-----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, UVBzzs5dFS0z+7xtG3HnmkChkDRztjxPu2Fz+Fl2vt5v+3UV3f0RJ2+IPGA89wir NVv4wQrgBb5QeR/RiLloJA== 0000950124-03-003641.txt : 20031113 0000950124-03-003641.hdr.sgml : 20031113 20031113142506 ACCESSION NUMBER: 0000950124-03-003641 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED BANCORP INC /MI/ CENTRAL INDEX KEY: 0000775345 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 382606280 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16640 FILM NUMBER: 03997355 BUSINESS ADDRESS: STREET 1: 205 E CHICAGO BLVD STREET 2: PO BOX 248 CITY: TECUMSEH STATE: MI ZIP: 49286 BUSINESS PHONE: 5174238373 MAIL ADDRESS: STREET 1: 205 E CHICAGO BLVD STREET 2: P O BOX 248 CITY: TECUMSEH STATE: MI ZIP: 49286 10-Q 1 k80646e10vq.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- FORM 10-Q |X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003 or | | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ------------------------- COMMISSION FILE #0-16640 UNITED BANCORP, INC. (Exact name of registrant as specified in its charter) MICHIGAN 38-2606280 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 205 E. CHICAGO BOULEVARD, TECUMSEH, MI 49286 (Address of principal executive offices, including Zip Code) Registrant's telephone number, including area code: (517) 423-8373 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No | | As of November 3, 2003, there were outstanding 2,225,041 shares of the registrant's common stock, no par value. Page 1 CROSS REFERENCE TABLE
ITEM NO. DESCRIPTION PAGE NO. - ---------------------------------------------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements (a) Condensed Consolidated Balance Sheets 3 (b) Condensed Consolidated Statements of Income 4 (c) Condensed Consolidated Statements of Changes in Shareholders' Equity 5 (d) Condensed Consolidated Statements of Cash Flows 6 (e) Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition 10 Liquidity and Capital Resources 13 Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures about Market Risk 17 Item 4. Controls and Procedures 18 PART II - OTHER INFORMATION Item 1. Legal Proceedings 18 Item 2. Changes in Securities and Use of Proceeds 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 19 Signatures 19 Exhibits Disclosures Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 21 Disclosure Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 23
Page 2 PART I FINANCIAL INFORMATION ITEM 1- FINANCIAL STATEMENTS (A) CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands of dollars (unaudited) (unaudited) September 30, December 31, September 30, ASSETS 2003 2002 2002 -------- -------- -------- Cash and demand balances in other banks $ 24,266 $ 16,719 $ 15,351 Federal funds sold 18,900 7,700 11,700 -------- -------- -------- Total cash and cash equivalents 43,166 24,419 27,051 Securities available for sale 105,685 97,380 97,902 Loans held for sale 1,583 7,873 8,620 Portfolio loans 422,622 422,653 415,577 -------- -------- -------- Total loans 424,205 430,526 424,197 Less allowance for loan losses 5,363 4,975 5,009 -------- -------- -------- Net loans 418,842 425,551 419,188 Premises and equipment, net 14,381 14,123 14,497 Goodwill 3,469 3,469 3,270 Accrued interest receivable and other assets 19,616 8,957 8,952 -------- -------- -------- TOTAL ASSETS $605,159 $573,899 $570,860 ======== ======== ======== LIABILITIES Deposits Noninterest bearing $ 81,098 $ 71,976 $ 69,646 Interest bearing deposits 424,334 399,574 404,457 -------- -------- -------- Total deposits 505,432 471,550 474,103 Federal funds purchased and other short term borrowings 76 75 525 Other borrowings 37,375 41,867 38,067 Accrued interest payable and other liabilities 5,897 7,027 5,940 -------- -------- -------- TOTAL LIABILITIES 548,780 520,519 518,635 COMMITMENT AND CONTINGENT LIABILITIES SHAREHOLDERS' EQUITY Common stock and paid in capital, no par value; 5,000,000 shares authorized; 2,225,041, 2,114,765 and 2,111,848 shares issued and outstanding 45,748 39,122 38,911 Retained earnings 9,919 12,977 11,949 Accumulated other comprehensive income, net of tax 712 1,281 1,365 -------- -------- -------- TOTAL SHAREHOLDERS' EQUITY 56,379 53,380 52,225 -------- -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $605,159 $573,899 $570,860 ======== ======== ========
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 Nine Months Ended In thousands of dollars, except per share data September 30, September 30, ---------------------- ---------------------- 2003 2002 2003 2002 ------- ------- ------- ------- INTEREST INCOME Interest and fees on loans $ 6,729 $ 7,534 $20,518 $21,756 Interest on securities Taxable 524 696 1,706 2,140 Tax exempt 298 351 909 1,105 Interest on federal funds sold 52 25 182 127 ------- ------- ------- ------- Total interest income 7,603 8,606 23,315 25,128 INTEREST EXPENSE Interest on deposits 1,591 2,236 5,126 6,921 Interest on short term borrowings 1 2 1 7 Interest on other borrowings 446 502 1,439 1,191 ------- ------- ------- ------- Total interest expense 2,038 2,740 6,566 8,119 ------- ------- ------- ------- NET INTEREST INCOME 5,565 5,866 16,749 17,009 Provision for loan losses 248 264 857 673 ------- ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,317 5,602 15,892 16,336 NONINTEREST INCOME Service charges on deposit accounts 707 623 1,927 1,693 Trust & Investment fee income 806 706 2,253 2,188 Gains on securities transactions - - 85 9 Loan sales and servicing 1,016 387 2,649 993 ATM, debit and credit card fee income 376 367 1,101 1,015 Sales of nondeposit investment products 252 165 513 603 Other income 262 126 555 412 ------- ------- ------- ------- Total noninterest income 3,419 2,374 9,083 6,913 NONINTEREST EXPENSE Salaries and employee benefits 3,546 3,058 10,110 9,132 Occupancy and equipment expense, net 1,015 968 3,000 2,839 External data processing 316 299 938 864 Advertising and marketing 114 145 340 433 Other expense 839 916 2,676 2,736 ------- ------- ------- ------- Total noninterest expense 5,830 5,386 17,064 16,004 ------- ------- ------- ------- INCOME BEFORE FEDERAL INCOME TAX 2,906 2,590 7,911 7,245 Federal income tax 840 767 2,361 2,093 ------- ------- ------- ------- NET INCOME $ 2,066 $ 1,823 $ 5,550 $ 5,152 ======= ======= ======= ======= Basic earnings per share $ 0.92 $ 0.82 $ 2.48 $ 2.31 Diluted earnings per share 0.92 0.82 2.46 2.30 Cash dividends declared per share of common stock 0.34 0.29 0.98 0.84
