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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
-------------------------------------
Commission File Number: 0-16540
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UNITED BANCORP, INC.
--------------------
(Exact name of registrant as specified in its charter.)
OHIO 34-1405357
---- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
201 SOUTH 4TH STREET, MARTINS FERRY, OHIO 43935-0010
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(740) 633-0445
--------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------
(Former name, former address and former fiscal year, if changed since last
report)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN EXCHANGE ACT RULE 12b-2).
YES NO X
--- ---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF THE ISSUER'S CLASSES OF COMMON
STOCK AS OF THE LATEST PRACTICABLE DATE.
COMMON STOCK, $1.00 PAR VALUE 3,223,074 SHARES AS OF APRIL 20, 2003
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UNITED BANCORP, INC.
TABLE OF CONTENTS
FORM 10-Q
PART I FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets.............................................................................3
Condensed Consolidated Statements of Income.......................................................................4
Condensed Consolidated Statements of Shareholders' Equity.........................................................5
Condensed Consolidated Statements of Cash Flows...................................................................6
Notes to the Condensed Consolidated Financial Statements.....................................................7 - 14
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................................................15 - 21
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk............................................22 - 23
ITEM 4. Controls and Procedures....................................................................................24
PART II OTHER INFORMATION
ITEM 1.
Legal Proceedings................................................................................................25
ITEM 2.
Changes in Securities and Use of Proceeds........................................................................25
ITEM 3.
Default Upon Senior Securities...................................................................................25
ITEM 4.
Submission of Matters to a Vote of Security Holders..............................................................25
ITEM 5.
Other Information................................................................................................25
ITEM 6.
Exhibits and Reports on Form 8-K.................................................................................25
SIGNATURES.........................................................................................................26
CERTIFICATIONS..................................................................................................27-31
See accompanying notes to the condensed consolidated financial statements
2
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
PART I
FINANCIAL INFORMATION
(UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
------------- -------------
ASSETS
Cash and due from financial institutions $ 12,024,712 $ 8,248,554
Federal funds sold 16,625,000 2,040,000
------------- -------------
Total cash and cash equivalents 28,649,712 10,288,554
Securities available for sale 124,922,101 132,869,484
Securities held to maturity
(Estimated fair value of $14,070,508 at 03/31/03 and $13,634,177 at 12/31/02) 13,317,796 12,925,517
Loans receivable
Commercial loans 22,645,538 21,059,890
Commercial real estate loans 69,344,831 69,286,653
Real estate loans 53,151,657 52,535,507
Installment loans 44,776,490 45,005,864
------------- -------------
Total loans receivable 189,918,516 187,887,914
Allowance for loan losses (3,005,291) (2,971,116)
------------- -------------
Net loans receivable 186,913,225 184,916,798
Premises and equipment, net 8,775,306 8,932,684
Other real estate and repossessions 642,565 698,065
Core deposit and other intangible assets 65,917 75,452
Bank owned life insurance 6,942,319 6,860,601
Accrued interest receivable 2,346,553 2,602,091
Other assets 1,757,933 1,541,823
------------- -------------
Total Assets $ 374,333,427 $ 361,711,069
============= =============
LIABILITIES
Demand deposits
Noninterest-bearing $ 27,148,119 $ 26,843,394
Interest-bearing 53,037,565 48,341,237
Savings deposits 50,771,065 50,382,277
Time deposits - under $100,000 131,205,597 131,794,499
Time deposits - $100,000 and over 36,999,056 42,840,126
------------- -------------
Total deposits 299,161,402 300,201,533
Federal funds purchased 11,556,000 2,055,000
Securities sold under agreements to repurchase 8,742,171 7,009,799
Other borrowed funds 16,461,587 17,347,429
Accrued expenses and other liabilities 6,686,950 2,942,446
------------- -------------
Total Liabilities 342,608,110 329,556,207
SHAREHOLDERS' EQUITY
Preferred stock, without par value: 2,000,000 shares authorized and unissued
Common stock - $1 Par Value: 10,000,000 shares authorized;
3,411,307 issued at March 31, 2003 and December 31, 2002 3,411,307 3,411,307
Additional paid in capital 25,619,466 25,651,879
Retained earnings 4,856,074 4,472,544
Treasury stock at cost, 188,265 shares at 03/31/03 and 163,065 shares at 12/31/02 (2,115,855) (1,772,127)
Shares held by deferred compensation plan at cost, 40,325 shares at 03/31/03
and 42,828 at 12/31/02 (540,318) (572,731)
Accumulated other comprehensive income, net of tax 494,643 963,990
------------- -------------
Total Shareholders' Equity 31,725,317 32,154,862
------------- -------------
Total Liabilities and Shareholders' Equity $ 374,333,427 $ 361,711,069
============= =============
See accompanying notes to the condensed consolidated financial statements
3
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
2003 2002
---------- ----------
Interest and dividend income
Loans, including fees $3,415,724 $3,725,942
Taxable securities 1,381,853 1,546,438
Non-taxable securities 349,292 259,596
Federal funds sold 23,948 61,625
Dividends on Federal Home Loan Bank stock and other 43,835 39,757
---------- ----------
Total interest and dividend income 5,214,652 5,633,358
Interest expense
Deposits
Demand 118,203 116,271
Savings 63,213 107,656
Time 1,638,064 2,079,499
Other borrowings 209,836 160,744
---------- ----------
Total interest expense 2,029,316 2,464,170
---------- ----------
Net interest income 3,185,336 3,169,188
Provision for loan losses 150,000 157,500
---------- ----------
Net interest income after provision for loan losses 3,035,336 3,011,688
Noninterest income
Service charges on deposit accounts 248,287 218,818
Net realized gains on sales of securities 201,928 46,345
Net realized gains on sales of loans 24,909 37,461
Other income 269,105 142,587
---------- ----------
Total noninterest income 744,229 445,211
---------- ----------
Noninterest expense
Salaries and employee benefits 1,315,824 1,281,344
Occupancy and equipment 420,356 364,740
Professional services 122,288 88,441
Insurance 62,149 67,984
Franchise and other taxes 96,650 88,913
Advertising 74,135 73,786
Stationary and office supplies 83,230 62,220
Amortization of intangibles 4,500 16,500
Other expenses 534,779 490,974
---------- ----------
Total noninterest expense 2,713,911 2,534,902
Income before income taxes 1,065,654 921,997
Income tax expense 263,129 241,839
---------- ----------
Net income $ 802,525 $ 680,158
========== ==========
Earnings per common share - Basic $ 0.25 $ 0.21
Earnings per common share - Diluted $ 0.25 $ 0.21
Dividends per common share $ 0.13 $ 0.12
See accompanying notes to the condensed consolidated financial statements
4
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON TREASURY ACCUMULATED
STOCK ADDITIONAL STOCK AND OTHER
PAID IN DEFERRED RETAINED COMPREHENSIVE
SHARES DOLLARS CAPITAL PLAN EARNINGS INCOME (LOSS) TOTAL
--------- ---------- ----------- ----------- ---------- ----------- ------------
BALANCE AT JANUARY 1, 2002 3,126,886 $3,249,227 $23,619,610 $(1,382,613) $5,044,540 $ (56,569) $ 30,474,195
Net income 680,158 680,158
Net change in unrealized loss on
securities available for sale (1,718,047) (1,718,047)
----------
Comprehensive loss (1,037,889)
Shares purchased for deferred
compensation plan (4,130) 47,197 (47,197) --
Shares distributed from deferred
compensation plan 3,708 (45,680) 45,680 --
Purchases of treasury stock, at cost (15,330) (183,960) (183,960)
Cash dividends - $0.12 per share (409,350) (409,350)
--------- ---------- ----------- ----------- ---------- ----------- ------------
BALANCE AT MARCH 31, 2002 (UNAUDITED) 3,111,134 $3,249,227 $23,621,127 $(1,568,090) $5,315,348 $(1,774,616) $ 28,842,996
========= ========== =========== =========== ========== =========== ============
BALANCE AT JANUARY 1, 2003 3,205,414 $3,411,307 $25,651,879 $(2,344,858) $4,472,544 $ 963,990 $ 32,154,862
Net income 802,525 802,525
Net change in unrealized loss on
securities available for sale (469,347) (469,347)
----------
Comprehensive loss 333,178
Shares purchased for deferred
compensation plan (1,527) 17,879 (17,879) --
Shares distributed from deferred
compensation plan 4,030 (50,292) 50,292 --
Purchases of treasury stock, at cost (25,200) (343,728) (343,728)
Cash dividends - $0.13 per share (418,995) (418,995)
--------- ---------- ----------- ----------- ---------- ----------- ------------
BALANCE AT MARCH 31, 2003 (UNAUDITED) 3,182,717 $3,411,307 $25,619,466 $(2,656,173) $4,856,074 $ 494,643 $ 31,725,317
========= ========== =========== =========== ========== =========== ============
See accompanying notes to the condensed consolidated financial statements
5
UNITED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 802,525 $ 680,158
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 238,981 210,363
Provision for loan losses 150,000 157,500
Deferred taxes 71,900 (151,710)
Bank owned life insurance income (90,211) --
Federal Home Loan Bank stock dividend (42,400) (49,500)
Net realized gains on sales of securities (201,928) (46,345)
(Accretion)/amortization of premium and discount on securities, net 113,830 (11,078)
Net realized gains on sales of loans (24,909) (37,461)
Net realized gains on sale of real estate owned (9,500) (3,800)
Amortization of mortgage servicing rights 22,671 16,987
Net changes in accrued interest receivable and other assets 55,194 (75,376)
Net changes in accrued expenses and other liabilities 3,914,389 (259,039)
------------ ------------
Net cash from operating activities 5,000,542 430,699
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale
Sales 12,612,512 6,025,781
Maturities, prepayments and calls 36,662,624 15,216,919
Purchases (41,915,483) (21,466,778)
Securities held to maturity
Maturities, prepayments and calls 202,000 --
Purchases (587,183) (1,637,004)
Net change in loans (2,146,427) (50,580)
Purchases of premises and equipment (77,103) (14,195)
Proceeds from sale of real estate owned 65,000 17,000
------------ ------------
Net cash from (used) in investing activities 4,815,940 (1,908,857)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits (1,040,131) 3,445,527
Net change in borrowings 10,347,530 (7,838,479)
Treasury stock purchases (343,728) (183,960)
Cash dividends paid (418,995) (409,350)
------------ ------------
Net cash from (used) in financing activities 8,544,676 (4,986,262)
------------ ------------
Net change in cash and cash equivalents 18,361,158 (6,464,420)
Cash and cash equivalents at beginning of year 10,288,554 23,389,756
------------ ------------
Cash and cash equivalents at end of period $ 28,649,712 $ 16,925,336
============ ============
Interest paid $ 2,033,603 $ 2,562,439
Income taxes paid -- 65,346
See accompanying notes to the condensed consolidated financial statements
6
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements are prepared without audit
and reflect all adjustments which, in the opinion of management, are
necessary to present fairly the financial position of United Bancorp,
Inc. ("Company") at March 31, 2003, and its results of operations and
cash flows for the periods presented. All such adjustments are normal
and recurring in nature. The accompanying condensed consolidated
financial statements have been prepared in accordance with the
instructions for Form 10-Q and, therefore, do not purport to contain
all the necessary financial disclosures required by accounting
principles generally accepted in the United States of America that
might otherwise be necessary in the circumstances and should be read in
conjunction with the consolidated financial statements, and related
notes thereto, of the Company for the year ended December 31, 2002
included in its annual report. Reference is made to the accounting
policies of the Company described in the notes to the consolidated
financial statements contained in its 2002 Annual Report to
Shareholders. The Company has consistently followed these policies in
preparing this Form 10-Q.
PRINCIPLES OF CONDENSED CONSOLIDATION:
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, (collectively, "the
Banks") The Citizens Savings Bank, Martins Ferry, Ohio ("CITIZENS") and
The Community Bank, Lancaster, Ohio ("COMMUNITY"). All significant
intercompany transactions and balances have been eliminated in
consolidation.
NATURE OF OPERATIONS:
The Company's revenues, operating income and assets are
primarily from the banking industry. Accordingly, all of the Company's
banking operations are considered by Management to be aggregated in one
reportable operating segment. Customers are mainly located in Athens,
Belmont, Carroll, Fairfield, Harrison, Hocking, Jefferson, and
Tuscarawas Counties and the surrounding localities in northeastern,
eastern, southeastern, and central Ohio and include a wide range of
individuals, business and other organizations. CITIZENS conducts its
business through its main office in Martins Ferry, Ohio and nine
branches in Bridgeport, Colerain, Dellroy, Dover, Jewett, New
Philadelphia, St. Clairsville, Sherrodsville, and Strasburg, Ohio.
COMMUNITY conducts its business through its main office in Lancaster
and four branches in Amesville, Glouster, Lancaster, and Nelsonville,
Ohio. The Company's primary deposit products are checking, savings, and
term certificates of deposits, and its primary lending products are
residential mortgage, commercial, and installment loans. Substantially
all loans are secured by specific items of collateral including
business assets, consumer assets, and real estate. Commercial loans are
expected to be repaid from cash flow from operations of business. Real
estate loans are secured by both residential and commercial real
estate. Other financial instruments which potentially represent
concentrations of credit risk include deposit accounts in other
financial institutions.
USE OF ESTIMATES:
To prepare financial statements in conformity with accounting
principles generally accepted in the United States of America,
management makes estimates and assumptions based
7
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
on available information. These estimates and assumptions affect the
amounts reported in the financial statements and the disclosures
provided and future results could differ. The allowance for loan
losses, fair values of financial instruments and status of
contingencies are particularly subject to change.
INCOME TAXES:
Income tax expense is based on the effective tax rate expected
to be applicable for the entire year. Income tax expense is the total
of the current year income tax due or refundable and the change in
deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities computed using enacted tax rates. A valuation allowance, if
needed, reduces deferred tax assets to the amount expected to be
realized.
EARNINGS AND DIVIDENDS PER SHARE:
Basic earnings per common share ("EPS") is net income divided
by the weighted-average number of shares outstanding during the period.
Diluted EPS includes the dilutive effect of additional potential common
shares issuable under stock options. Earnings and dividends per share
are restated for all stock dividends through the date of issuance of
the financial statements.
The components used in the earnings per share computation were as
follows:
THREE MONTHS ENDED
March 31,
2003 2002
---------- ----------
BASIC
Net income $ 802,525 $ 680,158
========== ==========
Weighted average common shares outstanding 3,186,734 3,273,938
========== ==========
Basic earnings per common share $ 0.25 $ 0.21
========== ==========
DILUTED
Net income $ 802,525 $ 680,158
========== ==========
Weighted average common shares outstanding for
basic earnings per common share 3,186,734 3,273,938
Add: Dilutive effects of assumed exercise of stock
options 12,359 9,205
---------- ----------
Average shares and dilutive potential common shares 3,199,093 3,283,143
========== ==========
Diluted earnings per common share $ 0.25 $ 0.21
========== ==========
Number of stock options not considered in computing
diluted earnings per share due to antidilutive nature 21,057 21,057
Weighted average exercise price $ 9.69 $ 9.69
8
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
EARNINGS AND DIVIDENDS PER SHARE (CONTINUED):
The interim period disclosures for the stock option plan
as required under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 148 "Accounting for Stock Based
Compensation - Transition and Disclosure" have been omitted due to no
activity in the option plan.
COMPREHENSIVE INCOME:
Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes net
unrealized gains and losses on securities available for sale which are
recognized as a separate component of equity. The detailed components
of the net change in unrealized gains (losses) on securities available
for sale are as follows:
THREE MONTHS ENDED
MARCH 31,
2003 2002
----------- -----------
Net change in unrealized losses on securities available for sale:
Unrealized holding losses on available
for sale securities arising during period $ (509,204) $(2,558,177)
Reclassification adjustment for gains
later recognized in income (201,928) (46,345)
----------- -----------
(711,132) (2,604,522)
Tax effects thereon 241,785 886,474
----------- -----------
Net change in unrealized losses
on securities available for sale: $ (469,347) $(1,718,048)
=========== ===========
9
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. SECURITIES:
Securities were as follows:
------------------------------------------------------------
ESTIMATED GROSS GROSS
FAIR VALUE UNREALIZED GAINS UNREALIZED LOSSES
------------ ---------------- -----------------
AVAILABLE FOR SALE - MARCH 31, 2003
U.S. Government and federal agency $ 68,756,161 $ 721,800 $ (42,402)
State and municipal obligations 21,262,030 309,636 (145,142)
Mortgage-backed securities 28,053,331 53,820 (145,239)
Collateralized mortgage obligations 2,992,985 -- (16,608)
------------ ------------ ------------
Total debt securities 121,064,507 1,085,256 (349,391)
------------ ------------ ------------
Other securities 3,857,594 13,594 --
------------ ------------ ------------
$124,922,101 $ 1,098,850 $ (349,391)
============ ============ ============
AVAILABLE FOR SALE - DECEMBER 31, 2002
U.S. Government and federal agency $ 93,261,759 $ 1,186,116 $ (17,179)
State and municipal 20,713,901 310,894 (58,552)
Mortgage-backed 14,074,772 50,763 (31,647)
Collateralized mortgage obligations 998,589 2,752 --
------------ ------------ ------------
Total debt securities 129,049,021 1,550,525 (107,378)
------------ ------------ ------------
Other securities 3,820,463 18,200 (756)
------------ ------------ ------------
$132,869,484 $ 1,568,725 $ (108,134)
============ ============ ============
GROSS GROSS
CARRYING UNRECOGNIZED UNRECOGNIZED FAIR VALUE
AMOUNT GAINS LOSSES
----------- ----------- ----------- -----------
HELD TO MATURITY - MARCH 31, 2003
State and municipal obligations $13,317,796 $ 754,991 $ (2,279) $14,070,508
=========== =========== =========== ===========
HELD TO MATURITY - DECEMBER 31, 2002
State and municipal obligations $12,925,517 $ 712,282 $ (3,622) $13,634,177
=========== =========== =========== ===========
Sales of securities available for sale were as follows:
THREE MONTHS ENDED
MARCH 31,
2003 2002
----------- -----------
Proceeds $12,612,512 $ 6,025,781
Gross gains 201,928 46,345
10
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. SECURITIES: (CONTINUED)
Contractual maturities of securities at March 31, 2003 were as
follows:
AVAILABLE FOR SALE AMORTIZED ESTIMATED
COST FAIR VALUE
------------- -------------
U.S. government and federal agency obligations
Under 1 Year $ -- $ --
1 - 5 Years 1,128,296 1,132,855
5 - 10 Years 12,475,301 12,495,886
Over 10 Years 54,473,166 55,127,420
------------- -------------
Total 68,076,763 68,756,161
------------- -------------
State and municipal obligations
Under 1 Year 3,894,520 3,961,363
1 - 5 Years 927,971 993,723
5 - 10 Years 6,577,627 6,715,452
Over 10 Years 9,697,418 9,591,492
------------- -------------
Total 21,097,536 21,262,030
------------- -------------
Mortgage backed securities
5 - 10 Years 11,845,163 11,869,552
Over 10 Years 16,299,587 16,183,779
------------- -------------
Total 28,144,750 28,053,331
------------- -------------
Collateralized mortgage obligations
5 - 10 Years 1,478,900 1,471,082
Over 10 Years 1,530,693 1,521,903
------------- -------------
Total 3,009,593 2,992,985
------------- -------------
Other investments
Equity securities 3,844,000 3,857,594
------------- -------------
Total securities available for sale $ 124,172,642 $ 124,922,101
============= =============
HELD TO MATURITY
State and municipal obligations
Under 1 Year $ 50,000 $ 50,490
1 - 5 Years 4,400,849 4,715,239
5 - 10 Years 3,165,959 3,426,947
Over 10 Years 5,700,988 5,877,832
------------- ------------
Total securities held to maturity $ 13,317,796 $ 14,070,508
============= ============
Securities with a carrying value of approximately $43.0 million at March 31,
2003 and $49.7 million at December 31, 2002 were pledged to secure public
deposits, repurchase agreements and other liabilities as required or permitted
by law.
11
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses was as follows:
THREE MONTHS ENDED
MARCH 31,
2003 2002
----------- -----------
Beginning Balance $ 2,971,116 $ 2,879,065
Provision charged to operating expense 150,000 157,500
Loans charged-off (167,880) (144,091)
Recoveries 52,055 55,731
----------- -----------
Ending Balance $ 3,005,291 $ 2,948,205
=========== ===========
Non-performing loans were as follows:
MARCH 31, DECEMBER 31,
2003 2002
-------- --------
Loans past due over 90 days still on accrual $ 5,000 $ 85,000
Nonaccrual loans 773,000 685,000
Loans considered impaired under the provisions of SFAS No. 114
were not material at March 31, 2003 and December 31, 2002. Nonaccrual
loans include all impaired loans and smaller balance homogenous loans,
such as residential mortgage and consumer loans that are collectively
evaluated for impairment.
4. COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES
Financial instruments are used in the normal course of
business to meet the financing needs of customers. Such 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.
12
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. COMMITMENTS, OFF-BALANCE SHEET RISK AND CONTINGENCIES (CONTINUED)
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established
in the commitment. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many
of the commitments are expected to expire without being used, total
commitments do not necessarily represent future cash requirements.
Standby letters of credit and financial guarantees written are
conditional commitments to guarantee a customer's performance to a
third party.
A summary of the notional or contractual amounts of financial
instruments with off-balance sheet risk at March 31, 2003 and December
31, 2002 follows:
MARCH 31, DECEMBER 31,
2003 2002
----------- -----------
Commitments to extend credit $24,932,253 $25,423,442
Credit card and ready reserve lines 1,488,963 1,384,224
Standby letters of credit 490,200 490,200
At March 31, 2003, and included above, commitments to make
fixed-rate loans totaled $1,906,175 with the interest rates on those
fixed-rate commitments ranging from 4.75% to 9.75%. At December 31,
2002, commitments to make fixed rate loans totaled $2,087,373 with
interest rates on those fixed-rate commitments ranging from 4.75% to
9.75%.
5. NEW ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." SFAS No. 146 provides
financial accounting and reporting guidance for costs associated with exit or
disposal activities, including one-time termination benefits, contract
termination costs other than for a capital lease, and costs to consolidate
facilities or relocate employees. SFAS No. 146 is effective for exit or disposal
activities initiated after December 31, 2002. SFAS No. 146 is not expected to
have a material effect on the Corporation's financial condition or results of
operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. SFAS No. 148 is effective for fiscal years beginning
after December 15, 2002. The expanded annual disclosure requirements and the
transition provisions are effective for fiscal years ending after December 15,
2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15,
2002. SFAS No. 148 is not expected to have a material effect on the
Corporation's financial position or results of operations.
13
UNITED BANCORP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 requires a variable
interest entity to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity's activities or
entitled to receive a majority of the entity's residual returns, or both. FIN 46
also requires disclosures about variable interest entities that a company is not
required to consolidate, but in which it has a significant variable interest.
The consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply to
existing entities in the first fiscal year or interim period beginning after
June 15, 2003. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established. The Corporation is currently evaluating the
impact of FIN 46 and expects no material effect on its financial statements.
14
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discusses the financial condition of the Company
as of March 31, 2003, as compared to December 31, 2002 and the results
of operations for the three months ended March 31, 2003 compared to the
same period in 2002. This discussion should be read in conjunction with
the interim condensed consolidated financial statements and related
footnotes included herein.
FORWARD-LOOKING STATEMENTS
When used in this document, the words or phrases "will likely
result," "are expected to," "will continue," "is anticipated,"
"estimated," "projected" or similar expressions are intended to
identify "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject
to certain risks and uncertainties including changes in economic
conditions in the Banks' market areas, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans
in the Banks' market areas and competition, that could cause actual
results to differ materially from historical earnings and those
presently anticipated or projected. Factors listed above could affect
the Company's financial performance and could cause the Company's
actual results for future periods to differ materially from any
statements expressed with respect to future periods.
The Company does not undertake, and specifically disclaims any
obligation, to publicly revise any forward-looking statements to
reflect events or circumstances after the date such statements were
made or to reflect the occurrence of anticipated or unanticipated
events.
15
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ANALYSIS OF FINANCIAL CONDITION
EARNING ASSETS - LOANS
At March 31, 2003, gross loans were $189,918,516 compared to
$187,887,914 at year-end 2002, an increase of $2,030,602 or 1.1%. The
increase in total outstanding loans was the result of an increase in
the commercial, commercial real estate and real estate portfolios.
Management attributes the relatively small increase in loans to the
general economic slow-down in the lending markets served.
Installment loans represented to 23.6% of total loans at March
31, 2003 compared to 24.0% at year-end 2002. The indirect lending type
of financing carries somewhat more risk than real estate lending,
however, it also provides for higher yields. The targeted lending areas
encompass four metropolitan areas, minimizing the risk to changes in
economic conditions in the communities housing the Company's 17 branch
locations. CITIZENS experienced a 2.97%, or $827,917 increase in
installment loans while COMMUNITY had a decrease of 6.18%, or
$1,057,291 in installment loans. In general, as the overall economy has
slowed in the markets we service, so has the demand for consumer based
loans. Also with interest rates depressed, management has not been
aggressive in lowering rates on these fixed rate loan products.
Recently, management has employed the strategy of focusing on
adjustable rate products to position the Company for an eventual rise
in interest rates.
Commercial and commercial real estate loans comprised 48.4% of
total loans at March 31, 2003 compared to 48.1% at December 31, 2002.
Commercial and commercial real estate loans have increased $1,643,826
or 1.8% since December 31, 2002. The Company has originated and
purchased participations in loans from other banks for out-of-area
commercial and commercial real estate loans to benefit from consistent
economic growth outside the Company's primary market area. The majority
of these loans are secured by real estate holdings comprised of hotels,
motels and churches located in various geographic locations, including
Columbus and the Akron-Canton, Ohio metropolitan areas.
Real estate loans were 28.0% of total loans at March 31, 2003
and 28.0% at year-end 2002. In dollar volume real estate loans
increased 1.2% since December 31, 2002. However, COMMUNITY actually
experienced an increase in real estate loans of 4.7% or $1,048,446 and
CITIZENS experienced a decrease of 1.4% or $432,296. As previously
mentioned, management's position is to focus on adjustable rate
products as the overall rate environment reaches historical low levels
with the intent these products will adjust as interest rates rise.
The allowance for loan losses represents the amount which
management and the Board of Directors estimates is adequate to provide
for probable losses inherent in the loan portfolio. The allowance
balance and the provision charged to expense are reviewed by management
and the Board of Directors monthly using a risk evaluation model that
considers borrowers' past due experience, economic conditions and
various other circumstances that are subject to change over time.
Management believes the current balance of the allowance for loan
losses is adequate to absorb probable incurred credit losses associated
with the loan portfolio. Net charge-offs for the three months ended
March 31, 2003 were approximately $116,000, or 3.9%, of the beginning
balance in the allowance for loan losses. During the first three months
of 2003, gross charge-offs were almost entirely consumer loans and
totaled approximately $168,000.
16
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
EARNING ASSETS - SECURITIES AND FEDERAL FUNDS SOLD
The securities portfolio is comprised of U.S. Government
agency-backed securities, tax-exempt obligations of states and
political subdivisions and certain other investments. The Company does
not hold any collateralized mortgage-backed securities, other than
those issued by U.S. government agencies, or derivative securities. The
quality rating of obligations of state and political subdivisions
within Ohio is no less than Aaa, Aa or A, with all out-of-state bonds
rated at AAA. Board policy permits the purchase of certain non-rated
bonds of local schools, townships and municipalities, based on their
estimated levels of credit risk. Securities available for sale at March
31, 2003 decreased approximately $7,947,383, or 6.0% from year-end 2002
totals. Securities held to maturity at March 31, 2002 increased
approximately $392,279, or 3.0% compared to year-end 2002 totals.
SOURCES OF FUNDS - DEPOSITS
The Company's primary source of funds is core deposits from
retail and business customers. These core deposits include all
categories of interest-bearing and noninterest-bearing deposits,
excluding certificates of deposit greater than $100,000. For the period
ended March 31, 2003, total core deposits increased approximately
$4,800,939 or 1.9% primarily from an increase in interest bearing
demand deposits of $4.7 million.
The Company has a strong deposit base from public agencies,
including local school districts, city and township municipalities,
public works facilities and others that may tend to be more seasonal in
nature resulting from the receipt and disbursement of state and federal
grants. These entities have maintained fairly static balances with the
Company due to various funding and disbursement timeframes.
Certificates of deposit greater than $100,000 are not
considered part of core deposits and as such are used to balance rate
sensitivity as a tool of funds management. At March 31, 2003,
certificates of deposit greater than $100,000 decreased approximately
$5,841,070, or 13.6% from year-end 2002 totals.
Over the past year, COMMUNITY has developed several large
depository customers. As of March 31, 2003, the seven largest
depository customers accounted for approximately 28% of COMMUNITY'S
certificate of deposits and approximately 87% of total certificates of
deposits greater than $100,000. These customers also represent 15% of
Community's demand deposits at March 31, 2003. Total concentration of
retail funding is approximately 26% of COMMUNITY'S total deposits at
March 31, 2003. On a consolidated level, this represents approximately
8% of total retail deposits at March 31, 2003 compared to 9% at
December 31, 2002. This deposit concentration does pose possible
liquidity and earnings risk for COMMUNITY. The earnings risks would be
triggered if COMMUNITY would be placed in a position to sell assets
below book value to meet current liquidity needs. This risk is
mitigated with COMMUNITY'S capability to borrow wholesale funding from
its correspondent banks. Management has an active asset/liability
committee that monitors, among other items, monthly liquidity needs on
a 90 day time horizon.
SOURCES OF FUNDS - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND
OTHER BORROWINGS
Other interest-bearing liabilities include securities sold
under agreements to repurchase, sweep accounts, federal funds
purchased, Treasury, Tax & Loan notes payable and Federal Home Loan
Bank
17
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
("FHLB") advances. In the first three months of 2003, the Company
continued to utilize the FHLB programs to manage interest rate risk and
liquidity positions. The majority of the Company's repurchase
agreements are with local school districts and city and county
governments. Total other borrowings decreased approximately $878,842,
or 5.1% from year-end 2002 totals.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 2003
NET INCOME
Basic and diluted earnings per share for the three months
ended March 31, 2003 totaled $0.25, compared with $0.21 for the three
months ended March 31, 2002, an increase of 19.1%. In dollars, net
income increased 18.0% for the three months ended March 31, 2003,
compared to the same quarter in 2002.
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 remained
relatively unchanged for the three months ended March 31, 2003 compared
to the same period in 2002. This resulted from a growth in earning
assets but was offset by a decrease in the net interest margin.
Total interest income for the three months ended March 31,
2003 was $5,214,652 compared to $5,633,358 for the same period in 2002.
Total interest income decreased $418,706, or 7.4%. The decline can be
attributed to the overall lower interest rate environment that
currently exists.
Total interest expense for the three months ended March 31,
2003 when compared to the same three-month period ended March 31, 2002,
decreased 17.7%, or $434,854. The Company has experienced a decrease in
interest expense due to a decreased use of FHLB advances to fund
security purchases and the effect of a lower interest rate environment
on deposit products. Management has been proactive in lowering deposit
product interest rates and has relied less on certificates of deposits
to fund asset growth.
PROVISION FOR LOAN LOSSES
The total provision for loan losses was $150,000 for the three
months ended March 31, 2003 compared to $157,500 for the same period in
2002. At March 31, 2003 and December 31, 2002, the allowance for loan
losses to total loans was 1.58%. The allowance for loan losses to
nonaccrual loans was 389% at March 31, 2003, compared to 430% at
December 31, 2002. As stated previously, the loan portfolio balance
remained almost unchanged since December 31, 2002 with a growth of
approximately 1.1%.
NONINTEREST INCOME
Total noninterest income is made up of bank related fees and
service charges, as well as other income producing services provided,
sale of secondary market loans, ATM income, early redemption penalties
for certificates of deposit, safe deposit rental income, internet bank
service fees and other miscellaneous items. Noninterest income for the
three months ended March 31, 2003 was $744,229 compared to $445,211 for
the same three-month period ended March 31, 2002, an increase of
18
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
approximately 67.2% or $299,018. The Company's two affiliates invested
in Bank Owned Life Insurance on June 30, 2002. For the three months
ended March 31, 2003 the Company has recognized $90,211 of income
related to this product. In addition, the Company's security portfolio
generated approximately $201,928 in security gains for the three months
ended March 31, 2003, compared to $46,345 for the same period in 2002.
Management's sale strategy took into consideration the relative
volatility in the bond market during the quarter. Management realized
there were opportunities to sell certain bonds in the portfolio when
overall interest rates were depressed. Security gains are not a
component of core income and depending on future interest rate
scenarios, gains on the sale of investment securities may negatively
impact the yield on the investment portfolio and the Company's net
interest margin in future periods.
NONINTEREST EXPENSE
Noninterest expense for the three months ended March 31, 2003
increased $179,009 or 7.1% over the three months ended March 31, 2002.
Salary and benefit expense increased approximately $34,480 or 2.7%,
occupancy expense increased $55,616 or 15.2% due to capital
expenditures mainly in technology enhancements in mid to late 2002 and
other expenses increased $88,913 or 10.0%. Other expenses primarily
increased due to growth in ATM merchant expenses of $18,514, legal
expenses of $38,979 and state income taxes of $13,737.
CAPITAL RESOURCES
Internal capital growth, through the retention of earnings, is
the primary means of maintaining capital adequacy for the Company.
Shareholders' equity at March 31, 2003, totaled $31,725,317 compared to
$32,154,862 at December 31, 2002, a 1.3% decrease. Total shareholders'
equity in relation to total assets was 8.48% at March 31, 2003 and
8.89% at December 31, 2002. In May 2001, our shareholders approved an
amendment to the Company's Articles of Incorporation to create a class
of preferred shares with 2,000,000 authorized shares. This will enable
the Company, at the option of the Board of Directors, to issue series
of preferred shares in a manner calculated to take advantage of
financing techniques which may provide a lower effective cost of
capital to the Company. The amendment also provides greater flexibility
to the Board of Directors in structuring the terms of equity securities
that may be issued by the Company.
The Company has a Dividend Reinvestment Plan ("The Plan") for
shareholders under which the Company's common stock will be purchased
by the Plan for participants with automatically reinvested dividends.
The Plan does not represent a change in the Company's dividend policy
or a guarantee of future dividends.
The Company and the Banks are subject to regulatory capital
requirements administered by federal banking agencies. Capital adequacy
guidelines and prompt corrective action regulations involve
quantitative measures of assets, liabilities and certain off-balance
sheet items calculated under regulatory accounting practices. Capital
amounts and classifications are also subject to qualitative judgments
by regulators about components, risk weightings and other factors and
the regulators can lower classifications in certain cases. Failure to
meet various capital requirements can initiate regulatory action that
could have a direct material effect on the Banks' operations.
The prompt corrective action regulations provide five
classifications, including well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized,
19
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
although these terms are not used to represent overall financial
condition. If adequately capitalized, regulatory approval is required
to accept brokered deposits. If undercapitalized, capital distributions
are limited, as is asset growth and expansion and plans for capital
restoration are required.
The minimum requirements are:
TOTAL TIER 1 TIER 1
CAPITAL TO CAPITAL TO CAPITAL TO
RISK-WEIGHTED RISK-WEIGHTED AVERAGE
ASSETS ASSETS ASSETS
----------------- ----------------- --------------
Well capitalized 10.00% 6.00% 5.00%
Adequately capitalized 8.00% 4.00% 4.00%
Undercapitalized 6.00% 3.00% 3.00%
The following table illustrates the Company's risk-weighted
capital ratios at March 31, 2003:
MARCH 31,
(in thousands) 2003
---------
Tier 1 capital $ 31,148
Total risk-based capital $ 33,794
Risk-weighted assets $227,285
Average total assets $363,646
Tier 1 capital to average assets 8.57%
Tier 1 risk-based capital ratio 13.70%
Total risk-based capital ratio 14.87%
LIQUIDITY
Management's objective in managing liquidity is maintaining
the ability to continue meeting the cash flow needs of its customers,
such as borrowings or deposit withdrawals, as well as its own financial
commitments. The principal sources of liquidity are net income, loan
payments, maturing securities and sales of securities available for
sale, federal funds sold and cash and deposits with banks. Along with
its liquid assets, the Company has additional sources of liquidity
available to ensure that adequate funds are available as needed. These
include, but are not limited to, the purchase of federal funds, the
ability to borrow funds under line of credit agreements with
correspondent banks and a borrowing agreement with the Federal Home
Loan Bank of Cincinnati, Ohio and the adjustment of interest rates to
obtain depositors. Management feels that it has the capital adequacy,
profitability and reputation to meet the current and projected needs of
its customers.
For the three months ended March 31, 2003, the adjustments to
reconcile net income to net cash from operating activities consisted
mainly of depreciation and amortization of premises and equipment and
intangibles, the provision for loan losses, net amortization of
securities and net changes in other assets
20
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY - CONTINUED
and liabilities. Cash and cash equivalents decreased as a result of the
purchasing of government agency securities. For a more detailed
illustration of sources and uses of cash, refer to the condensed
consolidated statements of cash flows.
INFLATION
Substantially all of the Company's assets and liabilities
relate to banking activities and are monetary in nature. The
consolidated financial statements and related financial data are
presented in accordance with GAAP in the United States of America
(GAAP). GAAP currently requires the Company to measure the financial
position and results of operations in terms of historical dollars, with
the exception of securities available for sale, impaired loans and
other real estate loans that are measured at fair value. Changes in the
value of money due to rising inflation can cause purchasing power loss.
Management's opinion is that movements in interest rates
affect the financial condition and results of operations to a greater
degree than changes in the rate of inflation. It should be noted that
interest rates and inflation do effect each other, but do not always
move in correlation with each other. The Company's ability to match the
interest sensitivity of its financial assets to the interest
sensitivity of its liabilities in its asset/liability management may
tend to minimize the effect of changes in interest rates on the
Company's performance.
REGULATORY MATTERS
The Company is subject to the regulatory requirements of The
Federal Reserve System as a multi-bank holding company. The affiliate
banks are subject to regulations of the Federal Deposit Insurance
Corporation (FDIC) and the State of Ohio, Division of Financial
Institutions.
21
UNITED BANCORP, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risk affecting the Company is interest rate risk.
The Banks do not maintain a trading account for any class of financial
instrument and the Company is not affected by foreign currency exchange rate
risk or commodity price risk. Because the Banks do not hold any equity
securities other than stock in the Federal Home Loan Bank of Cincinnati, which
is not significant, the Company is not subject to equity price risk.
The Company, like other financial institutions, is subject to interest
rate risk to the extent that its interest-earning assets reprice differently
than its interest-bearing liabilities. One of the principal financial objectives
is to achieve long-term profitability while reducing its exposure to
fluctuations in interest rates. The Company has sought to reduce exposure of its
earnings to changes in market interest rates by managing assets and liability
maturities and interest rates primarily by originating variable-rate lending
products, or if issued with a fixed interest rate, as is the case with the
indirect automobile portfolio, the term is rather short in duration. Both the
variable interest rates inherent in the commercial, commercial real estate and
real estate loan portfolios, and the short duration loan products, mitigate the
Company's exposure to dramatic interest rate movements.
The Company's securities are all fixed rate and are weighted more
heavily towards available for sale which accounts for 91% of the portfolio
compared to the 9% for held to maturity securities. The Company primarily
invests in U.S. Agency obligations and State and Municipal obligations and has a
modest amount invested in mortgage-backed securities. Due to total securities
approximating 37% of total assets and a significant portion of its loan
portfolio consisting of fixed rate loans, the Company is particularly sensitive
to periods of rising interest rates. In such periods, the Company's net interest
spread is negatively affected because the interest rate paid on deposits
increases faster than the rates earned on loans. Management is continuing to
originate variable rate loans as the primary means to manage this risk.
Management measures the Company's interest rate risk by computing
estimated changes in net interest income and the net portfolio value ("NPV") of
its cash flows from assets, liabilities and off-balance sheet items in the event
of a range of assumed changes in market interest rates. The following tables
present an analysis of the potential sensitivity of the Company's new present
value of its financial instruments to sudden and sustained changes in the
prevailing interest rates.
(Dollars in Thousands)
- ---------------------------------------------------------------------------------
NET PORTFOLIO VALUE-MARCH 31, 2003
CHANGE IN RATES $ AMOUNT $ CHANGE % CHANGE
---------------------------------------------
Up 200 $26,947 $ (240) -0.88%
Up 100 $28,606 $ 1,419 5.22%
Base $27,187
Down 100 $23,196 $(3,991) -14.68%
Down 200 $23,282 $(3,905) -14.36%
(Dollars in Thousands)
- --------------------------------------------------------------------------------
NET PORTFOLIO VALUE-DECEMBER 31, 2002
CHANGE IN RATES $ AMOUNT $ CHANGE % CHANGE
---------------------------------------------
Up 200 $27,138 $(1,912) -6.58%
Up 100 $30,396 $ 1,346 4.63%
Base $29,050
Down 100 $26,391 $(2,659) -9.15%
Down 200 $26,553 $(2,497) -8.60%
22
UNITED BANCORP, INC.
CONTROLS AND PROCEDURES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (CONTINUED)
The projected volatility of the net present value at both March 31,
2003 and December 31, 2002 fall within the general guidelines established by the
Board of Directors. The NPV table shows that in a falling interest rate
environment, the NPV would decrease between 14.68% and 14.36%. In Management's
view there is a low probability that interest rates would decrease another 100
to 200 basis points. In the upward change in interest rates the Company's NPV
would increase 5.22% with a 100 basis point interest rate increase. In a 200
basis point rate increase the Company's NPV would decrease .88%. This decrease
is a result of the Company's available for sale securities portfolio that is
invested in fixed-rate securities. As interest rates increase, the market value
of the securities decrease. However, since the Company currently has the ability
to hold these securities to their final maturity, it would not have to incur any
losses.
Certain shortcomings are inherent in the NPV method of analysis.
Certain assets such as adjustable-rate loans have features that restrict changes
in interest rates on a short-term basis and over the life of the asset. In
addition, the proportion of adjustable-rate loans in the Company's portfolio
could decrease in future periods if market interest rates remain at or decrease
below current levels due to refinancing activity. Further, in the event of a
change in interest rates, prepayment and early withdrawal levels would likely
deviate from those assumed in the analysis. Finally, the ability of many
borrowers to repay their adjustable-rate debt may decrease in the case of an
increase in interest rates.
23
UNITED BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chairman, President and Chief
Executive Officer, and Senior Vice President, Chief Financial Officer and
Treasurer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
upon that evaluation, the President and Chief Executive Officer and Senior Vice
President and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated subsidiaries)
required to be included in the Company's periodic SEC filings.
24
UNITED BANCORP, INC.
OTHER INFORMATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended Articles of Incorporation of United Bancorp, Inc.
3.2 Amended Code of Regulations of United Bancorp, Inc.
4.0 Instruments Defining the Rights of Security Holders (See
Exhibits 3.1 and 3.2)
99.1 Certification pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
(b) The Company filed no reports on SEC Form 8-K during the last
quarter of the period covered by this report.
25
UNITED BANCORP, INC.
SIGNATURES
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 2, 2003 By: /s/ James W. Everson
- ------------------------------------ -----------------------------
Date James W. Everson
Chairman, President & Chief
Executive Officer
May 2, 2003 By: /s/ Randall M. Greenwood
- -------------------------------------------- ---------------------------
Date Randall M. Greenwood
Senior Vice President, Chief
Financial Officer and Treasurer
26
UNITED BANCORP, INC.
CERTIFICATION
I, James W. Everson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of United
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date or our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date:
-----------------------------------------------------------------------
By:
-----------------------------------------------------------------------
James W. Everson, Chairman, President and Chief Executive Officer
27
UNITED BANCORP, INC.
CERTIFICATIONS
I, Randall M. Greenwood, certify that:
1. I have reviewed this quarterly report on Form 10-Q of United
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
d) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
e) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
f) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
c) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
d) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date or our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date:
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By:
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Randall M. Greenwood, Senior Vice President and Chief Financial Officer
28
10-Q EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX - 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX - 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
29