1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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
[ ] 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
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UNITED BANCORP, INC.
--------------------
(Exact name of registrant as specified in its charter.)
OHIO 34-1405357
---- ----------
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
201 SOUTH 4TH STREET, MARTINS FERRY, OHIO 43935-0010
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(740) 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 2,942,885 SHARES AS OF MAY 5, 2000
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UNITED BANCORP, INC.
TABLE OF CONTENTS
FORM 10-Q
PART I FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets.............................................................................3
Condensed Consolidated Statements of Income.......................................................................4
Condensed Consolidated Statements of Shareholders' Equity.........................................................5
Condensed Consolidated Statements of Cash Flows...................................................................6
Notes to the Condensed Consolidated Financial Statements.....................................................7 - 12
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................................................13 - 20
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk............................................21 - 22
PART II OTHER INFORMATION
ITEM 1.
Legal Proceedings................................................................................................23
ITEM 2.
Changes in Securities and Use of Proceeds........................................................................23
ITEM 3.
Default Upon Senior Securities...................................................................................23
ITEM 4.
Submission of Matters to a Vote of Security Holders..............................................................23
ITEM 5.
Other Information................................................................................................23
ITEM 6.
Exhibits and Reports on Form 8-K.................................................................................23
SIGNATURES.........................................................................................................24
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3
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
ASSETS
Cash and due from banks $ 8,235 $ 11,097
Federal funds sold - 780
------------ ------------
Total cash and cash equivalents 8,235 11,877
Securities available for sale 85,477 85,362
Securities held to maturity
(Estimated fair value of $9,557 at 03/31/00 and $9,566 at 12/31/99) 9,796 9,794
Loans receivable
Commercial loans 19,054 15,463
Commercial real estate loans 59,533 60,305
Real estate loans 51,907 51,357
Installment loans 54,024 53,391
------------ ------------
Total loans receivable 184,518 180,516
Allowance for loan losses (3,020) (3,110)
------------ ------------
Net loans receivable 181,498 177,406
Premises and equipment, net 9,497 9,009
Accrued interest receivable and other assets 5,655 5,316
------------ ------------
Total Assets $ 300,158 $ 298,764
============ ============
LIABILITIES
Demand deposits
Noninterest bearing $ 20,343 $ 19,858
Interest bearing 38,499 37,781
Savings deposits 54,483 56,245
Time deposits - under $100,000 114,557 98,326
Time deposits - $100,000 and over 23,701 23,330
------------ ------------
Total deposits 251,583 235,540
Securities sold under agreements to repurchase 6,117 5,788
Other borrowed funds 15,530 30,599
Accrued expenses and other liabilities 1,233 1,539
------------ ------------
Total Liabilities 274,463 273,466
SHAREHOLDERS' EQUITY
Common stock - $1 Par Value: 10,000,000 shares authorized;
2,942,885 issued and outstanding 2,943 2,943
Additional paid in capital 20,011 19,660
Deferred compensation plan (351) -
Retained earnings 6,736 6,543
Accumulated other comprehensive income, net of tax (3,644) (3,848)
------------ ------------
Total Shareholders' Equity 25,695 25,298
------------ ------------
Total Liabilities and Shareholders' Equity $ 300,158 $ 298,764
============ ============
See accompanying notes to the consolidated financial statements
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4
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS-EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
2000 1999
-------- --------
Interest and dividend income
Loans, including fees $ 4,007 $ 3,611
Taxable securities 1,238 1,232
Non-taxable securities 264 319
Other interest and dividend income 84 69
-------- --------
Total interest and dividend income 5,593 5,231
Interest expense
Deposits
Demand 226 217
Savings 279 378
Time 1,824 1,484
Other borrowings 423 292
-------- --------
Total interest expense 2,752 2,371
NET INTEREST INCOME 2,841 2,860
Provision for loan losses 116 198
-------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,725 2,662
Non-interest income
Service charges on deposit accounts 173 174
Other income 152 205
-------- --------
Total non-interest income 325 379
Non-interest expense
Salaries and employee benefits 1,132 979
Occupancy 349 306
Other expenses 809 682
-------- --------
Total non-interest expense 2,290 1,967
INCOME BEFORE INCOME TAXES 760 1,074
Income tax expense 184 244
-------- --------
NET INCOME $ 576 $ 830
======== ========
Earnings per common share - Basic $ 0.20 $ 0.28
Earnings per common share - Diluted $ 0.20 $ 0.28
Dividends per common share $ 0.13 $ 0.12
See accompanying notes to the consolidated financial statements
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UNITED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
