-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F3r8AG7wviOUqpS+d6BvZcGGtc8lih6XlZPwQaKOWtvpRJGQcU0MNxGKR+vVrgJx MzkcyUOoCM3U0gTi8C5/Xg== 0000950124-07-004196.txt : 20070813 0000950124-07-004196.hdr.sgml : 20070813 20070813130435 ACCESSION NUMBER: 0000950124-07-004196 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20070630 FILED AS OF DATE: 20070813 DATE AS OF CHANGE: 20070813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED BANCORP INC /OH/ CENTRAL INDEX KEY: 0000731653 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 341405357 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16540 FILM NUMBER: 071048039 BUSINESS ADDRESS: STREET 1: 201 SOUTH FOURTH STREET STREET 2: P O BOX 10 CITY: MARTINS FERRY STATE: OH ZIP: 43935 BUSINESS PHONE: 7406330445 MAIL ADDRESS: STREET 1: 201 SOUTH FOURTH STREET STREET 2: P O BOX 10 CITY: MARTINS FERRY STATE: OH ZIP: 43935 10-Q 1 k17737e10vq.txt QUARTERLY REPORT FOR PERIOD ENDED JUNE 30, 2007 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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, 2007 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from N/A to N/A Commission File Number: 0-16540 UNITED BANCORP, INC. (Exact name of registrant as specified in its charter.) OHIO 34-1405357 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization)
201 SOUTH 4TH STREET, MARTINS FERRY, OHIO 43935-0010 (Address of principal executive offices) (Zip Code) (740) 633-0445 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [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. (CHECK ONE.) LARGE ACCELERATED FILER [ ] ACCELERATED FILER [ ] NON-ACCELERATED FILER [X] INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN EXCHANGE ACT RULE 12B-2). YES [ ] NO [X] INDICATE THE NUMBER OF SHARES OUTSTANDING OF THE ISSUER'S CLASSES OF COMMON STOCK AS OF THE LATEST PRACTICABLE DATE. COMMON STOCK, $1.00 PAR VALUE 5,014,227 SHARES AS OF AUGUST 10, 2007 UNITED BANCORP, INC. JUNE 30, 2007 AND 2006 CONTENTS PART I ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Financial Condition........................... 1 Consolidated Statements of Income....................................... 2 Consolidated Statements of Comprehensive Income......................... 3 Consolidated Statements of Cash Flows................................... 4 Notes to Financial Statements........................................... 5 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................... 15 PART II - OTHER INFORMATION................................................ 23
PART I - FINANCIAL INFORMATION UNITED BANCORP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2007 DECEMBER 31, (Unaudited) 2006 ----------- ------------ ASSETS Cash and due from financial institutions $ 5,449 $ 6,817 Interest-bearing deposits in other financial institutions 6,306 7,737 -------- -------- Total cash and cash equivalents 11,755 14,554 Securities available for sale - at fair value 151,206 133,808 Securities held to maturity - estimated fair value of $16,765 and $18,220 at June 30, 2007 and December 31, 2006, respectively 16,827 17,870 Total loans 227,080 231,517 Allowance for loan losses (2,188) (2,345) -------- -------- Loans - net 224,892 229,172 Federal Home Loan Bank stock - at cost 4,624 4,556 Premises and equipment 7,095 7,261 Accrued interest receivable 2,900 2,578 Other real estate and repossessions 521 794 Bank-owned life insurance 9,122 8,927 Mortgage servicing assets - at amortized cost 424 403 Other assets 2,943 1,730 -------- -------- Total assets $432,309 $421,653 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits Noninterest-bearing $ 21,802 $ 23,703 Interest-bearing 118,204 100,449 Savings deposits 29,188 30,972 Time deposits - under $100,000 130,142 128,663 Time deposits - $100,000 and over 46,801 46,218 -------- -------- Total deposits 346,137 330,005 Federal funds purchased 4,690 -- Advances from the Federal Home Loan Bank 33,671 44,135 Securities sold under agreements to repurchase 11,303 6,218 Trade date security purchases -- 2,886 Subordinated debentures 4,000 4,000 Accrued expenses and other liabilities 1,901 1,829 -------- -------- Total liabilities 401,702 389,073 Commitments -- -- Shareholders' equity Preferred stock - 2,000,000 shares without par value authorized; no shares issued -- -- Common stock - $1 par value; 10,000,000 shares authorized; 5,155,829 and 5,131,874 shares issued at June 30, 2007 and December 31, 2006, respectively 5,156 5,132 Additional paid-in capital 27,797 27,547 Retained earnings 7,139 6,962 Stock held by deferred compensation plan; 103,516 and 103,135 shares at June 30, 2007 and December 31, 2006, respectively (1,019) (1,019) Treasury stock - at cost, 141,602 and 84,024 shares at June 30, 2007 and December 31, 2006, respectively (1,464) (864) Less required contributions for shares acquired by Employee Stock Ownership Plan (ESOP) (3,266) (3,266) Accumulated comprehensive loss (3,736) (1,912) -------- -------- Total shareholders' equity 30,607 32,580 -------- -------- Total liabilities and shareholders' equity $432,309 $421,653 ======== ========
See Notes to Consolidated Financial Statements 1 UNITED BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ----------------- 2007 2006 2007 2006 ------- ------ ------- ------- (Unaudited) Interest and dividend income Loans, including fees $ 4,602 $4,452 $ 9,055 $ 8,624 Taxable securities 1,447 1,420 2,844 2,810 Non-taxable securities 463 343 923 643 Federal funds sold 57 38 97 88 Dividends on Federal Home Loan Bank stock and other 79 66 155 139 ------- ------ ------- ------- Total interest and dividend income 6,648 6,319 13,074 12,304 Interest expense Deposits Demand 968 629 1,794 1,114 Savings 30 30 60 61 Time 2,055 1,679 4,046 3,247 Borrowings 548 813 1,182 1,564 ------- ------ ------- ------- Total interest expense 3,601 3,151 7,082 5,986 ------- ------ ------- ------- Net interest income 3,047 3,168 5,992 6,318 Provision for loan losses 191 302 374 404 ------- ------ ------- ------- Net interest income after provision for loan losses 2,856 2,866 5,618 5,914 Noninterest income Service charges on deposit accounts 457 324 855 674 Realized gains (losses) on sales of securities -- (320) 1 (350) Realized gains (losses) on sales of loans (3) 5 (4) 10 Other income 329 271 599 558 ------- ------ ------- ------- Total noninterest income 783 280 1,451 892 Noninterest expense Salaries and employee benefits 1,485 1,432 2,905 2,895 Occupancy and equipment 292 387 604 717 Professional services 165 218 304 332 Insurance 89 89 174 171 Franchise and other taxes 88 107 167 205 Advertising 92 89 185 194 Stationery and office supplies 52 61 120 121 Amortization of intangibles -- 5 -- 9 Other expenses 464 553 878 1,086 ------- ------ ------- ------- Total noninterest expense 2,727 2,941 5,337 5,730 ------- ------ ------- ------- Income before income taxes (benefit) 912 205 1,732 1,076 Income tax expense (benefit) 148 (82) 250 87 ------- ------ ------- ------- Net income $ 764 $ 287 $ 1,482 $ 989 ======= ====== ======= ======= EARNINGS PER COMMON SHARE Basic $ 0.17 $ 0.06 $ 0.32 $ 0.21 ======= ====== ======= ======= Diluted $ 0.17 $ 0.06 $ 0.32 $ 0.21 ======= ====== ======= ======= DIVIDENDS PER COMMON SHARE $ 0.13 $ 0.12 $ 0.26 $ 0.24 ======= ====== ======= =======
See Notes to Consolidated Financial Statements 2 UNITED BANCORP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ----------------- 2007 2006 2007 2006 ------- -------- ------- ------- (Unaudited) Net earnings $ 764 $ 287 $ 1,482 $ 989 Other comprehensive income (loss), net of tax: Unrealized holding losses on securities during the period, net of tax benefits of $1,064, $596, $944 and $846 for each respective period (2,066) (1,156) (1,833) (1,643) Reclassification adjustment for realized (gains) losses included in earnings, net of tax benefits of $ -0-, $(109), $ -0- and $(119) for each respective period -- 211 (1) 231 Amortization of prior service costs and actuarial losses, net of tax effects of $2 and $4 in 2007 5 -- 10 -- ------- ------- ------- ------- Comprehensive loss $(1,297) $ (658) $ (342) $ (423) ======= ======= ======= ======= Accumulated comprehensive loss $(3,736) $(3,835) $(3,736) $(3,835) ======= ======= ======= =======
