<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 SEPTEMBER 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 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
incorporation or organization) Identification No.)
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 2,909,464 SHARES AS OF OCTOBER 26, 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 - 13
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................14 - 22
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk......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
<PAGE> 3
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 10,340 $ 11,097
Federal funds sold - 780
------------- --------------
Total cash and cash equivalents 10,340 11,877
Securities available for sale 91,722 85,362
Securities held to maturity
(Estimated fair value of $10,641 at 09/30/00 and
$9,566 at 12/31/99) 10,675 9,794
Loans receivable
Commercial loans 21,620 15,463
Commercial real estate loans 62,650 60,305
Real estate loans 54,783 51,357
Installment loans 57,529 53,391
------------- --------------
Total loans receivable 196,582 180,516
Allowance for loan losses (2,976) (3,110)
------------- --------------
Net loans receivable 193,606 177,406
Premises and equipment, net 9,552 9,009
Accrued interest receivable and other assets 6,102 5,316
-----------------------------
Total Assets $ 321,997 $ 298,764
=============================
LIABILITIES
Demand deposits
Noninterest-bearing $ 21,711 $ 19,858
Interest-bearing 43,765 37,781
Savings deposits 52,412 56,245
Time deposits - under $100,000 115,565 98,326
Time deposits - $100,000 and over 24,584 23,330
------------- --------------
Total deposits 258,037 235,540
Securities sold under agreements to repurchase 4,685 5,788
Other borrowed funds 31,499 30,599
Accrued expenses and other liabilities 1,353 1,539
------------- --------------
Total Liabilities 295,574 273,466
SHAREHOLDERS' EQUITY
Common stock - $1 Par Value: 10,000,000 shares authorized;
2,947,839 issued 2,948 2,943
Additional paid in capital 20,094 19,660
Treasury Stock - 15,417 shares at cost (153) -
Shares Held By Deferred Compensation Plan -
22,958 shares at cost (387)
Retained earnings 7,343 6,543
Accumulated other comprehensive income, net of tax (3,422) (3,848)
------------- --------------
Total Shareholders' Equity 26,423 25,298
------------- --------------
Total Liabilities and Shareholders' Equity $ 321,997 $ 298,764
============= ==============
</TABLE>
See accompanying notes to the consolidated financial statements
3
<PAGE> 4
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED COMPREHENSIVE STATEMENTS OF INCOME
(IN THOUSANDS-EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
Interest and dividend income
Loans, including fees $ 4,423 $ 3,849 $ 12,604 $ 11,144
Taxable securities 1,359 1,238 3,887 3,739
Non-taxable securities 277 324 812 980
Other interest and dividend income 66 65 215 188
------------ ------------ -------------- ------------
Total interest and dividend income 6,125 5,476 17,518 16,051
Interest expense
Deposits
Demand 299 214 793 656
Savings 282 383 836 1,146
Time 2,131 1,458 5,997 4,392
Other borrowings 558 437 1,348 1,035
------------ ------------ -------------- ------------
Total interest expense 3,270 2,492 8,974 7,229
NET INTEREST INCOME 2,855 2,984 8,544 8,822
Provision for loan losses 116 141 347 544
------------ ------------ -------------- ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 2,739 2,843 8,197 8,278
Non-interest income
Service charges on deposit accounts 236 181 625 540
Other income 95 89 365 415
------------ ------------ -------------- ------------
Total non-interest income 331 270 990 955
Non-interest expense
Salaries and employee benefits 1,060 1,032 3,209 3,045
Occupancy 329 334 1,044 974
Other expenses 739 707 2,296 2,184
------------ ------------ -------------- ------------
Total non-interest expense 2,128 2,073 6,549 6,203
INCOME BEFORE INCOME TAXES 942 1,040 2,638 3,030
Income tax expense 274 264 688 749
------------ ------------ -------------- ------------
NET INCOME $ 668 $ 776 $ 1,950 $ 2,281
============ ============ ============== ============
