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UNITED BANCORP INC /OH/ - Quarter Report: 2009 September (Form 10-Q)

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                                September 30, 2009                                 

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ¨ Yes     ¨ 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 definition of “accelerated filer”, “large accelerated filer,” and “small reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer  ¨
Accelerated filer  ¨
Non-accelerated filer  ¨
Smaller Reporting Company x

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 November 12, 2009, 5,241,071 shares of the Company’s common stock, $1.00 par value, were issued and outstanding.

 

 
 
United Bancorp, Inc.
 
Contents
         
PART I - FINANCIAL INFORMATION
 
     
Item 1
Condensed Consolidated Balance Sheets
3
     
 
Condensed Consolidated Statements of Income
4
     
 
Condensed Consolidated Statements of Comprehensive Income
5
     
 
Condensed Consolidated Statements of Cash Flows
6
     
 
Notes to Condensed Consolidated Financial Statements
8
     
Item 2
Management’s Discussion and Analysis of Financial Condition
 
 
and Results of Operations
26
     
Item 3
Quantitative and Qualitative Disclosures About Market Risk
35
     
Item 4
Controls and Procedures
35
     
PART II - OTHER INFORMATION
 
     
Item 1
Legal Proceedings
36
     
Item 1A
Risk Factors
36
     
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
36
     
Item 3
Defaults Upon Senior Securities
37
     
Item 4
Submission of Matters to a Vote of Security Holders
37
     
Item 5
Other Information
37
     
Item 6
Exhibits
37
   
SIGNATURES
38

 
2

 

ITEM 1.  Financial Statements

United Bancorp, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)

             
   
September 30,
   
December 31,
 
   
2009
   
2008
 
   
(Unaudited)
       
Assets
           
Cash and due from banks
  $ 4,290     $ 5,605  
Interest-bearing deposits
    28,007       6,684  
Federal funds sold
    ––       19,180  
Cash and cash equivalents
    32,297       31,469  
Certificates of deposit in other financial institutions
    22,744       ––  
Available-for-sale securities
    103,881       129,416  
Held-to-maturity securities
    15,073       15,687  
Loans, net of allowance for loan losses of $2,926 and $2,770 at September 30, 2009 and December 31, 2008, respectively
    244,114       235,448  
Premises and equipment
    8,594       8,466  
Federal Home Loan Bank stock
    4,810       4,810  
Foreclosed assets held for sale, net
    1,036       1,407  
Intangible assets
    682       775  
Accrued interest receivable
    2,348       3,037  
Bank-owned life insurance
    9,925       9,653  
Other assets
    2,048       1,636  
Total assets
  $ 447,552     $ 441,804  
                 
Liabilities and Stockholders’ Equity
               
Liabilities
               
Deposits
               
Demand
  $ 127,300     $ 142,434  
Savings
    44,003       40,309  
Time
    170,108       164,302  
Total deposits
    341,411       347,045  
Short-term borrowings
    13,231       7,809  
Federal Home Loan Bank advances
    49,245       43,745  
Subordinated debentures
    4,000       4,000  
Interest payable and other liabilities
    4,619       5,301  
Total liabilities
    412,506       407,900  
                 
Commitments and Contingencies
    ––       ––  
                 
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 5,360,304 and 5,190,304 shares at September 30, 2009 and December 31, 2008, respectively
    5,360       5,190  
Additional paid-in capital
    23,489       25,656  
Retained earnings
    12,086       9,856  
Stock held by deferred compensation plan; 149,461 and 132,906 shares at September 30, 2009 and December 31, 2008, respectively
    (1,458 )     (1,300 )
Unearned ESOP compensation
    (2,704 )     (2,718 )
Accumulated other comprehensive loss
    (302 )     (1,094 )
Treasury stock, at cost
               
September 30, 2009 –119,233 shares, December 31, 2008 – 164,442 shares
    (1,425 )     (1,686 )
Total stockholders’ equity
    35,046       33,904  
Total liabilities and stockholders’ equity
  $ 447,552     $ 441,804  
 
See Notes to Condensed Consolidated Financial Statements

 
3

 

United Bancorp, Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share data)

   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
   
(Unaudited)
 
Interest and dividend income
                       
Loans, including fees
  $ 4,227     $ 4,363     $ 12,416     $ 13,045  
Taxable securities
    981       1,446       3,372       4,866  
Non-taxable securities
    424       445       1,290       1,341  
Federal funds sold
    17       ––       34       9  
Dividends on Federal Home Loan Bank stock and other
    192       65       503       199  
Total interest and dividend income
    5,841       6,319       17,615       19,460  
                                 
Interest expense
                               
Deposits
                               
Demand
    93       325       387       1,418  
Savings
    44       42       124       107  
Time
    1,321       1,412       4,028       4,650  
Borrowings
    553       568       1,573       1,832  
Total interest expense
    2,011       2,347       6,112       8,007  
Net interest income
    3,830       3,972       11,503       11,453  
                                 
Provision for loan losses
    338       324       996       887  
Net interest income after provision for loan losses
    3,492       3,648       10,507       10,566  
                                 
Noninterest income
                               
Service charges on deposit accounts
    593       516       1,679       1,518  
Realized (losses) gains on sales of securities
    ––       (14 )     25       (14 )
Realized gains on sales of loans
    56       23       106       82  
Realized gains on sales of other real estate and repossessed assets
    8       9       87       12  
Other income
    171       204       533       654  
Total noninterest income
    828       738       2,430       2,252  
Noninterest expense
                               
Salaries and employee benefits
    1,673       1,782       4,960       4,869  
Occupancy and equipment
    424       323       1,227       984  
Professional services
    99       270       526       642  
Insurance
    79       96       291       285  
FDIC Insurance
    224       15       683       34  
Franchise and other taxes
    129       72       375       310  
Advertising
    43       106       229       280  
Stationery and office supplies
    61       91       230       242  
Amortization of intangibles
    26       ––       93       ––  
Provision for losses on foreclosed real estate
    ––       ––       ––       155  
Other expenses
    662       495       1,682       1,428  
Total noninterest expense
    3,420       3,250       10,296       9,229  
Income before federal income taxes
    900       1,136       2,641       3,589  
                                 
Federal income taxes
    143       239       411       764  
Net income
  $ 757     $ 897     $ 2,230     $ 2,825  
EARNINGS PER COMMON SHARE
                               
Basic
  $ 0.16     $ 0.20     $ 0.48     $ 0.62  
Diluted
  $ 0.16     $ 0.20     $ 0.48     $ 0.62  
DIVIDENDS PER COMMON SHARE
  $ 0.14     $ 0.14     $ 0.42     $ 0.40  

See Notes to Condensed Consolidated Financial Statements

 
4

 

United Bancorp, Inc.
Condensed Consolidated Statements of Comprehensive Income
(In thousands)

   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
   
(Unaudited)
 
                         
Net income
  $ 757     $ 897     $ 2,230     $ 2,825  
                                 
Other comprehensive income (loss), net of tax:
                               
