<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
---------------------------------------------
Commission File Number: 0-16540
-------
UNITED BANCORP, INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter.)
OHIO 34-1405357
- --------------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
FOURTH AT HICKORY STREET, MARTINS FERRY, OHIO 43935
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(614) 633-0445
--------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of the issuer's classes of
common stock as of the latest practicable date.
COMMON STOCK, $1.00 PAR VALUE 2,035,035 SHARES AS OF AUGUST 4, 1997
<PAGE> 2
UNITED BANCORP, INC.
TABLE OF CONTENTS
FORM 10-Q
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets . . . June 30, 1997 and December 31, 1996...... 3
Condensed Consolidated Statements of Income . . . Three and Six Months Ended
June 30, 1997 and 1996 .............................................................. 4
Condensed Consolidated Statements of Cash Flows . . . Six Months Ended
June 30, 1997 and 1996 .............................................................. 5
Notes to Condensed Consolidated Financial Statements ............................ 6 - 17
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................................... 18 - 24
PART II OTHER INFORMATION
ITEM 1.
Legal Proceedings ................................................................... 25
ITEM 2.
Changes in Securities ............................................................... 25
ITEM 3.
Default Upon Senior Securities ...................................................... 25
ITEM 4.
Submission of Matters to a Vote of Security Holders ................................. 25
ITEM 5.
Other Information ................................................................... 25
ITEM 6.
Exhibits and Reports on Form 8-K .................................................... 25
Signatures .......................................................................... 26
</TABLE>
2
<PAGE> 3
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
FORM 10-Q (IN THOUSANDS)
PART I FINANCIAL INFORMATION
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,688 $ 6,394
Federal funds sold - 225
------------ ------------
Total cash and cash equivalents 6,688 6,619
Securities available for sale 28,070 28,064
Securities held to maturity
(Estimated fair value of $30,104 at 06/30/97 and $30,252 at 12/31/96) 29,486 29,794
Loans receivable
Commercial loans 14,579 12,415
Commercial real estate loans 41,720 41,213
Real estate loans 32,917 33,886
Installment loans 46,631 45,147
------------ ------------
Total loans receivable 135,847 132,661
Allowance for loan losses (2,187) (2,023)
------------ ------------
Net loans receivable 133,660 130,638
Premises and equipment, net 5,274 5,185
Accrued interest receivable and other assets 2,460 2,065
------------ ------------
Total Assets $ 205,638 $ 202,365
============ ============
LIABILITIES
Demand deposits
Noninterest bearing $ 12,450 $ 13,384
Interest bearing 25,798 26,815
Savings deposits 51,050 49,882
Time deposits - under $100,000 67,587 67,491
Time deposits - $100,000 and over 14,202 13,940
------------ ------------
Total deposits 171,087 171,512
Securities sold under agreements to repurchase 8,133 8,642
Other borrowed funds 3,959 704
Accrued expenses and other liabilities 1,472 1,491
------------ ------------
Total Liabilities 184,651 182,349
SHAREHOLDERS' EQUITY
Common stock - $1 Par Value: 10,000,000 shares authorized;
2,035,035 - 06/30/97 and 2,033,385 - 12/31/96 issued and outstanding 2,035 2,033
Additional-paid-in-capital 11,749 11,726
Retained earnings 7,039 6,115
Unrealized gain on securities available for sale, net of tax 164 142
------------ ------------
Total Shareholders' Equity 20,987 20,016
------------ ------------
Total Liabilities and Shareholders' Equity $ 205,638 $ 202,365
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FORM 10-Q (IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1997 1996 1997 1996
------------------------- -------------------------
<S> <C> <C> <C> <C>
Interest and dividend income
Loans, including fees $ 3,101 $ 2,808 $ 6,105 $ 5,593
Taxable securities 590 562 1,175 1,165
Non-taxable securities 278 266 555 512
Other interest and dividend income 35 66 56 92
--------- --------- --------- ---------
Total interest and dividend income 4,004 3,702 7,891 7,362
Interest expense
Deposits
Demand 172 162 330 315
Savings 394 384 767 751
Time 1,126 1,019 2,231 2,046
Other borrowed funds 116 81 226 167
--------- --------- --------- ---------
Total interest expense 1,808 1,646 3,554 3,279
NET INTEREST INCOME 2,196 2,056 4,337 4,083
Provision for loan losses (111) (122) (222) (233)
--------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,085 1,934 4,115 3,850
Noninterest income
Service charges on deposit accounts 148 158 286 301
Security gains - net - 27 - 27
Other income 63 58 163 157
--------- --------- --------- ---------
Total noninterest income 211 243 449 485
Noninterest expense
Salaries and employee benefits 718 668 1,416 1,351
Occupancy 146 148 303 283
Other expenses 527 507 1,046 978
--------- --------- --------- ---------
Total noninterest expense 1,391 1,323 2,765 2,612
INCOME BEFORE INCOME TAXES 905 854 1,799 1,723
Income tax expense 212 196 428 418
--------- --------- --------- ---------
NET INCOME $ 693 $ 658 $ 1,371 $ 1,305
========= ========= ========= =========
Earnings per common share $ 0.34 $ 0.32 $ 0.67 $ 0.64
Weighted average shares outstanding 2,034 2,033 2,034 2,033
Dividends per common share $ 0.11 $ 0.11 $ 0.22 $ 0.21
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FORM 10-Q (IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1996
-------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,371 $ 1,305
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 229 214
Amortization of intangibles 33 42
Provision for loan losses 222 233
Deferred taxes (37) 26
Federal Home Loan Bank stock dividend (22) (11)
Gain on sale/call of securities - (27)
(Accretion)/amortization of securities, net (7) 5
Gain on sale of other real estate owned (5) -
Net changes in accrued interest receivable and other assets (428) (302)
Net changes in accrued expenses and other liabilities 6 (183)
--------- ---------
Net cash from operating activities 1,362 1,302
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale
Proceeds from sales - 3,015
Proceeds from maturities/calls 5,502 8,250
Purchases (5,424) (8,120)
Securities held to maturity
Proceeds from maturities/calls 681 2,806
Purchases (393) (4,406)
Net change in loans (3,269) (3,479)
Net purchases of premises and equipment (318) (645)
Proceeds from sale of other real estate owned 30 -
--------- ---------
Net cash from investing activities (3,191) (2,579)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits (425) (236)
Net change in short-term borrowings 2,308 1,190
Proceeds from long-term debt 465 -
Principal payments on long-term debt (28) -
Proceeds from exercise of stock options 23 -
Tax benefit from exercise of stock options 2 -
Cash dividends paid (447) (429)
--------- ---------
Net cash from financing activities 1,898 525
--------- ---------
Net change in cash and cash equivalents 69 (752)
Cash and cash equivalents at beginning of year 6,619 6,982
--------- ---------
Cash and cash equivalents at end of period $ 6,688 $ 6,230
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FORM 10-Q
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements are prepared without audit and
reflect all adjustments which, in the opinion of management, are necessary
to present fairly the consolidated financial position of the Company at
June 30, 1997 and its results of operations and statements of cash flows
for the periods presented. These adjustments are of a normal and
recurring nature. The accompanying condensed consolidated financial
statements do not purport to contain all the necessary financial
disclosures required by generally accepted accounting principles that
might otherwise be necessary in the circumstances and should be read in
conjunction with the 1996 United Bancorp, Inc. consolidated financial
statements and related notes thereto included in its Annual Report To
Shareholders for the year ended December 31, 1996.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of United
Bancorp, Inc. (Company) and its wholly owned subsidiaries, (Banks) The
Citizens Savings Bank, Martins Ferry, Ohio (Citizens-Martins Ferry) and
The Citizens-State Bank of Strasburg, Strasburg, Ohio
(Citizens-Strasburg). All significant intercompany transactions and
balances have been eliminated in consolidation. The results of operations
for the period ended June 30, 1997 are not necessarily indicative of the
operating results for the full year of 1997.