Earnings per common share - Basic $ 0.23 $ 0.26 $ 0.66 $ 0.77
Earnings per common share - Diluted $ 0.23 $ 0.26 $ 0.66 $ 0.77
Dividends per common share $ 0.13 $ 0.12 $ 0.39 $ 0.37
</TABLE>
See accompanying notes to the consolidated financial statements
4
<PAGE> 5
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION> ACCUMULATED
ADDITIONAL OTHER
COMMON PAID IN TREASURY RETAINED COMPREHENSIVE COMPREHENSIVE
STOCK CAPITAL STOCK EARNINGS INCOME INCOME TOTAL
-------- -------------- ---------- ---------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1999 $ 2,800 $ 17,802 $ - $ 6,840 $ (121) $ 27,321
Net income 2,281 $ 2,281 2,281
Proceeds and tax benefit from
exercise of stock options 3 21 24
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. 133 445 445 445
Net change in unrealized
gain/(loss) on securities
available for sale (3,256) (3,256) (3,256)
Comprehensive income (loss) $ (530)
===============
Cash dividends - $0.37 per share - (1,093) (1,093)
-------- -------------- ---------- ---------- ------------ ----------
BALANCE AT SEPTEMBER 30, 1999 $ 2,803 $ 17,823 $ - $ 8,028 $ (2,932) $ 25,722
======= ============== ========== ========== ============ ==========
BALANCE AT JANUARY 1, 2000 $ 2,943 $ 19,660 $ - $ 6,543 $ (3,848) $ 25,298
Net income 1,950 $ 1,950 1,950
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 426 426 426
---------------
Comprehensive income $ 2,376
===============
Recognition of shares held by deferred
compensation plan - 22,958 at cost 370 (370)
Shares purchased for deferred
compensation plan 17 (17)
Treasury Stock - 15,417 shares at cost (153) (153)
Cash dividends - $0.39 per share (1,150) (1,150)
-------- -------------- ---------- ---------- ------------ ----------
BALANCE AT SEPTEMBER 30, 2000 $ 2,948 $ 20,094 $ (540) 7,343 $ (3,422) $ 26,423
======== ============== ========== ========== ============ ==========
</TABLE>
See accompanying notes to the consolidated financial statements
5
<PAGE> 6
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
--------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,950 $ 2,281
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 650 570
Provision for loan losses 347 544
Deferred taxes (17) (172)
Federal Home Loan Bank stock dividend (137) (83)
Gain on sale/call of securities (17) -
(Accretion)/amortization of securities, net 6 122
Gain on sale of loans (7) (53)
Amortization of mortgage servicing rights 33 29
Gain/loss on sale of assets - 9
Net changes in accrued interest receivable and
other assets (767) (889)
Net changes in accrued expenses and other
liabilities (284) 207
-------------------- --------------------
Net cash from operating activities 1,757 2,565
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale
Proceeds from sales 17 -
Proceeds from maturities/calls 1,405 16,584
Purchases (6,999) (19,077)
Securities held to maturity
Proceeds from maturities/calls 179 -
Purchases (1,051) (3,961)
Net change in loans (16,719) (13,003)
Net purchases of premises and equipment (1,169) (1,705)
Proceeds from sale of assets - 269
-------------------- --------------------
Net cash from investing activities (24,337) (20,893)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 22,497 7,065
Cash and cash equvalents received from deposit assumption,
net of asset acquired - -
Net change in short-term borrowings 440 3,336
Proceeds from long-term debt - 3,693
Principal payments on long-term debt (643) (714)
Proceeds from exercise of stock options - 24
Proceeds from stock issuance 52 -
Purchases of Treasury Stock (153)
Cash dividends paid (1,150) (1,093)
-------------------- --------------------
Net cash from financing activities 21,043 12,311
-------------------- --------------------
Net change in cash and cash equivalents (1,537) (6,017)
Cash and cash equivalents at beginning of year 11,877 16,492
-------------------- --------------------
Cash and cash equivalents at end of period $ 10,340 $ 10,475
==================== ====================
Interest paid $ 8,831 $ 7,276
Income taxes paid 724 559
Non-cash transfer from loans to other real estate
and repossessions $ 172 $ 244
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 consolidated 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
