ITEM 1 - BUSINESS United Bancorp, Inc. (the "Company") was incorporated on May 31, 1985 as a business corporation under the Michigan Business Corporation Act, pursuant to the authorization and direction of the Directors of United Bank & Trust (the "Bank").
The Company is a bank holding company registered with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act, with the Bank as its only wholly-owned subsidiary. The Bank was acquired by the Company effective January 1, 1986. The Company has corporate power to engage in such activities as permitted to business corporations under the Michigan Business Corporation Act, subject to the limitations of the Bank Holding Company Act and regulations of the Federal Reserve System. In general, the Bank Holding Company Act and regulations restrict the Company with respect to its own activities and activities of any subsidiaries to the business of banking or such other activities which are closely related to the business of banking.
United Savings Bank opened in 1933 as a result of a merging of charters of Lilley State Bank and Tecumseh State Savings Bank. Since that time, the Bank has grown from a single office in Tecumseh to fifteen offices located in three counties in Southeast Michigan. The Bank changed its name to United Bank & Trust on January 1, 1992, at the time it acquired Thompson Savings Bank in Hudson, and the Bank remains the Company's sole subsidiary.
Banking services are delivered through a system of fifteen banking offices plus fifteen automated teller machines, in Lenawee, Washtenaw, and Monroe Counties, Michigan. The business base of the area is primarily agricultural and light manufacturing, with its manufacturing sector exhibiting moderate dependence on the automotive and refrigeration and air conditioning industries.
In November of 2000, the Company filed applications with its regulators for permission to establish a second bank as a subsidiary of the Company. The bank, to be called United Bank & Trust - Washtenaw ("UBTW"), will be headquartered in Ann Arbor, and is expected to open for business in April of 2001. UBTW will operate with its own board of directors, and will target the Washtenaw County market for its growth.
Banking services will be delivered by UBTW through one banking office in Washtenaw County, Michigan. The employment base of Washtenaw County is centered around health care, education and automotive high technology. Economic stability is provided to a great extent by the University of Michigan, which is a major employer and is not as economically sensitive to the fluctuations of the automotive industry. The services and public sectors account for a substantial percentage of total industry employment, in a large part due to the University of Michigan and the U of M Medical Center.
Both banks will offers a full range of services to individuals, corporations, fiduciaries and other institutions. Banking services include checking, NOW accounts, savings, time deposit accounts, money market deposit accounts, safe deposit facilities and money transfers. Lending operations provide real estate loans, secured and unsecured business and personal loans, consumer installment loans, credit card and check-credit loans, home equity loans, accounts receivable and inventory financing, equipment lease financing and construction financing.
The Bank maintains correspondent bank relationships with a small number of larger banks, which involve check clearing operations, securities safekeeping, transfer of funds, loan participation, and the purchase and sale of federal funds and other similar services.
The Bank offers the sale of nondeposit investment products through licensed representatives in its banking offices, and sells credit and life insurance products. In addition, the Bank is a co-owner of Michigan Banker's Title Insurance Company of Mid-Michigan LLC, and derives income from the sale of title insurance to its loan customers.
The Bank's Trust & Investment Group offers a wide variety of fiduciary services to individuals, corporations and governmental entities, including services as trustee for personal, corporate, pension, profit sharing and other employee benefit trusts. The department provides securities custody services as an agent, acts as the personal representative for estates and as a fiscal, paying and escrow agent for corporate customers and governmental entities, and provides trust services for clients of the Bank.
Supervision and Regulation As a bank holding company within the meaning of the Bank Holding Company Act, the Company is required by said Act to file annual reports of its operations and such additional information as the Board of Governors may require and is subject, along with its subsidiaries, to examination by the Board of Governors. The Federal Reserve is the primary regulator of the Company.
The Bank Holding Company Act requires every bank holding company to obtain prior approval of the Board of Governors before it may merge with or consolidate into another bank holding company, acquire substantially all the assets of any bank, or acquire ownership or control of any voting shares of any bank if after such acquisition it would own or control, directly or indirectly, more than 5% of the voting shares of such bank holding company or bank. The Board of Governors may not approve the acquisition by the Company of voting shares or substantially all the assets of any bank located in any state other than Michigan unless the laws of such other state specifically authorize such an acquisition. The Bank Holding Company Act also prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. However, holding companies may engage in, and may own shares of companies engaged in, certain businesses found by the Board of Governors to be so closely related to banking or the management or control of banks as to be a proper incident thereto.
