<PAGE> 1
----------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
AMENDMENT NO. 2 TO FORM 10-K405
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 2-81060-S
----------------------
UNITED BANCORP
(Exact name of Registrant as specified in its Charter)
OREGON 93-0612062
(State of incorporation) (IRS Employer Identification Number)
555 S.E. KANE STREET
ROSEBURG, OREGON 97470
(Address of principal executive offices)
(541) 440-2629
(Registrants' telephone number, including area code)
Securities registered pursuant to Section 12 (g) of the act:
None
----
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 such shorter period 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 [ ]
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K (& 229.405 of this chapter) 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 ]
The approximate aggregate market value of Registrant's Common Stock held by
non-affiliates of the Registrant at February 29, 1996, was $6,067,163.
The number of shares of Registrant's common stock, par value $2.50, outstanding
on February 29, 1996, was 439,761
DOCUMENTS INCORPORATED BY REFERENCE
None
----
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United Bancorp (the "Company") hereby amendments the Company's Form 10-K405,
for the following Items.
Item 1 - BUSINESS
- -----------------
General
- -------
United Bancorp (the "Company") is an Oregon corporation organized in 1971. Its
principal continuing business is the coordination of the financial resources of
the consolidated enterprise and the making of investments in and advances to
its subsidiaries to fund portions of their capital and credit requirements.
The business of Douglas National Bank (the "Bank"), a subsidiary of the
Company, is, and is expected for the foreseeable future to continue to be, the
principal source of the Company's revenue. See "The Bank" for a discussion of
its subsidiary, Douglas National Bank Insurance Agency, Inc.("DNBIA").
The Company
- -----------
The Company is a corporation organized under the laws of Oregon in 1971 as a
bank holding company. It owns all the capital stock of the Bank, a national
banking association chartered in 1959.
The Company was formed to permit greater flexibility in the operation of the
Bank and related financial services. In September 1972, through a plan of re-
organization and merger, the Bank became a subsidiary of the Company and the
stockholders of the Bank became the stockholders of the Company. The Company's
principal sources of funds are dividends and interest from the Bank.
There are legal limitations on the extent to which the Bank can pay dividends
to the Company or otherwise supply funds to the Company or its affiliates.
In December 1995, the Company merged with the one other wholly owned
subsidiary, organized as an Oregon corporation: U.B.C. Investment Corporation.
U.B.C. Investment Corporation owned certain of the Bank's buildings and leased
them back to the Bank.
The Company's principal executive offices are located at 555 S.E. Kane Street,
P.O. Box 1007, Roseburg, Oregon 97470, and its telephone number is (541)
440-2629. Unless the context indicates otherwise, references herein to
the Company are to the Company and its subsidiaries, including the Bank.
The Bank
- --------
The Bank is a national banking association chartered in 1959. It is engaged in
the general banking business in Douglas County, Oregon. Its primary service
area is northern Douglas County. Its main office is located at 555 S.E. Kane
Street, Roseburg, and it operates five branch offices in Winston, Sutherlin,
Glide, Drain and Roseburg (Garden Valley) and two off premises automatic teller
machines located in Roseburg and Rice Hill Valley.
The Bank's commercial services include acceptance of demand, savings and other
time deposits, lending of money on secured and unsecured basis to individuals,
partnerships and corporations, and purchase of investment securities and
rendering of services generally connected with commercial banking, except
trust services.
The Bank conducts its operations in Douglas County, Oregon. The economy of the
region is, and has always been closely linked to the forest products industry.
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The availability of deposits and the exposure to credit loss can be impacted by
the economic performance in the forest products industry.
Douglas National Bank Insurance Agency, Inc. (DNBIA) was incorporated January
12, 1988, with the Bank owning 100 percent of DNBIA common stock issued. DNBIA
was organized to provide insurance and related financial products and is
licensed in the State of Oregon to market Life, Health and General Lines of
insurance products. DNBIA is headquartered at the Glide Office of Douglas
National Bank, Glide, Oregon.
Competition
- -----------
All phases of the Company's financial service activities, including banking and
the related businesses in which it is engaged are highly competitive.
The Bank competes with independent locally controlled banks and banks which
are sub-sidiaries of bank holding companies based inside and outside Oregon.
The Bank competes actively with banks, savings and loans, and credit unions
for deposits and loans, and brokerage firms for deposits. The Bank also
competes with other financial institutions, including personal loan companies,
finance companies and governmental agencies, all of which are actively engaged
in marketing various types of loans and other financial services.
Quality of service to customers and ease of accessibility to facilities are
among the principal methods of meeting competition in the financial services
industries.
Number of Persons Employed
- --------------------------
As of December 31, 1995, the Bank had 51 full-time employees and 22 part-time
employees. None of the Bank's employees is represented by a labor union. The
Bank considers its relationships with its employees satisfactory.
Supervision and Regulation of the Company
- -----------------------------------------
The Company is subject to regulation under the Bank Holding Company Act of 1956
(the "Act"), as amended, and is registered as such with the Federal Reserve
Board. As a bank holding company, the Company is required to file with the
Federal Reserve Board reports and any additional information the Federal
Reserve Board may require. The Federal Reserve Board may make examinations of
the Company and its subsidiaries and it also has the power to issue cease and
desist orders where action or inaction would constitute a threat to the
safety, soundness or stability of the Company.
Under the Act, the Company may not acquire direct or indirect ownership or
control of the voting shares of any company, including a bank, without the
prior approval of the Federal Reserve Board if, after such acquisition, it
would own or control more than 5 percent of the voting shares of such company,
except as specifically authorized. In addition, the Company is generally
prohibited from engaging in, or acquiring direct or indirect control of, voting
shares of any company engaged in nonbanking activities. Subject to the
approval of the Federal Reserve Board, the Company may acquire shares of
nonbanking corporations, the activities of which are deemed by the Federal
Reserve Board to be closely related to banking or managing or controlling
banks.
Some of the activities that the Federal Reserve Board has determined by
regulation to be closely related to banking are, making or servicing loans,
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<PAGE> 4
performing certain data processing services, acting as fiduciary or investment
or financial advisor, engaging in mortgage banking, making investments in and
operating insurance agencies, or making investments in corporations or projects
designed primarily to promote community welfare. In making any such
determination, the Federal Reserve Board is required to consider whether the
performance of such activities by the Company or an affiliate can reasonably be
expected to produce benefits to the public, such as greater convenience,
increased competition or gains in efficiency that outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. The Federal
Reserve Board is also empowered to differentiate between activities commenced
de novo and activities commenced by acquisitions, in whole or in part.
The Federal Reserve Board is prohibited from approving an application by the
Company to acquire voting shares of any commercial bank in another state unless
such acquisition is specifically authorized by the laws of such other state.
The Company and its subsidiaries are "affiliates" of the Bank within the
meaning of the Federal Reserve Act and regulations of the Federal Deposit
Insurance Corporation ("FDIC"), which impose restrictions on loans by the Bank
to its affiliates, on investments by the Bank in the stock or securities of its
affiliates, on taking such stock or securities as collateral security for loans
to any borrower, on the guarantee of credit of an affiliate and on the purchase
of assets from an affiliate. The Company, the Bank and their affiliates are
also subject to restrictions on engaging in the business of underwriting or
distributing securities in the United States.
Supervision and Regulation of the Bank
- --------------------------------------
The Bank is subject to supervision and regular examination by the Comptroller
of Currency. It is also subject to regulations issued by the Federal Reserve
Board and FDIC.
There are various requirements and restrictions affecting the Bank and its
operations including: the requirement to maintain reserves against deposits;
restrictions on the nature and amount of loans which may be made by the Bank;
and restrictions relating to investments, branching and other activities of the
Bank; and limitations upon the Bank's ability to declare and pay dividends.
The Bank is a member of the Federal Reserve Bank and FDIC and deposits of
$100,000 or less are insured.
Monetary Policies
- -----------------
The Company and its subsidiaries are affected by the national and regional
economic environment and are also affected directly and indirectly by the
monetary and fiscal policies of the United States Government, including the
Federal Reserve System which regulates the nation's money supply primarily
through control of bank credit. Such regulation has the effect of
influencing the overall growth of bank loans, investments and deposits and
affects interest rates on loans and deposits. The monetary policies of the
Federal Reserve System have had a significant effect on the operating results of
commercial banks in the past and are expected to do so in the future. The
impact of these policies cannot be accurately predicted.
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United Bancorp Consolidated Statistical Information
- ---------------------------------------------------
The following tables present certain financial and statistical information with
respect to United Bancorp and its subsidiaries. Most of the information is
required by Guide 3, "Statistical Disclosure by Bank Holding Companies", of the
Securities and Exchange Commission. The following tables should be read in
conjunction with the Consolidated Financial Statements (including notes)
included in United Bancorp's 1995 Annual Report to Shareholders filed as
Exhibit 13.1 to this report, incorporated herein by reference.
Reference is made to the following financial and statistical information from
its Annual Report to Shareholders for the year ended December 31, 1995:
United Bancorp
Annual Report to Shareholders
Page Number
Investment Securities.............................................38
Loans.............................................................40
Short-Term Borrowings.............................................43
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Average Balances (in thousands) and Average Rates Earned and Paid
-----------------------------------------------------------------
The following table shows average balances and interest income or interest
expense (in thousands), with the resulting average yield or rates by category
of average earning asset or interest bearing liability.
<TABLE>
<CAPTION>
________________________________________Year ended December 31,1995____________
Interest Average
Average Income or Yield or
Balance Expense Rates
<S> <C> <C> <C>
Assets
Interest bearing balances due from banks $ 955 $ 57 5.97 %
Securities - taxable 40,432 2,828 6.99
Securities - tax-exempt* 8,881 414 6.25
Loans** 38,206 3,982 10.42
------ -----
Total earning asset/interest income 88,474 $ 7,281 8.23
Reserve for loan losses (431)
Cash and due from banks 3,806
Premises and equipment, net 2,851
Other assets 1,084
------
Total assets $ 95,784
=======
Liabilities and Stockholders' Equity
Savings and interest bearing demand $ 39,924 $ 747 1.87 %
Time deposits 12,742 581 4.56
Short-term borrowings 10,875 483 4.44
Long-term debt 9,458 629 6.65
Total interest-bearing liabilities / ------ -----
interest expense 72,999 $ 2,440 3.34
Demand deposits 11,533
Other liabilities 700
------
Total liabilities 85,232
Stockholders' equity 10,552
------
Total liabilities and stockholders' equity $ 95,784
=======
Net interest income $ 4,841
Net interest spread 4.89 %
Net interest income to earning assets 5.47
</TABLE>
* Average yield on non-taxable securities has been computed at a 34%
tax-equivalent rate.
** Nonaccrual loans have been included in the computation of average loans
(1995 - $4 and 1994 - $168). Loan fees recognized during the period and
included in the yield calculation totaled $296 in 1995 and $420 in 1994.
*** Average yield on all Securities is computed by dividing income by average
historical cost.
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<PAGE> 7
Average Balances (in thousands) and Average Rates Earned and Paid
-----------------------------------------------------------------
The following table shows average balances and interest income or interest
expense (in thousands), with the resulting average yield or rates by category
of average earning asset or interest bearing liability.
<TABLE>
<CAPTION>
________________________________________Year ended December 31,1994____________
Interest Average
Average Income or Yield or
Balance Expense Rates
<S> <C> <C> <C>
Assets
Interest bearing balances due from banks $ 2,363 $ 100 4.23 %
Securities - taxable 51,311 3,013 5.87
Securities - tax-exempt* 8,007 332 5.56
Loans** 30,815 3,242 10.52
------ -----
Total earning asset/interest income 92,496 $ 6,687 7.23
Reserve for loan losses (477)
Cash and due from banks 3,917
Premises and equipment, net 2,723
Other assets 1,687
------
Total assets $100,346
=======
Liabilities and Stockholders' Equity
Savings and interest bearing demand $ 45,449 $ 788 1.73 %
Time deposits 13,138 440 3.35
Short-term borrowings 11,753 422 3.59
Long-term debt 6,885 383 5.56
Total interest-bearing liabilities / ------ ----
interest expense 77,225 $ 2,033 2.63
Demand deposits 11,716
Other liabilities 1,399
------
Total liabilities 90,340
Stockholders' equity 10,006
------
Total liabilities and stockholders' equity $100,346
=======
Net interest income $ 4,654
Net interest spread 4.60 %
Net interest income to earning assets 5.03
</TABLE>
* Average yield on non-taxable securities has been computed at a 34%
tax-equivalent rate.
** Nonaccrual loans have been included in the computation of average loans
(1995 - $4 and 1994 - $168). Loan fees recognized during the period and
included in the yield calculation totaled $296 in 1995 and $420 in 1994.
