<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM N/A TO N/A
----------- -----------
COMMISSION FILE NUMBER 0-16540
-------
UNITED BANCORP, INC.
-----------------------------------------------------------
(Exact name of registrant as specified in its Charter.)
<TABLE>
<CAPTION>
<S><C>
OHIO 34-1405357
- -------------------------------------------------------------- ---------------------------------
(State or other jurisdiction of incorporation or organization) (IRS) Employer Identification No.)
201 SOUTH FOURTH STREET, MARTINS FERRY, OHIO 43935
-------------------------------------------- ---------
(Address of principal executive offices) (ZIP Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (740) 633-0445
-------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
<S> <C>
COMMON STOCK, PAR VALUE $1.00 A SHARE NASDAQ REGULAR MARKET (SMALLCAP)
- ------------------------------------- ------------------------------------------
(Title of class) (Name of each exchange on which registered)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $1.00 A SHARE
-------------------------------------
(Title of class)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED TO THE BEST
OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. {X }
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF MARCH 17, 2000.
COMMON STOCK, $1.00 PAR VALUE: $36,254,750
------------------------------------------
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S CLASSES OF COMMON STOCK AS
OF MARCH 17, 2000.
COMMON STOCK, $1.00 PAR VALUE: 2,942,885 SHARES
-----------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE ANNUAL SHAREHOLDERS REPORT FOR THE YEAR ENDED DECEMBER 31, 1999
ARE INCORPORATED BY REFERENCE INTO PARTS I AND II, (INDEX ON PAGE 2)
PORTIONS OF THE PROXY STATEMENT FOR THE ANNUAL SHAREHOLDERS MEETING TO BE HELD
APRIL 19, 2000 ARE INCORPORATED BY REFERENCE INTO PART III (INDEX ON PAGE 2).
<PAGE> 2
UNITED BANCORP, INC. FORM 10-K
INDEX OF ITEMS INCORPORATED BY REFERENCE WITHIN FORM 10-K
<TABLE>
<CAPTION>
FORM 10-K
PAGE # ITEM DESCRIPTION REFERENCE DESCRIPTION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3 Part I, Item 1, (a) Incorporated by reference to Pages 9 - 11 of the Annual Report To Shareholders.
3 Part I, Item 1, (b) Incorporated by reference to Page 36, Note 1 of the Annual Report To Shareholders.
4 Part I, Item 1, I Incorporated by reference to Pages 27 - 28 of the Annual Report To Shareholders.
5 Part I, Item 1, II, B Incorporated by reference to Page 40, Note 2 of the Annual Report To Shareholders.
7 Part I, Item 1, III, C, 4 Incorporated by reference to Page 47, Note 11 of the Annual Report To Shareholders.
7 Part I, Item 1, IV Incorporated by reference to Page 19 and Pages 36 - 37, Note 1 the Annual Report To
Shareholders.
10 Part I, Item 1, V, A Incorporated by reference to Page 27 of the Annual Report To Shareholders.
11 Part I, Item 2 Incorporated by reference to Pages 9 - 11 of the Annual Report To Shareholders.
11 Part I, Item 3 Incorporated by reference to Page 47, Note 10 of the Annual Report To
Shareholders.
11 Part II, Item 5 Incorporated by reference to Page 16 of the Annual Report To Shareholders.
11 Part II, Item 6 Incorporated by reference to Inside Back Cover of the Annual Report To
Shareholders.
12 Part II, Item 7 Incorporated by reference to Pages 17 - 30, of the Annual Report To Shareholders.
12 Part II, Item 7A Incorporated by reference to Pages 23 - 25 of the Annual Report To Shareholders.
12 Part II, Item 8 Incorporated by reference to Pages 26 and 31 - 52 of the Annual Report To
Shareholders.
13 Part III, Item 10 Incorporated by reference to Pages 4 - 8 of the Proxy Statement.
13 Part III, Item 11 Incorporated by reference to Pages 10 - 15 of the Proxy Statement.
13 Part III, Item 12 Incorporated by reference to Pages 4 - 8 of the Proxy Statement.
13 Part III, Item 13 Incorporated by reference to Page 15 of the Proxy Statement.
14 Part IV, Item 14, (a), 1 Incorporated by reference to Pages 31 - 52 of the Annual Report To Shareholders.
14 Part IV, Item 14, (a), 2 Incorporated by reference to Page 26 of the Annual Report To Shareholders.
14 Part IV, Item 14, (a), 3, Exhibit 10 Incorporated by reference to Page 14 of the Proxy Statement.
14 Part IV, Item 14, (a), 3, Exhibit 11 Incorporated by reference to Page 38 and Page 52 of the Annual Report To
Shareholders.
</TABLE>
2
<PAGE> 3
UNITED BANCORP, INC. FORM 10-K
PART I
ITEM 1 DESCRIPTION OF BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
United Bancorp, Inc. (Company) is a multi-bank holding
company headquartered in Martins Ferry, Ohio. The Company has
two wholly-owned subsidiary banks, The Citizens Savings Bank,
Martins Ferry, Ohio (CITIZENS) and The Community Bank,
Lancaster, Ohio (COMMUNITY), collectively "Banks". For
additional information about the Company's location and
description of business, refer to Pages 9 - 11, Corporate
Profile, in the Annual Report To Shareholders for the year
ended December 31, 1999.
(b) FINANCIAL INFORMATION ABOUT BUSINESS SEGMENTS
Refer to Page 36, Note 1 of the Annual Report To
Shareholders.
(c) NARRATIVE DESCRIPTION OF BUSINESS
The Company is a multi-bank holding company as defined under
the Bank Holding Company Act of 1956, as amended (the "BHC
Act"). The BHC Act regulates acquisitions by the Company of
voting shares or assets of any bank or other company. The
Company is subject to the reporting requirements of, and
examination and regulation by, the Board of Governors of the
Federal Reserve System, as well as reporting requirements
under the Securities and Exchange Commission Act of 1934.
The Company's Banks are located in northeastern, eastern, and
southeastern Ohio and are engaged in the business of
commercial and retail banking in Belmont, Harrison,
Jefferson, Tuscarawas, Carroll, Athens, Hocking, and
Fairfield counties and the surrounding localities. The Banks
provide a broad range of banking and financial services,
which include accepting demand, savings and time deposits and
granting commercial, real estate and consumer loans. CITIZENS
conducts its business through its main office in Martins
Ferry, Ohio and nine branches located in Bridgeport,
Colerain, Dellroy, Dover, Jewett, New Philadelphia, St.
Clairsville, Sherrodsville, and Strasburg, Ohio. In 1999,
CITIZENS opened a full service brokerage division known as
Brokerage United with securities provided through Raymond
James Financial Services, Inc. member NASD/SIPC. COMMUNITY
conducts its business through its seven offices in Amesville,
Glouster, Lancaster, and Nelsonsville, Ohio.
The markets in which the Banks' operate continue to be highly
competitive. CITIZENS competes for loans and deposits with
other retail commercial banks, savings and loan associations,
finance companies, credit unions and other types of financial
institutions within the Mid-Ohio valley geographic area along
the eastern border of Ohio, extending into the northern
panhandle of West Virginia and the Tuscarawas and Carroll
County geographic areas of northeastern Ohio. COMMUNITY also
encounters similar competition for loans and deposits
throughout the Athens, Hocking, and Fairfield County
geographic areas of central and southeastern Ohio.
On November 12, 1999, President Clinton signed the
Graham-Leach-Bliley Act of 1999 ("GLB Act"), which is
intended to modernize the financial services industry. The
GLB Act sweeps away large parts of a regulatory framework
that had its origins in the Depression Era of the 1930s.
Effective March 11, 2000, new opportunities will be available
for banks, other depository institutions, insurance companies
and securities firms to enter into combinations that permit a
single financial service organization to offer customers a
more complete array of financial products and services. The
GLB Act provides a new regulatory framework for regulation
through the financial holding company, which will have as its
umbrella regulator the Federal Reserve Board. The functional
regulation of the financial holding company's separately
regulated subsidiaries will be conducted by their primary
functional regulator. The GLB Act makes satisfactory or above
Community Reinvestment Act compliance for insured depository
institutions and their financial holding companies necessary
in order for them to engage in new financial activities. The
GLB Act provides a federal right to privacy of non-public
personal information of individual customers. The Company and
Banks are also subject to certain state laws that deal with
the use and distribution of non-public personal information
3
<PAGE> 4
UNITED BANCORP, INC. FORM 10-K
ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED)
(c) NARRATIVE DESCRIPTION OF BUSINESS (CONTINUED)
The Company's two subsidiary banks are subject to regulation
by the Ohio Division of Financial Institutions and the
Federal Deposit Insurance Corporation ("FDIC"). The
regulations and restrictions affecting the Banks pertain to,
among other things, allowable loans, guidelines for allowance
for loan losses, accountability for fair and accurate
disclosures to customers and regulatory agencies, permissible
investments and limitations of risk and regulation of capital
requirements for safe and sound operation of the financial
institution.
The Banks have no single customer or related group of
customers whose banking activities, whether through deposits
or lending, would have a material impact on the continued
earnings capabilities if those activities were removed.
The Company itself, as a shell holding company, has no
compensated employees. CITIZENS has 81 full time employees,
with 25 of these serving in a management capacity and 35 part
time employees. COMMUNITY has 38 full time employees, with 13
serving in a management capacity and 10 part time employees.
The Company considers employee relations to be good at all
subsidiary locations.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
Not applicable.
I DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
A Refer to Page 27 of the Annual Report To Shareholders
B Refer to Page 27 of the Annual Report To Shareholders
C Refer to Page 28 of the Annual Report To Shareholders
4
<PAGE> 5
UNITED BANCORP, INC. FORM 10-K
ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED)
II INVESTMENT PORTFOLIO
A The following table sets forth the carrying amount of
securities at December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
(In thousands) 1999 1998 1997
------------- ---------------- -------------------
<S> <C> <C> <C>
AVAILABLE FOR SALE
US Treasury obligations $ - $ 1,509 $ 3,308
US Agency obligations 65,952 67,506 37,199
Mortgage-backed obligations 2,017 3,028 3,785
State and municipal obligations 14,187 2,197 577
Other securities 3,206 1,597 1,134
------------- ---------------- -------------------
$ 85,362 $ 75,837 $ 46,003
============= ================ ===================
(In thousands)
HELD TO MATURITY
US Agency obligations $ 2,494 $ - $ 7,500
State and municipal obligations 7,300 21,848 21,560
------------- ---------------- -------------------
$ 9,794 $ 21,848 $ 29,060
============= ================ ===================
</TABLE>
B Refer to Page 40, Note 2 of the Annual Report To
Shareholders.
C Excluding holdings of U.S. Agency, there were no
investments in securities of any one issuer exceeding
10% of the Company's consolidated shareholders' equity
at December 31, 1999.
III LOAN PORTFOLIO
A TYPES OF LOANS
The amounts of gross loans outstanding at December 31,
1999, 1998, 1997, 1996 and 1995 are shown in the
following table according to types of loans:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ---------------- ------------------- ------------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial loans $ 15,463 $ 12,912 $ 16,636 $ 15,065 $ 13,606
Commercial real estate loans 60,305 54,195 49,189 41,565 35,926
Real estate loans 51,357 49,438 49,857 52,955 51,042
Installment loans 53,391 47,676 55,795 56,931 56,795
------------- ---------------- ------------------- ------------- -------------
Total loans $180,516 $ 164,221 $ 171,477 $ 166,516 $ 157,369
============= ================ =================== ============= =============
</TABLE>
Construction loans were not significant for the periods discussed.
5
<PAGE> 6
UNITED BANCORP, INC. FORM 10-K
ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED)
III LOAN PORTFOLIO (CONTINUED)
B MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN
INTEREST RATES
The following is a schedule of commercial and commercial
real estate loans at December 31, 1999 maturing within the
various time frames indicated:
<TABLE>
<CAPTION>
ONE YEAR ONE THROUGH AFTER
(In thousands) OR LESS FIVE YEARS FIVE YEARS TOTAL
------------ ---------------- ------------------- -------------
<S> <C> <C> <C> <C>
Commercial loans $ 13,204 $ 1,536 $ 723 $ 15,463
Commercial real estate loans 24,762 21,190 14,353 60,305
------------ ---------------- ------------------- -------------
Total $ 37,966 $ 22,726 $ 15,076 $ 75,768
============ ================ =================== =============
</TABLE>
The following is a schedule of fixed rate and variable
rate commercial and commercial real estate loans at
December 31, 1999 due to mature after one year:
<TABLE>
<CAPTION>
(In thousands) FIXED RATE VARIABLE RATE TOTAL > ONE YEAR
------------ ---------------- -------------------
<S> <C> <C> <C>
Commercial loans $ 2,259 $ - $ 2,259
Commercial real estate loans 14,053 21,490 35,543
------------ ---------------- -------------------
Total $ 16,312 $ 21,490 $ 37,802
============ ================ ===================
</TABLE>
Variable rate loans are those loans with floating or
adjustable interest rates.
C RISK ELEMENTS
1. NONACCRUAL, PAST DUE, RESTRUCTURED AND IMPAIRED LOANS
The following schedule summarizes nonaccrual loans,
accruing loans which are contractually 90 days or more
past due, troubled debt restructurings and impaired loans
at December 31, 1999, 1998, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
(In thousands) 1999 1998 1997 1996 1995
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Nonaccrual basis $ 987 $ 399 $ 480 $ 667 $ 622
Accruing loans 90 days or greater past due 36 150 319 256 544
Troubled debt restructuring N/A N/A N/A N/A N/A
Impaired loans (1) (1) (1) (1) (1)
</TABLE>
(1) Loans considered impaired under the provisions of SFAS No. 114 and
interest recognized on a cash received basis were not considered material
during any of the periods presented.
The additional amount of interest income that would have been recorded on
nonaccrual loans, had they been current, totaled $47,000 for the year-ended
December 31, 1999.
6
<PAGE> 7
UNITED BANCORP, INC. FORM 10-K
ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED)
III LOAN PORTFOLIO (CONTINUED)
1. NONACCRUAL, PAST DUE, RESTRUCTURED AND IMPAIRED LOANS
(CONTINUED)
Interest income is not reported when full loan repayment
is doubtful, typically when the loan is impaired or
payments are past due over 90 days. Payments received on
such loans are reported as principal reductions.
A loan is impaired when full payment under the loan terms
is not expected. Impairment is evaluated in total for
smaller-balance loans of similar nature such as
residential mortgage, consumer, and credit card loans, and
on an individual loan basis for other loans. If a loan is
impaired, a portion of the allowance is allocated so that
the loan is reported, net, at the present value of
estimated future cash flows using the loan's existing rate
or at the fair value of collateral if repayment is
expected solely from the collateral.
2. POTENTIAL PROBLEM LOANS
The Company had no potential problem loans as of December
31, 1999 which have not been disclosed in Table C 1., but
where known information about possible credit problems of
borrowers causes management to have serious doubts as to
the ability of such borrowers to comply with the present
loan repayment terms and which may result in disclosure of
such loans into one of the problem loan categories.
3. FOREIGN OUTSTANDING
Not applicable.
4. LOAN CONCENTRATIONS
Refer to Page 47, Note 11 of the Annual Report To
Shareholders.
D. OTHER INTEREST-BEARING ASSETS
Not applicable.
IV SUMMARY OF LOAN LOSS EXPERIENCE
For additional explanation of factors which influence
management's judgment in determining amounts charged to
expense, refer to Page 19, "Management Discussion and
Analysis" and Pages 36 - 37, Note 1 of the Annual Report
To Shareholders.
7
<PAGE> 8
UNITED BANCORP, INC. FORM 10-K
ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED)
IV SUMMARY OF LOAN LOSS EXPERIENCE (CONTINUED)
A ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
The following schedule presents an analysis of the allowance
for loan losses, average loan data and related ratios for the
years ended December 31, 1999, 1998, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997 1996 1995
------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
LOANS
Loans outstanding $ 180,516 $ 164,221 $ 171,477 $ 166,516 $157,369
Average loans outstanding $ 168,868 $ 168,626 $ 169,066 $ 160,409 $150,429
(In thousands)
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of year $ 3,033 $ 3,039 $ 2,756 $ 2,593 $ 1,693
Loan charge-offs:
Commercial 85 139 125 467 69
Commercial real estate 30 - - - -
Real estate 21 51 20 40 9
Installment 807 861 661 583 308
------------- ------------- -------------- -------------- -------------
Total loan charge-offs 943 1,051 806 1,090 386
------------- ------------- -------------- -------------- -------------
Loan recoveries
Commercial 50 87 32 13 6
Commercial real estate 12 - - -
Real estate 3 9 3 5 1
Installment 228 151 122 70 75
------------- ------------- -------------- -------------- -------------
Total loan recoveries 293 247 157 88 82
------------- ------------- -------------- -------------- -------------
Net loan charge-offs 650 804 649 1,002 304
Provision for loan losses 727 798 932 1,165 1,204
------------- ------------- -------------- -------------- -------------
Balance at end of year $ 3,110 $ 3,033 $ 3,039 $ 2,756 $ 2,593
============= ============= ============== ============== =============
Ratio of net charge-offs to average
loans outstanding for the year 0.38% 0.48% 0.38% 0.62% 0.20%
============= ============= ============== ============== =============
</TABLE>
8
<PAGE> 9
UNITED BANCORP, INC. FORM 10-K
ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED)
IV SUMMARY OF LOAN LOSS EXPERIENCE (CONTINUED)
B ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The following table allocates the allowance for possible
loan losses at December 31, 1999, 1998, 1997, 1996 and
1995. The allowance has been allocated according to the
amount deemed to be reasonably necessary to provide for
the probability of losses being incurred within the
following categories of loans at the dates indicated:
<TABLE>
<CAPTION>
<S><C>
1999 1998
--------------------------- --------------------------
% OF LOANS % OF LOANS
(In thousands) ALLOWANCE TO TOTAL (In thousands) ALLOWANCE TO TOTAL
Loan type AMOUNT LOANS Loan type AMOUNT LOANS
----------- -------------- ------------ -------------
Commercial $ 195 8.57% Commercial $ 215 7.87%
Commercial real estate 439 33.40% Commercial real estate 432 33.00%
Real estate 343 28.45% Real estate 567 30.10%
Installment 620 29.58% Installment 818 29.03%
Unallocated 1,413 N/A Unallocated 1,001 N/A
----------- -------------- ------------ -------------
Total $ 3,010 100.00% Total $ 3,033 100.00%
=========== ============== ============ =============
1997 1996
--------------------------- --------------------------
% OF LOANS % OF LOANS
(In thousands) ALLOWANCE TO TOTAL (In thousands) ALLOWANCE TO TOTAL
Loan type AMOUNT LOANS Loan type AMOUNT LOANS
----------- -------------- ------------ -------------
Commercial $ 403 9.70% Commercial $ 320 9.05%
Commercial real estate 322 28.69% Commercial real estate 292 24.96%
Real estate 606 29.07% Real estate 601 31.80%
Installment 1,200 32.54% Installment 841 34.19%
Unallocated 508 N/A Unallocated 702 N/A
----------- -------------- ------------ -------------
Total $ 3,039 100.00% Total $ 2,756 100.00%
=========== ============== ============ =============
1995
---------------------------
% OF LOANS
(In thousands) ALLOWANCE TO TOTAL
Loan type AMOUNT LOANS
----------- --------------
Commercial $ 551 8.65%
Commercial real estate 348 22.83%
Real estate 416 32.43%
Installment 694 36.09%
Unallocated 584 N/A
----------- --------------
Total $ 2,593 100.00%
=========== ==============
</TABLE>
9
<PAGE> 10
UNITED BANCORP, INC. FORM 10-K
ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED)
V DEPOSITS
A SCHEDULE OF AVERAGE DEPOSIT AMOUNTS AND RATES
<TABLE>
<CAPTION>
<S> <C>
(1) Refer to Page 27 of the Annual Report To Shareholders.
(2) Refer to Page 27 of the Annual Report To Shareholders.
(3) Refer to Page 27 of the Annual Report To Shareholders.
(4) Refer to Page 27 of the Annual Report To Shareholders.
(5) -(8) Not applicable.
</TABLE>
B OTHER CATEGORIES
Not applicable.
C FOREIGN DEPOSITS
Not applicable.
D MATURITY ANALYSIS OF TIME DEPOSITS GREATER THAN $100,000.
The following schedule details the maturities of time
certificates of deposit in amounts of $100,000 or more for
the year ended December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
(In thousands)
Three months or less $ 4,738
Over three through six months 2,791
Over six through twelve months 7,217
Over twelve months 8,584
------------------
Total $ 23,330
==================
</TABLE>
E TIME DEPOSITS GREATER THAN $100,000 ISSUED BY FOREIGN
OFFICES.
Not applicable.
