<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, 1998
/ / 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 of (IRS Employer Identification No.)
incorporation or organization)
201 SOUTH 4TH STREET, MARTINS FERRY, OHIO 43935-0010
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(740) 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 2,667,314 SHARES AS OF JULY 27, 1998
------------------------------------------------------------------
<PAGE> 2
UNITED BANCORP, INC.
TABLE OF CONTENTS
FORM 10-Q
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets..................................3
Condensed Consolidated Statements of Income............................4
Condensed Consolidated Statements of Shareholders' Equity..............5
Condensed Consolidated Statements of Cash Flows........................6
Notes to Condensed Consolidated Financial Statements..............7 - 13
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................14 - 22
ITEM 3 Quantitative and Qualitative Disclosures About
Market Risk......................................................22 - 23
PART II OTHER INFORMATION
ITEM 1.
Legal Proceedings.....................................................24
ITEM 2.
Changes in Securities and Use of Proceeds.............................24
ITEM 3.
Default Upon Senior Securities........................................24
ITEM 4.
Submission of Matters to a Vote of Security Holders...................24
ITEM 5.
Other Information.....................................................24
ITEM 6.
Exhibits and Reports on Form 8-K......................................24
SIGNATURES..............................................................25
2
<PAGE> 3
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
FORM 10-Q (IN THOUSANDS)
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,760 $ 7,536
Federal funds sold 4,115 300
----------- -----------
Total cash and cash equivalents 9,875 7,836
Securities available for sale 32,329 31,201
Securities held to maturity
(Estimated fair value of $26,415 at 06/30/98 and $28,750 at 12/31/97) 25,726 27,992
Loans receivable
Commercial loans 12,440 14,385
Commercial real estate loans 48,194 45,593
Real estate loans 32,516 32,602
Installment loans 46,414 46,968
----------- -----------
Total loans receivable 139,564 139,548
Allowance for loan losses (2,153) (2,239)
----------- -----------
Net loans receivable 137,411 137,309
Premises and equipment, net 5,168 5,169
Accrued interest receivable and other assets 2,501 2,235
----------- -----------
Total Assets $ 213,010 $ 211,742
=========== ===========
LIABILITIES
Demand deposits
Noninterest bearing $ 13,702 $ 12,839
Interest bearing 27,734 26,527
Savings deposits 49,771 49,558
Time deposits - under $100,000 67,831 70,339
Time deposits - $100,000 and over 17,152 16,528
----------- -----------
Total deposits 176,190 175,791
Securities sold under agreements to repurchase 6,891 8,392
Other borrowed funds 5,834 4,278
Accrued expenses and other liabilities 1,226 1,357
----------- -----------
Total Liabilities 190,141 189,818
SHAREHOLDERS' EQUITY
Common stock - $1 Par Value: 10,000,000 shares authorized;
2,238,314 issued and outstanding 2,238 2,238
Additional-paid-in-capital 15,459 15,459
Retained earnings 5,024 4,059
Unrealized gain on securities available for sale, net of tax 148 168
----------- -----------
Total Shareholders' Equity 22,869 21,924
----------- -----------
Total Liabilities and Shareholders' Equity $ 213,010 $ 211,742
----------- -----------
</TABLE>
3
See accompanying notes to the condensed consolidated financial statements.
<PAGE> 4
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FORM 10-Q (IN THOUSANDS - EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest and dividend income
Loans, including fees $ 3,203 $ 3,101 $ 6,409 $ 6,105
Taxable securities 581 590 1,209 1,175
Non-taxable securities 320 278 601 555
Other interest and dividend income 86 35 144 56
-------- -------- -------- --------
Total interest and dividend income 4,190 4,004 8,363 7,891
Interest expense
Deposits
Demand 176 172 338 330
Savings 373 394 741 767
Time 1,204 1,126 2,415 2,231
Other borrowings 148 116 356 226
-------- -------- -------- --------
Total interest expense 1,901 1,808 3,850 3,554
NET INTEREST INCOME 2,289 2,196 4,513 4,337
Provision for loan losses 102 111 204 222
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,187 2,085 4,309 4,115
Noninterest income
Service charges on deposit accounts 149 148 273 286
Other income 147 63 307 163
-------- -------- -------- --------
Total noninterest income 296 211 580 449
Noninterest expense
Salaries and employee benefits 779 718 1,575 1,416
Occupancy 217 146 430 303
Other expenses 499 527 921 1,046
-------- -------- -------- --------
Total noninterest expense 1,495 1,391 2,926 2,765
INCOME BEFORE INCOME TAXES 988 905 1,963 1,799
Income tax expense 215 212 462 428
-------- -------- -------- --------
NET INCOME $ 773 $ 693 $ 1,501 $ 1,371
======== ======== ======== ========
Earnings per common share - Basic $ 0.34 $ 0.31 $ 0.67 $ 0.61
Earnings per common share - Diluted $ 0.34 $ 0.31 $ 0.66 $ 0.61
Dividends per common share $ 0.12 $ 0.10 $ 0.24 $ 0.20
</TABLE>
4
See accompanying notes to the condensed consolidated financial statements.