*** Average yield on all Securities is computed by dividing income by average
historical cost.
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<PAGE> 8
<TABLE>
<CAPTION>
Analysis of Changes in Interest Differential
--------------------------------------------
The following table shows the dollar amount of the increase (decrease) in the
Company's consolidated interest income and expense and attributes such dollar
amounts to changes in volume as well as changes in rates. Rate/volume
variances, which were immaterial, have been allocated equally between rate and
volume changes (in thousands).
________________________________________Year ended December 31,________________
_____1995 over 1994________ _____1994 over 1993______
Total Amount of Change Total Amount of Change
Inc. Attributed to Inc. Attributed to
(Dec.) Volume Rate (Dec.) Volume Rate
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Interest on deposits-
domestic financial
institutions.......... $ (43) $ (75) $ 32 $ (13) $ (26) $ 13
Interest on securities-
taxable.............. (185) (712) 527 (41) (171) 130
Interest on securities-
non-taxable.......... 82 44 38 227 168 59
Interest and fees on
loans................ 740 770 (30) 739 612 127
---- ----- ----- ----- ---- ----
Total interest income $ 594 $ 27 $ 567 $ 912 $ 583 $ 329
Interest expense:
Interest on deposits:
Savings and interest
bearing demand...... $ (41) $(100) $ 59 $(193) $ 5 $(198)
Time deposits........ 141 (13) 154 (22) (13) (9)
Interest on short-
term borrowings..... 61 (34) 95 182 89 93
Interest on long-term
debt................ 246 161 85 199 249 (50)
---- ---- ---- ---- ---- ----
Total interest expense $ 407 $ 14 $ 393 $ 166 $ 330 $(164)
Net interest spread..... $ 187 $ 13 $ 174 $ 746 $ 253 $ 493
</TABLE>
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<PAGE> 9
Investment Securities
- ---------------------
At December 31, 1995 the amortized cost, principal amount and weighted average
yields to maturity of securities Available-For-Sale were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Par Value Weighted
Amortized Principal Average
Cost Amount Yield
<S> <C> <C> <C>
U.S. Government agencies
Due after 1 but within 5 years........... $ 6,105 $ 6,166 9.14 %
Due after 5 but within 10 years.......... 4,219 4,300 24.07
------- -------
Total U.S. Government agencies........... $ 10,324 $ 10,466
States and Political subdivisions*
Due within 1 year........................ $ 245 $ 245 7.10 %
Due after 1 but within 5 years........... 1,625 1,605 8.23
Due after 5 but within 10 years.......... 6,150 6,150 8.40
Due after 10 years....................... 2,447 2,300 9.07
------- -------
Total states and political subdivisions. $ 10,467 $ 10,300
Mortgage Backed securities/Collateralized
Mortgage Obligations
Due after 1 but within 5 years........... $ 803 $ 801 6.06 %
Due after 5 but within 10 years.......... 3,221 3,177 5.79
Due after 10 year........................ 20,074 20,171 6.98
------- -------
Total MBS & CMO's...................... $ 24,098 $ 24,149
Federal Reserve & Federal Home
Loan Bank Stock........................... 1,489 1,489 7.03
Total Securities Available-for-Sale........ $ 46,378 $ 46,404 8.61 %
======= =======
</TABLE>
* Weighted average yield on state & political subdivisions has been
computed at a 34% tax-equivalent rate.
** The Company had no Security Issuer's which exceeded ten percent
(10%) of Stockholder's Equity.
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<PAGE> 10
Loan Portfolio
- --------------
At December 31, 1995, the maturities of all loans by category were as follows
(in thousands):
<TABLE>
<CAPTION>
Due after one
Due within but within Due after
one year five years five years Total
<S> <C> <C> <C> <C>
Loan category:
Real estate construction.. $ 599 $ 89 $ 421 $ 1,109
Commercial................ 8,925 7,170 11,119 27,214
Real Estate Mortgage...... 761 735 5,782 7,278
Consumer Installment...... 1,411 2,616 404 4,431
------- ------- ------- -------
Total loans by maturity $ 11,696 $ 10,610 $ 17,726 $ 40,032
</TABLE>
Variable rate loans due after one year totaled $15,623 at December 31, 1995,
and loans with predetermined or fixed rates due after one year totaled $12,713.
Nonperforming Loans
- -------------------
The accrual of interest on a loan is discontinued when, in the opinion of
management, the future collectibility of principal or interest is in serious
doubt. The Bank's policy is to reverse and charge against current income,
interest previously accrued but uncollected. Subsequent interest collected on
such loans is credited to loan principal if, in the opinion of management,
full collectibility of principal is doubtful.
Loans contractually past due 90 days or more on which interest was being
accrued at December 31, 1995 were $81,000, as compared to $97,000 at December
31, 1994.
The Company had no potential problem loans as of December 31, 1995.
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<PAGE> 11
Summary of Loan Loss Experience
- -------------------------------
The following table shows the Company's loan loss performance for the years
ended December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Loans at year end ................................. $ 39,985 $ 33,775
Average loans outstanding.......................... 38,206 30,815
Reserve balance, beginning of year................. 483 488
Recoveries:
Commercial and other........................... 14 33
Real estate - construction..................... 0 0
Real estate - mortgage......................... 0 0
Installment.................................... 18 12
Credit Cards................................... 8 ---
------- -------
Loans charged off: 40 45
Commercial and other........................... 87 16
Real estate - construction..................... 0 0
Real estate - mortgage......................... 0 0
Installment.................................... 31 34
Credit Cards................................... 9 ---
------- -------
127 50
------- -------
Net loans charged off (recoveries)............. 87 5
Provision charged to operations................ 80 0
------- -------
Reserve balance, end of year $ 476 $ 483
======= =======
Ratio of net loans charged off to
average loans outstanding........................... .23 .016
Ratio of reserve for loan losses to loans at year end 1.19 1.43
</TABLE>
An allocation of the reserve for loan losses by loan category is as follows
(in thousands):
<TABLE>
<CAPTION>
Percent of Percent of
loans in each loans in each
category to category to
Amount total loans Amount total loans
Balance at December 31, 1995 1994
applicable to ------ ------------- ------ -------------
<S> <C> <C> <C> <C>
Commercial and other $ 198 41.6 % $ 107 60 %
Real estate - construction 10 2.1 0 0
Real estate - mortgage 145 30.5 38 22
Installment 65 13.7 32 18
Unallocated 58 12.1 306
------ ------------- ------ -------------
$ 476 100 % $ 483 100 %
===== =====
</TABLE>
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<PAGE> 12
The Bank follows guidelines of the Office of the Comptroller of Currency in
evaluating adequacy of its allowance for loan and lease losses. As outlined in
Banking Circular 201, dated February 20, 1992, the Bank's policy is to maintain
an allowance for loan and lease losses that is adequate to absorb all estimated
inherent losses. Inherent losses are defined as those loan losses that are
probable.
In assessing the adequacy of the allowance, the Bank's evaluation includes the
following:
1. For individual credits identified with a higher than normal credit risk,
these loans are identified by the Lenders, Credit Administrators, and Loan
Review Officer. The status of the risk associated with these credits is
reviewed quarterly. The factors considered in evaluating the risk for each
loan include: overall financial condition including cash flows (recent and
projected), repayment record, and realizable value of collateral, if any.
2. All outstanding loans and unfunded commitments including loans listed on
the watchlist with no unusual credit risk, such as commercial lines of
credit, letters of credit, credit cards, and check loans. The loan losses
in pools of loans are based on The Bank's historical loss experience,
adjusted for perceived changes in trends and conditions expected to occur
in the Bank's local area. More specifically, the Bank's consideration
includes, but is not limited to: levels of trends in delinquencies and
nonaccruals; trends in loan volume; terms of loans; effects of any changes
in lending policies and procedures including those for underwriting,
collection, charge-off and recovery; experience, ability, and depth of
lending management and staff; national and local economic trends and
conditions; concentrations of credit (for example, local industries, their
employees and suppliers that might affect loss experience across one or
more components of the portfolio).
3. Potential losses by loan segments, broken down into consumer, commercial,
residential, commercial real estate, and credit cards.
In addition to these known items, the Bank is also maintaining reserves to
cover for local economic exposure. Douglas County's economy is more closely
tied to the forest products industry, which continues to be volatile. The
industry is expected to continue to weaken in the future. The economic climate
impacts both the ability of commercial and consumer borrowers to pay and the
value of real estate properties which serve as collateral on loans. The
unallocated portion of the reserve is intended to cover exposure to credit
losses in anticipation of further weakening of the economy.
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<PAGE> 13
Deposits
- --------
The average amount of domestic deposits by category and the average rates paid
by each deposit category for the years ended December 31 was as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
------------------- -------------------
Average Average Average Average
Balance Rate Balance Rate
<S> <C> <C> <C> <C>
Noninterest bearing demand deposits. $ 11,533 N/A $ 11,716 N/A
Interest bearing demand............. 26,009 1.69 % 28,506 1.49 %
Savings............................. 13,915 2.21 16,943 2.14
Time................................ 12,742 4.56 13,138 3.35
</TABLE>
At December 31, 1995, the amount of domestic time certificates of deposit in
amounts of $100,000 or more by time remaining to maturity was as follows
(in thousands):
<TABLE>
<S> <C>
Three months or less........................... $ 317
Over three months through six months........... 224
Over six months through twelve months.......... 106
Over twelve months............................. 227
</TABLE>
Short Term Borrowings
- ---------------------
Securities sold under agreements to repurchase represent short-term borrowings
with maturities which do not exceed 270 days. The following is a summary of
such short-term borrowings for the years ended December 31, 1995, and 1994.
<TABLE>
<CAPTION>
1995 1994
------- --------
<S> <C> <C>
Repurchase Agreements
Amount outstanding December 31,............... $ 10,467 $ 11,356
Weighted average interest at December 31,..... 4.33 % 4.08 %
Maximum balance outstanding at any month end.. $ 11,225 $ 11,356
Daily average balance outstanding during year. $ 9,740 $ 7,570
Weighted average interest rate during year.... 4.41 % 3.20 %
Fed Funds Purchased and FHLB Bank Line of Credit
Amount outstanding December 31,............... $ 2,646 $ 6,850
Weighted average interest at December 31,..... 6.125 % 6.62 %
Maximum balance outstanding at any month end.. $ 7,975 $ 6,850
Daily average balance outstanding during year. $ 1,009 $ 3,803
Weighted average interest rate during year.... 6.08 % 4.73 %
</TABLE>
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<PAGE> 14
Return on Equity and Assets
- ---------------------------
Return on daily average assets and equity for the years ended December 31 are
presented below (dollars in thousands):
<TABLE>
1995 1994
-------- --------
<S> <C> <C>
Net income................................. $ 1,143 $ 587
Average total assets....................... $ 95,784 $ 100,346
RETURN ON AVERAGE ASSETS................... 1.19 % .58 %
Net income................................. $ 1,143 $ 587
Average equity............................. $ 10,552 $ 10,006
RETURN ON AVERAGE EQUITY................... 10.83 % 5.87 %
Average total equity....................... $ 10,552 $ 10,006
Average total assets....................... $ 95,784 $ 100,346
AVERAGE TOTAL EQUITY TO ASSETS RATIO....... 11.02 % 9.97 %
Dividends per share........................ .42 .40
Income per share........................... 2.70 1.39
DIVIDENDS PAYOUT RATIO..................... 15.56 % 28.80 %
</TABLE>
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<PAGE> 15
Interest Rate Sensitivity Table
- -------------------------------
The Net Interest Income/Expense Change for the period ending December 31, 1995
is presented below (dollars in thousands):
<TABLE>
<CAPTION>
Decrease Current Rate
---------------------------------- ------------
-300bp -200bp -100bp Scenario
---------------------------------- ------------
<S> <C> <C> <C> <C>
Securities-Taxable........ $ (417,631) $(156,122) $(117,282) $ (80,759)
Securities-Tax-exempt..... (466) 135 460 786
Loans..................... (717,613) (244,462) (125,702) (5,125)
---------- -------- -------- ---------
Total Change in Interest
Income.................. $(1,135,710) $(400,449) $(242,524) $ (85,098)
========== ======== ======== =========
Savings and interest
bearing demand.......... (225,438) (105,205) (7,232) -0-
Time deposits............ (133,726) (80,430) (49,966) (19,725)
Short-term borrowings.... (211,231) (97,266) (41,435) -0-
Long-term debt........... (11,759) (3,621) (2,259) (905)
--------- -------- -------- ---------
Total Change in Interest
Expense................ $ (582,154) $(286,522) $(100,892) $ (20,630)
========= ======== ======== =========
Net Interest Change.... $ (553,556) $(113,927) $(141,632) $ (64,468)
========= ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
Increase
-------------------------------------
+100bp +200bp +300bp
-------------------------------------
<S> C> <C> <C>
Securities-Taxable....... $ (42,432) $ (4,191) $ 189,012
Securities-Tax-exempt.... 1,112 1,438 2,038
Loans.................... 115,833 237,379 704,327
--------- --------- ---------
Total Change in Interest
Income.................. $ 74,513 $ 234,626 $ 895,377
========= ========= =========
Savings and interest
bearing demand.......... $ 30,782 $ 61,564 $ 338,157
Time deposits............ (911) 18,385 151,276
Short-term borrowings.... 45,072 90,971 302,357
Long-term debt........... 450 1,812 9,950
--------- --------- ---------
Total Change in Interest
Expense................ $ 75,393 $ 172,732 $ 801,740
========= ========= =========
Net Interest Change...... $ (880) $ 61,894 $ 93,637
========= ========= =========
</TABLE>
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<PAGE> 16
The bank has an Asset Liability Management Team which meets quarterly to review
the position of the bank. This Team reports to the Investment and Funds
Management Committee of the Board. The Team reviews the net interest change
the bank would incur in a rising, falling or constant rate environment over a
12 month horizon. If the change is unacceptable in any interest rate
environment, the bank will focus on methods to get the bank into an acceptable
net interest change position. This might be accomplished by implementing
floors or collars on loans, increasing or decreasing floating rate loans and/or
investments, implementing a Certificate of Deposit promotion, selling certain
investments, changing strategy on pricing of deposits, just to name a few.