September 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 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 879 (746) 660 (4,932)
Cumulative effect adjustment for the transfer
of securities from held to maturity to
available for sale from adoption of
SFAS No. 133 - 674
Reclassification adjustment for (gains) and
losses later recognized in income - - (17) -
---------------- -------------- --------------- --------------
879 (746) 643 (4,258)
Tax effect (299) 254 (217) 1,447
---------------- -------------- --------------- --------------
Other comprehensive income (loss) $ 580 $ (492) $ 426 $ (2,811)
================ ============== =============== ==============
</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 - SEPTEMBER 30, 2000
US Agency obligations $ 77,827 $ 6 $ (5,290) $ 72,543
State and Municipal obligations 13,809 175 (48) 13,936
Mortgage-backed securities 1,955 - (38) 1,917
Other securities 3,316 10 - 3,326
-------------- -------------- -------------- --------------
$ 96,907 $ 191 $ (5,376) $ 91,722
============== ============== ============== ==============
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 - SEPTEMBER 30, 2000
US Agency obligations $ 2,495 $ - $ (68) $ 2,427
State and Municipal obligations 8,180 128 (94) 8,214
-------------- -------------- -------------- --------------
$ 10,675 $ 128 $ (162) $ 10,641
============== ============== ============== ==============
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 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 September 30, 2000 were as
follows:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE (IN THOUSANDS) AMORTIZED ESTIMATED
COST FAIR VALUE
----------------- ----------------
<S> <C> <C>
US Agency obligations
Under 1 Year $ 1,000 $ 999
1 - 5 Years 2,600 2,544
5 - 10 Years 35,471 33,924
Over 10 Years 38,756 35,076
----------------- ----------------
Total 77,827 72,543
----------------- ----------------
State and municipal obligations
Under 1 Year 821 823
1 - 5 Years 10,210 10,363
5 - 10 Years 1,114 1,105
Over 10 Years 1,664 1,645
----------------- ----------------
Total 13,809 13,936
----------------- ----------------
Mortgage Backed securities
5 - 10 Years 203 196
Over 10 Years 1,752 1,721
----------------- ----------------
Total 1,955 1,917
----------------- ----------------
Other investments
Equity securities 3,316 3,326
----------------- ----------------
Total securities available for sale $ 96,907 $ 91,722
================= ================
HELD TO MATURITY (IN THOUSANDS)
US Agency obligations
1 - 5 Years $ 1,000 $ 990
5 - 10 Years 496 488
Over 10 Years 999 949
----------------- ----------------
Total 2,495 2,427
----------------- ----------------
State and municipal obligations
1 - 5 Years 1,982 2,005
5 - 10 Years 3,517 3,541
Over 10 Years 2,681 2,668
----------------- ----------------
Total 8,180 8,214
----------------- ----------------
Total securities held to maturity $ 10,675 $ 10,641
================= ================
</TABLE>
Securities with a carrying value of approximately $48,694,000 at September 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(IN THOUSANDS) 2000 1999 2000 1999
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Beginning Balance $ 3,088 $ 2,935 $ 3,110 $ 3,033
Provision charged to operating expense 116 141 347 544
Loans charged-off (299) (164) (674) (764)
Recoveries 71 109 193 208
--------------- --------------- ---------------- ---------------
Ending Balance $ 2,976 $ 3,021 $ 2,976 $ 3,021
=============== =============== ================ ===============
</TABLE>
Non-performing loans were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(IN THOUSANDS) 2000 1999
--------------- ---------------
<S> <C> <C>
Loans past due over 90 days still on accrual $ 194 $ 36
Nonaccrual Loans 958 987
</TABLE>
Loans considered impaired under the provisions of SFAS No. 114 were not
material at September 30, 2000 and December 31, 1999. Nonperforming loans
include all impaired loans and smaller balance homogeneous loans, such as
residential mortgage and consumer loans that are collectively excluded for
impairment.