ACCUMULATED
ADDITIONAL DEFERRED OTHER
COMMON PAID IN COMPENSATION RETAINED COMPREHENSIVE COMPREHENSIVE
STOCK CAPITAL PLAN EARNINGS INCOME INCOME TOTAL
----- ------- ---- -------- ------ ------ -----
BALANCE AT JANUARY 1, 1999 $ 2,800 $ 17,801 $ - $6,840 $ (120) $27,321
Net income 830 $ 830 830
Proceeds and tax benefit from
exercise of stock options 3 22 25
Other comprehensive income (loss), net of tax:
Net change in unrealized gain/(loss) on
securities available for sale (809) (809) (809)
Comprehensive income (loss) $ 21
=====
Cash dividends - $0.12 per share - (363) (363)
------- -------- ----- ------ ------- -------
BALANCE AT MARCH 31, 1999 $ 2,803 $ 17,823 $ - $7,307 $ (929) $27,004
======= ======== ===== ====== ======= =======
BALANCE AT JANUARY 1, 2000 $ 2,943 $ 19,660 $ - $6,543 $(3,848) $25,298
Net income 576 $ 576 576
Proceeds and tax benefit from
exercise of stock options - - -
Other comprehensive income (loss), net of tax:
Net change in unrealized gain/(loss) on
securities available for sale 204 204 204
-----
Comprehensive income $ 780
=====
Recognition of shares held by deferred
compensation plan. 351 (351)
Cash dividends - $0.13 per share (383) (383)
------- -------- ----- ------ ------- -------
BALANCE AT MARCH 31, 2000 $ 2,943 $ 20,011 $(351) $6,736 $(3,644) $25,695
======= ======== ===== ====== ======= =======
See accompanying notes to the consolidated financial statements
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UNITED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
2000 1999
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 576 $ 830
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 210 185
Provision for loan losses 116 198
Deferred taxes (17) (262)
Federal Home Loan Bank stock dividend (23) (15)
Gain on sale/call of securities (20) -
(Accretion)/amortization of securities, net 3 9
Gain on sale of loans (2) (35)
Amortization of mortgage servicing rights 12 8
Gain/loss on sale of assets - 1
Net changes in accrued interest receivable and other assets (448) (517)
Net changes in accrued expenses and other liabilities (308) (216)
------- -------
Net cash from operating activities 99 186
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale
Proceeds from sales 17 -
Proceeds from maturities/calls 217 6,315
Purchases - (17,091)
Securities held to maturity
Proceeds from maturities/calls - -
Purchases - (1,282)
Net change in loans (4,207) 2,785
Net purchases of premises and equipment (688) (343)
Proceeds from sale of assets - 95
------- -------
Net cash from investing activities (4,661) (9,521)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 16,043 (8,425)
Cash and cash equivalents received from deposit assumption,
net of asset acquired - 10,163
Net change in short-term borrowings (14,577) (1,422)
Proceeds from long-term debt - 2,500
Principal payments on long-term debt (163) (544)
Proceeds from exercise of stock options - 25
Cash dividends paid (383) (363)
------- -------
Net cash from financing activities 920 1,934
------- -------
Net change in cash and cash equivalents (3,642) (7,401)
Cash and cash equivalents at beginning of year 11,877 16,492
------- -------
Cash and cash equivalents at end of period $ 8,235 $ 9,091
======= =======
Interest paid $ 2,715 $ 2,416
Income taxes paid 179 152
See accompanying notes to the consolidated financial statements
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UNITED BANCORP, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements are prepared without audit and
reflect all adjustments which, in the opinion of management, are necessary
to present fairly the financial position of United Bancorp, Inc.
("Company") at March 31, 2000, and its results of operations and cash flows
for the periods presented. All such adjustments are normal and recurring in
nature. The accompanying condensed consolidated financial statements have
been prepared in accordance with the instructions of Form 10-Q and,
therefore, 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 consolidated financial statements, and related notes
thereto, of the Company for the year ended December 31, 1999 included in
its annual report. Reference is made to the accounting policies of the
Company described in the notes to the consolidated financial statements
contained in its 1999 Annual Report to Shareholders. The Company has
consistently followed these policies in preparing this Form 10-Q.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, ("Banks") The Citizens Savings
Bank, Martins Ferry, Ohio ("CITIZENS") and The Community Bank, Lancaster,
Ohio ("COMMUNITY"). All significant intercompany transactions and balances
have been eliminated in consolidation.
NATURE OF OPERATIONS:
The Company's and Banks' revenues, operating income and assets are
primarily from the banking industry. Loan customers are mainly located in
Athens, Belmont, Carroll, Fairfield, Harrison, Hocking, Jefferson, and
Tuscarawas Counties and the surrounding localities in northeastern,
eastern, southeastern, and central Ohio and include a wide range of
individuals, business and other organizations. A major portion of loans are
secured by various forms of collateral including real estate, business
assets, consumer property and other items. Commercial loans are expected to
be repaid from cash flows of the business. CITIZENS conducts its business
through its main office in Martins Ferry, Ohio and nine branches in
Bridgeport, Colerain, Dellroy, Dover, Jewett, New Philadelphia, St.
Clairsville, Sherrodsville, and Strasburg, Ohio. COMMUNITY conducts its
business through its main office in Lancaster and four branches in
Lancaster, Glouster, Nelsonville and Amesville, Ohio. All of the Company's
banking operations are considered by Management to be aggregated in one
reportable operating segment.
