-----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, WDlytsMSlzIg2NmK1EXxtfKQfVz9GGWxcsWJJzxIShv7xiEtwYZYt2B2LExJKPya u7JAIPUINWFMHOkLC6DEWA== 0000950124-98-006390.txt : 19981113 0000950124-98-006390.hdr.sgml : 19981113 ACCESSION NUMBER: 0000950124-98-006390 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED BANCORP INC /MI/ CENTRAL INDEX KEY: 0000775345 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 382606280 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16640 FILM NUMBER: 98744792 BUSINESS ADDRESS: STREET 1: 205 E CHICAGO BLVD CITY: TECUMSEH STATE: MI ZIP: 49286 BUSINESS PHONE: 5174238373 MAIL ADDRESS: STREET 1: 205 E CHICAGO BLVD STREET 2: P O BOX 248 CITY: TECUMSEH STATE: MI ZIP: 49286 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------- FORM 10-Q /x/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 or / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ------------------------- COMMISSION FILE #0-16640 UNITED BANCORP, INC. (Exact name of registrant as specified in its charter) MICHIGAN 38-2606280 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 205 E. CHICAGO BOULEVARD, TECUMSEH, MI 49286 (Address of principal executive offices, including Zip Code) Registrant's telephone number, including area code: (517) 423-8373 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / As of October 15, 1998, there were outstanding 1,728,490 shares of the registrant's common stock, no par value. Page 1 2 CROSS REFERENCE TABLE
ITEM NO. DESCRIPTION PAGE NO. - ---------------------------------------------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Condensed) (a) Consolidated Balance Sheets 3 (b) Consolidated Statements of Income 4 (c) Consolidated Statements of Changes in Shareholders' Equity 5 (d) Consolidated Statements of Cash Flows 6 (e) Notes to Financial Statements 7 Item 2. Management's Discussion and Analysis Financial Condition 8 Liquidity 10 Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 13 PART II - OTHER INFORMATION Item 1. Legal Proceedings 14 Item 2. Changes in Securities 14 Item 3. Defaults Upon Senior Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 15 Exhibit Index 16
Page 2 3 PART I FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS
(A) CONSOLIDATED BALANCE SHEETS (UNAUDITED) - ----------------------------------------------------------------------------------------------------------------------- September 30, December 31, September 30, In thousands of dollars 1998 1997 1997 ======================================================================================================================= ASSETS Cash and demand balances in other banks $ 11,616 $ 10,406 $ 10,477 Federal funds sold 7,100 - - - ---------------------------------------------------------------------------------------------------------------------- Total cash and cash equivalents 18,716 10,406 10,477 Securities available for sale 51,335 42,488 48,107 Securities held to maturity (fair value of $38,669, $38,287 and $35,269, respectively) 37,415 37,164 34,237 - ---------------------------------------------------------------------------------------------------------------------- Total securities 88,750 79,652 82,344 Loans held for sale 227 141 77 Portfolio loans 259,838 265,117 253,998 - ---------------------------------------------------------------------------------------------------------------------- Total loans 260,065 265,258 254,075 Less: allowance for loan losses 2,716 2,467 2,270 - ---------------------------------------------------------------------------------------------------------------------- Net loans 257,349 262,791 251,805 Premises and equipment, net 11,148 10,933 9,584 Accrued interest receivable and other assets 7,111 6,489 5,662 - ---------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 383,074 $ 370,271 $ 359,872 ====================================================================================================================== LIABILITIES Deposits Noninterest bearing $ 37,452 $ 31,924 $ 30,866 Interest bearing certificates of deposit of $100,000 or more 32,211 38,714 41,565 Other interest bearing deposits 260,581 246,197 233,730 - ---------------------------------------------------------------------------------------------------------------------- Total deposits 330,244 316,835 306,161 Federal funds and other short term borrowings 667 4,942 5,833 Other borrowings 10,900 10,000 10,000 Accrued interest payable and other liabilities 3,089 3,028 3,239 - ---------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 344,900 334,805 325,233 SHAREHOLDERS' EQUITY Common stock, no par value; 5,000,000 shares authorized; 1,728,490, 1,646,030 and 1,644,008 shares issued and outstanding, respectively 19,725 16,366 16,279 Retained earnings 17,929 18,867 18,121 Accumulated other comprehensive income 520 233 239 - ---------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 38,174 35,466 34,639 - ---------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 383,074 $ 370,271 $ 359,872 ======================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. Page 3 4
