10-Q 1 k86673e10vq.txt QUARTERLY REPORT FOR PERIOD ENDED JUNE 30, 2004 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004 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 [ ] Indicate by check mark whether the registrant is an accelerated filer as defined in Rule 12b-2 of the Act. Yes [X] No [ ] As of July 31, 2004, there were outstanding 2,355,552 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 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 Executive Summary 9 Financial Condition 10 Liquidity and Capital Resources 13 Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures about Market Risk 18 Item 4. Controls and Procedures 19 PART II - OTHER INFORMATION Item 1. Legal Proceedings 19 Item 2. Changes in Securities and Use of Proceeds 19 Item 3. Defaults Upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 5. Other Information 21 Item 6. Exhibits and Reports on Form 8-K 21 Signatures 22 Exhibits 23
Page 2 PART I FINANCIAL INFORMATION ITEM 1- FINANCIAL STATEMENTS (a) CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (unaudited) June 30, December 31, June 30, In thousands of dollars 2004 2003 2003 ----------- ------------ ---------- ASSETS Cash and demand balances in other banks $ 21,636 $ 21,425 $ 19,563 Federal funds sold - - 26,200 ----------- ---------- ---------- Total cash and cash equivalents 21,636 21,425 45,763 Securities available for sale 108,084 108,734 99,844 Loans held for sale 949 90 5,909 Portfolio loans 474,944 446,730 417,162 ----------- ---------- ---------- Total loans 475,893 446,820 423,071 Less allowance for loan losses 5,729 5,497 5,308 ----------- ---------- ---------- Net loans 470,164 441,323 417,763 Premises and equipment, net 14,254 14,734 14,570 Goodwill 3,469 3,469 3,469 Bank-owned life insurance 10,491 10,250 - Accrued interest receivable and other assets 9,466 9,838 19,221 ----------- ---------- ---------- TOTAL ASSETS $ 637,564 $ 609,773 $ 600,630 =========== ========== ========== LIABILITIES Deposits Noninterest bearing $ 87,741 $ 78,184 $ 81,385 Interest bearing deposits 432,970 424,399 420,891 ----------- ---------- ---------- Total deposits 520,711 502,583 502,276 Federal funds purchased and other short term borrowings 9,576 8,076 75 Other borrowings 42,847 35,375 37,375 Accrued interest payable and other liabilities 5,020 6,356 5,458 ----------- ---------- ---------- TOTAL LIABILITIES 578,154 552,390 545,184 COMMITMENT AND CONTINGENT LIABILITIES SHAREHOLDERS' EQUITY Common stock and paid in capital, no par value; 5,000,000 shares authorized; 2,355,552, 2,224,963 and 2,224,758 shares issued and outstanding 54,085 45,809 45,711 Retained earnings 5,470 10,994 8,617 Accumulated other comprehensive income, net of tax (145) 580 1,118 ----------- ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 59,410 57,383 55,446 ----------- ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 637,564 $ 609,773 $ 600,630 =========== ========== ==========
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 Six Months Ended June 30, June 30, -------------------- -------------------- In thousands of dollars, except per share data 2004 2003 2004 2003 -------- -------- -------- -------- INTEREST INCOME Interest and fees on loans $ 6,884 $ 6,796 $ 13,658 $ 13,789 Interest on securities Taxable 490 580 1,006 1,182 Tax exempt 275 297 582 611 Interest on federal funds sold 5 77 20 131 -------- -------- -------- -------- Total interest income 7,654 7,750 15,266 15,713 INTEREST EXPENSE Interest on deposits 1,484 1,737 2,964 3,535 Interest on short term borrowings 6 - 8 - Interest on other borrowings 488 460 954 994 -------- -------- -------- -------- Total interest expense 1,978 2,197 3,926 4,529 -------- -------- -------- -------- NET INTEREST INCOME 5,676 5,553 11,340 11,184 Provision for loan losses 304 296 566 609 -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,372 5,257 10,774 10,575 NONINTEREST INCOME Service charges on deposit accounts 685 617 1,327 1,220 Trust & Investment fee income 920 748 1,809 1,447 Gains on securities transactions (34) 85 (33) 85 Loan sales and servicing 445 791 700 1,633 ATM, debit and credit card fee income 375 383 689 725 Sales of nondeposit investment products 186 137 368 260 Income from bank-owned life insurance 120 - 241 - Other income 201 150 340 293 -------- -------- -------- -------- Total noninterest income 2,898 2,911 5,441 5,663 NONINTEREST EXPENSE Salaries and employee benefits 3,388 3,240 6,801 6,563 Occupancy and equipment expense, net 1,002 1,028 2,006 1,986 External data processing 289 311 563 621 Advertising and marketing 112 114 222 226 Other expense 1,021 1,019 1,851 1,837 -------- -------- -------- -------- Total noninterest expense 5,812 5,712 11,443 11,233 -------- -------- -------- -------- INCOME BEFORE FEDERAL INCOME TAX 2,458 2,456 4,772 5,005 Federal income tax 707 754 1,305 1,520 -------- -------- -------- -------- NET INCOME $ 1,751 $ 1,702 $ 3,467 $ 3,485 ======== ======== ======== ======== Basic earnings per share $ 0.74 $ 0.72 $ 1.46 $ 1.48 Diluted earnings per share 0.73 0.72 1.45 1.47 Cash dividends declared per share of common stock 0.34 0.31 0.66 0.62
