UNITED BANCSHARES INC/OH - Quarter Report: 2004 March (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2004

Commission file number 000-29283

UNITED BANCSHARES, INC.

(Exact name of Registrant as specified in its charter)

Ohio

(State or other jurisdiction of incorporation or organization)

100 S. High Street, Columbus Grove, Ohio

(Address of principal executive offices)

34-1516518

(I.R.S. Employer Identification Number)

45830

(Zip Code)

(419) 659-2141

(Registrant’s telephone number, including area code)

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

Yes         X      

No  ________

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

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of April 30, 2004: 3,655,528

#

UNITED BANCSHARES, INC.

Table of Contents

Page

Part I – Financial Information

3

Item 1 – Financial Statements

3

Item 2 – Management’s Discussion and Analysis of Financial Condition

and Results of Operations

10

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

16

Item 4 – Controls and Procedures

16

Part II – Other Information

17

PART 1 - FINANCIAL INFORMATION

ITEM 1

United Bancshares, Inc. and Subsidiaries

Consolidated Balance Sheets (Unaudited)

(Dollars in thousands, except share data)

United Bancshares, Inc. and Subsidiaries

Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except per share data)

See notes to consolidated financial statements

See notes to consolidated financial statements

United Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

For the period ending March 31, 2004

Note 1 – Consolidated Financial Statements

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

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

Note 2 – Branch Acquisitions

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

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

Note 3 – Junior Subordinated Deferrable Interest Debentures

During the first quarter of 2003, the Company formed a business trust, United (OH) Statutory Trust (United Trust) and invested $300,000. Effective March 26, 2003, United Trust issued $10,000,000 of trust preferred securities, which are guaranteed by the Company, 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 Company’s capital investment, to purchase $10,300,000 of junior subordinated deferrable interest debentures issued by the Company. The debentures mature on March 26, 2033, which date may be shorted to March 26, 2008, if certain conditions are met, as well as quarterly thereafter. The interest rate of the debentures is fixed at 6.40% for a five-year period through March 2008. Thereafter, interest is at a floating rate adjustable quarterly and equal to 315 basis points over the 3-month LIBOR.  Interest is payable quarterly. The Company 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.  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 Company’s core tax Tier I capital under Federal Reserve Board guidelines inclusive of these securities. The Company utilized the proceeds of these issuances to inject capital into the Bank to facilitate the branch acquisitions described in Note 2.  

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

SELECTED FINANCIAL DATA

The following data should be read in conjunction with the unaudited consolidated financial statements and management’s discussion and analysis that follow:

As of or for the Three

Months Ended

March 31,

2004

2003

SIGNIFICANT RATIOS (Unaudited)

Net income to:

Average assets (a)

0.68%

1.00%

Average shareholders’ equity (a)

7.80%

10.47%

Net interest margin (a)

3.43%

3.62%

Efficiency ratio (a)(b)

71.98%

63.74%

Average shareholders’ equity to average assets

8.76%

9.56%

Loans to deposits (end of period)

75.98%

76.13%

Allowance for loan losses to loans (end of period)

0.91%

0.94%

Cash dividends to net income

47.69%

37.70%

PER SHARE DATA

Book value per share

$12.03

$11.05

(a) Net income to average assets, net income to average shareholders’ equity, net interest margin, and efficiency ratio are presented on an annualized basis.  Net interest margin is calculated using fully-tax equivalent net interest income as a percentage of average interest earning assets.  

(b) Efficiency ratio is a ratio of non-interest expense as a percentage of fully tax equivalent net interest income plus non-interest income.

Introduction

When or if used in the Company’s Securities and Exchange Commission filings or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases:  “anticipate”, “would be”, “will allow”, “intends to”, “will likely result”, “are expected to”, “will continue”, “is anticipated”, “is estimated”, “is projected”, or similar expressions are intended to identify “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Any such statements are subject to the risks and uncertainties that include but are not limited to:  changes in economic conditions in the Company’s market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company’s market area, and competition.  All or some of these factors could cause actual results to differ materially from historical earnings and those presently anticipated or projected.

The Company cautions readers not to place undue reliance on any such forward looking statements, which speak only as of the date made, and advises readers that various factors including regional and national economic conditions, substantial changes in the levels of market interest rates, credit and other risks associated with lending and investing activities, and competitive and regulatory factors could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from those anticipated or projected.  The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

The following discussion and analysis of the consolidated financial statements of the Company is presented to provide insight into management’s assessment of the financial results.  

