<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] 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 FOURTH STREET, MARTINS FERRY, OHIO 43935
- --------------------------------------------------- --------------
(Address of principal executive offices) (ZIP Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (740) 633-0445
-------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
COMMON STOCK, PAR VALUE $1.00 A SHARE NASDAQ REGULAR MARKET (SMALLCAP)
- ------------------------------------- --------------------------------
(Title of class) (Name of each exchange on which registered)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $1.00 A SHARE
-------------------------------------
(Title of class)
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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED TO THE BEST
OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. {X }
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF MARCH 15, 1999.
COMMON STOCK, $1.00 PAR VALUE: $54,171,390
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S CLASSES OF COMMON STOCK AS
OF MARCH 15, 1999.
COMMON STOCK, $1.00 PAR VALUE: 2,800,298 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE ANNUAL SHAREHOLDERS REPORT FOR THE YEAR ENDED DECEMBER 31, 1998
ARE INCORPORATED BY REFERENCE INTO PARTS I AND II, (INDEX ON PAGE 2)
PORTIONS OF THE PROXY STATEMENT FOR THE ANNUAL SHAREHOLDERS MEETING TO BE HELD
APRIL 21, 1999 ARE INCORPORATED BY REFERENCE INTO PART III (INDEX ON PAGE 2).
<PAGE> 2
UNITED BANCORP, INC. FORM 10-K
INDEX OF ITEMS INCORPORATED BY REFERENCE WITHIN FORM 10-K
<TABLE>
<CAPTION>
FORM 10-K
PAGE # ITEM DESCRIPTION REFERENCE DESCRIPTION
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3 Part I, Item 1, (a) Incorporated by reference to Pages 4 - 5 of the Annual Report To Shareholders.
3 Part I, Item 1, (b) Incorporated by reference to Page 24, Note 1 of the Annual Report To Shareholders.
4 Part I, Item 1, I Incorporated by reference to Pages 16 - 17 of the Annual Report To Shareholders.
5 Part I, Item 1, II, B Incorporated by reference to Page 28, Note 2 of the Annual Report To Shareholders.
7 Part I, Item 1, III, C, 4 Incorporated by reference to Page 36, Note 11 of the Annual Report To Shareholders.
7 Part I, Item 1, IV Incorporated by reference to Page 10 and Pages 24 - 25, Note 1 the Annual
Report To Shareholders.
10 Part I, Item 1, V, A Incorporated by reference to Page 16 of the Annual Report To Shareholders.
11 Part I, Item 2 Incorporated by reference to Pages 4 - 5 of the Annual Report To Shareholders.
11 Part I, Item 3 Incorporated by reference to Page 35, Note 10 of the Annual Report To Shareholders.
11 Part II, Item 5 Incorporated by reference to Page 7 of the Annual Report To Shareholders.
11 Part II, Item 6 Incorporated by reference to Inside Back Cover of the Annual Report To
Shareholders.
11 Part II, Item 7 Incorporated by reference to Pages 9 - 18, 43 - 44 of the Annual Report
To Shareholders.
12 Part II, Item 7A Incorporated by reference to Pages 13 - 14 of the Annual Report To Shareholders.
12 Part II, Item 8 Incorporated by reference to Pages 15 and 19 - 40 of the Annual Report
To Shareholders.
12 Part III, Item 10 Incorporated by reference to Pages 4 - 8 of the Proxy Statement.
13 Part III, Item 11 Incorporated by reference to Pages 10 - 15 of the Proxy Statement.
13 Part III, Item 12 Incorporated by reference to Pages 4 - 8 of the Proxy Statement.
13 Part III, Item 13 Incorporated by reference to Page 15 of the Proxy Statement.
14 Part IV, Item 14, (a), 1 Incorporated by reference to Pages 19 - 40 of the Annual Report To Shareholders.
14 Part IV, Item 14, (a), 2 Incorporated by reference to Page 15 of the Annual Report To Shareholders.
14 Part IV, Item 14, (a), 3, Exhibit 10 Incorporated by reference to Page 14 of the Proxy Statement.
14 Part IV, Item 14, (a), 3, Exhibit 11 Incorporated by reference to Page 26 of the Annual Report To Shareholders.
</TABLE>
2
<PAGE> 3
UNITED BANCORP, INC. FORM 10-K
PART I
ITEM 1 DESCRIPTION OF BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
United Bancorp, Inc. (Company) is a multi-bank holding company
headquartered in Martins Ferry, Ohio. The Company has three
wholly owned subsidiary banks, The Citizens Savings Bank, Martins
Ferry, Ohio (CITIZENS), The Citizens-State Bank of Strasburg,
Strasburg, Ohio (CITIZENS-STATE), and The Community Bank,
Glouster, Ohio (COMMUNITY), collectively "banks". For additional
information about the Company's location and description of
business, refer to Pages 4 - 5, Corporate Profile, in the Annual
Report To Shareholders for the year ended December 31, 1998.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Refer to Page 24, Note 1 of the Annual Report To Shareholders.
(C) NARRATIVE DESCRIPTION OF BUSINESS
The Company is a multi-bank holding company as defined under the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). The
BHC Act regulates acquisitions by the Company of voting shares or
assets of any bank or other company. The Company is subject to the
reporting requirements of, and examination and regulation by, the
Board of Governors of the Federal Reserve System, as well as
reporting requirements under the Securities and Exchange
Commission Act of 1934.
The Company's Banks are located in northeastern, eastern, and
southeastern Ohio and are engaged in the business of commercial
and retail banking in Belmont, Harrison, Jefferson, Tuscarawas,
Carroll, Athens, Hocking, and Fairfield counties and the
surrounding localities. The Banks provide a broad range of banking
and financial services, which include accepting demand, savings
and time deposits and granting commercial, real estate and
consumer loans. CITIZENS conducts its business through its main
office in Martins Ferry, Ohio and four branches located in
Bridgeport, Colerain, Jewett, 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. COMMUNITY conducts
its business through its offices in Glouster, Amesville and
Nelsonsville, Ohio.
The banking markets in which the Company's subsidiaries operate
continue to be highly competitive. CITIZENS competes for loans and
deposits with other retail commercial banks, savings and loan
associations, finance companies, credit unions and other types of
financial institutions within the Mid-Ohio valley geographic area
along the eastern border of Ohio, extending into the northern
panhandle of West Virginia. CITIZENS-STATE, encounters similar
competition for loans and deposits throughout the Tuscarawas and
Carroll County geographic areas of northeastern Ohio. COMMUNITY
also encounters similar competition for loans and deposits
throughout Athens, Hocking, and Fairfield County geographic areas
of southeastern Ohio.
3
<PAGE> 4
UNITED BANCORP, INC. FORM 10-K
ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED)
(C) NARRATIVE DESCRIPTION OF BUSINESS (CONTINUED)
The Company's three subsidiary banks are subject to regulation by
the Ohio Division of Financial Institutions and the Federal
Deposit Insurance Corporation ("FDIC"). The regulations and
restrictions affecting the Banks pertain to, among other things,
allowable loans, guidelines for allowance for loan losses,
accountability for fair and accurate disclosures to customers and
regulatory agencies, permissible investments and limitations of
risk and regulation of capital requirements for safe and sound
operation of the financial institution.
The Banks have no single customer or related group of customers
whose banking activities, whether through deposits or lending,
would have a material impact on the continued earnings
capabilities if those activities were removed.
The Company itself, as a shell holding company, has no compensated
employees. CITIZENS has 54 full time employees, with 17 of these
serving in a management capacity and 23 part time employees.
CITIZENS-STATE has 23 full time employees, with 8 serving in a
management capacity and 13 part time employees. COMMUNITY has 33
full time employees, with 8 serving in a management capacity and
10 part time employees. The Company considers employee relations
to be good at all subsidiary locations.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
Not applicable.
I DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
A Refer to Page 16 of the Annual Report To Shareholders
B Refer to Page 16 of the Annual Report To Shareholders
C Refer to Page 17 of the Annual Report To Shareholders
4
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UNITED BANCORP, INC. FORM 10-K
ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED)
II INVESTMENT PORTFOLIO
A The following table sets forth the carrying amount of
securities at December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
(In thousands) 1998 1997 1996
------- ------- -------
AVAILABLE FOR SALE
<S> <C> <C> <C>
US Treasury obligations $ 1,509 $ 3,308 $ 3,799
US Agency obligations 67,506 37,199 30,488
State and municipal obligations 2,197 577 476
Mortgage-backed obligations 3,028 3,785 784
Other securities 1,552 1,134 876
------- ------- -------
$75,792 $46,003 $36,423
======= ======= =======
(In thousands)
HELD TO MATURITY
US Agency obligations $ -- $ 7,501 $11,535
State and municipal obligations 21,848 21,559 22,272
Other securities 46 -- --
------- ------- -------
$21,894 $29,060 $33,807
======= ======= =======
</TABLE>
B Refer to Page 28, Note 2 of the Annual Report To
Shareholders.
C Excluding holdings of U.S. Treasury and U.S. Agency, there
were no investments in securities of any one issuer
exceedi8ng 10% of the Corporation's consolidated
shareholders' equity at December 31, 1998.
III LOAN PORTFOLIO
A TYPES OF LOANS
The amounts of gross loans outstanding at December 31, 1998,
1997, 1996, 1995 and 1994 are shown in the following table
according to types of loans:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial loans $ 12,912 $ 16,636 $ 15,065 $ 13,606 $ 10,449
Commercial real estate loans 54,195 49,189 41,565 35,926 28,651
Real estate loans 49,438 49,857 52,955 51,042 49,731
Installment loans 47,676 55,795 56,931 56,795 52,245
-------- -------- -------- -------- --------
Total loans $164,221 $171,477 $166,516 $157,369 $141,076
======== ======== ======== ======== ========
</TABLE>
5
<PAGE> 6
UNITED BANCORP, INC. FORM 10-K
ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED)
III LOAN PORTFOLIO (CONTINUED)
B MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST
RATES
The following is a schedule of commercial and commercial real
estate loans at December 31, 1998 maturing within the various
time frames indicated:
<TABLE>
<CAPTION>
ONE YEAR ONE THROUGH AFTER
(In thousands) OR LESS FIVE YEARS FIVE YEARS TOTAL
-------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C>
Commercial loans $ 11,504 $ 1,267 $ 141 $ 12,912
Commercial real estate loans 24,454 13,529 16,212 54,195
-------------- -------------- ---------------- -------------
Total $ 35,958 $ 14,796 $ 16,353 $ 67,107
============== ============== ================ =============
</TABLE>
The following is a schedule of fixed rate and variable rate
commercial and commercial real estate loans at December 31,
1998 due to mature after one year:
<TABLE>
<CAPTION>
(In thousands) FIXED RATE VARIABLE RATE TOTAL > ONE YEAR
-------------- ----------------- ------------------
<S> <C> <C> <C>
Commercial loans $ 1,408 $ - $ 1,408
Commercial real estate loans
10,827 18,914 29,741
-------------- ----------------- -------------------
Total $ 12,235 $ 18,914 $ 31,149
============== ================= ===================
</TABLE>
Variable rate loans are those loans with floating or
adjustable interest rates.
C RISK ELEMENTS
1. NONACCRUAL, PAST DUE, RESTRUCTURED AND IMPAIRED LOANS
The following schedule summarizes nonaccrual loans, accruing loans
which are contractually 90 days or more past due, troubled debt
restructurings and impaired loans at December 31, 1998, 1997,
1996, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
(In thousands) 1998 1997 1996 1995 1994
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Nonaccrual basis $ 399 $ 480 $ 667 $ 622 $ 114
Accruing loans 90 days or greater past due 150 319 256 544 419
Troubled debt restructuring N/A N/A N/A N/A -
Impaired loans (1) (1) (1) (1) N/A
</TABLE>
(1) Loans considered impaired under the provisions of SFAS No. 114
and interest recognized on a cash received basis were not
considered material during any of the periods presented.
6
<PAGE> 7
UNITED BANCORP, INC. FORM 10-K
ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED)
III LOAN PORTFOLIO (CONTINUED)
1. Interest income is not reported when full loan repayment is
doubtful, typically when the loan is impaired or payments are past
due over 90 days. Payments received on such loans are reported as
principal reductions.
A loan is impaired when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance
loans of similar nature such as residential mortgage, consumer,
and credit card loans, and on an individual loan basis for other
loans. If a loan is impaired, a portion of the allowance is
allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or
at the fair value of collateral if repayment is expected solely
from the collateral.
2. POTENTIAL PROBLEM LOANS
The Company had no potential problem loans as of December 31, 1998
which have not been disclosed in Table C 1., but where known
information about possible credit problems of borrowers causes
management to have serious doubts as to the ability of such
borrowers to comply with the present loan repayment terms and
which may result in disclosure of such loans into one of the
problem loan categories.
3. FOREIGN OUTSTANDING
Not applicable.
4. LOAN CONCENTRATIONS
Refer to Page 36, Note 11 of the Annual Report To Shareholders.
D. OTHER INTEREST-BEARING ASSETS
Not applicable.
IV SUMMARY OF LOAN LOSS EXPERIENCE
For additional explanation of factors which influence management's
judgment in determining amounts charged to expense, refer to Page 10,
"Management Discussion and Analysis" and Pages 24 - 25, Note 1 of the
Annual Report To Shareholders.
7
<PAGE> 8
UNITED BANCORP, INC. FORM 10-K
ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED)
IV SUMMARY OF LOAN LOSS EXPERIENCE (CONTINUED)
A ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
The following schedule presents an analysis of the allowance for
loan losses, average loan data and related ratios for the years
ended December 31, 1998, 1997, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996 1995 1994
------------- ------------ -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
LOANS
Loans outstanding $ 164,221 $171,477 $ 166,516 $ 157,369 $141,076
Average loans outstanding $ 168,626 $169,066 $ 160,409 $ 150,429 $130,221
(In thousands)
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of year $ 3,039 $ 2,756 $ 2,593 $ 1,693 $ 1,520
Loan charge-offs:
Commercial 139 125 467 69 34
Commercial real estate - - - - -
Real estate 51 20 40 9 27
Installment 861 661 583 308 220
------------- ------------ -------------- ------------- ------------
Total loan charge-offs 1,051 806 1,090 386 281
------------- ------------ -------------- ------------- ------------
Loan recoveries
Commercial 87 32 13 6 7
Commercial real estate - - - - -
Real estate 9 3 5 1 -
Installment 151 122 70 75 36
------------- ------------ -------------- ------------- ------------
Total loan recoveries 247 157 88 82 43
------------- ------------ -------------- ------------- ------------
Net loan charge-offs 804 649 1,002 304 238
Provision for loan losses 798 932 1,165 1,204 411
------------- ------------ -------------- ------------- ------------
Balance at end of year $ 3,033 $ 3,039 $ 2,756 $ 2,593 $ 1,693
============= ============ ============== ============= ============
Ratio of net charge-offs to average
loans outstanding for the year 0.48% 0.38% 0.62% 0.20% 0.18%
============= ============ ============== ============= ============
</TABLE>
8
<PAGE> 9
UNITED BANCORP, INC. FORM 10-K
ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED)
IV SUMMARY OF LOAN LOSS EXPERIENCE (CONTINUED)
B ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The following table allocates the allowance for possible loan
losses at December 31, 1998, 1997, 1996, 1995 and 1994. The
allowance has been allocated according to the amount deemed to be
reasonably necessary to provide for the possibility of losses
being incurred within the following categories of loans at the
dates indicated:
<TABLE>
<CAPTION>
1998 1997
--------------------------- --------------------------
% OF LOANS % OF LOANS
(In thousands) ALLOWANCE TO TOTAL (In thousands) ALLOWANCE TO TOTAL
Loan type AMOUNT LOANS Loan type AMOUNT LOANS
----------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Commercial $ 215 7.87% Commercial $ 403 9.70%
Commercial real estate 432 33.00% Commercial real estate 322 28.69%
Real estate 567 30.10% Real estate 606 29.07%
Installment 818 29.03% Installment 1,200 32.54%
Unallocated 1,001 N/A Unallocated 508 N/A
----------- --------------- ------------ -------------
Total $ 3,033 100.00% Total $ 3,039 100.00%
=========== =============== ============ =============
<CAPTION>
1996 1995
--------------------------- --------------------------
% OF LOANS % OF LOANS
(In thousands) ALLOWANCE TO TOTAL (In thousands) ALLOWANCE TO TOTAL
Loan type AMOUNT LOANS Loan type AMOUNT LOANS
----------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Commercial $ 320 9.05% Commercial $ 551 8.65%
Commercial real estate 292 24.96% Commercial real estate 348 22.83%
Real estate 601 31.80% Real estate 416 32.43%
Installment 841 34.19% Installment 694 36.09%
Unallocated 702 N/A Unallocated 584 N/A
----------- --------------- ------------ -------------
Total $ 2,756 100.00% Total $ 2,593 100.00%
=========== =============== ============ =============
<CAPTION>
1994
---------------------------
% OF LOANS
(In thousands) ALLOWANCE TO TOTAL
Loan type AMOUNT LOANS
----------- ---------------
<S> <C> <C>
Commercial $ 71 7.41%
Commercial real estate 258 20.31%
Real estate 218 35.25%
Installment 584 37.03%
Unallocated 562 N/A
----------- ---------------
Total $ 1,693 100.00%
=========== ===============
</TABLE>
9
<PAGE> 10
UNITED BANCORP, INC. FORM 10-K
ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED)
V DEPOSITS
A SCHEDULE OF AVERAGE DEPOSIT AMOUNTS AND RATES
(1) Refer to Page 16 of the Annual Report To Shareholders.
(2) Refer to Page 16 of the Annual Report To Shareholders.
(3) Refer to Page 16 of the Annual Report To Shareholders.
(4) Refer to Page 16 of the Annual Report To Shareholders.
(5) - (8) Not applicable.
B OTHER CATEGORIES
Not applicable.
C FOREIGN DEPOSITS
Not applicable.
D MATURITY ANALYSIS OF TIME DEPOSITS GREATER THAN $100,000.
