2016
6
1
0
2
2017 ANTICIPATED DIVIDEND
PAYABLE DATES
First Quarter
March 20, 2017
Second Quarter*
June 20, 2017
Third Quarter*
September 20, 2017
Fourth Quarter*
December 20, 2017
*Subject to action by Board
of Directors
(1) Adjusted for stock dividends and exchanges.
Does not include dividends from Southern Ohio
Community Bancorporation, Inc. prior to the
merger.
(2) Formation of United Bancorp, Inc. (UBCP). The
Citizens Savings Bank shareholders received
4 shares of UBCP stock in exchange for 1 share of
The Citizens Savings Bank.
Cash Dividends
Declared (1)
Special Cash Dividends
and Stock Dividends
D I V I D E N D A N D S T O C K H I S T O R Y
Distribution Date of
Dividends and
Exchanges
-
January 2, 1984
-
-
October 2, 1987
-
-
-
-
September 10, 1992
November 30, 1993
September 9, 1994
-
June 20, 1996
September 19, 1997
December 18, 1998
December 20, 1999
December 20, 2000
December 20, 2001
December 20, 2002
December 19, 2003
December 20, 2004
December 20, 2005
December 20, 2006
–
–
–
–
–
–
–
–
December 29, 2015
December 29, 2016
-
4 for 1 Exchange (2)
-
-
50% Stock Dividend
-
-
-
-
100% Stock Dividend
100% Stock Dividend
10% Stock Dividend
-
10% Stock Dividend
10% Stock Dividend
5% Stock Dividend
5% Stock Dividend
5% Stock Dividend
5% Stock Dividend
5% Stock Dividend
10% Stock Dividend
10% Stock Dividend
10% Stock Dividend
10% Stock Dividend
–
–
–
–
–
–
–
–
5¢ Per Share Special Dividend
5¢ Per Share Special Dividend
0.05
0.06
0.07
0.09
0.09
0.10
0.10
0.11
0.12
0.12
0.12
0.13
0.19
0.20
0.23
0.26
0.30
0.31
0.32
0.33
0.35
0.39
0.43
0.48
0.52
0.54
0.56
0.56
0.56
0.42
0.29
0.33
0.37
0.42
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
T O T A L R E T U R N P E R F O R M A N C E
United Bancorp, Inc.
NASDAQ Composite
SNL Bank Index
SNL $250M-$500M Bank Index
SNL Midwest Bank Index
Dow Jones
e
u
l
a
V
x
e
d
n
I
300
250
200
150
100
50
0
12/31/06
12/31/07
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
Index
United Bancorp, Inc.
NASDAQ Composite
SNL Bank Index
SNL Bank $250M-$500M
SNL Midwest Bank
Dow Jones
12/31/06 12/31/07 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12
101.78
96.34
43.88
42.96
43.45
90.93
110.45
110.55
77.71
81.28
77.94
108.88
100.00
100.00
100.00
100.00
100.00
100.00
89.60
132.44
51.39
56.05
61.35
123.92
111.15
113.70
49.17
48.07
53.96
103.72
115.13
112.76
38.08
45.15
50.97
112.41
111.45
66.30
44.34
46.42
51.28
74.12
12/31/13
119.77
185.57
70.55
76.11
83.99
160.67
12/31/14 12/31/15 12/31/16
156.27
227.76
80.21
99.36
92.69
177.18
229.72
247.96
101.35
124.68
123.85
206.40
125.31
212.94
78.87
86.85
91.31
176.80
Decade of Progress
Unaudited
Mission Statement
United Bancorp, Inc.
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Interest and dividend income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income, including security gains/(losses)
Noninterest expense
Income before income taxes
Income tax expense
Net income
Total assets
Deposits
Shareholders’ equity
Loans receivable, net
Allowance for loan losses
Net charge-offs
Full time employees (average equivalents)
Banking locations
Earnings per common share - Basic
Earnings per common share - Diluted
Dividends per share
Book value per share
Market value range per share
Cash dividends paid
Special Cash Dividends Paid
Return on average assets (ROA)
Return on average equity (ROE)
$ 25,279,212
12,837,256
12,441,956
1,384,261
11,057,695
2,297,373
11,046,170
2,308,898
240,891
$ 2,068,007
$ 421,653,341
330,005,480
32,580,485
229,171,793
2,345,419
1,936,046
132
Seventeen
$ 26,603,043
14,517,591
12,085,452
993,505
11,091,947
3,079,567
11,252,758
2,918,755
333,926
$ 2,584,829
$ 451,370,187
330,488,711
33,885,779
232,196,753
2,447,254
891,648
123
Seventeen
$ 25,715,309
10,251,384
15,463,925
1,188,270
14,275,655
3,066,769
12,627,590
4,714,834
955,700
$ 3,759,134
$ 441,804,491
347,044,549
33,904,759
235,448,307
2,770,360
865,000
142
Twenty
$ 23,354,885
8,064,768
15,290,117
1,325,052
13,965,065
3,295,030
13,838,651
3,421,444
516,524
$ 2,904,920
$ 445,970,296
344,542,900
35,211,133
255,335,658
2,390,015
1,705,000
136
Twenty
$
21,667,356
6,480,008
15,187,348
1,816,012
13,371,336
3,317,126
13,921,806
2,766,656
219,289
$ 2,547,367
$ 423,434,966
325,445,596
35,580,582
276,036,674
2,739,736
1,466,000
146
Twenty
$
20,211,170
4,707,077
15,504,093
1,968,021
13,536,072
3,512,340
13,103,041
3,945,371
854,447
$ 3,090,924
$ 415,566,563
328,540,953
36,181,269
281,526,111
2,921,067
1,785,689
133
Twenty
$ 18,462,265
3,861,046
14,601,219
1,127,634
13,473,585
2,937,420
13,466,431
2,944,574
546,399
$ 2,398,175
$ 438,353,660
350,416,519
36,625,833
293,774,257
2,708,045
1,340,656
134
Twenty
$ 17,025,223
3,033,178
13,992,045
1,240,847
12,751,198
4,212,273
13,994,647
2,968,824
356,544
$ 2,612,280
$ 389,041,557
310,640,827
38,870,794
306,608,265
2,894,944
1,053,947
133
Twenty
$
16,377,445
2,466,512
13,910,933
888,000
13,022,933
3,697,486
13,146,050
3,574,369
923,074
$ 2,651,295
$ 401,811,582
322,681,733
40,389,103
313,354,040
2,400,427
1,382,517
132
Nineteen
$ 16,082,746
2,283,468
13,799,278
552,996
13,246,282
3,802,215
12,490,093
4,558,407
1,334,078
$ 3,224,329
$ 405,124,408
323,622,229
41,496,430
327,225,277
2,437,757
516,146
122
Eighteen
$
0.45
0.45
0.48
7.73
9.36-11.36
$
0.57
0.57
0.52
7.41
9.78-11.39
$
0.82
0.82
0.54
7.35
7.41-10.85
$
0.62
0.62
0.56
7.53
7.00-9.49
$
0.52
0.52
0.56
7.52
7.70-9.90
$
0.63
0.62
0.56
7.57
7.56-9.03
$
0.49
0.48
0.42
7.61
5.89-10.25
$
0.53
0.53
0.29
8.03
6.10-8.60
$
0.54
0.53
0.33
8.34
7.45-8.85
$
$
2,415,741
$
2,435,317
$
2,707,438
$
2,871,801
$
2,959,658
$
2,988,155
$
2,253,410
$
1,555,912
$
1,773,699
$
0.50%
6.49%
0.60%
8.12%
0.86%
11.33%
0.63%
7.56%
0.57%
7.05%
0.73%
8.53%
0.55%
6.74%
0.63%
7.02%
0.66%
6.67%
0.65
0.64
0.37
8.56
7.81-10.90
1,989,431
269,215
0.79%
7.79%
$ 16,635,134
1,783,993
14,851,141
300,830
14,550,311
3,681,318
13,070,759
5,160,870
1,580,291
$ 3,580,579
$ 438,018,449
338,803,695
42,640,882
354,379,510
2,341,338
396,769
123
Eighteen
$
$
0.72
0.71
0.42
8.63
8.80-13.50
2,269,507
271,265
0.86%
8.40%
United Bancorp, Inc. is a nationally traded Bank holding company
whose mission is to continue earning the respect....
....
Of its shareholders, through continued growth in shareholder value by sustaining
profitability and acquiring well managed and capitalized businesses in the financial
services industry;
....
Of its customers, through reaching out with the technology they want and offering
the financial products and services they need;
....
Of its communities, through support of civic activities that make our communities
better places to live and work;
....
Of its team members, through training development and career growth opportunities
in a comfortable environment with modern equipment;
Although it is recognized there is more competition from non-banking businesses for
market share, the general mission of United Bancorp, Inc. is to remain independent. We will
accomplish this through an aggressive acquisition program, the management of technological
change that will allow us to gain efficiencies and expand our boundaries outside of the typical
brick and mortar framework and the placement of new office construction or acquisition
when deemed economically feasible.
Adopted by The United Bancorp, Inc., Board of Directors April 20, 2016
2016
A Letter from the President and CEO
To the shareholders of United Bancorp, Inc….
Scott A. Everson
President and CEO
I am pleased to report that our company had another successful year, both financially
and operationally, in 2016! This past year, we produced net income of $3.580 million,
which was $356,000, or 11%, higher than the previous year. This level of earnings
translated into diluted earnings per share of $0.71 in 2016, which is an improvement of
$0.07, or 11%, over 2015. As we highlighted in our quarterly earnings releases throughout
2016, the primary reason for this double-digit improvement in earnings is related to our
company’s growth in its net interest income. In 2016, our company produced net interest
income of $14.851 million, which is $1.052 million, or 7.6%, greater than the previous year.
With our company’s continued positive momentum in earnings, our valued shareholders
were rewarded with significant appreciation in the market value of their ownership in our company. This past year, the
market value of the common shares of our stock increased by $3.91 per share or 41%. At year-end, our stock was
trading at $13.50! Our higher level of earnings also contributed to a higher cash dividend being paid out in 2016.
During this past year, our shareholders were generously rewarded by receiving a regular cash dividend payment of
$0.42, as compared to $0.37 in 2015, an increase of $0.05 or 13.5%. And, once again this past year, our shareholders
received a special cash dividend payment of $0.05 on December 30, 2016 in appreciation of their commitment to and
support of our company and its mission. With the optimistic anticipation of continued strong performance and
earnings growth for our company in the coming year, it is strongly believed that these positive trends will continue!
Focusing on the performance of United Bancorp, Inc. in 2016, the aforementioned growth in earnings can be primarily attributed to the
following factors:
Increasing Net Interest Income: We were able to increase the level of net interest income that we realized year-over-year by $1.052
million or 7.6%. Helping to facilitate this increase in the level of net interest income realized was our continued focus on growing loans, which
led to our company generating a higher level of interest income in 2016. This past year, our company continued to build its loan origination
platform, mainly in the area of commercial lending, to generate higher levels of loans outstanding. At year-end, our company’s commercial
loan portfolio comprised nearly seventy-five percent of the total loan portfolio. Considering that commercial lending is still based on the
relationship and not as commoditized as both consumer and mortgage lending, we view commercial lending as the primary vehicle for our
future growth in both assets and earnings. Accordingly, the company hired an additional seasoned commercial lender and commercial loan
processor at mid-year to further enhance this platform. In addition, our company announced in the third quarter that it opened a Loan
Production Office (LPO) in Wheeling, West Virginia, which should capitalize on the strengths of our most recent hires for the commercial
lending platform. This LPO is exclusively focused on growing the commercial loan-base of our company and is in a market that our company
has served from the “Ohio-side” of the river for many years with some success. We are finding that by having a physical location within the
City of Wheeling, we are gaining commercial lending opportunities that we were previously unable to gain when we did not have this physical
presence within this promising market. This is an exciting reality for our company as we seek to grow and expand our footprint. For this
reason, we are extremely “bullish” on our loan growth prospects in the coming year! In 2016, we had a relatively productive year growing our
loan portfolio; increasing our loans outstanding by $27.1 million, or 8.2%, to an overall level of $356.7 million. Accordingly, the interest income
that our company realized for the year increased to $16.635 million, which was an increase of $553 thousand or 3.44%. With the Federal
Open Market Committee (FOMC) raising the target rate for federal funds at its December meeting, we believe that the yield in our loan portfolio
will further stabilize, and potentially increase, in the coming year. Any additional loan volume should contribute to an enhanced level of interest
income being realized by our company in 2017!
On the interest expense-side of the margin, our company continued to see a positive return on its strategy of attracting lower-cost funding
accounts. Year-over-year, lower-cost funding--- which consists of demand and savings deposits--- increased by $19.6 million and comprised
2016
11
A Letter from the President and CEO - Continued
84.3% of total deposits as of December 31, 2016, as compared to 82.2% of total deposits the prior year. This was one factor that helped the
company reduce its total interest expense by $499 thousand, or 21.9%, in 2016. The other factors attributed to helping our company reduce
overall interest expense levels this past year were the repricing of the company’s $4.1 million subordinated debenture and the maturity of a
$6.0 million Federal Home Loan Bank Advance. The $4.1 million subordinated debenture repriced on January 1, 2016, from a fixed rate of
6.25% to an average variable rate of approximately 2.35% at year-end. On a going-forward basis, the pricing of this subordinated debenture
is based on three-month LIBOR plus a margin of 1.35%. The $6.0 million Federal Home Loan Bank Advance matured this past year in May at
a rate of 3.28% and was replaced with a short-term borrowing with a current rate at approximately seventy-six basis points. Based on current
rates, it is estimated that both of these events will save our company approximately $311 thousand in interest expense on an annualized basis.
In the coming year, we are projecting further increases in the level of net interest income that our company produces, which will support
additional growth in our earnings. We expect to achieve this increase in net interest income by continuing to grow loans at an above-peer
level and by being able to control our interest expense levels; even though, we are forecasting that the Federal Open Market Committee (FOMC)
will increase the target for the federal funds rate two or three times during 2017 and that we will need to pay a slight premium to start bringing
in term deposits to fund our anticipated loan growth. Significantly contributing to the projected increase in net interest income in the coming
year will be the scheduled repricing of additional Federal Home Loan Bank (FHLB) Advances throughout the year. In 2017, the company has
$20 million in FHLB Advances, with a present average rate of 3.93%, which are set to mature. Giving consideration to the current interest rate
environment, the company forecasts that it could save an estimated $354 thousand in interest expense in the coming year by having these
FHLB Advances mature and reprice to floating rate borrowings.
Ultimately, all of the aforementioned items relating to both noninterest income and noninterest expense should have a very positive impact
on the level of net interest income realized in the coming year and lead to higher levels of earnings and profitability for our company in 2017.
Slightly Lower Noninterest Income: In 2016, we were able to produce $3.681 million in noninterest income, which comprised 19.9%
of net operating revenue (net interest income and noninterest income). At this level, noninterest income covered 28.2% of the company’s
noninterest expense or overhead. This is slightly lower than the $3.802 million in noninterest income generated in the prior year. The decline
in the level of noninterest income that the company realized in 2016 is largely related to the decline in service charges on deposit accounts
generated this past year. For the year, services charges on deposit accounts were down $282 thousand, or 9.8%, from the previous year.
The company attributes the lower income realized in this area to the substantial debit card fraud that it mostly experienced in the second and
third quarters of this past year. In order to mitigate losses relating to debit card fraud, the company implemented very stringent (yet, prudent)
security measures which somewhat limited the level of overdraft and interchange income that it realized. With the introduction in the late third
quarter of the company’s new chip-enabled debit card and My Mobile Money (which is an application that allows our customers to turn off
their debit cards when not being utilized and immediately notifies them of any transaction on their debit card), it is believed that the levels of
fee-based income in this area should improve on a going-forward basis.
Building for the Future by Increasing Noninterest Expense: As announced in last year’s annual report, our company has embarked
upon a new period; wherein, our exclusive focus is to grow our assets in a profitable fashion that will produce consistent and increasing
earnings. This vision, which is called Mission 2020, sets the course for our company to grow its assets to a level of $1.0 billion (or greater)
by the end of 2020. In order to achieve this ambitious goal, we will need to continue focusing on reducing certain noninterest expense areas/
items through realignment and process improvement, while taking on higher levels of noninterest expense in areas that will support the
platforms that will drive the growth of our company and produce higher levels of revenue.
As mentioned earlier, we made great strides this past year in enhancing our commercial lending platform--- which generates the vast
majority of our company’s income--- by hiring key commercial lending personnel in the areas of both origination and support and opening a
new Loan Production Office (LPO) in the very desirable Wheeling, West Virginia marketplace. In addition, we further enhanced our lending
platform by completing, at mid-year, a forward-thinking renovation project of our main office located in Martins Ferry, Ohio, which was outlined
in last year’s annual report; whereby, we created the operational capacity to support a larger and stronger loan origination function. Also, our
company focused this past year on building a mortgage loan origination platform that should help us compete much more effectively with
both traditional and non-traditional mortgage lenders. By focusing on improving our mortgage product suite; enhancing our mortgage
origination technology to improve efficiency and turnaround; and developing a reward system for our personnel to encourage a stronger
commitment to originating a higher volume of mortgage loans, we believe that our company should see a vast improvement in the number of
2
2016
mortgages originated in the coming year. Obviously, building our loan origination platforms (both commercial and mortgage) has had a cost.
Considering that it takes talented people to build solid relationships, most of this increase in noninterest expense this past year occurred in
the area of personnel. This past year, our salaries and employee benefits increased by $628 thousand, or 9.8%, while our overall level of
noninterest expense increased by $581 thousand or 4.7%. But, we strongly feel that there is value at the end of this proverbial rainbow! With
the new capacity that our enhanced loan origination platform has created, we firmly believe that our company has high operating leverage and
a steep upside for increased earnings! Ultimately, with the loan origination platform that we have developed over the course of the past two
years, our company should be able to realistically and comfortably increase its level of loans outstanding by an estimated $150 million and
generate a significantly increased level of mortgages that can be sold in the secondary market. This higher level of loans outstanding and
increased volume of lending will help our company become more profitable by generating higher levels of interest and fee-based income. With
our perceived high operating leverage, we will be able to accomplish this without taking on an increased level of noninterest expense or
overhead; thereby, improving the efficiencies and returns of our company in future periods. In addition to this improved performance, it should
also thrust us in the proper direction to achieve our strategic vision of growth established under Mission 2020!
Lowering the Loan Loss Provision: Our credit quality remained relatively stable over the course of this past year and is considered to
be extremely sound by industry standards. By having very stable and sound credit quality metrics and a very sizable excess reserve, we were
able to reduce our provision for loan losses during the year, which helped contribute to our improved earnings in 2016. Nonaccrual loans
marginally increased $317 thousand to a level of $1.4 million, or 0.38% of total loans, this past year. During the year, our company saw an
improvement in loans past due thirty plus days, which decreased by $410 thousand to a level of $1.7 million or 0.48% of total loans. Net loans
charged off (excluding overdraft balances) were $281 thousand, or 0.08% of total loans, which was $99 thousand lower than the previous
year. Our company saw a slight decrease in other real estate and repossessions in 2016, as balances decreased by $22 thousand, or 6.2%,
to a very respectable level of $335 thousand. Lastly, total allowance for loan losses to total loans was 0.66%, which resulted in a total
allowance for loan losses to total nonaccrual loans of 172.0% at year-end. With the forecast continuation of very solid credit quality metrics
and robust coverage levels, our company anticipates being able to lower its loan loss provision in the coming year, which should provide
further support to enhanced earnings in 2017!
