UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 2008
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT
For the transition period from ____________ to _______________
Commission File Number: 0-16540
UNITED BANCORP, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-1405357
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
201 South Fourth Street, Martins Ferry, Ohio 43935-0010
(Address of principal executive offices)
(740) 633-0445
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller Reporting Company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act)
Yes [ ] No [X]
Indicate the number of shares outstanding of the issuer's classes of common
stock as of the latest practicable date: As of May 8, 2008, 5,190,304 shares of
the small business issuer's common stock, $0.01 par value, were issued and
outstanding.
UNITED BANCORP, INC.
CONTENTS
PART I
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets............................................. 3
Consolidated Statements of Income....................................... 4
Consolidated Statements of Comprehensive Income......................... 5
Consolidated Statements of Cash Flows................................... 6
Notes to Financial Statements........................................... 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 18
PART II - OTHER INFORMATION................................................ 27
2
ITEM 1. FINANCIAL STATEMENTS
UNITED BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2008 2007
----------- ------------
(Unaudited)
ASSETS
Cash and due from banks $ 4,842 $ 4,678
Interest-bearing demand deposits 10,504 7,646
-------- --------
Cash and cash equivalents 15,346 12,324
-------- --------
Available-for-sale securities 158,956 165,324
Held-to-maturity securities 16,150 16,142
Loans, net of allowance for loan losses of $2,540 and $2,447 at
March 31, 2008 and December 31, 2007, respectively 231,325 232,197
Premises and equipment 7,083 7,077
Federal Home Loan Bank stock 4,624 4,624
Foreclosed assets held for sale, net 500 525
Accrued interest receivable 3,287 3,146
Deferred federal income taxes -- 180
Bank-owned life insurance 9,351 9,296
Other assets 1,189 535
-------- --------
Total assets $447,811 $451,370
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Demand $148,169 $146,057
Savings 28,635 27,816
Time 158,462 156,615
-------- --------
Total deposits 335,266 330,488
-------- --------
Short-term borrowings 9,037 19,609
Federal Home Loan Bank advances 59,250 58,926
Trade date security purchases 3,000 3,000
Subordinated debentures 4,000 4,000
Interest payable, deferred taxes and other liabilities 3,082 1,460
-------- --------
Total liabilities 413,635 417,483
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, no par value, authorized 2,000,000 shares; no
shares issued -- --
Common stock, $1 par value; authorized 10,000,000 shares; issued
March 31, 2008 - 5,190,304 shares and December 31, 2007 -
5,178,869 shares 5,190 5,179
Additional paid-in capital 27,620 28,048
Retained earnings 7,010 7,112
Stock held by deferred compensation plan; 120,486 and 108,322
shares at March 31, 2008 and December 31, 2007, respectively (1,179) (1,051)
Unearned ESOP compensation (2,931) (2,931)
Accumulated other comprehensive income (loss) 394 (500)
Treasury stock, at cost
March 31, 2008 - 185,628 shares, December 31, 2007 - 190,266
shares (1,928) (1,970)
-------- --------
Total stockholders' equity 34,176 33,887
-------- --------
Total liabilities and stockholders' equity $447,811 $451,370
======== ========
See Notes to Consolidated Financial Statements 3
UNITED BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
2008 2007
------ ------
INTEREST AND DIVIDEND INCOME
Loans $4,340 $4,453
Securities
Taxable 1,774 1,397
Tax-exempt 447 460
Federal funds sold 1 40
Dividends on Federal Home Loan Bank and other stock 98 76
------ ------
Total interest and dividend income 6,660 6,426
------ ------
INTEREST EXPENSE
Deposits 2,416 2,847
Federal funds purchased and repurchase agreements 94 143
Borrowings 633 491
------ ------
Total interest expense 3,143 3,481
------ ------
NET INTEREST INCOME 3,517 2,945
PROVISION FOR LOAN LOSSES 168 183
------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,349 2,762
------ ------
NONINTEREST INCOME
Customer service fees 491 398
Net gains on loan sales 14 27
Gain on sale of foreclosed real estate 3 12
Other 248 231
------ ------
Total noninterest income 756 668
------ ------
NONINTEREST EXPENSE
Salaries and employee benefits 1,479 1,420
Net occupancy expense 320 312
Professional fees 190 139
Insurance 103 85
Franchise and other taxes 120 79
Advertising 95 93
Printing and office supplies 65 68
Provision for losses on foreclosed real estate 155 --
Other 450 414
------ ------
Total noninterest expense 2,977 2,610
------ ------
INCOME BEFORE FEDERAL INCOME TAXES 1,128 820
PROVISION FOR FEDERAL INCOME TAXES 225 102
------ ------
NET INCOME $ 903 $ 718
====== ======
BASIC EARNINGS PER SHARE $ 0.20 $ 0.16
====== ======
DILUTED EARNINGS PER SHARE $ 0.20 $ 0.16
====== ======
DIVIDENDS PER SHARE $ 0.13 $ 0.13
====== ======
See Notes to Consolidated Financial Statements 4
UNITED BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(IN THOUSANDS)
(UNAUDITED)
2008 2007
------ -------
NET INCOME $ 903 $ 718
Other comprehensive income, net of related tax effects:
Unrealized holding gains on securities during the period,
net of taxes of $461 and $120 in 2008 and 2007,
respectively 894 233
Amortization of prior service costs and actuarial losses,
net of tax effects of $2 in 2007 -- 5
------ -------
COMPREHENSIVE INCOME $1,797 $ 956
====== =======
ACCUMULATED COMPREHENSIVE INCOME (LOSS) $ 394 $(1,675)
====== =======
See Notes to Consolidated Financial Statements 5
UNITED BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(IN THOUSANDS)
(UNAUDITED)
2008 2007
-------- --------
OPERATING ACTIVITIES
Net income $ 903 $ 718
Items not requiring (providing) cash
Depreciation and amortization 134 124
Provision for loan losses 168 183
Provision for losses on foreclosed real estate 155 --
Federal Home Loan Bank stock dividends -- (68)
Amortization of premiums and discounts on
securities, net 20 31
Gain on sale of loans (14) (27)
Increase in value of bank-owned life insurance (55) (94)
Amortization of mortgage servicing rights 21 24
Gains on sale of real estate owned (3) (12)
Net change in accrued interest receivable and other
assets (1,095) (606)
Net change in accrued expenses and other liabilties 617 (289)
-------- --------
Net cash provided by (used in) operating
activities 851 (16)
-------- --------
INVESTING ACTIVITIES
Securities available for sale:
Maturities, prepayments and calls 34,149 8,841
Purchases (26,453) (17,142)
Securities held to maturity:
Maturities, prepayments and calls -- 600
Net change in loans 587 4,223
