DIVIDEND
AND STOCK HISTORY





Distribution
      Date ofCash Dividends
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        Dividends andDeclared(1)
                                                                        
                                                                        
                                                                        Stock Dividends
                                                                        
                                                                        Exchanges1983
                                                                        
                                                                        $
                                                                        0.05
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        -1984
                                                                        
                                                                        $
                                                                        0.06
                                                                        
                                                                        
                                                                        4 for 1
      Exchange(2)
                                                                        
                                                                        January
      2, 19841985
                                                                        
                                                                        $
                                                                        0.07
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        -1986
                                                                        
                                                                        $
                                                                        0.09
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        -1987
                                                                        
                                                                        $
                                                                        0.09
                                                                        
                                                                        
                                                                        50%
      Stock Dividend
                                                                        
                                                                        October
      2, 19871988
                                                                        
                                                                        $
                                                                        0.10
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        -1989
                                                                        
                                                                        $
                                                                        0.10
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        -1990
                                                                        
                                                                        $
                                                                        0.11
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        -1991
                                                                        
                                                                        $
                                                                        0.12
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        -1992
                                                                        
                                                                        $
                                                                        0.12
                                                                        
                                                                        
                                                                        100%
      Stock Dividend
                                                                        
                                                                        September
      10, 19921993
                                                                        
                                                                        $
                                                                        0.12
                                                                        
                                                                        
                                                                        100%
      Stock Dividend
                                                                        
                                                                        November
      30, 19931994
                                                                        
                                                                        $
                                                                        0.13
                                                                        
                                                                        
                                                                        10%
      Stock Dividend
                                                                        
                                                                        September
      9, 19941995
                                                                        
                                                                        $
                                                                        0.19
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        -1996
                                                                        
                                                                        $
                                                                        0.20
                                                                        
                                                                        
                                                                        10%
      Stock Dividend
                                                                        
                                                                        June
      20, 19961997
                                                                        
                                                                        $
                                                                        0.23
                                                                        
                                                                        
                                                                        10%
      Stock Dividend
                                                                        
                                                                        September
      19, 19971998
                                                                        
                                                                        $
                                                                        0.26
                                                                        
                                                                        
                                                                        5%
      Stock Dividend
                                                                        
                                                                        December
      18, 19981999
                                                                        
                                                                        $
                                                                        0.30
                                                                        
                                                                        
                                                                        5%
      Stock Dividend
                                                                        
                                                                        December
      20, 19992000
                                                                        
                                                                        $
                                                                        0.31
                                                                        
                                                                        
                                                                        5%
      Stock Dividend
                                                                        
                                                                        December
      20, 20002001
                                                                        
                                                                        $
                                                                        0.32
                                                                        
                                                                        
                                                                        5%
      Stock Dividend
                                                                        
                                                                        December
      20, 20012002
                                                                        
                                                                        $
                                                                        0.33
                                                                        
                                                                        
                                                                        5%
      Stock Dividend
                                                                        
                                                                        December
      20, 20022003
                                                                        
                                                                        $
                                                                        0.35
                                                                        
                                                                        
                                                                        10%
      Stock Dividend
                                                                        
                                                                        December
      19, 20032004
                                                                        
                                                                        $
                                                                        0.39
                                                                        
                                                                        
                                                                        10%
      Stock Dividend
                                                                        
                                                                        December
      20, 20042005
                                                                        
                                                                        $
                                                                        0.43
                                                                        
                                                                        
                                                                        10%
      Stock Dividend
                                                                        
                                                                        December
      20, 20052006
                                                                        
                                                                        $
                                                                        0.48
                                                                        
                                                                        
                                                                        10%
      Stock Dividend
                                                                        
                                                                        December
      20, 20062007
                                                                        
                                                                        $
                                                                        0.52
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        –2008
                                                                        
                                                                        $
                                                                        0.54
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        –2009
                                                                        
                                                                        $
                                                                        0.56
                                                                        
                                                                        
                                                                        –
                                                                        
                                                                        –




2010
ANTICIPATED DIVIDEND PAYABLE DATES




First
      QuarterMarch
      18, 2010Second
      Quarter*June
      18, 2010Third
      Quarter*September
      20, 2010Fourth
      Quarter*December
      20, 2010*Subject
      to action by Board of
Directors




(1)


Adjusted
for stock dividends and exchanges. Does not include dividends from Southern Ohio
Community Bancorporation, Inc. prior to the merger.





(2)


Formation
of United Bancorp, Inc. (UBCP). The Citizens Savings Bank shareholders received 4 shares
of UBCP stock in exchange for 1 share of The Citizens Savings Bank.




TOTAL RETURN PERFORMANCE










Index
                
                12/31/04
                
                
                12/31/05
                
                
                12/31/06
                
                
                12/31/07
                
                
                12/31/08
                
                
                12/31/09United
      Bancorp, Inc.
                
                
                100.00
                
                
                
                93.26
                
                
                
                88.05
                
                
                
                97.25
                
                
                
                98.13
                
                
                
                89.61NASDAQ
      Composite
                
                
                100.00
                
                
                
                101.37
                
                
                
                111.03
                
                
                
                121.92
                
                
                
                72.49
                
                
                
                104.31SNL
      Bank Index
                
                
                100.00
                
                
                
                101.36
                
                
                
                118.57
                
                
                
                92.14
                
                
                
                52.57
                
                
                
                52.03SNL
      $250M-$500M Bank Index
                
                
                100.00
                
                
                
                106.17
                
                
                
                110.93
                
                
                
                90.16
                
                
                
                51.49
                
                
                
                47.66SNL
      Midwest Bank Index
                
                
                100.00
                
                
                
                96.36
                
                
                
                111.38
                
                
                
                86.81
                
                
                
                57.11
                
                
                
                48.40Dow
      Jones
                
                
                100.00
                
                
                
                101.72
                
                
                
                121.09
                
                
                
                128.88
                
                
                
                87.72
                
                
                
                107.62









Decade
of Progress
 Unaudited
 
 (as originally reported)
                                                      
                                                      1999
                                                      
                                                      
                                                      2000
                                                      
                                                      
                                                      2001
                                                      
                                                      
                                                      2002
                                                      
                                                      
                                                      2003
                                                      
                                                      
                                                      2004
                                                      
                                                      
                                                      2005
                                                      
                                                      
                                                      2006
                                                      
                                                      
                                                      2007
                                                      
                                                      
                                                      2008
                                                      
                                                      
                                                      2009Interest
      and dividend income
                                                      
                                                      $
                                                      21,638,690
                                                      
                                                      
                                                      $
                                                      23,734,085
                                                      
                                                      
                                                      $
                                                      24,595,769
                                                      
                                                      
                                                      $
                                                      22,095,682
                                                      
                                                      
                                                      $
                                                      20,720,464
                                                      
                                                      
                                                      $
                                                      20,506,914
                                                      
                                                      
                                                      $
                                                      22,181,071
                                                      
                                                      
                                                      $
                                                      25,279,212
                                                      
                                                      
                                                      $
                                                      26,603,043
                                                      
                                                      
                                                      $
                                                      25,715,309
                                                      
                                                      
                                                      $
                                                      23,354,885Interest
      expense
                                                      
                                                      
                                                      9,844,827
                                                      
                                                      
                                                      
                                                      12,336,669
                                                      
                                                      
                                                      
                                                      12,348,548
                                                      
                                                      
                                                      
                                                      9,328,867
                                                      
                                                      
                                                      
                                                      7,837,463
                                                      
                                                      
                                                      
                                                      7,538,572
                                                      
                                                      
                                                      
                                                      9,146,249
                                                      
                                                      
                                                      
                                                      12,837,256
                                                      
                                                      
                                                      
                                                      14,517,591
                                                      
                                                      
                                                      
                                                      10,251,384
                                                      
                                                      
                                                      
                                                      8,064,768Net
      interest income
                                                      
                                                      
                                                      11,793,863
                                                      
                                                      
                                                      
                                                      11,397,416
                                                      
                                                      
                                                      
                                                      12,247,221
                                                      
                                                      
                                                      
                                                      12,766,815
                                                      
                                                      
                                                      
                                                      12,883,001
                                                      
                                                      
                                                      
                                                      12,968,342
                                                      
                                                      
                                                      
                                                      13,034,822
                                                      
                                                      
                                                      
                                                      12,441,956
                                                      
                                                      
                                                      
                                                      12,085,452
                                                      
                                                      
                                                      
                                                      15,463,925
                                                      
                                                      
                                                      
                                                      15,290,117Provision
      for loan losses
                                                      
                                                      
                                                      726,806
                                                      
                                                      
                                                      
                                                      587,000
                                                      
                                                      
                                                      
                                                      780,000
                                                      
                                                      
                                                      
                                                      630,000
                                                      
                                                      
                                                      
                                                      540,000
                                                      
                                                      
                                                      
                                                      618,000
                                                      
                                                      
                                                      
                                                      412,000
                                                      
                                                      
                                                      
                                                      1,384,261
                                                      
                                                      
                                                      
                                                      993,505
                                                      
                                                      
                                                      
                                                      1,188,270
                                                      
                                                      
                                                      
                                                      1,325,052Net
      interest income after provision for loan losses
                                                      
                                                      
                                                      11,067,057
                                                      
                                                      
                                                      
                                                      10,810,416
                                                      
                                                      
                                                      
                                                      11,467,221
                                                      
                                                      
                                                      
                                                      12,136,815
                                                      
                                                      
                                                      
                                                      12,343,001
                                                      
                                                      
                                                      
                                                      12,350,342
                                                      
                                                      
                                                      
                                                      12,622,822
                                                      
                                                      
                                                      
                                                      11,057,695
                                                      
                                                      
                                                      
                                                      11,091,947
                                                      
                                                      
                                                      
                                                      14,275,655
                                                      
                                                      
                                                      
                                                      13,965,065Noninterest
      income, including security gains/(losses)
                                                      
                                                      
                                                      1,285,519
                                                      
                                                      
                                                      
                                                      1,368,986
                                                      
                                                      
                                                      
                                                      1,606,046
                                                      
                                                      
                                                      
                                                      2,059,173
                                                      
                                                      
                                                      
                                                      2,611,566
                                                      
                                                      
                                                      
                                                      2,199,020
                                                      
                                                      
                                                      
                                                      2,341,826
                                                      
                                                      
                                                      
                                                      2,297,373
                                                      
                                                      
                                                      
                                                      3,079,567
                                                      
                                                      
                                                      
                                                      3,066,769
                                                      
                                                      
                                                      
                                                      3,295,530Noninterest
      expense
                                                      
                                                      
                                                      8,189,260
                                                      
                                                      
                                                      
                                                      8,711,655
                                                      
                                                      
                                                      
                                                      9,382,984
                                                      
                                                      
                                                      
                                                      9,989,172
                                                      
                                                      
                                                      
                                                      10,415,947
                                                      
                                                      
                                                      
                                                      10,452,666
                                                      
                                                      
                                                      
                                                      10,763,473
                                                      
                                                      
                                                      
                                                      11,046,170
                                                      
                                                      
                                                      
                                                      11,252,758
                                                      
                                                      
                                                      
                                                      12,627,590
                                                      
                                                      
                                                      
                                                      13,838,651Income
      before income taxes
                                                      
                                                      
                                                      4,163,316
                                                      
                                                      
                                                      
                                                      3,467,747
                                                      
                                                      
                                                      
                                                      3,690,283
                                                      
                                                      
                                                      
                                                      4,206,816
                                                      
                                                      
                                                      
                                                      4,538,620
                                                      
                                                      
                                                      
                                                      4,096,696
                                                      
                                                      
                                                      
                                                      4,201,175
                                                      
                                                      
                                                      
                                                      2,308,898
                                                      
                                                      
                                                      
                                                      2,918,755
                                                      
                                                      
                                                      
                                                      4,714,834
                                                      
                                                      
                                                      
                                                      3,421,944Income
      tax expense
                                                      
                                                      
                                                      1,003,062
                                                      
                                                      
                                                      
                                                      880,772
                                                      
                                                      
                                                      
                                                      934,696
                                                      
                                                      
                                                      
                                                      986,653
                                                      
                                                      
                                                      
                                                      899,229
                                                      
                                                      
                                                      
                                                      863,799
                                                      
                                                      
                                                      
                                                      908,647
                                                      
                                                      
                                                      
                                                      240,891
                                                      
                                                      
                                                      
                                                      333,926
                                                      
                                                      
                                                      
                                                      955,700
                                                      
                                                      
                                                      
                                                      516,524Net
      income
                                                      
                                                      $
                                                      3,160,254
                                                      
                                                      
                                                      $
                                                      2,586,975
                                                      
                                                      
                                                      $
                                                      2,755,587
                                                      
                                                      
                                                      $
                                                      3,220,163
                                                      
                                                      
                                                      $
                                                      3,639,391
                                                      
                                                      
                                                      $
                                                      3,232,897
                                                      
                                                      
                                                      $
                                                      3,292,528
                                                      
                                                      
                                                      $
                                                      2,068,007
                                                      
                                                      
                                                      $
                                                      2,584,829
                                                      
                                                      
                                                      $
                                                      3,759,134
                                                      
                                                      
                                                      $
                                                      2,905,420Total
      assets
                                                      
                                                      $
                                                      298,764,079
                                                      
                                                      
                                                      $
                                                      323,885,801
                                                      
                                                      
                                                      $
                                                      341,317,195
                                                      
                                                      
                                                      $
                                                      361,711,069
                                                      
                                                      
                                                      $
                                                      385,522,969
                                                      
                                                      
                                                      $
                                                      397,521,584
                                                      
                                                      
                                                      $
                                                      411,932,779
                                                      
                                                      
                                                      $
                                                      421,653,341
                                                      
                                                      
                                                      $
                                                      451,370,187
                                                      
                                                      
                                                      $
                                                      441,804,491
                                                      
                                                      
                                                      $
                                                      445,970,296Deposits
                                                      
                                                      
                                                      235,539,865
                                                      
                                                      
                                                      
                                                      267,552,875
                                                      
                                                      
                                                      
                                                      283,375,923
                                                      
                                                      
                                                      
                                                      300,201,533
                                                      
                                                      
                                                      
                                                      304,525,997
                                                      
                                                      
                                                      
                                                      300,629,543
                                                      
                                                      
                                                      
                                                      306,914,758
                                                      
                                                      
                                                      
                                                      330,005,480
                                                      
                                                      
                                                      
                                                      330,488,711
                                                      
                                                      
                                                      
                                                      347,044,549
                                                      
                                                      
                                                      
                                                      344,542,900Shareholders’
      equity
                                                      
                                                      
                                                      25,297,973
                                                      
                                                      
                                                      
                                                      28,679,087
                                                      
                                                      
                                                      
                                                      30,474,195
                                                      
                                                      
                                                      
                                                      32,154,862
                                                      
                                                      
                                                      
                                                      32,514,459
                                                      
                                                      
                                                      
                                                      32,824,111
                                                      
                                                      
                                                      
                                                      32,479,697
                                                      
                                                      
                                                      
                                                      32,580,485
                                                      
                                                      
                                                      
                                                      33,885,779
                                                      
                                                      
                                                      
                                                      33,904,759
                                                      
                                                      
                                                      
                                                      35,211,133Loans
      receivable, net
                                                      
                                                      
                                                      177,406,092
                                                      
                                                      
                                                      
                                                      193,707,099
                                                      
                                                      
                                                      
                                                      180,460,538
                                                      
                                                      
                                                      
                                                      184,916,798
                                                      
                                                      
                                                      
                                                      195,765,090
                                                      
                                                      
                                                      
                                                      212,451,448
                                                      
                                                      
                                                      
                                                      229,106,682
                                                      
                                                      
                                                      
                                                      229,171,793
                                                      
                                                      
                                                      
                                                      232,196,753
                                                      
                                                      
                                                      
                                                      235,448,307
                                                      
                                                      
                                                      
                                                      255,335,658Allowance
      for loan losses
                                                      
                                                      
                                                      3,109,821
                                                      
                                                      
                                                      
                                                      2,790,133
                                                      
                                                      
                                                      
                                                      2,879,065
                                                      
                                                      
                                                      
                                                      2,971,116
                                                      
                                                      
                                                      
                                                      2,843,484
                                                      
                                                      
                                                      
                                                      2,995,422
                                                      
                                                      
                                                      
                                                      2,904,447
                                                      
                                                      
                                                      
                                                      2,345,419
                                                      
                                                      
                                                      
                                                      2,447,254
                                                      
                                                      
                                                      
                                                      2,770,360
                                                      
                                                      
                                                      
                                                      2,390,015Net
      charge-offs
                                                      
                                                      
                                                      650,090
                                                      
                                                      
                                                      
                                                      906,688
                                                      
                                                      
                                                      
                                                      691,068
                                                      
                                                      
                                                      
                                                      537,949
                                                      
                                                      
                                                      
                                                      667,632
                                                      
                                                      
                                                      
                                                      466,062
                                                      
                                                      
                                                      
                                                      502,833
                                                      
                                                      
                                                      
                                                      1,936,046
                                                      
                                                      
                                                      
                                                      891,648
                                                      
                                                      
                                                      
                                                      865,000
                                                      
                                                      
                                                      
                                                      1,705,000Full
      time employees (average equivalents)
                                                      
                                                      
                                                      135
                                                      
                                                      
                                                      
                                                      136
                                                      
                                                      
                                                      
                                                      130
                                                      
                                                      
                                                      
                                                      130
                                                      
                                                      
                                                      
                                                      133
                                                      
                                                      
                                                      
                                                      135
                                                      
                                                      
                                                      
                                                      132
                                                      
                                                      
                                                      
                                                      132
                                                      
                                                      
                                                      
                                                      123
                                                      
                                                      
                                                      
                                                      142
                                                      
                                                      
                                                      
                                                      136Banking
      locations
                                                      
                                                      Seventeen
                                                      
                                                      
                                                      Seventeen
                                                      
                                                      
                                                      Seventeen
                                                      
                                                      
                                                      Seventeen
                                                      
                                                      
                                                      Seventeen
                                                      
                                                      
                                                      Seventeen
                                                      
                                                      
                                                      Seventeen
                                                      
                                                      
                                                      Seventeen
                                                      
                                                      
                                                      Seventeen
                                                      
                                                      
                                                      Twenty
                                                      
                                                      
                                                      TwentyEarnings
      per common share - Basic
                                                      
                                                      $
                                                      0.62
                                                      
                                                      
                                                      $
                                                      0.51
                                                      
                                                      
                                                      $
                                                      0.56
                                                      
                                                      
                                                      $
                                                      0.67
                                                      
                                                      
                                                      $
                                                      0.76
                                                      
                                                      
                                                      $
                                                      0.69
                                                      
                                                      
                                                      $
                                                      0.71
                                                      
                                                      
                                                      $
                                                      0.45
                                                      
                                                      
                                                      $
                                                      0.57
                                                      
                                                      
                                                      $
                                                      0.82
                                                      
                                                      
                                                      $
                                                      0.63Earnings
      per common share - Diluted
                                                      
                                                      
                                                      0.62
                                                      
                                                      
                                                      
                                                      0.51
                                                      
                                                      
                                                      
                                                      0.56
                                                      
                                                      
                                                      
                                                      0.67
                                                      
                                                      
                                                      
                                                      0.76
                                                      
                                                      
                                                      
                                                      0.69
                                                      
                                                      
                                                      
                                                      0.71
                                                      
                                                      
                                                      
                                                      0.45
                                                      
                                                      
                                                      
                                                      0.57
                                                      
                                                      
                                                      
                                                      0.82
                                                      
                                                      
                                                      
                                                      0.63Dividends
      per share
                                                      
                                                      
                                                      0.30
                                                      
                                                      
                                                      
                                                      0.31
                                                      
                                                      
                                                      
                                                      0.32
                                                      
                                                      
                                                      
                                                      0.33
                                                      
                                                      
                                                      
                                                      0.35
                                                      
                                                      
                                                      
                                                      0.39
                                                      
                                                      
                                                      
                                                      0.43
                                                      
                                                      
                                                      
                                                      0.48
                                                      
                                                      
                                                      
                                                      0.52
                                                      
                                                      
                                                      
                                                      0.54
                                                      
                                                      
                                                      
                                                      0.56Book
      value per share
                                                      
                                                      
                                                      4.98
                                                      
                                                      
                                                      
                                                      5.72
                                                      
                                                      
                                                      
                                                      6.23
                                                      
                                                      
                                                      
                                                      6.72
                                                      
                                                      
                                                      
                                                      7.67
                                                      
                                                      
                                                      
                                                      7.09
                                                      
                                                      
                                                      
                                                      7.00
                                                      
                                                      
                                                      
                                                      7.73
                                                      
                                                      
                                                      
                                                      7.41
                                                      
                                                      
                                                      
                                                      7.35
                                                      
                                                      
                                                      
                                                      7.53Market
      value range per share
                                                      
                                                      
                                                      7.38-14.33
                                                      
                                                      
                                                      
                                                      4.63-8.68
                                                      
                                                      
                                                      
                                                      5.95-8.93
                                                      
                                                      
                                                      
                                                      7.82-9.54
                                                      
                                                      
                                                      
                                                      8.96-13.60
                                                      
                                                      
                                                      
                                                      9.43-13.56
                                                      
                                                      
                                                      
                                                      9.10-12.69
                                                      
                                                      
                                                      
                                                      9.36-11.36
                                                      
                                                      
                                                      
                                                      9.78-11.39
                                                      
                                                      
                                                      
                                                      7.41-10.85
                                                      
                                                      
                                                      
                                                      7.00-9.49Cash
      dividends paid
                                                      
                                                      $
                                                      1,477,686
                                                      
                                                      
                                                      $
                                                      1,549,657
                                                      
                                                      
                                                      $
                                                      1,590,220
                                                      
                                                      
                                                      $
                                                      1,647,670
                                                      
                                                      
                                                      $
                                                      1,717,838
                                                      
                                                      
                                                      $
                                                      1,878,788
                                                      
                                                      
                                                      $
                                                      2,114,723
                                                      
                                                      
                                                      $
                                                      2,415,741
                                                      
                                                      
                                                      $
                                                      2,435,317
                                                      
                                                      
                                                      $
                                                      2,707,438
                                                      
                                                      
                                                      $
                                                      2,871,801Return
      on average assets (ROA)
                                                      
                                                      
                                                      1.09
                                                      %
                                                      
                                                      
                                                      0.83
                                                      %
                                                      
                                                      
                                                      0.82
                                                      %
                                                      
                                                      
                                                      0.94
                                                      %
                                                      
                                                      
                                                      0.97
                                                      %
                                                      
                                                      
                                                      0.83
                                                      %
                                                      
                                                      
                                                      0.82
                                                      %
                                                      
                                                      
                                                      0.50
                                                      %
                                                      
                                                      
                                                      0.60
                                                      %
                                                      
                                                      
                                                      0.86
                                                      %
                                                      
                                                      
                                                      0.64
                                                      %Return
      on average equity (ROE)
                                                      
                                                      
                                                      11.94
                                                      %
                                                      
                                                      
                                                      9.88
                                                      %
                                                      
                                                      
                                                      9.13
                                                      %
                                                      
                                                      
                                                      10.34
                                                      %
                                                      
                                                      
                                                      11.40
                                                      %
                                                      
                                                      
                                                      9.91
                                                      %
                                                      
                                                      
                                                      10.01
                                                      %
                                                      
                                                      
                                                      6.49
                                                      %
                                                      
                                                      
                                                      8.12
                                                      %
                                                      
                                                      
                                                      11.33
                                                      %
                                                      
                                                      
                                                      8.62
                                                      %







United
Bancorp, Inc. is a nationally traded Bank holding company whose
mission is to continue earning the respect....
 
 ....
              Of
      its shareholders, through continued growth in shareholder value by
      sustaining profitability and acquiring well managed and capitalized
      businesses in the financial services
industry;
  ....
              Of
      its customers, through reaching out with the technology they want and
      offering the financial products and services they
  need;
  ....
              Of
      its communities, through support of civic activities that make our
      communities better places to live and
work;
  ....
              Of
      its team members, through training development and career growth
      opportunities in a comfortable environment with modern
      equipment;
  ....
              Of
      its affiliates, through providing data processing, item processing,
      accounting, human resource and management
  support;
  Although
it is recognized there is more competition from non-bank businesses for market
share, the general mission for United Bancorp, Inc. is to remain independent. We
will accomplish this through an aggressive acquisition program, the management
of technological change, and the placement of new office construction when
deemed economically feasible.




A
Letter from the Chairman, President and CEO
  
 James W. Everson Chairman,
President and Chief Executive Officer
  To
the shareholders ofUnited
Bancorp, Inc....
 
