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 June 30, 2019

Commission file number 333-86453

UNITED BANCSHARES, INC.

(Exact name of Registrant as specified in its charter)

Ohio

(State or other jurisdiction of incorporation or organization)

105 Progressive Drive, 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)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of Each Exchange
Common Stock, No Par Value	UBOH	NASDAQ Global Market

Indicate by check mark whether the 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 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller Reporting Company ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of June 30, 2019: 3,270,635.

This document contains 43 pages. The Exhibit Index is on page 37 immediately preceding the filed exhibits.

UNITED BANCSHARES, INC.

Table of Contents

		Page
Part I – Financial Information
	Item 1 – Financial Statements	3
	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3 – Quantitative and Qualitative Disclosures about Market Risk	34
	Item 4 – Controls and Procedures	35
Part II – Other Information
	Item 1 – Legal Proceedings	36
	Item 1A – Risk Factors	36
	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	36
	Item 3 – Defaults Upon Senior Securities	36
	Item 4 – Mine Safety Disclosures	37
	Item 5 – Other Information	37
	Item 6 – Exhibits	37

2

PART 1 - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

United Bancshares, Inc. and Subsidiaries

Consolidated Balance Sheets

as of June 30, 2019 (unaudited) and December 31, 2018

	(in thousands except share data)
	June 30,			December 31,
	2019			2018
ASSETS
CASH AND CASH EQUIVALENTS
Cash and due from banks	$	9,470		$	11,698
Interest-bearing deposits in other banks		10,873			4,777
Total cash and cash equivalents		20,343			16,475
SECURITIES, available-for-sale		174,666			167,354
FEDERAL HOME LOAN BANK STOCK, at cost		5,302			5,302
LOANS HELD FOR SALE		10,003			7,705
LOANS AND LEASES		572,594			561,614
Less allowance for loan and lease losses		3,864			3,527
Net loans and leases		568,730			558,087
PREMISES AND EQUIPMENT, net		18,698			18,968
GOODWILL		28,616			28,616
CORE DEPOSIT INTANGIBLE ASSETS, net		874			953
CASH SURRENDER VALUE OF LIFE INSURANCE		18,416			18,223
OTHER REAL ESTATE OWNED		-			108
OTHER ASSETS, including accrued interest receivable		9,764			8,509
TOTAL ASSETS	$	855,412		$	830,300
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Deposits:
Non-interest-bearing	$	115,178		$	115,333
Interest-bearing		573,980			550,903
Total deposits		689,158			666,236
Other borrowings		59,250			65,443
Junior subordinated deferrable interest debentures		12,891			12,874
Other liabilities		6,059			4,803
Total liabilities		767,358			749,356
SHAREHOLDERS’ EQUITY
Common stock, stated value $1.00, authorized 10,000,000 shares; issued 3,760,557 shares		3,761			3,761
Surplus		15,080			14,960
Retained earnings		74,919			71,670
Accumulated other comprehensive income (loss)		1,957			(1,764	)
Treasury stock, at cost, 489,922 shares at June 30, 2019 and 491,199 shares at December 31, 2018		(7,663	)		(7,683	)
Total shareholders’ equity		88,054			80,944
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	855,412		$	830,300

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

3

United Bancshares, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

Three and six months ended June 30, 2019 and 2018 (unaudited)

	(in thousands except share data)
	Three months ended June 30,					Six months ended June 30,
	2019		2018			2019		2018
INTEREST INCOME
Loans and leases, including fees	$	8,210	$	7,560		$	15,993	$	14,181
Securities:
Taxable		655		631			1,317		1,212
Tax-exempt		403		412			816		821
Other		202		107			330		237
Total interest income		9,470		8,710			18,456		16,451
INTEREST EXPENSE
Deposits		1,599		854			3,009		1,572
Other borrowings		626		529			1,267		1,022
Total interest expense		2,225		1,383			4,276		2,594
Net interest income		7,245		7,327			14,180		13,857
PROVISION FOR LOAN AND LEASE LOSSES		150		110			250		200
Net interest income after provision for loan and lease losses		7,095		7,217			13,930		13,657
NON-INTEREST INCOME
Gain on sale of loans		2,186		857			3,624		1,956
Net securities gains (losses)		-		(8	)		-		6
Other operating income		947		1,314			2,017		2,449
Total non-interest income		3,133		2,163			5,641		4,411
NON-INTEREST EXPENSES		7,492		6,799			14,714		13,350
INCOME BEFORE INCOME TAXES		2,736		2,581			4,857		4,718
PROVISION FOR INCOME TAXES		451		381			758		719
NET INCOME	$	2,285	$	2,200		$	4,099	$	3,999
NET INCOME PER SHARE (basic and diluted)	$	0.70	$	0.67		$	1.25	$	1.22
Weighted average common shares outstanding (basic)		3,270,635		3,268,111			3,270,522		3,268,083
Weighted average common shares outstanding (diluted)		3,272,041		3,272,585			3,271,928		3,272,557

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

4

United Bancshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

Three and six months ended June 30, 2019 and 2018 (unaudited)

	(in thousands)
	Three months ended June 30,					Six months ended June 30,
	2019		2018			2019		2018
NET INCOME	$	2,285	$	2,200		$	4,099	$	3,999
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain (loss) on securities:
Unrealized holding gains (losses) during period		2,158		(731	)		4,710		(3,342	)
Reclassification adjustments for gains (losses) included in net income		-		8			-		(6	)
Other comprehensive income (loss), before income taxes		2,158		(723	)		4,710		(3,348	)
Income tax expense (credit) related to items of other comprehensive income (loss)		453		(152	)		989		(703	)
Other comprehensive income (loss)		1,705		(571	)		3,721		(2,645	)
COMPREHENSIVE INCOME	$	3,990	$	1,629		$	7,820	$	1,354

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

5

United Bancshares, Inc. and Subsidiaries

Consolidated Statements of Shareholders’ Equity

Six Months Ended June 30, 2019 and 2018 (unaudited)

(in thousands except share data)

	Common stock		Surplus		Retained earnings			Accumulated other comprehensive income (loss)			Treasury stock			Total
BALANCE AT DECEMBER 31, 2018	$	3,761	$	14,960	$	71,670		$	(1,764	)	$	(7,683	)	$	80,944
Comprehensive income:
Net income		-		-		4,099			-			-			4,099
Other comprehensive income		-		-		-			3,721			-			3,721
1,277 shares issued from treasury in connection with the Corporation's Employee Stock Purchase Plan		-		10		-			-			20			30
Stock option expense		-		110		-			-			-			110
Cash dividends declared, $0.26 per share		-		-		(850	)		-			-			(850	)
BALANCE AT JUNE 30, 2019	$	3,761	$	15,080	$	74,919		$	1,957		$	(7,663	)	$	88,054
BALANCE AT DECEMBER 31, 2017	$	3,761	$	14,783	$	64,994		$	(124	)	$	(7,710	)	$	75,704
Comprehensive loss:
Net income		-		-		3,999			-			-			3,999
Other comprehensive loss		-		-		-			(2,645	)		-			(2,645	)
468 shares issued from treasury in connection with the Corporation's Employee Stock Purchase Plan		-		4		-			-			7			11
Stock option expense		-		67		-			-			-			67
Cash dividends declared, $0.24 per share		-		-		(784	)		-			-			(784	)
Reclassification for accounting change		-		-		24			(24	)		-			-
BALANCE AT JUNE 30, 2018	$	3,761	$	14,854	$	68,233		$	(2,793	)	$	(7,703	)	$	76,352

Three months ended June 30, 2019 and 2018 (unaudited)