The accompanying notes are an integral part of these condensed consolidated financial statements. Page 4 (c) CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) In thousands of dollars
Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------- 2004 2003 2004 2003 -------- ------- -------- -------- TOTAL SHAREHOLDERS' EQUITY Balance at beginning of period $ 59,332 $ 54,394 $ 57,383 $ 53,380 Net Income 1,751 1,702 3,467 3,485 Other comprehensive income: Net change in unrealized gains (losses) on securities available for sale, net (926) (45) (725) (163) -------- -------- -------- -------- Total comprehensive income 825 1,657 2,742 3,322 Cash dividends declared (803) (734) (1,563) (1,433) Common stock transactions 56 129 848 177 -------- -------- -------- -------- Balance at end of period $ 59,410 $ 55,446 $ 59,410 $ 55,446 ======== ======== ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. Page 5 (d) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, ---------------------- In thousands of dollars 2004 2003 --------- --------- Cash Flows from Operating Activities Net income $ 3,467 $ 3,485 Adjustments to Reconcile Net Income to Net Cash from Operating Activities Depreciation and amortization 1,270 1,446 Provision for loan losses 566 609 Gain on sale of loans (602) (1,869) Proceeds from sales of loans originated for sale 43,928 119,052 Loans originated for sale (44,185) (115,219) (Gains) Losses on securities transactions 33 (85) Change in accrued interest receivable and other assets 1,169 (10,078) Change in accrued interest payable and other liabilities (1,342) (1,353) --------- --------- Net cash from operating activities 4,304 (4,012) Cash Flows from Investing Activities Securities available for sale Purchases (34,703) (32,045) Sales 4,626 3,932 Maturities and calls 25,607 22,229 Principal payments 3,560 2,733 Net change in portfolio loans (29,037) 5,113 Net investment in bank-owned life insurance (241) - Premises and equipment expenditures, net (361) (1,368) Investment in limited partnership 27 - --------- --------- Net cash from investing activities (30,522) 594 Cash Flows from Financing Activities Net change in deposits 18,128 30,726 Net change in short term borrowings 1,500 - Proceeds from other borrowings 8,000 3,000 Principal payments on other borrowings (528) (7,492) Proceeds from common stock transactions 848 177 Dividends paid (1,519) (1,649) --------- --------- Net cash from financing activities 26,429 24,762 --------- --------- Net change in cash and cash equivalents 211 21,344 Cash and cash equivalents at beginning of year 21,425 24,419 --------- --------- Cash and cash equivalents at end of period $ 21,636 $ 45,763 ========= ========= Supplement Disclosure of Cash Flow Information: Interest paid $ 3,930 $ 4,762 Income tax paid 1,000 1,500 Loans transferred to other real estate 489 102
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, 2003 has been derived from the audited consolidated balance sheet of the Company as of that date. Operating results for the six month period ending June 30, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004. 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, 2003. STOCK OPTIONS In 2000, Shareholders approved the Company's 1999 Stock Option Plan (the "1999 Plan"). The plan is a non-qualified stock option plan as defined under Internal Revenue Service regulations. Under the plan, directors and management of the Company and subsidiaries are given the right to purchase stock of the Company at a stipulated price, adjusted for stock dividends, over a specific period of time. The 1999 Plan will continue in effect until the end of 2004. Approval for the Company's 2005 Stock Option Plan (the "2005 Plan"), which will be effective January 1, 2005, was secured at the Annual Meeting of Shareholders held April 20, 2004. The 1999 Plan is the only plan in effect during 2004. The stock subject to the options are shares of authorized and unissued common stock of the Company. As defined in the 1999 Plan, options representing no more than 144,426 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 1999 Plan, adjusted for stock dividends:
Options Weighted Average Outstanding Exercise Price ----------- -------------- Balance at January 1, 2004 102,403 $ 43.41 Options granted 23,423 60.00 Options exercised (23,135) 40.22 Options forfeited - ------- Balance at June 30, 2004 102,691 $ 47.92 =======
Options granted under the 1999 Plan during the current year were 23,423 on January 9, 2004. The weighted fair value of the options granted was $5.46. For stock options outstanding at June 30, 2004, the range of average exercise prices was $37.61 to $60.00 and the weighted average remaining contractual term was 7.85 years. At June 30, 2004, 53,043 options were exercisable at the weighted average exercise price of $42.01. 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 Page 7 equivalent to the market value of the underlying stock at the grant date, adjusted for stock dividends. Accordingly, no compensations cost was recorded for the period ended June 30, 2004 and 2003.
Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- In thousands of dollars, except per share data 2004 2003 2004 2003 ------- ------- ------- ------- Net income, as reported $ 1,751 $ 1,702 $ 3,467 $ 3,485 Less: Total stock-based compensation cost, net of taxes 18 21 36 42 ------- ------- ------- ------- Pro forma net income $ 1,733 $ 1,681 $ 3,431 $ 3,443 ======= ======= ======= ======= Earnings per share: Basic As reported $ 0.74 $ 0.72 $ 1.46 $ 1.48 Basic Pro forma 0.73 0.71 1.45 1.46 Diluted As reported $ 0.73 $ 0.72 $ 1.45 $ 1.47 Diluted Pro forma 0.72 0.71 1.44 1.46
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 $263,087,000 and $230,049,000 at the end of June, 2004 and 2003. The balance of loans serviced for others related to servicing rights that have been capitalized was $260,638,000 and $223,043,000 at June 30, 2004 and 2003. Mortgage servicing rights activity in thousands of dollars for the six months ended June 30, 2004 and 2003 follows:
2004 2003 ------- ------- Balance at January 1 $ 1,832 $ 1,352 Amount capitalized year to date 277 790 Amount amortized year to date (224) (513) ------- ------- Balance at June 30 $ 1,885 $ 1,629 ======= =======
No valuation allowance was considered necessary for mortgage servicing rights at period end 2004 and 2003. 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 2004 and 2003, the Company declared 5% stock dividends payable in May 2004 and 2003. Earnings per share, dividends per share and weighted average shares have been restated to reflect these stock dividends. A reconciliation of basic and diluted earnings per share follows:
Three Months Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- In thousands of dollars, except per share data 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Net income $ 1,751 $ 1,702 $ 3,467 $ 3,485 ========== ========== ========== ========== Basic earnings: Weighted average common shares outstanding 2,354,113 2,332,093 2,349,225 2,331,805 Weighted average contingently issuable shares 21,470 19,349 21,121 18,831 ---------- ---------- ---------- ---------- Total weighted average shares outstanding 2,375,583 2,351,442 2,370,346 2,350,636 ========== ========== ========== ========== Basic earnings per share $ 0.74 $ 0.72 $ 1.46 $ 1.48 ========== ========== ========== ==========
Page 8
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Diluted earnings: Weighted average common shares outstanding from basic earnings per share 2,375,583 2,351,442 2,370,346 2,350,636 Dilutive effect of stock options 19,858 10,045 16,786 15,011 ---------- ---------- ---------- ---------- Total weighted average shares outstanding 2,395,441 2,361,488 2,387,132 2,365,647 ========== ========== ========== ========== Diluted earnings per share $ 0.73 $ 0.72 $ 1.45 $ 1.47 ========== ========== ========== ==========
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. 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. (the "Company") and its subsidiary banks, United Bank & Trust ("UBT") and United Bank & Trust - Washtenaw ("UBTW") for the three and six month periods ending June 30, 2004 and 2003. EXECUTIVE SUMMARY The Company is a financial holding company registered with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") under the Bank Holding Company Act. The Company has corporate power to engage in such activities as permitted to business corporations under the Michigan Business Corporation Act, subject to the limitations of the Bank Holding Company Act and regulations of the Federal Reserve System. The Company's subsidiary banks offer a full range of services to individuals, corporations, fiduciaries and other institutions. Banking services include checking, NOW accounts, savings, time deposit accounts, money market deposit accounts, safe deposit facilities and money transfers. Lending operations provide real estate loans, secured and unsecured business and personal loans, consumer installment loans, and check-credit loans, home equity loans, accounts receivable and inventory financing, equipment lease financing and construction financing. While unemployment in Michigan in recent months is generally higher than in many areas of the U.S., the markets served by the Banks are only marginally impacted. In particular, the Ann Arbor market has much lower unemployment levels than does the rest of the State. While recent downturns in the economy have impacted some small companies, in general the Banks have not felt the impact of this decline. In addition, in part through the addition of its Ann Arbor subsidiary in 2001, the Company continues to gain market share in its market areas. The Company's Banks offer the sale of nondeposit investment products through licensed representatives in their banking offices, and sell credit and life insurance products. In addition, the Company and/or the Banks are co-owners of Michigan Banker's Title Insurance Company of Mid-Michigan LLC and Michigan Bankers Insurance Center, LLC, and derive income from the sale of various insurance products to banking clients. UBT operates a trust department, and provides trust services to UBTW on a contract basis. The Trust & Investment Group offers a wide variety of fiduciary services to individuals, corporations and governmental entities, including services as trustee for personal, corporate, pension, profit sharing and other employee benefit trusts. The department provides securities custody services as an agent, acts as the personal representative for estates and as a fiscal, paying and escrow agent for corporate customers and governmental entities, and provides trust services for clients of the Banks. These products help to diversify the Company's sources of income. Page 9 Consolidated net income of $1,751,281 for the second quarter of 2004 surpassed the earnings of the first quarter of 2004 and the second quarter of 2003. However, because of strong first quarter earnings in 2003, consolidated net income for the first half of 2004 is behind the same period last year by 0.5%, or just under $18,000. Steady asset growth continued, as total assets reached $637.6 million, for an increase of $36.9 million, or 6.2%, in the trailing 12 months. During the most recent quarter, the Company's loan portfolio increased by $18.5 million, deposits increased by $6.4 million, and assets under management by the Trust & Investment Group of United Bank & Trust grew by $14.2 million. In the fourth quarter of 2003, Management reported that the residential real estate mortgage refinance boom had ended late in the third quarter. Mortgage production at the subsidiary banks fell considerably in the fourth quarter of 2003, and that decline has continued in the first and second quarters of 2004. As a result, compared to the first half of 2003, income from loan sales and servicing is down $933,000. At the same time, Trust & Investment fee income has improved by $362,000, or 25.0%, over the first half of a year ago. This strong performance, plus increases in other fee income categories, helped to offset a portion of the decline in loan sales and servicing income. Net interest income has remained flat from period to period, and expenses continue to increase modestly. At the same time, total noninterest income was at its highest quarterly level since the third quarter of 2003, when mortgage origination volume was especially high. The chart below shows the trends in the major components of earnings for the last five quarters.