The accompanying notes are an integral part of these condensed consolidated financial statements. Page 4 (C) CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) In thousands of dollars
Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- TOTAL SHAREHOLDERS' EQUITY 2003 2002 2003 2002 -------- -------- -------- -------- Balance at beginning of period $ 55,446 $ 50,725 $ 53,380 $ 48,177 Net Income 2,066 1,823 5,550 5,152 Other comprehensive income: Net change in unrealized gains (losses) on securities available for sale, net (407) 253 (569) 610 -------- -------- -------- -------- Total comprehensive income 1,659 2,076 4,981 5,762 Cash dividends declared (756) (634) (2,190) (1,871) 5% stock dividend declared - - - - Common stock transactions 30 58 208 157 -------- -------- -------- -------- Balance at end of period $ 56,379 $ 52,225 $ 56,379 $ 52,225 ======== ======== ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. Page 5 (D) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
In thousands of dollars Nine Months Ended September 30, --------------------------- 2003 2002 --------- --------- Cash Flows from Operating Activities Net income $ 5,550 $ 5,152 Adjustments to Reconcile Net Income to Net Cash from Operating Activities Depreciation and amortization 2,196 2,395 Provision for loan losses 857 673 Gain on sale of loans (3,077) (992) Proceeds from sales of loans originated for sale 189,432 71,833 Loans originated for sale (180,065) (72,775) Gains on securities transactions (85) (9) Change in accrued interest receivable and other assets (66) (458) Change in accrued interest payable and other liabilities (936) (50) --------- --------- Net cash from operating activities 13,806 5,769 Cash Flows from Investing Activities Securities available for sale Purchases (51,709) (36,330) Sales 3,933 - Maturities and calls 33,309 24,597 Principal payments 4,570 4,315 Net change in portfolio loans (607) (43,850) Net investment in bank owned life insurance (10,131) - Premises and equipment expenditures, net (1,639) (676) --------- --------- Net cash from investing activities (22,274) (51,944) Cash Flows from Financing Activities Net change in deposits 33,882 22,805 Net change in short term borrowings 1 (494) Proceeds from other borrowings 3,000 28,400 Principal payments on other borrowings (7,492) (2,342) Proceeds from common stock transactions 208 157 Dividends paid (2,384) (2,080) --------- --------- Net cash from financing activities 27,215 46,446 --------- --------- Net change in cash and cash equivalents 18,747 271 Cash and cash equivalents at beginning of year 24,419 26,780 --------- --------- Cash and cash equivalents at end of period $ 43,166 $ 27,051 ========= ========= Supplement Disclosure of Cash Flow Information: Interest paid $ 6,727 $ 8,261 Income tax paid 2,100 2,150 Loans transferred to other real estate 169 76
The accompanying notes are an integral part of these condensed consolidated financial statements. Page 6 (E) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The unaudited condensed consolidated financial statements of United Bancorp, Inc. (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The condensed consolidated balance sheet of the Company as of December 31, 2002 has been derived from the audited consolidated balance sheet of the Company as of that date. Operating results for the nine month period ending September 30, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002. STOCK OPTIONS In 2000, Shareholders approved the Company's 1999 Stock Option Plan as proposed. The plan is a non- qualified stock option plan as defined under Internal Revenue Service regulations. Under the plan, directors and management of the Company and subsidiaries are given the right to purchase stock of the Company at a stipulated price, adjusted for stock dividends, over a specific period of time. The Plan will continue in effect for five years, unless it is extended with the approval of the Shareholders. The stock subject to the options are shares of authorized and unissued common stock of the Company. As defined in the plan, options representing no more than 132,490 shares (adjusted for stock dividends declared) are to be made available to the plan. Options under this plan are granted to directors and certain key members of management at the then-current market price at the time the option is granted. The options have a three-year vesting period, and with certain exceptions, expire at the end of ten years, or three years after retirement. The following is summarized option activity for the plan, adjusted for stock dividends:
Options Weighted Average Outstanding Exercise Price ----------- -------------- Balance at January 1, 2003 83,812 $ 42.67 Options granted 25,150 52.17 Options exercised (10,499) 40.23 Options forfeited (2,936) 48.74 -------- Balance at September 30, 2003 95,527 $ 45.25 ========
Options granted under the plan during the current year were 22,050 on January 10, 2003, 1,050 on February 17, 2003, 1,050 on March 12, 2003 and 1,000 on August 20, 2003. The weighted fair value of the options granted was $3.85. For stock options outstanding at September 30, 2003, the range of average exercise prices was $39.49 to $62.00 and the weighted average remaining contractual term was 7.8 years. At September 30, 2003, 49,028 options were exercisable at the weighted average exercise price of $41.82. The following pro forma information presents net income and earnings per share had the fair value method been used to measure compensation cost for stock option grants. The exercise price of the option grants is equivalent to the market value of the underlying stock at the grant date, adjusted for stock dividends. Accordingly, no compensations cost was recorded for the period ended September 30, 2003 and 2002. Page 7