NATURE OF OPERATIONS:
The Company and Banks' revenues, operating income and assets are
primarily from the banking industry. Citizens-Martins Ferry's loan
customers are located in Belmont and Jefferson counties in eastern Ohio
and Marshall and Ohio counties in the northern panhandle of West Virginia.
Citizens-Strasburg's loan customers are located in Tuscarawas and Carroll
Counties. Both geographic locations include a wide range of individuals,
businesses and other organizations. A major portion of loans are secured
by various forms of collateral including real estate, business assets,
consumer property and other items, although borrower cash flow may also be
a primary source of payment. Citizens-Martins Ferry conducts its business
through its main office in Martins Ferry, Ohio and three branches located
in Bridgeport, Colerain and St. Clairsville, Ohio. Citizens-Strasburg
conducts its business through its main office in Strasburg, Ohio and its
four branches located in Dover, New Philadelphia, Sherrodsville and
Dellroy, Ohio.
USE OF ESTIMATES:
To prepare financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions based on
available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided and
future results could differ. The collectibility of loans, fair values of
financial instruments and status of contingencies are particularly subject
to change.
CASH FLOW REPORTING:
Cash and cash equivalents are defined as cash and due from banks and
federal funds sold. Net cash flows are reported for customer loan and
deposit transactions, securities sold under agreements to repurchase and
short-term borrowings. For the periods ended June 30, 1997 and June 30,
1996, the Company paid $3,576,000 and $3,304,000 in interest on deposits
and other borrowings and $504,000 and $485,000 for income taxes,
respectively.
6
<PAGE> 7
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FORM 10-Q
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES:
Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold
them to maturity. Securities are classified as available for sale when
they might be sold before maturity. Securities available for sale are
carried at fair value, with unrealized holding gains and losses reported
separately in shareholders' equity, net of tax. Securities are classified
as trading when held for short term periods in anticipation of market
gains and are carried at fair value. Securities are written down to fair
value when a decline in fair value is not temporary.
Gains and losses on sales are determined using the amortized cost of
the specific security sold. Interest income includes amortization of
purchase premiums and discounts.
LOANS:
Loans are reported at the principal balance outstanding, net of
deferred loan fees and costs. Interest income is reported on the interest
method and includes amortization of net deferred loan fees and costs over
the loan term.
Interest income is not reported when full loan repayment is in doubt,
typically when payments are past due over 90 days. Payments received on
such loans are reported as principal reductions.
ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses is a valuation allowance, increased by
the provision for loan losses and decreased by charge-offs less
recoveries. Management estimates the allowance balance required based on
past loan loss experience, known and inherent risks in the portfolio,
information about specific borrower situations and estimated collateral
values, economic conditions and other factors. Allocations of the
allowance may be made for specific loans, but the entire allowance is
available for any loan that, in management's judgment, should be
charged-off.
Effective January 1, 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") Nos. 114 and 118,
which modify the accounting for impaired loans. A loan is considered
impaired when management believes that full collection of principal and
interest is not probable. The Company reduces the carrying value of
impaired loans to the present value of expected future cash flows, or to
the fair value of collateral if the loan is collateral dependent, by
allocating a portion of the allowance for loan losses to such loans. If
these allocations should require an increase to the allowance, such
increase is reported as bad debt expense.
7
<PAGE> 8
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FORM 10-Q
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR LOAN LOSSES: (CONTINUED)
Management analyzes commercial and commercial real estate loans on an
individual basis and classifies a loan as impaired when an analysis of the
borrower's operating results and financial condition indicates that
underlying cash flows are not adequate to meet its debt service
requirements. Often this is associated with a delay or shortfall in
payments of 30 days or more, or when the internal grading system indicates
a doubtful classification. Loan impairment is evaluated in total for
smaller-balance loans of similar nature. Such loans include residential
first mortgage loans secured by one-to-four family residences, residential
construction loans and consumer automobile, boat and home equity loans.
The carrying values of impaired loans are periodically adjusted to reflect
cash payments, revised estimates of future cash flows and increases in the
present value of expected cash flows due to the passage of time. Cash
payments representing interest income are reported as such. Other cash
payments are reported as reductions in carrying value, while increases or
decreases due to changes in future payments and due to the passage of time
are reported as part of the provision for loan losses.
PREMISES AND EQUIPMENT:
Asset cost is reported net of accumulated depreciation. Depreciation
expense is calculated on the straight-line method over asset useful lives.
These assets are reviewed for impairment when events indicate the
carrying amount may not be recoverable.
OTHER REAL ESTATE:
Real estate acquired in settlement of loans is initially reported at
estimated fair value at acquisition. After acquisition, a valuation
allowance reduces the reported amount to the lower of the initial amount
or fair value less costs to sell. Expenses, gains and losses on
disposition and changes in the valuation allowance are reported in other
expenses.