2004 2003 ----------------- --------------------------- in thousands of dollars, where appropriate 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr ------- ------- ------- ------- ------- Net interest income $ 5,676 $ 5,664 $ 5,579 $ 5,565 $ 5,553 Provision for loan losses 304 262 212 248 296 Noninterest income 2,898 2,544 2,740 3,419 2,911 Noninterest expense 5,812 5,632 5,606 5,830 5,712 Federal income tax provision 707 598 664 840 754 Net income $ 1,751 $ 1,716 $ 1,837 $ 2,066 $ 1,702 Return on average assets (a) 1.13% 1.12% 1.22% 1.37% 1.17% Return on average shareholders' equity (a) 11.83% 11.71% 12.78% 14.61% 12.40%
(a) annualized FINANCIAL CONDITION SECURITIES Balances in the Company's investment securities portfolio declined slightly during the second quarter of 2004, and are generally at the same levels as December 31, 2003. This decrease in the portfolio was a result of loan growth in excess of deposit increases, and was primarily due to maturities and calls within the municipal portfolios of the banks. The chart below shows the percentage composition of the Company's investment portfolio as of the end of the current quarter for 2004 and 2003, as well as at December 31, 2003.
6/30/2004 12/31/2003 6/30/2003 --------- ---------- --------- U.S. Treasury and agency securities 39.5% 37.5% 32.3% Mortgage backed agency securities 24.3% 17.0% 22.2% Obligations of states and political subdivisions 33.4% 39.1% 36.5% Corporate, asset backed, and other securities 2.8% 6.5% 9.0% ----- ----- ----- 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 less than 5% 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 by more than $18 million in the second quarter of 2004, and have grown more than $29 million since the end of 2003. During this period, the Banks have experienced continued slowing of refinancing in the residential mortgage portfolios into products that are sold on the secondary market. Personal loan balances increased along with business loans and commercial mortgages, while construction and development loans provided the largest portion of growth since the end of the year. The mix of the loan portfolio continues a long-term trend toward an increased percentage of business loans, with declining percentages of residential mortgage loans and personal loans. The table below shows total loans outstanding, in thousands of dollars and their percentage of the total loan portfolio. All loans are domestic and contain no significant concentrations by industry or client.
June 30, 2004 December 31, 2003 June 30, 2003 -------------------- -------------------- -------------------- Balance % of total Balance % of total Balance % of total ------- ---------- ------- ---------- ------- ---------- Total loans: Personal $ 73,717 15.5% $ 70,301 15.7% $ 67,898 16.1% Business loans and commercial mortgages 260,324 54.7% 256,778 57.5% 228,165 53.9% Tax exempt 1,330 0.3% 1,476 0.3% 1,334 0.3% Residential mortgage 79,275 16.7% 85,156 19.1% 91,826 21.7% Construction & development 61,247 12.9% 33,109 7.4% 33,848 8.0% -------- ----- -------- ------ -------- ----- Total loans $475,893 100.0% $446,820 100.00% $423,071 100.0% ======== ===== ======== ====== ======== =====
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. Page 11 The chart below shows the aggregate amount of the Company's nonperforming assets by type, in thousands of dollars.
