Total # of Pages: 20
Exhibit Index: Page 19
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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
Commission File Number: 0-16540
UNITED BANCORP, INC.
(Exact name of registrant as specified in its Charter.)
Ohio
(State or other jurisdiction of incorporation or organization)
34-1405357
( I.R.S. Employer Identification No.)
Fourth at Hickory Street, Martins Ferry, Ohio 43935
(Address of principal executive offices)
(Zip Code)
(614) 633-0445
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of the issuer's classes of common
stock as of the latest practicable date.
Common Stock, $1.00 Par Value 1,847,942 shares as of May 10, 1995.
United Bancorp, Inc.
Table of Contents
Form 10-Q
Part I Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets...March 31, 1995
and December 31, 1994. 3
Condensed Consolidated Statements of Income...Three Months
Ended March 31, 1995 and 1994. 4
Condensed Consolidated Statements of Cash Flows...Three
Months Ended March 31, 1995 and 1994. 5
Notes to Condensed Consolidated Financial Statements...
March 31, 1995. 6 - 13
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 14 - 18
Part II Other Information
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
United Bancorp, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
Form 10-Q (In Thousands)
Part I - Financial Information
March 31, 1995 December 31, 1994
Assets
Cash And Due From Banks $6,467 $6,680
Federal Funds Sold 245 50
Total Cash And Cash Equivalents 6,712 6,730
Investment Securities Available For Sale 13,609 13,243
Investment Securities Held To Maturity (estimated fair value of
$50,174 at 03/31/95 and $49,580 at 12/31/94) 50,779 51,261
Loans
Commercial Loans 8,696 8,816
Commercial Real Estate Loans 29,801 28,515
Real Estate Loans 31,880 32,585
Installment Loans 41,493 38,521
Total Loans 111,870 108,437
Unearned Income (33) (46)
Allowance For Loan Losses (1,497) (1,438)
Net Loans 110,340 106,953
Premises And Equipment, Net 4,834 4,937
Accrued Interest Receivable And Other Assets 2,685 2,510
Total Assets $188,959 $185,634
Liabilities
Deposits
Noninterest Bearing $12,254 $12,782
Interest Bearing 155,174 150,531
Total Deposits 167,428 163,313
Repurchase Agreements 2,909 3,311
Borrowed Funds 321 1,265
Accrued Interest Payable 743 743
Other Liabilities 516 483
Total Other Liabilities 4,489 5,802
Total Liabilities 171,917 169,115
Shareholders' Equity
Common Stock: ($1 par value) 10,000,000 Shares Authorized;
Issued And Outstanding: 1,847,942 Shares 1,848 1,848
Additional Paid-In-Capital 9,359 9,359
Retained Earnings 5,792 5,478
Unrealized Gain/(Loss) on Securities Available For Sale 43 (166)
Total Shareholders' Equity 17,042 16,519
Total Liabilities And Shareholders' Equity $188,959 $185,634
The accompanying notes are an integral part of these condensed consolidated
financial statements
United Bancorp, Inc.
Condensed Consolidated Statements of Income (Unaudited)
Form 10-Q (In Thousands)
Three Months Ended
March 31, 1995 March 31, 1994
Interest Income
Interest and Fees on Loans $2,395 $1,856
Interest on Investments Securities
Taxable 744 642
Tax Exempt 244 243
Interest on Federal Funds Sold 13 106
Total Interest Income 3,396 2,847
Interest Expense
Deposits 1,498 1,261
Other 58 15
Total Interest Expense 1,556 1,276
Net Interest Income 1,840 1,571
Provision For Loan Losses (71) (63)
Net Interest Income After Provision For Loan Losses 1,769 1,508
Other Income
Service Charges on Deposit Accounts 118 98
Investment Security Gains, Net 47
Other 121 92
Total Other Income 239 237
Other Expenses
Salaries And Employee Benefits 642 558
Premises, Furniture and Equipment Expense 211 191
Other Operating Expense 506 459
Total Other Expenses 1,359 1,208
Income Before Taxes 649 537
Provision For Income Taxes (149) (99)
Net Income $500 $438
Earnings Per Common Share $0.27 $0.24
Average Number of Shares Outstanding 1,847,942 1,847,942
Dividends Per Common Share $0.100 $0.073
The accompanying notes are an integral part of these condensed consolidated
financial statements.