(B) CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - ---------------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- In thousands of dollars, except per share data 1998 1997 1998 1997 ====================================================================================================================== INTEREST INCOME Interest and fees on loans Taxable $ 5,818 $ 5,731 $ 17,510 $ 16,615 Tax exempt 19 20 57 49 Interest on securities Taxable 831 801 2,344 2,394 Tax exempt 471 436 1,416 1,280 Interest on federal funds sold 111 26 360 213 - ---------------------------------------------------------------------------------------------------------------------- Total interest income 7,250 7,014 21,687 20,551 INTEREST EXPENSE Interest on certificates of deposit of $100,000 or more 472 611 1,537 1,826 Interest on other deposits 2,618 2,436 7,834 7,163 Interest on short term borrowings 8 12 28 68 Interest on other borrowings 168 177 484 563 - ---------------------------------------------------------------------------------------------------------------------- Total interest expense 3,266 3,236 9,883 9,620 - ---------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME 3,984 3,778 11,804 10,931 Provision for loan losses 275 230 824 600 - ---------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,709 3,548 10,980 10,331 NONINTEREST INCOME Service charges on deposit accounts 429 432 1,234 1,095 Trust & Investment fee income 417 379 1,198 907 Gains on securities transactions 45 - 54 1 Loan sales and servicing 212 134 758 407 Sales of nondeposit investment products 75 89 344 241 Other income 130 97 412 317 - ---------------------------------------------------------------------------------------------------------------------- Total noninterest income 1,308 1,131 4,000 2,968 NONINTEREST EXPENSE Salaries and employee benefits 1,820 1,473 5,310 4,405 Occupancy and equipment expense 629 567 1,827 1,592 Other expense 864 777 2,807 2,328 - ---------------------------------------------------------------------------------------------------------------------- Total noninterest expense 3,313 2,817 9,944 8,325 - ---------------------------------------------------------------------------------------------------------------------- INCOME BEFORE FEDERAL INCOME TAX 1,704 1,862 5,036 4,974 Federal income tax 443 512 1,305 1,332 - ---------------------------------------------------------------------------------------------------------------------- NET INCOME $ 1,261 $ 1,350 $ 3,731 $ 3,642 ====================================================================================================================== Basic and diluted earnings per share $ 0.73 $ 0.78 $ 2.15 $ 2.11 Cash dividends declared per share of common stock 0.28 0.25 0.79 0.69
The accompanying notes are an integral part of these consolidated financial statements. Page 4 5
(C) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) - ---------------------------------------------------------------------------------------------------------------------- Accumulated Other Common Retained Comprehensive In thousands of dollars, except per share data Stock Earnings Income Total ====================================================================================================================== Balance, December 31, 1996 $ 13,500 $ 18,419 $ 129 $ 32,048 Net Income 3,642 3,642 Unrealized gains on securities, net of tax 110 110 ------------- Comprehensive income 3,752 Cash dividends declared (1,199) (1,199) 5% stock dividend declared, 78,292 shares at $35 2,740 (2,740) - Common stock and contingently issuable stock 39 (1) 38 - ---------------------------------------------------------------------------------------------------------------------- Balance, September 30, 1997 $ 16,279 $ 18,121 $ 239 $ 34,639 ====================================================================================================================== Balance, December 31, 1997 $ 16,366 $ 18,867 $ 233 $ 35,466 Net Income 3,731 3,731 Unrealized gains on securities, net of tax 287 287 ------------- Comprehensive income 4,018 Cash dividends declared (1,362) (1,362) 5% stock dividend declared, 82,298 shares at $40 3,292 (3,292) - Common stock and contingently issuable stock 67 (15) 52 - ---------------------------------------------------------------------------------------------------------------------- Balance, September 30, 1998 $ 19,725 $ 17,929 $ 520 $ 38,174 ====================================================================================================================== The accompanying notes are an integral part of these consolidated financial statements.
