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 MARCH 31, 2007
----------
COMMISSION FILE #0-16640
UNITED BANCORP, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2606280
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
205 E. CHICAGO BOULEVARD, TECUMSEH, MI 49286
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (517) 423-8373
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter periods that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated Filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company as defined in
Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
As of April 30, 2007, there were outstanding 2,612,786 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 (Unaudited)
(a) Condensed Consolidated Balance Sheets 3
(b) Condensed Consolidated Statements of Income 4
(c) Condensed Consolidated Statements of Shareholders'
Equity 5
(d) Condensed Consolidated Statements of Cash Flows 6
(e) Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Background 10
Executive Summary 10
Financial Condition 11
Liquidity and Capital Resources 15
Results of Operations 15
Critical Accounting Policies 18
Forward-Looking Statements 18
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
Item 4. Controls and Procedures 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21
Item 6. Exhibits 21
Signatures 21
Exhibits 22
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Page 2
PART I
FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
(A) CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (unaudited)
March 31, December 31, March 31,
In thousands of dollars 2007 2006 2006
----------- ------------ -----------
ASSETS
Cash and demand balances in other banks $ 18,348 $ 17,606 $ 20,430
Federal funds sold 4,020 3,770 12,000
-------- -------- --------
Total cash and cash equivalents 22,368 21,376 32,430
Securities available for sale 90,991 95,811 95,749
Loans held for sale 3,258 5,772 316
Portfolio loans 611,845 595,991 558,748
-------- -------- --------
Total loans 615,103 601,763 559,064
Less allowance for loan losses 9,229 7,849 6,581
-------- -------- --------
Net loans 605,874 593,914 552,483
Premises and equipment, net 13,358 13,215 12,737
Goodwill 3,469 3,469 3,469
Bank-owned life insurance 11,605 11,499 11,190
Accrued interest receivable and other assets 12,808 11,705 10,268
-------- -------- --------
TOTAL ASSETS $760,473 $750,989 $718,326
======== ======== ========
LIABILITIES
Deposits
Noninterest bearing $ 81,565 $ 81,373 $ 88,943
Interest bearing 554,848 546,629 514,234
-------- -------- --------
Total deposits 636,413 628,002 603,177
Federal funds purchased and other short term borrowings 77 77 76
Other borrowings 42,627 40,945 39,228
Accrued interest payable and other liabilities 6,079 7,429 5,984
-------- -------- --------
TOTAL LIABILITIES 685,196 676,453 648,465
COMMITMENT AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY
Common stock and paid in capital, no par value;
5,000,000 shares authorized; 2,621,286, 2,623,716, and
2,499,038 shares issued and outstanding 71,030 71,075 63,431
Retained earnings 4,110 3,393 6,839
Accumulated other comprehensive income (loss), net of tax 137 68 (409)
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 75,277 74,536 69,861
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $760,473 $750,989 $718,326
======== ======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 3
(B) CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months
Ended
In thousands of dollars, except per share data March 31,
-----------------
2007 2006
------- -------
INTEREST INCOME
Interest and fees on loans $11,153 $10,076
Interest on securities
Taxable 693 531
Tax exempt 381 353
Interest on federal funds sold 126 71
------- -------
Total interest income 12,353 11,031
INTEREST EXPENSE
Interest on deposits 4,558 3,344
Interest on short term and other borrowings 504 484
------- -------
Total interest expense 5,062 3,828
------- -------
NET INTEREST INCOME 7,291 7,203
Provision for loan losses 1,509 366
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,782 6,837
NONINTEREST INCOME
Service charges on deposit accounts 810 763
Trust and investment fee income 960 993
Gains (losses) on securities transactions 1 (2)
Income from loan sales and servicing 376 182
ATM, debit and credit card fee income 472 431
Income from sale of nondeposit investment products 254 227
Income from bank-owned life insurance 106 99
Other income 231 198
------- -------
Total noninterest income 3,210 2,891
NONINTEREST EXPENSE
Salaries and employee benefits 3,607 3,874
Occupancy and equipment expense, net 1,221 1,091
External data processing 291 350
Advertising and marketing 361 270
Professional fees 118 269
Other expense 1,091 928
------- -------
Total noninterest expense 6,689 6,782
------- -------
INCOME BEFORE FEDERAL INCOME TAX 2,303 2,946
Federal income tax 577 801
------- -------
NET INCOME $ 1,726 $ 2,145
======= =======
Basic and diluted earnings per share $ 0.65 $ 0.81
Cash dividends declared per share of common stock $ 0.38 $ --
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 4
(C) CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Three Months
Ended
March 31,
-----------------
In thousands of dollars 2007 2006
------- -------
TOTAL SHAREHOLDERS' EQUITY
Balance at beginning of period $74,536 $67,622
Net Income 1,726 2,145
Other comprehensive income:
Net change in unrealized gains (losses) on securities
available for sale, net of reclass adjustments for
realized gains (losses) and related taxes 69 (140)
------- -------
Total comprehensive income 1,795 2,005
Cash dividends declared (997) --
Purchase of common stock (221) --
Other common stock transactions 164 234
------- -------
Balance at end of period $75,277 $69,861
======= =======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 5
(D) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
------------------
In thousands of dollars 2007 2006
-------- -------
Cash Flows from Operating Activities
Net income $ 1,726 $ 2,145
Adjustments to Reconcile Net Income to Net Cash from Operating Activities
Depreciation and amortization 372 416
Provision for loan losses 1,509 366
Gain on sale of loans (286) (95)
Proceeds from sales of loans originated for sale 16,888 4,899
Loans originated for sale (14,375) (4,059)