 We are
both proud and excited to report to you through the numbers in this report and
the Management’s Discussion and Analysis, that we had a good year of financial
performance in 2009. Also we wish to share with you several positive steps we
have taken this past year in preparing for our future. With the continuing
growth of our Company, these forward thinking actions will be rewarding to you
as a shareholder.
  Banking   has   always   been   a   job   of   risk   management.
Historically, bank management has been challenged to manage credit risk,
investment risk, liquidity risk, interest rate risk and information security
risk.  To a large degree, these risks are within the control of our
management team.  Today, there is a new risk being introduced to bank
management that is somewhat outside of our control...“Government
Risk”.  This past year the additional FDIC premiums levied upon our
company cost our shareholders $0.12 per share, yet we managed a good year of
earnings.  Last December we also prepaid $1.8 million in FDIC
Premiums, the expense of which is now in our budget and will be spread over the
next 36 months. It
appears the FDIC has resolved its liquidity issue.
 
 Hopefully
the consumer oriented culture that is developing against banks will not restrict
our ability to provide services that our customers have opted to receive from
us, thus placing further stress on future earnings. Based upon what we know
today, our 2010 Budget Process is projecting another year of very solid earnings
that supports our recently announced capital expenditure programs which includes
the replacement of our core processing and ancillary technology systems and the
construction of a new banking center in Tiltonsville, Ohio, both of which we
project to be completed in the third quarter of this year.
 
 During
this past year, we fully digested the acquisition of three offices of the former
Ameribank acquired from the FDIC as receiver. This expanded our banking
footprint within St. Clairsville to two offices as well as giving us offices in
the new markets of Tiltonsville and Dillonvale, Ohio. Desiring to have the best
facilities to attract new and retain existing customers in the markets we serve,
we successfully completed close to $600 thousand in renovation projects on
various facilities that we own. In addition to many minor upgrades at a majority
of our branch facilities, this also included a complete renovation of the
offices and expansion of the drive thru at our Bridgeport Banking Center that
originally opened in 1978 and a major interior renovation at our newly acquired
St. Clairsville-East Banking Center.
  1




A
Letter from the Chairman, President and CEO - Continued
  The data
processing system we put in place in 1990 at the time we elected to do our own
data processing has served us well. This core system, through several hardware
and software upgrades, has supported our banks for over 20 years. After
conducting an exhaustive search last year and reviewing many core systems
offered by our industry’s leading vendors, your Board of Directors approved
management’s recommendation to join with Fiserv as our future partner in
technology. Management will be working diligently to implement their Precision
system and other complimentary technologies within our operations this year.
This next generation in-house system will be operational in the third quarter
and is expected to greatly support our future growth, enhance our product
offerings and afford our Bank greater efficiencies and risk management
features.
 
 We are
pleased to report that our Management Succession Plan which began two years ago
is now complete and we have a management team in place to carry us forward for
many years to come. Our tenured Chief Lending Officer will be retiring this
mid-year and a very capable individual was hired this past November to succeed
him and to ensure a smooth and orderly transition of management in our Loan
Center. The leadership of our Company, taking me from the mix, now has six
senior managers with a combined 141 years of banking experience, ranging from
forty-one to fifty-three years in age. The experience and depth of our
management team is quite impressive for an organization our size.
 
 The
recent hiring of a Senior Vice President of Commercial Banking and placing
qualified commercial loan originators in all of our regions is producing
positive results by focusing on growing our commercial base with a special focus
on meeting all of the financial needs of the small businesses in the communities
that we serve. This past year, we were able to grow our loan portfolio by nearly
$20.0 million or 8.2%. Many businesses have been impacted by the recession and
it is difficult to see what the future will be. Consequently, we have
significantly increased our use of State and Federal Loan Programs. All
available programs administered by the U. S. Small Business Administration, the
Ohio Department of Development and the Ohio Treasurer’s Office are now being
utilized for existing and new customers to aid in the recovery efforts in the
communities we serve. Use of these programs has enabled us to reach more good
commercial borrowers and to continue to support our market areas. Our Bank Team
Members are visible and active in the communities we serve where our focus
continues to be on the production of sound and profitable commercial
relationships which includes corporate deposits, cash management services,
merchant credit card services and remote deposit merchant services.
 
 Key to attracting and retaining good
management and directors is a competitive compensation program. This past year,
your Board of Directors, through the recommendation of its Compensation
Committee, implemented a Restricted Stock Awards Program pursuant to the
Shareholder approved UBCP 2008 Stock Incentive Plan. The design of this Awards
Program is to retain board members and top management as well as attract
qualified new board members and management. Those participating must continue
with us in their employment and do not take ownership of their stock until cliff
vesting which is at nine years and six months from the award date. At that time,
the shares become a fully taxable event based upon their then value and carry a
“non-compete” feature if the participant chooses to leave
our employment. This program was quite important to us in the successful
recruiting of the two most recent management hires that we
made.
  2
  
  At
mid-year, Michael J. Arciello retired from the Boards of The Citizens Savings
Bank and United Bancorp, Inc, becoming Director Emeritus. Michael joined our
bank family in 1987 as a Director of The Citizens-State Bank of Strasburg, Ohio
which merged into the charter of The Citizens Savings Bank in 1999. Mike and I
have shared a common bond for many years.... as a bank customer representing
Nickles Bakery where he retired as Vice President and CFO after 32 years of
service in 1998, as a Director of our banks and Company and, more importantly,
as a true friend. We miss his wit, wise counsel and business sense; particularly
the expertise he brought as Chair of our Audit Committee. Scott A. Everson,
President and CEO of The Citizens Savings Bank, was appointed to fill his
vacancy on the Company’s board. Lead Director Richard L. Riesbeck was appointed
Chair of the Audit Committee.
 
 At the
end of this Annual Report, you will find a promotional piece on our ShareLINK
1000 Account which has been exclusively designed for our UBCP Shareholders. With
its companion The Freedom Card, you can deposit and withdraw your funds without
cost from any bank ATM in the country, enjoy all its special features, plus earn
a daily interest rate based on your tiered balance. Using this program designed
only for our shareholders, distance should not be a problem for your banking
with us. Please call our toll free priority phone line at 1-866-SLINK1000
(1-866-754-6510) to further discuss the features of this offering and to
establish an account.
 
 On behalf
of our Management Team and Board of Directors, we thank you for the confidence
you have placed in us and for your continued support. Working together, we are
committed to growing your shareholder value.
  James
      W. Everson
                    Chairman, President
      and
                    Chief
      Executive Officer
                    
                    ceo@unitedbancorp.com
                    
                    February
      16, 2010
  Certain
statements contained herein are not based on historical facts and are
"forward-looking statements" within the meaning of Section 21A of the Securities
Exchange Act of 1934. Forward-looking statements, which are based on various
assumptions (some of which are beyond the Company's control), may be identified
by reference to a future period or periods, or by the use of forward-looking
terminology, such as "may," "will," "believe," "expect," "estimate,"
"anticipate," "continue," or similar terms or variations on those terms, or the
negative of these terms. Actual results could differ materially from those set
forth in forward-looking statements, due to a variety of factors, including, but
not limited to, those related to the economic environment, particularly in the
market areas in which the company operates, competitive products and pricing,
fiscal and monetary policies of the U.S. Government, changes in government
regulations affecting financial institutions, including regulatory fees and
capital requirements, changes in prevailing interest rates, acquisitions and the
integration of acquired businesses, credit risk management, asset/liability
management, changes in the financial and securities markets, including changes
with respect to the market value of our financial assets, and the availability
of and costs associated with sources of liquidity. The Company undertakes no
obligation to update or clarify forward-looking statements, whether as a result
of new information, future events or otherwise.
  3




Directors









1 = United Bancorp, Inc.
                2 = The Citizens Savings Bank




4









Directors









1 = United Bancorp, Inc.
                2 = The Citizens Savings Bank




5









Directors
and Officers





DIRECTORS
      OF UNITED BANCORP, INC.James
      W. Everson1
                          Chairman,
      President & Chief Executive Officer, United Bancorp,
    Inc.,Chairman,
      The Citizens Savings Bank, Martins Ferry, OhioScott
      A. Everson
                          Senior
      Vice President & Chief Operating Officer, United Bancorp,
      Inc.President
      & Chief Executive Officer, The Citizens Savings Bank, Martins Ferry,
      OhioJohn
      M. Hoopingarner1,3,4
                          Executive
      Director, Muskingum Watershed Conservancy District, New Philadelphia,
      OhioSamuel
      J. Jones2,4
                          Business
      Owner, Glouster, OhioTerry
      A. McGhee1,3
                          President
      & Chief Executive Officer, Westerman Inc., Bremen,
  OhioRichard
      L. Riesbeck1,2,4,w
                          President,
      Riesbeck Food Markets, Inc., St. Clairsville, OhioMatthew
      C. Thomas2,3
                          President,
      M.C. Thomas Insurance Agency, Inc., Bridgeport, OhioMichael
      J. Arciello
                          Director
      Emeritus1992 - 2009L.E.
      "Dick" Richardson
                          Director
      Emeritus1998 - 2007OFFICERS
      OF UNITED BANCORP, INC.James
      W. Everson
                          Chairman,
      President & Chief Executive OfficerScott
      A. Everson
                          Senior
      Vice President & Chief Operating OfficerRandall
      M. Greenwood
                          Senior
      Vice President, Chief Financial Officer &
      Secretary/TreasurerTimothy
      L. Kelley
                          Vice
      President - Chief Commercial Banking OfficerElmer
      K. Leeper
                          Vice
      President - Chief Retail Banking OfficerMichael
      A. Lloyd
                          Vice
      President - Chief Information OfficerJames
      A. Lodes
                          Vice
      President - Chief Lending OfficerMatthew
      F. Branstetter
                          Vice
      President - Assistant Chief Lending OfficerDIRECTORS
      OF THE CITIZENS SAVINGS BANK, MARTINS FERRY, OHIOHerman
      E. Borkoski2
                          President,
      Borkoski Funeral Homes, Inc., Tiltonsville, OhioJames
      W. Everson1
                          Chairman,
      President & Chief Executive Officer, United Bancorp,
    Inc.,Chairman,
      The Citizens Savings Bank, Martins Ferry, OhioScott
      A. Everson1
                          Senior
      Vice President & Chief Operating Officer, United Bancorp,
      Inc.President
      & Chief Executive Officer, The Citizens Savings Bank, Martins Ferry,
      OhioLeon
      F. Favede, O.D
                          Optometrist,
      Bridgeport, OhioJohn
      R. Herzig
                          President,
      Toland-Herzig Funeral Homes & Crematory, Strasburg,
    OhioJohn
      M. Hoopingarner1
                          Executive
      Director, Muskingum Watershed Conservancy District, New Philadelphia,
      OhioSamuel
      J. Jones2
                          Business
      Owner, Glouster, OhioAndrew
      F. Phillips
                          President
      & General Manager, Miller Brands of S.E. Ohio, Glouster,
      OhioRobin
      L. Rhodes, M.D
                          Physician,
      Pediatric Associates of Lancaster, Inc., Lancaster,
OhioRichard
      L. Riesbeck1,2,w
                          President,
      Riesbeck Food Markets, Inc., St. Clairsville, OhioErrol
      C. Sambuco2
                          Consultant,
      Martins Ferry, OhioMatthew
      C. Thomas1
                          President,
      M.C. Thomas Insurance Agency, Inc., Bridgeport,
  Ohio





1 =
Executive Committee     2 = Audit
Committee     3 = Compensation Committee


4 =
Nominating and Governance Committee     u
= Lead Director





6







Shareholder
Information





United
Bancorp, Inc.’s (the Company) common stock trades on The Nasdaq SmallCap Market
tier of The Nasdaq Stock Market under the symbol UBCP, CUSIP #909911109. At
year-end 2009, there were 5,370,304 shares issued, held among approximately
2,000 shareholders of record and in street name. The following table sets forth
the quarterly high and low closing prices of the Company’s common stock from
January 1, 2009 to December 31, 2009 compared to the same periods in 2008 as
reported by the NASDAQ.





2009
                      
                      
                      200831-Mar
                      
                      
                      30-Jun
                      
                      
                      30-Sep
                      
                      
                      31-Dec
                      
                      
                      31-Mar
                      
                      
                      30-Jun
                      
                      
                      30-Sep
                      
                      
                      31-DecMarket
      Price RangeHigh
      ($)
                      
                      $
                      9.49
                      
                      
                      
                      8.90
                      
                      
                      
                      8.50
                      
                      
                      
                      8.61
                      
                      
                      
                      10.40
                      
                      
                      
                      10.01
                      
                      
                      
                      10.85
                      
                      
                      
                      10.30Low
      ($)
                      
                      $
                      7.00
                      
                      
                      
                      7.50
                      
                      
                      
                      7.50
                      
                      
                      
                      7.10
                      
                      
                      
                      8.39
                      
                      
                      
                      8.36
                      
                      
                      
                      7.50
                      
                      
                      
                      7.41Cash
      DividendsQuarter
      ($)
                      
                      $
                      0.14
                      
                      
                      
                      0.14
                      
                      
                      
                      0.14
                      
                      
                      
                      0.14
                      
                      
                      
                      0.13
                      
                      
                      
                      0.13
                      
                      
                      
                      0.14
                      
                      
                      
                      0.14Cumulative
      ($)
                      
                      $
                      0.14
                      
                      
                      
                      0.28
                      
                      
                      
                      0.42
                      
                      
                      
                      0.56
                      
                      
                      
                      0.13
                      
                      
                      
                      0.26
                      
                      
                      
                      0.40
                      
                      
                      
                      0.54




Investor
Relations:


A copy of
the Company’s Annual Report on form 10-K as filed with the SEC, will be
furnished free of charge upon written or E-mail request to:


Randall
M. Greenwood, CFO United Bancorp, Inc.


201
South 4th Street PO Box 10


Martins
Ferry, OH 43935 or cfo@unitedbancorp.com





Dividend
Reinvestment and Stock Purchase
Plan:


Shareholders
may elect to reinvest their dividends in additional shares of United Bancorp,
Inc.’s common stock through the Company’s Dividend Reinvestment Plan.
Shareholders may also invest optional cash payments of up to $5,000 per month in
our common stock at market price. To arrange automatic purchase of shares with
quarterly dividend proceeds, please contact:


American
Stock Transfer and Trust Company


Attn:
Dividend Reinvestment 6201 15th Avenue, 3rd Floor Brooklyn, NY 11219
1-800-278-4353





Annual
Meeting:


The
Annual Meeting of Shareholders will be held at 2:00 p.m., April 21, 2010 at the
Corporate Offices in Martins Ferry, Ohio.




Internet:


Please
look us up at http//:www.unitedbancorp.com




Independent
Auditors:


BKD
LLP


312
Walnut Street, Suite 3000


Cincinnati,
Ohio 45202


(513)
621-8300





Corporate
Offices:


The
Citizens Savings Bank Building


201
South 4th Street


Martins
Ferry, Ohio 43935


(740)
633-0445


(740)
633-1448 (FAX)





Transfer
Agent and Registrar:


For
transfers and general correspondence, please contact:


American
Stock Transfer and Trust Company


6201
15th Avenue, 3rd Floor Brooklyn, NY 11219 1-800-937-5449





Stock
Trading:


Howe
Barnes Investments, Inc.


222
South Riverside Plaza


7th
Floor


Chicago,
Illinois 60606


Lou
Coines 800-800-4693





Stifel,
Nicolaus & Company Inc.


655
Metro Place South


Dublin,
Ohio 43017


Steven
Jefferis


877-875-9352




7





The Citizens Bank Profile


A
Division of The Citizens Savings Bank





A
CENTURY OF SERVICE AT THE CITIZENS SAVINGS BANK





In the
year 1902, a group of hometown businessmen in Martins Ferry felt there was room
for another bank in the community in addition to the two already established and
proceeded to organize. On the 27th of January, 1902, a charter was granted to
The German Savings Bank of Martins Ferry, Ohio with authorized capital of
$50,000. Martins Ferry is nestled among the scenic foothills along the Upper
Ohio Valley across the river from the greater metropolitan area of Wheeling,
West Virginia, 60 miles southwest of Pittsburgh, Pennsylvania and 125 miles east
of Columbus, Ohio. The area has a strong network of transportation including
easy access to major interstate highway systems, nearby river and railway
transportation and within 45 minutes of the Pittsburgh International
Airport.





Organization
was completed by electing the original Board of Directors: Attorney Edward E.
McCombs, John E. Reynolds, Henry H. Rothermund, William M. Lupton, Dr. Joseph W.
Darrah, Chris A. Heil, Fred K. Dixon, Thomas J. Ball and Dr. R.H.Wilson. The
first officers were Edward E. McCombs, President; John E. Reynolds, Vice
President; William C. Bergundthal, Cashier; and William H. Wood, Assistant
Cashier. A room in the old Henderson Building located at the alley on Hanover
Street between Fourth and Fifth Streets, currently occupied by a local realtor,
was rented. A vault and counters were installed and the new Bank opened for
business on Saturday, April 26, 1902. This was the beginning of The Citizens
Savings Bank.





Upon
Mr.Bergundthal’s death in 1918, Harold H. Riethmiller, who began his banking
career at the bank in 1911, was rehired by the Bank as Cashier. He had
previously worked for the Bank and had been working for 6 months at the
Citizens-Peoples Trust Company in Wheeling. Mr. Riethmiller brought with
him an assistant, David W. Thompson, who upon his death in 1966 was Vice
President and Cashier.











In 1936
the Bank suffered a loss with the sudden death of Edward E. McCombs, who had
served as President and Attorney for the Bank during the 34 years since its
beginning. John E. Reynolds was then elected President with Attorney David H.
James as Vice President. Mr. Reynolds served as the bank’s second President
until his death in 1940, at which time Harold H. Riethmiller was elected
President. Upon Harold H. Riethmiller’s retirement in January of 1973, James W.
Everson, who began his banking career as a student intern with the Bank in 1959,
was elected as the Bank’s fourth President and Chief Executive
Officer.





In May
1999, The Citizens Savings Bank and its affiliate, The Citizens-State Bank then
of Strasburg, Ohio were merged into one Bank under the leadership of James W.
Everson continuing as Chairman and Harold W. Price as the Bank’s fifth President
and Chief Executive Officer since its founding in 1902. Harold W. Price served
as President and CEO for five
months, suffering a fatal heart attack on September 12th, 1999, after which
James W. Everson was reappointed Chairman, President and
CEO.





Continuing
growth and increased business at The German Savings Bank brought the need for
larger quarters, and in 1917, the Bank relocated into a new banking building on
the corner of Fourth and Walnut streets where they were located until February
21, 1984 when they moved to their current banking center located one block south
at the corner of Fourth and Hickory Street in Martins Ferry. The First World War
brought the name ‘German’ into bad repute, making a change in name necessary. On
May 1, 1918, the old German Savings Bank became The Citizens Savings Bank of
Martins Ferry, Ohio.





In 1957,
a total remodeling of the first level was completed at the Fourth and Walnut
location enlarging the banking lobby by taking the adjoining room formerly
occupied by the Mear Drug Store. In 1963, the Bank opened a Consumer Loan Office
at the Fourth and Walnut Street location by expanding into the space occupied by
the former Packer Insurance Agency.




8








Upon
James W. Everson becoming President in January 1973, the Bank began an expanded
growth program. The Bank’s first branch office was opened on November 18, 1974.
A banking center was opened in Colerain, Ohio offering full service banking to
that area, including safe deposit boxes and a modern new home for the Colerain,
Ohio Post Office. On June 12, 1978, the Bank opened its second full service
branch at the Corner of Howard and DeKalb Streets in Bridgeport,
Ohio.





Recognizing
the continued growth of the Bank, the Board of Directors authorized the purchase
in July 1979 of an .8 acre site formerly occupied by the vacated Central School,
one block south on the Corner of Fourth and Hickory Streets, for the purpose of
future expansion. A Phase I building program was completed on May 12, 1980 with
the opening of a limited-service four-station auto teller with a two-station
lobby and large off-street parking facility.





In
October of 1982, approval was granted by the State Banking Department and the
Federal Deposit Insurance Corporation to relocate the Bank’s Main Office to the
corner of Fourth and Hickory streets in Martins Ferry and ground was immediately
broken for a new banking center. As a result of 5 years of strategic planning,
The Citizens Savings Bank introduced a new era of banking to the Ohio Valley on
February 21, 1984 with the opening of their new 21,500 square foot head-quarters
office located at the corner of Fourth and Hickory streets. This new banking
center offered state-of-the-art security with high-tech scanning and alarm
equipment, and the latest in electronic data processing programs for banking.
The new Bank building was designed by the architectural firm of Jack H. Tribbie
and Associates of Martins Ferry and was constructed by the Byrum Construction
Company of Martins Ferry. The new building was of colonial design in keeping
with the Bank’s Colerain and Bridgeport offices, with the interior of the Bank
tastefully decorated in the Williamsburg period.





On July
3, 1983, the Bank’s Board of Directors positioned itself for continued growth by
forming United Bancorp, Inc. of Martins Ferry, Ohio, the Citizens Savings Bank
holding company. At formation, the shareholders of The Citizens Savings Bank
exchanged their stock on a one-for-four basis for shares in United Bancorp, Inc.
On December 29, 1986, United Bancorp, Inc. became one of Ohio’s then 21
multi-bank holding companies by acquiring the outstanding shares of stock of the
$12.5 million asset based Citizens-State Bank of Strasburg, Ohio. Under the
leadership of James W. Everson as Chairman and Charles E. Allensworth as
President and CEO, The Citizens-State Bank then grew from its one office in
Strasburg by opening a new banking center at 2909 N. Wooster Avenue in Dover,
Ohio in February 1990; the purchase of it’s offices in New Philadelphia and
Sherrodsville in April 1992; and the purchase of it’s Dellroy Office in June
1994. Harold W. Price was appointed President and CEO of The Citizens-State Bank
of Strasburg in April 1993. The Citizens Savings Bank of Martins Ferry further
expanded into St. Clairsville with an in store location at Riesbeck’s Food
Market in July l997 and purchased a full service banking center in Jewett, Ohio
in January 1999. United Bancorp entered Northern Athens County in July 1998 when
the $47.8 million asset based Community Bank of Glouster was purchased,
expanding United Bancorp, Inc. to a three bank holding company. Today, The
Community Bank is headquartered in Lancaster, Ohio with three locations in
Lancaster in addition to its two offices in Glouster and offices in Amesville
and Nelsonville, Ohio.





As space
in the new headquarters became occupied, property across from the new Main
Office on the other corner of Fourth and Hickory Streets was acquired in 1993 to
support the continued growth. It was renovated into a modern Operations Center
now housing the Data and Item Processing Equipment for the affiliate banks of
United Bancorp, Inc. and the offices for United Bancorp, Inc.’s Accounting
Group. With the introduction of 24 x 7 x 365 Automated Call Center and Internet
Banking in 2001, the Accounting and Operations Center was further expanded
through the purchase and renovation of the adjoining property formerly known as
the Fullerton Bakery Building. Today, the Accounting and Operations Center
Building supports the back room operations for the seventeen banking offices of
The Citizens Bank and The Community Bank of Lancaster.





On April
21, 1999 the $74.1 million asset based Citizens-State Bank of Strasburg was
merged into The Citizens Savings Bank. This expanded customer service under the
charter of The Citizens Savings Bank to 10 locations in Belmont, Carroll,
Harrison and Tuscarawas counties. Harold W. Price, who had served as President
and CEO of The Citizens-State Bank of Strasburg was appointed The Citizens
Savings Bank’s fifth President and CEO with James W. Everson continuing as
Chairman, in addition to serving as Chairman of The Community Bank and Chairman,
President and CEO of United Bancorp. Everson was reappointed Chairman, President
and CEO of The Citizens Savings Bank five months later upon Harold W. Price’s
sudden death.





In
November 2004, the Citizens Bank Board of Directors completed its senior
management reorganization plans for the beginning of its second century of
service. James W. Everson, will continue as the Bank’s Chairman. Furthermore,
the Citizens Bank Board of Directors announced the appointment of Scott A.
Everson as Director, President and Chief Executive Officer, which became
effective on November 1, 2004.





On
September 19, 2008, Citizens acquired from the Federal Deposit Insurance
Corporation ("FDIC") the deposits of three banking offices of a failed
institution in St. Clairsville, Dillonvale and Tiltonsville, Ohio.