Page 5 6
(D) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - ---------------------------------------------------------------------------------------------------------------------- Nine Months Ended September 30, ------------- In thousands of dollars 1998 1997 ====================================================================================================================== Cash Flows from Operating Activities - ------------------------------------ Net Income $ 3,731 $ 3,642 - ---------------------------------------------------------------------------------------------------------------------- Adjustments to Reconcile Net Income to Net Cash from Operating Activities - ------------------------------------------------------------------------- Depreciation and amortization 1,175 1,047 Provision for loan losses 824 600 Loans originated for sale (43,116) (17,464) Proceeds from sales of loans originated for sale 43,030 16,742 Change in accrued interest receivable and other assets (869) (730) Change in accrued interest payable and other liabilities 53 356 - ---------------------------------------------------------------------------------------------------------------------- Total adjustments 1,097 551 - ---------------------------------------------------------------------------------------------------------------------- Net cash from operating activities 4,828 4,193 - ---------------------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities - ------------------------------------ Securities available for sale Purchases (18,941) (9,309) Sales 3,035 50 Maturities and calls 2,809 1,943 Principal payments 4,690 4,340 Securities held to maturity Purchases (13,590) (8,851) Maturities and calls 13,382 7,921 Change in portfolio loans 4,704 (12,150) Premises and equipment expenditures, net (1,191) (1,651) - ---------------------------------------------------------------------------------------------------------------------- Net cash from investing activities (5,102) (17,707) - ---------------------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities - ------------------------------------ Net change in deposits 13,409 8,458 Net change in short term borrowings (4,275) 5,224 Proceeds from other borrowings 3,900 - Principal payments on other borrowings (3,000) (10,000) Proceeds from stock transactions 52 38 Dividends paid (1,502) (1,381) - ---------------------------------------------------------------------------------------------------------------------- Net cash from financing activities 8,584 2,339 - ---------------------------------------------------------------------------------------------------------------------- Net change in cash and cash equivalents 8,310 (11,175) Cash and cash equivalents at beginning of year 10,406 21,652 - ---------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 18,716 $ 10,477 ====================================================================================================================== Cash Paid During the Period for - ------------------------------- Interest $ 10,137 $ 9,522 Income taxes 1,400 1,253 ======================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. Page 6 7 (E) NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The unaudited condensed consolidated financial statements of United Bancorp, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ending September 30, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. NOTE 2 - LOANS HELD FOR SALE Mortgage loans serviced for others are not included in the accompanying consolidated statements. The unpaid principal balances of mortgage loans serviced for others was $115,112,000 and $94,409,000 at the end of September 1998 and 1997. The balance of loans serviced for others related to servicing rights that have been capitalized was $76,622,000 and $39,626,000 at September 30, 1998 and 1997. Mortgage servicing rights activity in thousands of dollars for the period ended September 30, 1998 and 1997 follows:
Nine Months Ended September 30, Unamortized cost of mortgage servicing rights 1998 1997 --------------------------------------------- ---- ---- Balance at January 1 $ 340 $ 185 Amount capitalized year to date 314 127 Amount amortized year to date (97) (22) ------------- ------------ Balance at period end $ 557 $ 290
No valuation allowance was considered necessary for mortgage servicing rights at period end 1998 and 1997. NOTE 3 - COMMON STOCK AND EARNINGS PER SHARE Earnings per share are based upon the weighted average number of shares outstanding plus contigently issuable shares during the year. On May 29, 1998 and May 30, 1997 the Company issued 5% stock dividends. Earnings per share, dividends per share and weighted average shares have been restated to reflect the stock dividends. The weighted average number of shares outstanding plus contingently issuable shares was 1,732,433 for 1998 and 1,728,620 for 1997. NOTE 4 - COMPREHENSIVE INCOME Effective January 1, 1998, the Company adopted Financial Accounting Standard No. 130, "Reporting Comprehensive Income." Under the standard, comprehensive income is now reported for all periods and encompasses both net income and other comprehensive income. Other comprehensive income in thousands of dollars for the period ended September 30, follows: Page 7 8
