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 SEPTEMBER 30, 2002
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 [ ]
As of November 4, 2002, there were outstanding 2,111,848 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 (Condensed) 3
(a) Consolidated Balance Sheets 3
(b) Consolidated Statements of Income 4
(c) Consolidated Statements of Changes in Shareholders' Equity 5
(d) Consolidated Statements of Cash Flows 6
(e) Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Financial Condition 10
Liquidity and Capital Resources 13
Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
Item 4. Controls and Procedures 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 19
Certifications of Principal Executive Officer and Principal Financial Officer 20
Page 2
PART I
FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS (Condensed)
(A) CONSOLIDATED BALANCE SHEETS
In thousands of dollars (unaudited) (unaudited)
September 30, December 31, September 30,
2002 2001 2001
------------- ------------- -------------
ASSETS
Cash and demand balances in other banks $ 15,351 $ 15,980 $ 14,294
Federal funds sold 11,700 10,800 6,300
------------- ------------- -------------
Total cash and cash equivalents 27,051 26,780 20,594
Securities available for sale 97,902 90,243 86,078
Loans held for sale 8,620 6,686 1,126
Portfolio loans 415,577 372,038 370,899
------------- ------------- -------------
Total loans 424,197 378,724 372,025
Less allowance for loan losses 5,009 4,571 4,569
------------- ------------- -------------
Net loans 419,188 374,153 367,456
Premises and equipment, net 14,497 15,311 15,322
Accrued interest receivable and other assets 12,222 12,215 10,065
------------- ------------- -------------
TOTAL ASSETS $ 570,860 $ 518,702 $ 499,515
============= ============= =============
LIABILITIES
Deposits
Noninterest bearing $ 69,646 $ 61,845 $ 54,791
Interest bearing certificates of deposit of $100,000 or more 30,368 29,462 29,445
Other interest bearing deposits 374,089 359,991 351,055
------------- ------------- -------------
Total deposits 474,103 451,298 435,291
Federal funds purchased and other short term borrowings 525 1,019 1,013
Other borrowings 38,067 12,009 12,009
Accrued interest payable and other liabilities 5,940 6,199 3,452
------------- ------------- -------------
TOTAL LIABILITIES 518,635 470,525 451,765
SHAREHOLDERS' EQUITY
Common stock and paid in capital, no par value;
5,000,000 shares authorized; 2,111,848, 2,009,242 and
2,006,683 shares issued and outstanding 38,911 33,579 33,384
Retained earnings 11,949 13,843 13,287
Accumulated other comprehensive income, net of tax 1,365 755 1,079
------------- ------------- -------------
TOTAL SHAREHOLDERS' EQUITY 52,225 48,177 47,750
------------- ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 570,860 $ 518,702 $ 499,515
============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3
(B) CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended
In thousands of dollars, except per share data September 30, September 30,
---------------------- ---------------------
2002 2001 2002 2001
-------- -------- -------- -------
INTEREST INCOME
Interest and fees on loans
Taxable $ 7,514 $ 7,408 $ 21,691 $ 22,090
Tax exempt 20 24 65 74
Interest on securities
Taxable 696 642 2,140 1,926
Tax exempt 351 412 1,105 1,228
Interest on federal funds sold 25 121 127 690
-------- -------- -------- --------
Total interest income 8,606 8,607 25,128 26,008
INTEREST EXPENSE
Interest on certificates of deposit of $100,000 or more 344 413 1,067 1,535
Interest on other deposits 1,892 2,973 5,854 9,749
Interest on short term borrowings 2 8 7 13
Interest on other borrowings 502 209 1,191 632
-------- -------- -------- --------
Total interest expense 2,740 3,603 8,119 11,929
-------- -------- -------- --------
NET INTEREST INCOME 5,866 5,004 17,009 14,079
Provision for loan losses 264 196 673 602
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,602 4,808 16,336 13,477
NONINTEREST INCOME
Service charges on deposit accounts 677 605 1,858 1,759
Trust & Investment fee income 706 680 2,188 2,061
Gains on securities transactions - - 9 -
Loan sales and servicing 387 301 993 797
Sales of nondeposit investment products 165 212 603 599
Other income 439 356 1,262 1,080
-------- -------- -------- --------
Total noninterest income 2,374 2,154 6,913 6,296
NONINTEREST EXPENSE
Salaries and employee benefits 3,059 3,085 9,132 8,248
Occupancy and equipment expense, net 968 949 2,839 2,640
