<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, 1999
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, 1999, there were outstanding 1,730,251 shares of the
registrant's common stock, no par value.
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CROSS REFERENCE TABLE
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION PAGE NO.
- ---------------------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Condensed)
<S> <C>
(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 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 16
Exhibit Index 17
</TABLE>
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<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(a) CONSOLIDATED BALANCE SHEETS (UNAUDITED)
In thousands of dollars March 31, December 31, March 31,
1999 1998 1998
------------- ---------------- ------------
<S> <C> <C> <C>
ASSETS
Cash and demand balances in other banks $ 14,037 $ 12,348 $ 12,234
Federal funds sold 800 - 2,300
--------- ----------- ----------
Total cash and cash equivalents 14,837 12,348 14,534
Securities available for sale 48,650 58,468 45,378
Securities held to maturity (fair value of
$36,860, $37,999 and $41,933, respectively) 35,952 36,919 40,929
--------- ----------- ----------
Total securities 84,602 95,387 86,307
Loans held for sale 957 535 605
Portfolio loans 274,092 269,714 261,253
--------- ----------- ----------
Total loans 275,049 270,249 261,858
Less: allowance for loan losses 2,887 2,799 2,516
--------- ----------- ----------
Net loans 272,162 267,450 259,342
Premises and equipment, net 12,229 11,406 10,860
Accrued interest receivable and other assets 8,242 7,104 6,910
--------- ----------- ----------
TOTAL ASSETS $ 392,072 $ 393,695 $ 377,953
========= =========== ==========
LIABILITIES
Deposits
Noninterest bearing $ 42,669 $ 42,468 $ 34,718
Interest bearing certificates of deposit of $100,000 or more 30,264 31,108 37,489
Other interest bearing deposits 266,231 263,691 255,688
--------- ----------- ----------
Total deposits 339,164 337,267 327,895
Federal funds and other short term borrowings - 3,874 650
Other borrowings 10,900 10,900 10,000
Accrued interest payable and other liabilities 2,600 2,890 3,161
--------- ----------- ----------
TOTAL LIABILITIES 352,664 354,931 341,706
SHAREHOLDERS' EQUITY
Common stock, no par value; 5,000,000 shares authorized;
1,730,195, 1,730,480 and 1,645,974 shares issued and
outstanding, respectively 19,858 19,837 16,389
Stock dividend payable 3,893 - 3,292
Retained earnings 15,459 18,607 16,335
Accumulated other comprehensive income (loss) 198 320 231
--------- ----------- ----------
TOTAL SHAREHOLDERS' EQUITY 39,408 38,764 36,247
--------- ----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 392,072 $ 393,695 $ 377,953
========= =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
<CAPTION>
(b) CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended
In thousands of dollars, except per share data March 31,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans
Taxable $ 5,773 $ 5,886
Tax exempt 19 19
Interest on securities
Taxable 813 712
Tax exempt 466 476
Interest on federal funds sold 4 119
-------- --------
Total interest income 7,075 7,212
INTEREST EXPENSE
Interest on certificates of deposit of $100,000 or more 394 565
Interest on other deposits 2,314 2,604
Interest on short term borrowings 45 12
Interest on other borrowings 165 149
-------- --------
Total interest expense 2,918 3,330
-------- --------
NET INTEREST INCOME 4,157 3,882
Provision for loan losses 315 275
-------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,842 3,607
NONINTEREST INCOME
Service charges on deposit accounts 408 376
Trust & Investment fee income 462 373
Gains on securities transactions 10 -
Loan sales and servicing 196 291
Sales of nondeposit investment products 153 131
Other income 161 147
-------- --------
Total noninterest income 1,390 1,318
NONINTEREST EXPENSE
Salaries and employee benefits 1,986 1,720
Occupancy and equipment expense 600 605
Other expense 988 1,000
-------- --------
Total noninterest expense 3,574 3,325
-------- --------
INCOME BEFORE FEDERAL INCOME TAX 1,658 1,600
Federal income tax 427 409
-------- --------
NET INCOME $ 1,231 $ 1,191
======== ========
Basic and diluted earnings per share $ 0.71 $ 0.69
Cash dividends declared per share of common stock 0.28 0.25
