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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
COMMISSION FILE #0-16640
UNITED BANCORP, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2606280
(State or other jurisdiction of ( I.R.S. Employer Identification No.)
incorporation or organization)
205 E. CHICAGO BOULEVARD, TECUMSEH, MI 49286
(Address of principal executive offices, including Zip code)
Registrant's telephone number, including area code: (517) 423-8373
Securities registered pursuant to Section 12(b) of the Act: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer as defined
in Rule 12b-2 of the Act. Yes [X] No [ ]
As of February 10, 2004, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $92,312,000 (common stock, no par value.)
As of February 10, 2004, there were outstanding 2,235,503 shares of registrant's
common stock, no par value.
Documents Incorporated By Reference:
Portions of the Company's Proxy Statement for the Annual Meeting of Shareholders
to be held April 20, 2004, including Management's Discussion and Analysis of
Condition and Results of Operations, Reports of Independent Auditors,
Consolidated Financial Statements and Notes to Consolidated Financial
Statements, are incorporated by reference into Parts I, II, III and IV.
Page 1
CROSS REFERENCE TABLE
Page
ITEM NO. DESCRIPTION Numbers
- ------------------------------------------------------------------------------------------------------
PART I
1. Business 3
I Selected Statistical Information 6
(A) Distribution of Assets, Liabilities and Shareholders' Equity 6
(B) Interest Rates and Interest Differential 6
II Investment Portfolio 7
III Loan Portfolio 7
(A) Types of Loans 7
(B) Maturities and Sensitivities of Loans to Changes in Interest Rates 7
(C) Risk Elements 8
(D) Other Interest Bearing Assets 8
IV Summary of Loan Loss Experience 9
(A) Changes in Allowance for Loan Losses 9
(B) Allocation of Allowance for Loan Losses 9
V Deposits 10
VI Return on Equity and Assets 10
VII Short-Term Borrowings 10
2. Properties 10
3. Legal Proceedings 11
4. Submission of Matters to a Vote of Security Holders 11
PART II
5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases 11
of Equity Securities
6. Selected Financial Data 11
7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12
7A. Quantitative and Qualitative Disclosures About Market Risk 12
8. Financial Statements and Supplementary Data 12
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 13
PART III
10. Directors and Executive Officers of the Registrant 13
11. Executive Compensation 14
12. Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters 14
13. Certain Relationships and Related Transactions 14
14. Principal Accounting Fees and Services 14
PART IV
15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 14
Signatures 16
Exhibit Index 18
Page 2
PART I
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 ("UBT").
The Company is a financial holding company registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") under the
Bank Holding Company Act. 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. The Bank changed its name to
United Bank & Trust on January 1, 1992, at the time it acquired Thompson Savings
Bank in Hudson, and UBT was acquired by the Company on January 1, 1986. In 2003,
UBT sold its three Washtenaw County offices to its sister bank, United Bank &
Trust - Washtenaw ("UBTW").
UBT delivers financial services through a system of eleven banking offices plus
fourteen automated teller machines, located in Lenawee 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. United
Bank & Trust - Washtenaw opened for business on April 2, 2001, and is
headquartered in Ann Arbor. UBTW operates with its own local management and
board of directors, and targets the Washtenaw County market for its growth.
Banking services are delivered by UBTW through four banking offices and five
automated teller machines 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.
The Company's subsidiary banks (the "Banks") offer 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 Banks maintain 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. UBTW also maintains a correspondent banking
relationship with UBT.
Page 3
The Company's Banks offer the sale of nondeposit investment products through
licensed representatives in their banking offices, and sell credit and life
insurance products. In addition, the Company and/or the Banks are co-owners of
Michigan Banker's Title Insurance Company of Mid-Michigan LLC and Michigan
Bankers Insurance Center, LLC, and derive income from the sale of various
insurance products to banking clients.