VI RETURN ON EQUITY AND ASSETS
The ratio of net income to daily average total assets and
average shareholders' equity, and certain other ratios,
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------- -------------- --------------
Percentage of net income to:
<S> <C> <C> <C>
Average total assets 1.09% 1.17% 1.10%
Average shareholders' equity 11.94% 11.80% 11.48%
Percentage of dividends declared per common
share to net income per common share - basic 46.73% 41.77% 36.38%
Percentage of average shareholders' equity
to average total assets 9.14% 9.83% 9.55%
</TABLE>
10
<PAGE> 11
UNITED BANCORP, INC. FORM 10-K
ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED)
VII SHORT-TERM BORROWINGS
Information concerning securities sold under agreements to
repurchase is summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Balance at December 31, $ 5,788 $ 7,733 $ 8,391
Weighted average interest rate at December 31, 3.80% 4.44% 4.90%
Average daily balance during the year $ 7,306 $ 7,817 $ 8,211
Average interest rate during the year 4.30% 4.66% 4.81%
Maximum month-end balance during the year $ 8,506 $ 9,109 $ 9,316
</TABLE>
Securities sold under agreements to repurchase are financing
arrangements whereby the Company sells securities and agrees
to repurchase the identical securities at the maturities of
the agreements at specified prices
Information concerning the cash management line of credit from
the Federal Home Loan Bank of Cincinnati, Ohio is summarized
as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Balance at December 31, $ 19,145 $ 9,175 $ -
Weighted average interest rate at December 31, 4.75% 5.02% -
Average daily balance during the year $ 9,363 $ 2,085 $ 608
Average interest rate during the year 5.55% 5.95% 6.06%
Maximum month-end balance during the year $ 22,028 $ 9,175 $ 1,845
</TABLE>
No other individual component of the borrowed funds total
comprised more than 30% of shareholders' equity and
accordingly are not disclosed in detail.
ITEM 2 PROPERTIES
Refer to Pages 9 - 11, "Corporate Profile" in the Annual Report To
Shareholders. Management considers the properties described on Pages 9
- 11 of the Annual Report are in good operating condition for the
purpose for which it is used. The properties are unencumbered by any
mortgage or security interest and is, in management's opinion,
adequately insured.
ITEM 3 LEGAL PROCEEDINGS
Refer to Page 47, Note 10 of the Annual Report To Shareholders.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No motions were submitted to shareholders for a vote during the fourth
quarter of 1999.
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Refer to Page 16, "Shareholder Information" of the Annual Report To
Shareholders.
ITEM 6 SELECTED FINANCIAL DATA
Refer to inside back cover, "Five Year Performance Summary" of the
Annual Report To Shareholders.
11
<PAGE> 12
UNITED BANCORP, INC. FORM 10-K
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Refer to Pages 17 - 30, "Management's Discussion and Analysis" of the
Annual Report To Shareholders.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to Pages 23 - 25, "Asset/Liability Management and Sensitivity to
Market Risks" of the Annual Report To Shareholders.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to Pages 26 and 31 - 52 of the Annual Report To Shareholders.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There were no changes in or disagreements with accountants.
12
<PAGE> 13
UNITED BANCORP, INC. FORM 10-K
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Refer to Pages 4 - 8 of the Proxy Statement.
(b) Executive Officers of the Registrant:
<TABLE>
<CAPTION>
<S> <C> <C>
James W. Everson 61 Chairman, President and Chief Executive Officer
Alan M. Hooker 49 Executive Vice President - Administration
Norman F. Assenza, Jr. 54 Vice President - Operations and Secretary
Randall M. Greenwood 36 Vice President - Chief Financial Officer, Treasurer
James A. Lodes 54 Vice President - Lending
</TABLE>
(1) Each individual has held the position noted during the past
five years, except for the following:
Randall M. Greenwood served as a Business Assurance Manager of
Coopers and Lybrand LLP of Columbus, Ohio from 1993 to
November of 1997. He served as a Manager for BankOne
Corporation in Columbus, Ohio from February 1991 to August
1993 and as a Supervisor at Coopers and Lybrand LLP in
Columbus, Ohio from September 1986 through February 1991. He
has served as Vice President - Chief Financial Officer of
United Bancorp, Inc. and as Senior Vice President - Chief
Financial Officer of The Citizens Savings Bank, Martins Ferry,
Ohio since December 1997.
Alan M. Hooker served as President of Fairfield National
Division of the Park National Bank where he also served on
their Advisory Board. He has held senior level banking
positions with financial institutions in Washington, D.C., and
Baltimore, Maryland. He has served as President and Chief
Executive Officer of The Community Bank, Glouster, Ohio and as
Executive Vice President Administration of United Bancorp,
Inc. since October 26, 1998.
ITEM 11 EXECUTIVE COMPENSATION
Refer to Pages 10 - 15 of the Proxy Statement.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Refer to Pages 4 - 8 of the Proxy Statement.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to Page 15 of the Proxy Statement.
13
<PAGE> 14
UNITED BANCORP, INC. FORM 10-K
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM
8-K
(a) DOCUMENTS FILED AS PART OF FORM 10-K
1. The following consolidated financial statements
appear in the 1999 Annual Report To Shareholders and
are incorporated by reference:
<TABLE>
<CAPTION>
<S> <C> <C>
Report of Independent Auditors Page 31
Consolidated Balance Sheets Page 32
Consolidated Statements of Income Page 33
Consolidated Statements of Shareholders' Equity Page 34
Consolidated Statements of Cash Flow Page 35
Notes to the Consolidated Financial Statements Pages 36 - 52
</TABLE>
2. The summary of selected quarterly results of
operations appears on Page 26 in the 1999 Annual
Report To Shareholders and is incorporated by
reference.
3. Exhibits
2 Not Applicable
3(i)(ii) Articles of Incorporation of United
Bancorp, Inc. including amendments and By
Laws, previously filed with the Securities
and Exchange Commission on November 16,
1983.
4 Not applicable.
9 Not applicable.
10 Reference to special severance agreement on
Page 14 of the Proxy Statement
11 Statement regarding computation of per share
earnings (included in Note 1 to the
consolidated financial statements on page 38
and Note 16 on Page 52 of the Annual Report
To Shareholders.)
12 Not applicable.
13 Reference to the Annual Report To
Shareholders for the fiscal year ended
December 31, 1999.
16 Not applicable.
18 Not applicable.
21.1 Reference to The Citizens Savings Bank,
Martins Ferry, Ohio, incorporated on
December 31, 1902, previously filed with the
Securities and Exchange Commission..
21.2 Reference to The Community Bank, Lancaster,
Ohio, incorporated on August 1, 1949,
previously filed with the Securities and
Exchange Commission.
22 Not applicable.
23 Consents of Experts and Council.
24 Not applicable.
27 Financial Data Schedule
99 Not applicable.
(b) The Company filed no reports on SEC Form 8-K during the last
quarter of the period covered by this report.
14
<PAGE> 15
UNITED BANCORP, INC. FORM 10-K
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
(Registrant) United Bancorp, Inc.
<TABLE>
<CAPTION>
<S> <C> <C>
By: /s/ James W. Everson March 24, 2000
-------------------------------------
James W. Everson, Chairman, President & CEO
By: /s/ Randall M. Greenwood March 24, 2000
-------------------------------------
Randall M. Greenwood, CFO
By: /s/ Michael J. Arciello March 24, 2000
-------------------------------------
Michael J. Arciello
By: /s/ John H. Clark, Jr. March 24, 2000
-------------------------------------
John H. Clark, Jr.
By: /s/ John M. Hoopingarner March 24, 2000
-------------------------------------
John M. Hoopingarner
By: /s/ Richard L. Riesbeck March 24, 2000
-------------------------------------
Richard L. Riesbeck
/s/ L.E. Richardson, Jr.
By: ------------------------------------- March 24, 2000
L.E. Richardson, Jr.
By: /s/ Matthew C. Thomas March 24, 2000
-------------------------------------
Matthew C. Thomas
</TABLE>
15
<PAGE> 16
UNITED BANCORP, INC. FORM 10-K
EXHIBIT INDEX
Exhibit No. Description SK Item 601 No.
----------- ----------- ---------------
1 Financial Data Schedule 27
2 Annual Report to Shareholders 13
3 Consents of Experts and Council 23
16
<PAGE> 1
UNITED BANCORP, INC.
Martins Ferry, Ohio
1999 ANNUAL REPORT
[PHOTO]
<PAGE> 2
UNITED BANCORP MISSION STATEMENT
UNITED BANCORP, INC. IS A NATIONALLY TRADED BANK HOLDING
COMPANY WHOSE MISSION IS TO CONTINUE EARNING THE RESPECT:
- Of its Shareholders, through continued growth in shareholder value by
sustaining profitability and acquiring well managed and capitalized businesses
in the financial services industry;
- Of its Customers, through reaching out with the technology they want and
offering the financial services they need;
- Of its Communities, through support of civic activities that make our
communities better places to live and work;
- Of its Team Members, through training development and career growth
opportunities in a comfortable environment with modern equipment;
- Of its Affiliates, through providing data processing, item processing,
accounting, human resource and management support.
Although it is recognized there is more competition from non-bank businesses for
market share, the general mission for United Bancorp, Inc. is to remain
independent. We will accomplish this through an aggressive acquisition program,
the management of technological change, and the placement of ATM and/or new
office construction when deemed economically feasible.
VISIT US AT: WWW.UNITEDBANCORP.COM
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Letter from the Chairman/President/CEO . . . . . . . . . . . . . . . . . . . . . .2-5
Decade of Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6-7
Corporate Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8-11
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12-14
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Shareholder Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Management's Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . .17-30
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . .31
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . .33
Consolidated Statements of Shareholders' Equity . . . . . . . . . . . . . . . . . .34
Consolidated Statements of Cash Flow . . . . . . . . . . . . . . . . . . . . . . . 35
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . .36-52
Five-Year Performance Summary . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Banking Center Locations . . . . . . . . . . . . . . . . . . . . . . . . . Back Cover
</TABLE>
ABOUT THE COVER
Clockwise from top: Main office of The Citizens Savings Bank, Groundbreaking for
The Community Bank Main Office, Plaza West Fest Celebration, United Bancorp,
Inc. Officers, The Community Bank Main Office.
<PAGE> 3
In Memoriam
[PHOTO OF HAROLD W. PRICE]
Harold W. Price
1945 - 1999
UNITED BANCORP,INC.1999 ANNUAL REPORT 1
<PAGE> 4
A LETTER FROM THE PRESIDENT
TO OUR PRESENT AND FUTURE SHAREHOLDERS....
The final year of the last century carried many emotions for your United
Bancorp, Inc. family...fear, excitement, sadness, frustration, happiness, you
name it. As prepared as we were, there was a certain amount of fear as we
watched the crystal ball drop on Times Square and we crossed over to the new
millennium. To celebrate, all of our banking offices were open and held a
customer appreciation day on New Year's Day. The banking industry deserves much
credit for making the changeover a non-event, first by preparing ourselves and
then our customers.
We were very excited last May when we announced the merger of two of our
three bank charters, The Citizens-State Bank, Strasburg, Ohio into The Citizens
Savings Bank, Martins Ferry, Ohio. With the purchase of our Jewett, Ohio office
in January the combination of the two banks made geographic sense for improved
customer service and economic sense for the consolidation of the ten full
service banking centers under one management group. Harold W. Price who joined
our bank family in May 1993 as President and Chief Executive Officer of The
Citizens-State Bank was appointed President and Chief Executive Officer of The
Citizens Savings Bank. We all were devastated with sadness upon his unexpected
death on September 12, 1999. During his short tenure, Harold worked tirelessly
to bring the synergies of two strong bank boards and two strong management teams
together into one stronger banking organization. To his memory we dedicate this
year's Annual Report.
Your Board of Directors and Management Team would classify this past year
as "a building block" year....one where we really have committed capital and
earnings for future growth in shareholder value. This began in January when we
completed the purchase of The Citizens Bank's full service banking center in
Jewett, Ohio.
[PHOTO]
THE CITIZENS SAVINGS BANK
EAST MAIN STREET BANKING CENTER
JEWETT,OHIO
Also during the first quarter, The Community Bank opened a Loan Production
Office in Lancaster, Ohio and a full service brokerage division of The Citizens
Bank was opened in Martins Ferry, Ohio known as Brokerage United with securities
provided through Raymond James Financial Service, Inc.,
[PHOTO]
JAMES W.EVERSON
CHAIRMAN,PRESIDENT
AND CHIEF EXECUTIVE OFFICER
2 UNITED BANCORP,INC.1999 ANNUAL REPORT
<PAGE> 5
A LETTER FROM THE PRESIDENT
member NASD/SIPC. In the third quarter, The Citizens Bank purchased and began
renovations on the property adjoining our centralized Operations Center in
Martins Ferry. Excitement prevailed in the fourth quarter of this year as The
Community Bank prepared to open three new banking offices in Lancaster, Ohio.
Under the leadership of Alan M. Hooker, President and Chief Executive
Officer of The Community Bank, we have successfully expanded The Community Bank
from four to seven locations this past year and have established a strong
presence in Lancaster,
[PHOTO]
ALAN M. HOOKER
[PHOTO]
THE COMMUNITY BANK
MAIN OFFICE
NORTH COLUMBUS STREET
LANCASTER,OHIO
Ohio. In addition to serving Athens County through our offices in Nelsonville,
Amesville and Glouster, The Community Bank now is serving Fairfield County with
its newly constructed full service banking center on the east side of Lancaster
which opened this past December and its newly renovated four story headquarters
in downtown Lancaster with a limited service drive-thru facility located across
the street, both of which opened in January of this year. United Bancorp
facilitated this expansion through the purchase, renovation and construction of
these properties. We are very pleased with our reception to date in this new
market and are quite excited to be expanding in a growth area. A lot of exciting
things are happening in Lancaster, Ohio, which is enjoying the expansion of
the Columbus market.
United Bancorp posted earnings per share of $1.07 for the twelve months
ended December 31, 1999 compared to the same amount for the same period ended
December 31, 1998. These results are in line with management's expectations
based upon the start up costs associated with the above-described activities.
During this past year, approximately $225,000 of start up costs was
[PHOTO]
THE COMMUNITY BANK
EAST MAIN STREET BANKING CENTER
LANCASTER,OHIO
[PHOTO]
THE COMMUNITY BANK
WHEELING STREET
MAIN OFFICE AUTO BANK
LANCASTER,OHIO
UNITED BANCORP,INC.1999 ANNUAL REPORT 3
<PAGE> 6
A LETTER FROM THE PRESIDENT
incurred relating to our expansion strategy. Without consideration of these
costs, earnings per share would have posted an approximate 8% increase over the
prior year. Much of this expense was carried in the fourth quarter of 1999 as
staffing was hired and trained in anticipation of opening the three new
Community Bank offices.
Overall, we are pleased with the financial results and the positive impact
our expansion plans are having on the Company. Since December 31, 1998, gross
outstanding loans for UBCP grew by $16.3 million or approximately 10.0%. Of that
amount, $12.7 million was contributed by The Community Bank's robust loan
growth. Asset quality continued to be positive throughout 1999. At December 31,
1999 our Loan Loss Reserve to Total Loans Outstanding was 1.72%, which is well
above our industry peer group. In addition, loans past due greater than 90 days
and non-performing loans as a percent of total loans was 0.55%, well below our
peer group. In addition, net loans charged off during 1999 decreased
approximately 19% when compared to net charge-offs for the twelve months ended
December 31, 1998.
Your Board of Directors and Management Team are frustrated, as you are,
with the price of UBCP stock in the market. It is easy to say that bank stocks
as an industry are out of favor, that a rising interest rate environment is the
cause, that all bank stocks are down, but the fact remains our company stock has
dropped substantially. We are particularly frustrated to see so many "dot com"
stocks who have never posted earnings go up in value
<TABLE>
<CAPTION>
CLOSING PRICE PER
COMMON SHARE
(CLOSE-HIGH/LOW)
<S> <C>
1995 $14,62/$ 9.56
1996 $17.93/$10.93
1997 $24.84/$14.02
1998 $26.98/$17.01
1999 $24.76/$12.75
</TABLE>
because their losses were not as great as anticipated. Sooner or later, we feel
there will be a return to value where the investor will look for companies with
good earnings and good dividend payment records. With all of our recent
activities to position your company for future growth, it is our hope the
investment community will soon return to the banking sector as a buying
opportunity. Our focus now must be to turn the capital expenditures of the past
into future earnings growth that will translate in higher stock pricing. For the
long-term investor, many community bank stocks at their current pricing levels
are a strong buying opportunity.
During the past year, we welcomed two new members to The Community Bank
Board of Directors, Robin L. Rhodes, MD, Vice President and Secretary of
Pediatrics Associates, Lancaster, Ohio and Terry A. McGhee,
[PHOTO] [PHOTO]
Terry A.McGhee Robin L.Rhodes,M.D.
President and Chief Executive Officer of Westerman Companies, Breman, Ohio.
Both Dr. Rhodes and Mr. McGhee are very active in the Lancaster community. Terry
McGhee filled the vacancy created by the retirement of Dean A. Kasler, Sr. to
Director Emeritus. A special note of thanks to Dean Kasler for his twenty-five
years of service to The Community Bank. Dean's father Bart Kasler was a charter
member of The Community Bank Board which was founded in 1945. Upon the
completion of the merger of The Citizens-State Bank into The Citizens Savings
4 UNITED BANCORP,INC.1999 ANNUAL REPORT
<PAGE> 7
A LETTER FROM THE PRESIDENT
[PHOTO OF MANAGEMENT TEAM]
The Management Team, seated left to right ,Randall M.Greenwood,
James W.Everson,Alan M.Hooker;Standing,James A.Lodes and
Norman F.Assenza,Jr.
Bank, Herman E. Borkoski, Dr. Leon F. Favede and Errol C. Sambuco resigned their
positions on the United Bancorp, Inc. Board of Directors to balance the
geographic representation on the board to the areas we serve. All three gentle-
men continue to serve on the Board of Directors of The Citizens Savings Bank.
We look to the future with excitement during the next year, we can focus
our attention on being bankers. Our building programs are behind us and Y2K is
nothing but a memory. Our banks and company have reorganized and we are
committed to growing our organization. We believe 1999 was a transitional year
for United Bancorp, Inc. We are laying the building blocks for future growth,
market penetration and the introduction of non-traditional banking services to
our customers. Basically, throughout 1999 we were "spending money in order to
make money" which should translate into growth of share-holder value as we move
through the new millennium.
Very truly yours,
UNITED BANCORP, INC.
/s/ James W. Everson
- -----------------------
James W. Everson,
Chairman, President and
Chief Executive Officer
[email protected]
February 21, 2000
[PHOTO]
Building for your future
UNITED BANCORP,INC.1999 ANNUAL REPORT 5
<PAGE> 8
DECADE OF PROGRESS
(Unaudited)
(as originally reported) (1)
<TABLE>
<CAPTION>
1989 1990 1991 1992
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest and dividend income $ 11,381,035 $ 11,421,492 $ 11,699,233 $ 12,166,789
Interest expense 7,220,587 7,127,552 6,712,916 5,948,713
------------ ------------ ------------ ------------
Net interest income 4,160,448 4,293,940 4,986,317 6,218,076
Provision for loan losses 182,000 240,000 222,000 302,000
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,978,448 4,053,940 4,764,317 5,916,076
Noninterest income, including security gains/(losses) 349,829 684,510 505,476 603,325
Noninterest expense 2,908,875 3,465,803 3,625,772 4,457,545
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,419,402 1,272,647 1,644,021 2,061,856
Income tax expense 304,952 205,997 361,021 490,352
------------ ------------ ------------ ------------
NET INCOME $ 1,114,450 $ 1,066,650 $ 1,283,000 $ 1,571,504
============ ============ ============ ============
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $129,527,455 $132,008,476 $135,881,746 $164,675,155
Deposits 115,848,920 115,056,983 118,059,873 145,648,647
Shareholders' equity 11,543,373 12,169,023 12,990,023 14,078,527
Loans receivable, net 56,862,870 71,060,484 77,137,769 79,642,462
Term federal funds 9,105,000 1,500,000 1,000,000 -
Allowance for loan losses 595,160 720,856 846,824 1,039,360
Net charge-offs 64,882 114,304 96,032 109,464
Full time employees (average equivalents) 58 66 71 83
Banking locations Four Five Five Seven
- ----------------------------------------------------------------------------------------------------------------------------
Earnings per common share - Basic (2) $ 0.45 $ 0.44 $ 0.52 $ 0.63
Earnings per common share - Diluted (2) 0.45 0.44 0.52 0.63
Dividends per share (2) 0.16 0.18 0.19 0.20
Book value per share (2) 4.68 4.94 5.27 5.71
Market value range per share (2) 4.17-4.68 4.39-4.68 4.43-4.94 4.68-6.48
- ----------------------------------------------------------------------------------------------------------------------------
Cash dividends paid $ 407,400 $ 441,000 $ 462,000 $ 483,000
Return on average assets (ROA) 0.89% 0.82% 0.95% 1.01%
Return on average equity (ROE) 9.96% 8.99% 10.21% 11.60%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Not restated for the July 7, 1998 Acquisition of Southern Ohio Community
Bancorporation, Inc.
(2) All years restated for common share dividends.