Other expense 1,359 1,315 4,033 3,963
-------- -------- -------- --------
Total noninterest expense 5,386 5,349 16,004 14,851
-------- -------- -------- --------
INCOME BEFORE FEDERAL INCOME TAX 2,590 1,613 7,245 4,922
Federal income tax 767 429 2,093 1,319
-------- -------- -------- --------
NET INCOME $ 1,823 $ 1,184 $ 5,152 $ 3,603
======== ======== ======== ========
Basic earnings per share $ 0.86 $ 0.56 $ 2.42 $ 1.70
Diluted earnings per share 0.86 0.56 2.42 1.70
Cash dividends declared per share of common stock 0.30 0.29 0.89 0.84
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4
(C) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
In thousands of dollars
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
TOTAL SHAREHOLDERS' EQUITY 2002 2001 2002 2001
--------- -------- -------- ---------
Balance at beginning of period $ 50,725 $ 46,765 $ 48,177 $ 45,054
Net Income 1,823 1,184 5,152 3,603
Other comprehensive income:
Net change in unrealized gains on securities
available for sale, net 253 389 610 798
--------- -------- -------- ---------
Total comprehensive income 2,076 1,573 5,762 4,401
Cash dividends declared (634) (603) (1,871) (1,778)
Common stock transactions 58 15 157 73
--------- -------- -------- ---------
Balance at end of period $ 52,225 $ 47,750 $ 52,225 $ 47,750
========= ======== ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5
(D) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
In thousands of dollars Nine Months Ended
September 30,
-----------------------
2002 2001
--------- ---------
Cash Flows from Operating Activities
Net income $ 5,152 $ 3,603
Adjustments to Reconcile Net Income to Net Cash from Operating Activities
Depreciation and amortization 2,395 1,843
Provision for loan losses 673 602
Change in loans held for sale (1,934) 30
Gains on securities transactions (9) -
Change in accrued interest receivable and other assets (458) (625)
Change in accrued interest payable and other liabilities (50) 131
--------- ---------
Total adjustments 617 1,981
--------- ---------
Net cash from operating activities 5,769 5,584
Cash Flows from Investing Activities
Securities available for sale
Purchases (36,330) (40,565)
Maturities and calls 24,597 23,194
Principal payments 4,315 4,994
Net change in portfolio loans (43,850) (33,613)
Premises and equipment expenditures, net (676) (3,244)
--------- ---------
Net cash from investing activities (51,944) (49,234)
Cash Flows from Financing Activities
Net change in deposits 22,805 27,334
Net change in short term borrowings (494) 1,013
Proceeds from other borrowings 28,400 -
Principal payments on other borrowings (2,342) (319)
Proceeds from common stock transactions 157 73
Dividends paid (2,080) (1,979)
--------- ---------
Net cash from financing activities 46,446 26,122
--------- ---------
Net change in cash and cash equivalents 271 (17,528)
Cash and cash equivalents at beginning of year 26,780 38,122
--------- ---------
Cash and cash equivalents at end of period $ 27,051 $ 20,594
========= =========
Supplement Disclosure of Cash Flow Information:
Interest paid $ 8,261 $ 12,490
Income tax paid 2,150 1,710
Loans transferred to other real estate 76 -
The accompanying notes are an integral part of these consolidated financial
statements.
Page 6
(E) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of United Bancorp,
Inc. (the "Company") and its subsidiaries, United Bank & Trust ("UBT") and
United Bank & Trust - Washtenaw ("UBTW") 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. Operating results for the
nine month period ending September 30, 2002 are not necessarily indicative of
the results that may be expected for the year ended December 31, 2002. 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, 2001.
NOTE 2 - MORTGAGE SERVICING RIGHTS
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 $176,553,000 and $158,297,000 at the end of
September 2002 and 2001. The balance of loans serviced for others related to
servicing rights that have been capitalized was $164,079,000 and $142,155,000 at
September 30, 2002 and 2001.
Mortgage servicing rights activity in thousands of dollars for the nine months
ended September 30, 2002 and 2001 follows:
2002 2001
------- -------
Balance at January 1 $ 1,100 $ 780
Amount capitalized year to date 420 466
Amount amortized year to date (337) (227)
------- -------
Balance at September 30 $ 1,183 $ 1,019
======= =======
No valuation allowance was considered necessary for mortgage servicing rights at
September 30, 2002 and 2001.
