Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
----------------------
COMMISSION FILE #0-16640
UNITED BANCORP, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2606280
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
205 E. CHICAGO BOULEVARD, TECUMSEH, MI 49286
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (517) 423-8373
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 shorter periods 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 Act.
Yes [X] No [ ]
As of July 31, 2004, there were outstanding 2,355,552 shares of the registrant's
common stock, no par value.
Page 1
CROSS REFERENCE TABLE
ITEM NO. DESCRIPTION PAGE NO.
- -------- ----------- --------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
(a) Condensed Consolidated Balance Sheets 3
(b) Condensed Consolidated Statements of Income 4
(c) Condensed Consolidated Statements of Shareholders' Equity 5
(d) Condensed Consolidated Statements of Cash Flows 6
(e) Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary 9
Financial Condition 10
Liquidity and Capital Resources 13
Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Item 4. Controls and Procedures 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
Exhibits 23
Page 2
PART I
FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
(a) CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (unaudited)
June 30, December 31, June 30,
In thousands of dollars 2004 2003 2003
----------- ------------ ----------
ASSETS
Cash and demand balances in other banks $ 21,636 $ 21,425 $ 19,563
Federal funds sold - - 26,200
----------- ---------- ----------
Total cash and cash equivalents 21,636 21,425 45,763
Securities available for sale 108,084 108,734 99,844
Loans held for sale 949 90 5,909
Portfolio loans 474,944 446,730 417,162
----------- ---------- ----------
Total loans 475,893 446,820 423,071
Less allowance for loan losses 5,729 5,497 5,308
----------- ---------- ----------
Net loans 470,164 441,323 417,763
Premises and equipment, net 14,254 14,734 14,570
Goodwill 3,469 3,469 3,469
Bank-owned life insurance 10,491 10,250 -
Accrued interest receivable and other assets 9,466 9,838 19,221
----------- ---------- ----------
TOTAL ASSETS $ 637,564 $ 609,773 $ 600,630
=========== ========== ==========
LIABILITIES
Deposits
Noninterest bearing $ 87,741 $ 78,184 $ 81,385
Interest bearing deposits 432,970 424,399 420,891
----------- ---------- ----------
Total deposits 520,711 502,583 502,276
Federal funds purchased and other short term borrowings 9,576 8,076 75
Other borrowings 42,847 35,375 37,375
Accrued interest payable and other liabilities 5,020 6,356 5,458
----------- ---------- ----------
TOTAL LIABILITIES 578,154 552,390 545,184
COMMITMENT AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY
Common stock and paid in capital, no par value;
5,000,000 shares authorized; 2,355,552, 2,224,963 and
2,224,758 shares issued and outstanding 54,085 45,809 45,711
Retained earnings 5,470 10,994 8,617
Accumulated other comprehensive income, net of tax (145) 580 1,118
----------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY 59,410 57,383 55,446
----------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 637,564 $ 609,773 $ 600,630
=========== ========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 3
(b) CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
In thousands of dollars, except per share data 2004 2003 2004 2003
-------- -------- -------- --------
INTEREST INCOME
Interest and fees on loans $ 6,884 $ 6,796 $ 13,658 $ 13,789
Interest on securities
Taxable 490 580 1,006 1,182
Tax exempt 275 297 582 611
Interest on federal funds sold 5 77 20 131
-------- -------- -------- --------
Total interest income 7,654 7,750 15,266 15,713
INTEREST EXPENSE
Interest on deposits 1,484 1,737 2,964 3,535
Interest on short term borrowings 6 - 8 -
Interest on other borrowings 488 460 954 994
-------- -------- -------- --------
Total interest expense 1,978 2,197 3,926 4,529
-------- -------- -------- --------
NET INTEREST INCOME 5,676 5,553 11,340 11,184
Provision for loan losses 304 296 566 609
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,372 5,257 10,774 10,575
NONINTEREST INCOME
Service charges on deposit accounts 685 617 1,327 1,220
Trust & Investment fee income 920 748 1,809 1,447
Gains on securities transactions (34) 85 (33) 85
Loan sales and servicing 445 791 700 1,633
ATM, debit and credit card fee income 375 383 689 725
Sales of nondeposit investment products 186 137 368 260
Income from bank-owned life insurance 120 - 241 -
Other income 201 150 340 293
-------- -------- -------- --------
Total noninterest income 2,898 2,911 5,441 5,663
NONINTEREST EXPENSE
Salaries and employee benefits 3,388 3,240 6,801 6,563
Occupancy and equipment expense, net 1,002 1,028 2,006 1,986
External data processing 289 311 563 621
Advertising and marketing 112 114 222 226
Other expense 1,021 1,019 1,851 1,837
-------- -------- -------- --------
Total noninterest expense 5,812 5,712 11,443 11,233
-------- -------- -------- --------
INCOME BEFORE FEDERAL INCOME TAX 2,458 2,456 4,772 5,005
Federal income tax 707 754 1,305 1,520
-------- -------- -------- --------
NET INCOME $ 1,751 $ 1,702 $ 3,467 $ 3,485
======== ======== ======== ========
Basic earnings per share $ 0.74 $ 0.72 $ 1.46 $ 1.48
Diluted earnings per share 0.73 0.72 1.45 1.47
Cash dividends declared per share of common stock 0.34 0.31 0.66 0.62
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 4
(c) CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
In thousands of dollars
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
2004 2003 2004 2003
-------- ------- -------- --------
TOTAL SHAREHOLDERS' EQUITY
Balance at beginning of period $ 59,332 $ 54,394 $ 57,383 $ 53,380
Net Income 1,751 1,702 3,467 3,485
Other comprehensive income:
Net change in unrealized gains (losses)
on securities available for sale, net (926) (45) (725) (163)
-------- -------- -------- --------
Total comprehensive income 825 1,657 2,742 3,322
Cash dividends declared (803) (734) (1,563) (1,433)
Common stock transactions 56 129 848 177
-------- -------- -------- --------
Balance at end of period $ 59,410 $ 55,446 $ 59,410 $ 55,446
======== ======== ======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 5
(d) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
