-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LmnMO23JQCz/+1wenHu1iIN/2zl4CJDwCw/vWYkzpimZBml94ekedzX/zkYJNgFt YBKiwOqfZyzGqM+sYW5TOw== 0000950124-01-503824.txt : 20020410 0000950124-01-503824.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950124-01-503824 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED BANCORP INC /OH/ CENTRAL INDEX KEY: 0000731653 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 341405357 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16540 FILM NUMBER: 1780093 BUSINESS ADDRESS: STREET 1: 201 SOUTH FOURTH STREET STREET 2: P O BOX 10 CITY: MARTINS FERRY STATE: OH ZIP: 43935 BUSINESS PHONE: 7406330445 MAIL ADDRESS: STREET 1: 201 SOUTH FERRY STREET STREET 2: P O BOX 10 CITY: MARTINS FERRY STATE: OH ZIP: 43935 10-Q 1 k65895e10-q.txt QUARTERLY REPORT DATED 09/30/01 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 SEPTEMBER 30, 2001 [ ] 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 34-1405357 ---- ---------- (State or other jurisdiction of incorporation or organization) (IRS Employer 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 3,013,176 SHARES AS OF OCTOBER 15, 2001 --------------------------------------------------------------------- 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 - 13 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................................................14 - 23 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk............................................24 - 25 PART II OTHER INFORMATION ITEM 1. Legal Proceedings................................................................................................26 ITEM 2. Changes in Securities and Use of Proceeds........................................................................26 ITEM 3. Default Upon Senior Securities...................................................................................26 ITEM 4. Submission of Matters to a Vote of Security Holders..............................................................26 ITEM 5. Other Information................................................................................................26 ITEM 6. Exhibits and Reports on Form 8-K.................................................................................26 SIGNATURES.........................................................................................................27
2 UNITED BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) PART I FINANCIAL INFORMATION
SEPTEMBER 30, DECEMBER 31, 2001 2000 -------------------- --------------------- ASSETS Cash and due from financial institutions $ 11,782,157 $ 10,694,118 Securities available for sale 120,811,386 94,438,970 Securities held to maturity (Estimated fair value of $9,822,926 at 09/30/01 and $10,946,251 at 12/31/00) 9,342,539 10,802,213 Loans receivable Commercial loans 21,354,789 20,414,810 Commercial real estate loans 59,765,645 64,811,940 Real estate loans 55,286,684 55,931,621 Installment loans 48,181,059 55,338,861 -------------------- --------------------- Total loans receivable 184,588,177 196,497,232 Allowance for loan losses (2,784,227) (2,790,133) -------------------- --------------------- Net loans receivable 181,803,950 193,707,099 Premises and equipment, net 9,265,841 9,521,046 Accrued interest receivable and other assets 4,114,672 4,722,355 -------------------- --------------------- Total Assets $ 337,120,545 $ 323,885,801 =========================================== LIABILITIES Demand deposits Noninterest-bearing $ 23,623,997 $ 22,708,636 Interest-bearing 43,150,483 45,470,957 Savings deposits 49,317,552 49,158,941 Time deposits - under $100,000 129,677,943 120,797,039 Time deposits - $100,000 and over 37,823,682 29,417,302 -------------------- --------------------- Total deposits 283,593,657 267,552,875 Securities sold under agreements to repurchase 9,998,460 4,861,430 Other borrowed funds 10,973,864 21,247,616 Accrued expenses and other liabilities 1,482,807 1,544,793 -------------------- --------------------- Total Liabilities 306,048,788 295,206,714 SHAREHOLDERS' EQUITY Preferred stock, without par value: 2,000,000 shares authorized and unissued Common stock - $1 par value: 10,000,000 shares authorized; 3,094,882 issued 3,094,882 3,094,882 Additional paid in capital 21,784,419 21,699,632 Treasury stock - 81,706 shares in 2001 and 28,499 shares in 2000 at cost (864,775) (283,564) Shares held by deferred compensation plan - 33,022 shares at cost in 2001 and 26,155 in 2000 (496,225) (411,438) Retained earnings 6,682,695 5,852,284 Accumulated other comprehensive income (loss), net of tax 870,761 (1,272,709) -------------------- --------------------- Total Shareholders' Equity 31,071,757 28,679,087 -------------------- --------------------- Total Liabilities and Shareholders' Equity $ 337,120,545 $ 323,885,801 ==================== =====================
