<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 MARCH 31, 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 April 15, 1998, there were outstanding 1,645,974 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>
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 and Funds Management 9
Results of Operations 11
Part II - Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
Exhibit Index 15
</TABLE>
Page 2
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1 -FINANCIAL STATEMENTS
(A)CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
March 31, December 31, March 31,
In thousands of dollars 1998 1997 1997
====================================================================================================================================
<S> <C> <C> <C>
ASSETS
Cash and demand balances in other banks $12,234 $10,406 $11,479
Federal funds sold 2,300 - 5,500
- ------------------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 14,534 10,406 16,979
Securities available for sale 45,378 42,488 50,778
Securities held to maturity (fair value of
$41,933, $38,287 and $32,424, respectively) 40,929 37,164 31,808
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities 86,307 79,652 82,586
Loans held for sale 605 141 608
Portfolio loans 261,253 265,117 240,147
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans 261,858 265,258 240,755
Less: allowance for loan losses 2,516 2,467 2,330
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans 259,342 262,791 238,425
Premises and equipment, net 10,860 10,933 8,562
Accrued interest receivable and other assets 6,910 6,489 5,403
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $377,953 $370,271 $351,955
====================================================================================================================================
LIABILITIES
Deposits
Noninterest bearing $34,718 $31,924 $27,274
Interest bearing certificates of deposit of $100,000 or more 37,489 38,714 42,013
Other interest bearing deposits 255,688 246,197 236,631
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits 327,895 316,835 305,918
Federal funds and other short term borrowings 650 4,942 615
Other borrowings 10,000 10,000 10,000
Accrued interest payable and other liabilities 3,161 3,028 2,957
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 341,706 334,805 319,490
SHAREHOLDERS' EQUITY
Common stock, no par value; 5,000,000 shares authorized;
1,645,974, 1,646,030 and 1,565,890 shares issued and
outstanding, respectively 16,389 16,366 13,516
Stock dividend payable 3,292 - 2,740
Retained earnings 16,335 18,867 16,332
Accumulated other comprehensive income (loss) 231 233 (123)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 36,247 35,466 32,465
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $377,953 $370,271 $351,955
====================================================================================================================================
</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
March 31,
------------------------
In thousands of dollars, except per share data 1998 1997
====================================================================================================================================
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans
Taxable $5,886 $5,301
Tax exempt 19 14
Interest on securities
Taxable 712 751
Tax exempt 476 428
Interest on federal funds sold 119 160
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income 7,212 6,654
INTEREST EXPENSE
Interest on certificates of deposit of $100,000 or more 565 614
Interest on other deposits 2,604 2,355
Interest on short term borrowings 12 7
Interest on other borrowings 149 236
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 3,330 3,212
- ------------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 3,882 3,442
Provision for loan losses 275 180
- ------------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,607 3,262
NONINTEREST INCOME
Service charges on deposit accounts 376 305
Trust & Investment fee income 373 276
Loan sales and servicing 291 145
Sales of nondeposit investment products 131 57
Other income 147 112
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 1,318 895
NONINTEREST EXPENSE
Salaries and employee benefits 1,720 1,511
Occupancy and equipment expense 605 514
Other expense 1,000 755
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 3,325 2,780
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE FEDERAL INCOME TAX 1,600 1,377
Federal income tax 409 347
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $1,191 $1,030
====================================================================================================================================
Basic and diluted earnings per share $0.72 $0.63
Cash dividends declared per share of common stock 0.26 0.23
</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
Stock Other
Common Dividend Retained Comprehensive
In thousands of dollars, except per share data Stock Payable Earnings Income Total
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 13,500 $ - $ 18,419 $ 129 $ 32,048
Net Income 1,030 1,030
Unrealized losses on securities, net of tax (252) (252)
-----------