(Gains)/Losses on securities transactions (1) 2
Change in accrued interest receivable and other assets (1,086) 354
Increase in cash surrender value on bank-owned life insurance (106) (99)
Losses on investment in limited partnership 30 95
Excess tax benefits from exercised stock options -- (26)
Change in accrued interest payable and other liabilities (1,120) 170
-------- -------
Net cash from operating activities 3,551 4,168
Cash Flows from Investing Activities
Securities available for sale
Purchases (100) --
Maturities and calls 3,965 6,075
Principal payments 1,096 1,357
Net change in portfolio loans (15,851) (1,903)
Premises and equipment expenditures, net (477) (81)
-------- -------
Net cash from (used in) investing activities (11,367) 5,448
Cash Flows from Financing Activities
Net change in deposits 8,411 12,525
Net change in short term borrowings -- (6,300)
Proceeds from other borrowings 15,030 --
Principal payments on other borrowings (13,579) (3,164)
Purchase of common stock (221) --
Proceeds from other common stock transactions 164 234
Excess tax benefits from exercised stock options -- 26
Dividends paid (997) (923)
-------- -------
Net cash from financing activities 8,808 2,398
-------- -------
Net change in cash and cash equivalents 992 12,014
Cash and cash equivalents at beginning of year 21,376 20,416
-------- -------
Cash and cash equivalents at end of period $ 22,368 $32,430
======== =======
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 4,774 $ 3,578
Income tax paid 237 --
Loans transferred to other real estate 155 60
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, 2006 has been derived from the audited consolidated
balance sheet of the Company as of that date. Operating results for the three
month period ending March 31, 2007 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2007. 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, 2006.
STOCK OPTIONS
In 2004, shareholders approved the Company's 2005 Stock Option Plan (the "2005
Plan"). The plan is a non-qualified stock option plan as defined under Internal
Revenue Service regulations. Under the plan, directors and management of the
Company and subsidiaries are given the right to purchase stock of the Company at
a stipulated price, adjusted for stock dividends, over a specific period of
time. The 2005 Plan will continue in effect until the end of 2009, and is the
only plan in effect in 2007. The 2005 Plan is the successor to the Company's
1999 Stock Option Plan (the "1999 Plan") that continued in effect until the end
of 2004.
The stock subject to the options are shares of authorized and unissued common
stock of the Company. Options under the 1999 and 2005 Plans (the "Plans") 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 Plans, adjusted for stock dividends:
Stock Options
----------------------------
Options Weighted Avg.
Outstanding Exercise Price
----------- --------------
Balance at January 1, 2007 143,493 $53.19
Options granted 23,600 45.00
Options exercised -- --
Options forfeited -- --
-------
Balance at March 31, 2007 167,093 $52.03
=======
Total options granted during the three-month period ended March 31, 2007 were
23,600, and the weighted fair value of the options granted was $5.23. For stock
options outstanding at March 31, 2007, the range of average exercise prices was
$34.11 to $64.29 and the weighted average remaining contractual term was 7.30
years. At March 31, 2007, 106,269 options are exercisable under the Plans.
Page 7
The Company has recorded approximately S46,853 in compensation expense related
to vested stock options less estimated forfeitures for the three month period
ended March 31, 2007. As of March 31, 2007, unrecognized compensation expense
related to the stock options totaled $306,630 and is expected to be recognized
over 3 years.
At March 31, 2007, the aggregate intrinsic value of options outstanding totaled
$181,680. This value represents the difference between the Company's closing
stock price on the last day of trading for the first quarter and the exercise
price multiplied by the number of in-the-money options assuming all option
holders had exercised their stock options on March 31, 2007. No options were
exercised during the quarter ending March 31, 2007.
NOTE 2 - LOAN SERVICING
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 $228,024,000 and $232,716,000 at the end of March,
2007 and 2006. The balance of loans serviced for others related to servicing
rights that have been capitalized was $226,355,000 and $231,398,000 at March 31,
2007 and 2006. Mortgage servicing rights activity in thousands of dollars for
the three months ended March 31, 2007 and 2006 follows:
2007 2006
------ ------
Balance at January 1 $1,541 $1,645
Amount capitalized year to date 49 18
Amount amortized year to date (53) (59)
------ ------
Balance at March 31 $1,537 $1,604
====== ======
No valuation allowance was considered necessary for mortgage servicing rights at
period end 2007 and 2006.
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, 2006, the Company declared a 5%
stock dividend payable in May, 2006. Earnings per share, dividends per share and
weighted average shares have been restated to reflect the 5% stock dividend. A
reconciliation of basic and diluted earnings per share follows:
Three Months Ended
March 31,
-----------------------
In thousands of dollars, except per share data 2007 2006
---------- ----------
Net income $ 1,726 $ 2,145
========== ==========
Basic earnings:
Weighted average common shares outstanding 2,624,487 2,622,845
Weighted average contingently issuable shares 30,219 26,920
---------- ----------
Total weighted average shares outstanding 2,654,706 2,649,765
========== ==========
Basic earnings per share $ 0.65 $ 0.81
========== ==========
Diluted earnings:
Weighted average common shares outstanding
from basic earnings per share 2,654,706 2,649,765
Dilutive effect of stock options -- 895
---------- ----------
Total weighted average shares outstanding 2,654,706 2,650,660
========== ==========
Diluted earnings per share $ 0.65 $ 0.81
========== ==========
Page 8
A total of 126,557 and 74,986 shares for the three month period ended March 31,
2007 and 2006, represented by stock options granted, are not included in the
above calculations as they are non-dilutive as of the date of this report.