3 UNITED BANCORP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2001 2000 2001 2000 ----------------- ----------------- ------------------ ------------------ Interest and dividend income Loans, including fees $ 4,083,136 $ 4,424,001 $ 12,690,766 $ 12,604,200 Taxable securities 1,764,431 1,358,511 5,000,524 3,886,933 Non-taxable securities 275,855 276,062 817,051 811,300 Other interest and dividend income 79,502 66,759 219,131 215,427 ----------------- ----------------- ------------------ ------------------ Total interest and dividend income 6,202,924 6,125,333 18,727,472 17,517,860 Interest expense Deposits Demand 200,712 299,187 708,739 792,975 Savings 175,141 282,666 588,506 836,392 Time 2,398,339 2,130,166 7,083,658 5,996,364 Other borrowings 309,369 558,354 1,225,308 1,348,437 ----------------- ----------------- ------------------ ------------------ Total interest expense 3,083,561 3,270,373 9,606,211 8,974,168 Net interest income 3,119,363 2,854,960 9,121,261 8,543,692 Provision for loan losses 195,000 115,500 585,000 346,500 ----------------- ----------------- ------------------ ------------------ Net interest income after provision for loan losses 2,924,363 2,739,460 8,536,261 8,197,192 Noninterest income Service charges on deposit accounts 224,273 236,091 667,667 625,289 Gains/losses on sales of securities 34,358 16,674 Other income 171,179 94,862 446,899 348,362 ----------------- ----------------- ------------------ ------------------ Total noninterest income 395,452 330,953 1,148,924 990,325 Noninterest expense Salaries and employee benefits 1,162,142 1,061,173 3,508,865 3,209,679 Occupancy and equipment 383,502 328,587 1,125,295 1,043,611 Other expenses 811,960 738,355 2,401,411 2,296,022 ----------------- ----------------- ------------------ ------------------ Total noninterest expense 2,357,604 2,128,115 7,035,571 6,549,312 Income before income taxes 962,211 942,298 2,649,614 2,638,204 Income tax expense 284,214 274,031 629,608 688,281 ----------------- ----------------- ------------------ ------------------ Net income $ 677,997 $ 668,267 $ 2,020,006 $ 1,949,923 ================= ================= ================== ================== Earnings per common share - Basic $ 0.23 $ 0.22 $ 0.67 $ 0.64 Earnings per common share - Diluted $ 0.23 $ 0.22 $ 0.67 $ 0.64 Dividends per common share $ 0.13 $ 0.12 $ 0.39 $ 0.37
4 UNITED BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (UNAUDITED)
TREASURY ADDITIONAL STOCK AND COMMON PAID IN DEFERRED RETAINED COMPREHENSIVE STOCK CAPITAL PLAN EARNINGS INCOME --------------------------------------------------------------------------------- BALANCE AT JANUARY 1, 2000 $ 2,942,885 $ 19,660,205 $ - $ 6,542,711 Net income 1,949,923 $ 1,949,923 Stock issuance 4,954 47,288 Net change in unrealized gain/(loss) on securities available for sale 425,622 Comprehensive income $ 2,375,545 =============== Recognition of shares held by deferred compensation plan - 22,958 at cost 370,198 (370,198) Shares purchased for deferred compensation plan 16,197 (16,197) Purchases of treasury stock - 15,417 shares at cost (154,215) Cash dividends - $0.37 per share (1,148,370) -------------- --------------- -------------- --------------- BALANCE AT SEPTEMBER 30, 2000 $ 2,947,839 $ 20,093,888 $ (540,610) $ 7,344,264 ============== =============== ============== =============== BALANCE AT JANUARY 1, 2001 $ 3,094,882 $ 21,699,632 $ (695,002) $ 5,852,284 Net income 2,020,006 $ 2,020,006 Net change in unrealized gain/(loss) on securities available for sale 2,143,470 --------------- Comprehensive income $ 4,163,476 =============== Shares purchased for deferred compensation plan 84,787 (84,787) Purchases of treasury stock - 53,207 shares at cost (581,211) Cash dividends - $0.39 per share (1,189,595) -------------- --------------- -------------- --------------- BALANCE AT SEPTEMBER 30, 2001 $ 3,094,882 $ 21,784,419 $ (1,361,000) $ 6,682,695 ============== =============== ============== =============== ACCUMULATED OTHER COMPREHENSIVE INCOME TOTAL -------------------------------------------- BALANCE AT JANUARY 1, 2000 $ (3,847,828) $ 25,297,973 Net income 1,949,923 Stock issuance 52,242 Net change in unrealized gain/(loss) on securities available for sale 425,622 425,622 Comprehensive income Recognition of shares held by deferred compensation plan - 22,958 at cost Shares purchased for deferred compensation plan Purchases of treasury stock - 15,417 shares at cost (154,215) Cash dividends - $0.37 per share (1,148,370) --------------- --------------- BALANCE AT SEPTEMBER 30, 2000 $ (3,422,206) $ 26,423,175 =============== =============== BALANCE AT JANUARY 1, 2001 $ (1,272,709) $ 28,679,087 Net income 2,020,006 Net change in unrealized gain/(loss) on securities available for sale 2,143,470 2,143,470 Comprehensive income Shares purchased for deferred compensation plan Purchases of treasury stock - 53,207 shares at cost (581,211) Cash dividends - $0.39 per share (1,189,595) --------------- --------------- BALANCE AT SEPTEMBER 30, 2001 $ 870,761 $ 31,071,757 =============== ===============