The bank's philosophy is conservative on what it considers an acceptable net
interest change. The board would like to see a positive change in all rate
environments or minimal decreases in net interest income. Particular emphasis
is put on a negative net interest change given a move in rates when the economy
appears to be going that direction.
- -------------------------------------------------------------------------------
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
1995 Compared to 1994
The Company had improved financial results in 1995 with net income up 95
percent from 1994. The increase in net income resulted in a return on average
assets of 1.19% and a return on average equity of 10.95%, up from .59% and
5.94% respectively in comparison to 1994. Various factors influenced the
increase in net income. Net interest income was up 5 percent or $187,000,
noninterest income was up 14 percent or $105,000, and noninterest expense was
down 13 percent or $558,000 in comparison to 1994.
The Company repositioned the Investment portfolio in 1994, taking a $366,000
realized loss. This repositioning increased yields on investments for 1995
dramatically. The average yield on taxable securities in 1994 was 5.87
percent, while the average yield in 1995 was 6.99 percent. Although the yield
on the securities increased, total securities decreased by 21 percent or
$12,338,000 in 1995. The Company sold about $10,000,000 in securities to
decrease the volatility in the portfolio. The Company reduced exposure in the
portfolio if rates were to rise substantially. The Company used the proceeds
from the sale of securities and maturities throughout the year to pay off short
term debt and purchase seasoned real estate loans yielding an average interest
rate of 8 percent. Hence, net loans increased over 1994 by $6,217,000 and
interest income on loans increased from $3,242,000 in 1994 to $3,982,000 in
1995. The repositioning of the balance sheet resulted in an increase of
interest income of $594,000 in 1995. The Company also recognized a provision
for loan losses of $80,000 in 1995, compared with no provision in 1994. The
allowance for loan losses was $476,000 at December 31, 1995 which represented
1.19 percent of gross loans, compared with $483,000 or 1.43 percent in 1994.
The loan portfolio continues to be of strong credit quality which reflects the
Company's conservative policies. Non performing loans were $178,604 at year
end compared with $168,000 in 1994. The Company had net charge off loans of
$87,000 in 1995 compared to $5,000 in 1994.
The bank's investment portfolio includes Collaterlized Mortgage Obligations and
Mortgaged Backed Securities bonds which are issued by Governmental Agencies
such as FNMA, GNMA, FHLB. These type of bonds are backed by the implied credit
of the United States Government and therefore have very little credit risk
-16-
<PAGE> 17
associated with them. In other words, the principal amount invested in these
bonds will be repaid in the scheduled time frame unless the Governmental Agency
were to go bankrupt and the United States Treasury didn't step in and bail them
out (which is unlikely). These type of bonds, like all investments have a
degree of interest rate risk, however, they react a bit different than a
Treasury bond. Since these investments are collaterized by home mortgages,
when the consumer refinances or sells his/her home, or makes a large principal
payment these bonds will pay additional principal than scheduled. Normally
this happens in a falling interest rate cycle, hence the principal received on
the bonds are reinvested at a lower rate. Also, if the bonds were purchased at
a premium, these premiums are written off over a shorter period of time hence
reducing the interest income and yield on these bonds. This type of investment
also has extension risk which is a form of interest rate risk. This is the
risk that rates will rise and the consumer will not refinance or sell their
home, and hence the bond"s average life will extend and the yield will be lower
than the market on the bonds for a greater period of time. With these risks
considered, the bank is compensated for the bonds with an higher yield when
purchased than a similar Treasury Bond. This is the philosophy for purchasing
these bonds.
Total debt was reduced by nearly $5,000,000 by year end with the proceeds from
the sale of securities. However, interest expense on these Notes Payable
increased by $246,000 over 1994. This was due in part, to an increased cost of
funds during 1995, whereby the average cost went from 5.56 percent in 1994 to
6.65 percent in 1995, and as a result of an increase in the average balance of
short term borrowings and long term debt for 1995. Total deposits, including
Fed Funds Purchased and Repurchase Agreements fell 9 percent or $7,400,000
during 1995. Bank customers transferred money out of savings and other
interest bearing accounts into Time Certificates, which showed an increase of
$2,001,000. Time Certificates represent higher cost of funds for the Company
which resulted in an increase of interest expense of $100,000 over 1994. The
Company feels the reason for the decline in deposits is largely the result of
customers moving money into annuities and mutual funds where they can earn
higher returns. Net interest income, which is the difference between interest
income and interest expense was up 5 percent as a result of the preceding
transactions.
In December 1995, the Company took advantage of the amnesty period offered by
FASB 115 to reclassify investment securities from the Held to Maturity (HTM)
portfolio into the Available for Sale (AFS) portfolio with no penalties. The
Company moved its entire Investment Portfolio to Available For Sale. At
December 31, 1994 the Investment portfolio was comprised of 46 percent Held to
Maturity securities and 54 percent Available For Sale securities. By moving
all of the securities into the Available For Sale Portfolio, the Company can
better manage liquidity concerns, volatility and net interest margin risks.
The Company has greater exposure to potential reductions in Stockholders Equity
if there is a large unrealized loss in the investment portfolio. However, the
Company feels that with the ability to manage the Investment portfolio, the
potential exposure will be minimized. The fair value of the Company's
Available for Sale securities exceeded its cost by $291,000 at December 31,
1995 creating an unrealized gain, compared with 1994 which showed an unrealized
loss of $1,276,000. Total Stockholders Equity increased by $1,969,000, mainly
due to earnings and the change in unrealized gains/losses in the Investment
Portfolio.
Noninterest income which represents service charges on deposits and other fees
collected, increased by $105,000, due in part, to increased awareness of
service charges waived and restructuring of deposit product types. Noninterest
-17-
<PAGE> 18
expense decreased by $558,000 in 1995 due to the following. The largest
variance was due to realized gains in the Investment Portfolio of $118,000 in
1995, whereas in 1994 there were realized losses of $336,000. FDIC assessments
decreased substantially from 1994. The FDIC lowered the insurance premium for
the Company to the minimum required by any bank. The Company will see the full
effect of this change in 1996 when they will only pay $2,000 a year compared
with the $156,000 paid in 1994. The amount paid in 1995 was $78,000 which
represented a $78,000 decrease in expense. The remainder of noninterest
expenses did not change substantially over 1994.
The Company predicts a prosperous year for 1996, and expects the economy and
the interest rate cycle to remain fairly calm.
- ---------------------
1994 Compared to 1993
- ---------------------
The Company had a 42.8 percent decrease in net income from $1,027,000 in 1993
to $587,000 in 1994. This decrease resulted primarily from the sale of certain
of the Company's investment securities at a loss and the purchase and
installation of a systems upgrade for the Company. Total assets increased from
$97,729,000 in 1993 to $103,857,000 in 1994, a 6.3 percent increase. Total
loans increased by approximately 16.3 percent from $29,052,000 in 1993 to
$33,775,000 in 1994. The increase in loans was due, in part, to the repurchase
from the Oregon Retirement System ("OPERF") of certain seasoned commercial real
estate loans the Bank originally sold to the OPERF. The increase in loans was
also due, in part, to the growth of commercial/agriculture loans. These loans
grew 17.6 percent from $17,211,000 in 1993 to $20,237,000 in 1994. The
allowance for loan losses equaled $483,000 at December 31, 1994 which
represented 1.43 percent of gross loans. At December 31, 1993, the allowance
totaled $488,000 and represented 1.6 percent of gross loans. The Company had
net charge off loans of $5,000 in 1994 compared to $39,000 in 1993. Non
performing loans were $168,000 at December 31, 1994, compared with $3,000
December 31, 1993. The loan portfolio continues to be of strong credit quality
which reflects the Company's conservative policy.
The Company's investment in securities decreased slightly from $60,761,000 in
1993 to $59,007,000 in 1994. The Company continues to increase investments in
state and political subdivisions (e.g., municipal bonds) from $6,266,000 in
1993 to $7,942,000 in 1994 in order to take advantage of the higher returns due
to their tax exempt status. As a result, tax exempt income increased from
$105,000 in 1993 to $332,000 in 1994. Interest income on taxable securities
decreased slightly from $3,054,000 in 1993 to $3,013,000 in 1994. Net interest
income was up $746,000 from $3,908,000 in 1993 to $4,654,000 in 1994, an
increase of 19.1 percent, boosted in large part by the Federal Reserve Board's
action to raise the prime interest rate five times in 1994. On the other hand,
interest expense on deposits decreased by $215,000 from $1,443,000 in 1993 to
$1,228,000 in 1994, a 14.9 percent reduction, while deposits decreased 3.6
percent from $70,930,000 in 1993 to $68,386,000 in 1994. With the increase in
interest rates, many customers moved their deposit accounts to higher yielding
investments such as treasury bills, annuities, and mutual funds. The bank's
subsidiary, Douglas National Bank Insurance Agency, benefited from the
disintermediation of the deposit accounts as the Bank's customers used such
subsidiary's brokerage services to move their accounts. During the fourth
quarter of 1994, the Company sold a portion of its Available For Sale
securities at a $366,000 loss. The Company originally purchased these
securities when the yields offered were low. It has now replaced them by
purchasing new securities with higher yields. The repositioning of a portion of
the securities portfolio, while resulting in a loss in 1994, in the view of
management, will improve the Company's earnings for 1995 and beyond.
-18-
<PAGE> 19
At December 31, 1994, the Company had investment securities with average
maturities of approximately three years. The fair value of the Company's
current portfolio of Available for Sale securities is lower than cost by
$1,276,000, compared to an excess of market cost of $436,000 in 1993. The fair
value of its current portfolio of Held to Maturity securities is also lower
than cost by $1,354,000, compared to an excess of market over cost of
$106,000 in 1993. As a result, Stockholders Equity was decreased by $788,000:
$1,276,000 excess of cost over fair value, less $488,000 deferred income
benefit.
The Company purchased in 1994 computer equipment to support the FIserve
Comprehensive Banking System, a new system upgrade. The purchase of this
equipment is reflected in the increase of Bank Premises from $2,608,000 in 1993
to $2,941,000 in 1994. The systems upgrade includes computers, networking
equipment, etc. and in management's view, will result in increased efficiency
and customer service. Salaries and benefits for employees also increased from
$1,590,000 in 1993 to $2,150,000 in 1994 due to the change in estimate of
retirement benefits and due to the overtime and training costs in connection
with the installation and purchase of the new computer system. Cash lows for
the purchase of premises, furniture, and equipment was up from $108,000 in 1993
to $622,000 in 1994, also due to the installation and purchase of the systems
upgrade. The total noninterest expenses were up 18 percent in 1994 for a total
of $4,600,000, representing an annualized ratio of noninterest expense to total
revenue of 62.1 percent in 1994 compared to 59.8 percent in 1993.
