diversification and size
of the portfolio, adequacy of collateral, historical loss experience, and the
amount and quality of nonperforming loans. The following Table presents an
analysis of the allowance for loan losses.
Page 7 of 22
7
<PAGE>
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
--------------------------------------------------
Balance at January 1, 2000 $1,566
--------------------------------------------------
Charge-offs:
--------------------------------------------------
Commercial and industrial 315
--------------------------------------------------
Commercial real estate 771
--------------------------------------------------
Residential mortgages 22
--------------------------------------------------
Consumer loans 516
--------------------------------------------------
Total charge-offs 1,624
--------------------------------------------------
Recoveries 129
--------------------------------------------------
Net charge-offs 1,495
--------------------------------------------------
Additions charged to operations 640
------
--------------------------------------------------
Balance at September 30, 2000 $ 711
--------------------------------------------------
The amount charged to operations and the related balance in the allowance for
loan losses are based upon the periodic evaluations of the loan portfolio by
management. These evaluations consider several factors, including, but not
limited to, general economic conditions, loan portfolio composition, prior loan
loss experience, and management's estimate of losses inherent in the portfolio.
The allowance for loan losses as a percentage of total loans was 1.40% at
September 30, 2000. Effective December 31, 1999, the Bank revised its loan
policy to increase its allowance for uncertainties in loans classified as
"Satisfactory" and to charge-off all consumer loans greater than 120 days
delinquent despite the level of collateral. In addition, in September 2000, the
Bank added a new category of loan classification--"Pass/Watch". This category
relates to loans for which payments are current but have other unfavorable
indicators that increase the risk of loss and facilitates closer monitoring of
such risks. Loans in this category are assigned a 3% specific reserve.
During the nine months ended September 30, 2000, the Bank charged-off
approximately $1.6 million of its classified loans. Approximately $600 thousand
of the total charge-offs related to one community development loan that had been
fully reserved at December 31, 1999. In addition, during the quarter ended
September 30, 2000, the Bank charged-off loans totaling $498 thousand of which
approximately $267 thousand were guaranteed by the Small Business Administration
(SBA). The Bank will perform post-charge-off collections to maximize its
recovery on all charged-off loans. Workout attorneys have been engaged to
aggressively pursue collections of these loans.
Management believes the level of the allowance for loan losses was adequate as
of September 30, 2000. While management uses available information to recognize
losses on loans, future additions may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to make additions to the allowance
based on their judgments of information available to them at the time of the
examination.
Page 8 of 22
<PAGE>
Nonperforming and nonaccrual Loans
The Bank generally determines a loan to be "nonperforming" when interest or
principal is past due 90 days or more. If it otherwise appears doubtful that
the loan will be repaid, management may consider the loan to be "nonperforming"
before the lapse of 90 days. The policy of the Bank is to charge-off unsecured
loans after 90 days past due. Interest on "nonperforming" loans ceases to
accrue except for loans that are well collateralized and in the process of
collection.
When a loan is placed on non-accrual, previously accrued and unpaid interest is
reversed out of income unless adequate collateral from which to collect the
principal of and interest on the loan appears to be available. At September 30,
2000, non-accrual loans were approximately $640 thousand and consisted primarily
of $285 thousand residential mortgage loans and $161 thousand loans with SBA
guarantees which the Bank believes mitigates the risk associated with these
loans. There is no known information about possible credit problems other than
those classified as nonaccrual that causes management to be uncertain as to the
ability of any borrower to comply with present loan terms.
The Bank grants commercial, residential and consumer loans to customers
primarily located in Philadelphia County, Pennsylvania, and surrounding counties
in the Delaware Valley. From time to time, the Bank purchases loans from other
financial institutions. These loans are generally located in the Northeast
corridor of the United States. Although the Bank has a diversified loan
portfolio, its debtors' ability to honor their contracts is influenced by the
region's economy.
At September 30, 2000, approximately 32.7% of the Bank's $14.6 million
commercial loan portfolio was concentrated in loans made to religious
organizations. From inception, the Bank has received support in the form of
investments and deposits and has developed strong relationships with the
Philadelphia region's religious community. Loans made to these organizations
were primarily for expansion and repair of church facilities. At September 30,
2000, none of these loans were nonperforming.
Investment Securities and other short-term investments
Investment securities, including Federal Funds Sold, decreased on average by
$16.8 million, or 26.5%, during the quarter ended September 30, 2000. This
decrease was due in large part to the sale of approximately $10 million in
securities during the last week of June 2000 and $9 million in September 2000.