6/30/2004 12/31/2003 6/30/2003 --------- ---------- --------- Nonaccrual loans $ 2,789 $ 3,635 $ 4,598 Loans past due 90 days or more 1,160 761 737 Troubled debt restructurings - - - -------- --------- -------- Total nonperforming loans 3,949 4,396 5,335 Other real estate 945 593 569 -------- --------- -------- Total nonperforming assets $ 4,894 $ 4,989 $ 5,904 ======== ========= ======== Percent of nonperforming loans to total loans 0.83% 0.98% 1.26% Percent of nonperforming assets to total assets 0.77% 0.82% 0.98%
The Company's classification of nonperforming loans is generally consistent with loans identified as impaired. The Company's total nonperforming assets have declined slightly from the end of 2003, with reductions in nonaccrual loans and increases in loans past due ninety days or more. Balances in other real estate have increased as a result of the move of one property from nonaccrual status to ORE. The amount listed in the table above as other real estate reflects a small number of properties that were acquired in lieu of foreclosure. Properties have been leased to a third party with an option to purchase or are listed for sale, and no significant losses are anticipated. The Company's allowance for loan losses remains at a level consistent with its estimated losses, and the allowance provides for currently estimated losses inherent in the portfolio. An analysis of the allowance for loan losses, in thousands of dollars, for the six months ended June 30, 2004 and 2003 follows:
2004 2003 -------- --------- Balance at January 1 $ 5,497 $ 4,975 Loans charged off (499) (333) Recoveries credited to allowance 165 57 Provision charged to operations 566 609 ------- ------- Balance at June 30 $ 5,729 $ 5,308 ======= =======
The following table presents the allocation of the allowance for loan losses applicable to each loan category in thousands of dollars, as of June 30, 2004 and 2003, and December 31, 2003.
6/30/2004 12/31/2003 6/30/2003 --------- ---------- --------- Business and commercial mortgage $ 4,901 $ 4,775 $ 4,751 Tax exempt - - - Residential mortgage 52 37 38 Personal 707 685 519 Construction - - - Unallocated 69 - - --------- ---------- --------- Total $ 5,729 $ 5,497 $ 5,308 ========= ========== =========
Loans to finance residential mortgages make up 16.7% of the portfolio at June 30, 2004, and are well-secured and have had historically low levels of net losses. While that percentage is down from the same period of 2003, it is consistent with the year-end 2003 figures. Personal and business loans, including business mortgages and development loans, make up the balance of the portfolio. The personal loan portfolio consists Page 12 of direct and indirect installment, credit cards, home equity and unsecured revolving line of credit loans. Installment loans consist primarily of loans for consumer durable goods, principally automobiles. Indirect personal loans consist of loans for automobiles, marine and manufactured housing, but make up a small percent of the personal loans. Business loans carry the largest balances per loan, and therefore, any single loss would be proportionally larger than losses in other portfolios. Because of this, the Company uses an independent loan review firm to assess the continued quality of its business loan portfolios. This is in addition to the precautions taken with credit quality in the other loan portfolios. Business loans contain no significant concentrations other than geographic concentrations within Lenawee, Monroe and Washtenaw Counties in Michigan. DEPOSITS Deposit growth continued during the second quarter of 2004, as total deposits increased at an annualized rate of 5.1%, and growth over the past twelve months was 3.7%. Products such as money market deposit accounts, Cash Management Checking and Cash Management Accounts continue to be very popular with clients, aiding in continued deposit growth. At the same time, demand deposit balances continue their steady growth. Although clients continue to evaluate alternatives to certificates of deposit in search of the best yields on their funds, traditional banking products continue to be an important part of the Company's product line. As in the past, the majority of the Company's deposits are derived from core client sources, relating to long term relationships with local personal, business and public clients. The Banks do not support their growth through purchased or brokered deposits. The Banks' deposit rates are consistently competitive with other banks in their market areas. The chart below shows the percentage makeup of the deposit portfolio as of June 30, 2004 and 2003.
2004 2003 ------ ------ Noninterest bearing deposits 16.9% 16.2% Interest bearing deposits 83.1% 83.8% ----- ----- Total deposits 100.0% 100.0% ===== =====
LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY, CASH EQUIVALENTS AND BORROWED FUNDS The Company maintains correspondent accounts with a number of other banks for various purposes. In addition, cash sufficient to meet the operating needs of its banking offices is maintained at its lowest practical levels. At times, the Banks are a participant in the federal funds market, either as a borrower or seller. Federal funds are generally borrowed or sold for one-day periods. The Banks also have the ability to utilize short term advances from the Federal Home Loan Bank ("FHLB") and borrowings at the discount window of the Federal Reserve Bank as additional short-term funding sources. Federal funds were used during 2003 and 2004. 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. No advances were added during the second quarter of 2004. Page 13 CAPITAL RESOURCES The capital ratios of the Company exceed the regulatory guidelines for well capitalized institutions. The following table shows the Company's capital ratios and ratio calculations at June 30, 2004 and 2003, and December 31, 2003. Dollars are shown in thousands.