Proceeds from sale of real estate owned 3 70
Purchases of premises and equipment (140) (58)
-------- --------
Net cash provided by (used in) investing
activities 8,146 (3,466)
-------- --------
See Notes to Consolidated Financial Statements 6
UNITED BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(IN THOUSANDS)
(UNAUDITED)
2008 2007
-------- --------
FINANCING ACTIVITIES
Net change in deposits $ 4,778 $ 7,966
Net change in short-term borrowings (10,572) (5,333)
Net change in long-term debt 324 (173)
Cash dividends paid (649) (652)
Proceeds from issuance of shares to Dividend
Reinvestment Plan 99 126
Shares purchased for deferred compensation plan 102 --
Proceeds from exercise of stock options -- 18
Treasury stock purchases (57) (256)
-------- --------
Net cash provided by (used in) financing
activities (5,975) 1,696
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,022 (1,786)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,324 14,554
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 15,346 $ 12,768
======== ========
SUPPLEMENTAL CASH FLOWS INFORMATION
Interest paid on deposits and borrowings $ 3,289 $ 3,344
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Transfers from loans to real estate and other
repossessed assets $ 131 $ 50
======== ========
Recognition of mortgage servicing rights $ 26 $ 27
======== ========
Unrealized gains on securities designated as
available for sale, net of related tax effects $ 894 $ 233
======== ========
Recognition of liability related to adoption of
EITF Issue 06-4 on split dollar life insurance
policies $ 1,005 $ --
======== ========
See Notes to Consolidated Financial Statements 7
UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements are prepared without audit and reflect
all adjustments which, in the opinion of management, are necessary to
present fairly the financial position of United Bancorp, Inc. ("Company")
at March 31, 2008, and its results of operations and cash flows for the
three month periods presented. All such adjustments are normal and
recurring in nature. The accompanying condensed consolidated financial
statements have been prepared in accordance with the instructions for Form
10-Q and, therefore, do not purport to contain all the necessary financial
disclosures required by accounting principles generally accepted in the
United States of America that might otherwise be necessary in the
circumstances and should be read in conjunction with the Company's
consolidated financial statements and related notes for the year ended
December 31, 2007 included in its Annual Report on Form 10-K. Reference is
made to the accounting policies of the Company described in the Notes to
the Consolidated Financial Statements contained in its Annual Report on
Form 10-K. Except for the adoption of EITF 06-4, as described in "Recent
Accounting Pronouncements," the Company has consistently followed these
policies in preparing this Form 10-Q. The results of operations for the
three months ended March 31, 2008, are not necessarily indicative of the
results to be expected for the full year.
PRINCIPLES OF CONDENSED CONSOLIDATION
The consolidated financial statements include the accounts of United
Bancorp, Inc. ("United" or "the Company") and its wholly-owned subsidiary,
The Citizens Savings Bank of Martins Ferry, Ohio ("the Bank" or
"Citizens"). For periods prior to July 1, 2007, the consolidated financial
statements include the Company and its two wholly-owned subsidiaries,
Citizens and The Community Bank. Effective July 1, 2007, the Company
merged, The Community Bank into The Citizens Savings Bank and now operates
that market area as The Community Bank, a division of The Citizens Savings
Bank and operates The Citizens Bank, a division of The Citizens Savings
Bank. All intercompany transactions and balances have been eliminated in
consolidation.
NATURE OF OPERATIONS
The Company's revenues, operating income, and assets are almost exclusively
derived from banking. Accordingly, all of the Company's banking operations
are considered by management to be aggregated in one reportable operating
segment. Customers are mainly located in Athens, Belmont, Carroll,
Fairfield, Harrison, Hocking, and Tuscarawas Counties and the surrounding
localities in northeastern, east-central and southeastern Ohio, and include
a wide range of individuals, businesses and other organizations. The
Citizens Bank division conducts its business through its main office in
Martins Ferry, Ohio and nine branches in Bridgeport, Colerain, Dellroy,
Dover, Jewett, New Philadelphia, St. Clairsville, Sherrodsville, and
Strasburg, Ohio. The Community Bank division conducts its business through
its main office in Lancaster, Ohio and six offices in Amesville, Glouster,
Lancaster, and Nelsonville, Ohio. The Company's primary deposit products
are checking, savings, and term certificate accounts, and its primary
lending products are residential mortgage, commercial, and installment
loans. Substantially all loans are secured by specific items of collateral
including business assets, consumer assets and real estate and are not
considered "sub prime" type loans. Commercial loans are expected to be
repaid from cash flow from operations of businesses. Real estate loans are
secured by both residential and commercial real estate. Net interest income
is affected by the relative amount of interest-earning assets and
interest-bearing liabilities and the interest received or paid on these
balances. The level of interest rates paid or received by the Company can
be significantly influenced by a number of environmental factors, such as
governmental monetary policy, that are outside of management's control.
8
UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
USE OF ESTIMATES
To prepare financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes
estimates and assumptions based on available information. These estimates
and assumptions affect the amounts reported in the financial statements and
the disclosures provided and future results could differ. The allowance for
loan losses and fair values of financial instruments are particularly
subject to change.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is a valuation allowance for probable
incurred credit losses, increased by the provision for loan losses and
decreased by charge-offs less recoveries. Management estimates the
allowance balance required based on past loan loss experience, the nature
and volume of the portfolio, information about specific borrower situations
and estimated collateral values, economic conditions and other factors.
Allocations of the allowance may be made for specific loans, but the entire
allowance is available for any loan that, in management's judgment, should
be charged-off. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed.