LOAN SERVICING:
The Company became subject to the provisions of SFAS No. 122,
"Accounting for Mortgage Servicing Rights," on January 1, 1996. This
Standard requires entities to recognize, as separate assets, rights to
service mortgage loans for others, regardless of how these rights are
acquired. Mortgage servicing rights acquired through either the purchase
or the origination of mortgage loans which are subsequently sold with
servicing rights retained should be determined by allocating the total
cost of the mortgage loans to mortgage servicing rights and to loans
(without the mortgage servicing rights) based on their relative fair
values. Mortgage servicing rights recorded as a separate asset are
amortized in proportion to, and over the period of, estimated net
servicing income. SFAS 122 did not have a material impact on the
Company's financial statements at January 1, 1996.
8
<PAGE> 9
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FORM 10-Q
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IDENTIFIED INTANGIBLES:
Identified intangibles include the value of depositor relationships
purchased which are being amortized on an accelerated method over eight
years. Identified intangibles also include a non-compete covenant and
capitalized organizational costs which are being amortized on a
straight-line method over five years. Identified intangibles are assessed
for impairment based on estimated undiscounted cash flows and written down
if necessary. At June 30, 1997 and December 31, 1996, identified
intangibles net of accumulated amortization totaled $141,183 and $173,638
and are included in other assets in the accompanying consolidated balance
sheets.
EMPLOYEE BENEFITS:
A defined benefit pension plan covers all employees who have
completed 1,000 hours of service during an anniversary year, measured from
their date of hire, who have attained age 21 and who were hired before age
60. The plan calls for benefits to be paid to eligible employees at
retirement, based primarily upon years of service and compensation rates
near retirement. Contributions to the plan reflect benefits attributed to
employees' services to date, as well as services expected to be earned in
the future. Plan assets consist of primarily common stock and
certificates of deposit.
Beginning March of 1995, the Company began offering a 401(k) plan
which covers all employees who have attained the age of 21 and have
completed one year of service. Eligible employees may contribute up to
15% of their compensation subject to a maximum statutory limitation. The
Company may make a discretionary matching contribution equal to a
percentage of each participant's elective deferral not to exceed 6% of the
participant's annual compensation. Employee contributions are always
vested. Employer contributions become 100% vested after 5 years of
service.
Expense of the defined benefit plan is reported by spreading the
expected contributions to the plan less long-term earnings on plan assets
over the employee's service period. Expense of the 401(k) plan is based
on the annual contribution.
STOCK COMPENSATION:
Expense for employee compensation under stock option plans is based
on Opinion 25, with expense reported only if options are granted below
market price at grant date.
INCOME TAXES:
Income tax expense is the sum of the current year income tax due or
refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax
consequences of temporary differences between the carrying amounts and tax
bases of assets and liabilities, computed using enacted tax rates. A
valuation allowance, if needed, reduces deferred tax assets to the amount
expected to be realized.
9
<PAGE> 10
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FORM 10-Q
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK DIVIDENDS:
Dividends issued in stock are reported by transferring the market
value of the stock issued from retained earnings to common stock and
additional paid-in-capital. Stock splits are recorded by transferring the
par value of shares issued from retained earnings to common stock. On
April 17, 1996, a 10% stock dividend was approved for all shareholders of
record on May 20, 1996 and distributed on June 20, 1996.
EARNINGS AND DIVIDENDS PER COMMON SHARE:
Earnings per common share is based on the weighted-average number of
shares outstanding for the period. Stock options outstanding do not
presently have a dilutive effect greater than or equal to 3% on earnings
per common share. All per share data has been retroactively adjusted for
the 10% stock dividend in 1996.
RECLASSIFICATIONS:
Some items in prior financial statements have been reclassified to
conform with the current presentation.
IMPACT OF RECENT ACCOUNTING STANDARDS:
SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," was issued by the Financial
Accounting Standards Board ("FASB") in 1996. It revises the accounting
for transfers of financial assets, such as loans and securities, and for
distinguishing between sales and secured borrowings. It was originally
effective for some transactions in 1997 and others in 1998. SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125" was issued in December 1996. SFAS No. 127 defers for one year
the effective date of provisions related to securities lending, repurchase
agreements and other similar transactions. The remaining portions of SFAS
No. 125 will continue to be effective January 1, 1997. SFAS No. 125 did
not have a material impact on the Company's financial statements.
In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share"
which is effective for financial statements for periods ending after
December 15, 1997, including interim periods. SFAS No. 128 simplifies the
calculation of earnings per share by replacing primary EPS with basic EPS.
It also requires dual presentation of basis EPS and diluted EPS for
entities with complex capital structures. Basic EPS includes no dilution
and is computed by dividing income available to common shareholders by the
weighted-average common shares outstanding for the period. Diluted EPS
reflects the potential dilution of securities that could share in earnings
such as stock options, warrants or other common stock equivalents. All
prior period EPS data will be restated to conform with the new
presentation.
10
<PAGE> 11
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FORM 10-Q
2. SECURITIES:
The amortized cost and estimated fair values of investment securities
are as follows:
<TABLE>
<CAPTION>
AMORTIZED GROSS GROSS ESTIMATED
COST UNREALIZED GAINS UNREALIZED LOSSES FAIR VALUE
-----------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE - JUNE 30, 1997
US Treasury obligations $ 3,246,423 $ 50,577 $ 3,297,000
US Agency obligations 23,460,428 169,755 $ (16,169) 23,614,014
State and Municipal obligations 456,765 22,924 479,689
Other investments 657,149 21,665 678,814
----------- ----------- ---------- -----------
$27,820,765 $ 264,921 $ (16,169) $28,069,517
=========== =========== ========== ===========
AVAILABLE FOR SALE - DECEMBER 31, 1996
US Treasury obligations $ 3,725,832 $ 73,570 $ 3,799,402
US Agency obligations 23,032,148 146,839 $ (35,153) 23,143,834
State and Municipal obligations 456,645 19,298 475,943
Other investments 635,175 9,675 644,850
----------- ----------- ---------- -----------
$27,849,800 $ 249,382 $ (35,153) $28,064,029
=========== =========== ========== ===========
HELD TO MATURITY - JUNE 30, 1997
US Agency obligations $ 8,999,764 $ 4,750 $ (43,189) $ 8,961,325
State and Municipal obligations 20,486,635 698,598 (42,158) 21,143,075
----------- ----------- ---------- -----------
$29,486,399 $ 703,348 $ (85,347) $30,104,400
=========== =========== ========== ===========
HELD TO MATURITY - DECEMBER 31, 1996
US Agency obligations $ 9,535,396 $ 1,000 $ (84,324) $ 9,452,072
State and Municipal obligations 20,258,388 634,056 (92,335) 20,800,109
----------- ----------- ---------- -----------
$29,793,784 $ 635,056 $ (176,659) $30,252,181
=========== =========== ========== ===========
</TABLE>
There were no sales of securities classified as available for sale
for the six month period ended June 30, 1997. Total proceeds from sales
of securities classified as available for sale for the six month period
ended June 30, 1996 were $3,015,469, with $26,520 realized as gross gains
on those sales.