Regulatory Guidelines United Bancorp, Inc. --------------------- -------------------------------- Adequate Well 6/30/2004 12/31/2003 6/30/2003 -------- ----------- --------- ---------- --------- Tier 1 capital to average assets 4% 5% 9.1% 9.1% 8.8% Tier 1 capital to risk weighted assets 4% 6% 11.5% 11.7% 11.8% Total capital to risk weighted assets 8% 10% 12.7% 12.8% 13.0% Total shareholders' equity $ 59,410 $ 57,383 $ 55,446 Intangible assets (3,469) (3,469) (3,469) Disallowed servicing assets - (183) (163) Unrealized (gain) loss on securities available for sale 145 (580) (1,118) -------- --------- -------- Tier 1 capital 56,086 53,151 50,696 Allowable loan loss reserves 5,729 5,440 5,167 -------- --------- -------- Tier 2 capital $ 61,815 $ 58,591 $ 55,863 ======== ========= ========
RESULTS OF OPERATIONS Consolidated net income for the second quarter of 2004 surpassed the earnings of the first quarter of 2004 and the second quarter of 2003, resulting in the Company's best second-quarter results ever. The following discussion provides an analysis of these changes. NET INTEREST INCOME Net interest income exceeded the prior four quarters as a result of growth in the loan portfolio, in spite of historically low market rates. Refinancing of residential real estate mortgages from the portfolios of the Banks has slowed in the second quarter of the year. The Company's yield on earning assets was down 44 basis points from the same period of 2003, while the Company's cost of funds declined from first-half 2003 levels by 36 basis points, resulting in a reduction of tax equivalent spread of eight basis points. This decline is evident in reduction of yields on both loans and investments. The following table shows the year to date daily average consolidated balance sheets, interest earned (on a taxable equivalent basis) or paid, and the annualized effective yield or rate, for the periods ended June 30, 2004 and 2003. Page 14 YIELD ANALYSIS OF CONSOLIDATED AVERAGE ASSETS AND LIABILITIES
Six Months Ended June 30, ------------------------------------------------------------ 2004 2003 ----------------------------- ----------------------------- Average Interest Yield/ Average Interest Yield/ dollars in thousands Balance (b) Rate (c) Balance (b) Rate (c) -------------------- --------- -------- -------- --------- -------- -------- ASSETS Interest earning assets (a) Federal funds sold $ 4,124 $ 20 0.95% $ 21,800 $ 130 1.20% Taxable securities 74,586 1,006 2.70% 64,521 1,182 3.66% Tax exempt securities (b) 29,784 870 5.85% 29,352 904 6.16% Taxable loans 455,377 13,629 5.99% 421,814 13,757 6.52% Tax exempt loans (b) 1,400 44 6.33% 1,347 48 7.16% -------- ------- -------- ------- Total int. earning assets (b) 565,271 15,569 5.51% 538,834 16,022 5.95% Less allowance for loan losses (5,619) (5,136) Other assets 59,593 45,972 -------- -------- TOTAL ASSETS $619,245 $579,670 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY NOW accounts $112,904 265 0.47% $ 96,946 362 0.75% Savings deposits 176,094 736 0.84% 158,516 849 1.07% CDs $100,000 and over 33,865 514 3.04% 26,801 545 4.07% Other interest bearing deposits 105,738 1,449 2.74% 125,316 1,779 2.84% -------- ------- -------- ------- Total int. bearing deposits 428,601 2,964 1.38% 407,579 3,535 1.73% Short term borrowings 1,388 8 1.09% 79 0 0.55% Other borrowings 41,840 954 4.56% 40,058 994 4.96% -------- ------- -------- ------- Total int. bearing liabilities 471,829 3,926 1.66% 447,716 4,529 2.02% ------- ------- Noninterest bearing deposits 82,736 71,172 Other liabilities 5,616 6,175 Shareholders' equity 59,064 54,607 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $619,245 $579,670 ======== ======== Net interest income (b) 11,644 11,493 ------- ------- Net spread (b) 3.84% 3.92% ===== ===== Net yield on interest earning assets (b) 4.12% 4.27% ===== ===== Tax equivalent adjustment on interest income (304) (309) ------- ------- Net interest income per income statement $11,340 $11,184 ======= ======= Ratio of interest earning assets to interest bearing liabilities 1.20 1.20 ======== ========
(a) Non-accrual loans and overdrafts are included in the average balances of loans. (b) Fully tax-equivalent basis, net of nondeductible interest impact; 34% tax rate. (c) Annualized As noted from the data in the following table, interest income and interest expense declined during the first six months of 2004 as a result of changes in rates. At the same time, net interest income improved due to changes in volume compared to the same period of 2003. This continues the same trend noted in 2003 compared to 2002, and reflects the continued growth of the Company during periods of declining rates. The following table shows the effect of volume and rate changes on net interest income for the six months ended June 30, 2004 and 2003 on a taxable equivalent basis, in thousands of dollars. Page 15
2004 Compared to 2003 2003 Compared to 2002 Increase (Decrease) Due To: (a) Increase (Decrease) Due To: (a) ------------------------------- ------------------------------- Volume Rate Net Volume Rate Net -------- --------- --------- -------- -------- --------- Interest earned on: Federal funds sold $ (88) $ (23) $ (111) $ 60 $ (32) $ 28 Taxable securities 166 (342) (176) 3 (265) (262) Tax exempt securities 13 (47) (34) (152) (71) (223) Taxable loans 1,050 (1,178) (128) 1,009 (1,429) (420) Tax exempt loans 2 (6) (4) (16) (3) (19) ------- -------- ------- ------- -------- ------- Total interest income $ 1,143 $ (1,596) $ (453) $ 904 $ (1,800) $ (896) ======= ======== ======= ======= ======== ======= Interest paid on: NOW accounts $ 53 $ (151) $ (98) $ 42 $ (89) $ (47) Savings deposits 87 (199) (112) 121 (296) (175) CDs $100,000 and over 125 (156) (31) (74) (104) (178) Other interest bearing deposits (270) (60) (330) (333) (418) (751) Short term borrowings 7 - 7 (3) (2) (5) Other borrowings 43 (82) (39) 419 (114) 305 ------- -------- ------- ------- -------- ------- Total interest expense $ 45 $ (648) $ (603) $ 172 $ (1,023) $ (851) ======= ======== ======= ======= ======== ======= Net change in net interest income $ 1,098 $ (948) $ 150 $ 732 $ (777) $ (45) ======= ======== ======= ======= ======== =======