The proceeds from the sales of these securities were used to fund the Bank's
asset reduction strategy to achieve mandated capital ratios outlined in its
Written Agreement with regulators (Refer to Regulatory Matters below).
The Bank's investment portfolio primarily consists of mortgage-backed pass-
through agency securities and other government-sponsored agency securities. The
Bank does not invest in high-risk securities or complex structured notes. The
average duration of the portfolio is 4.98 years.
Deposits
On September 24, 1999, the Bank purchased four branches with total deposits of
$31 million at a premium of $2.1 million, or 7%. The bulk of the acquired
deposits were "core"--primarily checking
Page 9 of 22
<PAGE>
and savings accounts. The Bank immediately consolidated two of the acquired
branches into its existing branch network and consolidated the other two in
September 2000. In conjunction with its strategic plan to improve earnings, the
Bank also closed its Frankford branch in September 2000. These
consolidations/closures resulted in a reduction in the Bank's branch network
from eight to five. No significant deposit reduction is expected from these
consolidations, because the deposits of these branches were considered "core" in
nature. In addition, the Bank's remaining branches are strategically located in
areas to accommodate servicing customers throughout the Philadelphia region.
Non-interest bearing demand deposits decreased on average by approximately $2.4
million, or 8.5%, during the quarter ended September 30, 2000. Interest bearing
demand deposits decreased on average by approximately $3.6 million, or 27.2%,
during the same quarter. This decrease was primarily due to a lower level of
sweep deposit balances--balances swept from a noninterest-bearing checking
account to an interest-bearing (NOW) account overnight. In addition, effective
April 15, 2000, the Bank increased its deposit-related fees and minimum balances
to be more in line with its competitors in the marketplace. These actions
resulted in some customers closing their accounts to avoid service charges.
Certificates of deposit decreased on average by $12.1 million, or 35.9%, during
the quarter ended September 30, 2000. The decrease was primarily due to the
sale of certificates of deposit to other financial institutions in June 2000 as
well as maturities of large municipal deposits.
Other Borrowed Funds
The level of other borrowed funds is dependent on many items such as capital
adequacy, loan growth, deposit growth and interest rates paid on these funds.
During the quarter ended September 30, 2000, the Bank borrowed an average of
$2.7 million against its Master Repurchase Agreement with another financial
institution to temporarily fund liquidity requirements related to its asset
reduction/capital improvement strategy.
In addition, other borrowed funds includes a $1.4 million10-year capital lease
obligation related to the Bank's lease of a building for its corporate offices
in July 1999. In October 2000, the Bank purchased this building for
approximately $1.4 million resulting in the removal of the capital lease
obligation.(Refer to Noninterest Expense explanations regarding Occupancy
Expense and to Legal Proceedings Chappell vs. United Bank of Philadelphia)
Commitments and Lines of Credit
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and letters of
credit, which are conditional commitments issued by the Bank to guarantee the
performance of an obligation of a customer to a third party. Both arrangements
have credit risk essentially the same as that involved in extending loans, and
are subject to the Bank's normal credit policies. Collateral may be obtained
based on management's assessment of the customer. The Bank's exposure to credit
loss in the event of nonperformance by the other party to the financial
instruments is represented by the contractual amount of those instruments.
Page 10 of 22
<PAGE>
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. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Bank's financial instrument commitments
at September 30, 2000 are summarized below:
Commitments to extend credit $5,192,000
Outstanding letters of credit $ 259,000
Liquidity and Interest Rate Sensitivity Management
The primary functions of asset/liability management are to assure adequate
liquidity and maintain appropriate balance between interest-sensitive earning
assets and interest-bearing liabilities. Liquidity management involves the
ability to meet cash flow requirements of customers who may be either depositors
wanting to withdraw funds or borrowers needing assurance that sufficient funds
will be available to meet their credit needs. Interest rate sensitivity
management seeks to avoid fluctuating net interest margins and to enhance
consistent growth of net interest income through periods of changing interest
rate.
The Bank is required to maintain minimum levels of liquid assets as defined by
Federal Reserve Board (FRB) regulations. This requirement is evaluated in
relation to the composition and stability of deposits; the degree and trend of
reliance on short-term, volatile sources of funds, including any undue reliance
on particular segments of the money market or brokered deposits; any difficulty
in obtaining funds; and the liquidity provided by securities and other assets.