The following table shows comparative information concerning the Banks as of
December 31, 2003, in thousands of dollars:
Assets Loans Deposits
--------- --------- ---------
United Bank & Trust $ 464,232 $ 329,240 $ 369,688
United Bank & Trust - Washtenaw 150,175 117,580 133,228
UBT operates a trust department, and provides trust services to UBTW on a
contract basis. The 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 Banks.
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 quarterly and annual reports of its
operations and such additional information as the Federal Reserve Board may
require and is subject, along with its subsidiaries, to examination by the
Federal Reserve Board. 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 Federal Reserve Board 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 Federal Reserve
Board 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 Federal Reserve Board 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.
Page 4
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
provided 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 are conducted by their primary functional regulator. The Company
elected to become a financial holding company during 2000.
The Company is a legal entity, separate and distinct from the Banks. Most of the
Company's revenue will be received by it in the form of dividends, if any, paid
by UBT and UBTW. Thus, the Company's ability to pay dividends to its
shareholders will be limited by statutory and regulatory restrictions on UBT and
UBTW concerning dividends. 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. In addition, as a new bank, UBTW was
prohibited from paying any dividends during its first three years of operations.
Federal law generally prohibits a bank from making any capital distribution
(including payment of a dividend) or paying any management fee to its parent
company if the depository institution would thereafter be undercapitalized. The
Federal Deposit Insurance Corporation ("FDIC") may prevent an insured bank from
paying dividends if the Bank is in default of payment of any assessment due to
the FDIC. In addition the FDIC may prohibit the payment of dividends by a bank,
if such payment is determined, by reason of the financial conditions of the
bank, to be an unsafe and unsound banking practice.
UBT and UBTW are Michigan banking corporations, and as such are subject to the
regulation of, and supervision and regular examination by, the Michigan Office
of Financial and Insurance Services ("OFIS") and the FDIC. OFIS is the primary
regulator of the Banks. Deposit accounts of the Banks 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 and the FDIC have established guidelines for
risk-based capital by bank holding companies and banks. 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. Generally, Tier 1 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 FDIC Improvement Act of 1991 established a system of prompt corrective
action to resolve the problems of undercapitalized financial institutions. Under
this system, federal banking regulators have established five capital
categories, well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized, in which all
institutions are placed. The federal banking agencies have also specified by
regulation the relevant capital levels for each of the categories.
Federal banking regulators are required to take specified mandatory supervisory
actions and are authorized to take other discretionary actions with respect to
institutions in the three undercapitalized categories. The severity of the
action depends upon the capital category in which the institution is placed.
Generally, subject to a narrow
Page 5
exception, the banking regulator must appoint a receiver or conservator for an
institution that is critically undercapitalized. An institution in any of the
undercapitalized categories is required to submit an acceptable capital
restoration plan to its appropriate federal banking agency. An undercapitalized
institution is also generally prohibited from paying any dividends, increasing
its average total assets, making acquisitions, establishing any branches or
engaging in any new line of business, except under an accepted capital
restoration plan or with FDIC approval.
Failure to meet capital guidelines could subject a bank or bank holding company
to a variety of enforcement remedies, including issuance of a capital directive,
the termination of deposit insurance by the FDIC, a prohibition on accepting
brokered deposits, and other restrictions on its business. In addition, such a
bank would generally not receive regulatory approval of any application that
requires the consideration of capital adequacy, such as a branch or merger
application, unless the bank could demonstrate a reasonable plan to meet the
capital requirement within a reasonable period of time.
The capital ratios of the Company and Banks exceed the regulatory guidelines for
well capitalized institutions, and in conjunction with regulatory ratings, have
qualified the Banks for the lowest FDIC insurance rate available to insured
financial institutions. Information in Note 18 on Page A-38 of the Company's
2004 Proxy Statement 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-27 of the Company's 2004 Proxy Statement, and is
incorporated herein by reference.