9





The
growth and success of The Citizens Savings Bank and the United Bancorp, Inc.
have been attributed to the association of many dedicated men and women. Having
served on the Board of Directors are Edward E. McCombs, 1902-1936; John E.
Reynolds, 1902-1940; Dr. J.W. Darrah, 1902-1937; J.A.Crossley, 1902-1903;
William M. Lupton, 1902-1902; F.K. Dixon, 1902-1909; Dr. R.H. Wilson, 1902-1905;
C.A. Heil, 1903-1909; David Coss, 1904-1938; L.L. Scheele, 1905-1917; A.T.
Selby, 1906-1954; H.H. Rothermund, 1907-1912; Dr. J.G. Parr, 1912-1930; T.E.
Pugh, 1920-1953; J.J. Weiskircher, 1925-1942; David H. James,
1925-1963; Dr. C.B.Messerly, 1931-1957; H.H. Riethmiller, 1936-1980; E.M.
Nickles, 1938-1968; L.A. Darrah, 1939-1962; R.L. Heslop, 1941-1983; Joseph E.
Weiskircher, 1943-1975; Edward M. Selby, 1953-1976; David W. Thompson,
1954-1966; Dr. Charles D. Messerly, 1957-1987; James M. Blackford, 1962-1968;
John H. Morgan, 1967-1976; Emil F. Snyder, 1968-1975; James H. Cook, 1976-1986;
Paul Ochsenbein, 1978-1991; David W. Totterdale, 1981-1995; Albert W. Lash,
1975-1996; Premo R. Funari, 1976-1997; Donald A. Davison, 1963-1997; Harold W.
Price, 1999-1999; John H. Clark, Jr., 1976- 2001; Dwain R. Hicks, 1999-2002; and
Michael A. Ley, 1999-2002, and Michael J. Arciello
1992-2009.





Today,
The Citizens Savings Bank is Martins Ferry’s only locally owned financial
institution. The general objective of The Citizens Savings Bank as outlined in
its Mission Statement which was adopted by its Board of Directors on June 8,
1982 and renewed annually is to remain an independent state-chartered commercial
bank and expand its asset base and market share through acquisitions and new
branch construction where financially feasible.





The
Community Bank Profile


A
Division of The Citizens Savings Bank





COMMUNITY
was established in August 1945 with corporate offices in downtown Glouster,
Ohio, in Athens County. Its founder was L.E. Richardson, a local entrepreneur.
At that time, Athens County was booming with the industries of gas, oil and coal
mining. COMMUNITY was then known as The Glouster Community Bank. The Bank played
a vital role in the region as it developed, earning a reputation for
friendliness, quality customer service and responsiveness to the individual
financial needs of its customers, as well as the community. More than 25 years
later, Richardson turned over the day-to-day management of the bank to his son,
L.E. Richardson, Jr., in 1971.





With that
foundation, COMMUNITY acquired the First National Bank of Amesville, Ohio in
1976. The Bank’s prosperity continued, and, in 1978, a three-lane Auto Bank
drive-up facility was constructed on the west side of Glouster.





In 1984,
the Bank created a holding company, Southern Ohio Community Bancorp, Inc., in
anticipation of future growth and diversification of products and
services.




In 1987,
the service area was expanded once again. A modular office in Nelsonville served
the village and the surrounding communities. A few years later, on December 6,
1993 a ribbon cutting ceremony was held for a newly constructed Nelsonville
office. The brick building, which replaced the mobile bank unit, features four
drive-up lanes and a drive-up ATM. Night deposit and safe deposit box services
were also introduced to the Nelsonville area.







In 1996,
COMMUNITY completed an extensive renovation of its down-town Glouster office,
including the addition of a 24-hour access ATM in the vestibule.


10









In 1998, COMMUNITY
became affiliated with United Bancorp, Inc. ofMartins Ferry, Ohio, when
United Bancorp purchased The Glouster Community Bank and its holding company,
Southern Ohio Community Bancorp, Inc.





That
acquisition led to COMMUNITY establishing a Loan Production Office (LPO) in 1998
in Lancaster, Ohio. This LPO provided the opportunity for COMMUNITY to build its
franchise along the U.S. Route 33 corridor from Athens County through Fairfield
County.





Lancaster,
the county seat of Fairfield County, is approximately 30 miles southeast of
Columbus, Ohio and is considered a bedroom community to Columbus. According to
the city’s Economic Development Office, Fairfield County is the fourth fastest
growing county in Ohio and is ranked among the top six counties for growth
potential.





COMMUNITY
opened its first Fairfield County banking office in December 1999. The East Main
Street Banking Office in Lancaster offers full service banking with extended
evening and Saturday hours. The office features a three-lane drive-up, a
drive-up ATM and night depository.





In
January 2000, COMMUNITY relocated its Main Office from Glouster to downtown
Lancaster. This substantial investment significantly strengthened COMMUNITY’S
presence in Fairfield County. Formerly a furniture store, the historic 1919
building was restored to as near the original appearance as possible. The
building was further enhanced with a Verdin Company clock. The 435-pound
timepiece is attached to the southeast corner of the building. The interior of
the building was converted from a furniture store to a modern full service
banking office. Of special note is the historical mural of Fairfield County
landmarks, painted by local stencil artist Cheryl Fey, which graces the main
stairway. The renovation added greatly to the city’s business district, as the
Main Office complements the down-town revitalization that also was completed in
2000.





COMMUNITY’S
Auto Bank, located across the street from the Main Office, also was opened in
January 2000. The structure is unique to the market, because of its walk-in
lobby. It also features a four-lane drive-thru, night depository and automatic
teller machine.





In July
2000, COMMUNITY opened its Community Room, also unique to the area. The
Community Room has grown quickly into a convenient and frequently used location
for meeting of area civic organizations. It is also a popular gallery for local
artists to display their talents.





From the
rolling hills of Athens County to the bustling commerce of Fairfield County,
COMMUNITY continues to play a vital role in the lives of its customers and the
region it serves. The Bank not only has built upon its customer base through the
years, but upon its reputation for friendliness, quality customer service and
responsiveness to the individual financial needs of its customers and the
communities it proudly serves.





On July
1, 2007, the Company received regulatory approval for the merger of its wholly
owned subsidiaries, The Glouster Community Bank ("Community"), Lancaster, Ohio,
and The Citizens Savings Bank ("Citizens"), Martins Ferry, Ohio, under the
charter of the latter. The Boards of both Citizens and Community endorsed this
consolidation. The Company continues to capitalize on the established branding
in the market places of each institution. Community operates under the trade
name "The Community Bank, a Division of The Citizens Savings Bank" and Citizens
operates under the trade name "The Citizens Bank, a Division of The Citizens
Savings Bank". A key focus of the consolidation involved the centralization of
executive authority under Citizens’ proven management structure that has been
perennially ranked in the upper quartile of all banks in the United
States.





Including
the Community Board members on the Board of the combined institution was essential for the
Company to realize the full potential of the combination. Management was pleased
to report on the merger date of July lst that Samuel J. Jones, Business Owner,
Glouster, Ohio; Terry A. McGhee, President and CEO, Westerman, Inc., Bremen,
Ohio; Andrew F. Phillips, President and General Manager, Miller Brands of South
East Ohio, Glouster, Ohio; Robin L. Rhodes, M.D., Physician, Pediatric
Associates of Lancaster, Inc., Lancaster, Ohio; and L.E. "Dick" Richardson, Jr.,
Retired President, Southern Ohio Community Bancorporation, Inc., Glouster, Ohio
accepted the Company’s invitation to become members of The Citizens Savings Bank
Board of Directors.





On
October 31, 2007, the Company completed the ‘‘physical consolidation" of its two
charters under the management group of The Citizens Savings Bank, resulting in a
22% reduction in staffing at The Community Bank division. Merging all of the
Company’s bank charters into a single charter and common operating system now
allows each banking office to focus on growing the Company’s banking franchises
by providing the highest level of customer service from a common market basket
of products.




11







Management’s Discussion and Analysis





In
the following pages, management presents an analysis of United Bancorp, Inc.’s
financial condition and results of operations as of and for the year ended
December 31, 2009 as compared to prior years. This discussion is designed to
provide shareholders with a more comprehensive review of the operating results
and financial position than could be obtained from an examination of the
financial statements alone. This analysis should be read in conjunction with the
Consolidated Financial Statements and related footnotes and the selected
financial data included elsewhere in this report.





When
used in this discussion or future filings by the Company with the Securities and
Exchange Commission, or other public or shareholder communications, or in oral
statements made with approval of an authorized executive officer, the words or
phrases “will likely result,” “are expected to,” “will continue,” “is
anticipated,” “estimate,” “project,” “believe,” or similar expressions are
intended to identify “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made, and to advise readers that various
factors, including regional and national economic conditions, changes in levels
of market interest rates, credit risks of lending activities and competitive and
regulatory factors, could affect the Company’s financial performance and could
cause the Company’s actual results for future periods to differ materially from
those anticipated or projected.





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 liquidity, capital
resources or operations except as discussed herein. The Company is not aware of
any current recommendations by regulatory authorities that would have such
effect if implemented.





The
Company does not undertake, and specifically disclaims, any obligation to
publicly release any revisions that may be made to any forward-looking
statements to reflect occurrence of anticipated or unanticipated events or
circumstances after the date of such statements.





Financial
Condition





Overview





The
Company’s earnings in 2009 generated an annualized 0.64% return on average
assets (“ROA”) and an 8.62% return on average equity (“ROE”), compared to 0.86%
ROA and 11.33% ROE for 2008. The Company's
net interest margin of 3.85% for the year ended December 31, 2009, generated
approximately $15.3 million in net interest income for the year, a decrease of
approximately $173,000 from 2008. This decrease in net interest income was
primarily driven by a general decline in interest rates and reinvestment
opportunities causing a decrease in the yield on the earning assets of the Bank.
While the Company's
interest expense decreased, it did not fully offset the decrease experienced on
the Company’s earning assets. As interest rates remain at historically low
levels, the overall net interest margin of the Company will remain under
pressure.










The
composition of the Company's
balance sheet has changed during the past 12 months. With interest rates at
historically low levels the Company has experienced a high volume of called
investment securities, which were partially reinvested back into investment
securities but at lower rates. For the year ended December 31, 2009, the Company
experienced a net decrease of $34.2 million in investment securities. At
December 31, 2009, the Company had liquidity of approximately $48.8 million
being maintained in lower yielding short term investments and in cash. When the
economy improves and long term interest rates increase, management expects to be
able to deploy this liquidity into higher-yielding loans. During the second half
of 2009, the Company experienced an increase in loan demand related in part to a
withdrawal of the major money center banks from the markets we serve. However,
in the near term, as overall interest rates remain low it will become a
challenge to maintain the Company's
current net interest margin.




12





Service Charge Income on deposits increased $85,000 from 2008 to
2009. On the expense side, the Company’s 2009 earnings were affected by a period
over period increase of $818,000 in Federal Deposit Insurance Corporation
(‘FDIC”) deposit insurance premiums; a $137,000 increase in our provision for
loan losses and an $86,000 write down in the Company’s servicing asset for its
secondary fixed rate mortgage program, due to the current low interest rate
environment and the related accelerating payoff of loan balances. The net
after-tax per share impact of the additional FDIC premiums expensed in 2009 was
approximately $0.12 per share.





As
anticipated, the level of net loans charged off to average loans has increased
from 0.37% for the year ended December 31, 2008 to 0.70% for the year ended
December 31, 2009. The Company’s impaired loans decreased by approximately $2.8
million from December 31, 2008 to December 31, 2009. In addition, the
specifically allocated loan loss reserve for impaired loans decreased
approximately $500,000 from December 31, 2008 to December 31, 2009. We believe
the level of impaired loans have stabilized during the second half of 2009.
Compared with December 31, 2008, the Company’s other real estate owned decreased
approximately $29,000. We continue to work through these difficult times and are
pleased that our earnings performance is solid to support the continued growth
of the Company and its projected cash dividend payments.





On
September 19, 2008, Citizens acquired from the FDIC the deposits of three
banking offices of a failed institution in Belmont County, Ohio. Deposits
acquired totaled approximately $39.3 million. The Company acquired two of the
three former banking locations. Management plans to open a new banking facility
in the third quarter of 2010 in Tiltonsville, Ohio where it did not acquire one
of the properties from the FDIC.





Earning
Assets – Loans





Gross
loans totaled $257.7 million at December 31, 2009, representing an 8.2% increase
from $238.2 million at December 31, 2008. Average loans totaled $243.6 million
for 2009, representing a 3.4% increase compared to average loans of $235.7
million for 2008.





The increase in gross loans from
December 31, 2008 toDecember 31, 2009 was
primarily comprised of commercial loans, which increased by $15.2 million, as
well as an increase in installment loans of $6.6 million and an increase in
residential real estate loans of $2.3 million, partially offset by a decrease in
the commercial real estate portfolio of $4.7 million. During 2008 and 2009, the
Company increased the staff for the Commercial lending team. These additional
resources contributed to the increase in the commercial loan portfolio during
2009.





The
Company’s installment lending portfolio represented 17.4% of the total portfolio
at December 31, 2009, compared to 16.1% at December 31, 2008. The targeted
installment lending areas encompass the four geographic areas serviced by the
Bank, which are diverse, thereby reducing the risk to changes in economic
conditions. Competition for installment loans principally comes from the captive
finance companies offering low to zero percent financing for extended terms. As
interest rates remained at historically low levels during 2009, the Company
focused on growing the installment portfolio. Given the relatively short
duration of installment loans and the attractive yield, management will continue
to focus on this portfolio in 2010.





Residential
real estate loans are comprised of 1, 3 and 5 year adjustable-rate mortgages
used to finance 1-4 family units. The Company also offers fixed-rate real estate
loans through our Secondary Market Real Estate Mortgage Program. The fixed-rate
mortgages are serviced by the Bank but are sold immediately into the secondary
market. Therefore, our customers enjoy the convenience of working with a local
bank and are able to obtain long-term fixed-rate financing for their home while
the Bank mitigates its interest rate risk. Once these fixed rate loans are
originated and immediately sold without recourse in what is
referred to as the secondary market, the Company does not assume credit risk or
interest rate risk in this portfolio. This arrangement is quite common in banks
and saves our customers from looking elsewhere for their home financing
needs.




13

















In 2009,
the interest rate environment continued to be favorable to the fixed-rate
mortgage loan product. This resulted in a higher volume of customers refinancing
loans during 2009 as compared to 2008. While the volume of home refinancing did
increase in 2009, it still remained low as compared with recent years. The
secondary market origination volume was impacted by an issue that has developed
in the overall industry related to higher risk subprime loans. While the Company
did not participate in this type of lending, the additional regulations have
made it more difficult to obtain a loan that is saleable in the secondary
market. The Company recognized a gain on the sale of secondary market loans of
$129,000 in 2009 and a gain of $85,000 in 2008.





The allowance for loan losses
represents the amount which management and the Board of Directors estimates is
adequate to provide for probable incurred losses in the loan portfolio.
Accounting for the allowance and the related provision for loan losses is viewed
by management as a critical accounting policy. The allowance balance and the
annual provision charged to expense are reviewed by management and the Board of
Directors on a monthly basis. The allowance calculation is determined by
utilizing a risk grading model that considers borrowers’ past due experience,
coverage ratio to industry averages, economic conditions and various other
circumstances that are subject to change over time. In general, the loan loss
policy for installmentloans requires a charge-off if the loan reaches
120-day delinquent status or if notice of bankruptcy liquidation is received.
The Company follows lending policies, with established criteria for determining
the repayment capacity of borrowers, requirements for down payments and current
market appraisals or other valuations of collateral when loans are originated.
Installment lending also utilizes credit scoring to help in the determination of
credit quality and pricing.





The
Company generally recognizes interest income on the accrual basis, except for
certain loans which are placed on non-accrual status, when in the opinion of
management, doubt exists as to collection on the loan. The Company’s policy is
to generally place loans greater than 90 days past due on non-accrual status
unless the loan is both well secured and in the process of collection. When a
loan is placed on non-accrual status, interest income may be recognized on a
cash basis as payment is received.





Management
believes the current balance of the allowance for loan losses is sufficient to
cover probable incurred losses. Refer to Provision for Loan Losses section for
further discussion on the Company’s credit quality.





Earning
Assets – Securities and Federal Funds Sold





The
securities portfolio is comprised of U.S. Government and agency obligations,
tax-exempt obligations of states and political subdivisions, mortgage-backed
securities and certain other investments. The Company does not hold any
collateralized mortgage-backed securities, other than those issued by U.S.
Government agencies. The Company does not hold any derivative securities. The
quality rating of the majority of the Bank’s securities issued by political
subdivisions within Ohio is no less than Aaa, Aa, or A, and the majority of the
Bank’s out-of-state bonds are rated at AAA. Board policy permits the purchase of
certain non-rated or lesser rated bonds of local schools, townships and
municipalities, based on known levels of credit risk.





Securities
available for sale at December 31, 2009 decreased $32.8 million, or 25.4%, from
2008, while securities held to maturity decreased $1.4 million or 9.0% during
the same period.




14





In 2007, the Company began focusing on
increasing theCompany’s investment in state and municipal
obligations with extended call protection to protect the net interest margin of
the Company. This investment strategy has proved beneficial in a falling rate
environment.





However,
the Company’s U.S. Government agency portfolio is subject to increased levels of
redemptions due to the call features in this type of investment security. Given
the extent of the decrease in overall interest rates, the Company did experience
a significant amount of called government agency investment securities during
2009. This trend is expected to continue into 2010. 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 the present time, the Company has implemented a
strategy to invest in short term certificates of deposit (“CD’s”) of other
financial institutions. These CD’s are invested in increments that allow for the
entire individual investment to be fully insured by the FDIC and offer an
alternative to investing in longer term U.S Government agency securities. As of
December 31, 2009, the Company had approximately $17.6 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 retail core deposits from individuals and business customers. These core
deposits include all categories of interest-bearing deposits, excluding
certificates of deposit greater than $100,000. During 2009, core deposits
decreased $7.5 million, or 2.5%. This decrease was by design. Given the
additional liquidity from the September 2008 acquisition of afailed
institution, the Company did not aggressively compete with the higher rates that
were offered in our markets by other banks that were in need of raising
liquidity.





The
Company maintains deposit relationships with public agencies, including local
school districts, city and township municipalities, public works facilities and
others, which may tend to be more seasonal in nature resulting from the receipt
and disbursement of state and federal grants. These entities have maintained
relatively stable 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 as a tool to balance funding needs. At December 31, 2009,
certificates of deposit greater than $100,000 increased $5.0 million, or 10.7%,
from December 31, 2008 totals. With the financial uncertainty that developed in
the stock and bond markets we have seen a trend of larger certificates of
deposit coming into the Company during the past year to take advantage of
principle preservation of assets from depository insurance. The Company does not
differentiate pricing for certificates of deposit that are greater than
$100,000.





The
attraction of and retention of core deposits continues to be a challenge to the
Company and the overall banking industry. Alternative financial products are
continuously being introduced by our competition whether through traditional
banks or brokerage services companies. As a result of this competition, the
Company does offer full service brokerage services through its affiliation with
UVEST Financial Services®





Sources
of Funds – Securities Sold Under Agreements to Repurchase and Other Borrowed
Funds





Other
interest-bearing liabilities include securities sold under agreements to
repurchase, federal funds purchased, Treasury, Tax and Loan, notes payable and
Federal Home Loan Bank advances. Securities sold under agreements to repurchase
increased approximately $3.3 million during 2009. The average balance in
securities sold under agreements to repurchase increased $1.9 million, or 21.4%,
from 2008 to 2009.


15





Advances
from the Federal Home Loan Bank (FHLB) increased $5.4 million, or
12.3%, from December 31, 2008 to December 31, 2009. During 2009, Management
elected to obtain long-term fixed-rate advances while the FHLB offered such
advances at low interest rates.
 
 Performance Overview 2009 to
2008
 
 Net
Income
 The
Company reported net income of $2.9 million in 2009 compared with $3.8 million
for 2008, a decrease of $854,000, or 22.7%. On a per share basis, the Company’s
basic and diluted earnings per share were $0.63 for 2009, as compared to $0.82
for 2008, a decrease of 23.2%. This earnings performance equates to a 0.64%
Return on Average Assets (“ROA”) and an 8.62% Return on Average Equity (“ROE”)
for 2009 compared to 0.86% and 11.33%, respectively, for 2008. The Company’s
2009 earnings were negatively affected by a period over period increase of
$818,000 in FDIC deposit insurance premiums. The net after-tax per share impact
of the additional FDIC premiums expensed in 2009 was approximately $0.12 per
share
 
 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. The net
interest margin was 3.85% for 2009 compared to 4.04% in 2008, a modest decrease
of 19 basis points. While the Company’s yield on earning assets decreased 83
basis points from 2008 to 2009, the cost of funds has decreased 64 basis points
for the same period. As the historically low interest rates are expected to
continue into 2010, it will become difficult to lower the Company’s cost of
funds in proportion to the earning assets of the Company.
 
 Average
interest-earning assets increased $16.2 million in 2009 as compared to 2008
while the associated weighted-average yield on these interest-earning assets
decreased from 6.60% in 2008 to 5.77% for 2009. Average interest-bearing
liabilities increased $11.4 million in 2009 as compared to 2008, while the
associated weighted-average costs on these interest-bearing liabilities
decreased from 2.72% in 2008 to 2.08% in 2009.
 
 Refer to
the sections on Asset and Liability Management and Sensitivity to Market Risks
and Average Balances, Net Interest Income and Yields Earned and Rates Paid
elsewhere herein for further information.
 
 Provision
For Loan Losses
 The
provision for loan losses is a charge to expense recorded to maintain the
related balance sheet allowance for loan losses at an amount considered adequate
to cover probable incurred losses in the portfolio. The provision for loan
losses was $1.3 million in 2009 compared to $1.2 million in 2008, an increase of
$137,000 or 11.5%. As previously discussed, the loan portfolio increased
approximately $19.5 million, or 8.2%, during 2009. The provision for loan losses
for the year ended December 31, 2009 was predicated primarily upon an increase
in the level of charge-offs, growth in the loan portfolio and the effect of the
current economic environment.
 
 As
anticipated, the level of net loans charged off to average loans has increased
from 0.37% for the year ended December 31, 2008 to 0.70% for the year ended
December 31, 2009. The Company’s impaired loans decreased by approximately $2.8
million from December 31, 2008 to December 31, 2009. In addition, the
specifically allocated loan loss reserve for impaired loans decreased
approximately $500,000 from December 31, 2008 to December 31, 2009. We believe
the level of impaired loans have stabilized during the second half of 2009. Net
loans charged-off for 2009 were approximately $1.7 million compared to
approximately $865,000 for 2008.
 
 
  16 
  The
allowance for loan losses as a percentage of gross loans
decreased to 0.93% at December 31, 2009 from 1.16% at December 31, 2008. The
Company utilizes a consistent methodology in determining its estimate of the
allowance for loan losses.
 
 Noninterest
Income
 Noninterest
income is made up of bank-related fees and service charges, as well as other
income-producing services. These include secondary market loan servicing fees,
ATM/interchange income, internet bank fees, early redemption penalties for
certificates of deposit, safe deposit box rental income, net gain or loss on
sales of securities available for sale and loans, leased rental property, cash
management services and other miscellaneous items. In addition, the Company has
invested in Bank Owned Life Insurance (BOLI). The earnings from this investment
are reflected in the Company’s noninterest income. Total noninterest income was
$3.3 million for 2009 compared to $3.1 million for 2008.
 
 Customer
service fees on deposit accounts increased $85,000, or 4.0%, from 2008 to 2009.
The increase was mainly the result of an increase in usage and an increase in
the number of eligible accounts in the Company’s courtesy overdraft program
resulting in part from the September 2008 branch acquisition.
 
 The
Company realized a gain totaling $154,000 in 2009 related to sales of
available-for-sale securities, as compared with a loss totaling $14,000 in 2008
related to sales of available-for-sale securities.
 
 Gains
related to the sales of real estate and other repossessed assets increased by
approximately $26,000, or 32.9% from 2008 to 2009.
 
 The
decrease in other noninterest income in 2009 of $108,000, or 25.8%, was
primarily attributable to a decrease in secondary market related income of
approximately $102,000.
 
 Noninterest
Expense
 Noninterest
expense for 2009 increased $1.2 million, or 9.6%, as compared to
2008.
 
 Salaries
and employee benefits increased $161,000, or 2.5%, from 2008 to 2009. The
increase was due primarily to merit increases and the new stock benefit plan
implemented in 2009.
 
 Occupancy
and equipment expense increased $295,000, or 21.5%, due primarily to an increase
in depreciation expense related to expansion and repairs of properties and new
systems installed.
 
 Professional
fees decreased $107,000, or 12.3%, for 2009 as compared to 2008. Professional
fees decreased due to a reduction in fees related to the collection and recovery
on delinquent loans and OREO properties.
  