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 2002 and 2001, the Company
declared 5% stock dividends payable in May 2002 and 2001. 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 Nine Months Ended
In thousands of dollars, except per share data September 30, September 30,
------------------------- ------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net income $ 1,823 $ 1,184 $ 5,152 $ 3,603
========== ========== ========== ==========
Basic earnings:
Weighted average common shares outstanding 2,111,746 2,107,197 2,110,511 2,107,366
Weighted average contingently issuable shares 15,490 12,334 14,990 11,576
---------- ---------- ---------- ----------
Total weighted average shares outstanding 2,127,236 2,119,531 2,125,501 2,118,942
========== ========== ========== ==========
Basic earnings per share $ 0.86 $ 0.56 $ 2.42 $ 1.70
========== ========== ========== ==========
Page 7
Three Months Ended Nine Months Ended
Diluted earnings: September 30, September 30,
------------------------ ------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Weighted average common shares outstanding
from basic earnings per share 2,127,236 2,119,531 2,125,501 2,118,942
Dilutive effect of stock options 2,883 1,508 6,468 3,604
---------- ---------- ---------- ----------
Total weighted average shares outstanding 2,130,119 2,121,039 2,131,969 2,122,546
========== ========== ========== ==========
Diluted earnings per share $ 0.86 $ 0.56 $ 2.42 $ 1.70
========== ========== ========== ==========
NOTE 4 - STOCK OPTIONS
In 2000, Shareholders approved the Company's 1999 Stock Option Plan as proposed.
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 Plan will continue in effect for five years, unless it is extended with the
approval of the Shareholders.
The stock subject to the options are shares of authorized and unissued common
stock of the Company. As defined in the plan, options representing no more than
126,181 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 plan, adjusted for stock
dividends:
Options Weighted Average
Outstanding Exercise Price
----------- --------------
Balance at January 1, 2002 64,623 $ 43.42
Options granted 17,485 48.82
Options exercised (2,893) 41.95
Options forfeited (394) 41.46
-------
Balance at September 30, 2002 78,821 $ 44.68
=======
Options granted under the plan during the current year were 16,485 on January 9,
2002 and 1,000 on September 20, 2002. The weighted fair value of the options
granted was $4.70. For stock options outstanding at September 30, 2002, the
range of average exercise prices was $41.46 to $53.00 and the weighted average
remaining contractual term was 8.27 years. At September 30, 2002, 29,642 options
were exercisable at the weighted average exercise price of $42.74.
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 equivalent to the
market value of the underlying stock at the grant date, adjusted for stock
dividends. Accordingly, no compensation cost was recorded for the periods ended
September 30, 2002 and 2001.
Three Months Ended Nine Months Ended
In thousands of dollars, except per share data September 30, September 30,
--------------------- ---------------------
2002 2001 2002 2001
------- ------- ------- -------
Net income $ 1,823 $ 1,184 $ 5,152 $ 3,603
Pro forma net income 1,797 1,163 5,074 3,541
Basic earnings per share as reported $ 0.86 $ 0.56 $ 2.42 $ 1.70
Pro forma basic earnings per share 0.84 0.55 2.39 1.67
Diluted earnings per share as reported 0.86 0.56 2.42 1.70
Pro forma diluted earnings per share 0.84 0.55 2.38 1.67
Page 8
NOTE 5 - IMPACT OF NEW ACCOUNTING STANDARDS
Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards "SFAS" No. 142, "Goodwill and Other Intangible Assets," which
addresses the accounting for such assets arising from prior or future business
combinations. Upon adoption of this statement, goodwill arising from business
combinations is no longer amortized, but will be assessed regularly for
impairment, with any such impairment recognized as a reduction to earnings in
the period identified. Identifiable intangible assets must be separated from
goodwill and amortized over their useful lives. Interpretations by the Financial
Accounting Standards Board "FASB" required that unidentified intangibles
resulting from branch acquisitions continue to be amortized over their useful
lives.
