<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, 2000
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, 2000, there were outstanding 1,819,022 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
<S> <C>
Item 1. Financial Statements (Condensed) 3
(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 7
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 15
Item 3. Defaults Upon Senior Securities 15
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 15
Exhibit Index 16
</TABLE>
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<PAGE> 3
PART I FINANCIAL INFORMATION
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1- FINANCIAL STATEMENTS (Condensed)
(A) CONSOLIDATED BALANCE SHEETS (UNAUDITED)
In thousands of dollars March 31, December 31, March 31,
2000 1999 1999
--------- ------------ ---------
<S> <C> <C> <C>
ASSETS
Total cash and cash equivalents $ 18,443 $ 17,469 $ 14,837
Securities available for sale 79,008 81,923 48,650
Securities held to maturity; fair value of $36,860 at March 31, 1999 -- -- 35,952
--------- --------- ---------
Total securities 79,008 81,923 84,602
Loans held for sale -- 154 957
Portfolio loans 318,690 308,113 274,092
--------- --------- ---------
Total loans 318,690 308,267 275,049
Less allowance for loan losses 3,623 3,300 2,887
--------- --------- ---------
Net loans 315,067 304,967 272,162
Premises and equipment, net 13,374 13,116 12,229
Accrued interest receivable and other assets 10,039 10,046 8,242
--------- --------- ---------
TOTAL ASSETS $ 435,931 $ 427,521 $ 392,072
========= ========= =========
LIABILITIES
Deposits
Noninterest bearing $ 49,928 $ 46,829 $ 42,669
Interest bearing certificates of deposit of $100,000 or more 34,924 32,445 30,264
Other interest bearing deposits 284,417 281,569 266,231
--------- --------- ---------
Total deposits 369,269 360,843 339,164
Federal funds purchased and other short term borrowings 14,800 19,300 --
Other borrowings 7,624 3,624 10,900
Accrued interest payable and other liabilities 2,756 2,790 2,600
--------- --------- ---------
TOTAL LIABILITIES 394,449 386,557 352,664
SHAREHOLDERS' EQUITY
Common stock and paid in capital, no par value;
5,000,000 shares authorized; 1,819,022, 1,819,193 and
1,730,195 shares issued and outstanding, respectively 23,947 23,919 19,858
Stock dividend payable 4,275 -- 3,893
Retained earnings 13,955 17,544 15,459
Accumulated other comprehensive income (loss), net of tax (695) (499) 198
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 41,482 40,964 39,408
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 435,931 $ 427,521 $ 392,072
========= ========= =========
</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
thousands of dollars, except per share data March 31,
----------------------------
2000 1999
--------- ---------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans
Taxable $ 6,729 $ 5,773
Tax exempt 27 19
Interest on securities
Taxable 739 813
Tax exempt 424 466
Interest on federal funds sold -- 4
--------- -------
Total interest income 7,919 7,075
INTEREST EXPENSE
Interest on certificates of deposit of $100,000 or more 459 394
Interest on other deposits 2,743 2,314
Interest on short term borrowings 282 45
Interest on other borrowings 88 165
--------- -------
Total interest expense 3,572 2,918
--------- -------
NET INTEREST INCOME 4,347 4,157
Provision for loan losses 354 315
--------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,993 3,842
NONINTEREST INCOME
Service charges on deposit accounts 547 408
Trust & Investment fee income 644 462
Gains on securities transactions -- 10
Loan sales and servicing 77 196
Sales of nondeposit investment products 172 153
Other income 233 161
--------- -------
Total noninterest income 1,673 1,390
NONINTEREST EXPENSE
Salaries and employee benefits 2,152 1,986
Occupancy and equipment expense 719 600
Other expense 1,112 988
--------- -------
Total noninterest expense 3,983 3,574
--------- -------
INCOME BEFORE FEDERAL INCOME TAX 1,683 1,658
Federal income tax 448 427
--------- -------
NET INCOME $ 1,235 $ 1,231
========= =======
Basic and diluted earnings per share $ 0.64 $ 0.64
Cash dividends declared per share of common stock 0.29 0.25
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE> 5
(C) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
In thousands of dollars, except per share data
<TABLE>
<CAPTION>
Accumulated
Other Compre-
Stock hensive
Common Dividend Retained Income (Loss),
Stock (1) Payable Earnings Net of Tax Total
---------- -------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $ 19,837 $ -- $ 18,607 $ 320 $ 38,764
Net Income 1,231 1,231
Other comprehensive income:
Net change in unrealized gains (losses)