	Common stock		Surplus		Retained earnings			Accumulated other comprehensive income (loss)			Treasury stock			Total
BALANCE AT MARCH 31, 2019	$	3,761	$	15,025	$	73,058		$	252		$	(7,663	)	$	84,433
Comprehensive income:
Net income		-		-		2,285			-			-			2,285
Other comprehensive income		-		-		-			1,705			-			1,705
Stock option expense		-		55		-			-			-			55
Cash dividends declared, $0.13 per share		-		-		(424	)		-			-			(424	)
BALANCE AT JUNE 30, 2019	$	3,761	$	15,080	$	74,919		$	1,957		$	(7,663	)	$	88,054
BALANCE AT MARCH 31, 2018	$	3,761	$	14,822	$	66,426		$	(2,222	)	$	(7,703	)	$	75,084
Comprehensive loss:
Net income		-		-		2,200			-			-			2,200
Other comprehensive loss		-		-		-			(571	)		-			(571	)
Stock option expense		-		32		-			-			-			32
Cash dividends declared, $0.12 per share		-		-		(393	)		-			-			(393	)
BALANCE AT JUNE 30, 2018	$	3,761	$	14,854	$	68,233		$	(2,793	)	$	(7,703	)	$	76,352

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

6

United Bancshares, Inc. and Subsidiaries

Condensed Consolidated Statement of Cash Flows

Six months ended June 30, 2019 and 2018 (unaudited)

	(in thousands)
	Six months ended June 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES	$	1,638		$	(620	)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales, calls and maturities of available-for-sale securities		26,491			25,281
Purchases of available-for-sale securities		(29,510	)		(32,743	)
Proceeds from sale of other real estate owned		68			31
Net increase in loans and leases		(10,585	)		(32,156	)
Purchases of premises and equipment		(183	)		(321	)
Net cash used in investing activities		(13,719	)		(39,908	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		22,962			10,807
Proceeds from other borrowings		-			25,000
Repayments of other borrowings		(6,193	)		(9,172	)
Proceeds from sale of treasury shares		30			11
Cash dividends paid		(850	)		(784	)
Net cash provided by financing activities		15,949			25,862
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		3,868			(14,666	)
CASH AND CASH EQUIVALENTS
At beginning of period		16,475			27,274
At end of period	$	20,343		$	12,608
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the period for:
Interest	$	4,258		$	2,631
Federal income taxes	$	-		$	-
Non-cash investing activities:
Transfer of loans to other real estate owned	$	-		$	70
Change in net unrealized gain or loss on available-for-sale securities	$	4,710		$	(3,348	)

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

7

United Bancshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019

NOTE 1 – CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements of United Bancshares, Inc. and subsidiaries (the “Corporation”) have been prepared without audit and in the opinion of management 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 the 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 six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The balance sheet as of December 31, 2018 is derived from completed audited consolidated financial statements with footnotes, which are included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018.

The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiary, The Union Bank Company (the “Bank”). The Bank has formed a wholly-owned subsidiary, UBC Investments, Inc. (“UBC”), to hold and manage its securities portfolio. The operations of UBC are located in Wilmington, Delaware. The Bank has also formed a wholly-owned subsidiary, UBC Property, Inc. (“UBC Property”), to hold and manage certain property. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and reporting policies of the Corporation conform to generally accepted practices within the banking industry. The Corporation considers all of its principal activities to be banking related.

NOTE 2 – NEW ACCOUNTING PRONOUNCEMENTS

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842).  The ASU requires a lessee to recognize on the balance sheet assets and liabilities for leases with lease terms of more than 12 months.  Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease.  Unlike prior GAAP, which required that only capital leases be recognized on the balance sheet, the ASC requires that both types of leases by recognized on the balance sheet.  For public companies, this update is effective for interim and annual periods beginning after December 15, 2018.  The adoption of ASU No. 2016-02 effective January 1, 2019 resulted in an increase to other assets and other liabilities of $2,168,000.  The Corporation chose the effective date as the date of initial application.  Consequently, prior period financial information has not been updated or restated.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2019. Management has developed four different models for calculating the allowance for loan losses under the requirements of ASU 2016-13 and are running them parallel to the Bank’s existing methodology throughout 2019.  Once management determines which method will be utilized, a third party will be contracted to perform a model validation prior to December 31, 2019. Management has not yet determined the expected impact the adoption of ASU 2016-13 will have on the consolidated financial statements.  On July 17, 2019, the FASB voted to issue a proposal for public comment that would potentially result in a postponement of the required implementation date for ASU 2016-13.  Management will continue to monitor any new developments regarding this possible delay.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The guidance in this update eliminates the Step 2 from the goodwill impairment test. For public companies, this update will be effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual goodwill impairment test with a measurement date after January 1, 2017. The Corporation does not expect the guidance to have a material impact on the consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU better aligns an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments in this ASU are effective for the reporting periods after December 15, 2018.  The Corporation adopted ASU No. 2017-12 effective January 1, 2019.  There was no significant impact to the consolidated financial statements as a result of the adoption of ASU 2017-12.

8

NOTE 3 - SECURITIES

The amortized cost and fair value of available-for-sale securities as of June 30, 2019 and December 31, 2018 are as follows:

	(in thousands)
	June 30, 2019				December 31, 2018
	Amortized cost		Fair value		Amortized cost		Fair value
Available-for-sale:
Obligations of states and political subdivisions	$	52,079	$	53,908	$	59,585	$	59,466
Mortgage-backed		119,108		119,770		109,000		106,924
Other		1,002		988		1,002		964
Total	$	172,189	$	174,666	$	169,587	$	167,354

A summary of gross unrealized gains and losses on available-for-sale securities as of June 30, 2019 and December 31, 2018 follows: 

	(in thousands)
	June 30, 2019				December 31, 2018
	Gross unrealized gains		Gross unrealized losses		Gross unrealized gains		Gross unrealized losses
Available-for-sale:
Obligations of states and political subdivisions	$	1,830	$	1	$	354	$	473
Mortgage-backed		987		325		162		2,238
Other		-		14		-		38
Total	$	2,817	$	340	$	516	$	2,749

9

NOTE 4 – LOANS AND LEASES

The following tables present the activity in the allowance for loan and lease losses by portfolio segment for the six month periods ended June 30, 2019 and 2018:

	(in thousands)
	Commercial			Commercial and agricultural real estate			Residential 1 – 4 family real estate			Consumer			Total
Balance at December 31, 2018	$	534		$	2,355		$	576		$	62		$	3,527
Provision charged to expenses		315			(98	)		28			5			250
Losses charged off		-			-			(25	)		(4	)		(29	)
Recoveries		8			94			14			-			116
Balance at June 30, 2019	$	857		$	2,351		$	593		$	63		$	3,864
Balance at December 31, 2017	$	501		$	1,746		$	545		$	43		$	2,835
Provision charged to expenses		43			94			48			15			200
Losses charged off		(19	)		(17	)		(52	)		(6	)		(94	)
Recoveries		33			200			-			1			234
Balance at June 30, 2018	$	558		$	2,023		$	541		$	53		$	3,175

10

The following tables present the balance in the allowance for loan and lease losses and the recorded investment in loans and leases by portfolio segment and based on impairment method as of June 30, 2019 and December 31, 2018:

	(in thousands)
June 30, 2019	Commercial		Commercial and agricultural real estate		Residential 1 – 4 family real estate		Consumer		Total
Allowance for loan and lease losses:
Attributable to loans and leases individually evaluated for impairment	$	355	$	37	$	-	$	-	$	392
Collectively evaluated for impairment		502		2,314		593		63		3,472
Total allowance for loan and lease losses	$	857	$	2,351	$	593	$	63	$	3,864
Loans and leases:
Individually evaluated for impairment	$	1,382	$	1,466	$	-	$	-	$	2,848
Acquired with deteriorated credit quality		-		158		59		-		217
Collectively evaluated for impairment		82,912		357,415		121,446		7,756		569,529
Total ending loans and leases balance	$	84,294	$	359,039	$	121,505	$	7,756	$	572,594

December 31, 2018	Commercial		Commercial and agricultural real estate		Residential 1 – 4 family real estate		Consumer		Total
Allowance for loan and lease losses:
Attributable to loans and leases individually evaluated for impairment	$	63	$	65	$	-	$	-	$	128
Collectively evaluated for impairment		471		2,290		576		62		3,399
Total allowance for loan and lease losses	$	534	$	2,355	$	576	$	62	$	3,527
Loans and leases:
Individually evaluated for impairment	$	361	$	970	$	-	$	-	$	1,331
Acquired with deteriorated credit quality		-		226		70		-		296
Collectively evaluated for impairment		80,269		353,250		119,772		6,696		559,987
Total ending loans and leases balance	$	80,630	$	354,446	$	119,842	$	6,696	$	561,614

11

The average recorded investment in impaired loans and leases (excluding loans and leases acquired with deteriorated credit quality) for the six month period ended June 30, 2019 was $1,821,000 (none for the six month period ended June 30, 2018). There was $392,000 of allowance for loan and lease losses specifically reserved as of June 30, 2019 for impaired loans compared to no specific reserves as of June 30, 2018. Additionally, there was approximately $139,000 in interest income recognized by the Corporation on impaired loans and leases on an accrual or cash basis for the six month period ended June 30, 2019 and none for the six month period ended June 30, 2018.

The following table presents the recorded investment in nonaccrual loans and leases, loans and leases past due over 90 days still on accrual and troubled debt restructurings by class of loans as of June 30, 2019 and December 31, 2018. Nonaccrual loans primarily consist of smaller dollar homogenous loans that are collectively evaluated for impairment.

	(in thousands)
June 30, 2019	Nonaccrual		Loans and leases past due over 90 days still accruing		Troubled Debt Restructurings
Commercial	$	102	$	-	$	23
Commercial real estate		528		-		287
Agricultural real estate		215		-		-
Agriculture		-		-		-
Consumer		-		-		-
Residential: 1 – 4 family		258		519		356
Total	$	1,103	$	519	$	666
December 31, 2018
Commercial	$	121	$	-	$	24
Commercial real estate		754		-		228
Agricultural real estate		216		-		-
Agriculture		-		-		-
Consumer		-		-		-
Residential: 1 – 4 family		354		161		372
Total	$	1,445	$	161	$	624

12

The following table presents the aging of the recorded investment in past due loans and leases as of June 30, 2019 and December 31, 2018 by class of loans and leases:

	(in thousands)
June 30, 2019	30 – 59 days past due		60 – 89 days past due		Greater than 90 days past due		Total past due		Loans and leases not past due		Total
Commercial	$	234	$	-	$	-	$	234	$	72,396	$	72,630
Commercial real estate		1,592		-		39		1,631		325,226		326,857
Agriculture		-		177		-		177		11,487		11,664
Agricultural real estate		95		-		241		336		31,846		32,182
Consumer		-		-		-		-		7,756		7,756
Residential real estate		1,937		-		567		2,504		119,001		121,505
Total	$	3,858	$	177	$	847	$	4,882	$	567,712	$	572,594
December 31, 2018
Commercial	$	482	$	-	$	-	$	482	$	68,503	$	68,985
Commercial real estate		580		-		155		735		322,032		322,767
Agriculture		-		-		-		-		11,645		11,645
Agricultural real estate		7		-		241		248		31,431		31,679
Consumer		4		-		-		4		6,692		6,696
Residential real estate		2,471		371		278		3,120		116,722		119,842
Total	$	3,544	$	371	$	674	$	4,589	$	557,025	$	561,614

13

Credit Quality Indicators:

The Corporation categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt, such as:  current final financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Corporation analyzes loans and leases individually by classifying the loans and leases as to the credit risk.  This analysis generally includes non-homogenous loans and leases, such as commercial and commercial real estate loans and leases. The Corporation uses the following definitions for risk ratings:

● Pass: Loans and leases not meeting the previous criteria that are analyzed individually as part of the above described process are considered to be pass rated loans and leases.

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

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

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

The following table provides a summary of the loan portfolio risk grades, as applicable, based on the most recent analysis performed, as of June 30, 2019 and December 31, 2018. The Corporation risk rates all commercial and commercial real estate loans.

As of June 30, 2019 and December 31, 2018, and based on the most recent analysis performed, the risk category of loans by class of loans and leases is as follows:

	(in thousands)
June 30, 2019	Pass		Special Mention		Substandard		Doubtful		Not rated
Commercial	$	81,015	$	1,900	$	1,379	$	-	$	-
Commercial and multi-family real estate		350,153		6,604		2,243		-		39
Residential 1 - 4 family		9,869		-		-		-		111,636
Consumer		-		-		-		-		7,756
Total	$	441,037	$	8,504	$	3,622	$	-	$	119,431
December 31, 2018
Commercial	$	79,179	$	-	$	1,451	$	-	$	-
Commercial and multi-family real estate		346,580		4,755		3,111		-		-
Residential 1 - 4 family		10,461		-		-		-		109,381
Consumer		-		-		-		-		6,696
Total	$	436,220	$	4,755	$	4,562	$	-	$	116,077

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The Corporation considers the performance of the loan and lease portfolio and its impact on the allowance for loan and lease losses. For all loan classes that are not rated, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. Generally, all loans and leases not rated that are 90 days past due or are classified as nonaccrual and collectively evaluated for impairment, are considered nonperforming. The following table presents the recorded investment in all loans and leases that are not risk rated, based on payment activity as of June 30, 2019 and December 31, 2018:

	(in thousands)
June 30, 2019	Commercial and multi-family real estate		Residential 1-4 family		Consumer
Performing	$	23	$	111,070	$	7,756
Nonperforming		16		566		-
Total	$	39	$	111,636	$	7,756
December 31, 2018
Performing	$	-	$	109,103	$	6,696
Nonperforming		-		278		-
Total	$	-	$	109,381	$	6,696

Modifications:

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

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

There were two modifications for TDR loans and leases for which there was a payment default during the six month period ended June 30, 2019. One note was modified and split into two separate notes, each with different payment structures, to comply with the bankruptcy plan.

The Corporation acquired The Ohio State Bank (“OSB”) in November 2014 and the Benchmark Bank in September 2017. As a result of these acquisitions, the Corporation has loans and leases, for which there was at acquisition, evidence of deterioration of credit quality since origination and for which it was probable at acquisition, that all contractually required payments would not be collected.