5 UNITED BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2001 2000 ---------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,020,006 $ 1,949,923 Adjustments to reconcile net income to net cash from operating activities Depreciation and amortization 684,724 650,033 Provision for loan losses 585,000 346,500 Deferred taxes 27,475 (17,240) Federal Home Loan Bank stock dividend (185,500) (136,700) Net realized gains on sales or calls of securities (34,358) (16,674) (Accretion)/amortization of securities, net (29,274) 6,057 Net realized gains on sales of loans (49,744) (6,732) Amortization of mortgage servicing rights 44,325 32,911 Net changes in accrued interest receivable and other assets (435,434) (766,531) Net changes in accrued expenses and other liabilities (458,678) (284,103) ------------------------ ----------------------- Net cash from operating activities 2,168,542 1,757,444 CASH FLOWS FROM INVESTING ACTIVITIES Securities available for sale Sales 5,480,956 17,367 Maturities, payments and calls 38,990,063 1,405,025 Purchases (67,363,773) (6,999,063) Securities held to maturity Maturities, payments and calls 2,500,000 178,500 Purchases (1,022,305) (1,050,711) Net change in loans 11,318,149 (16,718,784) Net purchases of premises and equipment (408,842) (1,169,285) Proceeds from sale of real estate owned 291,994 ------------------------ ----------------------- Net cash from investing activities (10,213,758) (24,336,951) CASH FLOWS FROM FINANCING ACTIVITIES Net change in deposits 16,040,782 22,496,919 Net change in short-term borrowings (5,806,450) 439,845 Advances on long-term debt 669,728 (642,960) Treasury stock purchases (581,211) (154,215) Proceeds from stock issuance 52,242 Cash dividends paid (1,189,595) (1,148,370) ------------------------ ----------------------- Net cash from financing activities 9,133,254 21,043,461 ------------------------ ----------------------- Net change in cash and cash equivalents 1,088,038 (1,536,046) Cash and cash equivalents at beginning of year 10,694,118 11,876,955 ------------------------ ----------------------- Cash and cash equivalents at end of period $ 11,782,156 $ 10,340,909 ======================== ======================= Interest paid $ 9,451,726 $ 8,831,561 Income taxes paid 700,011 724,470
See accompanying notes to the condensed consolidated financial statements 6 UNITED BANCORP, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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 September 30, 2001, 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 accounting principles generally accepted in the United States of America 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, 2000 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 2000 Annual Report to Shareholders. The Company has consistently followed these policies in preparing this Form 10-Q. PRINCIPLES OF CONDENSED 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 revenues, operating income and assets are primarily from the banking industry. Accordingly, all of the Company's banking operations are considered by Management to be aggregated in one reportable operating segment. The Company's primary deposit products are checking, savings, and term certificates of deposits, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and real estate. Commercial loans are expected to be repaid from cash flow from operations of business. Real estate loans are secured by both residential and commercial real estate. Other financial instruments which potentially represent concentrations of credit risk include deposit accounts in other financial institutions. 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. 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. USE OF ESTIMATES: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based 7 UNITED BANCORP, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. 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. 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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2001 2000 2001 2000 ------------------ ------------------ ------------------- ----------------- Other comprehensive income: Unrealized holding gains(losses) on available for sale securities arising during period 1,577,043 (878,119) 3,281,817 659,391 Reclassification adjustment for gains later recognized in income 80 - (34,358) (16,674) ------------------ ------------------ ------------------- ----------------- 1,577,123 (878,119) 3,247,459 642,717 Tax effect (535,966) 298,560 (1,103,989) (217,095) ------------------ ------------------ ------------------- ----------------- Other comprehensive income(loss) $ 1,041,157 $ (579,559) $ 2,143,470 $ 425,622 ================== ================== =================== =================