Effective with the first quarter of 2006, cash dividends are declared and are
payable in the month following the end of the quarter, and as a result of this
change, there was no cash dividend declared during the first quarter of 2006. A
cash dividend of $0.38 per share was declared and paid in January, 2007.
In February of 2007, the Company announced a program to repurchase up to 130,000
shares of its common stock through open market purchases. Information regarding
activity in this program is included in Part II, Item 2, "Unregistered Sales of
Equity Securities and Use of Proceeds."
NOTE 4 - ACCOUNTING DEVELOPMENTS
On September 6, 2006, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value Measurements. SFAS 157 clarifies the fair
value measurement objective, its application in GAAP and establishes a framework
that builds on current practice and requirements. The framework simplifies and,
where appropriate, codifies the similar guidance in existing pronouncements and
applies broadly to financial and non financial assets and liabilities. The
Statement clarifies the definition of fair values as a price that would be
received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date, known as an
exit-price definition of fair value. It also provides further guidance on the
valuation techniques to be used in estimating fair value. Current disclosures
about the use of fair value to measure assets and liabilities are expanded in
this Statement. The disclosures focus on the methods used for fair value
measurements and apply whether the assets and liabilities are measured at fair
value in all periods, such as trading securities, or in only some periods, such
as impaired assets. The Statement is effective for all financial statements
issued for fiscal years beginning after November 15, 2007 as well as for interim
periods within such fiscal years. The Company is currently evaluating the impact
of this Statement on its financial statements.
In February, 2007, the FASB issued Statement of Financial Accounting Standards
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities -
including an amendment of FASB Statement No. 115. SFAS 159 allows companies to
report selected financial assets and liabilities at fair value. The changes in
fair value are recognized in earnings and the assets and liabilities measured
under this methodology are required to be displayed separately in the balance
sheet. The main intent of the Statement is to mitigate the difficulty in
determining reported earnings caused by a "mixed-attribute model" (or reporting
some assets at fair value and others using a different valuation attribute such
as amortized cost). The project is separated into two phases. The first phase
addresses the creation of a fair value option for financial assets and
liabilities. A second phase will address creating a fair value option for
selected non-financial items. SFAS 159 is effective for all financial statements
issued for fiscal years beginning after November 15, 2007. The Company is
currently evaluating the impact of this Statement on its financial statements
and did not elect to adopt early.
The Company or one of its subsidiaries files income tax returns in the U.S.
federal and Michigan jurisdictions. With few exceptions, the Company is no
longer subject to U.S. federal, state and local examinations by tax authorities
for years before 2004.
The Company adopted the provisions of the Financial Accounting Standards Board
(FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109, on January 1, 2007. FIN 48 prescribes
a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. As a result of the
implementation of FIN 48, the Company did not identify any uncertain tax
positions that it believes should be recognized in the financial statements.
Page 9
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 for United Bancorp, Inc. and its subsidiary banks,
United Bank & Trust ("UBT") and United Bank & Trust - Washtenaw ("UBTW") for the
three month period ended March 31, 2007 and 2006.
BACKGROUND
The Company is a financial holding company registered with the Board of
Governors of the Federal Reserve System under the Bank Holding Company Act. The
Company has corporate power to engage in such activities as permitted to
business corporations under the Michigan Business Corporation Act, subject to
the limitations of the Bank Holding Company Act and regulations of the Federal
Reserve System. The Company's subsidiary banks offer a full range of services to
individuals, corporations, fiduciaries and other institutions. Banking services
include checking, NOW accounts, savings, time deposit accounts, money market
deposit accounts, safe deposit facilities, electronic banking and bill payment,
and money transfers. Lending operations provide real estate loans, secured and
unsecured business and personal loans, consumer installment loans, check-credit
loans, home equity loans, accounts receivable and inventory financing, equipment
lease financing and construction financing.
The Banks offer the sale of nondeposit investment products through licensed
representatives in their banking offices, and sell credit and life insurance
products. In addition, the Company and/or the Banks are co-owners of Michigan
Banker's Title Insurance Company of Mid-Michigan LLC, and derive income from the
sale of various insurance products to banking clients. UBT operates a trust
department, and provides trust services to UBTW on a contract basis. The Wealth
Management Group offers a variety of fiduciary services to individuals,
corporations and governmental entities, including services as trustee for
personal, pension, and employee benefit trusts. The department provides trust
services, financial planning services, investment services, custody services,
pension paying agent services and acts as the personal representative for
estates. These products help to diversify the Company's sources of income.
Unemployment for the State of Michigan continues to rank among the highest of
the fifty states. Over the previous twelve months, the Banks have experienced
slower loan growth and a decline in their loan quality due to the current
economic conditions of the state and market areas.