The Company accounts for impaired loans in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting for Creditors
for Impairment of a Loan." SFAS 114 requires that impaired loans be
measured based upon the present value of expected future cash flows
discounted at the loan's effective interest rate or, as an alternative, at
the loan's observable market price or fair value of the collateral. A loan
is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. In applying the provisions of SFAS No. 114, the Company
considers its investment in one-to-four family residential loans and
consumer installment loans to be homogenous and therefore excluded from
separate identification for evaluation of impairment. With respect to the
Company's investment in nonresidential and multi-family residential real
estate loans, and its evaluation of impairment thereof, such loans are
generally collateral dependent and, as a result, are carried as a practical
expedient at the fair value of the collateral.
Collateral dependent loans which are more than ninety days delinquent are
considered to constitute more than a minimum delay in repayment and are
evaluated for impairment under SFAS No. 114 at that time.
MORTGAGE SERVICING ASSETS
A summary of the Company's mortgage servicing assets (included in other
assets) as of and for the three months ended March 31, 2008 and 2007 is as
follows:
2008 2007
---- ----
(In thousands)
Beginning balance $439 $403
Recognition of mortgage servicing rights on sale of loans 26 27
Amortization during the period (21) (24)
---- ----
Net carrying value $444 $406
==== ====
9
UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
EARNINGS PER SHARE
Basic earnings per common share is computed based upon the weighted-average
number of common shares outstanding during the year, less shares in the
ESOP which are unallocated and not committed to be released. At March 31,
2008, the ESOP held 307,274 unallocated shares which were not included in
weighted-average common shares outstanding. Diluted earnings per common
share include the dilutive effect of additional potential common shares
issuable under the Company's stock option plans.
THREE MONTHS ENDED
MARCH 31,
-----------------------
2008 2007
---------- ----------
BASIC
Net income (in thousands) $ 903 $ 718
========== ==========
Weighted-average common shares outstanding 4,572,057 4,611,847
========== ==========
Basic earnings per common share $ 0.20 $ 0.16
========== ==========
DILUTED
Net income (in thousands) $ 903 $ 718
========== ==========
Weighted-average common shares outstanding for basic
earnings per common share 4,572,057 4,611,847
Add: Dilutive effects of assumed exercise of stock options -- 1,157
---------- ----------
Average shares and dilutive potential common shares 4,572,057 4,613,004
========== ==========
Diluted earnings per common share $ 0.20 $ 0.16
========== ==========
Options to purchase 55,529 shares of common stock at a weighted-average
exercise price of $10.34 per share were outstanding at March 31, 2008, but
were not included in the computation of diluted EPS because the options'
exercise price was greater than the average market price of the common
shares.
Options to purchase 33,657 shares of common stock at a weighted-average
$11.16 per share were outstanding at March 31, 2007, but were not included
in the computation of diluted EPS because the options' exercise price was
greater than the average market price of the common shares.
10
UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
STOCK OPTIONS
The Company maintains a nonqualified stock option plan for directors and
officers. The exercise price for options granted under this plan is no less
than 100% of the fair market value of the shares on the date of grant,
adjusted for stock splits in the form of a dividend.
The Company accounts for its stock option plan in accordance with SFAS No.
123(R), "Share-Based Payment," which requires that the cost related to the
fair value of grants of stock options be recognized in the financial
statements.
The compensation cost recorded for unvested equity-based awards is based on
their grant-date fair value. For the quarters ended March 31, 2008 and
2007, the Company recorded approximately $3,000 and $10,000, respectively,
in compensation costs for stock option awards that vested in each period.
The Company has approximately $92,000 of total unrecognized compensation
expense related to non-vested equity-based awards granted under it stock
incentive plan as of March 31, 2008, which is expected to be recognized
over a remaining weighted-average period of 6.9 years.
No stock options were granted during the three month periods ended March
31, 2008 and 2007.
There are no remaining options available for grant under the Company's 1996
plan as of March 31, 2008. A summary of the status of the Company's stock
option plan for the three months ended March 31, 2008 and 2007 is presented
below:
2008 2007
------------------------- -------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ ---------------- ------ ----------------
Outstanding at January 1, 55,529 $10.34 69,489 $10.73
Granted -- -- -- --
Exercised -- -- -- --
Forfeited -- -- (9,343) 11.65
------ ------
Outstanding at end of period 55,529 $10.34 60,146 $10.49
====== ====== ====== ======
Options exercisable at
period-end -- $ -- 394 $13.65
====== ====== ====== ======
At the Company's Annual Shareholder meeting that was held on April 16,
2008, a 2008 Stock Incentive Plan was approved by the shareholders. The
Plan provides for awards of up to 500,000 common shares in the form of
stock options, restricted stock and stock warrants.
11
UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
INCOME TAXES
The Company adopted the provisions of FASB Interpretation 48, "Accounting
for Uncertainty in Income Taxes," on January 1, 2007. Previously, the
Company had accounted for tax contingencies in accordance with Statement of
Financial Accounting Standards No. 5, "Accounting for Contingencies." As
required by Interpretation 48, which clarifies Statement No. 109,
"Accounting for Income Taxes," the Company recognizes the financial
statement benefit of a tax position only after determining that the
relevant tax authority would more likely than not sustain the position
following an audit. For tax positions meeting the more-likely-than-not
threshold, the amount recognized in the financial statements is the largest
benefit that has a greater than 50 percent likelihood of being realized
upon ultimate settlement with the relevant tax authority. At the adoption
date, the Company applied Interpretation 48 to all tax positions for which
the statute of limitations remained open. As a result of the implementation
of Interpretation 48, the Company was not required to record any liability
for unrecognized tax benefits as of January 1, 2007. There have been no
material changes in unrecognized tax benefits since January 1, 2007.
The Company is subject to income taxes in the U.S. federal jurisdiction, as
well as various state jurisdictions. Tax regulations within each
jurisdiction are subject to the interpretation of the related tax laws and
regulations and require significant judgment to apply. With few exceptions,
the Company is no longer subject to U.S. federal, state and local income
tax examinations by tax authorities for the years before 2004.