United Bancshares, Inc. (the “Company”), an Ohio 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 Company was incorporated and organized in 1985.  The executive offices of the Company are located at 100 S. High Street, Columbus Grove, Ohio 45830.  Following the merger of the Company’s other two bank subsidiaries into The Union Bank Company (Columbus Grove, Ohio) in March 2003, the Company is now a one-bank holding company, as that term is defined by the Federal Reserve Board.

The Union Bank Company (“Union”) is engaged in the business of commercial banking.  Union is an Ohio state-chartered bank, which serves Allen, Putnam, Sandusky, Van Wert and Wood Counties, with office locations in Bowling Green, Columbus Grove, Delphos, Gibsonburg, Kalida, Leipsic, Lima, Ottawa, and Pemberville.

As described in Note 2 of the consolidated financial statements, Union acquired branches from RFC Banking Company (“RFCBC”), effective March 28, 2003.  Since the acquisition was accounted for as a purchase, only the operations of the branches subsequent to March 28, 2003 are included in the Company’s consolidated financial information.

Union offers a full range of commercial banking services, including checking and NOW accounts, savings and money market accounts; time certificates of deposit; automatic teller machines; commercial, consumer, agricultural, residential mortgage loans and home equity loans; credit card services; safe deposit box rentals; and other personalized banking services.

The Company is registered as a Securities Exchange Act of 1934 (defined as Exchange Act later) reporting company.  

RESULTS OF OPERATIONS

Overview of the Income Statement

For the quarter ended March 31, 2004, the Company reported net income of $845,000 or $0.23 basic earnings per share. This compares to first quarter 2003 net earnings of $1,061,000, or $0.29 basic earnings per share.  Compared with the same period in 2003, first quarter 2004 net income decreased $216,000 or 20%.  The decrease was primarily the result of a $470,000 decrease in gain on sale of loans, reduced by $206,000 of gains on sale of securities for the first quarter of 2004.  

Despite a decrease in the net interest yield (3.43% in 2004 compared to 3.62% in 2003), net interest income increased $173,000, largely as a result of the March 28, 2003 acquisition of three RFCBC branches.  Non-interest expenses also increased 505,000 (17%), partially due to additional operating costs relating to the acquired branches.  

Interest Income and Expense

Net interest income is the amount by which interest income from interest-earning assets exceeds interest incurred on interest-bearing liabilities. Interest-earning assets consist principally of loans and investment securities while interest-bearing liabilities include interest-bearing deposit accounts and borrowed funds.  Net interest income remains the primary source of revenue for the Company.  Changes in market interest rates, as well as changes in the mix and volume of interest-bearing assets and interest-bearing liabilities, impact net interest income.  Net interest income was $3,653,000 for the first quarter of 2004 compared to $3,480,000 for the same period of 2003.   

Net interest yield is calculated by dividing net interest income (adjusted to reflect tax-exempt municipal income on a taxable equivalent basis) by average interest-earning assets.  The resultant percentage serves as a measurement for the Company in comparing its results with those of past periods as well as those of peer companies.  For the three months ended March 31, 2004, the net interest yield (on a taxable equivalent basis) was 3.43% compared with 3.62% for the same period of 2003.

Provision for Loan Losses

The provision for loan losses is determined based upon management’s continuing calculation of the allowance for loan losses and is reflective of the quality of management’s assessment of the portfolio and overall management of the inherent credit risk.  Changes in the provision for loan losses are dependent, among other things, on loan delinquencies, portfolio risk, and general economic conditions in the Company’s markets.  As a result of management’s analysis, a $75,000 provision for loan losses was made for the first quarter of 2004, compared to no provision for the same period in 2003.  

Non-Interest Income

The Company’s non-interest income is largely generated from activities related to the origination, servicing and gains on sale of fixed rate mortgages, gain on sales of security investments, customer deposit account fees, and income arising from sales of products, such as, investments to customers.  The income related to deposit accounts provides a relatively steady flow of income while the other sources are more volume-related and can vary from quarter to quarter.  

Gain on sales of loans amounted to $208,000 for the quarter ended March 31, 2004 compared to $678,000 for the comparable 2003 period.  The quarterly gain included capitalized servicing rights of $107,000 and $241,000 on $12.9 and $29.6 million originated loan sales during the quarters ended March 31, 2004 and 2003, respectively. The balance of the gain on sales of loans represented cash gains.  Additionally, during the quarter ended March 31, 2004, the Company realized a net gain on the sale of securities of $206,000 (none for the quarter ended March 31, 2003).