11
<PAGE> 12
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FORM 10-Q
2. SECURITIES: (CONTINUED)
Contractual maturities of securities at June 30, 1997 were as
follows:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE AMORTIZED ESTIMATED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
US Treasury obligations
6 - 12 Months $ 488,139 $ 497,032
1 - 2 Years 2,758,284 2,799,968
----------- -----------
Total 3,246,423 3,297,000
----------- -----------
US Agency obligations
0 - 3 Months 500,000 500,312
3 - 6 Months 1,950,000 1,964,358
6 - 12 Months 1,001,406 1,009,062
1 - 2 Years 1,482,623 1,497,556
2 - 5 Years 11,332,383 11,386,840
5 - 10 Years 7,194,016 7,255,886
----------- -----------
Total 23,460,428 23,614,014
----------- -----------
State and municipal obligations
5 - 10 Years 336,765 352,969
Over 10 Years 120,000 126,720
----------- -----------
Total 456,765 479,689
----------- -----------
Other investments
Equity securities 657,149 678,814
----------- -----------
Total securities available for sale $27,820,765 $28,069,517
=========== ===========
HELD TO MATURITY
US Agency obligations
3 - 6 Months $ 999,999 $ 999,375
6 - 12 Months 2,500,000 2,492,618
1 - 2 Years 4,499,765 4,471,481
2 - 5 Years 1,000,000 997,851
----------- -----------
Total $ 8,999,764 $ 8,961,325
----------- -----------
State and municipal obligations
0 - 3 Months 145,034 145,084
3 - 6 Months 345,704 345,254
1 - 2 Years 792,159 814,400
2 - 5 Years 7,518,182 7,778,903
5 - 10 Years 11,579,438 11,953,623
Over 10 Years 106,118 105,811
----------- -----------
Total 20,486,635 21,143,075
----------- -----------
Total securities held to maturity $29,486,399 $30,104,400
=========== ===========
</TABLE>
12
<PAGE> 13
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FORM 10-Q
2. SECURITIES (CONTINUED)
Securities with an amortized cost of approximately $25,625,000 at
June 30, 1997 and $25,125,000 at December 31, 1996 were pledged to secure
public deposits, repurchase agreements and other liabilities as required
or permitted by law.
3. LOANS
Loans to directors and officers, their immediate families, affiliated
corporations, and other entities in which they own more than a 10% voting
interest are summarized below:
<TABLE>
<S> <C>
Aggregate balance - December 31, 1996 $ 2,135,565
New loans 1,276,961
Repayments (1,100,107)
----------------
Aggregate balance - June 30, 1997 $ 2,312,419
================
</TABLE>
4. ALLOWANCE FOR LOAN LOSSES
The allowance in the allowance for loan losses is summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Balance 01/01/97 and 01/01/96 $2,022,987 $1,775,383
Provision charged to operating expense 222,000 455,400
Loans charged-off (86,367) (251,241)
Recoveries 28,024 43,445
---------- ----------
Balance 06/30/97 and 12/31/96 $2,186,644 $2,022,987
========== ==========
</TABLE>
Loans considered impaired under the provisions of SFAS No. 114 were
not material at June 30, 1997 and December 31, 1996 and during the six
months ended June 30, 1997 and 1996.
5. PREMISES AND EQUIPMENT
Premises and equipment at June 30, 1997 and December 31, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Buildings and land $5,297,327 $5,297,242
Buildings - leasehold 207,535 -
Furniture and equipment improvements 2,607,544 2,649,536
Furniture and equipment - leasehold improvements 67,461 -
Computer software 648,352 637,629
---------- ----------
TOTAL 8,828,219 8,584,407
Accumulated depreciation 3,554,173 3,399,625
---------- ----------
PREMISES AND EQUIPMENT, NET $5,274,046 $5,184,782
========== ==========
</TABLE>
13
<PAGE> 14
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FORM 10-Q
5. PREMISES AND EQUIPMENT (CONTINUED)
On April 1, 1997, Citizens-Martins Ferry entered into a five year
noncancelable operating lease for an in-store banking facility. The lease
may be renewed for up to two additional five-year terms after March 31,
2002. Annual rent expense during the initial term of the lease is
$22,500. Annual rent during the second and third five year terms would be
$26,000 and $30,000, respectively. Rental expense through June 30, 1997
was $5,625. Future lease payments are as follows:
<TABLE>
<S> <C>
Year ended June 30, 1998 $ 22,500
1989 22,500
2000 22,500
2001 22,500
2002 16,875
--------
$106,875
========
</TABLE>
6. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are financing
arrangements whereby the Banks sell securities and agree 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:
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
ENDED ENDED
JUNE 30, DECEMBER 31,
1997 1996
---------- ----------
<S> <C> <C>
Average daily balance during the period $7,802,070 $6,523,271
Average interest rate during the period 4.37% 4.30%
Maximum month-end balance during the period $8,658,035 $8,667,310
</TABLE>
Securities underlying these agreements were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ----------
<S> <C> <C>
Carrying value of securities $9,571,440 $9,574,054
Fair value of securities 9,680,723 9,606,556
</TABLE>
14
<PAGE> 15
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FORM 10-Q
7. COMMITMENTS AND CONTINGENCIES
There are various contingent liabilities that are not reflected in
the financial statements, including claims and legal actions arising in
the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters
is not expected to have a material effect on financial condition or
results of operations.
