<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
-------------------------
Commission File Number: 0-16540
UNITED BANCORP, INC.
(Exact name of registrant as specified in its charter.)
OHIO 34-1405357
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
201 South 4th Street, Martins Ferry, Ohio 43935-0010
(Address of principal executive offices) (Zip Code)
(740) 633-0445
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of the issuer's classes of common
stock as of the latest practicable date.
COMMON STOCK, $1.00 PAR VALUE 2,947,839 SHARES AS OF JULY 14, 2000
<PAGE> 2
UNITED BANCORP, INC.
TABLE OF CONTENTS
FORM 10-Q
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets.............................................................................3
Condensed Consolidated Statements of Income.......................................................................4
Condensed Consolidated Statements of Shareholders' Equity.........................................................5
Condensed Consolidated Statements of Cash Flows...................................................................6
Notes to the Condensed Consolidated Financial Statements.....................................................7 - 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................................................................13 - 22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................................23 - 24
PART II OTHER INFORMATION
ITEM 1.
Legal Proceedings................................................................................................25
ITEM 2.
Changes in Securities and Use of Proceeds........................................................................25
ITEM 3.
Default Upon Senior Securities...................................................................................25
ITEM 4.
Submission of Matters to a Vote of Security Holders..............................................................25
ITEM 5.
Other Information................................................................................................25
ITEM 6.
Exhibits and Reports on Form 8-K.................................................................................25
Signatures.........................................................................................................26
</TABLE>
2
See accompanying notes to the consolidated financial statements
<PAGE> 3
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
2000 1999
----------------- ------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 9,143 $ 11,097
Federal funds sold - 780
----------------- ------------------
Total cash and cash equivalents 9,143 11,877
Securities available for sale 90,894 85,362
Securities held to maturity
(Estimated fair value of $10,684 at 06/30/00 a10,849566 at 12/31/99) 9,794
Loans receivable
Commercial loans 21,794 15,463
Commercial real estate loans 61,914 60,305
Real estate loans 53,495 51,357
Installment loans 56,904 53,391
----------------- ------------------
Total loans receivable 194,107 180,516
Allowance for loan losses (3,088) (3,110)
----------------- ------------------
Net loans receivable 191,019 177,406
Premises and equipment, net 9,695 9,009
Accrued interest receivable and other assets 5,852 5,316
----------------- ------------------
Total Assets $ 317,452 $ 298,764
================= ==================
LIABILITIES
Demand deposits
Noninterest bearing $ 20,797 $ 19,858
Interest bearing 41,646 37,781
Savings deposits 53,625 56,245
Time deposits - under $100,000 114,174 98,326
Time deposits - $100,000 and over 27,751 23,330
----------------- ------------------
Total deposits 257,993 235,540
Securities sold under agreements to repurchase 4,722 5,788
Other borrowed funds 27,789 30,599
Accrued expenses and other liabilities 1,235 1,539
----------------- ------------------
Total Liabilities 291,739 273,466
SHAREHOLDERS' EQUITY
Common stock - $1 Par Value: 10,000,000 shares authorized;
2,947,839 issued and outstanding 2,948 2,943
Additional paid in capital 20,077 19,660
Deferred compensation plan (370) -
Retained earnings 7,060 6,543
Accumulated other comprehensive income, net of (4,002) (3,848)
----------------- ------------------
Total Shareholders' Equity 25,713 25,298
----------------- ------------------
Total Liabilities and Shareholders' Equit $ 317,452 $ 298,764
================= ==================
</TABLE>
See accompanying notes to the consolidated financial statements
3
<PAGE> 4
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS-EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest and dividend income
Loans, including fees $ 4,174 $ 3,684 $ 8,181 $ 7,295
Taxable securities 1,290 1,269 2,528 2,501
Non-taxable securities 271 337 535 656
Other interest and dividend income 65 54 149 123
-------- ------- ------- -------
Total interest and dividend income 5,800 5,344 11,393 10,575
Interest expense
Deposits
Demand 268 225 494 442
Savings 275 385 554 763
Time 2,042 1,450 3,866 2,934
Other borrowings 367 306 790 598
-------- ------- ------- -------
Total interest expense 2,952 2,366 5,704 4,737
NET INTEREST INCOME 2,848 2,978 5,689 5,838
Provision for loan losses 115 205 231 403
-------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,773 2,773 5,458 5,435
Non-interest income
Service charges on deposit accounts 216 185 389 359
Other income 118 121 270 326
-------- ------- ------- -------
Total non-interest income 334 306 659 685
Non-interest expense
Salaries and employee benefits 1,017 1,034 2,149 2,013
Occupancy 366 334 715 640
Other expenses 748 795 1,557 1,477
-------- ------- ------- -------
Total non-interest expense 2,131 2,163 4,421 4,130
INCOME BEFORE INCOME TAXES 936 916 1,696 1,990
Income tax expense 230 241 414 485
-------- ------- ------- -------
NET INCOME $ 706 $ 675 $ 1,282 $ 1,505
======== ======= ======= =======
Earnings per common share - Basic $ 0.24 $ 0.23 $ 0.44 $ 0.51
Earnings per common share - Diluted $ 0.24 $ 0.23 $ 0.44 $ 0.51
Dividends per common share $ 0.13 $ 0.12 $ 0.26 $ 0.25
</TABLE>
See accompanying notes to the consolidated financial statements
4
<PAGE> 5
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED COMPREHENSIVE STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL DEFERRED OTHER
COMMON PAID IN COMPENSATION RETAINED COMPREHENSIVE COMPREHENSIVE
STOCK CAPITAL PLAN EARNINGS INCOME INCOME TOTAL
----- ------- ---- -------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1999 $ 2,800 $17,801 $ - $6,840 $ (120) $27,321
Net income 1,505 $ 1,505 1,505
Proceeds and tax benefit from
exercise of stock options 3 22 25