The following schedule details the maturities of time certificates of
deposit in amounts of $100,000 or more for the year ended December 31,
1998:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Three months or less $ 5,655
Over three through six months 4,122
Over six through twelve months 3,800
Over twelve months 8,387
------------
Total $ 21,964
============
</TABLE>
E TIME DEPOSITS GREATER THAN $100,000 ISSUED BY FOREIGN
OFFICES.
Not applicable.
VI RETURN ON EQUITY AND ASSETS
The ratio of net income to daily average total assets and average
shareholders' equity, and certain other ratios, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1998 1997 1996
------------- -------------- --------------
<S> <C> <C> <C>
Percentage of net income to:
Average total assets 1.17% 1.10% 1.06%
Average shareholders' equity 11.80% 11.48% 11.44%
Percentage of dividends declared to net income 39.76% 36.38% 35.10%
Percentage of average shareholders' equity
to average total assets 9.83% 9.55% 9.30%
</TABLE>
10
<PAGE> 11
UNITED BANCORP, INC. FORM 10-K
ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED)
VII SHORT-TERM BORROWINGS
Information concerning securities sold under agreements to
repurchase is summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Balance at December 31, $ 7,733 $ 8,391 $ 8,642
Weighted average interest rate at December 31, 4.44% 4.90% 4.63%
Average daily balance during the year $ 7,817 $ 8,211 $ 6,318
Average interest rate during the year 4.66% 4.81% 4.67%
Maximum month-end balance during the year $ 9,109 $ 9,316 $ 8,667
</TABLE>
Securities sold under agreements to repurchase are financing
arrangements whereby the Company sells securities and agrees to
repurchase the identical securities at the maturities of the agreements
at specified prices
Information concerning the cash management line of credit from the
Federal Home Loan Bank of Cincinnati, Ohio is summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Balance at December 31, $ 9,175 $ - $ 200
Weighted average interest rate at December 31, 5.02% - 7.15%
Average daily balance during the year $ 2,085 $ 608 $ 242
Average interest rate during the year 5.95% 6.06% 5.92%
Maximum month-end balance during the year $ 9,175 $ 1,845 $ 1,000
</TABLE>
No other individual component of the borrowed funds total comprised
more than 30% of shareholders' equity and accordingly are not disclosed
in detail.
ITEM 2 PROPERTIES
Refer to Pages 4 - 5, "Corporate Profile" in the Annual Report To
Shareholders.
ITEM 3 LEGAL PROCEEDINGS
Refer to Page 35, Note 10 of the Annual Report To Shareholders.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No motions were submitted to shareholders for a vote during the fourth
quarter of 1998.
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Refer to Page 7, "Shareholder Information" of the Annual Report To
Shareholders.
ITEM 6 SELECTED FINANCIAL DATA
Refer to inside back cover, "Five Year Performance Summary" of the
Annual Report To Shareholders.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Refer to Pages 9 - 18, 43 and 44, "Management's Discussion and
Analysis" of the Annual Report To Shareholders.
11
<PAGE> 12
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to Pages 13 - 14, "Asset/Liability Management and Sensitivity to
Market Risks" of the Annual Report To Shareholders.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to Pages 15 and 19 - 40 of the Annual Report To Shareholders.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There were no changes in or disagreements with accountants.
12
<PAGE> 13
UNITED BANCORP, INC. FORM 10-K
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Refer to Pages 4 - 8 of the Proxy Statement.
(b) Executive Officers of the Registrant:
<TABLE>
<S> <C> <C>
James W. Everson 60 Chairman, President and Chief Executive Officer
Norman F. Assenza, Jr. 53 Vice President - Operations and Secretary
Randall M. Greenwood 35 Vice President - Chief Financial Officer, Treasurer
Alan M. Hooker 48 Vice President - Administration
James A. Lodes 53 Vice President - Lending
Harold W. Price 53 Vice President - Administration
</TABLE>
(1) Each individual has held the position noted during the past five
years, except for the following:
Randall M. Greenwood served as a Business Assurance Manager of
Coopers and Lybrand LLP of Columbus, Ohio from 1993 to November of
1997. He served as a Manager for BankOne Corporation in Columbus,
Ohio from February 1991 to August 1993 and as a Supervisor at
Coopers and Lybrand LLP in Columbus, Ohio from September 1986
through February 1991. He has served as Vice President - Chief
Financial Officer of United Bancorp, Inc. and as Senior Vice
President - Chief Financial Officer of The Citizens Savings Bank,
Martins Ferry, Ohio since December 1997.
Alan M. Hooker served as President of Fairfield National Division
of the Park National Bank where he also served on their Advisory
Board. He has held senior level banking positions with financial
institutions in Washington, D.C., and Baltimore, Maryland. He has
served as President and Chief Executive Officer of The Community
Bank, Glouster, Ohio and as Vice President - Administration of
United Bancorp, Inc. since October 26, 1998.
James A. Lodes, served as Vice President - Commercial Lending
since December 1992 and as Senior Vice President Lending since
1994 with The Citizens Savings Bank, Martins Ferry, Ohio and Vice
President - Lending for United Bancorp, Inc. since 1995.
Harold W. Price has previously served as President and Chief
Executive Officer of the Exchange Bank of Canal Fulton from 1979
until 1984 when it was acquired by the First National Bank of
Akron, an affiliate of First Bancorp, Inc. of Ohio. From 1985 to
1992, he served as Executive Vice President and a member of the
Board of Directors of The Old Phoenix National Bank of Medina.
From 1992 to 1993, he served as Executive Vice President and
Senior Loan Officer of the Elyria Savings and Trust Company in
Elyria, Ohio. He has served as President and Chief Executive
Officer of The Citizens-State Bank of Strasburg, Strasburg, Ohio
and as Vice President of United Bancorp, Inc. since April 1, 1993.
He has served as Vice President - Administration of United
Bancorp, Inc. since April 19, 1995.
ITEM 11 EXECUTIVE COMPENSATION
Refer to Pages 10 - 15 of the Proxy Statement.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Refer to Pages 4 - 8 of the Proxy Statement.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to Page 15 of the Proxy Statement.
13
<PAGE> 14
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF FORM 10-K
1. The following consolidated financial statements appear in the 1998
Annual Report To Shareholders and are incorporated by reference:
<TABLE>
<S> <C>
Report of Independent Auditors Page 19
Consolidated Balance Sheets Page 20
Consolidated Statements of Income Page 21
Consolidated Statements of Shareholders' Equity Page 22
Consolidated Statements of Cash Flow Page 23
Notes to the Consolidated Financial Statements Pages 24 - 40
</TABLE>
2. The summary of selected quarterly results of operations appears on
Page 15 in the 1998 Annual Report To Shareholders and is
incorporated by reference.
3. Exhibits
2 Not Applicable
3 (i)(ii) Articles of Incorporation of United Bancorp, Inc.
including amendments and By Laws, previously filed with the
Securities and Exchange Commission on November 16, 1983.
4 Not applicable.
9 Not applicable.
10 Reference to special severance agreement on Page 14 of the
Proxy Statement
11 Statement regarding computation of per share earnings
(included in Note 1 to the consolidated financial statements
on page 26 of the Annual Report To Shareholders.)
12 Not applicable.
13 Reference to the Annual Report To Shareholders for the fiscal
year ended December 31, 1998. 16 Not applicable.
18 Not applicable.
21.1 Reference to The Citizens Savings Bank, Martins Ferry, Ohio,
incorporated on December 31, 1902, previously filed with the
Securities and Exchange Commission.
21.2 Reference to The Citizens-State Bank of Strasburg, Strasburg,
Ohio, incorporated on December 31, 1924, previously filed
with the Securities and Exchange Commission.
21.3 Reference to The Glouster Community Bank, Glouster, Ohio,
incorporated on August 1, 1949, previously filed with the
Securities and Exchange Commission.
22 Not applicable.
23 Consents of Experts and Council.
24 Not applicable.
27 Financial Data Schedule
28 Not applicable.
99 Not applicable.
(b) The Company filed no reports on SEC Form 8-K during the last quarter
of the period covered by this report.
14
<PAGE> 15
UNITED BANCORP, INC. FORM 10-K
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant) United Bancorp, Inc.
By: /s/ James W. Everson March 24, 1999
-------------------------------------
James W. Everson, Chairman, President & CEO
By: /s/ Randall M. Greenwood March 24, 1999
-------------------------------------
Randall M. Greenwood, CFO
By: /s/ Michael J. Arciello March 24, 1999
-------------------------------------
Michael J. Arciello
By: /s/ Herman E. Borkoski March 24, 1999
-------------------------------------
Herman E. Borkoski
By: /s/ John H. Clark, Jr. March 24, 1999
-------------------------------------
John H. Clark, Jr.
By: /s/ Dr. Leon F. Favede March 24, 1999
-------------------------------------
Dr. Leon F. Favede
By: /s/ John M. Hoopingarner March 24, 1999
-------------------------------------
John M. Hoopingarner
By: /s/ Richard L. Riesbeck March 24, 1999
-------------------------------------
Richard L. Riesbeck
By: /s/ L.E. Richardson, Jr. March 24, 1999
-------------------------------------
L.E. Richardson, Jr.
By: /s/ Errol C. Sambuco March 24, 1999
-------------------------------------
Errol C. Sambuco
By: /s/ Matthew C. Thomas March 24, 1999
-------------------------------------
Matthew C. Thomas
15
<PAGE> 16
UNITED BANCORP, INC. FORM 10-K
EXHIBIT INDEX
Exhibit No. Description SK Item 601 No.
13 Annual Report To Shareholders
23.1 Consent Crowe, Chizek, and Company LLP
23.2 Consent of Robb, Dixon, Francis, Davis, Oneson
& Company
Onison and Company
27.1998 Financial Data Schedule
27.1997 Financial Data Schedule (Restated)
27.1996 Financial Data Schedule (Restated)
27.1998-1Q Financial Data Schedule (Restated)
27.1998-2Q Financial Data Schedule (Restated)
27.1997-1Q Financial Data Schedule (Restated)
27.1997-2Q Financial Data Schedule (Restated)
16
<PAGE> 1
EXHIBIT 13
1998 ANNUAL REPORT
[UNITED BANCORP, INC. LOGO]
UNITED BANCORP, INC.
MARTINS FERRY, OHIO
A FORWARD-THINKING FOCUS
www.unitedbancorp.com
<PAGE> 2
A LETTER FROM THE PRESIDENT
UNITED BANCORP, INC.
Dear Shareholder:
Are you okay? We're okay! A question and answer that takes on a whole new
meaning when applied to the year 2000 and all the happenings the media is
promoting could possibly occur when we ring out the old and ring in the new at
the end of this year. We are pleased to report your Management Team's focus on
year 2000 issues began in April 1997 with the development of our Y2K Plan of
Action. As of this writing we have identified, replaced where necessary and
tested all of our mission critical systems to carry us well into the next
century of full service banking for our shareholders, customers, employees and
banking communities. And we are developing a contingency operations plan which
includes an auxiliary power system for our Operations Center to be fueled by
natural gas which will protect us against all future power outages. Our focus is
always forward thinking!
[PHOTO]
The numbers we are presenting to you in this Annual Report are strong and
provide a rock solid foundation for future growth. We have expanded our market
share substantially since our last year's shareholder letter to you through the
addition of the four offices of The Community Bank in Athens County, Ohio and
the expansion of our Citizens Savings Bank of Martins Ferry, Ohio affiliate into
Jewett, Ohio. We have expanded our delivery system with six new ATM
installations and continue to be an innovative leader with Image Statement
Processing. And we are pleased to report that with these capital expansion
programs, our 1998 earnings are up 10.8%.
[PHOTO]
Your Board of Directors on February 16, 1999 approved a very forward
thinking plan to further the growth of United Bancorp shareholder value, improve
customer service and provide for management succession. Upon completion of the
regulatory process which is anticipated by June 30, 1999, The Citizens-State
Bank of Strasburg is to be merged into The Citizens Savings Bank of Martins
Ferry, Ohio under the new leadership of Harold W. Price as President and Chief
Executive Officer. With this new assignment, Harold will be relocating to the
Ohio Valley to continue the growth of the consolidated ten offices of The
Citizens Savings Bank and realign its management team.
[PHOTO]
With the rapid growth of United Bancorp, my position as its Chief Executive
Officer has grown into a full time job. I am really looking forward to
continuing the growth of United Bancorp shareholder value on a full time basis,
continuing to serve as its Chairman, President and CEO and serving as Chairman
of the Board of both The Citizens Savings
[PHOTO]
JAMES W. EVERSON
Chairman,
President & Chief Executive Officer
1998 ANNUAL REPORT 1
<PAGE> 3
A LETTER FROM THE PRESIDENT
UNITED BANCORP, INC.
[GRAPH]
MARKET VALUATION
(IN MILLIONS)
[GRAPH]
CLOSING PRICE
PER COMMON SHARE
(CLOSE-HIGH/LOW)
Bank and The Community Bank affiliates.
[COMMUNITY BANK LOGO]
We are quite excited about our expansion plans for our new Community Bank
affiliate under the leadership of its new President and Chief Executive Officer,
Alan M. Hooker. Alan and his wife Lisa are community leaders in Lancaster, Ohio
and Fairfield County. Alan brings a very high profile of banking experience,
education and community involvement to his new position with us and I am looking
forward to working with him in developing a plan of action to expand our
presence in Athens and Fairfield Counties.
[PHOTO]
It is with sadness we note the loss of our Director Emeritus Premo R.
Funari. Premo set a standard as a Shareholder, Board Member, Bank Customer,
Church Member, Family Man and Friend that we all admired and respected. Premo
died in his 87th year last April and is remembered and missed. He and his widow
Anne have always been special to The Citizens Savings Bank and to me.
We have completed the planning to open a comprehensive brokerage service at
our Martins Ferry location on March 15, 1999. Christopher Wakim will be the
registered broker heading up this new operation to be known as Brokerage United,
a division of The Citizens Savings Bank with securities provided through Raymond
James Financial Services, Inc., member NASD/SPIC. Chris brings over ten years of
banking and brokerage experience to his new position. We look forward to having
him offer the Raymond James group of non-banking products and brokerage services
to our banking communities.
[PHOTO]
[BROKERAGE UNITED LOGO]
We started this letter by saying we are okay. We are well beyond the year
2000 in our planning. Frankly I am personally excited...we are planning into my
next phase of living! Having been with The Citizens Savings Bank since becoming
a student employee in 1959, serving as its President and CEO since 1973...and
the same with United Bancorp since its formation in 1983, I am quite excited
that we have a plan in place that will allow for management succession and my
retirement within the next five years.
For now, your Management Team's commitment is to continue and grow your
Shareholder Value well toward the 22nd Century!!
/s/ James W. Everson
James W. Everson, Chairman,
President & Chief Executive Officer
United Bancorp, Inc.
Martins Ferry, Ohio 43935
[email protected]
February 24, 1999
1998 ANNUAL REPORT 2
<PAGE> 4
CORPORATE PROFILE
UNITED BANCORP, INC.
DIVIDEND AND STOCK HISTORY
<TABLE>
<CAPTION>
DISTRIBUTION DATE
CASH DIVIDENDS OF DIVIDENDS AND
DECLARED(1) STOCK DIVIDENDS EXCHANGES
<S> <C> <C> <C>
1983 $ 0.12 - -
1984 $ 0.12 4 for 1 Exchange(2) 1/2/84
1985 $ 0.13 - -
1986 $ 0.15 - -
1987 $ 0.16 50% Stock Dividend 10/2/87
1988 $ 0.17 - -
1989 $ 0.17 - -
1990 $ 0.19 - -
1991 $ 0.20 - -
1992 $ 0.21 100% Stock Dividend 9/10/92
1993 $ 0.22 100% Stock Dividend 11/30/93
1994 $ 0.24 10% Stock Dividend 9/9/94
1995 $ 0.33 - -
1996 $ 0.37 10% Stock Dividend 6/20/96
1997 $ 0.42 10% Stock Dividend 9/19/97
1998 $ 0.47 5% Stock Dividend 12/18/98
</TABLE>
(1) Adjusted for stock dividends and exchanges. Does not include dividends from
Southern Ohio Community Bancorporation, Inc. prior to the merger.
(2) Formation of United Bancorp, Inc. (UBCP). The Citizens Savings Bank
shareholders received 4 shares of UBCP stock in exchange for 1 share of The
Citizens Savings Bank.
TOTAL RETURN TO SHAREHOLDERS
[GRAPH]
DIVIDENDS PER SHARE(1)
[GRAPH]
BOOK VALUE PER SHARE(1)
[GRAPH]
DILUTED EARNINGS PER SHARE(1)
[GRAPH]
1998 ANNUAL REPORT 3
<PAGE> 5
CORPORATE PROFILE
UNITED BANCORP, INC.
United Bancorp, Inc. is headquartered in Martins Ferry, Ohio, located on
the eastern border of Ohio along the Ohio River. Martins Ferry is nestled among
the many scenic foothills along the Upper Ohio Valley across the river from the
greater metropolitan area of Wheeling, West Virginia, 60 miles southwest of
Pittsburgh, Pennsylvania and 125 miles east of Columbus, Ohio.
Early settlers to the region found many natural resources readily
available, which assisted in the establishment of frontier communities in and
around the eastern Ohio areas. Today, in addition to the natural resources still
abundant within the region, there remains a plentiful workforce, easy access to
interstate highway systems, and nearby river and railway transportation
facilities. This economic base is built upon a strong belief in traditional
small community values where future growth and development can be nurtured.
These local communities served by the Banks of United Bancorp, Inc.
encompass a variety of social and economic cultures. This diversification
provides many opportunities for our community banks to develop long-term
relationships with customers spanning several generations. The "Hometown"
advertising phrase captures the character and integrity of each banking location
in relation to the local community it serves.
To better its shareholders, United Bancorp, Inc. ("UBCP") was created as a
single bank holding company in July of 1983. This was accomplished through the
acquisition of 100% of the voting stock of The Citizens Savings Bank of Martins
Ferry, Ohio ("CITIZENS"). In December of 1986 UBCP 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"). In July
1998, Southern Ohio Community Bancorporation, Inc. ("Southern") merged into
UBCP. Southern's operating subsidiary, The Community Bank, Glouster, Ohio,
("Community") became UBCP's third wholly owned banking subsidiary.