Amortizable intangible assets in thousands of dollars are as follows:
September 30, 2002 December 31, 2001
------------------------ ------------------------
Gross Accumulated Gross Accumulated
Amount Amortization Amount Amortization
-------- ------------ -------- -------------
Core deposit intangibles $ 198 $ 194 $ 198 $ 183
Unidentified intangibles resulting from
branch acquisitions 4,043 1,216 4,043 1,014
------- ------- ------- -------
$ 4,241 $ 1,410 $ 4,241 $ 1,197
Amortization expense for the nine months ended September 30, 2002 and 2001 was
$213,000 and $303,000. Estimated annual amortization expense, in thousands of
dollars, for the next five years is:
Before SFAS No. 147 After SFAS No. 147
------------------- ------------------
2002 $ 284 $ 15
2003 270 -
2004 270 -
2005 270 -
2006 268 -
On October 1, 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 147, "Acquisitions of
Certain Financial Institutions." SFAS No. 147 is effective October 1, 2002, and
may be early applied. SFAS No. 147 supersedes SFAS No. 72, "Accounting for
Certain Acquisitions of Banking or Thrift Institutions." SFAS No. 147 provides
guidance on the accounting for the acquisition of a financial institution, and
applies to all such acquisitions except those between two or more mutual
enterprises. Under SFAS No. 147, the excess of the fair value of liabilities
assumed over the fair value of tangible and identifiable intangible assets
acquired in a financial institution business combination represents goodwill
that should be accounted for under SFAS No. 142, "Goodwill and Other Intangible
Assets." If certain criteria are met, the amount of the unidentifiable
intangible asset resulting from prior financial institutions acquisitions is to
be reclassified to goodwill upon adoption of this Statement. Financial
institutions meeting conditions outlined in SFAS No. 147 are required to restate
previously issued financial statements. The objective of the restatement is to
present the balance sheet and income statement as if the amount accounted for
under SFAS No. 72 as an unidentifiable intangible asset had been reclassified to
goodwill as of the date the Company adopted SFAS No. 142. Adoption of SFAS No.
147 on October 1, 2002 will result in the reclassification of $3,029,000 of
previously recognized unidentifiable intangible assets to goodwill.
Additionally, prior period amortization expense will be reversed totaling
$67,000 for the three months ended September 30, 2002, and $202,000 for the nine
months ended September 30, 2002. The effect of the restatement will increase net
income by $44,000 for the three months ended September 30, 2002 and $133,000 for
the nine months ended September 30, 2002. There will be no effect to
amortization expense or net income for the three and nine months ended September
30, 2001.
Page 9
NOTE 6 - OTHER BORROWINGS
The Banks carried fixed rate, noncallable advances from the Federal Home Loan
Bank of Indianapolis totaling $38.1 million and $12.0 million at September 30,
2002 and 2001. These advances are collateralized by residential mortgage loans
and guaranteed portions of SBA loans under a blanket security agreement. The
unpaid principal balance of the loans pledged as collateral must equal at least
145% of the funds advanced. Interest payments are made monthly, with principal
due annually and at maturity.
The following schedule shows maturities and scheduled principal payments, in
thousands of dollars, over the next five years:
9/30/2002 12/31/2001 9/30/2001
--------- ---------- ---------
Within one year $ 7,368 $ 2,342 $ 2,342
Between one and two years 396 7,368 7,368
Between two and three years 425 396 396
Between three and four years 7,457 425 425
Between four and five years 19,892 457 457
More than five years 2,529 1,021 1,021
---------- ---------- ----------
Total $ 38,067 $ 12,009 $ 12,009
Average Rate 5.34% 6.94% 6.94%
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. and its subsidiaries for the
three and nine month periods ending September 30, 2002 and 2001.
FINANCIAL CONDITION
SECURITIES
Balances in the Company's investment securities portfolio continued to decline
during the third quarter of 2002, while balances in fed funds sold increased.
The mix of the securities portfolio continues to shift toward shorter-term
investments while market rates are low. During the quarter, municipal bonds
replaced maturing U.S Treasury and corporate obligations. The following chart
shows the percentage mix of the securities portfolio.
9/30/2002 12/31/2001 9/30/2001
--------- ---------- ---------
U.S. Treasury and agency securities 30.3% 18.5% 12.5%
Mortgage backed agency securities 13.2% 18.9% 24.6%
Obligations of states and political subdivisions 40.2% 46.1% 46.2%
Corporate, asset backed, and other securities 16.3% 16.5% 16.7%
--------- ---------- ---------
Total Securities 100.0% 100.0% 100.0%
========= ========== ==========
The Company's current and projected tax position continues to make carrying
tax-exempt securities valuable, 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 in the portfolio also contains
a
Page 10
moderate level of credit risk. The municipal portfolio contains no significant
geographic risk, as approximately 11% of that portfolio and 4% of the total
investment 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
Annualized loan growth during the third quarter of 2002 was 8.4%, reflecting
continued strength in the market. Most loan categories experienced growth during
the quarter, with tax exempt loans, construction loans and residential mortgages
exhibiting declines.