<PAGE> 5
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
FORM 10-Q (IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON PAID IN RETAINED COMPREHENSIVE COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME INCOME TOTAL
-------- ---------- --------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 $ 1,848 $ 9,359 $ 6,946 $ 299 $ 18,452
Net income 2,584 $ 2,584 2,584
10% Stock dividend 184 2,355 (2,539) -
Cash paid in lieu of fractional shares
on 10% stock dividend (2) (2)
Other comprehensive income, net of tax:
Unrealized gains/losses on securities (158) (158) (158)
-----------
Comprehensive income 2,426
===========
Additional shares issued to fund
Dividend Reinvestment Program 1 13 14
Cash dividends (874) (874)
-------- ---------- --------- ------------ ----------
BALANCE AT DECEMBER 31, 1996 2,033 11,727 6,115 141 20,016
Net income 2,846 2,846 2,846
10% Stock dividend 203 3,710 (3,913) -
Cash paid in lieu of fractional shares
on 10% stock dividend (4) (4)
Proceeds and tax benefit from
exercise of stock options 2 22 24
Other comprehensive income, net of tax:
Unrealized gains/losses on securities 27 27 27
-----------
Comprehensive income 2,873
===========
Cash dividends (985) (985)
-------- ---------- --------- ------------ ----------
BALANCE AT DECEMBER 31, 1997 2,238 15,459 4,059 168 21,924
Net income 1,501 1,501 1,501
Other comprehensive income, net of tax:
Unrealized gains/losses on securities (20) (20) (20)
-----------
Comprehensive income $ 1,481
===========
Cash dividends (536) (536)
-------- ---------- --------- ------------ ----------
BALANCE AT JUNE 30, 1998 $ 2,238 $ 15,459 $ 5,024 $ 148 $ 22,869
======== ========== ========= ============ ==========
</TABLE>
5
See accompanying notes to the condensed consolidated financial statements.
<PAGE> 6
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FORM 10-Q
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997
-------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,501 $ 1,371
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 246 229
Amortization of intangibles 31 33
Provision for loan losses 204 222
Deferred taxes 210 (37)
Federal Home Loan Bank stock dividend (31) (22)
(Accretion)/amortization of securities, net (13) (7)
Gain on sale of other real assets and other real estate owned (36) (5)
Net changes in accrued interest receivable and other assets (748) (428)
Net changes in accrued expenses and other liabillities (310) 6
---------- ----------
Net cash from operating activities 1,054 1,362
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale
Proceeds from sales - -
Proceeds from maturities/calls 11,248 5,502
Purchases (12,345) (5,424)
Securities held to maturity
Proceeds from maturities/calls 2,600 681
Purchases (353) (393)
Net change in loans (17) (3,269)
Net purchases of premises and equipment (245) (318)
Proceeds from sale of other real assets and other real estate owned 178 30
---------- ----------
Net cash from investing activities 1,066 (3,191)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 399 (425)
Net change in short-term borrowings (3,456) 2,308
Proceeds from long-term debt 3,600 465
Principal payments on long-term debt (88) (28)
Proceeds from exercise of stock options - 23
Tax benefit from exercise of stock options - 2
Cash dividends paid (536) (447)
---------- ----------
Net cash from financing activities (81) 1,898
---------- ----------
Net change in cash and cash equivalents 2,039 69
Cash and cash equivalents at beginning of year 7,836 6,619
---------- ----------
Cash and cash equivalents at end of period $ 9,875 $ 6,688
========== ==========
Interest paid $ 3,979 $ 3,576
Income taxes paid 484 504
</TABLE>
6
See accompanying notes to the condensed consolidated financial statements.
<PAGE> 7
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
United Bancorp, Inc. ("Company") at June 30, 1998 and its results of
operations and statements of cash flows for the periods presented.
These adjustments are normal and recurring in nature. The accompanying
condensed consolidated financial statements have been prepared in
accordance with the instructions of Form 10-Q and, therefore, 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 1997 United Bancorp, Inc. consolidated financial statements and
related notes thereto included in its Annual Report to Shareholders for
the year ended December 31, 1997. Reference is made to the accounting
policies of the Company described in the notes to the consolidated
financial statements contained in its 1997 Annual Report to
Shareholders. The Company has consistently followed these policies in
preparing this Form 10-Q.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, ("Banks") The Citizens
Savings Bank, Martins Ferry, Ohio ("CITIZENS") and The Citizens-State
Bank of Strasburg, Strasburg, Ohio ("CITIZENS-STATE"). All significant
intercompany transactions and balances have been eliminated in
consolidation. The results of operations for the period ended June 30,
1998 are not necessarily indicative of the operating results for the
full year of 1998.
NATURE OF OPERATIONS:
The Company's and Banks' revenues, operating income and assets
are primarily from the banking industry. Loan customers are mainly
located in Belmont, Jefferson, Tuscarawas and Carroll Counties and the
surrounding localities in northeastern and eastern Ohio and include a
wide range of individuals, business 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.
Commercial loans are expected to be repaid from cash flows of the
business. CITIZENS conducts its business through its main office in
Martins Ferry, Ohio and three branches in Bridgeport, Colerain and St.
Clairsville, Ohio. CITIZENS-STATE 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.
7
<PAGE> 8
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FORM 10-Q
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES:
The provision for income taxes is based on the effective tax
rate expected to be applicable for the entire year. 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 expected future tax consequences of temporary
differences between the carrying amounts and tax basis 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.
