<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
-------------------------
COMMISSION FILE #0-16640
UNITED BANCORP, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2606280
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
205 E. CHICAGO BOULEVARD, TECUMSEH, MI 49286
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (517) 423-8373
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 shorter periods 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 [ ]
As of July 15, 1998, there were outstanding 1,728,589 shares of the registrant's
common stock, no par value.
Page 1
<PAGE> 2
CROSS REFERENCE TABLE
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION PAGE NO.
- ----------------------------------------------------------------------------------------
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Condensed)
(a) Consolidated Balance Sheets 3
(b) Consolidated Statements of Income 4
(c) Consolidated Statements of Changes in Shareholders' Equity 5
(d) Consolidated Statements of Cash Flows 6
(e) Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
Financial Condition 8
Liquidity 10
Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index 17
</TABLE>
Page 2
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
(A) CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
June 30, December 31, June 30,
In thousands of dollars 1998 1997 1997
===========================================================================================================
<S> <C> <C> <C>
ASSETS
Cash and demand balances in other banks $ 20,947 $ 10,406 $ 11,766
Federal funds sold 1,300 - -
- -----------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 22,247 10,406 11,766
Securities available for sale 50,263 42,488 50,510
Securities held to maturity (fair value of
$40,888, $38,287 and $31,540, respectively) 39,947 37,164 30,747
- -----------------------------------------------------------------------------------------------------------
Total securities 90,210 79,652 81,257
Loans held for sale 661 141 -
Portfolio loans 259,656 265,117 250,363
- -----------------------------------------------------------------------------------------------------------
Total loans 260,317 265,258 250,363
Less: allowance for loan losses 2,627 2,467 2,317
- -----------------------------------------------------------------------------------------------------------
Net loans 257,690 262,791 248,046
Premises and equipment, net 11,299 10,933 8,789
Accrued interest receivable and other assets 6,506 6,489 5,127
- -----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $387,952 $370,271 $354,985
===========================================================================================================
LIABILITIES
Deposits
Noninterest bearing $ 46,010 $ 31,924 $ 32,438
Interest bearing certificates of deposit of $100,000 or more 34,387 38,714 40,863
Other interest bearing deposits 255,852 246,197 229,644
- -----------------------------------------------------------------------------------------------------------
Total deposits 336,249 316,835 302,945
Federal funds and other short term borrowings 658 4,942 5,325
Other borrowings 10,900 10,000 10,000
Accrued interest payable and other liabilities 3,015 3,028 3,161
- -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 350,822 334,805 321,431
SHAREHOLDERS' EQUITY
Common stock, no par value; 5,000,000 shares authorized;
1,728,657, 1,646,030 and 1,644,103 shares issued and
outstanding, respectively 19,708 16,366 16,268
Retained earnings 17,155 18,867 17,199
Accumulated other comprehensive income 267 233 87
- -----------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 37,130 35,466 33,554
- -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $387,952 $370,271 $354,985
===========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3
<PAGE> 4
(B) CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
In thousands of dollars, except per share data 1998 1997 1998 1997
===========================================================================================================
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans
Taxable $ 5,807 $ 5,583 $11,692 $10,884
Tax exempt 19 16 38 29
Interest on securities
Taxable 801 841 1,513 1,593
Tax exempt 469 416 945 844
Interest on federal funds sold 129 27 249 187
- -----------------------------------------------------------------------------------------------------------
Total interest income 7,225 6,883 14,437 13,537
INTEREST EXPENSE
Interest on certificates of deposit of $100,000 or more 501 601 1,065 1,215
Interest on other deposits 2,611 2,372 5,215 4,727
Interest on short term borrowings 8 48 20 56
Interest on other borrowings 166 151 316 387
- -----------------------------------------------------------------------------------------------------------
Total interest expense 3,286 3,172 6,616 6,385
- -----------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 3,939 3,711 7,821 7,152
Provision for loan losses 274 190 549 370
- -----------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,665 3,521 7,272 6,782
NONINTEREST INCOME
Service charges on deposit accounts 430 358 805 663
Trust & Investment fee income 407 251 780 528
Loan sales and servicing 255 129 546 273
Sales of nondeposit investment products 138 95 269 152
Other income 143 110 291 222
- -----------------------------------------------------------------------------------------------------------
Total noninterest income 1,373 943 2,691 1,838
NONINTEREST EXPENSE
Salaries and employee benefits 1,770 1,421 3,490 2,932