 (In
      thousands)
                      
                      2009
                      
                      
                      2008Noninterest
      incomeCustomer
      Service Fee
                      
                      $
                      2,189
                      
                      
                      $
                      2,104Gain
      (loss) on sales of securities
                      
                      
                      154
                      
                      
                      
                      (14
                      )Gains
      on sales of loans
                      
                      
                      129
                      
                      
                      
                      85Other
      income
                      
                      
                      823
                      
                      
                      
                      892Total
      noninterest income
                      
                      $
                      3,295
                      
                      
                      $
                      3,067Noninterest
      expenseSalaries
      and employee benefits
                      
                      $
                      6,685
                      
                      
                      $
                      6,524Occupancy
      and equipment
                      
                      
                      1,664
                      
                      
                      
                      1,369Provision
      for losses on foreclosed real estate
                      
                      
                      -
                      
                      
                      
                      290Professional
      services
                      
                      
                      762
                      
                      
                      
                      869Insurance
                      
                      
                      343
                      
                      
                      
                      347Deposit
      insurance premiums
                      
                      
                      866
                      
                      
                      
                      48Franchise
      and other taxes
                      
                      
                      497
                      
                      
                      
                      426Marketing
      Expense
                      
                      
                      322
                      
                      
                      
                      372Printing
      and office supplies
                      
                      
                      311
                      
                      
                      
                      337Amortization
      of intangibles
                      
                      
                      119
                      
                      
                      
                      37Other
      expenses
                      
                      
                      2,270
                      
                      
                      
                      2,008Total
      noninterest expense
                      
                      $
                      13,839
                      
                      
                      $
                      12,627
 
  17
 
 
 During
2008, the Company recorded a $290,000 provision for losses on foreclosed real
estate. Management recorded this provision to write down foreclosed real estate
properties to their estimated net realizable value. The Company did not record a
provision for losses on foreclosed real estate during 2009.
 
 In
conjunction with the September 2008 branch acquisition, the Company recorded an
intangible asset of approximately $812,000 consisting of a core deposit
intangible. This asset was recorded at fair value and will be amortized over
seven years using a straight line method. During 2009 and 2008, the Company
recorded amortization expense of approximately $119,000 and $37,000,
respectively.
 
 Other
expenses increased $262,000, or 13.0%. Contributing to this increase were costs
associated with the Company’s internet banking product, ATM services and data
processing expenses. These increases primarily related to additional users due
to the 2008 branch acquisition.
 
 As
anticipated the Company’s FDIC insurance premiums increased approximately
$818,000 from 2008 to 2009. This was due to the number of bank failures during
the past 24 months and the FDIC’s attempt to replenish their reserve fund to
cover losses. In addition to the higher FDIC premiums in 2009, the FDIC required
banks to prepay their projected FDIC premiums for 2010 through 2012 as of
December 31, 2009. The amount of the prepaid premiums was approximately $1.8
million as of December 31, 2009.
 
 Income
tax expense for 2009 was $516,000 compared to $956,000 in 2008, a decrease of
$440,000, or 46.0%. The decrease was due primarily to a $1.3 million, or 27.4%
decrease in pre-tax income. The Company’s effective income tax rate was 15.1% in
2009 and 20.3% in 2008. The Company’s effective tax rate is less than the 34%
statutory rate due primarily to the effects of nontaxable interest income and
earnings on bank owned life insurance policies.
 
 Asset/Liability
 Management
and Sensitivity to Market Risks
 In the
environment of changing business cycles, interest rate fluctuations and growing
competition, it has become increasingly more difficult for banks to produce
adequate earnings on a consistent basis. Although management can anticipate
changes in interest rates, it is not possible to reliably predict the magnitude
of interest rate changes. As a result, the Company must establish a sound
asset/liability management policy, which will minimize exposure to interest rate
risk while maintaining an acceptable interest rate spread and insuring adequate
liquidity.
  
  The
principal goal of asset/liability management – profit management – can be
accomplished by establishing decision processes and control procedures for all
bank assets and liabilities. Thus, the full scope of asset/liability management
encompasses the entire balance sheet of the Company. The broader principal
components of asset/liability management include, but are not limited to
liquidity planning, capital planning, gap management and spread
management.
 
 By
definition, liquidity is measured by the Company’s ability to raise cash at a
reasonable cost or with a minimum amount of loss. Liquidity planning is
necessary so the Company will be capable of funding all obligations to its
customers at all times, from meeting their immediate cash withdrawal
requirements to fulfilling their short-term credit needs.
 
 Capital
planning is an essential portion of asset/liability management, as capital is a
limited Bank resource, which, due to minimum capital requirements, can place
possible restraints on Bank growth. Capital planning refers to maintaining
capital standards through effective growth management, dividend policies and
asset/liability strategies.
  18 
  Gap is
defined as the dollar difference between rate sensitive assets
and rate sensitive liabilities with respect to a specified time frame. A gap has
three components – the asset component, the liability component, and the time
component. Gap management involves the management of all three
components.
 
 Gap
management is defined as those actions taken to measure and match rate sensitive
assets to rate sensitive liabilities. A rate sensitive asset is any
interest-earning asset, which can be repriced to a market rate in a given time
frame. Similarly, a rate sensitive liability is any interest-bearing liability,
which can have its interest rate changed to a market rate during the specified
time period. Caps, collars and prepayment penalties may prevent certain loans
and securities from adjusting to the market rate.
 
 A
negative gap is created when rate sensitive liabilities exceed rate sensitive
assets and conversely a positive gap occurs when rate sensitive assets exceed
rate sensitive liabilities. A negative gap position will cause profits to
decline in a rising interest rate environment while conversely a positive gap
will cause profits to decline in a falling interest rate environment. The
Company’s goal is to have acceptable profits under any interest rate
environment. To avoid volatile profits as a result of interest rate
fluctuations, the Company attempts to match interest rate sensitivities, while
pricing both the asset and liability components to yield a sufficient interest
rate spread so that profits will remain relatively consistent across interest
rate cycles.
 
 Management
of the income statement is called spread management and is defined as managing
investments, loans, and liabilities to achieve an acceptable spread between the
Company’s return on its earning assets and its cost of funds. Gap management
without consideration of interest spread can cause unacceptable low profit
margins while assuring that the level of profits is steady. Spread management
without consideration of gap positions can cause acceptable profits in some
interest rate environments and unacceptable profits in others. A sound
asset/liability management program combines gap and spread management into a
single cohesive system.
 
 
 
 Management
measures the Company’s interest rate risk by computing estimated changes in net
interest income and the net portfolio value (“NPV”) of its cash flows from
assets, liabilities and off-balance-sheet items in the event of a range of
assumed changes in market interest rates. The Bank’s senior management and the
Executive Committee of the Board of Directors, comprising the Asset/Liability
Committee (“ALCO”) review the exposure to interest rates monthly. Exposure to
interest rate risk is measured with the use of an interest rate sensitivity
analysis to determine the change in NPV in the event of hypothetical changes in
interest rates, while interest rate sensitivity gap analysis is used to
determine the repricing characteristics of the assets and
liabilities.
 
 NPV
represents the market value of portfolio equity and is equal to the market value
of assets minus the market value of liabilities, with adjustments made for
off-balance-sheet items.
 
 Computations
of prospective effects of hypothetical interest rate changes are based on
numerous assumptions, including relative levels of market interest rates, loan
pre-payments and deposit decay rates, and should not be relied upon as
indicative of actual results. Further, the computations do not contemplate any
actions the Company may undertake in response to changes in interest rates. The
NPV calculation is based on the net present value of discounted cash flows
utilizing market prepayment assumptions and market rates of interest provided by
surveys performed during each quarterly period, with adjustments made to reflect
the shift in the Treasury yield curve between the survey date and quarter-end
date. Certain shortcomings are inherent in this method of analysis presented in
the computation of estimated NPV. Certain assets such as adjustable-rate loans
have features that restrict changes in interest rates on a short-term basis and
over the life of the asset. In addition, the portion of
adjustable-rate loans in the Company’s portfolio could decrease in future
periods if market interest rates remain at or decrease below current levels due
to refinancing activity. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate from those assumed
in the table. Finally, the ability of many borrowers to repay their
adjustable-rate debt may decrease in the case of an increase in interest
rates.
  19 
  The
following tables present an analysis of the potential sensitivity of the
Company’s net present value of its financial instruments to sudden and sustained
changes in the prevailing interest rates.
 
 The
projected volatility of the net present value at both December 31, 2009 and 2008
fall within the general guidelines established by the Board of Directors. The
2009 NPV table shows that in a falling interest rate environment, in the event
of a 100 basis point change, the NPV would decrease 8%, and with a 200 basis
point change the NPV would decrease 20%. This decrease is the result of fixed
rate certificates of deposit not repricing in lock step with an immediate
downward rate adjustment of 100 and 200 basis points. The other component is
that once rates decrease 100 or 200 basis points from current levels we tend to
reach a floor on how low depository rates can adjust downward.
 
 In an
upward change in interest rates, the Company’s NPV would not change with a 100
basis point interest rate increase. In a 200 basis point rate increase, the
Company’s NPV would decrease 7%. This decrease is attributable to a portion of
the Company’s investment portfolio that has fixed rates with longer maturity
dates. As interest rates increase, the market value of these securities decrease
rather quickly.
 
 (Dollars
in Thousands)
 Net
Portfolio Value - December 31, 2009
 
 Change in Rates
                    
                    $ Amount
                    
                    
                    $ Change
                    
                    
                    % Change+200
                    
                    
                    47,097
                    
                    
                    
                    (3,623
                    )
                    
                    
                    -7
                    %+100
                    
                    
                    50,680
                    
                    
                    
                    (40
                    )
                    
                    
                    -Base
                    
                    
                    50,720
                    
                    
                    
                    -
                    
                    
                    
                    --100
                    
                    
                    46,705
                    
                    
                    
                    (4,015
                    )
                    
                    
                    -8
                    %-200
                    
                    
                    40,570
                    
                    
                    
                    (10,150
                    )
                    
                    
                    -20
                    %
 
 (Dollars
in Thousands)
 Net
Portfolio Value - December 31, 2008
 
 Change in Rates
                    
                    $ Amount
                    
                    
                    $ Change
                    
                    
                    % Change+200
                    
                    
                    53,795
                    
                    
                    
                    6,807
                    
                    
                    
                    14
                    %+100
                    
                    
                    51,177
                    
                    
                    
                    4,189
                    
                    
                    
                    9
                    %Base
                    
                    
                    46,988
                    
                    
                    
                    -
                    
                    
                    
                    --100
                    
                    
                    42,407
                    
                    
                    
                    (4,581
                    )
                    
                    
                    -10
                    %-200
                    
                    
                    36,070
                    
                    
                    
                    (10,918
                    )
                    
                    
                    -23
                    %




20


The
following table is a summary of selected quarterly results of operations for the
years ended December 31, 2009 and 2008.
 
 1st Quarter
                  
                  
                  2nd Quarter
                  
                  
                  3rd Quarter
                  
                  
                  4th Quarter(In
      thousands, except per share data)2009Total
      interest income
                  
                  $
                  5,913
                  
                  
                  $
                  5,861
                  
                  
                  $
                  5,841
                  
                  
                  $
                  5,740Total
      interest expense
                  
                  
                  2,074
                  
                  
                  
                  2,027
                  
                  
                  
                  2,011
                  
                  
                  
                  1,953Net
      interest income
                  
                  
                  3,839
                  
                  
                  
                  3,834
                  
                  
                  
                  3,830
                  
                  
                  
                  3,787Provision
      for losses on loans
                  
                  
                  324
                  
                  
                  
                  334
                  
                  
                  
                  338
                  
                  
                  
                  329Other
      income
                  
                  
                  789
                  
                  
                  
                  788
                  
                  
                  
                  828
                  
                  
                  
                  736Gain
      on sale of available for-sale securities net
                  
                  
                  -
                  
                  
                  
                  25
                  
                  
                  
                  -
                  
                  
                  
                  129General,
      administrative and other expense
                  
                  
                  3,309
                  
                  
                  
                  3,567
                  
                  
                  
                  3,420
                  
                  
                  
                  3,543Income
      before income taxes
                  
                  
                  995
                  
                  
                  
                  746
                  
                  
                  
                  900
                  
                  
                  
                  780Federal
      income taxes
                  
                  
                  194
                  
                  
                  
                  74
                  
                  
                  
                  143
                  
                  
                  
                  105Net
      income
                  
                  $
                  801
                  
                  
                  $
                  672
                  
                  
                  $
                  757
                  
                  
                  $
                  675Earnings
      per shareBasic
                  
                  $
                  0.17
                  
                  
                  $
                  0.15
                  
                  
                  $
                  0.16
                  
                  
                  $
                  0.15Diluted
                  
                  $
                  0.17
                  
                  
                  $
                  0.15
                  
                  
                  $
                  0.16
                  
                  
                  $
                  0.152008Total
      interest income
                  
                  $
                  6,660
                  
                  
                  $
                  6,481
                  
                  
                  $
                  6,319
                  
                  
                  $
                  6,255Total
      interest expense
                  
                  
                  3,143
                  
                  
                  
                  2,517
                  
                  
                  
                  2,347
                  
                  
                  
                  2,245Net
      interest income
                  
                  
                  3,517
                  
                  
                  
                  3,964
                  
                  
                  
                  3,972
                  
                  
                  
                  4,010Provision
      for losses on loans
                  
                  
                  168
                  
                  
                  
                  395
                  
                  
                  
                  324
                  
                  
                  
                  301Other
      income
                  
                  
                  756
                  
                  
                  
                  758
                  
                  
                  
                  752
                  
                  
                  
                  815Loss
      on sale of available - for-sale securities net
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (14
                  )General,
      administrative and other expense
                  
                  
                  2,977
                  
                  
                  
                  3,002
                  
                  
                  
                  3,250
                  
                  
                  
                  3,398Income
      before income taxes
                  
                  
                  1,128
                  
                  
                  
                  1,325
                  
                  
                  
                  1,136
                  
                  
                  
                  1,126Federal
      income taxes
                  
                  
                  225
                  
                  
                  
                  300
                  
                  
                  
                  239
                  
                  
                  
                  192Net
      income
                  
                  $
                  903
                  
                  
                  $
                  1,025
                  
                  
                  $
                  897
                  
                  
                  $
                  934Earnings
      per shareBasic
                  
                  $
                  0.20
                  
                  
                  $
                  0.22
                  
                  
                  $
                  0.20
                  
                  
                  $
                  0.20Diluted
                  
                  $
                  0.20
                  
                  
                  $
                  0.22
                  
                  
                  $
                  0.20
                  
                  
                  $
                  0.20
 
 21
  
  Average Balances, Net Interest Income and Yields Earned and Rates
Paid
 
 The
following table provides average balance sheet information and reflects the
taxable equivalent average yield on interest-earning assets and the average cost
of interest-bearing liabilities for the years ended December 31, 2009 and 2008.
The yields and costs are calculated by dividing income or expense by the average
balance of interest-earning assets or interest-bearing liabilities.
 
 The
average balance of available-for-sale securities is computed using the carrying
value of securities while the yield for available for sale securities has been
computed using the average amortized cost. Average balances are derived from
average month-end balances, which include nonaccruing loans in the loan
portfolio, net of the allowance for loan losses. Interest income has been
adjusted to tax- equivalent basis.
 
 2009
                    
                    
                    2008(Dollars
      In thousands)
                    
                    
                    
                    
                    Interest
                    
                    
                    
                    
                    
                    
                    
                    
                    InterestAverage
                    
                    
                    Income/
                    
                    
                    Yield/
                    
                    
                    Average
                    
                    
                    Income/
                    
                    
                    Yield/Balance
                    
                    
                    Expense
                    
                    
                    Rate
                    
                    
                    Balance
                    
                    
                    Expense
                    
                    
                    RateAssetsInterest-earning
      assetsLoans
                    
                    $
                    243,599
                    
                    
                    $
                    16,746
                    
                    
                    
                    6.87
                    %
                    
                    $
                    235,670
                    
                    
                    $
                    17,236
                    
                    
                    
                    7.31
                    %Taxable
      securities - AFS
                    
                    
                    83,949
                    
                    
                    
                    4,205
                    
                    
                    
                    5.01
                    
                    
                    
                    115,969
                    
                    
                    
                    6,390
                    
                    
                    
                    5.51Tax-exempt
      securities - AFS
                    
                    
                    27,783
                    
                    
                    
                    1,603
                    
                    
                    
                    5.77
                    
                    
                    
                    28,058
                    
                    
                    
                    1,656
                    
                    
                    
                    5.90Tax-exempt
      securities - HTM
                    
                    
                    14,277
                    
                    
                    
                    901
                    
                    
                    
                    6.31
                    
                    
                    
                    15,901
                    
                    
                    
                    931
                    
                    
                    
                    5.85Time
      deposits in other financial institutions
                    
                    
                    19,560
                    
                    
                    
                    408
                    
                    
                    
                    2.08
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Federal
      funds sold
                    
                    
                    24,288
                    
                    
                    
                    49
                    
                    
                    
                    0.20
                    
                    
                    
                    1,754
                    
                    
                    
                    12
                    
                    
                    
                    0.68FHLB
      stock and other
                    
                    
                    4,814
                    
                    
                    
                    241
                    
                    
                    
                    5.01
                    
                    
                    
                    4,716
                    
                    
                    
                    298
                    
                    
                    
                    6.32Total
      interest-earning assets
                    
                    
                    418,270
                    
                    
                    
                    24,153
                    
                    
                    
                    5.77
                    
                    
                    
                    402,068
                    
                    
                    
                    26,523
                    
                    
                    
                    6.60Noninterest-earning
      assetsCash
      and due from banks
                    
                    
                    10,358
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    11,384Premises
      and equipment (net)
                    
                    
                    8,557
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    7,028Other
      nonearning assets
                    
                    
                    16,450
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    16,997Less:
      allowance for loan losses
                    
                    
                    (3,062
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (2,760
                    )Total
      noninterest-earning assets
                    
                    
                    32,303
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    32,649Total
      assets
                    
                    $
                    450,573
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    434,717Liabilities
      & stockholders’ equityInterest-bearing
      liabilitiesDemand
      deposits
                    
                    $
                    112,686
                    
                    
                    $
                    476
                    
                    
                    
                    0.42
                    
                    
                    $
                    121,231
                    
                    
                    $
                    1,670
                    
                    
                    
                    1.38Savings
      deposits
                    
                    
                    42,844
                    
                    
                    
                    163
                    
                    
                    
                    0.38
                    
                    
                    
                    30,658
                    
                    
                    
                    160
                    
                    
                    
                    0.52Time
      deposits
                    
                    
                    168,972
                    
                    
                    
                    5,305
                    
                    
                    
                    3.14
                    
                    
                    
                    155,469
                    
                    
                    
                    6,076
                    
                    
                    
                    3.91Fed
      funds purchased
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,410
                    
                    
                    
                    47
                    
                    
                    
                    3.33FHLB
      advances
                    
                    
                    48,109
                    
                    
                    
                    1,828
                    
                    
                    
                    3.80
                    
                    
                    
                    54,412
                    
                    
                    
                    1,912
                    
                    
                    
                    3.51Trust
      preferred debentures
                    
                    
                    4,000
                    
                    
                    
                    250
                    
                    
                    
                    6.25
                    
                    
                    
                    4,000
                    
                    
                    
                    250
                    
                    
                    
                    6.25Repurchase
      agreements
                    
                    
                    10,999
                    
                    
                    
                    43
                    
                    
                    
                    0.39
                    
                    
                    
                    9,063
                    
                    
                    
                    137
                    
                    
                    
                    1.51Total
      interest-bearing liabilities
                    
                    
                    387,610
                    
                    
                    
                    8,065
                    
                    
                    
                    2.08
                    
                    
                    
                    376,243
                    
                    
                    
                    10,252
                    
                    
                    
                    2.72Noninterest-bearing
      liabilitiesDemand
      deposits
                    
                    
                    24,157
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    21,510Other
      liabilities
                    
                    
                    5,116
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    3,780Total
      noninterest-bearing liabilities
                    
                    
                    29,273
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    25,290Total
      liabilities
                    
                    
                    416,883
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    401,053Total
      stockholders’ equity
                    
                    
                    33,690
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    33,184Total
      liabilities & stockholders’ equity
                    
                    $
                    450,573
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    434,717Net
      interest income
                    
                    
                    
                    
                    
                    $
                    16,088
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    16,271Net
      interest spread
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    3.69
                    %
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    3.88
                    %Net
      yield on interest-earning assets
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    3.85
                    %
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    4.04
                    %
 
 ·For purposes of this
schedule, nonaccrual loans are included in loans.
 ·Fees collected on loans
are included in interest on loans.
 
 22
  
  Rate/Volume
Analysis
 
 The table
below describes the extent to which changes in interest rates and changes in
volume of interest-earning assets and interest-bearing liabilities have affected
interest income and expense during 2009. For purposes of this table, changes in
interest due to volume and rate were determined using the following
methods:
 
 ·
              Volume
      variance results when the change in volume is multiplied by the previous
      year’s rate.
 
 ·
              Rate
      variance results when the change in rate is multiplied by the previous
      year’s volume.
 
 ·
              Rate/volume
      variance results when the change in volume is multiplied by the change in
      rate.
 
 
 
 Note:The rate/volume variance
was allocated to volumevariance and rate
variance in proportion to the relationship of the absolute dollar amount of the
change in each. Nonaccrual loans are ignored for purposes of the calculations
due to the nominal amount of the loans.
  
 2009
      Compared to 2008Increase/(Decrease)(In
      thousands)
                      
                      
                      
                      
                      Change
                      
                      
                      ChangeTotal
                      
                      
                      Due
      To
                      
                      
                      Due
      ToChange
                      
                      
                      Volume
                      
                      
                      RateInterest
      and dividend incomeLoans
                      
                      $
                      (489
                      )
                      
                      $
                      567
                      
                      
                      $
                      (1,056
                      )Taxable
      securities available for sale
                      
                      
                      (2,185
                      )
                      
                      
                      (1,677
                      )
                      
                      
                      (508
                      )Tax-exempt
      securities available for sale
                      
                      
                      (53
                      )
                      
                      
                      (16
                      )
                      
                      
                      (37
                      )Tax-exempt
      securities held to maturity
                      
                      
                      (30
                      )
                      
                      
                      (99
                      )
                      
                      
                      69Time
      deposites in other financial institutes
                      
                      
                      408
                      
                      
                      
                      408
                      
                      
                      
                      -Federal
      funds sold
                      
                      
                      37
                      
                      
                      
                      51
                      
                      
                      
                      (14
                      )FHLB
      stock and other
                      
                      
                      (57
                      )
                      
                      
                      6
                      
                      
                      
                      (63
                      )Total
      interest and dividend income
                      
                      
                      (2,369
                      )
                      
                      
                      (760
                      )
                      
                      
                      (1,609
                      )Interest
      expenseDemand
      deposits
                      
                      
                      (1,194
                      )
                      
                      
                      (100
                      )
                      
                      
                      (1,094
                      )Savings
      deposits
                      
                      
                      3
                      
                      
                      
                      53
                      
                      
                      
                      (50
                      )Time
      deposits
                      
                      
                      (770
                      )
                      
                      
                      496
                      
                      
                      
                      (1,266
                      )Fed
      funds purchased
                      
                      
                      (47
                      )
                      
                      
                      (47
                      )
                      
                      
                      -FHLB
      advances
                      
                      
                      (84
                      )
                      
                      
                      (232
                      )
                      
                      
                      -Trust
      Preferred debentures
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      148Repurchase
      agreements
                      
                      
                      (94
                      )
                      
                      
                      24
                      
                      
                      
                      (118
                      )Total
      interest expense
                      
                      
                      (2,186
                      )
                      
                      
                      194
                      
                      
                      
                      (2,380
                      )Net
      interest income
                      
                      $
                      (183
                      )
                      
                      $
                      (954
                      )
                      
                      $
                      771
 
 23
  
  Capital
Resources
 
 Internal
capital growth, through the retention of earnings, is the primary means of
maintaining capital adequacy for the Bank. The Company’s stockholders’ equity
was $35.2 million and $33.9 million at December 31, 2009 and 2008, respectively.
Equity totals for 2009 includes approximately $507,000 in accumulated other
comprehensive loss, which is comprised mainly of a net unrealized loss related
to the accumulated benefit obligation in excess of fair value of plan assets in
the Company’s defined benefit pension plan, net of tax, at year-end 2009,
compared to a $1.1 million unrealized loss December 31, 2008. Total
stockholders’ equity in relation to total assets was 7.9% at December 31, 2009
and 7.7% at December 31, 2008.
 