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. On August 19, 1997, a 10% stock
dividend was approved for all shareholders of record on September 2,
1997 and distributed on September 19, 1997. Additionally, 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. All per share data
has been retroactively adjusted for the 10% stock dividends in 1997 and
1996.
EARNINGS AND DIVIDENDS PER COMMON SHARE:
The Company adopted SFAS No. 128, "Earnings Per Share," on
December 31, 1997. SFAS No. 128 requires dual presentation of basic and
diluted earnings per share ("EPS") for entities with complex capital
structures. All prior EPS data has been restated to conform to the new
method. Basic EPS is based on net income divided by the
weighted-average number of shares outstanding during the period.
Diluted EPS shows the dilutive effect of additional common shares
issuable under stock options. The weighted-average number of shares
outstanding for basic EPS was 2,238,314 and 2,236,724 for the six
months ended June 30, 1998 and 1997, respectively. The weighted-average
number of shares outstanding for diluted EPS was 2,266,448 and
2,253,603 for the six months ended June 30, 1998 and 1997,
respectively. There was no per share dilution due to the stock options
for the six months ended June 30, 1997. The per share dilution of the
stock options was $0.01 for the period ended June 30, 1998.
RECLASSIFICATIONS:
Some items in prior financial statements have been
reclassified to conform to the current presentation.
COMPLETED AFFILIATIONS - UNAUDITED
On July 7, 1998 the Company completed its merger with Southern
Ohio Community Bancorporation, Inc. ("Southern"), whereby Southern's
wholly owned subsidiary The Community Bank, Glouster, Ohio
("COMMUNITY") is now the Company's third banking charter. The merger
provided for an exchange ratio of 11 Company common shares for each
issued and outstanding share of Southern common stock. The transaction
will be accounted for under the pooling of interest method of
accounting, with Community being included in the Company's financial
results beginning in the third quarter with all prior results restated
to include the effect of Community. The following condensed unaudited
pro forma financial information presents selected balance sheet amounts
and operating results of the Company and Southern as though they had
been combined during all periods presented below.
8
<PAGE> 9
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FORM 10-Q
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PENDING AFFILIATIONS - UNAUDITED (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
--------------------------- ------------
1998 1997 1997
------------ ------------ ------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net loans $ 165,675 $ 164,335 $ 168,440
Total deposits 227,481 219,225 223,488
Total assets 265,281 253,946 263,607
Summary of Operations
Net interest income 5,708 5,617 $ 11,392
Net income 1,365 1,444 2,848
Net income per share - Basic 0.51 0.54 1.07
Net income per share - Diluted 0.51 0.54 1.06
</TABLE>
IMPACT OF RECENT ACCOUNTING STANDARDS:
During the first quarter of 1998, the Company was required to
adopt Statement of Financial Accounting Standards' ("SFAS") No. 130
"Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131 does
not effect the Company's interim disclosure requirements. SFAS No. 130
established standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial
statements. Comprehensive income includes both net income and other
comprehensive income. Other comprehensive income relevant to the
Company includes the change in unrealized gains and losses on
securities available for sale. The statement requires the Company to
classify items of other comprehensive income by their nature and
display the accumulated balance of other comprehensive income
separately from retained earnings and additional-paid-in-capital in the
equity section of a statement of financial position. The Company
elected to present comprehensive income and the accumulated balance in
the Condensed Consolidated Statement of Shareholders' Equity for
interim reporting purposes. The table below presents reclassification
adjustments related to comprehensive income. Reclassification
adjustments are needed when an item is included in net income in one
period and comprehensive income in another accounting period.
9
<PAGE> 10
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FORM 10-Q
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED YEAR-ENDED YEAR-ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
(In thousands) 1998 1998 1997 1996
------------------------------ ------------- -------------
<S> <C> <C> <C> <C>
Net Income $ 773 $ 1,501 $ 2,846 $ 2,584
Unrealized gain/(loss) arising in period (12) (20) 27 (185)
Reclassification for realized amount - - - 27
Net unrealized gain/(loss) recognized in
other comprehensive income (12) (20) 27 (158)
------------------------------ ------------- -------------
Comprehensive Income $ 761 $ 1,481 $ 2,873 $ 2,426
------------------------------ ------------- -------------
</TABLE>
IMPACT OF RECENT ACCOUNTING STANDARDS: (CONTINUED)
2. SECURITIES:
The amortized cost and estimated fair values of securities are
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
(IN THOUSANDS) AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE - JUNE 30, 1998
US Treasury obligations $ 2,786 $ 25 $ 2,811
US Agency obligations 27,009 143 $ (10) 27,142
State and Municipal obligations 1,413 42 1,455
Other investments 895 26 921
----------- ------------- ------------- -------------
$ 32,103 $ 236 $ (10) $ 32,329
=========== ============= ============= =============
AVAILABLE FOR SALE - DECEMBER 31, 1997
US Treasury obligations $ 3,263 $ 45 $ 3,308
US Agency obligations 26,268 167 $ (9) 26,426
State and Municipal obligations 551 25 576
Other investments 865 26 891
----------- ------------- ------------- -------------
$ 30,947 $ 263 $ (9) $ 31,201
=========== ============= ============= =============
HELD TO MATURITY - JUNE 30, 1998
US Agency obligations $ 5,000 $ - $ (6) $ 4,994
State and Municipal obligations 20,726 714 (18) 21,422
----------- ------------- ------------- -------------
$ 25,726 $ 714 $ (24) $ 26,416
=========== ============= ============= =============
HELD TO MATURITY - DECEMBER 31, 1997
US Agency obligations $ 7,500 $ (27) $ 7,473
State and Municipal obligations 20,492 $ 786 (1) 21,277
----------- ------------- ------------- -------------
$ 27,992 $ 786 $ (28) $ 28,750
=========== ============= ============= =============
</TABLE>
10
<PAGE> 11
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FORM 10-Q
2. SECURITIES: (CONTINUED)
There were no sales of securities during the six months ended
June 30, 1998 or 1997.