- ---------------------
1993 Compared to 1992
- ---------------------
Total assets increased slightly from $97,085,000 in 1992 to $97,729,000 in
1993. Loans, on the other hand, increased by approximately 20 percent from
$24,028,000 in 1992 to $29,052,000 in 1993. The amount of the loans increased
as a result of the Company's commitment to increase its loan-to-deposit ratio
in order to improve the return on its assets. Consumer loans almost doubled
from $4,440,000 in 1992 to $7,264,000 in 1993 and commercial/agricultural loans
jumped up 20 percent from $14,352,000 in 1992 to $17,211,000 in 1993. The
Company reduced the allowance for loan loss by $537,000 to satisfy the
requirements of the Comptroller of Currency, which allowance now represents 1.6
percent of the Company's gross loans. At December 31, 1992, the allowance for
loan loss represented 4.4 percent of the Company's gross loans. The Company
recognized as income the $537,000 reduction in the allowance for loan loss in
1993 as a negative provision for a loan loss. The Company had net charge off
loans of $39,000 in 1993 as compared to net recoveries of $64,000 in 1992.
Non-accrual loans at December 31, 1993, totaled only $3,000 compared with 1992
in which they totaled $315,000.
The Company's investments in securities increased slightly from $59,535,000 in
1992 to $60,761,000 in 1993. The Company substantially increased investments
in obligations of state and political subdivisions (municipal bonds) from
$1,891,000 in 1992 to $6,266,000 in 1993. Interest income on taxable
securities decreased by $802,000 from $3,856,000 in 1992 to $3,054,000 in 1993,
which represents a 20 percent decrease. This decrease is attributable to
the low interest rate environment, resulting in the early paying off of
mortgage backed products and the repricing of other securities at lower rates.
The Company offset a part of interest income by reducing the cost of deposits.
Interest expense on deposits decreased by $444,000 in 1993, while deposits
were up by less than one percent from $70,087,000 in 1992 to $70,930,000 in
1993.
At December 31, 1993, the Company had investment securities with average
-19-
<PAGE> 20
maturities of approximately two years. The Company adopted SFAS 115 at
December 31, 1993, which separates these securities into three categories:
Held-to-Maturity, Available-for-Sale, and Trading Account. At December 31,
1993, the Company had $31,540,000 of the portfolio classified as "Held-to-
Maturity" and $28,785,000 classified as "Available-for-Sale", for liquidity and
asset liability management purposes. The Available-for-Sale securities are
shown at fair value. Stockholders' Equity increased by $269,000: $437,000
excess of fair value over cost, less $168,000 of deferred income taxes.
The Company also adopted SFAS 109 "Accounting for Income Taxes" as of January
1, 1993. Under this liability method, deferred tax liabilities and assets are
for differences between the tax basis of assets and liabilities and their
financial reporting amounts at currently enacted tax rates. The Company also
changed its estimate of prior years taxes which increased income in 1993 by
$166,000.
Cash flows from operating activities show the amortization of securities'
discounts and premiums as a net amortization expense rather than a net
accretion into income as occurred in 1992. This is because in 1992, the
Company held large balances of zero coupon discount bonds which accrue income.
These bonds were paid in early 1993.
The Company had an 11 percent decrease in net income from $1,156,000 in 1992 to
$1,027,000 in 1993 due to the items described above. The Company also incurred
certain unanticipated expenses in 1993 which affected net income, including
losses resulting from a robbery and the incurrence of additional professional
fees in connection with certain nonrecurring matters.
- ---------
LIQUIDITY
- ---------
Liquidity represents the ability of the Company to insure that adequate funds
are available to meet customer's borrowing needs and fluctuations in deposits.
The most significant volatility, resulting in the need for cash outlays, is in
the purchased funds and time deposits. The Company matches the proceeds from
purchased funds with investments, largely term federal funds, of approximately
the same maturity. Time deposits have varying maturities and are of varying
amounts. The Company can control, to some extent, the balance of these time
deposits by adjusting the rate offered on these funds. Core deposits represent
demand, interest-bearing transactions and savings deposits. As of December 31,
1995 and 1994, core deposits were $50,688,000 and $56,966,000 respectively.
Core deposits have no stated maturity, but in total are less volatile than
purchased funds and time deposits.
The Company has the ability to purchase federal funds from other financial
institutions to meet liquidity needs. Investments and interest bearing
deposits with banks with a carrying value of $14,418,000 will mature or payoff
within the next year to meet additional cash requirements and, if necessary,
investment securities which are classified as Available For Sale, can be sold
prior to maturity to meet any unexpected cash demands. The Company can also
control, to some extent, the cash outlays made for new loans to customers. The
Company does, however, have $8,181,000 of commitments to lend under lines of
credit and standby letters of credit which must be met if required. The
Company does not anticipate all such commitments will be exercised, but would
meet these cash demands through the available sources previously discussed.
The Company has implemented a funds management program. These measures are
designed to achieve a minimum level of primary and secondary resources based
-20-
<PAGE> 21
upon analysis of the volatility of the deposits and loan demands as well as
asset and liability mixes, yields and maturities.
- -----------------
CAPITAL RESOURCES
- -----------------
Capital resources to the Company represent the sources of liquidity previously
discussed. These sources of liquidity can be obtained at various costs. The
cost of these funds can change as market interest rates change. Capital
resources are needed to meet investing and lending demands of the Company. The
rates at which these funds can be invested (generally in Treasury and Agency
securities or Collateralized Mortgage Obligations) or loaned to customers also
vary as market interest rates change.
Interest rate fluctuations can have a significant impact on the interest income
and interest expense of the Company. The Company has relatively little control
over the rates it can earn on most assets and the rates it must pay on most
liabilities.
Within this environment, management's goal is to assure liquidity to meet the
needs of customers while maximizing the contribution of net interest income to
the Company's operating results without assuming undue risk.
The intent of management is to limit swings in net interest income resulting
from changes in interest rates. An asset or liability is described as rate
sensitive when either it can be repriced (the rate changed) or it matures,
whichever comes first. The difference between the amount of rate sensitive
assets and the amount of rate sensitive liabilities is referred to as the
interest rate sensitivity "gap". If as many assets as liabilities can be
repriced within a specific time interval, the Company is said to be matched.
In general, such a position will result in less volatile swings in net interest
income. It is management's goal to minimize swings in net interest income due
to interest rate fluctuation.
-21-
<PAGE> 22
Exhibit 13.1 is the only exhibit amended on this amended 10-k405; no other
exhibits, financial statements or reports on Form 8-K are included.
- -------------------------------------------------------------------------
Item 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995
Annual 1995
Report 10-K
Page Page
-------- ----
<S> <C> <C>
(a) The following are filed as part of this report
1.Financial Statements.............................. 35
The following Financial Statements included in
the United Bancorp Annual Report for 1995 filed
as Exhibit 13.1 to this report.
Consolidated Balance Sheets as of December 31,
1995 and 1994.................................. 27
Consolidated Statements of Income for the Years
ended December 31, 1995, 1994, and 1993........ 29
Consolidated Statements of Cash Flows for the
Years ended December 31, 1995, 1994, and 1993.. 31
Statement of Stockholders' Equity for the years
ended December 31, 1995, 1994, and 1993........ 33a
Notes to Consolidated Financial Statements..... 34
Five Year Summary of Operations................ 54
Report of Independent Accountants.............. 55 35
2.Financial Statement Schedules: None
3.Exhibits:
(3) Articles of Incorporation and Bylaws
3(i) Second Restated Articles of Incorporation
(Filed as an exhibit to the Annual Report on Form
10-K for the period ended December 31, 1993, and
by this reference incorporated herein)
3(ii) Bylaws of United Bancorp (filed as an
exhibit to the Annual Report on Form 10-K for the
period ended December 31, 1990, with the Securities
and Exchange Commission and incorporated herein
by reference)
3(iii) Second Restated Bylaws of United Bancorp
(Filed as an exhibit to the Annual Report on Form
10-K for the period ended December 31, 1994, and by
this reference incorporated herein)
(10) Material Contracts
10.1 Employees Stock Ownership Plan (filed
as an exhibit to the Annual Report on Form 10-K for
the period ended December 31, 1990, and by this
reference incorporated herein)
-22-
<PAGE> 23
10.2 Executive Supplement Retirement Income Plan
(filed as an exhibit to the Annual Report on Form
10-K for the period ended December 31, 1990, and
by this reference incorporated herein)
10.3 Restricted Stock Bonus Plan (filed as an
exhibit to the Annual Report on Form 10-K for the
period ended December 31, 1990, and by this
reference incorporated herein)
10.4 Promissory Note & Related Documents -
Federal Home Loan Bank (filed as an exhibit to
the Annual Report on Form 10-K for the period
ended December 31, 1991, and by this reference
incorporated herein)
10.5 Amendment to Restricted Stock Bonus Plan
(filed as an exhibit to the Annual Report on Form
10-K for the period ended December 31, 1991, and
by this reference incorporated herein)
10.6 401(k) Profit Sharing Plan (filed as an
exhibit to the Annual Report on Form 10-K for the
period ended December 31, 1992, and by this
reference incorporated herein)
10.7 Restated Employment Agreement between the
Company and Gary L. Kjensrud dated November 28,
1988 (filed as an exhibit to the Annual Report on
Form 10-K for the period ended December 31, 1992,
and by this reference incorporated herein)
10.8 Restated Employee Stock Option Plan
adopted December 31, 1994 (filed as an exhibit to
the Annual Report on Form 10-K for the period
ended December 31, 1994, and by this reference
incorporated herein)
10.9 Restated 401(k) Plan adopted December 31,
1994 (filed as an exhibit to the Annual Report on
Form 10-K for the period ended December 31, 1994,
and by this reference incorporated herein)
10.10 Second Amendment to United Bancorp
Restricted Stock Bonus Plan adopted February 18,
1994 (filed as an exhibit to the Annual Report on
Form 10-K for the period ended December 31, 1994,
and by this reference incorporated herein)
10.11 Employee Stock Option Plan Business Loan
Agreement & Related Documents - Bank of America
Oregon (filed as an exhibit with this Annual
Report on Form 10-K) 36
(11) Statement Regarding Computation of Per Share
Earnings:
Disclosed in Note 1 to the Financial Statements 6 35
-23-
<PAGE> 24
(13) Annual Report to Security-Holders, Form
10-Q, and Form 10-QSB or Quarterly Report
to Security-Holders:
13.1 United Bancorp Annual Report for 1995
(except for the pages and information expressly
incorporated by reference in this Annual Report
on Form 10-K, the United Bancorp Annual Report
for 1995 is provided solely for the information
of the Securities and Exchange Commission and is
not deemed "filed" as part of the Annual Report
on Form 10-K)
(21) Subsidiaries of the Registrant: Disclosed
in Note 1 to the Consolidated Financial
Statements
(22) Published Report Regarding Matters Submitted
to Vote of Security-Holders:
(b) Reports on Form 8-K: (filed as and exhibit to
this Annual Report on Form 10-K) 37
</TABLE>
-24-
<PAGE> 25
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
By: \s\David A. Jackson June ________, 1996
David A. Jackson, Chairman of the Board of Directors
\s\M. John Loosley June ________, 1996
M. John Loosley, Vice Chairman,
President, and Director
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
- --------------
Signatures Date
- --------------
\s\David A. Jackson June ________, 1996
David A. Jackson, Chairman of
the Board of Directors and Director
\s\M. John Loosley June ________, 1996
M. John Loosley, Vice Chairman, President, and Director
\s\Gary L. Kjensrud June ________, 1996
Gary L. Kjensrud, Vice President and Director
\s\Linda A. Ganim June ________, 1996
Linda A. Ganim, Treasurer, Chief Financial Officer
and Principal Accounting Officer
\s\William C. Stiles June ________, 1996
William C. Stiles, Vice President and Director
\s\Lance C. Short June ________, 1996
Lance C. Short, Director
\s\Lauren D. Young June ________, 1996
Lauren D. Young, Director
\s\Peter Nilsen June ________, 1996
Peter Nilsen, Secretary
\s\Rickar D. Watkins June ________, 1996
Rickar D. Watkins, Director
\s\Brian R. Pargeter June ________, 1996
Brian R. Pargeter, Director
\s\Clint Newell June ________, 1996
Clint Newell, Director
\s\Pete Martini June ________, 1996
Pete Martini, Director
-25-
<PAGE> 26
EXHIBIT 13.1
United Bancorp Annual Report for 1995
-------------------------------------
-26-
<PAGE> 27
UNITED BANCORP AND SUBSIDIARIES
-------------------------------
UNITED BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks......................... $ 3,899 $ 5,048
Interest bearing deposits with bank............. 0 2,020
----- -------
Total cash and cash equivalents............... 3,899 7,068
Securities:
Held-to-maturity, fair value of $26,197 in 1994. --- 27,551
Available-for-sale.............................. 46,669 31,456
------ ------
Total securities.............................. 46,669 59,007
Loans............................................. 39,985 33,775
Less allowance for loan losses.................. (476) (483)
------ ------
Net loans..................................... 39,509 33,292
Bank premises, furniture and equipment, net....... 2,769 2,941
Accrued interest receivable and other assets...... 1,013 1,134
Deferred income taxes............................. 0 415
------ ------
Total assets.................................. $ 93,859 $103,857
======= =======
LIABILITIES
Deposits:
Demand.......................................... $ 10,947 $ 12,317
Interest bearing................................ 27,057 28,099
Savings......................................... 12,684 16,550
Time certificates of $100 or larger............. 874 1,089
Time certificates less than $100................ 12,547 10,331
------ ------
Total deposits................................ 64,109 68,386
Federal funds purchased and securities sold under
agreements to repurchase......................... 10,467 13,606
Bank line of credit............................... 2,646 4,600
Notes payable..................................... 4,103 7,092
Debt of Employee Stock Ownership Plan............. 233 240
Deferred income taxes............................. 182 ---
Other liabilities................................. 658 441
------ ------
Total liabilities............................. $ 82,398 $ 94,365
------ ------
Commitments (Note 12)
</TABLE>
-27-
<PAGE> 28
UNITED BANCORP AND SUBSIDIARIES
-------------------------------
CONSOLIDATED BALANCE SHEETS (CONT.)