Comprehensive income 778
Cash dividends declared (376) (376)
5% stock dividend declared, 78,294 shares at $35 2,740 (2,740) -
Common stock and contingently issuable stock 16 (1) 15
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 $13,516 $2,740 $16,332 $ (123) $32,465
====================================================================================================================================
Balance, December 31, 1997 $16,366 $ - $18,867 $233 $35,466
Net Income 1,191 1,191
Unrealized losses on securities, net of tax (2) (2)
--------
Comprehensive income 1,189
Cash dividends declared (428) (428)
5% stock dividend declared, 82,301 shares at $40 3,292 (3,292) -
Common stock and contingently issuable stock 23 (3) 20
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 $16,389 $3,292 $16,335 $231 $36,247
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 6
(D)CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31,
-------------------------
In thousands of dollars 1998 1997
=====================================================================================================================
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $1,191 $1,030
- ---------------------------------------------------------------------------------------------------------------------
Adjustments to Reconcile Net Income to Net Cash from Operating Activities
Depreciation and amortization 376 340
Provision for loan losses 275 180
Loans originated for sale (17,725) (5,935)
Proceeds from sales of loans originated for sale 17,260 6,126
Change in accrued interest receivable and other assets (489) (378)
Change in accrued interest payable and other liabilities 331 312
- ---------------------------------------------------------------------------------------------------------------------
Total adjustments 28 645
- ---------------------------------------------------------------------------------------------------------------------
Net cash from operating activities 1,219 1,675
- ---------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Securities available for sale
Purchases (4,441) (7,341)
Maturities and calls 374 83
Principal payments 1,169 1,071
Securities held to maturity
Purchases (5,969) (3,154)
Maturities and calls 2,210 4,695
Decrease in portfolio loans 3,639 737
Premises and equipment expenditures, net (239) (66)
- ---------------------------------------------------------------------------------------------------------------------
Net cash from investing activities (3,257) (3,975)
- ---------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net change in deposits 11,060 8,215
Net change in short term borrowings (4,292) 6
Principal payments on other borrowings - (10,000)
Proceeds from stock transactions 23 16
Dividends paid (625) (610)
- ---------------------------------------------------------------------------------------------------------------------
Net cash from financing activities 6,166 (2,373)
- ---------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 4,128 (4,673)
Cash and cash equivalents at beginning of year 10,406 21,652
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $14,534 $16,979
=====================================================================================================================
Cash Paid During the Period for
Interest $3,321 $3,161
Income taxes - -
=====================================================================================================================
</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 three month
period ending March 31, 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 $104,734,000 and $90,973,000 at the end of March 1998
and 1997. The balance of loans serviced for others related to servicing rights
that have been capitalized was $58,770,000 and $30,814,000 at March 31, 1998
and 1997.
Mortgage servicing rights activity in thousands of dollars for the three months
ended March 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
Unamortized cost of mortgage servicing rights 1998 1997
---- ----
<S> <C> <C>
Balance at January 1 $ 340 $ 185
Amount capitalized year to date 128 46
Amount amortized year to date (40) (4)
----- -----
Balance at period end $ 428 $ 227
===== =====
</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 30, 1997
the Company issued a 5% stock dividend. Earnings per share, dividends per share
and weighted average shares have been restated to reflect the stock dividend.
The weighted average number of shares outstanding plus contingently issuable
shares was 1,649,210 for 1998 and 1,645,517 for 1997.
NOTE 4 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Financial Accounting Standard
No. 130, "Reporting Comprehensive Income." Under this new 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 three months ended March 31, follows:
<TABLE>
<CAPTION>
Other comprehensive income 1998 1997
---- ----
<S> <C> <C>
Change in unrealized gain (loss) on securities
available for sale $ (3) $(382)
Federal income tax benefit (1) (130)
----- -----
Other comprehensive income $ (2) $(252)
===== =====
</TABLE>
Page 7
<PAGE> 8
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 month period ending March 31, 1998.