Contractual maturities of securities at June 30, 1998 were as
follows:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE (IN THOUSANDS) AMORTIZED ESTIMATED
COST FAIR VALUE
---------- ----------
<S> <C> <C>
US Treasury obligations
Under 1 Year $ 2,786 $ 2,811
1 - 2 Years - -
---------- ----------
Total 2,786 2,811
---------- ----------
US Agency obligations
Under 1 Year 1,496 1,502
1 - 2 Years 1,000 1,006
2 - 5 Years 2,344 2,383
5 - 10 Years 22,169 22,251
Over 10 Years - -
---------- ----------
Total 27,009 27,142
---------- ----------
State and municipal obligations
5 - 10 Years 556 582
Over 10 Years 857 873
---------- ----------
Total 1,413 1,455
---------- ----------
Other investments
Equity securities 895 921
---------- ----------
Total securities available for sale $ 32,103 $ 32,329
========== ==========
HELD TO MATURITY (IN THOUSANDS)
US Agency obligations
Under 1 Year $ 4,500 $ 4,495
2 - 5 Years 500 499
---------- ----------
Total 5,000 4,994
---------- ----------
State and municipal obligations
Under 1 Year 790 798
1 - 2 Years 1,645 1,702
2 - 5 Years 10,425 10,802
5 - 10 Years 7,287 7,555
Over 10 Years 579 564
---------- ----------
Total 20,726 21,421
---------- ----------
Total securities held to maturity $ 25,726 $ 26,415
========== ==========
</TABLE>
Securities with a cost of approximately $30,540,000 at June
30, 1998 and $28,578,000 at December 31, 1997 were pledged to secure
public deposits, repurchase agreements and other liabilities as
required or permitted by law.
11
<PAGE> 12
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FORM 10-Q
3. ALLOWANCE FOR LOAN LOSSES
The detail of the allowance for loan losses is summarized as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
---------- -----------
<S> <C> <C>
Balance January 1, $ 2,239 $ 2,023
Provision charged to operating expense 204 222
Loans charged-off (305) (86)
Recoveries 15 28
---------- -----------
Balance June 30, $ 2,153 $ 2,187
========== ===========
</TABLE>
Loans considered impaired under the provisions of SFAS No. 114
were not material at June 30, 1998 and December 31, 1997 or during the
six months ended June 30, 1998 and 1997.
4. COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES
There are various contingent liabilities not reflected within
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 the Company's
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 amounts 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, total
commitments do 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.
12
<PAGE> 13
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FORM 10-Q
4. COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES (CONTINUED)
A summary of the notional or contractual amounts of financial
instruments with off-balance sheet risk at June 30, 1998 and December
31, 1997 follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
(IN THOUSANDS) 1998 1997
---------- -----------
<S> <C> <C>
Commitments to extend credit $ 14,765 $ 15,776
Standby letters of credit 244 244
</TABLE>
There were no fixed-rate commitments or standby letters of
credit at June 30, 1998 or December 31, 1997.
At June 30, 1998 and December 31, 1997, reserves of $623,000
and $692,000 were required as deposits with the Federal Reserve or as
cash on hand. These reserves do not earn interest.
13
<PAGE> 14
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In the following pages, Management presents an analysis of
United Bancorp, Inc.'s ("Company") financial condition at June 30, 1998
compared to December 31, 1997 and results of operations for the three
and six months ended June 30, 1998 compared to the same periods in
1997. This discussion is designed to provide shareholders with a more
comprehensive review of the operating results and financial position
than could be obtained from an examination of the financial statements
alone. This analysis should be read in conjunction with the
consolidated financial statements and related footnotes and the
selected financial data included elsewhere in this report.
FORWARD-LOOKING STATEMENTS
In addition to the historical information contained herein,
the following discussion contains forward-looking statements, (as
contained in the Safe Harbor under the Private Securities Litigation
Reform Act) involving risks and uncertainties. Economic circumstances,
the Company's operations and actual results could differ significantly
from those discussed in the forward-looking statements. Some factors
that could cause or contribute to such differences are discussed
herein, but also include changes in the economy and interest rates in
the nation and in the Company's general market area.
Some of the forward-looking Company statements included herein
are statements regarding:
1. Management's determination of the amount of the allowance
for loan losses and the provision for loan losses;
2. The Company's intention to borrow additional funds as
opportunities to leverage excess capital arise;
3. The sufficiency of the Company's liquidity and capital
reserves; and
4. The effect on the Company of amendments to core capital
requirement regulations.