See Notes to Consolidated Financial Statements 3 UNITED BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, (IN THOUSANDS) (UNAUDITED)
2007 2006 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,482 $ 989 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 249 339 Provision for loan losses 374 404 Increase in value of bank owned life insurance (195) (138) Federal Home Loan Bank stock dividends (68) (123) Realized (gains) losses on sales of securities (1) 350 Amortization of premiums and discounts on securities, net 61 108 Realized (gains) losses on sales of loans 4 (10) Realized gain on sale of real estate owned (12) (1) Amortization of mortgage servicing rights 35 45 Net change in accrued interest receivable and other assets (197) (409) Net change in accrued expenses and other liabilities 57 1,101 -------- -------- Net cash provided by operating activities 1,789 2,655 CASH FLOWS USED IN INVESTING ACTIVITIES: Securities available for sale: Sales, maturities, prepayments and calls 12,155 11,225 Purchases (35,797) (17,536) Securities held to maturity: Maturities, prepayments and calls: 1,060 620 Net change in loans receivable 4,218 (4,727) Purchases of premises and equipment (77) (122) Proceeds from sale of real estate owned 55 160 -------- -------- Net cash used in investing activities (18,386) (10,380) CASH FLOWS PROVIDED BY FINANCING ACTIVITIES: Net change in deposits 16,131 14,610 Net change in short-term borrowings (372) (5,943) Principal payments on long-term debt (317) (408) Treasury stock purchases (600) (478) Proceeds from issuance of common stock 259 224 Exercise of stock options -- 32 Tax benefits related to exercise of stock options -- 7 Cash dividends paid on common stock (1,303) (1,183) -------- -------- Net cash provided by financing activities 13,798 6,861 -------- -------- Net decrease in cash and cash equivalents (2,799) (864) Cash and cash equivalents at beginning of period 14,554 13,877 -------- -------- Cash and cash equivalents at end of period $ 11,755 $ 13,013 ======== ======== Supplemental disclosure of cash flow information: Interest paid $ 6,509 $ 5,901 ======== ======== Federal income taxes paid $ -- $ 573 ======== ======== Supplemental disclosure of noncash investing activities: Noncash transfer from loans to other real estate and repossessions $ 315 $ 98 ======== ======== Unrealized losses on securities designated as available for sale, net of related tax effects $ (1,833) $ (1,643) ======== ========
See Notes to Consolidated Financial Statements 4 UNITED BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2007 AND 2006 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These interim financial statements are prepared without audit and reflect all adjustments which, in the opinion of management, are necessary to present fairly the financial position of United Bancorp, Inc. ("Company") at June 30, 2007, and its results of operations and cash flows for the six and three month periods presented. All such adjustments are normal and recurring in nature. The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not purport to contain all the necessary financial disclosures required by accounting principles generally accepted in the United States of America that might otherwise be necessary in the circumstances and should be read in conjunction with the Company's consolidated financial statements and related notes for the year ended December 31, 2006 included in its Annual Report on Form 10-K. Reference is made to the accounting policies of the Company described in the Notes to the Consolidated Financial Statements contained in its Annual Report on Form 10-K. The Company has consistently followed these policies in preparing this Form 10-Q. The results of operations for the six and three month periods ended June 30, 2007 are not necessarily indicative of the results that can be expected for the entire year. PRINCIPLES OF CONDENSED CONSOLIDATION The consolidated financial statements include the accounts of United Bancorp, Inc. ("United" or "the Company") and its wholly-owned subsidiaries, The Citizens Savings Bank of Martins Ferry, Ohio ("Citizens") and The Community Bank, Lancaster, Ohio (collectively the "Banks"). Effective July 1, 2007 the Company merged The Community Bank into The Citizens Savings Bank and now operates that market area as The Community Bank, a division of The Citizens Savings Bank. All intercompany transactions and balances have been eliminated in consolidation. NATURE OF OPERATIONS The Company's revenues, operating income, and assets are almost exclusively derived from banking. Accordingly, all of the Company's banking operations are considered by management to be aggregated in one reportable operating segment. Customers are mainly located in Athens, Belmont, Carroll, Fairfield, Harrison, Hocking, and Tuscarawas Counties and the surrounding localities in northeastern, eastern and southeastern Ohio, and include a wide range of individuals, business and other organizations. Citizens conducts its business through its main office in Martins Ferry, Ohio and nine branches in Bridgeport, Colerain, Dellroy, Dover, Jewett, New Philadelphia, St. Clairsville, Sherrodsville, and Strasburg Ohio. The Community Bank, a division of The Citizens Savings Bank, conducts its business through its main office in Lancaster, Ohio and six offices in Amesville, Glouster, Lancaster, and Nelsonville, Ohio. The Company's primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Real estate loans are secured by both residential and commercial real estate. Net interest income is affected by the 5 UNITED BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2007 AND 2006 relative amount of interest-earning assets and interest-bearing liabilities and the interest received or paid on these balances. The level of interest rates paid or received by the Company can be significantly influenced by a number of environmental factors, such as governmental monetary policy, that are outside of management's control. USE OF ESTIMATES To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided and future results could differ. The allowance for loan losses and fair values of financial instruments are particularly subject to change. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required based on past loan loss experience, the nature and volume of changes in the loan portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged-off. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. The Company accounts for impaired loans in accordance with SFAS No. 114, "Accounting for Creditors for Impairment of a Loan." SFAS 114 requires that impaired loans be measured based upon the present value of expected future cash flows discounted at the loan's effective interest rate or, as an alternative, at the loan's observable market price or fair value of the collateral. A loan is defined under SFAS No. 114 as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. In applying the provisions of SFAS No. 114, the Company considers its investment in one-to-four family residential loans and consumer installment loans to be homogenous and therefore excluded from separate identification for evaluation of impairment. With respect to the Company's investment in nonresidential and multi-family residential real estate loans, and its evaluation of impairment thereof, such loans are generally collateral dependent and, as a result, are carried as a practical expedient at the fair value of the collateral. Collateral dependent loans which are more than ninety days delinquent are considered to constitute more than a minimum delay in repayment and are evaluated for impairment under SFAS No. 114 at that time. 6 UNITED BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2007 AND 2006 The Company's impaired loan information is as follows as of June 30, 2007 and December 31, 2006, and for the six months ended June 30, 2007 and 2006:
JUNE 30, DECEMBER 31, 2007 2006 -------- ------------ (In thousands) Impaired loans with related allowance for unconfirmed losses $ 623 $1,012 Impaired loans without allowance for unconfirmed losses 2,240 2,110 ------ ------ Total impaired loans $2,863 $3,122 ====== ======
FOR THE SIX MONTHS ENDED JUNE 30, ------------------ 2007 2006 ------ ---- (In thousands) Allowance with respect to unconfirmed losses on impaired loans Beginning balance $ 305 $ -- Provision 123 74 Charge-off of impaired loans (249) -- ------ ---- Ending balance $ 179 $ 74 ====== ==== Average balance of impaired loans $2,993 $840 ====== ==== Interest income recognized on impaired loans $ 112 $ -- ====== ====
A summary of the Company's mortgage servicing assets as of and for the six months ended June 30, 2007 and as of and for the year ended December 31, 2006 is as follows:
JUNE 30, DECEMBER 31, 2007 2006 -------- ------------ (In thousands) Beginning balance $403 $367 Recognition of mortgage servicing rights on sale of loans 55 107 Amortization during the period (34) (71) ---- ---- Net carrying value $424 403 ==== ====
EARNINGS PER SHARE Basic earnings per common share is computed based upon the weighted-average number of common shares outstanding during the year, less shares in the ESOP which are unallocated and not committed to be released. At June 30, 2007 and 2006, the ESOP held 324,769 and 339,660 unallocated shares, respectively, which were not included in weighted-average common shares outstanding. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable 7 UNITED BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2007 AND 2006 under the Company's stock option plans. Earnings and dividends per share for the six and three months ended June 30, 2006 have been restated for the stock split in the form of a dividend declared and distributed in the fourth quarter of 2006.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 2007 2006 2007 2006 ---------- ---------- ---------- ---------- BASIC Net earnings (In thousands) $ 764 $ 287 $ 1,482 $ 989 ========== ========== ========== ========== Weighted average common shares outstanding 4,603,769 4,591,932 4,607,900 4,621,663 ========== ========== ========== ========== Basic earnings per common share $ 0.17 $ 0.06 $ 0.32 $ 0.21 ========== ========== ========== ========== DILUTED Net earnings (In thousands) $ 764 $ 287 $ 1,482 $ 989 ========== ========== ========== ========== Weighted average common shares outstanding for basic earnings per common share 4,603,769 4,591,932 4,607,900 4,621,663 Add: Dilutive effects of assumed exercise of stock options 1,888 631 1,428 1,140 ---------- ---------- ---------- ---------- Average shares and dilutive potential common shares 4,605,657 4,592,563 4,609,328 4,622,803 ========== ========== ========== ========== Diluted earnings per common share $ 0.17 $ 0.06 $ 0.32 $ 0.21 ========== ========== ========== ========== Number of stock options not considered in computing diluted earnings per share due to antidilutive nature 14,902 43,001 14,902 24,246 Weighted-average exercise price of dilutive stock options $ 9.85 $ 9.73 $ 9.85 $ 9.95 ========== ========== ========== ==========
STOCK OPTIONS The Company maintains a nonqualified stock option plan for directors and officers. The exercise price for options granted under this plan is no less than 100% of the fair market value of the shares on the date of grant adjusted for subsequent stock splits in the form of a dividend. 8 UNITED BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2007 AND 2006 In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123(R), "Share-Based Payment," which revised SFAS No. 123, "Accounting for Stock-Based Compensation," and superseded Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123(R) requires that cost related to the fair value of all equity-based awards to employees, including grants of employee stock options, be recognized in the financial statements. The Company adopted the provisions of SFAS No. 123(R) effective January 1, 2006, using the modified prospective transition method, as permitted, and therefore did not restate its financial statements for prior periods. Under this method, the Company has applied the provisions of SFAS No. 123(R) to new equity awards and to equity based awards modified, repurchased, or cancelled after January 1, 2006. In addition, the Company has recognized compensation costs for the portion of equity-based awards for which the requisite service period has not been rendered ("unvested equity-based awards") that were outstanding January 1, 2006. The compensation cost recorded for unvested equity-based awards is based on their grant-date fair value. For the six month periods ended June 30, 2007 and 2006, the Company recorded $10,000 in compensation costs ($6,000 after-tax) for equity based awards that vested in each period. The Company has $125,000 of total unrecognized compensation costs related to non-vested equity-based awards granted under its stock incentive plan as of June 30, 2007, which is expected to be recognized over a remaining weighted-average period of 8 years. No stock options were granted during the six month periods ended June 30, 2007 and 2006. The expected term of the options is based on evaluations of historical and expected future employee exercise behavior. The risk free interest rate is based upon the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date. Volatility is based upon historical volatility of the Company's stock. There are no remaining options available for grant under the Company's plan as of June 30, 2007. A summary of the status of the Company's stock option plan for the six months ended June 30, 2007 and 2006 is presented below:
2007 2006 ----------------------- ------------------------ WEIGHTED WEIGHTED AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ------ -------------- ------- -------------- Outstanding at January 1 69,488 $10.73 104,069 $10.46 Granted -- -- -- -- Exercised -- -- (2,651) 6.87 Forfeited (9,342) 11.65 (31,930) 10.20 ------ ------ ------- ------ Outstanding at end of period 60,146 $10.49 69,488 $10.73 ====== ====== ======= ====== Options exercisable at period-end 394 $13.65 3,011 $11.92 ====== ====== ======= ======
9 UNITED BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2007 AND 2006 The following table summarizes information about stock options outstanding at June 30, 2007:
OPTIONS OPTIONS REMAINING OUTSTANDING DATE OF EXERCISABLE AT CONTRACTUAL EXERCISE PRICE AT 6/30/07 EXPIRATION 6/30/07 LIFE - -------------- ----------- ---------- -------------- ----------- $9.63 26,489 05/15/15 -- 8.0 years 10.15 18,755 01/16/15 -- 8.0 years 12.15 12,100 08/23/14 -- 7.4 years 13.65 2,802 07/07/07 394 .3 years ------ --- 60,146 394 ====== ===