USE OF ESTIMATES:
To prepare financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions based on
available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided and
future results could differ. The allowance for loan losses, fair values of
financial instruments and status of contingencies are particularly subject
to change.
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UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES:
Income tax expense is based on the effective tax rate expected to be
applicable for the entire year. Income tax expense is the total of the
current year income tax due or refundable and the change in deferred tax
assets and liabilities. Deferred tax assets and liabilities are the
expected future tax consequences of temporary differences between the
carrying amounts and tax bases of assets and liabilities, computed using
enacted tax rates. A valuation allowance, if needed, reduces deferred tax
assets to the amount expected to be realized.
STOCK DIVIDENDS:
Dividends issued in stock are reported by transferring the market
value of the stock issued from retained earnings to common stock and
additional paid-in capital. All per share data has been retroactively
adjusted for the 5% stock dividends distributed in 1999 and 1998 and the
10% stock dividend distributed in 1997.
EARNINGS AND DIVIDENDS PER SHARE:
Basic earnings per common share ("EPS") is net income divided by the
weighted-average number of shares outstanding during the period. Diluted
EPS includes the dilutive effect of additional potential common shares
issuable under stock options. Earnings and dividends per share are restated
for all stock dividends through the date of issuance of the financial
statements.
COMPREHENSIVE INCOME:
Comprehensive income consists of net income and other comprehensive
income. Other comprehensive income includes unrealized gains and losses on
securities available for sale which is also recognized as a separate
component of equity. Other comprehensive income components net of related
taxes are as follows:
THREE MONTHS ENDED
MARCH 31,
(IN THOUSANDS) 2000 1999
-------------- ------- -------
Other comprehensive income (loss):
Unrealized holding gains (losses) on available
for sale securities arising during period 331 (1,224)
Reclassification adjustment for (gains) and
losses later recognized in income (20) -
------- -------
311 (1,224)
Tax effect (107) 415
------- -------
Other comprehensive income (loss) $ 204 $ (809)
======= =======
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UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
2. SECURITIES:
Securities were as follows:
GROSS GROSS
(IN THOUSANDS) AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
AVAILABLE FOR SALE - MARCH 31, 2000
US Agency obligations $ 71,823 $ - $ (5,500) $ 66,323
State and Municipal obligations 13,919 158 (123) 13,954
Mortgage-backed securities 2,050 - (63) 1,987
Other securities 3,202 11 - 3,213
--------- ---------- ---------- ----------
$ 90,994 $ 169 $ (5,686) $ 85,477
========= ========== ---------- ==========
AVAILABLE FOR SALE - DECEMBER 31, 1999
US Agency obligations $ 71,820 $ - $ (5,869) $ 65,951
State and Municipal obligations 14,112 203 (128) 14,187
Mortgage-backed obligations 2,079 - (61) 2,018
Other securities 3,179 27 - 3,206
--------- ---------- ---------- ----------
$ 91,190 $ 230 $ (6,058) $ 85,362
========= ========== ========== ==========
HELD TO MATURITY - MARCH 31, 2000
US Agency obligations $ 2,495 $ - $ (77) $ 2,418
State and Municipal obligations 7,301 35 (197) 7,139
--------- ---------- ---------- ----------
$ 9,796 $ 35 $ (274) $ 9,557
========= ---------- ---------- ----------
HELD TO MATURITY - DECEMBER 31, 1999
US Agency obligations $ 2,494 $ - $ (84) $ 2,410
State and Municipal obligations 7,300 49 (193) 7,156
--------- ---------- ---------- ----------
$ 9,794 $ 49 $ (277) $ 9,566
========= ---------- ---------- ----------
Sales of securities available for sale were as follows:
(IN THOUSANDS) THREE MONTHS ENDED
MARCH 31,
2000 1999
------ -------
Proceeds $ 234 $ -
Gross gains 20 -
Gross losses - -
Included above in gross gains for 2000, were gains of $3,000 resulting from
securities called prior to maturity.
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UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
2. SECURITIES: (CONTINUED)
Contractual maturities of securities at March 31, 2000 were as
follows:
AVAILABLE FOR SALE (IN THOUSANDS) AMORTIZED ESTIMATED
COST FAIR VALUE
------------ -----------
US Agency obligations
1 - 5 Years $ 3,249 $ 3,163
5 - 10 Years 30,818 29,036
Over 10 Years 37,756 34,124
-------- --------
Total 71,823 66,323
-------- --------
State and municipal obligations
Under 1 Year 654 654
1 - 5 Years 10,486 10,624
5 - 10 Years 1,059 1,023
Over 10 Years 1,720 1,653
-------- --------
Total 13,919 13,954
-------- --------
Mortgage Backed securities
5 - 10 Years 219 209
Over 10 Years 1,831 1,778
-------- --------
Total 2,050 1,987
-------- --------
Other investments
Equity securities 3,202 3,213
-------- --------
Total securities available for sale $ 90,994 $ 85,477
======== ========
HELD TO MATURITY (IN THOUSANDS)
US Agency obligations
1 - 5 Years $ 1,000 $ 985
5 - 10 Years 496 480
Over 10 Years 999 953
-------- --------
Total 2,495 2,418
-------- --------
State and municipal obligations
1 - 5 Years 1,794 1,798
5 - 10 Years 3,808 3,757
Over 10 Years 1,699 1,584
-------- --------
Total 7,301 7,139
-------- --------
Total securities held to maturity $ 9,796 $ 9,557
======== ========
Securities with a carrying value of approximately $46,408,000 at March 31, 2000
and $45,332,000 at December 31, 1999 were pledged to secure public deposits,
repurchase agreements and other liabilities as required or permitted by law.