Other comprehensive income (loss), net of tax:
Cumulative effect change from transfer
of securities from held to
maturity to available for sale from
adoption of SFAS No. 125 445 445
Net change in unrealized gain/(loss) on
securities available for sale (2,764) (2,764) (2,764)
Comprehensive income (loss) $ (814)
============
Cash dividends - $0.25 per share - (729) (729)
------- ------- ------------ ------- --------- --------
BALANCE AT JUNE 30, 1999 $ 2,803 $17,823 $ - $7,616 $ (2,439) $25,358
======= ======= ============ ======= ========= ========
BALANCE AT JANUARY 1, 2000 $ 2,943 $19,660 $ - $6,543 $ (3,848) $25,298
Net income 1,282 $ 1,282 1,282
Stock issuance 5 47 52
Proceeds and tax benefit from
exercise of stock options - - -
Other comprehensive income (loss), net of tax:
Net change in unrealized gain/(loss) on
securities available for sale (154) (154) (154)
------------
Comprehensive income $ 1,128
============
Recognition of shares held by deferred
compensation plan. 370 (370)
Cash dividends - $0.26 per share (765) (765)
------- ------- ------------ ------ -------- --------
BALANCE AT JUNE 30, 2000 $ 2,948 $20,077 $ (370) $7,060 $ (4,002) $25,713
======= ======= ============ ====== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements
5
<PAGE> 6
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) SIX MONTHS ENDED
JUNE 30,
2000 1999
-----------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,282 $ 1,505
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 443 379
Provision for loan losses 231 403
Deferred taxes (17) (142)
Federal Home Loan Bank stock dividend (78) (44)
Gain on sale/call of securities (17) -
(Accretion)/amortization of securities, net 3 19
Gain on sale of loans (5) (49)
Amortization of mortgage servicing rights 22 18
Gain/loss on sale of assets - 5
Net changes in accrued interest receivable and other assets (473) (518)
Net changes in accrued expenses and other liabilities (302) (146)
---------------------- ---------------------
Net cash from operating activities 1,089 1,430
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale
Proceeds from sales 17 -
Proceeds from maturities/calls 303 13,932
Purchases (5,999) (18,078)
Securities held to maturity
Proceeds from maturities/calls - -
Purchases (1,051) (2,961)
Net change in loans (13,844) (3,467)
Net purchases of premises and equipment (1,113) (1,150)
Proceeds from sale of assets - 130
---------------------- ---------------------
Net cash from investing activities (21,687) (11,594)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 22,453 (10,921)
Cash and cash equvalents received from deposit assumption,
net of asset acquired - 10,163
Net change in short-term borrowings (3,363) 2,546
Proceeds from long-term debt - 2,500
Principal payments on long-term debt (513) (612)
Proceeds from exercise of stock options - 24
Proceeds from stock issuance 52 -
Cash dividends paid (765) (729)
---------------------- ---------------------
Net cash from financing activities 17,864 2,971
---------------------- ---------------------
Net change in cash and cash equivalents (2,734) (7,193)
Cash and cash equivalents at beginning of year 11,877 16,492
---------------------- ---------------------
Cash and cash equivalents at end of period $ 9,143 $ 9,299
====================== =====================
Interest paid $ 5,613 $ 4,862
Income taxes paid 269 359
Non-cash transfer from loans to other real estate and repossessions $ - $ 150
Non-cash transfer of securities from held to maturity to available for sale
upon adoption of SFAS No. 133 - 16,005
</TABLE>
See accompanying notes to the consolidated financial statements
6
<PAGE> 7
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements are prepared without audit
and reflect all adjustments which, in the opinion of management, are
necessary to present fairly the financial position of United Bancorp,
Inc. ("Company") at June 30, 2000, and its results of operations and
cash flows for the periods presented. All such adjustments are normal
and recurring in nature. The accompanying condensed consolidated
financial statements have been prepared in accordance with the
instructions of Form 10-Q and, therefore, do not purport to contain all
the necessary financial disclosures required by generally accepted
accounting principles that might otherwise be necessary in the
circumstances and should be read in conjunction with the consolidated
financial statements, and related notes thereto, of the Company for the
year ended December 31, 1999 included in its annual report. Reference
is made to the accounting policies of the Company described in the
notes to the consolidated financial statements contained in its 1999
Annual Report to Shareholders. The Company has consistently followed
these policies in preparing this Form 10-Q.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, ("Banks") The Citizens
Savings Bank, Martins Ferry, Ohio ("CITIZENS") and The Community Bank,
Lancaster, Ohio ("COMMUNITY"). All significant intercompany
transactions and balances have been eliminated in consolidation.
NATURE OF OPERATIONS:
The Company's and Banks' revenues, operating income and assets
are primarily from the banking industry. Loan customers are mainly
located in Athens, Belmont, Carroll, Fairfield, Harrison, Hocking,
Jefferson, and Tuscarawas Counties and the surrounding localities in
northeastern, eastern, southeastern, and central Ohio and include a
wide range of individuals, business and other organizations. A major
portion of loans are secured by various forms of collateral including
real estate, business assets, consumer property and other items.
Commercial loans are expected to be repaid from cash flows of the
business. CITIZENS conducts its business through its main office in
Martins Ferry, Ohio and nine branches in Bridgeport, Colerain, Dellroy,
Dover, Jewett, New Philadelphia, St. Clairsville, Sherrodsville, and
Strasburg, Ohio. COMMUNITY conducts its business through its main
office in Lancaster and four branches in Lancaster, Glouster,
Nelsonville and Amesville, Ohio. 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.
7
<PAGE> 8
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES:
Income tax expense is based on the effective tax rate expected
to be applicable for the entire year. 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. All per share data has been
retroactively adjusted for the 5% stock dividends distributed in 1999
and 1998.
EARNINGS AND DIVIDENDS PER SHARE:
Basic earnings per common share ("EPS") is net income divided
by the weighted-average number of shares outstanding during the period.