INCOME TAXES The Company adopted the provisions of FASB Interpretation 48, "Accounting for Uncertainty in Income Taxes," on January 1, 2007. Previously, the Company had accounted for tax contingencies in accordance with Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies." As required by Interpretation 48, which clarifies Statement No. 109, "Accounting for Income Taxes," the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At the adoption date, the Company applied Interpretation 48 to all tax positions for which the statute of limitations remained open. As a result of the implementation of Interpretation 48, the Company was not required to record any liability for unrecognized tax benefits as of January 1, 2007. There have been no material changes in unrecognized tax benefits since January 1, 2007. The Company is subject to income taxes in the U.S. federal jurisdiction, as well as various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for the years before 2003. The Company will recognize, if applicable, interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. RECENT ACCOUNTING PRONOUNCEMENTS In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Instruments - an amendment of FASB Statements No. 133 and 140," to simplify and make more consistent the accounting for certain financial instruments. Specifically, SFAS No. 155 amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," to permit fair value remeasurement for any hybrid financial instrument with an embedded derivative that otherwise would require bifurcation, provided that the whole instrument is accounted for on a fair value basis. SFAS No. 155 10 UNITED BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2007 AND 2006 amends SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," to allow a qualifying special purpose entity to hold a derivative instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006, or January 1, 2007 as to the Corporation, with earlier application allowed. The Company adopted SFAS No. 155 without material effect on the Company's financial position or results of operations. In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets - an amendment of SFAS No. 140," to simplify the accounting for separately recognized servicing assets and servicing liabilities. Specifically, SFAS No. 156 amends SFAS No. 140 to require an entity to take the following steps: - Separately recognize financial assets as servicing assets or servicing liabilities, each time it undertakes an obligation to service a financial asset by entering into certain kinds of servicing contracts; - Initially measure all separately recognized servicing assets and liabilities at fair value, if practicable, and; - Separately present servicing assets and liabilities subsequently measured at fair value in the statement of financial position and additional disclosure for all separately recognized servicing assets and servicing liabilities. Additionally, SFAS No. 156 permits, but does not require, an entity to choose either the amortization method or the fair value measurement method for measuring each class of separately recognized servicing assets and servicing liabilities. SFAS No. 156 also permits a servicer that uses derivative financial instruments to offset risks on servicing to use fair value measurement when reporting both the derivative financial instrument and related servicing asset or liability. SFAS No. 156 applies to all separately recognized servicing assets and liabilities acquired or issued after the beginning of an entity's fiscal year that begins after September 15, 2006, or January 1, 2007 as to the Company, with earlier application permitted. The Company adopted SFAS No. 156 utilizing the amortization method without effect on the Company's financial position or results of operations. In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement emphasizes that fair value is a market-based measurement and should be determined based on assumptions that a market participant would use when pricing an asset or liability. This Statement clarifies that market participant assumptions should include assumptions about risk as well as the effect of a restriction on the sale or use of an asset. Additionally, this Statement establishes a fair value hierarchy that provides the highest priority to quoted prices in active markets and the lowest priority to unobservable data. This Statement is effective for fiscal years beginning after November 15, 2007, or January 1, 2008 as to the Company, and interim periods within that fiscal year. The adoption of this Statement is not expected to have a material adverse effect on the Company's financial position or results of operations. 11 UNITED BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2007 AND 2006 In September 2006, the FASB ratified the Emerging Issues Task Force's (EITF) Issue 06-4, "Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements," which requires companies to recognize a liability and related compensation costs for endorsement split-dollar life insurance policies that provide a benefit to an employee extending to postretirement periods. The liability should be recognized based on the substantive agreement with the employee. This Issue is effective beginning January 1, 2008. The Issue can be applied as either a change in accounting principle through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption, or a change in accounting principle through retrospective application to all periods. The Company is in the process of evaluating the impact the adoption of Issue 06-4 will have on the financial statements. In September 2006, the FASB ratified a consensus opinion reached by the EITF on EITF Issue 06-5, "Accounting for Purchases of Life Insurance - Determining the Amount that Could be Realized in Accordance with FASB Technical Bulletin No. 85-4." The guidance in EITF Issue 06-5 requires policyholders to consider other amounts included in the contractual terms of an insurance policy, in addition to cash surrender value, for purposes of determining the amount that could be realized under the terms of the insurance contract. If it is probable that contractual terms would limit the amount that could be realized under the insurance contract, those contractual limitations should be considered when determining the realizable amounts. The amount that could be realized under the insurance contract should be determined on an individual policy (or certificate) level and should include any amount realized on the assumed surrender of the last individual policy or certificate in a group policy. The Company holds several life insurance policies, however, the policies do not contain any provisions that would restrict or reduce the cash surrender value of the policies. The consensus in EITF Issue 06-5 is effective for fiscal years beginning after December 15, 2006. The Company applied the guidance in EITF Issue 06-5 effective January 1, 2007 which did not have any effect on the Company's financial statements. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115." This Statement allows companies the choice to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board's long-term measurement objectives for accounting for financial instruments. This Statement is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007, or January 1, 2008 as to the Company, and interim periods within that fiscal year. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157, "Fair Value Measurements." The Company is currently evaluating the impact the adoption of SFAS No. 159 will have on the financial statements. 12 UNITED BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2007 AND 2006 NOTE 2: ALLOWANCE FOR LOAN LOSSES The activity in the allowance for loan losses was as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ---------------- 2007 2006 2007 2006 ------ ------ ------ ------ (In thousands) Beginning balance $2,382 $2,925 $2,345 $2,904 Provision for loan losses 191 302 374 404 Loans charged-off (458) (420) (653) (545) Recoveries of previous charge-offs 73 32 122 76 ------ ------ ------ ------ Ending balance $2,188 $2,839 $2,188 $2,839 ====== ====== ====== ======
Nonperforming loans were as follows:
JUNE 30, DECEMBER 31, 2007 2006 -------- ------------ (In thousands) Loans past due over 90 days still on accrual $ 923 $ 55 Nonaccrual loans 1,447 3,396 ------ ------ $2,370 $3,451 ====== ======
13 UNITED BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2007 AND 2006 NOTE 3: BENEFIT PLANS Pension expense includes the following:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ---------------- 2007 2006 2007 2006 ---- ---- ----- ---- (In thousands) Service cost $ 65 $ 56 $ 130 $112 Interest cost 46 40 92 80 Expected return on assets (54) (43) (108) (86) Amortization of prior service cost, transition liability, net gain and plan amendment 15 7 30 14 ---- ---- ----- ---- Pension expense $ 72 $ 60 $ 144 $120 ==== ==== ===== ====