 The
Company has established a Dividend Reinvestment Plan (“The Plan”) for
stockholders 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 dividend policy or a guarantee of future dividends.
Stockholders who do not wish to participate in The Plan continue to receive cash
dividends, as declared in the usual and customary manner.
 
 In 2001,
the Company’s stockholders approved an amendment to the Company’s Articles of
Incorporation to create a class of preferred shares with 2,000,000 authorized
shares. This will enable the Company, at the option of the Board of Directors,
to issue series of preferred shares in a manner calculated to take advantage of
financing techniques which may provide a lower effective cost of capital to the
Company. The amendment also provides greater flexibility to the Board of
Directors in structuring the terms of equity securities that may be issued by
the Company. As of December 31, 2009 the Company has not issued any preferred
shares.
 
 
 
 
 
 In 2005,
a Delaware statutory business trust owned by the Company, United Bancorp
Statutory Trust I (“Trust I” or the “Trust”), issued $4.0 million of mandatorily
redeemable debt securities. The sale proceeds were utilized to purchase $4.0
million of the Company’s subordinated debentures. The Company’s subordinated
debentures are the sole asset of Trust I. The Company’s investment in Trust I is
not consolidated herein as the Company is not deemed the primary beneficiary of
the Trust. However, the $4.0 million of mandatorily redeemable debt securities
issued by the Trust are includible for regulatory purposes as a component of the
Company’s Tier 1 Capital. Interest on the Company’s subordinated debentures is
fixed at 6.25% and is payable quarterly.
  The $4.0
million of net proceeds received by the Company was primarily utilized to fund a
$3.4 million note receivable from a newly formed Employee Stock Option Plan
(ESOP). The ESOP in turn utilized the note proceeds to purchase $3.4 million of
the Company’s treasury stock.
 
 Liquidity
 
 Liquidity
relates primarily to the Company's ability to fund loan demand, meet deposit
customers' withdrawal requirements and provide for operating expenses. Assets
used to satisfy these needs consist of cash and due from banks, federal funds
sold and securities available-for-sale. These assets are commonly referred to as
liquid assets. Liquid assets were $145.4 million at December 31, 2009, compared
to $160.9 million at December 31, 2008. Management recognizes securities may
need to be sold in the future to help fund loan demand and, accordingly, as of
December 31, 2009, $96.6 million of the securities portfolio was classified as
available for sale. The Company’s residential real estate portfolio can and has
been readily used to collateralize borrowings as an additional source of
liquidity. Management believes its current liquidity level is sufficient to meet
cash requirements.
 
 24
  
  The Cash
Flow Statements for the periods presented provide an indication of the Company’s
sources and uses of cash as well as an indication of the ability of the Company
to maintain an adequate level of liquidity. A discussion of the cash flow
statements for 2009 and 2008 follows.
 
 The
Company experienced a net increase in cash from operating activities in 2009 and
2008. Net cash provided by operating activities totaled $1.9 million and $6.0
million for the years ended December 31, 2009 and 2008, respectively. The
adjustments to reconcile net income to net cash from operating activities
consisted mainly of depreciation and amortization of premises and equipment and
intangibles, gain on sales of loans, securities and other assets, the provision
for loan losses, Federal Home Loan Bank stock dividends, net amortization of
securities and net changes in other assets and liabilities.
 
 NET CASH
USED IN INVESTING ACTIVITIES totaled $5.0 million for the year ended December
31, 2009. Net cash provided by investing activities totaled $65.4 million for
the year ended December 31, 2008. The changes in net cash from investing
activities include loan growth, branch acquisition, as well as normal
maturities, security calls and reinvestments of securities and premises and
equipment expenditures. In 2009, the Company received approximately $6.0 million
from sales of securities available for sale. Proceeds from securities, which
matured or were called totaled $96.4 million and $89.9 million in 2009 and 2008,
respectively.
 
 
 
 
 
 NET CASH
PROVIDED BY FINANCING ACTIVITIES totaled $2.9 million for the year ended
December 31, 2009. Net cash used in financing activities totaled $52.3 million
for the year ended December 31, 2008. The net cash provided by financing
activities in 2009 was primarily attributable to an increase in borrowings of
$7.9 million and a decrease in deposits of $2.5 million for the year ended
December 31, 2009.
 
 Management
feels that it has the capital adequacy, profitability, liquidity and reputation
to meet the current and projected financial needs of its customers.
 
 Inflation
 The
majority of assets and liabilities of the Company are monetary in nature and
therefore the Company differs greatly from most commercial and industrial
companies that have significant investments in fixed assets or inventories.
However, inflation does have an important impact on the growth of total assets
in the banking industry and the resulting need to increase equity capital at
higher than normal rates in order to maintain an appropriate equity to assets
ratio. Inflation significantly affects noninterest expense, which tends to rise
during periods of general inflation. Management believes the most significant
impact on financial results is the Company’s ability to react to changes in
interest rates. Management seeks to maintain an essentially balanced position
between interest sensitive assets and liabilities and actively manages the
amount of securities available for sale in order to protect against the effects
of wide interest rate fluctuations on net income and shareholders'
equity.
 
 25









Report
of Independent Registered Public Accounting Firm





Audit
Committee, Board of Directors and Stockholders


United
Bancorp, Inc.


Martins
Ferry, Ohio





We have
audited the accompanying consolidated balance sheets of United Bancorp, Inc. as
of December 31, 2009 and 2008, and the related consolidated statements of
income, stockholders’ equity and cash flows for each of the years in the
two-year period ended December 31, 2009.  The Company's management is
responsible for these financial statements.  Our responsibility is to
express an opinion on these financial statements based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audits included
consideration of internal control over financial reporting as a basis for
designing auditing procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting.  Accordingly, we express no
such opinion.  Our audits also included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of United Bancorp, Inc. as of
December 31, 2009 and 2008, and the results of its operations and its cash flows
for each of the years in the two-year period ended December 31, 2009, in
conformity with accounting principles generally accepted in the United States of
America.




/s/ BKD,
LLP


Cincinnati,
Ohio


March 8,
2010















Consolidated
Balance Sheets





2009
                  
                  
                  2008AssetsCash
      and due from banks
                  
                  $
                  4,862
                  
                  
                  $
                  5,605Interest-bearing
      demand deposits
                  
                  
                  11,409
                  
                  
                  
                  6,684Federal
      funds sold
                  
                  
                  15,000
                  
                  
                  
                  19,180Cash
      and cash equivalents
                  
                  
                  31,271
                  
                  
                  
                  31,469Certificates
      of deposit in other financial institutions
                  
                  
                  17,575
                  
                  
                  
                  —Available-for-sale
      securities
                  
                  
                  96,585
                  
                  
                  
                  129,416Held-to-maturity
      securities
                  
                  
                  14,277
                  
                  
                  
                  15,687Loans,
      net of allowance for loan losses of $2,390 and $2,770 at December 31, 2009
      and 2008, respectively
                  
                  
                  255,336
                  
                  
                  
                  235,448Premises
      and equipment
                  
                  
                  8,689
                  
                  
                  
                  8,466Federal
      Home Loan Bank stock
                  
                  
                  4,810
                  
                  
                  
                  4,810Foreclosed
      assets held for sale, net
                  
                  
                  1,378
                  
                  
                  
                  1,407Intangible
      assets
                  
                  
                  656
                  
                  
                  
                  775Accrued
      interest receivable
                  
                  
                  2,218
                  
                  
                  
                  3,037Deferred
      federal income taxes
                  
                  
                  333
                  
                  
                  
                  532Bank-owned
      life insurance
                  
                  
                  10,018
                  
                  
                  
                  9,653Other
      assets
                  
                  
                  2,824
                  
                  
                  
                  1,104Total
      assets
                  
                  $
                  445,970
                  
                  
                  $
                  441,804Liabilities and Stockholders’ EquityLiabilitiesDepositsDemand
                  
                  $
                  130,363
                  
                  
                  $
                  142,434Savings
                  
                  
                  45,497
                  
                  
                  
                  40,309Time
                  
                  
                  168,683
                  
                  
                  
                  164,302Total
      deposits
                  
                  
                  344,543
                  
                  
                  
                  347,045Short-term
      borrowings
                  
                  
                  10,277
                  
                  
                  
                  7,809Federal
      Home Loan Bank advances
                  
                  
                  49,128
                  
                  
                  
                  43,745Subordinated
      debentures
                  
                  
                  4,000
                  
                  
                  
                  4,000Interest
      payable and other liabilities
                  
                  
                  2,811
                  
                  
                  
                  5,301Total
      liabilities
                  
                  
                  410,759
                  
                  
                  
                  407,900Stockholders’
      EquityPreferred
      stock, no par value, authorized 2,000,000 shares; no shares
      issued
                  
                  
                  —
                  
                  
                  
                  —Common
      stock, $1 par value; authorized 10,000,000 shares; issued 2009 – 5,370,304
      shares, 2008 – 5,190,304 shares
                  
                  
                  5,370
                  
                  
                  
                  5,190Additional
      paid-in capital
                  
                  
                  22,830
                  
                  
                  
                  25,656Retained
      earnings
                  
                  
                  12,761
                  
                  
                  
                  9,856Stock
      held by deferred compensation plan; 2009 – 155,198 shares, 2008 – 132,906
      shares
                  
                  
                  (1,478
                  )
                  
                  
                  (1,300
                  )Unearned
      ESOP compensation
                  
                  
                  (2,512
                  )
                  
                  
                  (2,718
                  )Accumulated
      other comprehensive loss
                  
                  
                  (507
                  )
                  
                  
                  (1,094
                  )Treasury
      stock, at cost2009
      – 113,493 shares, 2008 – 164,442 shares
                  
                  
                  (1,253
                  )
                  
                  
                  (1,686
                  )Total
      stockholders’ equity
                  
                  
                  35,211
                  
                  
                  
                  33,904Total
      liabilities and stockholders’ equity
                  
                  $
                  445,970
                  
                  
                  $
                  441,804





See
Notes to Consolidated Financial Statements





27











Consolidated
Statements of Income





2009
                
                
                2008Interest
      and Dividend IncomeLoans
                
                $
                16,746
                
                
                $
                17,235SecuritiesTaxable
                
                
                4,205
                
                
                
                6,390Tax-exempt
                
                
                1,706
                
                
                
                1,780Certificates
      of deposit in other financial institutions
                
                
                408
                
                
                
                —Federal
      funds sold
                
                
                49
                
                
                
                12Dividends
      on Federal Home Loan Bank and other stock
                
                
                241
                
                
                
                298Total
      interest and dividend income
                
                
                23,355
                
                
                
                25,715Interest
      ExpenseDeposits
                
                
                5,941
                
                
                
                7,904Borrowings
                
                
                2,124
                
                
                
                2,348Total
      interest expense
                
                
                8,065
                
                
                
                10,252Net
      Interest Income
                
                
                15,290
                
                
                
                15,463Provision
      for Loan Losses
                
                
                1,325
                
                
                
                1,188Net
      Interest Income After Provision for Loan Losses
                
                
                13,965
                
                
                
                14,275Noninterest
      IncomeCustomer
      service fees
                
                
                2,189
                
                
                
                2,104Net
      gains on loan sales
                
                
                129
                
                
                
                85Gain
      (loss) on sales of available-for-sale securities - net
                
                
                154
                
                
                
                (14
                )Earnings
      on bank-owned life insurance
                
                
                407
                
                
                
                394Gain
      on sale of real estate and other repossessed assets
                
                
                105
                
                
                
                79Other
                
                
                311
                
                
                
                419Total
      noninterest income
                
                
                3,295
                
                
                
                3,067Noninterest
      ExpenseSalaries
      and employee benefits
                
                
                6,685
                
                
                
                6,524Net
      occupancy expense
                
                
                1,664
                
                
                
                1,369Provision
      for losses on foreclosed real estate
                
                
                —
                
                
                
                290Professional
      fees
                
                
                762
                
                
                
                869Insurance
                
                
                343
                
                
                
                347Deposit
      insurance premiums
                
                
                866
                
                
                
                48Franchise
      and other taxes
                
                
                497
                
                
                
                426Marketing
      expense
                
                
                322
                
                
                
                372Printing
      and office supplies
                
                
                311
                
                
                
                337Amortization
      of intangible assets
                
                
                119
                
                
                
                37Other
                
                
                2,270
                
                
                
                2,008Total
      noninterest expense
                
                
                13,839
                
                
                
                12,627Income
      Before Federal Income Taxes
                
                
                3,421
                
                
                
                4,715Provision
      for Federal Income Taxes
                
                
                516
                
                
                
                956Net
      Income
                
                $
                2,905
                
                
                $
                3,759Basic
      Earnings Per Share
                
                $
                0.63
                
                
                $
                0.82Diluted
      Earnings Per Share
                
                $
                0.63
                
                
                $
                0.82




See
Notes to Consolidated Financial Statements





28









Consolidated
Statements of Stockholders’ Equity




Treasury
                                
                                
                                Shares
                                
                                
                                
                                
                                
                                AccumulatedAdditional
                                
                                
                                Stock
      and
                                
                                
                                Acquired
                                
                                
                                
                                
                                
                                OtherCommon
                                
                                
                                Paid-in
                                
                                
                                Deferred
                                
                                
                                By
                                
                                
                                Retained
                                
                                
                                ComprehensiveStock
                                
                                
                                Capital
                                
                                
                                Compensation
                                
                                
                                ESOP
                                
                                
                                Earnings
                                
                                
                                Loss
                                
                                
                                TotalBalance,
      January 1, 2008
                                
                                $
                                5,179
                                
                                
                                $
                                28,048
                                
                                
                                $
                                (3,021
                                )
                                
                                $
                                (2,931
                                )
                                
                                $
                                7,112
                                
                                
                                $
                                (500
                                )
                                
                                $
                                33,887Comprehensive
      incomeNet
      income
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                3,759
                                
                                
                                
                                —
                                
                                
                                
                                3,759Unrealized
      losses on securities designated as available for sale, net of related
      taxes
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                (144
                                )
                                
                                
                                (144
                                )Defined
      benefit plan
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                (450
                                )
                                
                                
                                (450
                                )Total
      comprehensive income
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                3,165Cash
      dividends - $0.54 per share
                                
                                
                                —
                                
                                
                                
                                (2,707
                                )
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                (2,707
                                )Shares
      purchased for deferred compensation plan
                                
                                
                                11
                                
                                
                                
                                354
                                
                                
                                
                                (185
                                )
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                180Shares
      distributed from deferred compensation plan
                                
                                
                                —
                                
                                
                                
                                (9
                                )
                                
                                
                                9
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —Purchase
      of treasury stock – at cost
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                (233
                                )
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                (233
                                )Purchase
      of shares by Dividend Reinvestment Plan
                                
                                
                                —
                                
                                
                                
                                (30
                                )
                                
                                
                                444
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                414Implementation
      of EITF 06-4 for split-dollar life insurance arrangements
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                (1,015
                                )
                                
                                
                                —
                                
                                
                                
                                (1,015
                                )Amortization
      of ESOP
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                213
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                213Balance,
      December 31, 2008
                                
                                
                                5,190
                                
                                
                                
                                25,656
                                
                                
                                
                                (2,986
                                )
                                
                                
                                (2,718
                                )
                                
                                
                                9,856
                                
                                
                                
                                (1,094
                                )
                                
                                
                                33,904Comprehensive
      incomeNet
      income
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                2,905
                                
                                
                                
                                —
                                
                                
                                
                                2,905Unrealized
      gains on securities designated as available for sale, net of related
      taxes
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                296
                                
                                
                                
                                296Defined
      benefit plan
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                291
                                
                                
                                
                                291Total
      comprehensive income
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                3,492Cash
      dividends - $0.56 per share
                                
                                
                                —
                                
                                
                                
                                (2,872
                                )
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                (2,872
                                )Shares
      purchased for deferred compensation plan
                                
                                
                                —
                                
                                
                                
                                240
                                
                                
                                
                                (69
                                )
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                171Shares
      distributed from deferred compensation plan
                                
                                
                                —
                                
                                
                                
                                (59
                                )
                                
                                
                                59
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —Purchase
      of treasury stock - at cost
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                (86
                                )
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                (86
                                )Common
      stock issuance related to share based compensation plans
                                
                                
                                180
                                
                                
                                
                                (180
                                )
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —Expense
      related to share-based compensation plans
                                
                                
                                —
                                
                                
                                
                                79
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                79Purchase
      of shares by Dividend Reinvestment Plan
                                
                                
                                —
                                
                                
                                
                                (20
                                )
                                
                                
                                351
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                331Amortization
      of ESOP
                                
                                
                                —
                                
                                
                                
                                (14
                                )
                                
                                
                                —
                                
                                
                                
                                206
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                192Balance,
      December 31, 2009
                                
                                $
                                5,370
                                
                                
                                $
                                22,830
                                
                                
                                $
                                (2,731
                                )
                                
                                $
                                (2,512
                                )
                                
                                $
                                12,761
                                
                                
                                $
                                (507
                                )
                                
                                $
                                35,211




See
Notes to Consolidated Financial Statements





29









Consolidated
Statements of Cash Flows




2009
                
                
                2008Operating
      ActivitiesNet
      income
                
                $
                2,905
                
                
                $
                3,759Items
      not requiring (providing) cashDepreciation
      and amortization
                
                
                748
                
                
                
                574Amortization
      of intangible assets
                
                
                119
                
                
                
                37Provision
      for loan losses
                
                
                1,325
                
                
                
                1,188Provision
      for losses on foreclosed real estate
                
                
                —
                
                
                
                290Amortization
      of premiums and discounts on securities
                
                
                256
                
                
                
                53Amortization
      and impairment of mortgage servicing rights
                
                
                134
                
                
                
                85Deferred
      income taxes
                
                
                (104
                )
                
                
                (48
                )(Gain)
      loss on sales of available-for-sale securities
                
                
                (154
                )
                
                
                14Originations
      of loans held for sale
                
                
                (10,687
                )
                
                
                (1,018
                )Proceeds
      from sale of loans held for sale
                
                
                10,816
                
                
                
                1,103Net
      gains on sales of loans
                
                
                (129
                )
                
                
                (85
                )Amortization
      of ESOP
                
                
                192
                
                
                
                213Expense
      related to share-based compensation plans
                
                
                79
                
                
                
                —Gain
      on sale of real estate and other repossessed assets
                
                
                (105
                )
                
                
                (79
                )Federal
      Home Loan Bank stock dividends
                
                
                —
                
                
                
                (186
                )Gain
      on sale of premises and equipment
                
                
                (8
                )
                
                
                —Increase
      in value of bank-owned life insurance
                
                
                (365
                )
                
                
                (357
                )Changes
      inAccrued
      interest receivable
                
                
                819
                
                
                
                109Other
      assets
                
                
                (1,327
                )
                
                
                (1,487
                )Interest
      payable and other liabilities
                
                
                (2,569
                )
                
                
                1,833Net
      cash provided by operating activities
                
                
                1,945
                
                
                
                5,998Investing
      ActivitiesPurchases
      of available-for-sale securities
                
                
                (67,773
                )
                
                
                (60,217
                )Proceeds
      from maturities of available-for-sale securities
                
                
                94,909
                
                
                
                89,396Proceeds
      from sales of available-for-sale securities
                
                
                5,999
                
                
                
                4,152Proceeds
      from maturities of held-to-maturity securities
                
                
                1,444
                
                
                
                490Net
      changes in certificates of deposit at other financial
      institutions
                
                
                (17,575
                )
                
                
                —Net
      change in loans
                
                
                (22,214
                )
                
                
                (5,616
                )Net
      cash received in branch acquisition
                
                
                —
                
                
                
                37,995Purchases
      of premises and equipment
                
                
                (1,014
                )
                
                
                (1,155
                )Proceeds
      from sales of premises and equipment
                
                
                51
                
                
                
                —Proceeds
      from sales of foreclosed assets
                
                
                1,137
                
                
                
                362Net
      cash (used in) provided by investing activities
                
                
                (5,036
                )
                
                
                65,407





See
Notes to Consolidated Financial Statements





30









Consolidated
Statements of Cash FlowsContinued





2009
                
                
                2008Financing
      ActivitiesNet
      decrease in deposits
                
                $
                (2,502
                )
                
                $
                (22,745
                )Net
      change in Federal Home Loan Bank advances and short term
      borrowings
                
                
                7,851
                
                
                
                (27,169
                )Cash
      dividends paid
                
                
                (2,872
                )
                
                
                (2,707
                )Proceeds
      from purchase of shares by Dividend Reinvestment Plan
                
                
                331
                
                
                
                414Purchase
      of treasury stock
                
                
                (86
                )
                
                
                (233
                )Shares
      purchased for deferred compensation plan
                
                
                171
                
                
                
                180Net
      cash provided by (used in) financing activities
                
                
                2,893
                
                
                
                (52,260
                )(Decrease)
      Increase in Cash and Cash Equivalents
                
                
                (198
                )
                
                
                19,145Cash
      and Cash Equivalents, Beginning of Year
                
                
                31,469
                
                
                
                12,324Cash
      and Cash Equivalents, End of Year
                
                $
                31,271
                
                
                $
                31,469Supplemental
      Cash Flows InformationInterest
      paid on deposits and borrowings
                
                $
                8,136
                
                
                $
                10,487Federal
      income taxes paid
                
                $
                557
                
                
                $
                750Supplemental
      Disclosure of Non-Cash Investing ActivitiesBranch
      acquisition, net of cash and cash equivalents acquired:AssetsSecurities
                
                $
                —
                
                
                $
                743Loans
                
                
                —
                
                
                
                280Premises
      and equipment
                
                
                —
                
                
                
                808Core
      deposit intangible
                
                
                —
                
                
                
                812LiabilitiesDeposits
                
                
                —
                
                
                
                (39,301
                )Other
      liabilities
                
                
                —
                
                
                
                (1,337
                )Net
      cash and cash equivalents assumed at acquisition
                
                $
                —
                
                
                $
                (37,995
                )Transfers
      from loans to foreclosed assets held for sale
                
                $
                1,002
                
                
                $
                1,456Unrealized
      gains (losses) on securities designated as available for sale, net of
      related tax effects
                
                $
                296
                
                
                $
                (144
                )Change
      in unfunded status of defined benefit plan liability
                
                $
                447
                
                
                $
                (682
                )Commitment
      to purchase premises and equipment
                
                $
                —
                
                
                $
                1,200Recognition
      of mortgage servicing rights
                
                $
                7
                
                
                $
                40





See
Notes to Consolidated Financial Statements




31










Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Note
      1:
            Nature
      of Operations and Summary of Significant Accounting
    Policies




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
Company 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.




Branch
Acquisition




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.  The Company paid a premium to the FDIC
of approximately $450,000 for the deposits assumed.




In
conjunction with this transaction, the Company recorded a core deposit
intangible asset of approximately $812,000.  This asset was recorded
at fair value and will be amortized over seven years using a straight line
method.  The carrying basis and accumulated amortization of recognized
intangible assets at December 31, 2009 was:




Gross
                      Carrying
                      Amount
                    
                    
                    2009
                      Accumulated
                      Amortization
                    
                    
                    2008
                      Accumulated
                      Amortization(In
      thousands)Core
      deposits
                    
                    $
                    812
                    
                    
                    $
                    156
                    
                    
                    $
                    37




Amortization
expense for the years ended December 31, 2009 and 2008 was $119,000 and $37,000,
respectively. Estimated amortization expense for each of the following five
years is $119,000 per year.




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
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 branches in Amesville,
Glouster, Lancaster and Nelsonville, Ohio.




32









Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




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.  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




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.  Actual results could differ from those
estimates.




Material
estimates that are particularly susceptible to significant change relate to the
determination of the allowance for loan losses (and the valuation of real estate
acquired in connection with foreclosures or in satisfaction of
loans).  In connection with the determination of the allowance for
loan losses (and the valuation of foreclosed assets held for sale), management
obtains independent appraisals for significant properties.




Cash
Equivalents




The
Company considers all liquid investments with original maturities of three
months or less to be cash equivalents.  At December 31, 2009 and 2008,
cash equivalents consisted primarily of money market accounts with brokers and
certificates of deposit.




The
financial institution holding the Company’s cash accounts is participating in
the FDIC Transaction Account Guarantee Program.  Under that program,
through June 30, 2010, all noninterest-bearing transaction accounts are fully
guaranteed by the FDIC for the entire amount in the account.




Effective
October 3, 2008, the FDIC’s insurance limits increased by
$250,000.  The increase in federally insured limits is currently set
to expire December 31, 2013.  At December 31, 2009, none of the
Company’s interest-bearing cash accounts exceeded the federally insured limit of
$250,000. At December 31, 2009 and 2008, the Company’s federal funds sold were
invested at the Federal Home Loan Bank of Cincinnati and Chase Bank,
respectively.




