-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R/brTzxQqIm2IJXr4MtAwmTPIWom40SrFEq3+T8ONnBR9rmcWar5sVb0iz6/SgzG jv/ZA0vhHwLtzPf6jaE3vw== 0000950124-01-502791.txt : 20010814 0000950124-01-502791.hdr.sgml : 20010814 ACCESSION NUMBER: 0000950124-01-502791 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED BANCORP INC /MI/ CENTRAL INDEX KEY: 0000775345 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 382606280 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16640 FILM NUMBER: 1707374 BUSINESS ADDRESS: STREET 1: 205 E CHICAGO BLVD CITY: TECUMSEH STATE: MI ZIP: 49286 BUSINESS PHONE: 5174238373 MAIL ADDRESS: STREET 1: 205 E CHICAGO BLVD STREET 2: P O BOX 248 CITY: TECUMSEH STATE: MI ZIP: 49286 10-Q 1 k64400e10-q.txt QUARTERLY REPORT DATED JUNE 30, 2001 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- FORM 10-Q |X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 or |_| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ------------------------- 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 incorporation or organization) Identification No.) 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 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| As of August 3, 2001, there were outstanding 2,006,836 shares of the registrant's common stock, no par value. Page 1 2 CROSS REFERENCE TABLE
ITEM NO. DESCRIPTION PAGE NO. - ----------------------------------------------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Condensed) 3 (a) Consolidated Balance Sheets 3 (b) Consolidated Statements of Income 4 (c) Consolidated Statements of Changes in Shareholders' Equity 5 (d) Consolidated Statements of Cash Flows 6 (e) Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Financial Condition 9 Liquidity 12 Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures about Market Risk 17 PART II - OTHER INFORMATION Item 1. Legal Proceedings 18 Item 2. Changes in Securities and Use of Proceeds 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 19 Signatures 19
Page 2 3 PART I FINANCIAL INFORMATION ITEM 1- FINANCIAL STATEMENTS (Condensed) (A) CONSOLIDATED BALANCE SHEETS
In thousands of dollars (unaudited) (unaudited) June 30, December 31, June 30, 2001 2000 2000 ------------ ----------- ---------- ASSETS Cash and demand balances in other banks $ 15,202 $ 16,822 $ 19,406 Federal funds sold 9,700 21,300 - -------- -------- --------- Total cash and cash equivalents 24,902 38,122 19,406 Securities available for sale 81,879 72,679 74,478 Loans held for sale 3,226 1,156 419 Portfolio loans 356,919 337,351 329,100 -------- -------- --------- Total loans 360,145 338,507 329,519 Less allowance for loan losses 4,412 4,032 3,828 -------- -------- --------- Net loans 355,733 334,475 325,691 Premises and equipment, net 15,267 13,431 13,118 Accrued interest receivable and other assets 10,031 10,154 10,391 -------- -------- --------- TOTAL ASSETS $487,812 $468,861 $ 443,084 ======== ======== ========= LIABILITIES Deposits Noninterest bearing $ 54,899 $ 52,555 $ 52,262 Interest bearing certificates of deposit of $100,000 or more 28,180 46,445 36,318 Other interest bearing deposits 341,636 308,957 280,654 -------- -------- --------- Total deposits 424,715 407,957 369,234 Federal funds purchased and other short term borrowings 1,005 - 16,200 Other borrowings 12,009 12,328 12,328 Accrued interest payable and other liabilities 3,318 3,522 2,743 -------- -------- --------- TOTAL LIABILITIES 441,047 423,807 400,505 SHAREHOLDERS' EQUITY Common stock and paid in capital, no par value; 5,000,000 shares authorized; 2,007,056, 1,911,603 and 1,909,713 shares issued and outstanding, respectively 33,367 28,399 28,207 Retained earnings 12,708 16,374 14,949 Accumulated other comprehensive income (loss), net of tax 690 281 (577) -------- -------- --------- TOTAL SHAREHOLDERS' EQUITY 46,765 45,054 42,579 -------- -------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $487,812 $468,861 $ 443,084 ======== ======== =========
The accompanying notes are an integral part of these consolidated financial statements. Page 3 4 (B) CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended In thousands of dollars, except per share data June 30, June 30, --------------------------------------------------------- 2001 2000 2001 2000 ----------- --------- ---------- ------------- INTEREST INCOME Interest and fees on loans Taxable $ 7,387 $ 7,209 $14,683 $13,939 Tax exempt 24 29 49 56 Interest on securities Taxable 658 706 1,284 1,445 Tax exempt 418 393 816 817 Interest on federal funds sold 198 - 570 - ------- ------- ------- ------- Total interest income 8,685 8,337 17,402 16,257 INTEREST EXPENSE Interest on certificates of deposit of $100,000 or more 461 524 1,123 983 Interest on other deposits 3,310 2,885 6,776 5,628 Interest on short term borrowings 5 291 5 574 Interest on other borrowings 212 200 422 287 ------- ------- ------- ------- Total interest expense 3,988 3,900 8,326 7,472 ------- ------- ------- ------- NET INTEREST INCOME 4,697 4,437 9,076 8,785 Provision for loan losses 237 354 406 708 ------- ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,460 4,083 8,670 8,077 NONINTEREST INCOME Service charges on