6 UNITED BANCORP,INC.1999 ANNUAL REPORT
<PAGE> 9
DECADE OF PROGRESS
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998 1999
- ------------ ------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 11,656,336 $ 12,283,260 $ 14,351,522 $ 15,006,091 $ 16,205,162 $ 21,126,421 $ 21,638,690
5,259,839 5,439,213 6,575,486 6,747,357 7,346,629 9,657,844 9,844,827
- ------------ ------------- -------------- -------------- -------------- -------------- --------------
6,396,497 6,844,047 7,776,036 8,258,734 8,858,533 11,468,577 11,793,863
270,500 281,000 465,000 455,400 444,000 797,957 726,806
- ------------ ------------- -------------- -------------- -------------- -------------- --------------
6,125,997 6,563,047 7,311,036 7,803,334 8,414,533 10,670,620 11,067,057
878,731 805,355 876,285 920,951 1,027,166 1,581,139 1,285,519
4,799,745 4,867,794 5,174,452 5,289,273 5,654,659 8,007,689 8,189,260
- ------------ ------------- -------------- -------------- -------------- -------------- --------------
2,204,983 2,500,608 3,012,869 3,435,012 3,787,040 4,244,070 4,163,316
477,205 545,523 768,577 851,023 940,472 1,089,091 1,003,062
- ------------ ------------- -------------- -------------- -------------- -------------- --------------
$ 1,727,778 $ 1,955,085 $ 2,244,292 $ 2,583,989 $ 2,846,568 $ 3,154,979 $ 3,160,254
============ ============= ============== ============== ============== ============== =============
- ------------------------------------------------------------------------------------------------------------
$171,682,025 $ 185,634,119 $ 191,199,526 $ 202,364,858 $ 211,742,313 $285,492,897 $ 298,764,079
152,334,470 163,312,482 166,604,359 171,512,241 175,791,296 229,110,372 235,539,865
15,375,942 16,518,060 18,451,873 20,016,011 21,924,638 27,320,749 25,297,973
86,696,640 106,952,378 120,907,269 130,637,621 137,308,856 161,187,833 177,406,092
- - - - - - -
1,256,322 1,437,734 1,775,383 2,022,987 2,238,522 3,033,105 3,109,821
53,538 99,588 127,351 207,796 228,465 803,374 650,090
80 82 83 84 86 112 128
Seven Eight Eight Eight Nine Thirteen Seventeen
- ------------------------------------------------------------------------------------------------------------
$ 0.70 $ 0.79 $ 0.90 $ 1.05 $ 1.14 $ 1.07 $ 1.07
0.70 0.79 0.90 1.05 1.13 1.06 1.07
0.21 0.23 0.31 0.35 0.40 0.45 0.50
6.23 6.70 7.49 8.11 8.89 9.29 8.60
6.81 - 12.61 13.30 - 16.86 9.56 - 14.62 10.93 - 17.93 14.02 - 24.84 17.01 - 26.98 12.75 - 24.76
- ------------------------------------------------------------------------------------------------------------
$ 512,400 $ 564,472 $ 776,136 $ 876,153 $ 988,820 $ 1,254,340 $ 1,483,931
1.04% 1.11% 1.18% 1.32% 1.38% 1.17% 1.09%
11.73% 12.24% 12.85% 13.49% 13.56% 11.80% 11.94%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
UNITED BANCORP,INC.1999 ANNUAL REPORT 7
<PAGE> 10
CORPORATE PROFILE
DIVIDEND AND STOCK HISTORY
<TABLE>
<CAPTION>
DISTRIBUTION DATE
CASH DIVIDENDS OF DIVIDENDS AND
DECLARED(1) STOCK DIVIDENDS EXCHANGES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1983 $ 0.11 - -
- --------------------------------------------------------------------------------
1984 $ 0.11 4 for 1 Exchange(2) 1/2/84
- --------------------------------------------------------------------------------
1985 $ 0.12 - -
- --------------------------------------------------------------------------------
1986 $ 0.14 - -
- --------------------------------------------------------------------------------
1987 $ 0.15 50% Stock Dividend 10/2/87
- --------------------------------------------------------------------------------
1988 $ 0.16 - -
- --------------------------------------------------------------------------------
1989 $ 0.16 - -
- --------------------------------------------------------------------------------
1990 $ 0.18 - -
- --------------------------------------------------------------------------------
1991 $ 0.19 - -
- --------------------------------------------------------------------------------
1992 $ 0.20 100% Stock Dividend 9/10/92
- --------------------------------------------------------------------------------
1993 $ 0.21 100% Stock Dividend 11/30/93
- --------------------------------------------------------------------------------
1994 $ 0.23 10% Stock Dividend 9/9/94
- --------------------------------------------------------------------------------
1995 $ 0.31 - -
- --------------------------------------------------------------------------------
1996 $ 0.35 10% Stock Dividend 6/20/96
- --------------------------------------------------------------------------------
1997 $ 0.40 10% Stock Dividend 9/19/97
- --------------------------------------------------------------------------------
1998 $ 0.45 5% Stock Dividend 12/18/98
- --------------------------------------------------------------------------------
1999 $ 0.50 5% Stock Dividend 12/20/99
- --------------------------------------------------------------------------------
</TABLE>
(1) Adjusted for stock dividends and exchanges. Does not include dividends from
Southern Ohio Community Bancorporation, Inc. prior to the merger.
(2) Formation of United Bancorp, Inc. (UBCP). The Citizens Savings Bank share
holders received 4 shares of UBCP stock in exchange for 1 share of The
Citizens Savings Bank.
<TABLE>
<CAPTION>
DIVIDENDS PER SHARE(1)
<S> <C>
1995 0.31
1996 0.35
1997 0.40
1998 0.45
1999 0.50
<CAPTION>
CASH DIVIDENDS
(In Thousands)
<S> <C>
1995 $ 823
1996 $ 923
1997 $1,036
1998 $1,254
1999 $1,484
</TABLE>
TOTAL RETURN PERFORMANCE
[PERFORMANCE CHART]
8 UNITED BANCORP,INC. 1999 ANNUAL REPORT
<PAGE> 11
CORPORATE PROFILE
United Bancorp, Inc. is head-quartered in Martins Ferry, Ohio, located on
the eastern border of Ohio along the Ohio River. Martins Ferry is nestled among
the many scenic foothills along the Upper Ohio Valley across the river from the
greater metropolitan area of Wheeling, West Virginia, 60 miles southwest of
Pittsburgh, PA and 125 miles east of Columbus, OH.
Early settlers to the region found many natural resources readily
available, which assisted in the establishment of frontier communities in and
around the eastern Ohio areas. Today, in addition to the natural resources still
abundant within the region, there remains a plentiful workforce, easy access to
interstate highway systems, and nearby river and railway transportation
facilities. This economic base is built upon a strong belief in traditional
small community values where future growth and development can be nurtured.
The local community served by the Banks of United Bancorp, Inc. encompass a
variety of social and economic cultures. This diversification provides many
opportunities for our community banks to develop long-term relationships with
customers spanning several generations. The "Hometown" advertising phrase
captures the character and integrity of each banking location in relation to the
local community it serves.
To better serve its shareholders, United Bancorp, Inc. ("UBCP") was created
as a single bank holding company in July of 1983. This was accomplished through
the acquisition of 100% of the voting stock of The Citizens Savings Bank of
Martins Ferry, Ohio ("CITIZENS"). In December of 1986, UBCP became a multi-bank
holding company through the acquisition of 100% of the voting stock of The
Citizens-State Bank of Strasburg, Strasburg, Ohio ("CITIZENS-STATE").
Common stock of UBCP was initially available through over-the-counter
trading. In February of 1994, it began trading on The Nasdaq SmallCaps Market
tier of The Nasdaq Stock Market under the trading symbol UBCP.
In July 1998, Southern Ohio Community Bancorporation, Inc. ("Southern")
merged into UBCP. Southern's operating subsidiary, The Community Bank, Glouster,
Ohio ("COMMUNITY") became UBCP's third wholly-owned banking subsidiary.
On April 21, 1999, CITIZENS-STATE was merged into CITIZENS. This enabled
customers in both markets to seamlessly conduct banking transactions at all of
the CITIZENS and CITIZENS-STATE banking centers.
[PHOTO]
MAIN OFFICE
CITIZENS was originally established as The German Savings Bank in 1902 and
remains the lead bank in the multi-bank holding company. In 1974, local markets
were expanded through the construction of a full service branch banking facility
six miles west of Martins Ferry in nearby Colerain, Ohio. In 1978, expansion
continued with the construction of another full service branch bank in
Bridgeport, Ohio located two miles south of Martins Ferry. In 1980, a limited
service auto-teller location was opened in Martins Ferry, one block south of the
initial main office location. In 1983, an Automated Teller Machine ("ATM") began
operation in nearby Aetnaville, Ohio. By 1984, CITIZENS had outgrown its
original main banking facility in Martins Ferry and subsequently relocated to a
newly constructed 21,500 square foot addition to the auto-teller building.
1990 ushered in a new era of in-house data processing with the installation of
sophisticated, high-speed equipment capable of servicing current and future
information and document processing needs. In 1991, CITIZENS began
UNITED BANCORP,INC.1999 ANNUAL REPORT 9
<PAGE> 12
CORPORATE PROFILE
providing data processing services for CITIZENS-STATE. During 1993, realizing
the need for a specific location dedicated to operational support, the
accounting, bookkeeping and later data processing functions were established in
a separate facility directly across from the main banking center in Martins
Ferry.
In mid-1996, check image and statement processing was introduced to all
banking locations. The customers would no longer receive their checks and
deposit tickets, but would instead receive an image of each transaction. The
successes enjoyed by both Banks during the conversion from traditional check
processing to the radically different image processing were proof that
positive change can be accomplished without sacrificing the personalized service
and consideration our customers deserve.
In mid-1997, CITIZENS opened a full service Retail Banking Center inside
Riesbeck's Food Markets, Inc.'s St. Clairsville, Ohio store. This site also
provides a free-standing ATM for additional customer service.
In early 1998, cash dispensing machines were installed throughout the
Riesbeck's Food
[PHOTO]
ANNUAL PLAZA WEST FEST CELEBRATION
Markets retail distribution network in Ohio and West Virginia. Early
developments of a comprehensive cash management program for retail and business
customers were initiated. In November 1998, CITIZENS announced the acquisition
of a full service banking facility in Jewett, Ohio which was completed on
January 28, 1999.
On March 15, 1999 a full service brokerage division of CITIZENS was opened.
Brokerage United with securities provided through Raymond James Financial
Services, Inc. member NASD/SIPC provides financial planning and full service
brokerage products to all markets served.
The following discusses the history of CITIZENS-STATE prior to merging its
charter into CITIZENS.
CITIZENS-STATE was also established in 1902 and was originally
headquartered in Strasburg, Ohio. It is located in an area of northeastern Ohio
whose economy is supported by agriculture and light industry. It has also
benefited as a "bedroom community" for the Akron-Canton metropolitan areas. In
1990, a full service banking facility was constructed six miles south in Dover,
Ohio. During 1992, expansion continued with the acquisition of two branch bank
locations in New Philadelphia and Sherrodsville, Ohio. In 1994, a branch bank
was purchased in Dellroy, Ohio.
In February 1998, the Bank entered in the indirect lending arena. In late
1998, CITIZENS-STATE introduced a revised home equity program with great
success in their market.
COMMUNITY was established in August 1945 with corporate offices located
in Glouster, Ohio. In 1976, COMMUNITY acquired the First National Bank of
Amesville, Ohio. In 1978, a three-lane Auto Bank drive-up facility was
constructed on the west side of Glouster. In 1984, Southern was established as
the Bank's holding company. In 1987, Management concluded to expand their
service area. Therefore, a Nelsonville office with two drive-up lanes opened to
serve the Nelsonville and
10 UNITED BANCORP,INC.1999 ANNUAL REPORT
<PAGE> 13
CORPORATE PROFILE
surrounding communities. Along with the opening of the Nelsonville office, an
ATM machine was installed at Hocking Technical College to enhance customer
service for faculty and students. In 1992, an ATM machine was installed in the
Nelsonville office.
On December 6, 1993, a ribbon cutting ceremony was held for a newly
constructed Nelsonville office. The building, which replaced a mobile bank unit,
featured four drive-up lanes and a drive-up ATM. Night deposit and safe deposit
box services were also introduced to the Nelsonville community.
In 1996, COMMUNITY completed an extensive renovation of its office in
Glouster and added a 24 hour access ATM in the vestibule.
In early 1999, COMMUNITY established a Loan Production Office ("LPO") in
Lancaster, Ohio.
[PHOTO]
CONSTRUCTION IN LANCASTER
[PHOTO]
LISA AND ALAN HOOKER WITH GERALD STEBELTON,ATTORNEY AT LAW,AT THE GRAND
OPENING OF THE COMMUNITY BANK MAIN OFFICE.
This LPO provided the opportunity for COMMUNITY to build its franchise along
the Route 33 corridor. Lancaster, the county seat of Fairfield County, is
approximately 30 miles southeast of Columbus, Ohio. Lancaster is considered a
"bedroom community" of Columbus and has benefited from the economic expan-
sion in the Columbus metro area.
In mid-year 1999, to strengthen COMMUNITY'S market presence, expansion into
Fairfield County began with the construction of a new main office, a full
service-banking center and a limited service drive-thru. COMMUNITY celebrated
its grand opening of these facilities on January 31, 2000.
Management is deeply committed to meet the financial needs of individuals
and business. Our goal is to foster the community banking philosophy into the
next millennium without sacrificing our "Hometown" banking image and belief.
UNITED BANCORP,INC.1999 ANNUAL REPORT 11
<PAGE> 14
DIRECTORS AND OFFICERS
<TABLE>
<S> <C> <C> <C>
[PHOTO] [PHOTO] [PHOTO]
MICHAEL J.ARCIELLO(1,2) HERMAN E.BORKOSKI(2) JOHN H.CLARK,JR.(1,2)
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
JAMES W.EVERSON(1,2,3) DR.LEON F.FAVEDE(2) PAUL J.GERIG(3) JOHN R.HERZIG(2)
[PHOTO] [PHOTO] [PHOTO]
DWAIN R.HICKS(2) ALAN M.HOOKER(3) JOHN M.HOOPINGARNER(1,2)
1 = United Bancorp, Inc. 2 = The Citizens Savings Bank 3 = The Community Bank
</TABLE>
12 UNITED BANCORP,INC.1999 ANNUAL REPORT
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
[PHOTO] [PHOTO] [PHOTO]
SAMUEL J.JONES(3) PHILIP D.KASLER(3) JOSEPH D.KITTLE(3)
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
MICHAEL A.LEY(2) TERRY A.MCGHEE(3) L.E.RICHARDSON,JR.(1,3) ROBIN L.RHODES,M.D.(3)
[PHOTO] [PHOTO] [PHOTO]
RICHARD L.RIESBECK(1,2) ERROL C.SAMBUCO(2) MATTHEW C.THOMAS(1,2)
1 = United Bancorp, Inc. 2 = The Citizens Savings Bank 3 = The Community Bank
</TABLE>
UNITED BANCORP,INC.1999 ANNUAL REPORT 13
<PAGE> 16
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
DIRECTORS OF UNITED BANCORP,INC.
<S><C>
Michael J. Arciello(2,3) . . . . . . . . . . . . . . .Retired Vice President of Finance, Nickles Bakeries, Inc., Navarre, Ohio
John H. Clark, Jr.(1,3). . . . . . . . . . . . . . . . . . . . . . . .. . . . Foundry Owner (Retired), Wheeling, West Virginia
James W. Everson(1). . . . . . . . . . . . . . . . . . . . Chairman, President & Chief Executive Officer, United Bancorp, Inc.
and The Citizens Savings Bank, Martins Ferry, Ohio
John M. Hoopingarner(3). . . . . . . . . . . General Manager, Muskingum Watershed Conservancy District, New Philadelphia, Ohio
L. E. Richardson, Jr.(2). . . . . . . . . . . .Retired President, Southern Ohio Community Bancorporation, Inc., Glouster, Ohio
Richard L. Riesbeck(1,3) . . . . . . . . . . . . . . . . . . . . President, Riesbeck Food Markets, Inc., St. Clairsville, Ohio
Matthew C. Thomas(1,2) . . . . . . . . . . . . . . . . . . . . President, M.C. Thomas Insurance Agency, Inc., Bridgeport, Ohio
OFFICERS OF UNITED BANCORP,INC.
James W. Everson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chairman, President & Chief Executive Officer
Alan M. Hooker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Vice President - Administration
Norman F. Assenza, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President - Operations and Secretary
Randall M. Greenwood . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President - Chief Financial Officer, Treasurer
James A. Lodes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Vice President - Lending
DIRECTORS OF THE CITIZENS SAVINGS BANK,MARTINS FERRY,OHIO
Michael J. Arciello(2) . . . . . . . . . . . . . . . .Retired Vice President of Finance, Nickles Bakeries, Inc., Navarre, Ohio
Herman E. Borkoski(2). . . . . . . . . . . . . . . . . . . . . . . President, Borkoski Funeral Homes, Inc., Tiltonsville, Ohio
John H. Clark, Jr.(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . Foundry Owner (Retired), Wheeling, West Virginia
James W. Everson(1). . . . . . . Chairman, President & Chief Executive Officer, The Citizens Savings Bank, Martins Ferry, Ohio
Dr. Leon F. Favede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Optometrist, Bridgeport, Ohio
John R. Herzig . . . . . . . . . . . . . . . . . . . . . . . . . . . . President, Toland-Herzig Funeral Homes, Strasburg, Ohio
Dwain R. Hicks . . . . . . . . . . . . . . . . . . . . . . . President, Hicks Consulting and Investing, New Philadelphia, Ohio
John M. Hoopingarner . . . . . . . . . . . . General Manager, Muskingum Watershed Conservancy District, New Philadelphia, Ohio
Michael A. Ley . . . . . . . . . . . . . . . . . . . . . . . President and Owner, Robert's Men's Shops, New Philadelphia, Ohio
Richard L. Riesbeck(1). . . . . . . . . . . . . . . . . . . . . .President, Riesbeck Food Markets, Inc., St. Clairsville, Ohio
Errol C. Sambuco(2) . . . . . . . . . . . . . . . . .Manager of Metal Transportation, Besttransport.com, St. Clairsville, Ohio
Matthew C. Thomas(1,2) . . . . . . . . . . . . . . . . . . . . President, M.C. Thomas Insurance Agency, Inc., Bridgeport, Ohio
Donald A. Davison, Director Emeritus 1963-1997 . . . . . . . . . . . . . . .United Bancorp, Inc. and The Citizens Savings Bank
Albert W. Lash, Director Emeritus 1975-1996 . . . . . . . . . . . . . . . .United Bancorp, Inc. and The Citizens Savings Bank
DIRECTORS OF THE COMMUNITY BANK,LANCASTER,OHIO
James W. Everson(1). . . . . . . . . . . . . . . . . . . . Chairman, President & Chief Executive Officer, United Bancorp, Inc.
and The Citizens Savings Bank, Martins Ferry, Ohio
Paul J. Gerig . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Attorney at Law, Gerig and Gerig, Athens, Ohio
Alan M. Hooker(1) . . . . . . . . . . . . . . . . . . President & Chief Executive Officer, The Community Bank, Lancaster, Ohio
Samuel J. Jones(1,2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business Owner, Glouster, Ohio
Philip D. Kasler(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Farming and Real Estate, Amesville, Ohio
Joseph D. Kittle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Retired Business Owner, Glouster, Ohio
Terry A. McGhee(1,2). . . . . . . . . . . . . . . . . . . . .President & Chief Executive Officer, Westerman Inc., Bremen, Ohio
Robin L. Rhodes, M.D. . . . . . . . . . . . . . . . . . . .Physician, Pediatric Associates of Lancaster, Inc., Lancaster, Ohio
L. E. Richardson, Jr.(1). . . . . . . . . . . .Retired President, Southern Ohio Community Bancorporation, Inc., Glouster, Ohio
Dean A. Kasler, Director Emeritus 1970-1999. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .The Community Bank
1 = Executive Committee 2 = Audit Committee 3 = Compensation Committee
</TABLE>
14 UNITED BANCORP,INC.1999 ANNUAL REPORT
<PAGE> 17
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1999 1998 % CHANGE
<S> <C> <C> <C>
EARNINGS (IN 000'S)
Total interest and dividend income $ 21,639 $ 21,126 2.43%
Total interest expense 9,845 9,657 1.95%
Net interest income 11,794 11,469 2.83%
Total noninterest income 1,285 1,581 -18.72%
Total noninterest expense 8,189 8,008 2.26%
Net income 3,160 3,155 0.16%
PER SHARE (1)
Earnings per common share - Basic $ 1.07 $ 1.07 0%
Earnings per common share - Diluted 1.07 1.06 0.94%
Cash dividends paid 0.50 0.45 11.11%
Book value (end of period) 8.60 9.29 -7.43%
AT YEAR END (IN 000'S)
Total assets $ 298,764 $ 285,493 4.65%
Total assets (average) 289,655 272,004 6.49%
Total deposits 235,540 229,110 2.81%
Net loans receivable 177,406 161,188 10.06%
Securities 95,156 97,686 -2.59%
Shareholders' equity 25,298 27,321 -7.40%
Shareholders' equity (average) 26,469 26,738 -1.01%
STOCK DATA (1)
Market value per share (end of period) $ 15.75 $ 23.81 -33.85%
Dividend payout ratio 46.73% 41.77% 11.87%
Price earnings ratio (2) 14.72x 22.12x -33.45%
KEY PERFORMANCE RATIOS
Return on average assets (ROA) 1.09% 1.17% -6.84%
Return on average shareholders' equity (ROE) 11.94% 11.80% 1.19%
Efficiency ratio 57.50% 56.37% 2.00%
</TABLE>
(1) Per share and stock data has been restated to reflect effect of 5% stock
dividends in 1999 and 1998, respectively.