Each of these aforementioned factors was critical in allowing our company to grow its earnings at a double-digit pace, once again, in
2016. By keeping a keen focus on these key operational issues, we firmly believe that our company will continue to show improvement in its
level of earnings and overall profitability.
We would not be experiencing our current success without the strong leadership and support of our corporate directors, who diligently
serve United Bancorp, Inc. I would like to recognize one of our corporate directors who finished his service with our board this past year, Mr.
Terry McGhee. Terry became a member of the United Bancorp, Inc. Board of Directors in 2001 and distinctively served our board until
tendering his resignation, which became effective on January 1, 2017. I would like to personally thank Terry for his dedicated service to our
company. His keen insight and expert guidance added great value to the meetings of our Executive and Compensation Committees and Board
of Directors. Terry’s extremely competent service to our board of directors will truly be missed! After Mr. McGhee’s separation from our
corporate board, it was the wisdom of the present board of directors to not replace his open board position. This decision was made to
support the growth that is envisioned under Mission 2020. Quite simply, our company will not be able to grow to an asset size of one billion
dollars or greater by the end of 2020 through organic growth alone. In order to achieve this enhanced level of growth, it is strongly realized
that we will need to acquire other community-minded financial service organizations. By having a lower number of directors currently serving
on our corporate board, we can effect several acquisitions without growing the number of active directors to a level that could be considered
excessive and, potentially, ineffective.
Overall, this past year was another good one for our company as we achieved many of the initiatives established under our strategic plan
and produced double-digit earnings growth. We successfully accomplished this level of performance and will continue to have success by:
•
Continuing to have a keen focus on our Mission 2020 and realize that, in order to achieve the lofty level of growth established within
this vision, we will have to grow at a compounded annual growth rate of twenty-three percent! Although this level of growth
will be very challenging to accomplish--- and, will only be fully pursued if it leads to an acceptable level of profitability and return
for our company--- your board of directors and management team firmly believe that this “stretch-goal” is achievable.
2016
3
A Letter from the President and CEO - Continued
•
•
•
•
•
Focusing this past year on increasing its operating leverage by continuing to build the infrastructure and hiring key personnel that
will drive improved earnings on a going-forward basis. With such capacity, the level of organic growth that is needed to support
Mission 2020 is within our reach.
Achieving a higher level of organic growth by capitalizing on the perceived strength of the markets that we serve. This “perceived”
market-strength is strongly rooted in the oil and gas play that has been developing the past several years within many of the markets
that we serve. In 2016, the oil and gas “play” within our marketplaces did diminish somewhat. But, with recovering oil prices, a
more fully-developed production infrastructure and the need to produce a return on the leases already established, it is believed
that our markets will see increased activity in the oil and gas industry this year, which should lead to more opportunities for our company.
Benefitting from the anticipated rate increases that may soon be implemented by the Federal Open Market Committee (FOMC). It
is forecast that the FOMC will increase the target for the federal funds rate three times in the coming year; thus, increasing the
federal funds rate by an estimated seventy-five basis points. We firmly believe that our company is well positioned to capitalize on
these anticipated increases!
Capitalizing on the high levels of capital that we presently maintain. Our company is presently considered to be “well capitalized”
by regulatory standards. At this level of capitalization, and with the further enhancement of our capital position through the positive
and profitable performance of our company in future periods, we are in a prime position to comfortably leverage our company by
growing our earning assets, which should produce higher earnings and returns for our company.
Having a management team that continues to focus on mastering the nuances related to the “art of acquisition,” and actively
prospecting for ideal candidates to join our United Bancorp, Inc. Family! It is strongly realized by your board of directors and
management team that acquisition needs to become a “line-of-business” for our company in the coming years if we are to achieve
the levels of growth that we envision under Mission 2020 and beyond!
I know that we presently have a very solid team serving our company. I also have an extremely high level of confidence that we have the
right people on this team to make all of our dreams a reality! Our diligent and innovative team will continue to enhance the appeal of our
product offerings and create efficiencies to make our processes more effective, which will help us achieve the level of greatness that we
envision and, quite frankly, expect for our company! Perpetually improving the earnings and profitability of our company--- and rewarding our
valued shareholders by driving our market value and dividend payout levels--- continues to be our utmost focus. Achieving this level of
greatness should be highly rewarding for all of us in the coming years!
As always, we are extremely blessed to have a positive relationship with our shareholders, directors, officers and employees. In this
sense, our company continues to be extremely fortunate, and we are thankful that everyone is very supportive. Collectively, we will all greatly
benefit from this unified position!
Scott A. Everson
President and Chief Executive Officer
ceo@unitedbancorp.com
February 19, 2017
Certain statements contained herein are not based on historical facts and are "forward-looking statements" within the meaning of Section 21A of the
Securities Exchange Act of 1934. Forward-looking statements, which are based on various assumptions (some of which are beyond the Company's control),
may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "estimate,"
"anticipate," "continue," or similar terms or variations on those terms, or the negative of these terms. Actual results could differ materially from those set
forth in forward-looking statements, due to a variety of factors, including, but not limited to, those related to the economic environment, particularly in the
market areas in which the company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in
government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions
and the integration of acquired businesses, credit risk management, asset/liability management,
changes in the financial and securities markets, including changes with respect to the market
value of our financial assets, and the availability of and costs associated with sources of
liquidity. The Company undertakes no obligation to update or clarify forward-looking
statements, whether as a result of new information, future events or otherwise.
4 2016
Directors
Jon C. Clark2
Scott A. Everson1,2,4
Gary W. Glessner1,2
John R. Herzig2
John M. Hoopingarner1,2
Richard L. Riesbeck1,2,3
1 = United Bancorp, Inc. 2 = The Citizens Savings Bank
3 = Chairman - United Bancorp Inc. 4 = Chairman - The Citizens Savings Bank
2016
5
Directors and Officers
DIRECTORS OF UNITED BANCORP, INC.
Scott A. Everson1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .President & Chief Executive Officer, United Bancorp, Inc.
Chairman, President & Chief Executive Officer, The Citizens Savings Bank, Martins Ferry, Ohio
Gary W. Glessner2. . . . . . . . . . . Certified Public Accountant, Managing Member of Glessner & Associates, PLLC; Managing Member of
G & W Insurance Group, LLC; Managing Member of Wheeling Coin, LLC; Vice President of Windmill Truckers Center, Inc.;
Vice President of Glessner Enterprises, Inc.; Member of Red Stripe & Associates, LLC; Managing Member of GW Rentals, LLC
John M. Hoopingarner1,2,3,4 . . . . . . . . . . . . . . .Executive Director, Muskingum Watershed Conservancy District, New Philadelphia, Ohio
Richard L. Riesbeck1,2,3,4 . . . . . . . . . . . . . . . . . Chairman, United Bancorp, Inc., President, Riesbeck Food Markets, Inc., St. Clairsville, Ohio
James W. Everson ............................................................................................................................................................... Chairman Emeritus 1969 - 2014
OFFICERS OF UNITED BANCORP, INC.
Scott A. Everson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . President & Chief Executive Officer
Matthew F. Branstetter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Senior Vice President - Chief Operating Officer
Randall M. Greenwood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Senior Vice President, Chief Financial Officer & Treasurer
Elmer K. Leeper. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President - Chief Retail Banking Officer
Michael A. Lloyd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President - Chief Information Officer
Chad S. Smith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Vice President - Chief Human Resource Officer
Lisa A. Basinger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Corporate Secretary
DIRECTORS OF THE CITIZENS SAVINGS BANK, MARTINS FERRY, OHIO
Jonathan C. Clark, Esq. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attorney at Law, Lancaster, Ohio
Scott A. Everson1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .President & Chief Executive Officer, United Bancorp, Inc.
Chairman, President & Chief Executive Officer, The Citizens Savings Bank, Martins Ferry, Ohio
Gary W. Glessner1,2 . . . . . . . . . Certified Public Accountant, Managing Member of Glessner & Associates, PLLC; Managing Member of
G & W Insurance Group, LLC; Managing Member of Wheeling Coin, LLC; Vice President of Windmill Truckers Center, Inc.;
Vice President of Glessner Enterprises, Inc.; Member of Red Stripe & Associates, LLC; Managing Member of GW Rentals, LLC
John R. Herzig . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . President, Toland-Herzig Funeral Homes & Crematory, Strasburg, Ohio
John M. Hoopingarner1,2 . . . . . . . . . . . . . . . . . .Executive Director, Muskingum Watershed Conservancy District, New Philadelphia, Ohio
Richard L. Riesbeck1,2, F . . . . . . . . . . . . . . . . . . Chairman, United Bancorp, Inc., President, Riesbeck Food Markets, Inc., St. Clairsville, Ohio
James W. Everson ............................................................................................................................................................... Chairman Emeritus 1969 - 2014
1 = Executive Committee 2 = Audit Committee 3 = Compensation Committee
4 = Nominating and Governance Committee F = Lead Director
6
2016
Shareholder Information
United Bancorp, Inc.’s (the Company) common stock trades on The Nasdaq Capital Market tier of The Nasdaq Stock Market
under the symbol UBCP, CUSIP #909911109. At year-end 2016, there were 5,385,304 shares issued, held among approximately
2,000 shareholders of record and in street name. The following table sets forth the quarterly high and low closing prices of
the Company’s common stock from January 1, 2016 to December 31, 2016 compared to the same periods in 2015 as reported
by the NASDAQ.
2 0 1 6
2 0 1 5
31-Mar
30-Jun
30-Sep
31-Dec
31-Mar 30-Jun
30-Sep
31-Dec
Market Price Range
High ($)
Low ($)
Cash Dividends
$
$
9.55
8.80
10.00
9.02
11.30
9.77
13.50
10.45
$
Quarter ($)
Cumulative ($)
$
Special Cash Dividends $
0.10
0.10
-
0.10
0.20
-
0.11
0.31
-
0.11
0.42
0.05
$
$
$
$
$
8.23
7.99
0.09
0.09
-
9.01
7.81
0.09
0.18
-
10.90
7.87
0.09
0.27
-
9.59
8.15
0.10
0.37
0.05
Investor Relations:
Annual Meeting:
Stock Trading:
A copy of the Company’s Annual
Report on form 10-K as filed with
the SEC, will be furnished free of
charge upon written or E-mail
request to:
Randall M. Greenwood, CFO
United Bancorp, Inc.
201 South 4th Street
PO Box 10
Martins Ferry, OH 43935
or
cfo@unitedbancorp.com
Dividend Reinvestment and
Stock Purchase Plan:
Shareholders may elect to
reinvest their dividends in
additional shares of United
Bancorp, Inc.’s common stock
through the Company’s Dividend
Reinvestment Plan. Shareholders
may also invest optional cash
payments of up to $5,000 per
month in our common stock at
market price. To arrange automatic
purchase of shares with quarterly
dividend proceeds, please contact:
American Stock Transfer
and Trust Company
Attn: Dividend Reinvestment
6201 15th Avenue, 3rd Floor
Brooklyn, NY 11219
1-800-278-4353
The Annual Meeting of
Shareholders will be held at 2:00
p.m., April 19, 2017 at the Corporate
Offices in Martins Ferry, Ohio.
Internet:
Please look us up at
http//:www.unitedbancorp.com
Independent Auditors:
BKD LLP
312 Walnut Street, Suite 3000
Cincinnati, Ohio 45202
(513) 621-8300
Corporate Offices:
The Citizens Savings Bank Building
201 South 4th Street
Martins Ferry, Ohio 43935
Lisa A. Basinger
Corporate Secretary
(888) 275-5566 (EXT 6113)
(740) 633-0445 (EXT 6113)
(740) 633-1448 (FAX)
Transfer Agent and Registrar:
For transfers and general
correspondence, please contact:
American Stock Transfer
and Trust Company
6201 15th Avenue, 3rd Floor
Brooklyn, NY 11219
1-800-937-5449
Raymond James
222 South Riverside Plaza
7th Floor
Chicago, Illinois 60606
Lou Coines
800-800-4693
Stifel, Nicolaus & Company Inc.
655 Metro Place South
Dublin, Ohio 43017
Steven Jefferis
877-875-9352
2016
7
The Citizens Bank Profile
A Division of The Citizens Savings Bank
who upon his death in 1966 was Vice
President and Cashier.
In 1936 the Bank suffered a loss with
the sudden death of Edward E. McCombs,
who had served as President and Attorney
for the Bank during the 34 years since its
beginning. John E. Reynolds was then
elected President with Attorney David H.
James as Vice President. Mr. Reynolds
served as the bank’s second President
until his death in 1940, at which time
Harold H. Riethmiller was elected
President. Upon Harold H. Riethmiller’s
retirement in January of 1973, James W.
Everson, who began his banking career
as a student intern with the Bank in 1959,
was elected as the Bank’s fourth President
and Chief Executive Officer.
In May 1999, The Citizens Savings
Bank and its affiliate, The Citizens-State
Bank then of Strasburg, Ohio were
merged into one Bank under the leader-
ship of James W. Everson continuing as
Chairman and Harold W. Price as the
Bank’s fifth President and Chief Executive
Officer since its founding in 1902. Harold
W. Price served as President and CEO for
five months, suffering a fatal heart attack
on September 12th, 1999, after which
James W. Everson was reappointed
Chairman, President and CEO.
Continuing growth and increased
business at The German Savings Bank
brought the need for larger quarters, and
in 1917, the Bank relocated into a new
banking building on the corner of Fourth
and Walnut streets where they were
located until February 21, 1984 when they
moved to their current banking center
located one block south at the corner of
Fourth and Hickory Street in Martins
Ferry. The First World War brought the
name ‘German’ into bad repute, making a
change in name necessary. On May 1,
1918, the old German Savings Bank
became The Citizens Savings Bank of
Martins Ferry, Ohio.
In 1957, a total remodeling of the first
level was completed at the Fourth and
Walnut location enlarging the banking
lobby by taking the adjoining room for-
merly occupied by the Mear Drug Store.
In 1963, the Bank opened a Consumer
Loan Office at the Fourth and Walnut
Street location by expanding into the
space occupied by the former Packer
Insurance Agency.
Upon James W. Everson becoming
President in January 1973, the Bank
began an expanded growth program.
The Bank’s first branch office was opened
on November 18, 1974. A banking center
was opened in Colerain, Ohio offering full
service banking to that area, including
OVER A CENTURY OF SERVICE AT
THE CITIZENS SAVINGS BANK
In the year 1902, a group of home-
town businessmen in Martins Ferry felt
there was room for another bank in the
community in addition to the two already
established and proceeded to organize.
On the 27th of January, 1902, a charter
was granted to The German Savings Bank
of Martins Ferry, Ohio with authorized
capital of $50,000. Martins Ferry is nes-
tled among the scenic foothills along the
Upper Ohio Valley across the river from
the greater metropolitan area of
Wheeling, West Virginia, 60 miles south-
west of Pittsburgh, Pennsylvania and 125
miles east of Columbus, Ohio. The area
has a strong network of transportation
including easy access to major interstate
highway systems, nearby river and rail-
way transportation and within 45 min-
utes of the Pittsburgh
International
Airport.
Organization was completed by elect-
ing the original Board of Directors:
Attorney Edward E. McCombs, John E.
Reynolds, Henry H. Rothermund, William
M. Lupton, Dr. Joseph W. Darrah, Chris A.
Heil, Fred K. Dixon, Thomas J. Ball and Dr.
R.H. Wilson. The first officers were Edward
E. McCombs, President; John E. Reynolds,
Vice President; William C. Bergundthal,
Cashier; and William H. Wood, Assistant
Cashier. A room in the old Henderson
Building located at the alley on Hanover
Street between Fourth and Fifth Streets,
currently occupied by a local realtor, was
rented. A vault and counters were
installed and the new Bank opened for
business on Saturday, April 26, 1902. This
was the beginning of The Citizens Savings
Bank.
Upon Mr. Bergundthal’s death in 1918,
Harold H. Riethmiller, who began his
banking career at the bank in 1911, was
rehired by the Bank as Cashier. He had
previously worked for the Bank and had
been working for 6 months at the
Citizens-Peoples Trust Company
in
Wheeling. Mr. Riethmiller brought with
him an assistant, David W. Thompson,
8 2016
safe deposit boxes and a modern new
home for the Colerain, Ohio Post Office.
On June 12, 1978, the Bank opened its
second full service branch at the Corner
of Howard and DeKalb Streets
in
Bridgeport, Ohio.
Recognizing the continued growth of
the Bank, the Board of Directors autho-
rized the purchase in July 1979 of an .8
acre site formerly occupied by the vacat-
ed Central School, one block south on the
Corner of Fourth and Hickory Streets, for
the purpose of future expansion. A Phase
I building program was completed on
May 12, 1980 with the opening of a limit-
ed-service four-station auto teller with a
two-station lobby and large off-street
parking facility.
In October of 1982, approval was
granted by the State Banking Department
and the Federal Deposit
Insurance
Corporation to relocate the Bank’s Main
Office to the corner of Fourth and Hickory
streets in Martins Ferry and ground was
immediately broken for a new banking
center. As a result of 5 years of strategic
planning, The Citizens Savings Bank intro-
duced a new era of banking to the Ohio
Valley on February 21, 1984 with the
opening of their new 21,500 square foot
headquarters office located at the corner
of Fourth and Hickory streets. This new
banking center offered state-of-the-art
security with high-tech scanning and
alarm equipment, and the latest in elec-
tronic data processing programs for
banking. The new Bank building was
designed by the architectural firm of Jack
H. Tribbie and Associates of Martins Ferry
and was constructed by the Byrum
Construction Company of Martins Ferry.
The new building was of colonial design
in keeping with the Bank’s Colerain and
Bridgeport offices, with the interior of the
Bank
the
Williamsburg period.
tastefully decorated
in
On July 3, 1983, the Bank’s Board of
Directors positioned itself for continued
growth by forming United Bancorp, Inc.
of Martins Ferry, Ohio, the Citizens
Savings Bank holding company. At for-
mation, the shareholders of The Citizens
Savings Bank exchanged their stock on a
one-for-four basis for shares in United
Bancorp, Inc. On December 29, 1986,
United Bancorp, Inc. became one of
it’s offices
Ohio’s then 21 multi-bank holding com-
panies by acquiring the outstanding
shares of stock of the $12.5 million asset
based Citizens-State Bank of Strasburg,
Ohio. Under the leadership of James W.
Everson as Chairman and Charles E.
Allensworth as President and CEO, The
Citizens-State Bank then grew from its
one office in Strasburg by opening a new
banking center at 2909 N. Wooster
Avenue in Dover, Ohio in February 1990;
in New
the purchase of
Philadelphia and Sherrodsville in April
1992; and the purchase of it’s Dellroy
Office in June 1994. Harold W. Price was
appointed President and CEO of The
Citizens-State Bank of Strasburg in April
1993. The Citizens Savings Bank of
Martins Ferry further expanded into St.