Unrealized holding gains (losses) on securities during the period, net of taxes (benefits) of $673, $(272), $416 and $(958) for each respective period
    1,307       (528 )     808       (1,859 )
                                 
Reclassification adjustment for realized (gains) losses included in income, net of taxes (benefits) of $0, $5, $(9) and $5 for each respective period
    ––       9       (16 )     9  
                                 
Comprehensive income
  $ 2,064     $ 378     $ 3,022     $ 975  
                                 
Accumulated other comprehensive loss
  $ (302 )   $ (2,350 )   $ (302 )   $ (2,350 )
 
See Notes to Condensed Consolidated Financial Statements

 
5

 

United Bancorp, Inc.
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2009 and 2008
(In thousands)
(Unaudited)

   
2009
   
2008
 
Operating Activities
           
Net income
  $ 2,230     $ 2,825  
Items not requiring (providing) cash
               
Depreciation and amortization
    556       420  
Amortization of intangible assets
    93       ––  
Provision for loan losses
    996       887  
Provision for losses on foreclosed assets
    ––       155  
Increase in value of bank-owned life insurance
    (272 )     (169 )
Federal Home Loan Bank stock dividends
    ––       (122 )
Realized gain on sales of securities
    (25 )     ––  
Losses on called securities
    ––       14  
Amortization of premiums and discounts on securities, net
    191       50  
Originations of loans held for sale
    (8,599 )     (2,826 )
Proceeds from sale of loans held for sale
    8,705       2,908  
Realized gains on sales of loans
    (106 )     (82 )
Realized gains on sales of other real estate and  repossessed assets
    (87 )     (12 )
Deferred income taxes
    ––       510  
Amortization of mortgage servicing rights
    119       60  
Net change in accrued interest receivable and other assets
    909       (829 )
Net change in accrued expenses and other liabilities
    (1,982 )     (2,025 )
                 
Net cash provided by operating activities
    2,728       1,764  
                 
Investing Activities
               
Securities available for sale:
               
Sales, maturities, prepayments and calls
    88,328       76,722  
Purchases
    (61,785 )     (42,452 )
Securities held to maturity:
               
Maturities, prepayments and calls
    640       400  
Net change in loans
    (10,200 )     (5,327 )
Net change in certificates of deposit in other financial institutions
    (22,744 )     ––  
Purchases of premises and equipment
    (686 )     (396 )
Proceeds from disposal of premises and equipment
    38       ––  
Net cash received from branch acquisition
    ––       30,929  
Proceeds from sale of other real estate and repossessed assets
    1,103       12  
                 
Net cash provided by (used in) investing activities
    (5,306 )     59,888  

See Notes to Condensed Consolidated Financial Statements

 
6

 

United Bancorp, Inc.
Condensed Consolidated Statements of Cash Flows (continued)
For the Nine Months Ended September 30, 2009 and 2008
(In thousands)
(Unaudited)

   
2009
   
2008
 
Financing Activities
           
Net change in deposits
  $ (5,634 )   $ (12,826 )
Net change in borrowings
    10,922       (15,046 )
Treasury stock issued, net of  purchases
    269       311  
Proceeds from issuance of common stock
    ––       93  
Cash dividends paid on common stock
    (2,151 )     (2,012 )
                 
Net cash provided by (used in) financing activities
    3,406       (29,480 )
                 
Increase in Cash and Cash Equivalents
    828       32,172  
                 
Cash and Cash Equivalents, Beginning of Period
    31,469       12,324  
                 
Cash and Cash Equivalents, End of Period
  $ 32,297     $ 44,496  
                 
Supplemental Cash Flows Information
               
Interest paid on deposits and borrowings
  $ 6,180     $ 7,715  
                 
Federal income taxes paid
  $ 357     $ 750  
                 
Supplemental Disclosure of Non-Cash Investing and Financing Activities
               
Transfers from loans to real estate and other repossessed assets
  $ 644     $ 427  
                 
Unrealized gains (losses) on securities designated as available for sale, net of related tax effects
  $ 808     $ (1,859 )
                 
Recognition of mortgage servicing rights
  $ 5     $ 41  

See Notes to Condensed Consolidated Financial Statements

 
7

 

United Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 2009 and 2008
 
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 September 30, 2009, and its results of operations and cash flows for the nine and three month periods presented.  All such adjustments are normal and recurring in nature.  The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not purport to contain all the necessary financial disclosures required by accounting principles generally accepted in the United States of America that might otherwise be necessary in the circumstances and should be read in conjunction with the Company’s consolidated financial statements and related notes for the year ended December 31, 2008 included in its Annual Report on Form 10-K.  Reference is made to the accounting policies of the Company described in the Notes to the Consolidated Financial Statements contained in its Annual Report on Form 10-K.  The results of operations for the nine and three months ended September 30, 2009, are not necessarily indicative of the results to be expected for the full year.  The condensed consolidated balance sheet of the Company as of December 31, 2008 has been derived from the audited consolidated balance sheet of the Company as of that date.
 
Principles of 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”). The Bank operates in two divisions, The Community Bank, a division of The Citizens Savings Bank and The Citizens Bank, a division of The Citizens Savings Bank.  All intercompany transactions and balances have been eliminated in consolidation.
 
On September 19, 2008, Citizens acquired from the Federal Deposit Insurance Corporation (“FDIC”) the deposits of three banking offices of a failed institution in Belmont County, Ohio.  Deposits acquired totaled approximately $39.3 million.  These acquired deposits included approximately $9.0 million of brokered deposits that were originated by the prior financial institution.  Immediately after the acquisition, the Company lowered the interest rates on these brokered deposits and, as anticipated, these deposit accounts were closed by December 31, 2008.
 
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, Jefferson, 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 twelve branches in Bridgeport, Colerain, Dellroy, Dillonvale, Dover, Jewett, New Philadelphia, St. Clairsville East, Saint Clairsville West, Sherrodsville, Strasburg, and Tiltonsville, Ohio.  The Community Bank division conducts its business through its main office in Lancaster, Ohio and seven 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.

 
8

 

United Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 2009 and 2008
 
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.
 
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.
 
Securities
 
Available-for-sale securities, which include any security for which the Company has no immediate plan to sell but which may be sold in the future, are carried at fair value.  Unrealized gains and losses are recorded, net of related income tax effects, in other comprehensive income.
 
Held-to-maturity securities, which include any security for which the Company has the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts.
 
Amortization of premiums and accretion of discounts are recorded as interest income from securities.  Realized gains and losses are recorded as net security gains (losses).  Gains and losses on sales of securities are determined on the specific-identification method.
 
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 defines impaired loans 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.  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 at that time.