----------------------
In thousands of dollars 2004 2003
--------- ---------
Cash Flows from Operating Activities
Net income $ 3,467 $ 3,485
Adjustments to Reconcile Net Income to Net Cash from Operating Activities
Depreciation and amortization 1,270 1,446
Provision for loan losses 566 609
Gain on sale of loans (602) (1,869)
Proceeds from sales of loans originated for sale 43,928 119,052
Loans originated for sale (44,185) (115,219)
(Gains) Losses on securities transactions 33 (85)
Change in accrued interest receivable and other assets 1,169 (10,078)
Change in accrued interest payable and other liabilities (1,342) (1,353)
--------- ---------
Net cash from operating activities 4,304 (4,012)
Cash Flows from Investing Activities
Securities available for sale
Purchases (34,703) (32,045)
Sales 4,626 3,932
Maturities and calls 25,607 22,229
Principal payments 3,560 2,733
Net change in portfolio loans (29,037) 5,113
Net investment in bank-owned life insurance (241) -
Premises and equipment expenditures, net (361) (1,368)
Investment in limited partnership 27 -
--------- ---------
Net cash from investing activities (30,522) 594
Cash Flows from Financing Activities
Net change in deposits 18,128 30,726
Net change in short term borrowings 1,500 -
Proceeds from other borrowings 8,000 3,000
Principal payments on other borrowings (528) (7,492)
Proceeds from common stock transactions 848 177
Dividends paid (1,519) (1,649)
--------- ---------
Net cash from financing activities 26,429 24,762
--------- ---------
Net change in cash and cash equivalents 211 21,344
Cash and cash equivalents at beginning of year 21,425 24,419
--------- ---------
Cash and cash equivalents at end of period $ 21,636 $ 45,763
========= =========
Supplement Disclosure of Cash Flow Information:
Interest paid $ 3,930 $ 4,762
Income tax paid 1,000 1,500
Loans transferred to other real estate 489 102
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 6
(e) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of United Bancorp,
Inc. (the "Company") have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The condensed consolidated balance sheet of the
Company as of December 31, 2003 has been derived from the audited consolidated
balance sheet of the Company as of that date. Operating results for the six
month period ending June 30, 2004 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2004. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2003.
STOCK OPTIONS
In 2000, Shareholders approved the Company's 1999 Stock Option Plan (the "1999
Plan"). The plan is a non-qualified stock option plan as defined under Internal
Revenue Service regulations. Under the plan, directors and management of the
Company and subsidiaries are given the right to purchase stock of the Company at
a stipulated price, adjusted for stock dividends, over a specific period of
time. The 1999 Plan will continue in effect until the end of 2004. Approval for
the Company's 2005 Stock Option Plan (the "2005 Plan"), which will be effective
January 1, 2005, was secured at the Annual Meeting of Shareholders held April
20, 2004. The 1999 Plan is the only plan in effect during 2004.
The stock subject to the options are shares of authorized and unissued common
stock of the Company. As defined in the 1999 Plan, options representing no more
than 144,426 shares (adjusted for stock dividends declared) are to be made
available to the plan. Options under this plan are granted to directors and
certain key members of management at the then-current market price at the time
the option is granted. The options have a three-year vesting period, and with
certain exceptions, expire at the end of ten years, or three years after
retirement. The following is summarized option activity for the 1999 Plan,
adjusted for stock dividends:
Options Weighted Average
Outstanding Exercise Price
----------- --------------
Balance at January 1, 2004 102,403 $ 43.41
Options granted 23,423 60.00
Options exercised (23,135) 40.22
Options forfeited -
-------
Balance at June 30, 2004 102,691 $ 47.92
=======
Options granted under the 1999 Plan during the current year were 23,423 on
January 9, 2004. The weighted fair value of the options granted was $5.46. For
stock options outstanding at June 30, 2004, the range of average exercise prices
was $37.61 to $60.00 and the weighted average remaining contractual term was
7.85 years. At June 30, 2004, 53,043 options were exercisable at the weighted
average exercise price of $42.01.
The following pro forma information presents net income and earnings per share
had the fair value method been used to measure compensation cost for stock
option grants. The exercise price of the option grants is
Page 7
equivalent to the market value of the underlying stock at the grant date,
adjusted for stock dividends. Accordingly, no compensations cost was recorded
for the period ended June 30, 2004 and 2003.
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
In thousands of dollars, except per share data 2004 2003 2004 2003
------- ------- ------- -------
Net income, as reported $ 1,751 $ 1,702 $ 3,467 $ 3,485
Less: Total stock-based compensation cost, net of taxes 18 21 36 42
------- ------- ------- -------
Pro forma net income $ 1,733 $ 1,681 $ 3,431 $ 3,443
======= ======= ======= =======
Earnings per share:
Basic As reported $ 0.74 $ 0.72 $ 1.46 $ 1.48
Basic Pro forma 0.73 0.71 1.45 1.46
Diluted As reported $ 0.73 $ 0.72 $ 1.45 $ 1.47
Diluted Pro forma 0.72 0.71 1.44 1.46
NOTE 2 - LOANS HELD FOR SALE
Mortgage loans serviced for others are not included in the accompanying
consolidated financial statements. The unpaid principal balance of mortgage
loans serviced for others was $263,087,000 and $230,049,000 at the end of June,
2004 and 2003. The balance of loans serviced for others related to servicing
rights that have been capitalized was $260,638,000 and $223,043,000 at June 30,
2004 and 2003.
Mortgage servicing rights activity in thousands of dollars for the six months
ended June 30, 2004 and 2003 follows:
2004 2003
------- -------
Balance at January 1 $ 1,832 $ 1,352
Amount capitalized year to date 277 790
Amount amortized year to date (224) (513)
------- -------
Balance at June 30 $ 1,885 $ 1,629
======= =======
No valuation allowance was considered necessary for mortgage servicing rights at
period end 2004 and 2003.
