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, 2003
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 August 2, 2003, there were outstanding 2,224,746 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 3
(a) Condensed Consolidated Balance Sheets 3
(b) Condensed Consolidated Statements of Income 4
(c) Condensed Consolidated Statements of Changes in 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
Financial Condition 10
Liquidity and Capital Resources 13
Results of Operations 13
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 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Exhibits
Disclosure Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 22
Disclosure Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 24
Page 2
PART I
FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
(A) CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands of dollars
(unaudited) (unaudited)
June 30, December 31, June 30,
ASSETS 2003 2002 2002
----------- ------------ -----------
Cash and demand balances in other banks $ 19,563 $ 16,719 $ 14,267
Federal funds sold 26,200 7,700 600
----------- ------------ -----------
Total cash and cash equivalents 45,763 24,419 14,867
Securities available for sale 99,844 97,380 100,967
Loans held for sale 5,909 7,873 1,472
Portfolio loans 417,162 422,653 413,985
----------- ------------ -----------
Total loans 423,071 430,526 415,457
Less allowance for loan losses 5,308 4,975 4,848
----------- ------------ -----------
Net loans 417,763 425,551 410,609
Premises and equipment, net 14,570 14,123 14,770
Goodwill 3,469 3,469 3,342
Accrued interest receivable and other assets 19,221 8,957 8,890
----------- ------------ -----------
TOTAL ASSETS $ 600,630 $ 573,899 $ 553,445
=========== ============ ===========
LIABILITIES
Deposits
Noninterest bearing $ 81,385 $ 71,976 $ 63,969
Interest bearing deposits 420,891 399,574 398,759
----------- ------------ -----------
Total deposits 502,276 471,550 462,728
Federal funds purchased and other short term borrowings 75 75 523
Other borrowings 37,375 41,867 34,067
Accrued interest payable and other liabilities 5,458 7,027 5,402
----------- ------------ -----------
TOTAL LIABILITIES 545,184 520,519 502,720
COMMITMENT AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY
Common stock and paid in capital, no par value;
5,000,000 shares authorized; 2,224,758, 2,114,765 and
2,110,964 shares issued and outstanding 45,711 39,122 38,848
Retained earnings 8,617 12,977 10,765
Accumulated other comprehensive income, net of tax 1,118 1,281 1,112
----------- ------------ -----------
TOTAL SHAREHOLDERS' EQUITY 55,446 53,380 50,725
----------- ------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 600,630 $ 573,899 $ 553,445
=========== ============ ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 3
(B) CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
In thousands of dollars, except per share data
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------
2003 2002 2003 2002
------- ------- ------- -------
INTEREST INCOME
Interest and fees on loans $ 6,796 $ 7,272 $13,789 $14,222
Interest on securities
Taxable 580 742 1,182 1,445
Tax exempt 297 358 611 753
Interest on federal funds sold 77 35 131 102
------- ------- ------- -------
Total interest income 7,750 8,407 15,713 16,522
INTEREST EXPENSE
Interest on deposits 1,737 2,280 3,535 4,685
Interest on short term borrowings - 2 - 5
Interest on other borrowings 460 426 994 689
------- ------- ------- -------
Total interest expense 2,197 2,708 4,529 5,379
------- ------- ------- -------
NET INTEREST INCOME 5,553 5,699 11,184 11,143
Provision for loan losses 296 217 609 409
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,257 5,482 10,575 10,734
NONINTEREST INCOME
Service charges on deposit accounts 617 566 1,220 1,070
Trust & Investment fee income 748 747 1,447 1,482
Gains on securities transactions 85 9 85 9
Loan sales and servicing 791 235 1,633 606
ATM, debit and credit card fee income 383 345 725 648
Sales of nondeposit investment products 137 212 260 438
Other income 150 137 293 286
------- ------- ------- -------
Total noninterest income 2,911 2,251 5,663 4,539
NONINTEREST EXPENSE
Salaries and employee benefits 3,240 3,003 6,563 6,074
Occupancy and equipment expense, net 1,028 927 1,986 1,871