Nine Months Ended September 30, Other comprehensive income 1998 1997 -------------------------- ---- ---- Unrealized gains on securities arising during period $ 481 $ 167 Reclassification for realized amount included in income (46) - ------------- ------------ Other comprehensive income, before tax 435 167 Federal income tax expense 148 57 ------------- ------------ Other comprehensive income $ 287 $ 110
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion provides information about the consolidated financial condition and results of operations of United Bancorp, Inc. and its subsidiary, United Bank & Trust ("Bank") for the three and nine month periods ending September 30, 1998. FINANCIAL CONDITION SECURITIES Maturities in the investment portfolio, as well as unfavorable market conditions for reinvestment during the quarter resulted in a slight decline in balances of securities, although balances continue to exceed 1997 levels. This is a result of recent trends of continued deposit growth that exceeds loan demand. The mix of the portfolio remained relatively unchanged from prior periods. The table below shows total securities outstanding, in thousands of dollars, at September 30, and December 31, and their percentage of the total securities portfolio. Securities Held to Maturity consist primarily of municipal investments.
September 30, 1998 December 31, 1997 ------------------------- ------------------------- Securities Available for Sale: Balance % of total Balance % of total ------- ---------- ------- ---------- U.S. Government Securities $ 41,898 47.2% $ 38,015 47.7% Asset Backed Corporate & Other Securities 8,648 9.7% 4,120 5.2% Unrecognized Gain (Loss) on Securities 789 0.9% 353 0.4% --------------------------- ------------------------- Net Securities Available for Sale 51,335 57.8% 42,488 53.3% Securities Held to Maturity 37,415 42.2% 37,164 46.7% --------------------------- ------------------------- Total Securities $ 88,750 100.0% $ 79,652 100.0%
LOANS Loan volume flattened during the quarter, reversing the declining trend noted during the first two quarters. Personal loans continued to decline, but demand for business loans strengthened. In addition, balances in residential mortgages remained flat in spite of significant loan activity, as current low market rates have resulted in many owners of adjustable rate mortgages seeking to refinance into long term fixed rate loans. Since the bank does not retain these loans on its books but sells them on the secondary market, the result is a decline in loans carried on the portfolio. The offset is increased income from the sale and servicing of these sold loans. The mix of the loan portfolio reflects this shift toward more commercial and fewer personal loans. Over the long term, the trend is toward an increased percentage of business loans, with slight declines in personal loans, while the percent of residential mortgages remains constant. The table below shows total loans outstanding, in thousands of dollars, at September 30, and December 31, and their Page 8 9 percentage of the total loan portfolio. All loans are domestic and contain no concentrations by industry or customer.
September 30, 1998 December 31, 1997 September 30, 1997 ----------------------- ------------------------- ------------------------ Portfolio loans: Balance % of total Balance % of total Balance % of total ------- ---------- ------- ---------- ------- ---------- Personal $ 62,476 24.0% $ 70,308 26.5% $ 72,001 28.3% Business/commercial mtgs 80,127 30.8% 74,080 27.9% 70,010 27.6% Tax exempt 1,437 0.6% 1,482 0.6% 1,536 0.6% Residential mortgage 102,757 39.5% 104,800 39.5% 97,342 38.3% Construction 13,268 5.1% 14,588 5.5% 13,186 5.2% ------------------------- ------------------------- ------------------------ Total loans $ 260,065 100.0% $ 265,258 100.0% $ 254,075 100.0%
CREDIT QUALITY The Company continues to maintain a high level of asset quality compared to peers, as a result of actively monitoring delinquencies, nonperforming assets and potential problem loans. In addition, the Bank uses an independent loan review firm to assess the continued quality of its business loan portfolio. Nonperforming loans are comprised of (1) loans accounted for on a nonaccrual basis; (2) loans contractually past due 90 days or more as to interest or principal payments (but not included in the nonaccrual loans in (1) above); and (3) other loans whose terms have been renegotiated to provide a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower (exclusive of loans in (1) or (2) above). The aggregate amount of nonperforming loans, in thousands of dollars, is shown in the table below. The Company's classification of nonperforming loans are generally consistent with loans identified as impaired.
