This discussion provides information about the consolidated financial condition and results of operations for?United Bancorp, Inc. (the "Company" or "United") and its subsidiary bank, United Bank & Trust ("UBT" or the "Bank"), for the three and six month periods ended June 30, 2012 and 2011. The discussion should be reviewed in conjunction with the Company's consolidated financial statements and related notes.

United is a Michigan corporation headquartered in Ann Arbor, Michigan and is the holding company for UBT, a Michigan-chartered bank organized over 115 years ago. We are registered as a bank holding company under the Bank Holding Company Act of 1956. At June 30, 2012, we had total assets of approximately $884.2 million, deposits of approximately $761.4 million, and total shareholders' equity of approximately $95.1 million. Our common stock is quoted on the OTCQB under the symbol "UBMI."

We have four primary lines of business under one operating segment of commercial banking: banking services, residential mortgage, wealth management and structured finance. We believe that these four lines of business provide us with a diverse and strong core revenue stream. During the six months ended June 30, 2012, our noninterest income equaled 39.9% of our combined net interest income and noninterest income. For each of the last five years ended December 31, 2011, noninterest income approximated 33.7% of our combined net interest income and noninterest income.

This diverse revenue stream has enabled us to recognize a pre-tax, pre-provision return on average assets of 1.67% for the three months and 1.55% for the six months ended June 30, 2012. Pre-tax, pre-provision return on average assets is not consistent with, or intended to replace, presentation under generally accepted accounting principles. For additional information about our pre-tax, pre-provision income and return on average assets, please see "Pre-Tax, Pre-provision Income and Return on Average Assets" under "Results of Operations" below.

Our bank offers a full range of services to individuals, corporations, fiduciaries and other institutions. Banking services include checking accounts, NOW accounts, savings accounts, time deposit accounts, money market deposit accounts, safe deposit facilities and money transfers. Lending operations provide real estate loans, secured and unsecured business and personal loans,

consumer installment loans, credit card and check-credit loans, home equity loans, accounts receivable and inventory financing, and construction financing.

Our mortgage group, United Mortgage Company, offers our customers a full array of conventional residential mortgage products, including purchase, refinance and construction loans. Due to our local decision making and fully-functional back office, we believe we have consistently been the most active originator of residential mortgage loans in our market area.

Our Wealth Management Group is a key focus of our growth and diversification strategy and offers a variety of investment services to individuals, corporations and governmental entities. Our Wealth Management Group generated 25.3% of our noninterest income for the six months ended June 30, 2012.

Our structured finance group, United Structured Finance Company, offers simple, effective financing solutions to small businesses and commercial property owners, primarily by utilizing various government guaranteed loan programs and other off-balance sheet finance solutions through secondary market sources.

Memorandum of Understanding

On January 15, 2010, UBT entered into a Memorandum of Understanding with the Federal Deposit Insurance Corporation ("FDIC") and the Michigan Office of Financial and Insurance Regulation ("OFIR"). On January 11, 2011, we entered into a revised Memorandum of Understanding ("MOU") with substantially the same requirements as the MOU dated January 15, 2010. The MOU is not a "written agreement" for purposes of Section 8 of the Federal Deposit Insurance Act. The MOU documents an understanding among UBT, the FDIC and OFIR, that, among other things, (i) UBT will not declare or pay any dividend to the Company without the prior consent of the FDIC and OFIR; and (ii) UBT will have and maintain its Tier 1 capital ratio at a minimum of 9% for the duration of the MOU, and will maintain its ratio of total capital to risk-weighted assets at a minimum of 12% for the duration of the MOU. For additional information about the capital ratios of UBT, see the information under the heading "Capital Management" below, which information is incorporated here by reference.

Board Resolution

At the direction of the Federal Reserve Bank of Chicago ("FRB"), on April 22, 2010, the Company's Board of Directors adopted a resolution requiring the Company to obtain written approval from the FRB prior to any of the following:
(i) declaration or payment of common or preferred stock dividends; (ii) any increase in debt or issuance of trust preferred obligations; or (iii) the redemption of Company stock.

The Company has requested and received FRB approval to declare and pay as required, and has declared and paid, all accrued dividends on its 20,600 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A, Liquidation Preference Amount $1,000 per share (the "Preferred Shares") to the date of this report.