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UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
3. ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses was as follows:
THREE MONTHS ENDED
MARCH 31,
(IN THOUSANDS) 2000 1999
------- -------
Beginning Balance $ 3,110 $ 3,033
Provision charged to operating expense 116 197
Loans charged-off (244) (181)
Recoveries 38 37
------- -------
Ending Balance $ 3,020 $ 3,086
------- -------
Non-performing loans were as follows:
MARCH 31, DECEMBER 31,
(IN THOUSANDS) 2000 1999
--------- ------------
Loans past due over 90 days still on accrual $ 566 $ 36
Nonaccrual loans 596 987
Loans considered impaired under the provisions of SFAS No. 114 were
not material at March 31, 2000 and December 31, 1999.
4. COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES
There are various contingent liabilities not reflected within the
financial statements, including claims and legal actions arising in the
ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters
is not expected to have a material effect on the Company's financial
condition or results of operations.
Some financial instruments are used in the normal course of business
to meet the financing needs of customers. These financial instruments
include commitments to extend credit, standby letters of credit and
financial guarantees. These involve, to varying degrees, credit and
interest-rate risk in excess of the amounts reported in the financial
statements.
Exposure to credit loss if the other party does not perform is
represented by the contractual amount for commitments to extend credit,
standby letters of credit and financial guarantees written. The same credit
policies are used for commitments and conditional obligations as are used
for loans. The amount of collateral obtained, if deemed necessary, upon
extension of credit is based on management's credit evaluation. Collateral
varies, but may include accounts receivable, inventory, property,
equipment, income-producing commercial properties, residential real estate
and consumer assets.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
commitment. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
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UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
4. COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES (CONTINUED)
commitments are expected to expire without being used, total commitments do
not necessarily represent future cash requirements. Standby letters of
credit and financial guarantees written are conditional commitments to
guarantee a customer's performance to a third party.
A summary of the notional or contractual amounts of financial
instruments with off-balance sheet risk at March 31, 2000 and December 31,
1999 follows:
MARCH 31, DECEMBER 31,
(IN THOUSANDS) 2000 1999
--------- ------------
Commitments to extend credit $18,660 $17,131
Credit card & ready reserve lines 1,120 1,178
Standby letters of credit 562 446
At March 31, 2000, and included above, commitments to make fixed-rate
loans totaled $2,355,000 with the interest rates on those fixed-rate
commitments ranging from 7.50% to 10.00%. At December 31, 1999, commitments
to make fixed rate loans totaled $2,363,000 with interest rates on those
fixed-rate commitments ranging from 7.50% to 10.00%.
At March 31, 2000 and December 31, 1999, reserves of $1,060,000 and
$1,241,000 were required as deposits with the Federal Reserve or as cash on
hand. These reserves do not earn interest.
5. EARNINGS PER SHARE
The factors used in the earnings per share computation were as
follows:
THREE MONTHS ENDED
(IN THOUSANDS-EXCEPT PER SHARE AMOUNTS) MARCH 31,
2000 1999
--------- ---------
BASIC
Net income $ 576 $ 830
========= =========
Weighted average common shares outstanding 2,942,885 2,940,343
========= =========
Basic earnings per common share $ 0.20 $ 0.28
========= =========
DILUTED
Net income $ 576 $ 830
========= =========
Weighted average common shares outstanding for
basic earnings per common share 2,942,885 2,940,343
Add: Dilutive effects of assumed exercised of stock
options 2,260 24,054
--------- ---------
Average shares and dilutive potential common shares 2,945,145 2,964,397
========= =========
Average shares and dilutive potential common shares $ 0.20 $ 0.28
========= =========
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13
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discusses the financial condition of the Company as of
March 31, 2000, as compared to December 31, 1999 and the results of
operations for the three months ended March 31, 2000 compared to the same
period in 1999. This discussion should be read in conjunction with the
interim condensed consolidated financial statements and related footnotes
included herein.
FORWARD-LOOKING STATEMENTS
When used in this document, the words or phrases "will likely result,"
"are expected to," "will continue," " is anticipated," "estimated,"
"projected" or similar expressions are intended to identify "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such statements are subject to certain risks and
uncertainities including changes in economic conditions in the Banks'
market areas, changes in policies by regulatory agencies, fluctuations in
interest rates, demand for loans in the Banks' market areas and
competition, that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Factors
listed above could affect the Company's financial performance and could
cause the Company's actual results for future periods to differ materially
from any statements expressed with respect to future periods.