 
9

 

United Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 2009 and 2008
 
Earnings Per Share
 
Basic earnings per common share is computed based upon the weighted-average number of common shares outstanding during the period, less shares in the ESOP which are unallocated and not committed to be released and non-vested restricted stock.  At September 30, 2009, the ESOP held 283,635 unallocated shares which were not included in weighted-average common shares outstanding. In addition, at September 30, 2009, 170,000 shares of non-vested restricted stock 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 compensation plans.
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
       
Basic
                       
Net income (In thousands)
  $ 757     $ 897     $ 2,230     $ 2,825  
Weighted average common shares outstanding
    4,626,354       4,593,728       4,612,680       4,581,958  
Basic earnings per common share
  $ 0.16     $ 0.20     $ 0.48     $ 0.62  
                                 
Diluted
                               
Net income (In thousands)
  $ 757     $ 897     $ 2,230     $ 2,825  
Weighted average common shares outstanding for basic earnings per common share
    4,626,354       4,593,728       4,612,680       4,581,958  
Add:  Dilutive effects of assumed exercise of stock options and restricted stock
    ––       197       390       197  
Average shares and dilutive potential common shares
    4,626,354       4,593,925       4,613,070       4,582,155  
                                 
Diluted earnings per common share
  $ 0.16     $ 0.20     $ 0.48     $ 0.62  
Number of stock options not considered in computing diluted earnings per share due to antidilutive nature
    55,529       29,040       55,529       29,040  
                                 

 
10

 


United Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 2009 and 2008
 
Options to purchase 55,529 shares of common stock at a weighted-average exercise price of $10.34 per share were outstanding at September 30, 2009, 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 55,529 shares of common stock at a weighted-average exercise price of $10.34 per share were outstanding at September 30, 2008, but 29,040 options to purchase common stock 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.
 
Income Taxes
 
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 2006.
 
Recent Accounting Pronouncements
 
FASB ASC 805-10 concerning business combinations seeks to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects.  This guidance introduces new accounting concepts, and several of these changes have the potential to generate greater earnings volatility, in connection with and after an acquisition.  Some of the more significant changes include:
 
 
·
Transaction costs and restructuring charges will now be expensed.
 
 
·
The accounting for certain assets acquired and liabilities assumed will change significantly.  The most significant to the Company being that the allowance for loan losses at acquisition date will be eliminated.
 
 
·
Contingent consideration will be measured at fair value until settled.
 
 
·
Equity issued in an acquisition will be valued at the closing date, as opposed to the announcement date.
 
 
·
Material adjustments made to the initial acquisition will be recorded back to the acquisition date.

FASB ASC 805-10 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.  The Company adopted FASB ASC 805-10 effective January 1, 2009, as required, without material effect on the Company’s financial position or results of operations.

 
11

 

United Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 2009 and 2008
 
FASB ASC 810-10 concerning noncontrolling interests in consolidated financial statements establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements.  Before this statement was issued, limited guidance existed for reporting noncontrolling interests.  As a result, considerable diversity in practice existed.  So called minority interests were reported in the consolidated statement of financial position as liabilities or in the mezzanine section between liabilities and equity.  This guidance improves comparability by eliminating that diversity.  The FASB ASC 810-10 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  The Company adopted FASB ASC 810-10 effective January 1, 2009, as required, without material effect on the Company’s financial position or results of operations.

FASB ASC 815-10 concerning disclosures about derivative instruments and hedging activities was issued in March 2008 and amends and expands the disclosure requirements of previous guidance to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for under FASB ASC 815-10 and its related interpretations and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows.  To meet those objectives, FASB ASC 815-10 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements.  FASB ASC 815-10 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.  The Company adopted FASB ASC 815-10 effective January 1, 2009, as required, without material effect on the Company’s financial position or results of operations.

FASB ASC 805-20 concerns accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies and clarifies previous guidance regarding the initial recognition and measurement, subsequent measurement and accounting and disclosure of assets and liabilities arising from contingencies in a business combination. FASB ASC 805-20 eliminates the distinction between contractual and noncontractual contingencies discussed in FASB ASC 805-10, specifies whether contingencies should be measured at fair value or in accordance with FASB ASC 450-10, provides application guidance on subsequent accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies and establishes new disclosure requirements.  FASB ASC 805-20 is effective for assets or liabilities arising from contingencies in 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.  The Company adopted FASB ASC 805-20 effective January 1, 2009, as required, without material effect on the Company’s financial position or results of operations.
 
FASB ASC 820-10 concerns determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly.  The guidance was issued on April 9, 2009 and provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased.  FASB ASC 820-10 also includes guidance on identifying circumstances that indicate a transaction is not orderly.   Even if there has been a significant decrease in the volume and level of activity regardless of valuation technique, the objective of a fair value measurement remains the same.  Fair value is

 
12

 

United Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 2009 and 2008
 
the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions.  FASB ASC 820-10 is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009, only if FASB ASC 320-10 and FASB ASC 825-10 are adopted concurrently.  FASB ASC 820-10 does not require disclosures for earlier periods presented for comparative purposes at initial adoption. The Company adopted FASB ASC 820-10 effective June 30, 2009, as required, without material effect on the Company’s financial position or results of operations.

FASB ASC 320-10 concerns recognition and presentation of other-than-temporary impairments and was issued on April 9, 2009.  The guidance requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements.  FASB ASC 320-10 is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009, only if FASB ASC 820-10 and FASB ASC 825-10 are adopted concurrently.  FASB ASC 320-10 does not require disclosures for earlier periods presented for comparative purposes at initial adoption. The Company adopted FASB ASC 320-10 effective June 30, 2009, as required, without material effect on the Company’s financial position or results of operations.

FASB ASC 825-10 concerning interim disclosures about fair value of financial instruments was issued on April 9, 2009 and amends the other-than-temporary guidance in United States generally accepted accounting principles for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements.  FASB ASC 825-10 does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities and does not require disclosures for earlier periods presented for comparative purposes at initial adoption.  Effective for interim reporting periods ending after June 15, 2009, early adoption is permitted for periods ending after March 15, 2009, only if FASB ASC 820-10 and FASB ASC 320-10 are adopted concurrently.  The Company adopted FASB ASC 825-10 effective June 30, 2009, as required, without material effect on the Company’s financial position or results of operations.

FASB ASC 855-10 concerning subsequent events was issued in May 2009 and established standards for accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  FASB ASC 855-10 is effective for periods ending after June 15, 2009.  The Company adopted FASB ASC 855-10 effective June 30, 2009, as required, without material effect on the Company’s financial position or results of operations.

FASB ASC 860-10 concerning accounting for transfers of financial assets was issued in June 2009 and changes the derecognition guidance for transferors of financial assets, including entities that sponsor securitizations, to align that guidance with the original intent of previous guidance.  FASB ASC 860-10 also eliminates the exemption from consolidation for qualifying special-purpose entities (QSPEs).  As a result, all existing QSPEs need to be evaluated to determine whether the QSPE should be consolidated in accordance with FASB ASC 860-10.


 
13

 

United Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 2009 and 2008
 
FASB ASC 860-10 is effective as of the beginning of a reporting entity’s first annual reporting period beginning after November 15, 2009 (January 1, 2010, as to the Company), for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The recognition and measurement provisions of FASB ASC 860-10 must be applied to transfers that occur on or after the effective date.  Early application is prohibited.  FASB ASC 860-10 also requires additional disclosures about transfers of financial assets that occur both before and after the effective date.  The Company does not believe that the adoption of FASB ASC 860-10 will have a significant effect on its consolidated financial statements.