on securities available for sale, net (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
========== ======== ========= ============== =========
Balance, December 31, 1999 $ 23,919 $ -- $ 17,544 $ (499) $ 40,964
Net Income 1,235 1,235
Other comprehensive income:
Net change in unrealized gains (losses)
on securities available for sale, net (196) (196)
---------
Total comprehensive income 1,039
Cash dividends declared (546) (546)
5% stock dividend declared, 90,954 shares at $47 4,275 (4,275) --
Common stock and contingently issuable stock 28 -- (3) -- 25
---------- -------- --------- -------------- ---------
Balance, March 31, 2000 $ 23,947 $ 4,275 $ 13,955 $ (695) $ 41,482
========== ======== ========= ============== =========
</TABLE>
(1) Includes Paid In Capital
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,
-----------------------------
2000 1999
-------- ----------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ 1,235 $ 1,231
-------- ----------
Adjustments to Reconcile Net Income to Net Cash from Operating Activities
Depreciation and amortization 518 425
Provision for loan losses 354 315
Change in loans held for sale 154 (422)
Change in accrued interest receivable and other assets 43 (1,201)
Change in accrued interest payable and other liabilities 149 (19)
-------- ----------
Total adjustments 1,218 (902)
-------- ----------
Net cash from operating activities 2,453 329
-------- ----------
Cash Flows from Investing Activities
Securities available for sale
Purchases (50) --
Maturities and calls 1,535 7,152
Principal payments 1,077 2,439
Securities held to maturity
Purchases -- (620)
Maturities and calls -- 1,578
Change in portfolio loans (10,648) (4,605)
Premises and equipment expenditures, net (616) (1,134)
-------- ----------
Net cash from investing activities (8,702) 4,810
-------- ----------
Cash Flows from Financing Activities
Net change in deposits 8,426 1,897
Net change in short term borrowings (4,500) (3,874)
Proceeds from other borrowings 4,000 --
Proceeds from common stock transactions 25 21
Dividends paid (728) (694)
-------- ----------
Net cash from financing activities 7,223 (2,650)
-------- ----------
Net change in cash and cash equivalents 974 2,489
Cash and cash equivalents at beginning of year 17,469 12,348
-------- ----------
Cash and cash equivalents at end of period $ 18,443 $ 14,837
======== ==========
Supplement Disclosure of Cash Flow Information:
Interest $ 3,659 $ 3,030
Income taxes -- --
Loans transferred to other real estate 40 --
</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, 2000 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2000. 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, 1999.
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 $122,481,000 and $122,862,000 at the end of March 2000
and 1999. The balance of loans serviced for others related to servicing rights
that have been capitalized was $100,417,000 and $98,404,000 at March 31, 2000
and 1999.
Mortgage servicing rights activity in thousands of dollars for the three months
ended March 31, 2000 and 1999 follows:
<TABLE>
<CAPTION>
Unamortized cost of mortgage servicing rights 2000 1999
--------------------------------------------- ------ -----
<S> <C> <C>
Balance at January 1 $ 728 $ 646
Amount capitalized year to date 7 80
Amount amortized year to date (17) (39)
------ -----
Balance at period end $ 718 $ 687
====== =====
</TABLE>
No valuation allowance was considered necessary for mortgage servicing rights at
period end 2000 and 1999.
NOTE 3 - COMMON STOCK AND EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of shares
outstanding plus contingently issuable shares during the year. In March 2000,
the Company declared a 5% stock to shareholders of record on May 1, 2000,
payable May 30, 2000. The Company also issued a 5% stock dividend in May 1999.
Earnings per share, dividends per share and weighted average shares have been
restated to reflect these stock dividends. The weighted average number of shares
outstanding plus contingently issuable shares was 1,917,517 for 2000 and
1,909,131 for 1999.
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, 2000 and 1999.
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FINANCIAL CONDITION
SECURITIES
Balances in the Company's investment securities portfolio continued to decline
during the first quarter of 2000. Principal repayments on mortgage backed
securities, as well as maturities within the various portfolios, contributed to
the decrease in balances, as most maturities were not replaced during the
quarter. In spite of this decline, the mix of the securities portfolio remains
relatively unchanged from period to period over the long term. The chart below
shows the mix of the portfolio.