The Company will recognize, if applicable, interest accrued related to
unrecognized tax benefits in interest expense and penalties in operating
expenses.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 157, "Fair Value Measurements." This Statement defines fair value,
establishes a framework for measuring fair value and expands disclosures
about fair value measurements. This Statement emphasizes that fair value is
a market-based measurement and should be determined based on assumptions
that a market participant would use when pricing an asset or liability.
This Statement clarifies that market participant assumptions should include
assumptions about risk as well as the effect of a restriction on the sale
or use of an asset. Additionally, this Statement establishes a fair value
hierarchy that provides the highest priority to quoted prices in active
markets and the lowest priority to unobservable data. This Statement is
effective for fiscal years beginning after November 15, 2007, or January 1,
2008 as to the Company, and interim periods within that fiscal year. The
Company adopted SFAS No. 157 effective January 1, 2008, as required,
without material effect on the Company's financial position or results of
operations.
12
UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
In September 2006, the FASB ratified the Emerging Issues Task Force's
(EITF) Issue 06-4, "Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements,"
which requires companies to recognize a liability and related compensation
costs for endorsement split-dollar life insurance policies that provide a
benefit to an employee extending to postretirement periods. The liability
should be recognized based on the substantive agreement with the employee.
This Issue is effective beginning January 1, 2008. The Issue can be applied
as either a change in accounting principle through a cumulative-effect
adjustment to retained earnings as of the beginning of the year of
adoption, or a change in accounting principle through retrospective
application to all periods. The Company adopted Issue 06-4 effective
January 1, 2008, as required. The Company recorded a liability and a
corresponding charge to retained earnings totaling $1.0 million to
recognize the commitment obligation under its split-dollar life insurance
policies. The Company will recognize expense in 2008 totaling approximately
$133,000 for these policies.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115." This Statement allows companies the choice to measure
many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex
hedge accounting provisions. This Statement is expected to expand the use
of fair value measurement, which is consistent with the Board's long-term
measurement objectives for accounting for financial instruments. This
Statement is effective as of the beginning of an entity's first fiscal year
that begins after November 15, 2007, or January 1, 2008 as to the Company,
and interim periods within that fiscal year. The Company adopted SFAS No.
159 effective January 1, 2008, as required, without material effect on the
Company's financial position or results of operations.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations," which replaces SFAS No. 141. The Statement applies to all
transactions or other events in which one entity obtains control of one or
more businesses. It requires all assets acquired, liabilities assumed and
any noncontrolling interest to be measured at fair value at the acquisition
date. The Statement requires certain costs such as acquisition-related
costs that were previously recognized as a component of the purchase price,
and expected restructuring costs that were previously recognized as an
assumed liability, to be recognized separately from the acquisition as an
expense when incurred.
SFAS No. 141(R) applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008 and may not be
applied before that date.
Concurrent with SFAS No. 141 (revised 2007), the FASB recently issued SFAS
No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an
Amendment of ARB 51." SFAS No. 160 amends ARB 51 to establish accounting
and reporting standards for the noncontrolling interest (formerly known as
minority interest) in a subsidiary and for the deconsolidation of a
subsidiary. A subsidiary, as defined by SFAS No. 160, includes a variable
interest entity that is consolidated by a primary beneficiary.
13
UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
A noncontrolling interest in a subsidiary, previously reported in the
statement of financial position as a liability or in the mezzanine section
outside of permanent equity, will be included within consolidated equity as
a separate line item upon the adoption of SFAS No. 160. Further,
consolidated net income will be reported at amounts that include both the
parent (or primary beneficiary) and the noncontrolling interest with
separate disclosure on the face of the consolidated statement of income of
the amounts attributable to the parent and to the noncontrolling interest.
SFAS No. 160 is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008.
NOTE 2: ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses was as follows:
THREE MONTHS ENDED
MARCH 31,
------------------
2008 2007
------ ------
(In thousands)
Beginning balance $2,447 $2,345
Provision for loan losses 168 183
Loans charged-off (122) (194)
Recoveries of previous charge-offs 47 48
------ ------
Ending balance $2,540 $2,382
====== ======
Impaired loans totaled $4.4 million and $3.4 million at March 31, 2008 and
December 31, 2007, respectively. An allowance for loan losses of $670,000
and $673,000 relates to impaired loans of $3.0 million and $2.3 million, at
March 31, 2008 and December 31, 2007, respectively. At March 31, 2008 and
December 31, 2007, impaired loans of $1.4 million and $1.1 million,
respectively, had no related allowance for loan losses.
Interest income of $10,000 and $500 was recognized on average impaired
loans of $3.9 million and $2.6 million for the three months ended March 31,
2008 and 2007, respectively. Interest income was recognized on impaired
loans on a cash basis for the three months ended March 31, 2008 and 2007,
respectively.
At March 31, 2008 and December 31, 2007, accruing loans delinquent 90 days
or more (including impaired loans of $968,000 at March 31, 2008 and $1.7
million at December 31, 2007) totaled $1.5 million and $2.6 million,
respectively. Non-accruing loans at March 31, 2008 and December 31, 2007
(including impaired loans of $3.2 million at March 31, 2008 and $1.7
million at December 31, 2007) were $3.8 million and $1.8 million,
respectively.
14
UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
NOTE 3: BENEFIT PLANS
Pension expense includes the following:
THREE MONTHS ENDED
MARCH 31,
------------------
2008 2007
---- ----
(In thousands)
Service cost $ 59 $ 26
Interest cost 45 18
Expected return on assets (59) (22)
Amortization of prior service cost, transition liability,
net loss, plan amendments and other 15 7
---- ----
Pension expense $ 60 $ 29
==== ====
During the three months ended March 31, 2008, the Company recorded expense
of approximately $28,000 as certain participants in the Company's defined
benefit plan were paid lump sum distributions from the plan. During 2008 it
is anticipated that Company will incur approximately $231,000 of additional
settlement accounting expense under the provisions of SFAS No. 88.
NOTE 4: OFF-BALANCE SHEET ACTIVITIES
Some financial instruments, such as loan commitments, credit lines, letters
of credit and overdraft protection, are issued to meet customer financing
needs. These are agreements to provide credit or to support the credit of
others, as long as conditions established in the contracts are met, and
usually have expiration dates. Commitments may expire without being used.