The Company is headquartered in Martins Ferry, Ohio, adjacent
to the Ohio River on the eastern border of Ohio and the northern
panhandle of West Virginia. It is located approximately 60 miles
southwest of Pittsburgh, Pennsylvania and approximately 125 miles east
of Columbus, Ohio.
Common stock of the Company was initially available through
over-the-counter trading. In February 1994, the Company began trading
on The Nasdaq SmallCaps Market tier of The Nasdaq Stock Market under
the trading symbol UBCP.
14
<PAGE> 15
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORM 10-Q
The following brief history of the Company and its subsidiary
growth and development highlights the continuing commitment to
maintaining a presence as a local "Hometown" community bank serving
several diverse market areas.
- 1902 Original banking charter granted for The
German Savings Bank (later changed to The
Citizens Savings Bank).
- 1974 Construction of a full-service branch banking
facility 6 miles west in Colerain, Ohio.
- 1978 Construction of a full-service branch banking
facility 2 miles south in Bridgeport, Ohio.
- 1980 Construction of a limited-service auto-teller
banking location in Martins Ferry, Ohio.
- 1983 Creation of United Bancorp, Inc. as a
single-bank holding company through acquisition
of 100% of the voting stock of The Citizens
Savings Bank of Martins Ferry, Ohio
("CITIZENS"). Also, began operation of
Automated Teller Machine ("ATM") in Aetnaville,
Ohio.
- 1984 CITIZENS opened a newly constructed 21,500
square foot main-office facility in
Martins Ferry, Ohio, adjacent to the
auto-teller facility built in 1980.
- 1986 United Bancorp, Inc. became a multi-bank
holding company through the acquisition of 100%
of the voting stock of The Citizens-State Bank
of Strasburg, Strasburg, Ohio
("CITIZENS-STATE").
- 1990 CITIZENS converted from third-party data
processing to in-house data processing.
CITIZENS-STATE constructed a full-service
branch bank 6 miles south of Strasburg in
Dover, Ohio.
- 1991 CITIZENS began providing third party data
processing services to affiliate bank
CITIZENS-STATE.
- 1992 CITIZENS-STATE acquired two branch bank
locations in New Philadelphia and
Sherrodsville, Ohio.
- 1993 CITIZENS relocated Data Processing, Accounting
and Bookkeeping to a renovated Operations
Center across from the main office in Martins
Ferry, Ohio.
- 1994 CITIZENS-STATE purchased a branch bank in
Dellroy, Ohio.
- 1996 CITIZENS converted to check imaging and
optical character recognition for data
processing at all locations.
- 1997 CITIZENS opened a full-service Retail
Banking Center inside Riesbeck's Food
Markets, Inc.'s St. Clairsville, Ohio
store. Additionally, CITIZENS introduced a
Secondary Market Real Estate Mortgage
Program available for all locations and
introduced a MasterCard(R) Check Card to
the local market area.
- 1998 CITIZENS-STATE introduced an indirect
automobile lending program.
- 1998 CITIZENS increased ATM network by six cash
dispenser machines in various Riesbecks'
Food Markets.
- 1998 Effective July 7, 1998, the acquisition of
Southern Ohio Community Bancorporation,
Inc. was completed and The Community Bank,
Glouster, Ohio ("Community") was added as
a third banking charter to the Company.
15
<PAGE> 16
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORM 10-Q
FINANCIAL CONDITION
EARNING ASSETS - LOANS
At June 30, 1998, gross loans were $139,564,000 compared to
$139,548,000 at year-end 1997, a modest growth of $16,000. The
relatively flat lending volume was the result of increased competition
in our markets. However, a closer look at the components of total loans
reveals that our different loan products have experienced rather
different results relative to December 31, 1997. Real estate loan
continues to decline slightly, as anticipated, due to the increased
activity in the Secondary Market Real Estate program offered to all
banking locations through their affiliation with CITIZENS. The current
local indirect lending environment and the Banks' pricing strategies
has allowed the total outstanding indirect automobile portfolio to
remain fairly constant from December 31, 1997 to June 30, 1998.
Installment loans, with continued emphasis placed on the
indirect automobile lending market, remained fairly static at 33.3% of
total loans at June 30, 1998 compared to 33.7% at year-end 1997. The
indirect lending type of financing carries somewhat more risk than real
estate lending, however, it also provides for 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 branch locations. During the first quarter of 1998,
CITIZENS-STATE introduced into their market an indirect automobile
lending program. The results for the first two quarters have been in
line with management's projections with total loans secured by
automobiles increasing in excess of 11% from December 31, 1997.
However, the indirect market for CITIZENS has seen increased
competition during 1998 and as a result has experienced a 3% decrease
in installment loan totals. Combined installment loans for the Company
have remained relatively stable since December 31, 1997
Commercial real estate loans comprised 36.6% of total loans at
June 30, 1998 compared to 32.7% at year-end 1997, an increase of
approximately $2.6 million. Commercial loans were 6.8% and 10.3% of the
total portfolio mix at June 30, 1998 and year-end 1997, respectively.