Diluted EPS includes the dilutive effect of additional potential common
shares issuable under stock options. 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. Other comprehensive
income components net of related taxes are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(IN THOUSANDS) 2000 1999 2000 1999
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Other comprehensive income (loss):
Unrealized holding gains (losses) on available
for sale securities arising during period (550) (2,962) (219) (4,186)
Cumulative effect adjustment for the transfer
of securities from held to maturity to
available for sale from adoption of
SFAS No. 125 674 674
Reclassification adjustment for (gains) and
losses later recognized in income 3 - (17) -
---------- ---------- --------- ----------
(547) (2,288) (236) (3,512)
Tax effect 189 778 82 1,193
---------- ---------- --------- ----------
Other comprehensive income (loss) $ (358) $ (1,510) $ (154) $ (2,319)
========== ========== ========= ==========
</TABLE>
8
<PAGE> 9
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. SECURITIES:
Securities were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
(IN THOUSANDS) AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE - JUNE 30, 2000
US Agency obligations $77,825 $ 1 $(6,079) $71,747
State and Municipal obligations 13,852 143 (89) 13,906
Mortgage-backed securities 2,024 - (51) 1,973
Other securities 3,257 11 - 3,268
-------------- -------------- -------------- --------------
$96,958 $155 $(6,219) $90,894
============== ============== ============== ==============
AVAILABLE FOR SALE - DECEMBER 31, 1999
US Agency obligations $71,820 $ - $(5,869) $65,951
State and Municipal obligations 14,112 203 (128) 14,187
Mortgage-backed obligations 2,079 - (61) 2,018
Other securities 3,179 27 - 3,206
-------------- -------------- -------------- --------------
$91,190 $230 $(6,058) $85,362
============== ============== ============== ==============
HELD TO MATURITY - JUNE 30, 2000
US Agency obligations $ 2,495 $ - $ (90) $ 2,405
State and Municipal obligations 8,354 73 (148) 8,279
-------------- -------------- -------------- --------------
$10,849 $ 73 $ (238) $10,684
============== ============== ============== ==============
HELD TO MATURITY - DECEMBER 31, 1999
US Agency obligations $ 2,494 $ - $ (84) $ 2,410
State and Municipal obligations 7,300 49 (193) 7,156
-------------- -------------- -------------- --------------
$ 9,794 $ 49 $ (277) $ 9,566
============== ============== ============== ==============
</TABLE>
Sales of securities available for sale were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Proceeds $ - $ - $ 17 $ -
Gross gains - - 20 -
Gross losses 3 - - -
</TABLE>
9
<PAGE> 10
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. SECURITIES: (CONTINUED)
Contractual maturities of securities at June 30, 2000 were as
follows:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE (IN THOUSANDS) AMORTIZED ESTIMATED
COST FAIR VALUE
------------------- --------------------
<S> <C> <C>
US Agency obligations
1 - 5 Years $ 3,599 $ 3,510
5 - 10 Years 35,470 33,463
Over 10 Years 38,756 34,774
------------------- --------------------
Total 77,825 71,747
------------------- --------------------
State and municipal obligations
Under 1 Year 692 692
1 - 5 Years 10,381 10,500
5 - 10 Years 1,114 1,088
Over 10 Years 1,665 1,626
------------------- --------------------
Total 13,852 13,906
------------------- --------------------
Mortgage Backed securities
5 - 10 Years 211 204
Over 10 Years 1,813 1,769
------------------- --------------------
Total 2,024 1,973
------------------- --------------------
Other investments
Equity securities 3,257 3,268
------------------- --------------------
Total securities available for sale $ 96,958 $ 90,894
=================== ====================
HELD TO MATURITY (IN THOUSANDS)
US Agency obligations
1 - 5 Years $ 1,000 $ 982
5 - 10 Years 496 480
Over 10 Years 999 943
------------------- --------------------
Total 2,495 2,405
------------------- --------------------
State and municipal obligations
1 - 5 Years 2,059 2,069
5 - 10 Years 3,617 3,592
Over 10 Years 2,678 2,618
------------------- --------------------
Total 8,354 8,279
------------------- --------------------
Total securities held to maturity $ 10,849 $ 10,684
=================== ====================
</TABLE>
Securities with a carrying value of approximately $45,229,000 at June 30, 2000
and $45,332,000 at December 31, 1999 were pledged to secure public deposits,
repurchase agreements and other liabilities as required or permitted by law.
10
<PAGE> 11
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(IN THOUSANDS) 2000 1999 2000 1999
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Beginning Balance $ 3,020 $ 3,086 $ 3,110 $ 3,033
Provision charged to operating expense 115 205 231 403
Loans charged-off (131) (419) (375) (600)
Recoveries 84 63 122 99
---------------- ---------------- ---------------- -----------------
Ending Balance $ 3,088 $ 2,935 $ 3,088 $ 2,935
================ ================ ================ =================
</TABLE>
Non-performing loans were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
(IN THOUSANDS) 2000 1999
------------------- -------------------
<S> <C> <C>
Loans past due over 90 days still on accrual $ 222 $ 36
Nonaccrual loans 1,283 987
</TABLE>
Loans considered impaired under the provisions of SFAS No. 114 were not
material at June 30, 2000 and December 31, 1999.
4. COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES
There are various contingent liabilities not reflected within the
financial statements, including claims and legal actions arising in the
ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters
is not expected to have a material effect on the Company's financial
condition or results of operations.
Some financial instruments are used in the normal course of business to
meet the financing needs of customers. These financial instruments include
commitments to extend credit, standby letters of credit and financial
guarantees. These involve, to varying degrees, credit and interest-rate
risk in excess of the amounts reported in the financial statements.
Exposure to credit loss if the other party does not perform is
represented by the contractual amount for commitments to extend credit,
standby letters of credit and financial guarantees written. The same credit
policies are used for commitments and conditional obligations as are used
for loans. The amount of collateral obtained, if deemed necessary, upon
extension of credit is based on management's credit evaluation. Collateral
varies, but may include accounts receivable, inventory, property,
equipment, income-producing commercial properties, residential real estate
and consumer assets.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
commitment. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
11
<PAGE> 12
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES (CONTINUED)
commitments are expected to expire without being used, total
commitments do not necessarily represent future cash requirements.