Off-balance sheet risk to credit loss exists up to the face amount of these
instruments, although material losses are not anticipated. The same credit
policies are used to make such commitments as are used for loans, including
obtaining collateral at exercise of the commitment.
A summary of the notional or contractual amounts of financial instruments
with off-balance sheet risk at the indicated dates is as follows:
MARCH 31, DECEMBER 31,
2008 2007
----------- ------------
(Unaudited)
(In thousands)
Commitments to extend credit $43,353 $44,692
Standby letters of credit 720 565
15
UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
NOTE 5: FAIR VALUE MEASUREMENTS
Effective January 1, 2008, the Company adopted SFAS No. 157, "Fair Value
Measurements." SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements.
SFAS No. 157 has been applied prospectively as of the beginning of the
period.
SFAS No. 157 defines fair value as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. SFAS No. 157 also establishes
a fair value hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when
measuring fair value. The standard describes three levels of inputs that
may be used to measure fair value:
LEVEL 1 Quoted prices in active markets for identical assets or
liabilities
LEVEL 2 Observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are
observable or can be corroborated by observable market data
for substantially the full term of the assets or liabilities
LEVEL 3 Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the
assets or liabilities
Following is a description of the valuation methodologies used for
instruments measured at fair value on a recurring basis and recognized in
the accompanying balance sheet, as well as the general classification of
such instruments pursuant to the valuation hierarchy.
AVAILABLE-FOR-SALE SECURITIES
Where quoted market prices are available in an active market, securities
are classified within Level 1 of the valuation hierarchy. Level 1
securities include highly liquid government agency bonds and
mortgage-backed securities. If quoted market prices are not available, then
fair values are estimated by using pricing models, quoted prices of
securities with similar characteristics or discounted cash flows. Level 2
securities include certain collateralized mortgage and debt obligations and
certain municipal securities. In certain cases where Level 1 or Level 2
inputs are not available, securities are classified within Level 3 of the
hierarchy and include other less liquid securities.
16
UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
The following table presents the fair value measurements of assets and
liabilities recognized in the accompanying balance sheet measured at fair
value on a recurring basis and the level within the SFAS No. 157 fair value
hierarchy in which the fair value measurements fall at March 31, 2008:
FAIR VALUE MEASUREMENTS USING
------------------------------------------------------------
QUOTED PRICES IN
ACTIVE MARKETS FOR SIGNIFICANT OTHER SIGNIFICANT
IDENTICAL ASSETS OBSERVABLE INPUTS UNOBSERVABLE INPUTS
FAIR VALUE (LEVEL 1) (LEVEL 2) (LEVEL 3)
---------- ------------------ ----------------- -------------------
Available-for-sale
securities $158,956 $-- $158,956 $--
The following table presents the fair value measurements of assets and
liabilities measured at fair value on a nonrecurring basis and the level
within the SFAS No. 157 fair value hierarchy in which the fair value
measurements fall at March 31, 2008.
FAIR VALUE MEASUREMENTS USING
------------------------------------------------------------
QUOTED PRICES IN
ACTIVE MARKETS FOR SIGNIFICANT OTHER SIGNIFICANT
IDENTICAL ASSETS OBSERVABLE INPUTS UNOBSERVABLE INPUTS
FAIR VALUE (LEVEL 1) (LEVEL 2) (LEVEL 3)
---------- ------------------ ----------------- -------------------
Impaired loans $1,221 $-- $-- $1,221
17
UNITED BANCORP, INC.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discusses the financial condition of the Company as of March 31,
2008, as compared to December 31, 2007, and the results of operations for the
three months ended March 31, 2008, compared to the same period in 2007. This
discussion should be read in conjunction with the interim condensed consolidated
financial statements and related footnotes included herein.
FORWARD-LOOKING STATEMENTS
When used in this document, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimated," "projected" or
similar expressions are intended to identify "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Bank's market areas, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Bank's market areas and competition, that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. Factors listed above could affect the Company's financial performance
and could cause the Company's actual results for future periods to differ
materially from any statements expressed with respect to future periods.
The Company is not aware of any trends, events or uncertainties that will have
or are reasonably likely to have a material effect on its financial condition,
results of operations, liquidity or capital resources except as discussed
herein. The Company is not aware of any current recommendation by regulatory
authorities that would have such effect if implemented.
The Company does not undertake, and specifically disclaims any obligation, to
publicly revise any forward-looking statements to reflect events or
circumstances after the date such statements were made or to reflect the
occurrence of anticipated or unanticipated events.
CRITICAL ACCOUNTING POLICIES
Management makes certain judgments that affect the amounts reported in the
financial statements and footnotes. These estimates, assumptions and judgments
are based on information available as of the date of the financial statements,
and as this information changes, the financial statements could reflect
different estimates, assumptions, and judgment.
The procedures for assessing the adequacy of the allowance for loan losses
reflect our evaluation of credit risk after careful consideration of all
information available to management. In developing this assessment, management
must rely on estimates and exercise judgment regarding matters where the
ultimate outcome is unknown such as economic factors, development affecting
companies in specific industries and issues with respect to single borrowers.
Depending on changes in circumstances, future assessments of credit risk may
yield materially different results, which may require an increase or a decrease
in the allowance for loan losses.
The allowance is regularly reviewed by management and the board to determine
whether the amount is considered adequate to absorb probable losses. This
evaluation includes specific loss estimates on certain individually reviewed
loans, statistical loss estimates for loan pools that are based on historical
loss experience, and general loss estimates that are based on the size, quality
and concentration characteristics of the various loan portfolios, adverse
situations that may affect a borrower's ability to repay and current economic
and industry conditions. Also considered as part of that judgment is a review of
the Bank's trend in delinquencies and loan losses, and economic factors.
18
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The allowance for loan losses is maintained at a level believed adequate by
management to absorb probable loan losses inherent in the loan portfolio.
Management's evaluation of the adequacy of the allowance is an estimate based on
management's current judgment about the credit quality of the loan portfolio.
While the Company strives to reflect all known risk factors in its evaluation,
judgment errors may occur.