NOTE 3 - COMMON STOCK AND EARNINGS PER SHARE
Basic earnings per share are based upon the weighted average number of shares
outstanding plus contingently issuable shares during the year. Diluted earnings
per share further assumes the dilutive effect of additional common shares
issuable under stock options. During March of 2004 and 2003, the Company
declared 5% stock dividends payable in May 2004 and 2003. Earnings per share,
dividends per share and weighted average shares have been restated to reflect
these stock dividends. A reconciliation of basic and diluted earnings per share
follows:
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
In thousands of dollars, except per share data 2004 2003 2004 2003
---------- ---------- ---------- ----------
Net income $ 1,751 $ 1,702 $ 3,467 $ 3,485
========== ========== ========== ==========
Basic earnings:
Weighted average common shares outstanding 2,354,113 2,332,093 2,349,225 2,331,805
Weighted average contingently issuable shares 21,470 19,349 21,121 18,831
---------- ---------- ---------- ----------
Total weighted average shares outstanding 2,375,583 2,351,442 2,370,346 2,350,636
========== ========== ========== ==========
Basic earnings per share $ 0.74 $ 0.72 $ 1.46 $ 1.48
========== ========== ========== ==========
Page 8
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Diluted earnings:
Weighted average common shares outstanding
from basic earnings per share 2,375,583 2,351,442 2,370,346 2,350,636
Dilutive effect of stock options 19,858 10,045 16,786 15,011
---------- ---------- ---------- ----------
Total weighted average shares outstanding 2,395,441 2,361,488 2,387,132 2,365,647
========== ========== ========== ==========
Diluted earnings per share $ 0.73 $ 0.72 $ 1.45 $ 1.47
========== ========== ========== ==========
A small number of shares represented by stock options granted are not included
in the above calculations as they are non-dilutive as of the date of this
report.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion provides information about the consolidated financial condition
and results of operations of United Bancorp, Inc. (the "Company") and its
subsidiary banks, United Bank & Trust ("UBT") and United Bank & Trust -
Washtenaw ("UBTW") for the three and six month periods ending June 30, 2004 and
2003.
EXECUTIVE SUMMARY
The Company is a financial holding company registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") under the
Bank Holding Company Act. The Company has corporate power to engage in such
activities as permitted to business corporations under the Michigan Business
Corporation Act, subject to the limitations of the Bank Holding Company Act and
regulations of the Federal Reserve System. The Company's subsidiary banks offer
a full range of services to individuals, corporations, fiduciaries and other
institutions. Banking services include checking, NOW accounts, savings, time
deposit accounts, money market deposit accounts, safe deposit facilities and
money transfers. Lending operations provide real estate loans, secured and
unsecured business and personal loans, consumer installment loans, and
check-credit loans, home equity loans, accounts receivable and inventory
financing, equipment lease financing and construction financing.
While unemployment in Michigan in recent months is generally higher than in many
areas of the U.S., the markets served by the Banks are only marginally impacted.
In particular, the Ann Arbor market has much lower unemployment levels than does
the rest of the State. While recent downturns in the economy have impacted some
small companies, in general the Banks have not felt the impact of this decline.
In addition, in part through the addition of its Ann Arbor subsidiary in 2001,
the Company continues to gain market share in its market areas.
The Company's Banks offer the sale of nondeposit investment products through
licensed representatives in their banking offices, and sell credit and life
insurance products. In addition, the Company and/or the Banks are co-owners of
Michigan Banker's Title Insurance Company of Mid-Michigan LLC and Michigan
Bankers Insurance Center, LLC, and derive income from the sale of various
insurance products to banking clients. UBT operates a trust department, and
provides trust services to UBTW on a contract basis. The Trust & Investment
Group offers a wide variety of fiduciary services to individuals, corporations
and governmental entities, including services as trustee for personal,
corporate, pension, profit sharing and other employee benefit trusts. The
department provides securities custody services as an agent, acts as the
personal representative for estates and as a fiscal, paying and escrow agent for
corporate customers and governmental entities, and provides trust services for
clients of the Banks. These products help to diversify the Company's sources of
income.
Page 9
Consolidated net income of $1,751,281 for the second quarter of 2004 surpassed
the earnings of the first quarter of 2004 and the second quarter of 2003.
However, because of strong first quarter earnings in 2003, consolidated net
income for the first half of 2004 is behind the same period last year by 0.5%,
or just under $18,000. Steady asset growth continued, as total assets reached
$637.6 million, for an increase of $36.9 million, or 6.2%, in the trailing 12
months. During the most recent quarter, the Company's loan portfolio increased
by $18.5 million, deposits increased by $6.4 million, and assets under
management by the Trust & Investment Group of United Bank & Trust grew by $14.2
million.
In the fourth quarter of 2003, Management reported that the residential real
estate mortgage refinance boom had ended late in the third quarter. Mortgage
production at the subsidiary banks fell considerably in the fourth quarter of
2003, and that decline has continued in the first and second quarters of 2004.
As a result, compared to the first half of 2003, income from loan sales and
servicing is down $933,000. At the same time, Trust & Investment fee income has
improved by $362,000, or 25.0%, over the first half of a year ago. This strong
performance, plus increases in other fee income categories, helped to offset a
portion of the decline in loan sales and servicing income.
Net interest income has remained flat from period to period, and expenses
continue to increase modestly. At the same time, total noninterest income was at
its highest quarterly level since the third quarter of 2003, when mortgage
origination volume was especially high. The chart below shows the trends in the
major components of earnings for the last five quarters.
2004 2003
----------------- ---------------------------
in thousands of dollars, where appropriate 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
------- ------- ------- ------- -------
Net interest income $ 5,676 $ 5,664 $ 5,579 $ 5,565 $ 5,553
Provision for loan losses 304 262 212 248 296
Noninterest income 2,898 2,544 2,740 3,419 2,911
Noninterest expense 5,812 5,632 5,606 5,830 5,712
Federal income tax provision 707 598 664 840 754
Net income $ 1,751 $ 1,716 $ 1,837 $ 2,066 $ 1,702
Return on average assets (a) 1.13% 1.12% 1.22% 1.37% 1.17%
Return on average shareholders' equity (a) 11.83% 11.71% 12.78% 14.61% 12.40%
(a) annualized
FINANCIAL CONDITION
SECURITIES
Balances in the Company's investment securities portfolio declined slightly
during the second quarter of 2004, and are generally at the same levels as
December 31, 2003. This decrease in the portfolio was a result of loan growth in
excess of deposit increases, and was primarily due to maturities and calls
within the municipal portfolios of the banks. The chart below shows the
percentage composition of the Company's investment portfolio as of the end of
the current quarter for 2004 and 2003, as well as at December 31, 2003.