Clairsville with an in store location at
Riesbeck’s Food Market in July l997 and
purchased a full service banking center in
Jewett, Ohio in January 1999. United
Bancorp entered Northern Athens
County in July 1998 when the $47.8 mil-
lion asset based Community Bank of
Glouster was purchased, expanding
United Bancorp, Inc. to a three bank hold-
ing company. Today, The Community
Bank is headquartered in Lancaster, Ohio
with three locations in Lancaster in addi-
tion to its two offices in Glouster and
offices in Amesville and Nelsonville, Ohio.
As space in the new headquarters
became occupied, property across from
the new Main Office on the other corner
of Fourth and Hickory Streets was
acquired in 1993 to support the contin-
ued growth. It was renovated into a
modern Operations Center now housing
the Data and Item Processing Equipment
for the affiliate banks of United Bancorp,
Inc. and the offices for United Bancorp,
Inc.’s Accounting Group. With the intro-
duction of 24 x 7 x 365 Automated Call
Center and Internet Banking in 2001, the
Accounting and Operations Center was
further expanded through the purchase
and renovation of the adjoining property
formerly known as the Fullerton Bakery
Building. Today, the Accounting and
Operations Center Building supports the
back room operations for the seventeen
banking offices of The Citizens Bank and
The Community Bank of Lancaster.
On April 21, 1999 the $74.1 million
asset based Citizens-State Bank of
Strasburg was merged into The Citizens
Savings Bank. This expanded customer
service under the charter of The Citizens
Savings Bank to 10 locations in Belmont,
Carroll, Harrison and Tuscarawas coun-
ties. Harold W. Price, who had served as
President and CEO of The Citizens-State
Bank of Strasburg was appointed The
Citizens Savings Bank’s fifth President
and CEO with James W. Everson continu-
ing as Chairman, in addition to serving as
Chairman of The Community Bank and
Chairman, President and CEO of United
Bancorp.
Everson was reappointed
Chairman, President and CEO of The
Citizens Savings Bank five months later
upon Harold W. Price’s sudden death.
In November 2004, the Citizens Bank
Board of Directors completed its senior
management reorganization plans for
the beginning of its second century of
service. James W. Everson, will continue
as the Bank’s Chairman. Furthermore, the
Citizens Bank Board of Directors
announced the appointment of Scott A.
Everson as Director, President and Chief
Executive Officer, which became effec-
tive on November 1, 2004.
On September 19, 2008, Citizens
from the Federal Deposit
acquired
Insurance Corporation
the
deposits of three banking offices of a
in St. Clairsville,
failed
Dillonvale and Tiltonsville, Ohio.
institution
("FDIC")
In June 2012, the Company's subsid-
iary The Citizens Savings Bank purchased
a full service banking facility from anoth-
er financial institution on the West side of
St. Clairsville in the same development
where the Company has been leasing
space for its In Store Banking Facility since
1997. The purchase agreement contained
a one year "black out" period where the
location could not be used as a financial
institution. In January 2013, the Company
began extensive renovations on the
building and the plans called for a com-
plete renovation of the lobby and cus-
tomer service areas of the bank. In addi-
tion, the Company constructed a state of
the art Training Center for staff that also
offers educational seminars for current
and future customers of the bank. At the
time of opening in June of 2013, the
Company closed its In Store Banking
2016
9
Facility and now has two full service bank-
ing centers including drive thru service
and safe boxes in St. Clairsville, one on
West side and one on East side of City.
A complete renovation of the main
office was completed during the second
quarter of 2016. This was the first major
renovation of this property since its con-
struction in 1984.
During the mid-part of 2016 the
Company further added to its commercial
loan origination platform by hiring sup-
plementary origination personnel in addi-
tion to opening a new Loan Production
Office (LPO) in Wheeling, West Virginia.
Having a LPO in this highly desirable,
local market will create value for our
Company going forward and will help us
achieve our strategic plan of expanding
our markets.
The growth and success of The
Citizens Savings Bank and the United
Bancorp, Inc. have been attributed to the
association of many dedicated men and
women. Having served on the Board of
Directors are Edward E. McCombs, 1902-
1936; John E. Reynolds, 1902-1940; Dr. J.W.
Darrah, 1902-1937; J.A. Crossley, 1902-
1903; William M. Lupton, 1902-1902; F.K.
Dixon, 1902-1909; Dr. R.H. Wilson, 1902-
1905; C.A. Heil, 1903-1909; David Coss,
1904-1938; L.L. Scheele, 1905-1917; A.T.
Selby, 1906-1954; H.H. Rothermund,
1907-1912; Dr. J.G. Parr, 1912-1930; T.E.
Pugh, 1920-1953; J.J. Weiskircher, 1925-
1942; David H. James, 1925-1963; Dr. C.B.
Messerly, 1931-1957; H.H. Riethmiller,
1936-1980; E.M. Nickles, 1938-1968; L.A.
Darrah, 1939-1962; R.L. Heslop, 1941-1983;
Joseph E. Weiskircher, 1943-1975; Edward
M. Selby, 1953-1976; David W. Thompson,
1954-1966; Dr. Charles D. Messerly, 1957-
1987; James M. Blackford, 1962-1968;
John H. Morgan, 1967-1976; Emil F. Snyder,
1968-1975; James H. Cook, 1976-1986;
Paul Ochsenbein, 1978-1991; David W.
Totterdale, 1981-1995; Albert W. Lash,
1975-1996; Premo R. Funari, 1976-1997;
Donald A. Davison, 1963-1997; Harold W.
Price, 1999-1999; John H. Clark, Jr., 1976-
2001; Dwain R. Hicks, 1999-2002; and
Michael A. Ley, 1999-2002, Michael J.
Arciello 1992 - 2009, Leon F. Favede, O.D.,
1981-2012, Herman E. Borkoski, 1987-2012,
James W. Everson, 1969-2014, Robin L.
Rhodes, 2007-2015, Andrew C. Phillips
2007-2015, Errol C. Sambuco 1996-2015,
Samuel J. Jones 2007-2015 and Matthew
C. Thomas 1988-2016 and Terry A.
McGhee 2001-2017. On April 16, 2014,
James W. Everson retired from his posi-
tion as Chairman of the Board with 55
years of service to the Bank and Scott A.
Everson was appointed Chairman,
President and CEO of The Citizens Savings
Bank.
Today, The Citizens Savings Bank is
Martins Ferry’s only locally owned finan-
cial institution. The general objective of
The Citizens Savings Bank as outlined in
its Mission Statement which was adopted
by its Board of Directors on June 8, 1982
and renewed annually is to remain an
independent state-chartered commer-
cial bank and expand its asset base and
market share through acquisitions and
new branch construction where finan-
cially feasible.
The Community Bank Profile
A Division of The Citizens Savings Bank
COMMUNITY was established
in
August 1945 with corporate offices in
downtown Glouster, Ohio, in Athens
County. Its founder was L.E. Richardson,
a local entrepreneur. At that time,
Athens County was booming with the
industries of gas, oil and coal mining.
COMMUNITY was then known as The
Glouster Community Bank. The Bank
played a vital role in the region as it
developed, earning a reputation for
friendliness, quality customer service
and responsiveness to the individual
financial needs of its customers, as well
as the community. More than 25 years
later, Richardson turned over the day-
to-day management of the bank to his
son, L.E. Richardson, Jr., in 1971.
With that foundation, COMMUNITY
acquired the First National Bank of
Amesville, Ohio in 1976. The Bank’s
prosperity continued, and, in 1978, a
three-lane Auto Bank drive-up facility
10
2016
was constructed on the west side of
Glouster.
In 1984, the Bank created a holding
company, Southern Ohio Community
Bancorp, Inc., in anticipation of future
growth and diversification of products
and services.
In 1987, the service area was expand-
ed once again. A modular office in
Nelsonville served the village and the
surrounding communities. A few years
later, on December 6, 1993 a ribbon cut-
ting ceremony was held for a newly
constructed Nelsonville office. The brick
building, which replaced the mobile
bank unit, features four drive-up lanes
and a drive-up ATM. Night deposit and
safe deposit box services were also
introduced to the Nelsonville area.
In 1996, COMMUNITY completed an
extensive renovation of its downtown
Glouster office, including the addition
of a 24-hour access ATM in the vestibule.
In 1998, COMMUNITY became affili-
ated with United Bancorp, Inc. of Martins
Ferry, Ohio, when United Bancorp pur-
chased The Glouster Community Bank
and its holding company, Southern
Ohio Community Bancorp, Inc.
That acquisition led to COMMUNITY
establishing a Loan Production Office
(LPO) in 1998 in Lancaster, Ohio. This
LPO provided the opportunity for
COMMUNITY to build its franchise along
the U.S. Route 33 corridor from Athens
County through Fairfield County.
Lancaster, the county seat of Fairfield
County,
is approximately 30 miles
southeast of Columbus, Ohio and is con-
sidered a bedroom community to
Columbus. According to the city’s
Economic Development Office, Fairfield
County is the fourth fastest growing
county in Ohio and is ranked among the
top six counties for growth potential.
its
COMMUNITY opened
first
Fairfield County banking office
in
December 1999. The East Main Street
Banking Office in Lancaster offers full
service banking with extended evening
and Saturday hours. The office features
a three-lane drive-up, a drive-up ATM
and night depository.
In January 2000, COMMUNITY relo-
cated its Main Office from Glouster to
downtown Lancaster. This substantial
investment significantly strengthened
in Fairfield
COMMUNITY’S presence
County. Formerly a furniture store, the
historic 1919 building was restored to as
near the original appearance as possi-
ble. The building was further enhanced
with a Verdin Company clock. The 435-
pound timepiece is attached to the
southeast corner of the building. The
interior of the building was converted
from a furniture store to a modern full
service banking office. Of special note is
the historical mural of Fairfield County
landmarks, painted by local stencil artist
Cheryl Fey, which graces the main stair-
way. The renovation added greatly to
the city’s business district, as the Main
Office complements the downtown
revitalization that also was completed
in 2000.
COMMUNITY’S Auto Bank, located
across the street from the Main Office,
also was opened in January 2000. The
structure
is unique to the market,
because of its walk-in lobby. It also fea-
tures a four-lane drive-thru, night
depository and automatic
teller
machine.
In July 2000, COMMUNITY opened
its Community Room, also unique to the
area. The Community Room has grown
quickly into a convenient and frequent-
ly used location for meeting of area civic
organizations. It is also a popular gallery
for local artists to display their talents.
From the rolling hills of Athens
County to the bustling commerce of
Fairfield County, COMMUNITY contin-
ues to play a vital role in the lives of its
customers and the region it serves. The
Bank not only has built upon its cus-
tomer base through the years, but upon
its reputation for friendliness, quality
customer service and responsiveness to
the individual financial needs of its cus-
tomers and the communities it proudly
serves.
On July 1, 2007, the Company
received regulatory approval for the
merger of its wholly owned subsidiaries,
The Glouster Community Bank
("Community"), Lancaster, Ohio, and
The Citizens Savings Bank ("Citizens"),
Martins Ferry, Ohio, under the charter of
the latter. The Boards of both Citizens
and Community endorsed this consoli-
dation. The Company continues to capi-
talize on the established branding in
the market places of each institution.
Community operates under the trade
name "The Community Bank, a Division
of The Citizens Savings Bank" and
Citizens operates under the trade name
"The Citizens Bank, a Division of The
Citizens Savings Bank". A key focus of
the consolidation involved the central-
ization of executive authority under
Citizens’ proven management structure
that has been perennially ranked in the
upper quartile of all banks in the United
States.
for
Including the Community Board
members on the Board of the combined
institution was essential
the
Company to realize the full potential of
the combination. Management was
pleased to report on the merger date of
July lst that Samuel J. Jones, Business
Owner, Glouster, Ohio; Terry A. McGhee,
President and CEO, Westerman, Inc.,
Bremen, Ohio; Andrew F. Phillips,
President and General Manager, Miller
Brands of South East Ohio, Glouster,
Ohio; Robin L. Rhodes, M.D., Physician,
Pediatric Associates of Lancaster, Inc.,
"Dick"
Lancaster, Ohio; and L.E.
Jr., Retired President,
Richardson,
Southern
Community
Bancorporation, Inc., Glouster, Ohio
accepted the Company’s invitation to
become members of The Citizens
Savings Bank Board of Directors.
Ohio
On October 31, 2007, the Company
completed the ‘‘physical consolidation"
of its two charters under the manage-
ment group of The Citizens Savings
Bank, resulting in a 22% reduction in
staffing at The Community Bank divi-
sion. Merging all of the Company’s
bank charters into a single charter and
common operating system now allows
each banking office to focus on growing
the Company’s banking franchises by
providing the highest level of customer
service from a common market basket
of products.
In the first quarter of 2015, the
Company completed a renovation proj-
ect on our downtown Glouster, Ohio
office that added two drive-thru lanes
and an ATM lane onto this office. Being
able to close the stand-alone auto bank
facility was immediately accretive to
earnings by allowing our Compnay to
eliminate 2.5 full-time equivalent job
positions.
2016
11
Management’s Discussion and Analysis
In the following pages, management presents an analysis of United Bancorp, Inc.’s financial condition and results of operations as of and for the
year ended December 31, 2016 as compared to prior years. This discussion is designed to provide shareholders with a more comprehensive review of
the operating results and financial position than could be obtained from an examination of the financial statements alone. This analysis should be
read in conjunction with the Consolidated Financial Statements and related footnotes and the selected financial data included elsewhere in this report.
When used in this discussion or future filings by the Company with the Securities and Exchange Commission, or other public or shareholder
communications, or in oral statements made with approval of an authorized executive officer, the words or phrases “will likely result,” “are expected
to,” “will continue,” “is anticipated,” “estimate,” “project,” “believe,” or similar expressions are intended to identify “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including regional and
national economic conditions, changes in levels of market interest rates, credit risks of lending activities and competitive and regulatory factors,
could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from those
anticipated or projected.
The Company is not aware of any trends, events or uncertainties that will have or are reasonably likely to have a material effect on its liquidity, capital
resources or operations except as discussed herein. The Company is not aware of any current recommendations by regulatory authorities that would
have such effect if implemented.
The Company does not undertake, and specifically disclaims, any obligation to publicly release any revisions that may be made to any forward-
looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
Financial Condition
Overview
The Company’s earnings generated diluted earnings per
share of $0.71 for the year ended December 31, 2016, as
compared to $0.64 for the year ended December 31, 2015, an
increase of 11%. This growth in earnings can be attributed to
several factors that are explained below in detail. The
Company’s diluted earnings per share for the three months
ended December 31, 2016, was $0.18, compared to $0.17 for the
same period last year, an increase of 6%.
We are very happy to report on the earnings improvement of
our Company for the year-ended December 31, 2016. During
2016, the Company’s net interest margin increased to a level of
3.83%, as compared to 3.64% for the same period in 2015. This
increase in the net interest margin is primarily attributed to the
Company experiencing positive organic growth in its loan
portfolio, which produced higher levels of interest income, and
the continued lowering of its interest expense levels. As of
December 31, 2016, the Company had gross loans of $356.7
million, which is an increase of $27.1 million, or 8.2%, over
December 31, 2015. This is a direct result of the Company’s
enhanced loan origination platform started in the late second
quarter of 2015. Having a higher level of funding invested in
quality loans helped drive the increase in the margin. This
occurred even though the loan portfolio continued to reprice
downward over the course of the past year as the long-end of
the yield curve remained at historic low levels through most of
Total Assets (In Thousands)
$
4
0
1
,
8
1
2
$
4
0
5
,
1
2
4
$
4
3
8
,
0
1
8
$450,000
$400,000
$350,000
$300,000
$250,000
$200,000
$150,000
2014
2015
2016
the year. Considering that longer-term Treasury rates (which
have a correlation to how the Company’s loans reprice) have
been priced at relatively the same levels for the past several
years, the overall yield in the Company’s loan portfolio stabilized
during the second half of 2016. The combination of both loan
growth and the stabilization of the yield in the Company’s loan
portfolio should lead to higher levels of interest income being
generated in the coming year. With stronger loan growth, the
Company’s funds management policy changed during 2016. In
prior years, the majority of surplus funding was invested in very
liquid, lower-yielding excess reserves at the Federal Reserve.
During the first quarter of 2016, these excess reserves previously
invested in lower-yielding investment alternatives were fully
depleted and the Company, for the first time in several years,
12
2016
switched to a borrowed position to fund its loan growth by
utilizing wholesale funding alternatives. While securities and
other restricted stock balances increased year-over-year, going
forward, it is anticipated that the Company’s securities portfolio
will be maintained at this present level to support its pledge
requirement for public depository accounts until investment
yields get to more normalized levels. The Company’s credit
quality has not changed significantly and has remained strong
on a year-over-year basis, as nonaccrual loans marginally
increased by $317,000 to a level of $1.4 million, which is 0.38%
of total loans. Also on a year-over-year basis, loans past due
thirty plus days decreased $410,000 to a level of $1.7 million.
Net loans charged off for the year ended December 31, 2016
were $281,000, or 0.08% of average loans, as compared to
$380,000, or 0.12% of average loans, for the year ended
December 31, 2015. The Company continued to see a decrease
in its other real estate and repossessions (“OREO,”) as balances
decreased by $23,000, or 6.3%, to a level of $335,000. Lastly,
the overall total allowance for loan losses to total loans was
0.66%, resulting in a total allowance for loan losses to
nonperforming loans of 172.0% at December 31, 2016, as
compared to 0.74% and 233.5% respectively at December 31,
2015.
On the liability-side of the balance sheet, the Company
continued to see a positive return on its strategy of attracting
lower-cost funding accounts, while allowing higher-cost
funding to run off. Year-over-year, lower-cost funding,
consisting of demand and savings deposits, increased by $19.5
million and comprised 84.3% of total deposits as of December
31, 2016, as compared to 82.2% of total deposits the year prior.
This was one factor that helped the Company reduce its total
interest expense by $499,000, or 21.9%, on a year-over-year
basis. The other factors that helped the Company reduce its
total interest expense levels during 2016 were the previously
announced repricing of the Company’s $4.1 million
subordinated debenture on January 1, 2016, from a fixed rate of
6.25% to an average variable rate of approximately 2.35%
(which is based on three-month LIBOR plus a margin of 1.35%)
and a $6.0 million Federal Home Loan Bank advance that
matured in May at a rate of 3.28%, which was replaced with a
short-term borrowing with a current rate tied to the federal
funds rate at approximately 76 basis points. Both of these
events should save the Company approximately $311,000 in
interest expense on an annualized basis. Lastly, noninterest
expense levels increased by $581,000, or 4.7%, during this past
year. Part of this increase is attributed to the increase in lending
personnel that are driving our Company’s solid loan growth.
Another large portion of the increase in noninterest expense
levels was a result of the previously reported debit card-related
fraud losses that primarily occurred during the second and
third quarters of 2016. During the third quarter, the Company
implemented newer fraud prevention technology relating to
Loans-Net (In Thousands)
3
5
4
,
3
8
0
$
3
2
7
,
2
2
6
$
3
1
3
,
3
5
4
$355,000
$340,000
$325,000
$310,000
$295,000
$280,000
$265,000
2014
2015
2016
its debit cards that included a chip-enabled debit card and a
smart phone app, “My Mobile Money,” that significantly
curtailed the fraud losses that it realized the remainder of the
year. Over the next 12 months, it is projected that our
Company’s interest expense will be positively impacted by the
repricing of $20 million in fixed-rate advances with the Federal
Home Loan Bank (”FHLB”) that are set to mature. The average
cost of these advances is 3.93% and, given the current interest
rate environment, the company should save an estimated
$354,000 in interest expense in the coming year. By continuing
to grow our loan portfolio and reducing our overall levels of
interest expense, we believe that we will see continued growth
in the level of the net interest income that our Company
generates. It is projected that this will lead to a higher level of
earnings and profitability for our Company in 2017.