ANALYSIS OF FINANCIAL CONDITION
EARNING ASSETS - LOANS
At March 31, 2008, gross loans were $233.9 million, compared to $234.6 million
at year-end 2007, a decrease of $779,000, or 0.3%. The decrease in total
outstanding loans was the result of a decrease in the installment portfolio.
Management attributes the decrease in loans to the sluggish loan demand in the
markets served.
Installment loans represented 17.0% of total loans at March 31, 2008, and 17.5%
at December 31, 2007. This indirect lending type of financing carries somewhat
more risk than real estate lending, however; it also provides for higher yields.
The targeted lending areas encompass four metropolitan areas, minimizing the
risk to changes in economic conditions in the communities housing the Company's
17 branch locations.
Commercial and commercial real estate loans comprised 57.9% of total loans at
March 31, 2008 compared to 57.3% at December 31, 2007. Commercial and commercial
real estate loans have increased $1.0 million, or 0.8% since December 31, 2007.
The Company has originated and purchased participations in loans from other
banks for out-of-area commercial and commercial real estate loans to benefit
from consistent economic growth outside the Company's primary market area.
Real estate loans were 24.8% of total loans at March 31, 2008 and 24.9% at
year-end 2007. Real estate loans decreased by 0.7%, or $421,000, since December
31, 2007. Real estate lending for the three months of 2008 has been slow with
respect to the Company's adjustable-rate mortgage products. As of March 31,
2008, the Bank has approximately $37.3 million in fixed-rate loans that it
services for a fee that is typically 25 basis points. At March 31, 2008, the
Company did not hold any loans for sale.
The allowance for loan losses represents the amount which management and the
Board of Directors estimates is adequate to provide for probable losses inherent
in the loan portfolio. The allowance balance and the provision charged to
expense are reviewed by management and the Board of Directors monthly using a
risk evaluation model that considers borrowers' past due experience, economic
conditions and various other circumstances that are subject to change over time.
Management believes the current balance of the allowance for loan losses is
adequate to absorb probable incurred credit losses associated with the loan
portfolio. Net charge-offs for the three months ended March 31, 2008 were
approximately $75,000, or 3.1%, of the beginning balance in the allowance for
loan losses.
19
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EARNING ASSETS - SECURITIES AND FEDERAL FUNDS SOLD
The securities portfolio is comprised of U.S. Government agency-backed
securities, tax-exempt obligations of states and political subdivisions and
certain other investments. The Company does not hold any collateralized
mortgage-backed securities other than those issued by U.S. government agencies,
or derivative securities. The quality rating of obligations of state and
political subdivisions within Ohio is no less than Aaa, Aa or A, with all
out-of-state bonds rated at AAA. Board policy permits the purchase of certain
non-rated bonds of local schools, townships and municipalities, based on their
estimated levels of credit risk. Securities available for sale at March 31, 2008
decreased approximately $6.4 million, or 3.9%, from year-end 2007 totals. With
the overall decreasing interest rate environment the Company has experienced a
high level of called bond activity during the first quarter of 2008. While the
Company has plans to reinvest these funds in other available-for-sale
securities, there is lag between the time when bonds are called and the right
investment opportunity is available to the Company.
SOURCES OF FUNDS - DEPOSITS
The Company's primary source of funds is core deposits from retail and business
customers. These core deposits include all categories of interest-bearing and
noninterest-bearing deposits, excluding certificates of deposit greater than
$100,000. For the period ended March 31, 2008, total core deposits increased
approximately $3.3 million, or 1.1%. The Company's interest-bearing demand
deposits increased $3.6 million, or 2.9%, noninterest-bearing demand deposits
decreased $1.5 million, or 6.6%, while certificates of deposit under $100,000
increased by $394,000, or 0.3%. As part of a strategic focus to grow deposits
the Bank has introduced premium rate money market index accounts.
The Company has a strong deposit base from public agencies, including local
school districts, city and township municipalities, public works facilities and
others that may tend to be more seasonal in nature resulting from the receipt
and disbursement of state and federal grants. These entities have maintained
fairly static balances with the Company due to various funding and disbursement
timeframes.
Certificates of deposit greater than $100,000 are not considered part of core
deposits and as such are used to balance rate sensitivity as a tool of funds
management. At March 31, 2008, certificates of deposit greater than $100,000
increased $1.5 million, or 3.8%, from year-end 2007 totals.
SOURCES OF FUNDS - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER
BORROWINGS
Other interest-bearing liabilities include securities sold under agreements to
repurchase, sweep accounts, federal funds purchased, Treasury, Tax and Loan
notes payable and Federal Home Loan Bank ("FHLB") advances. In the first three
months of 2008, the Company continued to utilize the FHLB programs to manage
interest rate risk and liquidity positions. The majority of the Company's
repurchase agreements are with local school districts and city and county
governments. As a result of the Company's growth in deposits in 2008, total
borrowings, including federal funds purchased, decreased approximately $10.2
million, or 13.0% from year-end 2007 totals.
20
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
NET INCOME
Basic and diluted earnings per share for the three months ended March 31, 2008
totaled $0.20, compared with $0.16 for the three months ended March 31, 2007, an
increase of 25.0%. In dollars, the Company's net income was $903,000, an
increase of $185,000, or 25.8%, for the three months ended March 31, 2008,
compared to the same quarter in 2007.
NET INTEREST INCOME
Net interest income, by definition, is the difference between interest income
generated on interest-earning assets and the interest expense incurred on
interest-bearing liabilities. Various factors contribute to changes in net
interest income, including volumes, interest rates and the composition or mix of
interest-earning assets in relation to interest-bearing liabilities. Net
interest income increased 19.4%, or $572,000, for the three months ended March
31, 2008 compared to the same period in 2007, due primarily to the effects of
decreasing interest rates in the economy, which resulted in a lower cost of
funds during the three months ended March 31, 2008. During the three months
ended March 31, 2008, the Company's net interest margin increased 66 basis
points over the same period in 2007. Interest income and fees on
interest-earning assets decreased 29 basis points from 6.85% for the three
months ended March 31, 2007 to 6.56% for the same period in 2008. However, the
Company's cost of funds decreased 95 basis points from 3.65% for the three
months ended March 31, 2007 to 2.70% for the same period in 2008.