December 31, 1995 and 1994
(amounts in thousands of dollars, except share data)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
STOCKHOLDERS' EQUITY
Preferred stock, no par value; 1,000,000 shares
authorized, none issued.......................... --- ---
Common stock; $2.50 par value; 5,000,000 shares
authorized, 440,441 (438,534 in 1994) shares
issued and outstanding........................... $ 1,101 $ 1,096
Additional paid-in capital........................ 3,515 3,484
Retained earnings................................. 6,899 5,940
Unearned Employee Stock Ownership Plan compensation (233) (240)
Net unrealized gains (losses) on securities available-
for-sale, net of $112 liability ($488 benefit in 1994)
for deferred income taxes......................... 179 (788)
------ ------
Total stockholders' equity...................... 11,461 9,492
------ ------
Total liabilities and stockholders' equity.... $ 93,859 $103,857
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-28-
<PAGE> 29
UNITED BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1995, 1994 and 1993
(in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
INTEREST INCOME
Loans...................................... $ 3,982 $ 3,242 $ 2,503
Federal funds sold and interest bearing
deposits with bank........................ 57 100 113
Securities:
Taxable................................. 2,828 3,013 3,054
Exempt from federal income taxes........ 414 332 105
------ ------ ------
Total interst on securities............. 3,242 3,345 3,159
------ ------ ------
Total interest income................. 7,281 6,687 5,775
INTEREST EXPENSE
Deposits................................... 1,328 1,228 1,443
Federal funds purchased and securities
sold under agreements to repurchase....... 483 422 240
Notes payable.............................. 629 383 184
------ ------ ------
Total interest expense.................. 2,440 2,033 1,867
------ ------ ------
Net interest income................... 4,841 4,654 3,908
Provision (credit) for loan losses.......... 80 0 (537)
------ ------ ------
Net interest income after provision
(credit) for loan losses.............. 4,761 4,654 4,445
------ ------ ------
NONINTEREST INCOME
Service charges on deposit accounts........ 557 520 514
Other service charges, commissions and fees 198 176 248
Other...................................... 134 88 61
------ ------ ------
889 784 823
------ ------ ------
NONINTEREST EXPENSE
Salaries and employee benefits............. 2,132 2,150 1,590
Executive Incentive Plan................... 60 55 77
Contract labor............................. 110 165 274
Net occupancy and equipment................ 588 547 504
Outside data processing services........... 203 194 239
Supplies................................... 126 114 88
FDIC assessment............................ 78 156 156
Professional services...................... 74 90 168
Advertising/public relations............... 87 84 105
Realized (gains) losses on sales
of securities............................. (118) 366 (2)
Other...................................... 741 718 745
------ ------ ------
Total noninterest expense............... 4,081 4,639 3,944
------ ------ ------
</TABLE>
-29-
<PAGE> 30
UNITED BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (CONT.)
for the years ended December 31, 1995, 1994, 1993
(in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Income before income taxes............ $ 1,569 $ 799 $ 1,324
Provision for income taxes.................. 426 212 297
------ ------ ------
Net income........................ $ 1,143 $ 587 $ 1,027
====== ====== ======
Average number of common and common
equivalent shares outstanding............... 423,330 421,453 437,624
======= ======= =======
Net income per common share................. $ 2.70 $ 1.39 $ 2.34
==== ==== ====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-30-
<PAGE> 31
UNITED BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
(in thousands of dollars)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
Cash flows from operating activities:
Net income................................. $ 1,143 $ 587 $ 1,027
Reconciliation of net income to net cash
provided by operating activities:
Loss on disposal of furniture and
equipment................................ --- 48 ---
Depreciation.............................. 261 241 255
Provision (credit) for loan losses........ 80 --- (537)
Deferred income tax provision (benefit)... (5) 28 191
Stock dividend received on FHLB stock..... (92) (59) (61)
Amortization of investment securities'
discounts and premiums................... (27) 236 386
Realized (gains) losses on sales of
securities............................... (118) 366 (2)
Change in assets and liabilities:
(Increase) decrease in interest receivable
and other assets......................... 121 (279) 136
Increase (decrease) in other liabilities.. 217 207 (288)
------ ------ ------
Net cash provided by operating activities. 1,580 1,375 1,107
------ ------ ------
Cash flows from investing activities:
Securities:
Available-for-sale:
Maturities............................... 2,912 6,897 ----
Purchases................................ (6,077) (15,471) ----
Proceeds from sales...................... 13,166 10,064 ----
Held-to-maturity:
Maturities............................... 6,037 13,954 ----
Purchases................................ (2,041) (15,963) ----
Maturities of securities................... ---- ---- 23,765
Purchases of securities.................... ---- ---- (26,864)
Proceeds from sales of securities.......... ---- ---- 2,014
Net (increase) decrease in loans........... (6,210) (4,713) (5,063)
Purchase of premises, furniture and equip.. (105) (622) (108)
------ ------ ------
Net cash provided by (used in) investing
activities............................. 7,682 (5,854) (6,256)
------ ------ ------
</TABLE>
-31-
<PAGE> 32
UNITED BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
for the years ended December 31, 1995, 1994, 1993
(in thousands of dollars)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits........ $(4,277) $ (2,544) $ 843
Proceeds from issuance of ESOP debt........ 69 159 ----
Stock purchased for ESOP................... (69) (159) ----
Payment of ESOP debt....................... 78 10 60
Net increase (decrease) in federal funds
purchased and securities sold under
repurchase agreements..................... (3,139) 3,712 (4,942)
Net borrowings (repayments) from bank line
of credit................................. (1,954) 3,000 1,600
Advances from FHLB of Seattle.............. 16,800 2,597 10,216
Repayment of debt and advances from FHLB
of Seattle................................ (19,789) (10) (8,229)
Retirement of stock........................ ---- (19) (21)
Proceeds from issuance of stock............ 34 35 24
Cash dividends paid........................ (184) (175) (130)
------ ------ ------
Net cash provided by (used in) financing
activities............................... (12,431) 6,606 (579)
Net increase (decrease) in cash and cash ------ ------ ------
equivalents................................ (3,169) 2,127 (5,728)
Cash and cash equivalents at beginning
of year.................................... 7,068 4,941 10,669
------ ------ ------
Cash and cash equivalents at end of year.... $ 3,899 $ 7,068 $ 4,941
====== ====== =======
NONCASH INVESTING AND FINANCING ACTIVITIES
Change in net unrealized gains (losses) on
securities available-for-sale, net of
deferred income taxes....................... $ 967 $(1,057) $ 269
Transfer of securities from held-to-
maturity to available-for-sale, effective
December 1, 1995, net of unrealized gain
of $128..................................... $23,680 ---- ----
CASH PAID DURING THE YEAR FOR
Interest................................... $ 2,554 $ 2,014 $ 1,908
Income taxes............................... 364 296 341
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-32-
<PAGE> 33a
UNITED BANCORP AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1995, 1994 and 1993
(in thousands of dollars)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings
------ -------- -------- --------
<S> <C> <C> <C> <C>
Balances, December 31, 1992....... 436,992 $ 1,092 $ 3,469 $ 4,631
Net income........................ ---- ---- ---- 1,027
Compensation under Employee
Stock Ownership Plan............. ---- ---- ---- ----
Dividends declared-$.30 per share. ---- ---- ---- (130)
Retirement of stock............... (1,302) (3) (18) ----
Dividends reinvested.............. 1,898 5 19 ----
Net unrealized holding gains...... 0 0 0 0
------- ------ ------ ------
Balances, December 31, 1993....... 437,588 1,094 3,470 5,528
Net income........................ ---- ---- ---- 587
Compensation under Employee
Stock Ownership Plan............. ---- ---- ---- ----
Stock purchased for Employee Stock
Ownership Plan................... ---- ---- ---- ----
Dividends declared-$.40 per share. ---- ---- ---- (175)
Retirement of stock............... (1,345) (3) (16) ----
Dividends reinvested.............. 2,291 5 30 ----
Net unrealized holding losses..... 0 0 0 0
------- ------ ------ ------
Balances, December 31, 1994....... 438,534 1,096 3,484 5,940
Net income........................ ---- ---- ---- 1,143
Compensation under Employee
Stock Ownership Plan............. ---- ---- 2 ----
Stock purchased for Employee Stock
Ownership Plan................... ---- ---- ---- ----
Dividends declared-$.42 per share. ---- ---- ---- (184)
Dividends reinvested.............. 1,907 5 29 ----
Net unrealized holding gains...... 0 0 0 0
------- ------ ------ ------
Balances, December 31, 1995....... 440,441 $ 1,101 $ 3,515 $ 6,899
</TABLE>
FOR TOTALS OF EACH YEARS ACTIVITIES, TABLE IS CONTINUED ON NEXT PAGE.
The accompanying notes are an integral part of these consolidated financial
statements.
-33a-
<PAGE> 33b
UNITED BANCORP AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1995, 1994 and 1993
(in thousands of dollars, except share amount)
<TABLE>
<CAPTION>
Unearned
Employee Net
Stock Unrealized
Ownership Gains
Plan (Losses) on
Compensation Securities Total
------------ ----------- ---------
<S> <C> <C> <C>
Balances, December 31, 1992......... $ (151) ---- $ 9,041
Net income.......................... ---- ---- 1,027
Compensation under Employee
Stock Ownership Plan............... 60 ---- 60
Dividends declared-$.30 per share... ---- ---- (130)
Retirement of stock................. ---- ---- (21)
Dividends reinvested................ ---- ---- 24
Net unrealized holding gains........ 0 $ 269 269
----- ------ ------
Balances, December 31, 1993......... (91) 269 10,270
Net income.......................... ---- ---- 587
Compensation under Employee
Stock Ownership Plan............... 10 ---- 10
Stock purchased for Employee Stock
Ownership Plan..................... (159) ---- (159)
Dividends declared-$.40 per share... ---- ---- (175)
Retirement of stock................. ---- ---- (19)
Dividends reinvested................ ---- ---- 35
Net unrealized holding losses....... 0 (1,057) (1,057)
----- ------ ------
Balances, December 31, 1994......... (240) (788) 9,492
Net income.......................... ---- ---- 1,143
Compensation under Employee
Stock Ownership Plan............... 76 ---- 78
Stock purchased for Employee Stock
Ownership Plan..................... (69) ---- (69)
Dividends declared-$.42 per share... ---- ---- (184)
Dividends reinvested................ ---- ---- 34
Net unrealized holding gains........ 0 967 967
----- ------ ------
Balances, December 31, 1995......... (233) $ 179 $ 11,461
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-33b-
<PAGE> 34
UNITED BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands of dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of United Bancorp
(the Company) and its wholly-owned subsidiaries, Douglas National Bank
(the Bank) (including its wholly-owned subsidiary, Douglas National Bank
Insurance Agency, Inc.) and UBC Investment Corporation,which was merged into
United Bancorp in December 1995. The Company and the Bank provide banking,
commercial financing, mortgage lending and brokerage, investing, insurance
and other services primarily to customers in the Douglas County area of Oregon.
All significant inter-company transations and balances have been eliminated
in consolidation. Substantially all of the Bank's depositors are businesses
and individuals located in Douglas County.
Basis of Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from or deposited with banks, and interest bearing
balances due from banks. Generally, federal funds are sold for one-day
periods.
Securities
On December 31, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" and reported an increase to December 31, 1993 stockholders'
equity of $269 ($437 before deferred income taxes). Investments in securities
are classified by management as either held-to-maturity, available- for-sale,
or trading. Management determines the appropriate classification of
securities at the time of purchase. On December 1, 1995, the Company
transferred all of its held-to-maturity securities, with an amortized cost and
net unrealized gain of $23,552 and $128, respectively, to the available-for-
sale classification.