deposit accounts 599 578 1,154 1,124 Trust & Investment fee income 665 708 1,381 1,352 Gains on securities transactions - 4 - 4 Loan sales and servicing 285 85 496 162 Sales of nondeposit investment products 202 175 386 347 Gain on sale of credit card loans - 308 - 308 Other income 384 237 724 471 ------- ------- ------- ------- Total noninterest income 2,135 2,095 4,141 3,768 NONINTEREST EXPENSE Salaries and employee benefits 2,767 2,164 5,164 4,316 Occupancy and equipment expense, net 890 707 1,691 1,427 Other expense 1,332 1,107 2,647 2,219 ------- ------- ------- ------- Total noninterest expense 4,989 3,978 9,502 7,962 ------- ------- ------- ------- INCOME BEFORE FEDERAL INCOME TAX 1,606 2,200 3,309 3,883 Federal income tax 425 632 890 1,080 ------- ------- ------- ------- NET INCOME $ 1,181 $ 1,568 $ 2,419 $ 2,803 ======= ======= ======= ======= Basic earnings per share $ 0.59 $ 0.78 $ 1.20 $ 1.39 Diluted earnings per share 0.58 0.78 1.20 1.39 Cash dividends declared per share of common stock 0.30 0.29 0.59 0.56
The accompanying notes are an integral part of these consolidated financial statements. Page 4 5 (C) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
In thousands of dollars Three Months Ended Six Months Ended June 30, June 30, ------------------------------------------------------ TOTAL SHAREHOLDERS' EQUITY 2001 2000 2001 2000 --------- ----------- --------- ----------- Balance at beginning of period $ 46,117 $ 41,482 $ 45,054 $ 40,964 Net Income 1,181 1,568 2,419 2,803 Other comprehensive income (loss): Net change in unrealized gains (losses) on securities available for sale, net 40 118 409 (78) -------- -------- -------- -------- Total comprehensive income 1,221 1,686 2,828 2,725 Cash dividends declared (602) (572) (1,175) (1,118) Common stock and contingently issuable stock 29 (17) 58 8 -------- -------- -------- -------- Balance at end of period $ 46,765 $ 42,579 $ 46,76 $ 42,579 ========= ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. Page 5 6 (D) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
In thousands of dollars Six Months Ended June 30, ----------------------------- 2001 2000 ---------- ------------ Cash Flows from Operating Activities Net Income $ 2,419 $ 2,803 Adjustments to Reconcile Net Income to Net Cash from Operating Activities Depreciation and amortization 1,177 1,030 Provision for loan losses 406 708 Gain on sale of credit card loans - (308) Change in loans held for sale (2,070) (265) Gains on securities transactions - (4) Change in accrued interest receivable and other assets (289) 29 Change in accrued interest payable and other liabilities (3) 108 -------- -------- Total adjustments (779) 1,298 -------- -------- Net cash from operating activities 1,640 4,101 Cash Flows from Investing Activities Securities available for sale Purchases (30,763) (2,853) Maturities and calls 18,749 7,968 Principal payments 3,332 2,114 Proceeds from sale of credit card loans - 3,745 Net change in portfolio loans (19,594) (25,148) Premises and equipment expenditures, net (2,710) (720) -------- -------- Net cash from investing activities (30,986) (14,894) Cash Flows from Financing Activities Net change in deposits 16,758 8,391 Net change in short term borrowings 1,005 (3,100) Proceeds from other borrowings - 9,000 Principal payments on other borrowings (319) (296) Proceeds from common stock transactions 58 8 Dividends paid (1,376) (1,273) -------- -------- Net cash from financing activities 16,126 12,730 -------- -------- Net change in cash and cash equivalents (13,220) 1,937 Cash and cash equivalents at beginning of year 38,122 17,469 -------- -------- Cash and cash equivalents at end of period $ 24,902 $ 19,406 ======== ======== Supplement Disclosure of Cash Flow Information: Interest paid $ 8,581 $ 7,439 Income tax paid 1,210 1,175 Loans transferred to other real estate - 544
The accompanying notes are an integral part of these consolidated financial statements. Page 6 7 (E) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The unaudited condensed consolidated financial statements of United Bancorp, Inc. (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ending June 30, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. NOTE 2 - LOANS HELD FOR SALE Mortgage loans serviced for others are not included in the accompanying consolidated statements. The unpaid principal balances of mortgage loans serviced for others was $148,092,000 and $121,337,000 at the end of June 2001 and 2000. The balance of loans serviced for others related to servicing rights that have been capitalized was $131,399,000 and $100,571,000 at June 30, 2001 and 2000. Mortgage servicing rights activity in thousands of dollars for the six months ended June 30, 2001 and 2000 follows:
Unamortized cost of mortgage servicing rights 2001 2000 --------------------------------------------- ---- ---- Balance at January 1 $ 780 $ 728 Amount capitalized year to date 317 28 Amount amortized year to date (156) (41) ----- ----- Balance at period end $ 941 $ 715 ===== =====