FASB ASC 860-10 also improves how enterprises account for and disclose their involvement with variable interest entities (VIE’s), which are special-purpose entities, and other entities whose equity at risk is insufficient or lack certain characteristics.  Among other things, FASB ASC 860-10 changes how an entity determines whether it is the primary beneficiary of a variable interest entity (VIE) and whether that VIE should be consolidated.  FASB ASC 860-10 requires an entity to provide significantly more disclosures about its involvement with VIEs.  As a result, the Company must comprehensively review its involvements with VIEs and potential VIEs, including entities previously considered to be qualifying special purpose entities, to determine the effect on its consolidated financial statements and related disclosures.  FASB ASC 860-10 is effective as of the beginning of a reporting entity’s first annual reporting period that begins after November 15, 2009 (January 1, 2010, as to the Company), and for interim periods within the first annual reporting period.  Earlier application is prohibited.  The Company does not believe that the adoption of FASB ASC 860-10 will have a significant effect on its consolidated financial statements.

 
14

 

United Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 2009 and 2008
 
Note 2:
Securities
 
The amortized cost and approximate fair values of securities are as follows:
 
   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Approximate
Fair Value
 
   
(In thousands)
 
Available-for-sale Securities:
                       
September 30, 2009 (unaudited):
                       
U.S. government agencies
  $ 62,738     $ 243     $ (136 )   $ 62,845  
State and political subdivisions
    26,687       619       (52 )     27,254  
Mortgage-backed securities
    13,242       534       ––       13,776  
Equity securities
    4       2       ––       6  
                                 
    $ 102,671     $ 1,398     $ (188 )   $ 103,881  
                                 
December 31, 2008:
                               
U.S. government agencies
  $ 86,458     $ 928     $ ––     $ 87,386  
State and political subdivisions
    26,970       18       (1,252 )     25,736  
Mortgage-backed securities
    15,972       319       (1 )     16,290  
Equity securities
    4       ––       ––       4  
                                 
    $ 129,404     $ 1,265     $ (1,253 )   $ 129,416  

   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Approximate
Fair Value
 
   
(In thousands)
 
Held-to-maturity Securities:
                       
September 30, 2009 (unaudited):
                       
State and political subdivisions
  $ 15,073     $ 452     $ (16 )   $ 15,509  
                                 
December 31, 2008:
                               
State and political subdivisions
  $ 15,687     $ 185     $ (175 )   $ 15,697  

 
15

 

United Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 2009 and 2008
 
The amortized cost and fair value of available-for-sale securities and held-to-maturity securities at September 30, 2009, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
   
Available-for-sale
   
Held-to-maturity
 
   
Amortized
Cost
   
Fair 
Value
   
Amortized
Cost
   
Fair 
Value
 
   
(In thousands, unaudited)
 
                         
Within one year
  $ 350     $ 352     $ 280     $ 282  
One to five years
    3,316       3,392       3,268       3,383  
Five to ten years
    21,213       21,909       6,333       6,582  
After ten years
    77,788       78,222       5,192       5,262  
      102,667       103,875       15,073       15,509  
                                 
Equity securities
    4       6       ––       ––  
                                 
Totals
  $ 102,671     $ 103,881     $ 15,073     $ 15,509  
 
The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $87.8 million at September 30, 2009 and $89.7 million at December 31, 2008.
 
Information with respect to sales of available for sale securities and resulting gross realized gains and losses was as follows:
 
   
Nine months ended
September 30,
 
   
2009
   
2008
 
   
(In thousands, unaudited)
 
             
Proceeds from sale
  $ 1,000     $ 4,046  
Gross gains
    25       ––  
Gross losses
    ––       (14 )

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost.  The total fair value of these investments was $23.8 million at September 30, 2009, and $31.5 million at December 31, 2008, which represented approximately 20% and 22%, respectively, of the Company’s available-for-sale and held-to-maturity investment portfolio at each respective date.
 
Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

 
16

 

United Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 2009 and 2008
 
The following table shows the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2009 and December 31, 2008.
 
September 30, 2009
 
   
Less than 12 Months
   
12 Months or More
   
Total
 
Description of
Securities
 
Fair Value
   
Unrealized
Losses
   
Fair Value
   
Unrealized
Losses
   
Fair Value
   
Unrealized
Losses
 
(In thousands, unaudited)
 
                                     
US Government agency securities
  $ 16,954     $ (136 )   $ ––     $ ––     $ 16,954     $ (136 )
State and political subdivisions
    4,394       (22 )     2,463       (46 )     6,857       (68 )
                                                 
Total temporarily impaired securities
  $ 21,348     $ (158 )   $ 2,463     $ (46 )   $ 23,811     $ (204 )
 
December 31, 2008
 
   
Less than 12 Months
   
12 Months or More
   
Total
 
Description of
Securities
 
Fair Value
   
Unrealized
Losses
   
Fair Value
   
Unrealized
Losses
   
Fair Value
   
Unrealized
Losses
 
(In thousands)
 
                                     
Mortgage-backed securities
  $ ––     $ ––     $ 288     $ (1 )   $ 288     $ (1 )
State and political subdivisions
    31,249       (1,427 )     ––       ––       31,249       (1,427 )
                                                 
Total temporarily impaired securities
  $ 31,249     $ (1,427 )   $ 288     $ (1 )   $ 31,537     $ (1,428 )
 
U.S. Government Agencies
 
The unrealized losses on the Company’s investments in direct obligations of U.S. government agencies were primarily caused by changes in interest rates.  The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments.  Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2009.

 
17

 

United Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 2009 and 2008
 
Mortgage-backed Securities
 
The unrealized losses on the Company’s investment in mortgage-backed securities were primarily caused by changes in interest rates.  The Company expects to recover the amortized cost basis over the term of the securities.  Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2009.
 
State and Political Subdivisions
 
The unrealized losses on the Company’s investments in securities of state and political subdivisions were primarily caused by changes in interest rates.  The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments.  Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2009.
 
Note 3:
Allowance for Loan Losses
 
The activity in the allowance for loan losses was as follows:
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
   
(In thousands)
 
       
Beginning balance
  $ 3,291     $ 2,870     $ 2,770     $ 2,447  
Provision for loan losses
    338       324       996       887  
Loans charged-off
    (768 )     (270 )     (1,022 )     (534 )
Recoveries of previous charge-offs
    65       41       182       165  
                                 
Ending balance
  $ 2,926     $ 2,965     $ 2,926     $ 2,965  
 
The Company’s impaired loans totaled $5.7 million and $7.5 million at September 30, 2009 and December 31, 2008, respectively.  The Company reviews each impaired loan to determine whether a specific allowance for loan losses is necessary.  Based upon this review, an allowance for loan losses of
 
$1.2 million and $1.5 million relates to impaired loans of $3.9 million and $5.5 million, at September 30, 2009 and December 31, 2008, respectively.  At September 30, 2009 and December 31, 2008, impaired loans of $1.8 million and $2.0 million, respectively, had no related allowance for loan losses.