In addition, consideration is given to the nature, volume and anticipated use of
commitments; the adequacy of liquidity and funding policies and practices,
including the provision for alternate sources of funds; and the nature and trend
of off-balance-sheet activities. As a result of its asset reduction strategy
that was designed to meet mandated regulatory capital ratios, the Bank's level
of liquidity was reduced. The Bank sold investment securities and reduced its
deposit levels. Management has "stepped-up" its monitoring of the Bank's
liquidity position. As of September 30, 2000, management believes the Bank's
liquidity continues to be satisfactory and in compliance with the FRB
regulations.
The Bank's principal sources of asset liquidity include investment securities
consisting principally of U.S. Government and agency issues, particularly those
of shorter maturities, and mortgage-backed securities with monthly repayments of
principal and interest. Other types of assets such as federal funds sold, as
well as maturing loans, are sources of liquidity. Approximately $5.8 million in
loans are scheduled to mature within one year.
The Bank's overall liquidity has been enhanced by a significant level of core
deposits which management has determined are less sensitive to interest rate
movements. The Bank has avoided
Page 11 of 22
<PAGE>
reliance on large denomination time deposits as well as brokered deposits. The
following is a summary of the remaining maturities of time deposits of $100,000
or more outstanding at September 30, 2000:
(Thousands of dollars)
3 months or less $3,531
Over 3 through 12 months 1,287
Over 1 through three years 237
Over three years --
------
Total $5,055
======
The Bank's back-up liquidity resources include a Master Repurchase Agreement
with another financial institution for which securities are pledged against
borrowings and a borrowing agreement at the Discount Window of the Federal
Reserve Bank for emergency liquidity needs. During the quarter ended September
30, 2000, the Bank borrowed an average of $2.7 million against its Master
Repurchase Agreement with another financial institution to fund its short-term
liquidity requirements.
Capital Resources
Total shareholders' equity decreased approximately $568 thousand during the
quarter ended September 30, 2000 primarily because of the net loss of $680
thousand the Bank experienced during the quarter. Approximately $480 thousand
of this loss was due to increased provisions for loan losses. In September
2000, the Bank was notified of the revocation of an equity investment commitment
totaling $3 million from the U.S. Treasury Community Development Financial
Institution Fund because of the unfavorable change in the Bank's financial
condition from the date of original commitment.
The FRB's standards for measuring capital adequacy for U.S. Banking
organizations requires that banks maintain capital based on "risk-adjusted"
assets so that categories of assets with potentially higher risk will require
more capital backing than assets with lower risk. In addition, banks are
required to maintain capital to support, on a risk-adjusted basis, certain off-
balance-sheet activities such as loan commitments. The FRB standards classify
capital into two tiers, referred to as Tier 1 and Tier 2. Tier 1 consists of
common shareholders' equity, non-cumulative and cumulative perpetual preferred
stock, and minority interests less goodwill. Tier 2 capital consists of
allowance for loan losses, hybrid capital instruments, term-subordinated debt,
and intermediate-term preferred stock. Banks are required to meet a minimum
ratio of 8% of qualifying capital to risk-adjusted total assets with at least 4%
Tier 1 capital and a Tier I Leverage ratio of at least 6%. Capital that
qualifies, as Tier 2 capital is limited to 100% of Tier 1 capital.
As indicated in the table below, the Company's risk-based capital ratios
are above the minimum requirements. Management continues the objective of
raising additional capital by offering additional stock (preferred and common)
for sale as well as increasing the rate of internal capital growth as a means of
maintaining the required capital ratios. The Company and the Bank do not
anticipate paying dividends in the near future.
Page 12 of 22
<PAGE>
September 30, December 31,
------------- ------------
2000 1999
---- ----
Total Capital $ 8,459 $ 9,223
Less: Intangible Assets (2,344) (2,429)
------- -------
Tier 1 Capital 6,115 6,794
------- -------
Tier 2 Capital 602 770
------- -------
Total Qualifying Capital $ 6,717 $ 7,564
======= =======
Risk Adjusted Total Assets
(including off-balance sheet
exposures) $48,042 $60,795
Tier 1 Risk-Based Capital Ratio 12.73% 11.18%
Tier 2 Risk-Based Capital Ratio 13.98% 12.44%
Leverage Ratio 5.61% 5.08%
The most recent notification dated July 13, 2000, from the Federal Reserve Bank
categorized the Bank as "adequately capitalized" under the regulatory framework
for prompt and corrective action. To improve its capital ratios to acceptable
levels as outlined in its Written Agreement with its regulators (Refer to
Regulatory Matters below); management has implemented asset reduction
strategies. In addition, the Bank continues to seek capital from external
investors to further supplement its capital base.