This past year, we saw the positive results of the efforts
expended in recent years within our Company to gain
efficiencies through process improvement, while building and
leveraging our loan origination platforms to generate higher
levels of revenue. We are pleased with the results that we are
seeing and will continue looking for additional opportunities
that will help our organization become more operationally
efficient, generate higher levels of revenue and produce higher
levels of quality earnings. As we previously announced, our
Company has embarked upon a new period, whereby our
exclusive focus is to grow our assets in a profitable fashion that
will produce consistent and increasing earnings. This vision,
which is called Mission 2020, sets the course for our Company
to grow its assets to a level of $1.0 billion, or greater, by the end
of 2020. In order to achieve this ambitious growth plan, we will
need to continue focusing on being operationally efficient,
while taking on higher levels of non-interest expense to
support a loan origination platform that will drive the organic
growth of our Company. It is projected that this enhanced
platform, which began being implemented in the late second
quarter of last year, will continue to lead to the origination of
higher levels of quality loans as seen during the course of 2016.
This will help our Company generate higher levels of interest
2016
13
Total Average Earning Assets (In Thousands)
$420,000
$410,000
$400,000
$390,000
$380,000
$370,000
$360,000
$
4
1
8
,
7
6
9
$
4
1
0
,
4
8
6
$
4
0
3
,
3
8
7
2014
2015
2016
income, which, in turn, should produce an increase in the all-
important revenue line… net interest income. During the mid-
part of this year, our Company further added to its commercial
loan origination platform by hiring supplementary origination
personnel in addition to opening a Loan Production Office
(LPO) in Wheeling, West Virginia. Having a LPO in this highly
desirable, local market will create value for our Company and
help us achieve our strategy of expanding our markets. As
previously announced, the Company also envisions expanding
its geographic footprint by acquiring other community-
minded banking organizations within the tri-state area of Ohio,
West Virginia and Pennsylvania, to help it attain the lofty level
of growth envisioned under Mission 2020. Being a very well
capitalized and profitable Company in today’s environment
will help us achieve the goals that are defined under this vision
within our current strategic plan. With the aforementioned
change in our funds management policy during the first half of
2016, our Company is now positioned to attract higher levels of
funding, both retail and wholesale, which will allow us to
leverage our capital at a more optimal level and produce
higher earnings and returns. As of December 31, 2016, our
Company has equity to assets of 9.7%, which is considered to
be well-capitalized by regulatory standards. At this level of
capitalization, our Company will be able to begin the growth
trajectory that we envision, which should benefit all of our
valued shareholders. In 2016, we paid a regular cash dividend
of $0.42 and a special dividend of $0.05. This total cash
dividend payout of $0.47 this past year was an increase of
$0.05, or 12%, over the previous year. With our Company’s
present regular cash dividend of $0.11, which began being paid
in the third quarter of 2016, our forward yield as of year-end is
3.3%. At this level, our Company’s cash dividend yield is
significantly higher than that of the average bank in our
country. With our present focus of increasing our operating
leverage by driving the revenue of our Company while
containing expenses, we firmly believe that we will continue to
reward our shareholders by paying higher dividends and
seeing appreciation in our market value. On a year-over-year
basis, the market value of our Company’s stock increased by
$3.91, or 41%, to a level of $13.50. Our number one focus
continues to be growing our shareholders’ investment in our
Company through profitable operations and strategic growth.
In addition to driving the market value appreciation of our
shareholders’ ownership, we will continue striving to reward
our owners by paying a solid cash dividend. Overall, we are
very pleased with the performance of our Company in 2016
and the direction that we are going. We are extremely
optimistic about our future potential and look forward to
carrying the earnings momentum that we saw this past year
well into the foreseeable future!
Earning Assets – Loans
The Company’s gross loans totaled $356.7 million at
December 31, 2016, representing an 8.2% increase over the
$329.7 million at December 31, 2015. Average loans totaled
$318.3 million for 2015, representing a 7.8% increase compared
to average loans of $343.2 million for 2016.
The increase in gross loans from December 31, 2015 to
December 31, 2016 was primarily an increase in commercial
and commercial real estate loans by $35.5 million which was
offset by a decrease of $3.1 million in installment loans and a
decrease of $5.3 million in residential real estate.
The Company's commercial and commercial real estate loan
portfolio represents 74.6% of the total portfolio at December
31, 2016, compared to 70.0% at December 31, 2015. During this
past year, we found many new customers within our lending
areas and our focus continues on our small business customers
that operate in our defined market area. We utilize all the SBA,
Ohio Department of Development and State of Ohio loan
programs as well as local revolving loan funds to best fit the
needs of our customers.
The Company’s installment lending portfolio represented 4.0%
of the total portfolio at December 31, 2016, compared to 5.3%
at December 31, 2015. Competition for installment loans
principally comes from the captive finance companies offering
low to zero percent financing for extended terms.
The Company's residential real estate portfolio represents
21.4% of the total portfolio at December 31, 2016, compared to
24.7% at December 31, 2015. Residential real estate loans are
comprised of 1, 3, and 5 year adjustable-rate mortgages and 15
fixed rated loans used to finance 1-4 family units. Since 2011,
the Company has not offered 15 year fixed rate loans. The
Company also offers fixed-rate real estate loans through our
Secondary Market Real Estate Mortgage Program. Once these
14
2016
fixed rate loans are originated and immediately sold without
recourse in what is referred to as the secondary market, the
Company does not assume credit risk or interest rate risk in this
portfolio. This arrangement is quite common in banks and
saves our customers from looking elsewhere for their home
financing needs.
In 2016, the interest rate environment continued to be favorable
to the secondary market fixed-rate mortgage loan product.
However, the secondary market origination volume was
impacted by an issue that has developed in the overall industry
related to higher risk sub-prime loans. While the Company did
not participate in sub-prime lending, the additional regulations
and unstable appraisal market have made it more difficult to
obtain a loan that is saleable in the secondary market. With
these conditions, the Company did recognize a gain on the sale
of secondary market loans of $97,000 in 2016 and a gain of
$42,000 in 2015.
The allowance for loan losses represents the amount which
management and the Board of Directors estimates is adequate
to provide for probable incurred losses in the loan portfolio.
Accounting for the allowance and the related provision for loan
losses is viewed by management as a critical accounting policy.
The allowance balance and the annual provision charged to
expense are reviewed by management and the Board of
Directors on a monthly basis. The allowance calculation is
determined by utilizing a risk grading model that considers
borrowers’ past due experience, coverage ratio to industry
averages, economic conditions and various other circumstances
that are subject to change over time. In general, the loan loss
policy for installment loans requires a charge-off if the loan
reaches 120-day delinquent status or if notice of bankruptcy
liquidation is received. The Company follows lending policies,
with established criteria for determining the repayment
capacity of borrowers, requirements for down payments and
current market appraisals or other valuations of collateral when
loans are originated. Installment lending also utilizes credit
scoring to help in the determination of credit quality and
pricing.
Net Income (In Thousands)
$3,600
$3,300
$3,000
$2,700
$2,400
$2,100
$1,800
$
2
,
6
5
1
$
3
,
5
8
0
$
3
,
2
2
4
2014
2015
2016
The Company generally recognizes interest income on the
accrual basis, except for certain loans which are placed on non-
accrual status, when in the opinion of management; doubt
exists as to collection on the loan. The Company’s policy is to
generally place loans greater than 90 days past due on non-
accrual status unless the loan is both well secured and in the
process of collection. When a loan is placed on non-accrual
status, interest income may be recognized on a cash basis as
payment is received if the loan is well secured. If the loan is not
deemed well secured, payments are credited to principal.
Management and the Board of Directors believe the current
balance of the allowance for loan losses is sufficient to cover
probable incurred losses. Refer to the Provision for Loan Losses
section for further discussion on the Company’s credit quality.
Earning Assets – Securities and Federal Funds Sold
The securities portfolio is comprised of U.S. Government
and agency obligations, tax-exempt obligations of states and
political subdivisions and certain other investments. The
Company does not hold any derivative securities. The quality
rating of the majority of the Bank’s securities issued by political
subdivisions is generally no less than A. Board policy permits
the purchase of certain non-rated or lesser rated bonds of local
schools, townships and municipalities, based on known levels
of credit risk.
Securities available for sale at December 31, 2016 increased
$5.1 million, or 14.9%, from 2015, while the last securities in
the held to maturity portfolio were either called or matured
in 2015. The Company does not anticipate using the held to
maturity designation over the near term. The Company’s U.S.
Government agency portfolio is subject to increased levels
of redemptions due to the call features in this type of
investment security. Given the extent of the decrease in
overall interest rates, the Company did experience a
significant amount of called government agency investment
securities during 2016 and 2015. While the Company has
plans to reinvest a portion of these funds in other available-
for-sale securities, there is lag between the time when bonds
are called and the right investment opportunity is available
to the Company. In addition, given the historical low interest
rate environment, there is concern on the duration of future
purchases in the investment portfolio. In the current rate
environment the Company does not anticipate any major
changes to its current invest strategy.
Sources of Funds – Deposits
The Company’s primary source of funds is retail core
deposits from individuals and business customers. These core
deposits include all categories of time deposits, excluding
certificates of deposit greater than $250,000. Total deposits
increased $15.2 million or 4.7% from $323.6 million at December
2016
15
31, 2015 to $338.8 at December 31, 2016, total deposit shifted
from higher costing certificates of deposit to lower costing
transactional and savings accounts.
The Company has a strong deposit base from public agencies,
including local school districts, city and township municipalities,
public works facilities and others, which may tend to be more
seasonal in nature resulting from the receipt and disbursement
of state and federal grants. These entities have maintained
relatively stable balances with the Company due to various
funding and disbursement timeframes.
Certificates of deposit greater than $250,000 are not considered
part of core deposits and as such are used to balance rate
sensitivity as a tool of funds management. At December 31,
2016, certificates of deposit greater than $250,000 increased
$1.5 million, from December 31, 2015 totals.
Net Interest Income
Net interest income, by definition, is the difference
between interest income generated on interest-earning assets
and the interest expense incurred on interest-bearing liabilities.
Various factors contribute to changes in net interest income,
including volumes, interest rates and the composition or mix of
interest-earning assets in relation to interest-bearing liabilities.
Comparing the year ended December 31, 2016 to 2015, the
Company’s net interest margin was 3.83% compared to 3.65%,
an increase of 18 basis points
Average interest-earning assets increased $7.8 million in 2016
as compared to 2015 while the associated weighted-average
yield on these interest-earning assets increased from 4.24% in
2015 to 4.29% for 2016. Average interest-bearing liabilities
increased $6.9 million in 2016 as compared to 2015, while the
associated weighted-average costs on these interest-bearing
liabilities decreased from 0.77% in 2015 to 0.59% in 2016.
Alternative financial products are continuously being
introduced by our competition whether through traditional
banks or brokerage services companies. As a result of this
competition, the Company does offer full service brokerage
services through LPL Financial®.
Refer to the sections on Asset and Liability Management and
Sensitivity to Market Risks and Average Balances, Net Interest
Income and Yields Earned and Rates Paid elsewhere herein for
further information.
Sources of Funds – Securities Sold Under Agreements to
Repurchase and Other Borrowed Funds
Other interest-bearing liabilities include securities sold
under agreements to repurchase, and Federal Home Loan
Bank (“FHLB”) advances. Securities sold under agreements to
repurchase
increased approximately $3.7 million from
December 31, 2015 to December 31, 2016.
Advances from the Federal Home Loan Bank (FHLB) increased
$13.3 million, or 50.2%, from December 31, 2015 to December
31, 2016. The increase in FHLB advances is a result of the
Company growth in loans during 2016. Also the growth is in
the short term advances from the FHLB which at present offers
a competitive source of funding.
Performance Overview 2016 to 2015
Provision For Loan Losses
The provision for loan losses is a charge to expense
recorded to maintain the related balance sheet allowance for
loan losses at an amount considered adequate by Management
and the Board of Directors to cover probable incurred losses in
the portfolio.
Gross loans were up $27.1 million year-over-year to a level of
$356.7 million as of December 31, 2016. During this same
period, the Company’s credit quality remained relatively
constant as non-accrual loans were up $317,000, or 30.4%, to a
level of $1.4 million and net loans charged off were down by
$99,000, or 26.0%, to a level of $281,000 (exclusive of overdraft
charge off). With this overall improvement in credit quality, the
Company decreased the provision for loan losses which was
$301,000 for the year ended December 31, 2016 compared to
Net Income
The Company reported net income of $3.6 million in 2016
compared with $3.2 million for 2015, an increase of $356,000, or
11.0%. On a per share basis, the Company’s diluted earnings
per share were $0.71 for 2016, as compared to $0.64 for 2015.
This earnings performance equates to a 0.86% Return on
Average Assets (“ROA”) and an 8.40% Return on Average
Equity (“ROE”) for 2016 compared to 0.79% and 7.73%, for 2015.
Total Allowance for Loan Losses
to Nonperforming Loans
300%
250%
200%
150%
100%
50%
0%
2
5
0
.
4
5
%
2
3
3
.
4
6
%
1
7
1
.
9
9
%
2014
2015
2016
16
2016
$553,000 for the year ended December 31, 2015, a decrease of
$252,000 year-over-year, the provision for losses relating to the
Company’s Overdraft Privilege Program decreased $42,000.
Overall, the decreased loan loss provision net of loans charged
off resulted in a total allowance for loan losses to total loans of
0.66% and a total allowance for loan losses to nonperforming
loans of 171.99%, compared to 0.74% and 233.46% at year end
2015. With this continued trend of improving credit quality and
coverage, the Company projects a decrease of its provision for
loan losses which will have a positive impact on future core
earnings.
Noninterest Income
Total noninterest income is made up of bank related fees
and service charges, as well as other income producing services
provided, sales of loans in the secondary market, ATM income,
early redemption penalties for certificates of deposit, safe
deposit rental income, internet bank service fees, earnings on
bank-owned life insurance and other miscellaneous items.
Noninterest income for the year ended December 31, 2016 was
$3.7 million, a decrease of $121,000, or 3.2%, compared to $3.8
million for the year ended December 31, 2015. The Company’s
service charges on deposit accounts decreased by $282,000 for
2016 as compared to 2015.
Noninterest Expense
Noninterest expense for 2016 increased $581,000, or 4.7%,
as compared to 2015.
Salaries and employee benefits increased $628,000, or 9.8%,
from 2015 to 2016. During the mid-part of this year, our
Company further added to its commercial loan origination
platform by hiring supplementary origination personnel in
addition to opening a Loan Production Office (LPO) in
Wheeling, West Virginia. Having a LPO in this highly desirable,
local market will create value for our Company and help us
achieve our strategy of expanding our markets.
Occupancy and equipment expense decreased $21,000, or
1.1%. No one single item accounted for this decrease.
Professional fees increased $41,000, or 6.0%, for 2016 as
compared to 2015. This increase is due to increased regulatory
costs and legal expenses to open the LPO in Wheeling West
Virginia.
The provision for losses on foreclosed real estate was $6,000 for
2016 as compared to $60,000 for 2015. With the trend of lower
other real estate owned it is anticipated the Company will have
lower provision for losses on these properties in the upcoming
year.
Marketing expense increased $24,000, or 8.0%, for 2016 as
compared to 2015. Marketing expense increased to promote
the new LPO as previously mentioned. Also during 2016 the
Company started to promote its retail funding products in an
effort to grow core deposits.
Other expenses increased $90,000 or 4.2%. As a result, fraud
losses and card-related reissuance costs of approximately
$208,000 ($138,000 after tax or approximately $0.025 per share
dilution) were realized during the second quarter of 2016.
During the three-months ended September 30, 2016, the
Company received an insurance refund on this fraud of $50,000.
Under consumer regulation, the Company bears the financial
loss relating to debit card fraud and its customers are made
whole on the loss. During the third quarter, the Company
(In thousands)
2016
2015
Noninterest income
Customer service fee .............................................................................................................................................................$
Gains on sales of loans ..........................................................................................................................................................
Other income ............................................................................................................................................................................
Total noninterest income ..................................................................................................................................................$
Noninterest expense
Salaries and employee benefits .........................................................................................................................................$
Occupancy and equipment.................................................................................................................................................
Provision for losses on foreclosed real estate ...............................................................................................................
Professional services ..............................................................................................................................................................
Insurance ....................................................................................................................................................................................
Deposit insurance premiums ..............................................................................................................................................
Franchise and other taxes ....................................................................................................................................................
Marketing expense .................................................................................................................................................................
Printing and office supplies .................................................................................................................................................
Amortization of intangibles ................................................................................................................................................
Other expenses ........................................................................................................................................................................
Total noninterest expense ..............................................................................................................................................$
2,594
97
990
3,681
7,021
1,897
6
720
225
198
325
324
117
-
2,238
13,071
$
$
$
$
2,876
42
884
3,802
6,393
1,918
60
679
253
236
287
300
142
66
2,156
12,490
2016
17
implemented newer fraud prevention technology relating to
its debit cards that included a chip-enabled debit card and a
smart phone app, “My Mobile Money,” that allows our
customers to monitor and control their debit card usage by
sending transaction alerts.
time frame. A gap has three components – the asset
component, the liability component, and the time component.
Gap management involves the management of all three
components.
Income tax expense for 2016 was $1.6 million compared to $1.3
million in 2015, an increase of $246,000. The Company’s
effective income tax rate was 30.6% in 2016 and 29.3% in 2015.
The Company’s effective tax rate is less than the 34% statutory
rate due primarily to the effects of nontaxable interest income
and earnings on bank owned life insurance policies.
Asset/Liability
Management and Sensitivity to Market Risks
In the environment of changing business cycles, interest
rate fluctuations and growing competition, it has become
increasingly more difficult for banks to produce adequate
earnings on a consistent basis. Although management can
anticipate changes in interest rates, it is not possible to reliably
predict the magnitude of interest rate changes. As a result, the
Company must establish a sound asset/liability management
policy, which will minimize exposure to interest rate risk while
maintaining an acceptable interest rate spread and insuring
adequate liquidity.
The principal goal of asset/liability management – earnings
management – can be accomplished by establishing decision
processes and control procedures for all bank assets and
liabilities. Thus, the full scope of asset/liability management
encompasses the entire balance sheet of the Company. The
broader principal components of asset/liability management
include, but are not limited to liquidity planning, capital
planning, and gap management and spread management.
By definition, liquidity is measured by the Company’s ability to
raise cash at a reasonable cost or with a minimum amount of
loss. Liquidity planning is necessary so the Company will be
capable of funding all obligations to its customers at all times,
from meeting their immediate cash withdrawal requirements
to fulfilling their short-term credit needs.