Occupancy and equipment expense 593 511 1,198 1,024
Other expense 942 797 1,943 1,552
- -----------------------------------------------------------------------------------------------------------
Total noninterest expense 3,305 2,729 6,631 5,508
- -----------------------------------------------------------------------------------------------------------
INCOME BEFORE FEDERAL INCOME TAX 1,733 1,735 3,332 3,112
Federal income tax 453 473 861 820
- -----------------------------------------------------------------------------------------------------------
NET INCOME $ 1,280 $ 1,262 $ 2,471 $ 2,292
===========================================================================================================
Basic and diluted earnings per share $ 0.74 $ 0.73 $ 1.43 $ 1.33
Cash dividends declared per share of common stock 0.26 0.23 0.51 0.45
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4
<PAGE> 5
(C) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Accumulated
Other
Common Retained Comprehensive
In thousands of dollars, except per share data Stock Earnings Income Total
===========================================================================================================
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $ 13,500 $ 18,419 $ 129 $ 32,048
Net Income 2,292 2,292
Unrealized losses on securities, net of tax (42) (42)
---------
Comprehensive income 2,250
Cash dividends declared (770) (770)
5% stock dividend declared, 78,292 shares at $35 2,740 (2,740) -
Common stock and contingently issuable stock 28 (2) 26
- -----------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 $ 16,268 $ 17,199 $ 87 $ 33,554
===========================================================================================================
Balance, December 31, 1997 $ 16,366 $ 18,867 $ 233 $ 35,466
Net Income 2,471 2,471
Unrealized gains on securities, net of tax 34 34
---------
Comprehensive income 2,505
Cash dividends declared (877) (877)
5% stock dividend declared, 82,298 shares at $40 3,292 (3,292) -
Common stock and contingently issuable stock 50 (14) 36
- -----------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 $ 19,708 $ 17,155 $ 267 $ 37,130
===========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5
<PAGE> 6
(D) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Six Months Ended
June 30,
In thousands of dollars 1998 1997
===========================================================================================================
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 2,471 $ 2,292
- -----------------------------------------------------------------------------------------------------------
Adjustments to Reconcile Net Income to Net Cash from Operating Activities
Depreciation and amortization 755 693
Provision for loan losses 549 370
Loans originated for sale (32,414) (10,462)
Proceeds from sales of loans originated for sale 31,893 11,261
Change in accrued interest receivable and other assets (156) (149)
Change in accrued interest payable and other liabilities 147 393
- -----------------------------------------------------------------------------------------------------------
Total adjustments 774 2,106
- -----------------------------------------------------------------------------------------------------------
Net cash from operating activities 3,245 4,398
- -----------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Securities available for sale
Purchases (14,294) (9,309)
Sales 1,000 50
Maturities and calls 2,809 993
Principal payments 2,744 2,707
Securities held to maturity
Purchases (11,725) (5,205)
Maturities and calls 8,977 7,735
Change in portfolio loans 5,073 (9,682)
Premises and equipment expenditures, net (1,001) (570)
- -----------------------------------------------------------------------------------------------------------
Net cash from investing activities (6,417) (13,281)
- -----------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net change in deposits 19,414 5,242
Net change in short term borrowings (4,284) 4,716
Proceeds from other borrowings 3,900 -
Principal payments on other borrowings (3,000) (10,000)
Proceeds from stock transactions 36 26
Dividends paid (1,053) (987)
- -----------------------------------------------------------------------------------------------------------
Net cash from financing activities 15,013 (1,003)
- -----------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 11,841 (9,886)
Cash and cash equivalents at beginning of year 10,406 21,652
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 22,247 $ 11,766
===========================================================================================================
Cash Paid During the Period for
Interest $ 6,768 $ 6,296
Income taxes 850 718
===========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 6
<PAGE> 7
(E) NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of United Bancorp,
Inc. (the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six month period
ending June 30, 1998 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1998. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
NOTE 2 - LOANS HELD FOR SALE
Mortgage loans serviced for others are not included in the accompanying
consolidated statements. The unpaid principal balances of mortgage loans
serviced for others was $110,667,000 and $92,641,000 at the end of June 1998 and
1997. The balance of loans serviced for others related to servicing rights that
have been capitalized was $68,682,000 and $34,756,000 at June 30, 1998 and 1997.