Results of Operations
Summary
The Bank had a net loss of approximately $680 thousand ($.64 per common share)
for the quarter ended September 30, 2000 compared to a net loss of $228 thousand
($.23 per common share) for the same quarter in 1999. The increase in loss
during Year 2000 is primarily related to increased provisions for loan losses.
The Bank continues to implement strategies to improve its earnings profile that
include--branch closures/consolidations, raising deposit-related fees to market
levels, and reducing its reliance on outside consultants/contractors.
Net Interest Income
Net interest income is an effective measure of how well management has balanced
the Bank's interest rate sensitive assets and liabilities. Net interest income,
the difference between (a) interest and fees on interest earning assets and
interest paid on interest-bearing liabilities, is a significant component of the
earnings of the Bank. Changes in net interest income result primarily from
increases or decreases in the average balances of interest earning assets, the
availability of particular sources of funds and changes in prevailing interest
rates.
Net interest income increased $24 thousand, or 2%, for the quarter ended
September 30, 2000 compared to 1999. The increase was made possible in large
part because of an increase in average earning assets from the acquisition of
deposits from First Union in September 1999. However, because of the Bank's
asset reduction/capital improvement strategy that began in June 2000, the level
of earning assets declined by more than $20 million during the quarter ending
September 30, 2000. Investment securities totaling approximately $19 million
were sold to fund the Bank's deposit reduction plan.
Page 13 of 22
<PAGE>
Provision for Loan Losses
The provision is based on management's estimate of the amount needed to
maintain an adequate allowance for loan losses. This estimate is based on the
review of the loan portfolio, the level of net credit losses, past loan loss
experience, the general economic outlook and other factors management feels are
appropriate.
The provision for loan losses charged against earnings for the quarter
ending September 30, 2000 was $460 thousand compared to $75 thousand for the
same quarter in 1999. Provisions in excess of $1 million were made for the year
ended December 31, 1999 related to one community development loan and other loan
policy changes which required increased provisions. The community development
loan was charged-off by June 30, 2000 with the exception of approximately $114
thousand related to off-balance sheet risk associated with an outstanding letter
of credit. This amount remains fully reserved. In addition, during the quarter
ended September 30, 2000, the Bank charged-off loans totaling $498 thousand.
Approximately $267 thousand of these loans were guaranteed by the SBA. The Bank
continues to work with the SBA to collect on the guarantees associated with
these loans.
Noninterest Income
The amount of the Bank's noninterest income generally reflects the volume of the
transactional and other accounts handled by the Bank and includes such fees and
charges as low balance account charge, overdrafts, account analysis, and other
customer service fees. Customer service fees increased $209 thousand, or 44%,
for the quarter ended September 30, 2000 compared to 1999. This increase was
primarily due to growth in fees on deposits because of an increase in minimum
balance requirements and other deposit-related fee increases that went into
effect on April 15, 2000. In addition, there is a higher level of demand deposit
accounts in 2000. A higher level of demand deposit accounts result in more
overdraft fees, activity service charges and low balance fees. The Bank also
increased its ATM surcharge fees for non-customers from $1.50 to $1.75 in June
2000.
To achieve capital ratios as set forth in its Written Agreement with regulatory
agencies(Refer to Regulatory Matters below), in June 2000 the Bank sold
approximately $6.6 million in certificates of deposit to other financial
institutions to reduce its asset size. These transactions resulted in a gain of
$253 thousand. During the quarters ended June and September 2000, the Bank sold
approximately $19 million of its investment portfolio to fund the reduction in
asset size. The Bank recorded a loss of $194 thousand on these sales.
Noninterest Expense
Salaries and benefits increased $46 thousand, or 6.6%, during the quarter ended
September 30, 2000 compared to 1999. This increase is primarily attributable to
raises and additional employees related to the acquisition of deposits/branches
from First Union in September 1999. However, in May 2000, the Bank began
strategic reductions in staff and job consolidations to reduce the level of
personnel expense. The closure/consolidation of three branches in September
2000 will result in reductions in this expense during the quarter ended
December 31, 2000.
Data processing expenses are a result of the management decision of the Bank to
out-source data processing to third party processors the bulk of its data
processing. Such expenses are reflective of the high level of accounts being
serviced for which the Bank is charged a per account charge by
Page 14 of 22
<PAGE>
processors. In addition, the Bank uses outside loan servicing companies to
service its mortgage, credit card, installment and student loan portfolios. Data
processing expenses increased $76 thousand, or 47%, during the quarter ended
September 30, 2000 compared to 1999. This increase is primarily attributable to
the First Union acquisition-related growth in deposit levels for which the Bank
pays outside services to process transactions and provide statement rendering.