No valuation allowance was considered necessary for mortgage servicing rights at period end 2001 and 2000. NOTE 3 - COMMON STOCK AND EARNINGS PER SHARE Basic earnings per share are based upon the weighted average number of shares outstanding plus contingently issuable shares during the year. Diluted earnings per share further assumes the dilutive effect of additional common shares issuable under stock options. During March of 2001 and 2000, the Company declared 5% stock dividends payable in May 2001 and 2000. Earnings per share, dividends per share and weighted average shares have been restated to reflect these stock dividends. Page 7 8 A reconciliation of basic and diluted earnings per share follows:
Three Months Ended Six Months Ended In thousands of dollars, except per share data June 30, June 30, --------------------------------------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ------------- Net income $ 1,181 $ 1,568 $ 2,419 $ 2,803 ========== ========== ========== =========== Basic earning: Weighted average common shares outstanding 2,007,031 2,005,233 2,007,097 2,005,412 Weighted average contingently issuable shares 11,034 8,395 10,658 8,099 ---------- ---------- ---------- ----------- Total basic earnings 2,018,065 2,013,628 2,017,755 2,013,510 ========== ========== ========== =========== Basic earnings per share $ 0.59 $ $ 0.78 $ 1.20 $ 1.39 ========== ========== ========== =========== Diluted earnings: Weighted average common shares outstanding from basic earnings per share 2,018,065 2,013,628 2,017,755 2,013,510 Dilutive effect of stock options 2,153 565 3,006 282 ---------- ---------- ---------- ----------- Net diluted earnings 2,020,218 2,014,193 2,020,761 2,013,793 ========== ========== ========== =========== Diluted earnings per share $ 0.58 $ 0.78 $ 1.20 $ 1.39 ========== ========== ========== ===========
NOTE 4 - STOCK OPTIONS In 2000, Shareholders approved the Company's 1999 Stock Option Plan as proposed. The plan is a non-qualified stock option plan as defined under Internal Revenue Service regulations. Under the plan, directors and management of the Company and subsidiaries are given the right to purchase stock of the Company at a stipulated price, adjusted for stock dividends, over a specific period of time. The Plan will continue in effect for five years, unless it is extended with the approval of the Shareholders. The stock subject to the options are shares of authorized and unissued common stock of the Company. As defined in the plan, options representing no more than 120,173 shares are to be made available to the plan. Options under this plan are granted to directors and certain key members of management at the then- current market price at the time the option is granted. The options have a three-year vesting period, and with certain exceptions, expire at the end of ten years, or three years after retirement. The following is summarized option activity for the plan, adjusted for stock dividends:
Weighted Available Options Average for Grant Outstanding Exercise Price --------- ----------- -------------- Balance at December 31, 2000 84,917 35,256 $ 43.72 Options granted (26,040) 26,040 47.93 Options exercised - (109) 43.54 Options forfeited 641 (641) 46.21 ------- ------- Balance at June 30, 2001 59,518 60,546 45.50 ======= =======
Options granted under the plan during the current year were 17,640 on January 10, 2001 and 8,400 on March 14, 2001. The weighted fair values of the options granted were $5.01 and $4.80. For stock options outstanding at June 30, 2001, the range of average exercise prices was $43.54 to $48.57 and the weighted average remaining contractual term was 9.2 years. At June 30, 2001, 11,006 options were exercisable at the weighted average exercise price of $43.54. Page 8 9 The following pro forma information presents net income and earnings per share had the fair value method been used to measure compensation cost for stock option grants. The exercise price of the option grants is equivalent to the market value of the underlying stock at the grant date, adjusted for stock dividends.
Three Months Ended Six Months Ended In thousands of dollars, except per share data June 30, June 30, --------------------------------------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Net income $ 1,181 $ 1,568 $ 2,419 $ 2,803 Pro forma net income 1,162 1,560 2,382 2,795 Basic earnings per share as reported $ 0.59 $ 0.78 $ 1.20 $ 1.39 Pro forma basic earnings per share 0.58 0.77 1.18 1.39 Diluted earnings per share as reported $ 0.58 $ 0.78 $ 1.20 $ 1.39 Pro forma diluted earnings per share 0.58 0.77 1.18 1.39
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion provides information about the consolidated financial condition and results of operations of United Bancorp, Inc. and its subsidiaries for the three and six month periods ending June 30, 2001 and 2000. FINANCIAL CONDITION SECURITIES Balances in the Company's investment securities portfolio increased slightly during the second quarter of 2001. The mix of the securities portfolio continues to evolve slowly. During the quarter, maturing agency securities were replaced in part by mortgage backed agency securities, as the level of tax-exempt investments remained relatively flat. The following chart shows the percentage mix of the securities portfolio.