 
18

 

United Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 2009 and 2008
 
Interest income of approximately $109,000 and $167,000 was recognized on average impaired loans of $7.0 million and $7.5 million for the nine months ended September 30, 2009 and 2008, respectively.  Interest income was recognized on impaired loans on a cash basis for each of the nine months ended September 30, 2009 and 2008.
 
At September 30, 2009 and December 31, 2008, accruing loans delinquent 90 days or more (including impaired loans of $614,000 at September 30, 2009 and $1.1 million at December 31, 2008) totaled $1.3 million and $1.6 million, respectively.  Non-accruing loans at September 30, 2009 and December 31, 2008 (including impaired loans of $5.0 million at September 30, 2009 and $4.9 million at December 31, 2008) were $5.9 million and $5.4 million, respectively.

Note 4:
Benefit Plans
 
Pension expense includes the following:
 
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
   
(In thousands)
 
       
Service cost
  $ 63     $ 59     $ 189     $ 177  
Interest cost
    41       45       121       135  
Expected return on assets
    (37 )     (59 )     (111 )     (177 )
Amortization of prior service cost, transition liability, net gain and plan amendment
    30       15       90       45  
                                 
Pension expense
  $ 97     $ 60     $ 289     $ 180  
 
In addition to the Company’s normal pension expense in the table above, during the nine months ended September 30, 2008, the Company recorded an additional expense of approximately $28,000 as certain participants in the Company’s defined benefit plan were paid lump sum distributions from the plan.  Management does not anticipate the Company will incur settlement accounting expense during 2009.

Note 5:
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.

 
19

 

United Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 2009 and 2008
 
A summary of the notional or contractual amounts of financial instruments with off-balance sheet risk at the indicated dates is as follows:
 
   
September 30,
   
December 31,
 
   
2009
   
2008
 
   
(Unaudited)
       
   
(In thousands)
 
             
Commitments to extend credit
  $ 34,741     $ 26,110  
Credit card and ready reserve lines
    13,646       12,912  
Standby letters of credit
    775       820  

Note 6:
Fair Value Measurements
 
The Company 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.  The Company also utilizes 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 consolidated 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.  The Company has no available for-sale-securities classified as Level 1 of the hierarchy.  If quoted market prices are not available, the Company generally relies on prices obtained from independent pricing services or brokers.  Securities measured with this valuation technique are generally classified as Level 2 of the hierarchy, and their fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows using significant inputs observable in the market.  Examples of Level 2 securities include U.S. government agency bonds, mortgage-backed securities, state and political subdivision bonds, and equity securities.  In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.  The Company has no securities classified as Level 3 of the hierarchy.

 
20

 

United Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 2009 and 2008
The following table presents the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within a fair value hierarchy in which the fair value measurements fall at September 30, 2009 and December 31, 2008:
 
         
Fair Value Measurements Using
 
   
Fair Value
   
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
   
(In thousands)
 
September 30, 2009
                       
U.S. government agencies
  $ 62,845     $ ––     $ 62,845     $ ––  
State and political subdivisions
    27,254       ––       27,254       ––  
Mortgage-backed securities
    13,776       ––       13,776       ––  
Equity securities
    6       ––       6       ––  
                                 
December 31, 2008
                               
U.S. government agencies
  $ 87,386     $ ––     $ 87,386     $ ––  
State and political subdivisions
    25,736       ––       25,736       ––  
Mortgage-backed securities
    16,290       ––       16,290       ––  
Equity securities
    4       ––       4       ––  
 
Following is a description of the valuation methodologies used for instruments measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy.
 
Impaired Loans
 
Impaired loans consisted primarily of loans secured by nonresidential real estate.  Management has determined fair value measurements on impaired loans primarily through evaluations of appraisals performed.  Due to the nature of the valuation inputs, impaired loans are classified within Level 3 of the hierarchy.
 
Mortgage Servicing Rights
 
Mortgage servicing rights do not trade in an active, open market with readily observable prices.  Accordingly, fair value is estimated using discounted cash flow models.  Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.

 
21

 
 
United Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 2009 and 2008
 
Foreclosed Assets Held for Sale
 
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value (based on current appraised value) at the date of foreclosure, establishing a new cost basis.  Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell.  Management has determined fair value measurements on other real estate owned primarily through evaluations of appraisals performed, and current and past offers for the other real estate under evaluation.  Due to the nature of the valuation inputs, foreclosed assets held for sale are classified within Level 3 of the hierarchy.
 
The following table presents the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2009 and December 31, 2008.
 
         
Fair Value Measurements Using
 
   
Fair Value
   
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
   
(In thousands)
 
September 30, 2009
                       
Impaired loans
  $ 1,368     $ ––     $ ––     $ 1,368  
Mortgage servicing rights
    280       ––       ––       280  
Foreclosed assets held for sale
    643       ––       ––       643  
                                 
December 31, 2008
                               
Impaired loans
  $ 4,856     $ ––     $ ––     $ 4,856  
Mortgage servicing rights
    394       ––       ––       394  
Foreclosed assets held for sale
    208       ––       ––       208  

 
22

 
 
United Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 2009 and 2008
 
The following table presents estimated fair values of the Company’s financial instruments.  The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties.  Fair value is the estimated amount at which financial assets or liabilities could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.  Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.
 
   
September 30, 2009
   
December 31, 2008
 
   
Carrying
Amount
   
Fair 
Value
   
Carrying
Amount
   
Fair
Value
 
   
(In thousands)
 
                         
Financial assets
                       
Cash and cash equivalents
  $ 32,297     $ 32,297     $ 31,469     $ 31,469  
Certificates of deposits in other financial institutions
    22,744       22,814       ––       ––  
Held-to-maturity securities
    15,073       15,509       15,687       15,697  
Loans, net of allowance for loan losses
    244,114       239,336       235,448       235,075  
Federal Home Loan Bank stock
    4,810       4,810       4,810       4,810  
Accrued interest receivable
    2,348       2,348       3,037       3,037  
                                 
Financial liabilities
                               
Deposits
    341,411       328,975       347,045       349,247  
Short-term borrowings
    13,145       13,145       6,759       6,759  
Federal Home Loan Bank advances
    49,245       50,311       43,745       44,327  
Subordinated debentures
    4,000       2,819       4,000       2,763  
Treasury tax and loan
    86       86       1,050       1,050  
Interest payable
    401       401       469       469  
 
The following methods and assumptions were used to estimate the fair value of each class of financial instruments.
 
Cash and Cash Equivalents, Accrued Interest Receivable and Federal Home Loan Bank Stock
 
The carrying amount approximates fair value.

 
23

 
 
United Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 2009 and 2008
 
Certificates of Deposit in other Financial Institutions
 
The fair value of certificates of deposit in other financial institutions is estimated by discounting the future cash flows using the current rates at which similar certificates could be acquired from financial institutions with similar credit ratings and for the same remaining maturities.  Certificates with similar characteristics were aggregated for purposes of the calculations.
 