The Bank continues to study methods by which it may reduce its data processing
costs, including but not limited to a consolidation of servicers, in-house
processing versus out-sourcing, and the possible re-negotiation of existing
contracts with servicers.
Occupancy expense increased approximately $73 thousand, or 18.6%, during the
quarter ended September 30, 2000 compared to 1999 primarily because of a lease
the Bank entered into in July 1999 to house its corporate headquarters including
its executive offices and other non-branch operating departments. The Bank
leased 25,000 square feet at an average cost of $14.14 per foot until September
2000. In accordance with Financial Accounting Standards Board Statement 13,
this lease was accounted for as a capital lease in the amount of $1,483,000 as
the present value of future minimum lease payments exceeds 90% of the fair
market value of the building. In October 2000, the Bank purchased this facility
for approximately $1.4 million. This transaction is expected to save the Bank
$1.6 million over the remaining 9-year term of the lease it had in place and
removes the capital lease obligation.
In addition, in conjunction with its acquisition of deposits from First Union,
the Bank assumed the leases of four branches, two of which were in close
proximity to its existing branches. Due to more favorable characteristics of
these branches (i.e. visibility, drive-through, ATM's, etc.), the Bank relocated
its branch operations to the acquired facilities. These facilities have higher
rental rates. The Bank consolidated two of the acquired branches with its
existing branch network and closed its Frankford branch in September 2000. In
October 2000, the Bank sold one of the acquired facilities located in West
Philadelphia for a gain of approximately $330,000. The Bank's Frankford and
West Girard branches have been listed with realtors and are expected to be sold
by December 31, 2000.
Professional Services decreased approximately $18 thousand, or 20%, for the
quarter ended September 30, 2000 compared to 1999. In June 2000, management
implemented an earnings enhancement plan that included a reduction in the
reliance on outside consultants.
Office operations and supplies expense increased $25 thousand, or 15.4%, during
the quarter-ended September 30, 2000 compared to 1999. This increase was
primarily a result the acquisition of branches from First Union and the
relocation of corporate headquarters which results in increased operating costs.
The closure/consolidation of three branches in September 2000 will result in
reductions in this expense beginning during the quarter ended December 31, 2000.
Federal deposit insurance premiums were $77 thousand for the quarter ended
September 30, 2000 compared to $31 thousand in 1999. FDIC insurance premiums are
applied to all financial institutions based on a risk-based premium assessment
system. Under this system, bank strength is based on three factors: 1) asset
quality, 2) capital strength, and 3) management. Premium assessments are then
assigned based on the institution's overall rating, with the stronger
institutions paying lower rates.
Page 15 of 22
<PAGE>
The increase during the quarter ending September 2000, is a result of the
perceived risk associated with the Bank's weakening financial condition and
declining capital base.
All other expenses are reflective of the general cost to do business and compete
in the current regulatory environment and maintenance of adequate insurance
coverage.
Regulatory Matters
In February 2000, as a result of a regulatory examination completed in December
1999, the Bank entered into a Written Agreement (Agreement) with its primary
regulators with regard to, among other things, achievement of agreed-upon
capital levels, implementation of a viable earnings/strategic plan, adequate
funding of the allowance for loan losses, the completion of a management review
and succession plan, and improvement in internal controls. The current
Agreement required the Bank to achieve a Tier 1 capital to asset ratio of 6.50%
by June 30, 2000 and 7% at all times thereafter. To achieve these capital
ratios, Management developed plans that included: increasing profitability,
consolidating branches, and soliciting new and additional sources of capital.
Management continues to address all matters outlined in the Agreement. Its most
recent notification from its regulators dated July 13, 2000 indicates that it is
"substantially" in compliance with the Agreement's terms and conditions. Failure
to comply could result in additional regulatory supervision and/or actions.
The Bank continues to operate under a Supervisory Letter from its primary
regulator. The Supervisory Letter, among other things, prevents the Bank and
the Company from declaring or paying dividends without the prior written
approval of its regulators and prohibits the Bank and the Company from issuing
debt.