External data processing 311 288 621 565
Advertising and marketing 114 143 226 288
Other expense 1,019 970 1,837 1,820
------- ------- ------- -------
Total noninterest expense 5,712 5,331 11,233 10,618
------- ------- ------- -------
INCOME BEFORE FEDERAL INCOME TAX 2,456 2,402 5,005 4,655
Federal income tax 754 696 1,520 1,326
------- ------- ------- -------
NET INCOME $ 1,702 $ 1,706 $ 3,485 $ 3,329
======= ======= ======= =======
Basic earnings per share $ 0.76 $ 0.76 $ 1.56 $ 1.49
Diluted earnings per share 0.76 0.76 1.55 1.49
Cash dividends declared per share of common stock 0.33 0.29 0.65 0.56
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,
--------------------------------------------
2003 2002 2003 2002
-------- -------- -------- --------
TOTAL SHAREHOLDERS' EQUITY
Balance at beginning of period $ 54,394 $ 48,936 $ 53,380 $ 48,177
Net Income 1,702 1,706 3,485 3,329
Other comprehensive income:
Net change in unrealized gains (losses)
on securities available for sale, net (45) 651 (163) 357
-------- -------- -------- --------
Total comprehensive income 1,657 2,357 3,322 3,686
Cash dividends declared (734) (633) (1,433) (1,237)
Common stock transactions 129 65 177 99
-------- -------- -------- --------
Balance at end of period $ 55,446 $50,725 $ 55,446 $ 50,725
======== ======= ======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 5
(D) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
In thousands of dollars
Six Months Ended
June 30,
----------------------
2003 2002
--------- ---------
Cash Flows from Operating Activities
Net income $ 3,485 $ 3,329
Adjustments to Reconcile Net Income to Net Cash from Operating Activities
Depreciation and amortization 1,446 1,588
Provision for loan losses 609 409
Gain on sale of loans (1,869) (530)
Proceeds from sales of loans originated for sale 119,052 37,076
Loans originated for sale (115,219) (31,332)
Gains on securities transactions (85) (9)
Change in accrued interest receivable and other assets (10,078) (287)
Change in accrued interest payable and other liabilities (1,353) (588)
--------- ---------
Net cash from operating activities (4,012) 9,656
Cash Flows from Investing Activities
Securities available for sale
Purchases (32,045) (27,318)
Sales 3,932 -
Maturities and calls 22,229 13,557
Principal payments 2,733 3,134
Net change in portfolio loans 5,113 (42,135)
Premises and equipment expenditures, net (1,368) (452)
--------- ---------
Net cash from investing activities 594 (53,214)
Cash Flows from Financing Activities
Net change in deposits 30,726 11,430
Net change in short term borrowings - (496)
Proceeds from other borrowings 3,000 24,400
Principal payments on other borrowings (7,492) (2,342)
Proceeds from common stock transactions 177 99
Dividends paid (1,649) (1,446)
--------- ---------
Net cash from financing activities 24,762 31,645
--------- ---------
Net change in cash and cash equivalents 21,344 (11,913)
Cash and cash equivalents at beginning of year 24,419 26,780
--------- ---------
Cash and cash equivalents at end of period $ 45,763 $ 14,867
========= =========
Supplement Disclosure of Cash Flow Information:
Interest paid $ 4,762 $ 5,503
Income tax paid 1,500 1,350
Loans transferred to other real estate 102 56
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, 2002 has been derived from the audited consolidated
balance sheet of the Company as of that date. Operating results for the three
month period ending June 30, 2003 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2003. 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, 2002.
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 $230,049,000 and $174,515,000 at the end of June
2003 and 2002. The balance of loans serviced for others related to servicing
rights that have been capitalized was $223,043,000 and $164,652,000 at June 30,
2003 and 2002.
Mortgage servicing rights activity in thousands of dollars for the six months
ended June 30, 2003 and 2002 follows:
2003 2002
------- -------
Balance at January 1 $ 1,352 $ 1,100
Amount capitalized year to date 790 235
Amount amortized year to date (513) (147)
------- -------
Balance at period end $ 1,629 $ 1,188
======== =======
No valuation allowance was considered necessary for mortgage servicing rights at
period end 2003 and 2002.