Competition
The banking business in the Company's service area is highly competitive. In its
market, the Banks compete 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 Company's
competition comes from affiliates of organizations controlled from outside the
area. Against these competitors, the subsidiary banks continue to expand their
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, 2003, the Company and its subsidiaries employed 191 full-time
and 47 part-time employees. This compares to 183 full time and 52 part time
employees as of December 31, 2002. The Company has no full time employees. Its
operation and business are carried out by officers and employees of the Banks,
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-4, A-5 and
A-6 of the Company's 2004 Proxy Statement, and are incorporated herein by
reference.
Page 6
II INVESTMENT PORTFOLIO
The following table reflects the carrying values and yields of the Company's
securities portfolio for 2003. 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.
Carrying Values and Yields of Investments
In thousands of dollars where applicable 0 - 1 1 - 5 5 - 10 Over 10
Available For Sale Year Years Years Years Total
- ------------------------------------------------ -------- -------- ------- ------- --------
U.S. Treasury and government agencies (1) $ 33,662 $ 25,582 $ - $ - $ 59,244
Weighted average yield 3.36% 3.25% - - 3.31%
Obligations of states and political subdivisions $ 13,616 $ 21,887 $ 4,439 $ 2,526 $ 42,468
Weighted average yield 3.17% 3.08% 5.21% 4.72% 3.42%
Equity and other securities (2) $ 7,022 $ - $ - $ - $ 7,022
Weighted average yield 4.82% - - - 4.82%
Total securities $ 54,300 $ 47,469 $ 4,439 $ 2,526 $108,734
Weighted average yield 3.50% 3.17% 5.21% 4.72% 3.45%
(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, 2003, 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 Page
9, and in Note 3 on Page A-30 of the Company's 2004 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.
2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
Personal $ 70,301 $ 71,010 $ 62,792 $ 59,172 $ 59,045
Business and commercial mortgage 256,778 212,611 163,329 115,155 99,832
Tax exempt 1,476 1,417 1,878 2,030 1,710
Residential mortgage (1) 85,156 110,985 117,553 127,768 114,150
Construction 33,109 34,503 33,172 34,382 33,530
---------- ---------- ---------- ---------- ----------
Total loans (1) $ 446,820 $ 430,526 $ 378,724 $ 338,507 $ 308,267
========== ========== ========== ========== ==========
Personal 15.7% 16.5% 16.6% 17.5% 19.2%
Business and commercial mortgage 57.5% 49.4% 43.1% 34.0% 32.4%
Tax exempt 0.3% 0.3% 0.5% 0.6% 0.6%
Residential mortgage (1) 19.1% 25.8% 31.0% 37.7% 37.0%
Construction 7.4% 8.0% 8.8% 10.2% 10.9%
---------- ---------- ---------- ---------- ----------
Total loans (1) 100.0% 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ========== ==========
(1) Includes loans held for sale
Page 7
(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, 2003, according to
scheduled repayments of principal. All figures are stated in thousands of
dollars.
0 - 1 1 - 5 After 5
Year Years Years Total
-------- -------- -------- --------
Business and commercial mortgage - fixed rate $ 16,390 $ 80,227 $ 13,019 $109,636
Business and commercial mortgage - variable rate 47,965 61,659 37,518 147,142
Tax exempt - fixed rate 447 976 53 1,476
Tax exempt - variable rate - - - -
Construction -fixed rate 5,306 2,155 - 7,461
Construction -variable rate 25,299 349 - 25,648
-------- -------- -------- --------
Total fixed rate 22,143 83,358 13,072 118,573
Total variable rate 73,264 62,008 37,518 172,790
-------- -------- -------- --------
Total $ 95,407 $145,366 $ 50,590 $291,363
======== ======== ======== ========
(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, 2003, in thousands of dollars:
Gross amount of interest that would have been recorded at original rate $ 216
Interest that was included in revenue -
-----
Net impact on interest revenue $ 216
=====
Additional information concerning nonperforming loans, the Company's nonaccrual
policy, and loan concentrations is provided on Pages A-10 through A-12, in Note
1 on Pages A-27 and A-28 and Notes 5 and 6 on Pages A-31 and A-32 of the
Company's 2004 Proxy Statement, and is incorporated herein by reference.