6/30/2001 12/31/2000 6/30/2000 --------- ---------- --------- U.S. Treasury and agency securities 13.7% 24.1% 24.3% Mortgage backed agency securities 25.2% 16.9% 18.2% Obligations of states and political subdivisions 45.6% 47.9% 46.7% Corporate, asset backed, and other securities 15.5% 11.1% 10.8% ----- ----- ----- Total Securities 100.0% 100.0% 100.0% ====== ====== ======
The Company's current and projected tax position continues to make carrying tax-exempt securities valuable, and the Company does not anticipate being subject to the alternative minimum tax in the near future. The investment in local municipal issues also reflects the Company's commitment to the development of the local area through support of its local political subdivisions. Page 9 10 Investments in U.S. Treasury and agency securities are considered to possess low credit risk. Obligations of U.S. government agency mortgage-backed securities possess a somewhat higher interest rate risk due to certain prepayment risks. The municipal portfolio contains a small amount of geographic risk, as approximately 20% of that portfolio is issued by political subdivisions located within Lenawee County, Michigan. The Company's portfolio contains no "high risk" mortgage securities or structured notes. LOANS Loan growth during the second quarter of 2001 continued to be strong. For the quarter, annualized loan growth was 16.2%, compared to growth of 9.8% for 2000. Year to date annualized loan growth is 12.8%. Residential mortgages and tax exempt loans declined during the quarter, while business, personal and construction loans increased during the quarter. The mix of the loan portfolio has remained relatively unchanged from the prior quarter, but continues a long-term trend toward an increased percentage of residential mortgage and business loans, with slight declines in residential mortgage loans. Personal loan balances remain relatively flat as a percentage of total loans. United Bank & Trust ("UBT") sold its credit card portfolio in June of 2000. The table below shows total loans outstanding, in thousands of dollars and their percentage of the total loan portfolio. All loans are domestic and contain no significant concentrations by industry or client.
June 30, 2001 December 31, 2000 June 30, 2000 ------------------------------------------------------------------------------ Portfolio loans: Balance % of total Balance % of total Balance % of total ------- ---------- ------- ---------- ------- ---------- Personal $ 61,944 17.2% $ 59,172 17.5% $ 56,068 17.0% Business loans and commercial mortgages 135,499 37.6% 115,155 34.0% 110,958 33.7% Tax exempt 1,782 0.5% 2,030 0.6% 2,306 0.7% Residential mortgage 122,761 34.1% 127,768 37.7% 126,245 38.3% Construction 38,159 10.6% 34,382 10.2% 33,942 10.3% ---------- ----- ---------- ------- ---------- ------ Total loans $ 360,145 100.0% $ 338,507 100.00% $ 329,519 100.0% ========== ====== ========== ======= ========== ======
The Company's subsidiary Banks ("Banks") continue to be providers of residential mortgage loans in their markets. During 2000, United Mortgage Company was formed as a wholly-owned subsidiary of UBT, in order to provide more alternatives for delivery of mortgage products. As full service lenders, the Banks offer a variety of home mortgage loan products in their markets. Entry into the Saline and Manchester markets have provided continued opportunities for future continued growth in all loan portfolios, and entry into the Ann Arbor and Dexter markets during 2001 is beginning to generate additional loan volume. CREDIT QUALITY The Company continues to maintain a high level of asset quality as a result of actively monitoring delinquencies, nonperforming assets and potential problem loans. The aggregate amount of nonperforming loans is presented in the table below. For purposes of that summary, loans renewed on market terms existing at the time of renewal are not considered troubled debt restructurings. The accrual of interest income is discontinued when a loan becomes ninety days past due unless it is both well secured and in the process of collection, or the borrower's capacity to repay the loan and the collateral value appear sufficient. The chart below shows the aggregate amount of the Company's nonperforming assets by type, in thousands of dollars. The Company's classification of nonperforming loans is generally consistent with loans identified as impaired. Page 10 11
6/30/2001 12/31/2000 6/30/2000 --------- ---------- --------- Nonaccrual loans $ 1,031 $ 889 $ 864 Loans past due 90 days or more 857 408 564 Troubled debt restructurings 131 132 133 ------- ------- -------- Total nonperforming loans 2,019 1,429 1,561 Other real estate 425 544 544 ------- ------- -------- Total nonperforming assets $ 2,444 $ 1,973 $ 2,105 ======= ======= ======== Percent of nonperforming loans to total loans 0.56% 0.42% 0.47% Percent of nonperforming assets to total assets 0.50% 0.42% 0.48%
Nonperforming assets remain low, as credit quality remains quite strong for the organization. Balances in nonaccrual loans are up slightly from the levels achieved at the end of 2000 and June 30, 2000 levels. Delinquencies are up from year end 2000 but are also at very acceptable levels. The Company's ratios of nonperforming assets compare favorably with other banks of similar size and makeup. The Company's allowance for loan losses remains at a level consistent with its anticipated potential losses. The provision provides for currently anticipated losses inherent in the current portfolio. Charge-offs for the year have been lower than during previous periods, resulting in an increase in the allowance. The Company retains some liability for a limited time on the portfolio of credit card loans that were sold during the second quarter of 2000. As a result, $100,000 was transferred from the Company's allowance for loan losses to a contingent liability account. An analysis of the allowance for loan losses, in thousands of dollars, for the six months ended June 30, 2001 and 2000 follows:
2001 2000 ---- ---- Balance at January 1: $ 4,032 $ 3,300 Loans charged off (104) (185) Recoveries credited to allowance 78 105 Provision charged to operations 406 708 Adjustment for credit cards sold - (100) ------- -------- Balance at June 30: $ 4,412 $ 3,828 ======== ========
The Company has decreased its provision for loan losses over the same period in 2000 as a result of continued excellent loan quality, as evidenced by its low level of nonperforming loans. This reduction is consistent with the reduction in provision instituted during the third quarter of 2000, at which time the Company reduced its monthly provision to better reflect its estimates of losses inherent in the portfolio. The following table presents the allocation of the allowance for loan losses applicable to each loan category in thousands of dollars, as of June 30, 2001 and 2000, and December 31, 2000.