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
<CAPTION>
(c) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
In thousands of dollars, except per share data Accumulated
Stock Other Compre-
Common Dividend Retained hensive
Stock Payable Earnings Income Total
--------- ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 16,366 $ - $ 18,867 $ 233 $ 35,466
Net Income 1,191 1,191
Net change in unrealized gains on securities (2) (2)
--------
Total 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
======== ======== ========= =========== ========
Balance, December 31, 1998 $ 19,837 $ - $ 18,607 $ 320 $ 38,764
Net Income 1,231 1,231
Net change in unrealized gains on securities (122) (122)
--------
Total comprehensive income 1,109
Cash dividends declared (484) (484)
5% stock dividend declared, 86,512 shares at $45 3,893 (3,893) -
Common stock and contingently issuable stock 21 - (2) - 19
-------- -------- --------- ----------- --------
Balance, March 31, 1999 $ 19,858 $ 3,893 $ 15,459 $ 198 $ 39,408
======== ======== ========= =========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
<CAPTION>
(d) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended
In thousands of dollars March 31,
-----------------------
1999 1998
----------- ----------
<S> <C> <C>
Cash Flows from Operating Activities
- ------------------------------------
Net Income $ 1,231 $ 1,191
-------- --------
Adjustments to Reconcile Net Income to Net Cash from Operating Activities
- -------------------------------------------------------------------------
Depreciation and amortization 425 376
Provision for loan losses 315 275
Change in loans held for sale (422) (465)
Change in accrued interest receivable and other assets (1,201) (489)
Change in accrued interest payable and other liabilities (19) 331
-------- --------
Total adjustments (902) 28
-------- --------
Net cash from operating activities 329 1,219
-------- --------
Cash Flows from Investing Activities
- ------------------------------------
Securities available for sale
Purchases - (4,441)
Maturities and calls 7,152 374
Principal payments 2,439 1,169
Securities held to maturity
Purchases (620) (5,969)
Maturities and calls 1,578 2,210
Change in portfolio loans (4,605) 3,639
Premises and equipment expenditures, net (1,134) (239)
-------- --------
Net cash from investing activities 4,810 (3,257)
-------- --------
Cash Flows from Financing Activities
- ------------------------------------
Net change in deposits 1,897 11,060
Net change in short term borrowings (3,874) (4,292)
Proceeds from stock transactions 21 23
Dividends paid (694) (625)
-------- --------
Net cash from financing activities (2,650) 6,166
-------- --------
Net change in cash and cash equivalents 2,489 4,128
Cash and cash equivalents at beginning of year 12,348 10,406
-------- --------
Cash and cash equivalents at end of period $ 14,837 $ 14,534
======== ========
Cash Paid During the Period for
- -------------------------------
Interest $ 3,030 $ 3,321
Income taxes - -
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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(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, 1999 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1999. 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, 1998.
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 $122,862,000 and $104,734,000 at the end of March 1999
and 1998. The balance of loans serviced for others related to servicing rights
that have been capitalized was $95,404,000 and $58,770,000 at March 31, 1999 and
1998.
Mortgage servicing rights activity in thousands of dollars for the three months
ended March 31, 1999 and 1998 follows:
<TABLE>
<CAPTION>
Unamortized cost of mortgage servicing rights 1999 1998
--------------------------------------------- ---------- ----------
<S> <C> <C>
Balance at January 1 $ 646 $ 340
Amount capitalized year to date 80 128
Amount amortized year to date (39) (40)
--------- ---------
Balance at period end $ 687 $ 428
========= =========
</TABLE>
No valuation allowance was considered necessary for mortgage servicing rights at
period end 1999 and 1998.
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
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 1,735,442 for 1999 and 1,731,638 for 1998.