The Company does not undertake, and specifically disclaims any
obligation, to publicly revise any forward-looking statements to reflect
events or circumstances after the date such statements or to reflect the
occurrence of anticipated or unanticipated events.
13
14
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following brief history of the Company and its subsidiary growth
and development highlights the continuing commitment to maintaining a
presence as a local "Hometown" community bank serving several diverse
market areas.
>> 1902 Original banking charter granted for The German Savings Bank (later changed to The
Citizens Savings Bank).
>> 1974 Construction of a full-service branch banking facility 6 miles west in Colerain, Ohio.
>> 1978 Construction of a full-service branch banking facility 2 miles south in Bridgeport,
Ohio.
>> 1980 Construction of a limited-service auto-teller banking location in Martins Ferry, Ohio.
>> 1983 Creation of United Bancorp, Inc. as a single-bank holding company through acquisition
of 100% of the voting stock of The Citizens Savings Bank of Martins Ferry,
Ohio ("CITIZENS"). Also, began operation of Automated Teller Machine
("ATM") in Aetnaville, Ohio.
>> 1984 CITIZENS opened a newly constructed 21,500 square foot main-office facility in Martins
Ferry, Ohio, adjacent to the auto-teller facility built in 1980.
>> 1986 United Bancorp, Inc. became a multi-bank holding company through the acquisition of
100% of the voting stock of. The Citizens-State Bank of Strasburg, Strasburg, Ohio,
merged into CITIZENS in 1999.
>> 1990 CITIZENS converted from third-party data processing to in-house data processing.
CITIZENS-STATE constructed a full-service branch bank 6 miles south of
Strasburg in Dover, Ohio.
>> 1992 CITIZENS acquired two branch bank locations in New Philadelphia and Sherrodsville,
Ohio.
>> 1993 CITIZENS relocated Data Processing, Accounting and Bookkeeping to a renovated
Operations Center across from the main office in Martins Ferry, Ohio.
>> 1994 CITIZENS purchased a branch bank in Dellroy, Ohio.
>> 1996 CITIZENS converted to check imaging and optical character recognition for data
processing at all locations.
>> 1997 CITIZENS opened a full-service Retail Banking Center inside Riesbeck's Food Markets,
Inc.'s St. Clairsville, Ohio store. Additionally, CITIZENS introduced a
Secondary Market Real Estate Mortgage Program available for all locations
and introduced a MasterCard(R) Check Card to the local market area.
>> 1998 CITIZENS increased ATM network by six cash dispenser machines in various Riesbecks'
Food Markets.
>> 1998 Effective July 7, 1998, the acquisition of Southern Ohio Community Bancorporation,
Inc. was completed and The Community Bank, Glouster, Ohio ("COMMUNITY") was
added as a third banking charter to the Company.
>> 1999 January 28, 1999 CITIZENS acquired a full service banking facility in Jewett, Ohio
>> 1999 March 1999 COMMUNITY opened a Loan Production Office in Lancaster, Ohio.
>> 1999 CITIZENS established a full service brokerage division to be known as Brokerage United
with securities provided through Raymond James Financial Services, Inc.
member NASD/SIPC.
>> 1999 COMMUNITY moved their main office to Lancaster, Ohio.
>> 2000 COMMUNITY opened a new branch in Lancaster and their auto teller for the main office.
14
15
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ANALYSIS OF FINANCIAL CONDITION
EARNING ASSETS - LOANS
At March 31, 2000, gross loans were $184,518,000 compared to
$180,516,000 at year-end 1999, an increase of 2.2%. The increase in total
outstanding loans was the result of growth in the commercial and
installment portfolios. COMMUNITY generated this growth as outstanding
loans increased 6.3% of approximately $4.0 million from December 31, 1999.
Management anticipates the expansion plans for COMMUNITY will provide a
solid market for loan growth.
Installment loans, with continued emphasis placed on the indirect
automobile lending market, stayed relatively constant at 29.3% of total
loans at March 31, 2000 compared to 29.6% at year-end 1999. The indirect
lending type of financing carries somewhat more risk than real estate
lending, however, it also provides for higher yields. The targeted lending
areas encompass four metropolitan areas, minimizing the risk to changes in
economic conditions in the communities housing the Company's 17 branch
locations. Management has worked to expand the lending market of COMMUNITY
into the Lancaster, Ohio area which provided an increase of installment
loans of $2,088,000 from December 31, 1999. As a result of the expansion of
the lending market, the installment loan portfolio increased 1.3% since
December 31, 1999.
Commercial and commercial real estate loans comprised 42.6% of total
loans at March 31, 2000 compared to 42.0% at December 31, 1999. Commercial
and commercial real estate loans have increased $2,819,000, or 3.7% since
December 31, 1999. The Company has originated and bought participations in
loans from other banks for out-of-area commercial and commercial real
estate loans to benefit from consistent economic growth outside the
Company's primary market area. The majority of these loans are secured by
real estate holdings comprised of hotels, motels and churches located in
various geographic locations, including Columbus and the Akron-Canton, Ohio
metropolitan areas. Out-of-area loans at March 31, 2000 were 8.4% of total
loans and 19.7% of total commercial and commercial real estate loans
compared to 8.5% and 20.3% at year-end 1999.