Investments in debt securities classified as held-to-maturity are acquired
with the intent and ability to hold to maturity, are stated at cost, and are
adjusted for amortization of premiums and accretion of discounts. Securities
sold from the held-to-maturity portfolio within 90 days of maturity when
interest rate risk has been substantially eliminated as a pricing factor
are considered to have matured.
-34-
<PAGE> 35
UNITED BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(amounts in thousands of dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
Securities classified as available-for-sale are to be held for indefinite
periods of time and may be sold in response to movements in market interest
rates, changes in the maturity mix of bank assets and liabilities, or demands
on liquidity. These securities are carried at fair value and unrealized
holding gains and losses (net of deferred income taxes) are reported as a
separate component of stockholders' equity.
Securities classified as trading are to be carried at fair value, with the
unrealized gains and losses included in earnings. The Company has no
securities classified as trading securities.
Interest income on debt securities is included in income using the level yield
method. Gains and losses on sales of securities are recognized on a specific
identification basis.
Loans
Loans are reported at their principal outstanding balance net of charge-offs,
deferred loan fees and costs on originated loans, unearned income, and
unamortized premiums or discounts on purchased loans. Interest income is
generally recognized when income is earned using the interest method. Loan
origination fees and certain direct loan origination costs are deferred and the
net amounts are amortized as adjustments of the loans' yields.
Allowance for Loan Losses
The Bank adopted SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan", on January 1, 1995. Under the new Standard a loan is considered
impaired based on current information and events if it is probable that the
Bank will be unable to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan agreement. The
measurement of impaired loans is generally based on the present value of
expected future cash flows discounted at the historical effective interest
rate, except that all collateral-dependent loans are measured for impairment
based on the fair value of the collateral. The adoption of SFAS 114 had no
impact on the Bank"s financial statements or the classification and
comparability of its credit risk data for loans.
The adequacy of the allowance for credit losses is periodically evaluated by
the Bank in order to maintain the allowance at a level that is sufficient to
absorb probable credit losses. Management's evaluation of the adequacy of the
allowance is based on a review of the Bank's historical loss experience, known
and inherent risks in the loan portfolio, including adverse circumstances that
may affect the ability of the borrower to repay interest and/or principal, the
estimated value of collateral, and an analysis of the levels and trends of
delinquencies, charge-offs, and the risk ratings of the various loan
categories. Such factors as the level and trend of interest rates and the
condition of the national and local economies are also considered.
-35-
<PAGE> 36
UNITED BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued:
(amounts in thousands of dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
The allowance for credit losses is established through charges to earnings in
the form of a provision for credit losses. Increases and decreases in the
allowance due to changes in the measurement of the impaired loans are included
in the provision for credit losses. Loans continue to be classified as
impaired unless they are brought fully current and the collection of scheduled
interest and principal is considered probable.
When a loan or portion of a loan is determined to be uncollectible, the portion
deemed uncollectible is charged against the allowance and subsequent
recoveries, if any, are credited to the allowance.
Income Recognition on Impaired and Nonaccrual Loans
Loans, including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days, unless such loans are well-secured and in the process of
collection. If a loan or a portion of a loan is classified as doubtful or is
partially charged off, the loan is classified as nonaccrual. Loans that are on
a current payment status or past due less than 90 days may also be classified
as nonaccrual if repayment in full of principal or interest is in doubt.
Loans may be returned to accrual status when all principal and interest amounts
contractually due (including arrearages) are reasonably assured of repayment
within an acceptable period of time, and there is sustained period of repayment
performance (generally a minimum of six months) by the borrower, in accordance
with the contractual terms of interest and principal.
While a loan is classified as nonaccrual and the future collectibility of the
recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding. When the future
collectibility of the recorded loan balance is expected, interest income may be
recognized on a cash basis. In the case where a nonaccrual loan had been
partially charged off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance at the
contractual interest rate. Cash interest receipts in excess of that amount are
recorded as recoveries to the allowance for loan losses until prior charge-offs
have been fully recovered.
Bank Premises, Furniture and Equipment
Premises, furniture, equipment, improvements and replacements are stated at
cost. Depreciation is recognized on the straight-line method over the estimated
useful life of the asset. Gains and losses from disposal of assets are
reflected in noninterest expense. Maintenance and repairs are expensed and
betterments are capitalized. Costs of purchased software are amortized over
five years.
-36-
<PAGE> 37
UNITED BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(amounts in thousands)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Income Taxes
The Company files consolidated federal and State of Oregon income tax returns.
Subsidiaries of the Company are allocated a share of the consolidated income
tax provision by use of the separate return method. On January 1, 1993, the
Company prospectively adopted Statement of Financial Accounting Standards No.
109. The cumulative and 1993 effect on net income of adopting SFAS No. 109 was
immaterial. The Statement requires the use of an asset and liability approach
to account for income taxes.
Earnings Per Share
Earnings per share is net income divided by weighted average common shares
outstanding. Unallocated Employee Stock Ownership Plan shares are not included
in the computation of earnings per share.
Reclassifications
Certain 1993 and 1994 amounts have been reclassified to conform to the 1995
presentation.
-37-
<PAGE> 38
UNITED BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(amounts in thousands of dollars)
2. SECURITIES:
The amortized cost and estimated market values of securities are as follows at
December 31:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Held-to-Maturity
1994:
U.S. Treasury obligations..... $ 503 ---- ---- $ 503
U.S. Government agencies...... 13,076 ---- $ 690 12,386
Collateralized mortgage obliga-
tions and mortgage-backed
securities................... 8,461 $ 5 261 8,205
Obligations of State and
political subdivisions....... 5,511 0 408 5,103
------ ------- ------ ------
Total....................... $27,551 $ 5 $ 1,359 $ 26,197
====== ======= ======= ======
Available-for-Sale
1995:
U.S. Government agencies....... $10,324 $ 164 $ 65 $ 10,423
Collateralized mortgage obliga-
tions and mortgage-backed
securities.................... 24,098 266 103 24,261
Obligations of State and
political subdivisions........ 10,467 95 66 10,496
Federal Reserve and Federal Home
Loan Bank stock............... 1,489 0 0 1,489
------ ------- ------- ------
Total....................... $46,378 $ 525 $ 234 $ 46,669
====== ======= ======= =======
Available-for-Sale
1994:
U.S. Government agencies....... $ 2,199 ---- $ 174 $ 2,025
Collateralized mortgage obliga-
tions and mortgage-backed
securities.................... 26,612 $ 36 964 25,684
Obligations of State and
political subdivisions........ 2,605 ---- 174 2,431
Federal Reserve and Federal
Home Loan Bank stock.......... 1,316 0 0 1,316
------ ------- ------- ------
Total....................... $32,732 $ 36 $ 1,312 $ 31,456
====== ======= ======= =======
</TABLE>
-38-
<PAGE> 39
UNITED BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued:
(amounts in thousands)
2. SECURITIES, continued:
The carrying amount and approximate market value of debt securities at December
31, 1995 by contractual maturity are shown below. Expected maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Available-for-Sale
Amortized Approximate
Cost Fair Value
--------- ------------
<S> <C> <C>
Due in one year or less................... $ 245 $ 244
Due after one year through 5 years........ 8,533 8,537
Due after 5 years through 10 years........ 14,733 14,791
Due after 10 years........................ 21,378 21,608
------ ------
$ 44,889 $ 45,180
====== ======
</TABLE>
Summarized information for securities transactions is as follows:
<TABLE>
<CAPTION>
Proceeds Net
from Realized
Sales of Gross Gross Gains
Investments Gains Losses (Losses)
----------- ------ ------ ---------
<S> <C> <C> <C> <C>
1993............................... $ 2,014 $ 2 $ --- $ 2
1994............................... $ 10,064 $ 7 $ (373) $ (366)
1995............................... $ 13,166 $ 241 $ (123) $ 118
</TABLE>
Securities under the control of the Bank with a par value of approximately
$15,285 and $16,413 at December 31, 1995 and 1994, respectively, were pledged
to collateralize repurchase agreements and public funds.
-39-
<PAGE> 40
UNITED BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued:
(amounts in thousands)
3. LOANS AND ALLOWANCE FOR LOAN LOSSES:
The loan portfolio consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Commercial and agricultural.................... $ 27,214 $ 20,237
Real estate mortgage loans..................... 7,278 6,135
Installment and consumer....................... 4,431 5,604
Real estate construction loans................. 1,109 1,826
------- -------
40,032 33,802
Less net deferred loan fees.................... (47) (27)
------- -------
Total loans.................................. $ 39,985 $ 33,775
======= =======
</TABLE>
Allowance for loan loss activity was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year............ $ 483 $ 488 $ 1,064
Provision (credit) for loan losses.... 80 --- (537)
Loans charged off..................... (130) (50) (87)
Recoveries............................ 43 45 48
----- ----- ------
Balance, end of year.................. $ 476 $ 483 $ 488
===== ===== ======
</TABLE>
At December 31, 1995, the Bank had no loans requiring a specific valuation
allowance in accordance with SFAS No. 114. During 1995, the Bank did not have
any loans which would be classified as impaired under the guidelines of SFAS
No. 114.
The Company considers small homogeneous loans to include consumer loans,
credit cards, checkloans, homelines, and other installment loans, under
$25,000. Quality ratings for the Bank"s loan assets, in relation to the
exposure risk of each credit, are as follows:
GRADE 1
"Prime Assets"- High liquidity, negligible risk
Loans which are well collateralized by high grade, liquid collateral with
ample margins so that repayment is considered undoubted.
GRADE 2
"High Quality Assets"- Good liquidity or demonstrated ability to service debt,
low risk
Loans generally collateralized by well margined real or personal property
and have a sound primary source of repayment other than from liquidation
of the collateral.
-40-
<PAGE> 41
GRADE 3
"Standard Assets"- Acceptable liquidity and debt service capacity-acceptable
risk
Borrowers in this group are not as strong nor do they provide the liquid or
well margined collateral that the better graded risks do, but they do not
indicate any apparent significant credit weakness.
GRADE 4
"Criticized Assets"- Other assets especially mentioned
Other assets in this category are currently protected, but are potentially
weak. Those assets constitute an undue and unwarranted credit risk, but
not to the point of justifying a classification of sub-standard. The credit
risk may be relatively minor yet constitute an unwarranted risk in light of
the circumstances surrounding a specific asset.
GRADE 5
"Classified Assets"- Substandard
A substandard asset is inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any. Assets
so classified must have a well defined weakness that jeopardizes the
liquidation of the debt. They are characterized by the distinct possibility
that the Bank will sustain some loss if the deficiencies are not corrected.
GRADE 6
"Classified Assets"- Doubtful
An asset classified doubtful has all the weaknesses inherent in one classified
substandard with the added characteristic that the weaknesses make collection
or liquidation in full, on the basis of currently existing facts, conditions
and vales, highly questionable and improbable. The possibility of loss is
extremely high, but because of certain important and reasonably specific
pending factors which may work to the advantage and strengthening of the asset,
its classification as an estimated loss is deferred until more exact status
is determined.
GRADE 7
"Classified Assets"- Loss
Assets classified as losses are considered uncollectible and of such little
value that their continuance as bankable assets is not warranted. This
classification does not mean that the asset has absolutely no recovery or
salvage value, but rather it is not practical or desirable to defer writing
off this basically worthless asset even though partial recovery may be effected
in the future.
Classified Assets at December 31, 1995 were as follows (Amounts in Thousands):
<TABLE>
<CAPTION>
GRADE RATING
----------------------------------------
4 5 6 7
----------------------------------------
<S> <C> <C> <C> <C>
Consumer Loans................. $ 2 $ 19 $ 61 $ -0-
Real Estate Loans.............. 60 194 75 -0-
Commercial Real Estate Loans... 547 52 -0- -0-
Commercial Loans............... 383 137 4 -0-
</TABLE>
-41-
<PAGE> 42
IMPAIRED LOANS-(problem or non-performing loans)
Impaired loans are those that are deteriorating due to problems effecting the
borrowers ability to make contractual payments, or repay the loan at maturity.
The conditions that effect the borrowers ability to pay include adverse
financial developments, operational problems, management or personal problems.
A problem or non-performing loan is defined as a loan whose repayment at
maturity is questionable or not in accordance with its contractual terms. A
problem loan develops when the bank has reason to believe the borrower cannot,
or will not, perform in accordance with the provisions of the loan. Impaired
loans would generally fall in asset risk grades 5, 6, or 7.
NON-ACCRUAL LOANS
The Bank's policy is to place loans on non-accrual status based on the
following criteria:
1) An Asset is managed on a cash payment basis because of deterioration
in the financial position of the borrower,
2) payment in full of interest or principal is not expected irrespective
of delinquency,
3) interest or principal has been in default for a period of 90 days or
more unless it is both well secured and in the process of collection.