Three Months Ended Nine Months Ended In thousands of dollars, except per share data September 30, September 30, ------------------------------------------------------ 2003 2002 2003 2002 --------- --------- --------- --------- Net income, as reported $ 2,066 $ 1,823 $ 5,550 $ 5,152 Less: Total stock-based compensation cost, net of taxes 21 26 64 78 --------- --------- --------- --------- Pro forma net income $ 2,045 $ 1,797 $ 5,486 $ 5,074 ========= ========= ========= ========= Earnings per share: Basic As reported $ 0.92 $ 0.82 $ 2.48 $ 2.31 Basic Pro forma 0.91 0.80 2.45 2.27 Diluted As reported $ 0.92 $ 0.82 $ 2.46 $ 2.30 Diluted Pro forma 0.91 0.80 2.43 2.27
NOTE 2 - LOANS HELD FOR SALE Mortgage loans serviced for others are not included in the accompanying consolidated financial statements. The unpaid principal balance of mortgage loans serviced for others was $249,884,000 and $176,553,000 at the end of September 2003 and 2002. The balance of loans serviced for others related to servicing rights that have been capitalized was $245,476,000 and $164,079,000 at September 30, 2003 and 2002. Mortgage servicing rights activity in thousands of dollars for the nine months ended September 30, 2003 and 2002 follows:
2003 2002 ------- ------- Balance at January 1 $ 1,352 $ 1,100 Amount capitalized year to date 1,289 420 Amount amortized year to date (848) (337) ------- ------- Balance at period end $ 1,793 $ 1,183 ======= =======
No valuation allowance was considered necessary for mortgage servicing rights at period end 2003 and 2002. NOTE 3 - COMMON STOCK AND EARNINGS PER SHARE Basic earnings per share are based upon the weighted average number of shares outstanding plus contingently issuable shares during the year. Diluted earnings per share further assumes the dilutive effect of additional common shares issuable under stock options. During March of 2003 and 2002, the Company declared 5% stock dividends payable in May 2003 and 2002. Earnings per share, dividends per share and weighted average shares have been restated to reflect these stock dividends. A reconciliation of basic and diluted earnings per share follows:
Three Months Ended Nine Months Ended In thousands of dollars, except per share data September 30, September 30, ------------------------------------------------------------------------- 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Net income $ 2,066 $ 1,823 $ 5,550 $ 5,152 ========== ========== ========== ========== Basic earnings: Weighted average common shares outstanding 2,224,846 2,217,333 2,222,142 2,216,037 Weighted average contingently issuable shares 18,304 16,265 18,059 15,740 ---------- ---------- ---------- ---------- Total weighted average shares outstanding 2,243,150 2,233,598 2,240,201 2,231,776 ========== ========== ========== ========== Basic earnings per share $ 0.92 $ 0.82 $ 2.48 $ 2.31 ========== ========== ========== ==========
Page 8
Three Months Ended Nine Months Ended Diluted earnings: September 30, September 30, ------------------------------------------------------------------- 2003 2002 2003 2002 --------- --------- --------- --------- Weighted average common shares outstanding from basic earnings per share 2,243,150 2,233,598 2,240,201 2,231,776 Dilutive effect of stock options 6,178 3,027 13,930 6,791 --------- --------- --------- --------- Total weighted average shares outstanding 2,249,328 2,236,625 2,254,131 2,238,567 ========= ========= ========= ========= Diluted earnings per share $ 0.92 $ 0.82 $ 2.46 $ 2.30 ========= ========= ========= =========
A small number of shares represented by stock options granted are not included in the above calculations as they are non-dilutive as of the date of this report. NOTE 4: EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS In May 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 establishes standards for classification and measurement in the statement of financial position of certain financial instruments with characteristics of both liabilities and equity. The Company has determined that it has no such instruments. In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement clarifies reporting of contracts as either derivatives or hybrid instruments. The Company has determined that it has no such instruments. In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest Entities. FIN 46 provides guidance with respect to variable interest entities and when the assets, liabilities, noncontrolling interest, and results of operations of a variable interest entity need to be included in a company's consolidated financial statements. A variable interest entity exists when either the total equity investment at risk is not sufficient to permit the entity to finance its activities by itself, or the equity investors lack one of three characteristics associated with owning a controlling financial interest. Those characteristics are the direct or indirect ability to make decisions about an entity's activities through voting rights or similar rights, the obligation to absorb the expected losses of an entity if they occur, and the right to receive the expected residual returns of the entity if they occur. FIN No. 46 was effective immediately for new entities that were created or acquired after January 31, 2003 and became effective on July 1, 2003. The effect of the adoption did not have a material impact on the results of operations, financial position or cash flows of the Company. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-based Compensation - Transition and Disclosure, which provides guidance for transition from the intrinsic value method of accounting for stock-based compensation under Accounting Principles Board ("APB") Opinion No. 25 to SFAS No. 123's fair value method of accounting, if a company so elects. The Company applies APB Opinion No. 25 and related Interpretations in accounting for the stock option plan. Accordingly, no compensation costs have been recognized, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. Had compensation cost for the Company's stock option plan been recorded based on the fair value at the grant dates for awards under the plan consistent with the method prescribed by SFAS No. 123, net income and net income per share would have been adjusted to the proforma amounts indicated in Note 1. In November 2002, FASB Interpretation No. 45 ("FIN 45"), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others was issued. FIN Page 9 45 requires the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The Company has determined that its standby letters of credit obligations under FIN 45 are not material for disclosure. ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion provides information about the consolidated financial condition and results of operations of United Bancorp, Inc. and its subsidiaries for the three and nine month periods ending September 30, 2003 and 2002. FINANCIAL CONDITION Securities Balances in the Company's investment securities portfolio continued to increase during the third quarter of 2003, as investment securities absorbed some of the Company's deposit growth in excess of loan growth. This increase in the portfolio was primarily in short term investments, which caused the mix of the securities portfolio to shift somewhat. However, during the quarter, the Company also increased its investment in Agency and Municipal bonds, as prepayment decreased outstanding balances in mortgage-backed Agency obligations. The following chart shows the percentage mix of the securities portfolio.
9/30/2003 12/31/2002 9/30/2002 ---------- ----------- ---------- U.S. Treasury and agency securities 33.3% 30.6% 30.3% Mortgage backed agency securities 19.0% 14.0% 13.2% Obligations of states and political subdivisions 39.1% 39.1% 40.2% Corporate, asset backed, and other securities 8.6% 16.3% 16.3% --------- ---------- --------- Total Securities 100.0% 100.0% 100.0% ========= ========== =========
The Company's current and projected tax position continues to make carrying tax-exempt securities beneficial, and the Company does not anticipate being subject to the alternative minimum tax in the near future. The investment in local municipal issues also reflects the Company's commitment to the development of the local area through support of its local political subdivisions. Investments in U.S. Treasury and agency securities are considered to possess low credit risk. Obligations of U.S. government agency mortgage-backed securities possess a somewhat higher interest rate risk due to certain prepayment risks. The corporate, asset backed and other securities portfolio also contains a moderate level of credit risk. The municipal portfolio contains a small amount of geographic risk, as approximately 6.4% of that portfolio is issued by political subdivisions located within Lenawee County, Michigan. The Company's portfolio contains no "high risk" mortgage securities or structured notes. LOANS Loan balances increased slightly in the third quarter of 2003 while gross loans have declined 1.1% during the first nine months of the year, substantially all as a result of refinancing in the Company's residential mortgage portfolios into products that are sold on the secondary market. Page 10 The mix of the loan portfolio continues a long-term trend toward an increased percentage of business loans, with declining percentages of residential mortgage loans and personal loans. The table below shows total loans outstanding, in thousands of dollars and their percentage of the total loan portfolio. All loans are domestic and contain no significant concentrations by industry or client.
September 30, 2003 December 31, 2002 September 30, 2002 ----------------------- ------------------------ ------------------------ Total loans: Balance % of total Balance % of total Balance % of total -------- ---------- ------- ---------- -------- ---------- Personal $ 70,663 16.7% $ 71,010 16.5% $ 73,277 17.3% Business loans and commercial mortgages 236,633 55.8% 212,611 49.4% 203,244 47.9% Tax exempt 1,408 0.3% 1,417 0.3% 1,529 0.4% Residential mortgage 85,023 20.0% 110,985 25.8% 115,753 27.2% Construction 30,478 7.2% 34,503 8.0% 30,394 7.2% -------- ------ -------- ------ -------- ------ Total loans $424,205 100.0% $430,526 100.00% $424,197 100.0% ======== ====== ======== ====== ======== ======
The Company's subsidiary Banks ("Banks") continue to be providers of residential mortgage loans. As full service lenders, the Banks offer a variety of home mortgage loan products in their markets. Demand for loans continues to be strong in all loan portfolios, although a significant portion of the Company's production of residential real estate mortgages is sold in the secondary markets. CREDIT QUALITY The Company continues to maintain a high level of asset quality as a result of actively monitoring delinquencies, nonperforming assets and potential problem loans. The aggregate amount of nonperforming loans is presented in the table below. For purposes of that summary, loans renewed on market terms existing at the time of renewal are not considered troubled debt restructurings. The accrual of interest income is discontinued when a loan becomes ninety days past due unless it is both well secured and in the process of collection, or the borrower's capacity to repay the loan and the collateral value appear sufficient. The chart below shows the aggregate amount of the Company's nonperforming assets by type, in thousands of dollars.