At December 31, 2003, the Banks had two loans, other than those disclosed above,
for a total of $59,000 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 Banks' "watch lists" and were classified as
impaired; however, payments are current.
(D) OTHER INTEREST BEARING ASSETS
As of December 31, 2003, other than $593,000 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.
Page 8
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 1999 through 2003, in thousands of dollars.
CHANGES IN ALLOWANCE FOR LOAN LOSSES
2003 2002 2001 2000 1999
------- ------- ------- ------- -------
Balance at beginning of period $ 4,975 $ 4,571 $ 4,032 $ 3,300 $ 2,799
Charge-offs:
Business and commercial mortgage 139 338 73 171 166
Residential mortgage 19 - 50 - 10
Personal 512 484 238 314 792
------- ------- ------- ------- -------
Total charge-offs 670 822 361 485 968
------- ------- ------- ------- -------
Recoveries:
Business and commercial mortgage 20 16 40 4 24
Residential mortgage 3 - - - -
Personal 100 105 138 184 185
------- ------- ------- ------- -------
Total recoveries 123 121 178 188 209
------- ------- ------- ------- -------
Net charge-offs 547 701 183 297 759
------- ------- ------- ------- -------
Additions charged to operations 1,069 1,105 722 1,129 1,260
Adjustment for credit cards sold - - - (100) -
------- ------- ------- ------- -------
Balance at end of period $ 5,497 $ 4,975 $ 4,571 $ 4,032 $ 3,300
======= ======= ======= ======= =======
Ratio of net charge-offs to average loans 0.13% 0.17% 0.05% 0.09% 0.27%
Allowance as percent of total loans 1.23% 1.16% 1.21% 1.19% 1.07%
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 $1,069,000 in 2003, compared to $1,105,000 in 2002 and
$722,000 in 2001. 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 0.11%
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.
2003 2002 2001 2000 1999
------ ------ ------ ------ ------
Business and commercial mortgage $4,775 $3,950 $3,060 $2,580 $1,130
Tax exempt - - - - -
Residential mortgage 37 15 20 7 22
Personal 685 571 496 638 646
Construction - - - - -
Unallocated - 439 995 807 1,502
------ ------ ------ ------ ------
Total $5,497 $4,975 $4,571 $4,032 $3,300
====== ====== ====== ====== ======
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
Page 9
The information concerning average balances of deposits and the weighted-average
rates paid thereon, is included on Page A-5 and maturities of time deposits is
provided in Note 9 on Page A-33 of the Company's 2004 Proxy Statement, and is
incorporated herein by reference. There were no foreign deposits. As of December
31, 2003, 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.
Time
Certificates
------------
Within three months $ 5,121
Over three through six months 2,096
Over six through twelve months 9,869
Over twelve months 13,860
--------
Total $ 30,946
========
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-3 and
A-4 of the Company's 2004 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-33 of
the Company's 2004 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 - PROPERTIES
The executive offices of the Company are located at the main office of United
Bank & Trust, 205 East Chicago Boulevard, Tecumseh, Michigan. UBT owns and
occupies the entire two-story building, which was built in 1980. UBT 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 in Dundee, Monroe County, Michigan. The
bank owns all of the buildings, and leases the land for one office in the city
of Adrian. All offices other than Main offer drive-up facilities.
United Bank & Trust - Washtenaw operates one banking office in the City of Ann
Arbor and one office each in the city of Saline and the villages of Dexter and
Manchester, Washtenaw County, Michigan. The bank owns the Saline and Dexter
buildings, and leases the land for the Dexter office. UBTW holds a long-term
lease on the facilities for its administrative and banking offices, which it
moved into in 2003. All offices offer ATM services, and the bank operates one
off-site ATM. All offices other than Manchester offer drive-up facilities.