Some financial instruments are used in the normal course of business
to meet the financing needs of customers. These financial instruments
include commitments to extend credit, standby letters of credit and
financial guarantees. These involve, to varying degrees, credit and
interest-rate risk in excess of the amount reported in the financial
statements.
Exposure to credit loss if the other party does not perform is
represented by the contractual amount for commitments to extend credit,
standby letters of credit and financial guarantees written. The same
credit policies are used for commitments and conditional obligations as
are used for loans. The amount of collateral obtained, if deemed
necessary, upon extension of credit is based on management's credit
evaluation. Collateral varies, but may include accounts receivable,
inventory, property, equipment, income-producing commercial properties,
residential real estate and consumer assets.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
commitment. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being used, the total
commitments does not necessarily represent future cash requirements.
Standby letters of credit and financial guarantees written are conditional
commitments to guarantee a customer's performance to a third party.
A summary of the notional or contractual amounts of financial
instruments with off-balance sheet risk at June 30, 1997 and December 31,
1996 follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
Commitments to extend credit $15,989,380 $11,751,000
Standby letters of credit 156,000 156,000
----------- -----------
$16,145,380 $11,907,000
=========== ===========
</TABLE>
At June 30, 1997 and December 31, 1996 and included above,
commitments to make fixed-rate loans at current market rates totaled
$83,000 and $80,000, respectively with the interest rates on those
fixed-rate commitments ranging from 7.84% to 10.50% and 7.84% to 9.99%,
respectively.
At June 30, 1997 and December 31, 1996, reserves of $676,000 were
required as deposits with the Federal Reserve or as cash on hand. These
reserves do not earn interest.
15
<PAGE> 16
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FORM 10-Q
8. CONCENTRATION OF CREDIT RISK
The Banks grant commercial, commercial real estate, real estate and
installment loans to customers in Belmont and Jefferson counties in
eastern Ohio and Tuscarawas and Carroll Counties in northeastern Ohio.
The Banks also grant commercial and commercial real estate loans in the
Columbus, Ohio area. Substantially all loans are secured by specific
items of collateral including business assets, consumer assets, commercial
real estate and residential real estate. At June 30, 1997 and December
31, 1996, total commercial and commercial real estate loans made up 41.4%
and 40.4%, respectively of the loan portfolio, with 24.6% and 29.4% of
these loans secured by commercial and residential real estate and business
assets in the Columbus, Ohio area. At June 30, 1997 and December 31,
1996, installment loans account for 34.3% and 34.0% of the loan portfolio
and are secured by consumer assets including automobiles which account for
83.9% and 83.1%, respectively of the installment loan portfolio. Real
estate loans comprise 24.2% and 25.5% of the loan portfolio as of June 30,
1997 and December 31, 1996, respectively, and primarily include first
mortgage loans on residential properties and home equity lines of credit.
Included in cash and due from banks and Federal funds sold as of June
30, 1997 and December 31, 1996 is $3,411,651 and $3,639,127, respectively
on deposit with a correspondent bank.
9. STOCK OPTIONS
The Company adopted a nonqualified stock option plan for directors
and bank holding company officers in 1995. The plan was subsequently
ratified by shareholders on April 17, 1996. The exercise price for
options granted under this plan will be no less than 100% of the fair
market value of the shares on the date of grant.
<TABLE>
<CAPTION>
AVERAGE
EXERCISE
SHARES PRICE
------ --------
<S> <C> <C>
Outstanding at December 31, 1996 71,350 $ 13.60
Granted - -
Exercised (1,650) 13.59
Forfeited (1,650) 13.59
------ --------
Outstanding at June 30, 1997 68,050 $ 13.60
====== ========
Remaining shares available for
grant at June 30, 1997 31,937
Options exercisable at June 30, 1997 -
</TABLE>
16
<PAGE> 17
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FORM 10-Q
9. STOCK OPTIONS (CONTINUED)
The following table summarizes information about stock options outstanding
at June 30, 1997:
<TABLE>
<CAPTION>
NUMBER NUMBER
EXERCISE OUTSTANDING DATE OF EXERCISABLE
PRICE AT 06/30/97 EXPIRATION AT 06/30/97
-------- ----------- ---------- -----------
<S> <C> <C> <C>
$ 13.59 66,550 11/21/05 -
14.26 1,500 11/21/05 -
</TABLE>
The options are first exercisable after February 21, 2005, except in
the event certain financial performance criteria are met, in which case
such options may become exercisable in installment, 40% in 1998, 20% in
1999 and the balance in 2000. All options become immediately exercisable
upon retirement, death or in the event of a change in control of the
Company.
10. DIVIDEND RESTRICTION
Dividends paid by the subsidiary banks are the primary source of
funds available to the Company for payment of dividends to shareholders
and for other working capital needs. Applicable state statutes and
regulations impose restrictions on the amount of dividends that may be
declared by the Company. Those restrictions generally limit dividends to
the current and prior two years earnings, (as defined), totaling
$4,821,940 as of June 30, 1997. In addition to these restrictions, as a
practical matter, dividend payments cannot reduce regulatory capital
levels below minimum regulatory guidelines. These restrictions would not
limit the Company's ability to pay normal dividends.
17
<PAGE> 18
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORM 10-Q
In the following pages, Management presents an analysis of United
Bancorp, Inc.'s financial condition at June 30, 1997 compared to December 31,
1996 and results of operations for the three and six months ended June 30, 1997
compared to the same periods in 1996. 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
financial statements and related footnotes and the selected financial data
included elsewhere in this report.
United Bancorp, Inc. was created as a single bank holding company in
July of 1983 through the acquisition of 100% of the voting stock of The Citizens
Savings Bank of Martins Ferry, Ohio. United Bancorp, Inc. became a multi-bank
holding company in December of 1986 through the purchase of 100% of the voting
stock of The Citizens-State Bank of Strasburg, Strasburg, Ohio. Common stock
was available through over-the-counter trading until February 1994 when it began
trading on The Nasdaq SmallCaps Market tier of The Nasdaq Stock Market under the
trading symbol UBCP.