6/30/2004 12/31/2003 6/30/2003
--------- ---------- ---------
U.S. Treasury and agency securities 39.5% 37.5% 32.3%
Mortgage backed agency securities 24.3% 17.0% 22.2%
Obligations of states and political subdivisions 33.4% 39.1% 36.5%
Corporate, asset backed, and other securities 2.8% 6.5% 9.0%
----- ----- -----
Total Securities 100.0% 100.0% 100.0%
===== ===== =====
The Company's current and projected tax position continues to make carrying
tax-exempt securities beneficial, and the Company does not anticipate being
subject to the alternative minimum tax in the near future. The investment in
local municipal issues also reflects the Company's commitment to the development
of the local area through support of its local political subdivisions.
Investments in U.S. Treasury and agency securities are considered to possess low
credit risk. Obligations of U.S. government agency mortgage-backed securities
possess a somewhat higher interest rate risk due to certain prepayment risks.
The corporate, asset backed and other securities portfolio also contains a
moderate level of credit risk. The municipal portfolio contains a small amount
of geographic risk, as less than 5% of that portfolio is issued by political
subdivisions located within Lenawee County, Michigan. The Company's portfolio
contains no "high risk" mortgage securities or structured notes.
LOANS
Loan balances increased by more than $18 million in the second quarter of 2004,
and have grown more than $29 million since the end of 2003. During this period,
the Banks have experienced continued slowing of refinancing in the residential
mortgage portfolios into products that are sold on the secondary market.
Personal loan balances increased along with business loans and commercial
mortgages, while construction and development loans provided the largest portion
of growth since the end of the year.
The mix of the loan portfolio continues a long-term trend toward an increased
percentage of business loans, with declining percentages of residential mortgage
loans and personal loans. The table below shows total loans outstanding, in
thousands of dollars and their percentage of the total loan portfolio. All loans
are domestic and contain no significant concentrations by industry or client.
June 30, 2004 December 31, 2003 June 30, 2003
-------------------- -------------------- --------------------
Balance % of total Balance % of total Balance % of total
------- ---------- ------- ---------- ------- ----------
Total loans:
Personal $ 73,717 15.5% $ 70,301 15.7% $ 67,898 16.1%
Business loans and
commercial mortgages 260,324 54.7% 256,778 57.5% 228,165 53.9%
Tax exempt 1,330 0.3% 1,476 0.3% 1,334 0.3%
Residential mortgage 79,275 16.7% 85,156 19.1% 91,826 21.7%
Construction & development 61,247 12.9% 33,109 7.4% 33,848 8.0%
-------- ----- -------- ------ -------- -----
Total loans $475,893 100.0% $446,820 100.00% $423,071 100.0%
======== ===== ======== ====== ======== =====
CREDIT QUALITY
The Company continues to maintain a high level of asset quality as a result of
actively monitoring delinquencies, nonperforming assets and potential problem
loans. The aggregate amount of nonperforming loans is presented in the table
below. For purposes of that summary, loans renewed on market terms existing at
the time of renewal are not considered troubled debt restructurings. The accrual
of interest income is discontinued when a loan becomes ninety days past due
unless it is both well secured and in the process of collection, or the
borrower's capacity to repay the loan and the collateral value appear
sufficient.
Page 11
The chart below shows the aggregate amount of the Company's nonperforming assets
by type, in thousands of dollars.
6/30/2004 12/31/2003 6/30/2003
--------- ---------- ---------
Nonaccrual loans $ 2,789 $ 3,635 $ 4,598
Loans past due 90 days or more 1,160 761 737
Troubled debt restructurings - - -
-------- --------- --------
Total nonperforming loans 3,949 4,396 5,335
Other real estate 945 593 569
-------- --------- --------
Total nonperforming assets $ 4,894 $ 4,989 $ 5,904
======== ========= ========
Percent of nonperforming loans to total loans 0.83% 0.98% 1.26%
Percent of nonperforming assets to total assets 0.77% 0.82% 0.98%
The Company's classification of nonperforming loans is generally consistent with
loans identified as impaired. The Company's total nonperforming assets have
declined slightly from the end of 2003, with reductions in nonaccrual loans and
increases in loans past due ninety days or more. Balances in other real estate
have increased as a result of the move of one property from nonaccrual status to
ORE. The amount listed in the table above as other real estate reflects a small
number of properties that were acquired in lieu of foreclosure. Properties have
been leased to a third party with an option to purchase or are listed for sale,
and no significant losses are anticipated.
The Company's allowance for loan losses remains at a level consistent with its
estimated losses, and the allowance provides for currently estimated losses
inherent in the portfolio. An analysis of the allowance for loan losses, in
thousands of dollars, for the six months ended June 30, 2004 and 2003 follows:
2004 2003
-------- ---------
Balance at January 1 $ 5,497 $ 4,975
Loans charged off (499) (333)
Recoveries credited to allowance 165 57
Provision charged to operations 566 609
------- -------
Balance at June 30 $ 5,729 $ 5,308
======= =======
The following table presents the allocation of the allowance for loan losses
applicable to each loan category in thousands of dollars, as of June 30, 2004
and 2003, and December 31, 2003.