In the recent quarter we have experienced some prepayment on commercial
loans as commercial borrowers continue to be price sensitive in this
area of lending. The Company has originated and bought participations
in loans from other banks for out-of-area commercial and commercial
real estate loans to benefit from consistent economic growth outside
the area. The majority of these loans are secured by real estate
holdings comprised of hotels, motels and churches located in various
geographic locations, including Columbus and the Akron-Canton, Ohio
metropolitan areas. Out of area loans at June 30, 1998 were 13.9% of
total loans and 32.0% of total commercial and commercial real estate
loans compared to 11.0% and 25.7% at year-end 1997. The Company has
already seen the benefit of adding Community into the consolidated
group. Even before the effective merger date of July 7, 1998, the
Company has benefited from having a presence in Athens County, Ohio. As
a stand alone charter Community did not have the legal lending capacity
to handle the larger commercial customers and as a result could not bid
for the larger commercial credits. However, with their affiliation
pending during the first half of 1998, management at Community worked
closely with the Company to successfully bid on some larger commercial
credits.
Real estate loans were 23.3% of total loans at June 30, 1998
compared to 23.4% at year-end 1997. As indicated above, the Banks'
involvement in the secondary market program should yield increases in
loan origination volume. 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.
16
<PAGE> 17
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 reasonably foreseeable losses inherent 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 current balance of the allowance for
loan losses is sufficient to deal with the probable losses associated
with the loan portfolio. Net charge-offs for the six months ended June
30, 1998 were $290,000, or 13.0%, of the beginning allowance for loan
losses compared to $58,000, or 2.9%, of the beginning balance for loan
losses for the six months ended June 30, 1997. As reported in the 1997
Annual Report the longest steel strike in the Ohio Valley's history
ended during the fourth quarter of 1997. The effect of this strike is
apparent in the increased level of net charge-offs during the first two
quarters of 1998. Management is closely monitoring charge-offs and
expects a lower level of net charge-offs during the last two quarters
of 1998.
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, 1998 increased approximately $1.1
million, or 3.6% from year-end 1997 totals. This upward movement
resulted primarily from the $12.3 million in purchases from funds that
were available from loan payoffs and security calls/maturities for the
six months ended June 30, 1998. Securities held to maturity decreased
8.1% at June 30, 1998 compared to year-end 1997 totals. This was a
result of increased level of maturities compared to six months ended
June 30, 1997 and the reinvestment of these funds into available for
sale securities
Short-term federal funds sold are used to manage interest rate
sensitivity and to meet liquidity needs of the Company. At June 30,
1998, federal funds sold totaled $4,115,000 compared to $300,000 at
year-end 1997.
SOURCES OF FUNDS - DEPOSITS
The Company's primary source of funds is core deposits from
retail and business customers. These core deposits include all
categories of interest-bearing and noninterest-bearing deposits,
excluding certificates of deposit greater than $100,000. For the period
ended June 30, 1998, total core deposits decreased approximately
$225,000 primarily from a decrease of time deposits under $100,000 of
$2.5 million offset by increases in interest bearing deposits of $1.2
million and noninterest bearing deposits of $863,000. 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.
17
<PAGE> 18
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORM 10-Q
SOURCES OF FUNDS - DEPOSITS (CONTINUED)
Certificates of deposit greater than $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, 1998,
certificates of deposit greater than $100,000 increased approximately
$624,000 or 3.8% over year-end 1997 totals.
SOURCES OF FUNDS - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND
OTHER BORROWINGS
Other interest-bearing liabilities include securities sold
under agreements to repurchase, sweep accounts, federal funds
purchased, Treasury, Tax & Loan notes payable and Federal Home Loan
Bank ("FHLB") advances. This general category increased a modest
$55,000 or less than 1% from December 31, 1997. Of notable discussion,
FHLB advances were primarily responsible for the growth and due to
seasonal changes of repurchase agreements the decrease in this
category offset the increase in FHLB advances. During the first six
months, the Company matched fixed rate Federal Home Loan Bank funding
to the growth in the commercial real estate portfolio as previously
discussed.
PERFORMANCE OVERVIEW
NET INCOME
Basic earning per share for the three and six months ended
June 30, 1998 was $0.34, and $0.67 representing a 9.7% and 9.8%
increase in basic earnings for the three and six months ended June 30,
1997. On an annualized basis, Return on Average Assets (ROA) was 1.39%
and Return on Average Equity (ROE) was 13.3% compared to ROA of 1.32%
and ROE of 13.2% for the six months ended June 30, 1997.
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 increased
4.2% and 4.1% for the three and six months ended June 30, 1998 compared
to the same periods in 1997.
Total interest income for the three and six months ended June
30, 1998, when compared to the same three and six month periods ended
June 30, 1997, increased 4.7%, and 6.0%. The main components of this
increase were interest and fee income from loans, increasing 3.4% and
5.1% for the three and six months ended June 30, 1998 compared to the
same periods in 1997. Compared with June 30, 1997 average loans have
increased approximately $6.6 million.
Total interest expense for the three and six months ended June
30, 1998 when compared to the same three and six month periods ended
June 30, 1997, increased 5.1% and 8.3%. This increase in interest
expense was primarily the result of a higher volume of certificates of
deposits and increased borrowings.