The Citizens Savings Bank (Citizens-Martins Ferry), originally
established as The German Savings Bank in 1902, remains the lead bank in the
multi-bank holding company and continues as an integral part of the development
of the commercial and residential base in Martins Ferry and other local
communities. The Bank expanded its market through the construction of a full
service branch banking facility six miles west in nearby Colerain, Ohio in
1974. Expansion opportunities continued in 1978 with the construction of
another full service branch bank in Bridgeport, Ohio, located two miles south
of Martins Ferry. A limited service auto-teller facility was opened in Martins
Ferry in 1980, one block south of the former main office location. An
Automated Teller Machine (ATM) began operation in nearby Aetnaville, Ohio in
1983, providing additional 24 hour limited banking services to area residents.
The main banking facility outgrew the physical limitations of its previous
location and subsequently relocated in 1984 to a newly constructed 21,500
square foot addition to the auto-teller facility mentioned above. On June 16,
1997 an in-store retail banking sales center was opened within a local area
food store in St. Clairsville, Ohio. This newest banking facility is open
seven days a week providing full-service banking to an expanding new market.
The site also includes a free standing ATM for additional customer service.
The Citizens-State Bank of Strasburg (Citizens-Strasburg), was also
established in 1902 and is located in an area of northeastern Ohio whose economy
is supported by agriculture and light industry. Additionally, it benefits as a
"bedroom community" for the Akron-Canton metropolitan area. Citizens-Strasburg
joined the bank holding company in 1986 through the acquisition of 100% of its
voting stock by UBCP. Citizens-Strasburg constructed a new full service banking
facility in Dover, Ohio in 1990. This expansion was soon followed with the
acquisition of two branch banking facilities in New Philadelphia and
Sherrodsville in 1992. Additionally, a branch banking facility located in
Dellroy, Ohio was acquired in 1994. This most recent acquisition brought the
number of offices to five for Citizens-Strasburg and nine overall for UBCP.
18
<PAGE> 19
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORM 10-Q
FINANCIAL CONDITION
EARNING ASSETS - LOANS
At June 30, 1997, gross loans were $135,847,000 compared to $132,661,000
at year-end 1996, representing a 2.4% increase in loan volume. Loan growth was
hampered by a weakened local economy in the Citizens-Martins Ferry market area
resulting from the continuation of a prolonged work-stoppage at the
Wheeling-Pittsburgh Steel Corporation plants located throughout the greater Ohio
Valley. Real estate loan origination volume is expected to increase due to the
Banks' involvement in the secondary market program, however, as these loans will
be sold, the balance of real estate loans held in the portfolio is expected to
decline.
Installment loans, with continued emphasis placed on the indirect
automobile lending market located primarily within the Citizens-Martins Ferry
market area, increased a modest $1,484,000, or 3.3% at June 30, 1997 compared to
year-end 1996. Installment lending represented 34.3% of the entire portfolio
mix at June 30, 1997, up slightly from 34.0% at year-end 1996. The indirect
lending type of financing carries somewhat more risk than real estate lending,
however, it also provides for potentially higher yields. The targeted lending
areas encompass four metropolitan areas, minimizing the risk to changes in
economic conditions in the communities housing the Company's nine banking
locations. Despite the geographic market diversification, the Company's
installment lending activity has slowed due to the work stoppage cited above
within the Citizens-Martins Ferry market area.
Commercial real estate loans at June 30, 1997 increased $507,000 or 1.2%
over year-end 1996 totals. Commercial loans at June 30, 1997 increased
$2,164,000, or 17.4% over year-end 1996 totals. Commercial real estate loans
declined in relation to the total portfolio mix to 30.7% at June 30, 1997 from
31.1% at year-end 1996. Commercial loans increased to 10.7% of the portfolio at
June 30, 1997 compared to 9.4% at year-end 1996. Only slight to moderate
commercial loan growth is anticipated throughout the remainder of 1997.
Out of area loans occur mostly in the Columbus and Akron-Canton, Ohio
areas. Lending beyond the local area has been for projects and borrowers with
substantial net worth. The majority of these loans are secured by real estate
holdings comprised of hotels, motels and churches located in various geographic
locations minimizing potential risks associated with lending activities specific
to a limited area. Out of area loans at June 30, 1997 were 10.2% of total loans
and 24.6% of total commercial and commercial real estate loans compared to 11.9%
and 29.4% at year-end 1996.
Real estate loans were 24.2% of total loans at June 30, 1997 compared to
25.5% at year-end 1996. As indicated above, the Banks' involvement in the
secondary market program should yield increases in loan origination volume,
however, it is anticipated that borrower preferences will favor the secondary
market product offerings with a decline expected in real estate loans held
within the loan portfolio.
19
<PAGE> 20
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORM 10-Q
EARNING ASSETS - LOANS (CONTINUED)
The allowance for loan losses represents the amount which management and
the Board of Directors estimates is adequate to provide for inherent losses in
the loan portfolio. The allowance balance and the annual provision charged to
expense are reviewed by management and the Board of Directors monthly using a
risk code model that considers borrowers past due experience, economic
conditions and various other circumstances that are subject to change over
time. Management believes the balance of the allowance for loan losses
currently in place continues to be sufficient to deal with potential losses
associated with the aforementioned work stoppage. Charge-offs for the six
months ended June 30, 1997 were 20.3% less than the total for the same six
month period in 1996.
EARNING ASSETS - SECURITIES AND FEDERAL FUNDS SOLD
The securities portfolio is comprised of U.S. Treasury notes and other
U.S. Government agency-backed securities, tax-exempt obligations of states and
political subdivisions and certain other investments. The Company does not hold
any collateralized mortgage-backed securities, other than those issued by U.S.
government agencies or derivative securities. The quality rating of obligations
of state and political subdivisions within Ohio is no less than Aaa, Aa or A,
with all out-of-state bonds rated at AAA. Board policy permits the purchase of
certain non-rated bonds of local schools, townships and municipalities, based on
their known levels of credit risk.
Securities available for sale at June 30, 1997, net of the unrealized
gain market value adjustment of $249,000 (before tax effect), decreased $29,000.
from year-end 1996 totals, net of an unrealized gain market value adjustment of
approximately $214,000 (before tax effect) at year-end 1996. Securities held to
maturity decreased a net $307,000 at June 30, 1997 compared to year-end 1996
totals. Management anticipates maintaining relatively stable levels of
securities, utilizing excess deposit growth to fund future loan development.
SOURCES OF FUNDS - DEPOSITS
The Company's primary source of funds is core deposits from retail and
business customers. These core deposits include interest-bearing and
noninterest-bearing deposits, excluding certificates of deposit over $100,000.