Under current regulations of the Board of Governors, a holding company and its nonbank subsidiaries are permitted, among other activities, to engage, subject to certain specified limitations, in such banking related business ventures as sales and consumer finance, equipment leasing, computer service bureau and software operations, data processing and services transmission, discount securities brokerage, insurance, mortgage banking and brokerage, sale and leaseback and other forms of real estate banking. The Bank Holding Company Act does not place territorial restrictions on the activities of nonbank subsidiaries of bank holding companies. In addition, federal legislation prohibits acquisition of "control" of a bank or bank holding company without prior notice to certain federal bank regulators. "Control" in certain cases may include the acquisition of as little as 10% of the outstanding shares of capital stock.
In March of 2000, the Gramm-Leach-Bliley Act of 1999 (the "GLB Act") was enacted. Under the act, new opportunities became available for banks and other depository institutions, insurance companies and securities firms to enter into combinations that permit a single financial services organization to offer customers a more complete array of financial products and services. The GLB Act provides a new regulatory framework for regulation through the "financial holding company," with the Federal Reserve Board as the umbrella regulator. Functional regulation of the separately regulated subsidiaries of a financial holding company will be conducted by their primary functional regulator.
In order to qualify as a financial holding company, a bank holding company must file an election to become a financial holding company and each of its banks must be "well capitalized" and "well managed." In addition, the GLB Act requires satisfactory or above Community Reinvestment Act compliance for insured depository institutions and their financial holding companies in order for them to engage in new financial activities. The GLB Act provides a federal right to privacy of non-public personal information of individual customers. The Company and its subsidiary bank is also subject to certain state laws that deal with the use and distribution of non-public personal information. The Company believes that the GLB Act could significantly increase competition in its business, and the Company elected to become a financial holding company during 2000.
Michigan's banking laws restrict the payment of cash dividends by a state bank by providing, subject to certain exceptions, that dividends may be paid only out of net profits then on hand after deducting therefrom its losses and bad debts and no dividends may be paid unless the bank will have a surplus amounting to not less than twenty percent (20%) of its capital after the payment of the dividend.
United Bank & Trust is a Michigan banking corporation, and as such is subject to the regulation of, and supervision and regular examination by, the Michigan Division of Financial Institutions ("DFI") and also the Federal Deposit Insurance Corporation ("FDIC"). The DFI is the primary regulator of the Bank. Deposit accounts of the Bank are insured by the FDIC. Requirements and restrictions under the laws of the United States and the State of Michigan include the requirement that banks maintain reserves against certain deposits, restrictions on the nature and amount of loans which may be made by a bank and the interest that may be charged thereon, restrictions on the payment of interest on certain deposits and restrictions relating to investments and other activities of a bank.
The Federal Reserve Board has established guidelines for risk-based capital by bank holding companies. These guidelines establish a risk adjusted ratio relating capital to risk-weighted assets and off-balance-sheet exposures. These capital guidelines primarily define the components of capital, categorize assets into different risk classes, and include certain off-balance-sheet items in the calculation of capital requirements. Tier I capital consists of shareholders' equity less intangible assets and unrealized gain or loss on securities available for sale, and Tier 2 capital consists of Tier 1 capital plus qualifying loan loss reserves.
The capital ratios of the Company and the Bank exceed the regulatory guidelines for well capitalized institutions, and in conjunction with regulatory ratings, have qualified the Bank for the lowest FDIC insurance rate available to insured financial institutions. Information in Note 18 on Page A-32 of the Company's Proxy provides additional information regarding the Company's capital ratios, and is incorporated herein by reference.
Information regarding accounting standards adopted by the Company are discussed beginning on Page A-21 of the Company's Proxy, and is incorporated herein by reference.
Competition The banking business in the Bank's service area is highly competitive. In its market, the Bank competes with credit unions, savings associations, and various finance companies and loan production offices. This competition is in addition to a number of community banks and subsidiaries of large multi-state, multi-bank holding companies.
The Company believes that the market perceives a competitive benefit to an independent, locally controlled commercial bank. Much of the Bank's competition comes from affiliates of organizations controlled from outside the area. Against these competitors, the Bank continues to expand its loan and deposit portfolios. Coupled with the fact that the Company offers the only locally-based trust department in Lenawee County, this local focus has provided a significant competitive advantage.
Employees On December 31, 2000, the Bank employed 156 full-time and 48 part-time employees. This compares to 160 full time and 40 part time employees as of December 31, 1999. The Company has no full time employees. Its operation and business are carried out by officers and employees of the Bank, who are not compensated by the Company.
I SELECTED STATISTICAL INFORMATION
(A) DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; (B) INTEREST RATES AND INTEREST DIFFERENTIAL:
The information required by these sections are contained on Pages A-3 and A-4 of the Company's Proxy Statement, and are incorporated herein by reference.
II INVESTMENT PORTFOLIO
The following table reflects the carrying values and yields of the Company's securities portfolio for 2000. Average yields are based on amortized costs and the average yield on tax exempt securities of states and political subdivisions is adjusted to a taxable equivalent basis, assuming a 34% marginal tax rate.