Common stock of UBCP was initially available through over-the-counter
trading. In February of 1994, it began trading on The Nasdaq SmallCaps Market
tier of The Nasdaq Stock Market under the trading symbol UBCP.
CITIZENS was originally established as The German Savings Bank in 1902 and
remains the lead bank in the multi-bank holding company. In 1974, local markets
were expanded through the construction of a full service branch banking facility
six miles west of Martins Ferry in nearby Colerain, Ohio. In 1978, expansion
continued with the construction of another full service branch bank in
Bridgeport, Ohio, located two miles south. In 1980, a limited service
auto-teller location was opened in Martins Ferry, one block south of the initial
main office location. In 1983, an Automated Teller Machine ("ATM") began
operation in nearby Aetnaville, Ohio. By 1984, CITIZENS had outgrown its
original main banking facility in Martins Ferry and subsequently relocated to a
newly constructed 21,500 square foot addition to the auto-teller building.
1990 ushered in a new era of in-house data processing with the installation
of sophisticated, high-speed equipment capable of servicing current and future
information and document processing needs. In 1991, CITIZENS began providing
data processing services for CITIZENS-STATE. During 1993, realizing the need for
a specific location dedicated to operational support, the accounting,
bookkeeping and later data processing functions were established in a separate
facility directly across from the main banking center in Martins Ferry.
In mid-1996, check image and statement processing was introduced to all
banking locations. The customers would no longer receive their checks and
deposit tickets, but would instead receive an image of each transaction. The
successes enjoyed by both banks during the conversion from traditional check
processing to the radically different image processing were proof that positive
change can be accomplished without sacrificing the personalized service and
consideration our customers deserve.
In mid-1997, CITIZENS opened a full service Retail Banking Center inside
Riesbeck's Food Markets, Inc.'s St. Clairsville, Ohio store. This site also
provides a free-standing ATM for additional customer service.
In early 1998, cash dispensing machines were installed throughout the
Riesbeck's Food Markets retail distribution network in Ohio and West Virginia.
Early developments of a comprehensive cash management program for retail and
business customers were initiated. In November 1998, CITIZENS announced the
acquisition of a full service banking facility in Jewett, Ohio, which
consummated in January 1999.
CITIZENS-STATE was also established in 1902 and headquartered in Strasburg,
Ohio. It is located in an area of northeastern Ohio whose economy is supported
by agriculture and light industry. It has also benefited as a "bedroom
community" for the Akron-Canton metropolitan areas.
In 1990, a full service banking facility was constructed six miles south in
Dover, Ohio. During 1992, expansion continued with the acquisition of two branch
bank locations in New Philadelphia and Sherrodsville, Ohio. Later, in 1994, a
branch bank was purchased in Dellroy, Ohio.
COMMUNITY was established in August 1945 with corporate offices
1998 ANNUAL REPORT 4
<PAGE> 6
CORPORATE PROFILE
UNITED BANCORP, INC.
located in Glouster, Ohio. In 1976, COMMUNITY acquired the First National Bank
of Amesville, Ohio. In 1978, a three-lane Auto Bank drive-up facility was
constructed on the west side of Glouster. In 1984, Southern was established as
the banks' holding company. In 1987, Management concluded to expand their
service area. Therefore, a Nelsonville office with two drive-up lanes opened to
serve the Nelsonville and surrounding communities. Along with the opening of the
Nelsonville office, an ATM machine was installed at Hocking Technical College to
enhance customer service for faculty and students. In 1992, an ATM machine was
installed in the Nelsonville office.
On December 6, 1993, a ribbon-cutting ceremony was held for the newly
constructed Nelsonville office. The building, which replaced a mobile bank unit,
features four drive-up lanes, and a drive-up ATM. Night deposit and safe deposit
box services were introduced to the Nelsonville community.
In 1996, COMMUNITY completed an extensive renovation of its offices in
Glouster and added a 24-hour access ATM in the vestibule.
Management is deeply committed to meeting the financial needs of
individuals and business. Our goal is to foster the community banking philosophy
into the next millennium without sacrificing our "Hometown" banking image and
beliefs.
[PHOTO]
Martins Ferry, Ohio
[PHOTO]
New Philadelphia, Ohio
[PHOTO]
Glouster, Ohio
[LOGO]
UNITED BANCORP, INC.
WE ARE UNITED
TO BETTER SERVE YOU
1998 ANNUAL REPORT 5
<PAGE> 7
FINANCIAL HIGHLIGHTS
UNITED BANCORP, INC.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1998 1997 % CHANGE
----------- ----------- ----------
EARNINGS (IN 000'S)
<S> <C> <C> <C>
Total interest income $ 21,126 $ 20,802 1.56%
Total interest expense 9,657 9,410 2.62%
Net interest income 11,469 11,392 0.68%
Total noninterest income 1,581 1,307 20.96%
Total noninterest expense 8,008 7,946 0.78%
Net income 3,155 2,848 10.78%
PER SHARE (1)
Earnings per common share - Basic $ 1.13 $ 1.02 10.78%
Earnings per common share - Diluted 1.12 1.01 10.89%
Cash dividends paid 0.47 0.42 11.90%
Book value (end of period) 9.76 9.18 6.32%
AT YEAR END (IN 000'S)
Total assets $ 285,493 $ 263,607 8.30%
Total assets (average) 270,084 259,582 4.05%
Total deposits 229,110 223,489 2.52%
Net loans 161,188 168,439 -4.30%
Securities 97,686 75,063 30.14%
Shareholders' equity 27,321 25,713 6.25%
Shareholders' equity (average) 26,738 24,795 7.84%
STOCK DATA (1)
Market value (end of period) $ 25.00 $ 25.71 -2.76%
Dividend payout ratio 39.76% 36.38% 9.29%
Price earnings ratio (2) 22.12x 25.21x -12.26%
KEY PERFORMANCE RATIOS
Return on average assets (ROA) 1.17% 1.10% 6.36%
Return on average shareholders' equity (ROE) 11.80% 11.48% 2.79%
Efficiency ratio 56.37% 57.50% -1.97%
</TABLE>
(1) Per share and stock data has been restated to reflect effect of 5% and 10%
stock dividends in 1998 and 1997, respectively.
(2) Calculated using basic earnings per common share.
1998 ANNUAL REPORT 6
<PAGE> 8
SHAREHOLDER INFORMATION
UNITED BANCORP, INC.
United Bancorp, Inc.'s common stock trades on The Nasdaq SmallCap Market tier of
The Nasdaq Stock Market under the symbol UBCP, CUSIP #90991109. At the year-end
1998, there were 2,800,298 shares outstanding, held among approximately 1,200
shareholders of record. The following table sets forth the quarterly high and
low closing prices of the Company's common stock from January 1, 1998 to
December 31, 1998 compared to the same periods in 1997 as reported by the
NASDAQ. The price quotes have been adjusted for comparison purposes for the 5%
stock dividends distributed on December 18, 1998 and the 10% stock dividend
distributed on September 19, 1997. The price quotations presented should not
necessarily be relied on in determining the value of the shareholders'
investment.
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------------------------------------------------------
31-MAR 30-JUN 30-SEP 31-DEC 31-MAR 30-JUN 30-SEP 31-DEC
------ ------ ------ ------ ------ ------ ------ ------
Market Price Range
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High ($) 28.333 28.333 25.476 25.000 18.831 16.667 20.476 26.076
Low ($) 24.762 24.762 21.905 17.857 17.316 14.719 15.368 19.524
Cash Dividends
Quarter ($) 0.114 0.114 0.114 0.130 0.095 0.095 0.114 0.114
Cumulative ($) 0.114 0.228 0.342 0.472 0.095 0.190 0.304 0.418
</TABLE>
INVESTOR RELATIONS:
A copy of the Company's Annual Report on form 10-K as filed with the SEC,
will be furnished free of charge upon written or E-mail request to:
Randall M. Greenwood, CFO
United Bancorp, Inc.
201 South 4th Street
PO Box 10
Martins Ferry, OH 43935
or
[email protected]
DIVIDEND REINVESTMENT AND
STOCK PURCHASE PLAN:
Shareholders may elect to reinvest their dividends in additional shares of
United Bancorp, Inc.'s common stock through the Company's Dividend Reinvestment
Plan. Shareholders may also invest optional cash payments of up to $5,000 per
quarter in our common stock at market price. To arrange automatic purchase of
shares with quarterly dividend proceeds, please contact:
American Stock Transfer
and Trust Company
Attn: Dividend Reinvestment
40 Wall Street, 46th Floor
New York, NY 10005
1-800-278-4353
ANNUAL MEETING:
The Annual Meeting of Shareholders will be held at 2:00 p.m., April 21,
1999 at the Corporate Offices in Martins Ferry, Ohio.
INTERNET:
Please look us up at
http//www.unitedbancorp.com
INDEPENDENT AUDITORS:
Crowe, Chizek and Company LLP
Certified Public Accountants
10 West Broad Street
Columbus, OH 43215
(614) 469-0001
CORPORATE OFFICES:
The Citizens Savings Bank Building
201 South 4th Street
Martins Ferry, OH 43935
(740) 633-BANK
(740) 633-1448 (FAX)
STOCK TRADING:
The Ohio Company
21 East State Street, 8th Floor
Columbus, OH 43215
1-800-454-9441
Advest, Inc.
340 S. Hollywood Plaza
Steubenville, OH 43952
1-800-761-8008
TRANSFER AGENT AND REGISTRAR:
For transfers and general correspondence, please contact:
American Stock Transfer
and Trust Company
40 Wall Street, 46th Floor
New York, NY 10005
1-800-937-5449
1998 ANNUAL REPORT 7
<PAGE> 9
PROVIDING HOMETOWN BANKING
UNITED BANCORP, INC.
[MONTAGE]
1998 ANNUAL REPORT 8
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
UNITED BANCORP, INC.
In the following pages, management presents an analysis of United Bancorp,
Inc.'s financial condition and results of operations as of and for the year
ended December 31, 1998 as compared to prior years. This discussion is designed
to provide shareholders with a more comprehensive review of the operating
results and financial position than could be obtained from an examination of the
financial statements alone. This analysis should be read in conjunction with the
consolidated financial statements and related footnotes and the selected
financial data included elsewhere in this report.
FINANCIAL CONDITION
EARNING ASSETS - LOANS
For the year ended December 31, 1998, the Company's total assets
increased 8.3% over December 31, 1997 totals. Total earning assets increased
$19,793,914, or 8.0% over $247,282,541 at year-end 1997. Average gross loans
totaled $168,626,471 for the year-end 1998, representing a slight decrease of
0.3% from $169,066,393 for the year-end 1997. Year-end outstanding total loans
decreased from 4.2% from 1997 to 1998.
Installment lending decreased by $8,118,225, or 14.6%, from 1997
totals. These loans represented 29.0% of the total portfolio at year-end 1998
compared to 32.5% at year-end 1997. The targeted lending areas encompass the
geographic areas serviced by the affiliate Banks, minimizing the risk to changes
in economic conditions. During the first quarter of 1998, CITIZENS-STATE
introduced into their market an indirect automobile finance program. The results
for 1998 have been in line with management's projections with total installment
loans increasing 20.0% from December 31, 1997. However, the indirect market for
CITIZENS has seen increased competition and charge-offs during 1998 and as a
result has experienced a decrease in installment loan totals of 10.5% from
December 31, 1997. Since the January 1998 announcement of the acquisition of
Southern, UBCP Management has worked closely with our newest affiliate,
COMMUNITY, with respect to product pricing, budgeting, expense control and
underwriting/collection standards. Based upon COMMUNITY'S past experience with
credit quality concerns in unsecured consumer debt lending, UPCP Management
strengthened underwriting standards and priced these products at a level
commensurate with the inherent risk in unsecured lending. However, these changes
resulted in a decrease in the overall installment portfolio of COMMUNITY of
approximately 48.2% since December 31, 1997. Competition, especially in the
indirect arena, has increased over the past several years. Alternative financing
programs offered by the automakers' financing subsidiaries have been and will
continue to compete for business. Management has responded to direct competition
by extending our customer service hours into the evening to provide our
customers with the ability to arrange financing at their convenience.
Increases in commercial real estate lending and a slight decline in
real estate lending volume also contributed to the shift in portfolio alignment.
Commercial and commercial real estate loans comprised 40.9% of total loans at
December 31, 1998 compared to 38.4% at year-end 1997, an increase of
approximately $1,281,000. Commercial loans decreased $3,724,691, or 22.4%, from
1997 levels, representing 7.9% of the total portfolio at year-end 1998. This
compares to 9.7% of the mix at year-end 1997. During 1998, the Company
experienced prepayment on commercial loans as commercial borrowers continue to
be price sensitive in this area of lending.
Commercial real estate loans increased $5,005,268, or 10.2%, over 1997
totals comprising 33.0% of the portfolio compared to 28.7% at year-end 1997. The
Company has originated and bought participations in loans from other banks for
out-of-area 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
TOTAL ASSETS
(IN MILLIONS)
[GRAPH]
LOANS - NET
(IN MILLIONS)
[GRAPH]
1998 ANNUAL REPORT 9
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
UNITED BANCORP, INC.
EQUITY CAPITAL
(IN MILLIONS)
[GRAPH]
CASH DIVIDENDS
(IN THOUSANDS)
[GRAPH]
various geographic locations, including Columbus and the Akron-Canton, Ohio
metropolitan areas. Out of area loans at December 31, 1998 were 11.6% of total
loans and 28.4% of total commercial and commercial real estate loans compared to
9.0 % and 23.4% 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. Since the effective date of
the merger, the Company has benefited from various participation loans generated
by COMMUNITY.
Although we have continued to offer our variable-rate real estate
lending programs, the portfolio has declined. With fixed rates at or near
historical low levels for the past two years, customers are taking advantage of
alternative fixed-rate products offered through secondary market programs.
During 1997, we introduced a Secondary Market Real Estate Mortgage Program to
help our customers take advantage of a fixed-rate loan program without assuming
the interest rate risk associated with this loan product.
Since the introduction of this program, approximately $15,000,000 in
Secondary Market Real Estate Mortgages have been originated and sold. This
generated net realized gains of $139,037 and $139,005 in 1998 and 1997,
respectively. Many first time homeowners or individuals with little or no down
payment have been able to participate in many of the variety of lending options
now available. Additionally, many existing customers and non-customers with
variable rate real estate loans have refinanced into fixed rate products offered
through the secondary market program. This trend toward fixed-rate products can
be expected to continue with interest rates at historical low levels.
The allowance for loan losses represents the amount which management
and the Board of Directors estimates is adequate to provide for probable 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 grading 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 probable losses. Net charge-offs for the
year-ended 1998 were $803,374, or 26.4%, of the beginning allowance for loan
losses compared to $649,465, or 23.6%, of beginning allowance for loan losses
for 1997. The net charge-offs for 1998 included a one-time charge-off of
approximately $305,000 prior to the merger date with the Company. This
charge-off of $305,000 at COMMUNITY related to various small unsecured consumer
loans deemed a loss by the Company based upon its credit and collection policy.
Without the $305,000, net charge-offs for 1998 would have been 16.4% of
beginning allowance for loan losses.
EARNING ASSETS - SECURITIES AND FEDERAL FUNDS SOLD
The securities portfolio is comprised of US Treasury notes, US
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 US
Government agencies, or derivative
1998 ANNUAL REPORT 10
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
UNITED BANCORP, INC.
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 year-end 1998 increased $29,788,707,
or 64.8%, over 1997, while securities held to maturity decreased $7,166,353, or
24.7%. During 1998, Management utilized available for sale securities to off-set
the decrease in loans. The relatively short-term nature of these securities
should provide management the funding for 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 all categories of
interest-bearing deposits, excluding certificates of deposit greater than
$100,000. For the year-ended 1998, total core deposits increased by $4,965,306.
The Company maintains strong deposit relationships with public agencies,
including local school districts, city and township municipalities, public works
facilities and others, which may tend to be more seasonal in nature resulting
from the receipt and disbursement of state and federal grants. These entities
have maintained relatively stable balances with the Company due to various
funding and disbursement timeframes.
Certificates of deposit greater than $100,000 are not considered part
of core deposits and, as such, are used as a tool to manage funds. At year-end
1998, certificates of deposit greater than $100,000 increased a modest $656,414,
or 3.1%, over year-end 1997 totals. This is due in part to Management utilizing
advances from the Federal Home Loan Bank ("FHLB") to provide a lower cost of
funding during 1998. With rates trending lower in 1998, Management priced the
long-term certificates of deposit so as to lock in these funds for an extended
period of time.
Although the Company experienced a growth in core deposits for 1998,
the attraction of and retention of core deposits continues to pose a challenge
to the Company and the overall banking industry. Alternative financial products
are continuously being introduced by our competition whether through a
traditional bank or brokerage services company.
SOURCES OF FUNDS - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER
BORROWED FUNDS
Other interest-bearing liabilities include securities sold under
agreements to repurchase, federal funds purchased, Treasury, Tax & Loan notes
payable and Federal Home Loan Bank advances. Securities sold under agreements to
repurchase remained relatively constant, while other borrowed funds increased
significantly by $15,422,212. This increase was the result of expanded use of
FHLB Cash Management and Match Funding loan programs. During 1998, the Company
regularly utilized both FHLB programs to manage interest rate risk and liquidity
positions. The Company increased matched funded loans by approximately $4.4
million from 1997 to 1998. As interest rates in 1998 reached historical low
levels, commercial borrowers capitalized on the opportunity to obtain long-term
fixed-rate funding. To minimize interest rate risk, the Company borrowed from
the FHLB on terms similar to the loans originated. The Company also increased
its level of short-term borrowings. FHLB Cash Management and Federal Funds
purchased totaled approximately $13.8 million at December 31, 1998 compared with
$2.0 million as of December 31, 1997, an increase of $11.8 million. The
rationale for the increase is explained by the Company's pending purchase of a
full service banking facility in Jewett, Ohio. In anticipation of the purchase
of the branch in January 1999, the Company, in mid-November 1998, utilized the
FHLB Cash Management program and purchased approximately $10 million of
short-term callable securities. This strategy enabled the Company to obtain
earning assets to offset the purchased deposits prior to the November interest
rate reductions by the Federal Reserve Bank. Therefore, Management capitalized
on the higher rates being offered for investment securities. This differential
in interest rates from November 1998 to January 1999 was approximately 50 basis
points.