Page 10
ITEM 3 - LEGAL PROCEEDINGS
The Company and its subsidiaries are not involved in any material legal
proceedings. They are 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 Company. Neither the Company
nor it subsidiaries are 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 the
Company, or any associate of the foregoing, is a party or has a material
interest adverse to the Company.
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 2003.
PART II
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 2003 and 2002 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,
and there is no established public trading market for the common stock. Such
over-the-counter market quotations reflect inter-dealer prices, without retain
mark-up, mark-down or commission and may not necessarily represent actual
transactions. The Company had 1,238 shareholders of record as of December 31,
2003. The prices and dividends per share have been adjusted to reflect the 2003
and 2002 stock dividends.
2003 2002
--------------------------------- ---------------------------------
Market price Cash Market price Cash
-------------------- dividends -------------------- dividends
Quarter High Low declared High Low declared
- ------- -------------------------------- --------------------------------
1st $ 53.33 $ 51.43 $ 0.314 $ 48.57 $ 46.27 $ 0.272
2nd 62.00 53.33 0.330 49.52 48.57 0.286
3rd 63.00 62.00 0.340 50.48 49.52 0.286
4th 63.00 63.00 0.340 51.43 50.48 0.429
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).
FINANCIAL CONDITION 2003 2002 2001 2000 1999
- ------------------- -------- -------- -------- -------- --------
ASSETS
Cash and demand balances in other banks $ 21,425 $ 16,719 $ 15,980 $ 16,822 $ 17,469
Federal funds sold - 7,700 10,800 21,300 -
Securities available for sale 108,734 97,380 90,243 72,679 81,923
Net loans 441,323 425,551 374,153 334,475 304,967
Other assets 38,291 26,549 27,526 23,585 23,162
-------- -------- -------- -------- --------
Total Assets $609,773 $573,899 $518,702 $468,861 $427,521
======== ======== ======== ======== ========
Page 11
FINANCIAL CONDITION
- ------------------- 2003 2002 2001 2000 1999
(continued) -------- -------- -------- -------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest bearing deposits $ 78,184 $ 71,976 $ 61,845 $ 52,555 $ 46,829
Interest bearing certificates of deposit of
$100,000 or more 30,946 28,439 29,462 46,445 32,445
Other interest bearing deposits 393,453 371,135 359,991 308,957 281,569
-------- -------- -------- -------- --------
Total deposits 502,583 471,550 451,298 407,957 360,843
Short term borrowings 8,076 75 1,019 - 19,300
Other borrowings 35,375 41,867 12,009 12,328 3,624
Other liabilities 6,356 7,027 6,199 3,522 2,790
-------- -------- -------- -------- --------
Total Liabilities 552,390 520,519 470,525 423,807 386,557
Shareholders' Equity 57,383 53,380 48,177 45,054 40,964
-------- -------- -------- -------- --------
Total Liabilities and Shareholders' Equity $609,773 $573,899 $518,702 $468,861 $427,521
======== ======== ======== ======== ========
RESULTS OF OPERATIONS 2003 2002 2001 2000 1999
- --------------------- -------- -------- -------- -------- --------
Interest income $ 30,835 $ 33,535 $ 34,400 $ 33,549 $ 29,408
Interest expense 8,507 10,716 14,919 15,900 12,254
-------- -------- -------- -------- --------
Net Interest Income 22,328 22,819 19,481 17,649 17,154
Provision for loan losses 1,069 1,105 722 1,129 1,260
Noninterest income 11,822 9,999 8,641 7,396 6,142
Noninterest expense 22,669 21,644 20,537 16,096 15,102
-------- -------- -------- -------- --------
Income before Federal income tax 10,412 10,069 6,863 7,820 6,934
Federal income tax 3,024 2,934 1,857 2,194 1,819
-------- -------- -------- -------- --------
Net Income $ 7,388 $ 7,135 $ 5,006 $ 5,626 $ 5,115
======== ======== ======== ======== ========
Basic earnings per share (1) (2) $ 3.30 $ 3.20 $ 2.25 $ 2.53 $ 2.31
Diluted earnings per share (1) (2) 3.27 3.19 2.25 2.53 2.31
Cash dividends declared per share (2) 1.32 1.27 1.18 1.13 1.03
(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 2003, 2002,
2001, 2000 and 1999.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is contained on pages A-2 through A-20 in
the Company's 2004 Proxy Statement, and is incorporated herein by reference.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is contained on pages A-14 through A-16 in
the Company's 2004 Proxy Statement, and is incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is contained on pages A-23 through A-41 in
the Company's 2004 Proxy Statement, and is incorporated herein by reference.