9/30/2003 12/31/2002 9/30/2002 ---------- ---------- --------- Nonaccrual loans $3,633 $1,583 $2,336 Loans past due 90 days or more 483 748 697 Troubled debt restructurings - - 128 ------ ------ ------ Total nonperforming loans 4,116 2,331 3,161 Other real estate 502 467 255 ------ ------ ------ Total nonperforming assets $4,618 $2,798 $3,416 ====== ====== ====== Percent of nonperforming loans to total loans 0.97% 0.54% 0.75% Percent of nonperforming assets to total assets 0.76% 0.49% 0.60%
The Company's classification of nonperforming loans is generally consistent with loans identified as impaired. The amount listed in the table above as other real estate reflects a small number of properties that were acquired in lieu of foreclosure. Total dollars in this category is up slightly from December 31, 2002. Properties have been leased to a third party with an option to purchase or are listed for sale, and no significant losses are anticipated. Nonperforming assets have declined from the end of the second quarter, but remain above year-end 2002 levels. Balances in non-accrual loans are down nearly $1 million from the second quarter, but are up compared to the levels achieved at December 31 and September 30, 2002. Delinquencies have declined from year end 2002 and the end of the second quarter of 2003. Overall, the Company's ratios of nonperforming loans have increased since December of 2002, substantially all as a result of the increase in nonaccrual loans, but have improved from the second-quarter levels. Page 11 The Company's allowance for loan losses remains at a level consistent with its estimated losses. 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 nine months ended September 30, 2003 and 2002 follows:
2003 2002 ------- ------- Balance at January 1: $ 4,975 $ 4,571 Loans charged off (560) (323) Recoveries credited to allowance 91 88 Provision charged to operations 857 673 ------- ------- Balance at September 30 $ 5,363 $ 5,009 ======= =======
The Company has increased its provision for loan losses over the same period in 2002 as a result of continued loan growth and changes in the mix of the loan portfolio, as well as increases in the amount of nonperforming loans held by the Company. The following table presents the allocation of the allowance for loan losses applicable to each loan category in thousands of dollars, as of September 30, 2003 and 2002, and December 31, 2002.
9/30/2003 12/31/2002 9/30/2002 --------- ---------- --------- Business and commercial mortgage $4,679 $3,950 $4,122 Tax exempt - - - Residential mortgage 36 15 21 Personal 648 571 604 Construction - - - Unallocated - 439 262 ------ ------ ------ Total $5,363 $4,975 $5,009 ====== ====== ======
One of the Company's largest single category of loans is also generally the one with the least risk. Loans to finance residential mortgages, including construction loans, make up 27.2% of the portfolio at September 30, 2003, and are well-secured and have had historically low levels of net losses. Personal and business loans make up the balance of the portfolio. The personal loan portfolio consists of direct and indirect installment, 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 and manufactured housing, but make up a small percent of the personal loans. Business loans carry the largest balances per loan, and therefore, any single loss would be proportionally larger than losses in other portfolios. Because of this, the Company uses an independent loan review firm to assess the continued quality of its business loan portfolios. This is in addition to the precautions taken with credit quality in the other loan portfolios. Business loans contain no significant concentrations other than geographic concentrations within Lenawee, Monroe and Washtenaw Counties in Michigan. DEPOSITS Deposit growth slowed somewhat in the third quarter of 2003, as total deposits increased at an annualized rate of 9.6% year to date. Products such as money market deposit accounts, Cash Management Checking and Cash Management Accounts continue to be very popular with clients, aiding in continued deposit growth. At the same time, demand deposit balances continue their steady growth. Although clients continue to evaluate alternatives to certificates of deposit in search of the best yields on their funds, traditional banking products continue to be an important part of the Company's product line. As in the past, the majority of the Company's deposits are derived from core client sources, relating to long Page 12 term relationships with local personal, business and public clients. The Banks do not support their growth through purchased or brokered deposits. The Banks' deposit rates are consistently competitive with other banks in their market areas. The chart below shows the percentage makeup of the deposit portfolio as of September 30, 2003 and 2002.
2003 2002 ----- ----- Noninterest bearing deposits 16.0% 14.7% Interest bearing deposits 84.0% 85.3% ----- ----- Total deposits 100.0% 100.0% ===== =====
LIQUIDITY, CASH EQUIVALENTS AND BORROWED FUNDS The Company maintains correspondent accounts with a number of other banks for various purposes. In addition, cash sufficient to meet the operating needs of its banking offices is maintained at its lowest practical levels. At times, the Banks are a participant in the federal funds market, either as a borrower or seller. Federal funds are generally borrowed or sold for one-day periods. The Banks also have the ability to utilize short term advances from the Federal Home Loan Bank ("FHLB") and borrowings at the discount window of the Federal Reserve Bank as additional short-term funding sources. Federal funds were used during 2003 and 2002. Short term advances and discount window borrowings were not utilized during either year. The Company periodically finds it advantageous to utilize longer term borrowings from the Federal Home Loan Bank of Indianapolis. These long-term borrowings served to provide a balance to some of the interest rate risk inherent in the Company's balance sheet. CAPITAL RESOURCES The capital ratios of the Company exceed the regulatory guidelines for well capitalized institutions. The following table shows the Company's capital ratios and ratio calculations at September 30, 2003 and 2002, and December 31, 2002. Dollars are shown in thousands.