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:
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<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
Other comprehensive income 1999 1998
-------------------------- ---------- ---------
<S> <C> <C>
Unrealized gains on securities arising during period $ (176) $ (3)
Reclassification for realized amount included in income (9) -
--------- --------
Other comprehensive income, before tax (185) (3)
Federal income tax expense (63) (1)
--------- --------
Other comprehensive income $ (122) $ (2)
========= ========
</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 month period ending March 31, 1999.
FINANCIAL CONDITION
SECURITIES
Investment securities balances declined during the first three months of 1999,
reflecting an increase in loan demand experienced by the Bank. Maturities within
the portfolio were not replaced, in part in anticipation of an inflow of excess
funds during the second quarter of 1999. The addition of approximately $20
million of deposits resulting from the acquisition of the Manchester, Michigan
office of Great Lakes National Bank will undoubtedly cause an increase in
securities during the second quarter of the year.
The mix of the securities portfolio remained relatively unchanged during the
quarter. The chart below shows the mix of the portfolio, in thousands of
dollars.
<TABLE>
<CAPTION>
3/31/1999 12/31/1998 3/31/1998
----------- ------------ -----------
<S> <C> <C> <C>
U.S. Treasury and agency securities 23.3% 28.2% 22.8%
Mortgage backed agency securities 22.0% 22.3% 25.0%
Tax exempt obligations of states and political subdivisions 41.9% 37.0% 41.5%
Corporate, taxable municipal and asset backed securities 12.8% 12.5% 10.7%
--------- ---------- ---------
Total Securities 100.0% 100.0% 100.0%
========= ========== =========
</TABLE>
LOANS
Loan growth during the first quarter of 1999 exceeded the levels achieved in
1998. During the first three months, annualized loan growth was 7.1%, compared
to 1.9% for all of 1998. Business loans and residential mortgages led the
increases, while other personal loan categories declined.
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.
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<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998 March 31, 1998
------------------------- ------------------------ --------------------------
Portfolio loans: Balance % of total Balance % of total Balance % of total
- ---------------- ------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Personal $ 55,403 20.1% $ 58,797 21.8% $ 65,868 25.2%
Business/commercial mtgs 85,594 31.1% 82,521 30.5% 77,290 29.5%
Tax exempt 1,794 0.7% 1,381 0.5% 1,448 0.6%
Residential mortgage 108,269 39.4% 104,903 38.8% 103,238 39.4%
Construction 23,989 8.72% 22,647 8.38% 14,014 5.35%
--------- --------- -------- --------- ----------- ---------
Total loans $ 275,049 100.00% $270,249 100.00% $ 261,858 100.00%
========= ========= ======== ========= =========== =========
</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.
<TABLE>
<CAPTION>
3/31/1999 12/31/1998 3/31/1998
----------- ------------ -------------
<S> <C> <C> <C>
Nonaccrual loans $ 778 $ 821 $ 241
Loans past due 90 days or more 205 194 753
Troubled debt restructurings 136 136 138
-------- --------- -----------
Total nonperforming loans $ 1,119 $ 1,151 $ 1,132
Other real estate 335 335 335
-------- --------- -----------
Total nonperforming assets $ 1,454 $ 1,486 $ 1,467
Percent of total loans 0.53% 0.54% 0.56%
</TABLE>
Nonperforming loans remained relatively unchanged from December 31, 1998 and
March 31, 1998. Although categories are virtually unchanged from December 31,
1998, loans past due ninety days or more declined from March of 1998, while
nonaccrual loans increased during the period. 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
1998 as a result of the increase in loan volume. The allowance for loan losses
is maintained at a level believed adequate by Management to absorb potential
losses in the loan portfolio. An analysis of the allowance for loan losses, in
thousands of dollars, for the three months ended March 31, 1999 and 1998
follows:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Balance at beginning of period $ 2,799 $ 2,467
Loans charged off (283) (307)
Recoveries credited to allowance 56 81
Provision charged to operations 315 275
--------- ----------
Balance at end of period $ 2,887 $ 2,516
========= ==========
</TABLE>
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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. During the second quarter of 1999, United Bank & Trust will acquire
the deposits of the Manchester office of Great Lakes Bank, contributing
approximately $20 million to deposit totals. Management anticipates that deposit
growth during 1999 will be steady, with anticipated growth from new markets, as
well as from consumer use of newer cash management account products.