Accounting for Derivative Instruments and Hedging Activity
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activity. Subsequent
to this statement, SFAS No 137 was issued, which amended the effective date of
SFAS No. 133 to be all fiscal years beginning after June 15, 2000. On April 1,
2000, the Company adopted SFAS No. 133. Concurrent with the adoption, the
Company reclassified approximately $6.1 million securities from held-to-maturity
to available-for-sale. Subsequent to the reclassification, the Company
transferred approximately $9.5 million from available-for-sale to trading. In
June 2000, the Company recorded a loss on the sale of these securities of $127
thousand. Based on the Company's minimal use of derivatives at the current time,
management does not anticipate the adoption of SFAS No. 133 will have any
continuing impact on earnings or financial position of the Company.
Year 2000
The Bank was successfully prepared for the Year 2000 potential problems that
could have resulted from computer programs being written using two digits rather
than four to define the applicable year. This could have resulted in major
system failures or miscalculations. The Company completed a comprehensive
review of its computer systems, both internal and out-sourced processing, to
identify the systems that could be affected by the "Year 2000" issue. Where
necessary, software and hardware were replaced/remediated. As a result, there
were no reportable events or exceptions
Page 16 of 22
<PAGE>
related to the Year 2000. However, while not expected, there can be no assurance
that the Company will not experience any problems in the future. If any problems
were to occur in the future, the Company will follow its contingency plan.
Cautionary Statement
Certain statements contained herein are not based on historical fact and
are "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements, which are based upon
various assumptions (some of which are beyond the control of the Bank and the
Company), may be identified by reference to a future period, or periods, or by
the use of forward-looking terminology such as "may," "will," "believe,"
"expect," "estimate," "anticipate," "continue," or similar terms or variations
on those terms, or the negative of those terms. Actual results could differ
materially from those set forth in forward-looking statements. Factors that
could cause actual results to differ materially from those in the forward-
looking statements include, but are not limited to, economic growth;
governmental monetary policy, including interest rate policies of the FRB;
sources and costs of funds; levels of interest rates; inflation rates; market
capital spending; technological change; the state of the securities and capital
markets; acquisition; consumer spending and savings; expense levels; tax,
securities, and banking laws; and prospective legislation.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
-------------------------------------------------------------------
Interest rate sensitivity varies with different types of interest-earning assets
and interest-bearing liabilities. Overnight federal funds on which rates change
daily and loans which are tied to prime or other short term indices differ
considerably from long-term investment securities and fixed-rate loans.
Similarly, time deposits are much more interest sensitive than passbook savings
accounts. The shorter-term interest rate sensitivities are key to measuring the
interest sensitivity gap, or excess earning assets over interest-bearing
liabilities. Management of interest sensitivity involves matching repricing
dates of interest-earning assets with interest-bearing liabilities in a manner
designed to optimize net interest income within the limits imposed by regulatory
authorities, liquidity determinations and capital considerations.
At September 30, 2000, an asset sensitive position is maintained on a cumulative
basis through 1 year of 2.99% that is within the Bank's policy guidelines of +/-
15% on a cumulative 1-year basis. The current gap position is somewhat neutral
due to the Bank's high level of core deposits. Generally, because of the Bank's
positive gap position in shorter time frames, the Bank can anticipate that
decreases in market rates will have a negative impact on the net interest
income, while increases will have the opposite effect.
While using the interest sensitivity gap analysis is a useful management tool as
it considers the quantity of assets and liabilities subject to repricing in a
given time period, it does not consider the relative sensitivity to market
interest rate changes that are characteristic of various interest rate-sensitive
assets and liabilities. Consequently, even though the Bank currently has a
positive gap position because of unequal sensitivity of these assets and
liabilities, management believes this
Page 17 of 22
<PAGE>
position will not materially impact earnings in a changing rate environment. For
example, changes in the prime rate on variable commercial loans may not result
in an equal change in the rate of money market deposits or short-term
certificates of deposit. A simulation model is therefore used to estimate the
impact of various changes, both upward and downward, in market interest rates
and volumes of assets and liabilities on the Bank's net income. This model
produces an interest rate exposure report that forecast changes in the market
value of portfolio equity under alternative interest rate environments. The
market value of portfolio equity is defined as the present value of the
Company's existing assets, liabilities, and off-balance-sheet instruments. The
calculated estimates of changes in market value of portfolio value at September
30, 2000 are as follows:
Market value of
Changes in rate portfolio equity
----------------- ----------------
(Dollars in thousands)
+400 basis points $(4,242)
+300 basis points (2,214)
+200 basis points (63)
+100 basis points 2,003
Flat rate 4,321
-100 basis points 5,576
-200 basis points 9,927
-300 basis points 11,214
-400 basis points 13,404
The assumptions used in evaluating the vulnerability of the Company's
earnings and capital to changes in interest rates are based on management's
consideration of past experience, current position, and anticipated future
economic conditions. The interest sensitivity of the Company's assets and
liabilities, as well as the estimated effect of changes in interest rates on the
market value of portfolio equity, could vary substantially if different
assumptions are used or actual experience differs from the assumptions on which
the calculations were based.