On April 20, 2012, the FRB notified the Company of its approval to pay the Preferred Share dividend due May 15, 2012. The FRB also notified the Company that it was not required to seek prior approval of future payments of dividends on the Preferred Shares if certain conditions are met, including: (i) maintenance of a cash balance at the holding company of at least $3.3 million;
(ii) payment of dividends will not significantly impact the Bank's capital levels; and (iii) neither the Company nor the Bank experiences any significant change to its financial condition or regulatory classification or standing. If these conditions are satisfied, then we may pay dividends on the Preferred Shares without prior regulatory approval. Our cash balance at the holding company was $4.2 million at June 30, 2012.

Capital Management

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

Exit from TARP Capital Purchase Program

On June 19, 2012, the United States Department of the Treasury sold all 20,600 Preferred Shares in a modified dutch auction. The Company did not receive any proceeds from the sale of the Preferred Shares. The sale of the Preferred Shares did not result in any accounting entries on the books of the Company and did not change the Company's capital position. The Company incurred $299,000 of legal and accounting costs related to the sale of the Preferred Shares in the second quarter of 2012. The Company issued the Preferred Shares to Treasury on January 16, 2009 as part of Treasury's Troubled Asset Relief Program Capital Purchase Program in a private placement exempt from the registration requirements of federal and state securities laws.

On July 18, 2012, the Company repurchased from Treasury for $38,000 a Warrant to purchase 311,492 shares of Company common stock. The Warrant was issued to Treasury in connection with the Company's participation in the TARP Capital Purchase Program.

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

The Company's consolidated net income was $785,000 in the second quarter of 2012 and $1.6 million for the six months ended June 30, 2012, compared to $361,000 and $720,000, respectively, for the same periods of 2011. Net income per common share for the three and six

months ended June 30, 2012 was $0.04 and $0.08, respectively, up from $0.01 per common share for both comparable periods of 2011. Return on average assets ("ROA") was 0.36% and 0.37%, respectively, for the second quarter and first six months of 2012, compared to 0.17% for both of the comparable periods of 2011. Return on average shareholders' equity ("ROE") was 3.35% and 3.48%, respectively, for the second quarter and first six months of 2012, compared to 1.55% and 1.56% for the same periods of 2011.

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

The Company's noninterest expenses for the three and six month periods ended June 30, 2012 also increased from the comparable periods of 2011, with the largest dollar increases in compensation expense, attorney, accounting and other professional fees, and expenses related to other real estate owned ("ORE") and other foreclosed properties. Total noninterest expenses were up 7.6% and 9.6%, respectively, in the second quarter and first six months of 2012, compared to the same periods of 2011.

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

Total consolidated assets of the Company were $884.2 million at June 30, 2012, compared to $885.0 million at December 31, 2011 and $862.1 million at June 30, 2011. Total portfolio loans of $577.3 million increased by $13.6 million in the first six months of 2012, and by $2.0 million since June 30, 2011. The Company generally sells its fixed rate long-term residential mortgages on the secondary market, and retains adjustable rate mortgages in its loan portfolio.

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

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

the second quarter and first six months of 2012, respectively, down from 0.87% and 0.89% for the same periods of 2011.

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

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

Securities

Balances in the securities portfolio have increased in recent periods, generally reflecting deposit growth in excess of loan growth. The makeup of the Company's investment portfolio evolves with the changing price and risk structure, and liquidity needs of the Company. The table below reflects the carrying value of various categories of investment securities of the Company, along with the percentage composition of the portfolio by type as of June 30, 2012 and December 31, 2011.