8 UNITED BANCORP, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 2. SECURITIES: Securities were as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAINS LOSSES FAIR VALUE ------------------ ---------------- ---------------- ------------------ AVAILABLE FOR SALE - SEPTEMBER 30, 2001 US Agency obligations $ 102,502,983 $ 937,503 $ (58,755) $ 103,381,731 State and Municipal obligations 13,264,342 422,212 13,686,554 Mortgage-backed securities 161,447 5,138 166,585 Other securities 3,563,591 12,925 3,576,516 ------------------ ---------------- ---------------- ------------------ $ 119,492,363 $ 1,377,778 $ (58,755) $ 120,811,386 ================== ================ ================ ================== AVAILABLE FOR SALE - DECEMBER 31, 2000 US Agency obligations $ 77,808,200 $ 62,193 $ (2,185,777) $ 75,684,616 State and Municipal obligations 13,247,607 207,123 (20,430) 13,434,300 Mortgage-backed obligations 1,934,599 (4,470) 1,930,129 Other securities 3,377,000 12,925 3,389,925 ------------------ ---------------- ---------------- ------------------ $ 96,367,406 $ 282,241 $ (2,210,677) $ 94,438,970 ================== ================ ================ ================== HELD TO MATURITY - SEPTEMBER 30, 2001 State and Municipal obligations $ 9,342,539 $ 480,387 $ 9,822,926 ------------------ ---------------- ---------------- ------------------ $ 9,342,539 $ 480,387 $ 9,822,926 ================== ================ ================ ================== HELD TO MATURITY - DECEMBER 31, 2000 US Agency obligations $ 2,495,865 $ 2,432 $ (13,077) $ 2,485,220 State and Municipal obligations 8,306,348 194,353 (39,670) 8,461,031 ------------------ ---------------- ---------------- ------------------ $ 10,802,213 $ 196,785 $ (52,747) $ 10,946,251 ================== ================ ================ ==================
Sales of securities available for sale were as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2001 2000 2001 2000 ----------------- --------------- ---------------- ------------------ Proceeds $ 5,480,956 $ 17,367 Gross gains 34,358 19,534 Gross losses 2,860
9 UNITED BANCORP, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 2. SECURITIES: (CONTINUED) Contractual maturities of securities at September 30, 2001 were as follows:
AVAILABLE FOR SALE AMORTIZED ESTIMATED COST FAIR VALUE ------------------- ------------------- US Agency obligations 1 - 5 Years $ 625,000 $ 636,406 5 - 10 Years 27,873,195 28,287,100 Over 10 Years 74,004,788 74,458,224 ------------------- ------------------- Total 102,502,983 103,381,731 ------------------- ------------------- State and municipal obligations Under 1 Year 3,411,695 3,437,831 1 - 5 Years 7,302,148 7,586,079 5 - 10 Years 1,504,679 1,579,017 Over 10 Years 1,045,820 1,083,627 ------------------- ------------------- Total 13,264,342 13,686,554 ------------------- ------------------- Mortgage Backed securities 5 - 10 Years 161,447 166,584 ------------------- ------------------- Total 161,447 166,584 ------------------- ------------------- Other investments Equity securities 3,563,591 3,576,516 ------------------- ------------------- Total securities available for sale $ 119,492,362 $ 120,811,385 =================== =================== HELD TO MATURITY State and municipal obligations 1 - 5 Years $ 3,050,198 $ 3,200,480 5 - 10 Years 3,733,163 3,978,530 Over 10 Years 2,559,178 2,643,917 ------------------- ------------------- Total 9,342,539 9,822,926 ------------------- ------------------- Total securities held to maturity $ 9,342,539 $ 9,822,926 =================== ===================
Securities with a carrying value of approximately $55,640,000 at September 30, 2001 and $49,415,000 at December 31, 2000 were pledged to secure public deposits, repurchase agreements and other liabilities as required or permitted by law. 10 UNITED BANCORP, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3. ALLOWANCE FOR LOAN LOSSES The activity in the allowance for loan losses was as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2001 2000 2001 2000 ---------------- ----------------- ---------------- ---------------- Beginning Balance $2,839,270 $ 3,087,727 $2,790,133 $3,109,821 Provision charged to operating expense 195,000 115,500 585,000 346,500 Loans charged-off (351,276) (298,903) (879,829) (673,534) Recoveries 101,233 72,124 288,923 193,661 ---------------- ----------------- ---------------- ---------------- Ending Balance $2,784,227 $ 2,976,448 $2,784,227 $2,976,448 ================ ================= ================ ================
Non-performing loans were as follows:
SEPTEMBER 30, DECEMBER 31, 2001 2000 ---------------- ----------------- Loans past due over 90 days still on accrual $ 169,189 $ 124,000 Nonaccrual Loans $ 673,642 793,360