<TABLE>
<CAPTION>
3/31/2000 12/31/1999 3/31/1999
--------- ---------- ----------
<S> <C> <C> <C>
U.S. Treasury and agency securities 24.2% 24.7% 23.3%
Mortgage backed agency securities 18.5% 19.3% 22.0%
Obligations of states and political subdivisions 47.2% 46.2% 43.6%
Corporate, asset backed, and other securities 10.1% 9.8% 11.1%
---------- --------- ---------
Total Securities 100.0% 100.0% 100.0%
========== ========= =========
</TABLE>
LOANS
Loan growth continued to be strong during the first quarter of 2000, and
exceeded the levels achieved in 1999. During the first three months, annualized
loan growth was 13.5%, compared to 14.1% for all of 1999. 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.
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999 March 31, 1999
----------------------- ------------------------- -------------------------
Portfolio loans: Balance % of total Balance % of total Balance % of total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Personal $ 58,560 18.4% $ 59,045 19.2% $ 55,403 20.1%
Business loans and
commercial mortgages 106,877 33.5% 99,832 32.4% 85,594 31.1%
Tax exempt 2,254 0.7% 1,710 0.6% 1,794 0.7%
Residential mortgage 120,214 37.7% 114,150 37.0% 108,269 39.4%
Construction 30,785 9.66% 33,530 10.88% 23,989 8.72%
---------- ---------- ---------- ---------- ---------- ----------
Total loans $ 318,690 100.00% $ 308,267 100.00% $ 275,049 100.00%
========== ========== ========== ========== ========== ==========
</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.
The chart below shows the makeup of the Company's nonperforming assets by type,
in thousands of
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dollars, as of March 31, 2000 and 1999, and December 31, 1999.
<TABLE>
<CAPTION>
3/31/2000 12/31/1999 3/31/1999
--------- ---------- ---------
<S> <C> <C> <C>
Nonaccrual loans $ 1,283 $ 1,305 $ 778
Loans past due 90 days or more 182 174 205
Troubled debt restructurings 134 134 136
--------- --------- ---------
Total nonperforming loans 1,599 1,613 1,119
Other real estate 52 347 335
--------- ---------- ---------
Total nonperforming assets $ 1,651 $ 1,960 $ 1,454
========= ========== =========
Percent of nonperforming loans to total loans 0.50% 0.52% 0.41%
Percent of nonperforming assets to total assets 0.38% 0.46% 0.37%
</TABLE>
Nonperforming assets declined from December 31, 1999, principally as a result of
removal of one commercial property from Other Real Estate Owned classification
during the quarter. This property was sold when the third party who was leasing
the property exercised an option to purchase. No loss was incurred on the
transaction. All other categories of nonperforming assets remained virtually
unchanged from December of 1999, but remain slightly higher than March, 1999
levels.
The Company has increased its provision for loan losses over the same period in
1999 as a result of the increase in loan volume. The provision provides for
currently anticipated losses inherent in the current portfolio. An analysis of
the allowance for loan losses, in thousands of dollars, for the three months
ended March 31, 2000 and 1999 follows:
<TABLE>
<CAPTION>
2000 1999
-------- -------
<S> <C> <C>
Balance at beginning of period $ 3,300 $ 2,799
Loans charged off (78) (283)
Recoveries credited to allowance 47 56
Provision charged to operations 354 315
-------- -------
Balance at end of period $ 3,623 $ 2,887
======== =======
</TABLE>
This increase in the provision, which reflects increased anticipated losses in
the loan portfolio, is also reflected in changes made during the quarter in the
method of allocation of the allowance for loan losses. The following table
presents the portion of the allowance for loan losses applicable to each loan
category in thousands of dollars, as of March 31, 2000 and 1999, and December
31, 1999.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
2000 1999 1999
--------- ------------ ---------
<S> <C> <C> <C>
Business and commercial mortgage $ 2,148 $ 1,130 $ 889
Tax exempt -- -- --
Residential mortgage 11 22 25
Personal 645 646 723
Construction -- -- --
Unallocated 819 1,502 1,250
--------- ------------ ---------
Total $ 3,623 $ 3,300 $ 2,887
========= ============ =========
</TABLE>
The allocation method used prior to the first quarter of 1999 was based on
account-specific allocations for identified credits and the four-year historical
loss average, in order to determine allocations by portfolio. Effective with the
first quarter of 2000, the allocation method was modified to incorporate recent
trends in the rate of net charge-offs and delinquency in the business and
commercial mortgage portfolio, resulting in an increased percentage of the
allowance to that segment of the loan portfolio.