Page 12
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required by this item is contained under the heading
"Relationship With Independent Public Accountants" in the Company's 2004 Proxy
Statement and is incorporated herein by reference.
ITEM 9A - CONTROLS AND PROCEDURES
(a) The term "disclosure controls and procedures" is defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the
"Exchange Act"). These rules refer to the controls and other procedures
of a company that are designed to ensure that information required to
be disclosed by a company in the reports that it files under the
Exchange Act is recorded, processed, summarized and reported, within
required time periods. Our Chief Executive Officer and Principal
Financial Officer have evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this
report (the "Evaluation Date"), and have concluded that, as of the
Evaluation Date, our disclosure controls and procedures are effective
in providing them with material information relating to the Company
known to others within the Company which is required to be included in
our periodic reports filed under the Exchange Act.
(b) There has been no change in the Company's internal control over
financial reporting that occurred during the quarter ended December 31,
2003 that has materially affected, or is reasonably likely to affect,
the Company's internal control over financial reporting.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
On December 9, 2003, the Company adopted a code of ethics (the "Code") that
applies to all co-workers, officers and Directors of the Company and its
subsidiaries. The Code is designed to deter wrongdoing and to promote:
- Honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional
relationships;
- Full, fair, accurate, timely and understandable disclosure in reports
and documents that the Company files with, or submits to, the
Commission and in other public communications made by the registrant;
- Compliance with applicable governmental laws, rules and regulations;
- Prompt internal reporting of violations of the Code to an appropriate
person or persons identified in the Code; and
- Accountability for adherence to the Code.
A copy of the Code is included in this report as Exhibit 14.
Page 13
The information required by this item, other than as set forth above, is
contained under the heading "Directors and Executive Officers" and "Beneficial
Ownership Reporting Compliance" in the Company's 2004 Proxy Statement and is
incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item is contained under the heading
"Compensation of Directors and Executive Officers" in the Company's 2004 Proxy
Statement and is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained under the heading "Equity
Compensation Plan Information", "Security Ownership of Certain Beneficial
Owners," and "Security Ownership of Management" in the Company's 2004 Proxy
Statement and is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained under the heading "Directors,
Executive Officers, Principal Shareholders and their Related Interests -
Transactions with the Banks" and in Note 14 on Page A-35 of the Company's 2004
Proxy Statement and is incorporated herein by reference.
ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is contained under the heading
"Relationship With Independent Public Accountants" in the Company's 2004 Proxy
Statement and is incorporated herein by reference.
PART IV
ITEM 15 - 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
subsidiaries, included in the Company's 2004 Proxy Statement
are incorporated herein by reference:
Pages in Proxy
Statement
--------------
Report of Independent Accountants, BKD LLP, Dated January 23, 2004 A-22
Consolidated Balance Sheets - December 31, 2003 and 2002 A-23
Consolidated Statements of Income - Years Ended December 31,
2003, 2002 and 2001 A-24
Consolidated Statements of Cash Flows - Years Ended December 31,
2003, 2002 and 2001 A-25
Page 14
Consolidated Statements of Changes in Shareholders' Equity -
Years Ended December 31, 2003, 2002 and 2001 A-26
Notes to Consolidated Financial Statements A-27-A-41
2. Financial statement schedules are not applicable.
(b) No reports on Form 8-K were filed during the fourth quarter of 2003.