Real estate loans were 28.1% of total loans at March 31, 2000 compared
to 28.4% at year-end 1999. Real estate loans increased 1.1% since December
31, 1999. Our real estate loans are not growing as quickly as commercial,
commercial real estate, and installment, however, the slight increase shows
the shift of customer's preference to adjustable rate real estate loans.
The allowance for loan losses represents the amount which management
and the Board of Directors estimates is adequate to provide for probable
losses inherent in the loan portfolio. The allowance balance and the
provision charged to expense are reviewed by management and the Board of
Directors monthly using a risk code model that considers borrowers past due
experience, economic conditions and various other circumstances that are
subject to change over time. Management believes the current balance of the
allowance for loan losses is adequate to absorb probable losses associated
with the loan portfolio. Net charge-offs for the three months ended March
31, 2000 were approximately $206,000, or 6.6%, of the beginning allowance
for loan losses compared to $144,000, or 4.7%, of the beginning balance for
loan losses for the three months ended March 31, 1999. During the first
quarter of 2000, net charge-offs for consumer
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16
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
loans totaled approximately $88,000 compared to $128,000 for the first
quarter of 1999. The decrease can be attributed to Management's continued
focus on improving underwriting standards. During the first quarter of
2000, net charge-offs for commercial loans were $118,000 compared to
$16,000 for the first quarter of 1999. Management does not anticipate the
trend in commercial net charge-offs to continue for the remainder of the
fiscal year 2000.
EARNING ASSETS - SECURITIES AND FEDERAL FUNDS SOLD
The securities portfolio is comprised of U.S. Government agency-backed
securities, tax-exempt obligations of states and political subdivisions and
certain other investments. The Company does not hold any collateralized
mortgage-backed securities, other than those issued by U.S. government
agencies, or derivative securities. The quality rating of obligations of
state and political subdivisions within Ohio is no less than Aaa, Aa or A,
with all out-of-state bonds rated at AAA. Board policy permits the purchase
of certain non-rated bonds of local schools, townships and municipalities,
based on their estimated levels of credit risk. Securities available for
sale at March 31, 2000 increased approximately $115,000, or 0.1% from
year-end 1999 totals. Securities held to maturity stayed relatively
constant compared to year-end 1999 totals.
Short-term federal funds sold are used to manage interest rate
sensitivity and to meet liquidity needs of the Company. At March 31, 2000,
the Company had no federal funds sold compared to $780,000 at year-end
1999.
SOURCES OF FUNDS - DEPOSITS
The Company's primary source of funds is core deposits from retail and
business customers. These core deposits include all categories of
interest-bearing and noninterest-bearing deposits, excluding certificates
of deposit greater than $100,000. For the period ended March 31, 2000,
total core deposits increased approximately $15.7 million primarily from an
increase of demand deposits and time deposits under $100,000 of $1.2
million and $16.2 million, respectively. This was partly offset by a
decrease in savings deposits of $1.8 million. In the first quarter of 2000,
COMMUNITY has experienced an increase of time deposits under $100,000 of
$11.9 million. This increase is primarily the result of Management's
expansion plans in Lancaster, Ohio. The Company has a strong deposit base
from public agencies, including local school districts, city and township
municipalities, public works facilities and others that may tend to be more
seasonal in nature resulting from the receipt and disbursement of state and
federal grants. These entities have maintained fairly static balances with
the Company due to various funding and disbursement timeframes.
Certificates of deposit greater than $100,000 are not considered part
of core deposits and as such are used to balance rate sensitivity as a tool
of funds management. At March 31, 2000, certificates of deposit greater
than $100,000 increased approximately $371,000, or 1.6% from year-end 1999
totals.
SOURCES OF FUNDS - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND
OTHER BORROWINGS
Other interest-bearing liabilities include securities sold under
agreements to repurchase, sweep accounts, federal funds purchased,
Treasury, Tax & Loan notes payable and Federal
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17
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Home Loan Bank ("FHLB") advances. In the first three months of 2000, the
Company continued to utilize the FHLB programs to manage interest rate risk
and liquidity positions. The majority of the Company's repurchase agreement
are with local school districts, city and county government. Total other
borrowings decreased approximately $15.1 million, or 49.2% from year-end
1999 totals. The decrease in other borrowings was offset by an increase in
certificates of deposit.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 2000
NET INCOME
Basic earnings per share for the three months ended March 31, 2000 was
$0.20, compared with $0.28 for the three months ended March 31, 1999. Net
income decreased $254,000 for three months ended March 31, 2000, compared
to the same period in 1999. On an annualized basis, Return on Average
Assets (ROA) was 0.77% and Return on Average Equity (ROE) was 9.26%
compared to ROA of 1.16% and ROE of 12.18% for the three months ended March
31, 1999.