Loans considered impaired under the provisions of SFAS No. 114 were not material at September 30, 2001 and December 31, 2000 or for the three and nine months ended September 30, 2001 and 2000. Nonperforming loans include all impaired loans and smaller balance homogenous loans, such as residential mortgage and consumer loans that are collectively evaluated for impairment. 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 11 UNITED BANCORP, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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. 4. COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES (CONTINUED) 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 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 September 30, 2001 and December 31, 2000 follows:
SEPTEMBER 30, DECEMBER 31, 2001 2000 ----------------------- --------------------- Commitments to extend credit $ 18,818,202 $ 16,656,030 Credit card and ready reserve lines 1,296,588 1,256,090 Standby letters of credit 471,000 596,000
At September 30, 2001, and included above, commitments to make fixed-rate loans totaled $2,554,308 with the interest rates on those fixed-rate commitments ranging from 6.95% to 10.00%. At December 31, 2000, commitments to make fixed rate loans totaled $2,740,105 with interest rates on those fixed-rate commitments ranging from 7.50% to 10.00%. 5. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141. "Business Combinations." SFAS No. 141 requires all business combinations within its scope to be accounted for using the purchase method, rather than the pooling-of-interests method. The provisions of this Statement apply to all business combinations initiated after June 30, 2001. The adoption of this statement will only impact the Company's financial statements if it enters into a business combination. Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets", which addresses the accounting for such assets arising from prior and future business combinations. Upon the adoption of this statement, goodwill arising from business combinations will no longer be amortized, but rather will be assessed regularly for impairment recognized as a reduction to earnings in the period identified. Other identified intangible assets, such as core deposit intangible assets, will continue to be amortized over their estimated useful lives. The 12 UNITED BANCORP, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Company is required to adopt this statement on January 1, 2002 and early adoption is not permitted. The adoption of this statement will not materially impact the Company's financial statements. 6. EARNINGS PER SHARE The factors used in the earnings per share computation were as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2001 2000 2001 2000 --------------- --------------- ----------------- ---------------- BASIC Net income $ 677,997 $ 668,267 $ 2,020,006 $ 1,949,923 =============== =============== ================= ================ Weighted average common shares outstanding 2,983,620 3,089,102 2,998,229 3,089,778 =============== =============== ================= ================ Basic earnings per common share $ 0.23 $ 0.22 $ 0.67 $ 0.64 =============== =============== ================= ================ DILUTED Net income $ 677,997 $ 668,267 $ 2,020,006 $ 1,949,923 =============== =============== ================= ================ Weighted average common shares outstanding for basic earnings per common share 2,983,620 3,089,102 2,998,229 3,089,778 Add: Dilutive effects of assumed exercise of stock options 6,531 - 3,266 2,813 --------------- --------------- ----------------- ---------------- Average shares and dilutive potential common shares 2,990,151 3,089,102 3,001,495 3,092,591 =============== =============== ================= ================ Diluted earnings per share $ 0.23 $ 0.22 $ 0.67 $ 0.64 =============== =============== ================= ================ Number of stock options not considered in computing diluted earnings per share due to antidilutive nature 19,101 78,288 19,101 20,744
13 UNITED BANCORP, INC. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 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 September 30, 2001, as compared to December 31, 2000 and the results of operations for the three and nine months ended September 30, 2001 compared to the same periods in 2000. 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 uncertainties 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. 14 UNITED BANCORP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 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 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. - -- 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 four 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 separate 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. - -- 2000 CITIZENS and COMMUNITY introduced Electronic Banking. - -- 2001 CITIZENS and COMMUNITY introduced Electronic Cash Management Services. 