Notes to the Consolidated Financial Statements 

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") and The Citizens-State Bank of Strasburg, Strasburg, Ohio ("CITIZENS-STATE"). All significant intercompany transactions and balances have been eliminated in consolidation.

Nature of Operations:

The Company's and Bank's revenues, operating income, and assets are primarily from the banking industry. Loan customers are mainly located in Belmont, Jefferson, Tuscarawas and Carroll Counties and the surrounding localities in northeastern and eastern 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, although borrower cash flow may also be a primary source of payment. 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. 

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 collectibility of loans, 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 separately in shareholders' equity, net of tax. Securities are classified as trading when held for short-term periods in anticipation of market gains and are carried at fair value. Securities are written down to fair value when a decline in fair value is not temporary.

Gains and losses on sales are determined using the amortized cost of the specific security sold. Interest income includes amortization of purchase premiums and discounts.

Loans:

Loans are reported at the principal balance outstanding, net of deferred loan fees and costs, the allowance for loan losses and charge-offs. 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 in doubt, typically when payments are past due over 90 days. Payments received on such loans are reported as principal reductions.

Allowance for Loan Losses:

Loan Impairment is reported 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 and consumer loans and on an individual loan basis for other loans. In addition, loans held for sale are excluded from consideration of impairment. 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. Loans are evaluated for impairment when payments are delayed, typically 30 days or more, or when it is probable that all principal and interest amounts will not be collected according to the original terms of the loan. 

Premises and Equipment:

Asset cost is reported net of accumulated depreciation. Depreciation expense is calculated on the straight-line method over asset useful lives. These assets are reviewed for impairment when events indicate the carrying amount may not be recoverable.

Other Real Estate:

Real estate acquired in settlement of loans is initially reported at estimated fair value at acquisition. 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:

The Company has sold various loans to the Federal Home Loan Mortgage Corporation ("FHLMC") while retaining servicing rights. Gains and losses on loan sales are recorded at the time of the cash sale. Under a new accounting standard adopted in 1996, mortgage-servicing rights are recorded as assets when the related loan is sold. These assets are amortized in proportion to and over the period of, estimated net servicing income and are evaluated periodically for impairment. Impairment is evaluated based on the fair value of the rights using groupings of underlying loans with similar characteristics. The adoption of this standard did not materially affect the financial statements in 1997 or 1996.

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 estimate undiscounted cash flows and written down if necessary. At year-end 1997 and 1996, identified intangibles net of accumulated amortization totaled $121,209 and $173,637 and are included in other assets in the accompanying consolidated balance sheets.

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 on 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.

Expense of the defined benefit plan is reported by spreading the expected contributions to the plan less long-term earnings on plan assets over the employee's service period. Expense of the 401-(k) plan is based on the annual contribution.

Stock Compensation:

Expense for employee compensation under stock option plans is based on Opinion 25, with expense reported 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 SFAS No. 123 were used for stock-based compensations.

Income Taxes:

Income tax expense is the sum 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. Stock splits are recorded be transferring the par value of shares issued from retained earnings to common stock.

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.

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 and Dividends Per Common Share: 

The Company adopted SFAS No. 128, "Earnings Per Share", on December 31, 1997. SFAS No. 128 requires dual presentation of basic and diluted earnings per share ("EPS") for entities with complex capital structures. All prior EPS data has been restated to conform to the new method. Basic 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 2.237,746 in 1997, 2,236,091 in 1996, and 2,236,010 in 1995. The weighted-average number of shares outstanding for diluted EPS, which included the effect of stock options granted using the treasury stock method, was 2,254,937 in 1997, 2244,058 in 1996, and 2,236,658 in 1995. The per share dilution of the stock options was $.01 in 1997 and 1996, while there was no per share dilution due to the stock options in 1995.

Pending Affiliations (Unaudited):

In January 1998, The Company signed a letter of intent to acquire Southern Ohio Community Bancorporation, Inc. ("Southern"). The merger provides for an exchange ratio of 11 Company common shares for each issued and outstanding share of Southern common stock. It is anticipated that the transaction will be accounted for under the pooling of interests method of accounting. The following condensed unaudited pro forma financial information presents selected balance sheets amounts and operating results of the Company and Southern as though they had been combined during all periods below.

Reclassifications:

Some items in prior financial statements have been reclassified to conform to the current presentation.