Mortgage servicing rights activity in thousands of dollars for the period ended
June 30, 1998 and 1997 follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
Unamortized cost of mortgage servicing rights 1998 1997
--------------------------------------------- ---- ----
<S> <C> <C>
Balance at January 1 $ 340 $ 185
Amount capitalized year to date 231 83
Amount amortized year to date (71) (13)
----- -----
Balance at period end $ 500 $ 255
</TABLE>
No valuation allowance was considered necessary for mortgage servicing rights at
period end 1998 and 1997.
NOTE 3 - COMMON STOCK AND EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of shares
outstanding plus contigently issuable shares during the year. On May 29, 1998
and May 30, 1997 the Company issued 5% stock dividends. Earnings per share,
dividends per share and weighted average shares have been restated to reflect
the stock dividends. The weighted average number of shares outstanding plus
contingently issuable shares was 1,732,000 for 1998 and 1,727,966 for 1997.
NOTE 4 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Financial Accounting Standard No.
130, "Reporting Comprehensive Income." Under the standard, comprehensive income
is now reported for all periods and encompasses both net income and other
comprehensive income. Other comprehensive income in thousands of dollars for the
period ended June 30, follows:
Page 7
<PAGE> 8
<TABLE>
<CAPTION>
Six Months Ended June 30,
Other comprehensive income 1998 1997
-------------------------- ---- ----
<S> <C> <C>
Unrealized gains (losses) on securities arising during period $ 52 $ (64)
Reclassification for realized amount included in income (1) -
---- -----
Other comprehensive income, before tax 51 (64)
Federal income tax expense (benefit) 17 (22)
---- -----
Other comprehensive income $ 34 $ (42)
</TABLE>
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion provides information about the consolidated financial condition
and results of operations of United Bancorp, Inc. and its subsidiary, United
Bank & Trust ("Bank") for the three and six month periods ending June 30, 1998.
FINANCIAL CONDITION
SECURITIES
Investment balances continued to increase during the quarter, following recent
trends of continued deposit growth that exceeds loan demand. The mix of the
portfolio remained relatively unchanged from prior periods.
LOANS
Loan volume declined during the quarter, following the trend noted during the
first quarter. This followed three quarters of strong loan growth. All
categories of personal loans declined, while the business loan portfolio
experienced increases. Two principal factors contributed to the decline in
personal loans. Strong competition from indirect installment lenders, as well as
tightened credit standards by the Bank, has reduced the bank's volume in loans
of this type. In addition, the current low market rates has resulted in many
owners of adjustable rate mortgages seeking to refinance into long term fixed
rate loans. Since the bank does not retain these loans on its books but sells
them on the secondary market, the result is a decline in loans carried on the
portfolio. The offset is increased income from the sale and servicing of these
sold loans.
The mix of the loan portfolio reflects this shift toward more commercial and
fewer personal loans, although overall the mix has remained relatively unchanged
from prior periods. Over the long term, the trend is toward an increased
percentage of residential mortgage and business loans, with slight declines in
personal loans. The table below shows total loans outstanding, in thousands of
dollars, at June 30, and December 31, and their percentage of the total loan
portfolio. All loans are domestic and contain no concentrations by industry or
customer.