NOTE 4: OFF-BALANCE SHEET ACTIVITIES Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contracts are met, and usually have expiration dates. Commitments may expire without being used. Off-balance sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment. A summary of the notional or contractual amounts of financial instruments with off-balance sheet risk at the indicated dates is as follows:
JUNE 30, DECEMBER 31, 2007 2006 -------- ------------ (In thousands) Commitments to extend credit $26,530 $33,429 Credit card and ready reserve lines 12,676 12,666 Standby letters of credit 652 707
14 UNITED BANCORP, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discusses the financial condition of the Company as of June 30, 2007, as compared to December 31, 2006, and the results of operations for the six and three months ended June 30, 2007, compared to the same periods in 2006. This discussion should be read in conjunction with the interim condensed consolidated financial statements and related footnotes included herein. FORWARD-LOOKING STATEMENTS When used in this document, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimated," "projected" or similar expressions are intended to identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including changes in economic conditions in the Banks' market areas, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Banks' market areas and competition, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any statements expressed with respect to future periods. The Company is not aware of any trends, events or uncertainties that will have or are reasonably likely to have a material effect on its liquidity or capital resources except as discussed herein. The Company is not aware of any current recommendation by regulatory authorities that would have such effect if implemented. The Company does not undertake, and specifically disclaims any obligation, to publicly revise any forward-looking statements to reflect events or circumstances after the date such statements were made or to reflect the occurrence of anticipated or unanticipated events. CRITICAL ACCOUNTING POLICIES Management makes certain judgments that affect the amounts reported in the financial statements and footnotes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements, and as this information changes, the financial statements could reflect different estimates, assumptions, and judgment. The procedures for assessing the adequacy of the allowance for loan losses reflect our evaluation of credit risk after careful consideration of all information available to management. In developing this assessment, management must rely on estimates and exercise judgment regarding matters where the ultimate outcome is unknown, such as economic factors, development affecting companies in specific industries and issues with respect to single borrowers. Depending on changes in circumstances, future assessments of credit risk may yield materially different results, which may require an increase or a decrease in the allowance for loan losses. The allowance is regularly reviewed by management and the board to determine whether the amount is considered adequate to absorb probable losses. This evaluation includes specific loss estimates on certain individually reviewed loans, statistical loss estimates for loan pools that are based on historical loss 15 UNITED BANCORP, INC. CRITICAL ACCOUNTING POLICIES (CONTINUED) experience, and general loss estimates that are based on the size, quality and concentration characteristics of the various loan portfolios, adverse situations that may affect a borrower's ability to repay and current economic and industry conditions. Also considered as part of that judgment is a review of each bank's trend in delinquencies and loan losses, and economic factors. The allowance for loan losses is maintained at a level believed adequate by management to absorb probable loan losses inherent in the loan portfolio. Management's evaluation of the adequacy of the allowance is an estimate based on management's current judgment about the credit quality of the loan portfolio. While the Company strives to reflect all known risk factors in its evaluation, judgment errors may occur. ANALYSIS OF FINANCIAL CONDITION Earning Assets - Loans At June 30, 2007, gross loans were $227.1 million, compared to $231.5 million at December 31, 2006, a decrease of $4.4 million, or 1.9%. The decrease in total outstanding loans was the result of a decrease in the commercial portfolio. Management attributes the decrease in loans to the sluggish loan demand in the markets served. Installment loans represented 18.0% of total loans at both June 30, 2007 and December 31, 2006. This indirect lending type of financing carries somewhat more risk than real estate lending, however, it also provides for higher yields. The targeted lending areas encompass four metropolitan areas, minimizing the risk to changes in economic conditions in the communities housing the Company's 17 branch locations. Commercial and commercial real estate loans comprised 57.8% of total loans at June 30, 2007, compared to 57.6% at December 31, 2006. Commercial and commercial real estate loans have decreased $2.2 million, or 1.7% since December 31, 2006. The Company has originated and purchased participations in loans from other banks for out-of-area commercial and commercial real estate loans to benefit from consistent economic growth outside the Company's primary market area. Real estate loans were 24.2% of total loans at June 30, 2007 and 24.3% at December 31, 2006. Real estate loans decreased by 2.0%, or $1.1 million, since December 31, 2006. Real estate lending has been extremely slow for the six months of 2007 with respect to the Company's adjustable rate mortgage products. As of June 30, 2007, the Banks have approximately $35.6 million in fixed rate loans that they service for a fee that is typically 25 basis points. The Company does not hold any loans for sale. The allowance for loan losses represents the amount which management and the Board of Directors estimates is adequate to provide for probable losses inherent in the loan portfolio. The allowance balance and the provision charged to expense are reviewed by management and the Board of Directors monthly using a risk evaluation model that considers borrowers' past due experience, economic conditions and various other circumstances that are subject to change over time. Management believes the current balance of the allowance for loan losses is adequate to absorb probable incurred credit losses associated with the loan portfolio. Net charge-offs for the six months ended June 30, 2007 were approximately $531,000, or 22.6%, of the beginning balance of the allowance for loan losses. 16 UNITED BANCORP, INC. ANALYSIS OF FINANCIAL CONDITION (CONTINUED) Earning Assets - Securities and Federal Funds Sold The securities portfolio is comprised of U.S. Government agency-backed securities, tax-exempt obligations of states and political subdivisions and certain other investments. The Company does not hold any collateralized mortgage-backed securities other than those issued by U.S. government agencies, and the Company does not hold derivative securities. The quality rating of obligations of state and political subdivisions within Ohio is no less than Aaa, Aa or A, with all out-of-state bonds rated at AAA. The Company's Board policy permits the purchase of certain non-rated bonds of local schools, townships and municipalities, based on their estimated levels of credit risk. Securities available for sale at June 30, 2007 increased approximately $17.4 million, or 13.0% from December 31, 2006 totals. This growth partially reflects deployment of the Company's increased deposits. Securities held to maturity at June 30, 2007 decreased approximately $1.0 million, or 5.8% compared to December 31, 2006 totals. Sources of Funds - Deposits The Company's primary source of funds is core deposits from retail and