9/30/98 12/31/97 9/30/97 ------- -------- ------- Nonaccrual loans $ 543 $ 71 $ 74 Loans past due 90 days or more 275 910 727 Troubled debt restructurings 137 138 - ------------------------- ------------ Total nonperforming loans $ 955 $ 1,119 $ 801 Other real estate 335 473 385 ------------------------- ------------ Total nonperforming assets $ 1,290 $ 1,592 $ 1,186 Percent of total loans 0.50% 0.61% 0.47%
Nonperforming loan balances declined significantly from the relatively high levels experienced at December 31, 1997, but are up slightly from the levels noted at June 30, 1998. This increase is due to modest increases in balances of loans in nonaccrual status. Loans past due ninety days or more continued to decline during the quarter, following the trend seen in the past two quarters. Overall, nonperforming loans as a percent of total loans remain well below industry standards, and are much nearer the levels traditionally experienced by the Company. The amount listed for other real estate relates primarily to property that has been leased to a third party with an option to purchase, and no loss is anticipated on that property. The Company has maintained its provision for loan losses at first and second quarter 1998 levels, which represents an increase over the same period in 1997. An analysis of the allowance for loan losses, in thousands of dollars, for the nine months ended September 30, 1998 and 1997 follows: Page 9 10
1998 1997 ---- ---- Balance at beginning of period $ 2,467 $ 2,320 Loans charged off (738) (702) Recoveries credited to allowance 163 52 Provision charged to operations 824 600 ------------- ------------ Balance at end of period $ 2,716 $ 2,270
The allowance for loan losses is maintained at a level believed adequate by Management to absorb potential losses in the loan portfolio. DEPOSITS Total deposits continued to grow during the quarter, but were down at September 30 as a result of temporary transfers from some business accounts. Noninterest bearing deposit balances enjoyed strong growth during the second quarter, and leveled off during the third quarter. Balances in other deposit accounts continued to increase, although balances in certificates of $100,000 or more declined during the quarter. Two factors contributed to this decline. First of all, normal seasonal fluctuations are typical for this type of account. Secondly, continued low levels of market rates have caused some depositors to seek rates higher than are currently available in the CD market. Management expects that deposit growth will continue, with anticipated growth from new markets as well as from consumer use of newer cash management account products. In December of 1997, the Bank acquired the Dundee office of NBD Bank, resulting in an increase of $12.6 million of deposits. In addition, the Saline office of the Bank, opened in August of 1997, continues to enjoy strong deposit growth, also contributing to total deposit growth of the institution. LIQUIDITY The Bank continued to maintain an average funds sold position for the third quarter of 1998, although generally the Bank moves in and out of the fed funds market as liquidity needs vary. Deposit growth moving at different times than loan growth will cause continued variation in the short term funds position of the Bank. The Company has a number of additional liquidity sources should the need arise, and Management has no concerns for the liquidity position of the Company. CAPITAL RESOURCES The capital ratios of the Company exceed the regulatory guidelines for well capitalized institutions. The following table shows the Company's capital ratios and ratio calculations at September 30, 1998 and 1997 and December 31, 1997. Dollars are shown in thousands.