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997 June 30, 1997
-------------------- -------------------- --------------------
Portfolio loans: Balance % of total Balance % of total Balance % of total
------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Personal $ 63,977 24.6% $ 70,308 26.5% $ 71,400 28.5%
Business/commercial mtgs 78,405 30.1% 74,080 27.9% 69,395 27.7%
Tax exempt 1,390 0.5% 1,482 0.6% 1,317 0.5%
Residential mortgage 102,591 39.4% 104,800 39.5% 95,638 38.2%
Construction 13,954 5.4% 14,588 5.5% 12,613 5.0%
-------------------- -------------------- --------------------
Total loans $260,317 100.0% $265,258 100.0% $250,363 100.0%
</TABLE>
Page 8
<PAGE> 9
CREDIT QUALITY
The Company continues to maintain a high level of asset quality compared to
peers, as a result of actively monitoring delinquencies, nonperforming assets
and potential problem loans. In addition, the Bank uses an independent loan
review firm to assess the continued quality of its business loan portfolio.
Nonperforming loans are comprised of (1) loans accounted for on a nonaccrual
basis; (2) loans contractually past due 90 days or more as to interest or
principal payments (but not included in the nonaccrual loans in (1) above); and
(3) other loans whose terms have been renegotiated to provide a reduction or
deferral of interest or principal because of a deterioration in the financial
position of the borrower (exclusive of loans in (1) or (2) above). The aggregate
amount of nonperforming loans, in thousands of dollars, is shown in the table
below. The Company's classification of nonperforming loans are generally
consistent with loans identified as impaired.
<TABLE>
<CAPTION>
6/30/98 12/31/97 6/30/97
------- -------- -------
<S> <C> <C> <C>
Nonaccrual loans $ 295 $ 71 $ 255
Loans past due 90 days or more 376 910 737
Troubled debt restructurings 137 138 -
----------------- ------
Total nonperforming loans $ 808 $1,119 $ 992
Other real estate 335 473 335
----------------- ------
Total nonperforming assets $1,143 $1,592 $1,327
Percent of total loans 0.44% 0.61% 0.53%
</TABLE>
Nonperforming loan balances declined significantly from the relatively high
levels experienced at December 31, 1997, and are also down from the levels noted
at March 31, 1998. The Bank has implemented efforts to significantly reduce its
levels of delinquent accounts, and the results of those efforts are obvious in
the delinquency numbers reported. Loans past due ninety days or more declined
significantly during the quarter, following a decline during the first quarter.
Nonaccrual loans increased slightly during the quarter. Overall, nonperforming
loans as a percent of total loans remain well below industry standards, and are
much nearer the levels traditionally experienced by the Company. The amount
listed for other real estate relates primarily to property that has been leased
to a third party with an option to purchase, and no loss is anticipated on that
property.
The Company has maintained its provision for loan losses at first quarter 1998
levels, which represents an increase over the same period in 1997. An analysis
of the allowance for loan losses, in thousands of dollars, for the six months
ended June 30, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance at beginning of period $ 2,467 $ 2,320
Loans charged off (512) (404)
Recoveries credited to allowance 123 31
Provision charged to operations 549 370
------- -------
Balance at end of period $ 2,627 $ 2,317
</TABLE>
The allowance for loan losses is maintained at a level believed adequate by
Management to absorb potential losses in the loan portfolio.
Page 9
<PAGE> 10
DEPOSITS
Total deposits continued to grow during the quarter. Noninterest bearing deposit
balances enjoyed the greatest growth during the quarter, while balances in Cash
Management accounts continued to increase. Management anticipates that deposit
growth during the remainder of 1998 will be strong, with anticipated growth from
new markets, as well as from consumer use of newer cash management account
products.
In December of 1997, the Bank acquired the Dundee office of NBD Bank, resulting
in an increase of $12.6 million of deposits. In addition, the Saline office of
the Bank, opened in August of 1997, continues to enjoy strong deposit growth,
also contributing to total deposit growth of the institution.
LIQUIDITY
The Bank maintained an average funds sold position for the second quarter of
1998, although generally the Bank moves in and out of the fed funds market as
liquidity needs vary. Deposit growth moving at different times than loan growth
will cause continued variation in the short term funds position of the Bank. The
Company has a number of additional liquidity sources should the need arise, and
Management has no concerns for the liquidity position of the Company.