Securities




Certain
debt securities that management has the positive intent and ability to hold to
maturity are classified as “held to maturity” and recorded at amortized
cost.  Securities not classified as held to maturity, including equity
securities with readily determinable fair values, are classified as “available
for sale” and recorded at fair value, with unrealized gains and losses excluded
from earnings and reported in other comprehensive income.  Purchase
premiums and discounts are recognized in interest income using the interest
method over the terms of the securities.  Gains and losses on the sale
of securities are recorded on the trade date and are determined using the
specific identification method.




33










Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Effective
April 1, 2009, the Company adopted new accounting guidance related to
recognition and presentation of other-than-temporary impairment
(ASC 320-10).  When the Company does not intend to sell a debt
security, and it is more likely than not, the Company will not have to sell the
security before recovery of its cost basis, it recognizes the credit component
of an other-than-temporary impairment of a debt security in earnings and the
remaining portion in other comprehensive income.  For held-to-maturity
debt securities, the amount of an other-than-temporary impairment recorded in
other comprehensive income for the noncredit portion of a previous
other-than-temporary impairment is amortized prospectively over the remaining
life of the security on the basis of the timing of future estimated cash flows
of the security.




Prior to
the adoption of the recent accounting guidance on April 1, 2009, management
considered, in determining whether other-than-temporary impairment exists,
(1) the length of time and the extent to which the fair value had been less
than cost, (2) the financial condition and near-term prospects of the
issuer and (3) the intent and ability of the Company to retain its
investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value.




Loans
Held for Sale




Mortgage
loans originated and intended for sale in the secondary market are carried at
the lower of cost or fair value in the aggregate.  Net unrealized
losses, if any, are recognized through a valuation allowance by charges to
income.  At December 31, 2009 and 2008, the Company did not have any
loans originated and held for sale.




Loans




Loans
that management has the intent and ability to hold for the foreseeable future or
until maturity or payoff are reported at their outstanding principal balances
adjusted for any charge-offs, the allowance for loan losses and any unamortized
deferred fees or costs on originated loans.




For loans
amortized at cost, interest income is accrued based on the unpaid principal
balance.  Loan origination fees, net of certain direct origination
costs, as well as premiums and discounts, are deferred and amortized as a level
yield adjustment over the respective term of the loan.




The
accrual of interest on mortgage and commercial loans is discontinued at the time
the loan is 90 days past due unless the credit is well-secured and in process of
collection.  Past due status is based on contractual terms of the
loan.  In all cases, loans are placed on nonaccrual or charged off at
an earlier date if collection of principal or interest is considered
doubtful.




34










Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




All
interest accrued but not collected for loans that are placed on nonaccrual or
charged off are reversed against interest income.  The interest on
these loans is accounted for on the cash-basis or cost-recovery method, until
qualifying for return to accrual.  Loans are returned to accrual
status when all the principal and interest amounts contractually due are brought
current and future payments are reasonably assured.




Allowance
for Loan Losses




The
allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to income.  Loan
losses are charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed.  Subsequent
recoveries, if any, are credited to the allowance.




The
allowance for loan losses is evaluated on a regular basis by management and is
based upon management’s periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower’s ability to repay, estimated
value of any underlying collateral and prevailing economic
conditions.  This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information
becomes available.




The
allowance consists of allocated and general components.  The allocated
component relates to loans that are classified as impaired.  For those
loans that are classified as impaired, an allowance is established when the
discounted cash flows (or collateral value or observable market price) of the
impaired loan is lower than the carrying value of that loan.  The
general component covers nonclassified loans and is based on historical
charge-off experience and expected loss given default derived from the Company’s
internal risk rating process.  Other adjustments may be made to the
allowance for pools of loans after an assessment of internal or external
influences on credit quality that are not fully reflected in the historical loss
or risking rating data.




A loan is
considered impaired when, based on current information and events, it is
probable that the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement.  Factors considered by management in determining impairment
include payment status, collateral value and the probability of collecting
scheduled principal and interest payments when due.  Loans that
experience insignificant payment delays and payment shortfalls generally are not
classified as impaired.  Management determines the significance of
payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower’s
prior payment record and the amount of the shortfall in relation to the
principal and interest owed.  Impairment is measured on a loan-by-loan
basis for commercial and construction loans by either the present value of
expected future cash flows discounted at the loan’s effective interest rate, the
loan’s obtainable market price or the fair value of the collateral if the loan
is collateral dependent.




35










Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Groups of
loans with similar risk characteristics are collectively evaluated for
impairment based on the group’s historical loss experience adjusted for changes
in trends, conditions and other relevant factors that affect repayment of the
loans.  Accordingly, the Company does not separately identify
individual consumer and residential loans for impairment measurements, unless
such loans are the subject of a restructuring agreement due to financial
difficulties of the borrower.




Premises
and Equipment




Depreciable
assets are stated at cost less accumulated depreciation.  Depreciation
is charged to expense using the straight-line method over the estimated useful
lives of the assets.  An accelerated method is used for tax
purposes.




Federal
Home Loan Bank Stock




Federal
Home Loan Bank stock is a required investment for institutions that are members
of the Federal Home Loan Bank system.  The required investment in the
common stock is based on a predetermined formula, carried at cost and evaluated
for impairment.




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 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.  Revenue and expenses from
operations and changes in the valuation allowance are included in net income or
expense from foreclosed assets.




Bank-Owned
Life Insurance




The
Company and the Bank have purchased life insurance policies on certain key
executives.  Company and bank-owned life insurance is recorded at its
cash surrender value, or the amount that can be realized.




Mortgage
Servicing Rights




Beginning
January 1, 2007, mortgage servicing rights on originated loans that have been
sold are initially recorded at fair value.  Mortgage servicing rights
on originated loans that have been sold prior to 2007 were capitalized by
allocating the total cost of the mortgage loans between the mortgage servicing
rights and the loans based on their relative fair values.  Capitalized
servicing rights are amortized in proportion to and over the period of estimated
servicing revenues.  Impairment of mortgage-servicing rights is
assessed based on the fair value of those rights.  Fair values are
estimated using discounted cash flows based on a current market interest
rate.  For purposes of measuring impairment, the rights are stratified
based on the predominant risk characteristics of the underlying
loans.  The predominant characteristic currently used for
stratification is type of loan.  The amount of impairment recognized
is the amount by which the capitalized mortgage servicing rights for a stratum
exceed their fair value.




36










Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Treasury
Stock




Common
shares repurchased are recorded at cost.  Cost of shares retired or
reissued is determined using the first-in, first-out method.




Stock
Options and Restricted Stock Awards




The
Company has a share-based employee compensation plan, which is described more
fully in Note 15.  In accordance with the United Bancorp, Inc. 2008
Incentive Award Plan that was approved by stockholders, the Company issued
restricted common stock to certain officers and directors of the Company during
2009 which is described more fully in Note 15.




Income
Taxes




The
Company accounts for income taxes in accordance with income tax accounting
guidance (ASC 740, Income
Taxes).  The income tax accounting guidance results in two
components of income tax expense:  current and
deferred.  Current income tax expense reflects taxes to be paid or
refunded for the current period by applying the provisions of the enacted tax
law to the taxable income or excess of deductions over revenues.  The
Company determines deferred income taxes using the liability (or balance sheet)
method.  Under this method, the net deferred tax asset or liability is
based on the tax effects of the differences between the book and tax bases of
assets and liabilities, and enacted changes in tax rates and laws are recognized
in the period in which they occur.




Deferred
income tax expense results from changes in deferred tax assets and liabilities
between periods.  Deferred tax assets are recognized if it is more
likely than not, based on the technical merits, that the tax position will be
realized or sustained upon examination.  The term more likely than not
means a likelihood of more than 50 percent; the terms examined and upon
examination also include resolution of the related appeals or litigation
processes, if any.  A tax position that meets the more-likely-than-not
recognition threshold is initially and subsequently measured as the largest
amount of tax benefit that has a greater than 50 percent likelihood of being
realized upon settlement with a taxing authority that has full knowledge of all
relevant information.  The determination of whether or not a tax
position has met the more-likely-than-not recognition threshold considers the
facts, circumstances and information available at the reporting date and is
subject to the management’s judgment.  Deferred tax assets are reduced
by a valuation allowance if, based on the weight of evidence available, it is
more likely than not that some portion or all of a deferred tax asset will not
be realized.




The
Company recognizes interest and penalties on income taxes as a component of
income tax expense.




The
Company files consolidated income tax returns with its subsidiary.




37










Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Deferred
Compensation Plan




Directors
have the option to defer all or a portion of fees for their services into a
deferred stock compensation plan that invests in common shares of the
Company.  Officers of the Company have the option to defer up to 50%
of their annual incentive award into this plan.  The plan does not
permit diversification and must be settled by the delivery of a fixed number of
shares of the Company stock.  The stock held in the plan is included
in equity as deferred shares and is accounted for in a manner similar to
treasury stock.  Subsequent changes in the fair value of the Company’s
stock are not recognized.  The deferred compensation obligation is
also classified as an equity instrument and changes in the fair value of the
amount owed to the participant is not recognized.




Stockholders’
Equity and Dividend Restrictions




The Bank
is subject to certain restrictions on the amount of dividends that it may
declare without prior regulatory approval.  Generally, the Bank’s
payment of dividends is limited to net income for the current year plus the two
preceding calendar years, less capital distributions paid over the comparable
time period.  Dividend payments to the stockholders may be legally
paid from additional paid-in capital or retained earnings.




Earnings
Per Share




Basic
earnings per share represents income available to common stockholders divided by
the weighted-average number of common shares outstanding during each
period.  Diluted earnings per share reflects additional potential
common shares that would have been outstanding if dilutive potential common
shares had been issued, as well as any adjustment to income that would result
from the assumed issuance.  Potential common shares that may be issued
by the Company relate to outstanding stock options and restricted stock awards
and are determined using the treasury stock method.




Treasury
stock shares are not deemed outstanding for earnings per share
calculations.




Comprehensive
Income




Comprehensive
income consists of net income and other comprehensive income, net of applicable
income taxes.  Other comprehensive income includes unrealized
appreciation (depreciation) on available-for-sale securities and changes in the
funded status of the defined benefit pension plan.




Advertising




Advertising
costs are expensed as incurred.




Reclassifications




Certain
reclassifications have been made to the 2008 financial statements to conform to
the 2009 financial statement presentation.  These reclassifications
had no effect on net income.




38










Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Note
      2:
            Restriction
      on Cash and Due From Banks




The
Company is required to maintain reserve funds in cash and/or on deposit with the
Federal Reserve Bank.  The reserve required at December 31, 2009 and
2008, was $4.4 million and $6.4 million, respectively.




Note
      3:
            Securities




The
amortized cost and approximate fair values, together with gross unrealized gains
and losses of securities are as follows:




Amortized
                  Cost
                
                
                Gross
                  Unrealized
                  Gains
                
                
                Gross
                  Unrealized
                  Losses
                
                
                Approximate
                  Fair Value(In
      thousands)Available-for-sale
      Securities:December
      31, 2009:U.S.
      government agencies
                
                $
                57,664
                
                
                $
                35
                
                
                $
                (495
                )
                
                $
                57,204State
      and political subdivisions
                
                
                26,000
                
                
                
                421
                
                
                
                (77
                )
                
                
                26,344Government
      sponsored entities mortgage-backed securities
                
                
                12,466
                
                
                
                567
                
                
                
                (2
                )
                
                
                13,031Equity
      securities
                
                
                4
                
                
                
                2
                
                
                
                —
                
                
                
                6$
                96,134
                
                
                $
                1,025
                
                
                $
                (574
                )
                
                $
                96,585December
      31, 2008:U.S.
      government agencies
                
                $
                86,458
                
                
                $
                928
                
                
                $
                —
                
                
                $
                87,386State
      and political subdivisions
                
                
                26,970
                
                
                
                18
                
                
                
                (1,252
                )
                
                
                25,736Government
      sponsored entities mortgage-backed securities
                
                
                15,972
                
                
                
                319
                
                
                
                (1
                )
                
                
                16,290Equity
      securities
                
                
                4
                
                
                
                —
                
                
                
                —
                
                
                
                4$
                129,404
                
                
                $
                1,265
                
                
                $
                (1,253
                )
                
                $
                129,416





39









Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Amortized
                  Cost
                
                
                Gross
                  Unrealized
                  Gains
                
                
                Gross
                  Unrealized
                  Losses
                
                
                Approximate
                  Fair Value(In
      thousands)Held-to-maturity
      Securities:December
      31, 2009:State
      and political subdivisions
                
                $
                14,277
                
                
                $
                391
                
                
                $
                (25
                )
                
                $
                14,643December
      31, 2008:State
      and political subdivisions
                
                $
                15,687
                
                
                $
                185
                
                
                $
                (175
                )
                
                $
                15,697




The
amortized cost and fair value of available-for-sale securities and
held-to-maturity securities at December 31, 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. Maturities for mortgage-backed
securities are presented in the table below based on their projected
maturities.




Available-for-sale
                  
                  
                  Held-to-maturityAmortized
                    Cost
                  
                  
                  Fair
                    Value
                  
                  
                  Amortized
                    Cost
                  
                  
                  Fair
                    Value(In
      thousands)Within
      one year
                  
                  $
                  125
                  
                  
                  $
                  127
                  
                  
                  $
                  1,209
                  
                  
                  $
                  1,236One
      to five years
                  
                  
                  2,794
                  
                  
                  
                  2,861
                  
                  
                  
                  3,030
                  
                  
                  
                  3,163Five
      to ten years
                  
                  
                  25,609
                  
                  
                  
                  26,281
                  
                  
                  
                  5,301
                  
                  
                  
                  5,477After
      ten years
                  
                  
                  67,602
                  
                  
                  
                  67,310
                  
                  
                  
                  4,737
                  
                  
                  
                  4,76796,130
                  
                  
                  
                  96,579
                  
                  
                  
                  14,277
                  
                  
                  
                  14,643Equity
      securities
                  
                  
                  4
                  
                  
                  
                  6
                  
                  
                  
                  —
                  
                  
                  
                  —Totals
                  
                  $
                  96,134
                  
                  
                  $
                  96,585
                  
                  
                  $
                  14,277
                  
                  
                  $
                  14,643




The
carrying value of securities pledged as collateral, to secure public deposits
and for other purposes, was $81.5 million and $89.7 million at December 31,
2009 and 2008, respectively.




40










Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Information
with respect to sales of available for sale securities and resulting gross
realized gains and losses was as follows:




Year
      ended December 31,2009
                    
                    
                    2008(In
      thousands)Proceeds
      from sales
                    
                    $
                    5,999
                    
                    
                    $
                    4,152Gross
      gains
                    
                    
                    154
                    
                    
                    
                    —Gross
      losses
                    
                    
                    —
                    
                    
                    
                    14Tax
      expense (benefit)
                    
                    
                    52
                    
                    
                    
                    (5
                    )





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 at December 31, 2009 and 2008, was $47.8 million and $31.5 million,
which represented approximately 43% and 22%, respectively, of the Company’s
available-for-sale and held-to-maturity investment portfolio.




Based on
evaluation of available evidence, including recent changes in market interest
rates, credit rating information and information obtained from regulatory
filings, management believes the declines in fair value for these securities are
temporary.




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.




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 December 31,
2009 and 2008:




December 31, 2009Less than 12 Months
                            
                            
                            12 Months or More
                            
                            
                            TotalDescription of
                              Securities
                            
                            Fair Value
                            
                            
                            Unrealized
                              Losses
                            
                            
                            Fair Value
                            
                            
                            Unrealized
                              Losses
                            
                            
                            Fair Value
                            
                            
                            Unrealized
                              Losses(In
      thousands)US
      Government agencies
                            
                            $
                            40,699
                            
                            
                            $
                            (495
                            )
                            
                            $
                            —
                            
                            
                            $
                            —
                            
                            
                            $
                            40,699
                            
                            
                            $
                            (495
                            )Government
      sponsored entities mortgage-backed securities
                            
                            
                            651
                            
                            
                            
                            (2
                            )
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            651
                            
                            
                            
                            (2
                            )State
      and political subdivisions
                            
                            
                            4,037
                            
                            
                            
                            (43
                            )
                            
                            
                            2,450
                            
                            
                            
                            (59
                            )
                            
                            
                            6,487
                            
                            
                            
                            (102
                            )Total
      temporarily impaired securities
                            
                            $
                            45,387
                            
                            
                            $
                            (540
                            )
                            
                            $
                            2,450
                            
                            
                            $
                            (59
                            )
                            
                            $
                            47,837
                            
                            
                            $
                            (599
                            )




41










Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




December 31, 2008Less than 12 Months
                            
                            
                            12 Months or More
                            
                            
                            TotalDescription of
                              Securities
                            
                            Fair Value
                            
                            
                            Unrealized
                              Losses
                            
                            
                            Fair Value
                            
                            
                            Unrealized
                              Losses
                            
                            
                            Fair Value
                            
                            
                            Unrealized
                              Losses(In
      thousands)Government
      sponsored entities 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
                            )





The
unrealized losses on the Company’s investments in U.S. Government agency,
mortgage-backed and municipal securities were caused primarily by interest rate
changes.  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 December 31, 2009.




Note
      4:
            Loans
      and Allowance for Loan Losses




Categories
of loans at December 31, include:




2009
                  
                  
                  2008(In
      thousands)Commercial
      loans
                  
                  $
                  83,073
                  
                  
                  $
                  67,830Commercial
      real estate
                  
                  
                  67,650
                  
                  
                  
                  72,311Residential
      real estate
                  
                  
                  62,128
                  
                  
                  
                  59,807Installment
      loans
                  
                  
                  44,875
                  
                  
                  
                  38,270Total
      gross loans
                  
                  
                  257,726
                  
                  
                  
                  238,218Less
      allowance for loan losses
                  
                  
                  (2,390
                  )
                  
                  
                  (2,770
                  )Total
      loans
                  
                  $
                  255,336
                  
                  
                  $
                  235,448





42










Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Activity
in the allowance for loan losses for the years ended December 31, 2009 and 2008
was as follows:




2009
                  
                  
                  2008(In
      thousands)Balance,
      beginning of year
                  
                  $
                  2,770
                  
                  
                  $
                  2,447Provision
      charged to expense
                  
                  
                  1,325
                  
                  
                  
                  1,188Losses
      charged off
                  
                  
                  (1,930
                  )
                  
                  
                  (1,066
                  )Recoveries
                  
                  
                  225
                  
                  
                  
                  201Balance,
      end of year
                  
                  $
                  2,390
                  
                  
                  $
                  2,770





A loan is
considered impaired, in accordance with the impairment accounting guidance (ASC
310-10-35-16), when based on current information and events, it is probable the
Company will be unable to collect all amounts due from the borrower in
accordance with the contractual terms of the loan.  Impaired loans
include nonperforming commercial loans but also include loans modified in
troubled debt restructurings where concessions have been granted to borrowers
experiencing financial difficulties.  These concessions could include
a reduction in the interest rate on the loan, payment extensions, forgiveness of
principal, forbearance or other actions intended to maximize
collection.




Included
in certain loan categories in the impaired loans are troubled debt
restructurings that were classified as impaired.  At December 31,
2009, the Company had approximately $590,000 of commercial real estate loans
that were modified in troubled debt restructurings and impaired.  In
addition to these amounts, the Company had troubled debt restructurings that
were performing in accordance with their modified terms of approximately
$592,000 of commercial real estate loans.




Impaired
loans totaled $4.7 million and $7.5 million at December 31, 2009 and 2008,
respectively.  An allowance for loan losses of $984,000 and $1.5
million relates to impaired loans of $3.3 million and $5.5 million at December
31, 2009 and 2008, respectively.  At December 31, 2009 and 2008,
impaired loans of $1.4 million and $2.0 million, respectively, had no related
allowance for loan losses.




Interest
income of $121,000 and $421,000 was recognized on average impaired loans of $6.7
million and $4.7 million for 2009 and 2008, respectively.  Interest
income was recognized on impaired loans on a cash basis during 2009 and
2008.




At
December 31, 2009 and 2008, accruing loans delinquent 90 days or more
(including impaired loans of $477,000 and $1.1 million at December 31, 2009 and
2008, respectively) totaled $971,000 and $1.6 million,
respectively.  Non-accruing loans at December 31, 2009 and 2008
(including impaired loans of $4.2 million and $4.9 million) were $5.4 million
and $5.4 million, respectively.




43










Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Note
      5:
            Premises
      and Equipment




Major
classifications of premises and equipment, stated at cost, are as
follows:




2009
                  
                  
                  2008(In
      thousands)Land,
      buildings and improvements
                  
                  $
                  11,746
                  
                  
                  $
                  11,211Leasehold
      improvements
                  
                  
                  264
                  
                  
                  
                  264Furniture
      and equipment
                  
                  
                  8,389
                  
                  
                  
                  7,982Computer
      software
                  
                  
                  1,465
                  
                  
                  
                  1,41421,864
                  
                  
                  
                  20,871Less
      accumulated depreciation
                  
                  
                  (13,175
                  )
                  
                  
                  (12,405
                  )Net
      premises and equipment
                  
                  $
                  8,689
                  
                  
                  $
                  8,466




Note
      6:
            Loan
      Servicing




The
Company has recognized servicing rights for residential mortgage loans sold with
servicing retained.




Mortgage
loans serviced for others are not included in the accompanying consolidated
balance sheets.  The unpaid principal balances of mortgage loans
serviced for others was $29.5 million and $34.1 million at December 31, 2009 and
2008, respectively.  Contractually specified servicing fees, late fees
and ancillary fees of approximately $78,000 and $90,000 are included in loan
servicing fees in the income statement at December 31, 2009 and 2008,
respectively.




Custodial
escrow balances maintained in connection with the foregoing loan servicing, and
included in demand deposits, were approximately $187,000 and $198,000 at
December 31, 2009 and 2008, respectively.




Comparable
market values and a valuation model that calculates the present value of future
cash flows were used to estimate fair value of mortgage servicing
rights.




44










Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Activity
in the balance of servicing assets was as follows:




2009
                  
                  
                  2008(In
      thousands)Carrying
      amount, beginning of year
                  
                  $
                  394
                  
                  
                  $
                  439AdditionsServicing
      obligations that result from transfers of financial assets
                  
                  
                  7
                  
                  
                  
                  40SubtractionsImpairment
      of servicing asset
                  
                  
                  (86
                  )
                  
                  
                  (10
                  )Amortization
                  
                  
                  (48
                  )
                  
                  
                  (75
                  )Carrying
      amount, end of year
                  
                  $
                  267
                  
                  
                  $
                  394




The fair value of servicing rights subsequently measured
using the amortization method was as follows:




Fair
      value, beginning of year
                  
                  $
                  394
                  
                  
                  $
                  439Fair
      value, end of year
                  
                  $
                  267
                  
                  
                  $
                  394




Mortgage
servicing rights are included in other assets on the consolidated balance
sheets.




Note
      7:
            Interest-bearing
      Deposits




Interest-bearing
deposits in denominations of $100,000 or more were $51.6 million at December 31,
2009, and $46.6 million at December 31, 2008.




At
December 31, 2009, the scheduled maturities of time deposits are as
follows:




Due
      during the year ending December 31,
                      
                      (In
      thousands)2010
                      
                      $
                      100,8762011
                      
                      
                      28,7222012
                      
                      
                      13,0072013
                      
                      
                      7,5832014
                      
                      
                      4,758Thereafter
                      
                      
                      13,737$
                      168,683





45










Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Note
      8:
            Borrowings




At
December 31, advances from the Federal Home Loan Bank were as
follows:




2009
                  
                  
                  2008(In
      thousands)Maturities
      February 2010 through August 2025, primarily at fixed rates ranging from
      2.88% to 7.20%, averaging 3.83%
                  
                  $
                  49,128
                  
                  
                  $
                  —Maturities
      October 2009 through August 2025, primarily at fixed rates ranging from
      2.88% to 7.20%, averaging 3.93%
                  
                  
                  —
                  
                  
                  
                  43,745$
                  49,128
                  
                  
                  $
                  43,745




At
December 31, 2009 required annual principal payments on Federal Home Loan Bank
advances were as follows:




For
      the year ending December 31,
                        
                        (In
      thousands)2010
                        
                        $
                        5,7282011
                        
                        
                        10,4922012
                        
                        
                        4022013
                        
                        
                        5,3862014
                        
                        
                        247Thereafter
                        
                        
                        26,873$
                        49,128




Additionally,
as members of the Federal Home Loan Bank system at both December 31, 2009 and
2008, the Bank had the ability to obtain up to $1.1 million in additional
borrowings based on securities pledged to the FHLB.  At December 31,
2009 and 2008, the Bank had approximately $50.6 million and $51.4 million,
respectively, of one- to four-family residential real estate loans pledged as
collateral for borrowings.  Also at December 31, 2009, the Company and
the Bank have cash management lines of credit with various correspondent banks
(excluding FHLB cash management lines of credit) enabling additional borrowings
of up to $15 million.