business customers. These core deposits include all categories of interest-bearing and noninterest-bearing deposits, excluding certificates of deposit greater than $100,000. For the period ended June 30, 2007, total core deposits increased approximately $15.5 million, or 5.4%. The Company's interest-bearing demand deposits increased $17.8 million, or 17.7%, noninterest-bearing demand deposits decreased $1.9 million, or 8.0%, while certificates of deposit under $100,000 increased by $1.5 million, or 1.1%. As part of a strategic focus to grow deposits the Banks have introduced premium rate money market index accounts. The Company has a strong deposit base from public agencies, including local school districts, city and township municipalities, public works facilities and others that may tend to be more seasonal in nature resulting from the receipt and disbursement of state and federal grants. These entities have maintained fairly static balances with the Company due to various funding and disbursement timeframes. Certificates of deposit greater than $100,000 are not considered part of core deposits and as such are used to balance rate sensitivity as a tool of funds management. At June 30, 2007, certificates of deposit greater than $100,000 increased $583,000, or 1.3%, from December 31, 2006 totals. Sources of Funds - Securities Sold under Agreements to Repurchase and Other Borrowings Other interest-bearing liabilities include securities sold under agreements to repurchase, sweep accounts, federal funds purchased, Treasury, Tax and Loan notes payable and Federal Home Loan Bank ("FHLB") advances. In the first six months of 2007, the Company continued to utilize the FHLB programs to manage interest rate risk and liquidity positions. The majority of the Company's repurchase agreements are with local school districts and city and county governments. As a result of the Company's growth in deposits in 2007, total borrowings, including federal funds purchased, decreased approximately $3.6 million, or 6.2% from December 31, 2006 totals. 17 UNITED BANCORP, INC. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006 Net Income Basic and diluted earnings per share totaled $0.32 for the six months ended June 30, 2007, compared with $0.21 for the six months ended June 30, 2006, an increase of 52.4%. In dollars, the Company's net income increased by $493,000, or 49.8%, for the six months ended June 30, 2007, compared to the same period in 2006. During the second quarter of 2006, the Company reported that on March 2, 2006, James W. Everson was appointed President and Chief Executive Officer of The Community Bank after the bank did not meet its 2006 business plan by posting losses in January and February. Management developed three strategic initiatives in June 2006 aimed at enhancing future profitability of The Community Bank and UBCP. First, The Community Bank took a charge against earnings of approximately $330,000 relative to the bond portfolio. With our current reinvestment strategy, management anticipates this loss to be recouped in just slightly over two years, while the average life of the bonds sold was approximately four years. Second, a $90,000 charge against earnings was taken to improve the profitability and customer service related to Community's ATM and credit card platforms. Finally, an additional $210,000 was charged in loan loss provision expense against earnings to replenish the loan loss reserve account at The Community Bank for loans charged off during the quarter. Net Interest Income Net interest income, by definition, is the difference between interest income generated on interest-earning assets and the interest expense incurred on interest-bearing liabilities. Various factors contribute to changes in net interest income, including volumes, interest rates and the composition or mix of interest-earning assets in relation to interest-bearing liabilities. Net interest income decreased 5.2%, or $326,000, for the six months ended June 30, 2007 compared to the same period in 2006 due to continued downward pressure on the net interest margin caused by a continuation of the flat yield curve environment. Total interest income for the six months ended June 30, 2007, was $13.1 million compared to $12.3 million for the same period in 2006, an increase of $770,000, or 6.3%. The increase can be attributed to the overall higher yield of the loan portfolio due to increasing interest rates. Total interest expense for the six months ended June 30, 2007 when compared to the same six-month period ended June 30, 2006, increased by 18.3%, or $1.1 million. The Company has experienced an increase in interest expense due to growth in interest-bearing liabilities, as well as the effect of a higher interest rate environment in 2007 as compared to 2006. Also contributing to higher interest expense is the higher costs of the Company's certificates of deposit. As the current certificate of deposit portfolio matures, they are replaced with higher costing certificates. Provision for Loan Losses The provision for loan losses was $374,000 for the six months ended June 30, 2007 compared to $404,000 for the same period in 2006. The decrease in loan loss provision for the six month period ended June 30, 2007 is primarily due to decreased net charge-offs period to period. In 2007, the Company recovered approximately $82,000 related to nonperforming assets. 18 UNITED BANCORP, INC. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006 (CONTINUED) Noninterest Income Total noninterest income is made up of bank related fees and service charges, as well as other income producing services provided, sale of secondary market loans, ATM income, early redemption penalties for certificates of deposit, safe deposit rental income, internet bank service fees, earnings on bank-owned life insurance and other miscellaneous items. Noninterest income for the six months ended June 30, 2007 was $1.5 million compared to $892,000 for the same six-month period ended June 30, 2006, an increase of approximately 62.7%, or $559,000. During the six-months ended June 30, 2007, the increase in noninterest income was primarily driven by an increase of $181,000 related to service charges on deposit accounts. For the six months ended June 30, 2006, the Company realized a $350,000 loss on the sale of securities. This sale strategy in June 2006 was largely predicated on a payback period of 2 years based on reinvesting those funds in 4 year bonds at increased interest rates. Noninterest Expense Noninterest expense for the six months ended June 30, 2007 decreased $393,000, or 6.9%, from the six months ended June 30, 2006. Occupancy expense decreased $113,000, or 15.8%, mainly due to the additional charge of $90,000 taken in 2006 to improve the profitability and customer service related to the Company ATM and credit card platforms. Other noninterest expenses decreased $208,000, or 19.2%, which included decreases in data communication expenses, merchant interchange and expenses related to other real estate owned. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2007 AND 2006 Net Income Basic and diluted earnings per share totaled $0.17 for the three months ended June 30, 2007, compared with $0.06 for the three months ended June 30, 2006, an increase of $0.10 per share. In dollars, the Company's net income increased by $477,000 for the three months ended June 30, 2007, compared to the same quarter in 2006. Refer to "Net Income" discussion for Six Months Ended June 30, 2007 for further information. Net Interest Income Net interest income, by definition, is the difference between interest income generated on interest-earning assets and the interest expense incurred on interest-bearing liabilities. Various factors contribute to changes in net interest income, including volumes, interest rates and the composition or mix of interest-earning assets in relation to interest-bearing liabilities. Net interest income decreased 3.8%, or $121,000, for the three months ended June 30, 2007 compared to the same period in 2006, due to continued downward pressure on the net interest margin due to a continuation of the flat yield curve environment. 