The Bank's Board of Directors and management consider all of the relevant
factors and conditions in the asset/liability planning process. Interest-rate
exposure is not considered to be significant and is within the Bank's policy
limits at September 30, 2000. However, if significant interest rate risk arises,
the Board of Directors and management may take (but are not limited to) one or
all of the following steps to reposition the balance sheet as appropriate:
1. Limit jumbo certificates of deposit (CDs) and movement into money
market deposit accounts and short-term CDs through pricing and other
marketing strategies.
2. Purchase quality loan participation with appropriate interest rate/gap
match for the Bank's balance sheet.
3. Restructure the Bank's investment portfolio.
The Board of Directors has determined that active supervision of the interest-
rate spread between yield on earnings assets and cost of funds will decrease the
Bank's vulnerability to interest-rate cycles.
Page 18 of 22
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings.
-------------------------
Monument Financial Group - United Bank of Philadelphia Litigations
-------------------------------------------------------------------
There are presently pending two suits involving Monument Financial Group and the
Bank which have overlapping claims. The suit first in the Common Pleas Court of
Philadelphia County names the Bank and First Montauk Securities as defendants,
and seeks reimbursement for losses suffered by the plaintiffs who paid money to
Monument Financial Group under terms of a very fuzzy contractual arrangement by
which they were basically lenders to Monument. Those claims total approximately
$480,000.
The second suit brought by the investors of Monument Financial Group, names the
Bank as a party. The complaint filed in the United States District Court for the
Eastern District of Pennsylvania alleges that, as a result of the actions of the
Bank in permitting the processing of certain checks, in what plaintiffs asserts
was an improper manner, the Monument Financial Group was unable to pay certain
obligation to the plaintiffs. The complaint seeks damages in excess of $400,000.
The Bank has legal defenses to the allegations raised in both suits. Based upon
a review of the allegations, the Bank believes that it is not liable. In
addition, the Bank has insurance that should cover any loss, in excess of a
$50,000 deductible.
Chappell v. United Bank of Philadelphia
---------------------------------------
On May 26, 2000, upon receipt of independent consultant reports confirming
certain conduct engaged in by United Bancshares' former Chairman, President, and
CEO of the Registrant and the Bank, Emma C. Chappell was terminated. On June 29,
2000, Emma C. Chappell filed a demand for arbitration seeking golden parachute
payments. In July 2000, United Bancshares responded to the demand for
arbitration and separately commenced a lawsuit in the United States District
Court for the Eastern District of Pennsylvania seeking damages arising from
transactions or occurrences relating to Emma C. Chappell's April 1999
acquisition of the office building rented by United Bancshares.
The parties (ECC Properties/Emma C. Chappell and United Bancshares) reached a
settlement on October 16, 2000 through which United Bancshares obtained title to
its office building and several adjacent properties for $1.34 million, stopped
paying rent to its former Chairman and the parties released each other from all
other claims or disputes. In addition, this settlement included Emma Chappell's
resignation from United Bancshares'/United Bank of Philadelphia Board of
Directors.
Rococo LLC v. United Bank of Philadelphia
-----------------------------------------
On May 15, 2000, the contractor of a borrower of the Bank filed a complaint in
the Court of Common Pleas of Delaware County. The compliant seeks damages from
the Borrower for alleged non-payment of construction invoices, also seeks
damages from the Bank of $34,474 alleging that the Bank acted in concert with
the borrower. The Bank has filed preliminary objections to the complaint. The
Bank has substantial defenses in this action and believes that it will not be
liable.
No other material claims have been instituted or threatened by or against
Registrant or its affiliates other than in the ordinary course of business.
Page 19 of 22
<PAGE>
Item 2. Working Capital Restrictions on Payment of Dividends.