EXECUTIVE SUMMARY
Net income for the first quarter of 2007 was $1,726,016, or $0.65 per share, a
decline of 19.5% over the first quarter of 2006. The reduction in income was a
result of additional allowance for loan loss recognized by the Company relating
to a few large business credits. Interest income for the period increased 12.0%
over the same period last year while interest expense increased 32.2% from March
31, 2006 resulting in an increase in net interest margin of 1.2%. Total
noninterest income continues to grow as the Company expands, up $318,100 over
the same quarter last year, while noninterest expenses declined 1.4% during the
same period.
Return on average assets, return on average shareholders' equity, net interest
income and net income declined for the second consecutive quarter. The following
chart shows the trends in the major components of earnings for the past five
quarters.
Page 10
2006
2007 -------------------------------------
in thousands of dollars, where appropriate 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
------- ------- ------- ------- -------
Net interest income $7,291 $7,424 $7,428 $7,199 $7,203
Provision for loan losses 1,509 921 396 440 366
Noninterest income 3,210 3,110 3,123 3,051 2,891
Noninterest expense 6,689 6,598 6,742 6,791 6,782
Federal income tax provision 577 818 967 835 801
Net income $1,726 $2,197 $2,446 $2,184 $2,145
Earnings per share (a) $0.650 $0.828 $0.922 $0.824 $0.809
Return on average assets (b) 0.92% 1.18% 1.32% 1.20% 1.21%
Return on average shareholders' equity (b) 9.35% 11.85% 13.52% 12.48% 12.62%
(a) Basic earnings per share, adjusted for stock dividends paid
(b) annualized
Total consolidated assets of the Company at March 31, 2007 were $760.5 million
an increase of 5.9% over the same period last year. Loan balances increased
10.0% to $615.1 million during the preceding twelve months, while deposits grew
to $636.4 million, an increase of 5.5% since March 31, 2006. During the quarter,
total loans have grown $13.3 million and deposits are up 1.3%, while total
assets have increased $9.5 million.
FINANCIAL CONDITION
SECURITIES
The Company's investment securities portfolio declined by $4.8 million in the
first quarter of 2007, and balances have decreased 5.0% since March 31, 2006 as
the Company has elected not to replace some maturing investments to fund
additional loan growth. The mix of the Company's investment portfolio has
changed slightly during the past twelve months, as the percentage of investments
held in Treasury, agency and mortgage backed agency securities has declined and
the percentage of municipal obligations and other investments has increased
slightly.
The table below reflects the fair value of various categories of investment
securities of the Company:
In thousands of dollars 3/31/07 12/31/06 3/31/06
------- -------- -------
U.S. Treasury and agency securities $35,349 $38,380 $40,726
Mortgage backed agency securities 12,858 13,945 13,463
Obligations of states and political subdivisions 39,561 40,369 38,316
Equity and other securities 3,223 3,117 3,244
------- ------- -------
Total Investment Securities $90,991 $95,811 $95,749
======= ======= =======
The chart below shows the percentage composition of the Company's investment
portfolio as of the end of the current quarter for 2007 and 2006, and at
December 31, 2006.
3/31/07 12/31/06 3/31/06
------- -------- -------
U.S. Treasury and agency securities 38.9% 40.0% 42.5%
Mortgage backed agency securities 14.1% 14.6% 14.1%
Obligations of states and political subdivisions 43.5% 42.1% 40.0%
Corporate, asset backed, and other securities 3.5% 3.3% 3.4%
----- ----- -----
Total Securities 100.0% 100.0% 100.0%
===== ===== =====
Page 11
The Company is conservative in its investments, preferring to concentrate its
risks within the loan portfolio. Investments in U.S. Treasury and agency
securities are considered to possess low credit risk. Obligations of U.S.
government agency mortgage-backed securities possess a somewhat higher interest
rate risk due to certain prepayment risks. The corporate, asset backed and other
securities portfolio also contains a moderate level of credit risk. The
municipal portfolio contains a small amount of geographic risk, as less than 27%
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.
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.
Unrealized gains and losses within the investment portfolio are temporary, since
they are a result of market changes, rather than a reflection of credit quality.
Management has no specific intent to sell any securities, although the entire
investment portfolio is classified as available for sale. The chart below
summarizes unrealized gains and losses in each category of the portfolio for the
three month period, in thousands of dollars.
2007 2006 Change
---- ----- ------
U.S. Treasury and agency securities $ 13 $(383) $396
Mortgage backed agency securities (35) (202) 167
Obligations of states and political subdivisions 149 (104) 253
Corporate, asset backed and other securities 81 69 12
---- ----- ----
Total investment securities $208 $(620) $828
==== ===== ====
LOANS
Gross loans increased by $13.3 million in the first quarter of 2007, bringing
the twelve-month loan growth to $56.0 million, for an increase of 10.0% over the
previous twelve months. The personal loan portfolio experienced modest growth
during the first three months of 2007, with business loans and commercial
mortgages and construction and development loans providing the largest portion
of growth in the loan portfolio during the first quarter of 2007. Residential
mortgages were down slightly from the previous quarter, but have grown
significantly over the past twelve months.
The portfolio continues to evolve and the trend of the portfolio mix has changed
during the first three months of the year. Personal loans and residential
mortgage balances decreased as a percentage of total loans since December 31,
2006 while business loans remained flat. Construction and development loans as a
percentage of total loans increased over the previous quarter but declined from
the same period a year ago.