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.
18
<PAGE> 19
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORM 10-Q
PROVISION FOR LOAN LOSSES (CONTINUED)
The total provision for loan losses was $102,000 and $204,000
for the three and six months ended June 30, 1998 compared to $111,000
and $222,000 for the same periods in 1997. Management has maintained
the relative level of the provision in relation to loan growth and mix
within the loan portfolio experienced throughout the first six months
of 1998. Although the net charge-offs have increased relative to the
same period in 1997, management does not expect this trend to continue
for the remainder of 1998
NONINTEREST INCOME
Total noninterest income is made up of bank related fees and
service charges, as well as other income producing services provided,
sale of secondary market loans, 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, 1998 was $296,000 and 580,000 compared to $211,000 and
$449,000 for the same three and six month periods ended June 30, 1997.
As discussed in the Company's 1997 Annual Report, the introduction of
the Secondary Market Real Estate Mortgage Program has dramatically
increased the Company's noninterest income. Compared with the first two
quarters of 1997, noninterest income increased approximately 29.0%. For
the three months ended June 30, 1998 compared to the same period in
1997, noninterest income increased approximately 40.3%
As reported in our March 31, 1998 Form 10-Q other recent
developments have already added to the strong growth in noninterest
income. In April 1998, six additional ATM's have been installed
throughout the Riesbeck's Food Market retail distribution network. In
addition, in March 1998 the Company initiated a surcharge throughout
our entire ATM network to non-customers of our affiliate Banks.
NONINTEREST EXPENSE
Noninterest expense for the three and six months ended June
30, 1998 increased 7.5% and 5.8% over the three and six months ended
June 30, 1997. Contributing to the increase was salaries and employee
benefits, which increased by $61,000 for the three month ended June 30,
1998 and $159,000 for the six months ended June 30, 1998. However, this
is offset by decreases in other expenses on a quarter to quarter and
year to date comparisons. Other expenses have decreased due in part to
management's efforts to control overhead
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, 1998 was $22,869,000 compared to
$21,924,000 at December 31, 1997, a 4.3% increase. Total shareholders'
equity in relation to total assets was 10.7% at June 30, 1998 and 10.4%
at December 31, 1997.
In 1996, the Company established 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 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
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.
19
<PAGE> 20
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORM 10-Q
CAPITAL RESOURCES (CONTINUED)
To date, all shares purchased by the Plan except for 797 shares
purchased on October 21, 1996 have been purchased on the open market.
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, 1998:
<TABLE>
<CAPTION>
JUNE 30,
(IN THOUSANDS) 1998
-----------
<S> <C>
Tier 1 capital $ 22,610
Total risk-based capital $ 24,419
Risk-weighted assets $ 144,352
Average total assets $ 215,304
Tier 1 capital to average assets 10.50%
Tier 1 risk-based capital ratio 15.66%
Total risk-based capital ratio 16.92%
</TABLE>
20
<PAGE> 21
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORM 10-Q
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 Company has additional sources of liquidity
available to ensure that adequate funds are available as needed. These
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 it has the capital adequacy,
profitability and reputation to meet the current and projected needs of
its customers.
For the six months ended June 30, 1998, the adjustments 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. The net
increase in cash and cash equivalents of $2,039,000 was primarily the
result of a net increase in cash from investing activities of
$1,066,000, partially off-set by net cash utilized in financing
activities of $81,000 related primarily to a decrease in repurchase
agreements. The investing activity increase primarily related to
investment maturities and calls. 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.
21
<PAGE> 22
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORM 10-Q
YEAR 2000
Many computer programs, which are in use today, use only two
digits to indicate which year is represented. If such computer
applications are not changed to allow the data field to reflect the
change in the century, the application may fail or create erroneous
results at the Year 2000 due to the improper sequence of the year from
"99" to "00".
Management has conducted an evaluation of all significant
computer systems used in the business of the Company to determine
whether such systems will function at the change of the century.
Management determined that most programs are or will be capable of
identifying the turn of the century. In order to prevent potential
credit quality issues, management is also assessing the Year 2000
compliance status of major loan customers to determine whether or not
such entities are taking steps to ensure their systems will function
properly in the Year 2000. Management closely monitors the issue and
full compliance is expected by the end of 1998. Management does not
anticipate any material costs to be incurred to update its systems to
be Year 2000 compliant.
REGULATORY MATTERS
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risk affecting the Company is interest
rate risk. The Banks do not maintain a trading account for any class of
financial instrument and the Company is not affected by foreign
currency exchange rate risk or commodity price risk. Because the Banks
do not hold any equity securities other than stock in the Federal Home
Loan Bank of Cincinnati, which is not significant, the Company is not
subject to equity price risk.
The Company and its Banks, like other financial institutions,
are subject to interest rate risk to the extent that its
interest-earning assets reprice differently than its interest-bearing
liabilities. One of the principal objectives is to achieve long-term
profitability while reducing its exposure to fluctuations in interest
rates. The Company has sought to reduce exposure of earnings to changes
in market interest rates by managing assets and liability maturities
and interest rates primarily by originating variable-rate lending
products, or if issued with a fixed interest rate, as is the case with
the indirect automobile portfolio, the term is rather short in
duration. Both the variable interests rates inherent in the commercial,
commercial real estate and real estate loan portfolios, and the short
duration loan products, mitigate the Company's exposure to dramatic
interest rate movements.