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 2003 and 2002, the Company
declared 5% stock dividends payable in May 2003 and 2002. 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
In thousands of dollars, except per share data June 30, June 30,
-----------------------------------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net income $ 1,702 $ 1,706 $ 3,485 $ 3,329
========== ========== ========== =========
Basic earnings:
Weighted average common shares outstanding 2,221,041 2,215,564 2,220,767 2,215,377
Weighted average contingently issuable shares 18,428 15,862 17,934 15,473
---------- ---------- ---------- ----------
Total weighted average shares outstanding 2,239,469 2,231,426 2,238,701 2,230,850
========== ========== ========== ==========
Basic earnings per share $ 0.76 $ 0.76 $ 1.56 $ 1.49
========== ========== ========== ==========
Page 7
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------------
2003 2002 2003 2002
---------- ---------- --------- ----------
Diluted earnings:
Weighted average common shares outstanding
from basic earnings per share 2,239,469 2,231,426 2,238,701 2,230,850
Dilutive effect of stock options 9,569 3,772 14,295 5,813
---------- ---------- --------- ----------
Total weighted average shares outstanding 2,249,038 2,235,198 2,252,996 2,236,663
========== ========== ========== ==========
Diluted earnings per share $ 0.76 $ 0.76 $ 1.55 $ 1.49
========== ========== ========== ==========
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.
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
132,490 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, 2003 83,812 $ 42.67
Options granted 24,150 51.76
Options exercised (9,248) 39.69
Options forfeited - -
------- -------
Balance at June 30, 2003 98,714 $ 45.17
======= =======
Options granted under the plan during the current year were 22,050 on January
10, 2003, 1,050 on February 17, 2003 and 1,050 on March 12, 2003. The weighted
fair value of the options granted was $3.76. For stock options outstanding at
June 30, 2003, the range of average exercise prices was $39.49 to $57.14 and the
weighted average remaining contractual term was 8.1 years. At June 30, 2003,
49,934 options were exercisable at the weighted average exercise price of
$41.82.
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 compensations cost was recorded for the period ended
June 30, 2003 and 2002.
Page 8
Three Months Ended Six Months Ended
In thousands of dollars, except per share data June 30, June 30,
--------------------------------------------------
2003 2002 2003 2002
------- ------- ------- -------
Net income, as reported $ 1,702 $ 1,706 $ 3,485 $ 3,329
Less: Total stock-based compensation cost,
net of taxes 21 24 42 47
------- ------- ------- -------
Pro forma net income $ 1,681 $ 1,682 $ 3,443 $ 3,282
======= ======= ======= =======
Earnings per share:
Basic As reported $ 0.76 $ 0.76 $ 1.56 $ 1.49
Basic Pro forma 0.75 0.75 1.54 1.47
Diluted As reported $ 0.76 $ 0.76 $ 1.55 $ 1.49
Diluted Pro forma 0.75 0.75 1.53 1.47
NOTE 5: EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") adopted Statement of Financial
Accounting Standards ("SFAS") No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure. This Statement amends FASB Statement No. 123,
Accounting for Stock-Based Compensation. SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require more prominent and
more frequent disclosures in financial statements about the effects of
stock-based compensation. Under the provisions of SFAS No. 123, companies that
adopted the fair value based method were required to apply that method
prospectively for new stock option awards. This contributed to a "ramp-up"
effect on stock-based compensation expense in the first few years following
adoption, which caused concern for companies and investors because of the lack
of consistency in reported results. To address that concern, SFAS No. 148
provides two additional methods of transition that reflect an entity's full
complement of stock-based compensation expense immediately upon adoption,
thereby eliminating the ramp-up effect.
SFAS No. 148 also improves the clarity and prominence of disclosures about the
proforma effects of using the fair value based method of accounting for
stock-based compensation for all companies - regardless of the accounting method
used - by requiring that the data be presented more prominently and in a more
user-friendly format in the footnotes to the financial statements. In addition,
SFAS No. 148 improves the timeliness of those disclosures by requiring that this
information be included in interim as well as annual financial statements. In
the past, companies were required to make proforma disclosures only in annual
financial statements. The transition guidance and annual disclosure provisions
of SFAS No. 148 are effective for fiscal years ending after December 15, 2002,
with earlier application permitted in certain circumstances. The interim
disclosure provisions are effective for financial reports containing financial
statements for interim periods beginning after December 15, 2002. The FASB has
stated it intends to issue a new statement on accounting for stock-based
compensation and will require companies to expense stock options using a fair
value based method at date of grant. The implementation for this proposed state
statement is not known.