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.
March 31, 2007 December 31, 2006 March 31, 2006
---------------- ----------------- ----------------
% of % of % of
Balance total Balance total Balance total
-------- ----- -------- ------ -------- -----
Total loans:
Personal $ 91,840 14.9% $ 91,002 15.1% $ 81,078 14.5%
Business loans and
commercial mortgages 334,628 54.4% 327,928 54.5% 305,904 54.7%
Tax exempt 3,054 0.5% 2,841 0.5% 3,255 0.6%
Residential mortgage 84,541 13.7% 85,636 14.2% 66,943 12.0%
Construction & development 101,040 16.4% 94,356 15.7% 101,884 18.2%
-------- ----- -------- ------ -------- -----
Total loans $615,103 100.0% $601,763 100.00% $559,064 100.0%
======== ===== ======== ====== ======== =====
Page 12
CREDIT QUALITY
United experienced a significant increase in the amount of nonperforming loans
in the first quarter of 2007 due to credit quality issues with a few large
business loans. The Company has also made a corresponding increase in its
allowance for loan loss to mitigate future losses associated with these loans.
The Company continues to maintain a process of actively monitoring
delinquencies, nonperforming assets and potential problem loans.
The Company's total nonperforming assets increased by $4.6 million from December
31, 2006 totals, with all of the increase isolated to nonaccrual loans. The
increase in nonaccrual loans is attributable to the deterioration of credit
quality on a few large business loans. Delinquent loans declined during the
quarter while property held as other real estate remained flat. As of March 31,
2007, non-performing assets as a percentage of total loans was 1.76%, up from
0.99% as of March 31, 2006. This increase continues the trend the Company has
experienced during the past twelve months. Collection efforts are underway with
past due and nonaccrual loans, and the Company continues to monitor the level of
their nonperforming assets.
The aggregate amount of nonperforming loans is presented in the table below. 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 following
chart shows the aggregate amount of the Company's nonperforming assets by type,
in thousands of dollars.
3/31/07 12/31/06 3/31/06
------- -------- -------
Nonaccrual loans $10,629 $5,427 $4,052
Loans past due 90 days or more 226 855 566
Troubled debt restructurings -- -- 898
------- ------ ------
Total nonperforming loans 10,855 6,282 5,516
Other real estate owned 1,081 1,063 611
------- ------ ------
Total nonperforming assets $11,936 $7,345 $6,127
======= ====== ======
Percent of nonperforming loans to total loans 1.76% 1.04% 0.99%
Percent of nonperforming assets to total assets 1.57% 0.98% 0.85%
As of March 31, 2007, the Company has no loans classified as a troubled debt
restructuring. The amount listed in the table above as other real estate
reflects a small number of properties that were acquired in lieu of foreclosure.
Properties have been leased to a third party with an option to purchase or are
listed for sale, and no significant losses are anticipated.
The Company's allowance for loan losses remains at a level consistent with its
estimated losses, and the allowance provides for currently estimated losses
inherent in the portfolio. An analysis of the allowance for loan losses, in
thousands of dollars, for the three months ended March 31, 2007 and 2006
follows:
2007 2006
------ ------
Balance at January 1 $7,849 $6,361
Loans charged off (137) (161)
Recoveries credited to allowance 8 15
Provision charged to operations 1,509 366
------ ------
Balance at March 31 $9,229 $6,581
====== ======
Page 13
The following table presents the allocation of the allowance for loan losses
applicable to each loan category in thousands of dollars, as of March 31, 2007
and 2006, and December 31, 2006.
3/31/07 12/31/06 3/31/06
------- -------- -------
Business and commercial mortgage $8,223 $6,911 $5,676
Tax exempt -- -- --
Residential mortgage 113 24 15
Personal 888 889 776
Construction -- -- --
Unallocated 5 25 114
------ ------ ------
Total $9,229 $7,849 $6,581
====== ====== ======
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 the
market areas served by the Banks.
Loans to finance residential mortgages make up 13.7% of the portfolio at March
31, 2007, and are well-secured and have had historically low levels of net
losses. Personal and business loans, including business mortgages and
construction and development loans, make up the balance of the portfolio. The
personal loan portfolio consists of direct and indirect installment, credit
cards, home equity and unsecured revolving line of credit loans. Installment
loans consist primarily of loans for consumer durable goods, principally
automobiles. Indirect personal loans consist of loans for automobiles, marine
and manufactured housing.
DEPOSITS
United continued to experience positive deposit growth during the first quarter
of 2007, as total deposits increased by $8.4 million. This represents an
annualized rate of 5.4%, compared to deposit growth over the past twelve months
of 5.5%. Short-term interest bearing accounts continue to be very popular with
clients, and demand deposit balances increased modestly. The Banks continue to
experience interest by consumers in certificates of deposit, and traditional
banking products continue to be an important part of the Company's product line.
In addition, the Banks have increased their emphasis on gathering core deposits
within their market areas, in order to fund anticipated future loan growth.
While the Banks maintain a small amount of purchased or brokered deposits, they
do not support their growth through the use of those products. The Banks'
deposit rates are consistently competitive with other banks in its market area.
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 chart below shows the percentage makeup of the deposit portfolio as of March
31, 2007 and 2006, and December 31, 2006.