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.
11
<PAGE> 12
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES (CONTINUED)
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being used, total commitments do not necessarily represent future
cash requirements. Standby letters of credit and financial guarantees written
are conditional commitments to guarantee a customer's performance to a third
party.
A summary of the notional or contractual amounts of financial instruments
with off-balance sheet risk at September 30, 2000 and December 31, 1999 follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(IN THOUSANDS) 2000 1999
--------------- ---------------
<S> <C> <C>
Commitments to extend credit $ 19,051 $ 17,131
Credit card and ready reserve lines 1,231 1,178
Standby letters of credit 373 446
</TABLE>
At September 30, 2000, and included above, commitments to make fixed-rate
loans totaled $4,655,267 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 September 30, 2000 and December 31, 1999, reserves of $1,191,000 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 NINE MONTHS ENDED
(IN THOUSANDS-EXCEPT FOR PER SHARE INFORMATION) SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
BASIC
Net income $ 668 $ 776 $ 1,950 $ 2,281
=========== =========== ============ =========
Weighted average common shares outstanding 2,942,002 2,943,068 2,942,646 2,942,160
=========== =========== ============ =========
Basic earnings per common share $ 0.23 $ 0.26 $ 0.66 $ 0.77
=========== =========== ============ =========
DILUTED
Net income $ 668 $ $ 776 $ 1,950 2,281
=========== =========== ============ =========
Weighted average common shares outstanding for
basic earnings per common share 2,942,002 2,943,068 2,942,646 2,942,160
Add: Dilutive effects of assumed exercised of stock
options - 19,841 2,679 23,779
----------- ----------- ------------ ---------
Average shares and dilutive potential common shares 2,942,002 2,962,909 2,945,325 2,965,939
=========== =========== ============ =========
Average shares and dilutive potential common shares $ 0.23 $ 0.26 $ 0.66 $ 0.77
=========== =========== ============ =========
Number of stock options not considered in computing
diluted earnings per share due to antidilutive nature 74,560 18,192 19,756 7,167
</TABLE>
12
<PAGE> 13
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. EARNINGS PER SHARE (CONTINUED)
During the quarter ending September 30, 2000, there were 13,340 options
forfeited due to the death of an executive officer.
13
<PAGE> 14
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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
September 30, 2000, as compared to December 31, 1999 and the results of
operations for the three and nine months ended September 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 were made or to
reflect the occurrence of anticipated or unanticipated events.
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.
14
<PAGE> 15
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
* 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.
ANALYSIS OF FINANCIAL CONDITION
EARNING ASSETS - LOANS
At September 30, 2000, gross loans were $196,582,000 compared to
$180,516,000 at year-end 1999, an increase of 8.9%. The increase in total
outstanding loans was the result of growth in all loan categories with
particular growth in the commercial and installment portfolios. COMMUNITY'S
outstanding loans increased 25.7% or approximately $9.5 million from December
31, 1999. Management anticipates the expansion plans of COMMUNITY into the
Lancaster, OH market. CITIZENS' also experienced sound growth as gross loans
increased $6.5 million, or 4.5%.
Installment loans, with continued emphasis placed on the indirect
automobile lending market, stayed relatively constant at 29.3% of total loans at
September 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 $6,061,000 from December 31, 1999.
CITIZENS actually experienced a 5.2% or $1,923,000 decline in installment loans.
Even with the decline at CITIZENS, the installment loan portfolio for the
Company increased 7.8% since December 31, 1999.
Commercial and commercial real estate loans comprised 42.9% of total loans
at September 30, 2000 compared to 42.0% at December 31, 1999. Commercial and
commercial real estate loans have increased $8,502,000 or 11.2% since December
31, 1999. CITIZENS
15
<PAGE> 16
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
contributed $7,168,000 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 September 30, 2000 were 7.3% of total
loans and 17.0% of total commercial and commercial real estate loans compared to
8.5% and 20.3% at year-end 1999.