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The following is information related to loans and leases acquired in these transactions, including purchased impaired loans:

	The Ohio State Bank
	(in thousands)
	Contractual
	Principal			Accretable			Carrying
	Receivable			Difference			Amount
Purchased Performing Loans and Leases
Balance at December 31, 2018	$	19,043		$	(658	)	$	18,385
Change due to payments received		(2,660	)		148			(2,512	)
Transfer to foreclosed real estate		-			-			-
Change due to loan charge-off		-			-			-
Balance at June 30, 2019	$	16,383		$	(510	)	$	15,873
Purchased Impaired Loans and Leases
Balance at December 31, 2018	$	196		$	(163	)	$	33
Change due to payments received		(26	)		25			(1	)
Transfer to foreclosed real estate		-			-			-
Change due to loan charge-off		-			-			-
Balance at June 30, 2019	$	170		$	(138	)	$	32

	Benchmark Bank
	(in thousands)
	Contractual
	Principal			Accretable			Carrying
	Receivable			Difference			Amount
Purchased Performing Loans and Leases
Balance at December 31, 2018	$	74,837		$	(1,553	)	$	73,284
Change due to payments received		(7,771	)		155			(7,616	)
Transfer to foreclosed real estate		-			-			-
Change due to loan charge-off		-			-			-
Balance at June 30, 2019	$	67,066		$	(1,398	)	$	65,668
Purchased Impaired Loans and Leases
Balance at December 31, 2018	$	516		$	(253	)	$	263
Change due to payments received		(139	)		61			(78	)
Transfer to foreclosed real estate		-			-			-
Change due to loan charge-off		-			-			-
Balance at June 30, 2019	$	377		$	(192	)	$	185

There was no provision for loan and lease losses recognized during the six month periods ended June 30, 2019 and 2018 related to the acquired loans as there was no significant change to the credit quality of the loans during the period.

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NOTE 5 – OTHER BORROWINGS

Other borrowings consists of the following at June 30, 2019 and December 31, 2018: 

	(in thousands)
	June 30,		December 31,
	2019		2018
Federal Home Loan Bank borrowings:
Secured note, with interest at 2.55%, due March, 2019	$	-	$	1,281
Secured note, with interest at 1.72%, due September, 2020		6,000		6,000
Secured note, with interest at 2.90%, due June, 2021		8,000		8,000
Secured note, with variable interest, at 2.72% at June 30, 2019 and 2.99% at December 31, 2018, due September, 2021		7,000		7,000
Secured note, with interest at 1.86%, due September, 2021		6,000		6,000
Secured note, with interest at 2.94%, due December, 2021		8,000		8,000
Secured note, with interest at 2.98%, due June, 2022		9,000		9,000
Secured note, with interest at 1.97%, due September, 2022		6,000		6,000
Zions Bank:
Secured note, with interest at 2.64%, due January, 2019		-		2,917
United Bankers Bank
Note payable, with interest at 4.875% and $250,000 principal payments payable quarterly commencing December 1, 2018, with any remaining unpaid principal, due September 1, 2022. All Union Bank stock is held as collateral.		9,250		9,750
Secured note, with interest at 3.00%, due January, 2019		-		1,495
Total other borrowings	$	59,250	$	65,443

Federal Home Loan Bank borrowings are secured by Federal Home Loan Bank stock and eligible mortgage loans approximating $138,121,000 and $137,744,000 at June 30, 2019 and December 31, 2018 respectively.

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NOTE 6 – JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES

The Corporation has formed and invested $300,000 in a business trust, United (OH) Statutory Trust (“United Trust”) which is not consolidated by the Corporation. United Trust issued $10,000,000 of trust preferred securities, which are guaranteed by the Corporation, and are subject to mandatory redemption upon payment of the debentures. United Trust used the proceeds from the issuance of the trust preferred securities, as well as the Corporation’s capital investment, to purchase $10,300,000 of junior subordinated deferrable interest debentures issued by the Corporation. The debentures have a stated maturity date of March 26, 2033. As of March 26, 2008, and quarterly thereafter, the debentures may be shortened at the Corporation’s option. Interest is payable quarterly at a floating rate adjustable quarterly and equal to 315 basis points over the 3-month LIBOR, amounting to 5.48% at June 30, 2019 and 5.97% at December 31, 2018. The Corporation has the right, subject to events in default, to defer payments of interest on the debentures by extending the interest payment period for a period not exceeding 20 consecutive quarterly periods.

The Corporation assumed $3,093,000 of trust preferred securities through the OSB acquisition with $3,000,000 of the liability guaranteed by the Corporation and the remaining $93,000 secured by an investment in the trust preferred securities. The trust preferred securities carrying value as of June 30, 2019 and December 31, 2018 was $2,591,000 and $2,574,000, respectively. The difference between the principal owed and the carrying value is due to the below-market interest rate on the debentures. The debentures have a stated maturity date of April 23, 2034. Interest is at a floating rate adjustable quarterly and equal to 285 basis points over the 3-month LIBOR, amounting to 5.43% at June 30, 2019 and 5.33% at December 31, 2018.

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, under Federal Reserve Board guidelines, the securities cannot be used to constitute more than 25% of the Corporation’s core Tier I capital inclusive of these securities.

Interest expense on the debentures amounted to $377,000 and $335,000 for the six month periods ended June 30, 2019 and 2018, respectively, and is included in other borrowings interest expense in the accompanying consolidated statements of income.  

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NOTE 7 - FAIR VALUE MEASUREMENTS

ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are independent, knowledgeable, and both able and willing to transact.

ASC 820-10 requires the use of valuation techniques that are consistent with the market approach, the income approach, and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, ASC 820-10 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to access at the measurement date.

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 – Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. Unobservable inputs reflect the Corporation’s own assumptions about what market participants would use to price the asset or liability. The inputs are developed based on the best information available in the circumstances, which might include the Corporation’s own financial data such as internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment.

Financial assets (there were no financial liabilities) measured at fair value on a recurring basis at June 30, 2019 and December 31, 2018 include available-for-sale securities, which are valued using Level 2 inputs as well as mortgage servicing rights, amounting to $1,007,000 at June 30, 2019 and $1,313,000 at December 31, 2018, which are valued using Level 3 inputs. Financial assets measured at fair value on a nonrecurring basis at June 30, 2019 include loans classified as impaired totaling $2,848,000 compared to $1,331,000 at December 31, 2018. The increase was attributable to a larger commercial loan relationship added as impaired in the second quarter of 2019.

There were no financial instruments measured at fair value that moved to a lower level in the fair value hierarchy during the period ended June 30, 2019, due to the lack of observable quotes in inactive markets for those instruments at June 30, 2019.

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The tables below present a reconciliation and income statement classification of gains and losses for mortgage servicing rights, which are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six month period ended June 30, 2019 and for the year ended December 31, 2018:

	(in thousands)
	June 30,			December 31,
	2019			2018
Mortgage Servicing Rights
Balance at beginning of period	$	1,313		$	1,270
Gains or losses, including realized and unrealized:
Purchases, issuances, and settlements		53			164
Disposals - amortization based on loan payments and payoffs		(77	)		(147	)
Changes in fair value		(282	)		26
Balance at end of period	$	1,007		$	1,313

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, and disclosure of unobservable inputs follows.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Corporation’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Corporation’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Corporation’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Securities Available-for-Sale

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would typically include government bonds and exchange traded equities. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include U.S. Government and agencies securities, municipal bonds, mortgage-backed securities, and asset-backed securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

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Impaired Loans

The Corporation does not record impaired loans at fair value on a recurring basis. However, periodically, a loan is considered impaired and is reported at the fair value of the underlying collateral less estimated cost to sell, if repayment is expected solely from collateral. Collateral values are estimated using Level 2 inputs, including recent appraisals or evaluations as well as Level 3 inputs based on customized discounting criteria such as additional appraisal adjustments to consider deterioration of value subsequent to appraisal date and estimated cost to sell. Additional appraisal adjustments range between 15% and 35% of appraised value, and estimated selling cost ranges between 10% and 20% of the adjusted appraised value.  Due to the significance of the Level 3 inputs, impaired loans fair values have been classified as Level 3.

Mortgage Servicing Rights

The Corporation records mortgage servicing rights at estimated fair value based on a discounted cash flow model which includes discount rates between 11% and 13%, in addition to prepayment, internal rate of return, servicing costs, inflation rate of servicing costs and earnings rate assumptions that are considered to be unobservable inputs. Due to the significance of the Level 3 inputs, mortgage servicing rights have been classified as Level 3.