United Bancorp, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Form 10-Q (In Thousands)
Three Months Ended
March 31, 1995 March 31, 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income 500 438
Adjustments to Reconcile Net Income to Net Cash From
Operating Activities
Depreciation and Amortization 110 106
Amortization of Intangibles 21 16
Provision for Loan Losses 71 63
Deferred Taxes (2) (14)
Gain on Sales of Investment Securities (47)
Amortization of investment securities, Net 26 60
Net Changes in:
Other Assets (195) (447)
Other Liabilities (75) (19)
Net Cash From Operating Activities 456 156
CASH FLOWS FROM INVESTING ACTIVITIES
Investment Securities Available For Sale
Purchase Of Investment Securities (41) 0
Investment securities Held To Maturity
Proceeds From sales of Investment Securities 0 185
Proceeds From maturities/calls of Investment Securities 500 2,620
Purchase Of Investment Securities (52) (2,691)
Net Change in Loans (3,458) (2,115)
Property and equipment expenditures (7) (42)
Net Cash From Investing Activities (3,058) (2,043)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 4,115 2,416
Net change in Repurchase Agreements And Borrowed Funds (1,346) (107)
Cash Dividends Paid (185) (134)
Net Cash From Financing Activities 2,584 2,175
Net Change In Cash And Cash Equivalents (18) 288
Cash And Cash Equivalents At Beginning Of year 6,730 19,909
Cash And Cash Equivalents At End Of Period $6,712 $20,197
The accompanying notes are an integral part of these condensed consolidated
financial statements
United Bancorp, Inc.
Notes To The Condensed Consolidated Financial Statements (Unaudited)
Form 10-Q (In Thousands)
1 Summary Of Significant Accounting Policies
The following is a summary of significant accounting policies
followed in the preparation of the accompanying condensed consolidated
financial statements.
Basis Of Presentation
The accompanying condensed consolidated financial statements
include the accounts of United Bancorp, Inc. (Company) and its
wholly owned subsidiaries, The Citizens Savings Bank of Martins
Ferry, Ohio, (Citizens-Martins Ferry) and The Citizens-State
Bank of Strasburg, Ohio, (Citizens-Strasburg). For purposes of
consolidation, all material intercompany balances and
transactions have been eliminated. The results of operations
for the period ended March 31, 1995, are not necessarily
indicative of the operating results for the full year of 1995.
These interim financial statements are prepared without audit
and reflect all adjustments which, in the opinion of management,
are necessary to present fairly the consolidated financial
position of the Company at March 31, 1995 and its results of
operations and its cash flows for the periods presented. The
accompanying condensed consolidated financial statements do not
purport to contain all the necessary financial disclosures
required by generally accepted accounting principles that might
otherwise be necessary in the circumstances and should be read
in conjunction with the 1994 United Bancorp, Inc. consolidated
financial statements and related notes thereto included in its
Annual Report to Shareholders for the year ended December 31,
1994.
Investment Securities
The Company classifies securities into held-to-maturity,
available-for-sale and trading categories. Held-to-maturity
securities are those which the Company has the positive intent
and ability to hold to maturity, and are reported at amortized
cost. Available-for-sale securities are those which the Company
may decide to sell if needed for liquidity, asset/liability
management, or other reasons. Available-for-sale securities are
reported at fair value, with unrealized gains or losses included
as a separate component of equity, net of tax. Trading
securities are bought principally for sale in the near term and
are reported at fair value with unrealized gains or losses
included in earnings. The Company had no trading securities
through March 31, 1995.
Realized gains or losses are determined based on the amortized
cost of the specific security sold. Interest and dividend
income, adjusted by amortization of purchase premium or discount
is included in earnings.
Interest And Fees On Loans
Interest income on loans is accrued over the term of the loans
based on the principal amount outstanding. Where no account
activity occurs for 90 consecutive days, the accrual of interest
is discontinued and adjusted back to the date of non payment.
Loan fees and direct costs associated with originating or
acquiring loans are deferred and recognized over the life of the
related loan as an adjustment of the yield. The net amount of
fees and costs deferred is reported in the condensed
consolidated balance sheets as part of loans.
Allowance For Loan Losses
The allowance for loan losses represents that amount which
management estimates is adequate to provide for inherent losses
in its loan portfolio. The allowance balance and the annual
provision charged to expense are judgmentally determined by
management based upon past loan loss experience, economic
conditions and various other circumstances that are subject to
change over time. The collectibility of the loans is based upon
factors including the financial position of the borrower, the
estimated market value of the collateral at the current time,
guarantees and the Company's collateral position versus other
creditors.