(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 improved in the second quarter of 2004, rebounding from the first quarter of the year, which represented its lowest level in several quarters. While income from loan sales and servicing is down significantly from the same period in 2003, improvements in several other noninterest categories have been realized, resulting in an increase in total noninterest income of 13.9% over the first quarter of the year. Year to date noninterest income remains behind the same period of 2003 by 3.9%. Service charges on deposit accounts are up 8.8% over the first half of 2003. No significant changes were made in the Company's service charge structure during the period, 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 ongoing growth and expansion. Growth of assets managed has improved Trust & Investment income by 25.0% over the first half of 2003. In addition, income from sales of nondeposit investment products, while not a large figure, is up 41.5% from the first six months of last year. In addition, noninterest income for the first half of 2004 includes income from bank-owned life insurance purchased by both banks in July of 2003. 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 2004 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. However, the volume of residential mortgage lending and refinancing has continued to slow, resulting in a reduction in income from loan sales and servicing of 57.1% from last year at this time. As the Company is conservative in its approach to valuation of mortgage servicing rights, no write-downs in mortgage servicing rights were required in 2004 or 2003 as a result of declining market rates. Page 16 NONINTEREST EXPENSES Total noninterest expenses were up 1.8% from the first quarter of 2003, and year to date noninterest expenses are up 1.9% over the first half of 2003. The increases are primarily in compensation expense, which is up 4.6% over the first half of 2003, and other expense categories are not significantly different that in 2003. Growth in expense reflects the ongoing expansion of the Banks within their markets. FEDERAL INCOME TAX The Company has improved its effective tax rate from 2003 to 2004, as a result of various tax strategies, including the purchase of bank-owned life insurance during 2003. The effective tax rate was 27.3% for the first half of 2004, compared to 30.4% for the same period of 2003. NET INCOME While net income improved slightly for the second quarter of 2004, Management anticipates that the Company will not experience significant improvement in earnings for the remainder of the year. Continued decline in the amount of income attributed to gains on the sale of loans in the secondary market combines with margin compression, both of which are offset to a great degree by improvements in other categories of noninterest income. CRITICAL ACCOUNTING POLICIES Generally accepted accounting principles are complex and require management to apply significant judgments to various accounting, reporting and disclosure matters. The Company's Management must use assumptions and estimates to apply these principles where actual measurement is not possible or practical. For a complete discussion of the Company's significant accounting policies, see "Notes to the Consolidated Financial Statements" in United Bancorp, Inc.'s 2003 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 2003 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 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. Page 17 ITEM 3- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FUNDS MANAGEMENT AND INTEREST RATE RISK The composition of the Company's balance sheet consists of investments in interest earning assets (loans and investment securities) that are funded by interest bearing liabilities (deposits and borrowings). These financial instruments have varying levels of sensitivity to changes in market interest rates resulting in market risk. Policies place strong emphasis on stabilizing net interest margin, with the goal of providing a sustained level of satisfactory earnings. The Funds Management, Investment and Loan policies provide direction for the flow of funds necessary to supply the needs of depositors and borrowers. Management of interest sensitive assets and liabilities is also necessary to reduce interest rate risk during times of fluctuating interest rates. A number of measures are used to monitor and manage interest rate risk, including interest sensitivity and income simulation analyses. An interest sensitivity model is the primary tool used to assess this risk with supplemental information supplied by an income simulation model. The simulation model is used to estimate the effect that specific interest rate changes would have on twelve months of pretax net interest income assuming an immediate and sustained up or down parallel change in interest rates of 200 basis points. Key assumptions in the models include prepayment speeds on mortgage related assets; cash flows and maturities of financial instruments held for purposes other than trading; changes in market conditions, loan volumes and pricing; and management's determination of core deposit sensitivity. These assumptions are inherently uncertain and, as a result, the models cannot precisely estimate net interest income or precisely predict the impact of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes and changes in market conditions. Based on the results of the simulation model as of June 30, 2004, the Company would expect a maximum potential reduction in net interest margin of less than 14% if market rates decreased 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 2003. 