The Company's securities are all fixed rate and are evenly
divided between held to maturity and available for sale. The Company
primarily invests in US Treasury and Agency obligations and State and
Municipal obligations and does not invest in any mortgage-backed
securities. Because total securities approximate 27% of total assets,
the Company could be sensitive to periods of rising interest rates.
However, this risk is offset by the fact that approximately 14% of the
total security portfolio matures in less than one year and another 4%
matures within 1 to 2 years.
22
<PAGE> 23
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORM 10-Q
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(CONTINUED)
Management measures the Company's interest rate risk by
computing estimated changes in net interest income and the net
portfolio value ("NPV") of its cash flows from assets, liabilities and
off-balance sheet items in the event of a range of assumed changes in
market interest rates. Presented in the Company's 1997 Annual Report as
of December 31, 1997, is an analysis of the Company's interest rate
risk as measured by changes in NPV for instantaneous and sustained
parallel shifts of 50 basis points in market interest rates. Management
believes that no events have occurred since December 31, 1997 which
would significantly change the Company's NPV at June 30, 1998 under
each assumed shifts of 50 basis points in market interest rates.
The Company's NPV is more sensitive to increasing rates than
decreasing rates. Such difference in sensitivity occurs principally
because, as rates rise, the effect is offset on a short-term basis by
the rather fixed nature of our consumer loans. This occurs even though
the commercial, commercial real estate and real estate portfolios are
comprised of variable rate products Also in a rising rate environment
consumers tend not to prepay fixed rate loans as quickly as they would
have had rates not changed dramatically. Moreover, the interest the
Company pays on its deposits would increase because deposits generally
have shorter periods to reprice.
Certain shortcomings are inherent in the NPV method of
analysis. Certain assets such as adjustable-rate loans have features
that restrict changes in interest rates on a short-term basis and over
the life of the asset. In addition, the proportion of adjustable-rate
loans in the Company's portfolio could decrease in future periods if
market interest rates remain at or decrease below current levels due to
refinancing activity. Further, in the event of a change in interest
rates, prepayment and early withdrawal levels would likely deviate from
those assumed in the analysis. Finally, the ability of many borrowers
to repay their adjustable-rate debt may decrease in the case of an
increase in interest rates.
23
<PAGE> 24
UNITED BANCORP, INC.
OTHER INFORMATION
FORM 10-Q
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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 15, 1998.
Compensation for outside directors to be set at $1,200 per
year as a retainer and $250 per meeting attended:
Roll Call: Ayes 1,564,846 Nays 47,286 Abstaining 37,895
Number of Directors to be set at a minimum of nine
and a maximum of thirteen.
Roll Call: Ayes 1,564,846 Nays 47,286 Abstaining 37,895
Election of Directors for the class of 2001 to include the
following;
Herman E. Borkoski Ayes 1,674,608 Nays 0 Abstaining 2,419
John M. Hoopingarner Ayes 1,674,660 Nays 0 Abstaining 2,367
Richard L. Riesbeck Ayes 1,649,894 Nays 0 Abstaining 133
Crowe, Chizek and Company LLP, Independent Certified
Public Accountants to continue to serve as the
Company's external audit firm for the fiscal year
1998.
Roll Call: Ayes 1,639,260 Nays 7,297 Abstaining 3,470
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, 1998.
SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
24
<PAGE> 25
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORM 10-Q
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 7, 1998 By: /s/ James W. Everson
---------------------------- -----------------------------------
Date James W. Everson
Chairman, President & Chief Executive
Officer
August 7, 1998 By: /s/ Randall M. Greenwood
---------------------------- -----------------------------------
Date Randall M. Greenwood
Chief Financial Officer
SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
26
<PAGE> 27
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,760
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,115
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32,329
<INVESTMENTS-CARRYING> 25,726
<INVESTMENTS-MARKET> 26,415
<LOANS> 139,564
<ALLOWANCE> 2,153
<TOTAL-ASSETS> 213,010
<DEPOSITS> 176,190
<SHORT-TERM> 7,869
<LIABILITIES-OTHER> 1,226
<LONG-TERM> 4,856
0
0
<COMMON> 2,238
<OTHER-SE> 20,631
<TOTAL-LIABILITIES-AND-EQUITY> 213,010
<INTEREST-LOAN> 6,409
<INTEREST-INVEST> 1,810
<INTEREST-OTHER> 144
<INTEREST-TOTAL> 8,363
<INTEREST-DEPOSIT> 3,494
<INTEREST-EXPENSE> 3,850
<INTEREST-INCOME-NET> 4,513
<LOAN-LOSSES> 204
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,926
<INCOME-PRETAX> 1,963
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,501
<EPS-PRIMARY> .67
<EPS-DILUTED> .66
<YIELD-ACTUAL> 4.53
<LOANS-NON> 347
<LOANS-PAST> 1,693
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,239
<CHARGE-OFFS> 305
<RECOVERIES> 16
<ALLOWANCE-CLOSE> 2,153
<ALLOWANCE-DOMESTIC> 2,153
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 594
</TABLE>