Standby letters of credit and financial guarantees written are
conditional commitments to guarantee a customer's performance to a
third party.
A summary of the notional or contractual amounts of financial
instruments with off-balance sheet risk at June 30, 2000 and December
31, 1999 follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
(IN THOUSANDS) 2000 1999
------------------- -------------------
<S> <C> <C>
Commitments to extend credit $ 17,840 $ 17,131
Credit card & ready reserve lines 1,182 1,178
Standby letters of credit 446 446
</TABLE>
At June 30, 2000, and included above, commitments to make
fixed-rate loans totaled $4,505,453 with the interest rates on those
fixed-rate commitments ranging from 7.50% to 10.00%. At December 31,
1999, commitments to make fixed rate loans totaled $2,363,000 with
interest rates on those fixed-rate commitments ranging from 7.50% to
10.00%.
At June 30, 2000 and December 31, 1999, reserves of $1,204,000
and $1,241,000 were required as deposits with the Federal Reserve or as
cash on hand. These reserves do not earn interest.
5. EARNINGS PER SHARE
The factors used in the earnings per share computation were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(IN THOUSANDS-EXCEPT FOR PER SHARE INFORMATION) JUNE 30, JUNE 30,
2000 1999 2000 1999
-------- --------- ---------- ---------
<S> <C> <C> <C> <C>
BASIC
Net income $ 706 $ 675 $ 1,282 $ 1,505
========= ========= ========= =========
Weighted average common shares outstanding 2,942,940 2,943,068 2,942,912 2,941,698
========= ========= ========= =========
Basic earnings per common share $ 0.24 $ 0.23 $ 0.44 $ 0.51
========= ========= ========= =========
DILUTED
Net income $ 706 $ 675 $ 1,282 $ 1,505
========= ========= ========= =========
Weighted average common shares outstanding for
basic earnings per common share 2,942,940 2,943,068 2,942,912 2,941,698
Add: Dilutive effects of assumed exercised of stock
options 4,369 24,757 4,335 25,245
--------- --------- --------- ---------
Average shares and dilutive potential common shares 2,947,309 2,967,825 2,947,247 2,966,943
========= ========= ========= =========
Average shares and dilutive potential common shares $ 0.24 $ 0.23 $ 0.44 $ 0.51
========= ========= ========= =========
Number of stock options not considered in computing
diluted earnings per share due to antidilutive nature 17,325 7,166 17,325 7,166
</TABLE>
12
<PAGE> 13
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discusses the financial condition of the Company
as of June 30, 2000, as compared to December 31, 1999 and the results
of operations for the three and six months ended June 30, 2000 compared
to the same periods in 1999. This discussion should be read in
conjunction with the interim condensed consolidated financial
statements and related footnotes included herein.
FORWARD-LOOKING STATEMENTS
When used in this document, the words or phrases "will likely
result," "are expected to," "will continue," "is anticipated,"
"estimated," "projected" or similar expressions are intended to
identify "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject
to certain risks and uncertainties including changes in economic
conditions in the Banks' market areas, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans
in the Banks' market areas and competition, that could cause actual
results to differ materially from historical earnings and those
presently anticipated or projected. Factors listed above could affect
the Company's financial performance and could cause the Company's
actual results for future periods to differ materially from any
statements expressed with respect to future periods.
The Company does not undertake, and specifically disclaims any
obligation, to publicly revise any forward-looking statements to
reflect events or circumstances after the date such statements or to
reflect the occurrence of anticipated or unanticipated events.
13
<PAGE> 14
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The following brief history of the Company and its subsidiary growth and
development highlights the continuing commitment to maintaining a presence as a
local "Hometown" community bank serving several diverse market areas.
- 1902 Original banking charter granted for The German Savings Bank
(later changed to The Citizens Savings Bank).
- 1974 Construction of a full-service branch banking facility 6 miles
west in Colerain, Ohio.
- 1978 Construction of a full-service branch banking facility 2 miles
south in Bridgeport, Ohio.
- 1980 Construction of a limited-service auto-teller banking location
in Martins Ferry, Ohio.
- 1983 Creation of United Bancorp, Inc. as a single-bank holding
company through acquisition of 100% of the voting stock of The
Citizens Savings Bank of Martins Ferry, Ohio ("CITIZENS"). Also,
began operation of Automated Teller Machine ("ATM") in
Aetnaville, Ohio.
- 1984 CITIZENS opened a newly constructed 21,500 square foot
main-office facility in Martins Ferry, Ohio, adjacent to the
auto-teller facility built in 1980.
- 1986 United Bancorp, Inc. became a multi-bank holding company through
the acquisition of 100% of the voting stock of The Citizens-
State Bank of Strasburg, Strasburg, Ohio, merged into CITIZENS
in 1999.
- 1990 CITIZENS converted from third-party data processing to in-house
data processing. CITIZENS constructed a full-service branch bank
6 miles south of Strasburg in Dover, Ohio.
- 1992 CITIZENS acquired two branch bank locations in New Philadelphia
and Sherrodsville, Ohio.
- 1993 CITIZENS relocated Data Processing, Accounting and Bookkeeping
to a renovated Operations Center across from the main office in
Martins Ferry, Ohio.
- 1994 CITIZENS purchased a branch bank in Dellroy, Ohio.
- 1996 CITIZENS converted to check imaging and optical character
recognition for data processing.
- 1997 CITIZENS opened a full-service Retail Banking Center inside
Riesbeck's Food Markets, Inc.'s St. Clairsville, Ohio store.
Additionally, CITIZENS introduced a Secondary Market Real Estate
Mortgage Program available for all locations and introduced a
MasterCard(R)Check Card to the local market area.