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 six month periods ending June 30, 2003 and 2002.
Page 9
FINANCIAL CONDITION
SECURITIES
Balances in the Company's investment securities portfolio continued to increase
during the second quarter of 2003, as investment securities absorbed some of the
Company's deposit growth in excess of loan growth. This increase in the
portfolio was primarily in short term investments, which caused the mix of the
securities portfolio to shift somewhat. During the quarter, short-term agency
and mortgage-backed bonds generally replaced maturing municipal and corporate
obligations. The following chart shows the percentage mix of the securities
portfolio.
6/30/2003 12/31/2002 6/30/2002
--------- ---------- ---------
U.S. Treasury and agency securities 32.3% 30.6% 31.8%
Mortgage backed agency securities 22.2% 14.0% 13.9%
Obligations of states and political subdivisions 36.5% 39.1% 35.6%
Corporate, asset backed, and other securities 9.0% 16.3% 18.7%
----- ----- -----
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 approximately 8% 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 in the second quarter of 2003, reversing a decline
experienced during the first quarter of the year. While refinancing in the
Company's residential mortgage portfolios into products that are sold on the
secondary market continues, balances in the business loan portfolio improved for
the quarter, while personal loan balances declined.
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, 2003 December 31, 2002 June 30, 2002
----------------------- ----------------------- -------------------------
Total loans: Balance % of total Balance % of total Balance % of total
------- ---------- ------- ---------- ------- ----------
Personal $ 67,898 16.1% $ 71,010 16.5% $ 69,763 16.8%
Business loans and
commercial mortgages 228,165 53.9% 212,611 49.4% 195,063 46.9%
Tax exempt 1,334 0.3% 1,417 0.3% 1,591 0.4%
Residential mortgage 91,826 21.7% 110,985 25.8% 117,501 28.3%
Construction 33,848 8.0% 34,503 8.0% 31,539 7.6%
--------- ----- --------- ----- --------- -----
Total loans $ 423,071 100.0% $ 430,526 100.0% $ 415,457 100.0%
========= ===== ========= ===== ========= =====
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
Page 10
continues to be strong in all loan portfolios, although a significant portion of
the Company's production of residential real estate mortgages is sold in the
secondary markets.
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. The chart below shows the aggregate amount of the Company's
nonperforming assets by type, in thousands of dollars.
6/30/2003 12/31/2002 6/30/2002
--------- ---------- ---------
Nonaccrual loans $ 4,598 $ 1,583 $ 1,449
Loans past due 90 days or more 737 748 237
Troubled debt restructurings - - 129
--------- ---------- ---------
Total nonperforming loans 5,335 2,331 1,815
Other real estate 569 467 235
--------- ---------- ---------
Total nonperforming assets $ 5,904 $ 2,798 $ 2,050
========= ========== =========
Percent of nonperforming loans to total loans 1.26% 0.54% 0.44%
Percent of nonperforming assets to total assets 0.98% 0.49% 0.37%
The Company's classification of nonperforming loans is generally consistent with
loans identified as impaired. The amount listed in the table above as other real
estate reflects a small number of properties that were acquired in lieu of
foreclosure. Total dollars in this category is up slightly from December 31,
2002. Properties have been leased to a third party with an option to purchase or
are listed for sale, and no significant losses are anticipated.
Nonperforming assets have increased from prior periods, as credit quality has
declined somewhat. Balances in non-accrual loans are up substantially compared
to the levels achieved at March 31, 2003 and June 30, 2002. Delinquencies are
generally unchanged from year end 2002, and are up from the end of the second
quarter of 2002. Overall, the Company's ratios of nonperforming loans have
increased since December of 2002, substantially all as a result of the increase
in nonaccrual loans.