Regulatory Guidelines United Bancorp, Inc. --------------------- -------------------- Adequate Well 9/30/2003 12/31/2002 9/30/2002 -------- ---- --------- ---------- --------- Tier 1 capital to average assets 4% 5% 8.9% 8.8% 8.7% Tier 1 capital to risk weighted assets 4% 6% 11.8% 11.6% 11.7% Total capital to risk weighted assets 8% 10% 13.0% 12.8% 12.9% Total shareholders' equity $ 56,379 $ 53,380 $ 52,225 Intangible assets (3,469) (3,469) (3,270) Disallowed servicing assets (179) (97) - Unrealized (gain) loss on securities available for sale (712) (1,281) (1,365) -------- -------- -------- Tier 1 capital 52,019 48,533 47,590 Allowable loan loss reserves 5,251 4,975 5,009 -------- -------- -------- Tier 2 capital $ 57,270 $ 53,508 $ 52,599 ======== ======== ========
RESULTS OF OPERATIONS Consolidated net income for the third quarter of 2003 was up significantly from all prior quarters, and represents the Company's best quarterly earnings in its history. The following discussion provides an analysis of these changes. NET INTEREST INCOME Net interest income continues to be pressured by historically low market rates and ongoing refinancing of residential real estate mortgages from the portfolios of the Banks. Net interest income was virtually flat from the second quarter of 2003, and was down 5.4% from the second quarter of this year. Year to date net interest income is slightly below first nine months of 2002. During the third quarter of 2003, yields on Page 13 earning assets and the cost of funds continued to decline as a result of the unprecedented decline in market interest rates initiated by the Federal Reserve during 2001, 2002 and 2003. At the same time, the Company's level of excess funding remains high, contributing to lower overall yields on earning assets, and year to date, spread and net interest margin are lower than that of the same period of 2002. The following table shows the year to date daily average consolidated balance sheets, interest earned (on a taxable equivalent basis) or paid, and the annualized effective yield or rate, for the periods ended September 30, 2003 and 2002. YIELD ANALYSIS OF CONSOLIDATED AVERAGE ASSETS AND LIABILITIES
Nine months ended September 30, ----------------------------------------------------------------------- dollars in thousands 2003 2002 --------- --------- Average Interest Yield/ Average Interest Yield/ ASSETS Balance (b) Rate (c) Balance (b) Rate (c) --------- --------- -------- -------- -------- -------- Interest earning assets (a) Federal funds sold $ 21,430 $ 182 1.13% $ 10,369 $ 127 1.63% Taxable securities 66,488 1,706 3.42% 64,646 2,140 4.41% Tax exempt securities (b) 30,344 1,357 5.96% 33,356 1,650 6.60% Taxable loans 422,125 20,468 6.46% 401,951 21,691 7.20% Tax exempt loans (b) 1,401 75 7.15% 1,715 97 7.56% --------- --------- --------- --------- Total int. earning assets (b) 541,788 23,789 5.85% 512,037 25,705 6.69% Less allowance for loan losses (5,198) (4,769) Other assets 49,896 43,588 --------- --------- TOTAL ASSETS $ 586,486 $ 550,856 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY NOW accounts $ 98,512 502 0.68% $ 88,990 635 0.95% Savings deposits 162,594 1,244 1.02% 142,410 1,541 1.44% CDs $100,000 and over 26,390 787 3.98% 30,039 1,067 4.74% Other interest bearing deposits 124,549 2,594 2.78% 142,018 3,679 3.45% --------- --------- --------- --------- Total int. bearing deposits 412,045 5,126 1.66% 403,457 6,922 2.29% Short term borrowings 78 1 1.18% 687 7 1.37% Other borrowings 39,163 1,439 4.90% 27,852 1,191 5.70% --------- --------- --------- --------- Total int. bearing liabilities 451,286 6,566 1.94% 431,996 8,119 2.51% --------- --------- Noninterest bearing deposits 73,394 62,683 Other liabilities 6,733 5,935 Shareholders' equity 55,073 50,242 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 586,486 $ 550,856 ========= ========= Net interest income (b) 17,222 17,586 --------- --------- Net spread (b) 3.91% 4.19% ===== ==== Net yield on interest earning assets (b) 4.24% 4.58% ===== ==== Tax equivalent adjustment on interest income (473) (577) --------- --------- Net interest income per income statement $ 16,749 $ 17,009 ========= ========= Ratio of interest earning assets to interest bearing liabilities 1.20 1.19 ========= =========
(a) Non-accrual loans and overdrafts are included in the average balances of loans. (b) Fully tax-equivalent basis, net of nondeductible interest impact; 34% tax rate. (c) Annualized As noted from the data in the following table, interest income and interest expense declined during the first nine months of 2003 as a result of changes in rates. At the same time, net interest income improved as a result of changes in volume compared to the same period of 2002. The following table shows the effect of Page 14 volume and rate changes on net interest income for the nine months ended September 30, 2003 and 2002 on a taxable equivalent basis, in thousands of dollars.