CAPITAL RESOURCES
The capital ratios of the Company exceed the regulatory guidelines for well
capitalized institutions. The following table shows the Company's capital ratios
and ratio calculations at June 30, 1998 and 1997 and December 31, 1997. Dollars
are shown in thousands.
<TABLE>
<CAPTION>
Regulatory Guidelines United Bancorp, Inc.
--------------------- --------------------
Adequate Well 6/30/98 12/31/97 6/30/97
---------- ------ ------- -------- -------
<S> <C> <C> <C> <C> <C>
Tier 1 capital to average assets 4% 5% 9.1% 9.3% 9.2%
Tier 1 risk adjusted capital ratio 4% 6% 13.7% 13.2% 13.5%
Total risk adjusted capital ratio 8% 10% 14.7% 14.2% 14.4%
Total shareholders' equity $ 37,130 $ 35,466 $ 33,554
Intangible assets (2,359) (2,487) (1,398)
Unrealized (gain) loss on securities available for sale (267) (233) (87)
-------- -------------------
Tier 1 capital 34,504 32,746 32,069
Qualifying loan loss reserves 2,627 2,467 2,317
-------- -------------------
Tier 2 capital $ 37,131 $ 35,213 $ 34,386
</TABLE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
In general, yields remained unchanged from the first quarter of 1998 and the
second quarter of 1997. At the same time, the Company's cost of funds remained
virtually unchanged compared to the prior quarter, and continued to decline
compared to the same period in 1997. This resulted in improved net interest
income and spread over the same period of 1997, while remaining virtually flat
compared to the prior quarter. In addition, the Company continues to
incrementally improve its ratio of interest earning assets to interest bearing
liabilities.
The table below shows the year to date daily average Consolidated Balance Sheet,
interest earned (on a taxable equivalent basis) or paid, and the annualized
effective rate or yield, for the periods ended June 30, 1998 and 1997.
Page 10
<PAGE> 11
YIELD ANALYSIS OF CONSOLIDATED AVERAGE ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
------------------------------- ------------------------------
dollars in thousands 1998 1997
------------------------------- ------------------------------
Average Interest Yield/ Average Interest Yield/
Balance (b) Rate Balance (b) Rate
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets (a)
Federal funds sold $ 9,153 $ 249 5.44% $ 7,041 $ 187 5.31%
Taxable securities 46,989 1,513 6.44% 49,698 1,592 6.41%
Tax exempt securities (b) 35,222 1,368 7.77% 30,608 1,221 7.98%
Taxable loans 260,638 11,692 8.97% 242,387 10,884 8.98%
Tax exempt loans (b) 1,441 55 7.63% 1,098 43 7.74%
------------------- -------------------
Total int. earning assets (b) 353,443 $14,877 8.42% 330,832 $13,927 8.42%
------------------- -------------------
Less allowance for loan losses (2,531) (2,301)
Other assets 29,273 23,042
-------- --------
TOTAL ASSETS $380,185 $351,573
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
NOW accounts $ 41,862 $ 324 1.55% $ 38,662 $ 308 1.59%
Savings deposits 73,337 1,051 2.87% 69,372 963 2.78%
CDs $100,000 and over 36,970 1,065 5.76% 41,779 1,215 5.82%
Other interest bearing deposits 141,842 3,841 5.42% 123,309 3,456 5.61%
------------------- -------------------
Total int. bearing deposits 294,011 6,281 4.27% 273,122 5,942 4.35%
Short term borrowings 726 20 5.52% 2,098 56 5.34%
Other borrowings 10,460 316 6.03% 12,983 387 5.96%
------------------- -------------------
Total int. bearing liabilities 305,197 6,616 4.34% 288,203 6,385 4.43%
Noninterest bearing deposits 35,371 27,627
Other liabilities 3,211 2,805
Shareholders' equity 36,406 32,938
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $380,185 $351,573
======== ========
Net interest income (b) $ 8,261 $ 7,542
======= =======
Net spread (b) 4.08% 3.99%
====== ======
Net yield on interest earning assets (b) 4.67% 4.56%
====== ======
Ratio of interest earning assets to
interest bearing liabilities 1.16 1.15
======== ========
</TABLE>
(a) Non-accrual loans and overdrafts are included in the average balances of
loans.