Held-to-maturity Securities
 
Fair values equal quoted market prices, if available.  If quoted market prices are not available, fair value is estimated based on quoted market prices of similar securities.
 
Loans
 
The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.  Loans with similar characteristics were aggregated for purposes of the calculations.
 
Deposits
 
Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits.  The carrying amount approximates fair value.  The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.
 
Short-term Borrowings, Interest Payable and Treasury Tax and Loan
 
The carrying amount approximates fair value.
 
Subordinated Debentures and Federal Home Loan Bank Advances
 
Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.
 
Commitments to Originate Loans, Letters of Credit and Lines of Credit
 
The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.  The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.  Fair values of commitments were not material at September 30, 2009 and December 31, 2008.

 
24

 
 
United Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 2009 and 2008

Note 7:
Restricted Stock Awards
 
In accordance with the United Bancorp, Inc. 2008 Incentive award Plan that was approved by our shareholders, the Company issued 170,000 restricted common stock awards to certain Officers and Directors of the Company.  The restricted stock awards will cliff vest at the earliest of the individuals’ normal retirement dates or 9 ½ years from date of grant.  The Company utilized the stock closing price on the date of grant of $8.40 as the fair value to record compensation cost.  For the three month period ended September 30, 2009, the Company recorded approximately $9,000 of compensation expense related to this restricted stock award.  At September 30, 2009, no shares were vested under this award.  These awards were considered in the Company’s dilutive earnings per share computation and have a dilutive effect of approximately 390 shares for the nine month period ended September 30, 2009.  Under the United Bancorp, Inc. 2008 Incentive Award Plan the Company has 330,000 shares available for future grants.
 
Note 8:
Subsequent Events
 
Subsequent events have been evaluated through November 13, 2009, which is the date the financial statements were issued.

 
25

 
 
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 September 30, 2009, as compared to December 31, 2008, and the results of operations for the nine and three month periods ended September 30, 2009, compared to the same periods in 2008.  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.
 
Except as otherwise discussed herein, 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.  Except as otherwise 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.
 
Introduction
 
The Company's net interest margin of 3.83% for the nine months ended September 30, 2009, generated an increase of approximately $50,000 in net interest income over the same period in 2008.  This increase was primarily driven by an increase in the earning assets of the Bank and a reduction in the Company's interest expense as interest rates remain at historical low levels.  Overall, the composition of the Company's balance sheet has changed during the past 12 months due to the September 2008 acquisition of approximately $30 million of net deposits from a failed bank.  In addition, with interest rates at historical low levels the Company has also experienced a high volume of called investment securities since December 31, 2008.  For the nine months ended September 30, 2009, the Company experienced a net $26.5 million in called investment securities.  With these two items, as of September 30, 2009, the Company had liquidity of over $55 million being maintained in lower yielding short term investments and in cash.  Should the economy and interest rates improve over the next 18 months, management expects to be able to deploy this liquidity to meet projected increased loan demand.  However, in the near term, as overall interest rates remain low it will become more of a challenge to maintain the Company's current net interest margin. For the three months ended September 30, 2009, the Company's net interest income decreased $142,000, or 3.6%, compared to the same period in 2008.

 
26

 
 
United Bancorp, Inc.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
 
Service charge income on deposit accounts for the nine month period ended September 30, 2009 increased $161,000. The Company’s nine month 2009 earnings level was accomplished despite a period over period increase of $109,000 in the provision for loan losses, and an impairment loss on the Company’s secondary market loan servicing asset of approximately $76,000, due to the low interest rate environment and the related accelerating payoff of loan balances.  Overall in 2009, the deposit insurance premiums assessed by the Federal Deposit Insurance Corporation (FDIC) have increased dramatically in response to a number of bank failures during the past 18 months.  The FDIC’s insurance premiums increased approximately $649,000 during the first nine months of 2009 as compared to the same period in 2008.  This level of assessment is expected to continue for the remainder of 2009 and beyond. In addition, on May 22, 2009, the FDIC adopted a final rule to impose a special 5 basis point assessment on total assets less Tier 1 capital on all banks as of September 30, 2009, and authorized the FDIC to impose up to two additional 5 basis point assessments in the third and fourth quarters of 2009. The Company’s noninterest expense for the first nine months of 2009 increased $1,067,000, or 11.6%, as compared to the same period in 2008.  Excluding the effect of the FDIC insurance premiums, the majority of this increase relates to additional staff and operating expenses following our September 19, 2008 acquisition of three new banking offices from the FDIC.
 
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 judgments.
 
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, developments 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.
 
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.

 
27

 
 
United Bancorp, Inc.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
 
Analysis of Financial Condition
 
Earning Assets – Loans
 
At September 30, 2009, gross loans were $247.0 million, compared to $238.2 million at December 31, 2008, an increase of $8.8 million.  The overall increase in the loan portfolio was driven by a $7.5  million increase in consumer loans since December 31, 2008.
 
Installment loans represented 18.5% of total loans at September 30, 2009 and 16.1% at December 31, 2008.  This indirect lending type of financing carries somewhat more risk than real estate lending, however it also provides for higher yields.  Installment loans have increased $7.5 million, or 19.5%, since December 31, 2008. With overall interest rates at historical low levels, the Company focused on growing the installment loan area since the average life of these loans is approximately 36 to 40 months.  The Company will have the opportunity to reinvest the repayment proceeds of these shorter duration loans into higher yielding assets when the economy strengthens and overall interest rates increase.  The targeted lending areas encompass four metropolitan areas, minimizing the risk to changes in economic conditions in the communities housing the Company’s 20 branch locations.
 
Commercial and commercial real estate loans comprised 56.9% of total loans at September 30, 2009 compared to 58.8% at December 31, 2008.  Commercial and commercial real estate loans have increased $408,000, or 0.3% since December 31, 2008.  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, but all within the state of Ohio.
 
Real estate loans were 24.6% and 25.1% of total loans at September 30, 2009 and December 31, 2008, respectively.  Real estate loans increased $958,000 from December 31, 2008.  Real estate lending for the nine months of 2009 has been slow with respect to the Company’s adjustable-rate mortgage products.  As of September 30, 2009, the Bank has approximately $30.4 million in fixed-rate loans that it services for a fee that is typically 25 basis points.  At September 30, 2009, 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 nine months ended September 30, 2009 were approximately $840,000, or 30.3%, of the beginning balance in the allowance for loan losses.  While the level of net loans charged off to average loans has increased from 0.16% for the nine months ended September 30, 2008 to 0.35% for the nine months ended September 30, 2009, the Company’s net charge-off percentage is well below the June 30, 2009 peer group average of 0.70%.