                                                  June 30, 2012                 December 31, 2011
In thousands of dollars                     Balance        % of total       Balance        % of total
U.S. Treasury and agency securities        $   33,471             17.4 %   $   49,366             28.5 %
Mortgage-backed agency securities             138,826             72.3 %      102,697             59.3 %
Obligations of states and political
subdivisions                                   19,436             10.1 %       20,977             12.1 %
Corporate, asset backed, and other debt
securities                                        126              0.1 %          126              0.1 %
Equity securities                                  27              0.0 %           31              0.0 %
Total Investment Securities                $  191,886            100.0 %   $  173,197            100.0 %

Investments in U.S. Treasury and agency securities are considered to possess low credit risk. Obligations of U.S. government agency mortgage-backed securities possess a somewhat higher interest rate risk due to certain prepayment risks. The municipal portfolio contains a small level of geographic risk, as approximately 1.6% of the investment portfolio is issued by political subdivisions located within Lenawee County, Michigan and 2.3% in Washtenaw County, Michigan. The Company's portfolio contains no mortgage-backed securities or structured notes

that the Company believes to be "high risk." The Bank's investment in local municipal issues also reflects our commitment to the development of the local area through support of its local political subdivisions.

Management believes that the unrealized losses within the investment portfolio are temporary, since they are a result of market changes, rather than a reflection of credit quality. Management has no specific intent to sell any securities, although the entire investment portfolio is classified as available for sale. The following chart summarizes net unrealized gains in each category of the portfolio at June 30, 2012 and December 31, 2011.

Unrealized gains in thousands of dollars           6/30/12      12/31/11      Change
U.S. Treasury and agency securities                $    182     $     367     $  (185 )
Mortgage-backed agency securities                     1,703           842         861
Obligations of states and political subdivisions        815         1,287        (472 )
Equity securities                                         1             5          (4 )
Total Investment Securities                        $  2,701     $   2,501     $   200

FHLB Stock

The Bank is a member of the Federal Home Loan Bank of Indianapolis ("FHLBI") and holds a $2.6 million investment in stock of the FHLBI. The investment is carried at par value, as there is not an active market for FHLBI stock. If total Federal Home Loan Bank gross unrealized losses were deemed "other than temporary" for accounting purposes, this would significantly impair the Federal Home Loan Bank capital levels and the resulting value of FHLBI stock. The FHLBI reported a profit of $41.5 million for the first quarter of 2012, and continues to pay dividends on its stock. 2 The Company regularly reviews the credit quality of FHLBI stock for impairment, and determined that no impairment of FHLBI stock was necessary as of June 30, 2012.

Loans

The following table shows the dollar and percent change in each category of
loans for the periods reported. All loans are domestic and contain no
significant concentrations by industry or client.


                              This Quarter                  Year to Date                  Twelve-Month
In thousands of
dollars                   Change        Percent         Change        Percent         Change        Percent
Personal                $    5,161            4.8 %   $    5,151            5.0 %   $      914            0.8 %
Business, including
commercial mortgages        (1,562 )         -0.5 %        9,244            2.8 %        4,080            1.2 %
Tax exempt                     (68 )         -3.9 %         (287 )        -14.0 %         (356 )        -16.8 %
Residential mortgage           685            0.8 %          372            0.4 %         (188 )         -0.2 %
Construction and
development                 (2,564 )         -6.6 %       (1,065 )         -2.7 %       (2,605 )         -6.3 %
Deferred loan fees
and costs                      119           24.4 %          162           49.7 %          138           39.4 %
Total portfolio loans   $    1,771            0.3 %   $   13,577            2.4 %   $    1,983            0.3 %

Total portfolio loan balances increased by $13.6 million, or 2.4%, from December 31, 2011 and $2.0 million, or 0.3%, from June 30, 2011. Personal loans on the Company's balance sheet included home equity lines of credit, direct and indirect loans for automobiles, boats, recreational vehicles and other items for personal use. Most of the Company's growth in portfolio loans in the second quarter of 2012 was in personal loans. Personal loan balances increased by $5.2 million, or 4.8% in the second quarter of 2012, and grew by 0.8% in the twelve months ended June 30, 2012. Business loan balances decreased by $1.6 million, or 0.5%, in the second quarter of 2012, but have increased by $9.2 million since December 31, 2011 and $4.1 million, or 1.2%, over the twelve months ended June 30, 2012. Growth of business loans in the first six months of 2012 reflects an improvement in loan demand, net of write-downs, charge-offs and payoffs.