Other Real Estate Owned

The Corporation values other real estate owned at the estimated fair value of the underlying collateral less appraisal adjustments typically between 10% and 30% of appraised value, and expected selling costs between 10% and 20% of adjusted appraised value. Such values are estimated primarily using appraisals or evaluations utilizing a market value approach. Due to the significance of the Level 3 inputs, other real estate owned is classified as Level 3.

Certain other financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment. Financial assets and financial liabilities, excluding impaired loans and other real estate owned, measured at fair value on a nonrecurring basis were not significant at June 30, 2019 and December 31, 2018.

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NOTE 8 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values of recognized financial instruments at June 30, 2019 and December 31, 2018 were as follows:

	(in thousands)
	June 30, 2019				December 31, 2018
	Carrying amount		Estimated value		Carrying amount		Estimated value		Input Level
FINANCIAL ASSETS
Cash and cash equivalents	$	20,343	$	20,343	$	16,475	$	16,475		1
Securities, including FHLB stock		179,968		179,968		172,656		172,656		2,3
Loans held for sale		10,003		10,003		7,705		7,705		3
Net loans and leases		568,730		567,759		558,087		554,223		3
Mortgage servicing rights		1,007		1,007		1,313		1,313		3
Hedging assets		1,087		1,087		492		492		3
Total Financial Assets	$	781,138	$	780,167	$	756,728	$	752,864
FINANCIAL LIABILITIES
Deposits
Maturity	$	195,422	$	195,191	$	180,675	$	178,947		3
Non-maturity		493,736		493,736		485,561		485,561		1
Other borrowings		59,250		59,499		65,443		65,029		3
Junior subordinated deferrable interest debentures		12,891		8,819		12,874		8,318		3
Hedging liabilities		202		202		86		86		3
Total Financial Liabilities	$	761,501	$	757,447	$	744,639	$	737,941

The above summary does not include accrued interest receivable or cash surrender value of life insurance, which are also considered financial instruments. The estimated fair value of such items is considered to be their carrying amounts.

There are also unrecognized financial instruments at June 30, 2019 and December 31, 2018 which relate to commitments to extend credit and letters of credit. The contract amount of such financial instruments amounted to $135,623,000 at June 30, 2019 and $147,526,000 at December 31, 2018. Such amounts are also considered to be the estimated fair values.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments shown above:

Cash and cash equivalents:

Fair value is determined to be the carrying amount for these items (which include cash on hand, due from banks, and federal funds sold) because they represent cash or mature in 90 days or less, and do not represent unanticipated credit concerns.

Securities:

The fair value of securities is determined based on quoted market prices of the individual securities; if not available, estimated fair value is obtained by comparison to other known securities with similar risk and maturity characteristics. Such value does not consider possible tax ramifications or estimated transaction costs.

Loans held for sale:

The fair value of loans held for sale is determined based on the sales price of similar loans. Loan held for sale are typically held for 60 days or less.

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Loans and leases:

Fair value for loans and leases was estimated for portfolios of loans and leases with similar financial characteristics. For adjustable rate loans, which re-price at least annually and generally possess low risk characteristics, the carrying amount is believed to be a reasonable estimate of fair value. For fixed rate loans, the fair value is estimated based on a discounted cash flow analysis, considering weighted average rates and terms of the portfolio, adjusted for credit and interest rate risk inherent in the loans. Fair value for nonperforming loans is based on recent appraisals or estimated discounted cash flows.

Mortgage servicing rights:

The fair value for mortgage servicing rights is determined based on an analysis of the portfolio by an independent third party.

Deposit liabilities:

The fair value of core deposits, including demand deposits, savings accounts, and certain money market deposits, is the amount payable on demand. The fair value of fixed-maturity certificates of deposit is estimated using the rates offered at quarter end for deposits of similar remaining maturities. The estimated fair value does not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the marketplace.

Other borrowings and junior subordinated deferrable interest debentures:

The fair value of other borrowings and junior subordinated deferrable interest debentures are determined using the net present value of discounted cash flows based on current borrowing rates for similar types of borrowing arrangements, and are obtained from an independent third party.

Other financial instruments:

The fair value of commitments to extend credit and letters of credit is determined to be the contract amount, since these financial instruments generally represent commitments at existing rates. The fair value of other borrowings is determined based on a discounted cash flow analysis using current interest rates. The fair value of other liabilities is generally considered to be carrying value except for the deferred compensation agreement. The fair value of the contract is determined based on a discounted cash flow analysis using a current interest rate for a similar instrument.

The fair value estimates of financial instruments are made at a specific point in time based on relevant market information. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument over the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Since no ready market exists for a significant portion of the financial instruments, fair value estimates are largely based on judgments after considering such factors as future expected credit losses, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

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NOTE 9 – STOCK OPTIONS

The United Bancshares, Inc. 2016 Stock Option Plan (the “Plan”) permits the Corporation to award non-qualified stock options to eligible participants. A total of 250,000 shares are available for issuance pursuant to the Plan.

The Corporation has issued to date 33,352 options during 2016 at an exercise price of $19.32, 30,151 options during 2017 at an exercise price of $21.70, 31,267 options during 2018 at an exercise price of $23.30, and 33,853 options during 2019 at an exercise price of $22.97 under the Plan. Following is a summary of activity for stock options for the six month periods ended June 30, 2019 and June 30, 2018: 

	June 30,		June 30,
	2019		2018
Outstanding, beginning of period		93,069		63,503
Granted		33,853		-
Exercised		-		-
Forfeited		-		(1,701	)
Outstanding, end of period		126,922		61,802
Weighted average exercise price at end of period	$	21.81	$	20.42

The options vest over a three-year period on the anniversary of the date of grant. At June 30, 2019, 31,718 options were vested compared to 11,117 options vested at June 30, 2018 and outstanding options had a weighted average remaining contractual term of 5.7 years.

The fair value of options granted is estimated at the date of grant using the Black Scholes option pricing model. Following are assumptions used in calculating the fair value of the options granted:

	2019			2018			2017			2016
Weighted-average fair value of options granted	$	7.77		$	7.87		$	7.35		$	6.27
Average dividend yield		2.26	%		2.18	%		2.23	%		2.31	%
Expected volatility		40.00	%		40.00	%		40.00	%		40.00	%
Rick-free interest rate		1.93	%		2.81	%		2.06	%		1.58	%
Expected term (years)		7			7			7			7

Total compensation expense related to the stock options granted in 2016 is expected to be $209,000 and is being recognized ratably over the 36 month period beginning January 1, 2017. Total compensation expense related to the stock options granted in 2017, net of forfeitures, is expected to be $209,000 and is being recognized ratably over the 36 month period beginning August 1, 2017. Total compensation expense related to the stock options granted in 2018 is expected to be $246,000 and is being recognized ratably over the 36 month period beginning September 1, 2018. Total compensation expense related to the stock options granted in 2019 is expected to be $263,000 and is being recognized ratably over the 36 month period beginning July 1, 2019. Stock option expense for outstanding awards amounted to $55,000 and $111,000 for the quarter and  six months ended June 30, 2019, respectively. Stock option expense for outstanding awards amounted to $32,000 and $67,000 for the quarter and six months ended June 30, 2018, respectively.