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. The Company and each Bank maintains Funds Management Committees, which review exposure to market risk on a regular basis. The Committees' overriding policy objective is to manage assets and liabilities to provide an optimum and consistent level of earnings within the framework of acceptable risk standards. The Funds Management Committees are also responsible for evaluating and anticipating various risks other than interest rate risk. Those risks include prepayment risk, credit risk and liquidity risk. The Committees are made up of senior members of management, and monitor the makeup of interest sensitive assets and liabilities to assure appropriate liquidity, maintain interest margins and to protect earnings in the face of changing interest rates and other economic factors. The Funds Management policies provide for a level of interest sensitivity which, Management believes, allows the Banks to take advantage of opportunities within their markets relating to liquidity and interest rate risk, allowing flexibility without subjecting the Company to undue exposure to risk. In addition, other measures are used to evaluate and project the anticipated results of Management's decisions. Page 18 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. As of the end of the quarter ended June 30, 2004, an evaluation was carried out under the supervision and with the participation of United Bancorp's management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that United Bancorp's disclosure controls and procedures as of the end of the quarter ended June 30, 2004 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. There have been no changes in the Company's internal controls over financial reporting identified in connection with the evaluation that occurred during the quarter ended June 30, 2004 that has materially affected, or is likely to materially affect, the Company's internal control over financial reporting. 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 AND ISSUER PURCHASES OF EQUITY SECURITIES No changes in the securities of the Company occurred during the quarter ended June 30, 2004. The Company did not repurchase any of its securities during the quarter ended June 30, 2004. ITEM 3- DEFAULTS UPON SENIOR SECURITIES There have been no defaults upon senior securities relevant to the requirements of this section during the quarter ended June 30, 2004. Page 19 ITEM 4- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of shareholders of the Company was held on April 20, 2004. At that meeting, the following matters were submitted to a vote of the shareholders. There were 2,231,707 voting shares outstanding on April 20, 2004. The following directors were elected to three-year terms:
Action For Against Abstain ---------- --------- ------- ------- James D. Buhr elected 1,753,356 - 19,245 James C. Lawson re-elected 1,746,680 - 25,921 Donald J. Martin re-elected 1,761,104 - 11,497 David E. Maxwell re-elected 1,768,584 - 4,017
Directors Joseph D. Butcko, George H. Cress, Robert K. Chapman, John H. Foss, Patricia M. Garcia, David S. Hickman, and Kathryn M. Mohr hold terms that continue after the meeting. Director Chris McKenney reached mandatory retirement age and retired from the Board. Shareholders approved the extension of the Company's 1999 Stock Option Plan as proposed. The new plan, known as the United Bancorp, Inc. 2005 Stock Option Plan, is a Non-Qualified Stock Option Plan as defined under Internal Revenue Service regulations. Under the 2005 Plan, Directors and management of the Company and subsidiaries are given the right to purchase stock of the Company at a stipulated price over a specific period of time. 1. Administration. The 2005 Plan will be administered by the Compensation Committee consisting of non-employee Directors of the Company. The Committee will determine: (a) The persons to whom options will be granted (b) The number of shares included with each option (c) The date on which each option is to be granted. In making decisions for the above criteria, the Committee may consider input provided by the senior management and the Boards of Directors of the Banks and the Company. The Compensation Committee has final authority on grants. 2. Eligible Participants. The table below delineates the classes and approximate number of persons in each class who may be eligible to participate in the 2005 Plan:
Class Number of Potential Participants ----- -------------------------------- Non-officer Directors 27 Executive Officers 13 Non-Executive Officers 24
3. Shares covered by the 2005 Plan. The stock subject to the options would be shares of authorized and unissued common stock of the Company. As defined in the Plan, options representing no more than 175,000 shares are to be made available to the Plan. The number of shares authorized under the Plan will be adjusted to reflect changes in the outstanding shares of stock of the Company resulting from a stock dividend or stock split. 4. General Plan Operation. Options under the 2005 Plan will be 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. Page 20 5. Duration of the Plan. The 2005 Plan will become effective on January 1, 2005 and will continue in effect for five years, unless the plan is extended with the approval of shareholders. The Plan was approved upon the following vote:
For Against Abstain --------- ------- ------- Adoption of Plan 1,465,180 129,506 177,915
No other matters were considered by shareholders at that meeting. 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) Reports on Form 8-K filed during the quarter ended June 30, 2004. Report on Form 8-K filed April 20, furnishing in Items 7 and 9 thereof, information on quarterly results of operations for the quarter ended March 31. Report on Form 8-K filed June 14, furnishing in Items 7 and 9 thereof, information regarding the declaration of cash dividends. Page 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED BANCORP, INC. August 4, 2004 /S/ David S. Hickman ------------------------------------- David S. Hickman Chairman and Chief Executive Officer (Principal Executive Officer) /S/ Dale L. Chadderdon ------------------------------------- Dale L. Chadderdon Senior Vice President, Secretary & Treasurer (Principal Financial Officer) Page 22 EXHIBIT INDEX
Exhibit No. Description ----------- ----------- Exhibit 31.1 Certification of principal executive officer pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 31.2 Certification of principal financial officer pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.