(b) Fully tax-equivalent basis; 34% tax rate.
The table below shows the effect of volume and rate changes on net interest
income for the six months ended June 30, on a taxable equivalent basis, in
thousands of dollars.
<TABLE>
<CAPTION>
------------------------------- -------------------------------
1998 Compared to 1997 1997 Compared to 1996
------------------------------- -------------------------------
Increase (Decrease) Due To: (a) Increase (Decrease) Due To: (a)
------------------------------- -------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Federal funds sold $ 57 $ 5 $ 62 $ 115 $ (4) $ 111
Taxable securities (88) 9 (79) 36 109 145
Tax exempt securities 180 (33) 147 34 (20) 14
Taxable loans 819 (11) 808 1,037 (85) 952
Tax exempt loans 13 (1) 12 (1) (4) (5)
---------------------------------------------------------------
Total interest income $ 981 $ (31) $ 950 $ 1,221 $ (4) $ 1,217
===============================================================
</TABLE>
Page 11
<PAGE> 12
<TABLE>
<CAPTION>
------------------------------- -------------------------------
1998 Compared to 1997 1997 Compared to 1996
------------------------------- -------------------------------
Increase (Decrease) Due To: (a) Increase (Decrease) Due To: (a)
------------------------------- -------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C>
Interest paid on:
NOW accounts $ 25 $ (9) $ 16 $ (6) $ (38) $ (44)
Savings deposits 56 32 88 (92) (34) (126)
CDs $100,000 and over (139) (11) (150) 159 (1) 158
Other interest bearing deposits 505 (120) 385 530 7 537
Short term borrowings (38) 2 (36) 19 3 22
Other borrowings (76) 5 (71) 214 15 229
---------------------------------------------------------------
Total interest expense $ 333 $(101) $ 232 $ 824 $ (48) $ 776
===============================================================
Net change in net interest
income $ 648 $ 70 $ 718 $ 397 $ 44 $ 441
===============================================================
</TABLE>
(a) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
NONINTEREST INCOME
Income from nontraditional banking products and services continues to contribute
to significant increases in noninterest income over prior periods. Substantially
all categories of noninterest income increased from the same period in 1997 and
the first quarter of 1998. While income from the sales and servicing of
residential real estate mortgages slowed somewhat from levels achieved in the
first quarter, strong volume reflects consumer preference for fixed rate
mortgages that are subsequently sold on the secondary market, and generate
income for current and future periods. In addition, earnings from the Trust &
Investment group, as well as from the sales of nondeposit investment products,
continue to increase at significant rates.
NONINTEREST EXPENSES
Noninterest expense also continued to increase over the same periods of 1997,
although at a slower rate of increase than for the first quarter. This reflects
continued growth and expansion of the Bank. Total noninterest expense, excluding
provision for loan losses, for the first six months is 20.4% above the same
period for 1997. However, a portion of this increase reflects the fact that the
sales of nondeposit investment products are now being sold by Bank staff, as
opposed to external contractors, as was the case in prior years. This results in
more overhead, which is offset by the fact that more income is retained by the
Company, rather than paid to a third party.
FEDERAL INCOME TAX
There has been no significant change in the income tax position of the Company
during the second quarter of 1998.
NET INCOME
Consolidated net income surpassed first quarter level, and year to date,
exceeded that of the same period in 1997 by 7.8%. This rate of growth slowed
during the quarter from levels achieved during the first quarter, but Management
anticipates that net income will continue to remain strong, and will exceed 1997
levels for the year, barring unforeseen circumstances.