LIQUIDITY
The Bank maintained an average funds sold position for the first quarter of
1999, 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 March 31, 1999 and 1998 and December 31, 1998. Dollars
are shown in thousands.
<TABLE>
<CAPTION>
Regulatory Guidelines United Bancorp, Inc.
--------------------- --------------------
Adequate Well 3/31/1999 12/31/1998 3/31/1998
---------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Tier 1 capital to average assets 4% 5% 9.5% 9.4% 8.9%
Tier 1 risk adjusted capital ratio 4% 6% 14.1% 14.0% 13.4%
Total risk adjusted capital ratio 8% 10% 15.2% 15.0% 14.4%
Total shareholders' equity $ 39,408 $ 38,764 $ 36,247
Intangible assets (2,167) (2,230) (2,423)
Unrealized (gain) loss on securities available for sale (198) (320) (231)
--------- --------- ---------
Tier 1 capital 37,043 36,214 33,593
Qualifying loan loss reserves 2,887 2,799 2,516
--------- --------- ---------
Tier 2 capital $ 39,930 $ 39,013 $ 36,109
========= ========= =========
</TABLE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
In general, yields declined for the first quarter of 1999 compared to the fourth
quarter of 1998 and the same period in 1998. 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 1998. This resulted in improved net interest
income and spread over the same period of 1998 and 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, 1999 and 1998.
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<TABLE>
<CAPTION>
YIELD ANALYSIS OF CONSOLIDATED AVERAGE ASSETS AND LIABILITIES
-------------------------------------- ---------------------------------------
dollars in thousands 1999 1998
-------------------------------------- ---------------------------------------
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 $ 328 $ 4 4.46% $ 8,829 $ 119 5.40%
Taxable securities 52,654 813 6.17% 44,206 712 6.45%
Tax exempt securities (b) 35,431 675 7.62% 35,311 689 7.80%
Taxable loans 270,912 5,773 8.52% 263,236 5,885 8.94%
Tax exempt loans (b) 1,463 27 7.48% 1,471 28 7.57%
--------- ---------- ---------- ----------
Total int. earning assets (b) 360,788 7,292 8.08% 353,053 7,434 8.42%
Less allowance for loan losses (2,841) (2,482)
Other assets 33,028 28,790
--------- ----------
TOTAL ASSETS $ 390,975 $ 379,361
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
NOW accounts $ 51,542 $ 225 1.74% $ 40,896 $ 145 1.42%
Savings deposits 71,999 399 2.22% 74,493 533 2.86%
CDs $100,000 and over 30,703 394 5.13% 39,114 565 5.77%
Other interest bearing deposits 140,303 1,691 4.82% 140,655 1,926 5.48%
--------- ---------- ---------- ----------
Total int. bearing deposits 294,547 2,708 3.68% 295,158 3,169 4.29%
Short term borrowings 3,686 45 4.91% 804 12 5.87%
Other borrowings 10,900 165 6.05% 10,000 149 5.98%
--------- ---------- ---------- ----------
Total int. bearing liabilities 309,133 2,918 3.78% 305,962 3,330 4.35%
Noninterest bearing deposits 40,110 34,184
Other liabilities 2,506 3,225
Shareholders' equity 39,226 35,990
--------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 390,975 $ 379,361
========= ==========
Net interest income (b) $ 4,374 $ 4,103
========== ==========
Net spread (b) 4.31% 4.07%
========= ======
Net yield on interest earning assets (b) 4.85% 4.65%
========= ======
Ratio of interest earning assets to
interest bearing liabilities 1.17 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 three months ended March 31, on a taxable equivalent basis, in
thousands of dollars.