(2) Calculated using basic earnings per common share.
UNITED BANCORP,INC.1999 ANNUAL REPORT 15
<PAGE> 18
SHAREHOLDER INFORMATION
United Bancorp, Inc.'s common stock trades on The Nasdaq SmallCap Markettier of
The Nasdaq Stock Market under the symbol UBCP, CUSIP #90991109. At year-end
1999, there were 2,942,885 shares outstanding, held among approximately 1,200
shareholders of record. The following table sets forth the quarterly high and
low closing prices of the Company's common stock from January 1, 1999 to
December 31, 1999 compared to the same periods in 1998 as reported by the
NASDAQ. The price quotes have been adjusted for comparison purposes for the 5%
stock dividends distributed on December 20, 1999 and December 18, 1998. The
price quotations presented should not necessarily be relied on in determining
the value of the shareholders' investment.
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------------------------------------------------
31-MAR 30-JUN 30-SEP 31-DEC 31-MAR 30-JUN 30-SEP 31-DEC
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market Price Range
High ($) 24.762 20.833 20.000 15.750 26.984 26.984 24,263 23.810
Low ($) 16.667 14.286 15.000 12.750 23.583 23.583 20.862 17.007
Cash Dividends
Quarter ($) 0.123 0.123 0.124 0.130 0.109 0.109 0.109 0.123
Cumulative ($) 0.123 0.246 0.370 0.500 0.109 0.218 0.327 0.450
</TABLE>
INVESTOR RELATIONS:
A copy of the Company's Annual Report on form 10-K as filed with the SEC,
will be furnished free of charge upon written or E-mail request to:
Randall M.Greenwood,CFO United Bancorp,Inc. 201 South 4th Street PO Box 10
Martins Ferry,OH 43935 or [email protected]
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN:
Shareholders may elect to reinvest their dividends in additional shares of
United Bancorp, Inc.'s common stock through the Company's Dividend
Reinvestment Plan. Shareholders may also invest optional cash payments of
up to $5,000 per quarter in our common stock at market price. To arrange
automatic purchase of shares with quarterly dividend proceeds, please
contact: American Stock Transfer and Trust Company Attn:Dividend
Reinvestment 40 Wall Street,46th Floor New York,NY 10005 1-800-278-4353
ANNUAL MEETING:
The Annual Meeting of Shareholders will be held at 2:00 p.m., April 19,
2000 at the Corporate Offices in Martins Ferry, Ohio.
INTERNET:
Please look us up at http//www.unitedbancorp.com
INDEPENDENT AUDITORS:
Crowe,Chizek and Company LLP Certified Public Accountants 10 West Broad
Street Columbus,OH 43215 (614) 469-0001
CORPORATE OFFICES:
The Citizens Savings Bank Building 201 South 4th Street Martins Ferry,OH
43935 (740) 633-BANK (740) 633-1448 (FAX)
STOCK TRADING:
Brokerage United 201 South Fourth Street Martins Ferry,OH 43935 Christopher
Wakim 740-633-2663 Toll Free:888-275-5566,Ext.197 Securities Offered
Through Raymond James Financial Services,Inc Member NASD/SIPC
Advest,Inc. 340 S.Hollywood Plaza Steubenville,OH 43952 1-800-761-8008
George Crim 800-761-8008
Stifel,Nicolaus & Company Inc. 655 Metro Place South Dublin,OH 43017 Steven
Jefferis 877-875-9352
TRANSFER AGENT AND REGISTRAR:
For transfers and general correspondence,please contact:
American Stock Transfer and Trust Company 40 Wall Street,46th Floor New
York,NY 10005 1-800-937-5449
16 UNITED BANCORP,INC.1999 ANNUAL REPORT
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
In the following pages, management presents an analysis of United Bancorp,
Inc.'s financial condition and results of operations as of and for the year
ended December 31,1999 as compared to prior years. This discussion is designed
to provide shareholders with a more comprehensive review of the operating
results and financial position than could be obtained from an examination of the
financial statements alone. This analysis should be read in conjunction with the
consolidated financial statements and related footnotes and the selected
financial data included elsewhere in this report.
When used in this discussion or future filings by the Company with the
Securities and Exchange Commission, or other public or shareholder
communications, or in oral statements made with approval of an authorized
executive officer, the words or phrases "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "project," "believe," or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors, including regional and national economic
conditions, changes in levels of market interest rates, credit risks of lending
activities and competitive and regulatory factors, could affect the Company's
financial performance and could cause the Company's actual results for future
periods to differ materially from those anticipated or projected.
The Company is not aware of any trends, events or uncertainties that will have
or are reasonably likely to have a material effect on its liquidity, capital
resources or operations except as discussed herein. The Company is not aware of
any current recommendations by regulatory authorities that would have such
effect if implemented.
The Company does not undertake, and specifically disclaims, any obligation to
publicly release any revisions that may be made to any forward-looking
statements to reflect occurrence of anticipated or unanticipated events or
circumstances after the date of such statements.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL ASSETS TOTAL EARNING ASSETS LOANS - NET
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1995 $240,189 1995 $225,689 1995 $154,776
1996 $252,966 1996 $238,173 1996 $163,760
1997 $263,607 1997 $244,362 1997 $168,439
1998 $285,493 1998 $267,076 1998 $161,188
1999 $298,764 1999 $276,452 1999 $177,406
</TABLE>
FINANCIAL CONDITION
EARNING ASSETS - LOANS
For the year ended December 31, 1999, the Company's total assets increased
$13,271,000, or 4.6% over December 31, 1998 totals. Total earning assets
increased $9,376,000, or 3.5% over $267,076,000 at year-end 1998. Year-end
outstanding total loans increased by $16,294,975, or 9.9% from 1998 to 1999.
Average gross loans totaled $168,868,000 for 1999, representing a slight
increase from $168,626,000 for 1998. During the first six months of 1999, the
Company did not experience any loan growth from December 31, 1998 totals. As a
result of the growth in loans in the second half of 1999, the Company's average
loans increased just slightly from average loans in 1998.
UNITED BANCORP,INC.1999 ANNUAL REPORT 17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overall, installment lending increased by $5,714,753, or 12.0% from 1998
totals. These loans represented 29.6% of the total portfolio at year-end 1999
compared to 29.0% at year-end 1998. The targeted lending areas encompass the
geographic areas serviced by the affiliate Banks, which are diverse, reducing
the risk to changes in economic conditions. However, the indirect market for
CITIZENS has seen increased competition over the past two years and as a result
has experienced a decrease in installment loan totals of 13.8% from December 31,
1998. Since the first quarter of 1999, COMMUNITY has operated a Loan Production
Office ("LPO") in Lancaster, Ohio. This LPO served as COMMUNITY's temporary
headquarters until the opening of a new main office, a full service banking
center and a limited service drive-thru in January 2000. Since the opening of
the LPO, Management has focused on building a core loan portfolio in the
Lancanster area and surrounding markets. As a result, installment loans for
COMMUNITY increased approximately $11.7 million since December 31, 1998. This
increase occurred primarily from indirect lending.
Competition, especially in the indirect arena, has increased over the past
several years. Alternative financing programs offered by the automakers'
financing subsidiaries have been and will continue to compete for business.
Management has responded to direct competition by extending our customer service
hours into the evening to provide our customers with the ability to arrange
financing at their convenience.
Increases in commercial real estate lending and in residential real estate
lending volume also contributed to the loan growth experienced during the second
half of 1999. Commercial and commercial real estate loans comprised 42.0% of
total loans at December 31, 1999 compared to 40.9% at year-end 1998, an increase
of approximately $8,662,000. Commercial loans increased $2,511,293, or 19.8%,
from 1998 levels, representing 8.6% of the total portfolio at year-end 1999.
This compares to 7.9% of the mix at year-end 1998. During 1999, the Company
again experienced prepayment and refinancing on commercial real estate and
residential real estate loans as interest rates in the first half of the year
held constant from their low levels in 1998. However, in contrast to 1998, the
Company was able to post a strong increase in all markets relative to commercial
real estate and residential real estate lending.
Commercial real estate loans increased $6,110,295, or 11.3% over 1998
totals comprising 33.4% of the portfolio compared to 33.0% at year-end 1998. The
Company has originated and bought participations in loans from other banks for
out-of-area commercial real estate loans to benefit from consistent economic
growth outside the area. The majority of these loans are secured by real estate
holdings comprised of hotels, motels and churches located in various geographic
locations, including Columbus and the Akron-Canton, Ohio metropolitan areas. Out
of area loans at December 31, 1999 were 8.5% of total loans and 20.3% of total
commercial and commercial real estate loans compared to 11.6 % and 28.4% at
year-end 1998.
Overall, the Company experienced solid loan growth during 1999,
particularly in the second half of the year. Contributing to this growth has
been the expansion of COMMUNITY into the Fairfield County market. The CITIZENS
bank experienced strong growth in all areas of lending with the exception of the
installment portfolio. COMMUNITY experienced loan growth in all areas of lending
and in contrast to CITIZENS, experienced its largest increase in the installment
portfolio. As the overall interest rate environment increased during 1999,
consumer preferences have shifted from a fixed rate loan product to variable
rate loans. Variable rate products typically have lower introductory rates as
compared to that of a fixed rate and therefore has the appeal of the consumer.
Although the interest rate environment we have experienced over the last
half of 1999 is conducive to variable rate loan products, Management realizes
the need to offer fixed rate real estate product to our customer base. In 1997,
we introduced a Secondary Market Real Estate Mortgage Program to help our
customers take advantage of a fixed rate loan program without
18 UNITED BANCORP, INC. 1999 ANNUAL REPORT
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
the Company assuming the interest rate risk associated with this loan product.
During 1999, this product lost its appeal to the consumer because of the current
increasing interest rate environment and consumers' preference to migrate to
adjustable rate mortgages.
Since the introduction of this program, approximately $17,000,000 in
Secondary Market Real Estate Mortgages have been originated and sold. This
generated net realized gains of $41,289, $139,037 and $139,005 in 1999, 1998 and
1997, respectively.
The allowance for loan losses represents the amount which management and
the Board of Directors estimates is adequate to provide for probable losses in
the loan portfolio. The allowance balance and the annual provision charged to
expense are reviewed by management and the Board of Directors monthly using a
risk grading model that considers borrowers' past due experience, economic
conditions and various other circumstances that are subject to change over time.
Management believes the current balance of the allowance for loan losses is
sufficient to deal with probable losses. Net charge-offs for the year-ended 1999
were $650,090, or 21.4% of the beginning allowance for loan losses compared to
$803,374, or 26.4% of beginning allowance for loan losses for 1998.
The net charge-offs for 1999 included an approximate charge-off of $300,000
related to the Company's required June 30, 1999 adoption of the Federal
Financial Institutions Examination Council ("FFIEC") Uniform Retail Credit
Classification and Account Management Policy. This policy is a supervisory
policy used by the examination agencies to establish uniform classification and
treatment of retail credit loans. Overall, the Company has seen improvement in
credit quality during 1999.
The net charge-offs for 1998 included a one-time charge-off by COMMUNITY of
approximately $305,000 prior to the merger date with the Company. This
charge-off by COMMUNITY related to various small-unsecured consumer loans deemed
a loss by the Company based upon its credit and collection policy. Without the
$305,000, net charge-offs for 1998 would have been 16.4% of beginning allowance
for loan losses.
EARNING ASSETS - SECURITIES AND FEDERAL FUNDS SOLD
The securities portfolio is comprised of US government agency-backed
securities, tax-exempt obligations of states and political subdivisions and
certain other investments. The Company does not hold any collateralized
mortgage-backed securities, other than those issued by US Government agencies.
The Company does not hold any derivative securities. The quality rating of most
obligations of state and political subdivisions within Ohio is no less than Aaa,
Aa, or A, with all out-of-state bonds rated at AAA. Board policy permits the
purchase of certain non-rated bonds of local schools, townships and
municipalities, based on their known levels of credit risk.
Securities available for sale at year-end 1999 increased $9,525,126, or
12.6% over 1998, while securities held to maturity decreased $12,054,167, or
55.2%. The shift in the portfolio was the result of utilizing the Company's
liquidity for loan growth during 1999 and the adoption of FASB 133. Upon
adoption of FASB 133, approximately $16.0 million was transferred from held to
maturity to available for sale. This transfer accounts for the decrease in the
held to maturity portfolio during 1999. In summary, the Company purchased a net
$2.9 million in securities during 1999. However, the overall portfolio declined
$2,529,041 due to the decrease in fair value of securities available for sale of
$5.6 million. Fair values of securities declined during 1999 due to the increase
in interest rates. Management does not believe the declines in the fair value of
securities present any impairment concerns.
SOURCES OF FUNDS - DEPOSITS
The Company's primary source of funds is core deposits from retail and
business customers. These core deposits include all categories of
interest-bearing deposits, excluding certificates of deposit greater than
$100,000. For the year-ended 1998, total core deposits increased by $5,064,112,
or 2.4%. During 1999, the Company acquired $10,311,000 in deposits from the
acquisition of a new
UNITED BANCORP, INC. 1999 ANNUAL REPORT 19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
branch location in Jewett, Ohio. Without the branch acquisition, deposits would
have declined by $3,881,264. The decline primarily was the result of a $7.0
million shrinkage at COMMUNITY during 1999. Management restructured deposit
products and pricing throughout 1999. With the expansion into Fairfield county,
Management anticipates growth in deposits during 2000.
The Company maintains strong deposit relationships with public agencies,
including local school districts, city and township municipalities, public works
facilities and others, which may tend to be more seasonal in nature resulting
from the receipt and disbursement of state and federal grants. These entities
have maintained relatively stable balances with the Company due to various
funding and disbursement timeframes.
Certificates of deposit greater than $100,000 are not considered part of
core deposits and, as such, are used as a tool to balance funding needs. At
year-end 1999, certificates of deposit greater than $100,000 increased
$1,365,381, or 6.2% over year-end 1998 totals. Management utilized advances from
the Federal Home Loan Bank ("FHLB") to provide lower cost short-term funding
during 1998. With rates trending higher during 1999 and Management's projection
of higher rates in 2000, Management priced the long-term certificates of deposit
so as to lock in these funds for an extended period of time.
The attraction of and retention of core deposits continues to pose a
challenge to the Company and the overall banking industry. Alternative financial
products are continuously being introduced by our competition whether through a
traditional bank or brokerage services company.
SOURCES OF FUNDS - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER
BORROWED FUNDS
Other interest-bearing liabilities include securities sold under agreements
to repurchase, federal funds purchased, Treasury, Tax & Loan notes payable and
Federal Home Loan Bank advances. Securities sold under agreements to repurchase
remained relatively constant, while other borrowed funds increased significantly
by $10,898,862. This increase was the result of expanded use FHLB Cash
Management and Match Funding loan programs. During 1999, the Company regularly
utilized both FHLB programs to manage interest rate risk and liquidity
positions. The Company increased matched funded loans by approximately $875,000
from 1998 to 1999. FHLB Cash Management and Federal Funds purchased totaled
approximately $23.0 million at December 31, 1999 compared with $13.8 million as
of December 31, 1998, an increase of $9.2 million.
The rationale for the increase is explained by funding the Company's strong
loan growth of $16.2 million. Also contributing to the increase was the sharp
increase in interest rates during 1999 and the resulting lengthening of the
duration on the Company's callable security portfolio.
During 1999, the Company took advantage of the availability and current
lower costs associated with wholesale funding sources such as the Federal Home
Loan Bank to compensate for the absence of deposit growth.
PERFORMANCE OVERVIEW
NET INCOME
The Company reported earnings of $3,160,254 in 1999 compared with
$3,154,979 in 1998 and $2,847,568 in 1997. This earnings performance equates to
a 1.09% Return on Average Assets ("ROA") and 11.94% Return on Average Equity
("ROE") for 1999 compared to 1.17% and 11.80% for 1998 and 1.10% and 11.48% for
1997. Basic Earnings per share ("EPS") was $1.07 for 1999 and 1998 and $0.97 for
1997. Diluted earnings was $1.07, $1.06 and $0.96 for 1999, 1998 and 1997,
respectively. Per share amounts for all periods have been restated to reflect
the 5% stock dividends distributed in December 1999 and 1998 and the 10% stock
dividend distribution to shareholders in September 1997.
NET INTEREST INCOME
Net interest income, by definition, is the difference between interest
income generated on interest-earning assets and the interest expense incurred on
interest-bearing liabilities. Various factors contribute to changes in net
interest income, including
20 UNITED BANCORP, INC. 1999 ANNUAL REPORT
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<CAPTION>
Return On Average Assets
(Percent)
<S> <C>
1995 0.94%
1996 1.06%
1997 1.10%
1998 1.17%
1999 1.09%
<CAPTION>
Net Income
(In Thousands)
<S> <C>
1995 $2,255
1996 $2,630
1997 $2,848
1998 $3,155
1999 $3,160
<CAPTION>
Return On Average Equity
(Percent)
<S> <C>
1995 10.63%
1996 11.44%
1997 11.48%
1998 11.80%
1999 11.94%
</TABLE>
volumes, interest rates and the composition or mix of interest-earning assets in
relation to interest-bearing liabilities. Net interest income increased
$325,286, or 2.8% in 1999 compared to a $77,043, or less than 1% increase in
1998. The net interest spread has declined slightly during the past two years.
The dynamics of this increase are related to changes in rate and volume
within interest-earning assets and interest-bearing liabilities. Average
interest-earning assets increased $16,226,000, or 6.3% in 1999 over 1998
compared to $8,922,000, or 3.6% in 1998 over 1997. The associated
weighted-average yield on these interest-earning assets decreased to 7.88% in
1999 compared to 8.26% in 1998 and 8.43% in 1997.
Average interest-bearing liabilities increased $18,935,000, or 8.5% in 1999
over 1998 compared to $7,870,000, or 3.7% in 1998 over 1997. Several factors
have attributed to the increase and composition of interest-bearing liabilities
during 1999. In January 1999, approximately $2.8 million, $5.1 million and $2.4
million of savings, time and demand deposits, respectively were acquired in the
Jewett, Ohio branch acquisition accounted for as a purchase accounting
transaction, providing an inflow of depository accounts of approximately $10.3
million. However, this was offset with the shrinkage in deposits of
approximately $7.0 million at COMMUNITY during 1999. Management restructured the
products and pricing throughout 1999. The result was COMMUNITY utilized
wholesale funding to meet loan demand.
The associated cost of funds for interest-bearing liabilities in 1999
decreased to 4.06% in 1999, compared to 4.32% in 1998, and 4.37% in 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses is an operating expense recorded to maintain
the related balance sheet allowance for loan losses at an amount considered
adequate to cover losses that may occur in the normal course of lending. The
total provision for loan losses was $726,806 in 1999 compared to $797,957 in
1998 and $932,000 in 1997. The decrease from 1998 of 8.9% in the provision for
loan losses can be attributed to Management's continued efforts to improve
credit quality in the loan portfolio. The allowance for loan losses as a
percentage of loans decreased to 1.72% at year-end 1999, from 1.85% at year-end
1998, which occurred because of the increase in the third and fourth quarters of
1999 of total outstanding loans. As a percentage of average loans outstanding
the allowance for loan losses was 1.82% for 1999 compared to 1.77% for 1998. For
additional information on the Company's loan portfolio, please refer to the
graphs on page 22.
NONINTEREST INCOME
Noninterest income is made up of Bank related fees and service charges, as
well as other income producing services.
UNITED BANCORP, INC. 1999 ANNUAL REPORT 21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
These include secondary market loan servicing fees, ATM/interchange income,
early redemption penalties for certificates of deposit, safe deposit rental
income, net gain or loss on sales of securities available for sale and loans,
leased rental property, cash management services and other miscellaneous items.
Total noninterest income for 1999 was $1,285,519, or 18.7% under 1998 totals.
Total noninterest income for 1998 was $1,581,139, or 21.0% over 1997.
The decline in noninterest income from 1998 to 1999 is attributed to the
decreased activity in the secondary market program during 1999.
Gains on the sale of fixed-rate mortgages in the secondary market, the
introduction of a skip payment loan program, expanded ATM network and
surcharging non-customers of the Company contributed the most to the solid
increases in noninterest income for 1998.
NONINTEREST EXPENSE
Noninterest expense for 1999 increased a modest $181,571, or 2.3% over 1998
compared to $62,030, or 0.8% for 1998 over 1997.
Management is pleased with the modest increase in non-interest expense from
1998 to 1999. During 1999, CITIZENS grew its franchise with the January 28, 1999
purchase of a full service banking center in Jewett, Ohio, and the March 15,
1999 opening of a full service brokerage division of CITIZENS known as Brokerage
United with securities provided through Raymond James Financial Services, Inc.
