ANN ARBOR, MI - United Bancorp, Inc. (UBMI) reported consolidated net income of $785,000, or $0.04 per share of common stock, for the second quarter of 2012, compared to consolidated net income of $361,000, or $0.01 per share of common stock, for the second quarter of 2011. Consolidated net income for the first six months of 2012 was $1.6 million, or $0.08 per share of common stock, compared to consolidated net income of $720,000, or $0.01 per share of common stock, for the first six months of 2011.

Robert K. Chapman, President and Chief Executive Officer of United Bancorp, Inc. ("United" or the "Company"), commented, "We are pleased to report another profitable quarter, and are cautiously optimistic that we are returning to sustained profitability as a result of our strong core earnings and a continued reduction in loan losses."

Mr. Chapman noted that United's double-digit increases in noninterest income continue to be a significant driver of the Company's improved earnings. Total noninterest income for the quarter and six month periods ended June 30, 2012 was up 20.1% and 20.6%, respectively, compared to the same periods of 2011. He indicated that noninterest income represented 41.1% and 39.9%, respectively, of the Company's combined net interest income and noninterest income for the three and six months ended June 30, 2012, compared to 36.9% and 35.8%, respectively, for the same periods of 2011.

This growth was driven, in part, by increased loan originations, both of residential mortgages and commercial loans. The opening of the Company's loan production office in Brighton, Michigan in December 2011 has contributed to this increase in lending activity, and in the second quarter of 2012, the Company received approval from its regulators to convert its loan production office in Brighton to a full-service banking office. United continues to pursue lending opportunities in existing and adjacent markets, and opened a loan production office within the City of Monroe, Michigan in July 2012. 

Improved asset quality trends have allowed United to reduce its levels of provision for loan losses during 2012. The Company's provision for loan losses for the second quarter and first six months of 2012 was $2.55 million and $4.65 million, respectively, down from $3.1 million and $5.9 million, respectively, for the same periods of 2011, and exceeded net charge-offs for all four periods. Net charge-offs for the second quarter of 2012 were at the lowest quarterly level since the second quarter of 2008, and net charge-offs for the six months ended June 30, 2012 were down 44% from the same period of 2011.

The Company's ratio of allowance for loan losses to total loans was 3.83% and the ratio of allowance for loan losses to nonperforming loans was 85.4% at June 30, 2012, compared to 3.66% and 80.0%, respectively, at December 31, 2011 and 4.41% and 81.2%, respectively, at June 30, 2011. The Company's allowance for loan losses increased by $1.5 million from December 31, 2011 to June 30, 2012, but decreased by $3.3 million from June 30, 2011 to June 30, 2012.

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On June 19, 2012, the United States Department of the Treasury sold all 20,600 shares of the Company's Fixed Rate Cumulative Perpetual Preferred Stock, Series A, Liquidation Preference Amount $1,000 per share in a modified dutch auction. The Company did not receive any proceeds from the sale of the preferred shares. The sale of the preferred shares did not result in any accounting entries on the books of the Company and did not change the Company's capital position. The Company incurred $299,000 of legal and accounting costs related to the sale of the Preferred Shares in the second quarter of 2012.The Company issued the preferred shares to Treasury on January 16, 2009 as part of Treasury's Troubled Asset Relief Program Capital Purchase Program in a private placement exempt from the registration requirements of federal and state securities laws. On July 18, 2012, the Company repurchased from Treasury for $38,000 a Warrant to purchase 311,492 shares of Company common stock. The Warrant was issued to Treasury in connection with the Company's participation in the TARP Capital Purchase Program.

Mr. Chapman noted that as a result of these transactions, the Company no longer has any obligation to Treasury in connection with the TARP Capital Purchase Program and the Company is no longer subject to certain requirements of the Emergency Economic Stabilization Act of 2008, as amended by the American Recovery and Reinvestment Act of 2009, leaving the Company with greater flexibility to manage its business and affairs and eliminating the management time and expenses which were required to comply with these provisions.

Results of Operations

The Company's consolidated net income was $785,000 in the second quarter of 2012 and $1.6 million for the six months ended June 30, 2012, compared to $361,000 and $720,000, respectively, for the same periods of 2011. Net income per common share for the three and six months ended June 30, 2012 was $0.04 and $0.08, respectively, up from $0.01 per common share for both comparable periods of 2011. Return on average assets was 0.36% and 0.37%, respectively, for the second quarter and first six months of 2012, compared to 0.17% for both of the comparable periods of 2011. Return on average shareholders' equity was 3.35% and 3.48%, respectively, for the second quarter and first six months of 2012, compared to 1.55% and 1.56%, respectively, for the same periods of 2011.

The Company's combined net interest income and noninterest income was up 7.8% in the second quarter and 8.3% in the first six months of 2012 compared to the same periods of 2011. While some categories of noninterest income decreased in the second quarter and first half of 2012 compared to the same periods of 2011, large increases in income from loan sales and servicing offset the decreases. Total noninterest income for the quarter and six month periods ended June 30, 2012 was up 20.1% and 20.6%, respectively, compared to the same periods of 2011.