19 UNITED BANCORP, INC. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2007 AND 2006 (CONTINUED) Total interest income for the three months ended June 30, 2007, was $6.6 million compared to $6.3 million for the same period in 2006, an increase of $329,000, or 5.2%. The increase can be attributed to the overall higher yield of the loan portfolio due to increasing interest rates. Total interest expense for the three months ended June 30, 2007 when compared to the same three-month period ended June 30, 2006, increased by 14.3%, or $450,000. The Company has experienced an increase in interest expense due to growth in interest-bearing liabilities, as well as the effect of a higher interest rate environment in 2007 as compared to 2006. Provision for Loan Losses The provision for loan losses was $191,000 for the three months ended June 30, 2007 compared to $302,000 for the same period in 2006. The decrease in loan loss provision for the three month period ended June 30, 2007 is primarily as result of a higher level of provision for loan losses booked in June of 2006 related to loans that were charged off without specific loss allocations. Noninterest Income Total noninterest income is made up of bank related fees and service charges, as well as other income producing services provided, sale of secondary market loans, ATM income, early redemption penalties for certificates of deposit, safe deposit rental income, internet bank service fees, earnings on bank-owned life insurance and other miscellaneous items. Noninterest income for the three months ended June 30, 2007 was $783,000 compared to $280,000 for the same three-month period ended June 30, 2006, an increase of $503,000. During the three-months ended June 30, 2007, the increase in noninterest income was primarily driven by an increase of $133,000, or 41.0%, related to service charges on deposit accounts. For the six months ended June 30, 2006, the Company realized a $320,000 loss on the sale of securities. This sale strategy in June 2006 was largely predicated on a payback period of 2 years based on reinvesting those funds in 4 year bonds at increased interest rates. Noninterest Expense Noninterest expense for the three months ended June 30, 2007 decreased $214,000, or 7.3%, from the three months ended June 30, 2006. Occupancy expense decreased $95,000, or 24.5%, mainly due to the additional charge of $90,000 taken in 2006 to improve the profitability and customer service related to the Company ATM and credit card platforms. Other noninterest expenses decreased $89,000, or 16.1%, which included decreases in data communication expenses, merchant interchange and expenses related to other real estate owned. 20 UNITED BANCORP, INC. CAPITAL RESOURCES Internal capital growth, through the retention of earnings, is the primary means of maintaining capital adequacy for the Company. Shareholders' equity totaled $30.6 million at June 30, 2007, compared to $32.6 million at December 31, 2006, a $2.0 million decrease. Total shareholders' equity in relation to total assets was 7.1% at June 30, 2007 and 7.7% at December 31, 2006. In 2001, our shareholders approved an amendment to the Company's Articles of Incorporation to create a class of preferred shares with 2,000,000 authorized shares. This enables the Company, at the option of the Board of Directors, to issue series of preferred shares in a manner calculated to take advantage of financing techniques which may provide a lower effective cost of capital to the Company. The amendment also provides greater flexibility to the Board of Directors in structuring the terms of equity securities that may be issued by the Company. Although this preferred stock is a financial tool, it has not been utilized to date. The Company has a Dividend Reinvestment Plan ("The Plan") for shareholders under which the Company's common stock will be purchased by the Plan for participants with automatically reinvested dividends. The Plan does not represent a change in the Company's dividend policy or a guarantee of future dividends. The Company is subject to the regulatory requirements of The Federal Reserve System as a multi-bank holding company. The affiliate banks are subject to regulations of the Federal Deposit Insurance Corporation (FDIC) and the State of Ohio, Division of Financial Institutions. The most important of these various regulations address capital adequacy. The minimums related to such capital requirements are:
TOTAL CAPITAL TIER 1 CAPITAL TIER 1 CAPITAL TO RISK TO RISK TO AVERAGE WEIGHTED ASSETS WEIGHTED ASSETS ASSETS --------------- --------------- -------------- Well capitalized 10.00% 6.00% 5.00% Adequately capitalized 8.00% 4.00% 4.00% Undercapitalized 6.00% 3.00% 3.00%
The following table illustrates the Company's well-capitalized classification at June 30, 2007
JUNE 30, 2007 ---------------------- (Dollars in thousands) Tier 1 capital $ 38,301 Total risk-based capital 40,500 Risk-weighted assets 263,241 Average total assets 420,024 Total risk-based capital ratio 15.39% Tier 1 risk-based capital ratio 14.55 Tier 1 capital to average assets 9.12
21 UNITED BANCORP, INC. LIQUIDITY Management's objective in managing liquidity is maintaining the ability to continue meeting the cash flow needs of its customers, such as borrowings or deposit withdrawals, as well as its own financial commitments. The principal sources of liquidity are net earnings, loan payments, maturing securities and sales of securities available for sale, federal funds sold and cash and deposits with banks. Along with its liquid assets, the Company has additional sources of liquidity available to ensure that adequate funds are available as needed. These include, but are not limited to, the purchase of federal funds, the ability to borrow funds under line of credit agreements with correspondent banks, a borrowing agreement with the Federal Home Loan Bank of Cincinnati and the adjustment of interest rates to obtain deposits. Management feels that it has the capital adequacy and profitability to meet the current and projected liquidity needs of its customers. INFLATION Substantially all of the Company's assets and liabilities relate to banking activities and are monetary in nature. The consolidated financial statements and related financial data are presented in accordance with generally accepted accounting principles of the United States of America ("GAAP"). GAAP currently requires the Company to measure the financial position and results of operations in terms of historical dollars, with the exception of securities available for sale, impaired loans and other real estate loans that are measured at fair value. Changes in the value of money due to rising inflation can cause purchasing power loss. Management's opinion is that movements in interest rates affect the financial condition and results of operations to a greater degree than changes in the rate of inflation. It should be noted that interest rates and inflation do affect each other, but do not always move in correlation with each other. The Company's ability to match the interest sensitivity of its financial assets to the interest sensitivity of its liabilities in its asset/liability management may tend to minimize the effect of changes in interest rates on the Company's performance. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has been no significant change from disclosures included in the Company's Annual Report on Form 10-K for the year ended December 31, 2006. ITEM 4. CONTROLS AND PROCEDURES The Company, under the supervision, and with the participation, of its management, including the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to the requirements of Exchange Act Rule 13a-15e. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2007 in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings. There was no change in the Company's internal control over financial reporting that occurred during the Company's fiscal quarter ended June 30, 2007 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 22 PART II - OTHER INFORMATION UNITED BANCORP, INC. ITEM 1. LEGAL PROCEEDINGS None, other than ordinary routine litigation incidental to the Company's business. ITEM 1A. RISK FACTORS There have been no material changes from risk factors as previously disclosed in Part 1 Item 1A of the Company's for 10K for the year ended December 31, 2006, filed on March 30, 2007. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ISSUER PURCHASES OF EQUITY SECURITIES