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NOTE 10 – SUBSEQUENT EVENTS 

Management evaluated subsequent events through the date the consolidated financial statements were issued. Events or transactions occurring after June 30, 2019 but prior to when the consolidated financial statements were issued, that provided additional evidence about conditions that existed at June 30, 2019 have been recognized in the consolidated financial statements for the period ended June 30, 2019. Events or transactions that provided evidence about conditions that did not exist at June 30, 2019 but arose before the financial statements were issued have not been recognized in the consolidated financial statements for the period ended June 30, 2019.

On July 16, 2019, the Corporation's Board of Directors approved a cash dividend of $0.13 per common share payable September 16, 2019 to shareholders of record at the close of business on August 31, 2019.

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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 follows:

	As of or for the three months ended June 30,						As of or for the six months ended June 30,
	2019			2018			2019			2018
SIGNIFICANT RATIOS (Unaudited)
Net income to:
Average assets (a)		1.07	%		1.11	%		0.97	%		1.02	%
Average tangible shareholders’ equity (non-GAAP) (a)		16.40	%		17.96	%		15.16	%		16.42	%
Net interest margin (a)		3.80	%		4.19	%		3.81	%		4.02	%
Efficiency ratio (b)		71.25	%		70.60	%		72.93	%		71.68	%
Average shareholders’ equity to average assets		9.94	%		9.48	%		9.89	%		9.52	%
Loans to deposits (end of period) (c)		84.54	%		85.19	%		84.54	%		85.19	%
Allowance for loan losses to loans (end of period)		0.67	%		0.59	%		0.67	%		0.59	%
Book value per share	$	26.92		$	23.36		$	26.92		$	23.36

(a) Net income to average assets, net income to average tangible shareholders’ equity and net interest margin 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.

(c) Includes loans held for sale

Reconciliation of common shareholders' equity to tangible common equity
	June 30, 2019		June 30, 2018
Shareholders' equity	$	88,054	$	76,352
Less goodwill and other intangibles (d)		29,490		26,242
Tangible common equity	$	58,564	$	50,110
Average shareholders' equity	$	83,590	$	74,995
Less average goodwill and other intangibles (d)		29,525		26,276
Average tangible common equity	$	54,065	$	48,719

(d) Goodwill and other intangibles for the June 30, 2019, as compared to the June 30, 2018, period includes the impact of the $3.4 million goodwill adjustment made in August 2018 as a result of a review of the accounting and tax implications of the September 2017 Benchmark Bancorp, Inc. transaction.

26

Introduction

United Bancshares, Inc. (the “Corporation”), 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 Corporation was incorporated and organized in 1985. The executive offices of the Corporation are located at 105 Progressive Drive, Columbus Grove, Ohio 45830. The Corporation is a one-bank holding company, as that term is defined by the Federal Reserve Board.

The Union Bank Company (the “Bank”), a wholly-owned subsidiary of the Corporation, is engaged in the business of commercial banking. The Bank is an Ohio state-chartered bank, which serves Allen, Delaware, Franklin, Hancock, Marion, Putnam, Sandusky, Van Wert and Wood counties in Ohio, with office locations in Bowling Green, Columbus Grove, Delaware, Delphos, Findlay, Gahanna, Gibsonburg, Kalida, Leipsic, Lima, Marion, Ottawa, Pemberville, Westerville and Worthington, Ohio.

The Bank offers a full range of commercial banking services, including checking accounts, savings and money market accounts, time certificates of deposit, automatic teller machines, commercial, consumer, agricultural, residential mortgage and home equity loans, credit card services, safe deposit box rentals, and other personalized banking services. The Bank has formed UBC Investments, Inc. (“UBC”) to hold and manage its securities portfolio. The operations of UBC are located in Wilmington, Delaware. The Bank has also formed UBC Property, Inc. to hold and manage certain other real estate owned.

When or if used in the Corporation’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 Corporation’s market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Corporation’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 Corporation 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 Corporation’s financial performance and could cause the Corporation’s actual results for future periods to differ materially from those anticipated or projected. The Corporation 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 Corporation is registered as a Securities Exchange Act of 1934 reporting company.

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

27

RESULTS OF OPERATIONS

Overview of the Income Statement

For the quarter ended June 30, 2019, the Corporation reported net income of $2,285,000, or $0.70 basic earnings per share. This compares to the second quarter of 2018 net income of $2,200,000, or $0.67 basic earnings per share. The increase in operating results for the second quarter of 2019 as compared to the same period in 2018 was primarily attributable to an increase in non-interest income of $970,000, offset by a decrease in net interest income of $82,000 as well as increases in non-interest expenses of $693,000, provision for loan losses of $40,000 and provision for income taxes of $70,000.

Net income for the six months ended June 30, 2019 totaled $4,099,000 or $1.25 basic earnings per share compared to $3,999,000, or $1.22 basic earnings per share for the same period in 2018. Compared with the same period in 2018, net income increased $100,000, or 2.5%. This increase in operating results for the six month period ended June 30,2019 as compared to the six month period ended June 30, 2018 was primarily attributable to increases in net interest income of $323,000 and non-interest income of $1,230,000 offset by increases in non-interest expenses of $1,364,000, provision for loan loss of $50,000 and provision for income taxes of $39,000.

Net Interest Income

Net interest income is the amount by which 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 Corporation. 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 $7,245,000 for the second quarter of 2019, compared to $7,327,000 for the same period of 2018, a decrease of $82,000 (1.1%). Net interest income was $14,180,000 for the six months ended June 30, 2019 compared to $13,857,000 for the same period of 2018, an increase of $323,000 (2.3%).

The increase in net interest income for the six months ended June 30, 2019 was attributable to an increase in interest income of $2,005,000, including a $1,812,000 increase in interest income from loans and leases, offset by a $1,682,000 increase in interest expense. This increase in loan interest was attributable to average loan growth from June 2018 to June 2019 as well as higher rates. The average loan balance was $575.8 million for the second quarter 2019 compared to $523.9 million for the second quarter 2018. The increase in interest expense for the period was attributable to a $23.1 million increase in interest bearing deposits and higher deposit rates.

Net interest margin is calculated by dividing net interest income (adjusted to reflect tax-exempt interest income on a taxable equivalent basis) by average interest-earning assets. The resulting percentage serves as a measurement for the Corporation in comparing its results with those of past periods as well as those of peer institutions. For the quarter and six months ended June 30, 2019 the net interest margin (on a taxable equivalent basis) was 3.80% and 3.81%, respectively, compared with 4.19% and 4.02% for the same periods in 2018. Loans and leases comprised 75.0% of interest-earning assets at June 30, 2019 compared to 74.8% of interest-earning assets at June 30, 2018.

Interest-bearing deposits comprised 89.3% of average interest-bearing liabilities for the three months ended June 30, 2019, compared to 90.1% for the same period in 2018.

Interest expense for the six months ended June 30, 2019 increased $1,681,000 (64.8%). The increase in interest expense was attributable to year over year average deposit growth of $43.2 million, as well as increased rates. The average deposit balance was $684.6 million for the second quarter of 2019 compared to $641.4 million for the second quarter 2018.

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Provision for Loan and Lease Losses

The Corporation’s provision for loan and lease losses is determined based upon management’s calculation of the allowance for loan and lease losses and is reflective of management’s assessment of the quality of the portfolio and overall management of the inherent credit risk of the loan and lease portfolio. Changes in the provision for loan and lease losses are dependent, among other things, on loan and lease delinquencies, collateral position, portfolio risks and general economic conditions in the Corporation’s lending markets. A $250,000 provision for loan and lease losses was recognized during the six month period ended June 30, 2019 compared to a $200,000 provision during the six month period ended June 30, 2018. See “Allowance for Loan and Lease Losses” under Financial Condition for further discussion relating to the provision for loan and lease losses.