FINANCIAL CONDITION
SECURITIES
Investment balances continued to increase during the quarter, following recent
trends. Overall, deposit growth has exceeded loan demand during the quarter,
resulting in additions to the securities portfolio. The mix of the portfolio
remained relatively unchanged from prior periods.
LOANS
Loan volume moderated during the first quarter, following three quarters of
strong growth. All categories of personal loans declined, while the business
loan portfolio experienced increases.
The mix of the loan portfolio reflected this growth trend, 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 March 31, 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>
March 31, 1998 December 31, 1997 March 31, 1997
-------------- ----------------- --------------
Portfolio loans: Balance % of total Balance % of total Balance % of total
------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Personal $65,868 25.2% $70,308 26.5% $68,884 28.6%
Business/commercial mtgs 77,290 29.5% 74,080 27.9% 67,451 28.0%
Tax exempt 1,448 0.6% 1,482 0.6% 1,010 0.4%
Residential mortgage 103,238 39.4% 104,800 39.5% 92,737 38.5%
Construction 14,014 5.4% 14,588 5.5% 10,673 4.4%
----------------------- ------------------------- -------------------------
Total loans $261,858 100.0% $265,258 100.0% $240,755 100.0%
======================= ========================= =========================
</TABLE>
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.
Page 8
<PAGE> 9
<TABLE>
<CAPTION>
3/31/98 12/31/97 3/31/97
------- -------- -------
<S> <C> <C> <C>
Nonaccrual loans $ 241 $ 71 $ 292
Loans past due 90 days or more 753 910 577
Troubled debt restructurings 138 138 -
---------------------------------
Total nonperforming loans $ 1,132 $ 1,119 $ 869
Other real estate 335 473 335
---------------------------------
Total nonperforming assets $ 1,467 $ 1,592 $ 1,204
Percent of total loans 0.56% 0.61% 0.50%
</TABLE>
Nonperforming loans remained relatively unchanged from December 31, 1997, and
remain at higher levels than at March 31, 1997. Loans past due ninety days or
more declined during the quarter, while nonaccrual loans increased during the
period. Overall, nonperforming loans as a percent of total loans remain well
below industry standards, although higher than 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 increased its provision for loan losses over the same period in
1997 as a result of the increase in loan delinquency. However, on an annualized
basis, the provision is anticipated to be lower than that of the prior year. An
analysis of the allowance for loan losses, in thousands of dollars, for the
three months ended March 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance at beginning of period $2,467 $2,320
Loans charged off (307) (187)
Recoveries credited to allowance 81 17
Provision charged to operations 275 180
------ ------
Balance at end of period $2,516 $2,330
====== ======
</TABLE>
The allowance for loan losses is maintained at a level believed adequate by
Management to absorb potential losses in the loan portfolio.
DEPOSITS
Total deposits continued to grow during the quarter, although the rate of
growth of noninterest bearing and interest bearing balances continue to
fluctuate with swings in corporate and public fund balances. The category of
other interest bearing deposit balances enjoyed the greatest growth during the
quarter, reflecting continued growth in Cash Management and Certificates of
Deposit accounts. Management anticipates that deposit growth during the
remainder of 1998 will be steady, 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 a funds sold position for the first 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.
Page 9
<PAGE> 10
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 March 31, 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 March 31, 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 $ 23,232 $ 8,907 $ 46,377 $ 8,631 $ 1,460 $ 88,607
Loans 66,034 47,600 97,784 39,371 11,069 261,858
------------------------------------------------------------------------------------------
Total earning assets $89,266 $ 56,507 $ 144,161 $48,002 $12,529 $350,465
==========================================================================================
Interest bearing deposits $ 189,817 $ 57,069 $ 46,237 $ 54 $293,177
Other borrowings 650 3,000 7,000 10,650
------------------------------------------------------------------------------------------
Total interest bearing liabilities $ 190,467 $ 60,069 $ 53,237 $ 54 $ - $303,827
==========================================================================================
Net asset (liability)
funding gap $(101,201) $ (3,562) $ 90,924 $47,948 $12,529 $ 46,638
Cumulative net asset
(liability) funding gap $(101,201) $(104,763) $ (13,839) $34,109 $46,638
Cumulative gap ratio 0.47 0.58 0.95 1.11 1.15 to 1
Cumulative gap, % of assets -26.8% -27.7% -3.7% 9.0% 12.3%
</TABLE>
Page 10
<PAGE> 11
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.