15 UNITED BANCORP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION ANALYSIS OF FINANCIAL CONDITION EARNING ASSETS - LOANS At September 30, 2001, gross loans were $184,588,000 compared to $196,497,000 at year-end 2000, a decrease of 6.1%. The decrease in total outstanding loans was the result of a decline in the commercial real estate and installment portfolios. Management attributes the overall decrease in loans to the general economic slow-down in the lending markets served. Installment loans, with continued emphasis placed on the indirect automobile lending market, decreased to 26.1% of total loans at September 30, 2001 compared to 28.2% at year-end 2000. 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. CITIZENS experienced a 15.1%, or $5,058,000 decline in installment loans while COMMUNITY had a decrease of 9.7%, or $2,100,000 in installment loans. In general as the overall economy has slowed in the markets we service, so has the demand for consumer based loans. Also with interest rates depressed, Management has not been aggressive to lower rates on these fixed rate loan products. Recently, Management has employed the strategy of focusing on adjustable rate products to position the Company for an eventual rise in interest rates. Commercial and commercial real estate loans comprised 44.0% of total loans at September 30, 2001 compared to 43.4% at December 31, 2000. Commercial and commercial real estate loans have decreased $4,106,000 or 4.8% since December 31, 2000. The Company has originated and purchased 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 September 30, 2001 were 6.4% of total loans and 14.6% of total commercial and commercial real estate loans compared to 6.9% and 16.0% at year-end 2000. Real estate loans were 30.0% of total loans at September 30, 2001 compared to 28.5% at year-end 2000. Real estate loans decreased 1.2% since December 31, 2000. However, COMMUNITY actually experienced an increase in real estate loans of 9.7% or $1,756,000. As previously mentioned, management's position is to focus on adjustable rate products as the overall rate environment reaches historical low levels with the intent these products will adjust as interest rates rise. 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 evaluation model that considers borrowers past due 16 UNITED BANCORP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 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 incurred credit losses associated with the loan portfolio. Net charge-offs for the nine months ended September 30, 2001 were approximately $591,000, or 21.2%, of the beginning balance in the allowance for loan losses compared to $480,000, or 15.4%, of the beginning balance for loan losses for the nine months ended September 30, 2000. During the first nine months of 2001, charge-offs for consumer loans totaled approximately $573,000 compared to $418,000 for the first nine months of 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 September 30, 2001 increased approximately $26,372,000, or 27.9% from year-end 2000 totals due to the reduction in loan demand. Securities held to maturity at September 30, 2001 decreased approximately $1,459,000, or 13.5% compared to year-end 2000 totals. 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 September 30, 2001, total core deposits increased approximately $7.6 million primarily from a increase of time deposits under $100,000 of $8.9 million. 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 September 30, 2001, certificates of deposit greater than $100,000 increased approximately $8.4 million, or 28.6% from year-end 2000 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 Home Loan Bank ("FHLB") advances. In the first nine months of 2001, the Company continued 17 UNITED BANCORP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION to utilize the FHLB programs to manage interest rate risk and liquidity positions. The majority of the Company's repurchase agreements are with local school districts and city and county governments. Total other borrowings decreased approximately $5.1 million, or 19.7% from year-end 2000 totals. 18 UNITED BANCORP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 NET INCOME Basic and diluted earnings per share for the nine months ended September 30, 2001 was $0.67, compared with $0.64 for the nine months ended September 30, 2000. Net income increased approximately $70,000 for the nine months ended September 30, 2001, compared to the same period in 2000. On an annualized basis, Return on Average Assets (ROA) was 0.81% and Return on Average Equity (ROE) was 9.0% compared to ROA of .84% and ROE of 10.13% for the nine months ended September 30, 2000. 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 increased 6.8% for the nine months ended September 30, 2001 compared to the same period in 2000. Total interest income for the nine months ended September 30, 2001 was $18,727,000 compared to $17,518,000 for the same period in 2000. Total interest income increased $1,210,000, or 6.9%. The increase can be attributed to the overall growth in the Company's interest-earning assets, mainly investment securities. Total interest expense for the nine months ended September 30, 2001 when compared to the same nine month period ended September 30, 2000, increased 7.0%, or $632,000. The Company has experienced an increase in interest expense due to an increased use of time deposits to fund growth in the Company's investment portfolio and capture market share in Fairfield County. 