The mix of the loan portfolio continues a long-term trend toward an increased
percentage of business loans, with slight declines in residential mortgage loans
and personal loans. The loan mix also reflects growth at UBTW, which opened in
April of 2001. 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.
September 30, 2002 December 31, 2001 September 30, 2001
------------------------ ------------------------ ------------------------
Total loans: Balance % of total Balance % of total Balance % of total
---------- ---------- ---------- ---------- ---------- ----------
Personal $ 73,277 17.3% $ 62,792 16.6% $ 63,829 17.2%
Business loans and
commercial mortgages 203,244 47.9% 163,329 43.1% 149,682 40.2%
Tax exempt 1,529 0.4% 1,878 0.5% 1,827 0.5%
Residential mortgage 115,753 27.3% 117,553 31.0% 120,863 32.5%
Construction 30,394 7.2% 33,172 8.8% 35,824 9.6%
---------- ------ ---------- ------- ---------- ------
Total loans $ 424,197 100.0% $ 378,724 100.00% $ 372,025 100.0%
========== ====== ========== ======= ========== ======
The Company's subsidiary Banks ("Banks") continue to be providers of residential
mortgage loans. As full service lenders, the Banks offer a variety of home
mortgage loan products in their markets. Demand for loans continues to be strong
in all loan portfolios and in all markets that the Banks serve, while a
significant portion of residential mortgage volume has been in products that are
sold in the secondary market.
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. Nonperforming assets remain low, as credit quality remains quite strong
for the organization. Balances in nonperforming loans are up compared to the
levels achieved for the third quarter of 2001, the end of 2001 and the second
quarter of 2002. This is primarily a result of a number of loans placed on
nonaccrual status during the third quarter. However, delinquencies continue to
be low, and overall, the Company's ratios of nonperforming loans continue to
compare favorably with other banks of similar size and makeup.
The aggregate amount of nonperforming loans is presented in the table below,
which shows the aggregate amount of the Company's nonperforming assets by type,
in thousands of dollars.
Page 11
9/30/2002 12/31/2001 9/30/2001
--------- ---------- ---------
Nonaccrual loans $ 2,336 $ 1,084 $ 1,098
Loans past due 90 days or more 697 1,104 837
Troubled debt restructurings 128 130 131
------- ------- -------
Total nonperforming loans 3,161 2,318 2,066
Other real estate 255 179 425
------- ------- -------
Total nonperforming assets $ 3,416 $ 2,497 $ 2,491
======= ======= =======
Percent of nonperforming loans to total loans 0.75% 0.61% 0.56%
Percent of nonperforming assets to total assets 0.60% 0.48% 0.50%
For purposes of this 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. The
Company's classification of nonperforming loans is generally consistent with
loans identified as impaired.
The Company's allowance for loan losses remains at a level consistent with its
estimated potential losses. The provision provides for currently estimated
losses inherent in the portfolio. Net charge-offs for the period have remained
lower than the provision added to the allowance for loan losses, resulting in an
increase in the allowance. An analysis of the allowance for loan losses, in
thousands of dollars, for the nine months ended September 30, 2002 and 2001
follows:
2002 2001
------- -------
Balance at January 1: $ 4,571 $ 4,032
Loans charged off (323) (183)
Recoveries credited to allowance 88 118
Provision charged to operations 673 602
------- -------
Balance at September 30 $ 5,009 $ 4,569
======= =======
The Company's provision for loan losses for the third quarter of the year is up
from the first two quarters of 2002, and is 11.8% above the level achieved for
the same period in 2001. Loan quality remains strong, as evidenced by the low
level of nonperforming loans, while the portfolio continues to grow. The
following table presents the allocation of the allowance for loan losses
applicable to each loan category in thousands of dollars, as of September 30,
2002 and 2001, and December 31, 2001.
Amount allocated to: 9/30/2002 12/31/2001 9/30/2001
--------- ---------- ---------
Business loans and commercial mortgages $ 4,122 $ 3,060 $ 2,942
Tax exempt loans - - -
Residential mortgages 21 20 19
Personal loans 604 496 467
Construction loans - - -
Unallocated 262 995 1,141
------- ------- -------
Total $ 5,009 $ 4,571 $ 4,569
======= ======= =======
One of the Company's largest single category of loans is also generally the one
with the least risk. Loans to finance residential mortgages, including
construction loans, make up 35.4% of the portfolio at September 30, 2002 and are
well-secured and have had historically low levels of net losses. Personal and
business loans make up the balance of the portfolio.