 

Expenses related to salaries and employee benefits increased by 9.5% and 9.4%, respectively, in the second quarter and first six months of 2012 compared to the same periods of 2011. The increase reflects, in part, continued higher levels of commissions and other compensation costs related to the generation of income from loan sales and servicing. In addition, the Company has increased its staffing levels modestly to accommodate its anticipated future expansion, including expansion into Livingston County, and salary increases were reinstated effective April 1, 2011. However, the Company did not pay or accrue any cash bonus or other payout to executive officers or non-commissioned employees under its bonus plans in 2011 or the first six months of 2012.

The Company's provision for loan losses for the second quarter and first six months of 2012 was $2.55 million and $4.65 million, respectively, down from $3.1 million and $5.9 million for the same periods of 2011, and exceeded net charge-offs for all four periods.

 

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While the Company's total portfolio loans have increased by $2.0 million, or 0.3%, since June 30, 2011, the balance of loans serviced for others has increased by $87.7 million, or 12.4%, during the same time period. The Company continues to hold elevated levels of investments, federal funds sold and cash equivalents in order to protect the balance sheet during this prolonged period of economic uncertainty. United's balances in federal funds sold and other short-term investments were $57.6 million at June 30, 2012, compared to $91.8 million at December 31, 2011 and $95.7 million at June 30, 2011. Securities available for sale of $191.9 million at June 30, 2012 were up $18.7 million from December 31, 2011 levels and have increased by $43.9 million since June 30, 2011.

Total deposits of $761.4 million at June 30, 2012 were down $3.5 million from $764.9 million at December 31, 2011, with all of the decrease in interest bearing deposit balances. The majority of the Bank's deposits are derived from core client sources, relating to long-term relationships with local individual, business and public clients. Public clients include local government and municipal bodies, hospitals, universities and other educational institutions. As a result of its strong core funding, the Company's cost of interest-bearing deposits was 0.65% and 0.66% for the second quarter and first six months of 2012, respectively, down from 0.87% and 0.89% for the same periods of 2011.

Asset Quality

The Company's ratio of allowance for loan losses to total loans was 3.83% and the ratio of allowance for loan losses to nonperforming loans was 85.4% at June 30, 2012, compared to 3.66% and 80.0%, respectively, at December 31, 2011 and 4.41% and 81.2%, respectively, at June 30, 2011. The Company's allowance for loan losses increased by $1.5 million from December 31, 2011 to June 30, 2012, but declined by $3.3 million from June 30, 2011 to June 30, 2012. Net charge-offs of $1.5 million for the second quarter of 2012 were at the lowest quarterly level since the second quarter of 2008.

Within the Company's loan portfolio, $25.9 million of loans were considered nonperforming at June 30, 2012, compared to $25.8 million at December 31, 2011 and $31.2 million at June 30, 2011. Total nonperforming loans as a percent of total portfolio loans decreased from 4.57% at the end of 2011 and 5.43% at June 30, 2011 to 4.48% at June 30, 2012. For purposes of this presentation, nonperforming loans consist of nonaccrual loans and accruing loans that are past due 90 days or more, and exclude accruing restructured loans. Balances of accruing restructured loans at June 30, 2012, December 31, 2011 and June 30, 2011 were $18.9 million, $21.8 million and $18.9 million, respectively.

Capital Management

In December, 2010, the Company closed its public offering of 7,583,800 shares of common stock. The net proceeds to the Company, after deducting underwriting discounts and commissions and offering expenses, were approximately $17.1 million. The Company has contributed $12.0 million of the net proceeds of the offering to the capital of the Bank to increase the Bank's capital and regulatory capital ratios. As a result of the additional capital, the Bank was in compliance with the capital requirements of its MOU with the FDIC and OFIR at December 31, 2010 and 2011, and June 30, 2012. At June 30, 2012, the Bank's Tier 1 capital ratio was 9.35%, and its ratio of total capital to risk-weighted assets was 15.50%. At June 30, 2012, the Bank was categorized as well-capitalized under applicable regulatory guidelines.

 

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Forward-Looking Statements

This press release contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and United Bancorp, Inc. Forward-looking statements are identifiable by words or phrases such as "trends," "continue," "cautiously optimistic," "returning," "uncertainty," "opportunities" and variations of such words and similar expressions. Such statements are based upon current beliefs and expectations and involve substantial risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These statements include, among others, statements related to asset and credit quality trends, future levels of profitability, future levels of other real estate owned and other foreclosed properties and related expenses, loan demand, and future expansion of the Company, including the benefits to the Company of expansion into new markets. All statements referencing future time periods are forward-looking.

Management's determination of the provision and allowance for loan losses, the appropriate carrying value of intangible assets (including mortgage servicing rights and deferred tax assets) and other real estate owned and the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment) involves judgments that are inherently forward-looking. There can be no assurance that future loan losses will be limited to the amounts estimated or that other real estate owned can be sold at its carrying value or at all. Our ability to fully comply with all of the provisions of our memorandum of understanding, successfully implement new programs and initiatives, increase efficiencies, utilize our deferred tax asset, address regulatory issues, respond to declines in collateral values and credit quality, and improve profitability is not entirely within our control and is not assured. The future effect of changes in the financial and credit markets and the national and regional economy on the banking industry, generally, and on United Bancorp, Inc., specifically, are also inherently uncertain. Forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("risk factors") that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. United Bancorp, Inc. undertakes no obligation to update, clarify or revise forward-looking statements to reflect developments that occur or information obtained after the date of this report.