Capital planning is an essential portion of asset/liability
management, as capital is a limited Bank resource, which, due
to minimum capital requirements, can place possible restraints
on Bank growth. Capital planning refers to maintaining capital
standards through effective growth management, dividend
policies and asset/liability strategies.
Gap is defined as the dollar difference between rate sensitive
assets and rate sensitive liabilities with respect to a specified
Gap management is defined as those actions taken to measure
and match rate sensitive assets to rate sensitive liabilities. A
rate sensitive asset is any interest-earning asset, which can be
repriced to a market rate in a given time frame. Similarly, a rate
sensitive liability is any interest-bearing liability, which can have
its interest rate changed to a market rate during the specified
time period. Caps, collars and prepayment penalties may
prevent certain loans and securities from adjusting to the
market rate.
A negative gap is created when rate sensitive liabilities exceed
rate sensitive assets and conversely a positive gap occurs when
rate sensitive assets exceed rate sensitive liabilities. Generally,
a negative gap position will cause profits to decline in a rising
interest rate environment and cause profits to increase in a
falling interest rate environment. Conversely a positive gap will
cause profits to decline in a falling interest rate environment
and increase is a rising interest rate environment. The
Company’s goal is to have acceptable profits under any interest
rate environment. To avoid volatile profits as a result of interest
rate fluctuations, the Company attempts to match interest rate
liability
sensitivities, while pricing both the asset and
components to yield a sufficient interest rate spread so that
profits will remain relatively consistent across interest rate
cycles.
Management of the income statement is called spread
management and is defined as managing investments, loans,
and liabilities to achieve an acceptable spread between the
Company’s return on its earning assets and its cost of funds.
Gap management without consideration of interest spread can
cause unacceptable low profit margins while assuring that the
level of profits is steady. Spread management without
consideration of gap positions can cause acceptable profits in
some interest rate environments and unacceptable profits in
others. A sound asset/liability management program combines
gap and spread management into a single cohesive system.
Management measures the Company’s interest rate risk by
computing estimated changes in net interest income and the
Net Portfolio Value (“NPV”) of its cash flows from assets,
liabilities and off-balance-sheet items in the event of a range of
assumed changes in market interest rates. The Bank’s senior
management and the Executive Committee of the Board of
Directors, comprising the Asset/Liability Committee (“ALCO”)
review the exposure to interest rates monthly. Exposure to
18
2016
interest rate risk is measured with the use of an interest rate
sensitivity analysis to determine the change in NPV in the event
of hypothetical changes in interest rates, while interest rate
sensitivity gap analysis is used to determine the repricing
characteristics of the assets and liabilities.
reach a floor on how low depository rates can adjust downward.
In an upward change in interest rates, the Company’s NPV
would increase 4% with a 100 basis point interest rate increase.
In a 200 basis point rate increase, the Company’s NPV would
increase 5%. This increase is attributable to a portion of the
Company’s loan portfolios that have variable rates.
NPV represents the market value of portfolio equity and is
equal to the market value of assets minus the market value of
liabilities, with adjustments made for off-balance-sheet items.
Computations of prospective effects of hypothetical interest
rate changes are based on numerous assumptions, including
relative levels of market interest rates, loan prepayments and
deposit decay rates, and should not be relied upon as indicative
of actual results. Further, the computations do not contemplate
any actions the Company may undertake in response to
changes in interest rates. The NPV calculation is based on the
net present value of discounted cash flows utilizing market
prepayment assumptions and market rates of interest provided
by surveys performed during each quarterly period, with
adjustments made to reflect the shift in the Treasury yield
curve between the survey date and quarter-end date. Certain
shortcomings are inherent in this method of analysis presented
in the computation of estimated NPV. Certain assets such as
adjustable-rate loans have features that restrict changes in
interest rates on a short-term basis and over the life of the asset.
In addition, the portion of adjustable-rate loans in the
Company’s portfolio could decrease in future periods if market
interest rates remain at or decrease below current levels due to
refinancing activity. Further, in the event of a change in interest
rates, prepayment and early withdrawal levels would likely
deviate from those assumed in the table. Finally, the ability of
many borrowers to repay their adjustable-rate debt may
decrease in the case of an increase in interest rates.
The following tables present an analysis of the potential
sensitivity of the Company’s net present value of its financial
instruments to sudden and sustained changes in the prevailing
interest rates.
The projected volatility of the net present value at both
December 31, 2016 and 2015 fall within the general guidelines
established by the Board of Directors. The 2016 NPV table
shows that in a falling interest rate environment, in the event of
a 100 basis point change, the NPV would decrease 12%, and
with a 200 basis point change the NPV would decrease 27%.
This decrease is the result of fixed rate certificates of deposit
and Federal Home Loan Bank advances not repricing in lock
step with an immediate downward rate adjustment of 100 and
200 basis points. The other component is that once rates
decrease 100 or 200 basis points from current levels we tend to
(Dollars in Thousands)
Net Portfolio Value - December 31, 2016
$ Amount $ Change % Change
3,255
2,403
5%
4%
Change in Rates
+200
+100
Base
-100
-200
70,162
69,310
66,907
59,081
48,596
(7,826)
(18,311)
-12%
-27%
(Dollars in Thousands)
Net Portfolio Value - December 31, 2015
$ Amount $ Change % Change
3,718
2,454
7%
5%
Change in Rates
+200
+100
Base
-100
-200
56,848
55,584
53,130
47,218
40,269
(5,912)
(12,861)
-11%
-24%
2016
19
The following table is a summary of selected quarterly results of operations for the years ended December 31, 2016 and 2015.
Three Months Ended
March 31
June 30
September 30
(In thousands, except per share data)
2016
Total interest income
Total interest expense
Net interest income
Provision for losses on loans
Other income
General, administrative and
other expense
Income before income taxes
Federal income taxes
Net income
Earnings per share
Basic
Diluted
$
$
$
$
4,038
475
3,563
71
867
3,141
1,218
373
845
0.18
0.17
$
$
$
$
4,187
437
3,750
105
902
3,251
1,296
389
907
0.18
0.18
$
$
$
$
4,166
432
3,734
131
1,056
3,345
1,314
386
928
0.18
0.18
Three Months Ended
March 31
June 30
September 30
(In thousands, except per share data)
2015
Total interest income
Total interest expense
Net interest income
Provision for losses on loans
Other income
General, administrative and
other expense
Income before income taxes
Federal income taxes
Net income
Earnings per share
Basic
Diluted
$
$
$
$
3,859
581
3,278
116
992
3,184
970
276
694
0.14
0.14
$
$
$
$
4,040
582
3,458
145
935
3,112
1,136
331
805
0.16
0.16
$
$
$
$
4,118
578
3,540
126
987
3,182
1,219
360
859
0.17
0.17
20
2016
December 31
$
$
$
$
4,244
440
3,804
(6)
856
3,333
1,333
432
901
0.18
0.18
December 31
$
$
$
$
4,065
542
3,523
166
938
3,062
1,233
367
866
0.18
0.17
Average Balances, Net Interest Income and
Yields Earned and Rates Paid
The following table provides average balance sheet
information and reflects the taxable equivalent average yield
on interest-earning assets and the average cost of interest-
bearing liabilities for the years ended December 31, 2016 and
2015. The yields and costs are calculated by dividing income or
expense by the average balance of interest-earning assets or
interest-bearing liabilities.
The average balance of available-for-sale securities is computed
using the carrying value of securities while the yield for
available for sale securities has been computed using the
average amortized cost. Average balances are derived from
average month-end balances, which include nonaccruing
loans in the loan portfolio, net of the allowance for loan losses.
Interest income has been adjusted to tax- equivalent basis.
(Dollars In thousands)
2016
Interest
Income/ Yield/
Rate
Expense
Average
Balance
2015
Interest
Income/
Expense
Average
Balance
Assets
Interest-earning assets
Loans ........................................................................................................... $ 343,243
31,292
Taxable securities - AFS ........................................................................
2,003
Tax-exempt securities - AFS.....................................................................
Tax-exempt securities - HTM ...................................................................
-
8,547
Federal funds sold .......................................................................................
FHLB stock and other.................................................................................
4,169
Total interest-earning assets ................................................................... 389,254
Noninterest-earning assets
4,972
Cash and due from banks ...................................................................
11,340
Premises and equipment (net) ..........................................................
13,955
Other nonearning assets .....................................................................
(752)
Less: allowance for loan losses ..........................................................
Total noninterest-earning assets ...........................................................
29,515
Total assets..................................................................................................... 418,769
Liabilities & stockholders’ equity
Interest-bearing liabilities
Demand deposits ................................................................................... $ 123,051
78,811
Savings deposits .....................................................................................
54,954
Time deposits ...............................................................................................
30,885
FHLB advances .............................................................................................
4,124
Trust preferred debentures .....................................................................
Repurchase agreements ...........................................................................
11,094
Total interest-bearing liabilities ............................................................. 302,919
Noninterest-bearing liabilities
70,723
Demand deposits ...................................................................................
2,493
Other liabilities ........................................................................................
Total noninterest-bearing liabilities .....................................................
73,216
Total liabilities ............................................................................................... 376,135
Total stockholders’ equity ........................................................................
42,634
Total liabilities & stockholders’ equity ................................................. 418,769
Net interest income ....................................................................................
Net interest spread .....................................................................................
Net yield on interest-earning assets ....................................................
Yield/
Rate
4.82%
1.11
6.03
6.99
0.24
5.03
4.24
16,041
325
123
-
36
175
16,700
4.67%
1.04
6.13
-
0.42
4.20
4.29
$ 318,337
29,427
3,733
195
25,523
4,211
381,426
15,346
327
225
14
61
212
16,185
136
36
593
924
82
13
1,784
0.11%
0.05
1.08
2.99
1.99
0.12
0.59
4,700
10,422
13,437
(2,634)
25,925
407,351
$ 118,545
73,819
63,149
26,623
4,124
9,769
296,029
69,427
3,554
72,981
369,010
38,341
$ 407,351
110
34
860
1,009
258
12
2,283
0.09%
0.05
1.36
3.79
6.25
0.12
0.77
14,916
$ 13,902
3.70%
3.83%
3.47%
3.64%
• For purposes of this schedule, nonaccrual loans are included in loans.
• Fees collected on loans are included in interest on loans.
2016
21
Rate/Volume Analysis
The table below describes the extent to which changes in
interest rates and changes in volume of interest-earning assets
and interest-bearing liabilities have affected interest income
and expense during 2016. For purposes of this table, changes
in interest due to volume and rate were determined using the
following methods:
- Volume variance results when the change in volume is
multiplied by the previous year’s rate.
-
-
Rate variance results when the change in rate is multiplied
by the previous year’s volume.
Rate/volume variance results when the change in volume
is multiplied by the change in rate.
Note: The rate/volume variance was allocated to volume
variance and rate variance in proportion to the relationship of
the absolute dollar amount of the change in each. Nonaccrual
loans are ignored for purposes of the calculations due to the
nominal amount of the loans.
Diluted Earnings Per Share
$
0
.
7
1
$
0
.
6
4
$
0
.
5
3
$0.72
$0.60
$0.48
$0.36
$0.24
$0.12
$0
2014
2015
2016
Capital Resources
Internal capital growth, through the retention of earnings,
is the primary means of maintaining capital adequacy for the
Bank. The Company’s stockholders’ equity was $42.6 million
and $41.5 million at December 31, 2016 and 2015, respectively.
Total stockholders’ equity in relation to total assets was 9.74%
at December 31, 2016 and 10.2% at December 31, 2015.
2016 Compared to 2015
Increase/(Decrease)
(In thousands)
Interest and dividend income
Loans ....................................................................................................................................$
Taxable securities available for sale ...............................................................................
Tax-exempt securities available for sale ..................................................................
Tax-exempt securities held to maturity ...................................................................
Federal funds sold ...........................................................................................................
FHLB stock and other .....................................................................................................
Total interest and dividend income ..............................................................................
Interest expense
Demand deposits.............................................................................................................
Savings deposits...............................................................................................................
Time deposits ....................................................................................................................
FHLB advances ..................................................................................................................
Trust Preferred debentures ..........................................................................................
Repurchase agreements................................................................................................
Total interest expense ........................................................................................................
Total
Change
695
( 2 )
( 102 )
( 14 )
( 25 )
( 37 )
515
26
2
( 267 )
( 85 )
( 176 )
1
( 499 )
Change
Due To
Volume
$ 1,174
20
( 106 )
( 14 )
( 55 )
( 2 )
1,017
4
2
( 103 )
( 110 )
-
2
( 205 )
Change
Due To
Rate
$
( 479 )
( 22 )
4
-
30
( 35 )
( 502 )
22
-
( 164 )
25
( 176 )
( 1 )
( 294 )
Net interest income .............................................................................................................$
1,014
$ 1,222
$
( 208 )
22
2016
The Company has established a Dividend Reinvestment Plan
(“The Plan”) for stockholders under which the Company’s
common stock will be purchased by The Plan for participants
with automatically reinvested dividends. The Plan does not
represent a change in the dividend policy or a guarantee of
future dividends. Stockholders who do not wish to participate
in The Plan continue to receive cash dividends, as declared in
the usual and customary manner.
The Company’s Articles of Incorporation permits the creation
of a class of preferred shares with 2,000,000 authorized shares.
If, utilized, this will enable the Company, at the option of the
Board of Directors, to issue series of preferred shares in a
manner calculated to take advantage of financing techniques
which may provide a lower effective cost of capital to the
Company. The class of preferred shares provides greater
flexibility to the Board of Directors in structuring the terms of
equity securities that may be issued by the Company. As of
December 31, 2016 the Company has not issued any preferred
shares.
In 2005, a Delaware statutory business trust owned by the
Company, United Bancorp Statutory Trust I (“Trust I” or the
“Trust”), issued $4.1 million of mandatorily redeemable debt
securities. The sale proceeds were utilized to purchase $4.1
million of the Company’s subordinated debentures. The
Company’s subordinated debentures are the sole asset of Trust
I. The Company’s investment in Trust I is not consolidated
herein as the Company is not deemed the primary beneficiary
of the Trust. However, the $4.1 million of mandatorily
redeemable debt securities issued by the Trust are includible
for regulatory purposes as a component of the Company’s Tier
1 Capital. Interest on the Company’s subordinated debentures
is fixed at 6.25% through 2015. Effective January 2016 the
interest rate is a variable rate per annum, reset quarterly, equal
to three month LIBOR plus 1.35% and is payable quarterly.
The $4.1 million of net proceeds received by the Company was
primarily utilized to fund a $3.4 million note receivable from a
newly formed Employee Stock Option Plan (ESOP). The ESOP
$9.00
$8.50
$8.00
$7.50
$7.00
$6.50
$6.00
Book Value Per Share
$
8
.
5
6
$
8
.
6
3
$
8
.
3
4
2014
2015
2016
Equity Capital (In Thousands)
$
4
1
,
6
8
6
$
4
2
,
6
4
1
$
4
0
,
3
9
0
$44,000
$42,000
$40,000
$38,000
$36,000
$34,000
$32,000
2014
2015
2016
in turn utilized the note proceeds to purchase $3.4 million of
the Company’s treasury stock.
Liquidity
Liquidity relates primarily to the Company's ability to fund
loan demand, meet deposit customers' withdrawal
requirements and provide for operating expenses. Assets used
to satisfy these needs consist of cash and due from banks,
federal funds sold and securities available-for-sale. These assets
are commonly referred to as liquid assets. Liquid assets were
$51.3 million at December 31, 2016, compared to $47.3 million
at December 31, 2015. Management recognizes securities may
need to be sold in the future to help fund loan demand and,
accordingly, as of December 31, 2016, $39.8 million of the
securities portfolio was classified as available for sale. The
Company’s residential real estate portfolio can and has been
readily used to collateralize borrowings as an additional source
of liquidity. Management believes its current liquidity level is
sufficient to meet cash requirements.
The Cash Flow Statements for the periods presented provide
an indication of the Company’s sources and uses of cash as well
as an indication of the ability of the Company to maintain an
adequate level of liquidity. A discussion of the cash flow
statements for 2016 and 2015 follows.
Net cash provided by operating activities totaled $4.2 million
and $4.3 million for the years ended December 31, 2016 and
2015, respectively. The adjustments to reconcile net income to
net cash from operating activities consisted mainly of
depreciation and amortization of premises and equipment and
intangibles, gain on sales of loans, securities and other assets,
the provision for loan losses, Federal Home Loan Bank stock
dividends, net amortization of securities and net changes in
other assets and liabilities.
Net cash used in investing activities totaled $35.0 million for
the year ended December 31, 2016. For year ended December
31, 2015 net cash provided by investing activities totaled $30.0
2016
23
million. The changes in net cash from investing activities
include loan growth, as well as normal maturities, security calls
and reinvestments of securities and premises and equipment
expenditures. Proceeds from securities, which matured or were
called totaled $36.4 million and $41.8 million in 2016 and 2015,
respectively.
Net cash provided by (used in) financing activities totaled $29.7
million and ($895,000) for the years ended December 31, 2016
and 2015, respectively. The net cash provided by financing
activities was primarily attributable to an increase in deposits
and an increase in borrowings from the Federal Home Loan
Bank. The net used in financing activities in 2015 was primarily
attributable to total deposits not increasing as much for the
year ended December 31, 2016. The growth of deposits of $15.2
million in 2016 was the primary reason for the net cash
provided by financing activities.
Management feels that it has the capital adequacy, profitability,
liquidity and reputation to meet the current and projected
financial needs of its customers.
Inflation
The majority of assets and liabilities of the Company are
monetary in nature and therefore the Company differs greatly
from most commercial and industrial companies that have
significant investments in fixed assets or inventories. However,
Return On Average Assets
0.90%
0.80%
0.70%
0.60%
0.50%
0.40%
0.30%
0
.
6
6
%
0
.
8
6
%
0
.
7
9
%
2014
2015
2016
inflation does have an important impact on the growth of total
assets in the banking industry and the resulting need to
increase equity capital at higher than normal rates in order to
maintain an appropriate equity to assets ratio. Inflation
significantly affects noninterest expense, which tends to rise
during periods of general inflation. Management believes the
most significant impact on financial results is the Company’s
ability to react to changes in interest rates. Management seeks
to maintain an essentially balanced position between interest
sensitive assets and liabilities and actively manages the amount
of securities available for sale in order to protect against the
effects of wide interest rate fluctuations on net income and
shareholders' equity.
24
2016
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
Audit Committee, Board of Directors and Stockholders
United Bancorp, Inc.
United Bancorp, Inc.
Martins Ferry, Ohio
Martins Ferry, Ohio
Audit Committee, Board of Directors and Stockholders
United Bancorp, Inc.
Martins Ferry, Ohio
We have audited the accompanying consolidated balance sheets of United Bancorp, Inc. as of December
31, 2011 and 2010, and the related consolidated statements of income, stockholders’ equity and cash
Audit Committee, Board of Directors and Stockholders
We have audited the accompanying consolidated balance sheets of United Bancorp, Inc. as of
flows for each of the years in the two-year period ended December 31, 2011. The Company's
United Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of United Bancorp, Inc. as of December
December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive
management is responsible for these financial statements. Our responsibility is to express an opinion on
Martins Ferry, Ohio
31, 2011 and 2010, and the related consolidated statements of income, stockholders’ equity and cash
income, stockholders’ equity and cash flows for each of the years in the two-year period ended
these financial statements based on our audits.
flows for each of the years in the two-year period ended December 31, 2011. The Company's
December 31, 2016. The Company's management is responsible for these financial statements.
management is responsible for these financial statements. Our responsibility is to express an opinion on
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Our responsibility is to express an opinion on these financial statements based on our audits.