Short-term
borrowings include approximately $10.0 million and $6.7 million at December 31,
2009 and 2008, respectively, of securities sold under agreements to
repurchase.  At December 31, 2009 and 2008, approximately $265,000 and
$1.1 million, respectively, for treasury tax and loan obligations was included
in short term borrowings.




46









Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Securities
sold under agreements to repurchase are financing arrangements whereby the
Company sells securities and agrees to repurchase the identical securities at
the maturities of the agreements at specified prices.  Physical
control is maintained for all securities sold under repurchase
agreements.  Information concerning securities sold under agreements
to repurchase is summarized as follows:




2009
                  
                  
                  2008(Dollars
      in thousands)Balance
      outstanding at year end
                  
                  $
                  10,012
                  
                  
                  $
                  6,759Average
      daily balance during the year
                  
                  $
                  10,999
                  
                  
                  $
                  9,063Average
      interest rate during the year
                  
                  
                  0.39
                  %
                  
                  
                  1.60
                  %Maximum
      month-end balance during the year
                  
                  $
                  13,329
                  
                  
                  $
                  11,981Weighted-average
      interest rate at year end
                  
                  
                  0.39
                  %
                  
                  
                  1.45
                  %





Securities
with an approximate carrying value of $13.3 million and $13.9 million at
December 31, 2009 and 2008, respectively, were pledged as collateral for
repurchase borrowings.




Note
      9:
            Subordinated
      Debentures




In 2005,
a Delaware statutory business trust owned by the Company, United Bancorp
Statutory Trust I (“Trust I” or the “Trust”), issued $4.0 million of mandatorily
redeemable debt securities.  The sale proceeds were utilized to
purchase $4.0 million of the Company’s subordinated debentures which mature in
2035.  The Company’s subordinated debentures are the sole asset of
Trust I.  The Company’s investment in Trust I is not consolidated
herein as the Company is not deemed the primary beneficiary of the
Trust.  However, the $4.0 million of mandatorily redeemable debt
securities issued by the Trust are includible for regulatory purposes as a
component of the Company’s Tier I Capital.  Interest on the Company’s
subordinated debentures is fixed at 6.25% and is payable quarterly.




Note
      10:
            Income
      Taxes




The
provision for income taxes includes these components:




2009
                    
                    
                    2008(In
      thousands)Taxes
      currently payable
                    
                    $
                    620
                    
                    
                    $
                    1,004Deferred
      income taxes
                    
                    
                    (104
                    )
                    
                    
                    (48
                    )Income
      tax expense
                    
                    $
                    516
                    
                    
                    $
                    956





47










Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




A
reconciliation of income tax expense at the statutory rate to the Company’s
actual income tax expense is shown below:




2009
                  
                  
                  2008(In
      thousands)Computed
      at the statutory rate (34%)
                  
                  $
                  1,163
                  
                  
                  $
                  1,603Decrease
      resulting fromTax
      exempt interest
                  
                  
                  (547
                  )
                  
                  
                  (556
                  )Earnings
      on bank-owned life insurance - net
                  
                  
                  (113
                  )
                  
                  
                  (108
                  )Other
                  
                  
                  13
                  
                  
                  
                  17Actual
      tax expense
                  
                  $
                  516
                  
                  
                  $
                  956





The tax
effects of temporary differences related to deferred taxes shown on the balance
sheets were:




2009
                  
                  
                  2008(In
      thousands)Deferred
      tax assetsAllowance
      for loan losses
                  
                  $
                  390
                  
                  
                  $
                  620Stock
      based compensation
                  
                  
                  31
                  
                  
                  
                  —Allowance
      for losses on foreclosed real estate
                  
                  
                  115
                  
                  
                  
                  —Deferred
      compensation
                  
                  
                  503
                  
                  
                  
                  442Pension
      expense
                  
                  
                  132
                  
                  
                  
                  544Intangible
      assets
                  
                  
                  32
                  
                  
                  
                  10Non-accrual
      loan interest
                  
                  
                  5
                  
                  
                  
                  —Alternative
      minimum taxes
                  
                  
                  345
                  
                  
                  
                  259Total
      deferred tax assets
                  
                  
                  1,553
                  
                  
                  
                  1,875Deferred
      tax liabilitiesDepreciation
                  
                  
                  (170
                  )
                  
                  
                  (208
                  )Deferred
      loan costs, net
                  
                  
                  (191
                  )
                  
                  
                  (140
                  )Accretion
                  
                  
                  —
                  
                  
                  
                  (24
                  )Loans
      held for sale
                  
                  
                  (34
                  )
                  
                  
                  —FHLB
      stock dividends
                  
                  
                  (583
                  )
                  
                  
                  (583
                  )Mortgage
      servicing rights
                  
                  
                  (90
                  )
                  
                  
                  (134
                  )Accrued
      pension
                  
                  
                  —
                  
                  
                  
                  (252
                  )Unrealized
      gains on securities available for sale
                  
                  
                  (152
                  )
                  
                  
                  (2
                  )Total
      deferred tax liabilities
                  
                  
                  (1,220
                  )
                  
                  
                  (1,343
                  )Net
      deferred tax asset
                  
                  $
                  333
                  
                  
                  $
                  532





48










Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Note
      11:
            Other
      Comprehensive Income (Loss)




Other
comprehensive income (loss) components and related taxes were as
follows:




2009
                      
                      
                      2008(In
      thousands)Unrealized
      gains (losses) on available-for-sale securities
                      
                      $
                      602
                      
                      
                      $
                      (230
                      )Reclassification
      adjustment for realized (gains) losses included in income
                      
                      
                      (154
                      )
                      
                      
                      14Change
      in unfunded status of defined benefit plan liability
                      
                      
                      320
                      
                      
                      
                      (738
                      )Amortization
      of prior service cost included in net periodic pension
cost
                      
                      
                      15
                      
                      
                      
                      15Amortization
      of net loss included in net periodic pension cost
                      
                      
                      106
                      
                      
                      
                      41Components
      of other comprehensive income (loss), before tax effect
                      
                      
                      889
                      
                      
                      
                      (898
                      )Tax
      expense (benefit)
                      
                      
                      302
                      
                      
                      
                      (304
                      )Other
      comprehensive income (loss)
                      
                      $
                      587
                      
                      
                      $
                      (594
                      )




The
components of accumulated other comprehensive loss, included in stockholders’
equity, are as follows:




2009
                      
                      
                      2008(In
      thousands)Net
      unrealized gain on securities available-for-sale
                      
                      $
                      451
                      
                      
                      $
                      12Net
      unrealized loss for unfunded status of defined benefit plan
      liability
                      
                      
                      (1,220
                      )
                      
                      
                      (1,667
                      )(769
                      )
                      
                      
                      (1,655
                      )Tax
      effect
                      
                      
                      262
                      
                      
                      
                      561Net-of-tax
      amount
                      
                      $
                      (507
                      )
                      
                      $
                      (1,094
                      )





49










Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Note
      12:
            Regulatory
      Matters




The
Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies.  Failure to meet minimum
capital requirements can initiate certain mandatory–and possibly additional
discretionary–actions by regulators that, if undertaken, could have a direct
material effect on the Company’s and the Bank’s financial
statements.  Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must meet
specific capital guidelines that involve quantitative measures of assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices.  The capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.




Quantitative
measures established by regulation to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined).  Management believes, as of December 31, 2009,
that the Company and the Bank meet all capital adequacy requirements to which
they are subject.




As of
December 31, 2009, the most recent notification from Federal Deposit Insurance
Corporation categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action.  To be categorized as
well-capitalized, the Bank must maintain capital ratios as set forth in the
table.  There are no conditions or events since that notification that
management believes have changed the Bank’s category.




50









Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




The
Company’s and Bank’s actual capital amounts and ratios are presented in the
following table.




Actual
                              
                              
                              For Capital Adequacy
                                Purposes
                              
                              
                              To Be Well Capitalized
                                Under Prompt Corrective
                                Action ProvisionsAmount
                              
                              
                              Ratio
                              
                              
                              Amount
                              
                              
                              Ratio
                              
                              
                              Amount
                              
                              
                              Ratio(Dollars
      in thousands)As
      of December 31, 2009Total
      Capital
                                (to
      Risk-Weighted Assets)Consolidated
                              
                              $
                              41,425
                              
                              
                              
                              14.4
                              %
                              
                              $
                              22,938
                              
                              
                              
                              8.0
                              %
                              
                              $
                              N/A
                              
                              
                              
                              N/ACitizens
                              
                              
                              38,856
                              
                              
                              
                              13.5
                              
                              
                              
                              22,954
                              
                              
                              
                              8.0
                              
                              
                              
                              28,693
                              
                              
                              
                              10.0
                              %Tier
      I Capital
                                (to
      Risk-Weighted Assets)Consolidated
                              
                              $
                              39,035
                              
                              
                              
                              13.6
                              %
                              
                              $
                              11,469
                              
                              
                              
                              4.0
                              %
                              
                              $
                              N/A
                              
                              
                              
                              N/ACitizens
                              
                              
                              36,465
                              
                              
                              
                              12.7
                              
                              
                              
                              11,477
                              
                              
                              
                              4.0
                              
                              
                              
                              17,216
                              
                              
                              
                              6.0
                              %Tier
      I Capital
                                (to
      Average Assets)Consolidated
                              
                              $
                              39,035
                              
                              
                              
                              8.7
                              %
                              
                              $
                              17,996
                              
                              
                              
                              4.0
                              %
                              
                              $
                              N/A
                              
                              
                              
                              N/ACitizens
                              
                              
                              36,465
                              
                              
                              
                              8.1
                              
                              
                              
                              18,076
                              
                              
                              
                              4.0
                              
                              
                              
                              22,595
                              
                              
                              
                              5.0
                              %As
      of December 31, 2008Total
      Capital
                                (to
      Risk-Weighted Assets)Consolidated
                              
                              $
                              40,954
                              
                              
                              
                              15.3
                              %
                              
                              $
                              21,368
                              
                              
                              
                              8.0
                              %
                              
                              
                              N/A
                              
                              
                              
                              N/ACitizens
                              
                              
                              39,037
                              
                              
                              
                              14.4
                              
                              
                              
                              21,733
                              
                              
                              
                              8.0
                              
                              
                              $
                              27,166
                              
                              
                              
                              10.0
                              %Tier
      I Capital
                                (to
      Risk-Weighted Assets)Consolidated
                              
                              $
                              38,184
                              
                              
                              
                              14.3
                              %
                              
                              $
                              10,684
                              
                              
                              
                              4.0
                              %
                              
                              
                              N/A
                              
                              
                              
                              N/ACitizens
                              
                              
                              36,266
                              
                              
                              
                              13.3
                              
                              
                              
                              10,866
                              
                              
                              
                              4.0
                              
                              
                              $
                              16,300
                              
                              
                              
                              6.0
                              %Tier
      I Capital
                                (to
      Average Assets)Consolidated
                              
                              $
                              38,184
                              
                              
                              
                              8.8
                              %
                              
                              $
                              17,342
                              
                              
                              
                              4.0
                              %
                              
                              
                              N/A
                              
                              
                              
                              N/ACitizens
                              
                              
                              36,266
                              
                              
                              
                              8.2
                              
                              
                              
                              17,767
                              
                              
                              
                              4.0
                              
                              
                              $
                              22,208
                              
                              
                              
                              5.0
                              %




51





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Note
      13:
            Related
      Party Transactions




At
December 31, 2009 and 2008, the Bank had loans outstanding to executive
officers, directors, significant stockholders and their affiliates (related
parties).  In management’s opinion, such loans and other extensions of
credit and deposits were made in the ordinary course of business and were made
on substantially the same terms (including interest rates and collateral) as
those prevailing at the time for comparable transactions with other
persons.  Further, in management’s opinion, these loans did not
involve more than normal risk of collectibility or present other unfavorable
features.  Such loans are summarized below.




2009
                      
                      
                      2008(In
      thousands)Aggregate
      balance – January 1
                      
                      $
                      10,602
                      
                      
                      $
                      6,409New
      loans
                      
                      
                      399
                      
                      
                      
                      5,385Repayments
                      
                      
                      (1,551
                      )
                      
                      
                      (1,192
                      )Aggregate
      balance – December 31
                      
                      $
                      9,450
                      
                      
                      $
                      10,602





Deposits
from related parties held by the Bank at December 31, 2009 and 2008 totaled $1.9
million and $3.6 million, respectively.




Note
      14:
            Benefit
      Plans




Pension
and Other Postretirement Benefit Plans




The
Company has a noncontributory defined benefit pension plan covering all
employees who meet the eligibility requirements.  The Company’s
funding policy is to make the minimum annual contribution that is required by
applicable regulations, plus such amounts as the Company may determine to be
appropriate from time to time.  The Company expects to contribute
$400,000 to the plan in 2010.




52





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




The
Company uses a December 31 measurement date for the plan.  Information
about the plan’s funded status and pension cost follows:




Pension
      Benefits2009
                    
                    
                    2008(In
      thousands)Change
      in benefit obligationBeginning
      of year
                    
                    $
                    (2,838
                    )
                    
                    $
                    (3,203
                    )Service
      cost
                    
                    
                    (249
                    )
                    
                    
                    (230
                    )Interest
      cost
                    
                    
                    (165
                    )
                    
                    
                    (177
                    )Actuarial
      gain (loss)
                    
                    
                    5
                    
                    
                    
                    (193
                    )Benefits
      paid
                    
                    
                    114
                    
                    
                    
                    965End
      of year
                    
                    
                    (3,133
                    )
                    
                    
                    (2,838
                    )Change
      in fair value of plan assetsBeginning
      of year
                    
                    
                    1,917
                    
                    
                    
                    3,137Actual
      return on plan assets
                    
                    
                    466
                    
                    
                    
                    (655
                    )Employer
      contribution
                    
                    
                    400
                    
                    
                    
                    400Benefits
      paid
                    
                    
                    (114
                    )
                    
                    
                    (965
                    )End
      of year
                    
                    
                    2,669
                    
                    
                    
                    1,917Funded
      status at end of year
                    
                    $
                    (464
                    )
                    
                    $
                    (921
                    )





Amounts
recognized in accumulated other comprehensive loss not yet recognized as
components of net periodic benefit cost consist of:




Pension
      Benefits2009
                    
                    
                    2008(In
      thousands)Net
      loss
                    
                    $
                    1,159
                    
                    
                    $
                    1,592Prior
      service cost
                    
                    
                    61
                    
                    
                    
                    75$
                    1,220
                    
                    
                    $
                    1,667





The
estimated net loss and prior service cost for the defined benefit pension plan
that will be amortized from accumulated other comprehensive income into net
periodic benefit cost over the next fiscal year is approximately
$86,000.




The
accumulated benefit obligation for the defined benefit pension plan was $2.3
million and $2.0 million at December 31, 2009 and 2008,
respectively.




53





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Information
for pension plans with respect to accumulated benefit obligation and plan assets
is as follows:




December
      31,2009
                    
                    
                    2008(In
      thousands)Projected
      benefit obligation
                    
                    $
                    3,133
                    
                    
                    $
                    2,838Accumulated
      benefit obligation
                    
                    $
                    2,278
                    
                    
                    $
                    2,019Fair
      value of plan assets
                    
                    $
                    2,669
                    
                    
                    $
                    1,917




December
      31,2009
                    
                    
                    2008(In
      thousands)Components
      of net periodic benefit costService
      cost
                    
                    $
                    249
                    
                    
                    $
                    230Interest
      cost
                    
                    
                    165
                    
                    
                    
                    177Expected
      return on plan assets
                    
                    
                    (151
                    )
                    
                    
                    (208
                    )Settlement
      loss
                    
                    
                    —
                    
                    
                    
                    305Amortization
      of prior service cost
                    
                    
                    15
                    
                    
                    
                    15Amortization
      of net loss
                    
                    
                    106
                    
                    
                    
                    41Net
      periodic benefit cost
                    
                    $
                    384
                    
                    
                    $
                    560





Due to an
unusually large number of distributions from the defined benefit plan during
2008, the Company recognized a settlement loss of approximately $305,000 for the
year ended December 31, 2008.




Significant
assumptions include:




Pension
      Benefits2009
                    
                    
                    2008Weighted-average
      assumptions used to determine benefit obligation:Discount
      rate
                    
                    
                    5.96
                    %
                    
                    
                    5.90
                    %Rate
      of compensation increase
                    
                    
                    3.00
                    %
                    
                    
                    4.50
                    %Weighted-average
      assumptions used to determine benefit cost:Discount
      rate
                    
                    
                    5.87
                    %
                    
                    
                    6.50
                    %Expected
      return on plan assets
                    
                    
                    8.00
                    %
                    
                    
                    8.00
                    %Rate
      of compensation increase
                    
                    
                    4.50
                    %
                    
                    
                    4.50
                    %




54





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




The
Company has estimated the long-term rate of return on plan assets based
primarily on historical returns on plan assets, adjusted for changes in target
portfolio allocations and recent changes in long-term interest rates based on
publicly available information.  The long-term rate of return did not
change from 2008 to 2009.




The
following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid as of December 31, 2009:




Pension
                      Benefits(In
      thousands)2010
                    
                    $
                    2282011
                    
                    
                    6792012
                    
                    
                    2732013
                    
                    
                    1432014
                    
                    
                    1472015-2019
                    
                    
                    1,220Total
                    
                    $
                    2,690




Plan
assets are held by an outside trustee which invests the plan assets in
accordance with the provisions of the plan agreement. All equity and fixed
income investments are held in various mutual funds with quoted market
prices.  Mutual fund equity securities primarily include investment
funds that are comprised of large-cap, mid-cap and international
companies.  Fixed income mutual funds primarily include investments in
corporate bonds, mortgage-backed securities and U.S.
Treasuries.  Other types of investments include a prime money market
fund.




The asset
allocation strategy of the plan is designed to allow flexibility in the
determination of the appropriate investment allocations between equity and fixed
income investments.  This strategy is designed to help achieve the
actuarial long term rate on plan assets of 8%.  The target asset
allocation percentage for both 2009 and 2008 are as follows:




Large-Cap stocks
                  
                  Not to exceed 60%SMID-Cap stocks
                  
                  Not to exceed 20%International equity securities
                  
                  Not to exceed 15%Fixed income investments
                  
                  Not to exceed 40%Alternative investments
                  
                  Not to exceed 20%





55





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




At
December 31, 2009 and 2008, the fair value of plan assets as a percentage of the
total was invested in the following:




December
      31,2009
                  
                  
                  2008Equity
      securities
                  
                  
                  75.7
                  %
                  
                  
                  74.4
                  %Debt
      securities
                  
                  
                  23.5
                  
                  
                  
                  24.6Cash
      and cash equivalents
                  
                  
                  0.8
                  
                  
                  
                  1.0100.0
                  %
                  
                  
                  100.0
                  %




Pension
Plan Assets




Following
is a description of the valuation methodologies used for pension plan assets
measured at fair value on a recurring basis, as well as the general
classification of pension plan assets pursuant to the valuation
hierarchy.




Where
quoted market prices are available in an active market, plan assets are
classified within Level 1 of the valuation
hierarchy.  Level 1 plan assets include investments in mutual
funds that involve equity, bond and money market investments.  All of
the Plan’s assets are classified as Level 1. If quoted market prices are not
available, then fair values are estimated by using pricing models, quoted prices
of plan assets with similar characteristics or discounted cash
flows.    In certain cases where Level 1 or
Level 2 inputs are not available, plan assets are classified within
Level 3 of the hierarchy. At December 31, 2009, the Plan did not contain
Level 2 or Level 3 investments.




56





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




The fair
values of Company’s pension plan assets at December 31, 2009, by asset category
are as follows:




Fair Value Measurements UsingAsset Category
                
                Total 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)Mutual
      money market
                
                $
                21
                
                
                $
                21
                
                
                $
                —
                
                
                $
                —Mutual
      funds – equitiesInternational
                
                
                212
                
                
                
                212
                
                
                
                —
                
                
                
                —Real
      estate
                
                
                28
                
                
                
                28
                
                
                
                —
                
                
                
                —Large
      Cap
                
                
                1,045
                
                
                
                1,045
                
                
                
                —
                
                
                
                —Small
      and Mid Cap
                
                
                734
                
                
                
                734
                
                
                
                —
                
                
                
                —Mutual
      funds – fixed income
                
                
                
                
                
                
                
                
                
                
                —
                
                
                
                —Core
      bond
                
                
                545
                
                
                
                545
                
                
                
                —
                
                
                
                —High
      yield corporate
                
                
                84
                
                
                
                84
                
                
                
                —
                
                
                
                —Total
                
                $
                2,669
                
                
                $
                2,669
                
                
                $
                —
                
                
                $
                —




Employee
Stock Ownership Plan




The
Company has an Employee Stock Ownership Plan (“ESOP”) with an integrated 401(k)
plan covering substantially all employees of the Company.  The ESOP
acquired 354,551 shares of Company common stock at $9.64 per share in 2005 with
funds provided by a loan from the Company.  Accordingly, $3.4 million
of common stock acquired by the ESOP was shown as a reduction of stockholders’
equity.  Shares are released to participants proportionately as the
loan is repaid.  Dividends on allocated shares are recorded as
dividends and charged to retained earnings.  Compensation expense is
recorded equal to the fair market value of the stock when contributions, which
are determined annually by the Board of Directors of the Company, are made to
the ESOP.  The Company’s 401(k) matching percentage was 50% of the
employees’ first 6% of contributions for 2009 and 2008.




ESOP and
401(k) expense for the years ended December 31, 2009 and 2008 was
approximately $192,000 and $213,000, respectively.




57





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Share
information for the ESOP is as follows at December 31, 2009 and
2008:




2009
                    
                    
                    2008Allocated
      shares at beginning of the year
                    
                    
                    64,750
                    
                    
                    
                    47,277Shares
      released for allocation during the year
                    
                    
                    23,639
                    
                    
                    
                    23,639Shares
      distributed due to retirement/diversification
                    
                    
                    (1,188
                    )
                    
                    
                    (6,166
                    )Unearned
      shares
                    
                    
                    259,996
                    
                    
                    
                    283,635Total
      ESOP shares
                    
                    
                    347,197
                    
                    
                    
                    348,385Fair
      value of unearned shares at December 31
                    
                    $
                    2,218,000
                    
                    
                    $
                    2,836,000




At
December 31, 2009, the fair value of the 87,201 allocated shares held by the
ESOP was approximately $744,000.




Split
Dollar Life Insurance Policies




As of
January 1, 2008, the Company recorded a liability and a corresponding charge to
retained earnings totaling approximately $1.0 million to recognize the
commitment obligation under its split-dollar life insurance
policies.  The Company recognized post retirement expense of
approximately $82,000 and $95,000 in 2009 and 2008, respectively, for the post
retirement liability related to these policies.




Note
      15:
            Stock
      Option and Restricted Stock Plans




The
Company’s Employee Share Option Plan (the “1996 Plan”), which was stockholder
approved, permitted the grant of share options to its
employees.  During 2008, the Company’s stockholders authorized the
adoption of the United Bancorp, Inc. 2008 Stock Incentive Plan (the "2008
Plan").  No more than 500,000 shares of the Company’s common stock may
be issued under the 2008 Plan.  The shares that may be issued may be
authorized but unissued shares or treasury shares. The 2008 Plan permits the
grant of incentive awards in the form of options, stock appreciation rights,
restricted share and share unit awards, and performance share awards. The 2008
Plan contains annual limits on certain types of awards to individual
participants.  In any calendar year, no participant may be granted
awards covering more than 25,000 shares.




The
Company believes that such awards better align the interests of its employees
with those of its stockholders.  Stock options are generally granted
with an exercise price, and restricted stock awards are valued, equal to the
market price of the Company’s stock at the date of grant; stock option awards
generally vest within 9.25 years of continuous service and have a 9.5 year
contractual term.  Restricted stock awards generally vest over a 9.5
year contractual term, or over the period to retirement, whichever is
shorter.  Restricted stock awards have no post-vesting restrictions.
Stock options and restricted stock awards provide for accelerated vesting if
there is a change in control (as defined in the Plans).




58





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




The fair
value of each option award was estimated on the date of grant using the
Black-Scholes option valuation model.