(1) Reflects the scheduled amortization and an estimate of future prepayments based on past and current experience of amortizing U.S. agency securities.
(2) Reflects the scheduled amortization and an estimate of future prepayments based on past and current experience of the issuer for various collateralized mortgage obligations.
As of December 31, 2000, the Company's securities portfolio contains no concentrations by issuer greater than 10% of shareholders' equity. Additional information concerning the Company's securities portfolio is included on Pages A-6 and A-7, and in Note 4 on Pages A-24 and A-25 of the Company's Proxy Statement, and is incorporated herein by reference.
III LOAN PORTFOLIO (A) TYPES OF LOANS
The tables below show loans outstanding (net of unearned interest) at December 31, and the percentage makeup of the portfolios. All loans are domestic and contain no concentrations by industry or customer. Balances are stated in thousands of dollars.
(1) Includes loans held for sale
(B) MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
The following table presents the maturity of total loans outstanding, other than residential mortgages and personal loans, as of December 31, 2000, according to scheduled repayments of principal. All figures are stated in thousands of dollars.
(C) RISK ELEMENTS Non-Accrual, Past Due and Restructured Loans
The following shows the effect on interest revenue of nonaccrual and troubled debt restructured loans as of December 31, 2000, in thousands of dollars:
Additional information concerning nonperforming loans, the Bank's nonaccrual policy, and loan concentrations is provided on Pages A-7, A-8 and A-9, in Note 1 on Pages A-21 and A-22, Note 5 on Page A-25 and Note 6 on Page A-25 of the Company's Proxy Statement, and is incorporated herein by reference.
At December 31, 2000, the Bank had four loans, other than those disclosed above, for a total of $302,000 which would cause management to have serious doubts as to the ability of the borrowers to comply with the present loan repayment terms. These loans were included on the Bank's "watch list" and were classified as impaired, however, payments are current.
(D) OTHER INTEREST BEARING ASSETS
As of December 31, 2000, other than $544,000 in other real estate, there were no other interest bearing assets that would be required to be disclosed under Item III, Parts (C)(1) or (C)(2) of the Loan Portfolio listing if such assets were loans.
IV SUMMARY OF LOAN LOSS EXPERIENCE (A) CHANGES IN ALLOWANCE FOR LOAN LOSSES
The table below summarizes changes in the allowance for loan losses for the years 1996 through 2000, stated in thousands of dollars.
CHANGES IN ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level believed adequate by Management to absorb losses inherent in the loan portfolio. Management's determination of the adequacy of the allowance is based on an evaluation of the portfolio, past loan loss experience, current economic conditions, volume, amount and composition of the loan portfolio, and other factors. The provision charged to earnings was $1,129,000 in 2000, compared to $1,260,000 in 1999 and $1,248,000 in 1998. The allowance is based on the analysis of the loan portfolio and a four year historical average of net charge offs to average loans of 0.28% of the portfolio.
(B) ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
The following table presents the portion of the allowance for loan losses applicable to each loan category in thousands of dollars, as of December 31. A table showing the percent of loans in each category to total loans is included in Section III (A), above.
The allocation method used takes into account specific allocations for identified credits and a four year historical loss average in determining the allocation for the balance of the portfolio.
V DEPOSITS
The information concerning average balances of deposits and the weighted-average rates paid thereon, is included on Page A-3 and maturities of time deposits is provided in Note 9 on Page A-26 of the Company's Proxy Statement, and is incorporated herein by reference. There were no foreign deposits.
As of December 31, 2000, outstanding time certificates of deposit in amounts of $100,000 or more were scheduled to mature as shown below. All amounts are in thousands of dollars.
VI RETURN ON EQUITY AND ASSETS
Various ratios required by this section and other ratios commonly used in analyzing bank holding company financial statements are included on Page A-2 of the Company's Proxy Statement, and are incorporated herein by reference.
VII SHORT-TERM BORROWINGS
The information required by this section is contained in Note 10 on Page A-27 of the Company's Proxy Statement, and is incorporated herein by reference. No additional information is required as for all reporting periods, there were no categories of short-term borrowings for which the average balance outstanding during the period was 30% or more of shareholders' equity at the end of the period.