Real estate loans were 27.9% of total loans at September 30, 2000 compared
to 28.4% at year-end 1999. Real estate loans increased 6.7% 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 trended 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 mortgages 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 grading model that considers borrowers past due experience, current
financial condition, collateral value 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 absorb probable incurred credit losses
associated with the loan portfolio. Net charge-offs for the nine months ended
September 30, 2000 were approximately $483,000, or 15.5%, of the beginning
balance in the allowance for loan losses compared to $556,000, or 18.3%, of the
beginning balance for loan losses for the nine months ended September 30, 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 September 30,
2000 increased approximately $6,360,000, or 7.5% from year-end 1999 totals.
Securities held to maturity at September 30, 2000 increased approximately
$881,000 or 9.0% 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 September 30, 2000, the Company
had no federal funds sold compared to $780,000 at year-end 1999.
16
<PAGE> 17
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 September 30, 2000, total
core deposits increased approximately $15.8 million primarily from an increase
of demand deposits and time deposits under $100,000 of $7.8 million and $7.95
million, respectively. This was partly offset by a decrease in savings deposits
of $3.8 million. During the first nine months of 2000, COMMUNITY has experienced
an increase of time deposits under $100,000 of $7.3 million. This increase is
primarily the result of management's expansion plans in Lancaster, Ohio and
paying higher interest rates to attract customers.
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 September 30, 2000, certificates of deposit greater than
$100,000 increased approximately $6.7 million, or 34.0% from year-end 1999
totals. Again, approximately $9.3 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 nine
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 increased approximately $0.8 million, or 2.9%
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 NINE MONTHS ENDED SEPTEMBER 30, 2000
NET INCOME
Basic earnings per share for the nine months ended September 30, 2000 was
$0.66, compared with $0.77 for the nine months ended September 30, 1999. Net
income decreased $331,000 for nine months ended September 30, 2000, compared to
the same period in 1999. On
17
<PAGE> 18
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
an annualized basis, Return on Average Assets (ROA) was 0.84% and Return on
Average Equity (ROE) was 10.13% compared to ROA of 1.06% and ROE of 11.47% for
the nine months ended September 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 3.2% for the nine months ended September 30, 2000
compared to the same period in 1999.
Total interest income for the nine months ended September 30, 2000 was
$17,518,000 compared to $16,051,000 for the same period in 1999. Total interest
income increased $1,467,000, or 9.1%. The increase can be attributed to the
overall growth in the Company's interest-bearing assets, and an increase in the
interest rate environment.
Total interest expense for the nine months ended September 30, 2000 when
compared to the same nine months period ended September 30, 1999, increased
24.14% or $1,745,000. 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.
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 $347,000 for the nine months ended
September 30, 2000 compared to $544,000 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 nine months ended September 30, 2000 was $990,000 compared to
$955,000 for the same nine-month period ended September 30, 1999. For the nine
months ended September 30, 2000 compared to the same period in 1999, noninterest
income increased approximately 3.7%. The expanded customer base as a result of
the COMMUNITY expansion and management's focus on updating our fee structures
contributed to the increase.
18
<PAGE> 19
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NONINTEREST EXPENSE
Noninterest expense for the nine months ended September 30, 2000 increased
5.6% over the nine months ended September 30, 1999. Expansion costs were
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. Also, 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 SEPTEMBER 30, 2000
NET INCOME
Basic earnings per share for the three months ended September 30, 2000 was
$0.23, compared with $0.26 for the three months ended September 30, 1999. Net
income decreased $108,000 for three months ended September 30, 2000, compared to
the same period in 1999. On an annualized basis, Return on Average Assets (ROA)
was 0.86% and Return on Average Equity (ROE) was 10.41% compared to ROA of 1.08%
and ROE of 11.70% for the three months ended September 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 4.3% for the three months ended September 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 at such a rapid pace.