A summary
of option activity under the Plan as of December 31, 2009, and changes during
the year then ended, is presented below:




2009Shares
                    
                    
                    Weighted-
                      Average
                      Exercise Price
                    
                    
                    Weighted-
                      Average
                      Remaining
                      Contractual
                      Term (Years)
                    
                    
                    Aggregate
                      Intrinsic ValueOutstanding,
      beginning of year
                    
                    
                    55,529
                    
                    
                    $
                    10.34Granted
                    
                    
                    —
                    
                    
                    
                    —Exercised
                    
                    
                    —
                    
                    
                    
                    —Forfeited
      or expired
                    
                    
                    (1,815
                    )
                    
                    
                    10.15Outstanding,
      end of year
                    
                    
                    53,714
                    
                    
                    $
                    10.34
                    
                    
                    
                    5.2
                    
                    
                    $
                    —Exercisable,
      end of year
                    
                    
                    —
                    
                    
                    $
                    —
                    
                    
                    
                    —
                    
                    
                    $
                    —




A summary
of the status of the Company’s nonvested restricted shares as of December 31,
2009, and changes during the year then ended, is presented below:




Shares
                  
                  
                  Weighted-
                    Average
                    Grant-Date
                    Fair ValueNonvested,
      beginning of year
                  
                  
                  —
                  
                  
                  $
                  —Granted
                  
                  
                  180,000
                  
                  
                  
                  8.35Vested
                  
                  
                  —
                  
                  
                  
                  —Forfeited
                  
                  
                  —
                  
                  
                  
                  —Nonvested,
      end of year
                  
                  
                  180,000
                  
                  
                  $
                  8.35





Total
compensation cost recognized in the income statement for share-based payment
arrangements during the years ended December 31, 2009 and 2008 was $79,000 and
$12,000, respectively.  The recognized tax benefits related thereto
were $27,000 and $4,000, for the years ended December 31, 2009 and 2008,
respectively.




59





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




As of
December 31, 2009 and 2008, there was $1.5 million and $83,000, respectively, of
total unrecognized compensation cost related to nonvested share-based
compensation arrangements granted under the Plan.  That cost is
expected to be recognized over a weighted-average period of 8.9
years.  No shares vested during 2009.




Note 16:
            Earnings
      Per Share




Earnings
per share (EPS) were computed as follows:




Year Ended December 31, 2009Net
                      Income
                    
                    
                    Weighted-
                      Average
                      Shares
                    
                    
                    Per Share
                      Amount(In
      thousands)Net
      income
                    
                    $
                    2,905Basic
      earnings per shareIncome
      available to common stockholders
                    
                    
                    —
                    
                    
                    
                    4,631,066
                    
                    
                    $
                    0.63Effect
      of dilutive securitiesRestricted
      stock awards
                    
                    
                    —
                    
                    
                    
                    68Diluted
      earnings per shareIncome
      available to common stockholders and assumed conversions
                    
                    $
                    2,905
                    
                    
                    $
                    4,631,134
                    
                    
                    $
                    0.63




60





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Options
to purchase 53,714 shares of common stock at an average exercise price of $10.34
per share were outstanding at December 31, 2009, but were not included in the
computation of diluted earnings per share because the options’ exercise price
was greater than the average market price of the common shares.




Year Ended December 31, 2008Net
                      Income
                    
                    
                    Weighted-
                      Average
                      Shares
                    
                    
                    Per Share
                      Amount(In
      thousands)Net
      income
                    
                    $
                    3,759Basic
      earnings per shareIncome
      available to common stockholders
                    
                    
                    —
                    
                    
                    
                    4,600,998
                    
                    
                    $
                    0.82Effect
      of dilutive securitiesStock
      options
                    
                    
                    —
                    
                    
                    
                    —Diluted
      earnings per shareIncome
      available to common stockholders and assumed conversions
                    
                    $
                    3,759
                    
                    
                    
                    4,600,998
                    
                    
                    $
                    0.82





Options
to purchase 55,529 shares of common stock at an average exercise price of $10.34
per share were outstanding at December 31, 2008, but were not included in the
computation of diluted earnings per share because the options’ exercise price
was greater than the average market price of the common shares.




Note 17:
            Disclosures
      about Fair Value of Financial Instruments and Other Assets and
      Liabilities




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




61





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Level 3
            Unobservable
      inputs that are supported by little or no market activity and that are
      significant to the fair value of the assets or
  liabilities




Following
is a description of the valuation methodologies used for instruments measured at
fair value on a recurring basis and recognized in the accompanying balance
sheets, 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.  If quoted
market prices are not available, then fair values are estimated by using pricing
models, quoted prices of securities with similar characteristics or discounted
cash flows.  Level 2 securities include government agency
securities, mortgage-backed securities, certain collateralized mortgage and debt
obligations and certain municipal securities.  In certain cases where
Level 1 or Level 2 inputs are not available, securities are classified within
Level 3 of the hierarchy and include other less liquid securities.




The
following table presents the fair value measurements of assets recognized in the
accompanying balance sheets measured at fair value on a recurring basis and the
level within the fair value hierarchy in which the fair value measurements fall
at December 31, 2009 and 2008:




December 31, 2009
                                  Fair Value Measurements UsingFair Value
                                
                                
                                Quoted Prices in
                                  Active Markets
                                  for Identical
                                  Assets
                                  (Level 1)
                                
                                
                                Significant
                                  Other
                                  Observable
                                  Inputs
                                  (Level 2)
                                
                                
                                Significant
                                  Unobservable
                                  Inputs
                                  (Level 3)(In
      thousands)U.S
      government agencies
                                
                                $
                                57,204
                                
                                
                                $
                                —
                                
                                
                                $
                                57,204
                                
                                
                                $
                                —State
      and political subdivisions
                                
                                
                                26,344
                                
                                
                                
                                —
                                
                                
                                
                                26,344
                                
                                
                                
                                —Government
      sponsored entities mortgage-backed securities
                                
                                
                                13,031
                                
                                
                                
                                —
                                
                                
                                
                                13,031
                                
                                
                                
                                —Equity
      securities
                                
                                
                                6
                                
                                
                                
                                —
                                
                                
                                
                                6
                                
                                
                                
                                —





62





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008





December 31, 2008
                                      Fair Value Measurements UsingFair Value
                                    
                                    
                                    Quoted Prices in
                                      Active Markets
                                      for Identical
                                      Assets
                                      (Level 1)
                                    
                                    
                                    Significant
                                      Other
                                      Observable
                                      Inputs
                                      (Level 2)
                                    
                                    
                                    Significant
                                      Unobservable
                                      Inputs
                                      (Level 3)(In thousands)U.S
      government agencies
                                    
                                    $
                                    87,386
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    87,386
                                    
                                    
                                    $
                                    —State
      and political subdivisions
                                    
                                    
                                    25,736
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    25,736
                                    
                                    
                                    
                                    —Government
      sponsored entities 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 non-recurring basis and recognized in the accompanying 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.




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.




63







Notes
to Consolidated Financial Statements




December
31, 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 foreclosed
assets held for sale primarily through evaluations of appraisals performed, and
current and past offers for the real estate under evaluation.




The
following table presents the fair value measurements of assets recognized in the
accompanying balance sheets measured at fair value on a non-recurring basis and
the level within the fair value hierarchy in which the fair value measurements
fall at December 31, 2009:


December 31, 2009
                        Fair Value Measurements UsingFair Value
                      
                      
                      Quoted Prices in
                        Active Markets
                        for Identical
                        Assets
                        (Level 1)
                      
                      
                      Significant
                        Other
                        Observable
                        Inputs
                        (Level 2)
                      
                      
                      Significant
                        Unobservable
                        Inputs
                        (Level 3)(In
      thousands)Impaired
      loans
                      
                      $
                      667
                      
                      
                      $
                      —
                      
                      
                      $
                      —
                      
                      
                      $
                      667Mortgage
      servicing rights
                      
                      
                      267
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      267Foreclosed
      assets held for sale
                      
                      
                      1,002
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      1,002
 
 December 31, 2008
                        Fair Value Measurements UsingFair Value
                      
                      
                      Quoted Prices in
                        Active Markets
                        for Identical
                        Assets
                        (Level 1)
                      
                      
                      Significant
                        Other
                        Observable
                        Inputs
                        (Level 2)
                      
                      
                      Significant
                        Unobservable
                        Inputs
                        (Level 3)(In
      thousands)Impaired
      loans
                      
                      $
                      4,856
                      
                      
                      $
                      —
                      
                      
                      $
                      —
                      
                      
                      $
                      4,856Mortgage
      servicing rights
                      
                      
                      394
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      394Foreclosed
      assets held for sale
                      
                      
                      208
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      208





64





Notes
to Consolidated Financial Statements




December
31, 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.




December 31, 2009
                  
                  
                  December 31, 2008Carrying
                    Amount
                  
                  
                  Fair Value
                  
                  
                  Carrying
                    Amount
                  
                  
                  Fair Value(In
      thousands)Financial
      assetsCash
      and cash equivalents
                  
                  $
                  31,271
                  
                  
                  $
                  31,271
                  
                  
                  $
                  31,469
                  
                  
                  $
                  31,469Certificates
      of deposit in other financial institutions
                  
                  
                  17,575
                  
                  
                  
                  17,575
                  
                  
                  
                  —
                  
                  
                  
                  —Available-for-sale
      securities
                  
                  
                  96,585
                  
                  
                  
                  96,585
                  
                  
                  
                  129,416
                  
                  
                  
                  129,416Held-to-maturity
      securities
                  
                  
                  14,277
                  
                  
                  
                  14,643
                  
                  
                  
                  15,687
                  
                  
                  
                  15,697Loans,
      net of allowance for loan losses
                  
                  
                  255,336
                  
                  
                  
                  248,918
                  
                  
                  
                  235,448
                  
                  
                  
                  235,075Federal
      Home Loan Bank stock
                  
                  
                  4,810
                  
                  
                  
                  4,810
                  
                  
                  
                  4,810
                  
                  
                  
                  4,810Accrued
      interest receivable
                  
                  
                  2,218
                  
                  
                  
                  2,218
                  
                  
                  
                  3,037
                  
                  
                  
                  3,037Financial
      liabilitiesDeposits
                  
                  
                  344,543
                  
                  
                  
                  325,179
                  
                  
                  
                  347,045
                  
                  
                  
                  349,247Short-term
      borrowings
                  
                  
                  10,277
                  
                  
                  
                  10,264
                  
                  
                  
                  7,809
                  
                  
                  
                  7,809Federal
      Home Loan Bank advances
                  
                  
                  49,128
                  
                  
                  
                  49,540
                  
                  
                  
                  43,745
                  
                  
                  
                  44,327Subordinated
      debentures
                  
                  
                  4,000
                  
                  
                  
                  3,093
                  
                  
                  
                  4,000
                  
                  
                  
                  2,763Interest
      payable
                  
                  
                  398
                  
                  
                  
                  398
                  
                  
                  
                  469
                  
                  
                  
                  469




The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments.




Cash
and Cash Equivalents, Federal Home Loan Bank Stock, Accrued Interest Receivable
and Certificates of Deposit in Other Financial Institutions




The
carrying amount approximates fair value.




Held-to-Maturity
Securities




Fair
value is based on quoted market prices if available.  If a quoted
market price is not available fair value is estimated using quoted market prices
for similar securities.




65





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




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.  The carrying amount of accrued interest approximates
its fair value.




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 and  Interest Payable




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 December 31, 2009 and 2008.




Note 18:
            Significant
      Estimates and Concentrations




Accounting
principles generally accepted in the United States of America require disclosure
of certain significant estimates and current vulnerabilities due to certain
concentrations.  Estimates related to the allowance for loan losses
are reflected in the footnote regarding loans.  Current
vulnerabilities due to certain concentrations of credit risk are discussed in
the footnote on commitments and credit risk.




66





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Note 19:
            Commitments
      and Credit Risk




At
December 31, 2009 and 2008, total commercial and commercial real estate loans
made up 58.5% and 59.0%, respectively, of the loan
portfolio.  Installment loans account for 17.4% and 16.0%,
respectively, of the loan portfolio and are secured by consumer assets including
automobiles, which account for 68.9% and 65.9%, respectively, of the installment
loan portfolio.  Real estate loans comprise 24.1% and 25.0% of the
loan portfolio as of December 31, 2009 and 2008, respectively, and primarily
include first mortgage loans on residential properties and home equity lines of
credit.




Included
in cash and due from banks as of December 31, 2009 and 2008, is $4.3 million and
$6.3 million, respectively, of deposits with the Federal Reserve Bank of
Cleveland.




Commitments
to Originate Loans




Commitments
to originate loans are agreements to lend to a customer as long as there is no
violation of any condition established in the contract.  Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee.  Since a portion of the commitments may
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.  Each customer’s creditworthiness
is evaluated on a case-by-case basis.  The amount of collateral
obtained, if deemed necessary, is based on management’s credit evaluation of the
counterparty.  Collateral held varies, but may include accounts
receivable, inventory, property, plant and equipment, commercial real estate and
residential real estate.




At
December 31, 2009 and 2008, the Company had outstanding commitments to originate
variable rate loans aggregating approximately $3.0 million and $6.8 million,
respectively.  The commitments extended over varying periods of time
with the majority being disbursed within a one-year period.




Mortgage
loans in the process of origination represent amounts that the Company plans to
fund within a normal period of 60 to 90 days, some of which are intended for
sale to investors in the secondary market.  Total mortgage loans in
the process of origination which are intended for sale amounted to approximately
$138,000 and $1.5 million at December 31, 2009 and 2008,
respectively.  The Company had commitments to sell loans in the same
amounts at December 31, 2009 and 2008.




67





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Standby
Letters of Credit




Standby
letters of credit are irrevocable conditional commitments issued by the Company
to guarantee the performance of a customer to a third
party.  Financial standby letters of credit are primarily issued to
support public and private borrowing arrangements, including commercial paper,
bond financing and similar transactions.  Performance standby letters
of credit are issued to guarantee performance of certain customers under
non-financial contractual obligations.  The credit risk involved in
issuing standby letters of credit is essentially the same as that involved in
extending loans to customers.  Fees for letters of credit are
initially recorded by the Company as deferred revenue and are included in
earnings at the termination of the respective agreements.  Should the
Company be obligated to perform under the standby letters of credit, the Company
may seek recourse from the customer for reimbursement of amounts
paid.




The
Company had total outstanding standby letters of credit amounting to $676,000
and $820,000, at December 31, 2009 and 2008, respectively, with terms not
exceeding nine months.  At both December 31, 2009 and 2008, the
Company had no deferred revenue under standby letter of credit
agreements.




Lines
of Credit and Other




Lines of
credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract.  Lines of credit generally
have fixed expiration dates.  Since a portion of the line may expire
without being drawn upon, the total unused lines do not necessarily represent
future cash requirements.  Each customer’s creditworthiness is
evaluated on a case-by-case basis.  The amount of collateral obtained,
if deemed necessary, is based on management’s credit evaluation of the
counterparty.  Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, commercial real estate and
residential real estate.  Management uses the same credit policies in
granting lines of credit as it does for on-balance-sheet
instruments.




At
December 31, 2009, the Company had granted unused lines of credit to borrowers
aggregating approximately $23.5 million and $31.3 million for commercial lines
and open-end consumer lines, respectively.  At December 31, 2008, the
Company had granted unused lines of credit to borrowers aggregating
approximately $12.0 million and $27.1 million for commercial lines and open-end
consumer lines, respectively.




68





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Current
Economic Conditions




The
current protracted economic decline continues to present financial institutions
with circumstances and challenges, which in some cases have resulted in large
and unanticipated declines in the fair values of investments and other assets,
constraints on liquidity and capital and significant credit quality problems,
including severe volatility in the valuation of real estate and other collateral
supporting loans.




At
December 31, 2009, the Company held approximately $67.7 million in loans secured
by commercial real estate and distributed within three distinct geographic areas
in which the Company operates.  Due to national, state and local
economic conditions, values for commercial and development real estate have
declined significantly and the market for these properties is
depressed.




The
accompanying consolidated financial statements have been prepared using values
and information currently available to the Company.




Given the
volatility of current economic conditions, the values of assets and liabilities
recorded in the financial statements could change rapidly, resulting in material
future adjustments in asset values, the allowance for loan losses and capital
that could negatively impact the Company’s ability to meet regulatory capital
requirements and maintain sufficient liquidity.




Note 20:
            Future
      Changes in Accounting Principles




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.




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 adopted FASB ASC 860-10 effective
January 1, 2010, as required, without material effect on its consolidated
financial statements.





69





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008





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 adopted FASB ASC 860-10 effective
January 1, 2010, as required, without significant effect on its consolidated
financial statements.




Note 21:
            Condensed
      Financial Information (Parent Company
Only)




Presented
below is condensed financial information as to financial position, results of
operations and cash flows of the Company:




Condensed Balance Sheets





December
      31,2009
                  
                  
                  2008(In
      thousands)AssetsCash
      and cash equivalents
                  
                  $
                  1,426
                  
                  
                  $
                  1,125Investment
      in the Bank
                  
                  
                  37,446
                  
                  
                  
                  37,087Corporate
      owned life insurance
                  
                  
                  263
                  
                  
                  
                  257Other
      assets
                  
                  
                  559
                  
                  
                  
                  329Total
      assets
                  
                  $
                  39,694
                  
                  
                  $
                  38,798Liabilities
      and Stockholders’ EquitySubordinated
      debentures
                  
                  $
                  4,000
                  
                  
                  $
                  4,000Other
      liabilities
                  
                  
                  483
                  
                  
                  
                  894Stockholders’
      equity
                  
                  
                  35,211
                  
                  
                  
                  33,904Total
      liabilities and stockholders’ equity
                  
                  $
                  39,694
                  
                  
                  $
                  38,798




70





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008





Condensed
Statements of Income





Years
      Ended December 31,2009
                  
                  
                  2008(In
      thousands)Operating
      IncomeDividends
      from subsidiary
                  
                  $
                  4,075
                  
                  
                  $
                  2,634Interest
      and dividend income from securities and federal funds
                  
                  
                  6
                  
                  
                  
                  25Total
      operating income
                  
                  
                  4,081
                  
                  
                  
                  2,659General,
      Administrative and Other Expenses
                  
                  
                  1,893
                  
                  
                  
                  1,897Income
      Before Income Taxes and Equity in Undistributed Income of
      Subsidiary
                  
                  
                  2,188
                  
                  
                  
                  762Income
      Tax Benefits
                  
                  
                  (648
                  )
                  
                  
                  (512
                  )Income
      Before Equity in Undistributed Income of Subsidiary
                  
                  
                  2,836
                  
                  
                  
                  1,274Equity
      in Undistributed Income of Subsidiary
                  
                  
                  69
                  
                  
                  
                  2,485Net
      Income
                  
                  $
                  2,905
                  
                  
                  $
                  3,759







71





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008





Condensed Statements of Cash Flows





Years
      Ended December 31,2009
                
                
                2008(In
      thousands)Operating
      ActivitiesNet
      income
                
                $
                2,905
                
                
                $
                3,759Items
      not requiring (providing) cashDepreciation
      and amortization
                
                
                12
                
                
                
                13Equity
      in undistributed income of subsidiary
                
                
                (69
                )
                
                
                (2,485
                )Amortization
      of ESOP and share-based compensation plans
                
                
                271
                
                
                
                213Net
      change in other assets and other liabilities
                
                
                (362
                )
                
                
                514Net
      cash provided by operating activities
                
                
                2,757
                
                
                
                2,014Investing
      ActivitiesProceeds
      from sales of real estate to Bank
                
                
                —
                
                
                
                171Net
      cash provided by investing activities
                
                
                —
                
                
                
                171Financing
      ActivitiesDividends
      paid to stockholders
                
                
                (2,872
                )
                
                
                (2,707
                )Proceeds
      from purchases of common stock by Dividend Reinvestment
    Plan
                
                
                331
                
                
                
                414Treasury
      stock purchased
                
                
                (86
                )
                
                
                (233
                )Shares
      purchased for deferred compensation plan
                
                
                171
                
                
                
                180Net
      cash used in financing activities
                
                
                (2,456
                )
                
                
                (2,346
                )Net
      Change in Cash and Cash Equivalents
                
                
                301
                
                
                
                (161
                )Cash
      and Cash Equivalents at Beginning of Year
                
                
                1,125
                
                
                
                1,286Cash
      and Cash Equivalents at End of Year
                
                $
                1,426
                
                
                $
                1,125




72





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008




Note 22:
            Quarterly
      Financial Data (Unaudited)




The
following table summarizes the Company’s quarterly results of operations for the
years ended December 31, 2009 and 2008.




Three
      Months Ended2009:
                  
                  March
      31,
                  
                  
                  June
      30,
                  
                  
                  September
      30,
                  
                  
                  December
      31,(In
      thousands, except per share data)Total
      interest income
                  
                  $
                  5,913
                  
                  
                  $
                  5,861
                  
                  
                  $
                  5,841
                  
                  
                  $
                  5,740Total
      interest expense
                  
                  
                  2,074
                  
                  
                  
                  2,027
                  
                  
                  
                  2,011
                  
                  
                  
                  1,953Net
      interest income
                  
                  
                  3,839
                  
                  
                  
                  3,834
                  
                  
                  
                  3,830
                  
                  
                  
                  3,787Provision
      for loan losses
                  
                  
                  324
                  
                  
                  
                  334
                  
                  
                  
                  338
                  
                  
                  
                  329Other
      income
                  
                  
                  789
                  
                  
                  
                  788
                  
                  
                  
                  828
                  
                  
                  
                  736Gain
      on sale of available-for-sale securities - net
                  
                  
                  —
                  
                  
                  
                  25
                  
                  
                  
                  —
                  
                  
                  
                  129General,
      administrative and other expense
                  
                  
                  3,309
                  
                  
                  
                  3,567
                  
                  
                  
                  3,420
                  
                  
                  
                  3,543Income
      before income taxes
                  
                  
                  995
                  
                  
                  
                  746
                  
                  
                  
                  900
                  
                  
                  
                  780Federal
      income taxes
                  
                  
                  194
                  
                  
                  
                  74
                  
                  
                  
                  143
                  
                  
                  
                  105Net
      income
                  
                  $
                  801
                  
                  
                  $
                  672
                  
                  
                  $
                  757
                  
                  
                  $
                  675Earnings
      per shareBasic
                  
                  $
                  0.17
                  
                  
                  $
                  0.15
                  
                  
                  $
                  0.16
                  
                  
                  $
                  0.15Diluted
                  
                  $
                  0.17
                  
                  
                  $
                  0.15
                  
                  
                  $
                  0.16
                  
                  
                  $
                  0.15




73





Notes
to Consolidated Financial Statements




December
31, 2009 and 2008





Three
      Months Ended2008:
                  
                  March
      31,
                  
                  
                  June
      30,
                  
                  
                  September
      30,
                  
                  
                  December
      31,(In
      thousands, except per share data)Total
      interest income
                  
                  $
                  6,660
                  
                  
                  $
                  6,481
                  
                  
                  $
                  6,319
                  
                  
                  $
                  6,255Total
      interest expense
                  
                  
                  3,143
                  
                  
                  
                  2,517
                  
                  
                  
                  2,347
                  
                  
                  
                  2,245Net
      interest income
                  
                  
                  3,517
                  
                  
                  
                  3,964
                  
                  
                  
                  3,972
                  
                  
                  
                  4,010Provision
      for loan losses
                  
                  
                  168
                  
                  
                  
                  395
                  
                  
                  
                  324
                  
                  
                  
                  301Other
      income
                  
                  
                  756
                  
                  
                  
                  758
                  
                  
                  
                  752
                  
                  
                  
                  815Loss
      on sale of available-for-sale securities - net
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (14
                  )
                  
                  
                  —General,
      administrative and other expense
                  
                  
                  2,977
                  
                  
                  
                  3,002
                  
                  
                  
                  3,250
                  
                  
                  
                  3,398Income
      before income taxes
                  
                  
                  1,128
                  
                  
                  
                  1,325
                  
                  
                  
                  1,136
                  
                  
                  
                  1,126Federal
      income taxes
                  
                  
                  225
                  
                  
                  
                  300
                  
                  
                  
                  239
                  
                  
                  
                  192Net
      income
                  
                  $
                  903
                  
                  
                  $
                  1,025
                  
                  
                  $
                  897
                  
                  
                  $
                  934Earnings
      per shareBasic
                  
                  $
                  0.20
                  
                  
                  $
                  0.22
                  
                  
                  $
                  0.20
                  
                  
                  $
                  0.20Diluted
                  
                  $
                  0.20
                  
                  
                  $
                  0.22
                  
                  
                  $
                  0.20
                  
                  
                  $
                  0.20




74