At December 31, 1995 and 1994, the Bank had nonaccrual loans of $4 and $168,
respectively. Interest income of $12 and $11 was recognized on these loans in
1995 and 1994, respectively. Had these loans performed in accordance with
their original terms, additional interest income of $1 and $5 would have been
recorded in 1995 and 1994, respectively.
A substantial portion of the Bank's loans are made to businesses and residents
located in Douglas County, Oregon. The Bank's credit policies require an
evaluation of each borrower's credit worthiness on a case-by-case basis.
Collateral generally consists of real and personal property. At the discretion
of management, personal guarantees of the borrower may be obtained in addition
to the collateral. The ultimate collectibility of a substantial portion of the
Bank's loan portfolio is susceptible to adverse changes in the local market
conditions. It is management's opinion that the allowance for loan losses is
adequate to absorb known and inherent risks in the loan portfolio.
-42-
<PAGE> 43
4. BANK PREMISES, FURNITURE AND EQUIPMENT:
Bank premises, furniture and equipment consists of the following at December
31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Land, buildings and improvements..................... $ 3,106 $ 3,106
Furniture and equipment.............................. 1,190 1,101
------ ------
4,296 4,207
Less accumulated depreciation................... (1,527) (1,266)
------ ------
$ 2,769 $ 2,941
====== ======
</TABLE>
5. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE:
Securities sold under agreements to repurchase represent short-term borrowings
with maturities which do not exceed 270 days. The following is a summary of
such short-term borrowings for the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Daily average balance outstanding during year....... $ 9,740 $ 7,570
Maximum balance outstanding at any month end........ 11,225 11,356
Weighted average interest rate during year........ 4.41% 3.20%
Weighted average interest at December 31.......... 4.33% 4.08%
</TABLE>
6. BANK LINE OF CREDIT:
The bank line of credit is with the Federal Home Loan Bank of Seattle for
$4,716, with $2,646 outstanding at December 31, 1995 with a variable interest
rate of 6.125%. Borrowings are collateralized by a blanket pledge arrangement
which requires the Bank to maintain unencumbered collateral (FHLB stock,
securities and loans). The line of credit expires August 16, 1996.
7. NOTES PAYABLE:
Notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Advances from Federal Home Loan Bank (FHLB) of Seattle,
monthly principal payments plus interest, maturity of
individual advances between 1996 and 2014, interest rates
between 5.0% to 7.8%, collateralized by a blanket pledge
arrangement which requires the Bank to maintain
unencumbered collateral (FHLB stock, securities and
loans), subject to penalties for prepayments........... $ 4,103 $ 7,092
===== =====
</TABLE>
-43-
<PAGE> 44
UNITED BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued:
(amounts in thousands)
7. NOTES PAYABLE, continued:
The approximate aggregate maturities of notes payable subsequent to December
31, 1995 are as follows:
<TABLE>
<S> <C>
1996............................... $ 303
1997............................... 0
1998............................... 236
1999............................... 151
2000............................... 163
Thereafter......................... 3,250
-----
$ 4,103
</TABLE>
8. INCOME TAXES:
The provision for income taxes is composed of the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current provision:
Federal.............................. $ 377 $ 135 $ 59
State................................ 54 49 47
Deferred income tax provision (benefit). (5) 28 191
----- ----- -----
$ 426 $ 212 $ 297
===== ===== =====
</TABLE>
The effective income tax rate varies from the expected federal income tax rate.
The reasons for the variance are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Expected federal income tax provision at 34%... $ 533 $ 268 $ 450
State income tax, net of federal income
tax effect.................................... 35 46 58
Interest on obligations of states and political
subdivisions exempt from federal taxation..... (142) (118) (35)
Change in estimate of prior-year taxes......... ---- ---- (166)
Other, net..................................... 0 16 (10)
----- ----- -----
$ 426 $ 212 $ 297
===== ===== =====
</TABLE>
-44-
<PAGE> 45
UNITED BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued:
(amounts in thousands)
8. INCOME TAXES, continued:
An analysis of the components of the deferred provision for income taxes is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Provision for loan losses............... $ (31) ---- $ 206
Federal Home Loan Bank stock dividends.. 35 $ 23 24
Other, net.............................. (9) 5 (39)
----- ----- -----
$ (5) $ 28 $ 191
===== ====== ======
</TABLE>
Deferred tax liabilities and assets result from differences between the tax
and financial reporting bases of assets and liabilities at currently enacted
tax rates. The components of the net deferred tax asset (liability) are as
follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Assets:
Bank premises, furniture and equipment.............. $ 177 $ 184
Nonqualified benefit plans.......................... 118 102
Unrealized losses on securities available-for-sale.. --- 490
Other, net.......................................... 8 13
Less valuation allowance............................ (243) (247)
---- ----
Deferred tax asset.............................. 60 542
---- ----
Liabilities:
Federal Home Loan Bank stock........................ (104) (70)
Loan loss reserves.................................. (26) (57)
Unrealized gains on securities available-for-sale... (112) 0
---- ----
Deferred tax liability.......................... (242) (127)
---- ----
Net deferred tax asset (liability)............ $ (182) $ 415
==== ====
</TABLE>
-45-
<PAGE> 46
UNITED BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued:
(amounts in thousands)
9. CASH AND DIVIDEND RESTRICTIONS:
The Bank is required to maintain reserves in the form of cash on hand or cash
on deposit with the Federal Reserve Bank equal to a percentage of its
reservable deposits. Required reserves at December 31, 1995 were $755.
The Bank, as a National Bank, is subject to the dividend restrictions set forth
by the Comptroller of the Currency. Under such restrictions, the Bank may not,
without the prior approval of the Comptroller of the Currency, declare
dividends in excess of the sum of the current year's earnings (as defined) plus
the retained earnings (as defined) from the prior two years.
The dividends that the Bank could declare, without the approval of the
Comptroller of the Currency, amounted to approximately $2,300 as of December
31, 1995.
10. EMPLOYEE BENEFIT PLANS:
Profit Sharing Plan
The Company's Employee Profit Sharing Plan covers substantially all the
employees of the Company. Annual contributions are determined by the Board of
Directors. During 1995, 1994 and 1993, contributions to the plan were $19, $16
and $17, respectively.
Executive Incentive Plan
The Executive Incentive Plan rewards key officers for performance and
continuity of service. The plan is a long-term deferred compensation plan.
Awards earned under the plan vest ratably over four years and were $36, $14
and $38 in 1995, 1994 and 1993, respectively. Expenses recognized under the
plan were $32, $55 and $76 in 1995, 1994 and 1993, respectively.
Employee Stock Ownership Plan (ESOP) and Debt
The Company sponsors a leveraged employee stock ownership plan (ESOP) that
covers substantially all employees of the Company. The Company makes annual
contributions to the ESOP. The amount of the annual contributions is
discretionary, except that it must be sufficient to enable the ESOP to service
its debt. The ESOP shares initially were pledged as collateral for its debt.
As the debt is repaid, shares are released and allocated to active employees,
based on the proportion of debt paid. The debt of the ESOP is recorded as a
liability and the shares pledged as collateral are reported as unearned ESOP
compensation in the equity section of the balance sheet. As shares are
released from collateral, the Company reports compensation expense equal to the
current market price of the shares for all shares acquired by the ESOP
subsequent to December 31, 1992, and equal to the book value of shares acquired
prior to January 1, 1993. The shares become outstanding for earnings-per-share
(EPS) computations, at the time of allocation to the active employees. ESOP
compensation expense related to the payment of debt was $78, $10, and $60 in
1995, 1994, and 1993, respectively.
-46-
<PAGE> 47
UNITED BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued:
(amounts in thousands)
10. EMPLOYEE BENEFIT PLANS, continued:
ESOP debt is due in quarterly installments through March 15, 2000 with interest
at 90% of each lender's prime rate (prime rate was 8.5% at December 31, 1995).
The Company incurred interest expense on the ESOP debt of $23, $6 and $7 in
1995, 1994, and 1993, respectively.
Shares held by the ESOP as of December 31 were classified as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Allocated shares:
Prior to January 1, 1993.......................... $ 52,666 $ 52,056
Subsequent to December 31, 1992................... 2,212 0
------ ------
54,878 52,056
------ ------
Unallocated shares:
Prior to January 1, 1993.......................... 5,876 6,486
Subsequent to December 31, 1992................... 10,322 8,657
------ ------
16,198 15,143
------ ------
Total ESOP shares.............................. $ 71,076 $ 67,199
====== ======
</TABLE>
11. TRANSACTIONS WITH RELATED PARTIES:
An analysis of directors, officers and employees loans receivable activity is
as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Balance, January 1............................. $ 1,783 $ 1,897
Additions or renewals.......................... 790 358
Collections.................................... (722) (472)
------ ------
Balance, December 31........................... $ 1,851 $ 1,783
====== ======
</TABLE>
In addition, commitments to extend credit to directors, officers and employees
were approximately $440 at December 31,1995.
-47-
<PAGE> 48
UNITED BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued:
(amounts in thousands)
12. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:
In the ordinary course of business, the Bank issues commitments to extend
credit and standby letters of credit. The Bank applies the same credit
standards to these commitments as it uses in all its lending processes and
considers these commitments in its lending risk evaluations. Off balance sheet
commitments at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Commitments to extend credit.................. $ 7,889 $ 8,281
Standby letters of credit..................... 292 136
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of the contract agreement. Commitments generally have
fixed expiration dates or other termination clauses and may require payment of
a fee. Commitments may expire without being drawn upon and do not necessarily
represent future cash requirements. Customer creditworthiness is evaluated on
a case-by-case basis with collateral obtained as necessary based on
management's evaluation of the credit. Collateral varies, but may include
accounts receivable, inventory, property, plant and equipment, and income-
producing commercial property.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used by management to estimate the
fair value of each class of financial instrument for which it is practicable
to estimate that value. The resulting estimates of fair value require
subjective judgments and are approximate. Changes in the following
methodologies and assumptions could significantly affect the estimates:
Cash and Cash Equivalents
For cash and cash equivalents, the carrying amount is a reasonable estimate of
fair value.
Investment Securities
For investment securities, the fair value is based on quoted market prices. If
a quoted market price is not available, fair value is estimated using quoted
market prices for similar securities.
-48-
<PAGE> 49
UNITED BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued:
(amounts in thousands)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS, continued:
Loans
The fair value of fixed-rate loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. Variable
rate loans with rate adjustments have carrying amounts which are a reasonable
estimate of fair value.
Deposits and Repurchase Agreements
The fair value of demand, interest-bearing demand, repurchase agreements and
savings deposits is the amount payable on demand at the reporting date. The
fair value of time deposits is estimated using the interest rates currently
offered for the deposits of similar remaining maturities.
Federal Funds Purchased, Bank Line of Credit, Notes Payable and Debt of ESOP
(Debt)
The fair value of federal funds purchased, bank line of credit borrowings,
notes payable and debt of ESOP (debt) at December 31, 1995 is estimated by
discounting future cash flows at rates currently available for debt with
similar terms and remaining maturities.
Off-Balance-Sheet Financial Instruments
Commitments to extend credit and letters of credit represent the principal
categories of off-balance-sheet financial instruments. The fair value of
these commitments, based on fees currently charged for similar commitments is
not material.