Non-Interest Expenses

For the quarter ended March 31, 2004, non-interest expenses totaled $3,432,000 compared to $2,927,000 for the comparable period of 2003.  The additional expenses were largely due to the RFCBC branches, as well as, the Company’s continued commitment to the improvement of internal controls and the overall operational environment.   The Company anticipates that the higher level of expenses will continue since additional staff has been added to accommodate the additional volume of activity.

The Company’s efficiency ratio for the first quarter of 2004 was 71.98% compared to 63.74% for the same period of 2003.  Due to the aforementioned factors, there were increases in non-interest expenses for the first quarter of 2004 compared with the same period in 2003.  However, the increases in expenses were partially offset by improvements in net interest income.

Maintaining acceptable levels of non-interest expense and operating efficiency are key performance indicators for the Company in its strategic initiatives.  The financial services industry uses the efficiency ratio (total non-interest expense as a percentage of the aggregate of fully-tax equivalent net interest income and non-interest income) as a key indicator of performance.  

Provision for Income Taxes

The provision for income taxes for the quarter ended March 31, 2004 was $172,000, or 16.9% of income before income taxes, compared to $424,000, or 28.6%, for the comparable 2003 period.  The decrease in the effective tax rates was due to tax-exempt interest comprising a larger portion of pre-tax income for the 2004 period.

Return on Assets

Return on average assets was 0.68% for the first quarter of 2004, compared to 1.00% for the comparable quarter of 2003.   The decrease in average return on assets was due to a decrease in net income coupled with the increase in asset base, resulting from the RFCBC branch acquisitions.

Return on Equity

Return on average equity for the first quarter of 2004 was 7.80% compared to 10.47% for the same period of 2003.  The Company and Union met all regulatory capital requirements and Union is considered “well capitalized” under regulatory and industry standards of risk-based capital.

FINANCIAL CONDITION

Overview of Balance Sheet

Loans at March 31, 2004, net of the allowance for loan losses, increased $3.6 million from December 31, 2003.  Securities available-for-sale decreased $7.5 million during this three-month period.  Deposits during this same period increased $737,000.  Federal Home Loan Bank borrowings decreased $6.4 million during the three-month period.  

Shareholders’ equity increased from $42.7 million at December 31, 2003 to $44.0 million at March 31, 2004.

Cash and Cash Equivalents

Cash and cash equivalents totaled $10.9 million at March 31, 2004 compared to $11.1 million at December 31, 2003, including Federal funds sold at March 31, 2004 of $89,000 and $531,000 at December 31, 2003.

Management believes the current balance of cash and cash equivalents adequately serves the Company’s liquidity and performance needs.  Total cash and cash equivalents fluctuate on a daily basis due to transactions in process and other liquidity needs.  Management believes the liquidity needs of the Company are satisfied by the current balance of cash and cash equivalents, readily available access to traditional and non-traditional funding sources, and the portions of the investment and loan portfolios that mature within one year.  These sources of funds should enable the Company to meet cash obligations and off-balance sheet commitments as they come due.  In addition, the Company has access to various sources of additional borrowings by virtue of long-term assets that can be used as collateral for such borrowings.

Securities

At March 31, 2004, securities totaled $163.0 million, a decrease of $7.5 million from December 31, 2003.  All of the Company’s securities are classified as available-for-sale.  Management believes the available-for-sale classification provides flexibility for the Company in terms of selling securities as well as interest rate risk management opportunities.  At March 31, 2004, the amortized cost of the Company’s securities totaled $160.2 million, resulting in unrealized gains of $2.8 million and a corresponding after tax increase in shareholders’ equity of $1.9 million.

Management monitors the earnings performance and liquidity of the investment portfolio on a regular basis through Asset/Liability Committee meetings.

Loans

The Company’s lending is primarily centered in northwestern and west central Ohio.  These are principally retail lending markets, which include single-family residential and other consumer lending.  A primary focus in these markets is the agribusiness industry.  Gross loans (including loans held for sale) totaled $295.6 million at March 31, 2004 compared to $292.2 million at December 31, 2003, an increase of  $3.4 million.  