Page 12
<PAGE> 13
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FUNDS MANAGEMENT AND INTEREST RATE RISK
The composition of the Company's balance sheet consists of investments in
interest earning assets (loans and investment securities) that are funded by
interest bearing liabilities (deposits and borrowings). These financial
instruments have varying levels of sensitivity to changes in market interest
rates resulting in market risk. Bank policies place strong emphasis on
stabilizing net interest margin, with the goal of providing a sustained level of
satisfactory earnings. The Funds Management, Investment and Loan policies
provide direction for the flow of funds necessary to supply the needs of
depositors and borrowers. Management of interest sensitive assets and
liabilities is also necessary to reduce interest rate risk during times of
fluctuating interest rates.
A number of measures are used to monitor and manage interest rate risk,
including interest sensitivity (gap) and income simulation analyses. A gap model
is the primary tool used to assess this risk with supplemental information
supplied by an income simulation model. The simulation model is used to estimate
the effect that specific interest rate changes would have on 12 months of pretax
net interest income assuming an immediate and sustained up or down parallel
change in interest rates of 200 basis points. Key assumptions in the models
include prepayment speeds on mortgage related assets; cash flows and maturities
of financial instruments held for purposes other than trading; changes in market
conditions, loan volumes and pricing; and management's determination of core
deposit sensitivity. These assumptions are inherently uncertain and, as a
result, the models cannot precisely estimate net interest income or precisely
predict the impact of higher or lower interest rates on net interest income.
Actual results will differ from simulated results due to timing, magnitude, and
frequency of interest rate changes and changes in market conditions.
Based on the results of the simulation model as of June 30, 1998, the Company
would expect a maximum potential reduction in net interest margin of less than
5% if market rates increased under an immediate and sustained parallel shift of
200 basis points.
The following table shows the rate sensitivity of earning assets and liabilities
of the Company, in thousands of dollars, as of June 30, 1998.
<TABLE>
<CAPTION>
0-3 4-12 1-5 5-10 Over 10
Months Months Years Years Years Total
------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Securities & federal funds $ 16,033 $ 20,209 $ 47,321 $ 6,512 $ 1,435 $ 91,510
Loans 62,419 48,410 92,294 46,264 10,930 260,317
---------------------------------------------------------------------
Total earning assets $ 78,452 $ 68,619 $139,615 $ 52,776 $ 12,365 $351,827
=====================================================================
Interest bearing deposits $ 190,106 $ 44,442 $ 55,632 $ 58 $290,238
Other borrowings 658 276 7,615 3,009 11,558
---------------------------------------------------------------------
Total interest bearing liabilities $ 190,764 $ 44,718 $ 63,247 $ 3,067 $ - $301,796
=====================================================================
Net asset (liability)
funding gap $(112,312) $ 23,901 $ 76,368 $ 49,709 $ 12,365 $ 50,031
Cumulative net asset
(liability) funding gap $(112,312) $(88,411) $(12,043) $ 37,666 $ 50,031
Cumulative gap ratio 0.41 0.62 0.96 1.12 1.17 to 1
Cumulative gap, % of assets -28.9% -22.8% -3.1% 9.7% 12.9%
</TABLE>
Page 13
<PAGE> 14
The Company's exposure to market risk is reviewed on a regular basis by the
Funds Management Committee. The Committee's policy objective is to manage the
Company's assets and liabilities to provide an optimum and consistent level of
earnings within the framework of acceptable risk standards.
The Funds Management Committee of the Bank is also responsible for evaluating
and anticipating various risks other than interest rate risk. Those risks
include prepayment risk, credit risk and liquidity risk. The Committee is made
up of senior members of management, and continually monitors the makeup of
interest sensitive assets and liabilities to assure appropriate liquidity,
maintain interest margins and to protect earnings in the face of changing
interest rates and other economic factors.
The Funds Management policy of the Bank provides for a level of interest
sensitivity which, Management believes, allows the Bank to take advantage of
opportunities within the market relating to liquidity and interest rate risk,
allowing flexibility without subjecting the Bank to undue exposure to risk. In
addition, other measures are used to evaluate and project the anticipated
results of Management's decisions.