(a) (b) (c) (d) Total Average Total Number Maximum Number or Number Price of Shares Approximate Dollar of Paid (or Units) Value) of Shares Shares Per Purchased as (or Units) that May (or Share Part Of Publicly Yet Be Purchased Units) (or Announced Plans Under the Plans Period Purchased Unit) Or Programs or Programs ------ --------- ------- ---------------- ------------------- Month #1 4/1/2007 to 4/30/2007 2,055 $10.48 2,055 $1,772,198 Month #2 5/1/2007 to 5/31/2007 -- -- -- $1,772,198 Month #3 6/1/2007 to 6/30/2007 32,165 $10.63 32,165 $1,430,284
United Bancorp maintains a stock repurchase program publicly announced by a press release issued on November 21, 2006, under which its Board of Directors authorized management to cause the Company to purchase up to $2 million of its common shares over a two-year period. Such authorization will expire on November 21, 2008. The Company adopted the United Bancorp, Inc. Affiliate Banks Directors and Officers Deferred Compensation Plan (the "Plan"), which is an unfunded deferred compensation plan. Amounts deferred pursuant to the Plan remain unrestricted assets of the Company, and the right to participate in the Plan is limited to members of the Board of Directors and certain senior executive officers. Under the Plan, eligible participants may defer fees payable to them by the Company, which fees are used to acquire common shares which are credited to a participant's respective account. Except in the event of certain emergencies, no distributions are to be made from any account as long as the participant continues to be an employee or member of the Board of Directors. Upon termination of service, the aggregate number of shares credited to the participant's account are distributed to him or her along with any cash proceeds credited to the account which have not yet been invested in the Company's stock. On June 4, 2007, the Company allocated a total of 2,347 common shares to participant accounts for the aggregate purchase price of $25,113. No underwriting fees, discounts, or commissions are paid in connection with the Plan. The shares allocated to participant accounts have not been registered under the Securities Act of 1933 in reliance upon the exemption provided by Section 4(2) thereof. 23 UNITED BANCORP, INC. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of the shareholders of United Bancorp, Inc. was held on April 19, 2007 for the purpose of electing four Directors to hold office until the annual meeting of shareholders to be held in 2009. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and there was no solicitation in opposition to management's nominees. All of management's nominees for Director as listed in the proxy statement were elected by the votes set forth below:
Nominee For Withheld ------- --------- -------- James W. Everson 3,900,028 92,278 John M. Hoopingarner 3,901,722 90,583 Richard L. Riesbeck 3,881,058 111,247 Matthew C. Thomas 3,926,663 65,642
Other directors whose terms continue after the Annual Meeting of Shareholders are Michael J. Arciello, Terry A. McGhee, and L.E. Richardson, Jr.. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS
Exhibit No. - ----------- 3.1 Amended Articles of Incorporation of United Bancorp, Inc.(1) 3.2 Amended Code of Regulations of United Bancorp, Inc.(2) 4.0 Instruments Defining the Rights of Security Holders (See Exhibits 3.1 and 3.2) 31.1 Rule 13a-14(a) Certification - CEO 31.2 Rule 13a-14(a) Certification - CFO 32.1 Section 1350 Certification - CEO 32.2 Section 1350 Certification - CFO
(1) Incorporated by reference to Appendix B to the registrant's Definitive Proxy Statement filed with the Securities and Exchange Commission on March 14, 2001. (2) Incorporated by reference to Appendix C to the registrant's Definitive Proxy Statement filed with the Securities and Exchange Commission on March 14, 2001. 24 UNITED BANCORP, INC. 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. Date: August 13, 2007 By: /s/ James W. Everson --------------------------- James W. Everson Chairman, President & Chief Executive Officer Date: August 13, 2007 By: /s/ Randall M. Greenwood --------------------------- Randall M. Greenwood Senior Vice President, Chief Financial Officer and Treasurer 25 UNITED BANCORP, INC. EXHIBIT INDEX
Exhibit No. Description - ----------- ----------- 3.1 Amended Articles of Incorporation of United Bancorp, Inc. incorporated by reference to Appendix B to the registrant's Definitive Proxy Statement filed with the Securities and Exchange Commission on March 14, 2001. 3.2 Amended Code of Regulations of United Bancorp, Inc. incorporated by reference to Appendix C to the registrant's Definitive Proxy Statement filed with the Securities and Exchange Commission on March 14, 2001. 4.0 Instruments Defining the Rights of Security Holders (See Exhibits 3.1 and 3.2) 31.1 Rule 13a-14(a) Certification - Principal Executive Officer 31.2 Rule 13a-14(a) Certification - Principal Financial Officer 32.1 Certification pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. 32.2 Certification pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
26 EX-31.1 2 k17737exv31w1.txt RULE 13A-14(A) CERTIFICATION - PRINCIPAL EXECUTIVE OFFICER EXHIBIT 31.1 UNITED BANCORP, INC. CERTIFICATION I, James W. Everson, Chairman, President and Chief Executive Officer of United Bancorp, Inc., certify that: 1. I have reviewed this report on Form 10-Q of United Bancorp, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [THIS PARAGRAPH INTENTIONALLY LEFT BLANK.] (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2007 /s/ James W. Everson --------------------------- James W. Everson, Chairman, President and CEO 27 EX-31.2 3 k17737exv31w2.txt RULE 13A-14(A) CERTIFICATION - PRINCIPAL FINANCIAL OFFICER EXHIBIT 31.2 UNITED BANCORP, INC. CERTIFICATIONS I, Randall M. Greenwood, Chief Financial Officer of United Bancorp, Inc., certify that: 1. I have reviewed this report on Form 10-Q of United Bancorp, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [THIS PARAGRAPH INTENTIONALLY LEFT BLANK.] (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2007 /s/ Randall M. Greenwood ----------------------------- Randall M. Greenwood, Senior Vice President and CFO 28 EX-32.1 4 k17737exv32w1.txt CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 EXHIBIT 32.1 UNITED BANCORP, INC. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ENACTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of United Bancorp, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James W. Everson, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ James W, Everson - ----------------------- James W. Everson, Chairman, President and Chief Executive Officer August 13, 2007 29 EX-32.2 5 k17737exv32w2.txt CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 EXHIBIT 32.2 UNITED BANCORP, INC. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ENACTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of United Bancorp, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Randall M. Greenwood, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Randall M. Greenwood - ------------------------- Randall M. Greenwood, Senior Vice President and Chief Financial Officer August 13, 2007 30 -----END PRIVACY-ENHANCED MESSAGE-----