Non-Interest Income

The Corporation’s non-interest income is largely generated from activities related to the origination, servicing and gain on sales of fixed rate mortgage loans; customer deposit account fees; earnings on life insurance policies; income arising from sales of investment products to customers; and occasional security sale transactions. Income related to customer deposit accounts and life insurance policies provides a relatively steady flow of income while the other sources are more volume or transaction related and consequently can vary from quarter to quarter.

For the three month period ended June 30, 2019, non-interest income was $3,133,000, compared to $2,163,000 for the second quarter of 2018, a $970,000 (44.8%) increase, which was primarily attributable to increases in gain on sales of loans of $1,329,000 offset by a decrease in other non-interest income of $367,000.  For the six month period ended June 30, 2019, non-interest income was $5,641,000, compared to $4,411,000 for same period in 2018, an increase of $1,230,000 (27.9%) which was primarily attributable to increases in gain on sales of loans of $1,668,000, offset by a decrease in gain on sales of securities of $6,000 as well as a decrease in other non-interest income of $432,000. 

The significant increase in gain on sale of loans was attributable to the residential mortgage and governmental lending operations. Loan sales for the second quarter of 2019 approximated $57.3 million compared to $31.7 million for the second quarter of 2018, resulting in gains on sale of loans of $2,186,000 for the quarter ended June 30, 2019, compared to $857,000 for the second quarter of 2018, an increase of $1,329,000. For the six month period ended June 30, 2019 loan sales approximated $98.3 million compared to $64.8 million for the same period in 2018, resulting in gains on sale of loans of $3,624,000 for the six months ended June 30, 2019, compared to $1,956,000 for the six months ended June 30, 2018, an increase of $1,668,000.

The decrease in other operating income for the three and six month periods ended June 30, 2109 is largely attributable to the impact of changes in the fair value of mortgage servicing rights.  During the three and six month periods ended June 30, 2019, the fair value of the mortgage servicing rights asset decreased $171,000 and $282,000, respectively, primarily due to an increase in prepayment speeds caused by a continued decrease in mortgage loan interest rates.  This change is occurring throughout the mortgage banking industry and is not specific to the Bank's serviced loan portfolio.  During the three month period ended June 30, 2018, the fair value of the servicing rights asset decreased $11,000 while during the six month period ended June 30, 2018, the fair value of the servicing rights asset increased $42,000 with a minimal change in the level of serviced loan portfolio.

Loss on sales of securities amounted to $8,000 for the quarter ended June 30, 2018. For the six months ended June 30, 2018 gain on sale of securities amounted to $6,000. There were no gains or losses for the quarter or six month period ended June 30, 2019. 

Non-Interest Expenses

For the quarter ended June 30, 2019, non-interest expenses were $7,492,000, compared to $6,799,000 for the second quarter of 2018, a $693,000 (10.2%) increase. The quarter-over-quarter increases included salaries and benefits expense of $408,000 (10.4%), advertising and promotion of $21,000 (5.9%), legal fees of $48,000, loan fees of $123,000 and ATM processing expense of $48,000.

For the six month period ended June 30, 2019, non-interest expenses totaled $14,714,000, compared to $13,350,000 for the same period of 2018, an increase of $1,364,000 (10.2%) which was primarily attributable to increases in salaries and benefits expense of $808,000 (10.5%), data processing of $94,000 (14.8%), advertising and promotion of $39,000 (6.0%), legal fees of $151,000, loan fees of $153,000 and ATM processing expenses of $55,000.

Maintaining acceptable levels of non-interest expenses and operating efficiency are key performance indicators for the Corporation 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. For the quarter ended June 30, 2019, the Corporation’s efficiency ratio was 71.2%, compared to 70.6% for the same period of 2018. For the six months ended June 30, 2019, the Corporation's efficiency ratio was 72.9% compared to 71.7% for the same period of 2018.

Provision for Income Taxes

The provision for income taxes for the quarter ended June 30, 2019 was $451,000 (effective rate of 16.5%), compared to $381,000 (effective rate of 14.8%) for the comparable 2018 period. The provision for the six month period ended June 30, 2019 was $758,000 (effective rate of 15.6%) compared to $719,000 (effective rate of 15.2%) for the comparable 2018 period.

29

FINANCIAL CONDITION

Overview of Balance Sheet

Total assets amounted to $855.4 million at June 30, 2019, compared to $830.3 million at December 31, 2018, an increase of $25.1 million (3.0%). The increase in total assets was primarily the result of an increase of $3.9 million in cash and cash equivalents due to deposit growth, $10.6 million in net loans, $2.3 million in loans held for sale and $7.3 million in securities available-for-sale. Deposits during this same period increased $22.9 million (3.4%) while other borrowings decreased $6.2 million (7.9%).

Shareholders’ equity increased from $80.9 million at December 31, 2018 to $88.1 million at June 30, 2019. This increase was primarily the result of net income during the six month period ended June 30, 2019 of $4,099,000 and an increase in unrealized securities gains, net of tax of $3,721,000 offset by dividends paid of $850,000. The increase in unrealized securities gains during the six month period ended June 30, 2019, was the result of customary and expected changes in the bond market. Net unrealized gains and losses on securities are reported as accumulated other comprehensive income (loss) in the consolidated balance sheets.

Cash and Cash Equivalents

Cash and cash equivalents totaled $20.3 million at June 30, 2019 and $16.5 million at December 31, 2018, including interest-bearing deposits in other banks of $10.9 million at June 30, 2019 and $4.8 million at December 31, 2018. Management believes the current level of cash and cash equivalents is sufficient to meet the Corporation’s present liquidity and performance needs especially considering the availability of other funding sources, as described below. Total cash and cash equivalents fluctuate on a daily basis due to transactions in process and corresponding liquidity sources and uses. Management believes the Corporation’s liquidity needs in the near term will be satisfied by the current level 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 will mature within one year. These sources of funds should enable the Corporation to meet cash obligations and off-balance sheet commitments as they come due. In addition, the Corporation has access to various sources of additional borrowings by virtue of long-term assets that can be used as collateral for such borrowings.

Securities

Management monitors the earnings performance and liquidity of the securities portfolio on a regular basis through Asset/Liability Committee (ALCO) meetings. As a result, all securities, except FHLB stock, have been designated as available-for-sale and may be sold if needed for liquidity, asset-liability management or other reasons. Such securities are reported at fair value, with any net unrealized gains or losses reported as a separate component of shareholders’ equity, net of related incomes taxes.

The amortized cost and fair value of available-for-sale securities as of June 30, 2019 totaled $172.2 million and $174.7 million, respectively, resulting in net unrealized gain before tax of $2.5 million and a corresponding after-tax increase in shareholders’ equity of $2.0 million.

Loans and Leases

The Corporation’s primary lending areas are Northwestern, West Central, and Central Ohio. Gross loans and leases totaled $572.6 million at June 30, 2019, compared to $561.6 million at December 31, 2018, an increase of $11.0 million (2.0%).

There are also unrecognized financial instruments at June 30, 2019 and December 31, 2018 which relate to commitments to extend credit and letters of credit. The contract amount of such financial instruments approximated $135.6 million at June 30, 2019 and $147.5 million at December 31, 2018.

30

Allowance for Loan and Lease Losses

The following table presents a summary of activity in the allowance for loan and lease losses for the six month periods ended June 30, 2019 and 2018:

	(in thousands)
	Six months ended June 30,
	2019			2018
Balance, beginning of period	$	3,527		$	2,835
Provision for loan and lease losses		250			200
Charge offs		(29	)		(94	)
Recoveries		116			234
Net recoveries		87			140
Balance, end of period	$	3,864		$	3,175

The allowance for loan and lease losses as a percentage of gross loans and leases was .67% at June 30, 2019, .63% at December 31, 2018, and .59% at June 30, 2018.