We have audited the accompanying consolidated balance sheets of United Bancorp, Inc. as of December
these financial statements based on our audits.
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
31, 2011 and 2010, and the related consolidated statements of income, stockholders’ equity and cash
assurance about whether the financial statements are free of material misstatement. The Company is not
flows for each of the years in the two-year period ended December 31, 2011. The Company's
We conducted our audits in accordance with the standards of the Public Company Accounting
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
management is responsible for these financial statements. Our responsibility is to express an opinion on
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
Oversight Board (United States). Those standards require that we plan and perform the audits
Our audits included consideration of internal control over financial reporting as a basis for designing
these financial statements based on our audits.
assurance about whether the financial statements are free of material misstatement. The Company is not
to obtain reasonable assurance about whether the financial statements are free of material
auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
misstatement. The Company is not required to have, nor were we engaged to perform, an audit
opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Our audits included consideration of internal control over financial reporting as a basis for designing
express no such opinion. Our audits also included examining, on a test basis, evidence supporting the
of its internal control over financial reporting. Our audits included consideration of internal
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an
amounts and disclosures in the financial statements, assessing the accounting principles used and
control over financial reporting as a basis for designing auditing procedures that are appropriate
assurance about whether the financial statements are free of material misstatement. The Company is not
opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we
significant estimates made by management and evaluating the overall financial statement presentation.
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
express no such opinion. Our audits also included examining, on a test basis, evidence supporting the
We believe that our audits provide a reasonable basis for our opinion.
Our audits included consideration of internal control over financial reporting as a basis for designing
Company's internal control over financial reporting. Accordingly, we express no such opinion.
amounts and disclosures in the financial statements, assessing the accounting principles used and
auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an
significant estimates made by management and evaluating the overall financial statement presentation.
Our audits also included examining, on a test basis, evidence supporting the amounts and
In our opinion, the consolidated financial statements referred to above present fairly, in all material
opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we
We believe that our audits provide a reasonable basis for our opinion.
disclosures in the financial statements, assessing the accounting principles used and significant
respects, the financial position of United Bancorp, Inc. as of December 31, 2011 and 2010, and the results
express no such opinion. Our audits also included examining, on a test basis, evidence supporting the
estimates made by management and evaluating the overall financial statement presentation. We
of its operations and its cash flows for each of the years in the two-year period ended December 31, 2011,
amounts and disclosures in the financial statements, assessing the accounting principles used and
In our opinion, the consolidated financial statements referred to above present fairly, in all material
in conformity with accounting principles generally accepted in the United States of America.
believe that our audits provide a reasonable basis for our opinion.
significant estimates made by management and evaluating the overall financial statement presentation.
respects, the financial position of United Bancorp, Inc. as of December 31, 2011 and 2010, and the results
We believe that our audits provide a reasonable basis for our opinion.
of its operations and its cash flows for each of the years in the two-year period ended December 31, 2011,
In our opinion, the consolidated financial statements referred to above present fairly, in all material
in conformity with accounting principles generally accepted in the United States of America.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of United Bancorp, Inc. as of December 31, 2016, and 2015, and
respects, the financial position of United Bancorp, Inc. as of December 31, 2011 and 2010, and the results
the results of its operations and its cash flows for each of the years in the two-year period ended
of its operations and its cash flows for each of the years in the two-year period ended December 31, 2011,
December 31, 2016, in conformity with accounting principles generally accepted in the United
Cincinnati, Ohio
in conformity with accounting principles generally accepted in the United States of America.
States of America.
March 2, 2012
Cincinnati, Ohio
March 2, 2012
Cincinnati, Ohio
Cincinnati, Ohio
March 2, 2012
March 20, 2017
25
December 31, 2004 and 2003
ASSETS
2004
2003
United Bancorp, Inc.
Consolidated Balance Sheets
Consolidated Balance Sheets
December 31, 2016 and 2015
December 31, 2016 and 2015
(In thousands, except share data)
(In thousands, except share data)
$ 7,580,576
137,816,329
$ 8,386,575
140,818,167
Cash and due from financial institutions
Securities available for sale - at market
Securities held to maturity – estimated fair value of
$15,475,005 and $16,344,353 at December 31, 2004
and 2003, respectively
Federal Home Loan Bank stock – at cost
Total loans
Allowance for loan losses
Loans – net
Premises and equipment
Assets
Accrued interest receivable
Other real estate and repossessions
Core deposit and other intangible assets
Bank owned life insurance
Other assets
Cash and due from banks
Interest-bearing demand deposits
Cash and cash equivalents
Total assets
Available-for-sale securities
Loans, net of allowance for loan losses of $2,341 and $2,437 at
LIABILITIES AND SHAREHOLDERS’ EQUITY
December 31, 2016 and 2015, respectively
Demand deposits
Noninterest-bearing
Interest-bearing
Savings deposits
Time deposits – under $100,000
Time deposits - $100,000 and over
Total deposits
Premises and equipment
Federal Home Loan Bank stock
Foreclosed assets held for sale, net
Accrued interest receivable
Deferred federal income taxes
Bank-owned life insurance
Other assets
Federal funds purchased
Advances from the Federal Home Loan Bank
Securities sold under agreements to repurchase
Other borrowed funds
Accrued expenses and other liabilities
Total assets
Liabilities and Stockholders’ Equity
Total liabilities
Liabilities
Commitments
Deposits
Demand
Savings
Time
Total deposits
Shareholders’ equity
Preferred stock - 2,000,000 shares without par value authorized;
no shares issued
Common stock - $1 par value; 10,000,000 shares authorized;
4,126,970 and 3,752,105 shares issued at December 31,
Securities sold under repurchase agreements
2004 and 2003, respectively
Federal Home Loan Bank advances
Additional paid-in capital
Subordinated debentures
Retained earnings
Interest payable and other liabilities
Stock held by deferred compensation plan; 62,977 and 55,825
shares at December 31, 2004 and 2003, respectively – at cost
Treasury stock – 273,017 and 227,803 shares at December 31,
2004 and 2003, respectively - at cost
Accumulated comprehensive loss, unrealized losses on
securities designated as available for sale, net of tax
Stockholders’ Equity
Total liabilities
Total shareholders’ equity
issued
14,947,520
4,115,200
215,446,870
(2,995,422 )
212,451,448
7,760,360
2,253,212
1,014,207
34,417
7,517,548
2,030,767
$
2016
15,594,408
3,954,300
198,608,574
(2,843,484 )
195,765,090
8,152,480
2,373,573
940,015
$
4,233
57,452
7,308
7,185,507
11,541
2,295,402
$397,521,584
$ 385,522,969
39,766
354,380
11,884
$ 30,049,919
4,164
61,137,605
335
48,274,042
840
128,443,059
36,621,372
850
304,525,997
11,822
9,714,000
2,436
30,974,611
5,485,399
$
438,018
159,398
2,149,105
353,008,510
$ 31,777,495
62,038,985
45,143,133
122,018,788
39,651,142
300,629,543
3,180,000
46,680,311
12,612,270
399,283
1,196,066
364,697,473
$
-
$
-
4,126,970
25,831,585
7,021,185
(752,437)
$
203,745
81,825
53,233
-
338,803
9,393
3,752,105
39,855
25,712,990
4,124
6,047,652
3,202
(633,842)
395,377
(2,767,751)
(2,115,855)
2015
4,954
7,747
12,701
34,623
327,226
10,446
4,210
357
803
521
11,509
2,728
405,124
188,328
77,672
57,622
323,622
5,691
26,530
4,124
3,661
363,628
––
5,385
18,245
21,443
(2,079)
(1,271)
(181)
(46)
41,496
Preferred stock, no par value, authorized 2,000,000 shares; no shares
(635,441)
32,824,111
Total liabilities and shareholders’ equity
Common stock, $1 par value; authorized 10,000,000 shares; issued
2016 – 5,425,304 shares, 2015 - 5,385,304 shares; outstanding
2016 – 5,208,051, 2015 – 5,143,637
$397,521,584
Additional paid-in capital
Retained earnings
Stock held by deferred compensation plan; 2016 – 211,509 shares,
2015 – 235,923 shares
Unearned ESOP compensation
Accumulated other comprehensive income (loss)
Treasury stock, at cost
2016 – 5,744 shares, 2015 – 5,744 shares
The accompanying notes are an integral part of these statements.
Total stockholders’ equity
(248,591 )
32,514,459
––
$ 385,522,969
5,425
18,024
22,483
(1,880)
(911)
(454)
(46)
42,641
Total liabilities and stockholders’ equity
$
438,018
$
405,124
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
26 2016
United Bancorp, Inc.
Consolidated Statements of Income
Consolidated Statements of Income
Years Ended December 31, 2016 and 2015
Years Ended December 31, 2016 and 2015
(In thousands, except per share data)
(In thousands except per share data)
Interest and Dividend Income
Loans
Securities
Taxable
Tax-exempt
Federal funds sold
Dividends on Federal Home Loan Bank and other stock
Total interest and dividend income
Interest Expense
Deposits
Borrowings
Total interest expense
Net Interest Income
Provision for Loan Losses
Net Interest Income After Provision for Loan Losses
Noninterest Income
2016
2015
$
16,018
$
15,325
325
81
36
175
16,635
765
1,019
1,784
14,851
301
14,550
327
157
61
212
16,082
1,005
1,278
2,283
13,799
553
13,246
Customer service fees
Net gains on loan sales
Realized gains on sales of available-for-sale securities
Earnings on bank-owned life insurance
BOLI benefit in excess of surrender value
Other
2,594
97
---
463
---
527
2,876
42
32
426
29
397
Total noninterest income
Noninterest Expense
Salaries and employee benefits
Net occupancy and equipment expense
Provision for losses on foreclosed real estate
Professional fees
Insurance
Deposit insurance premiums
Franchise and other taxes
Marketing expense
Printing and office supplies
Amortization of intangible assets
Realized losses on sale of real estate and other repossessed assets
Other
3,681
7,021
1,897
6
720
225
198
325
324
117
---
4
2,234
3,802
6,393
1,918
60
679
253
236
287
300
142
66
12
2,144
Total noninterest expense
13,071
12,490
Income Before Federal Income Taxes
Provision for Federal Income Taxes
Net Income
Basic Earnings Per Share
Diluted Earnings Per Share
5,160
1,580
3,580
0.72
0.71
$
$
$
4,558
1,334
3,224
0.65
0.64
$
$
$
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
2016
27
Consolidated Statements of Comprehensive Income
United Bancorp, Inc.
Years Ended December 31, 2016 and 2015
Consolidated Statements of Comprehensive Income
(In thousands)
Years Ended December 31, 2016 and 2015
(In thousands)
Net income
Other comprehensive income (loss), net of tax
Unrealized holding (losses) on available-for-sale securities during
the period, net of benefits of (159) and $(17) for each respective
period
Reclassification adjustment for realized gains on available-for-sale
2016
2015
$
3,580
$
3,224
(310)
(32)
securities included in net income, net of tax of $(11)
---
(21)
Change in funded status of defined benefit plan, net of taxes of $22
and (benefits) of $(83) for each respective period
Amortization of prior service included in net periodic pension
expense, net of tax (benefits) of $(30) and $(30) for each
respective period
Amortization of net loss included in net periodic pension cost, net
of tax of $27 and $16 for each respective period
42
(59)
54
(158)
(59)
32
Comprehensive income
$
3,307
$
2,986
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
28
2016
United Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2016 and 2015
Years Ended December 31, 2016 and 2015
(In thousands except per share data)
(In thousands, except per share data)
Treasury
Stock and
Deferred
Additional
Paid-in
Capital Compensation
Shares
Acquired
By
ESOP
Common
Stock
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Balance, January 1, 2015
$
5,385
$ 18,044
$
(2,107)
$ (1,467)
$
20,478
$
Net income
Other comprehensive loss
Cash dividends - $0.42 per share
Shares purchased for deferred compensation plan
Expense related to share-based compensation plans
Treasury stock activity
Amortization of ESOP
––
––
––
––
––
––
––
––
––
––
35
164
2
––
––
––
––
(35)
––
17
––
––
––
––
––
––
––
196
3,224
––
(2,259)
––
––
––
––
57
––
(238)
––
––
––
––
––
Total
$
40,390
3,224
(238)
(2,259)
––
164
19
196
Balance, December 31, 2015
5,385
18,245
(2,125)
(1,271)
21,443
(181)
41,496
Net income
Other comprehensive loss
Cash dividends - $0.47 per share
Shares purchased for deferred compensation plan
Expense related to share-based compensation plans
Restricted stock activity
Amortization of ESOP
––
––
––
––
––
40
––
––
––
––
(199)
147
(40)
(129)
––
––
––
199
––
––
––
––
––
––
––
––
––
360
3,580
––
3,580
––
(273)
(273)
(2,540)
––
––
––
––
––
––
––
––
––
(2,540)
––
147
––
231
Balance, December 31, 2016
$
5,425
$ 18,024
$
(1,926)
$
(911)_ $
22,483
$
(454)
$
42,641
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
2016
29
United Bancorp, Inc.
Consolidated Statements of Cash Flows
Consolidated Statements of Cash Flows
Years Ended December 31, 2016 and 2015
(In thousands)
Years Ended December 31, 2016 and 2015
(In thousands)
Operating Activities
2016
2015
$
$
3,580
3,224
Net income
Items not requiring (providing) cash
Depreciation and amortization
Amortization of intangible assets
Provision for loan losses
Provision for losses on foreclosed real estate
Amortization of premiums and discounts on securities-net
Gain on sale of available-for-sale securities
Realized gains on sale of Great Lake Bankers bank stock
Amortization of mortgage servicing rights
Deferred income taxes
Originations of loans held for sale
Proceeds from sale of loans held for sale
Net gains on sales of loans
Amortization of ESOP
Expense related to share-based compensation plans
Loss on sale of real estate and other repossessed assets
934
66
553
60
1
(32)
---
13
(175)
(2,370)
2,412
(42)
196
164
12
---
(162)
12
82
(4,451)
4,548
(97)
231
147
4
819
---
301
6
(1)
Changes in
Bank-owned life insurance
Accrued interest receivable
Other assets
Interest payable and other liabilities
Net cash provided by operating activities
Investing Activities
(313)
(37)
(34)
(458)
4,177
(763)
26
(864)
860
4,275
Purchases of available-for-sale securities
Proceeds from maturities of available-for-sale securities
Proceeds from maturities of held-to-maturity securities
Proceeds from sale of available-for-sale securities
Net change in loans
Proceeds from sale of Great Lake Bank stock
Purchases of premises and equipment
Proceeds from sales of foreclosed assets
(56,997)
41,331
450
355
(14,382)
208 ---
(1,310)
710
(42,000)
36,389
---
---
(2,257)
124
(27,468)
Net cash used in investing activities
(35,004)
(29,843)
See Notes to Consolidated Financial Statements
30
2016
See Notes to Consolidated Financial Statements
United Bancorp, Inc.
Consolidated Statements of Cash Flows (continued)
Consolidated Statements of Cash Flows Continued
December 31, 2016 and 2015
(In thousands)
Years Ended December 31, 2016 and 2015
(In thousands)
Financing Activities
2016
2015
Net increase (decrease) in deposits
Proceeds of Federal Home Loan Bank advances
Repayments of Federal Home Loan Bank advances
Net change in short term borrowings
Cash dividends paid
Treasury stock -net
15,181
19,500
(6,175)
3,701
(2,540)
---
$
$
941
(189)
593
(2,259)
19
Net cash provided by (used in) financing activities
29,667
(895)
Decrease in Cash and Cash Equivalents
(1,160)
(26,463)
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year
Supplemental Cash Flows Information
Interest paid on deposits and borrowings
Federal income taxes paid
Supplemental Disclosure of Non-Cash Investing Activities
Transfers from loans to foreclosed assets held for sale
Vesting of restricted stock
12,701
11,541
1,796
1,133
111
90
$
$
$
$
$
39,164
12,701
2,271
1,180
---
39
$
$
$
$
$
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
2016
31
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Note 1: Nature of Operations and Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of United Bancorp, Inc. (“United” or
“the Company”) and its wholly-owned subsidiary, The Citizens Savings Bank of Martins Ferry,
Ohio (“the Bank” or “Citizens”). The Bank operates in two divisions, The Community Bank, a
division of The Citizens Savings Bank and the Citizens Bank, a division of The Citizens Savings
Bank. All intercompany transactions and balances have been eliminated in consolidation.
Nature of Operations
The Company’s revenues, operating income and assets are almost exclusively derived from
banking. Accordingly, all of the Company’s banking operations are considered by management to
be aggregated in one reportable operating segment. Customers are mainly located in Athens,
Belmont, Carroll, Fairfield, Harrison, Jefferson and Tuscarawas Counties and the surrounding
localities in northeastern, east-central and southeastern Ohio and include a wide range of
individuals, businesses and other organizations. The Citizens Bank division conducts its business
through its main office in Martins Ferry, Ohio and branches in Bridgeport, Colerain, Dellroy,
Dillonvale, Dover, Jewett, New Philadelphia, St. Clairsville East, St. Clairsville West,
Sherrodsville, Strasburg and Tiltonsville, Ohio. The Citizens Bank also operates a Loan Production
Office in Wheeling, West Virginia. The Community Bank division conducts its business through
its two branches in Lancaster, Ohio and branches in Amesville, Glouster, and Nelsonville, Ohio.
The Company’s primary deposit products are checking, savings and term certificate accounts and
its primary lending products are residential mortgage, commercial and installment loans.
Substantially all loans are secured by specific items of collateral including business assets,
consumer assets and real estate. Commercial loans are expected to be repaid from cash flow from
operations of businesses. Real estate loans are secured by both residential and commercial real
estate. Net interest income is affected by the relative amount of interest-earning assets and interest-
bearing liabilities and the interest received or paid on these balances. The level of interest rates
paid or received by the Company can be significantly influenced by a number of environmental
factors, such as governmental monetary policy, that are outside of management’s control.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America 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.
32
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Material estimates that are particularly susceptible to significant change relate to the determination
of the allowance for loan losses and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the determination of the allowance for
loan losses and the valuation of foreclosed assets held for sale, management obtains independent
appraisals for significant properties.
Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be
cash equivalents. At December 31, 2016 and 2015, cash equivalents consisted primarily of due
from accounts with the Federal Reserve and other correspondent Banks.
Currently, the FDIC’s insurance limits are $250,000. At December 31, 2016 and 2015, none of the
Company’s cash accounts exceeded the federally insured limit of $250,000.
Securities
Certain debt securities that management has the positive intent and ability to hold to maturity are
classified as “held to maturity” and recorded at amortized cost. Securities not classified as held to
maturity, including equity securities with readily determinable fair values, are classified as
“available for sale” and recorded at fair value, with unrealized gains and losses excluded from
earnings and reported in other comprehensive income. Purchase premiums and discounts are
recognized in interest income using the interest method over the terms of the securities. Gains and
losses on the sale of securities are recorded on the trade date and are determined using the specific
identification method.