Construction loans are short-term and are converted to residential or commercial
mortgages on the books
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of the Company. These loans do not typically result in a loss during the
construction phase. Therefore, any allocation for construction loans is applied
to the category of loan where the final loan resides, rather than to
Construction loans.
DEPOSITS
Total deposits increased during the quarter at a rate higher than experienced in
recent periods. Annualized deposit growth for the quarter was 9.34%, compared to
6.99% for all of 1999. Both interest bearing and noninterest bearing deposits
experienced increases during the period. This is due in part to growth in
markets where the Bank has recently expanded. Management anticipates that
deposit growth during 2000 will continue to be strong, with continued expansion
in new and existing markets.
LIQUIDITY
The Bank maintained an average federal funds borrowed position for the first
quarter of 2000, although generally the Bank moves in and out of the fed funds
market as liquidity needs vary. Borrowings declined from December 31, 1999, and
Management anticipates that deposit and 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, 2000 and 1999 and December 31, 1999. Dollars
are shown in thousands.
<TABLE>
<CAPTION>
Regulatory Guidelines United Bancorp, Inc.
--------------------- --------------------
Adequate Well 3/31/2000 12/31/1999 3/31/1999
-------- ------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Tier 1 capital to average assets 4% 5% 8.8% 9.2% 9.5%
Tier 1 risk adjusted capital ratio 4% 6% 12.9% 13.0% 14.1%
Total risk adjusted capital ratio 8% 10% 14.1% 14.2% 15.2%
Total shareholders' equity $ 41,482 $ 40,964 $ 39,408
Intangible assets (4,194) (4,296) (2,167)
Unrealized (gain) loss on securities available for sale 695 499 (198)
--------- ---------- ---------
Tier 1 capital 37,983 37,167 37,043
Qualifying loan loss reserves 3,623 3,300 2,887
--------- ---------- ---------
Tier 2 capital $ 41,606 $ 40,467 $ 39,930
========= ========= =========
</TABLE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Both yields on earning assets and cost of funds increased from December 31,
1999. The net result was a tightening of spread and net interest margin. This
tightening is primarily a result of the Company's interest liability-sensitive
position, reflecting a risk to earnings when interest rates rise. In fact,
interest rates have risen during recent periods, resulting in the expected
decline in margin. However, the Company's margin remains quite strong, and
Management continues to take steps to neutralize some portion of this risk.
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The following table 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, 2000 and
1999.
<TABLE>
<CAPTION>
YIELD ANALYSIS OF CONSOLIDATED AVERAGE ASSETS AND LIABILITIES
-----------------------------------------------------------------------------------
dollars in thousands 2000 1999
------------------------------------ -----------------------------------------
Average Interest Yield/ Average Interest Yield/
ASSETS Balance (b) Rate (c) Balance (b) Rate (c)
---------- -------- -------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets (a)
Federal funds sold $ -- $ -- --% $ 328 $ 4 4.46%
Taxable securities 48,322 739 6.12% 52,654 813 6.17%
Tax exempt securities (b) 33,126 613 7.40% 35,431 675 7.62%
Taxable loans 312,128 6,729 8.62% 270,912 5,773 8.52%
Tax exempt loans (b) 2,019 39 7.63% 1,463 27 7.48%
---------- -------- --------- --------
Total int. earning assets (b) 395,595 8,120 8.21% 360,788 7,292 8.08%
Less allowance for loan losses (3,437) (2,841)
Other assets 37,744 33,028
---------- ---------
TOTAL ASSETS $ 429,902 $ 390,975
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
NOW accounts $ 57,218 $ 320 2.24% $ 51,542 $ 225 1.74%
Savings deposits 71,841 418 2.33% 71,999 399 2.22%
CDs $100,000 and over 33,156 459 5.54% 30,703 394 5.13%
Other interest bearing deposits 154,417 2,005 5.19% 140,303 1,691 4.82%
---------- -------- --------- --------
Total int. bearing deposits 316,632 3,202 4.05% 294,547 2,708 3.68%
Short term borrowings 19,014 283 5.94% 3,686 45 4.91%
Other borrowings 5,348 88 6.56% 10,900 165 6.05%
---------- -------- --------- --------
Total int. bearing liabilities 340,994 3,572 4.19% 309,133 2,918 3.78%
Noninterest bearing deposits 45,228 40,110
Other liabilities 2,409 2,506
Shareholders' equity 41,271 39,226
---------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 429,902 $ 390,975
========== =========
Net interest income (b) $ 4,548 $ 4,374
======== ========
Net spread (b) 4.02% 4.31%
======== ============
Net yield on interest earning assets (b) 4.60% 4.85%
======== ============
Ratio of interest earning assets to
interest bearing liabilities 1.16 1.17
========== =========
</TABLE>
(a) Non-accrual loans and overdrafts are included in the average balances of
loans.