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 six months ended June 30, 2003 and 2002 follows:
2003 2002
------- -- ----
Balance at January 1: $ 4,975 $ 4,571
Loans charged off (333) (193)
Recoveries credited to allowance 57 61
Provision charged to operations 609 409
------- -------
Balance at June 30 $ 5,308 $ 4,848
======= =======
Page 11
The Company has increased its provision for loan losses over the same period in
2002 as a result of continued loan growth and the upward trend in balances of
nonperforming loans. 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, 2003 and 2002, and December 31, 2002.
6/30/2003 12/31/2002 6/30/2002
--------- ---------- ---------
Business and commercial mortgage $ 4,751 $ 3,950 $ 4,115
Tax exempt - - -
Residential mortgage 38 15 21
Personal 519 571 561
Construction - - -
Unallocated - 439 151
------- ------- -------
Total $ 5,308 $ 4,975 $ 4,848
======= ======= =======
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 29.7% of the portfolio at June 30, 2003, and are
well-secured and have had historically low levels of net losses. Personal and
business loans make up the balance of the portfolio.
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 in Michigan.
DEPOSITS
Deposit growth continued to be strong in the second quarter of 2003, as total
deposits increased at an annualized rate of 21.4% in the quarter. 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, 2003 and 2002.
2003 2002
------ ------
Noninterest bearing deposits 16.2% 13.8%
Interest bearing deposits 83.8% 86.2%
----- -----
Total deposits 100.0% 100.0%
===== =====
Page 12
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 2002. 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.
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, 2003 and 2002, and December 31, 2002. Dollars
are shown in thousands.
Regulatory Guidelines United Bancorp, Inc.
--------------------- --------------------
Adequate Well 6/30/2003 12/31/2002 6/30/2002
-------- ---- --------- ---------- ---------
Tier 1 capital to average assets 4% 5% 8.8% 8.8% 8.6%
Tier 1 capital to risk weighted assets 4% 6% 11.8% 11.6% 11.4%
Total capital to risk weighted assets 8% 10% 13.0% 12.8% 12.6%
Total shareholders' equity $ 55,446 $ 53,380 $ 50,725
Intangible assets (3,469) (3,469) (3,342)
Disallowed servicing assets (163) (97) -
Unrealized (gain) loss on securities available for sale (1,118) (1,281) (1,112)
-------- -------- --------
Tier 1 capital 50,696 48,533 46,271
Allowable loan loss reserves 5,167 4,975 4,848
-------- -------- --------
Tier 2 capital $ 55,863 $ 53,508 $ 51,119
========= ======== ========
RESULTS OF OPERATIONS
Consolidated net income for the second quarter of 2003 was virtually the same as
the second quarter of 2002, and was down from the record earnings of the first
quarter of this year. The following discussion provides an analysis of these
changes.
NET INTEREST INCOME
Net interest income decreased by 2.6% from the second quarter of 2002, and was
down 1.4% from the first quarter of this year. Year to date net interest income
is substantially the same as the first six months of 2003, with more volume.
During the second quarter of 2003, yields on earning assets and the cost of
funds continued to decline as a result of the unprecedented decline in market
interest rates initiated by the Federal Reserve during 2001, 2002 and 2003. At
the same time, the Company's level of excess funding has increased, resulting in
lower overall yields on earning assets. Year to date, spread and net interest
margin is lower than that of the
Page 13
same period of 2002. 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,
2003 and 2002.