 
28

 
 
United Bancorp, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine and Three Months Ended September 30, 2009 and 2008
      
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.  Generally, the quality rating of obligations of state and political subdivisions is Aaa, Aa or A.  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 September 30, 2009 decreased approximately $25.5 million, or 19.7%, from year-end 2008 totals.  With the overall decreasing interest rate environment, the Company has experienced a high level of called bond activity during the first nine months of 2009.  While the Company has plans to reinvest a portion of 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. Also, given the historically low interest rate environment at present, the Company has implemented a strategy to invest in short term certificates of deposit (“CD’s”) of other financial institutions.  These CD’s are fully insured by the Federal Deposit Insurance Corporation and offer an alternative to investing in longer term U.S Government agency securities.  As of September 30, 2009, the Company had approximately $22.7 million of CD’s with an average yield of 2.12% and an average term to maturity of 159 days.
 
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 September 30, 2009, total core deposits decreased approximately $15.1 million, or 5.0%.  The Company’s interest-bearing demand deposits decreased $12.8 million, or 10.8%, noninterest-bearing demand deposits decreased $2.4 million, or 9.8%, while certificates of deposit under $100,000 decreased by $3.6 million, or 3.0%.  The Company’s savings accounts increased $3.7 million, or 9.2%, from December 31, 2008 totals.
 
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 September 30, 2009, certificates of deposit greater than $100,000 increased $9.4 million, or 20.1%, from year-end 2008 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.  The majority of the Company’s repurchase agreements are with local school districts and city and county governments.  The Company’s short-term borrowings increased approximately $5.4 million from December 31, 2008 totals, while the Federal Home Loan Bank advances increased  $5.5 million from December 31, 2008.  The Company took advantage of special long term lower rate advances from the Federal Home Loan Bank.
 
Results of Operations for the Nine Months Ended September 30, 2009 and 2008
 
Net Income
 
Basic and diluted earnings per share for the nine months ended September 30, 2009 totaled $0.48, compared with $0.62 for the nine months ended September 30, 2008, a decrease of 22.6%. In dollars, the Company’s net income was $2.2 million for the nine months ended September 30, 2009, a decrease of $595,000, or 21.0%, compared to the same period in 2008.

 
29

 
 
United Bancorp, Inc.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
   
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 0.4%, or $50,000, for the nine months ended September 30, 2009 compared to the same period in 2008. This increase was primarily driven by an increase in the earning assets of the Bank and a reduction in the Company's interest expense as interest rates remain at historical low levels.
 
Provision for Loan Losses
 
The provision for loan losses was $996,000 for the nine months ended September 30, 2009, compared to $887,000 for the same period in 2008.  The increase in loan loss provision for the nine-month period ended September 30, 2009, was predicated upon the increase in nonperforming loans and consideration of the impact on the loan portfolio of the economic challenges facing the banking industry.
 
Noninterest Income
 
Total noninterest income is comprised of bank related fees and service charges, as well as other income producing services provided, gains on sales of loans in the secondary market, gains and losses on sales of repossessed assets, 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 nine months ended September 30, 2009 was $2.4 million, an increase of $178,000, or 7.9%, compared to $2.3 million for the nine-month period ended September 30, 2008.  During the nine-months ended September 30, 2009, the increase in noninterest income was primarily driven by an increase in customer service fees of $161,000 and an increase in gains on sale of foreclosed real estate of approximately $75,000. These items were offset by an impairment charge of approximately $76,000 related to the Company’s secondary market mortgage servicing asset.  With interest rates at historical low levels, the overall mortgage industry and the Company have seen an increase in mortgage refinancing.  As the pace of mortgage refinancing increases the computed value of the Company’s mortgage servicing asset has decreased in value and resulted in the impairment charge previously mentioned.  As of September 30, 2009, the Company’s mortgage servicing asset was approximately $280,000, and it is currently valued at approximately 92 basis points of the secondary market loans the Company services.

 
30

 
 
United Bancorp, Inc.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
  
Noninterest Expense
 
Noninterest expense was $10.3 million for the nine months ended September 30, 2009 an increase of
 
$1.1 million, or 11.6%, over the nine months ended September 30, 2008.  Overall in 2009, the deposit insurance premiums assessed by the Federal Deposit Insurance Corporation (“FDIC”) have increased dramatically in response to a record number of bank failures during the past 18 months.  Overall in 2009, the deposit insurance premiums assessed by the Federal Deposit Insurance Corporation (FDIC) have increased dramatically in response to a number of bank failures during the past 18 months.  The FDIC’s insurance premiums increased approximately $649,000 during the first nine months of 2009 as compared to the same period in 2008.  This level of assessment is expected to continue for the remainder of 2009 and beyond. In addition, on May 22, 2009, the FDIC adopted a final rule to impose a special 5 basis point assessment on total assets less Tier 1 capital on all banks as of September 30, 2009, and authorized the FDIC to impose up to two additional 5 basis point assessments in the third and fourth quarters of 2009.
 
The Company has experienced an increase in noninterest expense due to the September 2008 acquisition of three branches of a failed bank.  With this acquisition the Company expanded from 17 to 20 offices and and as a result increased staff and general overhead from this expansion. Salaries and employee benefits expense increased $91,000, or 1.9%, for the period ended September 30, 2009 over the same period in 2008.  This increase was due to the staffing increase, normal merit increases, and benefit expenses.  Professional fees decreased $116,000, for the first nine months of 2009 compared to the same period in 2008 due to a decrease in legal fees associated with collection efforts.  Occupancy and equipment expense increased $243,000, or 24.7% for the first nine months of 2009 over the same period in 2008, due to increased depreciation expense on computer hardware and software and related service maintenance as well as costs associated with the three new branch locations.  Amortization expense of intangible assets was $93,000 for the first nine months of 2009, relating to the intangible asset recorded in connection with the 2008 acquisition of a failed bank.
 
Federal Income Taxes
 
The provision for federal income taxes was $411,000 for the nine months ended September 30, 2009, a decrease of $353,000, or 46.2%, compared to the same period in 2008.  The decrease in tax expense was due primarily to a $948,000, or 26.4%, decrease in pretax income.  The effective tax rates were 15.6% and 21.3% for the nine months ended September 30, 2009 and 2008, respectively.
 
Results of Operations for the Three Months Ended September 30, 2009 and 2008
 
Net Income
 
Basic and diluted earnings per share for the three months ended September 30, 2009 totaled $0.16 compared with $0.20, for the three months ended September 30, 2008, a decrease of 20.0%.  In dollars, the Company’s net income was $757,000 for the three months ended September 30, 2009 a decrease of $140,000, or 15.6% compared to net income of $897,000 for the same quarter in 2008.

 
31

 
 
United Bancorp, Inc.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
  
Net Interest Income
 
Net interest income, by definition, is the difference between interest income generated on interest-earning assets and the interest expense incurred on interest-bearing liabilities.  Various factors contribute to changes in net interest income, including volumes, interest rates and the composition or mix of interest-earning assets in relation to interest-bearing liabilities.  Net interest income decreased 3.6%, or
 
$142,000, for the three months ended September 30, 2009 compared to the same period in 2008, due primarily to the effects of decreasing interest rates in the economy which resulted in decreased interest rates  on the Company’s adjustable rate loans. The lower interest rate environment which resulted in a higher rate of called investment securities and the timing of and extent to which the Company reinvested those funds.
 