- 1998 CITIZENS increased ATM network by four cash dispenser machines
in various Riesbecks' Food Markets.
- 1998 Effective July 7, 1998, the acquisition of Southern Ohio
Community Bancorporation, Inc. was completed and The Community
Bank, Glouster, Ohio ("COMMUNITY") was added as a separate
banking charter to the Company.
- 1999 January 28, 1999 CITIZENS acquired a full service banking
facility in Jewett, Ohio
- 1999 March 1999 COMMUNITY opened a Loan Production Office in
Lancaster, Ohio.
- 1999 CITIZENS established a full service brokerage division to be
known as Brokerage United with securities provided through
Raymond James Financial Services, Inc., member NASD/SIPC.
- 1999 COMMUNITY moved their main office to Lancaster, Ohio.
- 2000 COMMUNITY opened a new branch in Lancaster and their auto teller
for the main office.
14
<PAGE> 15
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
ANALYSIS OF FINANCIAL CONDITION
EARNING ASSETS - LOANS
At June 30, 2000, gross loans were $194,107,000 compared to
$180,516,000 at year-end 1999, an increase of 7.5%. The increase in
total outstanding loans was the result of growth in the commercial and
installment portfolios. COMMUNITY'S outstanding loans increased 17.2%
or approximately $6.4 million from December 31, 1999. Management
anticipates the expansion plans for COMMUNITY will provide a solid
market for loan growth. CITIZENS' also experienced sound growth as
gross loans increased $7.2 million or 5.0%.
Installment loans, with continued emphasis placed on the
indirect automobile lending market, stayed relatively constant at 29.3%
of total loans at June 30, 2000 compared to 29.6% at year-end 1999. The
indirect lending type of financing carries somewhat more risk than real
estate lending, however, it also provides for higher yields. The
targeted lending areas encompass four metropolitan areas, minimizing
the risk to changes in economic conditions in the communities housing
the Company's 17 branch locations. Management has worked to expand the
lending market of COMMUNITY into the Lancaster, Ohio area which
provided an increase of installment loans of $4,779,000 from December
31, 1999. CITIZENS actually experience a 3.4% or $1,266,000 decline in
installment loans. Even with the decline at CITIZENS, the installment
loan portfolio for the Company increased 6.6% since December 31, 1999.
Commercial and commercial real estate loans comprised 43.1% of
total loans at June 30, 2000 compared to 42.0% at December 31, 1999.
Commercial and commercial real estate loans have increased $7,940,000
or 10.5% since December 31, 1999. CITIZENS contributed $7,178,000 to
the overall increase. The Company has originated and purchased
participations in loans from other banks for out-of-area commercial and
commercial real estate loans to benefit from consistent economic growth
outside the Company's primary market area. The majority of these loans
are secured by real estate holdings comprised of hotels, motels and
churches located in various geographic locations, including Columbus
and the Akron-Canton, Ohio metropolitan areas. Out-of-area loans at
June 30, 2000 were 8.1% of total loans and 18.9% of total commercial
and commercial real estate loans compared to 8.5% and 20.3% at year-end
1999.
Real estate loans were 27.6% of total loans at June 30, 2000
compared to 28.4% at year-end 1999. Real estate loans increased 4.2%
since December 31, 1999. Our real estate loans are not growing as
quickly as commercial, commercial real estate, and installment;
however; the slight increase shows the continued shift in customer
preference to adjustable rate real estate loans as interest rates trend
higher. Adjustable rate products typically have lower introductory
rates as compared to that of a fixed rate mortgage. The Company
primarily sells its fixed rate mortgaes on the secondary market and
retains the adjustable rate mortgages for the portfolio.
The allowance for loan losses represents the amount which
management and the Board of Directors estimates is adequate to provide
for probable losses inherent in the loan portfolio. The allowance
balance and the provision charged to expense are reviewed by management
and the Board of Directors monthly using a risk code model that
considers borrowers past due experience, economic conditions and
various other circumstances that are subject to change over time.
Management believes the current balance of the allowance for loan
losses is adequate to
15
<PAGE> 16
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
absorb probable incurred credit losses associated with the loan
portfolio. Net charge-offs for the six months ended June 30, 2000 were
approximately $253,000, or 8.1%, of the beginning balance in the
allowance for loan losses compared to $501,000, or 16.5%, of the
beginning balance for loan losses for the six months ended June 30,
1999. During the first half of 2000, net charge-offs for consumer loans
totaled approximately $132,000 compared to $494,000 for the first half
of 1999. The decrease can be attributed to Management's continued focus
on improving underwriting standards.
EARNING ASSETS - SECURITIES AND FEDERAL FUNDS SOLD
The securities portfolio is comprised of U.S. Government
agency-backed securities, tax-exempt obligations of states and
political subdivisions and certain other investments. The Company does
not hold any collateralized mortgage-backed securities, other than
those issued by U.S. government agencies, or derivative securities. The
quality rating of obligations of state and political subdivisions
within Ohio is no less than Aaa, Aa or A, with all out-of-state bonds
rated at AAA. Board policy permits the purchase of certain non-rated
bonds of local schools, townships and municipalities, based on their
estimated levels of credit risk. Securities available for sale at June
30, 2000 increased approximately $5,532,000, or 6.5% from year-end 1999
totals. Securities held to maturity at June 30, 2000 increased
approximately $1,055,000 or 10.8% compared to year-end 1999 totals.
Short-term federal funds sold are used to manage interest rate
sensitivity and to meet liquidity needs of the Company. At June 30,
2000, the Company had no federal funds sold compared to $780,000 at
year-end 1999.
SOURCES OF FUNDS - DEPOSITS
The Company's primary source of funds is core deposits from
retail and business customers. These core deposits include all
categories of interest-bearing and noninterest-bearing deposits,
excluding certificates of deposit greater than $100,000. For the period
ended June 30, 2000, total core deposits increased approximately $18.0
million primarily from an increase of demand deposits and time deposits
under $100,000 of $4.8 million and $15.8 million, respectively. This
was partly offset by a decrease in savings deposits of $2.6 million.