During 1999, the Company may take advantage of the current low costs
associated with wholesale funding sources such as the FHLB while relying less on
the more volatile certificates of deposits greater than $100,000.
RETURN ON
AVERAGE ASSETS
(PERCENT)
[GRAPH]
RETURN ON
AVERAGE EQUITY
(PERCENT)
[GRAPH]
1998 ANNUAL REPORT 11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
UNITED BANCORP, INC.
NET INCOME
(IN THOUSANDS)
[GRAPH]
TOTAL EARNING ASSETS
(IN THOUSANDS)
[GRAPH]
PERFORMANCE OVERVIEW
NET INCOME
The Company reported earnings of $3,154,979 in 1998 compared with
$2,847,568 in 1997 and $2,629,989 in 1996. This earnings performance equates to
a 1.17% Return on Average Assets ("ROA") and 11.80% Return on Average Equity
("ROE") for 1998 compared to 1.10% and 11.48% for 1997 and 1.06% and 11.44% for
1996. Earnings per share ("EPS") comparisons indicate an increase to $1.13 Basic
EPS and $1.12 Diluted EPS for 1998 compared to $1.02 Basic EPS and $1.01 Diluted
EPS for 1997. EPS for 1996 was $0.94 for both Basic and Diluted. Per share
amounts for all periods have been restated to reflect the 5% stock dividend
distributed in December 1998 and the 10% stock dividend distributions to
shareholders in September 1997 and June 1996.
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 a modest $77,043, or less than 1.0%, in 1998 compared
to a $664,800, or 6.2%, increase in 1997. The net interest spread has declined
slightly during the past two years.
The dynamics of this increase are related to changes in rate and volume
within interest-earning assets and interest-bearing liabilities. Average
interest-earning assets increased $8,922,000, or 3.6%, in 1998 over 1997
compared to $12,836,000, or 5.5%, in 1997 over 1996. The associated
weighted-average yield on these interest-earning assets decreased to 8.26% in
1998 compared to 8.43% in 1997 and 8.38% in 1996.
Average interest-bearing liabilities increased $7,870,000, or 3.7%, in
1998 over 1997 compared to $9,604,000, or 4.7%, in 1997 over 1996. The
associated cost of funds for those interest-bearing liabilities in 1998
decreased to 4.32% in 1998 compared to 4.37% in 1997 and 4.29% in 1996.
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 $797,957 in 1998 compared to
$932,000 in 1997 and $1,165,400 in 1996. Despite the 1998 decrease from 1997 of
14.4% in the provision for loan losses, the allowance for loan losses as a
percentage of loans increased from 1.77% at year-end 1997 to 1.85% at year-end
1998, due to the decline in the balance of loans outstanding.
NONINTEREST INCOME
Noninterest income is made up of Bank related fees and service charges,
as well as other income producing services. These include secondary market loan
servicing fees, ATM/interchange income, early redemption penalties for
certificates of deposit, safe deposit rental income, net gain or loss on sales
of securities available for sale and loans, leased rental property and other
miscellaneous items. Total noninterest income for 1998 was $1,581,139, or 21.0%,
over 1997 totals. Total noninterest income for 1997 was $1,307,165, or 13.0%,
over 1996. Gains on the sale of fixed-rate mortgages in the secondary market,
the 1997 introduction of a skip payment loan program, expanded ATM network and
surcharging non-customers of the Company contributed the most to the solid
increases in noninterest income for 1998 and 1997.
NONINTEREST EXPENSE
Noninterest expense for 1998 increased a modest $62,030, or 0.8%,
1998 ANNUAL REPORT 12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
UNITED BANCORP, INC.
over 1997 compared to $673,386, or 9.3%, for 1997 over 1996. Professional
services and franchise taxes accounted for the largest decreases in 1998
compared to 1997. Occupancy and equipment and other expense attributed to the
most significant increases from 1997 to 1998. Overall, management is pleased
with the rather modest growth in noninterest expense from 1997 to 1998.
Increased occupancy expense sustained a portion of this increase due to a full
year of costs associated with the July 1997 opening of CITIZEN'S Retail Banking
Center in St. Clairsville, Ohio. Also contributing to the increase in 1998 was
the cost of certain maintenance contracts and other operational costs at
COMMUNITY. Prior to the July 7, 1998 merger, COMMUNITY, as a stand-alone bank,
operated their own data processing, operational support center and financial
reporting and accounting function. As such, they had separate maintenance
contracts and incurred certain contract termination fees associated with the
consolidation of all these functions to the Company's consolidated Operations
Center in Martins Ferry, Ohio. In addition, other expense increased from 1997 to
1998. Merger related expenses contributed to the majority of the increase in
other expense. Noninterest expense increased for the year-end 1997 over 1996.
The variances between years are in part due to the July 1998 merger with
Southern. This transaction was accounted for under the pooling of interest
method of accounting and thus all financial information has been restated to
include Southern. However, the management of Southern's operating subsidiary
COMMUNITY has changed dramatically since the acquisition. Expense control
procedures are now implemented and this has produced annual savings in excess of
$400,000. Prior to the expense control procedures, COMMUNITY'S salaries and
employees benefit costs and professional expense and occupancy and equipment
were extremely high relative to peer bank data. The inability of Southern to
properly control and monitor their noninterest expense is responsible for
approximately $308,000, or 45.7% of the Company's total increase in noninterest
expense of $673,386 from 1996 to 1997 as mentioned above. The $308,000 increase
represented a 15.5% increase in noninterest expense when Southern was a
stand-alone company. Overall, when the two companies are combined the items
contributing to the increase are similar and include; salaries and employee
benefits, professional fees, and occupancy and equipment. Salaries and employees
benefits increased $281,000 over 1996 levels mainly due to additional staffing
requirements for the secondary market program, the growth in mid-to-senior level
management positions and new staffing for the previously mentioned CITIZENS
Retail Banking Center. Occupancy and equipment increased $154,822 over 1996,
mainly due to additional investment in technology. Professional services
in-creased $177,605 over 1996. The increase was due to professional services
incurred by COMMUNITY related to the merger.
ASSET/LIABILITY MANAGEMENT AND SENSITIVITY TO MARKET RISKS
In the environment of changing business cycles, interest rate
fluctuations and growing competition, it has become increasingly more difficult
for banks to produce adequate earnings on a consistent basis. Because it is not
possible to reliably predict interest rates, the Company must establish a sound
asset/liability policy, which will minimize exposure to interest rate risk while
maintaining an acceptable interest rate spread and insuring adequate liquidity.
The principal goal of asset/liability management-profit management
- -can be accomplished by establishing decision processes and control procedures
for all bank assets and liabilities. Thus, the full scope of asset/liability
management encompasses the entire balance sheet of the Company. The broader
principal components of asset/liability management include, but are not limited
to liquidity planning, capital planning, gap management and spread management.
By definition, liquidity is measured by the Company's ability to raise
cash at a reasonable cost or with a minimum of loss. Liquidity planning is
necessary so the Company will be capable of funding all obligations to its
customers at all times, from meeting their immediate cash withdrawal
requirements to fulfilling their short-term credit needs.
Capital planning is an essential portion of asset/liability management,
as capital is a limited bank resource, which, due to minimum capital
requirements, can place possible restraints on bank growth. Capital planning
refers to maintaining capital standards through effective growth management,
dividend policies and asset/liability strategies.
Gap is defined as the dollar difference between rate sensitive assets
and rate sensitive liabilities with respect to a specified time frame. A gap has
three components - the asset component, the liability component, and the time
component. Gap management involves the management of all three components.
EFFICIENCY RATIO
(PERCENT)
[GRAPH]
1998 ANNUAL REPORT 13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
UNITED BANCORP, INC.
Gap management is defined as those actions taken to measure and match
rate sensitive assets to rate sensitive liabilities. A rate sensitive asset is
any interest-earning asset, which can be repriced to a market rate in a given
time frame. Similarly, a rate sensitive liability is any interest-bearing
liability, which can have its interest rate changed to a market rate during the
specified time period. Caps and collars may prevent certain loans and securities
from adjusting to the market rate.
A negative gap is created when rate sensitive liabilities exceed rate
sensitive assets and, conversely, a positive gap occurs when rate sensitive
assets exceed rate sensitive liabilities. A negative gap position will cause
profits to decline in a rising interest rate environment and a positive gap will
cause profits to decline in a falling interest rate environment. Under either
scenario, profits suffer. The Company's goal is to have acceptable profits under
any interest rate environment. To avoid volatile profits as a result of interest
rate fluctuations, the Company must match interest rate sensitivities, while
pricing both the asset and liability components to yield a sufficient interest
rate spread so that profits will remain relatively consistent across interest
rate cycles.
Management of the income statement is called spread management and is
defined as managing investments, loans, and liabilities to achieve an acceptable
spread between the Company's return on its earning assets and its cost of funds.
Gap management without consideration of interest spread can cause unacceptably
low profit margins while assuring that the level of profits is steady. Spread
management without consideration of gap positions can cause acceptable profits
in some interest rate environments and unacceptable profits in others. A sound
asset/liability management program combines gap and spread management into a
single cohesive system.
Management measures the Company's interest rate risk by computing
estimated changes in net interest income and the net portfolio value ("NPV") of
its cash flows from assets, liabilities and off-balance sheet items in the event
of a range of assumed changes in market interest rates. The Banks' senior
management and the Executive Committee of the Board of Directors, comprising the
Asset/ Liability Committee ("ALCO") review the exposure to interest rates at
least quarterly. Exposure to interest rate risk is measured with the use of an
interest rate sensitivity analysis to determine the change in NPV in the event
of hypothetical changes in interest rates, while interest rate sensitivity gap
analysis is used to determine the repricing characteristics of the assets and
liabilities.
NPV represents the market value of portfolio equity and is equal to the
market value of assets minus the market value of liabilities, with adjustments
made for off-balance sheet items.
Computations of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, loan prepayments and deposit decay rates, and should not be
relied upon as indicative of actual results. Further, the computations do not
contemplate any actions the Company may undertake in response to changes in
interest rates. The NPV calculation is based on the net present value of
discounted cash flows utilizing market prepayment assumptions and market rates
of interest provided by surveys performed during each quarterly period, with
adjustments made to reflect the shift in the Treasury yield curve between the
survey date and quarter-end date.
Certain shortcomings are inherent in this method of analysis presented
in the computation of estimated NPV. Certain assets such as adjustable-rate
loans have features that restrict changes in interest rates on a short-term
basis and over the life of the asset. In addition, the 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 table. Finally, the ability of many borrowers to repay their
adjustable-rate debt may decrease in the case of an increase in interest rates.
NET PORTFOLIO VALUE
<TABLE>
<CAPTION>
CHANGES IN RATES $ AMOUNT $ CHANGE % CHANGE
-------- -------- --------
<S> <C> <C> <C>
+150 bp 21,617 (5,704) -21%
+100 bp 23,435 (3,886) -14%
+ 50 bp 25,341 (1,980) -7%
Base 27,321
- 50 bp 29,428 2,107 8%
-100 bp 31,637 4,316 16%
-150 bp 34,015 6,694 25%
</TABLE>
1998 ANNUAL REPORT 14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
UNITED BANCORP, INC.
The following table is a summary of selected quarterly results of
operations for the years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1998
<S> <C> <C> <C> <C>
Interest and dividend income $ 5,299 $ 5,316 $ 5,199 $ 5,312
Interest expense 2,457 2,418 2,409 2,373
----------- ----------- ----------- -----------
Net interest income 2,842 2,898 2,790 2,939
Provision for loan losses 117 431 128 122
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 2,725 2,467 2,662 2,817
Noninterest income 361 338 463 419
Noninterest expense 1,985 2,091 2,054 1,878
----------- ----------- ----------- -----------
Income before income tax 1,101 714 1,071 1,358
Income tax expense 271 180 296 342
----------- ----------- ----------- -----------
Net income $ 830 $ 534 $ 775 $ 1,016
=========== =========== =========== ===========
Earnings per share - Basic $ 0.30 $ 0.19 $ 0.28 $ 0.36
=========== =========== =========== ===========
Earnings per share - Diluted $ 0.29 $ 0.19 $ 0.28 $ 0.36
=========== =========== =========== ===========
Dividends declared per share $ 0.114 $ 0.114 $ 0.114 $ 0.130
=========== =========== =========== ===========
1997
Interest and dividend income $ 5,028 $ 5,116 $ 5,242 $ 5,366
Interest expense 2,256 2,320 2,379 2,455
----------- ---------- ----------- -----------
Net interest income 2,772 2,846 2,863 2,911
Provision for loan losses 171 319 171 271
----------- ---------- ----------- -----------
Net interest income after
provision for loan losses 2,601 2,527 2,692 2,640
Noninterest income 289 275 337 406
Noninterest expense 1,911 1,906 1,972 2,157
----------- ---------- ----------- -----------
Income before income tax 979 896 1,057 889
Income tax expense 224 206 272 271
----------- ----------- ----------- -----------
Net income $ 755 $ 690 $ 785 $ 618
=========== =========== =========== ===========
Earnings per share - Basic $ 0.26 $ 0.25 $ 0.29 $ 0.22
=========== =========== =========== ===========
Earnings per share - Diluted $ 0.25 $ 0.25 $ 0.29 $ 0.22
=========== =========== =========== ===========
Dividends declared per share $ 0.095 $ 0.095 $ 0.114 $ 0.114
=========== =========== =========== ===========
</TABLE>
1998 ANNUAL REPORT 15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
UNITED BANCORP, INC.
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID
The following table provides information relating to average balance
sheet information and reflects the average yield on interest-earning assets and
the average cost of interest-bearing liabilities for the years ended December
31, 1998, 1997 and 1996. The yields and costs are calculated by dividing income
or expense by the average balance of interest-earning assets or interest-bearing
liabilities.
The average balance of available for sale securities is computed using
the carrying value of securities. The yield for available for sale securities
has been computed using the average amortized cost. Average balances are derived
from month-end balances, which include nonaccruing loans in the loan portfolio,
net of the allowance for loan losses. Management does not believe that the use
of month-end balances instead of daily average balances has caused any material
difference in the information presented. Interest income is on a historical
basis without tax-equivalent adjustment.
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------ --------------------------- ----------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ---- ------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Loans (net of unearned income) $168,626 $ 15,775 9.36% $169,066 $ 16,145 9.55% $160,409 $ 15,275 9.52%
Taxable Securities - AFS 51,864 3,443 6.64 41,585 2,694 6.48 35,984 2,271 6.31
Taxable Securities - HTM 4,828 260 5.39 8,659 461 5.32 10,698 586 5.48
Tax-exempt securities - AFS 1,053 67 6.36 486 25 5.14 481 24 4.99
Tax-exempt securities - HTM 21,924 1,158 5.28 22,038 1,179 5.35 21,749 1,158 5.32
Federal funds sold 6,300 315 5.00 3,976 214 5.38 3,766 194 5.15
FHLB stock and other 1,155 108 9.35 1,018 83 8.15 905 59 6.52
-------- --------- ---- -------- -------- -------- ------
Total interest-earning assets 255,750 21,126 8.26 246,828 20,801 8.43 233,992 19,567 8.36
Noninterest-earning assets
Cash and due from banks 9,469 5,997 6,453
Premises and equipment (net) 6,528 6,461 6,110
Other nonearning assets 3,248 3,187 3,287
Less: allowance for loan losses (2,991) (2,891) (2,695)
-------- -------- --------
Total noninterest-earning assets 16,254 12,754 13,155
-------- -------- --------
Total assets $272,004 $259,582 $247,147
======== ======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Demand deposits $ 39,553 $ 1,026 2.59 $ 38,022 $ 1,069 2.81 $ 35,904 $ 995 2.77
Savings deposits 59,608 1,804 3.03 58,899 1,945 3.30 59,281 1,934 3.26
Time deposits 108,662 6,059 5.58 107,796 5,884 5.46 103,524 5,570 5.38
Fed funds purchased & TT&L 3,102 151 4.87 1,871 79 4.22 760 39 5.13
FHLB Advances 4,667 253 5.42 740 37 5.00 148 7 4.73
Repurchase agreements 7,817 364 4.66 8,211 395 4.81 6,318 295 4.67
-------- --------- ---- -------- -------- -------- ------ ----
Total interest-bearing liabilities 223,409 9,657 4.32 215,539 9,409 4.37 205,935 8,840 4.29
--------- -------- ------
Noninterest-bearing liabilities
Demand deposits 20,189 17,649 16,459
Other liabilities 1,668 1,599 1,763
-------- ------- -------
Total noninterest-bearing
liabilities 21,857 19,248 18,222
Total liabilities 245,266 234,787 224,157
Total shareholders' equity 26,738 24,795 22,990
-------- ------- -------
Total liabilities & shareholders'
equity $ 272,004 $ 259,582 $247,147
======== ======== ========
Net interest income $ 11,469 $ 11,392 $ 10,727
========= ======== =========
Net interest spread 3.94 4.06 4.07
==== ==== ====
Net yield on interest-earning assets 4.48 4.62 4.58
==== ==== ====
</TABLE>
- - For purposes of this schedule, nonaccrual loans are included in loans.
- - Net interest income is reported on an historical basis without tax-equivalent
adjustment.
- - Fees collected on loans are included in interest on loans.
1998 ANNUAL REPORT 16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
UNITED BANCORP, INC.
RATE/VOLUME ANALYSIS
The table below describes the extent to which changes in interest rates
and changes in volume of interest-earning assets and interest-bearing
liabilities have affected interest income and expense during the periods
indicated. For purposes of this table, changes in interest due to volume and
rate were determined using the following methods:
- - Volume variance results when the change in volume is multiplied by the
previous year's rate.