3/31/07 12/31/06 3/31/06
------- -------- -------
Noninterest bearing deposits 12.8% 13.0% 14.7%
Interest bearing deposits 87.2% 87.0% 85.3%
----- ----- -----
Total deposits 100.0% 100.0% 100.0%
===== ===== =====
Page 14
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY, CASH EQUIVALENTS AND BORROWED FUNDS
The Company maintains correspondent accounts with a number of other banks for
various purposes. In addition, cash sufficient to meet the operating needs of
its banking offices is maintained at its lowest practical levels. At times, the
Banks are a participant in the federal funds market, either as a borrower or
seller. Federal funds are generally borrowed or sold for one-day periods. The
Banks also have the ability to utilize short-term advances from the Federal Home
Loan Bank ("FHLB") and borrowings at the discount window of the Federal Reserve
Bank as additional short-term funding sources. Federal funds were used during
2006 and 2007. 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
serve primarily to provide a balance to some of the interest rate risk inherent
in the Company's balance sheet. During the first quarter of 2007, outstanding
advances increased $1.7 million. The Company repaid $13.3 million in matured
borrowings and replaced the matured funding with $15.0 million in new advances.
CAPITAL RESOURCES
The Company and the Banks were categorized as well-capitalized at March 31, 2007
and 2006 and December 31, 2006 by their regulators. The following table shows
the Company's capital ratios and ratio calculations as of March 31, 2007 and
2006, and December 31, 2006. Dollars are shown in thousands.
Regulatory
Guidelines United Bancorp, Inc.
--------------- ----------------------------
Adequate Well 3/31/07 12/31/06 3/31/06
-------- ---- ------- -------- -------
Tier 1 capital to average assets 4% 5% 9.5% 9.8% 9.3%
Tier 1 capital to risk weighted assets 4% 6% 11.6% 11.6% 11.6%
Total capital to risk weighted assets 8% 10% 13.0% 12.9% 12.7%
Total shareholders' equity $75,277 $74,536 $69,861
Intangible assets (3,469) (3,469) (3,469)
Disallowed servicing assets -- -- --
Unrealized (gain) loss on securities available for sale (137) (68) 409
------- ------- -------
Tier 1 capital 71,671 70,999 66,801
Allowable loan loss reserves 9,229 7,849 6,581
------- ------- -------
Tier 1 and 2 capital $80,900 $78,848 $73,382
======= ======= =======
RESULTS OF OPERATIONS
During the first quarter of 2007, net interest income increased 1.2%,
noninterest income continued to improve, while noninterest expenses were
reduced. Consolidated net income for the first quarter of 2007 was $1.726
million, a 19.5% decline from the same period last year and a 21.4% decrease
from December 31, 2006. The decline in net income as compared to prior periods
is a result of an increase in the allowance for loan loss related to the
recognition of impairment issues on a few large business loans. The following
discussion provides an analysis of the various components of these changes.
Page 15
NET INTEREST INCOME
Net interest income was down slightly from the prior quarter but improved from
March 31, 2006 despite a flat yield curve and compressed margins. During the
first quarter interest income remained flat while interest expense increased
2.3%, resulting in a decrease in net interest income from December 31, 2006 of
$132,000. Although the Company's yield on earning assets increased during the
quarter, deposit costs increased at a faster rate. The Company's year to date
yield on earning assets was up thirty-two basis points from the same period of
2006, while its cost of funds increased from the three-month 2006 levels by
sixty-five basis points, resulting in a decrease of thirty-three basis points in
the tax equivalent spread.
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 March 31, 2007 and
2006.
Three Months Ended March 31,
-------------------------------------------------------------
2007 2006
---------------------------- ------------------------------
Yield/
Average Interest Rate Average Interest Yield/
dollars in thousands Balance (b) (c) Balance (b) Rate (c)
-------- -------- ------ -------- -------- --------
ASSETS
Interest earning assets (a)
Federal funds sold $ 9,955 $ 126 5.07% $ 6,336 $ 71 4.48%
Taxable securities 55,546 693 4.99% 62,756 531 3.38%
Tax exempt securities (b) 38,278 557 5.82% 37,024 523 5.65%
Taxable loans 603,032 11,123 7.38% 555,675 10,043 7.23%
Tax exempt loans (b) 2,838 45 6.33% 3,122 49 6.27%
-------- ------- -------- -------
Total int. earning assets (b) 709,649 12,544 7.07% 664,913 11,217 6.75%
Less allowance for loan losses (7,868) (6,420)
Other assets 57,487 59,395
-------- --------
TOTAL ASSETS $759,268 $717,888
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
NOW accounts $114,651 407 1.42% $115,886 354 1.22%
Savings deposits 176,772 1,228 2.78% 181,257 994 2.19%
CDs $100,000 and over 110,702 1,320 4.77% 79,155 795 4.02%
Other interest bearing deposits 148,753 1,603 4.31% 135,275 1,201 3.55%
-------- ------- -------- -------
Total int. bearing deposits 550,878 4,558 3.31% 511,573 3,344 2.61%
Short term borrowings 580 7 4.72% 3,314 40 4.87%
Other borrowings 42,436 497 4.68% 39,615 444 4.48%
-------- ------- -------- -------
Total int. bearing liabilities 593,894 5,062 3.41% 554,502 3,828 2.76%
------- -------
Noninterest bearing deposits 81,633 86,544
Other liabilities 8,908 7,906
Shareholders' equity 74,833 68,936
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $759,268 $717,888
======== ========
Net interest income (b) 7,482 7,389
------- -------
Net spread (b) 3.66% 3.99%
==== ====
Net yield on interest earning assets (b) 4.22% 4.44%
==== ====
Tax equivalent adjustment on interest income (191) (186)
------- -------
Net interest income per income statement $ 7,291 $ 7,203
======= =======
Ratio of interest earning assets to interest bearing
liabilities 1.19 1.20
==== ====
(a) Non-accrual loans and overdrafts are included in the average balances of
loans.