Allowance for Loan Losses

The allowance for loan losses as a percentage of loans was 0.91% at March 31, 2004 compared to 0.95% at December 31, 2003.  Management believes the level of allowance is adequate given the composition of and risk inherent in the loan portfolio of Union.  Throughout 2004, management will continue to monitor the risk of credit loss associated with the loan portfolio, and will adjust the allowance accordingly.

The following table presents changes in the allowance for loan losses for the three months ended March 31, 2004 and 2003, respectively:

(dollars in thousands)

2004

2003

Balance, beginning of period

$2,768

$2,784

Charge offs

(205)

(51)

Recoveries

39

21

Net charge offs

(166)

(30)

Provision for loan losses

75

0

Balance, end of period

$2,677

$2,754

====

====

Loans on non-accrual status as a percentage of outstanding loans were 0.53% at March 31, 2004, compared to 0.56% at December 31, 2003.  Non-accrual loans totaled $1,578,000 and $1,625,000 at March 31, 2004 and December 31, 2003, respectively.  Management believes the current level of non-accrual loans is acceptable and is a reflection of the quality of Union’s loan portfolio as well as the adequacy of staffing levels devoted to monitoring and pursuing this area of credits.

Funding Sources

The Company considers a number of alternatives, including but not limited to, deposits, as well as short-term and long-term borrowings when evaluating funding sources.  Traditional deposits continue to be the most significant source of funds for the Company, totaling $389.0 million, or 87.0% of the Company’s funding sources at March 31, 2004.

Non-interest bearing deposits remain a smaller portion of the funding source for the Company than for most of its peers.  Non-interest bearing deposits comprised 7.7% of total deposits at March 31, 2004.

In addition to traditional deposits, the Company maintains both short-term and long-term borrowing arrangements with the Federal Home Loan Bank.  FHLB borrowings totaled $48.1 million and $54.4 million at March 31, 2004 and December 31, 2003, respectively.  Management plans to maintain access to long-term FHLB borrowings as an appropriate funding source.

During the first quarter of 2003, the Company formed a business trust, United (OH) Statutory Trust (United Trust) and invested $300,000. Effective March 26, 2003, United Trust issued $10,000,000 of trust preferred securities, which are guaranteed by the Company, 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 Company’s capital investment, to purchase $10,300,000 of junior subordinated deferrable interest debentures issued by the Company, as more fully described in Note 3 of the consolidated financial statements.

Shareholders’ Equity

For the quarter ended March 31, 2004, the Company had net income of $845,000 from traditional operations and dividends of $403,000, resulting in a dividend payout ratio of 47.69% of net income.  Management believes the overall equity level supports this payout ratio but feels that the ratio to net income will eventually decrease to more traditional industry standards.  The intention is to maintain the per share dividend while earnings increase which will more normalize the payout ratio.  During the first quarter of 2004, the Company transferred 3,124 shares of treasury stock to participants of the Company’s Employee Stock Purchase Plan.

The adjustment for the change in net unrealized gain on available-for-sale securities, net of income taxes, totaled $795,000 for the quarter ended March 31, 2004.  Since all the securities in the Company’s portfolio are classified as available-for-sale, both the securities and equity sections of the consolidated balance sheet are sensitive to the changing market values of securities.  

The Company has also complied with the standards of capital adequacy mandated by the banking industry.  Bank regulators have established “risk-based” capital requirements designed to measure capital adequacy.  Risk-based capital ratios reflect the relative risks of various assets banks hold in their portfolios.  A weight category of 0% (lowest risk assets), 20%, 50%, or 100% (highest risk assets) is assigned to each asset on the balance sheet and to certain off-balance sheet commitments.

Liquidity and Interest Rate Sensitivity

The objective of the Company’s asset/liability management function is to maintain consistent growth in net interest income through management of the Company’s balance sheet liquidity and interest rate exposure based on changes in economic conditions, interest rate levels, and customer preferences.

The Company manages interest rate risk to minimize the impact of fluctuating interest rates on earnings.  The Company uses simulation techniques that attempt to measure the volatility of changes in the level of interest rates, basic banking interest rate spreads, the shape of the yield curve, and the impact of changing product growth patterns.  The primary method of measuring the sensitivity of earnings of changing market interest rates is to simulate expected cash flows using varying assumed interest rates while also adjusting the timing and magnitude of non-contractual deposit repricing to more accurately reflect anticipated pricing behavior.  These simulations include adjustments for the lag in prime loan repricing and the spread and volume elasticity of interest-bearing deposit accounts, regular savings, and money market deposit accounts.