(b) Fully tax-equivalent basis, net of nondeductible interest impact; 34% tax
rate.
(c) Annualized
As noted from the data in the following table, substantially all of the
improvement in net interest income during 1999 came as a result of changes in
volume. This continued to be the case during the first quarter of 2000. The net
result is an increase in net interest income, primarily as a result of the
additional volumes experienced. The following table 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.
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<TABLE>
<CAPTION>
2000 Compared to 1999 1999 Compared to 1998
--------------------------------------- -----------------------------------
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 $ (4) $ -- $ (4) $ (98) $ (18) $ (116)
Taxable securities (67) (7) (74) 131 (31) 100
Tax exempt securities (43) (19) (62) 2 (16) (14)
Taxable loans 888 68 956 169 (281) (112)
Tax exempt loans 10 1 11 -- -- --
--------- --------- ------------ --------- --------- ------------
Total interest income $ 784 $ 43 $ 827 $ 204 $ (346) $ (142)
========= ========= ============ ========= ========= ============
2000 Compared to 1999 1999 Compared to 1998
----------------------------------- -----------------------------------
Increase (Decrease) Due To: (a) Increase (Decrease) Due To: (a)
----------------------------------- -----------------------------------
Volume Rate Net Volume Rate Net
--------- --------- ------------ --------- --------- ------------
Interest paid on:
NOW accounts $ 27 $ 68 $ 95 $ 42 $ 37 $ 79
Savings deposits (1) 20 19 (17) (117) (134)
CDs $100,000 and over 33 32 65 (113) (58) (171)
Other interest bearing deposits 178 137 315 (5) (231) (236)
Short term borrowings 226 11 237 35 (2) 33
Other borrowings (90) 13 (77) 13 2 15
--------- --------- ------------ --------- --------- ------------
Total interest expense $ 373 $ 281 $ 654 $ (45) $ (369) $ (414)
========= ========= ============ ========= ========= ============
Net change in net interest
income $ 411 $ (238) $ 173 $ 249 $ 23 $ 272
========= ========= ============ ========= ========= ============
</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
Total noninterest income is up 20.4% over the first quarter of 1999, reflecting
initiatives in a number of areas. In general, all categories of noninterest
income, other than income from loan sales and servicing, increased from the same
period in 1999.
Service charges on deposit accounts are 34.1% ahead of first quarter 1999
levels, as a result of continued deposit growth in transaction accounts, as well
as from restructuring of the Company's deposit account product structure during
mid-1999. An increase of 44.7% in other income consists principally of increased
fee income from debit card interchange. The Bank's emphasis on debit cards in
conjunction with the restructuring of deposit account products has contributed
to this increased usage by clients and the resulting improvement in fee income.
Fee income in the Trust & Investment Group is up 39.4% over the same period of
1999, again reflecting the strong growth of the department. In addition to the
growth generated by new business, robust economic markets have contributed to
growth of assets under management by the Department. This has translated into
current fee income.
At the same time, income from loan sales and servicing has declined, reflecting
a decline in residential mortgages being sold in the secondary market. This
decline results from a shift in client preference to variable rate loans, which
the Bank retains in its portfolio. Mortgage loan refinancing has also declined
from 1999 levels, resulting in fewer loans sold during 2000.
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NONINTEREST EXPENSES
Noninterest expense also continued to increase over the same period of 1999,
reflecting continued growth and expansion of the Bank. Total noninterest
expense, excluding provision for loan losses, for the first three months was
11.4% above the same period for 1999, reflecting continued growth and expansion
of the Bank. At the same time, total noninterest expense increased just 2.2%
over the fourth quarter of 1999, with salaries and benefits decreasing 4.1%.