During the first six months of 2000, COMMUNITY has experienced an
increase of time deposits under $100,000 of $10.4 million. This
increase is primarily the result of management's expansion plans in
Lancaster, Ohio.
The Company has a strong deposit base from public agencies,
including local school districts, city and township municipalities,
public works facilities and others that may tend to be more seasonal in
nature resulting from the receipt and disbursement of state and federal
grants. These entities have maintained fairly static balances with the
Company due to various funding and disbursement timeframes.
Certificates of deposit greater than $100,000 are not
considered part of core deposits and as such are used to balance rate
sensitivity as a tool of funds management. At June 30, 2000,
certificates of deposit greater than $100,000 increased approximately
$4.4 million, or 18.9% from
16
<PAGE> 17
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
year-end 1999 totals. Again, approximately $3.9 million of the increase
was due to the COMMUNITY expansion.
SOURCES OF FUNDS - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND
OTHER BORROWINGS
Other interest-bearing liabilities include securities sold
under agreements to repurchase, sweep accounts, federal funds
purchased, Treasury, Tax & Loan notes payable and Federal Home Loan
Bank ("FHLB") advances. In the first six months of 2000, the Company
continued to utilize the FHLB programs to manage interest rate risk and
liquidity positions. The majority of the Company's repurchase agreement
are with local school districts, city and county government. Total
other borrowings decreased approximately $2.8 million, or 9.2% from
year-end 1999 totals. With the probable occurrence of higher interest
rates in the latter half of 2000, Management determined that the
issuance of fixed rate certificate of deposits rather than floating
rate FHLB advances would help support the Company's net interest margin
as short term rates increase.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000
NET INCOME
Basic earnings per share for the six months ended June 30,
2000 was $0.44, compared with $0.51 for the six months ended June 30,
1999. Net income decreased $223,000 for six months ended June 30, 2000,
compared to the same period in 1999. On an annualized basis, Return on
Average Assets (ROA) was 0.85% and Return on Average Equity (ROE) was
10.3% compared to ROA of 1.05% and ROE of 11.3% for the six months
ended June 30, 1999.
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 decreased
2.6% for the six months ended June 30, 2000 compared to the same period
in 1999.
Total interest income for the six months ended June 30, 2000
was $11,393,000 compared to $10,575,000 for the same period in 1999.
Total interest income increased $818,000, or 7.7%. The increase can be
attributed to the overall growth in the Company's interest-bearing
assets, and in increase in the interest rate environment.
Total interest expense for the six months ended June 30, 2000
when compared to the same six months period ended June 30, 1999,
increased 20.4% or $967,000. The Company has experienced an increase in
interest expense due to an increased use of time deposits to fund loan
growth and an overall increase of rates on all deposit products to
remain competitive in the market.
17
<PAGE> 18
UNITED BANCORP, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
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 probable losses associated with the
loan portfolio.
The total provision for loan losses was $231,000 for the six
months ended June 30, 2000 compared to $403,000 for the same period in
1999. Management decreased the provision in 2000 due to an anticipated
decrease in net charge-offs for the fiscal year. This decrease is a
result of Management's commitment to improve the portfolio's credit
quality.
NONINTEREST INCOME
Total noninterest income is made up of bank related fees and
service charges, as well as other income producing services provided,
sale of secondary market loans, ATM income, early redemption penalties
for certificates of deposits, safe deposit rental income and other
miscellaneous items. Noninterest income for the six months ended June
30, 2000 was $659,000 compared to $685,000 for the same six-month
period ended June 30, 1999. For the six months ended June 30, 2000
compared to the same period in 1999, noninterest income decreased
approximately 3.8%. The decrease in noninterest income can be
attributed to a decrease in secondary market fee income of
approximately $90,000. The secondary market loan production has
declined due to the rise in interest rates. Customer preference has
shifted to adjustable rate mortgages during the second half of 1999 and
into 2000. This decrease was partially offset by the $30,000 or 8.4%
increase in service charge income. The expanded customer base as a
result of the COMMUNITY expansion and management's focus on updating
our fee structures attributed to the increase.
NONINTEREST EXPENSE
Noninterest expense for the six months ended June 30, 2000
increased 7.0% over the six months ended June 30, 1999. Expansion costs
have been incurred in the first quarter of 2000 related to COMMUNITY'S
opening of a new headquarters, an adjacent limited service drive-thru,
and a full service banking center in Lancaster, Ohio. In addition,
additional staffing, advertising and occupancy expenses were added to
the COMMUNITY'S cost structure as a result of this expansion.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED JUNE 30, 2000
NET INCOME
Basic earnings per share for the three months ended June 30,
2000 was $0.24, compared with $0.23 for the three months ended June 30,
1999. Net income increased $31,000 for three months ended June 30,
2000, compared to the same period in 1999. On an annualized basis,
Return on Average Assets (ROA) was 0.93% and Return on Average Equity
(ROE) was 11.3% compared to ROA of 0.95% and ROE of 10.1% for the three
months ended March 31, 1999.
18
<PAGE> 19
UNITED BANCORP, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
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 decreased
4.4% for the three months ended June 30, 2000 compared to the same
period in 1999. Management anticipates the short-term impact to
continue over the next several quarters if short term rates continue to
rise as such a rapid pace.
Total interest income for the three months ended June 30, 2000
was $5,800,000 compared to $5,344,000 for the same period in 1999.
Total interest income increased $456,000, or 8.5%. The increase can be
attributed to the overall growth in the Company's interest-bearing
assets, and in increase in the interest rate environment.
Total interest expense for the three months ended June 30,
2000 when compared to the same three months period ended June 30, 1999,
increased 24.8%, or $586,000. The Company has experienced an increase
in interest expense due to an increase use of time deposits to fund
loan growth and an overall increase of rates on all deposit products to
remain competitive in the market.