Page 12
Personal loan balances increased during the quarter and since the end of 2001.
The personal loan portfolio consists of direct and indirect installment, 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 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.
DEPOSITS
Deposit balances increased by $11.4 million during the third quarter of 2002,
following a decline during the second quarter of the year. The increase in
deposits was in all categories of deposits other than certificates of deposit of
$100,000 or more. The Company has not chosen to offer the highest deposit rates
in its markets, as borrowings from the FHLB have provided opportunities to lock
in longer term funding at relatively low rates.
As in the past, the majority of the Banks' deposits are derived from core client
sources, relating to long term relationships with local personal, business
and public clients. In financial institutions, the presence of interest bearing
certificates of $100,000 or more often indicates a reliance upon purchased
funds. However, in the Company's deposit portfolio, these balances represent
core deposits of local 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 September 30, 2002 and 2001.
2002 2001
----- ----
Noninterest bearing deposits 14.7% 12.6%
Interest bearing certificates of $100,000 or more 6.4% 6.8%
Other interest bearing deposits 78.9% 80.7%
----- -----
Total deposits 100.0% 100.0%
====== ======
LIQUIDITY, CASH EQUIVALENTS AND BORROWED FUNDS
Through its affiliate banks, the Company maintains correspondent accounts with a
number of other banks for various purposes. In addition, cash sufficient to meet
the operating needs of the two banks is maintained at its lowest practical
levels. At times, the Company, through its subsidiary banks, is 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 Company has a number of
additional liquidity sources should the need arise, and Management has no
concerns for the liquidity position of the Company.
The Company periodically finds it advantageous to utilize longer term borrowings
from the Federal Home Loan Bank of Indianapolis. These long-term borrowings
serve to provide a balance to some of the interest rate risk inherent in the
Company's balance sheet. During the past several months, the Company has
obtained a number of long-term fixed rate advances while rates were declining,
in order to lock in long-term funding at historically low rates. The Company's
balances in FHLB advances of four years or longer have increased more than $26
million since the end of 2001.
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 September 30, 2002 and 2001, and December 31, 2001.
Dollars are shown in thousands.
Page 13
Regulatory Guidelines United Bancorp, Inc.
--------------------- --------------------
Adequate Well 9/30/2002 12/31/2001 9/30/2001
-------- ---- --------- ---------- ---------
Tier 1 capital to average assets 4% 5% 8.7% 9.0% 9.0%
Tier 1 capital to risk weighted assets 4% 6% 11.7% 11.9% 12.1%
Total capital to risk weighted assets 8% 10% 12.9% 13.1% 13.4%
Total shareholders' equity $ 52,225 $ 48,177 $ 47,750
Intangible assets (3,270) (3,484) (3,585)
Unrealized (gain) loss on securities available for sale (1,365) (755) (1,079)
--------- --------- --------
Tier 1 capital 47,590 43,938 43,086
Allowable loan loss reserves 5,009 4,537 4,439
--------- --------- --------
Tier 2 capital $ 52,599 $ 48,475 $ 47,525
========= ========= ========
RESULTS OF OPERATIONS
Consolidated net income for the third quarter and first nine months of 2002 was
significantly improved from the same periods of 2001. Net income contributed by
UBT continues to increase, while losses at UBTW are declining.
NET INTEREST INCOME
Net interest income for the first nine months of 2002 is 20.0% ahead of the same
period of 2001. During the third quarter of 2002, yields on earning assets and
the cost of funds remained virtually flat compared to the second quarter,
resulting in no significant changes in Company's spread and net interest margin
during the quarter. Compared to the first nine months of 2001, however, the
improvement is considerable, and has contributed significantly to net income of
the Company, in part as a result of the Company's interest sensitivity position.
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 September 30, 2002 and
2001.