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings. The Company's
sole subsidiary, United Bank & Trust, is involved in ordinary routine litigation
incident to its business; however, no such proceedings are expected to result in
any material adverse effect on the operations or earnings of the Bank. Neither
the Bank nor the Company is involved in any proceedings to which any director,
principal officer, affiliate thereof, or person who owns of record or
beneficially five percent (5%) or more of the outstanding stock of the Company
or the Bank, or any associate of the foregoing, is a party or has a material
interest adverse to the Company or the Bank.
ITEM 2 - CHANGES IN SECURITIES
No changes in the securities of the Company occurred during the quarter ended
June 30, 1998.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
There have been no defaults upon senior securities relevant to the requirements
of this section during the three months ended June 30, 1998.
Page 14
<PAGE> 15
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on April 21, 1998. At
that meeting, the following matters were submitted to a vote of the
shareholders. There were 1,646,030 voting shares outstanding on April 21, 1998.
The following directors were re-elected to three year terms:
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C> <C>
L. Donald Bush 1,150,541 1,599 -
Patrick D. Farver 1,151,340 800 -
Jeffrey A. Kuhman 1,150,399 1,741 -
James C. Lawson 1,097,543 54,597 -
Donald J. Martin 1,150,360 1,780 -
David E. Maxwell 1,151,450 690 -
</TABLE>
The following new directors were elected to two year terms:
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C> <C>
Richard A. Gurdjian 1,132,768 19,372 -
Kathryn M. Mohr 1,151,450 690 -
</TABLE>
Directors Berlin, Butcko, Foss, Hickman, Knisel, Niethammer, Robertstad,
Robideau, Wanke, and Whelan hold terms which continue after the meeting.
Directors Downing and Gross have retired from the Board and Director Whitehouse
did not stand for re-election.
Crowe, Chizek and Company LLP of Grand Rapids, Michigan were ratified as
independent auditors for the Company and its subsidiary for the year ending
December 31, 1998. The vote was as follows:
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C> <C>
Ratification of auditors 1,134,819 - 17,321
</TABLE>
No other matters were considered by shareholders at that meeting.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits (numbered as in Item 601 of Regulation S-K):
27. Financial Data Schedule.
(b) The Company has filed no reports on Form 8-K during the quarter ended
June 30, 1998.
Page 15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
United Bancorp, Inc.
July 30, 1998
/S/ Dale L. Chadderdon
-------------------------------------------------
Dale L. Chadderdon
Senior Vice President, Secretary & Treasurer
Page 16
<PAGE> 17
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
------------------------------------------------------------------------
27 Financial Data Schedule
Page 17
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 20,947
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 50,263
<INVESTMENTS-CARRYING> 39,947
<INVESTMENTS-MARKET> 40,888
<LOANS> 260,317
<ALLOWANCE> 2,627
<TOTAL-ASSETS> 387,952
<DEPOSITS> 336,249
<SHORT-TERM> 658
<LIABILITIES-OTHER> 3,015
<LONG-TERM> 10,900
0
0
<COMMON> 19,708
<OTHER-SE> 17,422
<TOTAL-LIABILITIES-AND-EQUITY> 387,952
<INTEREST-LOAN> 11,730
<INTEREST-INVEST> 2,458
<INTEREST-OTHER> 249
<INTEREST-TOTAL> 14,437
<INTEREST-DEPOSIT> 6,280
<INTEREST-EXPENSE> 6,616
<INTEREST-INCOME-NET> 7,821
<LOAN-LOSSES> 549
<SECURITIES-GAINS> 9
<EXPENSE-OTHER> 6,631
<INCOME-PRETAX> 3,332
<INCOME-PRE-EXTRAORDINARY> 3,332
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,471
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.43
<YIELD-ACTUAL> 4.67
<LOANS-NON> 295
<LOANS-PAST> 376
<LOANS-TROUBLED> 137
<LOANS-PROBLEM> 215
<ALLOWANCE-OPEN> 2,467
<CHARGE-OFFS> 512
<RECOVERIES> 123
<ALLOWANCE-CLOSE> 2,627
<ALLOWANCE-DOMESTIC> 1,601
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,026
</TABLE>