6/30/2001 12/31/2000 6/30/2000 --------- ---------- --------- Business and commercial mortgage $ 2,730 $ 2,580 $ 2,193 Tax exempt - - - Residential mortgage 7 7 11 Personal 454 638 610 Construction - - - Unallocated 1,221 807 1,014 --------- --------- --------- Total $ 4,412 $ 4,032 $ 3,828 ========= ========= =========
Page 11 12 The largest single category above is also generally the one with the least risk. Loans to finance residential mortgages, including construction loans, make up 44.7% of the portfolio June 30, 2001, and are well-secured and have had historically low levels of net losses. Personal and business loans make up the balance of the portfolio. Personal loan balances have increased from June 30, 2000, in spite of the sale of UBT's credit card portfolio in June, 2000. The personal loan portfolio consists of direct and indirect installment, home equity, credit card and unsecured revolving line of credit loans. Installment loans consist primarily of loans for consumer durable goods, principally automobiles. Indirect personal loans consist of loans for automobiles and manufactured housing, but make up a small percent of the personal loans. Business loans carry the largest balances per loan, and therefore, any single loss would be proportionally larger than losses in other portfolios. Because of this, the Banks use an independent loan review firm to assess the continued quality of their business loan portfolios. This is in addition to the precautions taken with credit quality in the other loan portfolios. Business loans contain no significant concentrations other than geographic concentrations within Lenawee, Monroe or Washtenaw Counties. DEPOSITS The Company has continued to achieve strong deposit growth in all categories of deposits other than Certificates of Deposit of $100,000 or more. The decline in this category is intentional, as the Company has excess liquidity and has chosen to reduce some of its discretionary deposits. Total deposits are down 2.76% for the quarter, but noninterest bearing deposits have increased 3.02% and other interest bearing deposits are up 12.58% for the quarter. This continued growth and expansion is a result of entry into new markets, as well as some desire on the part of consumers to return to the relative safety of bank deposit products. Management anticipates that deposit growth during 2001 will continue to be steady, with continued contribution from the Ann Arbor and existing markets. As in the past, the majority of the Banks' deposits are derived from core client sources, relating to long term relationships with local personal, business and public clients. In financial institutions, the presence of interest bearing certificates of $100,000 or more often indicates a reliance upon purchased funds. However, in the Banks' deposit portfolio, these balances represent core deposits of local clients. The Banks do not support their growth through purchased or brokered deposits. The Banks' deposit rates are consistently competitive with other banks in their market areas, including those new markets that the Company entered in recent periods. The chart below shows the percentage makeup of the deposit portfolio as of June 30, 2001 and 2000.
2001 2000 ---- ---- Noninterest bearing deposits 12.9% 14.2% Interest bearing certificates of $100,000 or more 6.6% 9.8% Other interest bearing deposits 80.5% 76.0% ----- ----- Total deposits 100.0% 100.0% ===== =====
LIQUIDITY, CASH EQUIVALENTS AND BORROWED FUNDS The Company maintains correspondent accounts with a number of other banks for various purposes. In addition, cash sufficient to meet the operating needs of two banks is maintained at its lowest practical levels. At times, the Company, through its subsidiary banks, is a participant in the federal funds market, either as a borrower or seller. Federal funds are generally borrowed or sold for one-day periods. The Company has a number of additional liquidity sources should the need arise, and Management has no concerns for the liquidity position of the Company. Page 12 13 The Company periodically finds it advantageous to utilize longer term borrowings from the Federal Home Loan Bank of Indianapolis. These long-term borrowings serve to provide a balance to some of the interest rate risk inherent in the Company's balance sheet. Additional information regarding borrowed funds is found immediately below. CAPITAL RESOURCES The capital ratios of the Company exceed the regulatory guidelines for well capitalized institutions. The following table shows the Company's capital ratios and ratio calculations at June 30, 2001 and 2000, and December 31, 2000. Dollars are shown in thousands.