The Company adopted Statement of Financial Accounting Standards
No. 114, "Accounting By Creditors For Impairment Of A Loan" at
January 1, 1995. Under this standard, loans considered to be
impaired are reduced to the present value of expected future
cash flows or to the fair value of collateral, by allocating a
portion of the allowance for loan losses to such loans. If
these allocations cause the allowance for loan losses to require
increase, such increase is reported as bad debt expense. The
effect of adopting this standard had no impact on the Company's
financial statements. Historical loss information and local
economic conditions are considered in establishing allowances on
the remaining portfolio. The allowance is reduced by charging
off loans deemed uncollectible by management. The allowance is
increased by provisions charged to expense and recoveries of
previous charge-offs. After a loan is charged off, collection
efforts continue.
Premises And Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Premises and related components are depreciated
using the straight-line method with lives ranging primarily from
20 to 50 years. Furniture and equipment are depreciated using
the straight-line method, with lives ranging primarily from 5 to
15 years. Maintenance and repairs are expensed and major
improvements are capitalized. At the time of sale or disposition of
an asset, the applicable cost and accumulated depreciation amounts
are removed from the accounting records.
Other Real Estate
Other real estate is included in other assets at the lower of cost or
fair market value, less estimated costs to sell. Any reduction from
the carrying value of the related loan to estimated fair value at the
time the property is acquired is accounted for as a loan charge-off.
Any subsequent reductions in the estimated fair value are reflected
in a valuation allowance through a charge to other real estate expense.
Expenses incurred to carry other real estate are charged to operations
as incurred. There was no other real estate held at March 31, 1995 and
December 31, 1994.
Income Taxes
The Company follows the liability method in accounting for income
taxes. The liability method provides that deferred tax assets and
liabilities are recorded based on the difference between the tax basis
of assets and liabilities and their carrying amounts for financial
reporting purposes.
Earnings And Dividends Per Common Share
Earnings per common share have been computed based on the weighted
average number of shares outstanding during the periods presented.
The weighted average number of shares used in the computation of
earnings per share was 1,847,942 for the comparative periods presented.
On August 11, 1994, a 10% stock dividend was approved for all share-
holders of record on August 19, 1994 and distributed on September 9,
1994. This stock dividend was recorded by transferring the fair market
value of the shares issued from Retained Earnings to Common Stock and
Additional-Paid-In-Capital. On November 16, 1993, the Board of
Directors declared a 100% stock split effected in the form of a stock
dividend to shareholders of record as of November 30, 1993. The
dividend was distributed on December 10, 1993. This transaction was
recorded by transferring the par value of the shares issued from
retained earnings to common stock. All per share data has been retro-
actively adjusted for the stock dividend and stock split.
Statement Of Cash Flows
For purposes of the Statements of Cash Flows, the Company considers
"cash and cash equivalents" to include cash, noninterest bearing
deposits with financial institutions and Federal funds sold. The
Company reports net cash flows for Federal funds sold, customer loan
transactions, deposit transactions, securities sold under agreements
to repurchase and other borrowed funds. For the periods ended March
31, 1995 and March 31, 1994, the Company paid $1,556,829 and
$1,313,923 in interest on deposits and other borrowings and $0 and
$28,500 for income taxes, respectively.
Financial Statement Presentation
Certain reclassifications have been made in prior period financial
statements to conform to the March 31, 1995 presentation. The re-
classifications had no effect on total assets, shareholders' equity
or net income as previously reported.
Industry Segment Information
The single industry in which the Company is involved through the
activities of its two subsidiary banks is commercial community banking
serving the financial needs of local commercial, individual and public
entity customers. Revenue received by the Company is derived primarily
from upstream dividends paid by the two subsidiary banks with dis-
bursement to shareholders through United Bancorp, Inc. dividends.
Subsidiary income is generated from activities specific to the comm-
ercial banking industry.