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 probable losses associated with the
loan portfolio.
The total provision for loan losses was $115,000 for the three
months ended June 30, 2000 compared to $205,000 for the same period in
1999. Management decreased the provision in 2000 due to an anticipated
decrease in net charge-offs for the fiscal year. This decrease is a
result of Management's commitment to improve the portfolio's credit
quality.
NONINTEREST INCOME
Total noninterest income is made up of bank related fees and
service charges, as well as other income producing services provided,
sale of secondary market loans, ATM income, early redemption penalties
for certificates of deposits, safe deposit rental income and other
miscellaneous items. Noninterest income for the three months ended June
30, 2000 was $334,000 compared to $306,000 for the same three months
period ended June 30, 1999. For the three months ended June 30, 2000
compared to the same period in 1999, noninterest income increased
approximately 9.2%. The increase in noninterest income can be
attributed to an increase in service charge income. The Company has
focused on increasing its service charges fees when deemed appropriate
with the local competition. Also, as previously discussed, with the
growth of the COMMUNITY franchise, additional service charge income was
added as the customer base was expanded.
19
<PAGE> 20
UNITED BANCORP, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
NONINTEREST EXPENSE
Noninterest expense for the three months ended June 30, 2000
decreased $32,000 or 1.5% over the three months ended June 30, 1999.
Salary expense decreased approximately $17,000 or 1.6% for the three
months ended June 30, 2000. Occupancy increased $32,000 or 9.6% from
1999 to 2000 primarily as a result of the expansion of COMMUNITY in the
Lancaster, Ohio market. Non-recurring professional fees were incurred
in the second quarter of 1999 related to COMMUNITY'S opening of a new
headquarters, an adjacent limited service drive-thru, and a full
service banking center in Lancaster, Ohio, therefore other expenses
decreased approximately $47,000 or 5.9% for the three months ended June
30, 2000 when compared with the same period in 1999.
CAPITAL RESOURCES
Internal capital growth, through the retention of earnings, is
the primary means of maintaining capital adequacy for the Company.
Shareholders' equity at June 30, 2000 was $25,713,000 compared to
$25,298,000 at December 31, 1999, a 1.6% increase. Total shareholders'
equity in relation to total assets was 8.09% at June 30, 2000 and 8.5%
at December 31, 1999.
The Company has a Dividend Reinvestment Plan ("The Plan") for
shareholders under which the Company's common stock will be purchased
by the Plan for participants with automatically reinvested dividends.
The Plan does not represent a change in the Company's dividend policy
or a guarantee of future dividends.
The Company maintains a deferred compensation plan for its
Directors. The plan permits the Directors to defer into a Rabbi Trust
all or a portion of their director fees. The plan is being accounted
for under the provisions of EITF 97-14.
The Company and Banks are subject to regulatory capital
requirements administered by federal banking agencies. Capital adequacy
guidelines and prompt corrective action regulations involve
quantitative measures of assets, liabilities and certain off-balance
sheet items calculated under regulatory accounting practices. Capital
amounts and classifications are also subject to qualitative judgments
by regulators about components, risk weightings and other factors and
the regulators can lower classifications in certain cases. Failure to
meet various capital requirements can initiate regulatory action that
could have a direct material effect on the Banks' operations.
The prompt corrective action regulations provide five
classifications, including well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized, although these terms are not used to represent
overall financial condition. If adequately capitalized, regulatory
approval is required to accept brokered deposits. If undercapitalized,
capital distributions are limited, as is asset growth and expansion and
plans for capital restoration are required.
20
<PAGE> 21
UNITED BANCORP, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The minimum requirements are:
<TABLE>
<CAPTION>
TOTAL TIER 1 TIER 1
CAPITAL TO CAPITAL TO CAPITAL TO
RISK-WEIGHTED RISK-WEIGHTED AVERAGE
ASSETS ASSETS ASSETS
----------------- ----------------- --------------
<S> <C> <C> <C>
Well capitalized 10.00% 6.00% 5.00%
Adequately capitalized 8.00% 4.00% 4.00%
Undercapitalized 6.00% 3.00% 3.00%
</TABLE>
The following table illustrates the Company's risk-weighted
capital ratios at June 30, 2000:
<TABLE>
<CAPTION>
JUNE 30,
(IN THOUSANDS) 2000
----------------
<S> <C>
Tier 1 capital $ 29,566
Total risk-based capital $ 32,197
Risk-weighted assets $ 210,058
Average total assets $ 304,793
Tier 1 capital to average assets 9.70%
Tier 1 risk-based capital ratio 14.08%
Total risk-based capital ratio 15.33%
</TABLE>
LIQUIDITY
Management's objective in managing liquidity is maintaining
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 and sales of securities available for
sale, federal funds sold and cash and deposits with banks. Along with
its liquid assets, the Company has additional sources of liquidity
available to ensure that adequate funds are available as needed. These
include, but are not limited to, the purchase of federal funds, the
ability to borrow funds under line of credit agreements with
correspondent banks and a borrowing agreement with the Federal Home
Loan Bank of Cincinnati, Ohio and the adjustment of interest rates to
obtain depositors. Management feels that it has the capital adequacy,
profitability and reputation to meet the current and projected needs of
its customers.
For the six months ended June 30, 2000, the adjustments to
reconcile net income to net cash from operating activities consisted
mainly of depreciation and amortization of premises and equipment and
intangibles, the provision for loan losses, net amortization of
securities and net changes in other assets and liabilities. The net
decrease in cash and cash equivalents of $2,734,000 was primarily the
result of a decrease in borrowed funds of $3,363,000 and an increase in
loans of $13,844,000, offset by cash provided in financing activities
of $22,453,000 related to an increase in deposits. For a more detailed
illustration of sources and uses of cash, refer to the condensed
consolidated statements of cash flows.