COMMUNITY extended their franchise with penetration into Fairfield County in
1999. Approximately $225,000 of start-up expenses were incurred related to
COMMUNITY'S expansion strategy which included the scheduled January 31, 2000
opening of a new main office, a full service
<TABLE>
<CAPTION>
DILUTED EARNINGS
PER SHARE
<S> <C>
1995 $0.77
1996 $0.90
1997 $0.96
1998 $1.06
1999 $1.07
<CAPTION>
NET CHARGEOFFS TO AVERAGE LOANS (PERCENT)
<S> <C>
1995 0.20%
1996 0.62%
1997 0.38%
1998 0.48%
1999 0.38%
<CAPTION>
TOTAL ALLOWANCES FOR LOAN LOSSES TO TOTAL LOANS (PERCENT)
<S> <C>
1995 1.65%
1996 1.66%
1997 1.77%
1998 1.85%
1999 1.72%
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
----------- ----------- --------------
1999 1998 1997
----------- ----------- --------------
<S> <C> <C> <C>
Noninterest income
Service charges on deposit accounts $ 745,797 $ 749,526 $ 721,167
Net realized gain on sales of securities 38,833 1,687 25,000
Net realized gain on sales of loans 41,289 139,037 139,005
Other income 459,600 690,889 421,993
----------- ----------- --------------
Total noninterest income $ 1,285,519 $ 1,581,139 $ 1,307,165
=========== =========== ==============
Noninterest expense
Salaries and employee benefits $ 4,052,095 $ 3,940,756 $ 4,002,348
Occupancy and equipment 1,244,648 1,192,375 1,149,443
Professional services 152,653 311,335 405,545
Insurance 158,415 167,320 180,000
Franchise and other taxes 284,125 310,915 412,680
Advertising 302,655 243,452 254,577
Stationery and office supplies 276,995 215,978 229,255
Other expenses 1,717,674 1,625,558 1,311,811
----------- ----------- --------------
Total noninterest expense $ 8,189,260 $ 8,007,689 $ 7,945,659
=========== =========== ==============
- -------------------------------------------------------------------------------------------------------
</TABLE>
22 UNITED BANCORP, INC. 1999 ANNUAL REPORT
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<CAPTION>
Efficiency Ratio
(Percent)
<S> <C>
1995 60.43%
1996 58.34%
1997 57.50%
1998 56.37%
1999 57.50%
</TABLE>
banking center and a limited service drive-thru all in the county seat of
Fairfield County, Lancaster, Ohio.
Professional services decreased significantly from 1998 to 1999 as the
costs of acquiring Southern Ohio Community Bancorporation, Inc. and the banking
center in Jewett, Ohio were incurred during 1998. Occupancy, advertising and
stationery and office supplies increased from 1998 to 1999. This increase was
the result of the expansion strategy previously discussed. Increased advertising
was deemed necessary to successfully enter into the Lancaster market. Management
expects to incur additional occupancy, advertising, and stationery and office
supplies expense in the first quarter of 2000 as a result of the expansion
strategy.
Salaries and employee benefits increased approximately 2.8% from 1998 to
1999. The increase is a result of additional staffing for the Lancaster and
Jewett, Ohio expansion during 1999.
Professional services and franchise taxes accounted for the largest
decreases in 1998 compared to 1997. Occupancy and equipment and other expense
attributed to the most significant increases from 1997 to 1998. Increased
occupancy expense resulted due to a full year of costs associated with the July
1997 opening of CITIZENS' Retail Banking Center in St. Clairsville, Ohio. Also
contributing to the increase in 1998 was the cost of certain maintenance
contracts and other operational costs at COMMUNITY. Prior to the July 7, 1998
merger, COMMUNITY, as a stand-alone bank, operated their own data processing,
operational support center and financial reporting and accounting function. As
such, they had separate maintenance contracts and incurred certain contract
termination fees associated with the consolidation of all these functions to the
Company's consolidated Operations Center in Martins Ferry, Ohio. In addition,
other expense increased from 1997 to 1998. Merger related expenses contributed
to the majority of the increase in other expense. The variances between years
are in part due to the July 1998 merger with Southern. This transaction was
accounted for under the pooling of interests method of accounting and thus all
financial information has been restated to include Southern. However, the
management of Southern's operating subsidiary, COMMUNITY, has changed
dramatically since the acquisition. Expense control procedures are now
implemented and this has produced annual savings in excess of $400,000. Prior to
the expense control procedures, COMMUNITY'S salaries and employees benefit costs
and professional expense and occupancy and equipment were high relative to peer
bank data.
ASSET/LIABILITY MANAGEMENT AND SENSITIVITY TO MARKET RISKS
In the environment of changing business cycles, interest rate fluctuations
and growing competition, it has become increasingly more difficult for banks to
produce adequate earnings on a consistent basis. Because it is not possible to
reliably predict interest rates, the Company must establish a sound
asset/liability policy which will minimize exposure to interest rate risk while
maintaining an acceptable interest rate spread and insuring adequate liquidity.
The principal goal of asset/liability management - profit management - can
be accomplished by establishing decision processes and control procedures for
all bank assets and liabilities. Thus, the full scope of asset/liability
management encompasses the entire balance sheet of the Company. The broader
principal components of asset/liability management include, but are not limited
to liquidity planning, capital planning, gap management and spread management.
By definition, liquidity is measured by the Company's ability to raise cash
at a reasonable cost or with a minimum of loss. Liquidity planning is neces-
UNITED BANCORP, INC. 1999 ANNUAL REPORT 23
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
sary so the Company will be capable of funding all obligations to its customers
at all times, from meeting their immediate cash withdrawal requirements to
fulfilling their short-term credit needs.
Capital planning is an essential portion of asset/liability management, as
capital is a limited bank resource, which, due to minimum capital requirements,
can place possible restraints on bank growth. Capital planning refers to
maintaining capital standards through effective growth management, dividend
policies and asset/liability strategies.
Gap is defined as the dollar difference between rate sensitive assets and
rate sensitive liabilities with respect to a specified time frame. A gap has
three components - the asset component, the liability component, and the time
component. Gap management involves the management of all three components.
Gap management is defined as those actions taken to measure and match rate
sensitive assets to rate sensitive liabilities. A rate sensitive asset is any
interest-earning asset, which can be repriced to a market rate in a given time
frame. Similarly, a rate sensitive liability is any interest-bearing liability,
which can have its interest rate changed to a market rate during the specified
time period. Caps and collars may prevent certain loans and securities from
adjusting to the market rate.
A negative gap is created when rate sensitive liabilities exceed rate
sensitive assets and, conversely, a positive gap occurs when rate sensitive
assets exceed rate sensitive liabilities. A negative gap position will cause
profits to decline in a rising interest rate environment and a positive gap will
cause profits to decline in a falling interest rate environment. Under either
scenario, profits suffer. The Company's goal is to have acceptable profits under
any interest rate environment. To avoid volatile profits as a result of interest
rate fluctuations, the Company must match interest rate sensitivities, while
pricing both the asset and liability components to yield a sufficient interest
rate spread so that profits will remain relatively consistent across interest
rate cycles.
Management of the income statement is called spread management and is
defined as managing investments, loans, and liabilities to achieve an acceptable
spread between the Company's return on its earning assets and its cost of funds.
Gap management without consideration of interest spread can cause unacceptably
low profit margins while assuring that the level of profits is steady. Spread
management without consideration of gap positions can cause acceptable profits
in some interest rate environments and unacceptable profits in others. A sound
asset/ liability management program combines gap and spread management into a
single cohesive system.
Management measures the Company's interest rate risk by computing estimated
changes in net interest income and the net portfolio value ("NPV") of its cash
flows from assets, liabilities and off-balance sheet items in the event of a
range of assumed changes in market interest rates. The Banks' senior management
and the Executive Committee of the Board of Directors, comprising the
Asset/Liability Committee ("ALCO") review the exposure to interest rates at
least quarterly. Exposure to interest rate risk is measured with the use of an
interest rate sensitivity analysis to determine the change in NPV in the event
of hypothetical changes in interest rates, while interest rate sensitivity gap
analysis is used to determine the repricing characteristics of the assets and
liabilities.
NPV represents the market value of portfolio equity and is equal to the
market value of assets minus the market value of liabilities, with adjustments
made for off-balance sheet items.
Computations of prospective effects of hypothetical interest rate changes
are based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit decay rates, and should not be relied upon
as indicative of actual results. Further, the computations do not contemplate
any actions the Company may undertake in response to changes in interest rates.
The NPV calculation is based on the net present value of discounted cash flows
utilizing market prepayment assumptions and market rates of interest
24 UNITED BANCORP, INC. 1999 ANNUAL REPORT
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
provided by surveys performed during each quarterly period, with adjustments
made to reflect the shift in the Treasury yield curve between the survey date
and quarter-end date. Certain shortcomings are inherent in this method of
analysis presented in the computation of estimated NPV. Certain assets such as
adjustable-rate loans have features that restrict changes in interest rates on a
short-term basis and over the life of the asset. In addition, the proportion of
adjustable-rate loans in the Company's portfolio could decrease in future
periods if market interest rates remain at or decrease below current levels due
to refinancing activity. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate from those assumed
in the table. Finally, the ability of many borrowers to repay their
adjustable-rate debt may decrease in the case of an increase in interest rates.
The following tables present an analysis of the potential sensitivity of
the Company's net present value of its financial instruments to sudden and
sustained changes in the prevailing interest rates.
The projected volatility of the net present value at both December 31, 1999
and 1998 fall within established guidelines.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET PORTFOLIO VALUE - DECEMBER 31, 1999
CHANGE IN RATES $ AMOUNT $ CHANGE % CHANGE
-------- -------- --------
<S> <C> <C> <C>
+300 bp 20,475 (4,823) -19%
+200 bp 22,094 (3,204) -13%
+100 bp 23,679 (1,619) -6%
Base 25,298
-100 bp 27,069 1,771 7%
-200 bp 25,618 320 1%
-300 bp 23,442 (1,856) -7%
</TABLE>
<TABLE>
<CAPTION>
NET PORTFOLIO VALUE - DECEMBER 31, 1998
CHANGE IN RATES $ AMOUNT $ CHANGE % CHANGE
-------- -------- --------
<S> <C> <C> <C>
+150 bp 21,617 (5,704) -21%
+100 bp 23,435 (3,886) -14%
+50 bp 25,341 (1,980) -7%
Base 27,321
-50 bp 29,428 2,107 8%
-100 bp 31,637 4,316 16%
-150 bp 34,015 6,694 25%
</TABLE>
- --------------------------------------------------------------------------------
UNITED BANCORP, INC. 1999 ANNUAL REPORT 25
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following table is a summary of selected quarterly results of
operations for the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1999
Interest and dividend income $ 5,231 $ 5,344 $ 5,476 $ 5,588
Interest expense 2,371 2,366 2,492 2,616
----------- ----------- ----------- -----------
Net interest income 2,860 2,978 2,984 2,972
Provision for loan losses 198 205 141 183
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 2,662 2,773 2,843 2,789
Noninterest income 379 306 270 330
Noninterest expense 1,967 2,163 2,073 1,986
----------- ----------- ----------- -----------
Income before income tax 1,074 916 1,040 1,133
Income tax expense 244 241 264 254
----------- ----------- ----------- -----------
Net income $ 830 $ 675 $ 776 $ 879
=========== =========== =========== ===========
Earnings per common share - Basic $ 0.28 $ 0.23 $ 0.26 $ 0.30
=========== =========== =========== ===========
Earnings per commonshare - Diluted $ 0.28 $ 0.23 $ 0.26 $ 0.30
=========== =========== =========== ===========
Dividends declared per share $ 0.123 $ 0.123 $ 0.124 $ 0.130
=========== =========== =========== ===========
1998
Interest and dividend income $ 5,299 $ 5,316 $ 5,199 $ 5,312
Interest expense 2,457 2,418 2,409 2,373
----------- ----------- ----------- -----------
Net interest income 2,842 2,898 2,790 2,939
Provision for loan losses 117 431 128 122
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 2,725 2,467 2,662 2,817
Noninterest income 361 338 463 419
Noninterest expense 1,985 2,091 2,054 1,878
----------- ----------- ----------- -----------
Income before income tax 1,101 714 1,071 1,358
Income tax expense 271 180 296 342
----------- ----------- ----------- -----------
Net income $ 830 $ 534 $ 775 $ 1,016
=========== =========== =========== ===========
Earnings per comon share - Basic $ 0.28 $ 0.18 $ 0.27 $ 0.34
=========== =========== =========== ===========
Earnings per common share - Diluted $ 0.28 $ 0.18 $ 0.27 $ 0.33
=========== =========== =========== ===========
Dividends declared per share $ 0.109 $ 0.109 $ 0.109 $ 0.124
=========== =========== =========== ===========
</TABLE>
26 UNITED BANCORP, INC. 1999 ANNUAL REPORT
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID
The following table provides information relating to average balance sheet
information and reflects the average yield on interest-bearing liabilities for
the years ended December 31, 1999, 1998 and 1997. The yields and costs are
calculated by dividing income or expense by the average balance of
interest-earning assets or interest-bearing liabilities.
<TABLE>
<CAPTION>
1999 1998
------------------------------------------- -----------------------------------------
(IN THOUSANDS) INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
---------- --------- ----- ----------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Loans $ 168,868 $ 15,130 8.96% $ 168,626 $ 15,775 9.36%
Taxable securities - AFS 72,668 4,886 6.49 51,864 3,444 6.64
Taxable securities - HTM 1,382 90 6.51 4,828 260 5.39
Tax-exempt securities - AFS 10,127 598 5.99 1,053 67 6.36
Tax-exempt securities - HTM 14,480 676 4.67 21,924 1,157 5.28
Federal funds sold 2,307 100 4.33 6,300 315 5.00
FHLB stock and other 2,144 158 7.37 1,155 108 9.35
---------- --------- ----------- ---------
Total interest-earning assets 271,976 21,638 7.88 255,750 21,126 8.26
Noninterest-earning assets
Cash and due from banks 9,341 9,469
Premises and equipment (net) 7,543 6,528
Other nonearning assets 3,866 3,248
Less: allowance for loan losses (3,071) (2,991)
---------- -----------
Total noninterest-earning assets 17,679 16,254
---------- -----------
Total assets $ 289,655 $ 272,004
========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Demand deposits $ 41,258 898 2.18 $ 39,553 1,026 2.59
Savings deposits 59,559 1,248 2.10 59,608 1,804 3.03
Time deposits 113,133 6,198 5.48 108,662 6,059 5.58
Fed funds purchased & TT&L 4,156 214 5.15 3,102 151 4.87
FHLB advances 16,932 972 5.74 4,667 253 5.42
Repurchase agreements 7,306 314 4.30 7,817 364 4.66
---------- --------- ----------- ----------
Total interest-bearing liabilities 242,344 9,844 4.06 223,409 9,657 4.32
--------- ----------
Noninterest-bearing liabilities
Demand deposits 19,851 20,189
Other liabilities 991 1,668
---------- -----------
Total noninterest-bearing liabilities 20,842 21,857
Total liabilities 263,186 245,266
Total shareholders' equity 26,469 26,738
---------- -----------
Total liabilities & shareholders' equity $289,655 $ 272,004
========== ===========
Net interest income $ 11,794 $ 11,469
========= ==========
Net interest spread 3.82% 3.94%
===== =====
Net yield on interest-earning assets 4.30% 4.48%
===== =====
</TABLE>
- - For purposes of this schedule, nonaccrual loans are included in loans.
- - Net interest income is reported on an historical basis without tax-equivalent
adjustment.
- - Fees collected on loans are included in interest on loans.
<TABLE>
<CAPTION>
1997
--------------------------------------------
INTEREST
AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE
---------- ---------- -------
<S> <C> <C> <C>
ASSETS
Interest-earning assets
Loans $ 169,066 $ 16,145 9.55%
Taxable securities - AFS 41,585 2,694 6.48
Taxable securities - HTM 8,659 461 5.32
Tax-exempt securities - AFS 486 25 5.14
Tax-exempt securities - HTM 22,038 1,179 5.35
Federal funds sold 3,976 214 5.38
FHLB stock and other 1,018 83 8.15
---------- --------
Total interest-earning assets 246,828 20,801 8.43
Noninterest-earning assets
Cash and due from banks 5,997
Premises and equipment (net) 6,461
Other nonearning assets 3,187
Less: allowance for loan losses (2,891)
----------
Total noninterest-earning assets 12,754
----------
Total assets $ 259,582
=========
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Demand deposits $ 38,022 1,069 2.81
Savings deposits 58,899 1,945 3.30
Time deposits 107,796 5,884 5.46
Fed funds purchased & TT&L 1,871 79 4.22
FHLB advances 740 37 5.00
Repurchase agreements 8,211 395 4.81
---------- --------
Total interest-bearing liabilities 215,539 9,409 4.37
--------
Noninterest-bearing liabilities
Demand deposits 17,649
Other liabilities 1,599
----------
Total noninterest-bearing liabilities 19,248
Total liabilities 234,787
Total shareholders' equity 24,795
----------
Total liabilities & shareholders' equity $ 259,582
==========
Net interest income $ 11,392
=========
Net interest spread 4.06%
=====
Net yield on interest-earning assets 4.62%
=====
</TABLE>
- - For purposes of this schedule, nonaccrual loans are included in loans.
- - Net interest income is reported on an historical basis without tax-equivalent
adjustment.
- - Fees collected on loans are included in interest on loans.
UNITED BANCORP, INC. 1999 ANNUAL REPORT 27
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS
The average balance of available for sale securities is computed using the
carrying value of securities. The yield for available for sale securities has
been computed using the average amortized cost. Average balances are derived
from average month-end balances, which include nonaccruing loans in the loan
portfolio, net of the allowance for loan losses. Interest income is on a
historical basis without tax-equivalent adjustment.
RATE/VOLUME ANALYSIS
The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected interest income and expense during the periods indicated. For
purposes of this table, changes in interest due to volume and rate were
determined using the following methods.
- - Volume variance results when the change in volume is multiplied by the
previous year's rate.
- - Rate variance results when the change in rate is multiplied by the previous
year's volume.
- - Rate/volume variance results when the change in volume is multiplied by the
change in rate.
Note: The rate/volume variance was allocated to volume variance and rate
variance in proportion to the relationship of the absolute dollar amount of the
change in each. Nonaccrual loans are ignored for purposes of the calculations
due to the nominal amount of the loans.
CAPITAL RESOURCES
Internal capital growth, through the retention of retained earnings, is the
primary means of maintaining capital adequacy for the Banks. Shareholders'
equity at year-end 1999 was $25,297,973 compared to $27,320,749 at year-end
1998, representing a decrease of 7.4%. Equity totals include
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 COMPARED TO 1998 1998 COMPARED TO 1997
INCREASE/(DECREASE) INCREASE/(DECREASE)
------------------------------------- -----------------------------------------
(IN THOUSANDS) CHANGE CHANGE CHANGE CHANGE
TOTAL DUE TO DUE TO TOTAL DUE TO DUE TO
CHANGE VOLUME RATE CHANGE VOLUME RATE
------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest and dividend income
Loans $ (645) $ 23 $ (668) $ (370) $ (42) $ (328)
Taxable securities available for sale 1,442 1,523 (81) 750 681 69
Taxable securities held to maturity (170) (216) 46 (201) (206) 5
Tax-exempt securities available for sale 531 535 (4) 42 35 7
Tax-exempt securities held to maturity (481) (359) (122) (22) (6) (16)
Federal funds sold (215) (178) (37) 101 117 (16)
FHLB stock and other 50 77 (27) 25 12 13
------- ------- ------ ------ ------ -------
Total interest and dividend income 512 1,405 (893) 325 591 (266)
Interest expense
Demand deposits (128) 43 (171) (43) 42 (85)
Savings deposits (556) (1) (555) (141) 23 (164)
Time deposits 139 246 (107) 175 48 127
Fed funds purchased & T, T&L 63 54 9 72 58 14
FHLB advances 719 703 16 216 213 3
Repurchase agreements (50) (23) (27) (31) (19) (12)
------- ------- ------ ------- ------- -------
Total interest expense 187 1,022 (835) 248 365 (117)
------- ------- ------ ------- ------- -------
Net interest earnings $ 325 $ 383 $ (58) $ 77 $ 226 $ (149)
======= ======= ====== ======= ======= =======
</TABLE>
28 UNITED BANCORP,INC.1999 ANNUAL REPORT
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS
BOOK VALUE PER SHARE 1995 1996 1997 1998 1999
$7.56 $8.09 $8.74 $9.29 $8.60
EQUITY CAPITAL $22,314 $23,775 $25,713 $27,321 $25,298
(IN THOUSANDS)
($3,847,828) in accumulated other comprehensive income which is comprised solely
of a net unrealized loss on securities available for sale, net of tax, at
year-end 1999, compared to ($120,863) at year-end 1998. Total shareholders'
equity in relation to total assets was 8.5% at year-end 1999 compared to 9.6% at
year-end 1998.
In 1996, the Company established a Dividend Reinvestment Plan ("The Plan")
for shareholders under which the Company's common stock will be purchased by The
Plan for participants with automatically reinvested dividends. The Plan does not
represent a change in the dividend policy or a guarantee of future dividends.
Shareholders who do not wish to participate in The Plan will continue to receive
cash dividends, as declared in the usual and customary manner. The Company has
approved the issuance of 150,000 authorized and unissued shares of the common
stock for purchase under The Plan.