Regulatory Guidelines United Bancorp, Inc. --------------------- --------------------------------------- Adequate Well 6/30/2001 12/31/2000 6/30/2000 -------- ---- --------- ---------- --------- Tier 1 capital to average assets 4% 5% 8.9% 9.3% 9.1% Tier 1 capital to risk weighted assets 4% 6% 12.5% 13.1% 13.0% Total capital to risk weighted assets 8% 10% 13.7% 14.3% 14.2% Total shareholders' equity $ 46,765 $ 45,054 $ 42,579 Intangible assets (3,686) (3,888) (4,092) Unrealized (gain) loss on securities available for sale (690) (281) 577 --------- -------- -------- Tier 1 capital 42,389 40,885 39,064 Allowable loan loss reserves 4,248 3,902 3,828 --------- -------- -------- Tier 2 capital $ 46,637 $ 44,787 $ 42,892 ========= ======== ========
RESULTS OF OPERATIONS Consolidated net income for the second quarter of 2001 was virtually flat compared to that of the first quarter of 2001, and is down year to date compared to the same period in 2000. However, income at United Bank & Trust is up 8.75% annualized over last year, indicating the strength of basic earning levels of the Company. At the same time, startup costs of United Bank & Trust - Washtenaw ("UBTW") have reduced earnings below those levels achieved in the first six months of 2000. Losses at the Ann Arbor de novo bank are at expected levels, and Management anticipates that UBTW will begin contributing to the bottom line of the Company in the near future. NET INTEREST INCOME During the second quarter of 2001, yields on earning assets and the cost of funds declined for 2001 compared to the first quarter. The net result was an improvement in spread and net interest margin. While these ratios remain below levels achieved in 2000, decreases in market interest rates so far during 2001 have allowed the margin of the Company to improve, as a result of its interest sensitivity position. The following table shows the year to date daily average consolidated balance sheets, interest earned (on a taxable equivalent basis) or paid, and the annualized effective yield or rate, for the periods ended June 30, 2001 and 2000. Page 13 14 YIELD ANALYSIS OF CONSOLIDATED AVERAGE ASSETS AND LIABILITIES
dollars in thousands 2001 2000 -------------------------------------- ---------------------------------------- Average Interest Yield/ Average Interest Yield/ ASSETS Balance (b) Rate (c) Balance (b) Rate (c) ------- ---------- ---------- ---------- ---------- -------- Interest earning assets (a) Federal funds sold $ 22,378 $ 570 5.09% $ - $ - -% Taxable securities 43,083 1,284 5.96% 47,316 1,445 6.11% Tax exempt securities (b) 32,186 1,174 7.29% 31,823 1,179 7.41% Taxable loans 345,079 14,682 8.51% 319,039 13,938 8.74% Tax exempt loans (b) 1,924 71 7.37% 2,126 81 7.63% -------- -------- --------- -------- Total int. earning assets (b) 444,650 17,781 8.00% 400,304 16,644 8.32% Less allowance for loan losses (4,195) (3,592) Other assets 39,371 38,209 -------- --------- TOTAL ASSETS $479,826 $ 434,921 ======== ========= LIABILITIES AND SHAREHOLDERS' EQUITY NOW accounts $ 68,117 $ 849 2.49% $ 57,023 $ 659 2.31% Savings deposits 84,636 1,142 2.70% 69,357 796 2.30% CDs $100,000 and over 37,638 1,123 5.97% 34,595 983 5.68% Other interest bearing deposits 175,503 4,785 5.45% 155,742 4,173 5.36% -------- -------- --------- -------- Total int. bearing deposits 365,894 7,899 4.32% 316,717 6,611 4.17% Short term borrowings 280 5 3.88% 18,436 574 6.22% Other borrowings 12,300 422 6.86% 8,500 288 6.77% -------- -------- --------- -------- Total int. bearing liabilities 378,474 8,326 4.40% 343,653 7,472 4.35% -------- -------- Noninterest bearing deposits 50,852 46,941 Other liabilities 4,334 2,638 Shareholders' equity 46,166 41,689 -------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $479,826 $ 434,921 ======== ========= Net interest income (b) $ 9,455 $ 9,172 ======== ======== Net spread (b) 3.60% 3.97% ===== ===== Net yield on interest earning assets (b) 4.25% 4.58% ===== ===== Ratio of interest earning assets to interest bearing liabilities 1.17 1.16 ==== ====
(a) Non-accrual loans and overdrafts are included in the average balances of loans. (b) Fully tax-equivalent basis, net of nondeductible interest impact; 34% tax rate. (c) Annualized As noted from the data in the following table, all of the improvement in interest income during the first six months of 2001 came as a result of changes in volume. At the same time, increases in interest expense were principally a result of changes in volume, with some improvement attributable to rate. The net result is Page 14 15 improved net interest income, net spread and net yield on interest earning assets compared to the first quarter of 2001. The following table shows the effect of volume and rate changes on net interest income for the six months ended June 30, 2001 and 2000 on a taxable equivalent basis, in thousands of dollars.