21
<PAGE> 22
UNITED BANCORP, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
INFLATION
Substantially all of the Company's assets and liabilities
relate to banking activities and are monetary in nature. The
consolidated financial statements and related financial data are
presented in accordance with Generally Accepted Accounting Principles
(GAAP). GAAP currently requires the Company to measure the financial
position and results of operations in terms of historical dollars, with
the exception of securities available for sale, impaired loans and
other real estate loans that are measured at fair value. Changes in the
value of money due to rising inflation can cause purchasing power loss.
Management's opinion is that movements in interest rates
affects the financial condition and results of operations to a greater
degree than changes in the rate of inflation. It should be noted that
interest rates and inflation do effect each other, but do not always
move in correlation with each other. The Company's ability to match the
interest sensitivity of its financial assets to the interest
sensitivity of its liabilities in its asset/liability management may
tend to minimize the effect of changes in interest rates on the
Company's performance.
REGULATORY MATTERS
The Company is subject to the regulatory requirements of The
Federal Reserve System as a multi-bank holding company. The affiliate
banks are subject to regulations of the Federal Deposit Insurance
Corporation (FDIC) and the State of Ohio, Division of Financial
Institutions.
22
<PAGE> 23
UNITED BANCORP, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risk affecting the Company is interest rate risk.
The Banks do not maintain a trading account for any class of financial
instrument and the Company is not affected by foreign currency exchange rate
risk or commodity price risk. Because the Banks do not hold any equity
securities other than stock in the Federal Home Loan Bank of Cincinnati, which
is not significant, the Company is not subject to equity price risk.
The Company and its Banks, like other financial institutions, are
subject to interest rate risk to the extent that its interest-earning assets
reprice differently than its interest-bearing liabilities. One of the principal
financial objectives is to achieve long-term profitability while reducing its
exposure to fluctuations in interest rates. The Company has sought to reduce
exposure of its earnings to changes in market interest rates by managing assets
and liability maturities and interest rates primarily by originating
variable-rate lending products, or if issued with a fixed interest rate, as is
the case with the indirect automobile portfolio, the term is rather short in
duration. Both the variable interests rates inherent in the commercial,
commercial real estate and real estate loan portfolios, and the short duration
loan products, mitigate the Company's exposure to dramatic interest rate
movements.
The Company's securities are all fixed rate and are weighted more
heavily towards available for sale which accounts for 89% of the portfolio
compared to the 11% for held to maturity securities. The Company primarily
invests in US Agency obligations and State and Municipal obligations and has a
modest amount invested in mortgage-backed securities. Due to total securities
approximating 32% of total assets and a significant portion of its loan
portfolio consisting of fixed rate loans, the Company is particularly sensitive
to periods of rising interest rates. In such periods, the Company's net interest
spread is negatively affected because the interest rate paid on deposits
increases faster than the rates earned on loans. Management is continuing to
originate variable rate mortgage loans as the primary means to manage this risk.
In addition, the Company also originates consumer and commercial loans, which
make up a significant percentage of the overall loan portfolio. Consumer loans
typically have a significantly shorter weighted-average maturity and offer less
exposure to interest rate risks while commercial loans generally carry variable
interest rates.
Management measures the Company's interest rate risk by computing
estimated changes in net interest income and the net portfolio value ("NPV") of
its cash flows from assets, liabilities and off-balance sheet items in the event
of a range of assumed changes in market interest rates. Presented in the
Company's 1999 Annual Report as of December 31, 1999, is an analysis of the
Company's interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts of 100 basis points in market interest rates.
Management believes that no events have occurred since December 31, 1999 which
would significantly change the Company's NPV at June 30, 2000 under each assumed
shifts of 100 basis points in market interest rates.
The Company's NPV is more sensitive to increasing rates than decreasing
rates. Such difference in sensitivity occurs principally because, as rates rise,
the effect is offset on a short-term basis by the rather fixed nature of our
consumer loans and investment securities. This occurs even though the
commercial, commercial real estate and real estate portfolios are comprised of
variable rate products. Also in a rising rate environment consumers tend not to
prepay fixed rate loans as quickly as they would
23
<PAGE> 24
UNITED BANCORP, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
have had rates not changed dramatically. Moreover, the interest the Company pays
on its deposits would increase because deposits generally have shorter periods
to reprice.
Certain shortcomings are inherent in the NPV method of analysis.
Certain assets such as adjustable-rate loans have features that restrict changes
in interest rates on a short-term basis and over the life of the asset. In
addition, the proportion of adjustable-rate loans in the Company's portfolio
could decrease in future periods if market interest rates remain at or decrease
below current levels due to refinancing activity. Further, in the event of a
change in interest rates, prepayment and early withdrawal levels would likely
deviate from those assumed in the analysis. Finally, the ability of many
borrowers to repay their adjustable-rate debt may decrease in the case of an
increase in interest rates.
24
<PAGE> 25
UNITED BANCORP, INC.
PART II - OTHER INFORMATION
FORM 10-Q
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote of security holders
meeting April 19, 2000.
Election of Directors for the class of 2003 to include the following:
James W. Everson Ayes 1,944,603, Withheld 6,893
Matthew C. Thomas Ayes 1,945,790, Withheld 5,705
Crowe Chizek and Company Independent Certified Public Accountants to
continue to serve the Company's external audit firm for the fiscal
year 2000. Roll Call Ayes 1,934,985, Nays 3,964, and Abstaining
12,547.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(b) The registrant filed no current reports on Form 8-K during the
quarter ended June 30, 2000.
25
<PAGE> 26
UNITED BANCORP, INC.
SIGNATURES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
August 4, 2000 By: /s/ James W. Everson
--------------------------- ------------------------------------
Date James W. Everson
Chairman, President & Chief
Executive Officer
August 4, 2000 By: /s/ Randall M. Greenwood
--------------------------- ------------------------------------
Date Randall M. Greenwood
Chief Financial Officer
26
<PAGE> 27
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- ------------
<S> <C>
27 Financial Data Schedule
</TABLE>