For debt securities with fair value below amortized cost, when the Company does not intend to sell
a debt security, and it is more likely than not the Company will not have to sell the security before
recovery of its cost basis, it recognizes the credit component of an other-than-temporary
impairment of a debt security in earnings and the remaining portion in other comprehensive
income. For held-to-maturity debt securities, the amount of an other-than-temporary impairment
recorded in other comprehensive income for the noncredit portion of a previous other-than-
temporary impairment is amortized prospectively over the remaining life of the security on the
basis of the timing of future estimated cash flows of the security.
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of
cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation
allowance by charges to income. At December 31, 2016 and 2015, the Company did not have any
loans held for sale.
2016
33
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity
or payoffs are reported at their outstanding principal balances adjusted for unearned income,
charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated
loans and unamortized premiums or discounts on purchased loans.
For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan
origination fees, net of certain direct origination costs, as well as premiums and discounts, are
deferred and amortized as a level yield adjustment over the respective term of the loan.
For all loan classes, the accrual of interest is discontinued at the time the loan is 90 days past due
unless the credit is well-secured and in process of collection. Past due status is based on
contractual terms of the loan. For all loan classes, the entire balance of the loan is considered past
due if the minimum payment contractually required to be paid is not received by the contractual
due date. For all loan classes, loans are placed on nonaccrual or charged off at an earlier date if
collection of principal or interest is considered doubtful.
Management’s general practice is to proactively charge down loans individually evaluated for
impairment to the fair value of the underlying collateral. Consistent with regulatory guidance,
charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered
uncollectible. The Company’s policy is to promptly charge these loans off in the period the
uncollectible loss is reasonably determined.
For all loan portfolio segments except residential and consumer loans, the Company promptly
charges-off loans, or portions thereof, when available information confirms that specific loans are
uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial
condition of the borrower, (2) declining collateral values, and/or (3) legal action, including
bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired
loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a
loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.
The Company charges-off residential and consumer loans when the Company reasonably
determines the amount of the loss. The Company adheres to timeframes established by applicable
regulatory guidance which provides for the charge-down of 1-4 family first and junior lien
mortgages to the net realizable value less costs to sell when the loan is 120 days past due, charge-
off of unsecured open-end loans when the loan is 120 days past due, and charge down to the net
realizable value when other secured loans are 120 days past due. Loans at these respective
delinquency thresholds for which the Company can clearly document that the loan is both well-
secured and in the process of collection, such that collection will occur regardless of delinquency
status, need not be charged off.
For all classes, all interest accrued but not collected for loans that are placed on nonaccrual or
charged off are reversed against interest income. The interest on these loans is accounted for on
the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to
accrual status when all the principal and interest amounts contractually due are brought current and
future payments are reasonably assured. Nonaccrual loans are returned to accrual status when, in
34
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
the opinion of management, the financial position of the borrower indicates there is no longer any
reasonable doubt as to the timely collection of interest or principal. The Company requires a
period of satisfactory performance of not less than six months before returning a nonaccrual loan to
accrual status.
When cash payments are received on impaired loans in each loan class, the Company records the
payment as interest income unless collection of the remaining recorded principal amount is
doubtful, at which time payments are used to reduce the principal balance of the loan. Troubled
debt restructured loans recognize interest income on an accrual basis at the renegotiated rate if the
loan is in compliance with the modified terms, no principal reduction has been granted and the loan
has demonstrated the ability to perform in accordance with the renegotiated terms for a period of at
least six months.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a
provision for loan losses charged to income. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if
any, are credited to the allowance.
The allowance for loan losses is evaluated on a monthly basis by Bank management and is based
upon management’s periodic review of the collectability of the loans in light of historical
experience, the nature and volume of the loan portfolio, adverse situations that may affect the
borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic
conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to
significant revision as more information becomes available.
The allowance consists of allocated and general components. The allocated component relates to
loans that are classified as impaired. For those loans that are classified as impaired, an allowance is
established when the discounted cash flows (or collateral value or observable market price) of the
impaired loan is lower than the carrying value of that loan. The general component covers non-
impaired loans and is based on historical charge-off experience by segment. The historical loss
experience is determined by portfolio segment and is based on the actual loss history experienced
by the Company over the prior three years. Management believes the three year historical loss
experience methodology is appropriate in the current economic environment. Other adjustments
(qualitative/environmental considerations) for each segment may be added to the allowance for
each loan segment after an assessment of internal or external influences on credit quality that are
not fully reflected in the historical loss or risk rating data.
A loan is considered impaired when, based on current information and events, it is probable that
the Company will be unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value and the probability of collecting
scheduled principal and interest payments when due based on the loan’s current payment status and
the borrower’s financial condition including available sources of cash flows. Loans that experience
insignificant payment delays and payment shortfalls generally are not classified as impaired.
2016
35
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Management determines the significance of payment delays and payment shortfalls on a case-by-
case basis, taking into consideration all of the circumstances surrounding the loan and the
borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment
record and the amount of the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan-by-loan basis for non-homogenous type loans such as commercial, non-owner
residential and construction loans by either the present value of expected future cash flows
discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value
of the collateral if the loan is collateral dependent. For impaired loans where the Company utilizes
the discounted cash flows to determine the level of impairment, the Company includes the entire
change in the present value of cash flows as bad debt expense.
The fair values of collateral dependent impaired loans are based on independent appraisals of the
collateral. In general, the Company acquires an updated appraisal upon identification of
impairment and annually thereafter for commercial, commercial real estate and multi-family loans.
If the most recent appraisal is over a year old, and a new appraisal is not performed, due to lack of
comparable values or other reasons, the existing appraisal is utilized and discounted generally 10%
-35% based on the age of the appraisal, condition of the subject property, and overall economic
conditions. After determining the collateral value as described, the fair value is calculated based on
the determined collateral value less selling expenses. The potential for outdated appraisal values is
considered in our determination of the allowance for loan losses through our analysis of various
trends and conditions including the local economy, trends in charge-offs and delinquencies, etc.
and the related qualitative adjustments assigned by the Company.
Segments of loans with similar risk characteristics are collectively evaluated for impairment based
on the segment’s historical loss experience adjusted for changes in trends, conditions and other
relevant factors that affect repayment of the loans. Accordingly, the Company does not separately
identify individual consumer and residential loans for impairment measurements, unless such loans
are the subject of a restructuring agreement due to financial difficulties of the borrower.
In the course of working with borrowers, the Company may choose to restructure the contractual
terms of certain loans. In this scenario, the Company attempts to work-out an alternative payment
schedule with the borrower in order to optimize collectability of the loan. Any loans that are
modified are reviewed by the Company to identify if a troubled debt restructuring (“TDR”) has
occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties,
the Company grants a concession to the borrower that it would not otherwise consider. Terms may
be modified to fit the ability of the borrower to repay in line with its current financial status and the
restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a
modification of loan terms, or a combination of the two. If such efforts by the Company do not
result in a satisfactory arrangement, the loan is referred to legal counsel, at which time foreclosure
proceedings are initiated. At any time prior to a sale of the property at foreclosure, the Company
may terminate foreclosure proceedings if the borrower is able to work-out a satisfactory payment
plan.
36
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
It is the Company’s policy to have any restructured loans which are on nonaccrual status prior to
being restructured remain on nonaccrual status until six months of satisfactory borrower
performance at which time management would consider its return to accrual status. If a loan was
accruing at the time of restructuring, the Company reviews the loan to determine if it is appropriate
to continue the accrual of interest on the restructured loan.
With regard to determination of the amount of the allowance for credit losses, trouble debt
restructured loans are considered to be impaired. As a result, the determination of the amount of
impaired loans for each portfolio segment within troubled debt restructurings is the same as detailed
previously.
Premises and Equipment
Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to
expense using the straight-line method over the estimated useful lives of the assets. An accelerated
method is used for tax purposes.
Federal Home Loan Bank Stock
Federal Home Loan Bank stock is a required investment for institutions that are members of the
Federal Home Loan Bank system. The required investment in the common stock is based on a
predetermined formula, carried at cost and evaluated for impairment.
Foreclosed Assets Held for Sale
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at
fair value, less costs to sell, at the date of foreclosure, establishing a new cost basis. Subsequent to
foreclosure, valuations are periodically performed by management and the assets are carried at the
lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and
changes in the valuation allowance are included in net income or expense from foreclosed assets.
Bank-Owned Life Insurance
The Company and the Bank have purchased life insurance policies on certain key executives.
Company and bank-owned life insurance is recorded at its cash surrender value, or the amount that
can be realized.
2016
37
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
Intangible Asset
In conjunction with an acquisition, the Company recorded a core deposit intangible asset of
approximately $812,000. As of December 31, 2015 this asset was fully amortized. Amortization
expense was $66,000 the year ended December 31, 2015
Treasury Stock
Common shares repurchased are recorded at cost. Cost of shares retired or reissued is determined
using the weighted average cost.
Restricted Stock Awards
The Company has a share-based employee compensation plan, which is described more fully in
Note 14.
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance
(ASC 740, Income Taxes). The income tax accounting guidance results in two components of
income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or
refunded for the current period by applying the provisions of the enacted tax law to the taxable
income or excess of deductions over revenues. The Company determines deferred income taxes
using the liability (or balance sheet) method. Under this method, the net deferred tax asset or
liability is based on the tax effects of the differences between the book and tax bases of assets and
liabilities, and enacted changes in tax rates and laws are recognized in the period in which they
occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between
periods. Deferred tax assets are reduced by a valuation allowance if based on the weight of
evidence available it is more likely than not that some portion or all of a deferred tax asset will not
be realized.
38
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Uncertain tax positions are recognized if it is more likely than not, based on the technical merits,
that the tax position will be realized or sustained upon examination. The term more likely than not
means a likelihood of more than 50 percent; the terms examined and upon examination also include
resolution of the related appeals or litigation processes, if any. A tax position that meets the more-
likely-than-not recognition threshold is initially and subsequently measured as the largest amount
of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a
taxing authority that has full knowledge of all relevant information. The determination of whether
or not a tax position has met the more-likely-than-not recognition threshold considers the facts,
circumstances and information available at the reporting date and is subject to management’s
judgment. At December 31, 2016, the Company had no uncertain tax positions.
The Company recognizes interest and penalties on income taxes as a component of income tax
expense.
The Company files consolidated income tax returns with its subsidiary. With a few exceptions, the
Company is no longer subject to the examination by tax authorities for years before 2013.
Deferred Compensation Plan
Directors have the option to defer all or a portion of fees for their services into a deferred stock
compensation plan that invests in common shares of the Company. Officers of the Company have
the option to defer up to 50% of their annual incentive award into this plan. The plan does not
permit diversification and must be settled by the delivery of a fixed number of shares of the
Company stock. The stock held in the plan is included in equity as deferred shares and is
accounted for in a manner similar to treasury stock. Subsequent changes in the fair value of the
Company’s stock are not recognized. The deferred compensation obligation is also classified as an
equity instrument and changes in the fair value of the amount owed to the participant are not
recognized.
Stockholders’ Equity and Dividend Restrictions
The Bank is subject to certain restrictions on the amount of dividends that it may declare without
prior regulatory approval. Generally, the Bank’s payment of dividends is limited to net income for
the current year plus the two preceding calendar years, less capital distributions paid over the
comparable time period. Dividend payments to the stockholders may be legally paid from
additional paid-in capital or retained earnings.
Earnings Per Share
Basic earnings per share represents income available to common stockholders divided by the
weighted-average number of common shares outstanding during each period. Diluted earnings per
share reflects additional potential common shares that would have been outstanding if dilutive
potential common shares had been issued, as well as any adjustment to income that would result
from the assumed issuance. Potential common shares that may be issued by the Company relate to
outstanding stock options and restricted stock awards and are determined using the treasury stock
method.
2016
39
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Treasury stock shares, deferred compensation shares and unearned ESOP shares are not deemed
outstanding for earnings per share calculations.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income, net of applicable
income taxes. Other comprehensive income includes unrealized appreciation (depreciation) on
available-for-sale securities and changes in the funded status of the defined benefit pension plan.
Advertising
Advertising costs are expensed as incurred.
Note 2: Restriction on Cash and Due From Banks
The Company is required to maintain reserve funds in cash and/or on deposit with the Federal
Reserve Bank. The reserve required at December 31, 2016 and 2015, was $2.8 million and $3.7
million, respectively.
40
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Note 3:
Securities
The amortized cost and approximate fair values, together with gross unrealized gains and losses of
securities are as follows:
Available-for-sale Securities:
December 31, 2016:
U.S. government agencies
State and political subdivisions
Available-for-sale Securities:
December 31, 2015:
U.S. government agencies
State and political subdivisions
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In thousands)
Approximate
Fair Value
$
$
$
$
39,000 $
1,249
40,249 $
32,000 $
2,637
34,637 $
--- $
3
3 $
11 $
25
36 $
(486) $
---
38,514
1,252
(486) $
39,766
(50) $
---
31,961
2,662
(50) $
34,623
The amortized cost and fair value of available-for-sale securities at December 31, 2016, by
contractual maturity, are shown below. Expected maturities will differ from contractual maturities
because issuers may have the right to call or prepay obligations with or without call or prepayment
penalties. Maturities for mortgage-backed securities are presented in the table below based on their
projected maturities.
Available-for-sale
Fair
Value
Amortized
Cost
(In thousands)
Within one year
One to five years
Totals
$
$
250 $
39,999
250
39,516
40,249 $
39,766
The carrying value of securities pledged as collateral, to secure public deposits and for other
purposes, was $27.9 million and $22.6 million at December 31, 2016 and 2015, respectively.
Certain investments in debt securities are reported in the financial statements at an amount less than
their historical cost. The total fair value of these investments at December 31, 2016 and 2015, was
2016
41
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
$38.5 million and $24.0 million, which represented approximately 96.8% and 69.2%, respectively,
of the Company’s available-for-sale and held-to-maturity investment portfolio.
Based on evaluation of available evidence, including recent changes in market interest rates, credit
rating information and information obtained from regulatory filings, management believes the
declines in fair value for these securities are temporary.
The following tables show the Company’s investments’ gross unrealized losses and fair value,
aggregated by investment category and length of time that individual securities have been in a
continuous unrealized loss position at December 31, 2016 and 2015:
December 31, 2016
Description of
Securities
US Government
agencies
Total temporarily
impaired
securities
$
$
Less than 12 Months
Unrealized
Losses
Fair
Value
12 Months or More
Fair
Value
(In thousands)
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
38,514 $
(486)
$
---
$
---
$
38,514
$
(486)
38,514 $
(486)
$
---
$
---
$
38,514
$
(486)
December 31, 2015
Description of
Securities
US Government
agencies
Total temporarily
impaired
securities
$
$
Less than 12 Months
Unrealized
Losses
Fair
Value
12 Months or More
Fair
Value
(In thousands)
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
23,950 $
(50)
$
---
$
---
$
23,950
$
(50)
23,950 $
(50)
$
---
$
---
$
23,950
$
(50)
U. S. Government Agencies
The unrealized losses on the Company’s investments in direct obligations of U. S. Government
agencies were caused by interest rate increases. The contractual terms of those investments do not
permit the issuer to settle the securities at a price less than the amortized cost bases of the
investments. Because the Company does not intend to sell the investments and it is not more likely
than not the Company will be required to sell the investments before recovery of their amortized
cost bases, which may be maturity, the Company does not consider those investments to be other-
than-temporarily impaired at December 31, 2016.
42
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
For the year ended December 31 2015, proceeds from the sale of investment securities available-
for-sale were $355,000, with gross realized gains of $32,000, and gross realized losses of zero. The
gain is included in realized gains on sales of available-for-sale securities, net in the noninterest
income section of the statement of income.
Note 4:
Loans and Allowance for Loan Losses
Categories of loans at December 31, include:
Commercial loans
Commercial real estate
Residential real estate
Installment loans
Total gross loans
Less allowance for loan losses
$
2016
2015
(In thousands)
$
74,514
191,686
76,154
14,367
356,721
67,247
163,459
81,498
17,459
329,663
(2,341)
(2,437)
Total loans
$
354,380
$
327,226
The risk characteristics of each loan portfolio segment are as follows:
Commercial
Commercial loans are primarily based on the identified cash flows of the borrower and secondarily
on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may
not be as expected and the collateral securing these loans may fluctuate in value. Most commercial
loans are secured by the assets being financed or other business assets, such as accounts receivable
or inventory, and may include a personal guarantee. Short-term loans may be made on an
unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for
the repayment of these loans may be substantially dependent on the ability of the borrower to
collect amounts due from its customers.
Commercial Real Estate
Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans
secured by real estate. Commercial real estate lending typically involves higher loan principal
amounts and the repayment of these loans is generally dependent on the successful operation of the
property securing the loan or the business conducted on the property securing the loan.
Commercial real estate loans may be more adversely affected by conditions in the real estate
markets or in the general economy. The characteristics of properties securing the Company’s
commercial real estate portfolio are diverse, but with geographic location almost entirely in the
Company’s market area. Management monitors and evaluates commercial real estate loans based
on collateral, geography and risk grade criteria. In general, the Company avoids financing single
2016
43
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
purpose projects unless other underwriting factors are present to help mitigate risk. In addition,
management tracks the level of owner-occupied commercial real estate versus nonowner-occupied
loans.
Residential and Consumer
Residential and consumer loans consist of two segments - residential mortgage loans and personal
loans. For residential mortgage loans that are secured by 1-4 family residences and are generally
owner-occupied, the Company generally establishes a maximum loan-to-value ratio and requires
private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a
subordinate interest in 1-4 family residences, and consumer personal loans are secured by
consumer personal assets, such as automobiles or recreational vehicles. Some consumer personal
loans are unsecured, such as small installment loans and certain lines of credit. Repayment of these
loans is primarily dependent on the personal income of the borrowers, which can be impacted by
economic conditions in their market areas, such as unemployment levels. Repayment can also be
impacted by changes in property values on residential properties. Risk is mitigated by the fact that
the loans are of smaller individual amounts and spread over a large number of borrowers.