The principal function of interest rate risk management is to maintain an appropriate relationship between those assets and liabilities that are sensitive to changing market interest rates.  The Company closely monitors the sensitivity of its assets and liabilities on an ongoing basis and projects the effect of various interest rate changes on its net interest margin.  Interest sensitive assets and liabilities are defined as those assets or liabilities that mature or reprice within a designated time frame.  The difference between rate sensitive assets and rate sensitive liabilities for a specified period of time is know as “gap”.

Management believes the Company’s current mix of assets and liabilities provides a reasonable level of risk related to significant fluctuations in net interest income and the resulting volatility of the Company’s earning base.  The Company’s management reviews interest rate risk in relation to its effect on net interest income, net interest margin, and the volatility of the earnings base of the Company.  

Effects of Inflation on Financial Statements

Substantially all of the Company’s assets relate to banking and are monetary in nature.  Therefore, they are not impacted by inflation to the same degree as companies in capital-intensive industries in a replacement cost environment.  During a period of rising prices, a net monetary asset position results in loss in purchasing power and conversely a net monetary liability position results in an increase in purchasing power.  In the banking industry, typically monetary assets exceed monetary liabilities.  Therefore, as prices have recently increased, financial institutions experienced a decline in the purchasing power of their net assets.

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The most significant market risk to which the Company and its subsidiary are exposed is interest rate risk.  The business of the Company 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 Company’s financial instruments are held for trading purposes.

The Company manages interest rate risk regularly through the Asset/Liability Committee.  The Committee meets on a regular basis and reviews various asset and liability management information, including but not limited to liquidity positions, projected sources and uses of funds, interest rate risk positions and economic conditions.

The Company monitors its interest rate risk through a sensitivity analysis, whereby it measures potential changes in future earnings and the fair values of 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 financial instruments using interest rates in effect at year-end.  For the fair value estimates, cash flows are then discounted to year-end to arrive at an estimated present value of the Company’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.  

ITEM 4

CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

With the participation of our management, including our chief executive officer and chief financial officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934 (the "Exchange Act")); as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our chief executive officer and chief financial officer have concluded that such disclosure controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that material information relating to the Company and its consolidated subsidiaries is made known to them, particularly during the period for which our periodic reports, including this Quarterly Report on Form 10-Q, are being prepared.

Changes in internal control over financial reporting.

There were no significant changes during the period covered by this Quarterly Report on Form 10-Q in our internal control over financial reporting (as defined in Rules 13a-15 and 15d-15 of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 1:  Legal Proceedings.

There are no pending legal proceedings to which the Company or its subsidiary are a party to or to which any of their property is subject except routine legal proceedings to which the Company or its subsidiary are a party incident to the banking business.  None of such proceedings are considered by the Company to be material.

Item 2:  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

None

Item 3:  Defaults upon Senior Securities.

None

Item 4:  Submission of Matters to a Vote of Security Holders.

None

Item 5:  Other Information.

Schedule 14A was filed on March 22, 2004, Notice of Annual Meeting of Shareholders and related Proxy.

Item 6:  Exhibits and Reports on Form 8-K.

(a) Exhibits

Exhibit 31.1  Rule 13a-14(a)/15d-14(a) Certification of CEO

Exhibit 31.2  Rule 13a-14(a)/15d-14(a) Certification of CFO

Exhibit 32.1

Section 1350 CEO’s Certification

Exhibit 32.2

Section 1350 CFO’s Certification

Exhibit 99.1  Safe Harbor under The Private Securities Litigation Reform Act of 1995

(b) Forms 8-K

Form 8-K was filed on February 2, 2004 announcing under Item 7, 9 & 12 the Company’s financial results for the year ended December 31, 2003.

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.

EXHIBIT INDEX

UNITED BANCSHARES, INC. QUARTERLY REPORT ON FORM 10-Q

FOR PERIOD ENDED MARCH 31, 2004

Exhibit

Number

Description

Exhibit Location

31.1

Rule 13a-14(a)/15d-14(a) Certification of CEO

Filed herewith

31.2

Rule 13a-14(a)/15d-14(a) Certification of CFO

Filed herewith

32.1

Section 1350 CEO’s Certification

Filed herewith

32.2

Section 1350 CFO’s Certification

Filed herewith

1.1

Safe Harbor under the Private Securities

Litigation Reform Act of 1995

Filed herewith