(b) Fully tax-equivalent basis, net of nondeductible interest impact; 34% tax
rate.
(c) Annualized
Page 16
As noted from the data in the following table, interest income and expense for
the first three months of 2007 increased from the same period of 2006, and net
interest income improved by $93,000 over the same period. During that time,
interest income and interest expense both increased as a result of volume and
rate increases. The improvement in net interest income for the first three
months of 2007 was positively impacted due to volume changes but negatively
affected by rate changes in the interest expense categories.
The following table shows the effect of volume and rate changes on net interest
income for the three months ended March 31, 2007 and 2006 on a taxable
equivalent basis, in thousands of dollars.
2007 Compared to 2006 2006 Compared to 2005
Increase (Decrease) Increase (Decrease)
Due To: (a) Due To: (a)
----------------------- ------------------------
Volume Rate Net Volume Rate Net
------ ----- ------ ------ ------ ------
Interest earned on:
Federal funds sold $ 45 $ 10 $ 55 $ 5 $ 32 $ 37
Taxable securities (67) 229 162 (89) 89 --
Tax exempt securities 18 16 34 136 (44) 92
Taxable loans 870 210 1,080 920 1,300 2,220
Tax exempt loans (4) -- (4) (3) (6) (9)
---- ----- ------ ---- ------ ------
Total interest income $862 $ 465 $1,327 $969 $1,371 $2,340
==== ===== ====== ==== ====== ======
Interest paid on:
NOW accounts $ (4) $ 57 $ 53 $(18) $ 87 $ 69
Savings deposits (25) 259 234 26 413 439
CDs $100,000 and over 357 168 525 273 146 419
Other interest bearing deposits 128 274 402 143 220 363
Short term borrowings (33) (1) (34) 23 10 33
Other borrowings 33 20 53 (36) 3 (33)
---- ----- ------ ---- ------ ------
Total interest expense $456 $ 777 $1,233 $411 $ 879 $1,290
==== ===== ====== ==== ====== ======
Net change in net interest
income $406 $(312) $ 92 $558 $ 492 $1,050
==== ===== ====== ==== ====== ======
(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.
PROVISION FOR LOAN LOSS
The provision for loan losses for the first quarter of 2007 was $1.509 million,
an increase of over $580,000 from the fourth quarter of 2006 and a 312% increase
from the first quarter of last year. The significant increase in the provision
for the first quarter of 2007 is a result of the Company's recognition of
impairment issues on a few large commercial loans. United continues to monitor
the allowance for loan loss and make additional adjustments to the provision for
potential problem loans as deemed appropriate.
NONINTEREST INCOME
Noninterest income continues to provide a positive contribution to income growth
for the Company. Total noninterest income increased 3.2% from the fourth quarter
of 2006 and improved 11.0% over the first quarter of 2006. Income from loan
sales and servicing provided the largest increase during the quarter, improving
36.2% over December 31, 2006 totals, while the sale of nondeposit investment
service products and other income experienced generous growth during the
quarter. The increase in loan sales and servicing income during the quarter is a
result of increased volume in the sale of mortgage loans in the secondary
market. Trust and investment fee income was relatively flat compared to the
previous quarter and deposit service charges and ATM, debit and credit card
income declined during the quarter. Compared to the same period in 2006, all
categories of noninterest income improved except Trust and investment fee income
which declined slightly.
Page 17
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. No write downs in mortgage servicing rights were required in
2007 or 2006.
NONINTEREST EXPENSES
Total noninterest expense increased 1.4% during the first quarter of 2007
compared to the fourth quarter of 2006, and decreased by $93,000 when compared
to the first quarter of 2006. Occupancy and equipment and advertising and
marketing expenses provided the largest increases during the quarter, while
external data processing, salaries and benefits and other expenses declined. The
increase in occupancy and equipment expense reflects the continued growth of the
company and the additional marketing expenses are a result of the continued
emphasis on the Company's branding initiatives. Compared the same period of the
prior year, total noninterest expense declined 1.4%. Salaries and employee
benefits, professional fees and external data processing provided the largest
decreases, while occupancy and equipment, advertising and marketing and other
expenses increased during the quarter. The decrease in salaries and employee
benefits was a result of the reduction in bonus and profit sharing costs due to
the Company not achieving their earnings objectives for the quarter. External
data processing and professional fees for the quarter have declined from the
previous period due to the additional expenses incurred in the first quarter of
2006 for outsourcing certain processing functions of the Wealth Management
group.
FEDERAL INCOME TAX
The Company's effective tax rate for the first quarter was 25.1%; compared to
27.2% and 27.1% for the first and fourth quarter of 2006, respectively. The
decrease in the effective tax rate is the effect of the benefits received from
the Company's investment in tax exempt assets and resulting tax exempt income.