Risk factors include, but are not limited to, the risk factors described in "Item 1A - Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2011. These and other factors are representative of the risk factors that may emerge and could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

Non-GAAP Financial Information

This press release includes disclosures about our pre-tax, pre-provision income and pre-tax, pre-provision return on average assets. These disclosures are non-GAAP financial measures. For additional information about our pre-tax, pre-provision income and pre-tax, pre-provision return on average assets, please see the unaudited consolidated financial statements and related footnotes that follow.

Unaudited Consolidated Financial Statements Follow.

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United Bancorp, Inc. and Subsidiary
Comparative Consolidated Balance Sheet Data (Unaudited)
Dollars in thousands		June 30,				Mar. 31,								Dec. 31,								June 30,
Period-end Balance Sheet		2012				2012				Change				2011				Change				2011				Change
Assets
Cash and due from banks		$	16,225			$	15,109			$	1,116			$	15,798			$	427			$	13,600			$	2,625
Interest bearing bal. with banks			57,591				96,386				(38,795	)			91,428				(33,837	)			95,708				(38,117	)
Federal funds sold			-				-				-				366				(366	)			-				-
Total cash & cash equivalents			73,816				111,495				(37,679	)			107,592				(33,776	)			109,308				(35,492	)
Securities available for sale			191,886				183,416				8,470				173,197				18,689				148,008				43,878
FHLB Stock			2,571				2,571				-				2,571				-				2,571				-
Loans held for sale			10,349				11,719				(1,370	)			8,290				2,059				2,544				7,805
Portfolio loans
Personal			108,556				103,395				5,161				103,405				5,151				107,642				914
Business (1)			346,135				347,765				(1,630	)			337,178				8,957				342,411				3,724
Residential mortgage			83,444				82,759				685				83,072				372				83,632				(188	)
Construction & development			38,656				41,220				(2,564	)			39,721				(1,065	)			41,261				(2,605	)
Deferred fees and costs			488				369				119				326				162				350				138
Total portfolio loans			577,279				575,508				1,771				563,702				13,577				575,296				1,983
Allowance for loan losses			22,097				21,048				1,049				20,633				1,464				25,370				(3,273	)
Net loans			555,182				554,460				722				543,069				12,113				549,926				5,256
Premises and equipment, net			10,793				10,756				37				10,795				(2	)			10,850				(57	)
Bank owned life insurance			14,028				13,923				105				13,819				209				13,603				425
Other assets			25,527				26,110				(583	)			25,676				(149	)			25,289				238
Total Assets		$	884,152			$	914,450			$	(30,298	)		$	885,009			$	(857	)		$	862,099			$	22,053
Liabilities
Deposits
Non-interest bearing		$	161,307			$	160,527			$	780			$	139,346			$	21,961			$	139,314			$	21,993
Interest bearing			600,081				631,970				(31,889	)			625,510				(25,429	)			598,214				1,867
Total deposits			761,388				792,497				(31,109	)			764,856				(3,468	)			737,528				23,860
FHLB advances outstanding			23,775				24,035				(260	)			24,035				(260	)			27,068				(3,293	)
Other liabilities			3,876				3,653				223				2,344				1,532				3,439				437
Total Liabilities			789,039				820,185				(31,146	)			791,235				(2,196	)			768,035				21,004
Shareholders' Equity			95,113				94,265				848				93,774				1,339				94,064				1,049
Total Liabilities and Equity		$	884,152			$	914,450			$	(30,298	)		$	885,009			$	(857	)		$	862,099			$	22,053
						Three months ended June 30,												Six months ended June 30,
Average Balance Data							2012				2011			% Change					2012				2011			% Change
Total loans						$	588,108			$	577,662				1.8	%		$	586,897			$	583,784				0.5	%
Earning assets							850,277				830,838				2.3	%			848,992				836,300				1.5	%
Total assets							888,830				869,523				2.2	%			890,911				873,534				2.0	%
Deposits							765,490				742,171				3.1	%			769,818				747,418				3.0	%
Shareholders' Equity							94,414				93,409				1.1	%			94,073				93,130				1.0	%
Asset Quality
Net charge offs						$	1,501			$	2,924				-48.7	%		$	3,186			$	5,693				-44.0	%
Non-accrual loans							25,634				28,099				-8.8	%
Non-performing loans							25,876				31,237				-17.2	%
Non-performing assets							29,268				36,204				-19.2	%
Nonperforming loans/total loans							4.48	%			5.43	%			-17.4	%
Nonperforming assets/total assets							3.31	%			4.20	%			-21.2	%
Allowance for loan loss/total loans							3.83	%			4.41	%			-13.2	%
Allowance/nonperforming loans							85.4	%			81.2	%			5.1	%

 

(1)	Business loans include commercial mortgages and tax exempt loans

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