Regulatory Guidelines United Bancorp, Inc. ---------------------- -------------------- Adequate Well 9/30/98 12/31/97 9/30/97 -------- ---- ------- -------- ------- Tier 1 capital to average assets 4% 5% 9.3% 9.3% 9.4% Tier 1 risk adjusted capital ratio 4% 6% 14.3% 13.2% 13.9% Total risk adjusted capital ratio 8% 10% 15.4% 14.2% 14.8% Total shareholders' equity $ 38,174 $ 35,466 $ 34,639 Intangible assets (2,294) (2,487) (1,352) Unrealized (gain) loss on securities available for sale (520) (233) (239) ------------- ------------------------- Tier 1 capital 35,360 32,746 33,048 Qualifying loan loss reserves 2,716 2,467 2,270 ------------- ------------------------- Tier 2 capital $ 38,076 $ 35,213 $ 35,318
Page 10 11 RESULTS OF OPERATIONS NET INTEREST INCOME In general, the Company's spread remained virtually unchanged from the first and second quarters of 1998 and the third quarter of 1997. In fact, the absolue dollars of interest income and expense were substantially unchanged from the prior quarter. This has been accomplished in spite of continued declines in market rates that reduce income earned on assets. The Company continues to incrementally improve its ratio of interest earning assets to interest bearing liabilities. The table below shows the year to date daily average Consolidated Balance Sheet, interest earned (on a taxable equivalent basis) or paid, and the annualized effective rate or yield, for the year-to-date periods ended September 30, 1998 and 1997.
YIELD ANALYSIS OF CONSOLIDATED AVERAGE ASSETS AND LIABILITIES ------------------------------------------------------------- ------------------------------------------------------------------------------- dollars in thousands 1998 1997 - -------------------- ------------------------------------------------------------------------------- Average Interest Yield/ Average Interest Yield/ Balance (b) Rate Balance (b) Rate ------------------------------------------------------------------------------- ASSETS Interest earning assets (a) Federal funds sold $ 8,775 $ 360 5.46% $ 5,387 $ 213 5.28% Taxable securities 48,746 2,344 6.41% 49,464 2,393 6.45% Tax exempt securities (b) 35,275 2,049 7.75% 31,026 1,852 7.96% Taxable loans 259,828 17,510 8.99% 245,074 16,615 9.04% Tax exempt loans (b) 1,439 83 7.70% 1,221 71 7.75% ------------------------- --------------------------- Total int. earning assets (b) 354,063 $ 22,346 8.42% 332,172 $ 21,144 8.49% ------------------------- --------------------------- Less allowance for loan losses (2,576) (2,292) Other assets 29,534 23,271 ------------ ------------- TOTAL ASSETS $ 381,021 $ 353,151 ============ ============= LIABILITIES AND SHaREHOLDERS' EQUITY NOW accounts $ 42,741 $ 526 1.64% $ 38,734 $ 448 1.54% Savings deposits 72,833 1,542 2.82% 70,435 1,502 2.84% CDs $100,000 and over 35,691 1,537 5.74% 41,684 1,826 5.84% Other interest bearing deposits 142,225 5,766 5.41% 123,397 5,213 5.63% ------------------------- --------------------------- Total int. bearing deposits 293,490 9,371 4.26% 274,250 8,989 4.37% Short term borrowings 704 28 5.38% 2,239 92 5.46% Other borrowings 10,607 484 6.08% 12,024 539 5.98% ------------------------- --------------------------- Total int. bearing liabilities 304,801 9,883 4.32% 288,513 9,620 4.45% Noninterest bearing deposits 36,415 28,420 Other liabilities 2,949 2,936 Shareholders' equity 36,856 33,282 ------------ ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 381,021 $ 353,151 ============ ============= Net interest income (b) $ 12,463 $ 11,524 ============= ============ Net spread (b) 4.09% 4.04% ============ ============= Net yield on interest earning assets (b) 4.69% 4.63% ============ ============= Ratio of interest earning assets to interest bearing liabilities 1.16 1.15 ============ =============
(a) Non-accrual loans and overdrafts are included in the average balances of loans. (b) Fully tax-equivalent basis; 34% tax rate. Page 11 12 The table below shows the effect of volume and rate changes on net interest income for the nine months ended September 30, on a taxable equivalent basis, in thousands of dollars.