YIELD ANALYSIS OF CONSOLIDATED AVERAGE ASSETS AND LIABILITIES
Nine months ended September 30,
----------------------------------------------------------------------------
dollars in thousands 2002 2001
- -------------------- ---- ----
Average Interest Yield/ Average Interest Yield/
ASSETS Balance (b) Rate (c) Balance (b) Rate (c)
------- --- -------- ------- --- --------
Interest earning assets (a)
Federal funds sold $ 10,369 $ 127 1.63% $ 19,449 $ 690 4.73%
Taxable securities 64,646 2,140 4.41% 44,121 1,926 5.82%
Tax exempt securities (b) 33,356 1,650 6.60% 32,661 1,769 7.22%
Taxable loans 401,951 21,691 7.20% 351,217 22,090 8.39%
Tax exempt loans (b) 1,715 97 7.56% 1,916 106 7.39%
--------- --------- --------- ---------
Total int. earning assets (b) 512,037 25,705 6.69% 449,364 26,583 7.89%
Less allowance for loan losses (4,769) (4,287)
Other assets 43,588 39,561
--------- ---------
TOTAL ASSETS $ 550,856 $ 484,638
========= =========
Page 14
LIABILITIES AND SHAREHOLDERS' EQUITY
NOW accounts $ 88,990 635 0.95% $ 69,893 1,211 2.31%
Savings deposits 142,410 1,541 1.44% 95,107 1,880 2.64%
CDs $100,000 and over 30,039 1,067 4.74% 34,780 1,535 5.89%
Other interest bearing deposits 142,018 3,679 3.45% 169,531 6,659 5.24%
--------- --------- --------- ---------
Total int. bearing deposits 403,457 6,922 2.29% 369,311 11,284 4.07%
Short term borrowings 687 7 1.37% 523 13 3.42%
Other borrowings 27,852 1,191 5.70% 12,203 631 6.90%
--------- --------- --------- ---------
Total int. bearing liabilities 431,996 8,119 2.51% 382,037 11,929 4.16%
--------- ---------
Noninterest bearing deposits 62,683 51,946
Other liabilities 5,935 4,066
Shareholders' equity 50,242 46,589
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 550,856 $ 484,638
========= =========
Net interest income (b) $ 17,586 $ 14,653
========= ========
Net spread (b) 4.19% 3.72%
===== =====
Net yield on interest earning assets (b) 4.58% 4.35%
===== =====
(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, both interest income and interest
expense declined during the first nine months of 2002 as compared to the same
time period in 2001. Net changes as a result of changes in rate were near zero,
while net interest income improved considerably as a result of changes in volume
compared to the same period of 2001. The following table shows the effect of
volume and rate changes on net interest income for the nine months ended
September 30, 2002 and 2001 compared to the same time period in the prior years
on a taxable equivalent basis, in thousands of dollars.
2002 Compared to 2001 2001 Compared to 2000
----------------------------------- ----------------------------------------
Increase (Decrease) Due To: (a) Increase (Decrease) Due To: (a)
Volume Rate Net Volume Rate Net
--------- ------ -------- -------- ------- --------
Interest earned on:
Federal funds sold $ (234) $ (329) $ (563) $ 684 $ (3) $ 681
Taxable securities 754 (540) 214 (101) (115) (216)
Tax exempt securities 37 (156) (119) 73 (50) 23
Taxable loans 2,962 (3,362) (400) 1,826 (1,053) 773
Tax exempt loans (11) 2 (9) (13) (3) (16)
------- -------- -------- ------- -------- -------
Total interest income $ 3,508 $ (4,385) $ (877) $ 2,469 $ (1,224) $ 1,245
======= ======== ======== ======= ========= =======
Interest paid on:
NOW accounts $ 269 $ (845) $ (576) $ 213 $ (37) $ 176
Savings deposits 713 (1,052) (339) 529 179 708
CDs $100,000 and over (193) (275) (468) (69) 11 (58)
Other interest bearing deposits (962) (2,018) (2,980) 438 (357) 81
Short term borrowings 3 (9) (6) (475) (228) (703)
Other borrowings 686 (127) 559 125 5 130
------- -------- -------- ------- -------- -------
Total interest expense $ 516 $ (4,326) $ (3,810) $ 761 $ (427) $ 334
======= ======== ======== ======= ========= =======
Net change in net interest
income $ 2,992 $ (59) $ 2,933 $ 1,708 $ (797) $ 911
======= ======== ======== ======= ========= =======
(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.
Page 15
NONINTEREST INCOME
Total noninterest income increased from the second quarter of 2002, and is up
significantly from the first nine months of 2001. While income from the sale of
nondeposit investment products is relatively flat, all other categories of
noninterest income are improved from the same nine-month period last year. The
largest percentage gains achieved is income from loan sales and servicing.