- - Rate variance results when the change in rate is multiplied by the previous
year's volume.
- - Rate/volume variance results when the change in volume is multiplied by the
change in rate.
Note: the rate/volume variance was allocated to volume variance and rate
variance in proportion to the relationship of the absolute dollar amount of the
change in each. Nonaccrual loans are ignored for purposes of the calculations
due to the nominal amount of the loans.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
1998 COMPARED TO 1997 1997 COMPARED TO 1996
INCREASE/(DECREASE) INCREASE/(DECREASE)
----------------------------------------- -------------------------------------------
CHANGE CHANGE CHANGE CHANGE
TOTAL DUE TO DUE TO TOTAL DUE TO DUE TO
CHANGE VOLUME RATE CHANGE VOLUME RATE
----------------------------------------- -------------------------------------------
Interest Income
<S> <C> <C> <C> <C> <C> <C>
Loans $ (370) $ (42) $ (328) $ 870 $ 827 $ 43
Taxable securities available for sale 750 681 69 423 361 62
Taxable securities held to maturity (201) (206) 5 (125) (109) (16)
Tax-exempt securities available for sale 42 35 7 1 - 1
Tax-exempt securities held to maturity (22) (6) (16) 21 15 6
Federal funds sold 101 117 (16) 20 11 9
FHLB stock and other 25 12 13 24 8 16
--------- ---------- ---------- ---------- ---------- -----------
Total interest income 325 591 (266) 1,234 1,113 121
Interest expense
Demand deposits (43) 42 (85) 74 59 15
Savings deposits (141) 23 (164) 11 (13) 24
Time deposits 175 48 127 314 232 82
Fed funds purchased & T, T & L 72 58 14 40 48 (8)
Long-term debt 216 213 3 30 30 -
Repurchase agreements (31) (19) (12) 100 91 9
--------- ----------- ----------- ---------- ---------- -----------
Total interest expense 248 365 (117) 569 447 122
--------- ----------- ----------- ---------- ---------- -----------
Net interest earnings $ 77 $ 226 $ (149) $ 665 $ 666 $ (1)
========= =========== =========== ========== ========== ===========
</TABLE>
CAPITAL RESOURCES
Internal capital growth, through the retention of retained earnings, is
the primary means of maintaining capital adequacy for the Banks. Shareholders'
equity at year-end 1998 was $27,320,749 compared to $25,712,637 at year-end
1997, representing an increase of 6.25%. Equity totals include ($120,863) in
accumulated other comprehensive income which is comprised solely of a net
unrealized loss on securities available for sale, net of tax at year-end 1998,
compared to $171,664 at year-end 1997. Total shareholders' equity in relation to
total assets was 9.57% at year-end 1998 compared to 9.75% at year-end 1997.
In 1996, UBCP established a Dividend Reinvestment Plan ("The Plan") for
shareholders under which UBCP's common stock will be purchased by The Plan for
participants with automatically reinvested dividends. The Plan does not
represent a change in the dividend policy or a guarantee of future dividends.
Shareholders who do not wish to participate in The Plan will continue to receive
cash dividends, as declared in the usual and customary manner. UBCP has approved
the issuance of 150,000 authorized and unissued shares of the common stock for
purchase under The Plan. To date, all shares purchased by The Plan, except for
797 shares purchased from UBCP on October 21, 1996, have been purchased on the
open market.
1998 ANNUAL REPORT 17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
UNITED BANCORP, INC.
LIQUIDITY
Management's objective in managing liquidity is to maintain the ability
to continue meeting 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, 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 FHLB 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 year-ended 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, gains on sale of loans, securities
and other assets, the provision for loan losses, FHLB stock dividends, net
amortization of securities and net changes in other assets and liabilities.
Investing activities include changes in securities, net changes in
loans, other real estate owned and premises and equipment.
Financing activities include net changes in deposits and short and
long-term borrowings and cash dividends paid. For a detailed illustration of
sources and uses of cash, refer to the consolidated statement of cash flows
presented elsewhere in the annual report.
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 several of the Company's assets and liabilities in terms of historical
dollars. Changes in the value of money due to rising inflation can cause
purchasing power loss.
Management's opinion is that a movement 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 performance.
YEAR 2000
The Y2K problem lies where systems that use computer software programs
or computer chips, including automated equipment and machinery, store calendar
dates as two-digit rather than four-digit numbers. Many systems, especially
older ones, record the year 1998 as "98." This approach works well until the
2000 when the "00" may be read as 1900.
Management of the Company has tested substantially all what is termed
"mission critical" 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 substantially all of the "mission critical" systems
are capable of identifying the turn of the century. In order to prevent
potential credit quality issues, management continues to assess 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 the first quarter in 1999. Management anticipates the external
costs associated with preparing for the Year 2000 to be approximately $50,000.
For 1998, the Company incurred approximately $25,000 of the estimated amount.
The remaining $25,000 of costs should be incurred during the first quarter of
1999. Please refer to pages 43 and 44 of this Annual Report for Management's
detail Year 2000 plan and testing results.
1998 ANNUAL REPORT 18
<PAGE> 20
REPORT OF INDEPENDENT AUDITORS
UNITED BANCORP INC.
[CROWE CHIZEK LOGO]
To the Shareholders and the Board of Directors
United Bancorp, Inc.
Martins Ferry, Ohio
We have audited the accompanying consolidated balance sheets of United
Bancorp, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1997 or 1996 financial statements of Southern
Ohio Community Bancorporation, Inc., which statements were included to reflect
its merger into United Bancorp, Inc., accounted for as a pooling of interests as
discussed in Note 15. Such financial statements reflect total assets of
$51,865,000 as of December 31, 1997 and net income of $1,000 and $46,000 for the
years ended December 31, 1997 and 1996. Those statements were audited by other
auditors, whose report has been furnished to us and our opinion, insofar as it
relates to the amounts included for Southern Ohio Community Bancorporation,
Inc., is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of United Bancorp, Inc. as of December
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
/S/ CROWE, CHIZEK AND COMPANY LLP
CROWE, CHIZEK AND COMPANY LLP
Columbus, Ohio
January 14, 1999
1998 ANNUAL REPORT 19
<PAGE> 21
CONSOLIDATED BALANCE SHEETS
UNITED BANCORP, INC.
<TABLE>
<CAPTION>
-----------------------------------
1998 1997
------------ -------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 11,321,751 $ 9,844,762
Federal funds sold 5,170,000 742,000
------------ ------------
Total cash and cash equivalents 16,491,751 10,586,762
Securities available for sale, at fair value 75,791,853 46,003,146
Securities held to maturity
(Estimated fair value of $22,886,295 in 1998 and $29,860,051 in 1997) 21,893,664 29,060,017
Total loans receivable 164,220,938 171,477,378
Allowance for loan losses (3,033,105) (3,038,522)
------------ ------------
Net loans receivable 161,187,833 168,438,856
Premises and equipment, net 6,980,647 6,530,127
Accrued interest receivable 2,184,745 1,975,580
Other real estate and repossessions 51,277 93,000
Other assets 911,127 919,825
------------ ------------
Total assets $285,492,897 $263,607,313
============ ============
LIABILITIES
Demand deposits
Non-interest bearing $21,033,047 $16,663,094
Interest-bearing 41,779,931 37,801,042
Savings deposits 57,090,992 58,295,180
Time deposits - under $100,000 87,242,122 89,421,470
Time deposits - $100,000 and over 21,964,280 21,307,866
------------ ------------
Total deposits 229,110,372 223,488,652
Securities sold under agreements to repurchase 7,732,638 8,391,406
Other borrowed funds 19,700,230 4,278,018
Accrued expenses and other liabilities 1,628,908 1,736,600
------------ ------------
Total liabilities 258,172,148 237,894,676
SHAREHOLDERS' EQUITY
Common stock - $1 par value: 10,000,000 shares authorized;
2,800,298 - 1998 and 2,667,314 - 1997 issued and outstanding 2,800,298 2,667,314
Additional paid-in capital 17,801,437 15,551,467
Retained earnings 6,839,877 7,322,192
Accumulated other comprehensive income, net of tax (120,863) 171,664
------------ ------------
Total shareholders' equity 27,320,749 25,712,637
------------ ------------
Total liabilities and shareholders' equity $285,492,897 $263,607,313
============ ============
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
1998 Annual Report 20
<PAGE> 22
CONSOLIDATED STATEMENTS OF INCOME
UNITED BANCORP, INC.
<TABLE>
<CAPTION>
-----------------------------------------------------
1998 1997 1996
------------- ------------ ------------
Interest and dividend income
<S> <C> <C> <C>
Loans, including fees $ 15,774,673 $ 16,144,767 $ 15,275,002
Taxable securities 3,703,294 3,155,327 2,856,783
Non-taxable securities 1,224,814 1,204,066 1,181,703
Federal funds sold 315,291 214,127 194,281
Dividends on Federal Home Loan Bank stock and other 108,349 82,876 59,322
------------ ------------ ------------
Total interest and dividend income 21,126,421 20,801,163 19,567,091
Interest expense
Deposits
Demand 1,026,353 1,068,698 994,677
Savings 1,804,174 1,945,005 1,933,919
Time 6,059,086 5,884,211 5,570,365
Other borrowings 768,231 511,715 341,396
------------ ------------ ------------
Total interest expense 9,657,844 9,409,629 8,840,357
------------ ------------ ------------
NET INTEREST INCOME 11,468,577 11,391,534 10,726,734
Provision for loan losses 797,957 932,000 1,165,400
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,670,620 10,459,534 9,561,334
Noninterest income
Service charges on deposit accounts 749,526 721,167 723,414
Net realized gain on sales of securities 1,687 25,000 26,540
Net realized gain on sales of loans 139,037 139,005 -
Other income 690,889 421,993 406,997
------------ ------------ ------------
Total noninterest income 1,581,139 1,307,165 1,156,951
Noninterest expense
Salaries and employee benefits 3,940,756 4,002,348 3,721,348
Occupancy and equipment 1,192,375 1,149,443 994,621
Professional services 311,335 405,545 227,940
Insurance 167,320 180,000 124,087
Franchise and other taxes 310,915 412,680 359,580
Advertising 243,452 254,577 237,684
Stationery and office supplies 215,978 229,255 216,431
Other expenses 1,625,558 1,311,811 1,390,582
------------ ------------ ------------
Total noninterest expense 8,007,689 7,945,659 7,272,273
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 4,244,070 3,821,040 3,446,012
Income tax expense 1,089,091 973,472 816,023
------------- ------------ ------------
NET INCOME $ 3,154,979 $ 2,847,568 $ 2,629,989
============= ============ ============
Earnings per common share - Basic $ 1.13 $ 1.02 $ 0.94
============= ============ ============
Earnings per common share - Diluted $ 1.12 $ 1.01 $ 0.94
============= ============ ============
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
1998 Annual Report 21
<PAGE> 23
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
UNITED BANCORP, INC.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE COMPREHENSIVE SHAREHOLDERS'
STOCK CAPITAL EARNINGS INCOME INCOME EQUITY
------------ ---------------- ---------------- ----------------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 $ 2,276,942 $ 9,429,840 $ 10,255,892 $ 251,199 $ 22,213,873
Net income 2,629,989 $ 2,629,989 2,629,989
10% Stock dividend 184,646 2,354,237 (2,538,883)
Cash paid in lieu of
fractional shares
on 10% stock dividend (2,038) (2,038)
Additional shares issued
to fund
Dividend Reinvestment Program 797 13,313 14,110
Cash dividends - $0.37 per
share (874,115) (874,115)
Cash dividends paid by
Southern prior to merger (47,000) (47,000)
Net change in unrealized
gain/(loss) on securities
available for sale (159,808) (159,808) (159,808)
===========
Comprehensive Income $ 2,470,181
===========
----------- ----------- ------------ --------- -------------
BALANCE AT DECEMBER 31, 1996 2,462,385 11,797,390 9,423,845 91,391 23,775,011
Net income 2,847,568 $ 2,847,568 2,847,568
10% Stock dividend 203,279 3,710,053 (3,913,332)
Other changes- Southern
prior to merger 21,068 21,068
Cash paid in lieu of
fractional shares on 10%
stock dividend (4,095) (4,095)
Proceeds and tax benefit from
exercise of stock options 1,650 22,956 24,606
Cash dividends - $0.42 per
share (984,725) (984,725)
Cash dividends paid by
Southern prior to merger (47,069) (47,069)
Net change in unrealized
gain/(loss) on securities
available for sale 80,273 80,273 80,273
===========
Comprehensive Income $ 2,927,841
===========
----------- ----------- ------------ --------- ------------
BALANCE AT DECEMBER 31, 1997 2,667,314 15,551,467 7,322,192 171,664 25,712,637
Net income 3,154,979 3,154,979 3,154,979
5% Stock dividend 132,984 2,249,970 (2,382,954)
Cash paid in lieu of
fractional shares on
5% stock dividend (6,938) (6,938)
Cash dividends - $0.47 per
share (1,221,312) (1,221,312)
Cash dividends paid by
Southern prior to merger (26,090) (26,090)
Net change in unrealized
gain/(loss) on securities
available for sale (292,527) (292,527) (292,527)
===========
Comprehensive Income $ 2,862,452
===========
----------- ----------- ------------ --------- -------------
BALANCE AT DECEMBER 31, 1998 $ 2,800,298 $17,801,437 $ 6,839,877 $(120,863) $ 27,320,749
=========== =========== ============ ========= =============
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
1998 Annual Report 22
<PAGE> 24
CONSOLIDATED STATEMENTS OF CASH FLOW
UNITED BANCORP, INC.
<TABLE>
<CAPTION>
------------ ----------- -----------
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,154,979 $ 2,847,568 $ 2,629,989
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 638,160 657,337 651,653
Provision for loan losses 797,957 932,000 1,165,400
Deferred taxes 59,865 (39,979) 1,050
Federal Home Loan Bank stock dividend (82,807) (49,803) (42,775)
Gains on sale/call of securities (1,687) (25,000) (26,540)
(Accretion)/amortization of securities, net (38,437) (2,437) 41,967
Gain on sale of loans (139,037) (139,005) -
Amortization of mortgage servicing rights 29,035 3,198 -
Gain on sale of assets (39,976) (22,772) -
Net changes in accrued interest receivable and other assets (131,568) 244,385 (286,497)
Net changes in accrued expenses and other liabilities (107,692) 48,903 (6,005)
------------ ----------- -----------
Net cash from operating activities 4,138,792 4,454,395 4,128,242
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale
Proceeds from sales 2,121,234 2,944,000 3,623,266
Proceeds from maturities/calls 38,021,972 16,408,000 12,294,000
Purchases (70,260,470) (28,706,107) (18,261,563)
Securities held to maturity
Proceeds from maturities/calls 8,532,005 5,705,000 5,151,765
Purchases (1,357,432) (1,001,774) (5,832,530)
Net change in loans 6,135,586 (5,787,304) (10,141,621)
Proceeds from sale of assets 492,208 129,641 59,000
Net purchases of premises and equipment (1,049,732) (805,254) (875,677)
------------ ----------- -----------
Net cash from investing activities (17,364,629) (11,113,798) (13,983,360)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 5,621,720 5,389,055 6,605,882
Net change in short-term borrowings 10,313,685 2,188,839 4,503,503
Proceeds from long-term debt 4,680,000 1,180,000 216,000
Principal payments on long-term debt (230,239) (46,149) (4,941)
Cash dividends paid (1,247,402) (1,031,794) (921,115)
Cash paid in lieu of fractional shares in stock dividend (6,938) (4,095) (2,038)
Other equity changes in Southern prior to the merger - 21,000 -
Proceeds from sale of common stock - 24,606 14,110
------------ ----------- -----------
Net change from financing activities 19,130,826 7,721,462 10,411,401
------------ ----------- ------------
Net change in cash and cash equivalents 5,904,989 1,062,059 556,283
Cash and cash equivalents at beginning of year 10,586,762 9,524,703 8,968,420
------------ ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $16,491,751 $10,586,762 $ 9,524,703
============ =========== ===========
Interest paid $ 9,745,853 $ 9,475,722 $ 8,797,440
Income taxes paid 905,554 826,765 1,021,844
Non-cash transfer from loans to other real estate and
repossessions $ 317,480 $ 91,000 $ 24,869
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
1998 Annual Report 23
<PAGE> 25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANCORP, INC.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 of Martins Ferry, Ohio ("CITIZENS"), The Citizens-State
Bank of Strasburg, Strasburg, Ohio ("CITIZENS-STATE") and The Community Bank,
Glouster, Ohio ("COMMUNITY"). All significant intercompany transactions and
balances have been eliminated in consolidation.
NATURE OF OPERATIONS/SEGMENTS:
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, Carroll, Athens, Hocking and Fairfield Counties
and the surrounding localities in northeastern, eastern and southeastern 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 loan
repayment is expected from cash flows of the business. Real estate loans are
secured by both residential and commercial real estate. 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. COMMUNITY
conducts its business through its offices in Nelsonville, Glouster and
Amesville, Ohio. Accordingly, all of the Company's banking operations are
considered by Management to be aggregated in one reportable operating segment.
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 allowance for loan losses, 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.
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 in other comprehensive income,
net of tax. Trading securities are carried at fair value, with changes in
unrealized holding gains and losses included in income. Other securities such as
Federal Home Loan Bank stock are carried at cost.
Interest income includes amortization of purchase premiums and
discounts. Realized gains and losses on sales are based on the amortized cost of
the security sold. Securities are written down to fair value when a decline in
fair value is not temporary.
LOANS:
Loans are reported at the principal balance outstanding, net of
deferred loan fees and costs, and the allowance for loan losses. Loans held for
sale are reported at the lower of cost or market, on an aggregate basis.
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 doubtful, typically when the loan is
impaired or 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 for probable
credit loss, 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 nature and
volume of 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.
1998 ANNUAL REPORT 24
<PAGE> 26
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANCORP, INC.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR LOAN LOSSES: (CONTINUED)
A loan is impaired when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral.