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 probable losses associated with the loan portfolio. The total provision for loan losses was $585,000 for the nine months ended September 30, 2001 compared to $346,500 for the same period in 2000. Management increased the provision in 2001 due to an anticipated increase in net charge-offs for the fiscal year related to the continued economic slowdown. 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, internet bank service fees and other miscellaneous items. Noninterest income for the nine months ended September 30, 2001 was $1,149,000 compared to $990,000 for the same nine-month period ended September 30, 2000. For the nine months ended September 30, 2001 compared to the same period in 2000, noninterest income increased 19 UNITED BANCORP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION approximately 16.0%. The increase in noninterest income can be attributed to an increase in security gains of approximately $34,000, and increased fees of approximately $84,000 in the Company's secondary market real estate loan program. With the overall decline in interest rates in 2001 the Company has experienced increased activity in the secondary market program that provides fixed home mortgages. NONINTEREST EXPENSE Noninterest expense for the nine months ended September 30, 2001 increased 7.4% or $486,000 over the nine months ended September 30, 2000. The increase is mainly attributable to an approximate increase of $299,000 in employee salary and benefits. This is a result of increased benefit costs namely health care and employee salary adjustments. RESULTS OF OPERATIONS FOR THREE MONTHS ENDED SEPTEMBER 30, 2001 NET INCOME Basic and diluted earnings per share for the three months ended September 30, 2001 was $0.23, compared with $0.22 for the three months ended September 30, 2000. Net income increased 1.5% for three months ended September 30, 2001, compared to the same period in 2000. 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 increased 9.3% for the three months ended September 30, 2001 compared to the same period in 2000. The increase was a result of the Company having a larger base of average earning assets somewhat offset by a decrease in short-term interest rates. Management anticipates the short-term impact to continue over the next several quarters if short-term rates continue at their current levels. As a result of the decline in short term interest rates, Management was able to lower the Company's overall cost of funds. Total interest income for the three months ended September 30, 2001 was $6,202,922 compared to $6,125,333 for the same period in 2000. Total interest income increased $78,000, or 1.3%. The increase can be attributed to the overall growth in the Company's interest-earning assets do mainly to a significant volume of security purchases in the early part of 2001. Please refer to page 6 Condensed Consolidated Statements of Cash Flows for further details on investment activity. Total interest expense for the three months ended September 30, 2001 when compared to the same three-month period ended September 30, 2000, decreased 5.7%, or $187,000. The Company has experienced a decrease in interest expense due to an decreased use of FHLB advances to fund security purchases and the effect of a lower interest rate environment on deposit products. Management has been proactive in lowering deposit product rates as the overall rate environment began to decrease in January of this year. 20 UNITED BANCORP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION PROVISION FOR LOAN LOSSES The total provision for loan losses was $195,000 for the three months ended September 30, 2001 compared to $115,500 for the same period in 2000. Management increased the provision in 2001 due to an anticipated increase in net charge-offs for the fiscal year related to the continued economic slowdown. 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, internet bank service fees and other miscellaneous items. Noninterest income for the three months ended September 30, 2001 was $395,000 compared to $331,000 for the same three months period ended September 30, 2000. For the three months ended September 30, 2001 compared to the same period in 2000, noninterest income increased approximately 19.5%. As previously discussed, the Company's secondary market real estate loan program increased $45,000 over the same period in 2000. NONINTEREST EXPENSE Noninterest expense for the three months ended September 30, 2001 increased $229,000 or 10.8% over the three months ended September 30, 2000. Salary and benefit expense increased approximately $99,000 or 9.5% for the three months ended