2001 Compared to 2000 2000 Compared to 1999 ------------------------------------ ------------------------------------------- Increase (Decrease) Due To: (a) Increase (Decrease) Due To: (a) ------------------------------------ ------------------------------------------- Volume Rate Net Volume Rate Net -------- ------ ------- --------- ------- ------- Interest earned on: Federal funds sold $ 570 $ - $ 570 $ (53) $ - $ (53) Taxable securities (127) (34) (161) (166) (5) (171) Tax exempt securities 13 (19) (6) (96) (36) (132) Taxable loans 1,115 (371) 744 1,982 274 2,256 Tax exempt loans (7) (3) (10) 19 1 20 -------- ------ -------- -------- ------ ------- Total interest income $ 1,564 $ (427) $ 1,137 $ 1,686 $ 234 $ 1,920 ======== ====== ======== ======== ====== ======= Interest paid on: NOW accounts $ 135 $ 55 $ 190 $ 30 $ 151 $ 181 Savings deposits 193 153 346 (36) 39 3 CDs $100,000 and over 89 51 140 131 89 220 Other interest bearing deposits 538 74 612 298 422 720 Short term borrowings (411) (157) (568) 513 14 527 Other borrowings 130 4 134 (77) 34 (43) -------- ------ -------- -------- ------ ------- Total interest expense $ 674 $ 180 $ 854 $ 859 $ 749 $ 1,608 ======== ====== ======== ======== ====== ======= Net change in net interest income $ 890 $ (607) $ 283 $ 827 $ (515) $ 312 ======== ====== ======== ======== ====== =======
(a) The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. NONINTEREST INCOME Total noninterest income reached its highest level ever for the Company. All categories of noninterest income other than Trust & Investment fee income have improved from the same period last year, with the largest percentage gains achieved in income from loan sales and servicing and other income. Service charges on deposit accounts are up 3.6% over the first quarter of 2001, and are up 3.1% year to date over 2000. The Trust & Investment Group of UBT continues to provide significant contribution to the Company's noninterest income, through continued growth and expansion. However, as a result of the declining market value of assets under management, income is up just 2.1% over 2000 levels, and is down slightly from the first quarter of 2001. For the long term, new business continues to be brought into the department, and income from this area will continue to provide a significant contribution to earnings. Income from loan sales and servicing continues to be strong, as a result of an increased amount of residential mortgages being sold in the secondary market. Mortgage loan refinancing has increased from 2000 levels, resulting in a greater percentage of loans sold during 2001. Year to date earnings in this category are up 206% over 2000 levels, and are up 235.3% over the same quarter last year. Page 15 16 NONINTEREST EXPENSES Noninterest expense is also up from 2000, with the greatest dollar increases in salaries and employee benefits. A good share of this increase reflects the growth and expansion of the Company, including staffing for UBTW which opened in April, and the Dexter office of UBT, which opened in May of 2001. Total noninterest expense, excluding provision for loan losses, for the six months ended June 30, 2001 was 19.3% above the same period for 2000. FEDERAL INCOME TAX There has been no significant change in the income tax position of the Company during the second quarter of 2001. NET INCOME Second quarter and year to date consolidated net income is down from the same periods of 2000, as a result of startup costs of UBTW and the gain on sale of UBT's credit card portfolio in 2000. Management anticipates that net income will continue to remain strong for the remainder of the year, although UBTW will not contribute to the Company's profitability during calendar year 2001. FORWARD-LOOKING STATEMENTS Statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations include forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and about the Company itself. Words such as "anticipate," "believe," "determine," "estimate," "expect," "forecast," "intend," "is likely," "plan," "project," "opinion," variations of such terms, and similar expressions are intended to identify such forward-looking statements. The presentations and discussions of the provision and allowance for loan losses, and determinations as to the need for other allowances presented in this report are inherently forward-looking statements in that they involve judgements and statements of belief as to the outcome of future events. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. Internal and external factors that may cause such a difference include changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking laws and regulations; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of pending and future litigation and contingencies; trends in customer behavior and customer ability to repay loans; software failure, errors or miscalculations; and the vicissitudes of the national economy. The Company undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events, or otherwise. Page 16 17 ITEM 3- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FUNDS MANAGEMENT AND INTEREST RATE RISK The composition of the Company's balance sheet consists of investments in interest earning assets (loans and investment securities) that are funded by interest bearing liabilities (deposits and borrowings). These financial instruments have varying levels of sensitivity to changes in market interest rates resulting in market risk. Policies place strong emphasis on stabilizing net interest margin, with the goal of providing a sustained level of satisfactory earnings. The Funds Management, Investment and Loan policies provide direction for the flow of funds necessary to supply the needs of depositors and borrowers. Management of interest sensitive assets and liabilities is also necessary to reduce interest rate risk during times of fluctuating interest rates. A number of measures are used to monitor and manage interest rate risk, including interest sensitivity