PREMISES AND EQUIPMENT:
Premise and equipment are stated at cost less accumulated depreciation.
Depreciation is computed over the assets useful lives on the straight-line
method. These assets are reviewed for impairment when events indicate the
carrying amount may not be recoverable.
FORECLOSED ASSETS:
Assets acquired in settlement of loans are initially recorded at
estimated fair value at acquisition, establishing a new basis. 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 RIGHTS:
Loan servicing rights are recognized as assets for purchased rights and
for the allocated value of retained servicing rights on loans sold. Servicing
rights are expensed in proportion to, and over the period of, estimated net
servicing revenues. Impairment is evaluated based on the fair value of the
rights, using groupings of underlying loans with similar characteristics. Any
impairment of a grouping is reported as a valuation allowance.
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 year-end
1998 and 1997, identified intangibles net of accumulated amortization totaled
$82,261 and $121,209 and are included in other assets in the accompanying
consolidated balance sheets.
REPURCHASE AGREEMENTS:
Substantially all repurchase agreement liabilities represent amounts
advanced by various customers. Securities are pledged to cover these
liabilities, which are not covered by federal deposit insurance.
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.
The Company offers 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.
Pension expense is the net of service and interest cost, return on
plans assets, and amortization of gains and losses not immediately recognized.
STOCK COMPENSATION:
Expense for employee compensation under stock option plans is reported
as expense only if options are granted below market price at grant date. Pro
forma disclosures of net income and earnings per share are provided in Note 9 as
if the fair value method of Statement of Financial Accounting Standards ("SFAS")
No. 123 was used for stock-based compensation.
1998 ANNUAL REPORT 25
<PAGE> 27
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANCORP, INC.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES:
- -------------
Income tax expense is the total 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.
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 November 17, 1998, a 5% stock dividend was approved for all
shareholders of record on December 1, 1998 and distributed on December 18, 1998.
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 5% stock dividend in 1998 and the 10% stock
dividends in 1997 and 1996.
FAIR VALUES OF FINANCIAL INSTRUMENTS:
- -------------------------------------
Fair values of financial instruments are estimated using relevant
market information and other assumptions, as more fully disclosed separately.
Fair value estimates involve uncertainties and matters of significant judgment
regarding interest rates, credit risk, prepayments and other factors, especially
in the absence of broad markets for particular items. Changes in assumptions or
in market conditions could significantly affect the estimates. The fair value
estimates of existing on-and off-balance sheet financial instruments does not
include the value of anticipated future business or the values of assets and
liabilities not considered financial instruments.
EARNINGS PER COMMON SHARE:
- --------------------------
Basic earnings per common share (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
2,800,667 in 1998, 2,800,083 in 1997, and 2,798,346 in 1996. The
weighted-average number of shares outstanding for diluted EPS, which includes
the effect of stock options granted using the treasury stock method, was
2,826,520 in 1998, 2,818,134 in 1997, and 2,806,711 in 1996. The per share
dilution of the stock options was $.01 in 1998 and 1997, while there was no per
share dilution due to the stock options in 1996. Earnings and dividends per
share are restated for all stock dividends through the date of issuance of the
financial statements.
COMPREHENSIVE INCOME:
- ---------------------
Comprehensive income consists of net income and other comprehensive
income. Other comprehensive income includes unrealized gains and losses on
securities available for sale which is also recognized as a separate component
of equity. The accounting standard which requires reporting comprehensive income
first applies for 1998, with prior information restated to be comparable. Other
comprehensive income components and related taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Unrealized holding gains and (losses)
on securities available for sale $(441,581) $145,807 $(215,563)
Reclassification adjustment for
(gains) and losses later recognized in income (1,687) (25,000) (26,540)
----------------- ----------------- -----------------
Net unrealized gains and (losses) (443,268) 120,807 (242,103)
Tax effect 150,741 (40,534) 82,295
----------------- ----------------- -----------------
Other comprehensive income $(292,527) $80,273 $(159,808)
================= ================= =================
</TABLE>
RECLASSIFICATIONS:
- ------------------
Some items in prior financial statements have been reclassified to
conform to the current presentation.
See accompanying Notes to the Consolidated Financial Statements.
1998 ANNUAL REPORT 26
<PAGE> 28
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANCORP, INC.
NOTE 2 - SECURITIES
Securities at year-end were as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
AMORTIZED GROSS GROSS ESTIMATED
COST UNREALIZED GAINS UNREALIZED LOSSES FAIR VALUE
------------ ---------------- ----------------- ------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE 1998
US Treasury obligations $ 1,497,454 $ 11,456 $ - $ 1,508,910
US Agency obligations 67,813,577 263,304 (571,165) 67,505,716
State and municipal obligations 2,118,311 79,742 (686) 2,197,367
Mortgage-backed obligations 3,009,643 19,743 (1,782) 3,027,604
Other securities 1,536,100 16,156 - 1,552,256
------------ ---------------- ----------------- ------------
$ 75,975,085 $ 390,401 $ (573,633) $ 75,791,853
============ ================ ================= ============
AVAILABLE FOR SALE 1997
US Treasury obligations $ 3,262,614 $ 45,015 $ - $ 3,307,629
US Agency obligations 37,033,149 201,129 (35,060) 37,199,218
State and municipal obligations 551,647 25,069 - 576,716
Mortgage-backed obligations 3,787,000 11,000 (13,000) 3,785,000
Other securities 1,108,700 25,883 - 1,134,583
------------ ---------------- ----------------- ------------
$ 45,743,110 $ 308,096 $ (48,060) $ 46,003,146
============ ================ ================= ============
HELD TO MATURITY 1998
State and municipal obligations $ 21,848,164 $ 996,352 $ (3,721) $ 22,840,795
Other securities 45,500 - - 45,500
------------ ---------------- ----------------- ------------
$ 21,893,664 $ 996,352 $ (3,721) $ 22,886,295
============ ================ ================= ============
HELD TO MATURITY 1997
US Agency obligations $ 7,500,869 $ - $ (26,919) $ 7,473,950
State and municipal obligations 21,559,148 827,707 (754) 22,386,101
------------ ---------------- ----------------- ------------
$ 29,060,017 $ 827,707 $ (27,673) $ 29,860,051
============ ================ ================= ============
</TABLE>
Sales of securities available for sale were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ---------------- ----------------
<S> <C> <C> <C>
Proceeds $ 2,121,234 $ 2,944,000 $ 3,623,266
Gross gains 13,245 25,000 26,540
Gross losses 11,558 - -
</TABLE>
Included above in gross gains for 1998, were gains of $10,278 resulting
from securities called prior to maturity.
1998 ANNUAL REPORT 27
<PAGE> 29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANCORP, INC.
NOTE 2 - SECURITIES (CONTINUED)
Contractual maturities of securities at year-end 1998 were as follows:
<TABLE>
<CAPTION>
AVERAGE
AMORTIZED ESTIMATED TAX EQUIVALENT
AVAILABLE-FOR-SALE COST FAIR VALUE YIELD
----------- ------------ --------------
<S> <C> <C> <C>
US TREASURY OBLIGATIONS
Under 1 Year $ 1,497,454 $ 1,508,910 7.22%
----------- ----------- --------
Total 1,497,454 1,508,910 7.22%
----------- ----------- --------
US AGENCY OBLIGATIONS
Under 1 Year 2,000,000 2,008,970 6.09%
1 - 2 Years 496,572 500,315 6.35%
2 - 5 Years 3,345,580 3,397,901 6.55%
5 - 10 Years 31,167,978 31,280,059 6.57%
Over 10 Years 30,803,447 30,318,471 6.54%
----------- ----------- --------
Total 67,813,577 67,505,716 6.54%
----------- ----------- --------
MORTGAGE-BACKED SECURITIES
2 - 5 Years 1,026,077 1,028,715 6.65%
5 - 10 Years 922,089 929,162 7.00%
Over 10 Years 1,061,477 1,069,727 7.11%
----------- ----------- --------
Total 3,009,643 3,027,604 6.92%
----------- ----------- --------
STATE AND MUNICIPAL OBLIGATIONS
2 - 5 Years 50,000 54,146 8.33%
5 - 10 Years 882,582 916,895 7.23%
Over 10 Years 1,185,729 1,226,326 7.29%
----------- ----------- --------
Total 2,118,311 2,197,367 7.29%
----------- ----------- --------
Other securities
Equity securities 1,536,100 1,552,256 7.25%
----------- ----------- --------
TOTAL SECURITIES AVAILABLE FOR SALE $75,975,085 $75,791,853 6.57%
=========== =========== ==========
AMORTIZED ESTIMATED TAX EQUIVALENT
HELD TO MATURITY COST FAIR VALUE YIELD
----------- ----------- --------------
<S> <C> <C> <C>
STATE AND MUNICIPAL OBLIGATIONS
Under 1 Year $ 1,483,646 $ 1,525,512 9.43%
1 - 2 Years 2,589,731 2,684,162 8.19%
2 - 5 Years 11,429,165 11,998,309 8.08%
5 - 10 Years 5,380,496 5,646,571 7.64%
Over 10 Years 965,126 986,241 6.93%
----------- ----------- --------
Total 21,848,164 22,840,795 8.02%
----------- ----------- --------
OTHER SECURITIES
Equity Securities 45,500 45,500 7.00%
----------- ----------- ----------
TOTAL SECURITIES HELD TO MATURITY $21,893,664 $22,886,295 8.01%
=========== =========== ==========
</TABLE>
Securities with an amortized cost of $37,084,000 at December 31, 1998
and $38,077,000 at December 31, 1997 were pledged to secure public deposits,
repurchase agreements and other liabilities as required or permitted by law.
1998 ANNUAL REPORT 28
<PAGE> 30
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANCORP, INC.
NOTE 3 - LOANS
Year-end loans were as follows:
<TABLE>
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
Commercial loans $ 12,911,864 $ 16,636,555
Commercial real estate loans 54,194,589 49,189,321
Real estate loans 49,437,908 49,856,700
Installment loans 47,676,577 55,794,802
============ =============
Total loans $164,220,938 $ 171,477,378
============ =============
</TABLE>
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>
<CAPTION>
<S> <C>
Aggregate balance - December 31, 1997 $ 3,207,040
New loans 1,373,880
Repayments (1,435,830)
------------
Aggregate balance - December 31, 1998 $ 3,145,090
============
</TABLE>
The activity in allowance for loan losses was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- -----------------
<S> <C> <C> <C>
Balance January 1, $ 3,038,522 $ 2,755,987 $ 2,593,383
Provision charged to operating expense 797,957 932,000 1,165,400
Loans charged-off (1,051,403) (806,810) (1,090,241)
Recoveries of previous charge-offs 248,029 157,345 87,445
--------------- --------------- -----------------
Balance December 31, $ 3,033,105 $ 3,038,522 $ 2,755,987
=============== =============== =================
</TABLE>
Loans considered impaired under the provisions of SFAS No. 114 were
not material during any of the periods presented.
NOTE 4 - PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Buildings and land $ 7,177,956 $ 6,555,704
Furniture and equipment 4,345,866 4,025,807
Leasehold improvements 263,977 263,977
Computer software 778,117 670,696
--------------- ---------------
Total 12,565,916 11,516,184
Accumulated depreciation and amortization 5,585,269 4,986,057
--------------- ---------------
Premises and equipment, net $ 6,980,647 $ 6,530,127
=============== ===============
</TABLE>
1998 ANNUAL REPORT 29
<PAGE> 31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANCORP, INC.
NOTE 4 - PREMISES AND EQUIPMENT (CONTINUED)
On April 1, 1997, CITIZENS entered in to a five-year noncancelable
operating lease for an in-store retail branch. The lessor is a business in which
a director of the Company and CITIZENS holds an interest. 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 was $22,500 and $16,875 for years ended December 31, 1998 and
1997, respectively. Future minimum lease payments are as follows:
<TABLE>
<S> <C>
1999 $ 22,500
2000 22,500
2001 22,500
2002 5,625
--------
$ 73,125
========
</TABLE>
NOTE 5-TIME DEPOSITS
The scheduled maturities of time deposits as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Under $100,000
$100,000 and Over
------------ ------------
<S> <C> <C>
1999 $ 53,845,247 $ 13,577,177
2000 16,237,235 4,455,343
2001 9,402,736 1,460,018
2002 3,515,612 1,839,929
2003 1,984,830 -
Thereafter 2,256,462 631,813
------------ ------------
$ 87,242,122 $ 21,964,280
============ ============
</TABLE>
NOTE 6 - BORROWED FUNDS
Securities sold under agreements to repurchase are financing
arrangements whereby the Company sells securities and agrees to repurchase the
identical securities at the maturities of the agreements at specified prices.
Physical control is maintained for all securities sold under repurchase
agreements. Information concerning securities sold under agreements to
repurchase is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Average daily balance during the year $ 7,817,000 $ 8,211,000
Average interest rate during the year 4.66% 4.81%
Maximum month-end balance during the year $ 9,109,372 $ 9,315,829
</TABLE>
Securities underlying these agreements at year-end were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------- --------------------
<S> <C> <C>
Carrying value of securities $ 12,005,203 $ 11,278,531
Fair value of securities 12,107,466 11,379,751
</TABLE>
1998 ANNUAL REPORT 30
<PAGE> 32
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANCORP, INC.
NOTE 6 - BORROWED FUNDS (CONTINUED)
Other borrowed funds consists of a cash management line of credit and
fixed-rate borrowings from the Federal Home Loan Bank ("FHLB") of Cincinnati,
Ohio as well as a Treasury, Tax and Loan Note and federal funds purchased. At
year-end 1998, the FHLB cash management line of credit enabled the Banks to
borrow up to $22,000,000. The line of credit must be renewed on an annual basis.
FHLB variable rate borrowings of $9,175,000 were outstanding related to the cash
management line of credit at year-end 1998. The weighted average interest rate
on these borrowings was 5.02% at year-end 1998. No variable-rate borrowings were
outstanding on this line of credit with an original maturity of less than 90
days at year-end 1997. The Banks had FHLB fixed-rate borrowings totaling
$5,794,601 at year-end 1998 and $1,344,841 at year-end 1997. The
weighted-average interest rates on the borrowings were 5.7% and 6.7%,
respectively with monthly principal payments due through January 2014.
Additionally, as members of the Federal Home Loan Bank system at year-end 1998,
the Banks had the ability to obtain up to $18,268,000 based on current FHLB
stock ownership, or up to 25% of their total assets in advances from the FHLB
subject to increased share ownership of FHLB stock and 1-4 family residential
real estate loan collateral availability.
At December 31, 1998, the Company and its Banks have cash management
lines of credit (excluding FHLB cash management lines of credit) enabling
borrowings up to $20.6 million with various correspondent banks. $4,650,000 and
$2,000,000 were outstanding under these lines of credit at year-end 1998 and
1997, respectively.
Borrowings under the Treasury, Tax, and Loan Note totaled $80,629 and
$933,176 at year-end 1998 and 1997, respectively.
At year-end 1998, required annual principal payments are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 14,640,039
2000 582,134
2001 467,656
2002 379,274
2003 311,516
Thereafter 3,319,611
-------------
$ 19,700,230
=============
</TABLE>
NOTE 7 - BENEFIT PLANS
Pension expense includes the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- -------------------- -----------------
<S> <C> <C> <C>
Service cost $ 119,740 $ 106,097 $ 110,710
Interest cost 113,018 107,510 108,376
Expected return on assets (134,690) (104,394) (102,887)
Amortization of prior service cost,
transition liability and net gain 3,900 3,900 3,900
--------- --------- ---------
Pension expense $ 101,968 $ 113,113 $ 120,099
========== ========== ==========
</TABLE>
Significant assumptions used:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Discount rate on benefit obligation 7.00% 7.00% 7.00%
Rate of compensation increase 4.00% 4.50% 4.50%
Expected long-term rate of return on assets 7.50% 7.00% 7.00%
</TABLE>
1998 ANNUAL REPORT 31
<PAGE> 33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANCORP, INC.
NOTE 7 - BENEFIT PLANS (CONTINUED)
Information about the pension plan was as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Change in benefit obligation:
Beginning benefit obligation $ 1,647,864 $ 1,501,340
Service cost 119,740 106,097
Interest cost 113,018 107,510
Actuarial (gain) loss (34,693) 32,631
Benefits paid (85,957) (99,714)
----------- -----------
Ending benefits obligation 1,759,972 1,647,864
Changes in plan assets, at fair value
Beginning plan assets 1,797,636 1,493,113
Actual return 271,586 286,354
Employer contributions 93,627 117,883
Benefits paid (85,957) (99,714)
----------- -----------
Ending plan assets 2,076,892 1,797,636
Funded status 316,920 149,772
Unrecognized net actuarial gain (309,683) (138,094)
Unrecognized prior service cost 10,700 14,600
----------- -----------
Prepaid benefit cost $ 17,937 $ 26,278
=========== ===========
</TABLE>
The Company's 401(k) matching percentage was 25% of the employees'
contribution for 1998, 1997 and 1996. The cash contribution and related expense
included in salaries and employee benefits totaled $27,098 in 1998, $24,602 in
1997 and $24,431 in 1996. Southern had a profit sharing plan covering
substantially all employees who had attained age 21 which was terminated at the
time of the merger. Southern's contributions were discretionary and made only
out of the net profits. Contributions were allocated to employees accounts based
upon the level of compensation of each employee. Discretionary contributions
were $36,000 and $0 in 1997 and 1996.
The Company entered into severance agreements with certain holding
company officers. The original agreements were for a one-year period and extend
automatically each year unless notice is given prior to June 30. No benefits are
payable unless there has been a change in control and change in duties of the
officers occurs.
NOTE 8 - INCOME TAXES
Income tax expense consists of:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current expense $ 1,029,406 $ 1,013,451 $ 814,973
Deferred expense/(benefit) 59,685 (39,979) 1,050
----------- ----------- ---------
Total income tax expense $ 1,089,091 $ 973,472 $ 816,023
=========== =========== =========
</TABLE>
1998 ANNUAL REPORT 32
<PAGE> 34
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANCORP, INC.