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

Loans and leases on non-accrual status amounted to $1.1 million and $1.4 million at June 30, 2019 and December 31, 2018, respectively. Non-accrual loans and leases as a percentage of outstanding loans amounted to .19% at June 30, 2019 and .26% at December 31, 2018.

The Corporation considers a loan or lease to be impaired when it becomes probable that the Corporation will be unable to collect under the contractual terms of the loan or lease, as the case may be, based on current information and events. The Corporation had impaired loans totaling $1,973,000 with $392,000 of specific reserves at June 30, 2019 and impaired loans of $372,000 with $128,000 of specific reserves as of December 31, 2018.  The Corporation had $875,000 and $959,000, respectively, of impaired loans without specific reserves at June 30, 2019 and December 31, 2018.

The Corporation had other potential problem credits of $10.2 million at June 30, 2019 and $6.7 million at December 31, 2018. The Corporation’s credit administration department continues to closely monitor these credits.

The Corporation provides pooled reserves for potential problem loans and leases using loss rates calculated considering historic net loan charge-off experience, as well as other environmental and qualitative factors. The Corporation experienced $29,000 of loan charge-offs during the first six months of 2019 compared to loan charge-offs of $94,000 during the first six months of 2018 with most of the charge-offs coming from the commercial and residential real estate loan portfolios. The Corporation also provides general reserves for the remaining portion of its loan portfolio not considered to be problem or potential problem loans. These general reserves are also calculated considering, among other things, the historic net charge-off experience for the relative loan type.

31

Funding Sources

The Corporation considers a number of alternatives, including but not limited to, deposits, as well as short-term and long-term borrowings when evaluating funding sources. Deposits, including customer deposits, brokered certificates of deposit, and public funds deposits continue to be the most significant source of funds for the Corporation, totaling $689.2 million, or 89.8% of the Corporation’s outstanding funding sources at June 30, 2019. Total deposits increased $23.0 million during the three months ended June 30, 2019.

Non-interest bearing deposits remain a smaller portion of the funding source for the Corporation than for most of its peers. Non-interest bearing deposits comprised 16.7% of total deposits at June 30, 2019, compared to 17.3% at December 31, 2018.

In addition to traditional deposits, the Corporation maintains both short-term and long-term borrowing arrangements. Other borrowings consisted of FHLB borrowings totaling $50.0 million at June 30, 2019 and $54.2 million at December 31, 2018 as well as $9,250,000 and $9,750,000 of term borrowings from the United Bankers’ Bank (UBB) at June 30, 2019 and December 31, 2018, respectively. The Corporation also has outstanding junior subordinated deferrable interest debentures of $12,891,000 and $12,874,000 at June 30, 2019 and December 31, 2018, respectively. Management plans to maintain access to various borrowing alternatives as an appropriate funding source.

Regulatory Capital

The Corporation and Bank met all regulatory capital requirements as of June 30, 2019, and the Bank is considered “well capitalized” under regulatory and industry standards of risk-based capital.

Cash Flow from Operations

The Bank implemented a hedging program during the 2^nd quarter of 2018.  As part of this program, loans held for sale are now accumulated into larger blocks before being sold.  Depending on the timing of the sales of these blocks, there could be a positive or negative impact to cash flow from operations.  As of June 30, 2019, loans held for sale amounted to $10,003,000 compared to $7,705,000 as of December 31, 2018 resulting in a negative impact to cash flow from operations for the six month period ended June 30, 2019 of $2,298,000.  Excluding the change in loans held for sale, cash flow from operations for the six months ended June 30, 2019 would have been a positive $3,936,000.

Liquidity and Interest Rate Sensitivity

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

The Corporation manages interest rate risk to minimize the impact of fluctuating interest rates on earnings. The Corporation 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 re-pricing to more accurately reflect anticipated pricing behavior. These simulations include adjustments for the lag in prime loan re-pricing 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 Corporation 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 re-price within a designated time frame.

Management believes the Corporation’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 Corporation’s earning base. The Corporation’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 Corporation.

32

Effects of Inflation on Financial Statements

All of the Corporation’s assets relate to commercial banking operations and are generally 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 of purchasing power and conversely a net monetary liability position results in an increase in purchasing power. In the commercial banking industry, monetary assets typically exceed monetary liabilities. The Corporation has not experienced a significant level of inflation or deflation during the six month period ended June 30, 2019. However, because of the depressed national real estate market and sluggish local economy, the Corporation has experienced declines in the value of collateral securing commercial and non-commercial real estate loans. Management continues to closely monitor these trends in calculating the Corporation’s allowance for loan and lease losses.

33

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the quantitative and qualitative information about market risk from the information provided in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

34

ITEM 4 -  CONTROLS AND PROCEDURES

Evaluation of 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 Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")); as of the end of the period covered by this Quarterly Report on Form 10-Q.

Based on that evaluation, the Corporation's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Corporation's disclosure controls and procedures were effective as of June 30, 2019.

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(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

35

PART II – Other Information

Item 1: Legal Proceedings.

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

Item 1A: Risk Factors

There have been no material changes in the discussion pertaining to risk factors that was provided in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds.

The Corporation has not sold any of its securities which were not registered under the Securities Act during the period covered by this report. The table below includes certain information regarding the Corporation’s purchase of United Bancshares, Inc. common stock during the quarterly period ended June 30, 2019:

Period	Total number of shares purchased		Weighted Average price paid per share		Total number of shares purchased as part of a publicly announced plan or program (a)		Maximum number of shares that may yet be purchased under the plan or program (a)
04/01/19 - 04/30/19		-	$	-		-		202,666
05/01/19 - 05/31/19		-	$	-		-		202,666
06/01/19 - 06/30/19		-	$	-		-		202,666

(a) A stock repurchase program (“Plan”) was adopted by the Corporation’s Board of Directors and originally announced on July 29, 2005.  The Plan, which was subsequently amended on December 23, 2005, March 20, 2007 and December 17, 2014, authorizes the Corporation to repurchase up to 600,000 of the Corporation’s common shares from time to time in a program of market purchases or in privately negotiated transactions as the securities laws and market conditions permit.

Item 3: Defaults upon Senior Securities.

None

36

Item 4: Mine Safety Disclosures

Not applicable

Item 5: Other Information.

None

Item 6: Exhibits

Exhibit Number	Description	Exhibit Location
3.1	Amended and Restated Articles of Incorporation	Incorporated herein by reference to the Corporation's Form 10Q for the quarter ended June 30, 2006.
3.2	Amended and Restated Code of Regulations	Incorporated herein by reference to the Corporation’s Form 10Q for the quarter ended June 30, 2007.
10.1	Change in Control Agreement between United Bancshares, Inc. and Stacy A. Cox, dated February 19, 2019	Incorporated by reference to the Current Report on Form 8-K filed with the SEC on February 19, 2019.
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
99.1	Safe Harbor under the Private Securities Litigation Reform Act of 1995	Filed herewith
101.INS	XBRL Instance Document	Filed herewith
101.SCH	XBRL Taxonomy Extension Schema	Filed herewith
101.CAL	XBRL Taxonomy Extension Calculation	Filed herewith
101.DEF	XBRL Taxonomy Extension Definition	Filed herewith
101.LAB	XBRL Taxonomy Extension Label	Filed herewith
101.PRE	XBRL Taxonomy Extension Presentation	Filed herewith

37

 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: July 29, 2019	By: /s/ Stacy A. Cox
	Stacy A. Cox
	Chief Financial Officer