CRITICAL ACCOUNTING POLICIES
Generally accepted accounting principles are complex and require management to
apply significant judgments to various accounting, reporting and disclosure
matters. The Company's Management must use assumptions and estimates to apply
these principles where actual measurement is not possible or practical. For a
complete discussion of the Company's significant accounting policies, see "Notes
to the Consolidated Financial Statements" on pages A-27 to A-30 of the Company's
Annual Report on Form 10-K for the year ended December 31, 2006. Certain
policies are considered critical because they are highly dependent upon
subjective or complex judgments, assumptions and estimates. Changes in such
estimates may have a significant impact on the financial statements. Management
has reviewed the application of these policies with the Audit Committee of the
Company's Board of Directors.
FORWARD-LOOKING STATEMENTS
Statements contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations include forward-looking statements that are
based on management's beliefs, assumptions, current expectations, estimates and
projections about the financial services industry, the economy, and about the
Company itself. Words such as "anticipate," "believe," "determine," "estimate,"
"expect," "forecast," "intend," "is likely," "plan," "project," "opinion,"
variations of such terms, and similar expressions are intended to identify such
forward-looking statements. The presentations and discussions of the provision
and allowance for loan losses, and determinations as to the need for other
allowances presented in this report are inherently forward-looking statements in
that they involve judgments and statements of belief as to the outcome of future
events. These statements are not guarantees of future performance and involve
certain risks, uncertainties, and assumptions that are difficult to predict with
regard to timing, extent, likelihood, and
Page 18
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 those discussed under "Risk Factors" in Part I, Item 1A of the Company's
Annual Report on Form 10-K for the year ended December 31, 2006, and generally
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 March 31, 2007, the Company
would expect a maximum potential reduction in net interest margin of slightly
more than 6% if market rates decreased under an immediate and sustained parallel
shift of 200 basis points. The interest sensitivity position of the Company
continues to be slightly liability sensitive.
Page 19
The Company and each Bank maintains Funds Management Committees, which review
exposure to market risk on a regular basis. The Committees' overriding policy
objective is to manage assets and liabilities to provide an optimum and
consistent level of earnings within the framework of acceptable risk standards.
The Funds Management Committees are also responsible for evaluating and
anticipating various risks other than interest rate risk. Those risks include
prepayment risk, credit risk and liquidity risk. The Committees are made up of
senior members of management, and monitor the makeup of interest sensitive
assets and liabilities to assure appropriate liquidity, maintain interest
margins and to protect earnings in the face of changing interest rates and other
economic factors.
The Funds Management policies provide for a level of interest sensitivity which,
Management believes, allows the Banks to take advantage of opportunities within
their markets relating to liquidity and interest rate risk, allowing flexibility
without subjecting the Company to undue exposure to risk. In addition, other
measures are used to evaluate and project the anticipated results of
Management's decisions.
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
of Directors of the Company, operating through its Audit and Compliance
Committee, provides oversight to the financial reporting process. Even effective
internal controls, no matter how well designed, have inherent limitations,
including the possibility of circumvention or overriding of controls.
Accordingly, even effective internal controls can provide only reasonable
assurance with respect to financial statement preparation. Furthermore, the
effectiveness of internal controls may vary over time. The Company's Audit and
Compliance Committee is composed entirely of Directors who are not officers or
employees of the Company.
As of March 31, 2007, an evaluation was carried out under the supervision and
with the participation of United Bancorp's management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934). Based on their
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that United Bancorp's disclosure controls and procedures as of the end
of the quarter ended March 31, 2007 are, to the best of their knowledge,
effective to reasonably ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act are recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. There have been no changes
in the Company's internal controls over financial reporting that occurred during
the quarter ended March 31, 2007 that materially affected, or are likely to
materially affect, the Company's internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 1- LEGAL PROCEEDINGS
In September of 2006, Annette Theisen and various entities controlled by her,
filed a complaint in Washtenaw Circuit Court against a number of defendants,
including UBTW and its President, Todd C. Clark, alleging UBTW and Clark had
violated their fiduciary duty. After the preliminary proceedings, UBTW and Mr.
Clark reached a settlement with the plaintiff that resulted in them being
released on all aspects of the claim except the allegation regarding Theisen's
long term care policy. The Company incurred minimal liability associated with
the dismissed claims and believe that any additional material exposure is
unlikely.
The Company is not involved in any material legal proceedings other than
previously discussed. In addition to the foregoing litigation, the Company and
the Banks are involved in ordinary routine litigation incident to its business;
however, no such routine proceedings are expected to result in any material
adverse effect on the operations or earnings of the Company or the Banks.
Neither the Company nor the Banks 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 20
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) In February of 2007, the Company announced a stock repurchase program for
up to 130,000 shares of its common stock. During the first quarter of 2007,
the Company repurchased 5,000 shares at an average price of $44.14, and
125,000 shares remain available for repurchase. All purchases during the
quarter were part of the publicly announced plan.
ITEM 6- EXHIBITS
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.
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.
May 3, 2007
/S/ Robert K. Chapman /S/ Dale L. Chadderdon
- ------------------------------------- ----------------------------------------
Robert K. Chapman Dale L. Chadderdon
President and Chief Executive Officer Executive Vice President & Chief
(Principal Executive Officer) Financial Officer
(Principal Financial Officer)
Page 21