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
---------------------------------------- ------------------------------------------
Increase (Decrease) Due To: (a) Increase (Decrease) Due To: (a)
------------------------------- -------------------------------
Volume Rate Net Volume Rate Net
-------------- ------------ ------------ -------------- ---------------- ----------
Interest earned on:
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ (98) $ (18) $ (116) $ (46) $ 5 $ (41)
Taxable securities 131 (31) 100 (50) 11 (39)
Tax exempt securities 2 (16) (14) 81 (12) 69
Taxable loans 169 (281) (112) 524 60 584
Tax exempt loans - - - 8 - 8
--------- -------- -------- --------- ---------- --------
Total interest income $ 204 $ (346) $ (142) $ 517 $ 64 $ 581
========= ======== ======== ========= ========== ========
</TABLE>
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<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
---------------------------------------- ------------------------------------------
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 $ 42 $ 37 $ 79 $ 10 $ (31) $ (21)
Savings deposits (17) (117) (134) 31 17 48
CDs $100,000 and over (113) (58) (171) (49) - (49)
Other interest bearing deposits (5) (231) (236) 246 (24) 222
Short term borrowings 35 (2) 33 3 1 4
Other borrowings 13 2 15 (90) 3 (87)
--------- -------- -------- --------- ---------- --------
Total interest expense $ (45) $ (369) $ (414) $ 151 $ (34) $ 117
========= ======== ======== ========= ========== ========
Net change in net interest
income $ 249 $ 23 $ 272 $ 366 $ 98 $ 464
========= ======== ======== ========= ========== ========
</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 1998. 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 5.5% over the
same period of 1998.
NONINTEREST EXPENSES
Noninterest expense also continued to increase over the same periods of 1998,
reflecting continued growth and expansion of the Bank. Total noninterest
expense, excluding provision for loan losses, for the first three months is 7.5%
above the same period for 1998.
FEDERAL INCOME TAX
There has been no significant change in the income tax position of the Company
during the first quarter of 1999.
NET INCOME
Consolidated net income exceeded that of the same period in 1998 by 3.4%,
however, it was slightly behind fourth quarter levels. Management anticipates
that net income will continue to remain strong for the remainder of the year.
YEAR 2000 READINESS
Federal banking regulators require specific actions of every financial
institution to become Year 2000 ready. These guidelines require a bank to:
- - Ensure the involvement of the board of directors and management in the
institution's Year 2000 effort
- - Adopt a written project plan
- - Renovate its mission-critical systems
- - Complete tests of the renovated mission-critial systems by specific deadlines
- - Plan for contingencies
- - Manage customer risk
United has an active Year 2000 committee that reports regularly on its progress
to the Board of Directors. The Board has adopted a written plan, and continues
to assess its risk. Management has
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determined which systems are mission-critical, and those which are not. Based on
these determinations, a plan of action has been implemented. Key clients have
been surveyed, and plans are underway to assess and manage customer risk.
Throughout the first quarter of 1999, the Company's Year 2000 task force has
continued to monitor the readiness of its major data processing hardware and
software providers, other critical vendor suppliers, and its large commercial
customers.
United uses major external third party vendors to the banking industry for its
mainframe and all personal computer hardware and software. These well-known,
national third party providers for the mission critical systems have provided
written assurances that they are Year 2000 ready and their systems have been
fully tested. The Company does not use any custom programmed software.
In 1998, United determined that its Unisys mainframe computer system, while Year
2000 compliant, did not have sufficient capacity for future growth. In the
fourth quarter of 1998, the Company installed a new Unisys mainframe to replace
its previous system. This system provides a substantial increase in efficiency
and capacity of operations, and allowed complete testing of its banking software
provided by Information Technology, Inc. during the installation of the
hardware, without any disruption to daily processing and customer service. All
testing will be completed by June 30, 1999 within the FFIEC published guidelines
and no disruption in service due to a Year 2000 issue is anticipated.
Other systems are being tested, and all noncompliant systems will be replaced or
abandoned. Some non-critical systems have been found to be noncompliant, due to
their age, and will be replaced. The readiness of the software used for mission
critical systems is included in the cost of our normal maintenance of those
systems and we do not expect any additional charges. Some minor hardware and
software replacements will be needed, and expenditures are expected to be less
than $50,000. The staffing needed to complete the testing and implementation
plan has been identified and is available. Other new software installations over
the next 9 months will be restricted to assure that we can complete our Year
2000 plan.
Contingency planning has begun for mission critical tasks and will be
continually monitored and updated to ensure uninterrupted customer services and
backroom processing. United, however, cannot necessarily ensure uninterruption
with certain vendors such as utility companies and phone companies, but those
vendor plans are being monitored as an ongoing part of the assessment.
Currently, all critical dates mandated by the regulators have been met by the
data processing vendor and United is also on schedule for its review of any
in-house critical systems, software, and equipment.
Overall, the cost of evaluating the Company's Year 2000 readiness and assuring
its compliance will not have a measurable impact on the financial condition of
the Company. United regularly provides for upgrades and replacement of its
software and hardware, and the Year 2000 situation will not significantly impact
those expenditures.
Major loan and deposit customers have been surveyed to evaluate the level of
Year 2000 planning and readiness and to assess any potential risk. Currently, it
is unknown what impact a high risk client's inability to pay its bank
obligations will have on the adequacy of United's allowance for possible loan
losses or its financial position.
Page 13
<PAGE> 14
United updates the Board of Directors and appropriate banking regulators
regarding its Year 2000 readiness on a quarterly basis. No material affect on
United's financial performance is anticipated, due to the systematic approach
the Company has adopted to prepare for the Year 2000 date impact.
FORWARD-LOOKING STATEMENTS
Statements contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations relate to United's expectations as to future
events relating to such items as the adequacy of the allowance for loan losses,
changes in economic conditions including interest rates, management's ability to
manage interest rate, liquidity and credit risks, impact on operations and
credit losses as it relates to the Year 200 issue. Such statements are not
statements of historical fact and are forward-looking statements. United
believes the assumptions upon which these statements are founded are reasonable,
based on management's knowledge of its business and operations; however, there
is no assurance the assumptions will prove to have been correct. Furthermore,
United undertakes no obligation to update, amend or clarify forward-looking
statements, whether as a result of new information, future events, or otherwise.
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.
Page 14
<PAGE> 15
Based on the results of the simulation model as of March 31, 1999, 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 Bank's interest sensitivity position remained virtually
unchanged from the previouis quarter.
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
March 31, 1999.
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, 1999.
Page 15
<PAGE> 16
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, 1999.
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, 1999.
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, 1999
/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
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 14,037
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 48,650
<INVESTMENTS-CARRYING> 35,952
<INVESTMENTS-MARKET> 36,860
<LOANS> 275,049
<ALLOWANCE> 2,887
<TOTAL-ASSETS> 392,072
<DEPOSITS> 339,164
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,600
<LONG-TERM> 10,900
0
0
<COMMON> 19,858
<OTHER-SE> 19,550
<TOTAL-LIABILITIES-AND-EQUITY> 392,072
<INTEREST-LOAN> 5,792
<INTEREST-INVEST> 1,279
<INTEREST-OTHER> 4
<INTEREST-TOTAL> 7,075
<INTEREST-DEPOSIT> 2,708
<INTEREST-EXPENSE> 2,918
<INTEREST-INCOME-NET> 4,157
<LOAN-LOSSES> 315
<SECURITIES-GAINS> 10
<EXPENSE-OTHER> 3,574
<INCOME-PRETAX> 1,658
<INCOME-PRE-EXTRAORDINARY> 1,658
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,231
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.71
<YIELD-ACTUAL> 4.85
<LOANS-NON> 778
<LOANS-PAST> 205
<LOANS-TROUBLED> 136
<LOANS-PROBLEM> 231
<ALLOWANCE-OPEN> 2,799
<CHARGE-OFFS> 283
<RECOVERIES> 56
<ALLOWANCE-CLOSE> 2,887
<ALLOWANCE-DOMESTIC> 1,637
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,250
</TABLE>
