UNITED BANCORP INC /MI/

Accounting Standards Update No. 2014-01- Accounting for Investments in Qualified Affordable Housing Projects – In January 2014, FASB issued ASU 2014-01. This update provides guidance to investors in affordable housing projects that qualify for the low-income housing credit. The ASU will allow investors, in certain cases, to qualify for the use of the effective yield method of accounting in lieu of the equity method or the cost method.  The new standard deems that investors should disclose information which allows users of its financial statements to understand this type of investment and the risks involved, including the related tax credits.

The Company reported consolidated net income of $2.0 million, or $0.15 diluted earnings per share of common stock, for the three months ended March 31, 2014, compared to $1.9 million, or $0.13 diluted earnings per share of common stock, for the same period of 2013.  If Merger-related expenses of $0.7 million ($0.6 million after-tax) were excluded, consolidated net income for the three months ending March 31, 2014 would have been $2.6 million, or $0.20 diluted earnings per share of common stock.  Return on average assets ("ROA") was 0.89% for the first quarter of 2014, compared to 0.87%, for the comparable period of 2013. Return on average shareholders' equity ("ROE") was 9.75% for the first quarter of 2014, compared to 8.07%, for the same period of 2013.

In the first quarter of 2014, the Company's net interest income of $8.3 million was up 13.5% compared to the same period of 2013. United's net interest margin was 3.88% for the three month period ended March 31, 2014, compared to 3.46% for the same period of 2013, and was substantially unchanged from 3.91% for the fourth quarter of 2013.  The Company's mix of assets has evolved over recent quarters. Portfolio loan growth of $57.1 million in the twelve months ended March 31, 2014 has contributed to this shift in mix, and has helped the Company's yield on its earning assets. The Company continues to fund its growth primarily with core deposits. As a result of its strong core funding, the Company's cost of interest-bearing deposits was 0.29% for the first quarter 2014.

The Company's combined net interest income and noninterest income was down 4.9% in the first quarter of 2014 compared to the same period of 2013.  Noninterest income of $4.3 million for the most recent quarter decreased by 27.5% compared to the first quarter of 2013. This decline in noninterest income resulted primarily from decreased loan originations, both of residential mortgages and SBA loans. United's proceeds from the sale of loans originated for sale in the first quarter of 2014 was $27.4 million, down 73.2% from the same quarter of 2013.  The decline in noninterest income derived from the sale of loans was somewhat offset by an increase in net servicing income on the Company's servicing portfolio of $982.3 million as of March 31, 2014.  In addition, wealth management fee income for the first quarter of 2014 increased 10.1% to $1.5 million, and represented 36% of total noninterest income for the three months ending March 31, 2014.

Consolidated net income of $2.0 million in the first quarter of 2014 was up from $1.9 million in the first quarter of 2013, primarily as the result of decreased levels of loan loss provision, partially offset by Merger-related expenses and by lower noninterest income. The Company's combined net interest income and noninterest income was down 4.9% in the first quarter of 2014 compared to the same period of 2013, while noninterest expense was up 0.1% from the first quarter of 2013.  If Merger-related expenses of $0.7 million were excluded, noninterest expense would have decreased by 7.2%.