LIQUIDITY
Management's objective in managing liquidity is to maintain the ability to
continue meeting the cash flow needs of its customers, such as borrowings or
deposit withdrawals, as well as its own financial commitments. The principal
sources of liquidity are net income, loan payments, maturing securities, sales
of securities available for sale, federal funds sold and cash and deposits with
banks. Along with its liquid assets, the Company has additional sources of
liquidity available to ensure that adequate funds are available as needed. These
include, but are not limited to, the purchase of federal funds, the ability to
borrow funds under line of credit agreements with correspondent banks and a
borrowing agreement with the 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 year-ended 1999, the adjustments to reconcile net income to net
cash from operating activities consisted mainly of depreciation and amortization
of premises and equipment and intangibles, gain on sales of loans, securities
and other assets, the provision for loan losses, Federal Home Loan Bank stock
dividends, net amortization of securities and net changes in other assets and
liabilities.
Investing activities include changes in securities, net changes in loans,
other real estate owned and premises and equipment purchased.
Financing activities include net changes in deposits and short and
long-term borrowings and cash dividends paid. For a detailed illustration of
sources and uses of cash, refer to the consolidated statement of cash flows
presented elsewhere in the annual report.
INFLATION
Substantially all of the Company's assets and liabilities relate to banking
activities and are monetary in nature. The consolidated financial statements and
related financial data are presented in accordance with General Accepted
Accounting Principles ("GAAP"). GAAP currently requires the Company to measure
several of the Company's assets and liabilities in terms of historical dollars.
Changes in the value of money due to rising inflation can cause purchasing power
loss.
UNITED BANCORP,INC.1999 ANNUAL REPORT 29
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's opinion is that a movement in interest rates affects the
financial condition and results of operations to a greater degree than changes
in the rate of inflation. It should be noted that interest rates and inflation
do affect each other, but do not always move in correlation with each other. The
Company's ability to match the interest sensitivity of its financial assets to
the interest sensitivity of its liabilities in its asset/liability management
may tend to minimize the effect of changes in interest rates on performance.
YEAR 2000
The Company experienced no problems in their computer application systems,
nor has management been made aware of any system problems of the Company's major
customers and vendors, related to Year 2000 issues. In addition, the Company did
not experience unusual deposit withdrawals related to the Year 2000. In 1999,
the Company's expenditures for Year 2000 issues totaled $20,000. The Company
does not expect to incur any material costs over the next few months in regards
to Year 2000 issues.
[UNITED BANCORP,INC. LOGO]
UNITED BANCORP,INC.
WE ARE UNITED
TO BETTER SERVE YOU
MERGER HISTORY
The Citizens Savings Bank Expansion, Jewett, Ohio, January 28, 1999, 1 Branch
$11 Million in Assets
Southern Ohio Community Bancorp, Inc., July 8, 1998, 4 Branches
$50 Million in Assets
The Citizens-State Bank Expansion, Dellroy, Ohio, December 2, 1994, 1 Branch
$7.2 Mil in Assets
The Citizens-State Bank Expansion, New Philadelphia & Sherrodsville, Ohio, March
16, 1992, 2 Branches
$18.9 Million in Assets
The Citizens-State Bank, Strasburg, Ohio, December 26, 1986, 1 Branch
$13.2 Million in Assets
30 UNITED BANCORP,INC.1999 ANNUAL REPORT
<PAGE> 33
REPORT OF INDEPENDENT AUDITORS
[CROWE CHIZEK LOGO]
Board of Directors and Shareholders
United Bancorp, Inc.
Martins Ferry, Ohio
We have audited the accompanying consolidated balance sheets of United
Bancorp, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United
Bancorp, Inc. as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for derivative instruments and hedging
activities effective April 1, 1999, to comply with new accounting guidance.
/s/ Crowe, Chizek and Company LLP
CROWE, CHIZEK AND COMPANY LLP
Columbus, Ohio
January 14, 2000
UNITED BANCORP, INC. 1999 ANNUAL REPORT 31
<PAGE> 34
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
----------------- -----------------
1999 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 11,096,955 $ 11,321,751
Federal funds sold 780,000 5,170,000
----------------- -----------------
Total cash and cash equivalents 11,876,955 16,491,751
Securities available for sale 85,362,479 75,837,353
Securities held to maturity (Estimated fair value
of $9,566,423 in 1999 and $22,840,795 in 1998) 9,793,997 21,848,164
Total loans receivable 180,515,913 164,220,938
Allowance for loan losses (3,109,821) (3,033,105)
----------------- -----------------
Net loans receivable 177,406,092 161,187,833
Premises and equipment, net 9,008,651 6,980,647
Accrued interest receivable 2,322,819 2,184,745
Other real estate and repossessions 35,512 51,277
Other assets 2,957,574 911,127
----------------- -----------------
Total assets $ 298,764,079 $ 285,492,897
================= =================
LIABILITIES
Demand deposits
Noninterest-bearing $ 19,858,385 $ 21,033,047
Interest-bearing 37,780,951 41,779,931
Savings deposits 56,244,818 57,090,992
Time deposits - under $100,000 98,326,050 87,242,122
Time deposits - $100,000 and over 23,329,661 21,964,280
----------------- -----------------
Total deposits 235,539,865 229,110,372
Securities sold under agreements to repurchase 5,787,898 7,732,638
Other borrowed funds 30,599,092 19,700,230
Accrued expenses and other liabilities 1,539,251 1,628,908
----------------- -----------------
Total liabilities 273,466,106 258,172,148
SHAREHOLDERS' EQUITY
Common stock - $1 par value: 10,000,000 shares authorized;
2,942,885 - 1999 and 2,800,298 - 1998 issued and outstanding 2,942,885 2,800,298
Additional paid-in capital 19,660,205 17,801,437
Retained earnings 6,542,711 6,839,877
Accumulated other comprehensive income, net of tax (3,847,828) (120,863)
----------------- -----------------
Total shareholders' equity 25,297,973 27,320,749
----------------- -----------------
Total liabilities and shareholders' equity $ 298,764,079 $ 285,492,897
================= ==================
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements
32 UNITED BANCORP, INC. 1999 ANNUAL REPORT
<PAGE> 35
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
----------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Interest and dividend income
Loans, including fees $ 15,129,533 $ 15,774,673 $ 16,144,767
Taxable securities 4,976,318 3,703,294 3,155,327
Non-taxable securities 1,274,083 1,224,814 1,204,066
Federal funds sold 100,341 315,291 214,127
Dividends on Federal Home Loan Bank stock and other 158,415 108,349 82,876
------------- ------------- -------------
Total interest and dividend income 21,638,690 21,126,421 20,801,163
Interest expense
Deposits
Demand 898,450 1,026,353 1,068,698
Savings 1,248,199 1,804,174 1,945,005
Time 6,198,199 6,059,086 5,884,211
Other borrowings 1,499,979 768,231 511,715
------------- ------------- -------------
Total interest expense 9,844,827 9,657,844 9,409,629
------------- ------------- -------------
NET INTEREST INCOME 11,793,863 11,468,577 11,391,534
Provision for loan losses 726,806 797,957 932,000
------------- ------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 11,067,057 10,670,620 10,459,534
Noninterest income
Service charges on deposit accounts 745,797 749,526 721,167
Net realized gain on sales/calls of securities 38,833 1,687 25,000
Net realized gain on sales of loans 41,289 139,037 139,005
Other income 459,600 690,889 421,993
------------- ------------- -------------
Total noninterest income 1,285,519 1,581,139 1,307,165
Noninterest expense
Salaries and employee benefits 4,052,095 3,940,756 4,002,348
Occupancy and equipment 1,244,648 1,192,375 1,149,443
Professional services 152,653 311,335 405,545
Insurance 158,415 167,320 180,000
Franchise and other taxes 284,125 310,915 412,680
Advertising 302,655 243,452 254,577
Stationery and office supplies 276,995 215,978 229,255
Other expenses 1,717,674 1,625,558 1,311,811
------------- ------------- -------------
Total noninterest expense 8,189,260 8,007,689 7,945,659
------------- ------------- -------------
INCOME BEFORE INCOME TAXES 4,163,316 4,244,070 3,821,040
Income tax expense 1,003,062 1,089,091 973,472
------------- ------------- -------------
NET INCOME $ 3,160,254 $ 3,154,979 $ 2,847,568
============= ============ =============
Earnings per common share - Basic $ 1.07 $ 1.07 $ 0.97
============= ============ =============
Earnings per common share - Diluted $ 1.07 $ 1.06 $ 0.96
============= ============ =============
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements
UNITED BANCORP, INC. 1999 ANNUAL REPORT 33
<PAGE> 36
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
----------- ------------ -----------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 $ 2,462,385 $ 11,797,390 $ 9,423,845
Net income 2,847,568
10% Stock dividend 203,279 3,710,053 (3,913,332)
Other changes - Southern prior to merger 21,068
Cash paid in lieu of fractional shares
on 10% stock dividend (4,095)
Proceeds and tax benefit from
exercise of stock options 1,650 22,956
Cash dividends - $0.40 per share (984,725)
Cash dividends paid by Southern prior to
merger (47,069)
Net change in unrealized gain/(loss) on
securities available for sale
Comprehensive income
----------- ------------ -----------
BALANCE AT DECEMBER 31, 1997 2,667,314 15,551,467 7,322,192
Net income 3,154,979
5% Stock dividend 132,984 2,249,970 (2,382,954)
Cash paid in lieu of fractional shares
on 5% stock dividend (6,938)
Cash dividends - $0.45 per share (1,221,312)
Cash dividends paid by Southern prior to
merger (26,090)
Net change in unrealized gain/(loss) on
securities available for sale
Comprehensive income
----------- ------------ -----------
BALANCE AT DECEMBER 31, 1998 2,800,298 17,801,437 6,839,877
Net income 3,160,254
5% Stock dividend 139,720 1,833,769 (1,973,489)
Cash paid in lieu of fractional shares
on 5% stock dividend (6,245)
Proceeds and tax benefit from exercise of
stock options, net of shares redeemed 2,867 24,999
Cash dividends - $0.50 per share (1,477,686)
Net change in unrealized gain/(loss) on
securities available for sale
Comprehensive income/(loss)
----------- ------------ -----------
BALANCE AT DECEMBER 31, 1999 $ 2,942,885 $ 19,660,205 $ 6,542,711
=========== ============ ===========
</TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE COMPREHENSIVE SHAREHOLDERS'
INCOME INCOME EQUITY
------------- ------------ ------------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 $ 91,391 $ 23,775,011
Net income $ 2,847,568 2,847,568
10% Stock dividend
Other changes - Southern prior to merger 21,068
Cash paid in lieu of fractional shares
on 10% stock dividend (4,095)
Proceeds and tax benefit from
exercise of stock options 24,606
Cash dividends - $0.40 per share (984,725)
Cash dividends paid by Southern prior to
merger (47,069)
Net change in unrealized gain/(loss) on
securities available for sale 80,273 80,273 80,273
------------
Comprehensive income $ 2,927,841
============
----------- ------------
BALANCE AT DECEMBER 31, 1997 171,664 25,712,637
Net income $ 3,154,979 3,154,979
5% Stock dividend
Cash paid in lieu of fractional shares
on 5% stock dividend (6,938)
Cash dividends - $0.45 per share (1,221,312)
Cash dividends paid by Southern prior to
merger (26,090)
Net change in unrealized gain/(loss) on
securities available for sale (292,527) (292,527) (292,527)
------------
Comprehensive income $ 2,862,452
============
----------- ------------
BALANCE AT DECEMBER 31, 1998 (120,863) 27,320,749
Net income $ 3,160,254 3,160,254
5% Stock dividend
Cash paid in lieu of fractional shares
on 5% stock dividend (6,245)
Proceeds and tax benefit from exercise of
stock options, net of shares redeemed 27,866
Cash dividends - $0.50 per share (1,477,686)
Net change in unrealized gain/(loss) on
securities available for sale
(3,726,965) (3,726,965) (3,726,965)
------------
Comprehensive income/(loss) $ (566,711)
============
----------- ------------
BALANCE AT DECEMBER 31, 1999 $(3,847,828) $ 25,297,973
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements
34 UNITED BANCORP, INC. 1999 ANNUAL REPORT
<PAGE> 37
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
-------------- ------------- -------------
1999 1998 1997
-------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 3,160,254 $ 3,154,979 $ 2,847,568
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 766,229 638,160 657,337
Provision for loan losses 726,806 797,957 932,000
Deferred taxes (117,985) 59,865 (39,979)
Federal Home Loan Bank stock dividend (144,400) (82,807) (49,803)
Gain on sales/calls of securities (38,833) (1,687) (25,000)
(Accretion)/amortization of securities, net 45,767 (38,437) (2,437)
Gain on sales of loans (41,289) (139,037) (139,005)
Amortization of mortgage servicing rights 47,490 29,035 3,198
Gain on sale of assets (10,032) (39,976) (22,772)
Net changes in accrued interest receivable and other assets (133,552) (131,568) 244,385
Net changes in accrued expenses and other liabilities (124,838) (107,692) 48,835
-------------- ------------- -------------
Net cash from operating activities 4,135,617 4,138,792 4,454,327
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale
Proceeds from sales 7,271,884 2,121,234 2,944,000
Proceeds from maturities/calls 13,178,601 38,021,972 16,408,000
Purchases (19,468,023) (70,260,470) (28,706,107)
Securities held to maturity
Proceeds from maturities/calls - 8,532,005 5,705,000
Purchases (3,960,549) (1,357,432) (1,001,774)
Net change in loans (17,034,756) 6,135,586 (5,787,304)
Proceeds from sale of assets 305,554 492,208 129,641
Net purchases of premises and equipment (2,823,215) (1,049,732) (805,254)
-------------- ------------- -------------
Net cash from investing activities (22,530,504) (17,364,629) (11,113,798)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits (3,881,264) 5,621,720 5,389,055
Cash and cash equivalents received from deposit assumption,
net of assets acquired 10,163,299 - -
Net change in short-term borrowings 8,079,507 10,313,685 2,188,839
Proceeds from long-term debt 3,693,000 4,680,000 1,180,000
Principal payments on long-term debt (2,818,386) (230,239) (46,149)
Cash dividends paid (1,477,686) (1,247,402) (1,031,794)
Cash paid in lieu of fractional shares in stock dividend (6,245) (6,938) (4,095)
Other equity changes in Southern prior to the merger - - 21,068
Proceeds and tax benefit from exercise of stock options,
net of shares redeemed 27,866 - 24,606
-------------- ------------- -------------
Not change from financing activities 13,780,091 19,130,826 7,721,530
-------------- ------------- -------------
Net change in cash and cash equivalents (4,614,796) 5,904,989 1,062,059
Cash and cash equivalents at beginning of year 16,491,751 10,586,762 9,524,703
-------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 11,876,955 $ 16,491,751 $ 10,586,762
============== ============= =============
Interest paid $ 9,883,868 $ 9,745,853 $ 9,475,722
Income taxes paid 1,078,302 905,554 826,765
Non-cash transfer from loans to other real estate and
repossessions $ 279,758 $ 317,480 $ 91,000
Non-cash transfer of securities from held to maturity to
available for sale upon adoption of SFAS No. 133 16,004,920
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements
UNITED BANCORP, INC. 1999 ANNUAL REPORT 35
<PAGE> 38
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of United
Bancorp, Inc. ("Company") and its wholly-owned subsidiaries, ("Banks"), The
Citizens Savings Bank of Martins Ferry, Ohio ("CITIZENS") and The Community
Bank, Glouster, Ohio ("COMMUNITY"). On April 21, 1999, The Citizens-State Bank
of Strasburg, Ohio ("CITIZENS-STATE"), a wholly-owned subsidiary of the Company,
was merged into CITIZENS. All significant intercompany transactions and balances
have been eliminated in consolidation.
NATURE OF OPERATIONS/SEGMENTS:
The Company's and Banks' revenues, operating income, and assets are
primarily from the banking industry. Accordingly, all of the Company's banking
operations are considered by Management to be aggregated in one reportable
operating segment. Loan customers are mainly located in Athens, Belmont,
Carroll, Fairfield, Harrison, Hocking, and Tuscarawas Counties and the
surrounding localities in northeastern, eastern and southeastern Ohio, and
include a wide range of individuals, business and other organizations. A major
portion of loans are secured by various forms of collateral including real
estate, business assets, consumer property and other items. Commercial loan
repayment is expected from cash flows of the business. Real estate loans are
secured by both residential and commercial real estate. CITIZENS conducts its
business through its main office in Martins Ferry, Ohio and nine branches in
Bridgeport, Colerain, Dellroy, Dover, Jewett, New Philadelphia, St. Clairsville,
Sherrodsville, and Strasburg Ohio. COMMUNITY conducts its business through its
seven offices in Amesville, Glouster, Lancaster, and Nelsonville, Ohio.
USE OF ESTIMATES:
To prepare financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions based on
available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided, and future
results could differ. The allowance for loan losses, fair values of financial
instruments and status of contingencies are particularly subject to change.
CASH FLOW REPORTING:
Cash and cash equivalents are defined as cash and due from banks and
federal funds sold. Net cash flows are reported for customer loan and deposit
transactions, securities sold under agreements to repurchase and short-term
borrowings.
SECURITIES:
Securities are classified as held to maturity and carried at amortized cost
when management has the positive intent and ability to hold them to maturity.
Securities are classified as available for sale when they might be sold before
maturity. Securities available for sale are carried at fair value, with
unrealized holding gains and losses reported in other comprehensive income, net
of tax. Other securities such as Federal Home Loan Bank stock are carried at
cost. Interest income includes amortization of purchase premiums and discounts.
Realized gains and losses on sales are based on the amortized cost of the
security sold. Securities are written down to fair value when a decline in fair
value is not temporary.
LOANS:
Loans are reported at the principal balance outstanding, net of deferred
loan fees and costs, and the allowance for loan losses. Loans held for sale are
reported at the lower of cost or market, on an aggregate basis. Interest income
is reported on the interest method and includes amortization of net deferred
loan fees and costs over the loan term. Interest income is not reported when
full loan repayment is doubtful, typically when the loan is impaired or payments
are past due over 90 days. Payments received on such loans are reported as
principal reductions.
ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses is a valuation allowance for probable credit
loss, increased by the provision for loan losses and decreased by charge-offs
less recoveries. Management estimates the allowance balance required based on
past loan loss experience, known and inherent risks in the nature and volume of
the portfolio, information about specific borrower situations and estimated
collateral values, economic conditions and other factors. Allocations of the
allowance may be made for specific loans, but the entire allowance is available
for any loan that, in management's judgment, should be charged-off.
36 UNITED BANCORP, INC. 1999 ANNUAL REPORT
<PAGE> 39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR LOAN LOSSES: (CONTINUED)
A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral.
PREMISES AND EQUIPMENT:
Premise and equipment are stated at cost less accumulated depreciation.
Depreciation is computed over the assets useful lives on the straight-line
method. These assets are reviewed for impairment when events indicate the
carrying amount may not be recoverable.
FORECLOSED ASSETS:
Assets acquired in settlement of loans are initially recorded at estimated
fair value at acquisition, establishing a new basis. After acquisition, a
valuation allowance reduces the reported amount to the lower of the initial
amount or fair value less costs to sell. Expenses, gains and losses on
disposition and changes in the valuation allowance are reported in other
expenses.
LOAN SERVICING RIGHTS:
Loan servicing rights are recognized as assets for purchased rights and for
the allocated value of retained servicing rights on loans sold. Servicing rights
are expensed in proportion to, and over the period of, estimated net servicing
revenues. Impairment is evaluated based on the fair value of the rights, using
groupings of underlying loans with similar characteristics. Any impairment of a
grouping is reported as a valuation allowance.
INTANGIBLE ASSETS:
Identified intangibles include the value of depositor relationships
purchased which are being amortized on an accelerated method over eight years.
Unidentified intangibles include goodwill, which is being amortized on a
straight-line method over eleven years. Intangible assets are assessed for
impairment based on estimated undiscounted cash flows and written down if
necessary. At year-end 1999 and 1998, intangibles, net of accumulated
amortization, totaled $153,069 and $82,261 and are included in other assets in
the accompanying consolidated balance sheets.
REPURCHASE AGREEMENTS:
Substantially all repurchase agreement liabilities represent amounts
advanced by various customers. Securities are pledged to cover these
liabilities, which are not covered by federal deposit insurance.
EMPLOYEE BENEFITS:
A defined benefit pension plan covers all employees who have completed
1,000 hours of service during an anniversary year, measured from their date of
hire, who have attained age 21. The plan calls for benefits to be paid to
eligible employees at retirement, based primarily upon years of service and
compensation rates near retirement. Contributions to the plan reflect benefits
attributed to employees' services to date, as well as services expected to be
earned in the future. Plan assets consist of primarily common stock and
certificates of deposit. Pension expense is the net of service and interest
cost, return on plans assets, and amortization of gains and losses not
immediately recognized.
The Company offers a 401(k) plan, which covers all employees who have
attained the age of 21 and have completed one year of service. Eligible
employees may contribute up to 15% of their compensation subject to maximum
statutory limitation. The Company may make a discretionary matching contribution
equal to a percentage of each participant's elective deferral not to exceed 6%
of the participant's annual compensation. Employee contributions are always
vested. Employer contributions become 100% vested after 5 years of service.
STOCK COMPENSATION:
Expense for employee compensation under stock option plans is reported only
if options are granted below market price at grant date. Pro forma disclosures
of net income and earnings per share are provided in Note 9 using the fair value
method of Statement of Financial Accounting Standards ("SFAS") No. 123 to
measure expense for options granted after 1994, using an option pricing model to
estimate fair value.