6/30/2004 12/31/2003 6/30/2003
--------- ---------- ---------
Business and commercial mortgage $ 4,901 $ 4,775 $ 4,751
Tax exempt - - -
Residential mortgage 52 37 38
Personal 707 685 519
Construction - - -
Unallocated 69 - -
--------- ---------- ---------
Total $ 5,729 $ 5,497 $ 5,308
========= ========== =========
Loans to finance residential mortgages make up 16.7% of the portfolio at June
30, 2004, and are well-secured and have had historically low levels of net
losses. While that percentage is down from the same period of 2003, it is
consistent with the year-end 2003 figures. Personal and business loans,
including business mortgages and development loans, make up the balance of the
portfolio. The personal loan portfolio consists
Page 12
of direct and indirect installment, credit cards, home equity and unsecured
revolving line of credit loans. Installment loans consist primarily of loans for
consumer durable goods, principally automobiles. Indirect personal loans consist
of loans for automobiles, marine and manufactured housing, but make up a small
percent of the personal loans.
Business loans carry the largest balances per loan, and therefore, any single
loss would be proportionally larger than losses in other portfolios. Because of
this, the Company uses an independent loan review firm to assess the continued
quality of its business loan portfolios. This is in addition to the precautions
taken with credit quality in the other loan portfolios. Business loans contain
no significant concentrations other than geographic concentrations within
Lenawee, Monroe and Washtenaw Counties in Michigan.
DEPOSITS
Deposit growth continued during the second quarter of 2004, as total deposits
increased at an annualized rate of 5.1%, and growth over the past twelve months
was 3.7%. Products such as money market deposit accounts, Cash Management
Checking and Cash Management Accounts continue to be very popular with clients,
aiding in continued deposit growth. At the same time, demand deposit balances
continue their steady growth. Although clients continue to evaluate alternatives
to certificates of deposit in search of the best yields on their funds,
traditional banking products continue to be an important part of the Company's
product line.
As in the past, the majority of the Company's deposits are derived from core
client sources, relating to long term relationships with local personal,
business and public clients. The Banks do not support their growth through
purchased or brokered deposits. The Banks' deposit rates are consistently
competitive with other banks in their market areas. The chart below shows the
percentage makeup of the deposit portfolio as of June 30, 2004 and 2003.
2004 2003
------ ------
Noninterest bearing deposits 16.9% 16.2%
Interest bearing deposits 83.1% 83.8%
----- -----
Total deposits 100.0% 100.0%
===== =====
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY, CASH EQUIVALENTS AND BORROWED FUNDS
The Company maintains correspondent accounts with a number of other banks for
various purposes. In addition, cash sufficient to meet the operating needs of
its banking offices is maintained at its lowest practical levels. At times, the
Banks are a participant in the federal funds market, either as a borrower or
seller. Federal funds are generally borrowed or sold for one-day periods. The
Banks also have the ability to utilize short term advances from the Federal Home
Loan Bank ("FHLB") and borrowings at the discount window of the Federal Reserve
Bank as additional short-term funding sources. Federal funds were used during
2003 and 2004. Short term advances and discount window borrowings were not
utilized during either year.
The Company periodically finds it advantageous to utilize longer term borrowings
from the Federal Home Loan Bank of Indianapolis. These long-term borrowings
served to provide a balance to some of the interest rate risk inherent in the
Company's balance sheet. No advances were added during the second quarter of
2004.
Page 13
CAPITAL RESOURCES
The capital ratios of the Company exceed the regulatory guidelines for well
capitalized institutions. The following table shows the Company's capital ratios
and ratio calculations at June 30, 2004 and 2003, and December 31, 2003. Dollars
are shown in thousands.
Regulatory Guidelines United Bancorp, Inc.
--------------------- --------------------------------
Adequate Well 6/30/2004 12/31/2003 6/30/2003
-------- ----------- --------- ---------- ---------
Tier 1 capital to average assets 4% 5% 9.1% 9.1% 8.8%
Tier 1 capital to risk weighted assets 4% 6% 11.5% 11.7% 11.8%
Total capital to risk weighted assets 8% 10% 12.7% 12.8% 13.0%
Total shareholders' equity $ 59,410 $ 57,383 $ 55,446
Intangible assets (3,469) (3,469) (3,469)
Disallowed servicing assets - (183) (163)
Unrealized (gain) loss on securities available for sale 145 (580) (1,118)
-------- --------- --------
Tier 1 capital 56,086 53,151 50,696
Allowable loan loss reserves 5,729 5,440 5,167
-------- --------- --------
Tier 2 capital $ 61,815 $ 58,591 $ 55,863
======== ========= ========
RESULTS OF OPERATIONS
Consolidated net income for the second quarter of 2004 surpassed the earnings of
the first quarter of 2004 and the second quarter of 2003, resulting in the
Company's best second-quarter results ever. The following discussion provides an
analysis of these changes.
NET INTEREST INCOME
Net interest income exceeded the prior four quarters as a result of growth in
the loan portfolio, in spite of historically low market rates. Refinancing of
residential real estate mortgages from the portfolios of the Banks has slowed in
the second quarter of the year. The Company's yield on earning assets was down
44 basis points from the same period of 2003, while the Company's cost of funds
declined from first-half 2003 levels by 36 basis points, resulting in a
reduction of tax equivalent spread of eight basis points. This decline is
evident in reduction of yields on both loans and investments. The following
table shows the year to date daily average consolidated balance sheets, interest
earned (on a taxable equivalent basis) or paid, and the annualized effective
yield or rate, for the periods ended June 30, 2004 and 2003.