(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 Statement re Computation of Per Share Earnings - this
information is incorporated by reference in Note 1 on Page
A-29 and Note 19 on Page A-39 of the Company's 2004 Proxy
Statement.
13 Registrant's Annual Report to Shareholders for the fiscal year
ended December 31, 2003 which incorporates Management's
Discussion and Analysis of Financial Condition and Results of
Operations, Reports of Independent Accountants, Consolidated
Financial Statements and Notes to Consolidated Financial
Statements included in the Company's 2004 Proxy Statement (not
deemed filed except for those portions which are specifically
incorporated herein by reference).
14 Registrant's Code of Business Conduct and Ethics as adopted
December 9, 2003
21 Listing of Subsidiaries, filed herewith.
Page 15
23(a) Consent of BKD LLP, Independent Accountants, filed herewith.
23(b) Consent of Crowe, Chizek and Company LLP, Independent
Accountants, filed herewith.
24 Power of Attorney contained on the signature pages of the 2003
Annual Report on Form 10-K.
31.1 Certification of Principal Executive Officer
31.2 Certification of Principal Accounting Officer
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(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 9, 2004
---------------------------------- -------------
David S. Hickman, Chairman and Date
Chief Executive Officer, Director
Page 16
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints David S. Hickman and Dale L. Chadderdon, and each of
them, his true and lawful attorney(s)-in-fact and agent(s), with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to this report and to file
the same, with all exhibits and schedules thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney(s)-in-fact and agent(s) full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney(s)-in-fact and agent(s), or their
substitute(s), may lawfully do or cause to be done by virtue hereof.
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 9, 2004.
/S/ Joseph D. Butcko /S/ James C. Lawson
- ------------------------------------------- -----------------------------
Joseph D. Butcko, Director James C. Lawson, Director
/S/ Robert K. Chapman /S/ Donald J. Martin
- ------------------------------------------- -----------------------------
Robert K. Chapman, Director, Vice Chairman Donald J. Martin, Director
/S/ George H. Cress /S/ David E. Maxwell
- ------------------------------------------- -----------------------------
George H. Cress, Director David E. Maxwell, Director
/S/ John H. Foss /S/ Chris L. McKenney
- ------------------------------------------- -----------------------------
John H. Foss, Director Chris L. McKenney, Director
/S/ Patricia M. Garcia /S/ Kathryn M. Mohr
- ------------------------------------------- -----------------------------
Patricia M. Garcia, Director Kathryn M. Mohr, Director
/S/ David S. Hickman /S/ Dale L. Chadderdon
- ------------------------------------------- -----------------------------
David S. Hickman (Principal Executive Officer) Dale L. Chadderdon
Director, Chairman and Chief Executive Officer (Principal Financial
Officer) Senior Vice
President, Secretary and
Treasurer
Page 17
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
Exhibit 13 Management's Discussion and Analysis of Financial Condition and Results of
Operations, Report of Independent Auditors, Consolidated Financial
Statements and Notes to Consolidated Financial Statements of Registrant's
Annual Report to Shareholders for the fiscal year ended December 31, 2003
which is incorporated from the Company's 2004 Proxy Statement (not deemed
filed except for those portions which are specifically incorporated herein by
reference.
Exhibit 14 Code of Ethics in accordance with Section 406 of the Sarbanes-Oxley Act as 19
amended.
Exhibit 21 Subsidiaries 22
Exhibit 23 Consent of Independent Accountants - BKD LLP 23
Exhibit 24 Power of Attorney contained on the signature pages of the 2003 Annual Report 17
on Form 10-K.
Exhibit 31.1 Certification of Principal Executive Officer 24
Exhibit 31.2 Certification of Principal Financial Officer 25
Exhibit 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 26
Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.1 Report of Prior Independent Auditors - Crowe Chizek 27
Page 18