The Bank generally sells its production of fixed-rate residential mortgages on the secondary market, and retains high credit quality residential mortgage loans that are not otherwise eligible to be sold on the secondary market and shorter-term adjustable rate residential mortgages in its portfolio. As a result, the mix of residential mortgage production for any given year will have an impact on the amount of residential mortgages held in the portfolio of the Bank. The Bank continues to experience significant volume in residential real estate mortgage financing, and this includes the refinancing of some portfolio loans and sale of those loans on the secondary market. Portfolio balances of residential mortgages increased by 0.8% in the second quarter of 2012 and have declined by 0.2% in the twelve months ended June 30, 2012.

The Bank's loan portfolio includes $4.4 million of purchased participations in business loans originated by other institutions. These participations represent 0.7% of total loans, and are the result of participations purchased from other Michigan community banks.

Outstanding balances of loans for construction and development have declined by $2.6 million in the second quarter of 2012 and since June 30, 2011. Residential construction loans generally convert to residential mortgages to be retained in the Bank's portfolio or to be sold in the secondary market, while commercial construction loans generally will be converted to commercial mortgages.

Credit Quality

The Bank's credit quality measures have continued to show improvement in recent quarters.

Nonperforming Assets. The Company actively monitors delinquencies, nonperforming assets and potential problem loans. The accrual of interest income is discontinued when a loan becomes ninety days past due unless the loan is both well secured and in the process of collection, or the borrower's capacity to repay the loan and the collateral value appears sufficient.

The chart below shows the amount of nonperforming assets by category for the past five quarters.

In thousands of dollars            6/30/12        3/31/12        12/31/11       9/30/11        6/30/11
Nonaccrual loans                  $   25,634     $   25,958     $   25,754     $   29,392     $   28,099
Accruing loans past due 90 days
or more                                  242             13             31            386          3,138
Total nonperforming loans             25,876         25,971         25,785         29,778         31,237
Nonperforming loans % of total
portfolio loans                         4.48 %         4.51 %         4.57 %         5.16 %         5.43 %
Allowance coverage of
nonperforming loans                     85.4 %         81.0 %         80.0 %         81.8 %         81.2 %

Other assets owned                     3,392          3,484          3,669          4,301          4,967
Total nonperforming assets        $   29,268     $   29,455     $   29,454     $   34,079     $   36,204
Nonperforming assets % of total
assets                                  3.31 %         3.22 %         3.33 %         3.81 %         4.20 %

Loans delinquent 30-89 days       $    2,070     $    3,729     $    6,468     $    3,613     $    4,896

Accruing restructured loans
Business, including commercial
mortgages                         $    8,641     $    9,137     $   10,404     $   10,301     $   10,347
Construction and development           6,840          7,825          8,186          8,231          4,844
Residential mortgage                   3,284          3,293          3,078          2,569          3,667
Home Equity                              171            171            171            300              -
Total accruing restructured
loans                             $   18,936     $   20,426     $   21,839     $   21,401     $   18,858

Total nonaccrual loans have decreased by $2.5 million since June 30, 2011, while accruing loans past due 90 days or more have decreased by $2.9 million for the same period. The change in nonaccrual loans principally reflects the migration of some loans to nonaccrual status, net of the payoff or charge-off of some nonperforming loans. Subsequent payments on nonaccrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured.

Nonaccrual loans are returned to accrual status when, in the judgment of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.

Total nonperforming loans have increased by $91,000 since December 31, 2011, and have declined by $5.4 million since June 30, 2011. Total nonperforming loans as a percent of total portfolio loans were 4.48% at June 30, 2012, down from 4.57% and 5.43% at December 31 and June 30, 2011, respectively, while the ratio of allowance for loan losses to nonperforming loans improved from 81.2% and 80.0%, respectively, at June 30 and December 31, 2011 to 85.4% at June 30, 2012. Loan workout and collection efforts continue with all delinquent clients, in an effort to bring them back to performing status.

Other assets owned includes other real estate owned and other repossessed assets, which may include automobiles, boats and other personal property. Holdings of other assets owned decreased by $277,000 since the end of 2011 and $1.6 million since June 30, 2011, as the Bank

continued to sell other assets owned, while additional other assets owned have been added to its totals. At June 30, 2012, other real estate owned included twenty-seven properties that were acquired through foreclosure or in lieu of foreclosure. The properties included eighteen commercial properties, seven of which were the result of out-of-state loan participations, and nine residential properties. All properties are for sale. Other repossessed assets at June 30, 2012 consisted of one boat. . . .