------------------------------------------------------------------------------- 1998 Compared to 1997 1997 Compared to 1996 ------------------------------------------------------------------------------- Increase (Decrease) Due To: (a) Increase (Decrease) Due To: (a) -------------------------------------- ------------------------------------ Volume Rate Net Volume Rate Net ------ ---- --- ------ ---- --- Interest earned on: Federal funds sold $ 138 $ 8 $ 146 $ 142 $ (6) $ 136 Taxable securities (35) (14) (49) 47 151 198 Tax exempt securities 248 (51) 197 52 (26) 26 Taxable loans 995 (100) 895 1,512 (1) 1,511 Tax exempt loans 12 - 12 8 (6) 2 ------------------------------------------------------------------------------- Total interest income $ 1,358 $ (157) $ 1,201 $ 1,761 $ 112 $ 1,873 =============================================================================== ------------------------------------------------------------------------------- 1998 Compared to 1997 1997 Compared to 1996 ------------------------------------------------------------------------------- Increase (Decrease) Due To: (a) Increase (Decrease) Due To: (a) -------------------------------------- ------------------------------------ Volume Rate Net Volume Rate Net ------ ---- --- ------ ---- --- Interest paid on: NOW accounts $ 48 $ 30 $ 78 $ (8) $ (70) $ (78) Savings deposits 51 (11) 40 (107) 3 (104) CDs $100,000 and over (258) (31) (289) 226 4 230 Other interest bearing deposits 770 (217) 553 821 18 839 Short term borrowings (62) (1) (63) (52) 1 (51) Other borrowings (64) 9 (55) 244 17 261 ------------------------------------------------------------------------------- Total interest expense $ 485 $ (221) $ 264 $ 1,124 $ (27) $ 1,097 =============================================================================== Net change in net interest income $ 873 $ 64 $ 937 $ 637 $ 139 $ 776 ===============================================================================
(a) The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. NONINTEREST INCOME Income from nontraditional banking products and services continues to contribute to significant levels of noninterest income. Substantially all categories of noninterest income increased from the same period in 1997. While income from the sales and servicing of residential real estate mortgages slowed somewhat from levels achieved in the first quarter, strong volume reflects consumer preference for fixed rate mortgages that are subsequently sold on the secondary market, and generate income for current and future periods. In addition, earnings from the Trust & Investment group, as well as from the sales of nondeposit investment products, continue to increase at significant rates. NONINTEREST EXPENSES Noninterest expense also continued to increase over the same periods of 1997, at a level consistent with that seen in the second quarter. This reflects continued growth and expansion of the Bank, with investments in additional computer equipment, as well as staff additions necessitated by growth in new markets. Total noninterest expense, excluding provision for loan losses, for the first nine months is 19.4% above the same period for 1997. However, a portion of this increase reflects the fact that the sales of nondeposit investment products are now being sold by Bank staff, as opposed to external contractors, as was the case in prior years. This results in more overhead, which is offset by the fact that more income is retained by the Company, rather than paid to a third party. Page 12 13 FEDERAL INCOME TAX There has been no significant change in the income tax position of the Company during the third quarter of 1998. NET INCOME Consolidated net income was slightly behind second quarter level, and year to date, exceeded that of the same period in 1997 by 2.4%. This rate of growth slowed during the quarter from levels achieved during the first quarter, but Management anticipates that net income will continue to remain strong, and will exceed 1997 levels for the year, barring unforeseen circumstances. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FUNDS MANAGEMENT AND INTEREST RATE RISK The composition of the Company's balance sheet consists of investments in interest earning assets (loans and investment securities) that are funded by interest bearing liabilities (deposits and borrowings). These financial instruments have varying levels of sensitivity to changes in market interest rates resulting in market risk. Bank policies place strong emphasis on stabilizing net interest margin, with the goal of providing a sustained level of satisfactory earnings. The Funds Management, Investment and Loan policies provide direction for the flow of funds necessary to supply the needs of depositors and borrowers. Management of interest sensitive assets and liabilities is also necessary to