NET INTEREST INCOME
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 decreased 0.7% for the
three months ended March 31, 2000 compared to the same period in 1999.
Total interest income for the three months ended March 31, 2000 was
$5,593,000 compared to $5,231,000 for the same period in 1999. Total
interest income increased $362,000, or 6.9%. The increase can be attributed
to the overall growth in the Company's interest-bearing assets, and in
increase in the interest rate environment.
Total interest expense for the three months ended March 31, 2000 when
compared to the same three months period ended March 31, 1999, increased
16.1%. The Company has experienced an increase in interest expense due to
an increase in the first quarter of time deposits and an overall increase
of rates on all deposit products to remain competitive in the market.
PROVISION FOR LOAN LOSSES
The provision for loan losses is an operating expense recorded to
maintain the related balance sheet allowance for loan losses at an amount
considered adequate to cover losses that may occur in the normal course of
lending.
The total provision for loan losses was $116,000 for the three months
ended March 31, 2000 compared to $198,000 for the same period in 1999.
Management decreased the provision
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UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
in 2000 due to an anticipated decrease in net charge-offs for the fiscal year.
This decrease is a result of Management's commitment to improve the portfolio's
credit quality.
NONINTEREST INCOME
Total noninterest income is made up of bank related fees and service
charges, as well as other income producing services provided, sale of secondary
market loans, ATM income, early redemption penalties for certificates of
deposits, safe deposit rental income and other miscellaneous items. Noninterest
income for the three months ended March 31, 2000 was $325,000 compared to
$379,000 for the same three months period ended March 31, 1999. For the three
months ended March 31, 2000 compared to the same period in 1999, noninterest
income decreased approximately 14.2%. The decrease in noninterest income can be
attributed to a decrease in secondary market fee income of approximately
$58,000. The secondary market loan production has declined due to the rise in
interest rates. Customer preference has shifted to adjustable rate mortgages
during the second half of 1999 and first quarter of 2000.
NONINTEREST EXPENSE
Noninterest expense for the three months ended March 31, 2000 increased
16.4% over the three months ended March 31, 1999. Non-recurring costs have been
incurred in the first quarter of 2000 related to COMMUNITY'S opening of a new
headquarters, an adjacent limited service drive-thru, and a full service banking
center in Lancaster, Ohio. In addition, additional staffing, advertising and
occupancy expenses were added to the COMMUNITY'S cost structure as a result of
this expansion.
CAPITAL RESOURCES
Internal capital growth, through the retention of earnings, is the primary
means of maintaining capital adequacy for the Company. Shareholders' equity at
March 31, 2000 was $25,695,000 compared to $25,298,000 at December 31, 1999, a
1.6% increase. This increase was, in part, attributable to the market value
adjustment on the company's available for sale securities. Total shareholders'
equity in relation to total assets was 8.6% at March 31, 2000 and 8.5% at
December 31, 1999.
The Company has a Dividend Reinvestment Plan ("The Plan") for shareholders
under which the Company's common stock will be purchased by the Plan for
participants with automatically reinvested dividends. The Plan does not
represent a change in the Company's dividend policy or a guarantee of future
dividends.
Shareholders who do not wish to participate in the Plan continue to receive
cash dividends, as declared in the usual and customary manner. The Company has
approved the issuance of 150,000 authorized and unissued shares of the Company's
common stock for purchase under The Plan.
The Company maintains a deferred compensation plan for its Directors. The
plan permits the Directors to defer into a Rabbi Trust all or a portion of their
director fees. The plan is being accounted for under the provisions of EITF
97-14.
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19
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company and Banks are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve quantitative measures of assets,
liabilities and certain off-balance sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings and other
factors and the regulators can lower classifications in certain cases. Failure
to meet various capital requirements can initiate regulatory action that could
have a direct material effect on the Banks' operations.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized, although these
terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion and plans for capital restoration are required. The minimum
requirements are:
TOTAL TIER 1 TIER 1
CAPITAL TO CAPITAL TO CAPITAL TO
RISK-WEIGHTED RISK-WEIGHTED AVERAGE
ASSETS ASSETS ASSETS
-------------------------- --------------------------- --------------------
Well capitalized 10.00% 6.00% 5.00%
Adequately capitalized 8.00% 4.00% 4.00%
Undercapitalized 6.00% 3.00% 3.00%
The following table illustrates the Company's risk-weighted capital ratios
at March 31, 2000:
MARCH 31,
(IN THOUSANDS) 2000
---------------
Tier 1 capital $ 29,183
Total risk-based capital $ 31,676
Risk-weighted assets $ 198,883
Average total assets $ 297,554
Tier 1 capital to average assets 9.81%
Tier 1 risk-based capital ratio 14.67%
Total risk-based capital ratio 15.93%
LIQUIDITY
Management's objective in managing liquidity is maintaining the ability to
continue meeting 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 securities and
sales of 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. These
include, but are
19
2
20
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 three months ended March 31, 2000, the adjustments to reconcile net
income to net cash from operating activities consisted mainly of depreciation
and amortization of premises and equipment and intangibles, the provision for
loan losses, net amortization of securities and net changes in other assets and
liabilities. The net decrease in cash and cash equivalents of $3,642,000 was
primarily the result of a decrease in borrowed funds of $14,740,000 and increase
in loans of $4,207,000, off-set by cash provided in financing activities of
$16,043,000 related to an increase in deposits. For a more detailed illustration
of 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, impaired loans and other
real estate loans 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 management
may tend to minimize the effect of changes in interest rates on the Company's
performance.