Page 14
YIELD ANALYSIS OF CONSOLIDATED AVERAGE ASSETS AND LIABILITIES
Six Months Ended June 30,
------------------------------------------------------------
2004 2003
----------------------------- -----------------------------
Average Interest Yield/ Average Interest Yield/
dollars in thousands Balance (b) Rate (c) Balance (b) Rate (c)
- -------------------- --------- -------- -------- --------- -------- --------
ASSETS
Interest earning assets (a)
Federal funds sold $ 4,124 $ 20 0.95% $ 21,800 $ 130 1.20%
Taxable securities 74,586 1,006 2.70% 64,521 1,182 3.66%
Tax exempt securities (b) 29,784 870 5.85% 29,352 904 6.16%
Taxable loans 455,377 13,629 5.99% 421,814 13,757 6.52%
Tax exempt loans (b) 1,400 44 6.33% 1,347 48 7.16%
-------- ------- -------- -------
Total int. earning assets (b) 565,271 15,569 5.51% 538,834 16,022 5.95%
Less allowance for loan losses (5,619) (5,136)
Other assets 59,593 45,972
-------- --------
TOTAL ASSETS $619,245 $579,670
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
NOW accounts $112,904 265 0.47% $ 96,946 362 0.75%
Savings deposits 176,094 736 0.84% 158,516 849 1.07%
CDs $100,000 and over 33,865 514 3.04% 26,801 545 4.07%
Other interest bearing deposits 105,738 1,449 2.74% 125,316 1,779 2.84%
-------- ------- -------- -------
Total int. bearing deposits 428,601 2,964 1.38% 407,579 3,535 1.73%
Short term borrowings 1,388 8 1.09% 79 0 0.55%
Other borrowings 41,840 954 4.56% 40,058 994 4.96%
-------- ------- -------- -------
Total int. bearing liabilities 471,829 3,926 1.66% 447,716 4,529 2.02%
------- -------
Noninterest bearing deposits 82,736 71,172
Other liabilities 5,616 6,175
Shareholders' equity 59,064 54,607
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $619,245 $579,670
======== ========
Net interest income (b) 11,644 11,493
------- -------
Net spread (b) 3.84% 3.92%
===== =====
Net yield on interest earning assets (b) 4.12% 4.27%
===== =====
Tax equivalent adjustment on interest income (304) (309)
------- -------
Net interest income per income statement $11,340 $11,184
======= =======
Ratio of interest earning assets to
interest bearing liabilities 1.20 1.20
======== ========
(a) Non-accrual loans and overdrafts are included in the average balances of
loans.
(b) Fully tax-equivalent basis, net of nondeductible interest impact; 34% tax
rate.
(c) Annualized
As noted from the data in the following table, interest income and interest
expense declined during the first six months of 2004 as a result of changes in
rates. At the same time, net interest income improved due to changes in volume
compared to the same period of 2003. This continues the same trend noted in 2003
compared to 2002, and reflects the continued growth of the Company during
periods of declining rates. The following table shows the effect of volume and
rate changes on net interest income for the six months ended June 30, 2004 and
2003 on a taxable equivalent basis, in thousands of dollars.
Page 15
2004 Compared to 2003 2003 Compared to 2002
Increase (Decrease) Due To: (a) Increase (Decrease) Due To: (a)
------------------------------- -------------------------------
Volume Rate Net Volume Rate Net
-------- --------- --------- -------- -------- ---------
Interest earned on:
Federal funds sold $ (88) $ (23) $ (111) $ 60 $ (32) $ 28
Taxable securities 166 (342) (176) 3 (265) (262)
Tax exempt securities 13 (47) (34) (152) (71) (223)
Taxable loans 1,050 (1,178) (128) 1,009 (1,429) (420)
Tax exempt loans 2 (6) (4) (16) (3) (19)
------- -------- ------- ------- -------- -------
Total interest income $ 1,143 $ (1,596) $ (453) $ 904 $ (1,800) $ (896)
======= ======== ======= ======= ======== =======
Interest paid on:
NOW accounts $ 53 $ (151) $ (98) $ 42 $ (89) $ (47)
Savings deposits 87 (199) (112) 121 (296) (175)
CDs $100,000 and over 125 (156) (31) (74) (104) (178)
Other interest bearing deposits (270) (60) (330) (333) (418) (751)
Short term borrowings 7 - 7 (3) (2) (5)
Other borrowings 43 (82) (39) 419 (114) 305
------- -------- ------- ------- -------- -------
Total interest expense $ 45 $ (648) $ (603) $ 172 $ (1,023) $ (851)
======= ======== ======= ======= ======== =======
Net change in net interest income $ 1,098 $ (948) $ 150 $ 732 $ (777) $ (45)
======= ======== ======= ======= ======== =======
(a) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
NONINTEREST INCOME
Total noninterest income improved in the second quarter of 2004, rebounding from
the first quarter of the year, which represented its lowest level in several
quarters. While income from loan sales and servicing is down significantly from
the same period in 2003, improvements in several other noninterest categories
have been realized, resulting in an increase in total noninterest income of
13.9% over the first quarter of the year. Year to date noninterest income
remains behind the same period of 2003 by 3.9%.
Service charges on deposit accounts are up 8.8% over the first half of 2003. No
significant changes were made in the Company's service charge structure during
the period, and the increase reflects continued growth of the Company's deposit
base. The Trust & Investment Group of UBT continues to provide significant
contribution to the Company's noninterest income, through ongoing growth and
expansion. Growth of assets managed has improved Trust & Investment income by
25.0% over the first half of 2003. In addition, income from sales of nondeposit
investment products, while not a large figure, is up 41.5% from the first six
months of last year. In addition, noninterest income for the first half of 2004
includes income from bank-owned life insurance purchased by both banks in July
of 2003.
The Banks generally market their production of fixed rate long-term mortgages in
the secondary market, and retain adjustable rate mortgages for their portfolios.
The Company maintains a portfolio of sold residential real estate mortgages,
which it continues to service. This servicing provides ongoing income for the
life of the loans. During 2004 and 2003, clients continued to exhibit a
preference for fixed rate loans as market rates declined, resulting in a greater
proportion of those loans originated by the Banks being sold in the secondary
market. However, the volume of residential mortgage lending and refinancing has
continued to slow, resulting in a reduction in income from loan sales and
servicing of 57.1% from last year at this time. As the Company is conservative
in its approach to valuation of mortgage servicing rights, no write-downs in
mortgage servicing rights were required in 2004 or 2003 as a result of declining
market rates.
Page 16
NONINTEREST EXPENSES
Total noninterest expenses were up 1.8% from the first quarter of 2003, and year
to date noninterest expenses are up 1.9% over the first half of 2003. The
increases are primarily in compensation expense, which is up 4.6% over the first
half of 2003, and other expense categories are not significantly different that
in 2003. Growth in expense reflects the ongoing expansion of the Banks within
their markets.
FEDERAL INCOME TAX
The Company has improved its effective tax rate from 2003 to 2004, as a result
of various tax strategies, including the purchase of bank-owned life insurance
during 2003. The effective tax rate was 27.3% for the first half of 2004,
compared to 30.4% for the same period of 2003.
NET INCOME
While net income improved slightly for the second quarter of 2004, Management
anticipates that the Company will not experience significant improvement in
earnings for the remainder of the year. Continued decline in the amount of
income attributed to gains on the sale of loans in the secondary market combines
with margin compression, both of which are offset to a great degree by
improvements in other categories of noninterest income.
CRITICAL ACCOUNTING POLICIES
Generally accepted accounting principles are complex and require management to
apply significant judgments to various accounting, reporting and disclosure
matters. The Company's Management must use assumptions and estimates to apply
these principles where actual measurement is not possible or practical. For a
complete discussion of the Company's significant accounting policies, see "Notes
to the Consolidated Financial Statements" in United Bancorp, Inc.'s 2003 Annual
Report on pages A-24 to A-27. Certain policies are considered critical because
they are highly dependent upon subjective or complex judgments, assumptions and
estimates. Changes in such estimates may have a significant impact on the
financial statements. Management has reviewed the application of these policies
with the Audit Committee of the Company's Board of Directors. For a discussion
of applying critical accounting policies, see Critical Accounting Policies" on
pages A-16 and A17 in United Bancorp, Inc.'s 2003 Annual Report.
FORWARD-LOOKING STATEMENTS
Statements contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations include forward-looking statements that are
based on management's beliefs, assumptions, current expectations, estimates and
projections about the financial services industry, the economy, and about the
Company itself. Words such as "anticipate," "believe," "determine," "estimate,"
"expect," "forecast," "intend," "is likely," "plan," "project," "opinion,"
variations of such terms, and similar expressions are intended to identify such
forward-looking statements. The presentations and discussions of the provision
and allowance for loan losses, and determinations as to the need for other
allowances presented in this report are inherently forward-looking statements in
that they involve judgments and statements of belief as to the outcome of future
events. These statements are not guarantees of future performance and involve
certain risks, uncertainties, and assumptions that are difficult to predict with
regard to timing, extent, likelihood, and degree of occurrence. Therefore,
actual results and outcomes may materially differ from what may be expressed or
forecasted in such forward-looking statements. Internal and external factors
that may cause such a difference include changes in interest rates and interest
rate relationships; demand for products and services; the degree of competition
by traditional and non-traditional competitors; changes in banking laws and
regulations; changes in tax laws; changes in prices, levies, and assessments;
the impact of technological advances; governmental and regulatory policy
changes; the outcomes of pending and future litigation and contingencies; trends
in customer behavior and customer ability to repay loans; software failure,
errors or miscalculations; and the vicissitudes of the national economy. The
Company undertakes no obligation to update, amend or clarify forward-looking
statements, whether as a result of new information, future events, or otherwise.
Page 17
ITEM 3- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FUNDS MANAGEMENT AND INTEREST RATE RISK
The composition of the Company's balance sheet consists of investments in
interest earning assets (loans and investment securities) that are funded by
interest bearing liabilities (deposits and borrowings). These financial
instruments have varying levels of sensitivity to changes in market interest
rates resulting in market risk. Policies place strong emphasis on stabilizing
net interest margin, with the goal of providing a sustained level of
satisfactory earnings. The Funds Management, Investment and Loan policies
provide direction for the flow of funds necessary to supply the needs of
depositors and borrowers. Management of interest sensitive assets and
liabilities is also necessary to reduce interest rate risk during times of
fluctuating interest rates.
A number of measures are used to monitor and manage interest rate risk,
including interest sensitivity and income simulation analyses. An interest
sensitivity model is the primary tool used to assess this risk with supplemental
information supplied by an income simulation model. The simulation model is used
to estimate the effect that specific interest rate changes would have on twelve
months of pretax net interest income assuming an immediate and sustained up or
down parallel change in interest rates of 200 basis points. Key assumptions in
the models include prepayment speeds on mortgage related assets; cash flows and
maturities of financial instruments held for purposes other than trading;
changes in market conditions, loan volumes and pricing; and management's
determination of core deposit sensitivity. These assumptions are inherently
uncertain and, as a result, the models cannot precisely estimate net interest
income or precisely predict the impact of higher or lower interest rates on net
interest income. Actual results will differ from simulated results due to
timing, magnitude, and frequency of interest rate changes and changes in market
conditions.
Based on the results of the simulation model as of June 30, 2004, the Company
would expect a maximum potential reduction in net interest margin of less than
14% if market rates decreased under an immediate and sustained parallel shift of
200 basis points. The Company's interest sensitivity position continues to be
asset- sensitive, continuing a trend evident throughout 2003. The Company
anticipates that interest rates will rise, and has positioned its balance sheet
to take advantage of this expected increase in rates. As a result, current net
interest income has been lowered in order to improve net interest margin in the
future.
The Company and each Bank maintains Funds Management Committees, which review
exposure to market risk on a regular basis. The Committees' overriding policy
objective is to manage assets and liabilities to provide an optimum and
consistent level of earnings within the framework of acceptable risk standards.
The Funds Management Committees are also responsible for evaluating and
anticipating various risks other than interest rate risk. Those risks include
prepayment risk, credit risk and liquidity risk. The Committees are made up of
senior members of management, and monitor the makeup of interest sensitive
assets and liabilities to assure appropriate liquidity, maintain interest
margins and to protect earnings in the face of changing interest rates and other
economic factors.
The Funds Management policies provide for a level of interest sensitivity which,
Management believes, allows the Banks to take advantage of opportunities within
their markets relating to liquidity and interest rate risk, allowing flexibility
without subjecting the Company to undue exposure to risk. In addition, other
measures are used to evaluate and project the anticipated results of
Management's decisions.
Page 18
ITEM 4- CONTROLS AND PROCEDURES
INTERNAL CONTROL
The Company maintains internal controls that contain self-monitoring mechanisms,
and actions are taken to correct deficiencies as they are identified. The Board,
operating through its Audit and Compliance Committee, provides oversight to the
financial reporting process. Even effective internal controls, no matter how
well designed, have inherent limitations, including the possibility of
circumvention or overriding of controls. Accordingly, even effective internal
controls can provide only reasonable assurance with respect to financial
statement preparation. Furthermore, the effectiveness of internal controls may
vary over time.
The Company's Audit and Compliance Committee is composed entirely of Directors
who are not officers or employees of the Company.
As of the end of the quarter ended June 30, 2004, an evaluation was carried out
under the supervision and with the participation of United Bancorp's management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934).
Based on their evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that United Bancorp's disclosure controls and procedures
as of the end of the quarter ended June 30, 2004 are, to the best of their
knowledge, effective to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. There have been no changes
in the Company's internal controls over financial reporting identified in
connection with the evaluation that occurred during the quarter ended June 30,
2004 that has materially affected, or is likely to materially affect, the
Company's internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 1- LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings. The Company's
banking subsidiaries are involved in ordinary routine litigation incident to its
business; however, no such proceedings are expected to result in any material
adverse effect on the operations or earnings of the Banks. Neither the Banks nor
the Company are involved in any proceedings to which any director, principal
officer, affiliate thereof, or person who owns of record or beneficially five
percent (5%) or more of the outstanding stock of the Company, or any associate
of the foregoing, is a party or has a material interest adverse to the Company
or the Banks.
ITEM 2- CHANGES IN SECURITIES AND USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
No changes in the securities of the Company occurred during the quarter ended
June 30, 2004. The Company did not repurchase any of its securities during the
quarter ended June 30, 2004.
ITEM 3- DEFAULTS UPON SENIOR SECURITIES
There have been no defaults upon senior securities relevant to the requirements
of this section during the quarter ended June 30, 2004.
Page 19
ITEM 4- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on April 20, 2004. At
that meeting, the following matters were submitted to a vote of the
shareholders. There were 2,231,707 voting shares outstanding on April 20, 2004.
The following directors were elected to three-year terms:
Action For Against Abstain
---------- --------- ------- -------
James D. Buhr elected 1,753,356 - 19,245
James C. Lawson re-elected 1,746,680 - 25,921
Donald J. Martin re-elected 1,761,104 - 11,497
David E. Maxwell re-elected 1,768,584 - 4,017
Directors Joseph D. Butcko, George H. Cress, Robert K. Chapman, John H. Foss,
Patricia M. Garcia, David S. Hickman, and Kathryn M. Mohr hold terms that
continue after the meeting. Director Chris McKenney reached mandatory retirement
age and retired from the Board.
Shareholders approved the extension of the Company's 1999 Stock Option Plan as
proposed. The new plan, known as the United Bancorp, Inc. 2005 Stock Option
Plan, is a Non-Qualified Stock Option Plan as defined under Internal Revenue
Service regulations. Under the 2005 Plan, Directors and management of the
Company and subsidiaries are given the right to purchase stock of the Company at
a stipulated price over a specific period of time.
1. Administration. The 2005 Plan will be administered by the Compensation
Committee consisting of non-employee Directors of the Company. The
Committee will determine:
(a) The persons to whom options will be granted
(b) The number of shares included with each option
(c) The date on which each option is to be granted.
In making decisions for the above criteria, the Committee may consider
input provided by the senior management and the Boards of Directors of the
Banks and the Company. The Compensation Committee has final authority on
grants.
2. Eligible Participants. The table below delineates the classes and
approximate number of persons in each class who may be eligible to
participate in the 2005 Plan:
Class Number of Potential Participants
- ----- --------------------------------
Non-officer Directors 27
Executive Officers 13
Non-Executive Officers 24
3. Shares covered by the 2005 Plan. The stock subject to the options would be
shares of authorized and unissued common stock of the Company. As defined
in the Plan, options representing no more than 175,000 shares are to be
made available to the Plan. The number of shares authorized under the Plan
will be adjusted to reflect changes in the outstanding shares of stock of
the Company resulting from a stock dividend or stock split.
4. General Plan Operation. Options under the 2005 Plan will be granted to
Directors and certain key members of management at the then-current market
price at the time the option is granted. The options have a three-year
vesting period, and with certain exceptions, expire at the end of ten
years, or three years after retirement.
Page 20
5. Duration of the Plan. The 2005 Plan will become effective on January 1,
2005 and will continue in effect for five years, unless the plan is
extended with the approval of shareholders.
The Plan was approved upon the following vote:
For Against Abstain
--------- ------- -------
Adoption of Plan 1,465,180 129,506 177,915
No other matters were considered by shareholders at that meeting.
ITEM 5- OTHER INFORMATION
None.
ITEM 6- EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits (numbered as in Item 601 of Regulation S-K):
Exhibit 31.1 Certification of principal executive officer pursuant
to Rule 13a - 14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification of principal financial officer pursuant to
Rule 13a - 14(a) of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Exhibit 32.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K filed during the quarter ended June 30, 2004.
Report on Form 8-K filed April 20, furnishing in Items 7 and 9 thereof,
information on quarterly results of operations for the quarter ended March
31.
Report on Form 8-K filed June 14, furnishing in Items 7 and 9 thereof,
information regarding the declaration of cash dividends.
Page 21
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 BANCORP, INC.
August 4, 2004
/S/ David S. Hickman
- -------------------------------------
David S. Hickman
Chairman and Chief Executive Officer
(Principal Executive Officer)
/S/ Dale L. Chadderdon
- -------------------------------------
Dale L. Chadderdon
Senior Vice President, Secretary & Treasurer
(Principal Financial Officer)
Page 22
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
Exhibit 31.1 Certification of principal executive officer pursuant
to Rule 13a - 14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification of principal financial officer pursuant to
Rule 13a - 14(a) of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Exhibit 32.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.