FEDERAL INCOME TAX
There has been no significant change in the income tax position of the Company
during the first quarter of 2000.
NET INCOME
Consolidated net income exceeded that of the same period in 1999 by .3%, and was
slightly behind fourth quarter 1999 levels. Management anticipates that net
income will continue to remain strong for the remainder of the year.
FORWARD-LOOKING STATEMENTS
Statements contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations include forward-looking statements that are
based on management's beliefs, assumptions, current expectations, estimates and
projections about the financial services industry, the economy, and about the
Company itself. Words such as "anticipate," "believe," "determine," "estimate,"
"expect," forecast, "intend," "is likely," "plan," "project," "opinion,"
variations of such terms, and similar expressions are intended to identify such
forward-looking statements. The presentations and discussions of the provision
and allowance for loan losses, and determinations as to the need for other
allowances presented in this report are inherently forward-looking statements in
that they involve judgements and statements of belief as to the outcome of
future events. These statements are not guarantees of future performance and
involve certain risks, uncertainties, and assumptions that are difficult to
predict with regard to timing, extent, likelihood, and degree of occurrence.
Therefore, actual results and outcomes may materially differ from what may be
expressed or forecasted in such forward-looking statements. Internal and
external factors that may cause such a difference include changes in interest
rates and interest rate relationships; demand for products and services; the
degree of competition by traditional and non-traditional competitors; changes in
banking laws and regulations; changes in tax laws; changes in prices, levies,
and assessments; the impact of technological advances; governmental and
regulatory policy changes; the outcomes of pending and future litigation and
contingencies; trends in customer behavior and customer ability to repay loans;
software failure, errors or miscalculations; the ability of other companies on
which the Company relies to be Year 2000 compliant; the ability of the Company
to locate and correct all data sensitive computer code; and the vicissitudes of
the national economy. The Company 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
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<PAGE> 14
times of fluctuating interest rates.
A number of measures are used to monitor and manage interest rate risk,
including interest sensitivity and income simulation analyses. An interest
sensitivity 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 twelve
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, 2000, the Company
would expect a maximum potential reduction in net interest margin of less than
7% if market rates increased under an immediate and sustained parallel shift of
200 basis points. The Bank's interest sensitivity position remained
substantially unchanged from the previous 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.
During the first quarter of 2000, United Bank & Trust formed United Mortgage
Company as a wholly-
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<PAGE> 15
owned subsidiary of the Bank. United Mortgage Company will become active during
the second quarter of the year, but as a subsidiary of the Bank, its operations
will be completely transparent to the financial statements of the Bank or the
Company.
ITEM 2- CHANGES IN SECURITIES
No changes in the securities of the Company occurred during the quarter ended
March 31, 2000.
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, 2000.
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, 2000.
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, 2000.
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, 2000
/S/ Dale L. Chadderdon
--------------------------------------------------------
Dale L. Chadderdon
Senior Vice President, Secretary & Treasurer
Page 15
<PAGE> 16
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- --------------------------------------------------------------------------------
27 Financial Data Schedule
Page 16
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 18,443
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 79,008
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 318,690
<ALLOWANCE> 3,623
<TOTAL-ASSETS> 435,931
<DEPOSITS> 369,269
<SHORT-TERM> 14,800
<LIABILITIES-OTHER> 2,756
<LONG-TERM> 7,624
0
0
<COMMON> 23,947
<OTHER-SE> 17,535
<TOTAL-LIABILITIES-AND-EQUITY> 435,931
<INTEREST-LOAN> 6,756
<INTEREST-INVEST> 1,163
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,919
<INTEREST-DEPOSIT> 3,202
<INTEREST-EXPENSE> 3,572
<INTEREST-INCOME-NET> 4,347
<LOAN-LOSSES> 354
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,983
<INCOME-PRETAX> 1,683
<INCOME-PRE-EXTRAORDINARY> 1,683
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,235
<EPS-BASIC> 0.64
<EPS-DILUTED> 0.64
<YIELD-ACTUAL> 4.60
<LOANS-NON> 1,283
<LOANS-PAST> 182
<LOANS-TROUBLED> 134
<LOANS-PROBLEM> 194
<ALLOWANCE-OPEN> 3,300
<CHARGE-OFFS> 78
<RECOVERIES> 47
<ALLOWANCE-CLOSE> 3,623
<ALLOWANCE-DOMESTIC> 2,804
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 819
</TABLE>