2 Investment Securities
The amortized cost and estimated fair values of investment securities
are as follows:
March 31, 1995
Gross Gross Estimated
Amortized Cost Unrealized Gain Unrealized Loss Market Value
Investment Securities Available For Sale
U.S. Treasury $2,431,470 $27,333 $(5,522) $2,453,281
U.S. Agency Obligations 10,689,235 40,352 10,729,587
State And Municipal Obligations 336,259 3,903 (926) 339,236
Other Investments 86,400 86,400
Total Investment Securities Available For Sale $13,543,364 $71,588 $(6,448) $13,608,504
Investment Securities Held To Maturity
U.S. Treasury $5,479,531 $5,194 $(53,694) $ 5,431,031
U.S. Agency Obligations 27,395,479 34,642 (795,488) 26,634,633
State And Municipal Obligations 17,868,006 441,880 (237,007) 18,072,879
Other Investments 35,855 (57) 35,798
Total Investment Securities Held To Maturity $50,778,871 $481,716 $(1,086,246) $50,174,341
December 31, 1994
Gross Gross Estimated
Amortized Cost Unrealized Gain Unrealized Loss Market Value
Investment Securities Available For Sale
U.S. Treasury $2,427,438 $(27,282) $2,400,156
U.S. Agency Obligations 10,686,024 $2,830 (217,334) 10,471,520
State And Municipal Obligations 336,207 (10,422) 325,785
Other Investments 45,100 45,100
Total Investment Securities Available For Sale $13,494,769 $2,830 $(255,038) $13,242,561
Investment Securities Held To Maturity
U.S. Treasury $5,475,051 $991 $(157,167) $5,318,875
U.S. Agency Obligations 27,925,802 8,283 (1,285,462) 26,648,623
State And Municipal Obligations 17,824,316 279,229 (525,531) 17,578,014
Other Investments 35,850 (1,513) 34,337
Total Investment Securities Held To Maturity $51,261,019 $288,503 $(1,969,673) $49,579,849
There was one sale of equity securities during the quarter ended March
31, 1994. These equity securities were held with the intent of a
possible expansion opportunity for the Company. After further review,
the expansion opportunity appeared remote and, therefore, the securities
were sold. Proceeds from the sale of these securities were $184,500,
with $47,000 recorded as gross gains associated with the sale. There
were no sales of investment securities for the three months ended
March 31, 1995.
The amortized cost and estimated fair value of investment securities
at March 31, 1995, by contractual maturity is shown below. Expected
maturities will differ from contractual maturities because borrowers
may have the right to call or repay obligations with or without call
or prepayment penalties. The average interest rates are based on
coupon rates adjusted for amortization and accretion. Yields on tax-
exempt securities have been computed on a tax equivalent basis.
Investment Securities Investment Securities
Available For Sale Held To Maturity
Estimated Estimated Weighted Weighted
Amortized Fair Amortized Fair Average Average
Cost Value Cost Value Maturity Yield
U.S. Treasury
Within One Year $1,499,702 $1,497,968 7.7 Mos 5.79%
One Through Two Years $1,498,154 $1,499,375 1,750,133 1,721,718 1 Year 7.8 Mos 5.99%
Two Through five Years 933,316 953,906 2,229,696 2,211,345 3 Years 8.4 Mos 7.05%
Total 2,431,470 2,453,281 5,479,531 5,431,031 2 Years 3.6 Mos 6.39%
U.S. Agency Obligations
Within One Year 5,550,190 5,515,156 6.9 Mos 6.42%
One Through Two Years 1,505,090 1,512,968 6,032,974 5,982,344 1 Year 7.7 Mos 6.63%
Two through Five Years 4,184,145 4,241,619 15,312,527 14,630,414 3 Years 3.7 Mos 6.13%
Five Through Ten Years 5,000,000 4,975,000 499,788 506,719 8 Years 10.4 Mos 6.79%
Total 10,689,235 10,729,587 27,395,479 26,634,633 3 Years 4.7 Mos 6.36%
State And Municipal Obligations
Within One Year 1,948,247 1,946,268 5.6 Mos 7.01%
One Through Two Years 1,007,169 996,800 1 Year 6.8 Mos 6.29%
Two through Five Years 2,662,620 2,729,953 3 Years 9.4 Mos 8.56%
Five Through Ten Years 268,314 271,294 12,020,539 12,164,774 7 Years 4.3 Mos 8.31%
Over Ten Years 67,945 67,942 229,431 235,084 10 Years 7.4 Mos 8.73%
Total 336,259 339,236 17,868,006 18,072,879 5 Years 9.9 Mos 8.10%
Other Investments
Five Through Ten Years 35,855 35,798 6 Years .5 Mos 7.46%
Other 86,400 86,400 5.00%
Total Investment Securities $13,543,364 $13,608,504 $50,778,871 $50,174,341 3 Years 11.3 Mos 6.86%
Securities with a par value of approximately $20,275,000 at March 31,
1995 and $20,972,000 at December 31, 1994 were pledged to secure public
deposits, repurchase agreements and other liabilities as required or
permitted by law.
3 Loans
Nonaccrual loans at March 31, 1995 and December 31, 1994 totaled
$98,597 and $61,882, respectively.
The gross interest income that would have been recorded on nonaccrual
loans as of March 31, 1995 and March 31, 1994, if the loans had been
current in accordance with their original terms and had been outstanding
throughout the period or since origination, if held for part of the
period was $3,702 and $1,674, respectively. The interest income that
was recorded on those loans as of March 31, 1995 and March 31, 1994 was
$2,127 and $1,426, respectively. It is the Company's policy to place
loans in the nonaccrual status when the collection of the interest due
is highly doubtful, or when the loan has no account activity for 90
consecutive days. When loans are charged-off, any accrued interest
recorded in the current fiscal year is charged against interest income,
with the remaining balance treated as a loan charge-off.