------------------------------------------------------------
The holders of the Common Stock are entitled to such dividends as may be
declared by the Board of Directors out of funds legally available therefor under
the laws of the Commonwealth of Pennsylvania. Under the Pennsylvania Banking
Code of 1965, funds available for cash dividend payments by a bank are
restricted to accumulated net earnings and if the surplus of a Bank is less than
the amount of its capital the Registrant shall, until surplus is equal to such
amount, transfer to surplus an amount which is at least 10% of the net earnings
of the Registrant for the period since the end of the last fiscal year or any
shorter period since the declaration of a dividend. If the surplus of a bank is
less than 50% of the amount of its capital, no dividend may be declared or paid
by the bank without prior approval of the Secretary of Banking of the
Commonwealth of Pennsylvania.
Under the Federal Reserve Act, if a bank has sustained losses up to or
exceeding its undivided profits, no dividend shall be paid, and no dividends can
ever be paid in an amount greater than such bank's net profits less losses and
bad debts. Cash dividends must be approved by the Federal Reserve Board if the
total of all cash dividends declared by a bank in any calendar year, including
the proposed cash dividend, exceeds the total of the Registrant's net profits
for that year plus its retained net profits from the preceding two years, less
any required transfers to surplus or to a fund for the retirement of preferred
stock. Under the Federal Reserve Act, the Board has the power to prohibit the
payment of cash dividends by a bank if it determines that such a payment would
be an unsafe or unsound banking practice.
The Federal Deposit Insurance act generally prohibits all payments of
dividends a bank, which is in default of any assessment to the Federal Deposit
Insurance Corporation.
Recent sales of Securities
--------------------------
34,317 shares of Registrant's Common Stock were sold to various directors
of the Registrant at a purchase price of $12.00 per share. The Registrant raised
proceeds of $411,808 as a result of the sale.
This transaction was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities.
----------------------------------------
(a) There has been no material default in the payment of principal,
interest, a sinking or purchase fund installment, or any material default with
respect to any indebtedness of the Registrant exceeding five percent of the
total assets of the Registrant.
(b) There have been no material arrearage or delinquencies as discussed in
Item 3(a). Registrant has declared and issued a Series A Preferred Stock. No
obligations pursuant to those securities have become due.
Item 4. Submission of Matters to a Vote of Security Holders.
-----------------------------------------------------------
(a) An annual meeting of the security holders of the Registrant was held
on October
Page 20 of 22
<PAGE>
27, 2000.
(b) Proxies for the annual meeting of the Registrant scheduled for October
27, 2000, (the "Annual Meeting") were solicited by proxy statement filed with
the Commission.
(c) The following matters were voted upon at the Annual Meeting:
1. ELECTION OF DIRECTORS
-------------------------
The following individuals were elected as directors of the Registrant:
L. Armstead Edwards
Marionette Y. Frazier
Ernest L. Wright
An affirmative vote of approximately 401,505 shares representing 94.432% of
the votes cast and 51% of the shares entitled to vote were cast in favor of the
election of these Board members.
2. INDEPENDENT AUDITORS
------------------------
The shareholders ratified the selection of Grant Thornton LLP as
independent auditors to audit and certify consolidated financial statements of
UBS for the year ending December 31, 1999 and to provide certain accounting
services to UBS during the year 2000. Grant Thornton LLP has served in this
capacity since October 1997.
An affirmative vote of approximately 418,700 shares representing 98.475% of
the votes cast and 51% of the shares entitled to vote were cast in favor of this
proposal.
3. AUTHORIZATION OF ADDITIONAL COMMON STOCK
--------------------------------------------
On September 30, 1998 the Articles of Incorporation of UBS were amended, by
filing of Articles of Amendment with the Commonwealth of Pennsylvania on
September 30, 1998. Of the 2,000,000 shares of Common Stock authorized, 250,000
have been designated Class B Common Stock. As of November 14, 2000 191,667
shares of Class B Common Stock were issued and outstanding.
The shareholders ratified the establishment of the Class B Common Stock by
affirmative vote of approximately 397,500 shares representing 93.50% of the
votes cast and 48% of the shares entitled to vote were cast in favor.
Page 21 of 22
<PAGE>
Item 5. Other Information.
--------------------------
None
Item 6. Exhibits and Reports on Form 8-K.
-----------------------------------------
(a) A list of the exhibits submitted with this Form 10-Q are as follows:
Copy of the Registrant's Call Report for the Period
ending September 30, 2000. [Filed with Schedule SE]
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED BANCSHARES, INC.
Date:________________ /s/ Evelyn Smalls
-------------------------------
Evelyn Smalls
President & CEO
/s/ Brenda Hudson-Nelson
-------------------------------
Brenda Hudson-Nelson
Chief Financial Officer
Page 22 of 22