Total interest income for the three months ended March 31, 2008, was $6.7
million, an increase of $234,000, or 3.6%, compared to $6.4 million for the same
period in 2007. The increase can be attributed primarily to the overall higher
yield of the securities portfolio.
Total interest expense was $3.1 million for the three months ended March 31,
2008, a decrease of 9.7%, or $338,000, compared to the three-month period ended
March 31, 2007. A majority of the Company's cost of funds is tied to the short
end of the yield curve and with the short-term rates decreasing dramatically in
the past nine months, the Company's cost of funds has decreased.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $168,000 for the three months ended March 31,
2008, compared to $183,000 for the same period in 2007. The decrease in loan
loss provision for the three-month period ended March 31, 2008, was primarily
due to decreased net charge-offs period to period.
NONINTEREST INCOME
Total noninterest income is made up of bank related fees and service charges, as
well as other income producing services provided, sales of secondary market
loans, ATM income, early redemption penalties for certificates of deposit, safe
deposit rental income, internet bank service fees, earnings on bank-owned life
insurance and other miscellaneous items.
Noninterest income for the three months ended March 31, 2008 was $756,000, an
increase of $88,000, or 13.2%, compared to $668,000 for the same three-month
period ended March 31, 2007. During the three-months ended March 31, 2008, the
increase in noninterest income was primarily driven by increase of $93,000, or
23.4%, related to customer service fees on deposit accounts.
21
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NONINTEREST EXPENSE
Noninterest expense was $3.0 million for the three months ended March 31, 2008,
an increase of $367,000, or 14.1%, over the three months ended March 31, 2007.
Salaries and employee benefit expense increased approximately $59,000, or 4.2%,
for the period ended March 31, 2008 over the same period in 2007. This increase
was primarily due to normal merit increases. Professional fees increased $51,000
for the first quarter of 2008 over the same period in 2007. Legal fees for loan
collection efforts increased approximately $26,000 for the first quarter of
2008. It is anticipated this trend will continue for the remainder of 2008.
Other noninterest expense increased $191,000 for the period ended March 31, 2008
over the same period in 2007. During the first quarter of 2008, the Company
increased the provision for losses on non performing assets by $155,000 over the
same period in 2007. This provision related to a specific other real estate
owned property which has a pending sales contract. This sale is expected to
close during the second quarter of 2008.
FEDERAL INCOME TAXES
The provision for federal income taxes was $225,000 for the three months ended
March 31, 2008, an increase of $123,000, or 120.6%, over the same period in
2007. The increase was due primarily to the increase in pretax income of
$308,000, or 37.6%. The effective tax rate was 19.9% and 12.4% for the three
months ended March 31, 2008 and 2007, respectively.
CAPITAL RESOURCES
Internal capital growth, through the retention of earnings, is the primary means
of maintaining capital adequacy for the Company. Shareholders' equity at March
31, 2008, totaled $34.2 million compared to $33.9 million at December 31, 2007,
a $289,000 increase. The increase was due primarily to net income of $903,000
and an increase in unrealized gains on available-for-sale securities of
$894,000, which were partially offset by dividends paid of $649,000, a $1.0
million charge to retained earnings from the adoption of EITF 06-4 and purchases
of treasury stock of $57,000. Total shareholders' equity in relation to total
assets was 7.6% at March 31, 2008 and 7.5% at December 31, 2007. In 2001, our
shareholders approved an amendment to the Company's Articles of Incorporation to
create a class of preferred shares with 2,000,000 authorized shares. This
enables the Company, at the option of the Board of Directors, to issue series of
preferred shares in a manner calculated to take advantage of financing
techniques which may provide a lower effective cost of capital to the Company.
The amendment also provides greater flexibility to the Board of Directors in
structuring the terms of equity securities that may be issued by the Company.
Although this preferred stock is a financial tool, it has not been utilized to
date.
The Company has a Dividend Reinvestment Plan ("The Plan") for shareholders under
which the Company's common stock will be purchased by the Plan for participants
with automatically reinvested dividends. The Plan does not represent a change in
the Company's dividend policy or a guarantee of future dividends.
The Company is subject to the regulatory requirements of The Federal Reserve
System as a bank holding company. The Bank is subject to regulations of the
Federal Deposit Insurance Corporation (FDIC) and the State of Ohio, Division of
Financial Institutions. The most important of these various regulations address
capital adequacy.
22
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The minimums related to such capital requirements are:
TOTAL TIER 1 TIER 1
CAPITAL TO CAPITAL TO CAPITAL TO
RISK-WEIGHTED RISK-WEIGHTED AVERAGE
ASSETS ASSETS ASSETS
------------- ------------- ----------
Well capitalized 10.00% 6.00% 5.00%
Adequately capitalized 8.00% 4.00% 4.00%
Undercapitalized 6.00% 3.00% 3.00%
The following table illustrates the Company's well-capitalized classification at
March 31, 2008.
MARCH 31,
2008
----------------------
(Unaudited)
(Dollars in thousands)
----------------------
Tier 1 capital $ 37,738
Total risk-based capital 40,285
Risk-weighted assets 267,297
Average total assets 446,507
Total risk-based capital ratio 15.07%
Tier 1 risk-based capital ratio 14.12%
Tier 1 capital to average assets 8.45%
23
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY
Management's objective in managing liquidity is maintaining the ability to
continue meeting the cash flow needs of its customers, such as borrowings or
deposit withdrawals, as well as its own financial commitments. The principal
sources of liquidity are net income, loan payments, maturing securities and
sales of securities available for sale, federal funds sold and cash and deposits
with banks. Along with its liquid assets, the Company has additional sources of
liquidity available to ensure that adequate funds are available as needed. These
include, but are not limited to, the purchase of federal funds, the ability to
borrow funds under line of credit agreements with correspondent banks, a
borrowing agreement with the Federal Home Loan Bank of Cincinnati and the
adjustment of interest rates to obtain depositors. Management feels that it has
the capital adequacy and profitability to meet the current and projected
liquidity needs of its customers.