The Company has, and expects to have in the future, banking trans-
actions with directors and officers of the Company and its subsidiaries.
Loans to such borrowers, their immediate families, affiliated corp-
orations, and other entities in which they own more than a 10% voting
interest are summarized below:
Aggregate balance - December 31, 1994 $2,471,043
New loans 197,025
Repayments (284,762)
Aggregate balance - March 31, 1995 $2,383,306
4 Allowance For Loan Losses
The allowance in the allowance for loan losses is summarized as follows:
1995 1994
Balance - 1/01/95 and 1/01/94 $1,437,734 $1,256,322
Provision charged to operating expense 70,500 281,000
Loans charged-off (17,376) (123,312)
Recoveries 6,079 23,724
Balance - 3/31/95 and 12/31/94 $1,496,937 $1,437,734
5 Premises And Equipment
Premises and equipment, at cost, and accumulated depreciation and amort-
ization as of March 31, 1995 and December 31, 1994 are as follows:
1995 1994
Buildings and land $5,261,772 $5,261,772
Furniture and equipment 2,038,154 2,033,267
Computer software 321,105 318,490
Total 7,621,031 7,613,529
Accumulated depreciation and amortization 2,786,536 2,676,253
Premises and equipment (net) $4,834,495 $4,937,276
6 Commitments And Contingencies
The Company's subsidiaries are parties to financial instruments with
off-balance sheet risk in the normal course of business, to meet the
financing needs of their customers. These financial instruments
include lines of credit and commitments to make loans. The Company's
exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to make loans and
standby letters of credit is represented by the contractual amount of
those instruments. The Company follows the same credit policy to make
such commitments as is followed for those loans recorded in the
financial statements.
As of March 31, 1995 and December 31, 1994, commitments to extend
credit (at market rates) and commitments under outstanding standby
letters of credit amounted to approximately $9,045,000 and $8,542,000,
respectively. Since many commitments to make loans expire without
being used, the amount does not necessarily represent future cash
commitments. The Company does not anticipate any losses as a result
of these commitments. In addition, commitments to extend credit are
agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Collateral obtained upon
the exercise of the commitment is determined using the Company's
evaluation of the borrower, and may include business assets, real
estate and other items.
At March 31, 1995, the Company has lines of credit enabling it to
borrow up to $6.5 million with Mellon Bank, Pittsburgh, Pennsylvania,
National City Bank, Cleveland, Ohio, National Bank Detroit, Detroit,
Michigan. The Company also has the ability to borrow up to $10 million
under a borrowing agreement with the Federal Home Loan Bank (FHLB),
Cincinnati, Ohio. Borrowings under this agreement are collateralized
by the Company's FHLB stock and a blanket pledge of the Company's 1-4
family residential real estate loans.
The Company, on an ongoing basis, is a defendant in legal actions
arising from normal business activities. Management believes that
those actions are without merit or that the ultimate liability, if
any, resulting from them will not materially affect the Company's
financial statements.
At March 31, 1995 and December 31, 1994, the Company was required to
have $605,000 and $581,000, respectively, of cash on hand or on
deposit with the Federal Reserve Bank to meet regulatory reserve
requirements. These balances do not earn interest.
7 Concentration Of Credit Risk
The Banks grant commercial, real estate and installment loans to cus-
tomers mainly in Belmont, Tuscarawas and Carroll Counties and the
surrounding localities. Substantially all loans are secured by
specific items of collateral including business assets, consumer assets,
commercial real estate and residential real estate.
At March 31, 1995, total commercial and commercial real estate loans
make up approximately 34.4% of the loan portfolio with 31.2% of these
commercial loans secured by commercial and residential real estate and
business assets in the Columbus, Ohio area. Installment loans account
for approximately 37.1% of the loan portfolio and are secured by
consumer assets including automobiles which account for 74.2% of the
installment loan portfolio. Real estate loans comprise 28.5% of the
loan portfolio and primarily include first mortgage loans on residential
properties and home equity lines of credit.
Included in cash and due from banks and Federal funds sold is $1,713,945
on deposit with National City Bank, Cleveland, Ohio and $2,672,342 on
deposit with Mellon Bank, N.A., Pittsburgh, Pennsylvania.