NOTE 8 - INCOME TAXES (CONTINUED)
The effective tax rate differs from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory rate 34.00% 34.00% 34.00%
----------- ----------- -----------
Income taxes computed at the statutory federal tax rate $ 1,442,984 $ 1,299,154 $ 1,171,644
Add/(subtract) tax effect of:
Tax exempt interest income (385,484) (396,064) (367,508)
Other 31,591 70,382 11,887
----------- ------------ -----------
Total income tax expense $ 1,089,091 $ 973,472 $ 816,023
=========== =========== ===========
</TABLE>
The sources of gross deferred tax assets and gross deferred tax
liabilities are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ITEMS GIVING RISE TO DEFERRED TAX ASSETS
Allowance for loan losses in excess of tax reserve $ 821,563 $ 834,358
Amortization of intangibles 73,232 73,942
Deferred compensation 49,856 36,944
Unrealized loss on securities available for sale 62,369 -
Alternative minimum tax credit - 43,000
Other - 18,878
---------- ----------
Total deferred tax assets 1,007,020 1,007,122
ITEMTS GIVING RISE TO DEFERRED TAX LIABILITIES
Depreciation (527,484) (497,461)
Deferred loan costs, net (130,687) (144,255)
Unrealized gain on securities available for sale - (88,372)
Accretion (25,948) (62,774)
FHLB stock dividends (57,630) (34,714)
Mortgage servicing rights (44,764) (21,193)
Difference in accrued income, net of acrued expenses (62,639) (80,000)
Other (9,572) (21,113)
---------- ----------
Total deferred tax liabilities (858,724) (949,882)
---------- ----------
Net deferred tax asset $ 148,296 $ 57,240
========== ==========
</TABLE>
NOTE 9 - STOCK OPTIONS
The Company maintains a nonqualified stock option plan for directors
and bank holding company officers. 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 adjusted for stock dividends and stock splits.
A summary of the status of the Company's stock option plan as of
year-end 1998, 1997 and 1996 and changes during those years is presented in the
table following. All share and per share prices have been restated to reflect
the 5% stock dividend distributed on December 18, 1998 and the 10% stock
dividends distributed on September 19, 1997 and June 20, 1996.
1998 ANNUAL REPORT 33
<PAGE> 35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANCORP, INC.
NOTE 9 - STOCK OPTIONS (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------- --------------------------- ---------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------------- ----------- ----------- --------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of 83,849 $ 12.35 82,409 $ 11.78 84,488 $ 11.77
year
Granted 12,075 19.66 5,250 20.95 1,733 12.35
Exercised - - (1,906) 1.77 - -
Forfeited (6,353) 11.77 (1,905) 11.77 (3,812) 11.77
---------- -------- --------
Outstanding at end of year 89,571 13.38 83,849 12.35 82,409 11.78
========== ======== ========
Remaining shares available for
grant at year-end 25,914 31,636 34,981
Options exercisable at year-end 12,540 - -
</TABLE>
The weighted-average fair value per share of options granted during
1998, 1997 and 1996 was $6.64, $8.24 and $5.44, respectively. The fair value of
options granted was estimated using the Black-Scholes options pricing model with
the following weighted-average information: risk-free interest rate of 4.63%,
5.88% and 6.84% for 1998, 1997 and 1996, respectively; expected life of 7 years
and 2 months for 1998, 8 years for 1997, 9 years and 3 months for 1996; expected
volatility of stock price of 31.31%, 33.30% and 40.40% for 1998, 1997 and 1996,
respectively; and expected dividends per year of 2.02%, 2.02% and 2.67% for
1998, 1997 and 1996, respectively.
The following table summarized information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
NUMBER NUMBER
EXERCISE OUTSTANDING DATE OF EXERCISABLE
PRICE AT 12/31/98 EXPIRATION AT 12/31/98
----- ----------- ---------- -----------
<S> <C> <C> <C>
$ 11.77 70,512 11/22/05 9,871
12.35 1,733 11/22/05 243
20.95 5,250 11/22/05 735
24.52 1,575 11/22/05 221
18.93 10,500 11/22/05 1,470
</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 installments up to 40% at December 31, 1998,
an additional 20% at December 31, 1999, and 100% at December 31, 2000. At
December 31, 1998, certain financial performance criteria were met to vest 14%
of the options granted. All options become immediately exercisable upon
retirement, death or in the event of a change in control of the Company.
1998 ANNUAL REPORT 34
<PAGE> 36
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANCORP, INC.
NOTE 9 - STOCK OPTIONS (CONTINUED)
SFAS No. 123, which became effective for 1996, requires pro forma
disclosures for options granted during 1995 and in subsequent years by
corporations that do not adopt its fair value accounting method for stock-based
employee compensation. Accordingly, the following pro forma information presents
net income and earnings per share had the Standard's fair value method been used
to measure compensation cost for stock option plans. No compensation expense was
actually recognized for any of the periods presented.
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- -----------------------
<S> <C> <C> <C>
Net income as reported $ 3,154,979 $ 2,847,568 $2,629,989
Proforma net income 3,129,243 2,815,841 2,602,313
Earnings per share as reported - Basic $1.13 $1.02 $ 0.94
Earnings per share as reported - Diluted 1.12 1.01 0.94
Proforma earnings per share - Basic 1.12 1.01 0.93
Proforma earnings per share - Diluted 1.11 1.00 0.93
</TABLE>
NOTE 10 - COMMITMENTS, OFF-BALANCE SHEET RISK 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 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 the
future cash requirement. 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 year-end is as follows:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C> <C>
Commitments to extend credit $ 16,655,000 $ 16,715,000
Credit Card Lines 541,000 348,000
Standby letters of credit 269,000 244,000
</TABLE>
At year-end 1998, and included above, commitments to make fixed-rate
loans at current market rates totaled $843,000 with the interest rates on those
fixed-rate commitments ranging from 7.75% to 8.25%. There were no fixed-rate
commitments or standby letters of credit at year-end 1997. At year-end 1998 and
1997, reserves of $1,116,000 and $692,000 were required as deposits with the
Federal Reserve or as cash on hand. These reserves do not earn interest.
1998 ANNUAL REPORT 35
<PAGE> 37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANCORP, INC.
NOTE 11 - CONCENTRATIONS OF CREDIT RISK
The Banks grant commercial, commercial real estate, real estate and
installment loans to customers mainly in Belmont, Jefferson, Tuscarawas,
Carroll, Athens, Hocking and Fairfield Counties and the surrounding localities.
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 December 31, 1998, and 1997, total commercial
and commercial real estate loans made up 40.9% and 38.4% respectively of the
loan portfolio, with 28.4% and 23.4% of these loans secured by commercial real
estate and business assets mainly in the Columbus, Ohio area. Installment loans
account for 29.0% and 32.5% of the loan portfolio and are secured by consumer
assets including automobiles, which account for 84.7% and 84.9%, respectively,
of the installment loan portfolio. Real estate loans comprise 30.1% and 29.1% of
the loan portfolio as of December 31, 1998 and 1997, 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
December 31, 1998 and 1997, is $7,971,837 and $3,617,047, respectively on
deposit with Mellon Bank, NA, Pittsburgh, Pennsylvania.
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate fair values
for financial instruments. The carrying amount is considered to estimate fair
value for cash and cash equivalents, deposit liabilities subject to immediate
withdrawal, short-term borrowings, mortgage-servicing rights, accrued interest
receivable and payable and variable-rate loans that reprice at intervals of less
than six months. Securities fair values are based on quoted market prices or, if
no quotes are available, on the rate and term of the security and on information
about the issuer. For fixed-rate loans that reprice less frequently than each
six months, time deposits and long-term debt, the fair value is estimated by a
discounted cash flow analysis using current market rates for the estimated life
and credit risk. Fair values for impaired loans are estimated using discounted
cash flow analysis or underlying collateral values, where applicable. Fair value
of loans held for sale is based on market estimates. The fair value of
off-balance sheet items was not material at year-end 1998 and 1997.
The estimated year-end fair values of financial instruments were:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------
(Dollars in thousands) CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 16,492 $ 16,492 $ 10,587 $ 10,587
Securities available for sale 75,792 75,792 46,003 46,003
Securities held to maturity 21,894 22,886 29,060 29,860
Loans receivable, net 161,188 162,148 168,439 166,265
Mortgage servicing rights 132 132 62 62
Accrued interest receivable 2,185 2,185 1,976 1,976
Financial liabilities:
Demand and savings deposits $(119,904) $(119,904) $(112,759) $(112,759)
Time deposits (109,206) (111,294) (110,729) (112,534)
Short-term borrowings (13,906) (13,906) (2,934) (2,934)
Repurchase Agreements (7,733) (7,733) (8,391) (8,391)
Long-term debt (5,794) (6,718) (1,345) (1,460)
Accrued interest payable (807) (807) (895) (895)
</TABLE>
NOTE 13 - REGULATORY MATTERS
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 financial statements.
1998 Annual Report 36
<PAGE> 38
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANCORP, INC.
NOTE 13 - REGULATORY MATTERS (CONTINUED)
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.
At year-end, consolidated and Bank only actual capital levels and
minimum levels (in thousands) were:
<TABLE>
<CAPTION>
MINIMUM REQUIRED
MINIMUM REQUIRED TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION REGULATIONS
--------------------- -------------------- -----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ------ -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
1998
Total capital (to risk weighted assets)
Consolidated $ 29,512 17.1 % $ 13,798 8.0 % $ 17,248 10.0
Citizens-Martins Ferry 13,632 13.2 8,263 8.0 10,328 10.0
Citizens-Strasburg 6,563 14.7 3,582 8.0 4,478 10.0
Community 4,259 18.2 1,872 8.0 2,340 10.0
Tier 1 capital (to risk weighted assets)
Consolidated $ 27,345 15.9 % $ 6,899 4.0 % $ 10,349 6.0
Citizens-Martins Ferry 12,433 12.0 4,131 4.0 6,197 6.0
Citizens-Strasburg 5,999 13.4 1,791 4.0 2,687 6.0
Community 3,959 16.9 936 4.0 1,404 6.0
Tier 1 capital (to average assets)
Consolidated $ 27,345 10.1 % $ 10,794 4.0 % $ 13,493 5.0
Citizens-Martins Ferry 12,433 8.4 5,914 4.0 7,392 5.0
Citizens-Strasburg 5,999 8.5 2,831 4.0 3,539 5.0
Community 3,959 7.7 2,049 4.0 2,561 5.0
1997
Total capital (to risk weighted assets)
Consolidated $ 27,678 16.3 % $ 13,558 8.0 % $ 16,948 10.0 %
Citizens-Martins Ferry 12,696 12.4 8,172 8.0 10,215 10.0
Citizens-Strasburg 5,969 14.5 3,288 8.0 4,110 10.0
Community 4,255 16.2 2,109 8.0 2,636 10.0
Tier 1 capital (to risk weighted assets)
Consolidated $ 25,548 15.0 % $ 6,779 4.0 % $ 10,169 6.0 %
Citizens-Martins Ferry 11,418 11.2 4,086 4.0 6,129 6.0
Citizens-Strasburg 5,451 13.3 1,644 4.0 2,466 6.0
Community 3,920 14.9 1,054 4.0 1,582 6.0
Tier 1 capital (to average assets)
Consolidated $ 25,548 9.6 % $ 10,648 4.0 % $ 13,310 5.0 %
Citizens-Martins Ferry 11,418 7.9 5,775 4.0 7,219 5.0
Citizens-Strasburg 5,451 8.1 2,703 4.0 3,379 5.0
Community 3,920 7.2 2,170 4.0 2,713 5.0
</TABLE>
The Company and Banks at year-end 1998 and 1997 were categorized as
well capitalized. Management is not aware of any conditions subsequent to their
last regulatory exams that would change the Company's or the Banks' capital
category.
1998 Annual Report 37
<PAGE> 39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANCORP, INC.
NOTE 14 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
The Company's primary source of funds to pay dividends to shareholders
is the dividends it receives from the Banks. The Banks are subject to certain
restrictions on the amount of dividends that they may declare without prior
regulatory approval. At year-end 1998, $974,000 of retained earnings was
available for dividend declaration without prior regulatory approval.
Following are condensed parent company financial statements:
Condensed Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
Assets:
<S> <C> <C>
Cash and cash equivalents $ 1,717,020 $ 164,082
Certificates of deposit - 283,090
Securities available for sale, at fair value 2,824,108 -
Investment in subsidiaries 22,560,485 21,304,774
Loans to subsidiaries - 4,095,000
Other assets 402,572 138,231
------------- -------------
$ 27,504,188 $ 25,985,177
============= =============
Liabilities and shareholders' equity:
Other liabilities $ 183,439 $ 272,540
Shareholders' equity 27,320,749 25,712,637
------------- -------------
Total liabilities and shareholders' equity $ 27,504,188 $ 25,985,177
============= =============
</TABLE>
Condensed Statements of Income and Comprehensive Income
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating income
Dividends from subsidiaries $ 1,855,599 $ 5,140,734 $ 1,008,831
Interest and dividend income from securities and fed funds 244,410 -- --
Other income 43,687 19,756 12,296
----------- ----------- -----------
Total operating income
2,143,696 5,160,490 1,021,127
Operating expenses 305,612 276,873 141,113
----------- ----------- -----------
Income before income taxes and (distributions in excess of)/equity
in undistributed net income 1,838,084 4,883,617 880,014
Income tax expense (benefit) 20,043 (20,110) (57,250)
----------- ----------- -----------
Income before (distributions in excess of)/equity in undistributed
earnings of subsidiaries 1,818,041 4,903,727 937,264
(Distributions in excess of)/equity in undistributed
earnings of subsidiaries 1,336,938 (2,056,159) 1,692,725
----------- ----------- -----------
Net income 3,154,979 2,847,568 2,629,989
Other comprehensive income - change in unrealized holding gain
on securities available for sale (292,527) 80,273 (159,808)
----------- ----------- -----------
Comprehensive income $ 2,862,452 $ 2,927,841 $ 2,470,181
=========== =========== ===========
</TABLE>
1998 ANNUAL REPORT 38
<PAGE> 40
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANCORP, INC.
NOTE 14 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Condensed Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 3,154,979 $ 2,847,568 $ 2,629,989
Adjustments to reconcile net income to net cash
from operating activities:
Distributions in excess of/(equity in undistributed)
earnings of subsidiaries (1,574,231) 2,056,159 (1,692,725)
Net change in other assets and other liabilities (365,690) 134,371 (28,953)
Amortization of intangibles 17,197 17,200 18,412
----------- ----------- -----------
Net cash from operating activities 1,232,255 5,055,298 926,723
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in certificates of deposit 283,090 (10,760) (9,945)
Securities available for sale
Purchases (2,803,067) -- --
Loans to subsidiaries, net of repayments 4,095,000 (4,095,000) --
----------- ----------- -----------
Net cash from investing activities 1,575,023 (4,105,760) (9,945)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to shareholders (1,247,402) (1,031,794) (921,115)
Proceeds from sale of common stock -- 45,606 14,110
Cash paid in lieu of fractional shares (6,938) (4,095) (2,038)
----------- ----------- -----------
Net cash from financing activities (1,254,340) (990,283) (909,043)
----------- ----------- -----------
NET CHANGE IN CASH 1,552,938 (40,745) 7,735
CASH AT BEGINNING OF YEAR 164,082 204,827 197,092
----------- ----------- -----------
CASH AT END OF YEAR $ 1,717,020 $ 164,082 $ 204,827
=========== =========== ===========
</TABLE>
1998 ANNUAL REPORT 39
<PAGE> 41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANCORP, INC.
NOTE 15 - ACQUISITION
Effective July 8, 1998, Southern Ohio Community Bancorporation, Inc.
("Southern"), a $50 million bank holding company headquartered in Athens County,
Ohio and the parent company of COMMUNITY affiliated with the Company in a
transaction accounted for as a pooling of interests. The Company issued 429,000
shares of common stock to the stockholders of Southern based on an exchange
ratio of 11 shares of the Company's common stock for each outstanding share of
Southern common stock. The historical financial statements of the Company have
been restated to show the Company and Southern on a combined basis. Separate
results for the Company and Southern are as follows:
<TABLE>
<CAPTION>
Six Months
Ended Twelve Months Ended
June 30, December 31,
1998 1997 1996
------ -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net interest income
Company $4,513 $ 8,859 $ 8,259
Southern 1,227 2,533 2,468
------ -------- ----------
Combined $5,740 $ 11,392 $ 10,727
====== ======== ==========
Net income
Company $1,501 $ 2,847 $ 2,584
Southern (137) 1 46
------ -------- ----------
Combined $1,364 $ 2,848 $ 2,630
====== ======== ==========
Net income per share - Basic
Company $ 0.64 $ 1.20 $ 1.09
Southern (0.15) (0.18) (0.15)
------ -------- ----------
Combined $ 0.49 $ 1.02 $ 0.94
====== ======== ==========
Net income per share - Diluted
Company $ 0.63 $ 1.19 $ 1.09
Southern (0.15) (0.18) (0.15)
------ -------- ----------
Combined $ 0.48 $ 1.01 $ 0.94
====== ======== ==========
</TABLE>
NOTE 16 - IMPACT OF RECENT ACCOUNTING STANDARDS
Beginning January 1, 2000, a new accounting standard will require all
derivatives to be recorded at fair value. Unless designated as hedges, changes
in these fair values will be recorded in the income statement. Fair value
changes involving hedges will generally be recorded in the income statement.
Fair value changes involving hedges will generally be recorded by offsetting
gains and losses on the hedge and on the hedged item, even if the fair value of
the hedged item is not otherwise recorded. This is not expected to have an
effect on the Company.
Mortgage loans originated in mortgage banking have not been converted
into securities in the past. However, a new accounting standard for 1999 will
allow classifying these securities as available for sale, trading, or held to
maturity, instead of the current requirement to classify as trading. This is not
expected to have a material effect on the Company.