INFLATION
Substantially all of the Company's assets and liabilities relate to banking
activities and are monetary in nature. The consolidated financial statements and
related financial data are presented in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP"). U.S. GAAP
currently requires the Company to measure the financial position and results of
operations in terms of historical dollars, with the exception of securities
available for sale, certain impaired loans and certain other real estate and
loans that may be measured at fair value. Changes in the value of money due to
rising inflation can cause purchasing power loss.
Management's opinion is that movements in interest rates affect the financial
condition and results of operations to a greater degree than changes in the rate
of inflation. It should be noted that interest rates and inflation do affect
each other, but do not always move in correlation with each other. The Company's
ability to match the interest sensitivity of its financial assets to the
interest sensitivity of its liabilities in its asset/liability management may
tend to minimize the effect of changes in interest rates on the Company's
performance.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no significant change from disclosures included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2007.
ITEM 4. CONTROLS AND PROCEDURES
The Company, under the supervision, and with the participation, of its
management, including the Company's Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to the requirements of
Exchange Act Rule 13a-15e. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective as of March 31, 2008, in timely alerting
them to material information relating to the Company (including its consolidated
subsidiary) required to be included in the Company's periodic SEC filings.
There was no change in the Company's internal control over financial reporting
that occurred during the Company's fiscal quarter ended March 31, 2008 that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
24
UNITED BANCORP, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None, other than ordinary routine litigation incidental to the Company's
business.
ITEM 1A. RISK FACTORS
There have been no material changes from risk factors as previously disclosed in
Part 1 Item 1A of the Company's for 10K for the year ended December 31, 2007,
filed on March 31, 2008.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES
(c) (d)
Total Number of Maximum Number or
Shares (or Units) Approximate Dollar
(a) Purchased as Part Value) of Shares (or
Total Number of (b) Of Publicly Units) that May Yet Be
Shares (or Units) Average Price Paid Announced Plans Purchased Under the
Period Purchased Per Share (or Unit) Or Programs Plans or Programs
------ ----------------- ------------------- ----------------- ----------------------
Month #1
1/1/2008 to 1,442 $9.22 1,442 $926,149
1/31/2008
Month #2
2/1/2008 to 4,485 $9.77 4,485 $882,320
2/29/2008
Month #3
3/1/2008 to -- -- -- $882,320
3/31/2008
United Bancorp maintains a stock repurchase program publicly announced by a
press release issued on November 21, 2006, under which its Board of Directors
authorized management to cause the Company to purchase up to $2 million of its
common shares over a two-year period. Such authorization will expire on November
21, 2008.
The Company adopted the United Bancorp, Inc. Affiliate Banks Directors and
Officers Deferred Compensation Plan (the "Plan"), which is an unfunded deferred
compensation plan. Amounts deferred pursuant to the Plan remain unrestricted
assets of the Company, and the right to participate in the Plan is limited to
members of the Board of Directors and certain senior executive officers. Under
the Plan, eligible participants may defer fees payable to them by the Company,
which fees are used to acquire common shares which are credited to a
participant's respective account. Except in the event of certain emergencies, no
distributions are to be made from any account as long as the participant
continues to be an employee or member of the Board of Directors. Upon
termination of service, the aggregate number of shares credited to the
participant's account are distributed to him or her along with any cash proceeds
credited to the account which have not yet been invested in the Company's stock.
On January 31, 2008, the Company purchased a total of 14,435 common shares for
participant accounts for the aggregate purchase price of $102,458. No
underwriting fees, discounts, or commissions are paid in connection with the
Plan. The shares allocated to participant accounts have not been registered
under the Securities Act of 1933 in reliance upon the exemption provided by
Section 4(2) thereof.
25
UNITED BANCORP, INC.
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No items.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
EX-3.1 Amended Articles of Incorporation of United Bancorp, Inc. (1)
EX-3.2 Amended Code of Regulations of United Bancorp, Inc. (2)
EX-4.0 Instruments Defining the Rights of Security Holders
(See Exhibits 3.1 and 3.2)
EX 10.0 United Bancorp, Inc. 2008 Stock Incentive Plan(3)
EX 31.1 Rule 13a-14(a) Certification - CEO
EX 31.2 Rule 13a-14(a) Certification - CFO
EX 32.1 Section 1350 Certification - CEO
EX 32.2 Section 1350 Certification - CFO
(1) Incorporated by reference to Appendix B to the registrant's Definitive
Proxy Statement filed with the Securities and Exchange Commission on March
14, 2001.
(2) Incorporated by reference to Appendix C to the registrant's Definitive
Proxy Statement filed with the Securities and Exchange Commission on March
14, 2001.
(3) Incorporated by reference to Exhibit 10 to registrant's Form 8-K filed with
the Securities and Exchange Commission on April 22, 2008
26
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.
/s/ United Bancorp, Inc.
Date: May 14, 2008 By: /s/ James W. Everson
------------------------------------
James W. Everson
Chairman, President and Chief
Executive Officer
Date: May 14, 2008 By: /s/ Randall M. Greenwood
------------------------------------
Randall M. Greenwood
Senior Vice President, Chief
Financial Officer and Treasurer
27
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------------
3.1 Amended Articles of Incorporation of United Bancorp, Inc.
incorporated by reference to Appendix B to the registrant's
Definitive Proxy Statement filed with the Securities and Exchange
Commission on March 14, 2001.
3.2 Amended Code of Regulations of United Bancorp, Inc. incorporated
by reference to Appendix C to the registrant's Definitive Proxy
Statement filed with the Securities and Exchange Commission on
March 14, 2001.
4.0 Instruments Defining the Rights of Security Holders (See Exhibits
3.1 and 3.2)
10.0 United Bancorp, Inc. 2008 Stock Incentive Plan, incorporated by
reference to Exhibit 10 to registrant's Form 8-K filed with the
Securities and Exchange Commission on April 22, 2008.
31.1 Rule 13a-14(a) Certification - Principal Executive Officer
31.2 Rule 13a-14(a) Certification - Principal Financial Officer
32.1 Certification pursuant to 18 U.S.C. Section 1350, as enacted
pursuant to Section 906 of The Sarbanes-Oxley act of 2002.
32.2 Certification pursuant to 18 U.S.C. Section 1350, as enacted
pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.