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 March 31, 1998 and 1997 and December 31, 1997.
Dollars are shown in thousands.
<TABLE>
<CAPTION>
Regulatory Guidelines United Bancorp, Inc.
---------------------------- -------------------------------------------
Adequate Well 3/31/98 12/31/97 3/31/97
-------- ---- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Tier 1 capital to average assets 4% 5% 8.9% 9.3% 8.9%
Tier 1 risk adjusted capital ratio 4% 6% 13.4% 13.2% 13.5%
Total risk adjusted capital ratio 8% 10% 14.4% 14.2% 14.6%
Total shareholders' equity $36,247 $35,466 $32,465
Intangible assets (2,423) (2,487) (1,444)
Unrealized (gain) loss on securities available for sale (231) (233) 123
-------------------------------------------
Tier 1 capital 33,593 32,746 31,144
Qualifying loan loss reserves 2,516 2,467 2,330
-------------------------------------------
Tier 2 capital $36,109 $35,213 $33,474
</TABLE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
In general, yields declined for the first quarter of 1998 compared to the
fourth quarter of 1997, while remaining higher than those of the same period in
1997. At the same time, the Company's cost of funds dropped 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.
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 March 31, 1998 and
1997.
<PAGE> 12
<TABLE>
<CAPTION>
YIELD ANALYSIS OF CONSOLIDATED AVERAGE ASSETS AND LIABILITIES
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 $ 8,829 $ 119 5.40% $ 12,264 $ 160 5.23%
Taxable securities 44,206 712 6.45% 47,268 751 6.36%
Tax exempt securities (b) 35,311 689 7.80% 31,187 620 7.95%
Taxable loans 263,236 5,885 8.94% 239,763 5,301 8.84%
Tax exempt loans (b) 1,471 28 7.57% 1,054 20 7.71%
------------------------ ------------------------
Total int. earning asssets (b) 353,053 $ 7,434 8.42% 331,536 $6,853 8.27%
------------------------ ------------------------
Less allowance for loan losses (2,482) (2,314)
Other assets 28,790 22,946
-------- --------
TOTAL ASSETS $379,361 $352,168
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
NOW accounts $ 40,896 $ 145 1.42% $ 38,352 $ 166 1.73%
Savings deposits 74,493 533 2.86% 70,132 485 2.77%
CDs $100,000 and over 39,114 565 5.77% 42,553 614 5.77%
Other interest bearing deposits 140,655 1,926 5.48% 122,732 1,705 5.56%
------------------------ -----------------------
Total int. bearing deposits 295,158 3,169 4.29% 273,769 2,970 4.34%
Short term borrowings 804 12 5.87% 612 8 5.23%
Other borrowings 10,000 149 5.98% 16,000 236 5.90%
------------------------ -----------------------
Total int. bearing liabilities 305,962 3,330 4.35% 290,381 3,214 4.43%
Noninterest bearing deposits 34,184 26,664
Other liabilities 3,225 2,752
Shareholders' equity 35,990 32,371
--------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $379,361 $352,168
========= ========
Net interest income (b) $ 4,103 $ 3,640
======= =======
Net spread (b) 4.07% 3.84%
==== ====
Net yield on interest earning assets (b) 4.65% 4.39%
==== ====
Ratio of interest earning assets to
interest bearing liabilities 1.15 1.14
==== ====
</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 three months ended March 31, 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 $(46) $ 5 $ (41) $ 110 $ (5) $ 105
Taxable securities (50) 11 (39) 3 50 53
Tax exempt securities 81 (12) 69 29 (13) 16
Taxable loans 524 60 584 488 (98) 390
Tax exempt loans 8 - 8 (2) (2) (4)
------------------------------------------------------------------------------
Total interest income $517 $ 64 $ 581 $ 628 $(68) $ 560
==============================================================================