September 30, 2001 as a result of rising benefit costs. CAPITAL RESOURCES Internal capital growth, through the retention of earnings, is the primary means of maintaining capital adequacy for the Company. Shareholders' equity at September 30, 2001 was $31,072,000 compared to $28,679,000 at December 31, 2000, an 8.3% increase. Total shareholders' equity in relation to total assets was 9.20% at September 30, 2001 and 8.85% at December 31, 2000. In May 2001 our shareholders approved an amendment to the Company's Articles of incorporation to create a class of preferred shares with 2,000,000 authorized shares. This will enable the Company, at the option of the Board of Directors, to issue series of preferred shares in a manner calculated to take advantage of financing techniques which may provide a lower effective cost of capital to the Company. The amendment also provides greater flexibility to the Board of Directors in structuring the terms of equity securities that may be issued by the Company. 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. 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. 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 21 UNITED BANCORP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 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 September 30, 2001:
CAPITAL RESOURCES SEPTEMBER 30, (IN THOUSANDS) 2001 ----------------- Tier 1 capital $ 30,087 Total risk-based capital $ 32,607 Risk-weighted assets $ 202,492 Average total assets $ 337,883 Tier 1 capital to average assets 8.90% Tier 1 risk-based capital ratio 14.86% Total risk-based capital ratio 16.10%
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 not limited to, the purchase of federal funds, the ability to 22 UNITED BANCORP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 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 nine months ended September 30, 2001, 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. Cash and cash equivalents remained relatively stable as a result of a decrease in loan and deposit volume and the use of borrowed funds to purchase government agency securities. 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 in the United States of America (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 that 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 affect 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. 23 UNITED BANCORP, INC. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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, like other financial institutions, is 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 interest 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 93% of the portfolio compared to the 7% 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 39% 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. The following tables present an analysis of the potential sensitivity of the Company's new present value of its financial instruments to sudden and sustained changes in the prevailing interest rates.
(Dollars in Thousands) - ------------------------------------------------------------ NET PORTFOLIO VALUE-SEPTEMBER 30, 2001 CHANGE IN RATES $ AMOUNT $ CHANGE % CHANGE ------------------------------------ Up 200 $ 49,093 $ 9,740 24.75% Up 100 $ 30,422 $ (8,931) -22.69% Base $ 39,353 Down 100 $ 36,534 $ (2,819) -7.16% Down 200 $ 34,838 $ (4,515) -11.47% (Dollars in Thousands) - ------------------------------------------------------------ NET PORTFOLIO VALUE-DECEMBER 31, 2000 CHANGE IN RATES $ AMOUNT $ CHANGE % CHANGE ------------------------------------ Up 200 $ 24,728 $ (7,351) -22.92% Up 100 $ 34,210 $ 2,131 6.64% Base $ 32,079 Down 100 $ 31,398 $ (681) -2.12% Down 200 $ 31,734 $ (345) -1.08%
24 UNITED BANCORP, INC. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's NPV is more sensitive to decreasing rates than increasing rates. Such difference in sensitivity occurs principally because, as rates decrease, 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 decreasing rate environment the Company's callable securities would continue to be called away. Moreover, the interest the Company pays on its deposits would decrease at a slower pace as interest rate floors are established. 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. 25 UNITED BANCORP, INC. OTHER INFORMATION 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) The registrant filed no current reports on Form 8-K during the quarter ended September 30, 2001. 26 UNITED BANCORP, INC. SIGNATURES 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. November 4, 2001 By: /s/ James W. Everson - --------------------------------- ---------------------------------- Date James W. Everson Chairman, President & Chief Executive Officer November 4, 2001 By: /s/ Randall M. Greenwood - --------------------------------- ---------------------------------- Date Randall M. Greenwood Chief Financial Officer 27 -----END PRIVACY-ENHANCED MESSAGE-----