8 Dividend Restriction
Dividends paid by the subsidiary banks are the primary source of funds
available to the Company for payment of dividends to shareholders and
for other working capital needs. Applicable state statutes and
regulations impose restrictions on the amount of dividends that may be
declared by the Company. Those restrictions generally limit dividends
to earnings retained in the current and prior two years, as defined by
regulations. In addition to these restrictions, as a practical matter,
dividend payments cannot reduce regulatory capital levels below minimum
regulatory guidelines. These restrictions would not limit the Company's
ability to pay normal dividends. As of March 31, 1995, $2,660,000 was
available for dividend payments under the more restrictive of the two
limitations.
United Bancorp, Inc.
Management's Discussion And Analysis
Form 10-Q
Introduction
In the following pages, Management presents an analysis of United Bancorp,
Inc.'s financial condition at March 31, 1995 compared to December 31, 1994
and results of operations for the three months period ended March 31, 1995
compared to the same three month period ended March 31, 1994. This dis-
cussion is designed to provide shareholders with a more comprehensive review
of the operating results and financial position than could be obtained from
an examination of the financial statements alone. This analysis should be
read in conjunction with the financial statements and related footnotes and
the selected financial data included elsewhere in this report.
United Bancorp, Inc. is a multi-bank holding company located in Martins Ferry,
Ohio. The Company originally became incorporated as a one bank holding
company in July of 1983, through the acquisition of 100% of the voting stock
of The Citizens Savings Bank of Martins Ferry, Ohio. As a shell holding
company, the Company is headquartered at the main office location of The
Citizens Savings Bank at 4th and Hickory Street, Martins Ferry. Ohio. The
Company became a multi-bank holding company in December of 1986, through the
purchase of 100% of the voting stock of The Citizens-State Bank of Strasburg,
Ohio. United Bancorp, Inc. has been traded on the Nasdaq Small Cap Market
since February of 1993 under the trading symbol UBCP.
The markets served by both bank subsidiaries are rich in diversity and wide-
spread in geographic location. Citizens-Martins Ferry meets the commercial
banking needs of a customer base within the greater Ohio Valley area on the
eastern border of Ohio. The decline of heavy industry, mining and rail trans-
portation in the local area within the last decade has seen an erosion of the
younger population base necessary for economic revitalization. Citizens-
Martins Ferry has developed lending markets within the Columbus, Ohio region,
while continuing to meet the economic needs of its traditional local customer
base. Citizens-Strasburg's market is primarily centered within a light
industrial, residential area of north eastern Ohio, south of the Akron and
Canton, Ohio metro areas. Both bank subsidiaries are postured to continue to
serve the traditional needs of their respective customer bases and also to
introduce new products and services to meet the ever-changing needs of today's
service and value oriented customer.
Results Of Operations
Net income for the period ended March 31, 1995 increased 14.01% to $499,517,
over the same period ended March 31, 1994, yielding an annualized Return on
Average Assets of 1.07% and a Return on Average Equity of 11.91%. The
increase in earnings for the first quarter of 1995 over earnings from the
first quarter of 1994 occurred primarily from the growth in commercial real
estate lending at Citizens-Strasburg and continued growth in commercial real
estate and indirect automobile lending at Citizens-Martins Ferry.
Net interest income, by definition, is the difference between interest income
generated on interest earning assets and the interest expense incurred on
interest bearing liabilities. Various factors contribute to changes in net
interest income, including volumes, interest rates and the composition or mix
of interest earning assets in relation to interest bearing liabilities. Net
interest income increased $268,190, or 17.07% for the three months ended March
31, 1995 compared to three months ended March 31, 1994. The increase was the
result of the growth of the Company's average earning assets as well as an
increase in the yield on the earning assets. The increased yield was due to
the upward movement in market interest rates which began in the second quarter
of 1994 after reaching the lowest levels in many years. Interest rates have
now begun to level off after increasing 300 basis points in less than twelve
months. Additionally, the Company increased its yield by shifting resources
from lower earning funds to higher earning investment securities and loans.
The Company has continued to employ aggressive marketing and pricing concepts
to increase lending volume throughout 1995 with the goal of generating a higher
yielding product mix.
The increased interest earnings was partially offset by a similar trend for
interest bearing liabilities. The Company experienced growth in the volume
of average interest bearing liabilities as well as an increase in the cost
of funds for the three months ended March 31, 1995 as compared to the same
period in the prior year.
Total interest income for the three month period ended March 31, 1995 compared
to the same period in 1994 increased by $548.765, or 19.27%. Average earning
assets increased $14,129,660, or 8.78% over March 31, 1994 totals. A sig-
nificant portion of the growth was from the investment of funds acquired from
Citizens-Strasburg's branch bank acquisition of the Dellroy, Ohio office of
National City Bank in December of 1994. Interest and fee income on loans
increased $540,556, or 29.22% and interest on investment securities increased
$102,679, or 11.60% over the March 31, 1994 activity, while Fed funds interest
income declined $93,525, or 88.13% reflecting the shifting of funds to higher
earning assets.
