-----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, L2QPwHC46T3CsT67cuWTBpgWtWR8jONn8UwIcA+RLEyuxUXw0OVfDuGV6LlQcraI 1XUp3EcSIRfK7e6I4ux9+g== 0000950124-99-002260.txt : 19990402 0000950124-99-002260.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950124-99-002260 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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-K405 SEC ACT: SEC FILE NUMBER: 000-16540 FILM NUMBER: 99581735 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-K405 1 FORM 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM N/A TO N/A COMMISSION FILE NUMBER 0-16540 UNITED BANCORP, INC. ------------------------------------------------------- (Exact name of registrant as specified in its Charter.) OHIO 34-1405357 - ------------------------------- ---------------------------------- (State or other jurisdiction of (IRS) Employer Identification No.) incorporation or organization) 201 SOUTH FOURTH STREET, MARTINS FERRY, OHIO 43935 - --------------------------------------------------- -------------- (Address of principal executive offices) (ZIP Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (740) 633-0445 ------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: COMMON STOCK, PAR VALUE $1.00 A SHARE NASDAQ REGULAR MARKET (SMALLCAP) - ------------------------------------- -------------------------------- (Title of class) (Name of each exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, PAR VALUE $1.00 A SHARE ------------------------------------- (Title of class) 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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. {X } THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF MARCH 15, 1999. COMMON STOCK, $1.00 PAR VALUE: $54,171,390 THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S CLASSES OF COMMON STOCK AS OF MARCH 15, 1999. COMMON STOCK, $1.00 PAR VALUE: 2,800,298 SHARES DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF THE ANNUAL SHAREHOLDERS REPORT FOR THE YEAR ENDED DECEMBER 31, 1998 ARE INCORPORATED BY REFERENCE INTO PARTS I AND II, (INDEX ON PAGE 2) PORTIONS OF THE PROXY STATEMENT FOR THE ANNUAL SHAREHOLDERS MEETING TO BE HELD APRIL 21, 1999 ARE INCORPORATED BY REFERENCE INTO PART III (INDEX ON PAGE 2). 2 UNITED BANCORP, INC. FORM 10-K INDEX OF ITEMS INCORPORATED BY REFERENCE WITHIN FORM 10-K
FORM 10-K PAGE # ITEM DESCRIPTION REFERENCE DESCRIPTION - -------------------------------------------------------------------------------------------------------------------------------- 3 Part I, Item 1, (a) Incorporated by reference to Pages 4 - 5 of the Annual Report To Shareholders. 3 Part I, Item 1, (b) Incorporated by reference to Page 24, Note 1 of the Annual Report To Shareholders. 4 Part I, Item 1, I Incorporated by reference to Pages 16 - 17 of the Annual Report To Shareholders. 5 Part I, Item 1, II, B Incorporated by reference to Page 28, Note 2 of the Annual Report To Shareholders. 7 Part I, Item 1, III, C, 4 Incorporated by reference to Page 36, Note 11 of the Annual Report To Shareholders. 7 Part I, Item 1, IV Incorporated by reference to Page 10 and Pages 24 - 25, Note 1 the Annual Report To Shareholders. 10 Part I, Item 1, V, A Incorporated by reference to Page 16 of the Annual Report To Shareholders. 11 Part I, Item 2 Incorporated by reference to Pages 4 - 5 of the Annual Report To Shareholders. 11 Part I, Item 3 Incorporated by reference to Page 35, Note 10 of the Annual Report To Shareholders. 11 Part II, Item 5 Incorporated by reference to Page 7 of the Annual Report To Shareholders. 11 Part II, Item 6 Incorporated by reference to Inside Back Cover of the Annual Report To Shareholders. 11 Part II, Item 7 Incorporated by reference to Pages 9 - 18, 43 - 44 of the Annual Report To Shareholders. 12 Part II, Item 7A Incorporated by reference to Pages 13 - 14 of the Annual Report To Shareholders. 12 Part II, Item 8 Incorporated by reference to Pages 15 and 19 - 40 of the Annual Report To Shareholders. 12 Part III, Item 10 Incorporated by reference to Pages 4 - 8 of the Proxy Statement. 13 Part III, Item 11 Incorporated by reference to Pages 10 - 15 of the Proxy Statement. 13 Part III, Item 12 Incorporated by reference to Pages 4 - 8 of the Proxy Statement. 13 Part III, Item 13 Incorporated by reference to Page 15 of the Proxy Statement. 14 Part IV, Item 14, (a), 1 Incorporated by reference to Pages 19 - 40 of the Annual Report To Shareholders. 14 Part IV, Item 14, (a), 2 Incorporated by reference to Page 15 of the Annual Report To Shareholders. 14 Part IV, Item 14, (a), 3, Exhibit 10 Incorporated by reference to Page 14 of the Proxy Statement. 14 Part IV, Item 14, (a), 3, Exhibit 11 Incorporated by reference to Page 26 of the Annual Report To Shareholders.
2 3 UNITED BANCORP, INC. FORM 10-K PART I ITEM 1 DESCRIPTION OF BUSINESS (A) GENERAL DEVELOPMENT OF BUSINESS United Bancorp, Inc. (Company) is a multi-bank holding company headquartered in Martins Ferry, Ohio. The Company has three wholly owned subsidiary banks, The Citizens Savings Bank, Martins Ferry, Ohio (CITIZENS), The Citizens-State Bank of Strasburg, Strasburg, Ohio (CITIZENS-STATE), and The Community Bank, Glouster, Ohio (COMMUNITY), collectively "banks". For additional information about the Company's location and description of business, refer to Pages 4 - 5, Corporate Profile, in the Annual Report To Shareholders for the year ended December 31, 1998. (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Refer to Page 24, Note 1 of the Annual Report To Shareholders. (C) NARRATIVE DESCRIPTION OF BUSINESS The Company is a multi-bank holding company as defined under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). The BHC Act regulates acquisitions by the Company of voting shares or assets of any bank or other company. The Company is subject to the reporting requirements of, and examination and regulation by, the Board of Governors of the Federal Reserve System, as well as reporting requirements under the Securities and Exchange Commission Act of 1934. The Company's Banks are located in northeastern, eastern, and southeastern Ohio and are engaged in the business of commercial and retail banking in Belmont, Harrison, Jefferson, Tuscarawas, Carroll, Athens, Hocking, and Fairfield counties and the surrounding localities. The Banks provide a broad range of banking and financial services, which include accepting demand, savings and time deposits and granting commercial, real estate and consumer loans. CITIZENS conducts its business through its main office in Martins Ferry, Ohio and four branches located in Bridgeport, Colerain, Jewett, and St. Clairsville, Ohio. CITIZENS-STATE conducts its business through its main office in Strasburg, Ohio and its four branches located in Dover, New Philadelphia, Sherrodsville and Dellroy, Ohio. COMMUNITY conducts its business through its offices in Glouster, Amesville and Nelsonsville, Ohio. The banking markets in which the Company's subsidiaries operate continue to be highly competitive. CITIZENS competes for loans and deposits with other retail commercial banks, savings and loan associations, finance companies, credit unions and other types of financial institutions within the Mid-Ohio valley geographic area along the eastern border of Ohio, extending into the northern panhandle of West Virginia. CITIZENS-STATE, encounters similar competition for loans and deposits throughout the Tuscarawas and Carroll County geographic areas of northeastern Ohio. COMMUNITY also encounters similar competition for loans and deposits throughout Athens, Hocking, and Fairfield County geographic areas of southeastern Ohio. 3 4 UNITED BANCORP, INC. FORM 10-K ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED) (C) NARRATIVE DESCRIPTION OF BUSINESS (CONTINUED) The Company's three subsidiary banks are subject to regulation by the Ohio Division of Financial Institutions and the Federal Deposit Insurance Corporation ("FDIC"). The regulations and restrictions affecting the Banks pertain to, among other things, allowable loans, guidelines for allowance for loan losses, accountability for fair and accurate disclosures to customers and regulatory agencies, permissible investments and limitations of risk and regulation of capital requirements for safe and sound operation of the financial institution. The Banks have no single customer or related group of customers whose banking activities, whether through deposits or lending, would have a material impact on the continued earnings capabilities if those activities were removed. The Company itself, as a shell holding company, has no compensated employees. CITIZENS has 54 full time employees, with 17 of these serving in a management capacity and 23 part time employees. CITIZENS-STATE has 23 full time employees, with 8 serving in a management capacity and 13 part time employees. COMMUNITY has 33 full time employees, with 8 serving in a management capacity and 10 part time employees. The Company considers employee relations to be good at all subsidiary locations. (D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS Not applicable. I DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL A Refer to Page 16 of the Annual Report To Shareholders B Refer to Page 16 of the Annual Report To Shareholders C Refer to Page 17 of the Annual Report To Shareholders 4 5 UNITED BANCORP, INC. FORM 10-K ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED) II INVESTMENT PORTFOLIO A The following table sets forth the carrying amount of securities at December 31, 1998, 1997 and 1996:
DECEMBER 31, ------------------------------------- (In thousands) 1998 1997 1996 ------- ------- ------- AVAILABLE FOR SALE US Treasury obligations $ 1,509 $ 3,308 $ 3,799 US Agency obligations 67,506 37,199 30,488 State and municipal obligations 2,197 577 476 Mortgage-backed obligations 3,028 3,785 784 Other securities 1,552 1,134 876 ------- ------- ------- $75,792 $46,003 $36,423 ======= ======= ======= (In thousands) HELD TO MATURITY US Agency obligations $ -- $ 7,501 $11,535 State and municipal obligations 21,848 21,559 22,272 Other securities 46 -- -- ------- ------- ------- $21,894 $29,060 $33,807 ======= ======= =======
B Refer to Page 28, Note 2 of the Annual Report To Shareholders. C Excluding holdings of U.S. Treasury and U.S. Agency, there were no investments in securities of any one issuer exceedi8ng 10% of the Corporation's consolidated shareholders' equity at December 31, 1998. III LOAN PORTFOLIO A TYPES OF LOANS The amounts of gross loans outstanding at December 31, 1998, 1997, 1996, 1995 and 1994 are shown in the following table according to types of loans:
DECEMBER 31, ------------------------------------------------------------------------ 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- (In thousands) Commercial loans $ 12,912 $ 16,636 $ 15,065 $ 13,606 $ 10,449 Commercial real estate loans 54,195 49,189 41,565 35,926 28,651 Real estate loans 49,438 49,857 52,955 51,042 49,731 Installment loans 47,676 55,795 56,931 56,795 52,245 -------- -------- -------- -------- -------- Total loans $164,221 $171,477 $166,516 $157,369 $141,076 ======== ======== ======== ======== ========
5 6 UNITED BANCORP, INC. FORM 10-K ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED) III LOAN PORTFOLIO (CONTINUED) B MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES The following is a schedule of commercial and commercial real estate loans at December 31, 1998 maturing within the various time frames indicated:
ONE YEAR ONE THROUGH AFTER (In thousands) OR LESS FIVE YEARS FIVE YEARS TOTAL -------------- -------------- ---------------- ------------- Commercial loans $ 11,504 $ 1,267 $ 141 $ 12,912 Commercial real estate loans 24,454 13,529 16,212 54,195 -------------- -------------- ---------------- ------------- Total $ 35,958 $ 14,796 $ 16,353 $ 67,107 ============== ============== ================ =============
The following is a schedule of fixed rate and variable rate commercial and commercial real estate loans at December 31, 1998 due to mature after one year:
(In thousands) FIXED RATE VARIABLE RATE TOTAL > ONE YEAR -------------- ----------------- ------------------ Commercial loans $ 1,408 $ - $ 1,408 Commercial real estate loans 10,827 18,914 29,741 -------------- ----------------- ------------------- Total $ 12,235 $ 18,914 $ 31,149 ============== ================= ===================
Variable rate loans are those loans with floating or adjustable interest rates. C RISK ELEMENTS 1. NONACCRUAL, PAST DUE, RESTRUCTURED AND IMPAIRED LOANS The following schedule summarizes nonaccrual loans, accruing loans which are contractually 90 days or more past due, troubled debt restructurings and impaired loans at December 31, 1998, 1997, 1996, 1995 and 1994:
DECEMBER 31, ------------------------------------------------------------ (In thousands) 1998 1997 1996 1995 1994 ----------- ---------- ---------- ---------- ----------- Nonaccrual basis $ 399 $ 480 $ 667 $ 622 $ 114 Accruing loans 90 days or greater past due 150 319 256 544 419 Troubled debt restructuring N/A N/A N/A N/A - Impaired loans (1) (1) (1) (1) N/A
(1) Loans considered impaired under the provisions of SFAS No. 114 and interest recognized on a cash received basis were not considered material during any of the periods presented. 6 7 UNITED BANCORP, INC. FORM 10-K ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED) III LOAN PORTFOLIO (CONTINUED) 1. Interest income is not reported when full loan repayment is doubtful, typically when the loan is impaired or payments are past due over 90 days. Payments received on such loans are reported as principal reductions. A loan is impaired when full payment under the loan terms is not expected. Impairment is evaluated in total for smaller-balance loans of similar nature such as residential mortgage, consumer, and credit card loans, and on an individual loan basis for other loans. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral. 2. POTENTIAL PROBLEM LOANS The Company had no potential problem loans as of December 31, 1998 which have not been disclosed in Table C 1., but where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in disclosure of such loans into one of the problem loan categories. 3. FOREIGN OUTSTANDING Not applicable. 4. LOAN CONCENTRATIONS Refer to Page 36, Note 11 of the Annual Report To Shareholders. D. OTHER INTEREST-BEARING ASSETS Not applicable. IV SUMMARY OF LOAN LOSS EXPERIENCE For additional explanation of factors which influence management's judgment in determining amounts charged to expense, refer to Page 10, "Management Discussion and Analysis" and Pages 24 - 25, Note 1 of the Annual Report To Shareholders. 7 8 UNITED BANCORP, INC. FORM 10-K ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED) IV SUMMARY OF LOAN LOSS EXPERIENCE (CONTINUED) A ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES The following schedule presents an analysis of the allowance for loan losses, average loan data and related ratios for the years ended December 31, 1998, 1997, 1996, 1995 and 1994:
(In thousands) 1998 1997 1996 1995 1994 ------------- ------------ -------------- ------------- ------------ LOANS Loans outstanding $ 164,221 $171,477 $ 166,516 $ 157,369 $141,076 Average loans outstanding $ 168,626 $169,066 $ 160,409 $ 150,429 $130,221 (In thousands) ALLOWANCE FOR LOAN LOSSES Balance at beginning of year $ 3,039 $ 2,756 $ 2,593 $ 1,693 $ 1,520 Loan charge-offs: Commercial 139 125 467 69 34 Commercial real estate - - - - - Real estate 51 20 40 9 27 Installment 861 661 583 308 220 ------------- ------------ -------------- ------------- ------------ Total loan charge-offs 1,051 806 1,090 386 281 ------------- ------------ -------------- ------------- ------------ Loan recoveries Commercial 87 32 13 6 7 Commercial real estate - - - - - Real estate 9 3 5 1 - Installment 151 122 70 75 36 ------------- ------------ -------------- ------------- ------------ Total loan recoveries 247 157 88 82 43 ------------- ------------ -------------- ------------- ------------ Net loan charge-offs 804 649 1,002 304 238 Provision for loan losses 798 932 1,165 1,204 411 ------------- ------------ -------------- ------------- ------------ Balance at end of year $ 3,033 $ 3,039 $ 2,756 $ 2,593 $ 1,693 ============= ============ ============== ============= ============ Ratio of net charge-offs to average loans outstanding for the year 0.48% 0.38% 0.62% 0.20% 0.18% ============= ============ ============== ============= ============
8 9 UNITED BANCORP, INC. FORM 10-K ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED) IV SUMMARY OF LOAN LOSS EXPERIENCE (CONTINUED) B ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES The following table allocates the allowance for possible loan losses at December 31, 1998, 1997, 1996, 1995 and 1994. The allowance has been allocated according to the amount deemed to be reasonably necessary to provide for the possibility of losses being incurred within the following categories of loans at the dates indicated:
1998 1997 --------------------------- -------------------------- % OF LOANS % OF LOANS (In thousands) ALLOWANCE TO TOTAL (In thousands) ALLOWANCE TO TOTAL Loan type AMOUNT LOANS Loan type AMOUNT LOANS ----------- --------------- ------------ ------------- Commercial $ 215 7.87% Commercial $ 403 9.70% Commercial real estate 432 33.00% Commercial real estate 322 28.69% Real estate 567 30.10% Real estate 606 29.07% Installment 818 29.03% Installment 1,200 32.54% Unallocated 1,001 N/A Unallocated 508 N/A ----------- --------------- ------------ ------------- Total $ 3,033 100.00% Total $ 3,039 100.00% =========== =============== ============ ============= 1996 1995 --------------------------- -------------------------- % OF LOANS % OF LOANS (In thousands) ALLOWANCE TO TOTAL (In thousands) ALLOWANCE TO TOTAL Loan type AMOUNT LOANS Loan type AMOUNT LOANS ----------- --------------- ------------ ------------- Commercial $ 320 9.05% Commercial $ 551 8.65% Commercial real estate 292 24.96% Commercial real estate 348 22.83% Real estate 601 31.80% Real estate 416 32.43% Installment 841 34.19% Installment 694 36.09% Unallocated 702 N/A Unallocated 584 N/A ----------- --------------- ------------ ------------- Total $ 2,756 100.00% Total $ 2,593 100.00% =========== =============== ============ ============= 1994 --------------------------- % OF LOANS (In thousands) ALLOWANCE TO TOTAL Loan type AMOUNT LOANS ----------- --------------- Commercial $ 71 7.41% Commercial real estate 258 20.31% Real estate 218 35.25% Installment 584 37.03% Unallocated 562 N/A ----------- --------------- Total $ 1,693 100.00% =========== ===============
9 10 UNITED BANCORP, INC. FORM 10-K ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED) V DEPOSITS A SCHEDULE OF AVERAGE DEPOSIT AMOUNTS AND RATES (1) Refer to Page 16 of the Annual Report To Shareholders. (2) Refer to Page 16 of the Annual Report To Shareholders. (3) Refer to Page 16 of the Annual Report To Shareholders. (4) Refer to Page 16 of the Annual Report To Shareholders. (5) - (8) Not applicable. B OTHER CATEGORIES Not applicable. C FOREIGN DEPOSITS Not applicable. D MATURITY ANALYSIS OF TIME DEPOSITS GREATER THAN $100,000. The following schedule details the maturities of time certificates of deposit in amounts of $100,000 or more for the year ended December 31, 1998:
(In thousands) Three months or less $ 5,655 Over three through six months 4,122 Over six through twelve months 3,800 Over twelve months 8,387 ------------ Total $ 21,964 ============
E TIME DEPOSITS GREATER THAN $100,000 ISSUED BY FOREIGN OFFICES. Not applicable. VI RETURN ON EQUITY AND ASSETS The ratio of net income to daily average total assets and average shareholders' equity, and certain other ratios, are as follows:
DECEMBER 31, -------------------------------------------- 1998 1997 1996 ------------- -------------- -------------- Percentage of net income to: Average total assets 1.17% 1.10% 1.06% Average shareholders' equity 11.80% 11.48% 11.44% Percentage of dividends declared to net income 39.76% 36.38% 35.10% Percentage of average shareholders' equity to average total assets 9.83% 9.55% 9.30%
10 11 UNITED BANCORP, INC. FORM 10-K ITEM 1 DESCRIPTION OF BUSINESS (CONTINUED) VII SHORT-TERM BORROWINGS Information concerning securities sold under agreements to repurchase is summarized as follows:
(In thousands) 1998 1997 1996 -------------- -------------- -------------- Balance at December 31, $ 7,733 $ 8,391 $ 8,642 Weighted average interest rate at December 31, 4.44% 4.90% 4.63% Average daily balance during the year $ 7,817 $ 8,211 $ 6,318 Average interest rate during the year 4.66% 4.81% 4.67% Maximum month-end balance during the year $ 9,109 $ 9,316 $ 8,667
Securities sold under agreements to repurchase are financing arrangements whereby the Company sells securities and agrees to repurchase the identical securities at the maturities of the agreements at specified prices Information concerning the cash management line of credit from the Federal Home Loan Bank of Cincinnati, Ohio is summarized as follows:
(In thousands) 1998 1997 1996 -------------- -------------- -------------- Balance at December 31, $ 9,175 $ - $ 200 Weighted average interest rate at December 31, 5.02% - 7.15% Average daily balance during the year $ 2,085 $ 608 $ 242 Average interest rate during the year 5.95% 6.06% 5.92% Maximum month-end balance during the year $ 9,175 $ 1,845 $ 1,000
No other individual component of the borrowed funds total comprised more than 30% of shareholders' equity and accordingly are not disclosed in detail. ITEM 2 PROPERTIES Refer to Pages 4 - 5, "Corporate Profile" in the Annual Report To Shareholders. ITEM 3 LEGAL PROCEEDINGS Refer to Page 35, Note 10 of the Annual Report To Shareholders. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No motions were submitted to shareholders for a vote during the fourth quarter of 1998. PART II ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Refer to Page 7, "Shareholder Information" of the Annual Report To Shareholders. ITEM 6 SELECTED FINANCIAL DATA Refer to inside back cover, "Five Year Performance Summary" of the Annual Report To Shareholders. ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Refer to Pages 9 - 18, 43 and 44, "Management's Discussion and Analysis" of the Annual Report To Shareholders. 11 12 ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Refer to Pages 13 - 14, "Asset/Liability Management and Sensitivity to Market Risks" of the Annual Report To Shareholders. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Refer to Pages 15 and 19 - 40 of the Annual Report To Shareholders. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS There were no changes in or disagreements with accountants. 12 13 UNITED BANCORP, INC. FORM 10-K PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Refer to Pages 4 - 8 of the Proxy Statement. (b) Executive Officers of the Registrant: James W. Everson 60 Chairman, President and Chief Executive Officer Norman F. Assenza, Jr. 53 Vice President - Operations and Secretary Randall M. Greenwood 35 Vice President - Chief Financial Officer, Treasurer Alan M. Hooker 48 Vice President - Administration James A. Lodes 53 Vice President - Lending Harold W. Price 53 Vice President - Administration
(1) Each individual has held the position noted during the past five years, except for the following: Randall M. Greenwood served as a Business Assurance Manager of Coopers and Lybrand LLP of Columbus, Ohio from 1993 to November of 1997. He served as a Manager for BankOne Corporation in Columbus, Ohio from February 1991 to August 1993 and as a Supervisor at Coopers and Lybrand LLP in Columbus, Ohio from September 1986 through February 1991. He has served as Vice President - Chief Financial Officer of United Bancorp, Inc. and as Senior Vice President - Chief Financial Officer of The Citizens Savings Bank, Martins Ferry, Ohio since December 1997. Alan M. Hooker served as President of Fairfield National Division of the Park National Bank where he also served on their Advisory Board. He has held senior level banking positions with financial institutions in Washington, D.C., and Baltimore, Maryland. He has served as President and Chief Executive Officer of The Community Bank, Glouster, Ohio and as Vice President - Administration of United Bancorp, Inc. since October 26, 1998. James A. Lodes, served as Vice President - Commercial Lending since December 1992 and as Senior Vice President Lending since 1994 with The Citizens Savings Bank, Martins Ferry, Ohio and Vice President - Lending for United Bancorp, Inc. since 1995. Harold W. Price has previously served as President and Chief Executive Officer of the Exchange Bank of Canal Fulton from 1979 until 1984 when it was acquired by the First National Bank of Akron, an affiliate of First Bancorp, Inc. of Ohio. From 1985 to 1992, he served as Executive Vice President and a member of the Board of Directors of The Old Phoenix National Bank of Medina. From 1992 to 1993, he served as Executive Vice President and Senior Loan Officer of the Elyria Savings and Trust Company in Elyria, Ohio. He has served as President and Chief Executive Officer of The Citizens-State Bank of Strasburg, Strasburg, Ohio and as Vice President of United Bancorp, Inc. since April 1, 1993. He has served as Vice President - Administration of United Bancorp, Inc. since April 19, 1995. ITEM 11 EXECUTIVE COMPENSATION Refer to Pages 10 - 15 of the Proxy Statement. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Refer to Pages 4 - 8 of the Proxy Statement. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Refer to Page 15 of the Proxy Statement. 13 14 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a) DOCUMENTS FILED AS PART OF FORM 10-K 1. The following consolidated financial statements appear in the 1998 Annual Report To Shareholders and are incorporated by reference: Report of Independent Auditors Page 19 Consolidated Balance Sheets Page 20 Consolidated Statements of Income Page 21 Consolidated Statements of Shareholders' Equity Page 22 Consolidated Statements of Cash Flow Page 23 Notes to the Consolidated Financial Statements Pages 24 - 40
2. The summary of selected quarterly results of operations appears on Page 15 in the 1998 Annual Report To Shareholders and is incorporated by reference. 3. Exhibits 2 Not Applicable 3 (i)(ii) Articles of Incorporation of United Bancorp, Inc. including amendments and By Laws, previously filed with the Securities and Exchange Commission on November 16, 1983. 4 Not applicable. 9 Not applicable. 10 Reference to special severance agreement on Page 14 of the Proxy Statement 11 Statement regarding computation of per share earnings (included in Note 1 to the consolidated financial statements on page 26 of the Annual Report To Shareholders.) 12 Not applicable. 13 Reference to the Annual Report To Shareholders for the fiscal year ended December 31, 1998. 16 Not applicable. 18 Not applicable. 21.1 Reference to The Citizens Savings Bank, Martins Ferry, Ohio, incorporated on December 31, 1902, previously filed with the Securities and Exchange Commission. 21.2 Reference to The Citizens-State Bank of Strasburg, Strasburg, Ohio, incorporated on December 31, 1924, previously filed with the Securities and Exchange Commission. 21.3 Reference to The Glouster Community Bank, Glouster, Ohio, incorporated on August 1, 1949, previously filed with the Securities and Exchange Commission. 22 Not applicable. 23 Consents of Experts and Council. 24 Not applicable. 27 Financial Data Schedule 28 Not applicable. 99 Not applicable. (b) The Company filed no reports on SEC Form 8-K during the last quarter of the period covered by this report. 14 15 UNITED BANCORP, INC. FORM 10-K Pursuant to the requirements of Section 13 or 15(d) 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. (Registrant) United Bancorp, Inc. By: /s/ James W. Everson March 24, 1999 ------------------------------------- James W. Everson, Chairman, President & CEO By: /s/ Randall M. Greenwood March 24, 1999 ------------------------------------- Randall M. Greenwood, CFO By: /s/ Michael J. Arciello March 24, 1999 ------------------------------------- Michael J. Arciello By: /s/ Herman E. Borkoski March 24, 1999 ------------------------------------- Herman E. Borkoski By: /s/ John H. Clark, Jr. March 24, 1999 ------------------------------------- John H. Clark, Jr. By: /s/ Dr. Leon F. Favede March 24, 1999 ------------------------------------- Dr. Leon F. Favede By: /s/ John M. Hoopingarner March 24, 1999 ------------------------------------- John M. Hoopingarner By: /s/ Richard L. Riesbeck March 24, 1999 ------------------------------------- Richard L. Riesbeck By: /s/ L.E. Richardson, Jr. March 24, 1999 ------------------------------------- L.E. Richardson, Jr. By: /s/ Errol C. Sambuco March 24, 1999 ------------------------------------- Errol C. Sambuco By: /s/ Matthew C. Thomas March 24, 1999 ------------------------------------- Matthew C. Thomas 15 16 UNITED BANCORP, INC. FORM 10-K EXHIBIT INDEX Exhibit No. Description SK Item 601 No. 13 Annual Report To Shareholders 23.1 Consent Crowe, Chizek, and Company LLP 23.2 Consent of Robb, Dixon, Francis, Davis, Oneson & Company Onison and Company 27.1998 Financial Data Schedule 27.1997 Financial Data Schedule (Restated) 27.1996 Financial Data Schedule (Restated) 27.1998-1Q Financial Data Schedule (Restated) 27.1998-2Q Financial Data Schedule (Restated) 27.1997-1Q Financial Data Schedule (Restated) 27.1997-2Q Financial Data Schedule (Restated) 16 EX-13 2 ANNUAL REPORT 1 EXHIBIT 13 1998 ANNUAL REPORT [UNITED BANCORP, INC. LOGO] UNITED BANCORP, INC. MARTINS FERRY, OHIO A FORWARD-THINKING FOCUS www.unitedbancorp.com 2 A LETTER FROM THE PRESIDENT UNITED BANCORP, INC. Dear Shareholder: Are you okay? We're okay! A question and answer that takes on a whole new meaning when applied to the year 2000 and all the happenings the media is promoting could possibly occur when we ring out the old and ring in the new at the end of this year. We are pleased to report your Management Team's focus on year 2000 issues began in April 1997 with the development of our Y2K Plan of Action. As of this writing we have identified, replaced where necessary and tested all of our mission critical systems to carry us well into the next century of full service banking for our shareholders, customers, employees and banking communities. And we are developing a contingency operations plan which includes an auxiliary power system for our Operations Center to be fueled by natural gas which will protect us against all future power outages. Our focus is always forward thinking! [PHOTO] The numbers we are presenting to you in this Annual Report are strong and provide a rock solid foundation for future growth. We have expanded our market share substantially since our last year's shareholder letter to you through the addition of the four offices of The Community Bank in Athens County, Ohio and the expansion of our Citizens Savings Bank of Martins Ferry, Ohio affiliate into Jewett, Ohio. We have expanded our delivery system with six new ATM installations and continue to be an innovative leader with Image Statement Processing. And we are pleased to report that with these capital expansion programs, our 1998 earnings are up 10.8%. [PHOTO] Your Board of Directors on February 16, 1999 approved a very forward thinking plan to further the growth of United Bancorp shareholder value, improve customer service and provide for management succession. Upon completion of the regulatory process which is anticipated by June 30, 1999, The Citizens-State Bank of Strasburg is to be merged into The Citizens Savings Bank of Martins Ferry, Ohio under the new leadership of Harold W. Price as President and Chief Executive Officer. With this new assignment, Harold will be relocating to the Ohio Valley to continue the growth of the consolidated ten offices of The Citizens Savings Bank and realign its management team. [PHOTO] With the rapid growth of United Bancorp, my position as its Chief Executive Officer has grown into a full time job. I am really looking forward to continuing the growth of United Bancorp shareholder value on a full time basis, continuing to serve as its Chairman, President and CEO and serving as Chairman of the Board of both The Citizens Savings [PHOTO] JAMES W. EVERSON Chairman, President & Chief Executive Officer 1998 ANNUAL REPORT 1 3 A LETTER FROM THE PRESIDENT UNITED BANCORP, INC. [GRAPH] MARKET VALUATION (IN MILLIONS) [GRAPH] CLOSING PRICE PER COMMON SHARE (CLOSE-HIGH/LOW) Bank and The Community Bank affiliates. [COMMUNITY BANK LOGO] We are quite excited about our expansion plans for our new Community Bank affiliate under the leadership of its new President and Chief Executive Officer, Alan M. Hooker. Alan and his wife Lisa are community leaders in Lancaster, Ohio and Fairfield County. Alan brings a very high profile of banking experience, education and community involvement to his new position with us and I am looking forward to working with him in developing a plan of action to expand our presence in Athens and Fairfield Counties. [PHOTO] It is with sadness we note the loss of our Director Emeritus Premo R. Funari. Premo set a standard as a Shareholder, Board Member, Bank Customer, Church Member, Family Man and Friend that we all admired and respected. Premo died in his 87th year last April and is remembered and missed. He and his widow Anne have always been special to The Citizens Savings Bank and to me. We have completed the planning to open a comprehensive brokerage service at our Martins Ferry location on March 15, 1999. Christopher Wakim will be the registered broker heading up this new operation to be known as Brokerage United, a division of The Citizens Savings Bank with securities provided through Raymond James Financial Services, Inc., member NASD/SPIC. Chris brings over ten years of banking and brokerage experience to his new position. We look forward to having him offer the Raymond James group of non-banking products and brokerage services to our banking communities. [PHOTO] [BROKERAGE UNITED LOGO] We started this letter by saying we are okay. We are well beyond the year 2000 in our planning. Frankly I am personally excited...we are planning into my next phase of living! Having been with The Citizens Savings Bank since becoming a student employee in 1959, serving as its President and CEO since 1973...and the same with United Bancorp since its formation in 1983, I am quite excited that we have a plan in place that will allow for management succession and my retirement within the next five years. For now, your Management Team's commitment is to continue and grow your Shareholder Value well toward the 22nd Century!! /s/ James W. Everson James W. Everson, Chairman, President & Chief Executive Officer United Bancorp, Inc. Martins Ferry, Ohio 43935 ceo@unitedbancorp.com February 24, 1999 1998 ANNUAL REPORT 2 4 CORPORATE PROFILE UNITED BANCORP, INC. DIVIDEND AND STOCK HISTORY
DISTRIBUTION DATE CASH DIVIDENDS OF DIVIDENDS AND DECLARED(1) STOCK DIVIDENDS EXCHANGES 1983 $ 0.12 - - 1984 $ 0.12 4 for 1 Exchange(2) 1/2/84 1985 $ 0.13 - - 1986 $ 0.15 - - 1987 $ 0.16 50% Stock Dividend 10/2/87 1988 $ 0.17 - - 1989 $ 0.17 - - 1990 $ 0.19 - - 1991 $ 0.20 - - 1992 $ 0.21 100% Stock Dividend 9/10/92 1993 $ 0.22 100% Stock Dividend 11/30/93 1994 $ 0.24 10% Stock Dividend 9/9/94 1995 $ 0.33 - - 1996 $ 0.37 10% Stock Dividend 6/20/96 1997 $ 0.42 10% Stock Dividend 9/19/97 1998 $ 0.47 5% Stock Dividend 12/18/98
(1) Adjusted for stock dividends and exchanges. Does not include dividends from Southern Ohio Community Bancorporation, Inc. prior to the merger. (2) Formation of United Bancorp, Inc. (UBCP). The Citizens Savings Bank shareholders received 4 shares of UBCP stock in exchange for 1 share of The Citizens Savings Bank. TOTAL RETURN TO SHAREHOLDERS [GRAPH] DIVIDENDS PER SHARE(1) [GRAPH] BOOK VALUE PER SHARE(1) [GRAPH] DILUTED EARNINGS PER SHARE(1) [GRAPH] 1998 ANNUAL REPORT 3 5 CORPORATE PROFILE UNITED BANCORP, INC. United Bancorp, Inc. is headquartered in Martins Ferry, Ohio, located on the eastern border of Ohio along the Ohio River. Martins Ferry is nestled among the many scenic foothills along the Upper Ohio Valley across the river from the greater metropolitan area of Wheeling, West Virginia, 60 miles southwest of Pittsburgh, Pennsylvania and 125 miles east of Columbus, Ohio. Early settlers to the region found many natural resources readily available, which assisted in the establishment of frontier communities in and around the eastern Ohio areas. Today, in addition to the natural resources still abundant within the region, there remains a plentiful workforce, easy access to interstate highway systems, and nearby river and railway transportation facilities. This economic base is built upon a strong belief in traditional small community values where future growth and development can be nurtured. These local communities served by the Banks of United Bancorp, Inc. encompass a variety of social and economic cultures. This diversification provides many opportunities for our community banks to develop long-term relationships with customers spanning several generations. The "Hometown" advertising phrase captures the character and integrity of each banking location in relation to the local community it serves. To better its shareholders, United Bancorp, Inc. ("UBCP") was created as a single bank holding company in July of 1983. This was accomplished through the acquisition of 100% of the voting stock of The Citizens Savings Bank of Martins Ferry, Ohio ("CITIZENS"). In December of 1986 UBCP became a multi-bank holding company through the acquisition of 100% of the voting stock of The Citizens-State Bank of Strasburg, Strasburg, Ohio ("CITIZENS-STATE"). In July 1998, Southern Ohio Community Bancorporation, Inc. ("Southern") merged into UBCP. Southern's operating subsidiary, The Community Bank, Glouster, Ohio, ("Community") became UBCP's third wholly owned banking subsidiary. Common stock of UBCP was initially available through over-the-counter trading. In February of 1994, it began trading on The Nasdaq SmallCaps Market tier of The Nasdaq Stock Market under the trading symbol UBCP. CITIZENS was originally established as The German Savings Bank in 1902 and remains the lead bank in the multi-bank holding company. In 1974, local markets were expanded through the construction of a full service branch banking facility six miles west of Martins Ferry in nearby Colerain, Ohio. In 1978, expansion continued with the construction of another full service branch bank in Bridgeport, Ohio, located two miles south. In 1980, a limited service auto-teller location was opened in Martins Ferry, one block south of the initial main office location. In 1983, an Automated Teller Machine ("ATM") began operation in nearby Aetnaville, Ohio. By 1984, CITIZENS had outgrown its original main banking facility in Martins Ferry and subsequently relocated to a newly constructed 21,500 square foot addition to the auto-teller building. 1990 ushered in a new era of in-house data processing with the installation of sophisticated, high-speed equipment capable of servicing current and future information and document processing needs. In 1991, CITIZENS began providing data processing services for CITIZENS-STATE. During 1993, realizing the need for a specific location dedicated to operational support, the accounting, bookkeeping and later data processing functions were established in a separate facility directly across from the main banking center in Martins Ferry. In mid-1996, check image and statement processing was introduced to all banking locations. The customers would no longer receive their checks and deposit tickets, but would instead receive an image of each transaction. The successes enjoyed by both banks during the conversion from traditional check processing to the radically different image processing were proof that positive change can be accomplished without sacrificing the personalized service and consideration our customers deserve. In mid-1997, CITIZENS opened a full service Retail Banking Center inside Riesbeck's Food Markets, Inc.'s St. Clairsville, Ohio store. This site also provides a free-standing ATM for additional customer service. In early 1998, cash dispensing machines were installed throughout the Riesbeck's Food Markets retail distribution network in Ohio and West Virginia. Early developments of a comprehensive cash management program for retail and business customers were initiated. In November 1998, CITIZENS announced the acquisition of a full service banking facility in Jewett, Ohio, which consummated in January 1999. CITIZENS-STATE was also established in 1902 and headquartered in Strasburg, Ohio. It is located in an area of northeastern Ohio whose economy is supported by agriculture and light industry. It has also benefited as a "bedroom community" for the Akron-Canton metropolitan areas. In 1990, a full service banking facility was constructed six miles south in Dover, Ohio. During 1992, expansion continued with the acquisition of two branch bank locations in New Philadelphia and Sherrodsville, Ohio. Later, in 1994, a branch bank was purchased in Dellroy, Ohio. COMMUNITY was established in August 1945 with corporate offices 1998 ANNUAL REPORT 4 6 CORPORATE PROFILE UNITED BANCORP, INC. located in Glouster, Ohio. In 1976, COMMUNITY acquired the First National Bank of Amesville, Ohio. In 1978, a three-lane Auto Bank drive-up facility was constructed on the west side of Glouster. In 1984, Southern was established as the banks' holding company. In 1987, Management concluded to expand their service area. Therefore, a Nelsonville office with two drive-up lanes opened to serve the Nelsonville and surrounding communities. Along with the opening of the Nelsonville office, an ATM machine was installed at Hocking Technical College to enhance customer service for faculty and students. In 1992, an ATM machine was installed in the Nelsonville office. On December 6, 1993, a ribbon-cutting ceremony was held for the newly constructed Nelsonville office. The building, which replaced a mobile bank unit, features four drive-up lanes, and a drive-up ATM. Night deposit and safe deposit box services were introduced to the Nelsonville community. In 1996, COMMUNITY completed an extensive renovation of its offices in Glouster and added a 24-hour access ATM in the vestibule. Management is deeply committed to meeting the financial needs of individuals and business. Our goal is to foster the community banking philosophy into the next millennium without sacrificing our "Hometown" banking image and beliefs. [PHOTO] Martins Ferry, Ohio [PHOTO] New Philadelphia, Ohio [PHOTO] Glouster, Ohio [LOGO] UNITED BANCORP, INC. WE ARE UNITED TO BETTER SERVE YOU 1998 ANNUAL REPORT 5 7 FINANCIAL HIGHLIGHTS UNITED BANCORP, INC.
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------------- 1998 1997 % CHANGE ----------- ----------- ---------- EARNINGS (IN 000'S) Total interest income $ 21,126 $ 20,802 1.56% Total interest expense 9,657 9,410 2.62% Net interest income 11,469 11,392 0.68% Total noninterest income 1,581 1,307 20.96% Total noninterest expense 8,008 7,946 0.78% Net income 3,155 2,848 10.78% PER SHARE (1) Earnings per common share - Basic $ 1.13 $ 1.02 10.78% Earnings per common share - Diluted 1.12 1.01 10.89% Cash dividends paid 0.47 0.42 11.90% Book value (end of period) 9.76 9.18 6.32% AT YEAR END (IN 000'S) Total assets $ 285,493 $ 263,607 8.30% Total assets (average) 270,084 259,582 4.05% Total deposits 229,110 223,489 2.52% Net loans 161,188 168,439 -4.30% Securities 97,686 75,063 30.14% Shareholders' equity 27,321 25,713 6.25% Shareholders' equity (average) 26,738 24,795 7.84% STOCK DATA (1) Market value (end of period) $ 25.00 $ 25.71 -2.76% Dividend payout ratio 39.76% 36.38% 9.29% Price earnings ratio (2) 22.12x 25.21x -12.26% KEY PERFORMANCE RATIOS Return on average assets (ROA) 1.17% 1.10% 6.36% Return on average shareholders' equity (ROE) 11.80% 11.48% 2.79% Efficiency ratio 56.37% 57.50% -1.97%
(1) Per share and stock data has been restated to reflect effect of 5% and 10% stock dividends in 1998 and 1997, respectively. (2) Calculated using basic earnings per common share. 1998 ANNUAL REPORT 6 8 SHAREHOLDER INFORMATION UNITED BANCORP, INC. United Bancorp, Inc.'s common stock trades on The Nasdaq SmallCap Market tier of The Nasdaq Stock Market under the symbol UBCP, CUSIP #90991109. At the year-end 1998, there were 2,800,298 shares outstanding, held among approximately 1,200 shareholders of record. The following table sets forth the quarterly high and low closing prices of the Company's common stock from January 1, 1998 to December 31, 1998 compared to the same periods in 1997 as reported by the NASDAQ. The price quotes have been adjusted for comparison purposes for the 5% stock dividends distributed on December 18, 1998 and the 10% stock dividend distributed on September 19, 1997. The price quotations presented should not necessarily be relied on in determining the value of the shareholders' investment.
1998 1997 ------------------------------------------------------------------------------------------------- 31-MAR 30-JUN 30-SEP 31-DEC 31-MAR 30-JUN 30-SEP 31-DEC ------ ------ ------ ------ ------ ------ ------ ------ Market Price Range High ($) 28.333 28.333 25.476 25.000 18.831 16.667 20.476 26.076 Low ($) 24.762 24.762 21.905 17.857 17.316 14.719 15.368 19.524 Cash Dividends Quarter ($) 0.114 0.114 0.114 0.130 0.095 0.095 0.114 0.114 Cumulative ($) 0.114 0.228 0.342 0.472 0.095 0.190 0.304 0.418
INVESTOR RELATIONS: A copy of the Company's Annual Report on form 10-K as filed with the SEC, will be furnished free of charge upon written or E-mail request to: Randall M. Greenwood, CFO United Bancorp, Inc. 201 South 4th Street PO Box 10 Martins Ferry, OH 43935 or CFO@unitedbancorp.com DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN: Shareholders may elect to reinvest their dividends in additional shares of United Bancorp, Inc.'s common stock through the Company's Dividend Reinvestment Plan. Shareholders may also invest optional cash payments of up to $5,000 per quarter in our common stock at market price. To arrange automatic purchase of shares with quarterly dividend proceeds, please contact: American Stock Transfer and Trust Company Attn: Dividend Reinvestment 40 Wall Street, 46th Floor New York, NY 10005 1-800-278-4353 ANNUAL MEETING: The Annual Meeting of Shareholders will be held at 2:00 p.m., April 21, 1999 at the Corporate Offices in Martins Ferry, Ohio. INTERNET: Please look us up at http//www.unitedbancorp.com INDEPENDENT AUDITORS: Crowe, Chizek and Company LLP Certified Public Accountants 10 West Broad Street Columbus, OH 43215 (614) 469-0001 CORPORATE OFFICES: The Citizens Savings Bank Building 201 South 4th Street Martins Ferry, OH 43935 (740) 633-BANK (740) 633-1448 (FAX) STOCK TRADING: The Ohio Company 21 East State Street, 8th Floor Columbus, OH 43215 1-800-454-9441 Advest, Inc. 340 S. Hollywood Plaza Steubenville, OH 43952 1-800-761-8008 TRANSFER AGENT AND REGISTRAR: For transfers and general correspondence, please contact: American Stock Transfer and Trust Company 40 Wall Street, 46th Floor New York, NY 10005 1-800-937-5449 1998 ANNUAL REPORT 7 9 PROVIDING HOMETOWN BANKING UNITED BANCORP, INC. [MONTAGE] 1998 ANNUAL REPORT 8 10 MANAGEMENT'S DISCUSSION AND ANALYSIS UNITED BANCORP, INC. In the following pages, management presents an analysis of United Bancorp, Inc.'s financial condition and results of operations as of and for the year ended December 31, 1998 as compared to prior years. This discussion is designed to provide shareholders with a more comprehensive review of the operating results and financial position than could be obtained from an examination of the financial statements alone. This analysis should be read in conjunction with the consolidated financial statements and related footnotes and the selected financial data included elsewhere in this report. FINANCIAL CONDITION EARNING ASSETS - LOANS For the year ended December 31, 1998, the Company's total assets increased 8.3% over December 31, 1997 totals. Total earning assets increased $19,793,914, or 8.0% over $247,282,541 at year-end 1997. Average gross loans totaled $168,626,471 for the year-end 1998, representing a slight decrease of 0.3% from $169,066,393 for the year-end 1997. Year-end outstanding total loans decreased from 4.2% from 1997 to 1998. Installment lending decreased by $8,118,225, or 14.6%, from 1997 totals. These loans represented 29.0% of the total portfolio at year-end 1998 compared to 32.5% at year-end 1997. The targeted lending areas encompass the geographic areas serviced by the affiliate Banks, minimizing the risk to changes in economic conditions. During the first quarter of 1998, CITIZENS-STATE introduced into their market an indirect automobile finance program. The results for 1998 have been in line with management's projections with total installment loans increasing 20.0% from December 31, 1997. However, the indirect market for CITIZENS has seen increased competition and charge-offs during 1998 and as a result has experienced a decrease in installment loan totals of 10.5% from December 31, 1997. Since the January 1998 announcement of the acquisition of Southern, UBCP Management has worked closely with our newest affiliate, COMMUNITY, with respect to product pricing, budgeting, expense control and underwriting/collection standards. Based upon COMMUNITY'S past experience with credit quality concerns in unsecured consumer debt lending, UPCP Management strengthened underwriting standards and priced these products at a level commensurate with the inherent risk in unsecured lending. However, these changes resulted in a decrease in the overall installment portfolio of COMMUNITY of approximately 48.2% since December 31, 1997. Competition, especially in the indirect arena, has increased over the past several years. Alternative financing programs offered by the automakers' financing subsidiaries have been and will continue to compete for business. Management has responded to direct competition by extending our customer service hours into the evening to provide our customers with the ability to arrange financing at their convenience. Increases in commercial real estate lending and a slight decline in real estate lending volume also contributed to the shift in portfolio alignment. Commercial and commercial real estate loans comprised 40.9% of total loans at December 31, 1998 compared to 38.4% at year-end 1997, an increase of approximately $1,281,000. Commercial loans decreased $3,724,691, or 22.4%, from 1997 levels, representing 7.9% of the total portfolio at year-end 1998. This compares to 9.7% of the mix at year-end 1997. During 1998, the Company experienced prepayment on commercial loans as commercial borrowers continue to be price sensitive in this area of lending. Commercial real estate loans increased $5,005,268, or 10.2%, over 1997 totals comprising 33.0% of the portfolio compared to 28.7% at year-end 1997. The Company has originated and bought participations in loans from other banks for out-of-area commercial real estate loans to benefit from consistent economic growth outside the area. The majority of these loans are secured by real estate holdings comprised of hotels, motels and churches located in TOTAL ASSETS (IN MILLIONS) [GRAPH] LOANS - NET (IN MILLIONS) [GRAPH] 1998 ANNUAL REPORT 9 11 MANAGEMENT'S DISCUSSION AND ANALYSIS UNITED BANCORP, INC. EQUITY CAPITAL (IN MILLIONS) [GRAPH] CASH DIVIDENDS (IN THOUSANDS) [GRAPH] various geographic locations, including Columbus and the Akron-Canton, Ohio metropolitan areas. Out of area loans at December 31, 1998 were 11.6% of total loans and 28.4% of total commercial and commercial real estate loans compared to 9.0 % and 23.4% at year-end 1997. The Company has already seen the benefit of adding COMMUNITY into the consolidated group. Even before the effective merger date of July 7, 1998, the Company has benefited from having a presence in Athens County, Ohio. As a stand alone charter COMMUNITY did not have the legal lending capacity to handle the larger commercial customers and as a result could not bid for the larger commercial credits. However, with their affiliation pending during the first half of 1998, management at COMMUNITY worked closely with the Company to successfully bid on some larger commercial credits. Since the effective date of the merger, the Company has benefited from various participation loans generated by COMMUNITY. Although we have continued to offer our variable-rate real estate lending programs, the portfolio has declined. With fixed rates at or near historical low levels for the past two years, customers are taking advantage of alternative fixed-rate products offered through secondary market programs. During 1997, we introduced a Secondary Market Real Estate Mortgage Program to help our customers take advantage of a fixed-rate loan program without assuming the interest rate risk associated with this loan product. Since the introduction of this program, approximately $15,000,000 in Secondary Market Real Estate Mortgages have been originated and sold. This generated net realized gains of $139,037 and $139,005 in 1998 and 1997, respectively. Many first time homeowners or individuals with little or no down payment have been able to participate in many of the variety of lending options now available. Additionally, many existing customers and non-customers with variable rate real estate loans have refinanced into fixed rate products offered through the secondary market program. This trend toward fixed-rate products can be expected to continue with interest rates at historical low levels. The allowance for loan losses represents the amount which management and the Board of Directors estimates is adequate to provide for probable losses in the loan portfolio. The allowance balance and the annual provision charged to expense are reviewed by management and the Board of Directors monthly using a risk grading model that considers borrowers' past due experience, economic conditions and various other circumstances that are subject to change over time. Management believes the current balance of the allowance for loan losses is sufficient to deal with probable losses. Net charge-offs for the year-ended 1998 were $803,374, or 26.4%, of the beginning allowance for loan losses compared to $649,465, or 23.6%, of beginning allowance for loan losses for 1997. The net charge-offs for 1998 included a one-time charge-off of approximately $305,000 prior to the merger date with the Company. This charge-off of $305,000 at COMMUNITY related to various small unsecured consumer loans deemed a loss by the Company based upon its credit and collection policy. Without the $305,000, net charge-offs for 1998 would have been 16.4% of beginning allowance for loan losses. EARNING ASSETS - SECURITIES AND FEDERAL FUNDS SOLD The securities portfolio is comprised of US Treasury notes, US 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 US Government agencies, or derivative 1998 ANNUAL REPORT 10 12 MANAGEMENT'S DISCUSSION AND ANALYSIS UNITED BANCORP, INC. 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 known levels of credit risk. Securities available for sale at year-end 1998 increased $29,788,707, or 64.8%, over 1997, while securities held to maturity decreased $7,166,353, or 24.7%. During 1998, Management utilized available for sale securities to off-set the decrease in loans. The relatively short-term nature of these securities should provide management the funding for future loan development. 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 deposits, excluding certificates of deposit greater than $100,000. For the year-ended 1998, total core deposits increased by $4,965,306. The Company maintains strong deposit relationships with public agencies, including local school districts, city and township municipalities, public works facilities and others, which may tend to be more seasonal in nature resulting from the receipt and disbursement of state and federal grants. These entities have maintained relatively stable 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 as a tool to manage funds. At year-end 1998, certificates of deposit greater than $100,000 increased a modest $656,414, or 3.1%, over year-end 1997 totals. This is due in part to Management utilizing advances from the Federal Home Loan Bank ("FHLB") to provide a lower cost of funding during 1998. With rates trending lower in 1998, Management priced the long-term certificates of deposit so as to lock in these funds for an extended period of time. Although the Company experienced a growth in core deposits for 1998, the attraction of and retention of core deposits continues to pose a challenge to the Company and the overall banking industry. Alternative financial products are continuously being introduced by our competition whether through a traditional bank or brokerage services company. SOURCES OF FUNDS - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWED FUNDS Other interest-bearing liabilities include securities sold under agreements to repurchase, federal funds purchased, Treasury, Tax & Loan notes payable and Federal Home Loan Bank advances. Securities sold under agreements to repurchase remained relatively constant, while other borrowed funds increased significantly by $15,422,212. This increase was the result of expanded use of FHLB Cash Management and Match Funding loan programs. During 1998, the Company regularly utilized both FHLB programs to manage interest rate risk and liquidity positions. The Company increased matched funded loans by approximately $4.4 million from 1997 to 1998. As interest rates in 1998 reached historical low levels, commercial borrowers capitalized on the opportunity to obtain long-term fixed-rate funding. To minimize interest rate risk, the Company borrowed from the FHLB on terms similar to the loans originated. The Company also increased its level of short-term borrowings. FHLB Cash Management and Federal Funds purchased totaled approximately $13.8 million at December 31, 1998 compared with $2.0 million as of December 31, 1997, an increase of $11.8 million. The rationale for the increase is explained by the Company's pending purchase of a full service banking facility in Jewett, Ohio. In anticipation of the purchase of the branch in January 1999, the Company, in mid-November 1998, utilized the FHLB Cash Management program and purchased approximately $10 million of short-term callable securities. This strategy enabled the Company to obtain earning assets to offset the purchased deposits prior to the November interest rate reductions by the Federal Reserve Bank. Therefore, Management capitalized on the higher rates being offered for investment securities. This differential in interest rates from November 1998 to January 1999 was approximately 50 basis points. During 1999, the Company may take advantage of the current low costs associated with wholesale funding sources such as the FHLB while relying less on the more volatile certificates of deposits greater than $100,000. RETURN ON AVERAGE ASSETS (PERCENT) [GRAPH] RETURN ON AVERAGE EQUITY (PERCENT) [GRAPH] 1998 ANNUAL REPORT 11 13 MANAGEMENT'S DISCUSSION AND ANALYSIS UNITED BANCORP, INC. NET INCOME (IN THOUSANDS) [GRAPH] TOTAL EARNING ASSETS (IN THOUSANDS) [GRAPH] PERFORMANCE OVERVIEW NET INCOME The Company reported earnings of $3,154,979 in 1998 compared with $2,847,568 in 1997 and $2,629,989 in 1996. This earnings performance equates to a 1.17% Return on Average Assets ("ROA") and 11.80% Return on Average Equity ("ROE") for 1998 compared to 1.10% and 11.48% for 1997 and 1.06% and 11.44% for 1996. Earnings per share ("EPS") comparisons indicate an increase to $1.13 Basic EPS and $1.12 Diluted EPS for 1998 compared to $1.02 Basic EPS and $1.01 Diluted EPS for 1997. EPS for 1996 was $0.94 for both Basic and Diluted. Per share amounts for all periods have been restated to reflect the 5% stock dividend distributed in December 1998 and the 10% stock dividend distributions to shareholders in September 1997 and June 1996. 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 a modest $77,043, or less than 1.0%, in 1998 compared to a $664,800, or 6.2%, increase in 1997. The net interest spread has declined slightly during the past two years. The dynamics of this increase are related to changes in rate and volume within interest-earning assets and interest-bearing liabilities. Average interest-earning assets increased $8,922,000, or 3.6%, in 1998 over 1997 compared to $12,836,000, or 5.5%, in 1997 over 1996. The associated weighted-average yield on these interest-earning assets decreased to 8.26% in 1998 compared to 8.43% in 1997 and 8.38% in 1996. Average interest-bearing liabilities increased $7,870,000, or 3.7%, in 1998 over 1997 compared to $9,604,000, or 4.7%, in 1997 over 1996. The associated cost of funds for those interest-bearing liabilities in 1998 decreased to 4.32% in 1998 compared to 4.37% in 1997 and 4.29% in 1996. PROVISION FOR LOAN LOSSES The provision for loan losses is an operating expense recorded to maintain the related balance sheet allowance for loan losses at an amount considered adequate to cover losses that may occur in the normal course of lending. The total provision for loan losses was $797,957 in 1998 compared to $932,000 in 1997 and $1,165,400 in 1996. Despite the 1998 decrease from 1997 of 14.4% in the provision for loan losses, the allowance for loan losses as a percentage of loans increased from 1.77% at year-end 1997 to 1.85% at year-end 1998, due to the decline in the balance of loans outstanding. NONINTEREST INCOME Noninterest income is made up of Bank related fees and service charges, as well as other income producing services. These include secondary market loan servicing fees, ATM/interchange income, early redemption penalties for certificates of deposit, safe deposit rental income, net gain or loss on sales of securities available for sale and loans, leased rental property and other miscellaneous items. Total noninterest income for 1998 was $1,581,139, or 21.0%, over 1997 totals. Total noninterest income for 1997 was $1,307,165, or 13.0%, over 1996. Gains on the sale of fixed-rate mortgages in the secondary market, the 1997 introduction of a skip payment loan program, expanded ATM network and surcharging non-customers of the Company contributed the most to the solid increases in noninterest income for 1998 and 1997. NONINTEREST EXPENSE Noninterest expense for 1998 increased a modest $62,030, or 0.8%, 1998 ANNUAL REPORT 12 14 MANAGEMENT'S DISCUSSION AND ANALYSIS UNITED BANCORP, INC. over 1997 compared to $673,386, or 9.3%, for 1997 over 1996. Professional services and franchise taxes accounted for the largest decreases in 1998 compared to 1997. Occupancy and equipment and other expense attributed to the most significant increases from 1997 to 1998. Overall, management is pleased with the rather modest growth in noninterest expense from 1997 to 1998. Increased occupancy expense sustained a portion of this increase due to a full year of costs associated with the July 1997 opening of CITIZEN'S Retail Banking Center in St. Clairsville, Ohio. Also contributing to the increase in 1998 was the cost of certain maintenance contracts and other operational costs at COMMUNITY. Prior to the July 7, 1998 merger, COMMUNITY, as a stand-alone bank, operated their own data processing, operational support center and financial reporting and accounting function. As such, they had separate maintenance contracts and incurred certain contract termination fees associated with the consolidation of all these functions to the Company's consolidated Operations Center in Martins Ferry, Ohio. In addition, other expense increased from 1997 to 1998. Merger related expenses contributed to the majority of the increase in other expense. Noninterest expense increased for the year-end 1997 over 1996. The variances between years are in part due to the July 1998 merger with Southern. This transaction was accounted for under the pooling of interest method of accounting and thus all financial information has been restated to include Southern. However, the management of Southern's operating subsidiary COMMUNITY has changed dramatically since the acquisition. Expense control procedures are now implemented and this has produced annual savings in excess of $400,000. Prior to the expense control procedures, COMMUNITY'S salaries and employees benefit costs and professional expense and occupancy and equipment were extremely high relative to peer bank data. The inability of Southern to properly control and monitor their noninterest expense is responsible for approximately $308,000, or 45.7% of the Company's total increase in noninterest expense of $673,386 from 1996 to 1997 as mentioned above. The $308,000 increase represented a 15.5% increase in noninterest expense when Southern was a stand-alone company. Overall, when the two companies are combined the items contributing to the increase are similar and include; salaries and employee benefits, professional fees, and occupancy and equipment. Salaries and employees benefits increased $281,000 over 1996 levels mainly due to additional staffing requirements for the secondary market program, the growth in mid-to-senior level management positions and new staffing for the previously mentioned CITIZENS Retail Banking Center. Occupancy and equipment increased $154,822 over 1996, mainly due to additional investment in technology. Professional services in-creased $177,605 over 1996. The increase was due to professional services incurred by COMMUNITY related to the merger. ASSET/LIABILITY MANAGEMENT AND SENSITIVITY TO MARKET RISKS In the environment of changing business cycles, interest rate fluctuations and growing competition, it has become increasingly more difficult for banks to produce adequate earnings on a consistent basis. Because it is not possible to reliably predict interest rates, the Company must establish a sound asset/liability policy, which will minimize exposure to interest rate risk while maintaining an acceptable interest rate spread and insuring adequate liquidity. The principal goal of asset/liability management-profit management - -can be accomplished by establishing decision processes and control procedures for all bank assets and liabilities. Thus, the full scope of asset/liability management encompasses the entire balance sheet of the Company. The broader principal components of asset/liability management include, but are not limited to liquidity planning, capital planning, gap management and spread management. By definition, liquidity is measured by the Company's ability to raise cash at a reasonable cost or with a minimum of loss. Liquidity planning is necessary so the Company will be capable of funding all obligations to its customers at all times, from meeting their immediate cash withdrawal requirements to fulfilling their short-term credit needs. Capital planning is an essential portion of asset/liability management, as capital is a limited bank resource, which, due to minimum capital requirements, can place possible restraints on bank growth. Capital planning refers to maintaining capital standards through effective growth management, dividend policies and asset/liability strategies. Gap is defined as the dollar difference between rate sensitive assets and rate sensitive liabilities with respect to a specified time frame. A gap has three components - the asset component, the liability component, and the time component. Gap management involves the management of all three components. EFFICIENCY RATIO (PERCENT) [GRAPH] 1998 ANNUAL REPORT 13 15 MANAGEMENT'S DISCUSSION AND ANALYSIS UNITED BANCORP, INC. Gap management is defined as those actions taken to measure and match rate sensitive assets to rate sensitive liabilities. A rate sensitive asset is any interest-earning asset, which can be repriced to a market rate in a given time frame. Similarly, a rate sensitive liability is any interest-bearing liability, which can have its interest rate changed to a market rate during the specified time period. Caps and collars may prevent certain loans and securities from adjusting to the market rate. A negative gap is created when rate sensitive liabilities exceed rate sensitive assets and, conversely, a positive gap occurs when rate sensitive assets exceed rate sensitive liabilities. A negative gap position will cause profits to decline in a rising interest rate environment and a positive gap will cause profits to decline in a falling interest rate environment. Under either scenario, profits suffer. The Company's goal is to have acceptable profits under any interest rate environment. To avoid volatile profits as a result of interest rate fluctuations, the Company must match interest rate sensitivities, while pricing both the asset and liability components to yield a sufficient interest rate spread so that profits will remain relatively consistent across interest rate cycles. Management of the income statement is called spread management and is defined as managing investments, loans, and liabilities to achieve an acceptable spread between the Company's return on its earning assets and its cost of funds. Gap management without consideration of interest spread can cause unacceptably low profit margins while assuring that the level of profits is steady. Spread management without consideration of gap positions can cause acceptable profits in some interest rate environments and unacceptable profits in others. A sound asset/liability management program combines gap and spread management into a single cohesive system. 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 Banks' senior management and the Executive Committee of the Board of Directors, comprising the Asset/ Liability Committee ("ALCO") review the exposure to interest rates at least quarterly. Exposure to interest rate risk is measured with the use of an interest rate sensitivity analysis to determine the change in NPV in the event of hypothetical changes in interest rates, while interest rate sensitivity gap analysis is used to determine the repricing characteristics of the assets and liabilities. NPV represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay rates, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the Company may undertake in response to changes in interest rates. The NPV calculation is based on the net present value of discounted cash flows utilizing market prepayment assumptions and market rates of interest provided by surveys performed during each quarterly period, with adjustments made to reflect the shift in the Treasury yield curve between the survey date and quarter-end date. Certain shortcomings are inherent in this method of analysis presented in the computation of estimated NPV. 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 table. Finally, the ability of many borrowers to repay their adjustable-rate debt may decrease in the case of an increase in interest rates. NET PORTFOLIO VALUE
CHANGES IN RATES $ AMOUNT $ CHANGE % CHANGE -------- -------- -------- +150 bp 21,617 (5,704) -21% +100 bp 23,435 (3,886) -14% + 50 bp 25,341 (1,980) -7% Base 27,321 - 50 bp 29,428 2,107 8% -100 bp 31,637 4,316 16% -150 bp 34,015 6,694 25%
1998 ANNUAL REPORT 14 16 MANAGEMENT'S DISCUSSION AND ANALYSIS UNITED BANCORP, INC. The following table is a summary of selected quarterly results of operations for the years ended December 31, 1998 and 1997.
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 Interest and dividend income $ 5,299 $ 5,316 $ 5,199 $ 5,312 Interest expense 2,457 2,418 2,409 2,373 ----------- ----------- ----------- ----------- Net interest income 2,842 2,898 2,790 2,939 Provision for loan losses 117 431 128 122 ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 2,725 2,467 2,662 2,817 Noninterest income 361 338 463 419 Noninterest expense 1,985 2,091 2,054 1,878 ----------- ----------- ----------- ----------- Income before income tax 1,101 714 1,071 1,358 Income tax expense 271 180 296 342 ----------- ----------- ----------- ----------- Net income $ 830 $ 534 $ 775 $ 1,016 =========== =========== =========== =========== Earnings per share - Basic $ 0.30 $ 0.19 $ 0.28 $ 0.36 =========== =========== =========== =========== Earnings per share - Diluted $ 0.29 $ 0.19 $ 0.28 $ 0.36 =========== =========== =========== =========== Dividends declared per share $ 0.114 $ 0.114 $ 0.114 $ 0.130 =========== =========== =========== =========== 1997 Interest and dividend income $ 5,028 $ 5,116 $ 5,242 $ 5,366 Interest expense 2,256 2,320 2,379 2,455 ----------- ---------- ----------- ----------- Net interest income 2,772 2,846 2,863 2,911 Provision for loan losses 171 319 171 271 ----------- ---------- ----------- ----------- Net interest income after provision for loan losses 2,601 2,527 2,692 2,640 Noninterest income 289 275 337 406 Noninterest expense 1,911 1,906 1,972 2,157 ----------- ---------- ----------- ----------- Income before income tax 979 896 1,057 889 Income tax expense 224 206 272 271 ----------- ----------- ----------- ----------- Net income $ 755 $ 690 $ 785 $ 618 =========== =========== =========== =========== Earnings per share - Basic $ 0.26 $ 0.25 $ 0.29 $ 0.22 =========== =========== =========== =========== Earnings per share - Diluted $ 0.25 $ 0.25 $ 0.29 $ 0.22 =========== =========== =========== =========== Dividends declared per share $ 0.095 $ 0.095 $ 0.114 $ 0.114 =========== =========== =========== ===========
1998 ANNUAL REPORT 15 17 MANAGEMENT'S DISCUSSION AND ANALYSIS UNITED BANCORP, INC. AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID The following table provides information relating to average balance sheet information and reflects the average yield on interest-earning assets and the average cost of interest-bearing liabilities for the years ended December 31, 1998, 1997 and 1996. The yields and costs are calculated by dividing income or expense by the average balance of interest-earning assets or interest-bearing liabilities. The average balance of available for sale securities is computed using the carrying value of securities. The yield for available for sale securities has been computed using the average amortized cost. Average balances are derived from month-end balances, which include nonaccruing loans in the loan portfolio, net of the allowance for loan losses. Management does not believe that the use of month-end balances instead of daily average balances has caused any material difference in the information presented. Interest income is on a historical basis without tax-equivalent adjustment.
1998 1997 1996 ------------------------------ --------------------------- ---------------------------- INTEREST INTEREST INTEREST AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE ------- ------- ---- ------- ------- ---- ------- ------- ---- ASSETS Interest-earning assets Loans (net of unearned income) $168,626 $ 15,775 9.36% $169,066 $ 16,145 9.55% $160,409 $ 15,275 9.52% Taxable Securities - AFS 51,864 3,443 6.64 41,585 2,694 6.48 35,984 2,271 6.31 Taxable Securities - HTM 4,828 260 5.39 8,659 461 5.32 10,698 586 5.48 Tax-exempt securities - AFS 1,053 67 6.36 486 25 5.14 481 24 4.99 Tax-exempt securities - HTM 21,924 1,158 5.28 22,038 1,179 5.35 21,749 1,158 5.32 Federal funds sold 6,300 315 5.00 3,976 214 5.38 3,766 194 5.15 FHLB stock and other 1,155 108 9.35 1,018 83 8.15 905 59 6.52 -------- --------- ---- -------- -------- -------- ------ Total interest-earning assets 255,750 21,126 8.26 246,828 20,801 8.43 233,992 19,567 8.36 Noninterest-earning assets Cash and due from banks 9,469 5,997 6,453 Premises and equipment (net) 6,528 6,461 6,110 Other nonearning assets 3,248 3,187 3,287 Less: allowance for loan losses (2,991) (2,891) (2,695) -------- -------- -------- Total noninterest-earning assets 16,254 12,754 13,155 -------- -------- -------- Total assets $272,004 $259,582 $247,147 ======== ======== ======== LIABILITIES & SHAREHOLDERS' EQUITY Interest-bearing liabilities Demand deposits $ 39,553 $ 1,026 2.59 $ 38,022 $ 1,069 2.81 $ 35,904 $ 995 2.77 Savings deposits 59,608 1,804 3.03 58,899 1,945 3.30 59,281 1,934 3.26 Time deposits 108,662 6,059 5.58 107,796 5,884 5.46 103,524 5,570 5.38 Fed funds purchased & TT&L 3,102 151 4.87 1,871 79 4.22 760 39 5.13 FHLB Advances 4,667 253 5.42 740 37 5.00 148 7 4.73 Repurchase agreements 7,817 364 4.66 8,211 395 4.81 6,318 295 4.67 -------- --------- ---- -------- -------- -------- ------ ---- Total interest-bearing liabilities 223,409 9,657 4.32 215,539 9,409 4.37 205,935 8,840 4.29 --------- -------- ------ Noninterest-bearing liabilities Demand deposits 20,189 17,649 16,459 Other liabilities 1,668 1,599 1,763 -------- ------- ------- Total noninterest-bearing liabilities 21,857 19,248 18,222 Total liabilities 245,266 234,787 224,157 Total shareholders' equity 26,738 24,795 22,990 -------- ------- ------- Total liabilities & shareholders' equity $ 272,004 $ 259,582 $247,147 ======== ======== ======== Net interest income $ 11,469 $ 11,392 $ 10,727 ========= ======== ========= Net interest spread 3.94 4.06 4.07 ==== ==== ==== Net yield on interest-earning assets 4.48 4.62 4.58 ==== ==== ====
- - For purposes of this schedule, nonaccrual loans are included in loans. - - Net interest income is reported on an historical basis without tax-equivalent adjustment. - - Fees collected on loans are included in interest on loans. 1998 ANNUAL REPORT 16 18 MANAGEMENT'S DISCUSSION AND ANALYSIS UNITED BANCORP, INC. RATE/VOLUME ANALYSIS The table below describes the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected interest income and expense during the periods indicated. For purposes of this table, changes in interest due to volume and rate were determined using the following methods: - - Volume variance results when the change in volume is multiplied by the previous year's rate. - - Rate variance results when the change in rate is multiplied by the previous year's volume. - - Rate/volume variance results when the change in volume is multiplied by the change in rate. Note: the rate/volume variance was allocated to volume variance and rate variance in proportion to the relationship of the absolute dollar amount of the change in each. Nonaccrual loans are ignored for purposes of the calculations due to the nominal amount of the loans.
---------------------------------------------------------------------------------------- 1998 COMPARED TO 1997 1997 COMPARED TO 1996 INCREASE/(DECREASE) INCREASE/(DECREASE) ----------------------------------------- ------------------------------------------- CHANGE CHANGE CHANGE CHANGE TOTAL DUE TO DUE TO TOTAL DUE TO DUE TO CHANGE VOLUME RATE CHANGE VOLUME RATE ----------------------------------------- ------------------------------------------- Interest Income Loans $ (370) $ (42) $ (328) $ 870 $ 827 $ 43 Taxable securities available for sale 750 681 69 423 361 62 Taxable securities held to maturity (201) (206) 5 (125) (109) (16) Tax-exempt securities available for sale 42 35 7 1 - 1 Tax-exempt securities held to maturity (22) (6) (16) 21 15 6 Federal funds sold 101 117 (16) 20 11 9 FHLB stock and other 25 12 13 24 8 16 --------- ---------- ---------- ---------- ---------- ----------- Total interest income 325 591 (266) 1,234 1,113 121 Interest expense Demand deposits (43) 42 (85) 74 59 15 Savings deposits (141) 23 (164) 11 (13) 24 Time deposits 175 48 127 314 232 82 Fed funds purchased & T, T & L 72 58 14 40 48 (8) Long-term debt 216 213 3 30 30 - Repurchase agreements (31) (19) (12) 100 91 9 --------- ----------- ----------- ---------- ---------- ----------- Total interest expense 248 365 (117) 569 447 122 --------- ----------- ----------- ---------- ---------- ----------- Net interest earnings $ 77 $ 226 $ (149) $ 665 $ 666 $ (1) ========= =========== =========== ========== ========== ===========
CAPITAL RESOURCES Internal capital growth, through the retention of retained earnings, is the primary means of maintaining capital adequacy for the Banks. Shareholders' equity at year-end 1998 was $27,320,749 compared to $25,712,637 at year-end 1997, representing an increase of 6.25%. Equity totals include ($120,863) in accumulated other comprehensive income which is comprised solely of a net unrealized loss on securities available for sale, net of tax at year-end 1998, compared to $171,664 at year-end 1997. Total shareholders' equity in relation to total assets was 9.57% at year-end 1998 compared to 9.75% at year-end 1997. In 1996, UBCP established a Dividend Reinvestment Plan ("The Plan") for shareholders under which UBCP's common stock will be purchased by The Plan for participants with automatically reinvested dividends. The Plan does not represent a change in the dividend policy or a guarantee of future dividends. Shareholders who do not wish to participate in The Plan will continue to receive cash dividends, as declared in the usual and customary manner. UBCP has approved the issuance of 150,000 authorized and unissued shares of the common stock for purchase under The Plan. To date, all shares purchased by The Plan, except for 797 shares purchased from UBCP on October 21, 1996, have been purchased on the open market. 1998 ANNUAL REPORT 17 19 MANAGEMENT'S DISCUSSION AND ANALYSIS UNITED BANCORP, INC. LIQUIDITY Management's objective in managing liquidity is to maintain 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, 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 borrow funds under line of credit agreements with correspondent banks and a borrowing agreement with the FHLB 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 year-ended 1998, the adjustments to reconcile net income to net cash from operating activities consisted mainly of depreciation and amortization of premises and equipment and intangibles, gains on sale of loans, securities and other assets, the provision for loan losses, FHLB stock dividends, net amortization of securities and net changes in other assets and liabilities. Investing activities include changes in securities, net changes in loans, other real estate owned and premises and equipment. Financing activities include net changes in deposits and short and long-term borrowings and cash dividends paid. For a detailed illustration of sources and uses of cash, refer to the consolidated statement of cash flows presented elsewhere in the annual report. INFLATION Substantially all of the Company's assets and liabilities relate to banking activities and are monetary in nature. The consolidated financial statements and related financial data are presented in accordance with Generally Accepted Accounting Principles ("GAAP"). GAAP currently requires the Company to measure several of the Company's assets and liabilities in terms of historical dollars. Changes in the value of money due to rising inflation can cause purchasing power loss. Management's opinion is that a movement in interest rates affects the financial condition and results of operations to a greater degree than changes in the rate of inflation. It should be noted that interest rates and inflation do effect each other, but do not always move in correlation with each other. The Company's ability to match the interest sensitivity of its financial assets to the interest sensitivity of its liabilities in its asset/liability management may tend to minimize the effect of changes in interest rates on performance. YEAR 2000 The Y2K problem lies where systems that use computer software programs or computer chips, including automated equipment and machinery, store calendar dates as two-digit rather than four-digit numbers. Many systems, especially older ones, record the year 1998 as "98." This approach works well until the 2000 when the "00" may be read as 1900. Management of the Company has tested substantially all what is termed "mission critical" computer systems used in the business of the Company to determine whether such systems will function at the change of the century. Management determined that substantially all of the "mission critical" systems are capable of identifying the turn of the century. In order to prevent potential credit quality issues, management continues to assess the Year 2000 compliance status of major loan customers to determine whether or not such entities are taking steps to ensure their systems will function properly in the Year 2000. Management closely monitors the issue and full compliance is expected by the end of the first quarter in 1999. Management anticipates the external costs associated with preparing for the Year 2000 to be approximately $50,000. For 1998, the Company incurred approximately $25,000 of the estimated amount. The remaining $25,000 of costs should be incurred during the first quarter of 1999. Please refer to pages 43 and 44 of this Annual Report for Management's detail Year 2000 plan and testing results. 1998 ANNUAL REPORT 18 20 REPORT OF INDEPENDENT AUDITORS UNITED BANCORP INC. [CROWE CHIZEK LOGO] To the Shareholders and the Board of Directors United Bancorp, Inc. Martins Ferry, Ohio We have audited the accompanying consolidated balance sheets of United Bancorp, Inc. as of December 31, 1998 and 1997, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the 1997 or 1996 financial statements of Southern Ohio Community Bancorporation, Inc., which statements were included to reflect its merger into United Bancorp, Inc., accounted for as a pooling of interests as discussed in Note 15. Such financial statements reflect total assets of $51,865,000 as of December 31, 1997 and net income of $1,000 and $46,000 for the years ended December 31, 1997 and 1996. Those statements were audited by other auditors, whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for Southern Ohio Community Bancorporation, Inc., is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of United Bancorp, Inc. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. /S/ CROWE, CHIZEK AND COMPANY LLP CROWE, CHIZEK AND COMPANY LLP Columbus, Ohio January 14, 1999 1998 ANNUAL REPORT 19 21 CONSOLIDATED BALANCE SHEETS UNITED BANCORP, INC.
----------------------------------- 1998 1997 ------------ ------------- ASSETS Cash and due from banks $ 11,321,751 $ 9,844,762 Federal funds sold 5,170,000 742,000 ------------ ------------ Total cash and cash equivalents 16,491,751 10,586,762 Securities available for sale, at fair value 75,791,853 46,003,146 Securities held to maturity (Estimated fair value of $22,886,295 in 1998 and $29,860,051 in 1997) 21,893,664 29,060,017 Total loans receivable 164,220,938 171,477,378 Allowance for loan losses (3,033,105) (3,038,522) ------------ ------------ Net loans receivable 161,187,833 168,438,856 Premises and equipment, net 6,980,647 6,530,127 Accrued interest receivable 2,184,745 1,975,580 Other real estate and repossessions 51,277 93,000 Other assets 911,127 919,825 ------------ ------------ Total assets $285,492,897 $263,607,313 ============ ============ LIABILITIES Demand deposits Non-interest bearing $21,033,047 $16,663,094 Interest-bearing 41,779,931 37,801,042 Savings deposits 57,090,992 58,295,180 Time deposits - under $100,000 87,242,122 89,421,470 Time deposits - $100,000 and over 21,964,280 21,307,866 ------------ ------------ Total deposits 229,110,372 223,488,652 Securities sold under agreements to repurchase 7,732,638 8,391,406 Other borrowed funds 19,700,230 4,278,018 Accrued expenses and other liabilities 1,628,908 1,736,600 ------------ ------------ Total liabilities 258,172,148 237,894,676 SHAREHOLDERS' EQUITY Common stock - $1 par value: 10,000,000 shares authorized; 2,800,298 - 1998 and 2,667,314 - 1997 issued and outstanding 2,800,298 2,667,314 Additional paid-in capital 17,801,437 15,551,467 Retained earnings 6,839,877 7,322,192 Accumulated other comprehensive income, net of tax (120,863) 171,664 ------------ ------------ Total shareholders' equity 27,320,749 25,712,637 ------------ ------------ Total liabilities and shareholders' equity $285,492,897 $263,607,313 ============ ============
See accompanying notes to the Consolidated Financial Statements. 1998 Annual Report 20 22 CONSOLIDATED STATEMENTS OF INCOME UNITED BANCORP, INC.
----------------------------------------------------- 1998 1997 1996 ------------- ------------ ------------ Interest and dividend income Loans, including fees $ 15,774,673 $ 16,144,767 $ 15,275,002 Taxable securities 3,703,294 3,155,327 2,856,783 Non-taxable securities 1,224,814 1,204,066 1,181,703 Federal funds sold 315,291 214,127 194,281 Dividends on Federal Home Loan Bank stock and other 108,349 82,876 59,322 ------------ ------------ ------------ Total interest and dividend income 21,126,421 20,801,163 19,567,091 Interest expense Deposits Demand 1,026,353 1,068,698 994,677 Savings 1,804,174 1,945,005 1,933,919 Time 6,059,086 5,884,211 5,570,365 Other borrowings 768,231 511,715 341,396 ------------ ------------ ------------ Total interest expense 9,657,844 9,409,629 8,840,357 ------------ ------------ ------------ NET INTEREST INCOME 11,468,577 11,391,534 10,726,734 Provision for loan losses 797,957 932,000 1,165,400 ------------ ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,670,620 10,459,534 9,561,334 Noninterest income Service charges on deposit accounts 749,526 721,167 723,414 Net realized gain on sales of securities 1,687 25,000 26,540 Net realized gain on sales of loans 139,037 139,005 - Other income 690,889 421,993 406,997 ------------ ------------ ------------ Total noninterest income 1,581,139 1,307,165 1,156,951 Noninterest expense Salaries and employee benefits 3,940,756 4,002,348 3,721,348 Occupancy and equipment 1,192,375 1,149,443 994,621 Professional services 311,335 405,545 227,940 Insurance 167,320 180,000 124,087 Franchise and other taxes 310,915 412,680 359,580 Advertising 243,452 254,577 237,684 Stationery and office supplies 215,978 229,255 216,431 Other expenses 1,625,558 1,311,811 1,390,582 ------------ ------------ ------------ Total noninterest expense 8,007,689 7,945,659 7,272,273 ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 4,244,070 3,821,040 3,446,012 Income tax expense 1,089,091 973,472 816,023 ------------- ------------ ------------ NET INCOME $ 3,154,979 $ 2,847,568 $ 2,629,989 ============= ============ ============ Earnings per common share - Basic $ 1.13 $ 1.02 $ 0.94 ============= ============ ============ Earnings per common share - Diluted $ 1.12 $ 1.01 $ 0.94 ============= ============ ============
See accompanying Notes to the Consolidated Financial Statements. 1998 Annual Report 21 23 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY UNITED BANCORP, INC.
----------------------------------------------------------------------------------------------- ACCUMULATED ADDITIONAL OTHER TOTAL COMMON PAID-IN RETAINED COMPREHENSIVE COMPREHENSIVE SHAREHOLDERS' STOCK CAPITAL EARNINGS INCOME INCOME EQUITY ------------ ---------------- ---------------- ----------------- ----------------- ---------- BALANCE AT JANUARY 1, 1996 $ 2,276,942 $ 9,429,840 $ 10,255,892 $ 251,199 $ 22,213,873 Net income 2,629,989 $ 2,629,989 2,629,989 10% Stock dividend 184,646 2,354,237 (2,538,883) Cash paid in lieu of fractional shares on 10% stock dividend (2,038) (2,038) Additional shares issued to fund Dividend Reinvestment Program 797 13,313 14,110 Cash dividends - $0.37 per share (874,115) (874,115) Cash dividends paid by Southern prior to merger (47,000) (47,000) Net change in unrealized gain/(loss) on securities available for sale (159,808) (159,808) (159,808) =========== Comprehensive Income $ 2,470,181 =========== ----------- ----------- ------------ --------- ------------- BALANCE AT DECEMBER 31, 1996 2,462,385 11,797,390 9,423,845 91,391 23,775,011 Net income 2,847,568 $ 2,847,568 2,847,568 10% Stock dividend 203,279 3,710,053 (3,913,332) Other changes- Southern prior to merger 21,068 21,068 Cash paid in lieu of fractional shares on 10% stock dividend (4,095) (4,095) Proceeds and tax benefit from exercise of stock options 1,650 22,956 24,606 Cash dividends - $0.42 per share (984,725) (984,725) Cash dividends paid by Southern prior to merger (47,069) (47,069) Net change in unrealized gain/(loss) on securities available for sale 80,273 80,273 80,273 =========== Comprehensive Income $ 2,927,841 =========== ----------- ----------- ------------ --------- ------------ BALANCE AT DECEMBER 31, 1997 2,667,314 15,551,467 7,322,192 171,664 25,712,637 Net income 3,154,979 3,154,979 3,154,979 5% Stock dividend 132,984 2,249,970 (2,382,954) Cash paid in lieu of fractional shares on 5% stock dividend (6,938) (6,938) Cash dividends - $0.47 per share (1,221,312) (1,221,312) Cash dividends paid by Southern prior to merger (26,090) (26,090) Net change in unrealized gain/(loss) on securities available for sale (292,527) (292,527) (292,527) =========== Comprehensive Income $ 2,862,452 =========== ----------- ----------- ------------ --------- ------------- BALANCE AT DECEMBER 31, 1998 $ 2,800,298 $17,801,437 $ 6,839,877 $(120,863) $ 27,320,749 =========== =========== ============ ========= =============
See accompanying Notes to the Consolidated Financial Statements. 1998 Annual Report 22 24 CONSOLIDATED STATEMENTS OF CASH FLOW UNITED BANCORP, INC.
------------ ----------- ----------- 1998 1997 1996 ------------ ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,154,979 $ 2,847,568 $ 2,629,989 Adjustments to reconcile net income to net cash from operating activities Depreciation and amortization 638,160 657,337 651,653 Provision for loan losses 797,957 932,000 1,165,400 Deferred taxes 59,865 (39,979) 1,050 Federal Home Loan Bank stock dividend (82,807) (49,803) (42,775) Gains on sale/call of securities (1,687) (25,000) (26,540) (Accretion)/amortization of securities, net (38,437) (2,437) 41,967 Gain on sale of loans (139,037) (139,005) - Amortization of mortgage servicing rights 29,035 3,198 - Gain on sale of assets (39,976) (22,772) - Net changes in accrued interest receivable and other assets (131,568) 244,385 (286,497) Net changes in accrued expenses and other liabilities (107,692) 48,903 (6,005) ------------ ----------- ----------- Net cash from operating activities 4,138,792 4,454,395 4,128,242 CASH FLOWS FROM INVESTING ACTIVITIES Securities available for sale Proceeds from sales 2,121,234 2,944,000 3,623,266 Proceeds from maturities/calls 38,021,972 16,408,000 12,294,000 Purchases (70,260,470) (28,706,107) (18,261,563) Securities held to maturity Proceeds from maturities/calls 8,532,005 5,705,000 5,151,765 Purchases (1,357,432) (1,001,774) (5,832,530) Net change in loans 6,135,586 (5,787,304) (10,141,621) Proceeds from sale of assets 492,208 129,641 59,000 Net purchases of premises and equipment (1,049,732) (805,254) (875,677) ------------ ----------- ----------- Net cash from investing activities (17,364,629) (11,113,798) (13,983,360) CASH FLOWS FROM FINANCING ACTIVITIES Net change in deposits 5,621,720 5,389,055 6,605,882 Net change in short-term borrowings 10,313,685 2,188,839 4,503,503 Proceeds from long-term debt 4,680,000 1,180,000 216,000 Principal payments on long-term debt (230,239) (46,149) (4,941) Cash dividends paid (1,247,402) (1,031,794) (921,115) Cash paid in lieu of fractional shares in stock dividend (6,938) (4,095) (2,038) Other equity changes in Southern prior to the merger - 21,000 - Proceeds from sale of common stock - 24,606 14,110 ------------ ----------- ----------- Net change from financing activities 19,130,826 7,721,462 10,411,401 ------------ ----------- ------------ Net change in cash and cash equivalents 5,904,989 1,062,059 556,283 Cash and cash equivalents at beginning of year 10,586,762 9,524,703 8,968,420 ------------ ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR $16,491,751 $10,586,762 $ 9,524,703 ============ =========== =========== Interest paid $ 9,745,853 $ 9,475,722 $ 8,797,440 Income taxes paid 905,554 826,765 1,021,844 Non-cash transfer from loans to other real estate and repossessions $ 317,480 $ 91,000 $ 24,869
See accompanying Notes to the Consolidated Financial Statements. 1998 Annual Report 23 25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNITED BANCORP, INC. NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of United Bancorp, Inc. ("Company") and its wholly owned subsidiaries, ("Banks"), The Citizens Savings Bank of Martins Ferry, Ohio ("CITIZENS"), The Citizens-State Bank of Strasburg, Strasburg, Ohio ("CITIZENS-STATE") and The Community Bank, Glouster, Ohio ("COMMUNITY"). All significant intercompany transactions and balances have been eliminated in consolidation. NATURE OF OPERATIONS/SEGMENTS: The Company's and Banks' revenues, operating income, and assets are primarily from the banking industry. Loan customers are mainly located in Belmont, Jefferson, Tuscarawas, Carroll, Athens, Hocking and Fairfield Counties and the surrounding localities in northeastern, eastern and southeastern Ohio, and include a wide range of individuals, business and other organizations. A major portion of loans are secured by various forms of collateral including real estate, business assets, consumer property and other items. Commercial loan repayment is expected from cash flows of the business. Real estate loans are secured by both residential and commercial real estate. CITIZENS conducts its business through its main office in Martins Ferry, Ohio and three branches in Bridgeport, Colerain and St. Clairsville, Ohio. CITIZENS-STATE conducts its business through its main office in Strasburg, Ohio and its four branches located in Dover, New Philadelphia, Sherrodsville, and Dellroy, Ohio. COMMUNITY conducts its business through its offices in Nelsonville, Glouster and Amesville, Ohio. Accordingly, all of the Company's banking operations are considered by Management to be aggregated in one reportable operating segment. USE OF ESTIMATES: To prepare financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, fair values of financial instruments and status of contingencies are particularly subject to change. CASH FLOW REPORTING: Cash and cash equivalents are defined as cash and due from banks and federal funds sold. Net cash flows are reported for customer loan and deposit transactions, securities sold under agreements to repurchase and short-term borrowings. SECURITIES: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Trading securities are carried at fair value, with changes in unrealized holding gains and losses included in income. Other securities such as Federal Home Loan Bank stock are carried at cost. Interest income includes amortization of purchase premiums and discounts. Realized gains and losses on sales are based on the amortized cost of the security sold. Securities are written down to fair value when a decline in fair value is not temporary. LOANS: Loans are reported at the principal balance outstanding, net of deferred loan fees and costs, and the allowance for loan losses. Loans held for sale are reported at the lower of cost or market, on an aggregate basis. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Interest income is not reported when full loan repayment is doubtful, typically when the loan is impaired or payments are past due over 90 days. Payments received on such loans are reported as principal reductions. ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation allowance for probable credit loss, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required based on past loan loss experience, known and inherent risks in the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged-off. 1998 ANNUAL REPORT 24 26 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNITED BANCORP, INC. NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ALLOWANCE FOR LOAN LOSSES: (CONTINUED) A loan is impaired when full payment under the loan terms is not expected. Impairment is evaluated in total for smaller-balance loans of similar nature such as residential mortgage, consumer, and credit card loans, and on an individual loan basis for other loans. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral. PREMISES AND EQUIPMENT: Premise and equipment are stated at cost less accumulated depreciation. Depreciation is computed over the assets useful lives on the straight-line method. These assets are reviewed for impairment when events indicate the carrying amount may not be recoverable. FORECLOSED ASSETS: Assets acquired in settlement of loans are initially recorded at estimated fair value at acquisition, establishing a new basis. After acquisition, a valuation allowance reduces the reported amount to the lower of the initial amount or fair value less costs to sell. Expenses, gains and losses on disposition and changes in the valuation allowance are reported in other expenses. LOAN SERVICING RIGHTS: Loan servicing rights are recognized as assets for purchased rights and for the allocated value of retained servicing rights on loans sold. Servicing rights are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights, using groupings of underlying loans with similar characteristics. Any impairment of a grouping is reported as a valuation allowance. IDENTIFIED INTANGIBLES: Identified intangibles include the value of depositor relationships purchased which are being amortized on an accelerated method over eight years. Identified intangibles also include a non-compete covenant and capitalized organizational costs, which are being amortized on a straight-line method over five years. Identified intangibles are assessed for impairment based on estimated undiscounted cash flows and written down if necessary. At year-end 1998 and 1997, identified intangibles net of accumulated amortization totaled $82,261 and $121,209 and are included in other assets in the accompanying consolidated balance sheets. REPURCHASE AGREEMENTS: Substantially all repurchase agreement liabilities represent amounts advanced by various customers. Securities are pledged to cover these liabilities, which are not covered by federal deposit insurance. EMPLOYEE BENEFITS: A defined benefit pension plan covers all employees who have completed 1,000 hours of service during an anniversary year, measured from their date of hire, who have attained age 21 and who were hired before age 60. The plan calls for benefits to be paid to eligible employees at retirement, based primarily upon years of service and compensation rates near retirement. Contributions to the plan reflect benefits attributed to employees' services to date, as well as services expected to be earned in the future. Plan assets consist of primarily common stock and certificates of deposit. The Company offers a 401(k) plan, which covers all employees who have attained the age of 21 and have completed one year of service. Eligible employees may contribute up to 15% of their compensation subject to a maximum statutory limitation. The Company may make a discretionary matching contribution equal to a percentage of each participant's elective deferral not to exceed 6% of the participant's annual compensation. Employee contributions are always vested. Employer contributions become 100% vested after 5 years of service. Pension expense is the net of service and interest cost, return on plans assets, and amortization of gains and losses not immediately recognized. STOCK COMPENSATION: Expense for employee compensation under stock option plans is reported as expense only if options are granted below market price at grant date. Pro forma disclosures of net income and earnings per share are provided in Note 9 as if the fair value method of Statement of Financial Accounting Standards ("SFAS") No. 123 was used for stock-based compensation. 1998 ANNUAL REPORT 25 27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNITED BANCORP, INC. NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES: - ------------- Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. STOCK DIVIDENDS: - ---------------- Dividends issued in stock are reported by transferring the market value of the stock issued from retained earnings to common stock and additional paid-in-capital. On November 17, 1998, a 5% stock dividend was approved for all shareholders of record on December 1, 1998 and distributed on December 18, 1998. On August 19, 1997, a 10% stock dividend was approved for all shareholders of record on September 2, 1997 and distributed on September 19, 1997. Additionally, on April 17, 1996, a 10% stock dividend was approved for all shareholders of record on May 20, 1996 and distributed on June 20, 1996. All per share data has been retroactively adjusted for the 5% stock dividend in 1998 and the 10% stock dividends in 1997 and 1996. FAIR VALUES OF FINANCIAL INSTRUMENTS: - ------------------------------------- Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed separately. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. The fair value estimates of existing on-and off-balance sheet financial instruments does not include the value of anticipated future business or the values of assets and liabilities not considered financial instruments. EARNINGS PER COMMON SHARE: - -------------------------- Basic earnings per common share (EPS) is based on net income divided by the weighted-average number of shares outstanding during the period. Diluted EPS shows the dilutive effect of additional common shares issuable under stock options. The weighted-average number of shares outstanding for basic EPS was 2,800,667 in 1998, 2,800,083 in 1997, and 2,798,346 in 1996. The weighted-average number of shares outstanding for diluted EPS, which includes the effect of stock options granted using the treasury stock method, was 2,826,520 in 1998, 2,818,134 in 1997, and 2,806,711 in 1996. The per share dilution of the stock options was $.01 in 1998 and 1997, while there was no per share dilution due to the stock options in 1996. 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. The accounting standard which requires reporting comprehensive income first applies for 1998, with prior information restated to be comparable. Other comprehensive income components and related taxes are as follows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997 1996 ----------------- ----------------- ----------------- Unrealized holding gains and (losses) on securities available for sale $(441,581) $145,807 $(215,563) Reclassification adjustment for (gains) and losses later recognized in income (1,687) (25,000) (26,540) ----------------- ----------------- ----------------- Net unrealized gains and (losses) (443,268) 120,807 (242,103) Tax effect 150,741 (40,534) 82,295 ----------------- ----------------- ----------------- Other comprehensive income $(292,527) $80,273 $(159,808) ================= ================= =================
RECLASSIFICATIONS: - ------------------ Some items in prior financial statements have been reclassified to conform to the current presentation. See accompanying Notes to the Consolidated Financial Statements. 1998 ANNUAL REPORT 26 28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNITED BANCORP, INC. NOTE 2 - SECURITIES Securities at year-end were as follows:
-------------------------------------------------------------------------- AMORTIZED GROSS GROSS ESTIMATED COST UNREALIZED GAINS UNREALIZED LOSSES FAIR VALUE ------------ ---------------- ----------------- ------------ AVAILABLE FOR SALE 1998 US Treasury obligations $ 1,497,454 $ 11,456 $ - $ 1,508,910 US Agency obligations 67,813,577 263,304 (571,165) 67,505,716 State and municipal obligations 2,118,311 79,742 (686) 2,197,367 Mortgage-backed obligations 3,009,643 19,743 (1,782) 3,027,604 Other securities 1,536,100 16,156 - 1,552,256 ------------ ---------------- ----------------- ------------ $ 75,975,085 $ 390,401 $ (573,633) $ 75,791,853 ============ ================ ================= ============ AVAILABLE FOR SALE 1997 US Treasury obligations $ 3,262,614 $ 45,015 $ - $ 3,307,629 US Agency obligations 37,033,149 201,129 (35,060) 37,199,218 State and municipal obligations 551,647 25,069 - 576,716 Mortgage-backed obligations 3,787,000 11,000 (13,000) 3,785,000 Other securities 1,108,700 25,883 - 1,134,583 ------------ ---------------- ----------------- ------------ $ 45,743,110 $ 308,096 $ (48,060) $ 46,003,146 ============ ================ ================= ============ HELD TO MATURITY 1998 State and municipal obligations $ 21,848,164 $ 996,352 $ (3,721) $ 22,840,795 Other securities 45,500 - - 45,500 ------------ ---------------- ----------------- ------------ $ 21,893,664 $ 996,352 $ (3,721) $ 22,886,295 ============ ================ ================= ============ HELD TO MATURITY 1997 US Agency obligations $ 7,500,869 $ - $ (26,919) $ 7,473,950 State and municipal obligations 21,559,148 827,707 (754) 22,386,101 ------------ ---------------- ----------------- ------------ $ 29,060,017 $ 827,707 $ (27,673) $ 29,860,051 ============ ================ ================= ============
Sales of securities available for sale were as follows:
1998 1997 1996 ------------ ---------------- ---------------- Proceeds $ 2,121,234 $ 2,944,000 $ 3,623,266 Gross gains 13,245 25,000 26,540 Gross losses 11,558 - -
Included above in gross gains for 1998, were gains of $10,278 resulting from securities called prior to maturity. 1998 ANNUAL REPORT 27 29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNITED BANCORP, INC. NOTE 2 - SECURITIES (CONTINUED) Contractual maturities of securities at year-end 1998 were as follows:
AVERAGE AMORTIZED ESTIMATED TAX EQUIVALENT AVAILABLE-FOR-SALE COST FAIR VALUE YIELD ----------- ------------ -------------- US TREASURY OBLIGATIONS Under 1 Year $ 1,497,454 $ 1,508,910 7.22% ----------- ----------- -------- Total 1,497,454 1,508,910 7.22% ----------- ----------- -------- US AGENCY OBLIGATIONS Under 1 Year 2,000,000 2,008,970 6.09% 1 - 2 Years 496,572 500,315 6.35% 2 - 5 Years 3,345,580 3,397,901 6.55% 5 - 10 Years 31,167,978 31,280,059 6.57% Over 10 Years 30,803,447 30,318,471 6.54% ----------- ----------- -------- Total 67,813,577 67,505,716 6.54% ----------- ----------- -------- MORTGAGE-BACKED SECURITIES 2 - 5 Years 1,026,077 1,028,715 6.65% 5 - 10 Years 922,089 929,162 7.00% Over 10 Years 1,061,477 1,069,727 7.11% ----------- ----------- -------- Total 3,009,643 3,027,604 6.92% ----------- ----------- -------- STATE AND MUNICIPAL OBLIGATIONS 2 - 5 Years 50,000 54,146 8.33% 5 - 10 Years 882,582 916,895 7.23% Over 10 Years 1,185,729 1,226,326 7.29% ----------- ----------- -------- Total 2,118,311 2,197,367 7.29% ----------- ----------- -------- Other securities Equity securities 1,536,100 1,552,256 7.25% ----------- ----------- -------- TOTAL SECURITIES AVAILABLE FOR SALE $75,975,085 $75,791,853 6.57% =========== =========== ========== AMORTIZED ESTIMATED TAX EQUIVALENT HELD TO MATURITY COST FAIR VALUE YIELD ----------- ----------- -------------- STATE AND MUNICIPAL OBLIGATIONS Under 1 Year $ 1,483,646 $ 1,525,512 9.43% 1 - 2 Years 2,589,731 2,684,162 8.19% 2 - 5 Years 11,429,165 11,998,309 8.08% 5 - 10 Years 5,380,496 5,646,571 7.64% Over 10 Years 965,126 986,241 6.93% ----------- ----------- -------- Total 21,848,164 22,840,795 8.02% ----------- ----------- -------- OTHER SECURITIES Equity Securities 45,500 45,500 7.00% ----------- ----------- ---------- TOTAL SECURITIES HELD TO MATURITY $21,893,664 $22,886,295 8.01% =========== =========== ==========
Securities with an amortized cost of $37,084,000 at December 31, 1998 and $38,077,000 at December 31, 1997 were pledged to secure public deposits, repurchase agreements and other liabilities as required or permitted by law. 1998 ANNUAL REPORT 28 30 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNITED BANCORP, INC. NOTE 3 - LOANS Year-end loans were as follows:
1998 1997 ------------ ------------- Commercial loans $ 12,911,864 $ 16,636,555 Commercial real estate loans 54,194,589 49,189,321 Real estate loans 49,437,908 49,856,700 Installment loans 47,676,577 55,794,802 ============ ============= Total loans $164,220,938 $ 171,477,378 ============ =============
Loans to directors and officers, their immediate families, affiliated corporations, and other entities in which they own more than a 10% voting interest are summarized below:
Aggregate balance - December 31, 1997 $ 3,207,040 New loans 1,373,880 Repayments (1,435,830) ------------ Aggregate balance - December 31, 1998 $ 3,145,090 ============
The activity in allowance for loan losses was as follows:
1998 1997 1996 --------------- --------------- ----------------- Balance January 1, $ 3,038,522 $ 2,755,987 $ 2,593,383 Provision charged to operating expense 797,957 932,000 1,165,400 Loans charged-off (1,051,403) (806,810) (1,090,241) Recoveries of previous charge-offs 248,029 157,345 87,445 --------------- --------------- ----------------- Balance December 31, $ 3,033,105 $ 3,038,522 $ 2,755,987 =============== =============== =================
Loans considered impaired under the provisions of SFAS No. 114 were not material during any of the periods presented. NOTE 4 - PREMISES AND EQUIPMENT Year-end premises and equipment were as follows:
1998 1997 --------------- --------------- Buildings and land $ 7,177,956 $ 6,555,704 Furniture and equipment 4,345,866 4,025,807 Leasehold improvements 263,977 263,977 Computer software 778,117 670,696 --------------- --------------- Total 12,565,916 11,516,184 Accumulated depreciation and amortization 5,585,269 4,986,057 --------------- --------------- Premises and equipment, net $ 6,980,647 $ 6,530,127 =============== ===============
1998 ANNUAL REPORT 29 31 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNITED BANCORP, INC. NOTE 4 - PREMISES AND EQUIPMENT (CONTINUED) On April 1, 1997, CITIZENS entered in to a five-year noncancelable operating lease for an in-store retail branch. The lessor is a business in which a director of the Company and CITIZENS holds an interest. The lease may be renewed for up to two additional five-year terms after March 31, 2002. Annual rent expense during the initial term of the lease is $22,500. Annual rent during the second and third five-year terms would be $26,000 and $30,000, respectively. Rental expense was $22,500 and $16,875 for years ended December 31, 1998 and 1997, respectively. Future minimum lease payments are as follows: 1999 $ 22,500 2000 22,500 2001 22,500 2002 5,625 -------- $ 73,125 ========
NOTE 5-TIME DEPOSITS The scheduled maturities of time deposits as of December 31, 1998 are as follows:
Under $100,000 $100,000 and Over ------------ ------------ 1999 $ 53,845,247 $ 13,577,177 2000 16,237,235 4,455,343 2001 9,402,736 1,460,018 2002 3,515,612 1,839,929 2003 1,984,830 - Thereafter 2,256,462 631,813 ------------ ------------ $ 87,242,122 $ 21,964,280 ============ ============
NOTE 6 - BORROWED FUNDS Securities sold under agreements to repurchase are financing arrangements whereby the Company sells securities and agrees to repurchase the identical securities at the maturities of the agreements at specified prices. Physical control is maintained for all securities sold under repurchase agreements. Information concerning securities sold under agreements to repurchase is summarized as follows:
1998 1997 ------------ ----------- Average daily balance during the year $ 7,817,000 $ 8,211,000 Average interest rate during the year 4.66% 4.81% Maximum month-end balance during the year $ 9,109,372 $ 9,315,829
Securities underlying these agreements at year-end were as follows:
1998 1997 ------------------- -------------------- Carrying value of securities $ 12,005,203 $ 11,278,531 Fair value of securities 12,107,466 11,379,751
1998 ANNUAL REPORT 30 32 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNITED BANCORP, INC. NOTE 6 - BORROWED FUNDS (CONTINUED) Other borrowed funds consists of a cash management line of credit and fixed-rate borrowings from the Federal Home Loan Bank ("FHLB") of Cincinnati, Ohio as well as a Treasury, Tax and Loan Note and federal funds purchased. At year-end 1998, the FHLB cash management line of credit enabled the Banks to borrow up to $22,000,000. The line of credit must be renewed on an annual basis. FHLB variable rate borrowings of $9,175,000 were outstanding related to the cash management line of credit at year-end 1998. The weighted average interest rate on these borrowings was 5.02% at year-end 1998. No variable-rate borrowings were outstanding on this line of credit with an original maturity of less than 90 days at year-end 1997. The Banks had FHLB fixed-rate borrowings totaling $5,794,601 at year-end 1998 and $1,344,841 at year-end 1997. The weighted-average interest rates on the borrowings were 5.7% and 6.7%, respectively with monthly principal payments due through January 2014. Additionally, as members of the Federal Home Loan Bank system at year-end 1998, the Banks had the ability to obtain up to $18,268,000 based on current FHLB stock ownership, or up to 25% of their total assets in advances from the FHLB subject to increased share ownership of FHLB stock and 1-4 family residential real estate loan collateral availability. At December 31, 1998, the Company and its Banks have cash management lines of credit (excluding FHLB cash management lines of credit) enabling borrowings up to $20.6 million with various correspondent banks. $4,650,000 and $2,000,000 were outstanding under these lines of credit at year-end 1998 and 1997, respectively. Borrowings under the Treasury, Tax, and Loan Note totaled $80,629 and $933,176 at year-end 1998 and 1997, respectively. At year-end 1998, required annual principal payments are as follows:
1999 $ 14,640,039 2000 582,134 2001 467,656 2002 379,274 2003 311,516 Thereafter 3,319,611 ------------- $ 19,700,230 =============
NOTE 7 - BENEFIT PLANS Pension expense includes the following:
1998 1997 1996 ----------------- -------------------- ----------------- Service cost $ 119,740 $ 106,097 $ 110,710 Interest cost 113,018 107,510 108,376 Expected return on assets (134,690) (104,394) (102,887) Amortization of prior service cost, transition liability and net gain 3,900 3,900 3,900 --------- --------- --------- Pension expense $ 101,968 $ 113,113 $ 120,099 ========== ========== ==========
Significant assumptions used:
1998 1997 1996 ---- ---- ---- Discount rate on benefit obligation 7.00% 7.00% 7.00% Rate of compensation increase 4.00% 4.50% 4.50% Expected long-term rate of return on assets 7.50% 7.00% 7.00%
1998 ANNUAL REPORT 31 33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNITED BANCORP, INC. NOTE 7 - BENEFIT PLANS (CONTINUED) Information about the pension plan was as follows:
1998 1997 ---- ---- Change in benefit obligation: Beginning benefit obligation $ 1,647,864 $ 1,501,340 Service cost 119,740 106,097 Interest cost 113,018 107,510 Actuarial (gain) loss (34,693) 32,631 Benefits paid (85,957) (99,714) ----------- ----------- Ending benefits obligation 1,759,972 1,647,864 Changes in plan assets, at fair value Beginning plan assets 1,797,636 1,493,113 Actual return 271,586 286,354 Employer contributions 93,627 117,883 Benefits paid (85,957) (99,714) ----------- ----------- Ending plan assets 2,076,892 1,797,636 Funded status 316,920 149,772 Unrecognized net actuarial gain (309,683) (138,094) Unrecognized prior service cost 10,700 14,600 ----------- ----------- Prepaid benefit cost $ 17,937 $ 26,278 =========== ===========
The Company's 401(k) matching percentage was 25% of the employees' contribution for 1998, 1997 and 1996. The cash contribution and related expense included in salaries and employee benefits totaled $27,098 in 1998, $24,602 in 1997 and $24,431 in 1996. Southern had a profit sharing plan covering substantially all employees who had attained age 21 which was terminated at the time of the merger. Southern's contributions were discretionary and made only out of the net profits. Contributions were allocated to employees accounts based upon the level of compensation of each employee. Discretionary contributions were $36,000 and $0 in 1997 and 1996. The Company entered into severance agreements with certain holding company officers. The original agreements were for a one-year period and extend automatically each year unless notice is given prior to June 30. No benefits are payable unless there has been a change in control and change in duties of the officers occurs. NOTE 8 - INCOME TAXES Income tax expense consists of:
1998 1997 1996 ---- ---- ---- Current expense $ 1,029,406 $ 1,013,451 $ 814,973 Deferred expense/(benefit) 59,685 (39,979) 1,050 ----------- ----------- --------- Total income tax expense $ 1,089,091 $ 973,472 $ 816,023 =========== =========== =========
1998 ANNUAL REPORT 32 34 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNITED BANCORP, INC. NOTE 8 - INCOME TAXES (CONTINUED) The effective tax rate differs from the statutory federal income tax rate as follows:
1998 1997 1996 ---- ---- ---- Statutory rate 34.00% 34.00% 34.00% ----------- ----------- ----------- Income taxes computed at the statutory federal tax rate $ 1,442,984 $ 1,299,154 $ 1,171,644 Add/(subtract) tax effect of: Tax exempt interest income (385,484) (396,064) (367,508) Other 31,591 70,382 11,887 ----------- ------------ ----------- Total income tax expense $ 1,089,091 $ 973,472 $ 816,023 =========== =========== ===========
The sources of gross deferred tax assets and gross deferred tax liabilities are as follows:
1998 1997 ---- ---- ITEMS GIVING RISE TO DEFERRED TAX ASSETS Allowance for loan losses in excess of tax reserve $ 821,563 $ 834,358 Amortization of intangibles 73,232 73,942 Deferred compensation 49,856 36,944 Unrealized loss on securities available for sale 62,369 - Alternative minimum tax credit - 43,000 Other - 18,878 ---------- ---------- Total deferred tax assets 1,007,020 1,007,122 ITEMTS GIVING RISE TO DEFERRED TAX LIABILITIES Depreciation (527,484) (497,461) Deferred loan costs, net (130,687) (144,255) Unrealized gain on securities available for sale - (88,372) Accretion (25,948) (62,774) FHLB stock dividends (57,630) (34,714) Mortgage servicing rights (44,764) (21,193) Difference in accrued income, net of acrued expenses (62,639) (80,000) Other (9,572) (21,113) ---------- ---------- Total deferred tax liabilities (858,724) (949,882) ---------- ---------- Net deferred tax asset $ 148,296 $ 57,240 ========== ==========
NOTE 9 - STOCK OPTIONS The Company maintains a nonqualified stock option plan for directors and bank holding company officers. The exercise price for options granted under this plan will be no less than 100% of the fair market value of the shares on the date of grant adjusted for stock dividends and stock splits. A summary of the status of the Company's stock option plan as of year-end 1998, 1997 and 1996 and changes during those years is presented in the table following. All share and per share prices have been restated to reflect the 5% stock dividend distributed on December 18, 1998 and the 10% stock dividends distributed on September 19, 1997 and June 20, 1996. 1998 ANNUAL REPORT 33 35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNITED BANCORP, INC. NOTE 9 - STOCK OPTIONS (CONTINUED)
1998 1997 1996 ----------------------------- --------------------------- --------------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ----------------- ----------- ----------- --------------- --------- ---------------- Outstanding at beginning of 83,849 $ 12.35 82,409 $ 11.78 84,488 $ 11.77 year Granted 12,075 19.66 5,250 20.95 1,733 12.35 Exercised - - (1,906) 1.77 - - Forfeited (6,353) 11.77 (1,905) 11.77 (3,812) 11.77 ---------- -------- -------- Outstanding at end of year 89,571 13.38 83,849 12.35 82,409 11.78 ========== ======== ======== Remaining shares available for grant at year-end 25,914 31,636 34,981 Options exercisable at year-end 12,540 - -
The weighted-average fair value per share of options granted during 1998, 1997 and 1996 was $6.64, $8.24 and $5.44, respectively. The fair value of options granted was estimated using the Black-Scholes options pricing model with the following weighted-average information: risk-free interest rate of 4.63%, 5.88% and 6.84% for 1998, 1997 and 1996, respectively; expected life of 7 years and 2 months for 1998, 8 years for 1997, 9 years and 3 months for 1996; expected volatility of stock price of 31.31%, 33.30% and 40.40% for 1998, 1997 and 1996, respectively; and expected dividends per year of 2.02%, 2.02% and 2.67% for 1998, 1997 and 1996, respectively. The following table summarized information about stock options outstanding at December 31, 1998:
NUMBER NUMBER EXERCISE OUTSTANDING DATE OF EXERCISABLE PRICE AT 12/31/98 EXPIRATION AT 12/31/98 ----- ----------- ---------- ----------- $ 11.77 70,512 11/22/05 9,871 12.35 1,733 11/22/05 243 20.95 5,250 11/22/05 735 24.52 1,575 11/22/05 221 18.93 10,500 11/22/05 1,470
The options are first exercisable after February 21, 2005, except in the event certain financial performance criteria are met, in which case such options may become exercisable in installments up to 40% at December 31, 1998, an additional 20% at December 31, 1999, and 100% at December 31, 2000. At December 31, 1998, certain financial performance criteria were met to vest 14% of the options granted. All options become immediately exercisable upon retirement, death or in the event of a change in control of the Company. 1998 ANNUAL REPORT 34 36 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNITED BANCORP, INC. NOTE 9 - STOCK OPTIONS (CONTINUED) SFAS No. 123, which became effective for 1996, requires pro forma disclosures for options granted during 1995 and in subsequent years by corporations that do not adopt its fair value accounting method for stock-based employee compensation. Accordingly, the following pro forma information presents net income and earnings per share had the Standard's fair value method been used to measure compensation cost for stock option plans. No compensation expense was actually recognized for any of the periods presented.
1998 1997 1996 ------------------- ------------------- ----------------------- Net income as reported $ 3,154,979 $ 2,847,568 $2,629,989 Proforma net income 3,129,243 2,815,841 2,602,313 Earnings per share as reported - Basic $1.13 $1.02 $ 0.94 Earnings per share as reported - Diluted 1.12 1.01 0.94 Proforma earnings per share - Basic 1.12 1.01 0.93 Proforma earnings per share - Diluted 1.11 1.00 0.93
NOTE 10 - COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES There are various contingent liabilities that are not reflected in 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 financial condition or results of operations. Some financial instruments are used in the normal course of business to meet the financing needs of customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. These involve, to varying degrees, credit and interest-rate risk in excess of the amounts reported in the financial statements. Exposure to credit loss if the other party does not perform is represented by the contractual amount for commitments to extend credit, standby letters of credit and financial guarantees written. The same credit policies are used for commitments and conditional obligations as are used for loans. The amount of collateral obtained, if deemed necessary, upon extension of credit is based on management's credit evaluation. Collateral varies, but may include accounts receivable, inventory, property, equipment, income-producing commercial properties, residential real estate and consumer assets. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being used, total commitments do not necessarily represent the future cash requirement. 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 year-end is as follows:
1998 1997 ----------------- ----------------- Commitments to extend credit $ 16,655,000 $ 16,715,000 Credit Card Lines 541,000 348,000 Standby letters of credit 269,000 244,000
At year-end 1998, and included above, commitments to make fixed-rate loans at current market rates totaled $843,000 with the interest rates on those fixed-rate commitments ranging from 7.75% to 8.25%. There were no fixed-rate commitments or standby letters of credit at year-end 1997. At year-end 1998 and 1997, reserves of $1,116,000 and $692,000 were required as deposits with the Federal Reserve or as cash on hand. These reserves do not earn interest. 1998 ANNUAL REPORT 35 37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNITED BANCORP, INC. NOTE 11 - CONCENTRATIONS OF CREDIT RISK The Banks grant commercial, commercial real estate, real estate and installment loans to customers mainly in Belmont, Jefferson, Tuscarawas, Carroll, Athens, Hocking and Fairfield Counties and the surrounding localities. The Banks also grant commercial and commercial real estate loans in the Columbus, Ohio area. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, commercial real estate and residential real estate. At December 31, 1998, and 1997, total commercial and commercial real estate loans made up 40.9% and 38.4% respectively of the loan portfolio, with 28.4% and 23.4% of these loans secured by commercial real estate and business assets mainly in the Columbus, Ohio area. Installment loans account for 29.0% and 32.5% of the loan portfolio and are secured by consumer assets including automobiles, which account for 84.7% and 84.9%, respectively, of the installment loan portfolio. Real estate loans comprise 30.1% and 29.1% of the loan portfolio as of December 31, 1998 and 1997, respectively, and primarily include first mortgage loans on residential properties and home equity lines of credit. Included in cash and due from banks and federal funds sold as of December 31, 1998 and 1997, is $7,971,837 and $3,617,047, respectively on deposit with Mellon Bank, NA, Pittsburgh, Pennsylvania. NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate fair values for financial instruments. The carrying amount is considered to estimate fair value for cash and cash equivalents, deposit liabilities subject to immediate withdrawal, short-term borrowings, mortgage-servicing rights, accrued interest receivable and payable and variable-rate loans that reprice at intervals of less than six months. Securities fair values are based on quoted market prices or, if no quotes are available, on the rate and term of the security and on information about the issuer. For fixed-rate loans that reprice less frequently than each six months, time deposits and long-term debt, the fair value is estimated by a discounted cash flow analysis using current market rates for the estimated life and credit risk. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values, where applicable. Fair value of loans held for sale is based on market estimates. The fair value of off-balance sheet items was not material at year-end 1998 and 1997. The estimated year-end fair values of financial instruments were:
1998 1997 ------------------------------------------------ (Dollars in thousands) CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE --------- --------- --------- --------- Financial assets: Cash and cash equivalents $ 16,492 $ 16,492 $ 10,587 $ 10,587 Securities available for sale 75,792 75,792 46,003 46,003 Securities held to maturity 21,894 22,886 29,060 29,860 Loans receivable, net 161,188 162,148 168,439 166,265 Mortgage servicing rights 132 132 62 62 Accrued interest receivable 2,185 2,185 1,976 1,976 Financial liabilities: Demand and savings deposits $(119,904) $(119,904) $(112,759) $(112,759) Time deposits (109,206) (111,294) (110,729) (112,534) Short-term borrowings (13,906) (13,906) (2,934) (2,934) Repurchase Agreements (7,733) (7,733) (8,391) (8,391) Long-term debt (5,794) (6,718) (1,345) (1,460) Accrued interest payable (807) (807) (895) (895)
NOTE 13 - REGULATORY MATTERS The Company and Banks are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements. 1998 Annual Report 36 38 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNITED BANCORP, INC. NOTE 13 - REGULATORY MATTERS (CONTINUED) 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. At year-end, consolidated and Bank only actual capital levels and minimum levels (in thousands) were:
MINIMUM REQUIRED MINIMUM REQUIRED TO BE WELL CAPITALIZED FOR CAPITAL UNDER PROMPT CORRECTIVE ACTUAL ADEQUACY PURPOSES ACTION REGULATIONS --------------------- -------------------- ----------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO -------- ------ -------- ----- -------- ----- 1998 Total capital (to risk weighted assets) Consolidated $ 29,512 17.1 % $ 13,798 8.0 % $ 17,248 10.0 Citizens-Martins Ferry 13,632 13.2 8,263 8.0 10,328 10.0 Citizens-Strasburg 6,563 14.7 3,582 8.0 4,478 10.0 Community 4,259 18.2 1,872 8.0 2,340 10.0 Tier 1 capital (to risk weighted assets) Consolidated $ 27,345 15.9 % $ 6,899 4.0 % $ 10,349 6.0 Citizens-Martins Ferry 12,433 12.0 4,131 4.0 6,197 6.0 Citizens-Strasburg 5,999 13.4 1,791 4.0 2,687 6.0 Community 3,959 16.9 936 4.0 1,404 6.0 Tier 1 capital (to average assets) Consolidated $ 27,345 10.1 % $ 10,794 4.0 % $ 13,493 5.0 Citizens-Martins Ferry 12,433 8.4 5,914 4.0 7,392 5.0 Citizens-Strasburg 5,999 8.5 2,831 4.0 3,539 5.0 Community 3,959 7.7 2,049 4.0 2,561 5.0 1997 Total capital (to risk weighted assets) Consolidated $ 27,678 16.3 % $ 13,558 8.0 % $ 16,948 10.0 % Citizens-Martins Ferry 12,696 12.4 8,172 8.0 10,215 10.0 Citizens-Strasburg 5,969 14.5 3,288 8.0 4,110 10.0 Community 4,255 16.2 2,109 8.0 2,636 10.0 Tier 1 capital (to risk weighted assets) Consolidated $ 25,548 15.0 % $ 6,779 4.0 % $ 10,169 6.0 % Citizens-Martins Ferry 11,418 11.2 4,086 4.0 6,129 6.0 Citizens-Strasburg 5,451 13.3 1,644 4.0 2,466 6.0 Community 3,920 14.9 1,054 4.0 1,582 6.0 Tier 1 capital (to average assets) Consolidated $ 25,548 9.6 % $ 10,648 4.0 % $ 13,310 5.0 % Citizens-Martins Ferry 11,418 7.9 5,775 4.0 7,219 5.0 Citizens-Strasburg 5,451 8.1 2,703 4.0 3,379 5.0 Community 3,920 7.2 2,170 4.0 2,713 5.0
The Company and Banks at year-end 1998 and 1997 were categorized as well capitalized. Management is not aware of any conditions subsequent to their last regulatory exams that would change the Company's or the Banks' capital category. 1998 Annual Report 37 39 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNITED BANCORP, INC. NOTE 14 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS The Company's primary source of funds to pay dividends to shareholders is the dividends it receives from the Banks. The Banks are subject to certain restrictions on the amount of dividends that they may declare without prior regulatory approval. At year-end 1998, $974,000 of retained earnings was available for dividend declaration without prior regulatory approval. Following are condensed parent company financial statements: Condensed Balance Sheets December 31, 1998 and 1997
1998 1997 ------------- ------------- Assets: Cash and cash equivalents $ 1,717,020 $ 164,082 Certificates of deposit - 283,090 Securities available for sale, at fair value 2,824,108 - Investment in subsidiaries 22,560,485 21,304,774 Loans to subsidiaries - 4,095,000 Other assets 402,572 138,231 ------------- ------------- $ 27,504,188 $ 25,985,177 ============= ============= Liabilities and shareholders' equity: Other liabilities $ 183,439 $ 272,540 Shareholders' equity 27,320,749 25,712,637 ------------- ------------- Total liabilities and shareholders' equity $ 27,504,188 $ 25,985,177 ============= =============
Condensed Statements of Income and Comprehensive Income Years ended December 31, 1998, 1997 and 1996
1998 1997 1996 ----------- ----------- ----------- Operating income Dividends from subsidiaries $ 1,855,599 $ 5,140,734 $ 1,008,831 Interest and dividend income from securities and fed funds 244,410 -- -- Other income 43,687 19,756 12,296 ----------- ----------- ----------- Total operating income 2,143,696 5,160,490 1,021,127 Operating expenses 305,612 276,873 141,113 ----------- ----------- ----------- Income before income taxes and (distributions in excess of)/equity in undistributed net income 1,838,084 4,883,617 880,014 Income tax expense (benefit) 20,043 (20,110) (57,250) ----------- ----------- ----------- Income before (distributions in excess of)/equity in undistributed earnings of subsidiaries 1,818,041 4,903,727 937,264 (Distributions in excess of)/equity in undistributed earnings of subsidiaries 1,336,938 (2,056,159) 1,692,725 ----------- ----------- ----------- Net income 3,154,979 2,847,568 2,629,989 Other comprehensive income - change in unrealized holding gain on securities available for sale (292,527) 80,273 (159,808) ----------- ----------- ----------- Comprehensive income $ 2,862,452 $ 2,927,841 $ 2,470,181 =========== =========== ===========
1998 ANNUAL REPORT 38 40 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNITED BANCORP, INC. NOTE 14 - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (CONTINUED) Condensed Statements of Cash Flows Years ended December 31, 1998, 1997 and 1996
1998 1997 1996 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,154,979 $ 2,847,568 $ 2,629,989 Adjustments to reconcile net income to net cash from operating activities: Distributions in excess of/(equity in undistributed) earnings of subsidiaries (1,574,231) 2,056,159 (1,692,725) Net change in other assets and other liabilities (365,690) 134,371 (28,953) Amortization of intangibles 17,197 17,200 18,412 ----------- ----------- ----------- Net cash from operating activities 1,232,255 5,055,298 926,723 CASH FLOWS FROM INVESTING ACTIVITIES Net change in certificates of deposit 283,090 (10,760) (9,945) Securities available for sale Purchases (2,803,067) -- -- Loans to subsidiaries, net of repayments 4,095,000 (4,095,000) -- ----------- ----------- ----------- Net cash from investing activities 1,575,023 (4,105,760) (9,945) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid to shareholders (1,247,402) (1,031,794) (921,115) Proceeds from sale of common stock -- 45,606 14,110 Cash paid in lieu of fractional shares (6,938) (4,095) (2,038) ----------- ----------- ----------- Net cash from financing activities (1,254,340) (990,283) (909,043) ----------- ----------- ----------- NET CHANGE IN CASH 1,552,938 (40,745) 7,735 CASH AT BEGINNING OF YEAR 164,082 204,827 197,092 ----------- ----------- ----------- CASH AT END OF YEAR $ 1,717,020 $ 164,082 $ 204,827 =========== =========== ===========
1998 ANNUAL REPORT 39 41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNITED BANCORP, INC. NOTE 15 - ACQUISITION Effective July 8, 1998, Southern Ohio Community Bancorporation, Inc. ("Southern"), a $50 million bank holding company headquartered in Athens County, Ohio and the parent company of COMMUNITY affiliated with the Company in a transaction accounted for as a pooling of interests. The Company issued 429,000 shares of common stock to the stockholders of Southern based on an exchange ratio of 11 shares of the Company's common stock for each outstanding share of Southern common stock. The historical financial statements of the Company have been restated to show the Company and Southern on a combined basis. Separate results for the Company and Southern are as follows:
Six Months Ended Twelve Months Ended June 30, December 31, 1998 1997 1996 ------ -------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net interest income Company $4,513 $ 8,859 $ 8,259 Southern 1,227 2,533 2,468 ------ -------- ---------- Combined $5,740 $ 11,392 $ 10,727 ====== ======== ========== Net income Company $1,501 $ 2,847 $ 2,584 Southern (137) 1 46 ------ -------- ---------- Combined $1,364 $ 2,848 $ 2,630 ====== ======== ========== Net income per share - Basic Company $ 0.64 $ 1.20 $ 1.09 Southern (0.15) (0.18) (0.15) ------ -------- ---------- Combined $ 0.49 $ 1.02 $ 0.94 ====== ======== ========== Net income per share - Diluted Company $ 0.63 $ 1.19 $ 1.09 Southern (0.15) (0.18) (0.15) ------ -------- ---------- Combined $ 0.48 $ 1.01 $ 0.94 ====== ======== ==========
NOTE 16 - IMPACT OF RECENT ACCOUNTING STANDARDS Beginning January 1, 2000, a new accounting standard will require all derivatives to be recorded at fair value. Unless designated as hedges, changes in these fair values will be recorded in the income statement. Fair value changes involving hedges will generally be recorded in the income statement. Fair value changes involving hedges will generally be recorded by offsetting gains and losses on the hedge and on the hedged item, even if the fair value of the hedged item is not otherwise recorded. This is not expected to have an effect on the Company. Mortgage loans originated in mortgage banking have not been converted into securities in the past. However, a new accounting standard for 1999 will allow classifying these securities as available for sale, trading, or held to maturity, instead of the current requirement to classify as trading. This is not expected to have a material effect on the Company. NOTE 17 - SUBSEQUENT EVENT (UNAUDITED) On January 28, 1999, the Company acting through CITIZENS consummated its previously announced branch purchase from Belmont National Bank. CITIZENS has assumed certain deposit and other liabilities of approximately $11 million of this branch and purchased the real estate at fair market value. This transaction was accounted for as a purchase, and accordingly, the assets and liabilities have been recorded on the respective fair market value as the date of acquisition. The intangible assets from this acquisition are not material to the Company's financial statements. 1998 ANNAUL REPORT 40 42 DIRECTORS AND OFFICERS OF UNITED BANCORP, INC. UNITED BANCORP, INC. [PHOTO] Directors, left to right, back row: L. E. Richardson, Jr., Dr. Leon F. Favede, Richard L. Riesbeck, Herman E. Borkoski, James W. Everson, John H. Clark, Jr.; front row: Errol C. Sambuco, Matthew C. Thomas, John M. Hoopingarner, Michael J. Arciello. [PHOTO] Officers, left to right: James A. Lodes, James W. Everson, Harold W. Price, Randall M. Greenwood, Alan M. Hooker, Norman F. Assenza, Jr. 1998 ANNUAL REPORT 41 43 DIRECTORS AND OFFICERS UNITED BANCORP, INC. - --------------------------------------------------------------------------------
DIRECTORS OF UNITED BANCORP, INC. Michael J. Arciello(3)...........................Retired Vice President of Finance, Nickles Bakeries, Inc., Navarre, Ohio Herman E. Borkoski(2).........................................President, Borkoski Funeral Homes, Inc., Tiltonsville, Ohio John H. Clark, Jr.(1,3)..................................................Foundry Owner (Retired), Wheeling, West Virginia James W. Everson(1)...................................Chairman, President & Chief Executive Officer, United Bancorp, Inc. and the Citizens Savings Bank, Martins Ferry, Ohio Dr. Leon F. Favede(3).......................................................................Optometrist, Bridgeport, Ohio John M. Hoopingarner(3).................General Manager, Muskingum Watershed Conservancy District, New Philadelphia, Ohio L.E. Richardson, Jr.................................................Retired President, The Community Bank, Glouster, Ohio Richard L. Riesbeck(1,3)....................................President, Riesbeck Food Markets, Inc., St. Clairsville, Ohio Errol C. Sambuco(2)....................Director of Strategic Planning, Wheeling Pittsburgh Steel, Wheeling, West Virginia Matthew C. Thomas(1,2).................................................President, M.C. Thomas Insurance, Bridgeport, Ohio OFFICERS OF UNITED BANCORP, INC. James W. Everson............................................................Chairman, President & Chief Executive Officer Norman F. Assenza, Jr...........................................................Vice President - Operations and Secretary Randall M. Greenwood..................................................Vice President - Chief Financial Officer, Treasurer Alan M. Hooker............................................................................Vice President - Administration James A. Lodes...................................................................................Vice President - Lending Harold W. Price...........................................................................Vice President - Administration DIRECTORS OF THE CITIZENS-STATE BANK, STRASBURG, OHIO Michael J. Arciello(1,2)........................Retired Vice President of Finance, Nickles Bakeries, Inc., Navarre, Ohio James W. Everson(1)..................................Chairman, President & Chief Executive Officer, United Bancorp, Inc. and The Citizens Savings Bank, Martins Ferry, Ohio John R. Herzig(2)................................................President, Toland-Herzig Funeral Homes, Strasburg, Ohio Dwain R. Hicks.........................................President, Hicks Consulting and Investing, New Philadelphia, Ohio John M. Hoopingarner(1)................General Manager, Muskingum Watershed Conservancy District, New Philadelphia, Ohio Michael A. Ley(2)......................................President and Owner, Robert's Men's Shops, New Philadelphia, Ohio Harold W. Price(1).......................President and Chief Executive Officer, The Citizens-State Bank, Strasburg, Ohio DIRECTORS OF THE COMMUNITY BANK, GLOUSTER, OHIO James W. Everson(1)...................................Chairman, President & Chief Executive Officer, United Bancorp, Inc. and The Citizens Savings Bank, Martins Ferry, Ohio Paul J. Gerig.............................................................Attorney at Law, Gerig and Gerig, Athens, Ohio Alan M. Hooker(1)................................President & Chief Executive Officer, The Community Bank, Glouster, Ohio Samuel J. Jones(2)........................................................................Business Owner, Glouster, Ohio Dean A. Kasler(2).................................................................................Farmer, Glouster, Ohio Philip D. Kasler(2).............................................................Farming and Real Estate, Amesville, Ohio Joseph D. Kittle..................................................................Retired Business Owner, Glouster, Ohio Harold W. Price............................President & Chief Executive Officer, The Citizens-State Bank, Strasburg, Ohio L. E. Richardson, Jr.(1)...........................................Retired President, The Community Bank, Glouster, Ohio DIRECTORS OF THE CITIZENS SAVINGS BANK, MARTINS FERRY, OHIO Herman E. Borkoski(2)........................................President, Borkoski Funeral Homes, Inc., Tiltonsville, Ohio John H. Clark, Jr.(1)...................................................Foundry Owner (Retired), Wheeling, West Virginia James W. Everson(1).......................................................Chairman, President & Chief Executive Officer, The Citizens Savings Bank, Martins Ferry, Ohio Dr. Leon F. Favede ....................................................................... Optometrist, Bridgeport, Ohio Richard L. Riesbeck(1).....................................President, Riesbeck Food Markets, Inc., St. Clairsville, Ohio Errol C. Sambuco(2)...................Director of Strategic Planning, Wheeling Pittsburgh Steel, Wheeling, West Virginia Matthew C. Thomas(1,2)................................................President, M.C. Thomas Insurance, Bridgeport, Ohio Donald A. Davison, Director Emeritus 1963-1997........................United Bancorp, Inc. and The Citizens Savings Bank Albert W. Lash, Director Emeritus 1975-1996...........................United Bancorp, Inc. and The Citizens Savings Bank
1 = Executive Committee 2 = Audit Committee 3 = Compensation Committee 1998 ANNUAL REPORT 42 44 MANAGEMENT'S YEAR 2000 DISCUSSION UNITED BANCORP, INC. - -------------------------------------------------------------------------------- YEAR 2000 In April, 1997, United Bancorp (the "Company") management began its commitment for evaluating the Year 2000 (Y2K) impact on its internal and external Information Systems (IS). Understanding the problem was the first approach management took in its evaluation. The assessment stage began by conducting extensive inventories of all systems within the Company. All systems were then assigned priorities from 1-9 where 1 represented the most significant systems for testing and evaluation. A priority 9 represented the least critical systems. The following were major factors contributing to the assignment of the priorities. - Ascertain which systems constitute a material Y2K risk to our customers. - How quickly and effectively can a contingency plan be implemented if systems fail? - What is the potential impact to the Company's liquidity if systems fail? Some Priority 1 systems were also labeled as "mission critical," and are summarized below. Although other Priority 1 systems are also important to the Company, they are not deemed to be critical to the Company's operation. - BancTec Banker 80-II - Bisys/Document Solutions POD/Power Proof - Fedline - Personal Computers and Operating Systems BANCTEC BANKER 80-II Banker 80-II is the core account processing software used by the Company for processing and recording customer deposit and loan accounts and transactions as well as the Company's General Ledger. Banker 80-II produces information critical to the proper operation of the Company and its affiliates and serves as the database for virtually all financial and regulatory reporting. Banker 80-II is licensed from and maintained by BancTec, Inc. and is utilized by more than 400 community banks nationwide. Banker 80-II Y2K compliant software release was tested by BancTec in March, 1998 and released to the financial institution user base in May, 1998. The Company installed this Y2K compliant release in September, 1998. Since every Banker 80-II bank may be different, individual bank testing had to be done; however, "Proxy" testing could occur within an organization which used the same hardware and software. Therefore, the Company's lead bank, The Citizens Savings Bank, was identified as the base used for testing. Y2K Committee members of The Citizens Savings Bank then developed test scripts and established a baseline test date of December 16, 1998. Due to the "mission critical" nature of Banker 80-II, it was determined that testing of all the Federal Financial Institutions Examination Council's critical dates was necessary. Testing occured during January, 1999 within our own production system on a "like" but separate database using a third-party software package for advancing dates. The test revealed no significant deficiencies in Banker 80-II's ability to properly process and record transactions and reports beyond the year 2000. To summarize, testing produced "Satisfactory" results. Results from the testing phase were made available to the affiliate banks who then performed their "Proxy" testing, and concurred with the findings of The Citizens Savings Bank. FEDLINE Fedline is the operating system software utilized to process transactions and communicate with the Federal Reserve Bank. The most significant transactions processed with the Federal Reserve are wire transfers, ACH, savings bonds, and cash ordering. The Federal Reserve has developed a comprehensive testing schedule that allows banks to operate in a "test" mode during certain times and dates. The Company will complete testing of Fedline by March 20, 1999. No notable deficiencies have been identified during testing already performed. BISYS/DOCUMENT SOLUTIONS The Company's Item Processing system uses software developed by Bisys/Document Solutions (DSI) that utilizes NCR equipment to create images of internal and external transactions accepted by bank personnel. The equipment separates the items into unique categories; such as, checks and deposits, savings, and loans. The software is then used to balance each transaction allowing checks drawn on other banks to be magnetically encoded by the equipment at a later time. 1998 ANNUAL REPPORT 43 45 MANAGEMENT'S YEAR 2000 DISCUSSION UNITED BANCORP, INC. - -------------------------------------------------------------------------------- The Company's software and equipment has been certified for Y2K compliance by the vendors of their particular systems. The Company anticipates testing to be significantly complete by March 31, 1999. PERSONAL COMPUTERS AND OPERATING SYSTEMS All personal computers were tested using a third-party software package designed specifically for Y2K testing. The PC's found to be non-compliant were either taken out of production and replaced or utilized where the application software was not date sensitive. Standardization is essential with the way technology has grown; therefore, all personal computers with date sensitive applications have been standardized with the core operating system Windows95/98, which contains only minor and insignificant Y2K issues. OTHER IS SYSTEMS The following list identifies software the Company feels required some level of Y2K testing or verification. Procedures included written verification with vendors, review of vendor testing plans, methodology and results and, where deemed necessary, operating the software in a Year 2000 testing mode. No notable Y2K issues were apparent, with overall results "Satisfactory." - Advantage - Payroll processing - Banker systems, Inc. Loan Processor Laser - Utilized for loan document preparation - Best Software FAS!Encore - Fixed Asset accounting - First Tennessee - Portfolio Accounting Services - Intuit Quickbooks - Accounts Payable software - Lotus 1-2-3/Microsoft Excel - Spreadsheet applications - Lotus Amipro/Microsoft Word - Word processing software - Midwest Payment Systems (MPS) - ATM and check card processor - Money Access Service (MAC) - ATM and check card processor OTHER OPERATING SYSTEMS The Company has evaluated other operating system, including Heating, Ventilation, Air Conditioning and Security, and considers all to be Y2K compliant. Whereas, some systems are computerized, most are mechanical and Y2K is not an issue. Y2K compliance statements have been recorded on those systems containing computerized chips. American Electric Power serves as the electric company for the Company's Operations Center and experiences periodic power outages. In the event of a power outage, the Operations Center is having a Natural Gas backup generator installed and thoroughly tested prior to year-end. This is being done to back-up all future power outages. A Communications giant TCI services telecommunications; however, aside from obtaining documentation regarding their Y2K compliance, testing by the Company is virtually impossible. CUSTOMER Y2K EVALUATION Management of each affiliate completed a review of all customers with aggregate loans exceeding designated amounts to assess whether any customer had a significant risk to a Y2K related failure which would significantly impact their business, and alter their ability to repay their loans. Management's procedures included a review of the customers' most recent loan grading, review of collateral and, in most cases, completion of a detailed Y2K questionnaire which was reviewed directly with the borrower. Based on this information, Management assigned an overall Y2K risk grade. In the aggregate, the Company rated its overall risk due to potential customer Y2K issues as low. Individual borrowers will continue to be monitored as new loan requests or line of credit renewals are considered for approval by loan committee. Similarly deposit customers, who qualify by virtue of size or risk, were also contacted in order to have them think about the problem and to develop an awareness of their status. CURRENT "WORST CASE" SCENARIO The Company is confident that its internal systems will not be significantly impacted by Y2K. However, the Company does anticipate that some problems may occur with customer systems, and with our suppliers and customers. There is some potential for slower collection of payments that may result in increases in past dues and decreases in depository balances. The Company will maintain higher levels of liquidity in the final quarter of 1999 and continuing into the Year 2000 to offset this risk. No material Y2K related issues by foreign nations or companies have been identified. 1998 ANNUAL REPORT 44 46 FIVE YEAR PERFORMANCE SUMMARY(1) (UNAUDITED) - --------------------------------------------------------------------------------
$(THOUSANDS, EXCEPT RATIOS) 1998 1997 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME AND EXPENSE: Interest income $ 21,126 $ 20,802 $ 19,567 $ 18,667 $ 16,134 Interest expense 9,657 9,410 8,840 8,511 7,031 Provision for loan losses 798 932 1,165 1,204 411 Noninterest income 1,581 1,307 1,156 1,104 1,032 Noninterest expense 8,008 7,946 7,272 7,141 6,875 Income tax expense 1,089 973 816 660 634 Net income 3,155 2,848 2,630 2,255 2,215 PER COMMON SHARE DATA: Net income, basic $ 1.13 $ 1.02 $ 0.94 $ 0.81 $ 0.79 Net income, diluted 1.12 1.01 0.94 0.81 0.79 Cash dividends paid 0.47 0.42 0.37 0.33 0.24 Book value 9.76 9.18 8.49 7.94 7.14 BALANCE SHEET: Loans outstanding, net $ 161,188 $ 168,439 $ 163,760 $ 154,776 $ 139,383 Deposits 229,110 223,489 218,100 211,495 204,618 Total Assets 285,493 263,607 252,966 240,189 233,201 OPERATING RATIOS: Return on average assets 1.17% 1.10% 1.06% 0.94% 0.99% Net interest margin(2) 4.48 4.62 4.58 4.52 4.38 Efficiency ratio(3) 56.37% 57.50% 58.34% 60.43% 64.79% EQUITY RATIO: Return on average shareholder's equity 11.80% 11.48% 11.44% 10.63% 11.38% CREDIT QUALITY: Net charge-offs to average loans 0.48% 0.38% 0.62% 0.20% 0.18% Ending allowance for loan losses 1.85 1.77 1.66 1.65 1.20
(1) All share and per share amounts have been restated to reflect common stock dividends. (2) As a percent of average earning assets. (3) Noninterest expense divided by tax equivalent net interest income plus noninterest income, excluding security gains. 47 UNITED BANCORP, INC. MARTINS FERRY, OHIO AND ITS SUBSIDIARIES WWW.UNITEDBANCORP.COM THE CITIZENS SAVINGS BANK BRIDGEPORT, COLERAIN, JEWETT, ST. CLAIRSVILLE MARTINS FERRY, OHIO WWW.THECITIZENSBANK.COM 325 Howard Street Bridgeport, Ohio 43912-0466 740-635-0494 318 East Main Street Jewett, Ohio 43986 740-946-2411 Auto Teller 201 S. Fourth at Hickory Street Martins Ferry, Ohio 43935-0010 740-633-0494 72541 Sharon Road Colerain, Ohio 43916-0158 740-635-0445 104 Plaza Drive St. Clairsville, Ohio 43950-0011 740-695-0445 Operations Center 201 S. Fourth at Hickory Street Martins Ferry, Ohio 43935-0010 740-633-0445 888-275-5566 Main Office 201 S. Fourth at Hickory Street Martins Ferry, Ohio 43935-0010 740-633-0445 THE CITIZENS-STATE BANK DELLROY, DOVER, NEW PHILADELPHIA, SHERRODSVILLE, STRASBURG 2 Smith Street Dellroy, Ohio 44620-0099 330-735-2311 141 N. Broadway New Philadelphia, Ohio 44663 330-343-4413 2909 N. Wooster Avenue Dover, Ohio 44622 330-364-8888 15 Sherrod Avenue Sherrodsville, Ohio 44675-0222 740-269-8421 202 N. Wooster Avenue Strasburg, Ohio 44680-0165 330-878-5551 THE COMMUNITY BANK, GLOUSTER AMESVILLE, GLOUSTER, NELSONVILLE 2 East State Street Amesville, Ohio 45711 740-448-2212 Auto Teller 42 Toledo Street Glouster, Ohio 45732 740-767-3121 88 High Street Glouster, Ohio 45732 740-767-3121 873 Chestnut Street Nelsonville, Ohio 45764 740-753-4313 EX-23.1 3 CONSENT OF CROWE, CHIZEK AND COMPANY LLP 1 EXHIBIT 23.1 UNITED BANCORP, INC. FORM 10-K CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the prospectus constituting part of the registration statement on Form S-3 for United Bancorp, Inc., Dividend Reinvestment Plan of our report dated January 14, 1999 on the 1998 consolidated financial statements of United Bancorp, Inc., which report is incorporated by reference in this Form 10-K. Crowe, Chizek and Company LLP Columbus, Ohio March 26, 1999 EX-23.2 4 CONSENT OF ROBB DIXON FRANCIS DAVIS ONESON & CO. 1 EXHIBIT 23.2 UNITED BANCORP, INC. FORM 10-K CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference on Form 10-K of United Bancorp, Inc. of our report dated February 20, 1998, on our audits of the consolidated financial statements of Southern Ohio Community Bancorporation, Inc., Glouster, Ohio as of December 31, 1997 and for the years ended December 31, 1997 and 1996. Robb, Dixon, Francis, Davis, Oneson & Company Granville, Ohio March 26, 1999 EX-27.(1998) 5 FDS -YEAR ENDED 12/31/1998
9 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 11,322 0 5,170 0 75,792 21,894 22,886 161,188 3,033 285,493 229,110 16,908 1,629 10,525 0 0 2,800 24,521 285,493 15,775 4,928 423 21,126 8,889 9,657 11,469 798 2 8,008 4,244 3,155 0 0 3,155 1.13 1.12 4.48 399 150 0 0 3,039 1,051 247 3,033 3,033 0 1,001
EX-27.(1997) 6 FDS - YEAR ENDED 12/31/1997
9 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 9,845 0 742 0 46,003 29,060 29,860 171,477 3,039 263,607 223,489 8,391 1,737 4,278 0 0 2,667 23,045 263,607 16,145 4,443 214 20,802 8,898 9,410 11,392 932 25 7,946 3,821 2,848 0 0 2,848 1.02 1.01 4.62 480 319 0 0 2,756 806 157 3,039 3,039 0 508
EX-27.(1996) 7 FDS - YEAR ENDED 12/31/1996
9 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 8,398 0 1,127 0 36,423 33,807 34,326 166,516 2,756 252,966 218,100 9,136 1,744 211 0 0 2,462 21,313 252,966 15,275 4,098 194 19,567 8,499 8,840 10,727 1,165 27 7,272 3,446 2,630 0 0 2,630 0.94 0.94 4.58 667 256 0 0 2,593 1,090 88 2,756 2,756 0 702
EX-27.(1998)(1Q) 8 FDS - QUARTER ENDED 3/31/1998
9 3-MOS MAR-31-1998 JAN-01-1998 MAR-31-1998 8,094 0 7,544 0 49,663 28,902 28,675 172,920 2,934 274,212 228,607 10,301 1,573 7,424 0 0 2,433 23,874 274,212 4,050 1,189 60 5,299 2,250 2,457 2,842 117 0 1,985 1,101 830 0 0 830 0.30 0.29 4.39 568 223 0 0 3,039 254 31 2,933 2,933 0 596
EX-27.(1998)(2Q) 9 FDS - QUARTER ENDED 6/30/98
9 3-MOS JUN-30-1998 APR-01-1998 JUN-30-1998 8,500 0 6,135 0 48,448 26,652 26,451 168,663 3,053 265,118 224,476 10,638 1,337 2,087 0 0 2,433 24,147 265,118 8,075 2,393 147 10,615 4,517 4,875 5,740 548 0 4,076 1,815 1,364 0 0 1,364 0.51 0.50 4.59 436 1,693 0 0 3,039 603 71 3,055 3,055 0 594
EX-27.(1997)(1Q) 10 FDS - QUARTER ENDED 3/31/1997
9 3-MOS MAR-31-1997 JAN-01-1997 MAR-31-1997 11,807 0 2,754 0 35,135 32,753 33,185 163,541 2,790 255,457 220,086 9,588 1,744 0 0 0 2,228 21,811 255,457 3,921 1,070 37 5,028 2,147 2,256 2,601 171 46 1,911 979 755 0 0 755 0.26 0.25 4.44 617 365 0 0 2,756 173 36 2,790 2,790 0 538
EX-27.(1997)(2Q) 11 FDS - QUARTER ENDED 6/30/1997
9 3-MOS DEC-31-1997 APR-01-1997 JUN-30-1997 9,959 0 936 0 39,977 31,157 31,230 168,614 2,849 257,504 219,091 11,444 1,520 648 0 0 2,230 22,571 257,504 7,924 2,180 90 10,194 4,349 4,576 5,618 490 0 3,817 1,875 1,445 0 0 1,445 0.51 0.50 4.66 603 223 0 0 2,756 464 67 2,849 2,849 0 459
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