Total core deposits decreased $687,000 during the six months ended June 30, 1997
due to pricing of those products being slightly below the market area.
Management has chosen to concentrate on earnings performance during the first
six months of the year with renewed emphasis to be placed on deposit growth
during the second half of the year dependent upon the outcome of the work
stoppage within the Citizens-Martins Ferry market place cited earlier. The
Company has a strong deposit base from 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 fairly
static balances with the Company due to various funding and disbursement
timeframes.
Certificates of deposit over $100,000 are not considered part of core
deposits and as such are used to balance rate sensitivity as a tool of funds
management. At June 30, 1997, certificates of deposit over $100,000 increased
$262,000 over year-end 1996 totals.
20
<PAGE> 21
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORM 10-Q
SOURCES OF FUNDS - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND
OTHER SHORT-TERM BORROWINGS
Other interest-bearing liabilities include securities sold under
agreements to repurchase, sweep accounts, Federal funds purchased, Treasury, Tax
& Loan note payable and Federal Home Loan Bank advances. Total short-term
borrowings at June 30, 1997 increased $2,746,000 from management's utilization
of FHLB lines of credit, matched loans and overnight federal funds purchased for
funding loan growth. Short-term borrowing sources were used rather than
longer-term deposits due to the uncertainty of future loan demand due to the
aforementioned work stoppage.
PERFORMANCE OVERVIEW
NET INCOME
Net income for the three and six months ended June 30, 1997 was
$693,000, or 5.32% over the three months ended June 30, 1996 and $1,371,000, or
5.06% over the six months ended June 30, 1996. This equates to an annualized
income performance of 1.35% Return on Average Assets (ROA) and a 13.40% Return
on Average Equity (ROE).
NET INTEREST INCOME
Net interest income, by definition, is the difference between interest
income generated on interest-earning assets and the interest expense incurred on
interest-bearing liabilities. Various factors contribute to changes in net
interest income, including volumes, interest rates and the composition or mix of
interest-earning assets in relation to interest-bearing liabilities. Net
interest income for the three and six months ended June 30, 1997 increased
$140,000, or 6.8% and $254,000, or 6.2%, respectively over the same periods in
1996. The increases mirror the growth in total assets since June 30, 1996. The
Company's net interest spread has remained relatively stable over the past year.
Consequently, the increases in net interest income over the comparative prior
periods is largely due to growth.
Total interest income for the three and six months ended June 30, 1997
increased $302,000, or 8.2% and $529,000, or 7.2%, respectively over the same
periods in 1996. The increases in interest income slightly outpace the growth
in assets primarily because the growth occurred in the loan portfolio which
traditionally yields a higher return than the security portfolio or other
short-term investments.
Total interest expense for the three and six months ended June 30, 1997
increased $161,000, or 9.8% and $275,000, or 8.4%, respectively over the same
periods in 1996. Management has funded loan growth through borrowed funds of
short duration rather than increase the cost of funds across the board on
depository products. As future events unfold, pricing strategies will be
implemented to enhance the Company's position to attract additional deposits.
21
<PAGE> 22
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORM 10-Q
PROVISION FOR LOAN LOSSES
The provision for loan losses is an operating expense recorded to
maintain the related balance sheet allowance for loan losses at an amount
considered adequate to cover losses that may occur in the normal course of
lending. The total provision for loan losses was $111,000 and $222,000 for the
three and six months ended June 30, 1997 compared to $122,000 and $233,000 for
the three and six months ended June 30, 1996. If events in the
Wheeling-Pittsburgh Steel work stoppage mentioned above unfold in ways
unforeseen, changes to the provision amount would be initiated as management
deems appropriate.
NONINTEREST INCOME
Total noninterest income is made up of Bank related fees and service
charges, as well as other income producing services provided, including ATM
income, early redemption penalties for certificates of deposits, safe deposit
rental income and other miscellaneous items. Noninterest income for the three
and six months ended June 30, 1997 decreased $32,000, or 13.2% and $36,000, or
7.4% over the same periods in 1996. The prior comparative periods include
$27,000 in security gains recognized on the sale of securities available for
sale during 1996. Changes related to other noninterest income net of the
security gains were minimal for the three and six months ended June 30, 1997.
NONINTEREST EXPENSE
Noninterest expense for the three and six months ended June 30, 1997
increased $68,000, or 5.1% and $153,000, or 5.9% over the three and six months
ended June 30, 1996. Increases in salaries and employee benefits and other
related expenses attributable to the in-store banking facility in St.
Clairsville, Ohio contributed most to the increase in noninterest expenses for
the period.
CAPITAL RESOURCES
Internal capital growth, through the retention of earnings, is the
primary means of maintaining capital adequacy for the Company. Shareholders'
equity at June 30, 1997 was $20,987,000 compared to $20,016,000 at December 31,
1996, a 4.9% increase. Equity at June 30, 1997 includes a $164,000 unrecognized
increase in equity due to the after tax impact of the fair value of securities
categorized as available for sale as compared to a $142,000 increase in equity
at December 31, 1996. Total shareholders' equity in relation to total assets was
10.2% at June 30, 1997 and 9.9% at December 31, 1996.
During 1996, the Company initiated a Dividend Reinvestment Plan (The
Plan) for shareholders under which the Company's common stock will be purchased
by the Plan for participants with automatically reinvested dividends. The Plan
provides an economical and convenient method for the holders of shares of the
Company's common stock to purchase additional shares of common stock at market
prices and without payment of brokerage commissions or service charges. The
Plan does not represent a change in the Company's dividend policy or a guarantee
of future dividends. Shareholders who do not wish to participate in the Plan
will continue to receive cash dividends, as declared in the usual and customary
manner. The Company has approved the issuance of 150,000 authorized and unissued
shares of the Company's common stock for purchase under The Plan. To date, all
shares purchased by the Plan except for 797 shares purchased on October 21, 1996
have been purchased on the open market.