</TABLE>
Page 12
<PAGE> 13
<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 $10 $ (31) $(21) $3 $(7) $(4)
Savings deposits 31 17 48 28 (102) (74)
CDs $100,000 and over (49) - (49) 101 (12) 89
Other interest bearing deposits 246 (24) 222 96 129 225
Short term borrowings 3 1 4 (5) - (5)
Other borrowings (90) 3 (87) 147 7 154
-----------------------------------------------------------------
Total interest expense $151 $ (34) $117 $370 $15 $385
=================================================================
Net change in net interest
income $366 $98 $464 $258 $(83) $175
=================================================================
</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 has contributed to
significant increases in noninterest income over prior periods. All categories
of noninterest income increased from the same period in 1997. This increase was
led by income from the sales and servicing of residential real estate
mortgages, reflecting consumer preference for fixed rate mortgages, which 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. Overall, total noninterest income for the first three
months is up 47.3% over the same period of 1997.
NONINTEREST EXPENSES
Noninterest expense also continued to increase over the same periods of 1997,
reflecting continued growth and expansion of the Bank. Total noninterest
expense, excluding provision for loan losses, for the first three months is
19.6% above the same period for 1997.
FEDERAL INCOME TAX
There has been no significant change in the income tax position of the Company
during the first quarter of 1998.
NET INCOME
Consolidated net income for the year exceeded that of the same period in 1997
by 15.6%. Management anticipates that net income will continue to remain
strong, and should exceed 1997 levels for the year.
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,
Page 13
<PAGE> 14
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
March 31, 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 March 31, 1998.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended March 31, 1998.
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 March
31, 1998.
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.
April 30, 1998
/s/ Dale L. Chadderdon
----------------------------------------------
Dale L. Chadderdon
Senior Vice President, Secretary & Treasurer
Page 14
<PAGE> 15
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ------------------------------------------------------------------------------
27 Financial Data Schedule
Page 15
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 12,234
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 45,378
<INVESTMENTS-CARRYING> 40,929
<INVESTMENTS-MARKET> 41,933
<LOANS> 261,858
<ALLOWANCE> 2,516
<TOTAL-ASSETS> 377,953
<DEPOSITS> 327,895
<SHORT-TERM> 650
<LIABILITIES-OTHER> 3,161
<LONG-TERM> 10,000
0
0
<COMMON> 16,389
<OTHER-SE> 19,858
<TOTAL-LIABILITIES-AND-EQUITY> 377,953
<INTEREST-LOAN> 5,905
<INTEREST-INVEST> 1,188
<INTEREST-OTHER> 119
<INTEREST-TOTAL> 7,212
<INTEREST-DEPOSIT> 3,169
<INTEREST-EXPENSE> 3,330
<INTEREST-INCOME-NET> 3,882
<LOAN-LOSSES> 275
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,325
<INCOME-PRETAX> 1,600
<INCOME-PRE-EXTRAORDINARY> 1,600
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,191
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.72
<YIELD-ACTUAL> 4.65
<LOANS-NON> 241
<LOANS-PAST> 753
<LOANS-TROUBLED> 138
<LOANS-PROBLEM> 192
<ALLOWANCE-OPEN> 2,467
<CHARGE-OFFS> 307
<RECOVERIES> 81
<ALLOWANCE-CLOSE> 2,516
<ALLOWANCE-DOMESTIC> 1,558
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 958
</TABLE>