The estimated fair values of financial instruments are as follows at
December 31, 1995:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
<S> <C> <C>
Financial assets:
Cash and cash equivalents.......................... $ 3,899 $ 3,899
Available-for-sale securities...................... 46,669 46,669
Loans.............................................. 39,985 39,842
Financial liabilities:
Deposits and repurchase agreements................. $ 74,576 $ 74,789
Debt............................................... 6,982 7,015
</TABLE>
-49-
<PAGE> 50
UNITED BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(amounts in thousands of dollars)
14. PARENT COMPANY ONLY FINANCIAL INFORMATION:
Presented as follows are the condensed balance sheets and statements of income
and cash flows for United Bancorp as of and for the year ended December 31:
CONDENSED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS:
Cash and cash equivalents....................... $ 65 ----
Receivable from subsidiary...................... 10 $ 107
Equity in wholly-owned subsidiaries:
Douglas National Bank......................... 10,471 8,718
UBC Investment Corporation.................... ---- 1,039
Land and buildings, net......................... 1,806 20
Other assets.................................... 216 158
------ -------
Total assets.................................. $12,568 $ 10,042
====== =======
LIABILITIES:
Debt of ESOP.................................... $ 233 $ 240
Payable to subsidiary........................... 800 253
Other liabilities............................... 74 57
------ -------
Total liabilities............................. 1,107 550
------ -------
STOCKHOLDERS' EQUITY
Common stock.................................... 1,101 1,096
Additional paid-in capital...................... 3,515 3,484
Retained earnings............................... 6,899 5,940
Unearned ESOP compensation...................... (233) (240)
Net unrealized gains (losses), net of income
taxes, on securities available-for-sale by
subsidiary..................................... 179 (788)
------ -------
Total stockholders' equity.................... 11,461 9,492
------ -------
Total liabilities and stockholders' equity.. $12,568 $ 10,042
====== =======
</TABLE>
-50-
<PAGE> 51
UNITED BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(amounts in thousands of dollars)
14. PARENT COMPANY ONLY FINANCIAL INFORMATION, Continued:
CONDENSED STATEMENTS OF INCOME
(in thousands of dollars)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
INCOME:
Dividends from subsidiaries............ $ 400 $ 315 $ 276
Interest from subsidiaries............. 78 6 7
Other income........................... 89 62 32
------ ------ ------
Total income......................... 567 383 315
------ ------ ------
EXPENSES:
Executive Incentive Plan............... 60 55 77
Directors fees......................... 26 24 26
Depreciation........................... 9 1 2
Interest............................... 23 6 7
Interest to subsidiary................. 73 25 23
Other.................................. 27 36 47
------ ------ ------
Total expenses........................ 218 147 182
------ ------ ------
Income before taxes and equity in
undistributed income of subsidiaries. 349 236 133
Income tax benefit................... (10) (53) (54)
Income before equity in undistributed
income of subsidiaries.............. 359 289 187
------ ------ ------
EQUITY IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES
Douglas National Bank.................. 784 296 551
UBC Investment Corporation............. 0 2 289
------ ------ ------
784 298 840
------ ------ ------
Net income......................... $ 1,143 $ 587 $ 1,027
====== ====== ======
</TABLE>
-51-
<PAGE> 52
UNITED BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(amounts in thousands of dollars)
14. PARENT COMPANY ONLY FINANCIAL INFORMATION, Continued:
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
INCREASE (DECREASE IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Net income............................... $ 1,143 $ 587 $ 1,027
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation............................. 9 1 2
Equity in undistributed income of
subsidiaries............................ (784) (298) (810)
(Increase) decrease in receivable from
subsidiary.............................. 97 (53) (54)
Increase in other assets................. (58) (30) (33)
Increase (decrease) in other liabilities. 17 (1) 58
------ ------ ------
Net cash provided by operating activities 424 206 190
Cash flows from investing activities: ------ ------ ------
Purchase of preferred stock of subsidiary. --- (47)
Merger of UBC Investment Corporation...... 56 0
Net cash provided by (used in) investing ------ ------
activities.............................. 56 (47)
Cash flows from financing activities: ------ ------
Net proceeds from bank line of credit..... (12) 12
Proceeds from issuance of ESOP debt....... 69 159
Stock purchased for ESOP.................. (69) (159)
Repayment of long-term debt............... (255) (25) (27)
ESOP contribution from Bank............... 78 10 60
Repayment of ESOP debt.................... (76) (10) (60)
Dividends reinvested...................... 34 35 24
Retirement of stock....................... ---- (19) (21)
Cash dividends paid....................... (184) (175) (130)
------ ------ ------
Net cash used in financing activities.... (415) (172) (154)
------ ------ ------
Net increase (decrease) in cash and cash
equivalents................................. 65 (13) 36
Cash and cash equivalents at beginning of year 0 13 7
------ ------ ------
Cash and cash equivalents at end of year..... $ 65 $ 0 $ 43
====== ====== ======
</TABLE>
-52-
<PAGE> 53
UNITED BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued:
(amounts in thousands of dollars)
14. PARENT COMPANY ONLY FINANCIAL INFORMATION, continued:
NONCASH INVESTING ACTIVITIES
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Change in net unrealized gains (losses)
on securities available-for-sale, net of
deferred income taxes.................... $ 967 $ (1,057) $ 269
Merger of UBC Investment Corporation:
Increase in cash........................ 30
Increase in fixed assets, net........... (68)
Increase in long-term debt.............. 651
Income from UBC Investment Corporation.. 26
Transfer of fixed assets from Bank
to Bancorp.............................. 99
</TABLE>
-53-
<PAGE> 54
UNITED BANCORP AND SUBSIDIARIES
FIVE-YEAR SUMMARY OF OPERATIONS
(amounts in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest income............. $ 7,281 $ 6,687 $ 5,775 $ 6,766 $ 7,114
Interest expense............ 2,440 2,033 1,867 2,268 2,785
------- ------- ------- ------ -------
Net interest income......... 4,841 4,654 3,908 4,498 4,329
Provision (credit) for loan
losses..................... 80 0 (537) (71) 102
------- ------- ------- ------ -------
Net interest income after
provision for loan losses.. 4,761 4,654 4,445 4,569 4,227
Noninterest income.......... 889 784 823 811 928
Noninterest expense......... (4,081) (4,639) (3,944) (3,496) (3,494)
------ ------- ------- ------ -------
Income before income taxes.. 1,569 799 1,324 1,884 1,661
Provision for income taxes.. 426 212 297 728 635
------ ------- ------- ------ -------
Net income.................. $ 1,143 $ 587 $ 1,027 $ 1,156 $ 1,026
======= ======= ======= ====== =======
Per share (adjusted for
stock dividends):
Net income............... $ 2.70 $ 1.39 $ 2.34 $ 2.65 $ 2.37
Shareholders' equity..... 26.02 21.64 23.47 22.22 18.27
Dividends................ .42 .40 .30 .25 .20
Average number of shares
outstanding................ 423,330 421,453 437,624 437,044 433,838
Dividends declared.......... $ 184 $ 175 $ 130 $ 123 $ 92
Average assets.............. $ 98,858 $100,225 $ 94,418 $90,225 $ 76,888
</TABLE>
-54-
<PAGE> 55
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of United Bancorp:
We have audited the accompanying consolidated balance sheets of United Bancorp
and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are
the responsibility of United Bancorp's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of United Bancorp
and Subsidiaries as of December 31, 1995 and 1994, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for income taxes and investment securities in 1993.
- ------------------------
Coopers & Lybrand L.L.P.
Eugene, Oregon
January 23, 1996
-55-
<PAGE> 56
LETTER TO SHAREHOLDERS:
To our Shareholders and Friends:
It is always a pleasure to report the results of actions that were favorable.
1995 proved to be an almost exact opposite of 1994, with interest rates closing
at a 3-year low. As a result our decision to restructure our investment
portfolio during 1994 was correct, allowing the Bank to lock into higher yields
and increased earnings for 1995. United Bancorp reported net income of
$1,143,000 for the year ended December 31, 1995, a substantial increase over
the $587,000 net earnings in 1994. On a per share basis, earnings for 1995
averaged $2.70 compared to $1.39 for the previous year. Cash dividends declared
per share in 1996, payable to Shareholders of Record on February 29, 1996,
were $.44, compared to $.42 paid in 1995. Our capital position continues to
remain strong and exceeds the 6 percent regulatory requirements. Tier 1 capital
to total risk weighted assets (leverage ratio) was 18.6 percent compared to
15.9 percent for last year. Average assets have increased from $76 million in
1991 to $98 million in 1995 totally supported by internally generated capital.
United Bancorp's book value per share (shareholder's equity) has grown from
$18.27 in 1991 to $26.02 in 1995, a 42 percent increase in shareholder value.
By year-end 1995, loans had increased to $39.9 million, up 18.4 percent over
year-end 1994, primarily due to expanded activity in small business and
agricultural lending. The allowance for loan losses at year end 1995, was at
$476,000 or 1.20 percent of loans, compared to 1.43 percent for year-end 1994.
Loan quality continues to be good. Non-performing loans totaled only $178,604
at December 31, 1995, compared to $416,896 last year.
The investment portfolio is our largest asset at $46.7 million at year-end.
This portfolio is well-diversified and has good asset quality. Last year we
sold bonds purchased during the low interest rate cycle and replaced them with
higher yielding bonds. As a result, our security portfolio book yield to
maturity at December 31, 1995 was 8.6 percent, well in excess of industry
norms. This compares to a book yield of 7.0 percent last year.
The low interest rates during 1995 had an impact on our deposits which were
down $4.2 million. However, we continue to meet our customer's needs by
offering higher yielding mutual funds and annuities through our non-bank
subsidiary, Douglas National Bank Insurance Agency. This company continues to
expand and provide alternative investment choices for our bank customers.
There are two important measures for shareholders to use when determining bank
performance. The first is reviewing net interest income and non-interest
income. These two numbers, when added together, indicate a bank's sales volume
and provide a good analysis of how the bank's revenue stream is progressing.
The company has shown steady net revenue increases going from $5.0 million in
1991 to $5.7 million in 1995. The second important measure of a bank's
performance is its net interest margin. This measures profitability and the
success of the bank's business of banking. That is, collecting deposits and
lending these dollars to customers. Douglas National Bank's net interest margin
in 1995 was 5.20 percent, compared to 5.41 percent in 1991. On a historical
basis, revenue and net interest income has remained strong for the past five
years which is essential in maintaining long-term profitability.
-56-
<PAGE> 57
The company's non-interest expenses were down 12.0 percent in 1995 to a total
of $4.1 million, a $558,000 decrease. This represents an annualized ratio of
non-interest expense to total revenue of 50.0 percent, compared to 62.1 percent
a year ago. While substantially improved, this ratio continues to be higher
than industry norms and higher than we would like it to be. We are working to
continue to reduce non-essential expenses. We have emphasized that every
employee should think about the way we work in order to develop more efficient
and cost-effective methods of running our operations and servicing our
customers.
Following our theme of "Banking One on One" we continue to work on
strengthening the service and products we offer. Our expanded investment
products provide a diversified selection of investments available to our
customers. The bank's Checkloan personal line of credit allows qualified
customers to borrow money without applying for each loan. Our investment
deposit accounts enable our customers to earn current market rates on their
deposited funds. We also had success in 1995 with an inflation fighter
"Step Up" certificate of deposit, which helped offset some disintermediation
into mutual funds. And the highly successful Prime Timers program, for the
mature market, offers many benefits and group activities. A recent U.S. Small
Business Administration study found that Douglas National Bank ranked 3rd in
the State of Oregon among banks in lending to small businesses. Douglas
National Bank makes a high percentage of small business loans in Douglas County
and we are proud to earn the distinction as the most user-friendly business
bank in Douglas County. In addition, the bank earned high rankings on two
mystery customer service surveys conducted in 1995.
To emphasize our commitment to service we introduced the "Best of the Best"
award. It is given quarterly to outstanding employees who best exemplify the
high level of quality service and professional standards of the bank. From the
select group of winners, we chose Meddie Kinder to receive the annual award.
We congratulate Meddie for her excellent performance.
We continue to take pride in the substantial investment of time and money we
make in the communities we serve. The Roseburg Chamber of Commerce recognized
Douglas National Bank for our commitment to community service and support of
many organizations. Eleven years ago we established the George Gratke
Community Service Award to encourage a high level of employee involvement in
community service. We are pleased to present this award for 1995 to Henry
"Huck" Zellweger, Prime Timers Manager, for his many contributions to the
senior citizens of Douglas County.
Douglas National Bank has been given the prestigious Blue Ribbon Bank award
again in 1995 by Veribanc, Inc. and is ranked among the highest rated banks
in the United States. We live up to our customers' expectations of safety and
soundness. Our capital ratios are high. Asset quality is sound. Our liquidity
is strong. We have all the components of a very successful bank.
In February, 1995, Bill Roberts, the bank's Credit Administrator for the past
15 years, left the field of banking. Bill served our company with dedication
and integrity. We thank him for the many contributions he made and wish him
continued success in all his future endeavors. Replacing Bill as Credit
Administrator is Don McDonel. He has many years of extensive community bank
experience and uses sound fundamental credit principles in managing the loan
functions of the bank.
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<PAGE> 58
In November, 1995, Joseph Taucher retired from the Board of Directors. He
served on the Boards of United Bancorp, Douglas National Bank, U.B.C.
Investment Corporation, and Douglas National Bank Insurance Agency since
joining the Board in 1987. Joe's counsel as a director has been invaluable and
deeply appreciated. The Board of Directors elected Brian Pargeter, President of
Umpqua Insurance Agency, to fill this vacancy. Brian's professional business
background and community involvement will make an important contribution to our
bank.
A message to our shareholders would not be complete without acknowledging the
strong support we receive from our employees, board of directors, and share-
holders. Please continue to refer your friends to us. Douglas National Bank is
YOUR bank, and we want to serve all of YOUR financial services needs.
For the Board of Directors,
___________________________
David A Jackson
Chairman of the Board
United Bancorp
____________________________
Gary L. Kjensrud
President and CEO
Douglas National Bank
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