Total interest income for the three months ended September 30, 2000 was
$6,125,000 compared to $5,476,000 for the same period in 1999. Total interest
income increased $649,000, or 11.85%. 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 September 30, 2000 when
compared to the same three months period ended September 30, 1999, increased
31.2%, or $778,000. 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.
19
<PAGE> 20
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The total provision for loan losses was $115,000 for the three months ended
September 30, 2000 compared to $141,000 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 September 30, 2000 was $331,000 compared to
$270,000 for the same three months period ended September 30, 1999, an increase
of approximately 22.6%. 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.
NONINTEREST EXPENSE
Noninterest expense for the three months ended September 30, 2000 increased
$55,000 or 2.7% over the three months ended September 30, 1999. Salary expense
increased approximately $28,000 or 2.7% for the three months ended September 30,
2000.
CAPITAL RESOURCES
Internal capital growth, through the retention of earnings, is the primary
means of maintaining capital adequacy for the Company. Shareholders' equity at
September 30, 2000 was $26,423,000 compared to $25,298,000 at December 31, 1999,
a 4.4% increase. Total shareholders' equity in relation to total assets was
8.21% at September 30, 2000 and 8.5% at December 31, 1999.
During the quarter ended September 30, 2000, the Company initiated a Stock
Buyback Program. The Stock Buy Back Program authorizes Management to repurchase
up to 10% of the Company's common stock in the open market. Total shares
purchased under the plan as of September 30, 2000 totaled 15,417 with a capital
expenditure of approximately $153,000.
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.
20
<PAGE> 21
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company and Banks are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and
prompt corrective action regulations involve quantitative measures of
assets, liabilities and certain off-balance sheet items calculated under
regulatory accounting practices. Capital amounts and classifications are
also subject to qualitative judgments by regulators about components, risk
weightings and other factors and the regulators can lower classifications in
certain cases. Failure to meet various capital requirements can initiate
regulatory action that could have a direct material effect on the Banks'
operations.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized, although
these terms are not used to represent overall financial condition. If
adequately capitalized, regulatory approval is required to accept brokered
deposits. If undercapitalized, capital distributions are limited, as is
asset growth and expansion and plans for capital restoration are required.
The minimum requirements are:
<TABLE>
<CAPTION>
TOTAL TIER 1 TIER 1
CAPITAL TO CAPITAL TO CAPITAL TO
RISK-WEIGHTED RISK-WEIGHTED AVERAGE
ASSETS ASSETS ASSETS
------------- ------------- ----------
<S> <C> <C> <C>
Well capitalized 10.00% 6.00% 5.00%
Adequately capitalized 8.00% 4.00% 4.00%
Undercapitalized 6.00% 3.00% 3.00%
</TABLE>
The following table illustrates the Company's risk-weighted capital
ratios at September 30, 2000:
CAPITAL RESOURCES
<TABLE>
<CAPTION>
SEPTEMBER 30,
(IN THOUSANDS) 2000
------------
<S> <C>
Tier 1 capital $ 29,704
Total risk-based capital $ 32,371
Risk-weighted assets $ 213,088
Average total assets $ 312,497
Tier 1 capital to average assets 9.51%
Tier 1 risk-based capital ratio 13.94%
Total risk-based capital ratio 15.19%
</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
21
<PAGE> 22
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 nine months ended September 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 $1,537,000 was primarily the result of principal payments on
long term debt of $643,000 and an increase in loans of $16,719,000, offset
by cash provided in financing activities of $22,497,000 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.
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 90% of the portfolio compared to
the 10% 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 September 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedules
(b) The registrant filed no current reports on Form 8-K during the
quarter ended September 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.
November 7, 2000 By: /s/ James W. Everson
---------------------------------- --------------------------------
Date James W. Everson
Chairman, President & Chief Executive
Officer
November 7, 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>