NOTE 17 - SUBSEQUENT EVENT (UNAUDITED)
On January 28, 1999, the Company acting through CITIZENS consummated its
previously announced branch purchase from Belmont National Bank. CITIZENS has
assumed certain deposit and other liabilities of approximately $11 million of
this branch and purchased the real estate at fair market value. This transaction
was accounted for as a purchase, and accordingly, the assets and liabilities
have been recorded on the respective fair market value as the date of
acquisition. The intangible assets from this acquisition are not material to the
Company's financial statements.
1998 ANNAUL REPORT 40
<PAGE> 42
DIRECTORS AND OFFICERS OF UNITED BANCORP, INC.
UNITED BANCORP, INC.
[PHOTO]
Directors, left to right, back row: L. E. Richardson, Jr., Dr. Leon F.
Favede, Richard L. Riesbeck, Herman E. Borkoski, James W. Everson, John H.
Clark, Jr.; front row: Errol C. Sambuco, Matthew C. Thomas, John M.
Hoopingarner, Michael J. Arciello.
[PHOTO]
Officers, left to right: James A. Lodes, James W. Everson,
Harold W. Price, Randall M. Greenwood, Alan M. Hooker, Norman F. Assenza, Jr.
1998 ANNUAL REPORT 41
<PAGE> 43
DIRECTORS AND OFFICERS
UNITED BANCORP, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
DIRECTORS OF UNITED BANCORP, INC.
Michael J. Arciello(3)...........................Retired Vice President of Finance, Nickles Bakeries, Inc., Navarre, Ohio
Herman E. Borkoski(2).........................................President, Borkoski Funeral Homes, Inc., Tiltonsville, Ohio
John H. Clark, Jr.(1,3)..................................................Foundry Owner (Retired), Wheeling, West Virginia
James W. Everson(1)...................................Chairman, President & Chief Executive Officer, United Bancorp, Inc.
and the Citizens Savings Bank, Martins Ferry, Ohio
Dr. Leon F. Favede(3).......................................................................Optometrist, Bridgeport, Ohio
John M. Hoopingarner(3).................General Manager, Muskingum Watershed Conservancy District, New Philadelphia, Ohio
L.E. Richardson, Jr.................................................Retired President, The Community Bank, Glouster, Ohio
Richard L. Riesbeck(1,3)....................................President, Riesbeck Food Markets, Inc., St. Clairsville, Ohio
Errol C. Sambuco(2)....................Director of Strategic Planning, Wheeling Pittsburgh Steel, Wheeling, West Virginia
Matthew C. Thomas(1,2).................................................President, M.C. Thomas Insurance, Bridgeport, Ohio
OFFICERS OF UNITED BANCORP, INC.
James W. Everson............................................................Chairman, President & Chief Executive Officer
Norman F. Assenza, Jr...........................................................Vice President - Operations and Secretary
Randall M. Greenwood..................................................Vice President - Chief Financial Officer, Treasurer
Alan M. Hooker............................................................................Vice President - Administration
James A. Lodes...................................................................................Vice President - Lending
Harold W. Price...........................................................................Vice President - Administration
DIRECTORS OF THE CITIZENS-STATE BANK, STRASBURG, OHIO
Michael J. Arciello(1,2)........................Retired Vice President of Finance, Nickles Bakeries, Inc., Navarre, Ohio
James W. Everson(1)..................................Chairman, President & Chief Executive Officer, United Bancorp, Inc.
and The Citizens Savings Bank, Martins Ferry, Ohio
John R. Herzig(2)................................................President, Toland-Herzig Funeral Homes, Strasburg, Ohio
Dwain R. Hicks.........................................President, Hicks Consulting and Investing, New Philadelphia, Ohio
John M. Hoopingarner(1)................General Manager, Muskingum Watershed Conservancy District, New Philadelphia, Ohio
Michael A. Ley(2)......................................President and Owner, Robert's Men's Shops, New Philadelphia, Ohio
Harold W. Price(1).......................President and Chief Executive Officer, The Citizens-State Bank, Strasburg, Ohio
DIRECTORS OF THE COMMUNITY BANK, GLOUSTER, OHIO
James W. Everson(1)...................................Chairman, President & Chief Executive Officer, United Bancorp, Inc.
and The Citizens Savings Bank, Martins Ferry, Ohio
Paul J. Gerig.............................................................Attorney at Law, Gerig and Gerig, Athens, Ohio
Alan M. Hooker(1)................................President & Chief Executive Officer, The Community Bank, Glouster, Ohio
Samuel J. Jones(2)........................................................................Business Owner, Glouster, Ohio
Dean A. Kasler(2).................................................................................Farmer, Glouster, Ohio
Philip D. Kasler(2).............................................................Farming and Real Estate, Amesville, Ohio
Joseph D. Kittle..................................................................Retired Business Owner, Glouster, Ohio
Harold W. Price............................President & Chief Executive Officer, The Citizens-State Bank, Strasburg, Ohio
L. E. Richardson, Jr.(1)...........................................Retired President, The Community Bank, Glouster, Ohio
DIRECTORS OF THE CITIZENS SAVINGS BANK, MARTINS FERRY, OHIO
Herman E. Borkoski(2)........................................President, Borkoski Funeral Homes, Inc., Tiltonsville, Ohio
John H. Clark, Jr.(1)...................................................Foundry Owner (Retired), Wheeling, West Virginia
James W. Everson(1).......................................................Chairman, President & Chief Executive Officer,
The Citizens Savings Bank, Martins Ferry, Ohio
Dr. Leon F. Favede ....................................................................... Optometrist, Bridgeport, Ohio
Richard L. Riesbeck(1).....................................President, Riesbeck Food Markets, Inc., St. Clairsville, Ohio
Errol C. Sambuco(2)...................Director of Strategic Planning, Wheeling Pittsburgh Steel, Wheeling, West Virginia
Matthew C. Thomas(1,2)................................................President, M.C. Thomas Insurance, Bridgeport, Ohio
Donald A. Davison, Director Emeritus 1963-1997........................United Bancorp, Inc. and The Citizens Savings Bank
Albert W. Lash, Director Emeritus 1975-1996...........................United Bancorp, Inc. and The Citizens Savings Bank
</TABLE>
1 = Executive Committee 2 = Audit Committee 3 = Compensation Committee
1998 ANNUAL REPORT 42
<PAGE> 44
MANAGEMENT'S YEAR 2000 DISCUSSION
UNITED BANCORP, INC.
- --------------------------------------------------------------------------------
YEAR 2000
In April, 1997, United Bancorp (the "Company") management began its commitment
for evaluating the Year 2000 (Y2K) impact on its internal and external
Information Systems (IS). Understanding the problem was the first approach
management took in its evaluation.
The assessment stage began by conducting extensive inventories of all systems
within the Company. All systems were then assigned priorities from 1-9 where 1
represented the most significant systems for testing and evaluation. A priority
9 represented the least critical systems. The following were major factors
contributing to the assignment of the priorities.
- Ascertain which systems constitute a material Y2K risk to our customers.
- How quickly and effectively can a contingency plan be implemented if
systems fail?
- What is the potential impact to the Company's liquidity if systems fail?
Some Priority 1 systems were also labeled as "mission critical," and are
summarized below. Although other Priority 1 systems are also important to the
Company, they are not deemed to be critical to the Company's operation.
- BancTec Banker 80-II
- Bisys/Document Solutions POD/Power Proof
- Fedline
- Personal Computers and Operating Systems
BANCTEC BANKER 80-II
Banker 80-II is the core account processing software used by the Company for
processing and recording customer deposit and loan accounts and transactions as
well as the Company's General Ledger. Banker 80-II produces information critical
to the proper operation of the Company and its affiliates and serves as the
database for virtually all financial and regulatory reporting. Banker 80-II is
licensed from and maintained by BancTec, Inc. and is utilized by more than 400
community banks nationwide.
Banker 80-II Y2K compliant software release was tested by BancTec in March, 1998
and released to the financial institution user base in May, 1998. The Company
installed this Y2K compliant release in September, 1998. Since every Banker
80-II bank may be different, individual bank testing had to be done; however,
"Proxy" testing could occur within an organization which used the same hardware
and software. Therefore, the Company's lead bank, The Citizens Savings Bank, was
identified as the base used for testing. Y2K Committee members of The Citizens
Savings Bank then developed test scripts and established a baseline test date of
December 16, 1998. Due to the "mission critical" nature of Banker 80-II, it was
determined that testing of all the Federal Financial Institutions Examination
Council's critical dates was necessary. Testing occured during January, 1999
within our own production system on a "like" but separate database using a
third-party software package for advancing dates. The test revealed no
significant deficiencies in Banker 80-II's ability to properly process and
record transactions and reports beyond the year 2000. To summarize, testing
produced "Satisfactory" results.
Results from the testing phase were made available to the affiliate banks who
then performed their "Proxy" testing, and concurred with the findings of The
Citizens Savings Bank.
FEDLINE
Fedline is the operating system software utilized to process transactions and
communicate with the Federal Reserve Bank. The most significant transactions
processed with the Federal Reserve are wire transfers, ACH, savings bonds, and
cash ordering. The Federal Reserve has developed a comprehensive testing
schedule that allows banks to operate in a "test" mode during certain times and
dates. The Company will complete testing of Fedline by March 20, 1999. No
notable deficiencies have been identified during testing already performed.
BISYS/DOCUMENT SOLUTIONS
The Company's Item Processing system uses software developed by Bisys/Document
Solutions (DSI) that utilizes NCR equipment to create images of internal and
external transactions accepted by bank personnel. The equipment separates the
items into unique categories; such as, checks and deposits, savings, and loans.
The software is then used to balance each transaction allowing checks drawn on
other banks to be magnetically encoded by the equipment at a later time.
1998 ANNUAL REPPORT 43
<PAGE> 45
MANAGEMENT'S YEAR 2000 DISCUSSION
UNITED BANCORP, INC.
- --------------------------------------------------------------------------------
The Company's software and equipment has been certified for Y2K compliance by
the vendors of their particular systems. The Company anticipates testing to be
significantly complete by March 31, 1999.
PERSONAL COMPUTERS AND OPERATING SYSTEMS
All personal computers were tested using a third-party software package designed
specifically for Y2K testing. The PC's found to be non-compliant were either
taken out of production and replaced or utilized where the application software
was not date sensitive.
Standardization is essential with the way technology has grown; therefore, all
personal computers with date sensitive applications have been standardized with
the core operating system Windows95/98, which contains only minor and
insignificant Y2K issues.
OTHER IS SYSTEMS
The following list identifies software the Company feels required some level of
Y2K testing or verification. Procedures included written verification with
vendors, review of vendor testing plans, methodology and results and, where
deemed necessary, operating the software in a Year 2000 testing mode. No notable
Y2K issues were apparent, with overall results "Satisfactory."
- Advantage - Payroll processing
- Banker systems, Inc. Loan Processor Laser - Utilized
for loan document preparation
- Best Software FAS!Encore - Fixed Asset accounting
- First Tennessee - Portfolio Accounting Services
- Intuit Quickbooks - Accounts Payable software
- Lotus 1-2-3/Microsoft Excel - Spreadsheet applications
- Lotus Amipro/Microsoft Word - Word processing software
- Midwest Payment Systems (MPS) - ATM and check card processor
- Money Access Service (MAC) - ATM and check card processor
OTHER OPERATING SYSTEMS
The Company has evaluated other operating system, including Heating,
Ventilation, Air Conditioning and Security, and considers all to be Y2K
compliant. Whereas, some systems are computerized, most are mechanical and Y2K
is not an issue. Y2K compliance statements have been recorded on those systems
containing computerized chips. American Electric Power serves as the electric
company for the Company's Operations Center and experiences periodic power
outages. In the event of a power outage, the Operations Center is having a
Natural Gas backup generator installed and thoroughly tested prior to year-end.
This is being done to back-up all future power outages. A Communications giant
TCI services telecommunications; however, aside from obtaining documentation
regarding their Y2K compliance, testing by the Company is virtually impossible.
CUSTOMER Y2K EVALUATION
Management of each affiliate completed a review of all customers with aggregate
loans exceeding designated amounts to assess whether any customer had a
significant risk to a Y2K related failure which would significantly impact their
business, and alter their ability to repay their loans. Management's procedures
included a review of the customers' most recent loan grading, review of
collateral and, in most cases, completion of a detailed Y2K questionnaire which
was reviewed directly with the borrower. Based on this information, Management
assigned an overall Y2K risk grade. In the aggregate, the Company rated its
overall risk due to potential customer Y2K issues as low. Individual borrowers
will continue to be monitored as new loan requests or line of credit renewals
are considered for approval by loan committee. Similarly deposit customers, who
qualify by virtue of size or risk, were also contacted in order to have them
think about the problem and to develop an awareness of their status.
CURRENT "WORST CASE" SCENARIO
The Company is confident that its internal systems will not be significantly
impacted by Y2K. However, the Company does anticipate that some problems may
occur with customer systems, and with our suppliers and customers. There is some
potential for slower collection of payments that may result in increases in past
dues and decreases in depository balances. The Company will maintain higher
levels of liquidity in the final quarter of 1999 and continuing into the Year
2000 to offset this risk. No material Y2K related issues by foreign nations or
companies have been identified.
1998 ANNUAL REPORT 44
<PAGE> 46
FIVE YEAR PERFORMANCE SUMMARY(1)
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
$(THOUSANDS, EXCEPT RATIOS) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSE:
Interest income $ 21,126 $ 20,802 $ 19,567 $ 18,667 $ 16,134
Interest expense 9,657 9,410 8,840 8,511 7,031
Provision for loan losses 798 932 1,165 1,204 411
Noninterest income 1,581 1,307 1,156 1,104 1,032
Noninterest expense 8,008 7,946 7,272 7,141 6,875
Income tax expense 1,089 973 816 660 634
Net income 3,155 2,848 2,630 2,255 2,215
PER COMMON SHARE DATA:
Net income, basic $ 1.13 $ 1.02 $ 0.94 $ 0.81 $ 0.79
Net income, diluted 1.12 1.01 0.94 0.81 0.79
Cash dividends paid 0.47 0.42 0.37 0.33 0.24
Book value 9.76 9.18 8.49 7.94 7.14
BALANCE SHEET:
Loans outstanding, net $ 161,188 $ 168,439 $ 163,760 $ 154,776 $ 139,383
Deposits 229,110 223,489 218,100 211,495 204,618
Total Assets 285,493 263,607 252,966 240,189 233,201
OPERATING RATIOS:
Return on average assets 1.17% 1.10% 1.06% 0.94% 0.99%
Net interest margin(2) 4.48 4.62 4.58 4.52 4.38
Efficiency ratio(3) 56.37% 57.50% 58.34% 60.43% 64.79%
EQUITY RATIO:
Return on average shareholder's equity 11.80% 11.48% 11.44% 10.63% 11.38%
CREDIT QUALITY:
Net charge-offs to average loans 0.48% 0.38% 0.62% 0.20% 0.18%
Ending allowance for loan losses 1.85 1.77 1.66 1.65 1.20
</TABLE>
(1) All share and per share amounts have been restated to reflect common stock
dividends.
(2) As a percent of average earning assets.
(3) Noninterest expense divided by tax equivalent net interest income plus
noninterest income, excluding security gains.
<PAGE> 47
UNITED BANCORP, INC.
MARTINS FERRY, OHIO
AND ITS SUBSIDIARIES
WWW.UNITEDBANCORP.COM
THE CITIZENS SAVINGS BANK
BRIDGEPORT, COLERAIN, JEWETT, ST. CLAIRSVILLE
MARTINS FERRY, OHIO
WWW.THECITIZENSBANK.COM
325 Howard Street
Bridgeport, Ohio 43912-0466
740-635-0494
318 East Main Street
Jewett, Ohio 43986
740-946-2411
Auto Teller
201 S. Fourth at Hickory Street
Martins Ferry, Ohio 43935-0010
740-633-0494
72541 Sharon Road
Colerain, Ohio 43916-0158
740-635-0445
104 Plaza Drive
St. Clairsville, Ohio 43950-0011
740-695-0445
Operations Center
201 S. Fourth at Hickory Street
Martins Ferry, Ohio 43935-0010
740-633-0445
888-275-5566
Main Office
201 S. Fourth at Hickory Street
Martins Ferry, Ohio 43935-0010
740-633-0445
THE CITIZENS-STATE BANK
DELLROY, DOVER, NEW PHILADELPHIA, SHERRODSVILLE, STRASBURG
2 Smith Street
Dellroy, Ohio 44620-0099
330-735-2311
141 N. Broadway
New Philadelphia, Ohio 44663
330-343-4413
2909 N. Wooster Avenue
Dover, Ohio 44622
330-364-8888
15 Sherrod Avenue
Sherrodsville, Ohio 44675-0222
740-269-8421
202 N. Wooster Avenue
Strasburg, Ohio 44680-0165
330-878-5551
THE COMMUNITY BANK, GLOUSTER
AMESVILLE, GLOUSTER, NELSONVILLE
2 East State Street
Amesville, Ohio 45711
740-448-2212
Auto Teller
42 Toledo Street
Glouster, Ohio 45732
740-767-3121
88 High Street
Glouster, Ohio 45732
740-767-3121
873 Chestnut Street
Nelsonville, Ohio 45764
740-753-4313
<PAGE> 1
EXHIBIT 23.1
UNITED BANCORP, INC. FORM 10-K
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the prospectus
constituting part of the registration statement on Form S-3 for United Bancorp,
Inc., Dividend Reinvestment Plan of our report dated January 14, 1999 on the
1998 consolidated financial statements of United Bancorp, Inc., which report is
incorporated by reference in this Form 10-K.
Crowe, Chizek and Company LLP
Columbus, Ohio
March 26, 1999
<PAGE> 1
EXHIBIT 23.2
UNITED BANCORP, INC. FORM 10-K
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference on Form 10-K of United Bancorp,
Inc. of our report dated February 20, 1998, on our audits of the consolidated
financial statements of Southern Ohio Community Bancorporation, Inc., Glouster,
Ohio as of December 31, 1997 and for the years ended December 31, 1997 and 1996.
Robb, Dixon, Francis, Davis, Oneson & Company
Granville, Ohio
March 26, 1999
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