reduce interest rate risk during times of fluctuating interest rates. A number of measures are used to monitor and manage interest rate risk, including interest sensitivity (gap) and income simulation analyses. A gap model is the primary tool used to assess this risk with supplemental information supplied by an income simulation model. The simulation model is used to estimate the effect that specific interest rate changes would have on 12 months of pretax net interest income assuming an immediate and sustained up or down parallel change in interest rates of 200 basis points. Key assumptions in the models include prepayment speeds on mortgage related assets; cash flows and maturities of financial instruments held for purposes other than trading; changes in market conditions, loan volumes and pricing; and management's determination of core deposit sensitivity. These assumptions are inherently uncertain and, as a result, the models cannot precisely estimate net interest income or precisely predict the impact of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes and changes in market conditions. Based on the results of the simulation model as of September 30, 1998, the Company would expect a maximum potential reduction in net interest margin of less than 4% if market rates increased under an immediate and sustained parallel shift of 200 basis points. The Bank's interest sensitivity position remained virtually unchanged from the previouis quarter. The Company's exposure to market risk is reviewed on a regular basis by the Funds Management Committee. The Committee's policy objective is to manage the Company's assets and liabilities to provide an optimum and consistent level of earnings within the framework of acceptable risk standards. The Funds Management Committee of the Bank is also responsible for evaluating and anticipating Page 13 14 various risks other than interest rate risk. Those risks include prepayment risk, credit risk and liquidity risk. The Committee is made up of senior members of management, and continually monitors the makeup of interest sensitive assets and liabilities to assure appropriate liquidity, maintain interest margins and to protect earnings in the face of changing interest rates and other economic factors. The Funds Management policy of the Bank provides for a level of interest sensitivity which, Management believes, allows the Bank to take advantage of opportunities within the market relating to liquidity and interest rate risk, allowing flexibility without subjecting the Bank to undue exposure to risk. In addition, other measures are used to evaluate and project the anticipated results of Management's decisions. PART II OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS The Company is not involved in any material legal proceedings. The Company's sole subsidiary, United Bank & Trust, is involved in ordinary routine litigation incident to its business; however, no such proceedings are expected to result in any material adverse effect on the operations or earnings of the Bank. Neither the Bank nor the Company is involved in any proceedings to which any director, principal officer, affiliate thereof, or person who owns of record or beneficially five percent (5%) or more of the outstanding stock of the Company or the Bank, or any associate of the foregoing, is a party or has a material interest adverse to the Company or the Bank. ITEM 2 - CHANGES IN SECURITIES No changes in the securities of the Company occurred during the quarter ended September 30, 1998. ITEM 3 - DEFAULTS UPON SENIOR SECURITIES There have been no defaults upon senior securities relevant to the requirements of this section during the three months ended September 30, 1998. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the quarter ended September 30, 1998. ITEM 5 - OTHER INFORMATION None. Page 14 15 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Listing of Exhibits (numbered as in Item 601 of Regulation S-K): 27. Financial Data Schedule. (b) The Company has filed no reports on Form 8-K during the quarter ended September 30, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. United Bancorp, Inc. October 30, 1998 /S/ Dale L. Chadderdon -------------------------------------------- Dale L. Chadderdon Senior Vice President, Secretary & Treasurer Page 15 16 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - -------------------------------------------------------------------------------- 27 Financial Data Schedule Page 16 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1998 SEP-30-1998 11,616 0 7,100 0 51,335 37,415 38,669 260,065 2,716 383,074 330,244 667 3,089 10,900 0 0 19,725 18,449 383,074 17,567 3,760 360 21,687 9,371 9,883 11,804 824 54 9,944 5,036 5,036 0 0 3,731 2.15 2.15 4.69 543 275 137 511 2,467 738 163 2,716 1,719 0 997
-----END PRIVACY-ENHANCED MESSAGE-----