YIELD ANALYSIS OF CONSOLIDATED AVERAGE ASSETS AND LIABILITIES
Six months ended June 30,
-----------------------------------------------------------------------
dollars in thousands 2003 2002
-----------------------------------------------------------------------
Average Interest Yield/ Average Interest Yield/
ASSETS Balance (b) Rate (c) Balance (b) Rate (c)
------- --------- -------- ------- -------- --------
Interest earning assets (a)
Federal funds sold $ 21,800 $ 130 1.20% $ 12,617 $ 102 1.62%
Taxable securities 64,521 1,182 3.66% 64,407 1,444 4.49%
Tax exempt securities (b) 29,352 904 6.16% 34,199 1,127 6.59%
Taxable loans 421,814 13,757 6.52% 392,640 14,177 7.22%
Tax exempt loans (b) 1,347 48 7.16% 1,785 68 7.57%
--------- --------- --------- ---------
Total int. earning assets (b) 538,834 16,022 5.95% 505,648 16,918 6.69%
Less allowance for loan losses (5,136) (4,686)
Other assets 45,972 43,627
--------- ---------
TOTAL ASSETS $ 579,670 $ 544,589
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
NOW accounts $ 96,946 362 0.75% $ 87,178 409 0.94%
Savings deposits 158,516 849 1.07% 140,326 1,024 1.46%
CDs $100,000 and over 26,801 545 4.07% 30,064 723 4.81%
Other interest bearing deposits 125,316 1,779 2.84% 146,238 2,530 3.46%
--------- --------- --------- ---------
Total int. bearing deposits 407,579 3,535 1.73% 403,806 4,685 2.32%
Short term borrowings 79 0 0.55% 764 5 1.42%
Other borrowings 40,058 994 4.96% 23,651 688 5.82%
--------- --------- --------- ---------
Total int. bearing liabilities 447,716 4,529 2.02% 428,221 5,379 2.51%
--------- ---------
Noninterest bearing deposits 71,172 61,014
Other liabilities 6,175 5,819
Shareholders' equity 54,607 49,535
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 579,670 $ 544,589
========= =========
Net interest income (b) 11,493 11,539
--------- ---------
Net spread (b) 3.92% 4.18%
===== =====
Net yield on interest earning assets (b) 4.27% 4.56%
===== =====
Tax equivalent adjustment on interest income (309) (396)
-------- --------
Net interest income per income statement $ 11,184 $ 11,143
======== ========
Ratio of interest earning assets to
interest bearing liabilities 1.20 1.18
========= ========
(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
Page 14
As noted from the data in the following table, interest income and interest
expense declined during the first six months of 2003 as a result of changes in
rates. At the same time, net interest income improved as a result of changes in
volume compared to the same period of 2002. The following table shows the effect
of volume and rate changes on net interest income for the six months ended June
30, 2003 and 2002 on a taxable equivalent basis, in thousands of dollars.
2003 Compared to 2002 2002 Compared to 2001
------------------------------ ------------------------------
Increase (Decrease) Due To: (a) Increase (Decrease) Due To: (a)
------------------------------ ------------------------------
Volume Rate Net Volume Rate Net
------- ------- ------- ------- ------- -------
Interest earned on:
Federal funds sold $ 60 $ (32) $ 28 $ (183) $ (285) $ (468)
Taxable securities 3 (265) (262) 531 (371) 160
Tax exempt securities (152) (71) (223) 71 (117) (46)
Taxable loans 1,009 (1,429) (420) 1,878 (2,384) (506)
Tax exempt loans (16) (3) (19) (5) 2 (3)
------- ------- ------- ------- ------- -------
Total interest income $ 904 $(1,800) $ (896) $ 2,292 $(3,155) $ (863)
======= ======= ======= ======= ======= =======
Interest paid on:
NOW accounts $ 42 $ (89) $ (47) $ 192 $ (632) $ (440)
Savings deposits 121 (296) (175) 548 (666) (118)
CDs $100,000 and over (74) (104) (178) (204) (196) (400)
Other interest bearing deposits (333) (418) (751) (707) (1,549) (2,256)
Short term borrowings (3) (2) (5) 5 (5) -
Other borrowings 419 (114) 305 339 (72) 267
------- ------- ------- ------- ------- -------
Total interest expense $ 172 $(1,023) $ (851) $ 173 $(3,120) $(2,947)
======= ======= ======= ======= ======= =======
Net change in net interest
income $ 732 $ (777) $ (45) $ 2,119 $ (35) $ 2,084
======= ======= ======= ======= ======= =======
(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 continues to improve on a quarter-by-quarter basis, and
for the first six months of 2003, is ahead of the same period of 2002 by 24.8%.
While Trust & Investment income and income from the sale of nondeposit
investment products is down, most other categories of noninterest income are
improved from the same period last year. The largest percentage increases
achieved continues to be income from loan sales and servicing.