UNITED BANCORP, INC. 1999 ANNUAL REPORT 37
<PAGE> 40
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES:
Income tax expense is the total of the current year income tax due or
refundable and the change in deferred tax assets and liabilities. Deferred tax
assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
STOCK DIVIDENDS:
Dividends issued in stock are reported by transferring the market value of
the stock issued from retained earnings to common stock and additional
paid-in-capital. On November 16, 1999, a 5% stock dividend was approved for all
shareholders of record on December 1, 1999 and distributed on December 20, 1999.
On November 17, 1998, a 5% stock dividend was approved for all shareholders of
record on December 1, 1998 and distributed on December 18, 1998. On August 19,
1997, a 10% stock dividend was approved for all shareholders of record on
September 2, 1997 and distributed on September 19, 1997. All per share data has
been retroactively adjusted for the 5% stock dividends in 1999 and 1998 and the
10% stock dividend in 1997.
FAIR VALUES OF FINANCIAL INSTRUMENTS:
Fair values of financial instruments are estimated using relevant market
information and other assumptions, as more fully disclosed separately. Fair
value estimates involve uncertainties and matters of significant judgment
regarding interest rates, credit risk, prepayments and other factors, especially
in the absence of broad markets for particular items. Changes in assumptions or
in market conditions could significantly affect the estimates.
EARNINGS PER COMMON 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 and related taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ---------- ---------
<S> <C> <C> <C>
Unrealized holding gains and (losses)
on securities available for sale $ (6,279,955) $ (441,581) $ 145,807
Reclassification adjustment for
(gains) and losses later recognized in income (38,833) (1,687) (25,000)
Cumulative effect adjustment for the transfer of
securities from held to maturity to available
for sale upon adoption of SFAS No. 133 674,194 - -
------------ ---------- ---------
Net unrealized gains and (losses) (5,644,594) (443,268) 120,807
Tax effect 1,917,629 150,741 (40,534)
------------ ---------- ---------
Other comprehensive income $ (3,726,965) $ (292,527) $ 80,273
============ ========== =========
</TABLE>
RECLASSIFICATIONS:
Some items in prior financial statements have been reclassified to conform to
the current presentation.
IMPACT OF RECENT ACCOUNTING STANDARDS:
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133, as amended by SFAS
No. 137, is effective
38 UNITED BANCORP, INC. 1999 ANNUAL REPORT
<PAGE> 41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPACT OF RECENT ACCOUNTING STANDARDS: (CONTINUED)
for fiscal years beginning after June 15, 2000 with early adoption encouraged
for any fiscal quarter beginning July 1, 1998 or later, with no retroactive
application. The Corporation adopted SFAS No. 133 effective April 1, 1999. SFAS
No. 133 requires companies to record derivatives on the balance sheet as assets
or liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives are accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. The key criterion for
hedge accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. SFAS No. 133 does not
allow hedging of a security which is classified as held to maturity, accordingly
upon adoption of SFAS No. 133, companies may reclassify any security from held
to maturity to available for sale if they wish to be able to hedge the security
in the future. As a result, the Company transferred $16,004,920 of securities
classified as held to maturity to available for sale. The unrealized gain at the
time the securities were transferred was approximately $674,194. The after tax
effect of the transfer was to increase equity by $444,968 and is shown as
cumulative effect adjustment in other comprehensive income. The adoption of SFAS
No. 133 did not have any other significant impact on the Company's financial
statements.
NOTE 2 - SECURITIES
Securities at year-end were as follows:
<TABLE>
<CAPTION>
AMORTIZED GROSS GROSS ESTIMATED
COST UNREALIZED GAINS UNREALIZED LOSSES FAIR VALUE
------------ ---------------- ----------------- ------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE 1999
US Agency obligations $ 71,820,518 $ - $ (5,868,302) $ 65,952,216
State and municipal obligations 14,112,309 202,464 (127,980) 14,186,793
Mortgage-backed obligations 2,078,678 - (61,249) 2,017,429
Other securities 3,178,800 27,241 - 3,206,041
------------ --------- ------------ ------------
$ 91,190,305 $ 229,705 $ (6,057,531) $ 85,362,479
============ ========= ============ ============
AVAILABLE FOR SALE 1998
US Treasury obligations $ 1,497,454 $ 11,456 $ - $ 1,508,910
US Agency obligations 67,813,577 263,304 (571,165) 67,505,716
State and municipal obligations 2,118,311 79,742 (686) 2,197,367
Mortgage-backed obligations 3,009,643 19,743 (1,782) 3,027,604
Other securities 1,581,600 16,156 - 1,597,756
------------ --------- ------------ ------------
$ 76,020,585 $ 390,401 $ (573,633) $ 75,837,353
============ ========= ============ ============
HELD TO MATURITY 1999
US Agency obligations $ 2,494,474 $ - $ (83,709) $ 2,410,765
State and municipal obligations 7,299,523 49,326 (193,191) 7,155,658
------------ --------- ------------ ------------
$ 9,793,997 $ 49,326 $ (276,900) $ 9,566,423
============ ========= ============ ============
HELD TO MATURITY 1998
State and municipal obligations $ 21,848,164 $ 996,352 $ (3,721) $ 22,840,795
------------ --------- ------------ ------------
$ 21,848,164 $ 996,352 $ (3,721) $ 22,840,795
============ ========= ============ ============
</TABLE>
Sales of securities available for sale were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Proceeds $ 7,271,884 $ 2,121,234 $ 2,944,000
Gross gains 56,068 13,245 25,000
Gross losses 17,236 11,558 -
</TABLE>
Included in gains for 1999 and 1998, were gains of $2,535 and $10,278 resulting
from securities called prior to maturity.
UNITED BANCORP, INC. 1999 ANNUAL REPORT 39
<PAGE> 42
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
NOTE 2 - SECURITIES (CONTINUED)
Contractual maturities of securities at year-end 1999 were as follows:
<TABLE>
<CAPTION>
AVERAGE
AMORTIZED ESTIMATED TAX EQUIVALENT
AVAILABLE FOR SALE COST FAIR VALUE YIELD
------------ ------------ --------------
US AGENCY OBLIGATIONS
<S> <C> <C> <C>
1-5 Years $ 2,749,852 $ 2,692,017 6.18%
5 - 10 Years 31,316,656 29,442,914 6.48%
Over 10 Years 37,754,010 33,817,285 6.43%
------------ ------------ ----
Total 71,820,518 65,952,216 6.44%
------------ ------------ ----
MORTGAGE-BACKED SECURITIES
1- 5 Years 493,956 485,300 5.97%
5 - 10 Years 408,523 394,314 6.98%
Over 10 Years 1,176,199 1,137,815 7.15%
------------ ------------ ----
Total 2,078,678 2,017,429 6.84%
------------ ------------ ----
STATE AND MUNICIPAL OBLIGATIONS
Under 1 Year 654,908 656,695 6.68%
1 - 5 Years 10,677,500 10,864,328 7.85%
5 - 10 Years 1,059,729 1,025,640 6.86%
Over 10 Years 1,720,172 1,640,130 7.19%
------------ ------------ ----
Total 14,112,309 14,186,793 7.64%
------------ ------------ ----
OTHER SECURITIES
Equity securities 3,178,800 3,206,041 7.00%
------------ ------------ ----
TOTAL SECURITIES AVAILABLE FOR SALE $ 91,190,305 $ 85,362,479 6.66%
============ ============ ====
HELD TO MATURITY
US AGENCY OBLIGATIONS
Under 1 Year 1,999,051 $ 1,930,000 7.23%
5 - 10 Years 495,423 480,765 6.79%
------------ ------------ ----
Total 2,494,474 2,410,765 7.14%
------------ ------------ ----
STATE AND MUNICIPAL OBLIGATIONS
1-5 Years 1,743,914 1,756,847 7.44%
5 - 10 Years 3,858,525 3,828,552 7.37%
Over 10 Years 1,697,084 1,570,259 6.73%
------------ ------------ ----
Total 7,299,523 7,155,658 7.23%
------------ ------------ ----
TOTAL SECURITIES HELD TO MATURITY $ 9,793,997 $ 9,566,423 7.21%
============ ============ ====
</TABLE>
Securities with a carrying value of $45,332,000 at December 31, 1999 and
$37,084,000 at December 31, 1998 were pledged to secure public deposits,
repurchase agreements and other liabilities as required or permitted by law.
40 UNITED BANCORP, INC. 1999 ANNUAL REPORT
<PAGE> 43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
NOTE 3-LOANS
Year-end loans were as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Commercial loans $ 15,463,157 $ 12,911,864
Commercial real estate loans 60,304,884 54,194,589
Real estate loans 51,356,542 49,437,908
Installment loans 53,391,330 47,676,577
------------ ------------
Total loans $180,515,913 $164,220,938
============ ============
</TABLE>
Loans to directors and officers, their immediate families, affiliated
corporations, and other entities in which they own more than a 10% voting
interest are summarized below:
<TABLE>
<S> <C>
Aggregate balance -December 31, 1998 $ 3,145,090
New loans 857,634
Repayments (525,786)
------------
Aggregate balance - December 31, 1999 $ 3,476,938
===========
</TABLE>
The activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Balance January 1, $ 3,033,105 $ 3,038,522 $ 2,755,987
Provision charged to operating expense 726,806 797,957 932,000
Loans charged-off (943,124) (1,051,403) (806,810)
Recoveries of previous charge-offs 293,034 248,029 157,345
----------- ----------- -----------
Balance December 31, $ 3,109,821 $ 3,033,105 $ 3,038,522
=========== =========== ===========
</TABLE>
Non-performing loans were as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Loans past due over 90 days still on accrual $ 36,000 $ 150,000
Nonaccrual loans 987,000 399,000
</TABLE>
Loans required to be evaluated individually for impairment under the
provisions of SFAS No. 114 were not material during any of the periods
presented.
UNITED BANCORP, INC. 1999 ANNUAL REPORT 41
<PAGE> 44
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
NOTE 4 - PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Buildings and land $ 9,099,624 $ 7,177,956
Furniture and equipment 5,075,969 4,345,866
Leasehold improvements 263,977 263,977
Computer software 833,346 778,117
------------ -----------
Total 15,272,916 12,565,916
Accumulated depreciation and amortization 6,264,265 5,585,269
------------ -----------
Premises and equipment, net $ 9,008,651 $ 6,980,647
============ ===========
</TABLE>
On April 1, 1997, CITIZENS entered in to a five-year noncancelable
operating lease for an in-store retail branch. The lessor is a business in which
a director of the Company and CITIZENS holds an interest. The lease may be
renewed for up to two additional five-year terms after March 31, 2002. Annual
rent expense during the initial term of the lease is $22,500. Annual rent during
the second and third five-year terms would be $26,000 and $30,000, respectively.
Rental expense was $22,500 for the years ended December 31, 1999 and 1998, and
$16,875 for year ended December 31, 1997. Future minimum lease payments are
$22,500 for 2000 and 2001 and $5,625 for 2002.
NOTE 5 - TIME DEPOSITS
The scheduled maturities of time deposits as of December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
Under $100,000 Over $100,000
-------------- -------------
<S> <C> <C>
2000 $ 50,941,173 $ 14,746,312
2001 26,899,688 4,197,238
2002 12,638,463 3,646,841
2003 3,419,665 100,000
2004 3,430,016 639,270
Thereafter 997,045 -
------------ ------------
$ 98,326,050 $ 23,329,661
============ ============
</TABLE>
NOTE 6 - BORROWED FUNDS
Securities sold under agreements to repurchase are financing arrangements
whereby the Company sells securities and agrees to repurchase the identical
securities at the maturities of the agreements at specified prices. Physical
control is maintained for all securities sold under repurchase agreements.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Average daily balance during the year $ 7,306,000 $ 7,817,000
Average interest rate during the year 4.30% 4.66%
Maximum month-end balance during the year $ 8,506,419 $ 9,109,372
</TABLE>
Securities underlying these agreements at year-end were as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
Carrying value of securities $ 8,521,611 $ 12,005,203
Fair value of securities 8,520,878 12,107,466
</TABLE>
42 UNITED BANCORP, INC. 1999 ANNUAL REPORT
<PAGE> 45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
NOTE 6 - BORROWED FUNDS (CONTINUED)
Other borrowed funds consists of a cash management line of credit and
fixed-rate borrowings from the Federal Home Loan Bank ("FHLB") of Cincinnati,
Ohio as well as a Treasury, Tax and Loan Note and federal funds purchased. At
year-end 1999, the FHLB cash management line of credit enabled the Banks to
borrow up to $28,300,000. The line of credit must be renewed on an annual basis.
Variable rate borrowings totaling $19,145,000 were outstanding related to the
cash management line of credit at year-end 1999. The weighted-average interest
rate on these borrowings was 4.75% at year-end 1999. Variable-rate borrowings of
$9,175,000 were outstanding on this line of credit with a weighted-average
interest rate of 5.02% at year-end 1998. The Banks had FHLB fixed-rate
borrowings totaling $6,669,216 at year-end 1999 and $5,794,601 at year-end 1998.
The weighted-average interest rates on these borrowings were 6.2% and 5.7%,
respectively with monthly principal payments due through September 2019.
Additionally, as members of the Federal Home Loan Bank system at year-end 1999,
the Banks had the ability to obtain up to $57,227,000 based on current FHLB
stock ownership, or up to 50% of their total assets in advances from the FHLB
subject to increased share ownership of FHLB stock and 1-4 family residential
real estate loan collateral availability.
At December 31, 1999, the Company and its Banks have cash management lines
of credit (excluding FHLB cash management lines of credit) enabling borrowings
up to $22.9 million with various correspondent banks. Borrowings totaling
$3,887,429 and $4,650,000 were outstanding under these lines of credit at
year-end 1999 and 1998, respectively.
Borrowings under the Treasury, Tax, and Loan Note totaled $897,447 and
$80,629 at year-end 1999 and 1998, respectively.
At year-end 1999, required annual principal payments were as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 24,728,867
2001 681,911
2002 591,040
2003 521,953
2004 470,276
Thereafter 3,605,045
------------
$ 30,599,092
============
</TABLE>
NOTE 7 - BENEFIT PLANS
Pension expense includes the following:
<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Service cost $ 131,950 $ 119,740 $ 106,097
Interest cost 122,963 113,018 107,510
Expected return on assets (155,634) (134,690) (104,394)
Amortization of prior service cost,
transition liability, net gain,
and plan amendment 3,503 3,900 3,900
---------- --------- ---------
Pension expense $ 102,782 $ 101,968 $ 113,113
========== ========= =========
</TABLE>
Significant assumption used:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate on benefit obligation 7.00% 7.00% 7.00%
Rate of compensation increase 4.00% 4.00% 4.50%
Expected long-term rate of return on assets 7.50% 7.50% 7.00%
</TABLE>
UNITED BANCORP, INC. 1999 ANNUAL REPORT 43
<PAGE> 46
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
NOTE 7 - BENEFIT PLANS (CONTINUED)
Information about the pension plan was as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Change in benefit obligation:
Beginning benefit obligation 1,759,972 1,647,864
Service cost 131,950 119,740
Interest cost 122,963 113,018
Actuarial (gain)/loss (138,146) (34,693)
Plan amendments 82,572 -
Benefits paid (217,713) (85,957)
----------- -----------
Ending benefits obligation 1,741,598 1,759,972
Changes in plan assets, at fair value
Beginning plan assets 2,076,892 1,797,636
Actual return 187,437 271,586
Employer contributions 107,284 93,627
Benefits paid (217,713) (85,957)
----------- -----------
Ending plan assets 2,153,900 2,076,892
Funded status 412,302 316,920
Unrecognized net actuarial gain (476,588) (309,683)
Unrecognized prior service cost 86,725 10,700
----------- -----------
Prepaid benefit cost $ 22,439 $ 17,937
=========== ===========
</TABLE>
The Company's 401(k) matching percentage was 50% of the employees'
contribution for 1999 and 25% of the employee's contribution for 1998 and 1997.
The cash contribution and related expense included in salaries and employee
benefits totaled $66,425 in 1999, $27,098 in 1998 and $24,602 in 1997. Southern
had a profit sharing plan covering substantially all employees who had attained
age 21 which was terminated at the time of the merger. Southern's contributions
were discretionary and made only out of the net profits. Contributions were
allocated to employees accounts based upon the level of compensation of each
employee. Discretionary contributions were $36,000 in 1997.
The Company entered into severance agreements with certain holding company
officers. The original agreements were for a one-year period and extend
automatically each year unless notice is given prior to June 30. No benefits are
payable unless there has been a change in control and change in duties of the
officers occurs.
NOTE 8 - INCOME TAXES
Income tax expense consists of:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current expense $ 1,121,047 $ 1,029,406 $ 1,013,451
Deferred expense/(benefit) (117,985) 59,685 (39,979)
----------- ----------- -----------
Total income tax expense $ 1,003,062 $ 1,089,091 $ 973,472
=========== =========== ===========
</TABLE>
44 UNITED BANCORP, INC. 1999 ANNUAL REPORT
<PAGE> 47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
NOTE 8 - INCOME TAXES (CONTINUED)
The effective tax rate differs from the statutory federal income tax rate as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Statutory rate 34.00% 34.00% 34.00%
----------- ----------- -----------
Income taxes computed at the statutory federal tax rate $ 1,415,527 $ 1,442,984 $ 1,299,154
Add/(subtract) tax effect of:
Tax exempt interest income (407,506) (385,484) (396,064)
Other (4,959) 31,591 70,382
----------- ----------- -----------
Total income tax expense $ 1,003,062 $ 1,089,091 $ 973,472
=========== =========== ===========
</TABLE>
The sources of gross deferred tax assets and gross deferred tax liabilities were
as follows:
<TABLE>
<CAPTION>
ITEMS GIVING RISE TO DEFERRED TAX ASSETS 1999 1998
----------- -----------
<S> <C> <C>
Allowance for loan losses in excess of tax reserve $ 843,981 $ 821,563
Amortization of intangibles 73,120 73,232
Deferred compensation 79,065 49,856
Unrealized loss on securities available for sale 1,980,346 62,369
----------- -----------
Total deferred tax assets 2,976,512 1,007,020
ITEMS GIVING RISE TO DEFERRED TAX LIABILITIES
Depreciation (480,601) (527,484)
Deferred loan costs, net (103,643) (130,687)
Accretion (12,151) (25,948)
FHLB stock dividends (101,490) (57,630)
Mortgage servicing rights (48,971) (44,764)
Difference in accrued income, net of acrued expenses (32,251) (62,639)
Other (13,147) (9,572)
----------- -----------
Total deferred tax liabilities (792,254) (858,724)
----------- -----------
Net deferred tax asset $ 2,184,258 $ 148,296
=========== ===========
</TABLE>
NOTE 9 - STOCK OPTIONS
The Company maintains a nonqualified stock option plan for directors and
bank holding company officers. The exercise price for options granted under this
plan will be no less than 100% of the fair market value of the shares on the
date of grant adjusted for stock dividends and stock splits.
A summary of the status of the Company's stock option plan as of year-end
1999, 1998 and 1997 and changes during those years is presented in the table
following. All share and per share prices have been restated to reflect the 5%
stock dividends distributed on December 20, 1999 and December 18, 1998 and the
10% stock dividend distributed on September 19, 1997.
UNITED BANCORP, INC. 1999 ANNUAL REPORT 45
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
NOTE 9 - STOCK OPTIONS (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- ---------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 94,049 $ 12.74 88,040 $ 11.76 86,529 $ 11.22
Granted - - 12,680 18.72 5,513 19.95
Exercised (6,150) 11.23 - - (2,001) 11.21
Forfeited - - (6,671) 11.21 (2,001) 11.21
------ ------ ------
Outstanding at end of year 87,899 12.85 94,049 12.74 88,040 11.76
====== ====== ======
Remaining shares available for
grant at year-end 27,210 27,210 33,218
Options exercisable at year-end 18,491 13,168 -
</TABLE>
The weighted-average fair value per share of options granted during 1998
and 1997 was $6.33 and $7.85, respectively. The fair value of options granted
was estimated using the Black-Scholes options pricing model with the following
weighted-average information: risk free interest rate of 4.63% and 5.88% for
1998 and 1997, respectively; expected life of 7 years and 2 months for 1998 and
8 years for 1997; expected volatility of stock price of 31.31% and 33.30% for
1998 and 1997, respectively; and expected dividends per year of 2.02% for 1998
and 1997.
The following table summarized information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
NUMBER NUMBER
EXERCISE OUTSTANDING DATE OF EXERCISABLE
PRICE AT 12/31/99 EXPIRATION AT 12/31/99
-------- ----------- ---------- -----------
<S> <C> <C> <C>
$ 11.21 68,143 11/21/2005 15,943
11.76 1,564 11/21/2005 -
19.95 5,513 11/21/2005 772
23.36 1,654 11/21/2005 232
18.03 11,025 11/21/2005 1,544
</TABLE>
The options are first exercisable after February 21, 2005, except in the
event certain financial performance criteria are met, in which case such options
may become exercisable in installments up to 40% at December 31, 1998, an
additional 20% at December 31, 1999, and 100% at December 31, 2000. All options
become immediately exercisable upon retirement, death or in the event of a
change in control of the Company. During 1999, 11,473 options vested due to the
death of an executive officer. During 1998, 13,168 options vested due to meeting
portions of the performance criteria.