Provision for Loan Losses
 
The provision for loan losses was $338,000 for the three months ended September 30, 2009, compared to $324,000 for the same period in 2008.  The provision expense for the three months ended September 30, 2009 was predicated upon an analysis of the level of nonperforming loans and consideration of the economic challenges applied to the loan portfolio.
 
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 loans in the secondary market, 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 September 30, 2009 was $828,000, an increase of $90,000, or 12.2%, compared to $738,000 for the same three-month period ended September 30, 2008.  During the three-months ended September 30, 2009, the increase in noninterest income was primarily driven by an increase in customer service fees of approximately $77,000 and an increase in gains on sale of loans of approximately $33,000.
 
Noninterest Expense
 
Noninterest expense was $3.4 million for the three months ended September 30, 2009 an increase of $170,000, or 5.2%, over the three months ended September 30, 2008.  This was primarily driven by increased FDIC insurance expense of $209,000 for the three months ended September 30, 2009 over the same period in 2008.  As previously discussed, this increased level of insurance premiums will continue into 2010. The Company has also experienced an increase in noninterest expense due to the September 2008 branch acquisition.  Occupancy and equipment expense increased $167,000, or 33.7% for the first three months ended September 30, over the same period in 2008, due to increased depreciation expense from the additional offices from the September 2008 acquisition and on computer hardware and software and related service maintenance.  Amortization expense of intangible assets was $26,000 for the three months ended September 30, 2009 versus zero for the same period in 2008, relating to the intangible asset recorded in connection with the 2008 acquisition of a failed bank. Professional fees decreased $171,000, for the three months ended September 2009 compared to the same period in 2008 due to a decrease in legal fees associated with collection efforts.  Advertising and stationary and office supplies expenses decreased for the three months ended September 30, 2009 compared to the higher expenditures for the same period in 2008 due to the branch acquisition.

 
32

 
 
United Bancorp, Inc.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
 
Federal Income Taxes
 
The provision for federal income taxes was $143,000 for the three months ended September 30, 2009, a decrease of $96,000, or 40.2%, compared to the same period in 2008.  The decrease in tax expense was due primarily to a $236,000, or 20.8%, decrease in pretax income. The effective tax rates were
 
15.9% and 21.0% for the three months ended September 30, 2009 and 2008, respectively.
 
Capital Resources
 
Internal capital growth, through the retention of earnings, is the primary means of maintaining capital adequacy for the Company.  Stockholders’ equity totaled $35.0 million at September 30, 2009 compared to $33.9 million at December 31, 2008, a $1.1 million increase.  Total stockholders’ equity in relation to total assets was 7.8% at September 30, 2009 and 7.7% at December 31, 2008.  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 a 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 FDIC and the State of Ohio, Division of Financial Institutions.  The most important of these various regulations address capital adequacy.
 
The minimums related to such capital requirements are:
 
   
Total
   
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 %

 
33

 
 
United Bancorp, Inc.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
 
The following table illustrates the Company’s well-capitalized classification at September 30, 2009.
 
   
September 30,
 
   
2009
 
   
(Unaudited)
 
   
(Dollars in thousands)
 
       
Tier 1 capital
  $ 38,638  
Total risk-based capital
    41,564  
Risk-weighted assets
    273,928  
Average total assets
    449,374  
         
Total risk-based capital ratio
    15.17 %
Tier 1 risk-based capital ratio
    14.11 %
Tier 1 capital to average assets
    8.60 %
 
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.

 
34

 
 
United Bancorp, Inc.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
 
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, 2008.
 
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-15.  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 September 30, 2009, 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 September 30, 2009 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

 
35

 
 
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 Form 10-K for the year ended December 31, 2008, filed on March 27, 2009.

ITEM 2.             Unregistered Sales of Equity Securities and Use of Proceeds
 
ISSUER PURCHASES OF EQUITY SECURITIES
 
Period
 
(a)
Total Number of
Shares (or Units)
Purchased
   
(b)
Average Price Paid
Per Share (or Unit)
   
(c)
Total Number of
Shares (or Units)
Purchased as Part
Of Publicly
Announced Plans
Or Programs
   
(d)
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs
 
Month #1
                       
7/1/2009 to
    -       -       -     $ 1,735,810  
7/31/2009
                               
Month #2
                               
8/1/2009 to
    -       -       -     $ 1,735,810  
8/31/2009
                               
Month #3
                               
9/1/2009 to
                               
9/30/2009
    -       -       -     $ 1,735,810  
 
United Bancorp maintains a stock repurchase program publicly announced by a press release issued on November 18, 2008, 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 18, 2010.
 
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 Company officers.  Under the Plan, Directors may defer up to 100% of their fees and officers may defer up to 50% of their annual incentive award payable to them by the Company, which 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 in a lump sum or over a period up to ten years per their prior election along with any cash proceeds credited to the account which have not yet been invested in the Company’s stock. 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.

 
36

 
 
United Bancorp, Inc.
Part II – Other Information
 
As of September 30, 2009, the Company continues to be included in the Russell Microcap Index.  Russell indexes are widely used by investment managers and institutional investors for both index funds and as benchmarks for passive and active investment strategies.  UBCP will hold its membership until Russell reconstitutes its indexes in June 2010.
 
ITEM 3.             Defaults Upon Senior Securities
 
Not applicable.

ITEM 4.             Submission of Matters to A Vote of Security Holders
 
Not applicable.

ITEM 5.             Other Information
 
Not applicable.

ITEM 6.             Exhibits
 
EX-3.1
Amended Articles of Incorporation of United
 
Bancorp, Inc. (1)
   
EX-3.2
Amended and Restated 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 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 Exhibit 3.2 to the registrant’s Form 10-Q for the fiscal period ended June 30. 2009, as filed with the Securities and Exchange Commission on August 13, 2009.

 
37

 

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:      November  13 , 2009   
 
By:
/s/James W. Everson
     
  James W. Everson
     
  Chairman, President and Chief 
  Executive Officer
       
Date:      November  13 , 2009   
 
By:
/s/Randall M. Greenwood
     
  Randall M. Greenwood
     
  Senior Vice President, Chief Financial
  Officer and Treasurer

 
38

 

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 and Restated Code of Regulations of United Bancorp, Inc. incorporated by reference to Exhibit 3.2 to the registrant’s Form 10-Q for the fiscal period ended June 30, 2009, as filed with the with the Securities and Exchange Commission on August 13, 2009.
     
4.0
 
Instruments Defining the Rights of Security Holders (See Exhibits 3.1 and 3.2)
     
31.1
 
Rule 13a-14(a) Certification – Principal Executive Officer
     
31.2
 
Rule 13a-14(a) Certification – Principal Financial Officer
     
32.1
 
Certification pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of The Sarbanes-Oxley act of 2002.
     
32.2
 
Certification pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.