Service charges on deposit accounts are up 14.0% over the first six months of
2002 and 2.3% above the first quarter of 2003. No significant changes were made
in the Company's service charge structure during the quarter, 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 continued growth and expansion. However, this growth
has been hindered during the past several quarters by declines in the equity
markets, which impact the market value of assets managed and the resulting fee
income. Income in this category is down 2.4% year to date from 2002, but is up
7.0% over the first quarter of 2003 as a result of improving equity markets in
the second quarter.
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 2002 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. Volume of residential mortgage lending continues to be very strong, and
income
Page 15
from the sale and servicing of loans was down 6.1% from the first quarter of
2003, but is up 169.5% over the six months of 2002. The Company does not believe
that this volume of business is sustainable, and is likely to decline
significantly when interest rates increase. As the Company is conservative in
its approach to valuation of mortgage servicing rights, no write-downs in
mortgage servicing rights were required in 2003 or 2002 as a result of declining
market rates.
NONINTEREST EXPENSES
Total noninterest expenses increased 3.5% from the first to the second quarter
of 2003, with most of the increase in occupancy and equipment expense. This
primarily reflects the move of United Bank & Trust - Washtenaw to its new
headquarters in March of 2003. Year to date, noninterest expenses are 5.8%
higher than the same period of last year, with salaries and benefits also
contributing to the increases. This growth in expense reflects the ongoing
expansion of the Banks within their markets.
FEDERAL INCOME TAX
There has been no significant change in the income tax position of the Company.
The effective tax rate was 30.7% for the second quarter of 2003 and 30.4% year
to date, compared to 20.9% for the first quarter of 2003 and 28.5% for the first
six months of 2002. This increase in effective tax rate is a result of lower
yields on the Company's portfolio of tax-exempt loans and investments due to
reinvestment during periods of declining rates.
NET INCOME
Income for the second quarter of 2003 represents the second-best second quarter
in the Company's history, with a decline of 0.2% from the same period in 2002.
In addition, net income was down from the record levels achieved in the prior
three quarters. Management anticipates that net income will remain strong for
the remainder of the year, but with a decrease in the amount of income
attributed to gains on the sale of loans in the secondary market. At the same
time, it is anticipated that other categories of income will improve from
first-half levels, resulting in earnings for the year near 2002 levels.
CRITICAL ACCOUNTING POLICIES
The accounting and reporting policies of the Company are in accordance with
accounting principles generally accepted in the United States and conform to
general practices within the banking industry. The Company's significant
accounting policies are described in detail in the notes to the Company's
consolidated financial statements for the year ended December 31, 2002. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions. The
financial position and results of operations can be affected by these estimates
and assumptions and are integral to the understanding of reported results.
Critical accounting policies are those policies that management believes are the
most important to the portrayal of the Company's financial condition and
results, and they require management to make estimates that are difficult,
subjective, or complex.
Allowance for Credit Losses
The allowance for credit losses provides coverage for probable losses inherent
in the Company's loan portfolio. Management evaluates the adequacy of the
allowance for credit losses each quarter based on changes, if any, in
underwriting activities, the loan portfolio composition (including product mix
and geographic, industry or customer-specific concentrations), trends in loan
performance, regulatory guidance and economic factors. This evaluation is
inherently subjective, as it requires the use of significant management
estimates. Many factors can affect management's estimates of specific and
expected losses, including volatility of default probabilities, rating
migrations, loss severity and economic and political conditions. The allowance
is increased through provisions charged to operating earnings and reduced by net
charge-offs.
Page 16
The Company determines the amount of the allowance based on relative risk
characteristics of the loan portfolio. The allowance recorded for commercial
loans is based on reviews of individual credit relationships and an analysis of
the migration of commercial loans and actual loss experience. The allowance
recorded for homogeneous consumer loans is based on an analysis of loan mix,
risk characteristics of the portfolio, fraud loss and bankruptcy experiences,
and historical losses, adjusted for current trends, for each homogeneous
category or group of loans. The allowance for credit losses relating to impaired
loans is based on the loan's observable market price, the collateral for certain
collateral-dependent loans, or the discounted cash flows using the loan's
effective interest rate.