and income simulation analyses. An interest sensitivity model is the primary tool used to assess this risk with supplemental information supplied by an income simulation model. The simulation model is used to estimate the effect that specific interest rate changes would have on twelve months of pretax net interest income assuming an immediate and sustained up or down parallel change in interest rates of 200 basis points. Key assumptions in the models include prepayment speeds on mortgage related assets; cash flows and maturities of financial instruments held for purposes other than trading; changes in market conditions, loan volumes and pricing; and management's determination of core deposit sensitivity. These assumptions are inherently uncertain and, as a result, the models cannot precisely estimate net interest income or precisely predict the impact of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes and changes in market conditions. Based on the results of the simulation model as of June 30, 2001, the Company would expect a maximum potential reduction in net interest margin of less than 5% if market rates increased under an immediate and sustained parallel shift of 200 basis points. The Company's interest sensitivity position remained substantially unchanged from the previous quarter. Each Bank maintains a Funds Management Committee, which reviews exposure to market risk on a regular basis. The Committees' overriding policy objective is to manage assets and liabilities to provide an optimum and consistent level of earnings within the framework of acceptable risk standards. The Funds Management Committees are also responsible for evaluating and anticipating various risks other than interest rate risk. Those risks include prepayment risk, credit risk and liquidity risk. The Committees are made up of senior members of management, and continually monitor the makeup of interest sensitive assets and liabilities to assure appropriate liquidity, maintain interest margins and to protect earnings in the face of changing interest rates and other economic factors. The Funds Management policies provide for a level of interest sensitivity which, Management believes, allows the Banks to take advantage of opportunities within their markets relating to liquidity and interest rate risk, allowing flexibility without subjecting the Company to undue exposure to risk. In addition, other measures are used to evaluate and project the anticipated results of Management's decisions. Page 17 18 PART II OTHER INFORMATION ITEM 1- LEGAL PROCEEDINGS The Company is not involved in any material legal proceedings. The Company's banking subsidiaries 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 Banks. Neither the Banks nor the Company are involved in any proceedings to which any director, principal officer, affiliate thereof, or person who owns of record or beneficially five percent (5%) or more of the outstanding stock of the Company or the Banks, or any associate of the foregoing, is a party or has a material interest adverse to the Company or the Banks. During the first quarter of 2001, United Bancorp, Inc. chartered United Bank & Trust - Washtenaw as a de novo bank. UBTW was capitalized as a wholly-owned subsidiary of the Company, by means of a cash dividend from United Bank & Trust. UBTW opened for business on April 2, 2001. ITEM 2- CHANGES IN SECURITIES AND USE OF PROCEEDS No changes in the securities of the Company occurred during the quarter ended June 30, 2001. ITEM 3- DEFAULTS UPON SENIOR SECURITIES There have been no defaults upon senior securities relevant to the requirements of this section during the six months ended June 30, 2001. ITEM 4- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of shareholders of the Company was held on April 17, 2001. At that meeting, the following matters were submitted to a vote of the shareholders. There were 1,911,603 voting shares outstanding on April 17, 2001. As a result of the formation of UBTW in 2001, the Company modified the makeup of its Board of Directors to better represent the Boards of the Banks. As a result, Directors Bush, Farver and Kuhman did not seek re-election as Directors of the Company, and Directors Berlin, Gurdjian, Hill, Knisel, Mohr, Niethammer, Roberstad and Robideau voluntarily resigned as Directors of the Company. Each of these individuals continue to serve as Directors of United Bank & Trust. The following directors were elected to three year terms:
For Against Abstain -------------- ----------- ----------- James C. Lawson re-elected 1,592,289 28,306 - Donald J. Martin re-elected 1,603,863 16,732 - David E. Maxwell re-elected 1,617,868 2,727 - Chris L. McKenney elected 1,600,211 20,384 -
Page 18 19 The following directors were elected to two year terms:
For Against Abstain -------------- ----------- ----------- Robert K. Chapman elected 1,617,868 2,727 - George H. Cress elected 1,615,946 4,649 -
The following director was elected to a one year term:
For Against Abstain -------------- ----------- ----------- Patricia M. Garcia elected 1,617,868 2,727 -
Directors Butcko, Foss, Hickman and Wanke hold terms which continue after the meeting. The firm of Crowe, Chizek and Company LLP of Grand Rapids, Michigan was ratified as independent auditors for the Company and its subsidiaries for the year ending December 31, 2001. The vote was as follows:
For Against Abstain -------------- ----------- ----------- Ratification of auditors 1,599,375 1,732 19,488
ITEM 5- OTHER INFORMATION None. ITEM 6- EXHIBITS AND REPORTS ON FORM 8-K (a) Listing of Exhibits (numbered as in Item 601 of Regulation S-K): None (b) The Company has filed no reports on Form 8-K during the quarter ended June 30, 2001. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. United Bancorp, Inc. August 3, 2001 /S/ Dale L. Chadderdon -------------------------------------------------------- Dale L. Chadderdon Senior Vice President, Secretary & Treasurer Page 19 -----END PRIVACY-ENHANCED MESSAGE-----