SFAS NO. 123 requires pro forma disclosures for options granted during 1995
and in subsequent years by corporations that do not adopt its fair value
accounting method for stock-based employee compensation. Accordingly, the
following pro forma information presents net income and earnings per share had
the Standard's fair value method been used to measure compensation cost for
stock option plans. No compensation expense was actually recognized for any of
the periods presented.
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income as reported $ 3,160,254 $ 3,154,979 $ 2,847,568
Proforma net income 3,101,159 3,129,243 2,815,841
Earnings per share as reported - Basic $ 1.07 $ 1.07 $ 0.97
Earnings per share as reported - Diluted 1.07 1.06 0.96
Proforma earnings per share - Basic 1.05 1.06 0.96
Proforma earnings per share - Diluted 1.05 1.05 0.95
</TABLE>
46 UNITED BANCORP, INC. 1999 ANNUAL REPORT
<PAGE> 49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
NOTE 10 - COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES
There are various contingent liabilities that are not reflected in the
financial statements, including claims and legal actions arising in the ordinary
course of business. In the opinion of management, after consultation with legal
counsel, the ultimate disposition of these matters is not expected to have a
material effect on financial condition or results of operations.
Some financial instruments are used in the normal course of business to
meet the financing needs of customers. These financial instruments include
commitments to extend credit, standby letters of credit and financial
guarantees. These involve, to varying degrees, credit and interest-rate risk in
excess of the amounts reported in the financial statements.
Exposure to credit loss if the other party does not perform is represented
by the contractual amount for commitments to extend credit, standby letters of
credit and financial guarantees written. The same credit policies are used for
commitments and conditional obligations as are used for loans. The amount of
collateral obtained, if deemed necessary, upon extension of credit is based on
management's credit evaluation. Collateral varies, but may include accounts
receivable, inventory, property, equipment, income-producing commercial
properties, residential real estate and consumer assets.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being used, total commitments do not necessarily represent the
future cash requirement. Standby letters of credit and financial guarantees
written are conditional commitments to guarantee a customer's performance to a
third party.
A summary of the notional or contractual amounts of financial instruments
with off-balance sheet risk at year-end was as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Commitments to extend credit $ 17,131,000 $ 16,437,000
Credit Card and Ready Reserve Lines 1,178,000 759,000
Standby letters of credit 446,000 269,000
</TABLE>
At year-end 1999, and included above, commitments to make fixed-rate loans
at current market rates totaled $2,363,000 with the interest rates on those
fixed-rate commitments ranging from 7.50% to 10.00%. The fixed-rate commitments
at year-end 1998 were $843,000 with the interest rates ranging from 7.75% to
8.25%. At year-end 1999 and 1998, reserves of $1,241,000 and $1,116,000 were
required as deposits with the Federal Reserve or as cash on hand. These reserves
do not earn interest.
NOTE 11 - CONCENTRATIONS OF CREDIT RISK
The Banks grant commercial, commercial real estate, real estate and
installment loans to customers mainly in Athens, Belmont, Caroll, Fairfield,
Harrison, Hocking and Tuscarawas Counties and the surrounding localities. The
Banks also grant commercial and commercial real estate loans in the Columbus,
Ohio area. Substantially all loans are secured by specific items of collateral
including business assets, consumer assets, commercial real estate and
residential real estate. At December 31, 1999, and 1998, total commercial and
commercial real estate loans made up 42.0% and 40.9% respectively of the loan
portfolio, with 20.3% and 28.4% of these loans secured by commercial real estate
and business assets mainly in the Columbus, Ohio area. Installment loans account
for 29.6% and 29.0% of the loan portfolio and are secured by consumer assets
including automobiles, which account for 82.5% and 84.7%, respectively, of the
installment loan portfolio. Real estate loans comprise 28.4% and 30. 1% of the
loan portfolio as of December 31, 1999 and 1998, respectively, and primarily
include first mortgage loans on residential properties and home equity lines of
credit. Included in cash and due from banks and federal funds sold as of
December 31, 1999 and 1998, is $4,044,860 and $7,971,837, respectively on
deposit with Mellon Bank, NA, Pittsburgh, Pennsylvania.
UNITED BANCORP, INC. 1999 ANNUAL REPORT 47
<PAGE> 50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate fair values for
financial instruments. The carrying amount is considered to approximate fair
value for cash and cash equivalents, deposit liabilities subject to immediate
withdrawal, short-term borrowings, loan servicing rights, accrued interest
receivable and payable and variable-rate loans that reprice at intervals of less
than six months. Securities fair values are based on quoted market prices or, if
no quotes are available, on the rate and term of the security and on information
about the issuer. For fixed-rate loans that reprice less frequently than each
six months, time deposits and long-term debt, the fair value is estimated by a
discounted cash flow analysis using current market rates for the estimated life
and credit risk. Fair values for impaired loans are estimated using discounted
cash flow analysis or underlying collateral values, where applicable. Fair value
of loans held for sale is based on market estimates. The fair value of
off-balance sheet items was not material at year-end 1999 and 1998.
The estimated year-end fair values of financial instruments were:
<TABLE>
<CAPTION>
1999 1998
-------------------------- -------------------------
(Dollars in thousands) CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ---------- ---------- ----------
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 11,877 $ 11,877 $ 16,492 $ 16,492
Securities available for sale 85,362 85,362 75,837 75,837
Securities held to maturity 9,794 9,566 21,848 22,841
Loans receivable, net 177,406 171,486 161,188 162,148
Loan servicing rights 144 144 132 132
Accrued interest receivable 2,323 2,323 2,185 2,185
Financial liabilities:
Demand and savings deposits $ (113,884) $ (113,884) $ (119,904) $ (119,904)
Time deposits (121,656) (121,635) (109,206) (111,294)
Short-term borrowings (23,930) (23,930) (13,906) (13,906)
Repurchase agreements (5,788) (5,788) (7,733) (7,733)
Long-term debt (6,669) (6,567) (5,794) (6,718)
Accrued interest payable (768) (768) (807) (807)
</TABLE>
NOTE 13 - REGULATORY MATTERS
The Company and Banks are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve quantitative measures of assets,
liabilities and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings and other
factors and the regulators can lower classifications in certain cases. Failure
to meet various capital requirements can initiate regulatory action that could
have a direct material effect on the financial statements.
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 Company and Banks at year-end 1999 and 1998 were categorized as well
capitalized. Management is not aware of any conditions subsequent to their last
regulatory exams that would change the Company's or the Banks' capital category.
48 UNITED BANCORP, INC. 1999 ANNUAL REPORT
<PAGE> 51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
NOTE 13 - REGULATORY MATTERS (Continued)
At year-end, consolidated and Bank only actual capital levels and minimum
levels (in thousands) were:
<TABLE>
<CAPTION>
MINIMUM REQUIRED
MINIMUM REQUIRED TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION REGULATIONS
------------------- ----------------- -----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
1999
Total capital (to risk weighted assets)
Consolidated $ 31,413 16.2% $ 15,524 8.0% $ 19,405 10.0%
Citizens 21,775 13.9 12,488 8.0 15,610 10.0
Community 4,540 12.4 2,926 9.0 3,657 10.0
Tier 1 capital (to risk weighted assets)
Consolidated 28,979 14.9% $ 7,762 4.0% $ 11,643 6.0%
Citizens 19,821 12.7 6,244 4.0 9,366 6.0
Community 4,077 11.1 1,463 4.0 2,194 6.0
Tier 1 capital (to average assets)
Consolidated $ 28,979 9.8% $ 11,803 4.0% 14,753 5.0%
Citizens 19,821 8.4 9,387 4.0 11,734 5.0
Community 4,077 7.1 2,285 4.0 2,856 5.0
1998
Total capital (to risk weighted assets)
Consolidated $ 29,512 17.1% $ 13,798 8.0% $ 17,248 10.0%
Citizens 20,195 13.6 11,845 8.0 14,807 10.0
Community 4,259 18.2 1,872 8.0 2,340 10.0
Tier 1 capital (to risk weighted assets)
Consolidated $ 27,345 15.9% $ 6,899 4.0% $ 10,349 6.0%
Citizens 18,432 12.4 5,923 4.0 8,884 6.0
Community 3,959 16.9 936 4.0 1,404 6.0
Tier 1 capital (to average assets)
Consolidated $ 27,345 10.1% $ 10,794 4.0% $ 13,493 5.0%
Citizens 18,432 8.4 8,745 4.0 10,932 5.0
Community 3,959 7.7 2,049 4.0 2,561 5.0
</TABLE>
NOTE 14 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
The Company's primary source of funds to pay dividends to shareholders is
the dividends it receives from the Banks. The Banks are subject to certain
restrictions on the amount of dividends that they may declare without prior
regulatory approval. At year-end 1999, $863,000 of retained earnings was
available for dividend declaration without prior regulatory approval.
UNITED BANCORP, INC. 1999 ANNUAL REPORT 49
<PAGE> 52
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
NOTE 14 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Following are condensed parent company financial statements:
Condensed Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 996,221 $ 1,717,020
Certificates of deposit - -
Securities available for sale, at fair value 1,723,598 2,824,108
Investment in subsidiaries 20,469,196 22,560,485
Building and Land 1,838,010 -
Other assets 509,412 402,572
------------ ------------
$ 25,536,437 $ 27,504,188
============ ============
Liabilities and shareholders' equity:
Other liabilities $ 238,464 $ 183,439
Shareholders' equity 25,297,973 27,320,749
------------ ------------
Total liabilities and shareholders' equity $ 25,536,437 $ 27,504,188
============ ============
</TABLE>
Condensed Statements of Income and Comprehensive Income
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Operating income
Dividends from subsidiaries $ 1,612,561 $ 1,855,599 $ 5,140,734
Interest and dividend income from securities and fed funds 211,179 244,410 -
Other income 5,424 43,687 19,756
------------ ------------ ------------
Total operating income 1,829,164 2,143,696 5,160,490
Operating expenses 267,947 305,612 276,873
------------ ------------ ------------
Income before income taxes and (distributions in excess of)/equity
in undistributed net income. 1,561,217 1,838,084 4,883,617
Income tax expense (benefit) (17,129) 20,043 (20,110)
------------ ------------ ------------
Income before (distributions in excess of)/equity in undistributed
earnings of subsidiaries 1,578,346 1,818,041 4,903,727
(Distributions in excess of)/equity in undistributed
earnings of subsidiaries 1,581,908 1,336,938 (2,056,159)
------------ ------------ ------------
Net income 3,160,254 3,154,979 2,847,568
Other comprehensive income - change in unrealized holding gain
on securities available for sale (3,726,965) (292,527) 80,273
------------ ------------ ------------
Comprehensive income $ (566,711) $ 2,862,452 $ 2,927,841
============ ============ ============
</TABLE>
50 UNITED BANCORP, INC. 1999 ANNUAL REPORT
<PAGE> 53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
NOTE 14 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Condensed Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,160,254 $ 3,154,979 $ 2,847,568
Adjustments to reconcile net income to net cash
from operating activities:
Distributions in excess of/(equity in undistributed)
earnings of subsidiaries (1,581,908) (1,336,938) 2,056,159
Net change in other assets and other liabilities (17,789) (602,983) 134,371
(Accretion)/amortization of securities, net 412 - -
Amortization of intangibles 12,307 17,197 17,200
------------ ------------ ------------
Net cash from operating activities 1,573,276 1,232,255 5,055,298
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in certificates of deposit - 283,090 (10,760)
Securities available for sale
Proceeds from maturities/calls 1,000,000 - -
Purchases - (2,803,067) -
Net purchases of premises and equipment (1,838,010) - -
Loans to subsidiaries, net of repayments - 4,095,000 (4,095,000)
------------ ------------ ------------
Net cash from investing activities (838,010) 1,575,023 (4,105,760)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to shareholders (1,477,686) (1,247,402) (1,031,794)
Proceeds and tax benefit from exercise of
stock options, net of shares redeemed 27,866 - 45,606
Cash paid in lieu of fractional shares (6,245) (6,938) (4,095)
------------ ------------ ------------
Net cash from financing activities (1,456,065) (1,254,340) (990,283)
------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (720,799) 1,552,938 (40,745)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,717,020 164,082 204,827
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 996,221 $ 1,717,020 $ 164,082
============ ============ ============
</TABLE>
NOTE 15 - ACQUISITIONS
Effective July 8, 1998, Southern Ohio Community Bancorporation, Inc.
("Southern"), a $50 million bank holding company headquartered in Athens County,
Ohio and the parent company of COMMUNITY affiliated with the Company in a
transaction accounted for as a pooling of interests. The Company issued 429,000
shares of common stock to the stockholders of Southern based on an exchange
ratio of 11 shares of the Company's common stock for each outstanding share of
Southern common stock. The historical financial statements of the Company have
been restated to show the Company and Southern on a combined basis.
UNITED BANCORP, INC. 1999 ANNUAL REPORT 57
<PAGE> 54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
NOTE 15 - ACQUISITIONS (CONTINUED)
On January 28, 1999, the Company acting through CITIZENS consummated its
previously announced branch purchase from Belmont National Bank. CITIZENS has
assumed certain deposit and other liabilities of approximately $10.4 million of
this branch and purchased the real estate at fair market value. This transaction
was accounted for as a purchase, and accordingly, the assets and liabilities
have been recorded on the respective fair market value as the date of
acquisition. The intangible assets from this acquisition are not material to the
Company's financial statements.
NOTE 16 - EARNINGS PER SHARE
The factors used in the earnings per share computation follow:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
BASIC
Net income $ 3,160,254 $ 3,154,979 $ 2,847,568
=========== =========== ===========
Weighted average common shares outstanding 2,942,085 2,940,700 2,940,087
=========== =========== ===========
Basic earnings per common share $ 1.07 $ 1.07 $ 0.97
=========== =========== ===========
DILUTED
Net income $ 3,160,254 $ 3,154,979 $ 2,847,568
=========== =========== ===========
Weighted average common shares outstanding for
basic earnings per common share 2,942,085 2,940,700 2,940,087
Add: Dilutive effects of assumed exercised of stock
options 16,672 27,146 18,954
----------- ----------- -----------
Average shares and dilutive potential common shares 2,958,757 2,967,846 2,959,041
=========== =========== ===========
Average shares and dilutive potential common shares $ 1.07 $ 1.06 $ 0.96
=========== =========== ===========
</TABLE>
Stock options for 18,192 and 7,166 shares of common stock were not considered in
computing diluted earnings per common share for 1999 and 1998 because they were
antidilutive.
52 UNITED BANCORP, INC. 1999 ANNUAL REPORT
<PAGE> 55
FIVE YEAR PERFORMANCE SUMMARY (1) (UNAUDITED)
<TABLE>
<CAPTION>
$(THOUSANDS, EXCEPT RATIOS) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSE:
Interest and dividend income $ 21,639 $ 21,126 $ 20,802 $ 19,567 $ 18,667
Interest expense 9,845 9,657 9,410 8,840 8,511
Provision for loan losses 727 798 932 1,165 1,204
Noninterest income 1,285 1,581 1,307 1,156 1,104
Noninterest expense 8,189 8,008 7,946 7,272 7,141
Income tax expense 1,003 1,089 973 816 660
Net income 3,160 3,155 2,848 2,630 2,255
PER COMMON SHARE DATA:
Net income, basic $ 1.07 $ 1.07 $ 0.97 $ 0.90 $ 0.77
Net income, diluted 1.07 1.06 0.96 0.90 0.77
Cash dividends paid 0.50 0.45 0.40 0.35 0.31
Book value 8.60 9.29 8.74 8.09 7.56
BALANCE SHEET:
Loans receivable, net $ 177,406 $ 161,188 $ 168,439 $ 163,760 $ 154,776
Deposits 235,540 229,110 223,489 218,100 211,495
Total assets 298,764 285,493 263,607 252,966 240,189
OPERATING RATIOS:
Return on average assets 1.09% 1.17% 1.10% 1.06% 0.94%
Net interest margin(2) 4.30 4.48 4.62 4.58 4.52
Efficiency ratio(3) 57.50% 56.37% 57.50% 58.34% 60.43%
EQUITY RATIO:
Return on average shareholder's
equity 11.94% 11.80% 11.48% 11.44% 10.63%
CREDIT QUALITY:
Net charge-offs to average loans 0.38% 0.48% 0.38% 0.62% 0.20%
Ending allowance for loan losses 1.72% 1.85% 1.77% 1.66% 1.65%
</TABLE>
(1) All share and per share amounts have been restated to reflect common stock
dividends
(2) As a percent of average earning assets
(3) Noninterest expense divided by tax equivalent net interest income plus
noninterest income
UNITED BANCORP, INC. 1999 ANNUAL REPORT 53
<PAGE> 56
UNITED BANCORP, INC., MARTINS FERRY, OHIO, AND ITS SUBSIDIARIES
WWW.UNITEDBANCORP.COM
The Citizens Savings Bank
Bridgeport, Colerain, Dellroy, Dover, Jewett, New Philadelphia,
Sherrodsville, Strasburg, St. Clairsville, Martins Ferry, Ohio
WWW.THECITIZENSBANK.COM
<TABLE>
<S> <C> <C>
325 Howard Street 318 East Main Street 141 N. Broadway
Bridgeport, Ohio 43912-0466 Jewett, Ohio 43986 New Philadelphia, Ohio 44663
740-635-0494 740-946-2411 330-343-4413
72541 Sharon Road Auto Teller 15 Sherrod Avenue
Colerain, Ohio 43916-0158 201 S. Fourth at Hickory Street Sherrodsville, Ohio 44675-0222
740-635-0445 Martins Ferry, Ohio 43935-0010 740-269-8421
740-633-0494
2 Smith Street Operations Center 104 Plaza Drive
Dellroy, Ohio 44620-0099 201 S. Fourth at Hickory Street St. Clairsville, Ohio 43950-0011
330-735-2311 Martins Ferry, Ohio 43935-0010 740-695-0445
740-633-0445
888-275-5566
2909 N. Wooster Avenue Main Office 202 N. Wooster Avenue
Dover, Ohio 44622 201 S. Fourth at Hickory Street Strasburg, Ohio 44680-0165
330-364-8888 Martins Ferry, Ohio 43935-0010 330-878-5551
740-633-0445
</TABLE>
THE COMMUNITY BANK
AMESVILLE, GLOUSTER, LANCASTER, NELSONVILLE
WWW.THE-COMMUNITYBANK.COM
<TABLE>
<S> <C> <C>
25 State Street 201 North Columbus Street 88 High Street
Amesville, Ohio 45711 Lancaster, OH 43130 Glouster, Ohio 45732
740-448-2212 740-654-0900 740-767-3121
Auto Bank 1321 East Main Street 873 Chestnut Street
42 Toledo Street Lancaster, OH 43130 Nelsonville, Ohio 45764
Glouster, Ohio 45732 740-654-5100 740-753-4313
740-767-3121
Auto Bank
218 West Wheeling Street
Lancaster, OH 43130
740-654-0900
</TABLE>
BROKERAGE UNITED
Securities Offered Through Raymond James Financial Services, Inc.
Member NASD/SIPC
201 South Fourth Street
Martins Ferry, Ohio 43935
740-633-2663
Toll Free: 888-275-5566, Ext. 197
<PAGE> 1
EXHIBIT 23
UNITED BANCORP, INC. FORM 10-K
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the prospectus
constituting part of the Registration Statement on Form S-3 (Registration No.
333-01081) for United Bancorp, Inc., the 1995 Dividend Reinvestment Plan, of our
report dated January 14, 2000 relating to the consolidated balance sheets of
United Bancorp, Inc. as of December 31, 1999 and 1998 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1999.
Crowe, Chizek and Company LLP
Columbus, Ohio
March 26, 2000
17
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 11,097
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 780
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 85,362
<INVESTMENTS-CARRYING> 9,794
<INVESTMENTS-MARKET> 9,566
<LOANS> 177,406
<ALLOWANCE> 3,110
<TOTAL-ASSETS> 298,764
<DEPOSITS> 235,540
<SHORT-TERM> 29,718
<LIABILITIES-OTHER> 1,539
<LONG-TERM> 6,669
0
0
<COMMON> 2,943
<OTHER-SE> 22,355
<TOTAL-LIABILITIES-AND-EQUITY> 298,764
<INTEREST-LOAN> 15,130
<INTEREST-INVEST> 6,250
<INTEREST-OTHER> 259
<INTEREST-TOTAL> 21,639
<INTEREST-DEPOSIT> 8,345
<INTEREST-EXPENSE> 9,845
<INTEREST-INCOME-NET> 11,794
<LOAN-LOSSES> 727
<SECURITIES-GAINS> 41
<EXPENSE-OTHER> 8,189
<INCOME-PRETAX> 4,163
<INCOME-PRE-EXTRAORDINARY> 3,160
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,160
<EPS-BASIC> 1.07
<EPS-DILUTED> 1.07
<YIELD-ACTUAL> 4.30
<LOANS-NON> 987
<LOANS-PAST> 36
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,033
<CHARGE-OFFS> 943
<RECOVERIES> 293
<ALLOWANCE-CLOSE> 3,110
<ALLOWANCE-DOMESTIC> 3,110
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,413
</TABLE>