REGULATORY MATTERS
The Company is subject to the regulatory requirements of The Federal
Reserve System as a multi-bank holding company. The affiliate banks are subject
to regulations of the Federal Deposit Insurance Corporation (FDIC) and the State
of Ohio, Division of Financial Institutions.
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UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risk affecting the Company is interest rate risk. The
Banks do not maintain a trading account for any class of financial instrument
and the Company is not affected by foreign currency exchange rate risk or
commodity price risk. Because the Banks do not hold any equity securities other
than stock in the Federal Home Loan Bank of Cincinnati, which is not
significant, the Company is not subject to equity price risk.
The Company and its Banks, like other financial institutions, are subject
to interest rate risk to the extent that its interest-earning assets reprice
differently than its interest-bearing liabilities. One of the principal
financial objectives is to achieve long-term profitability while reducing its
exposure to fluctuations in interest rates. The Company has sought to reduce
exposure of its earnings to changes in market interest rates by managing assets
and liability maturities and interest rates primarily by originating
variable-rate lending products, or if issued with a fixed interest rate, as is
the case with the indirect automobile portfolio, the term is rather short in
duration. Both the variable interests rates inherent in the commercial,
commercial real estate and real estate loan portfolios, and the short duration
loan products, mitigate the Company's exposure to dramatic interest rate
movements.
The Company's securities are all fixed rate and are weighted more heavily
towards available for sale which accounts for 90% of the portfolio compared to
the 10% for held to maturity securities. The Company primarily invests in US
Agency obligations and State and Municipal obligations and has a modest amount
invested in mortgage-backed securities. Due to total securities approximating
32% of total assets and a significant portion of its loan portfolio consisting
of fixed rate loans, the Company is particularly sensitive to periods of rising
interest rates. In such periods, the Company's net interest spread is negatively
affected because the interest rate paid on deposits increases faster than the
rates earned on loans. Management is continuing to originate variable rate
mortgage loans as the primary means to manage this risk. In addition, the
Company also originates consumer and commercial loans, which make up a
significant percentage of the overall loan portfolio. Consumer loans typically
have a significantly shorter weighted-average maturity and offer less exposure
to interest rate risks while commercial loans generally carry variable interest
rates.
Management measures the Company's interest rate risk by computing estimated
changes in net interest income and the net portfolio value ("NPV") of its cash
flows from assets, liabilities and off-balance sheet items in the event of a
range of assumed changes in market interest rates. Presented in the Company's
1999 Annual Report as of December 31, 1999, is an analysis of the Company's
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel shifts of 100 basis points in market interest rates. Management
believes that no events have occurred since December 31, 1999 which would
significantly change the Company's NPV at March 31, 2000 under each assumed
shifts of 100 basis points in market interest rates.
The Company's NPV is more sensitive to increasing rates than decreasing
rates. Such difference in sensitivity occurs principally because, as rates rise,
the effect is offset on a short-term basis by the rather fixed nature of our
consumer loans and investment securities. This occurs even though the
commercial, commercial real estate and real estate portfolios are comprised of
variable rate products. Also in a rising rate environment consumers tend not to
prepay fixed rate loans as quickly as they would
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22
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
have had rates not changed dramatically. Moreover, the interest the Company pays
on its deposits would increase because deposits generally have shorter periods
to reprice.
Certain shortcomings are inherent in the NPV method of analysis. Certain
assets such as adjustable-rate loans have features that restrict changes in
interest rates on a short-term basis and over the life of the asset. In
addition, the proportion of adjustable-rate loans in the Company's portfolio
could decrease in future periods if market interest rates remain at or decrease
below current levels due to refinancing activity. Further, in the event of a
change in interest rates, prepayment and early withdrawal levels would likely
deviate from those assumed in the analysis. Finally, the ability of many
borrowers to repay their adjustable-rate debt may decrease in the case of an
increase in interest rates.
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23
UNITED BANCORP, INC.
OTHER INFORMATION
FORM 10-Q
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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) No current reports on Form 8-K were filed by the registrant
during the quarter ended March 31, 2000.
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24
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 5, 2000 By: /s/ James W. Everson
- ----------- ----------------------
Date James W. Everson
Chairman, President & Chief
Executive Officer
May 5, 2000 By: /s/ Randall M. Greenwood
- ----------- ---------------------------
Date Randall M. Greenwood
Chief Financial Officer
24
25
Exhibit Index
-------------
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule