Management's Discussion and Analysis

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, 1997 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 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, 1997, the Company's total assets increased 4.6% over December 31, 1996 totals. Gross loans totaled $139,547,378, representing an increase of 5.2% over $132,660,608 for the year ended 1996.

Installment lending increased by $1,820,768, or 4.0% over 1996 totals. These loans represented 33.7% of the total portfolio compared to 34.0% at year-end 1996. This modest shift in mix was partially the result of an extended 10-month work stoppage at Wheeling-Pittsburgh Steel facilities located in the Ohio Valley area of CITIZENS market area during 1996 and 1997. Increases in commercial lending and declines in real estate lending volume also contributed to the shift in portfolio alignment. 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 customer with the ability to arrange financing at their convenience.

Commercial loans increased $1,969,124 or 15.9% over 1996 levels, representing 10.3% of the total portfolio. This compares to 9.4% of the mix at year-end 1996. Commercial real estate loans increased $4,380,752 or 10.6% over 1996 totals with 32.7% of the mix compared to 31.1% in 1996.

Out-of-area loans occur mostly in the Columbus and Akron-Canton, Ohio area. Lending beyond the local area has been for projects and borrowers with substantial net worth. The majority of these loans are secured by real estate holdings comprised of hotels, motels and churches located in various geographic locations minimizing potential risks associated with lending activities specific to a limited area. Out-of-area loans at year-end 1997 were $15,424,554, representing 25.7% of the commercial loan portfolio compared to $15,785,788 or 29.4% for year-end 1996.

Approximately $5,250,000 in secondary market loans has been originated, generating additional noninterest income of $139,005. Many first time homeowners or individuals with little or no down payment have been able to participate in many of the wide variety of lending options now available. Additionally, as interest rates have declined throughout the year, many existing 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.

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, customers are taking advantage of alternative fixed rate products offered through secondary market programs. During 1997, we introduced a Secondary Market Real Estate Mortgage to help our customers take advantage of a fixed rate loan program without the interest rate risk of the Company originating a fixed rate loan product.

The allowance for loan losses represents the amount which management and the Board of Directors estimates is adequate to provide for inherent 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 code model that considers borrowers past due experience, economic conditions and various other circumstances that are subject to change over time.

Management believes the balance of the allowance for loan losses currently in place continues to be sufficient to deal with potential losses. Net charge-offs for the year-ended 1997 were $228,465 or 10.2% of the total allowance for loan losses compared to $207,796 or 10.3% for 1996.

Earning Assets - Securities and Federal Funds Sold

The securities portfolio is comprised of US Treasury notes and other US government agency-backed securities, tax-exempt obligations of states and political subdivisions, and certain other investment. The Banks do not hold any collateralized, mortgage-backed securities, other than those issued by US 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 known levels of credit risk.

Securities available for sale at year-end 1997, net of the unrealized gain market value adjustment of $254,036 (before tax effect), increased $3,097,310, or 11.1% over 1996. For the year-ended 1996, the net effect of an unrealized gain market value adjustment was $214,229 (before tax effect). Securities held to maturity decreased $1,801,767 or 6.1%. Management anticipates maintaining relatively stable levels of securities, utilizing projected deposit growth to fund future loan development.

Sources of Funds - Deposits

The Banks' primary sources of funds are 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 1997, total core deposits increased by $1,690,777. The Banks' maintain 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 Banks' 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 year-end 1997, certificates of deposit greater than $100,000 increased $2,588,278 or 18.6% over 1996 totals.

Overall, the attraction of and retention of core deposits continue to pose a challenge to the Company and the overall banking industry. Alternative financial products are continuously being introduced by our competition whether a traditional bank or brokerage services company. To date, core deposits have provided the Company with all of its funding needs. To retain and attract 'new' core deposits, the Company, during 1997 introduced a full service retail-banking center inside the St. Clairsville, Ohio Riesbeck's store. To date, this alternative retail-banking center has exceeded our first year expectations for the attraction of core deposits and has provided cross-sell opportunities and expanded our marketing area since its opening in July 1997. During 1998, the Company will take advantage of the current low costs associated in utilizing wholesale funding sources such as the Federal Home Loan Bank when originating long-term financing packages.

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 advances and matched loans. Securities sold under agreements to repurchase remained relatively constant, while other borrowed funds increased significantly by $3,573,525. This increase was the result of expended use of matched funding for loans with the Federal Home Loan Bank.