Total interest expense for the three month period ended March 31, 1995 in-
creased by $280,575, up 21.99% from March 31, 1994. Average interest bearing
liabilities increased $11,881,711, or 8.20% over March 31, 1994 average bal-
ances. The overall mix of the deposit portfolio reflects a reversal of the
trend of shifting funds into more liquid deposit products during the low
interest reate environment. As interest rates have risen, customers have
begun reinvesting in longer term certificate of deposit products which carries
a higher cost of funds.
The provision for loan losses increased 11.90% for the three months ended
March 31, 1995 as compared to the prior year three month period. The provision
for loan losses is determined by management as the amount to be added to the
allowance for loan losses after net charge-offs have been deducted to bring
the allowance to a level which is considered adequate to absorb losses inherent
in the loan portfolio. The amount of the provision is based on management's
regular review of the loan portfolio and consideration of such factors as
historical loss experience, general prevailing economic conditions, changes in
the size and composition of the loan portfolio and specific borrower consid-
erations, including the ability of the borrower to repay the loan and the
estimated value of the underlying collateral.
The Company has continued to experience relatively low net charge-offs for
the periods presented. The low historical charge-off history is the product
of a variety of factors, including the Company's underwriting guidelines,
aggressive monitoring of delinquent loans and focus on retail lending. Not-
withstanding the historical charge-off history, however, management believes
that it is prudent to continue to increase the allowance for loan losses as
total loans increase.
Noninterest Income And Expense
Noninterest income increased only slightly for the period ended March 31,
1995. For the three months ended March 31, 1995, service charges on
deposit accounts and other noninterest income increased $19,786 and $30,065,
respectively over the same three months ended March 31, 1994.
Noninterest expenses for the three months ended March 31, 1995 compared to
three months ended March 31, 1994 increased $151,572, or 12.55%. The most
significant change was within salaries and employee benefits reflecting a
$84,509, or 15.15% increase. These increases in expenses resulted from
incremental salary increases implemented at the beginning of 1995, increased
overhead expenses at the newly acquired Dellroy branch banking facility,
(December 1994) and the Company's costs associated with the newly implemented
employee 401 K program beginning March 10, 1995.
Financial Condition
Total assets of the Company increased to $188,959.258 at March 31, 1995,
a 1.79% increase over $185,634,119 at December 31, 1994. The Company had very
little change in any of its asset categories except for growth in total loans.
The Company, due to aggressive marketing and pricing concepts, has continued
to experience growth in the installment and commercial real estate lending
markets. Installment loans grew 7.76% and commercial real estate loans grew
4.51% over December 31, 1994 totals. The growth in loans was funded through
the generation of additional deposits. Total deposit growth, which was 2.52%
during the three months ended March 31, 1995, was totally related to an
increase in certificates of deposit. As interest rates have now rebounded to
more normal levels, depositors have begun to shift funds back into certificates
of deposit. Additionally, the Company increased certificates of deposit
total through the use of some special rate and term products. Through the
increase in certificates of deposit, the Company was able to reduce the amount
of total borrowed funds during the three months ended March 31, 1995. The
Company has substantial borrowing capacity and is not opposed to using other
borrowings as a funding source should loan demand exceed deposit growth.
Capital Resources
Internal capital growth, through the retention of earnings, is the primary
means of maintaining capital adequacy for the Company. Shareholder equity at
March 31, 1995 was $17,042,228 compared to $16,518,060 at December 31, 1994,
a 3.17% increase. This increase includes a $42,992 increase in equity due to
the after tax change in the fair value of securities categorized as available-
for-sale as compared to a $166,458 reduction in equity for the period ended
December 31, 1994. The ratios for Average Equity-to-Average Assets at March
31, 1995 and December 31, 1994 were 8.98% and 9.07% , respectively.
Regulatory standards require banks and bank holding companies to maintain
capital based on "risk adjusted" assets so that categories of assets with
potentially higher credit risk require more capital backing than assets with
lower risk. Additionally, banks and bank holding companies are required to
maintain capital to support, on a risk-adjusted basis, certain off-balance
sheet activities such as standby letters of credit and interest rate swaps.