Service charges on deposit accounts are up 8.7% over the second quarter of 2002,
and are up 5.6% year to date. The Trust & Investment Group of UBT continues to
provide significant contribution to the Company's noninterest income, through
continued growth and expansion. This improvement has been achieved as a result
of continued growth of assets managed, and in spite of declines in the market
value of assets resulting from recent weaknesses in the equity markets. However,
market weaknesses caused Trust income to decline for the quarter. Income in this
category is down 5.5% from the second quarter of 2002, but year to date is up
6.2% from the same period of last year.
Income from loan sales and servicing continues to be very strong, as a result of
an increased amount of residential mortgages sold in the secondary market.
Income in this category is up 64.7% from the second quarter of 2002, and remains
nearly $200,000 ahead of the first nine months of 2001. It is anticipated that
income from the sale of residential loans will contribute a smaller portion of
income as the volume of loans sold tapers off. In addition, the Company
maintains a servicing portfolio of loans sold, which will provide ongoing future
income.
NONINTEREST EXPENSES
Noninterest expenses are relatively flat compared to the second quarter of 2002,
but are ahead of the first nine months of 2001 by more than $1.1 million. A
substantial portion of the increase reflects the growth and expansion of the
Company, including staffing for UBTW which opened in April of 2001, and the
Dexter office of UBT, which opened in May of 2001. These increases are noted in
compensation expense, as well as occupancy and equipment expense.
FEDERAL INCOME TAX
There has been no significant change in the income tax position of the Company
as the effective tax rate was 28.9% for the first nine months of 2002 and 26.8%
for the same period of 2001. This slight increase in effective tax rate is
primarily a result of declines in the percentage of the investment portfolio
held in tax-exempt obligations.
NET INCOME
Third quarter consolidated net income is up 6.9% from the second quarter of
2002, and is up 43.0% over the first nine months of 2001. This reflects
improvements in earnings at both banks, and Management anticipates that net
income will remain strong for the remainder of the year, as a result of future
earnings contributions by UBTW as well as strong earnings growth at UBT.
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,
Page 16
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.
IMPACT OF NEW ACCOUNTING STANDARDS
On October 1, 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 147, "Acquisitions of
Certain Financial Institutions." SFAS No. 147 is effective October 1, 2002, and
may be early applied. SFAS No. 147 supersedes SFAS No. 72, "Accounting for
Certain Acquisitions of Banking or Thrift Institutions." SFAS No. 147 provides
guidance on the accounting for the acquisition of a financial institution.
Adoption of SFAS No. 147 on October 1, 2002 will affect the previous adoption of
SFAS No. 142. Additional information about the impact of new accounting
standards is contained in Note 5 of the Consolidated Financial Statements.
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 September 30, 2002, the
Company would expect a maximum potential reduction in net interest margin of
less than 5% if market rates increased or decreased under an immediate and
sustained parallel shift of 200 basis points. The Company's interest sensitivity
position remained substantially unchanged from the previous quarter.
Page 17
Each Bank maintains a Funds Management Committee, which reviews 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 continually 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.
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.
Management is not aware of any significant changes in internal controls during
the third quarter of 2002, nor of other factors that could significantly affect
controls subsequent to the date of evaluation. Based on Management's assessment,
the Company believes that, as of September 30, 2002, its internal controls are
adequate and appropriate.
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
No changes in the securities of the Company occurred during the quarter ended
September 30, 2002.
Page 18
ITEM 3- DEFAULTS UPON SENIOR SECURITIES
There have been no defaults upon senior securities relevant to the requirements
of this section during the three months ended September 30, 2002.
ITEM 4- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter ended
September 30, 2002.
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):
(99.1) Certification of CEO/CFO Pursuant to Section 906
(b) The Company has filed no reports on Form 8-K during the quarter ended
September 30, 2002.
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.
November 4, 2002
/S/ Dale L. Chadderdon
- --------------------------------------------
Dale L. Chadderdon
Senior Vice President, Secretary & Treasurer
Page 19
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
DISCLOSURE PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David S. Hickman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of United Bancorp, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statements of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant, and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
/S/ David S. Hickman November 4, 2002
- ------------------------------------------------- -----------------------------
David S. Hickman Date
Chairman and Chief Executive Officer
Page 20
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
DISCLOSURE PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Dale L. Chadderdon, certify that:
1. I have reviewed this quarterly report on Form 10-Q of United Bancorp, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statements of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant, and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
/S/ Dale L. Chadderdon November 4, 2002
- ------------------------------------------------- -----------------------------
Dale L. Chadderdon Date
Senior Vice President, Secretary & Treasurer
Page 21
10-Q EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX-99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Page 22