ITEM 2
ITEM 2 - PROPERTIES
The executive offices of the Company are located at the main office of United Bank & Trust, 205 East Chicago Boulevard, Tecumseh, Michigan. The Bank owns and occupies the entire two-story building, which was built in 1980. The Bank operates a 12,000 square foot operations and training center in Tecumseh, and also operates three other banking offices in the Tecumseh area, two in the city of Adrian, one each in the cities of Hudson and Morenci, one in the village of Blissfield, and one each in Clinton, Rollin and Raisin Townships, all in Lenawee County. In addition, the Bank operates one office each in the city of Saline and the village of Manchester, Washtenaw County, Michigan, and owns and operates one office in Dundee, Monroe County, Michigan. A banking office is approved and under construction in the Village of Dexter, in Washtenaw County. The Bank owns all of the buildings except for the Manchester office, and leases the land for one office in the city of Adrian and for the Dexter office. All offices except Manchester offer drive-up facilities.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings. The Bank is involved in ordinary routine litigation incident to its business; however, no such proceedings are expected to result in any material adverse effect on the operations or earnings of the Bank. Neither the Bank nor the Company is involved in any proceedings to which any director, principal officer, affiliate thereof, or person who owns of record or beneficially more than five percent (5%) of the outstanding stock of either the Company or the Bank, or any associate of the foregoing, is a party or has a material interest adverse to the Company or the Bank.
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of 2000.
PART II
ITEM 5
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE FOR COMMON STOCK The following table shows the high and low selling prices of common stock of the Company for each quarter of 2000 and 1999 as reported by Raymond James Financial Services. These prices do not reflect private trades not involving Raymond James Financial Services. The common stock of the Company is traded over the counter. The Company had 1,085 shareholders as of December 31, 2000. The prices and dividends per share have been adjusted to reflect the 2000 and 1999 stock dividends.
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA
The following tables present five years of financial data for the Company, for the years ended December 31. (In thousands, except per share data).
(1) Earnings per share data is based on average shares outstanding plus average contingently issuable shares.
(2) Adjusted to reflect the stock dividends paid in 2000, 1999, 1998, 1997 and 1996.
ITEM 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this section is contained on pages A-2 through A-14 of the Company's Proxy Statement, and is incorporated herein by reference.
ITEM 7A
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this section is contained on pages A-10 through A-13 of the Company's Proxy Statement, and is incorporated herein by reference.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this section is contained on pages A-17 through A-34 of the Company's Proxy Statement, and is incorporated herein by reference.
ITEM 9
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The information required by this item is inapplicable, and therefore has been omitted.
PART III
Some information called for by the items within this part is contained in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held April 17, 2001, and is incorporated herein by reference, as follows:
Information appearing on page 9 and 10 and in Note 14 on Page A-29 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held April 17, 2001, is incorporated herein by reference in response to this item. PART IV
ITEM 14
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report: 1. The following financial statements of the Company and its subsidiary, included in the Company's Proxy Statement are incorporated herein by reference:
2. Financial statement schedules are not applicable.
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
(b) No reports on Form 8-K were filed during the quarter ending December 31, 2000.
(c) Listing of Exhibits (numbered as in Item 601 of Regulation S-K):
Exhibit # --------- 3(a) Restated Articles of Incorporation of United Bancorp, Inc., filed as Exhibit (4)(a) to registrant's registration statement on Form S-8 (File Number 333-03305) dated May 8, 1996, and incorporated herein by reference.
3(b) Bylaws of United Bancorp, Inc., filed as Exhibit (4)(b) to registrant's registration statement on Form S-8 (File Number 333-03305) dated May 8, 1996, and incorporated herein by reference.
4(a) Restated Articles of Incorporation of United Bancorp, Inc., filed as Exhibit (4)(a) to registrant's registration statement on Form S-8 (File Number 333-03305) dated May 8, 1996, and incorporated herein by reference.
4(b) Bylaws of United Bancorp, Inc., filed as Exhibit (4)(b) to registrant's registration statement on Form S-8 (File Number 333-03305) dated May 8, 1996, and incorporated herein by reference.
4(c) United Bancorp, Inc. Director Retainer Stock Plan, filed as Appendix A to registrant's proxy statement dated March 25, 1996 (file number 0-16640) and incorporated herein by reference.
4(d) United Bancorp, Inc. Senior Management Bonus Deferral Stock Plan, filed as Appendix B to registrant's proxy statement dated March 25, 1996 (file number 0-16640) and incorporated herein by reference.
4(e) United Bancorp, Inc. 1999 Stock Option Plan, filed as Appendix B to the Company's proxy statement dated March 24, 2000 (file number 0-16640) and incorporated herein by reference.
11 The information required by this section is incorporated by reference in Note 1 on Page A-23 and Note 19 on Page A-32 of the Company's Proxy Statement.
13 Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 2000 included in the Company's Proxy Statement (not deemed filed except for those portions which are specifically incorporated herein by reference).
21 Listing of Subsidiaries, filed herewith.
23(a) Consent of Crowe, Chizek and Company LLP, Independent Auditors, filed herewith.
(d) All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
SIGNATURES
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.
United Bancorp, Inc.
/S/ David S. Hickman March 14, 2001 ----------------------------------------- -------------- David S. Hickman, Chairman and Date Chief Executive Officer, Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on March 14, 2001.
EXHIBIT INDEX