In order to monitor relative levels of risk throughout the financial industry,
the Federal Reserve Board classifies capital into two tiers. Tier 1 capital
consists of common shareholders' equity, noncumulative and cumulative perpetual
preferred stock, and minority interests less goodwill. Tier 2 capital consists
of allowance for loan and lease losses, perpetual preferred stock (not included
in Tier 1), hybrid capital instruments, term subordinated debt, and inter-
mediate-term preferred stock. All banks are required to meet a minimum ratio
of 8.0% of qualifying total capital to risk-adjusted total assets. The Tier 1
capital ratio must be at least 4.0%. Capital qualifying as tier 2 capital is
limited to 100% of Tier 1 capital. The minimum leverage ratio for a bank
holding company is 3.0% calculated by dividing Tier 1 capital by adjusted
total assets.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
required banking regulatory agencies to revise risk-based capital standards by
June 19, 1993 to ensure that they take adequate account of interest rate,
concentration of credit and nontraditional banking activities. The following
table illustrates the Company's risk-weighted capital ratios at March 31, 1995:
March 31, 1995
Common Shareholders' Equity $17,042,228
Tier 1 Capital $16,699,198
Tier 2 Capital $1,496,937
Tier 1 and 2 Capital $18,196,135
Adjusted Total Assets $187,949,076
Total Risk-Adjusted Assets $116,989,500
Leverage Ratio 8.88%
Tier 1 Risk-Based Capital Ratio 14.27%
Tier 1 and Tier 2 Risk-Based Capital Ratio 15.55%
Liquidity
The Company's objective in managing liquidity is to maintain the ability to
continue to meet the cash flow needs of its customers, such as borrowings or
deposit withdrawals, as well as its own financial commitments. The principal
sources of liquidity are net income, loan payments, maturing investment
securities and investment securities available-for-sale, Federal funds sold
and cash and deposits with banks. Along with its liquid assets, the Company
has additional sources of liquidity available to ensure that adequate funds
are available as needed which include, but are not limited to, the purchase of
Federal funds, the ability to borrow funds under line of credit agreements with
correspondent banks and a borrowing agreement with the Federal Home Loan Bank
of Cincinnati, Ohio, and the adjustment of interest rates to obtain depositors.
Management feels that it has the capital adequacy, profitability and reputation
to meet the current and projected needs of its customers.
For the period ended March 31, 1995, the adjustments to reconcile net income to
net cash from operating activities consist mainly of depreciation and amort-
ization of premises and equipment and intangibles, the provision for loan
losses, gain on sales of investment securities, net amortization of investment
securities and net changes in other assets and liabilities. The most sig-
nificant outflow of cash from investing activities was $3,458,000 used due to
the net change in loans. This use of funds was partially offset by a net cash
infusion of $2,584,000 in financing activities. An increase in deposits of
$4,115,000 allowed the Company to reduce its borrowed funds by $1,346,000. For
a more detailed illustration of the Company's sources and uses of cash, refer
to the condensed consolidated statements of cash flows.
Inflation
Substantially all of the Company's assets and liabilities relate to banking
activities and are monetary in nature. The consolidated financial statements
and related financial data are presented in accordance with Generally Accepted
Accounting Principles (GAAP). GAAP currently requires the Company to measure
the financial position and results of operations in terms of historical
dollars, with the exception of securities available-for-sale which are
measured at fair value. Changes in the value of money due to rising inflation
can cause purchasing power loss.
Management's opinion is that movements in interest rates affects the financial
condition and results of operations to a greater degree than changes in the
rate of inflation. It should be noted that interest rates and inflation do
effect each other, but do not always move in correlation with each other.
The Company's ability to match the interest sensitivity of its financial assets
to the interest sensitivity of its liabilities in its asset/liability manage-
ment may tend to minimize the effect of change in interest rates on the
Company's performance.
Regulatory Review
The Company is subject to the regulatory requirements of The Federal Reserve
System as a multi-bank holding company. The affiliate banks, Citizens-Martins
Ferry and Citizens-Strasburg are subject to regulations of The Federal Deposit
Insurance Corporation (FDIC) and the State of Ohio, Division of Banks.
Citizens-Strasburg was subject to a FDIC regulatory compliance review on
February 28, 1995 as of the close of business on February 27, 1995. There were
no significant findings, which upon implementation, would have a material
effect on the holding company or its subsidiary banks.
Part II - Other Information
Item 1. Legal proceedings
Not applicable.
Item 2. Changes in securities
Not applicable.
Item 3. Defaults upon senior securities
Not applicable.
Item 4. Submission of matters to a vote of security holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits And Reports On Form 8 K
(a) Exhibits
(b) Reports on Form 8 K
The Company filed no Form 8 K's with the Securities
Exchange Commission during the quarter ending March
31, 1995.
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.
May 10, 1995 By:
Date James W. Everson
President and Chief
Executive Officer
May 10, 1995 By:
Date Ronald S. Blake
Treasurer