22
<PAGE> 23
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORM 10-Q
CAPITAL RESOURCES (CONTINUED)
The Company and Banks are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and
prompt corrective action regulations involve quantitative measures of assets,
liabilities and certain off-balance sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings and other
factors and the regulators can lower classifications in certain cases. Failure
to meet various capital requirements can initiate regulatory action that could
have a direct material effect on the Banks' operations.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized, although these
terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion and plans for capital restoration are required. The minimum
requirements are:
<TABLE>
<CAPTION>
TOTAL TIER 1 TIER 1
CAPITAL TO CAPITAL TO CAPITAL TO
RISK-WEIGHTED RISK-WEIGHTED AVERAGE
ASSETS ASSETS ASSETS
------------- ------------- ----------
<S> <C> <C> <C>
Well capitalized 10.00% 6.00% 5.00%
Adequately capitalized 8.00% 4.00% 4.00%
Undercapitalized 6.00% 3.00% 3.00%
</TABLE>
The following table illustrates the Company's risk-weighted capital
ratios at June 30, 1997:
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------
<S> <C>
Tier 1 capital $ 20,682,000
Total risk-based capital $ 22,423,000
Risk-weighted assets $ 138,835,000
Average total assets $ 204,946,000
Tier 1 capital to average assets 10.09%
Tier 1 risk-based capital ratio 14.90%
Total risk-based capital ratio 16.15%
</TABLE>
LIQUIDITY
Management's objective in managing liquidity is to maintain the ability
to continue to meet the cash flow needs of its customers, such as borrowings or
deposit withdrawals, as well as its own financial commitments. The principal
sources of liquidity are net income, loan payments, maturing securities and
sales of securities available for sale, federal funds sold and cash and deposits
with banks. Along with its liquid assets, the Banks have additional sources of
liquidity available to ensure that adequate funds are available as needed which
include, but are not limited to, the purchase of federal funds, the ability to
borrow funds under line of credit agreements with correspondent banks and a
borrowing agreement with the Federal Home Loan Bank of Cincinnati, Ohio and the
adjustment of interest rates to obtain depositors. Management feels that is has
the capital adequacy, profitability and reputation to meet the current and
projected needs of its customers.
23
<PAGE> 24
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORM 10-Q
LIQUIDITY (CONTINUED)
For the six months ended June 30, 1997, the adjustment to reconcile net
income to net cash from operating activities consisted mainly of depreciation
and amortization of premises and equipment and intangibles, the provision for
loan losses, net amortization of securities and net changes in other assets and
liabilities. For a more detailed illustration of sources and uses of cash,
refer to the condensed consolidated statements of cash flows.
INFLATION
Substantially all of the Company's assets and liabilities relate to
banking activities and are monetary in nature. The consolidated financial
statements and related financial data are presented in accordance with Generally
Accepted Accounting principles (GAAP). GAAP currently requires the Company to
measure the financial position and results of operations in terms of historical
dollars, with the exception of securities available-for-sale which are measured
at fair value. Changes in the value of money due to rising inflation can cause
purchasing power loss.
Management's opinion is that movements in interest rates affects the
financial condition and results of operations to a greater degree than changes
in the rate of inflation. It should be noted that interest rates and inflation
do effect each other, but do not always move in correlation with each other.
The Company's ability to match the interest sensitivity of its financial assets
to the interest sensitivity of its liabilities in its asset/liability management
may tend to minimize the effect of changes in interest rates on the Company's
performance.
REGULATORY REVIEW
The Company is subject to the regulatory requirements of The Federal
Reserve System as a multi-bank holding company. The affiliate banks are subject
to regulations of the Federal Deposit Insurance Corporation (FDIC) and the State
of Ohio, Division of Financial Institutions.
24
<PAGE> 25
UNITED BANCORP, INC.
OTHER INFORMATION
FORM 10-Q
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote of security
holders at the Annual Meeting of Shareholders' on April 16, 1997:
- Compensation for Outside Directors to continue to be set at
$1,000 per year as retainer and $250 per meeting attended.
Roll Call: Ayes: 1,572,068 Nays: 34,766 Abstaining: 23,542
- Number of Directors to be set at a minimum of nine and a maximum
of thirteen.
Roll Call: Ayes: 1,628,752 Nays: 0 Abstaining: 368
- Election of Directors for the Class of 2000 to include the
following:
James W. Everson Ayes: 1,628,852 Nays: 0 Abstaining: 368
Errol C. Sambuco Ayes: 1,628,852 Nays: 0 Abstaining: 368
Matthew C. Thomas Ayes: 1,628,852 Nays: 0 Abstaining: 368
- Crowe, Chizek and Company LLP, Independent Certified Public
Accountants to continue to serve as the Company's external audit
firm for the fiscal year 1997.
Roll Call: Ayes: 1,629,082 Nays: 1,257 Abstaining: 38
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 K
(a) Exhibits
(b) Reports on Form 8 K
The Company filed no form 8 Ks with the Securities Exchange
Commission during the quarter ending June 30, 1997.
25
<PAGE> 26
UNITED BANCORP, INC.
OTHER INFORMATION
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
August 11, 1997 By:
- --------------- --------------------------------
Date James W. Everson
Chairman, President & Chief Executive
Officer
August 11, 1997 By:
- --------------- -------------------------------
Date Ronald S. Blake
Treasurer
26
<PAGE> 27
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,688
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,070
<INVESTMENTS-CARRYING> 29,486
<INVESTMENTS-MARKET> 30,104
<LOANS> 133,660
<ALLOWANCE> 2,187
<TOTAL-ASSETS> 205,638
<DEPOSITS> 171,087
<SHORT-TERM> 11,444
<LIABILITIES-OTHER> 1,472
<LONG-TERM> 648
0
0
<COMMON> 2,035
<OTHER-SE> 18,952
<TOTAL-LIABILITIES-AND-EQUITY> 205,638
<INTEREST-LOAN> 6,105
<INTEREST-INVEST> 1,730
<INTEREST-OTHER> 56
<INTEREST-TOTAL> 7,891
<INTEREST-DEPOSIT> 3,328
<INTEREST-EXPENSE> 3,554
<INTEREST-INCOME-NET> 4,337
<LOAN-LOSSES> 222
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,765
<INCOME-PRETAX> 1,799
<INCOME-PRE-EXTRAORDINARY> 1,371
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,371
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.67
<YIELD-ACTUAL> 4.53
<LOANS-NON> 412
<LOANS-PAST> 273
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,023
<CHARGE-OFFS> 86
<RECOVERIES> 28
<ALLOWANCE-CLOSE> 2,187
<ALLOWANCE-DOMESTIC> 2,187
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 458,603
</TABLE>