2003 Compared to 2002 2002 Compared to 2001 --------------------- --------------------- Increase (Decrease) Due To: (a) Increase (Decrease) Due To: (a) ------------------------------ ------------------------------- Volume Rate Net Volume Rate Net ------- ------- ------- ------- ------- ------- Interest earned on: Federal funds sold $ 103 $ (48) $ 55 $ (234) $ (329) $ (563) Taxable securities 59 (493) (434) 754 (540) 214 Tax exempt securities (142) (151) (293) 37 (156) (119) Taxable loans 1,052 (2,275) (1,223) 2,962 (3,362) (400) Tax exempt loans (17) (5) (22) (11) 2 (9) ------- ------- ------- ------- ------- ------- Total interest income $ 1,055 $(2,972) $(1,917) $ 3,508 $(4,385) $ (877) ======= ======= ======= ======= ======= ======= Interest paid on: NOW accounts $ 63 $ (196) $ (133) $ 269 $ (845) $ (576) Savings deposits 198 (495) (297) 713 (1,052) (339) CDs $100,000 and over (121) (159) (280) (193) (275) (468) Other interest bearing deposits (418) (667) (1,085) (962) (2,018) (2,980) Short term borrowings (5) (1) (6) 3 (9) (6) Other borrowings 433 (184) 249 686 (127) 559 ------- ------- ------- ------- ------- ------- Total interest expense $ 150 $(1,702) $(1,552) $ 516 $(4,326) $(3,810) ======= ======= ======= ======= ======= ======= Net change in net interest income $ 905 $(1,270) $ (365) $ 2,992 $ (59) $ 2,933 ======= ======= ======= ======= ======= =======
(a) The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. NONINTEREST INCOME Total noninterest income continues to improve on a quarter-by-quarter basis, and for the first nine months of 2003, is ahead of the same period of 2002 by 31.4%. While income from the sale of nondeposit investment products is down, most other categories of noninterest income are improved from the same period last year. The largest increases achieved continue to be in income from loan sales and servicing. Service charges on deposit accounts are up 13.8% over the first nine months of 2002 and 58.3% above the second quarter of 2003. No significant changes were made in the Company's service charge structure during the quarter, and the increase reflects continued growth of the Company's deposit base. The Trust & Investment Group of UBT continues to provide significant contribution to the Company's noninterest income, through continued growth and expansion. This growth has been hindered during the past several quarters by declines in the equity markets, which impact the market value of assets managed and the resulting fee income. However, significant improvements were noted during the third quarter. Income in this category is up 3.0% year to date from 2002, and is up 31.2% over the second quarter of 2003 on an annualized basis, as a result of improving equity markets during the quarter. The Banks generally market their production of fixed rate long-term mortgages in the secondary market, and retain adjustable rate mortgages for their portfolios. The Company maintains a portfolio of sold residential real estate mortgages, which it continues to service. This servicing provides ongoing income for the life of the loans. During 2002 and 2003, clients continued to exhibit a preference for fixed rate loans as market rates declined, resulting in a greater proportion of those loans originated by the Banks being sold in the secondary market. Volume of residential mortgage lending continues to be very strong, and income from the sale and servicing of loans was up 13.8% from the second quarter of 2003, and is up 166.8% over the first nine months of 2002. The Company does not believe that this volume of business is sustainable, and is anticipated to decline significantly when interest rates increase. As the Company is conservative in its approach Page 15 to valuation of mortgage servicing rights, no write-downs in mortgage servicing rights were required in 2003 or 2002 as a result of declining market rates. NONINTEREST EXPENSES Total noninterest expenses increased 8.3% from the second quarter of 2003, with most of the increase in compensation expense. This primarily reflects commissions paid to generate the record income earned on the sale of residential mortgages on the secondary market. Year to date, noninterest expenses are 6.6% higher than the same period of last year, with the costs of the new main office of United Bank & Trust - Washtenaw also contributing to the increases. This growth in expense reflects the ongoing expansion of the Banks within their markets. FEDERAL INCOME TAX There has been no significant change in the income tax position of the Company. The effective tax rate was 28.9% for the third quarter of 2003 and 29.8% year to date, compared to 30.7% for the second quarter of 2003 and 28.9% for the first nine months of 2002. NET INCOME Income for the third quarter of 2003 represents the best quarter in the Company's history, with an improve- ment of 13.3% from the same period in 2002. Management anticipates that net income will remain strong for the remainder of the year, but with a substantial decrease in the amount of income attributed to gains on the sale of loans in the secondary market. At the same time, it is anticipated that other categories of income will improve from year to date levels, resulting in earnings for the year near 2002 levels. CRITICAL ACCOUNTING POLICIES Generally accepted accounting principles are complex and require management to apply significant judgments to various accounting, reporting and disclosure matters. The Company's Management must use assumptions and estimates to apply these principles where actual measurement is not possible or practical. For a complete discussion of the Company's significant accounting policies, see "Notes to the Consolidated Financial Statements" in United Bancorp, Inc.'s 2002 Annual Report on pages A-24 to A-27. Certain policies are considered critical because they are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such estimates may have a significant impact on the financial statements. Management has reviewed the application of these policies with the Audit Committee of the Company's Board of Directors. For a discussion of applying critical accounting policies, see "Critical Accounting Policies" on pages A-16 and A17 in United Bancorp, Inc.'s 2002 Annual Report. FORWARD-LOOKING STATEMENTS Statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations include forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and about the Company itself. Words such as "anticipate," "believe," "determine," "estimate," "expect," "forecast," "intend," "is likely," "plan," "project," "opinion," variations of such terms, and similar expressions are intended to identify such forward-looking statements. The presentations and discussions of the provision and allowance for loan losses, and determinations as to the need for other allowances presented in this report are inherently forward-looking statements in that they involve judgments and statements of belief as to the outcome of future events. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. Internal and external factors that may cause such a difference include changes in interest rates and interest rate relationships; demand for products and services; the degree Page 16 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 September 30, 2003, the Company would expect a maximum potential reduction in net interest margin of less than 12% if market rates increased under an immediate and sustained parallel shift of 200 basis points. The Company's interest sensitivity position continues to be asset- sensitive, continuing a trend evident throughout 2002. The Company anticipates that interest rates will rise, and has positioned its balance sheet to take advantage of this expected increase in rates. As a result, current net interest income has been lowered in order to improve net interest margin in the future. Each Bank maintains a Funds Management Committee, which reviews exposure to market risk on a regular basis. The Committees' overriding policy objective is to manage assets and liabilities to provide an optimum and consistent level of earnings within the framework of acceptable risk standards. The Funds Management Committees are also responsible for evaluating and anticipating various risks other than interest rate risk. Those risks include prepayment risk, credit risk and liquidity risk. The Committees are made up of senior members of management, and continually monitor the makeup of interest sensitive assets and liabilities to assure appropriate liquidity, maintain interest margins and to protect earnings in the face of changing interest rates and other economic factors. The Funds Management policies provide for a level of interest sensitivity which, Management believes, allows the Banks to take advantage of opportunities within their markets relating to liquidity and interest rate risk, allowing flexibility without subjecting the Company to undue exposure to risk. In addition, other Page 17 measures are used to evaluate and project the anticipated results of Management's decisions. ITEM 4- CONTROLS AND PROCEDURES INTERNAL CONTROL The Company maintains internal controls that contain self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified. The Board, operating through its Audit and Compliance Committee, provides oversight to the financial reporting process. Even effective internal controls, no matter how well designed, have inherent limitations, including the possibility of circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurance with respect to financial statement preparation. Furthermore, the effectiveness of internal controls may vary over time. The Company's Audit and Compliance Committee is composed entirely of Directors who are not officers or employees of the Company. Within the 90-day period prior to the filing date of this report, an evaluation was carried out under the supervision and with the participation of United Bancorp's management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that United Bancorp's disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that there were no significant changes in the company's internal controls or in other factors that could significantly affect its internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. PART II OTHER INFORMATION ITEM 1- LEGAL PROCEEDINGS The Company is not involved in any material legal proceedings. The Company's banking subsidiaries are involved in ordinary routine litigation incident to its business; however, no such proceedings are expected to result in any material adverse effect on the operations or earnings of the Banks. Neither the Banks nor the Company are involved in any proceedings to which any director, principal officer, affiliate thereof, or person who owns of record or beneficially five percent (5%) or more of the outstanding stock of the Company, or any associate of the foregoing, is a party or has a material interest adverse to the Company or the Banks. ITEM 2- CHANGES IN SECURITIES AND USE OF PROCEEDS No changes in the securities of the Company occurred during the quarter ended September 30, 2003. ITEM 3- DEFAULTS UPON SENIOR SECURITIES There have been no defaults upon senior securities relevant to the requirements of this section during the three months ended September 30, 2003. Page 18 ITEM 4- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the quarter ended September 30, 2003. ITEM 5- OTHER INFORMATION None. ITEM 6- EXHIBITS AND REPORTS ON FORM 8-K (a) Listing of Exhibits (numbered as in Item 601 of Regulation S-K): Exhibit 31.1 Certification of principal executive officer pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 31.2 Certification of principal financial officer pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) The Company has filed no reports on Form 8-K during the quarter ended September 30, 2003. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED BANCORP, INC. November 12, 2003 /S/ Dale L. Chadderdon - -------------------------------------------------------------- Dale L. Chadderdon Senior Vice President, Secretary & Treasurer Page 19 EXHIBIT INDEX EXHIBIT NO. LIST OF EXHIBITS Exhibit 31.1 Certification of principal executive officer pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002. Exhibit 31.2 Certification of principal financial officer pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002. Exhibit 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. Page 20 EX-31.1 3 k80646exv31w1.txt 302 CERTIFICATION OF PRINICPAL EXECUTIVE OFFICER EXHIBIT 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER DISCLOSURE PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, David S. Hickman, certify that: 1. I have reviewed this quarterly report on Form 10-Q of United Bancorp, Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-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 quarterly report is being prepared; b) 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 c) Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter 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 officers 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: 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. /S/ David S. Hickman November 12, 2003 - ------------------------------------------------- ----------------- David S. Hickman Date Chairman and Chief Executive Officer Page 21 EX-31.2 4 k80646exv31w2.txt 302 CERTIFICATION OF PRINICPAL FINANCIAL OFFICER EXHIBIT 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER DISCLOSURE PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Dale L. Chadderdon, certify that: 1. I have reviewed this quarterly report on Form 10-Q of United Bancorp, Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-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 quarterly report is being prepared; b) 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 c) Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter 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 officers 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: 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. /S/ Dale L. Chadderdon November 12, 2003 - ------------------------------------------------- ----------------- Dale L. Chadderdon Date Senior Vice President, Secretary & Treasurer Page 22 EX-32.1 5 k80646exv32w1.txt SECTION 906 CERTIFICATIONS EXHIBIT 32.1 DISCLOSURE PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of United Bancorp, Inc. does hereby certify, to such officer's knowledge, that the Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (the "Form 10-Q") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. /S/ David S. Hickman November 12, 2003 - ------------------------------------------------- ----------------- David S. Hickman Date Chairman and Chief Executive Officer /S/ Dale L. Chadderdon November 12, 2003 - ------------------------------------------------- ----------------- Dale L. Chadderdon Date Senior Vice President, Secretary & Treasurer Page 23 -----END PRIVACY-ENHANCED MESSAGE-----