Regardless of the extent of the Company's analysis of client performance,
portfolio trends or risk management processes, certain inherent but undetected
losses are probable within the loan portfolio. This is due to several factors
including inherent delays in obtaining information regarding a client's
financial condition or changes in their unique business conditions, the
judgmental nature of individual loan evaluations, collateral assessments and the
interpretation of economic trends. Volatility of economic or client-specific
conditions affecting the identification and estimation of losses for larger
non-homogeneous credits and the sensitivity of assumptions utilized to establish
allowances for homogenous groups of loans are among other factors. The Company
estimates a range of inherent losses related to the existence of these
exposures. The estimates are based upon the Company's evaluation of imprecision
risk associated with the commercial and consumer allowance levels and the
estimated impact of the current economic environment.
Mortgage Servicing Rights
Mortgage servicing rights ("MSRs") associated with loans originated and sold,
where servicing is retained, are capitalized and included in other intangible
assets in the consolidated balance sheet. The value of the capitalized servicing
rights represents the present value of the future servicing fees arising from
the right to service loans in the portfolio. Critical accounting policies for
MSRs relate to the initial valuation and subsequent impairment tests. The
methodology used to determine the valuation of MSRs requires the development and
use of a number of estimates, including anticipated principal amortization and
prepayments of that principal balance. Events that may significantly affect the
estimates used are changes in interest rates, mortgage loan prepayment speeds
and the payment performance of the underlying loans. The carrying value of the
MSRs is periodically reviewed for impairment based on a determination of fair
value. For purposes of measuring impairment, the servicing rights are compared
to a valuation prepared based on a discounted cash flow methodology, utilizing
current prepayment speeds and discount rates. Impairment, if any, is recognized
through a valuation allowance and is recorded as amortization of intangible
assets.
Goodwill and Other Intangibles
The Company records all assets and liabilities acquired in purchase
acquisitions, including goodwill and other intangibles, at fair value as
required by SFAS 141. Goodwill is subject, at a minimum, to annual tests for
impairment. Other intangible assets are amortized over their estimated useful
lives using straight-line and accelerated methods, and are subject to impairment
if events or circumstances indicate a possible inability to realize the carrying
amount. The initial goodwill and other intangibles recorded and subsequent
impairment analysis requires management to make subjective judgments concerning
estimates of how the acquired asset will perform in the future. Events and
factors that may significantly affect the estimates include, among others,
customer attrition, changes in revenue growth trends, specific industry
conditions and changes in competition.
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,"
Page 17
"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.
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, 2003, the Company
would expect a maximum potential reduction in net interest margin of less than
10% if market rates increased under an immediate and sustained parallel shift of
200 basis points. The Company's interest sensitivity position is slightly more
asset- sensitive than in the first quarter, continuing a trend evident
throughout 2002. 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.
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.
Page 18
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.
Within the 90-day period prior to the filing date of this report, 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 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. Subsequent to the date of their evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that there were no
significant changes in the company's internal controls or in other factors that
could significantly affect its internal controls, including any corrective
actions with regard to significant deficiencies and material weaknesses.
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.
Page 19
ITEM 2- CHANGES IN SECURITIES AND USE OF PROCEEDS
No changes in the securities of the Company occurred during the quarter ended
June 30, 2003.
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 June 30, 2003.
ITEM 4- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on April 15, 2003. At
that meeting, the following matters were submitted to a vote of the
shareholders. There were 2,114,765 voting shares outstanding on April 15, 2003.
The following directors were elected to three-year terms:
Action For Against Abstain
------ --- ------- -------
Joseph D. Butcko re-elected 1,579,618 - 6,837
George H. Cress re-elected 1,578,576 - 7,879
Robert K. Chapman re-elected 1,581,357 - 5,098
Kathryn M. Mohr elected 1,564,498 - 21,957
Directors Foss, Garcia, Hickman, Lawson, Martin, Maxwell and McKenney hold terms
that continue after the meeting.
No other matters were submitted to a vote of security holders during the quarter
ended June 30, 2003.
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) The Company has filed no reports on Form 8-K during the quarter ended June
30, 2003.
Page 20
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 13, 2003
/S/ Dale L. Chadderdon
- -------------------------------------------------------
Dale L. Chadderdon
Senior Vice President, Secretary & Treasurer
Page 21
10-Q 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.
Page 22