44
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
The following tables present the balance in the allowance for loan losses and the recorded
investment in loans based on portfolio segment and impairment method as of December 31, 2016
and 2015:
Allowance for loan losses:
Balance, beginning of year
Provision charged to
expense
Losses charged off
Recoveries
Balance, end of year
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Loans:
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Commercial
Commercial
Real Estate Residential
Installment Unallocated
Total
(In thousands)
2016
$
184
$
597
$
170
$
113
$
1,373
$
2,437
235
(2)
78
495
11
484
3,148
71,366
$
$
$
$
$
$
$
$
$
$
213
(108)
102
804
108
696
1,178
190,508
542
(143)
22
591
––
591
––
76,154
$
$
$
$
$
340
(417)
71
107
––
107
326
14,041
$
$
$
$
$
$
$
$
$
$
(1,029)
––
––
344
––
344
––
––
$
$
$
$
$
301
(670)
273
2,341
119
2,222
4,652
352,069
2016
45
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Allowance for loan losses:
Balance, beginning of year
Provision charged to
expense
Losses charged off
Recoveries
Balance, end of year
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Loans:
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Commercial
Commercial
Real Estate Residential
Installment Unallocated
Total
(In thousands)
2015
$
254
$
1,116
$
92
$
147
$
791
$
2,400
20
(117)
27
184
9
175
57
67,190
$
$
$
$
$
$
$
$
$
$
(382)
(152)
15
597
172
425
1,273
162,186
78
(42)
42
170
––
170
––
81,498
$
$
$
$
$
255
(400)
111
113
––
113
80
17,379
$
$
$
$
$
$
$
$
$
$
582
––
––
1,373
––
1,373
––
––
553
(711)
195
2,437
181
2,256
1,410
328,253
$
$
$
$
$
To facilitate the monitoring of credit quality within the loan portfolio, and for purposes of analyzing
historical loss rates used in the determination of the allowance for loan loss estimate, the Company utilizes
the following categories of credit grades: pass, special mention, substandard, and doubtful. The four
categories, which are derived from standard regulatory rating definitions, are assigned upon initial approval
of credit to borrowers and updated periodically thereafter. Pass ratings, which are assigned to those
borrowers that do not have identified potential or well defined weaknesses and for which there is a high
likelihood of orderly repayment, are updated periodically based on the size and credit characteristics of the
borrower. All other categories are updated on at least a quarterly basis.
46
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
The Company assigns a special mention rating to loans that have potential weaknesses that deserve
management’s close attention. If left uncorrected, these potential weaknesses may, at some future
date, result in the deterioration of the repayment prospects for the loan or the Company’s credit
position.
The Company assigns a substandard rating to loans that are inadequately protected by the current
sound worth and paying capacity of the borrower or of the collateral pledged. Substandard loans
have well defined weaknesses or weaknesses that could jeopardize the orderly repayment of the
debt. Loans and leases in this grade also are characterized by the distinct possibility that the
Company will sustain some loss if the deficiencies noted are not addressed and corrected.
The Company assigns a doubtful rating to loans that have all the attributes of a substandard rating
with the added characteristic that the weaknesses make collection or liquidation in full, on the basis
of currently existing facts, conditions, and values, highly questionable and improbable. The
possibility of loss is extremely high, but because of certain important and reasonable specific
pending factors that may work to the advantage of and strengthen the credit quality of the loan or
lease, its classification as an estimated loss is deferred until its more exact status may be
determined. Pending factors may include a proposed merger or acquisition, liquidation proceeding,
capital injection, perfecting liens on additional collateral or refinancing plans.
The following table shows the portfolio quality indicators as of December 31, 2016:
Loan Class
Commercial
Commercial
Real Estate
Residential
(In thousands)
Installment
Total
Pass Grade
Special Mention
Substandard
Doubtful
$
$
$
71,302
64
3,148
––
$
187,255
3,253
1,178
––
$
76,154
––
––
––
$
14,041
––
326
––
348,752
3,317
4,652
––
74,514
$
191,686
$
76,154
$
14,367
$
356,721
The following table shows the portfolio quality indicators as of December 31, 2015:
Loan Class
Commercial
Commercial
Real Estate
Residential
(In thousands)
Installment
Total
Pass Grade
Special Mention
Substandard
Doubtful
$
$
$
67,150
39
58
––
$
158,362
996
4,101
––
$
81,498
––
––
––
$
17,363
––
96
––
324,373
1,035
4,255
––
67,247
$
163,459
$
81,498
$
17,459
$
329,663
2016
47
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
The Company evaluates the loan risk grading system definitions and allowance for loan losses
methodology on an ongoing basis. No significant methodology changes were made during 2016
and 2015.
The following table shows the loan portfolio aging analysis of the recorded investment in loans as
of December 31, 2016:
30-59 Days
Past Due
and
Accruing
60-89 Days
Past Due
and
Accruing
Greater
Than 90
Days and
Accruing
Non
Accrual
Total Past
Due and
Non Accrual Current
Total Loans
Receivable
(In thousands)
Commercial
Commercial real
estate
Residential
Installment
$
153
$
105 $
75
$
49
$
382 $
74,132
$
74,514
---
805
213
55
135
8
---
161
––
335
922
55
390
2,023
276
191,296
74,131
14,091
191,686
76,154
14,367
Total
$
1,171
$
303 $
236
$
1,361
$
3,071 $
353,650
$
356,721
The following table shows the loan portfolio aging analysis of the recorded investment in loans as
of December 31, 2015:
30-59 Days
Past Due
and
Accruing
60-89 Days
Past Due
and
Accruing
Greater
Than 90
Days and
Accruing
Non
Accrual
Total Past
Due and
Non Accrual Current
Total Loans
Receivable
(In thousands)
Commercial
Commercial real
estate
Residential
Installment
$
141
$
–– $
––
$
63
$
204 $
67,043
$
67,247
319
737
220
––
500
71
132
––
––
250
599
132
701
1,836
423
162,758
79,662
17,036
163,459
81,498
17,459
Total
$
1,417
$
571 $
132
$
1,044
$
3,164 $
326,499
$
329,663
48
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-
10-35-16), when based on current information and events, it is probable the Company will be
unable to collect all amounts due from the borrower in accordance with the contractual terms of the
loan. Impaired loans include nonperforming commercial loans but also include loans modified in
troubled debt restructurings where concessions have been granted to borrowers experiencing
financial difficulties. These concessions could include a reduction in the interest rate on the loan,
payment extensions, forgiveness of principal, forbearance or other actions intended to maximize
collection.
The following table presents impaired loans for the year ended December 31, 2016:
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In thousands)
Average
Investment in
Impaired
Loans
Interest
Income
Recognized
$
$
$
$
$
2,975
658
326
3,959
173
520
---
693
3,148
1,178
326
$
$
$
$
$
2,975
766
326
4,067
173
520
---
693
3,148
1,286
326
$
$
$
$
$
––
––
––
––
11
108
---
119
11
108
---
$
$
$
$
$
2,930 $
1,176
328
4,434
188 $
586
---
774
3,118 $
1,762 $
328 $
142
43
13
198
8
26
2
36
150
69
15
Loans without a specific
valuation allowance:
Commercial
Commercial real estate
Installment
Loans with a specific
valuation allowance:
Commercial
Commercial real estate
Installment
Total:
Commercial
Commercial Real Estate
Installment
2016
49
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
The following table presents impaired loans for the year ended December 31, 2015:
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In thousands)
Average
Investment in
Impaired
Loans
Interest
Income
Recognized
$
$
$
$
44
464
80
588
13
809
822
$
$
74
464
203
741
49
961
1,010
57
1,273
80
$
$
$
123
1,425
203
$
$
$
––
––
––
––
9
172
181
9
172
---
$
74 $
857
213
1,144
49
1,010
1,059
$
$
$
123 $
1,867 $
213 $
4
35
14
53
5
36
41
9
71
14
Loans without a specific
valuation allowance:
Commercial
Commercial real estate
Installment
Loans with a specific
valuation allowance:
Commercial
Commercial real estate
Total:
Commercial
Commercial Real Estate
Installment
At December 31, 2016 and 2015, the Company had certain loans that were modified in troubled
debt restructurings and impaired. The modification of terms of such loans included one or a
combination of the following: an extension of maturity, a reduction of the stated interest rate or a
permanent reduction of the recorded investment in the loan.
50
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
The following tables present information regarding troubled debt restructurings by class and by
type of modification for the years ended December 31, 2016 and 2015:
Year Ended December 31, 2016
Number of
Contracts
Pre-Modification
Outstanding
Recorded
Investment
Post-Modification
Outstanding
Recorded
Investment
(In thousands)
Commercial
Commercial real estate
1 $ 17
116
3
$ 17
116
Year Ended December 31, 2016
Interest
Only
Term
Combination
(In thousands)
Total
Modification
Commercial $ ––
Commercial real estate
––
$ 17
116
$ ––
––
$ 17
116
Year Ended December 31, 2015
Number of
Contracts
Pre-Modification
Outstanding
Recorded
Investment
Post-Modification
Outstanding
Recorded
Investment
(In thousands)
Commercial
Commercial real estate
2 $ 40
62
1
$ 40
62
Year Ended December 31, 2015
Interest
Only
Term
Combination
(In thousands)
Total
Modification
Commercial $ ––
Commercial real estate
––
$ 40
62
$ ––
––
$ 40
62
During the 2016 and 2015, troubled debt restructurings did not have an impact on the allowance for
loan losses. At December 31, 2016 and 2015 and for the years then ended, there were no material
defaults of any troubled debt restructurings that were modified in the last 12 months. The
Company generally considers TDR’s that become 90 days or more past due under the modified
terms as subsequently defaulted.
2016
51
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Note 5:
Premises and Equipment
Major classifications of premises and equipment, stated at cost, are as follows:
Land, buildings and improvements
Furniture and equipment
Computer software
Less accumulated depreciation
Net premises and equipment
Note 6:
Time Deposits
2016
2015
(In thousands)
$
$
17,025
12,164
2,116
31,305
(19,421)
11,884
$
$
15,650
11,361
2,037
29,048
(18,602)
10,446
Time deposits in denominations of $250,000 or more were $1.4 million at December 31, 2016 and
$2.9 million at December 31, 2015. At December 31, 2016, the scheduled maturities of time
deposits are as follows:
Due during the year ending December 31,
(In thousands)
2017
2018
2019
2020
2021
Thereafter
$
$
23,797
16,859
6,520
2,436
1,110
2,511
53,233
Note 7: Borrowings
At December 31, advances from the Federal Home Loan Bank were as follows:
Maturities January 2017 through August 2025,
primarily at fixed rates ranging from 3.08% to
6.65%, averaging 3.93%
Cash Management advances maturities January 2017
through March 2017 at floating rates averaging
0.74%
Maturities May 2016 through August 2025, primarily
at fixed rates ranging from 3.08% to 6.65%,
averaging 3.80%
2016
2015
(In thousands)
$
20,355
$
––
19,500
––
––
39,855
$
26,530
26,530
$
52
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
At December 31, 2016 required annual principal payments on Federal Home Loan Bank advances
were as follows:
For the year ending December 31,
(In thousands)
2017
2018
2019
2020
2021
Thereafter
$
39,634
110
40
17
17
37
$
39,855
At December 31, 2016 and 2015, as a member of the Federal Home Loan Bank system the Bank
had the ability to obtain up to $60.8 million and $60.6 million, respectively, in additional
borrowings based on securities and certain loans pledged to the FHLB. At December 31, 2016 and
2015, the Bank had approximately $122.6 million and $122.1 million, respectively of one- to four-
family residential real estate and commercial real estate loans pledged as collateral for borrowings.
Also at December 31, 2016 and 2015, the Company and the Bank have cash management lines of
credit with various correspondent banks (excluding FHLB cash management lines of credit)
enabling additional borrowings of up to $15.0 million.
Securities sold under repurchase agreements were approximately $9.4 million and $5.7 million at
December 31, 2016 and 2015.
Securities sold under agreements to repurchase are financing arrangements whereby the Company
sells securities and agrees to repurchase the identical securities at the maturities of the agreements
at specified prices. Physical control is maintained for all securities sold under repurchase
agreements. Information concerning securities sold under agreements to repurchase is summarized
as follows:
2016
2015
(Dollars in thousands)
Balance outstanding at year end
Average daily balance during the year
Average interest rate during the year
Maximum month-end balance during the year
Weighted-average interest rate at year end
$
$
$
9,393
11,058
0.12%
14,200
0.12%
$
$
$
5,691
9,769
0.12%
12,934
0.12%
All repurchase agreements are subject to term and conditions of repurchase/security agreements
between the Company and the customer and are accounted for as secured borrowings. The Company’s
repurchase agreements reflected in short-term borrowings consist of customer accounts and securities
which are pledged on an individual security basis.
2016
53
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
The following table presents the Company’s repurchase agreements accounted for as secured
borrowings:
Remaining Contractual Maturity of the Agreement
(In thousands)
December 31, 2016
Continuous Up to 30 Days
30-90 Days
Overnight and
Greater than 90
Days
Total
Repurchase Agreements
U.S government agencies
9,393
$
Total
$
9,393
$
$
––
––
$
$
––
––
$
$
––
––
$
$
9,393
9,393
(In thousands)
December 31, 2015
Continuous Up to 30 Days
30-90 Days
Overnight and
Greater than 90
Days
Total
Repurchase Agreements
U.S. government agencies
$
1,622
$
State and political
subdivisions
4,069
Total
$
5,691
$
––
––
––
$
$
––
$
––
––
$
––
––
––
$
$
1,622
4,069
5,691
Securities with an approximate carrying value of $13.0 million and $8.5 million at December 31,
2016 and 2015, respectively, were pledged as collateral for repurchase borrowings.
Note 8:
Subordinated Debentures
In 2005, a Delaware statutory business trust owned by the Company, United Bancorp Statutory
Trust I (“Trust I” or the “Trust”), issued $4.1 million of mandatorily redeemable debt securities.
The sale proceeds were utilized to purchase $4.1 million of the Company’s subordinated
debentures which mature in 2035. The Company’s subordinated debentures are the sole asset of
Trust I. The Company’s investment in Trust I is not consolidated herein as the Company is not
deemed the primary beneficiary of the Trust. However, the $4.1 million of mandatorily
redeemable debt securities issued by the Trust are includible for regulatory purposes as a
54
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
component of the Company’s Tier I Capital. Interest on the Company’s subordinated debentures is
equal to three month LIBOR plus 1.35% and is payable quarterly.
Note 9:
Income Taxes
The provision for income taxes includes these components:
Taxes currently payable
Deferred income taxes (benefit)
Income tax expense
2016
2015
(In thousands)
$
$
$
1,498
82
1,509
(175)
1,580
$
1,334
A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax
expense is shown below:
Computed at the statutory rate (34%)
(Decrease) increase resulting from
Tax exempt interest
Earnings on bank-owned life insurance - net
Other
2016
2015
(In thousands)
$
1,755 $
1,550
(42)
(160)
27
(66)
(159)
9
Actual tax expense
$
1,580
$
1,334
The tax effects of temporary differences related to deferred taxes shown on the balance sheets
were:
Deferred tax assets
Allowance for loan losses
Stock based compensation
Allowance for losses on foreclosed real estate
Deferred compensation
Intangible assets
Non-accrual loan interest
Unrealized losses on securities available for sale
2016
2015
(In thousands)
$
$
382
375
82
690
124
79
164
372
366
82
760
143
47
5
Total deferred tax assets
1,896
1,775
2016
55
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
2016
2015
Deferred tax liabilities
Depreciation
Deferred loan costs, net
Accretion
FHLB stock dividends
Mortgage servicing rights
Employee benefit expense
Total deferred tax liabilities
(199)
(158)
(1)
(510)
(16)
(162)
(1.046)
Net deferred tax asset
$
850
$
Note 10: Accumulated Other Comprehensive Loss
(109)
(180)
(2)
(510)
(20)
(162)
(983)
792
The components of accumulated other comprehensive loss, included in stockholders’ equity, are as
follows:
Net unrealized loss on securities available-for-sale
Net unrealized loss for funded status of defined
benefit plan liability
Tax effect
Net-of-tax amount
Note 11: Regulatory Matters
2016
2015
(In thousands)
$
$
(483) $
(205)
(688)
234
(454) $
(14)
(261)
(275)
94
(181)
The Company and the Bank are subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can initiate certain
mandatory–and possibly additional discretionary–actions by regulators that, if undertaken, could
have a direct material effect on the Company’s and the Bank’s financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, the Company and
the Bank must meet specific capital guidelines that involve quantitative measures of assets,
liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.
The capital amounts and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors. Furthermore, the Company and the Bank’s
regulators could require adjustments to regulatory capital not reflected in these financial
statements.
56
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
In July 2013, the Federal Reserve approved final rules, referred to herein as the Basel III Rules,
establishing a new comprehensive capital framework for U.S. banking organizations. The Basel III
Rules generally implement the Basel Committee on Banking Supervision’s December 2010 final
capital framework referred to as “Basel III” for strengthening international capital standards. The
Basel III Rules substantially revise the risk-based capital requirements applicable to bank holding
companies and their depository institution subsidiaries, including the Company and Citizens, as
compared to the current U.S. general risk-based capital rules. The Basel III Rules revise the
definitions and the components of regulatory capital, as well as address other issues affecting the
computation of regulatory capital ratios. The Basel III rules added another capital ratio component
“Tier 1 Common Capital Ratio” which is a measurement of a bank’s core equity capital compared
with its total risk-weighted assets The Basel III Rules also prescribe a new standardized approach
for risk weightings that expand the risk-weighting categories from the current categories to a larger
more risk-sensitive number of categories, depending on the nature of the assets, generally ranging
from 0% for U.S. government and agency securities, to 600% for certain equity exposures, and
resulting in higher risk weights for a variety of asset classes. The Basel III capital rules became
effective for the Company and Citizens on January 1, 2015, subject to phase-in periods for certain
components. The Company’s management believes that the Company and Citizens will be able to
meet targeted capital ratios upon implementation of the revised requirements as finalized. The
minimum capital requirements exclude the capital conservation buffer required to avoid limitations
on capital distributions, including dividend payments and certain discretionary bonus payments to
executive officers. The capital conservation buffer was 0.625% at December 31, 2016. The net
unrealized gain or loss on available-for-sale securities is not included in computing regulatory
capital.
As of December 31, 2016, the Company exceeded its minimum regulatory capital requirements
with a total risk-based capital ratio of 13.6%, common equity tier 1 ratio of 11.8%, Tier 1 risk-
based capital ratio of 12.9% and a Tier 1 leverage ratio of 11.0%.
As of December 31, 2016, the most recent notification from Federal Deposit Insurance Corporation
categorized the Bank as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well-capitalized, the Bank must maintain capital ratios as set forth in
the table. There are no conditions or events since that notification that management believes have
changed the Bank’s category.
2016
57
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
The Company’s and Bank’s actual capital amounts and ratios are presented in the following table.
Actual
Amount
Ratio
For Capital Adequacy
Purposes
Ratio
Amount
(Dollars in thousands)
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Ratio
Amount
As of December 31, 2016
Total Capital
(to Risk-Weighted Assets)
Consolidated
Citizens
Common Equity Tier 1 Capital
(to Risk-Weighted Assets)
Consolidated
Citizens
Tier I Capital
(to Risk-Weighted Assets)
Consolidated
Citizens
Tier I Capital
(to Average Assets)
Consolidated
Citizens
As of December 31, 2015
Total Capital
(to Risk-Weighted Assets)
Consolidated
Citizens
Common Equity Tier 1 Capital
(to Risk-Weighted Assets)
Consolidated
Citizens
Tier I Capital
(to Risk-Weighted Assets)
Consolidated
Citizens
Tier I Capital
(to Average Assets)
Consolidated
Citizens
$
$
$
$
$
$
$
$
48,429
41,801
13.6%
11.8
42,088
39,460
11.8%
11.1
46,088
39,460
12.9%
11.1
46,088
39,460
11.0%
9.3
46,854
41,858
14.7%
13.2
40,417
39,421
12.6%
12.4
44,417
39,421
13.9%
12.4
44,417
39,421
10.9%
9.7
$
$
$
$
$
$
$
$
28,516
28,382
8.0%
8.0
N/A
35,478
$
N/A
10.0%
16,040
15,965
4.5%
4.5
N/A N/A
$
23,061
6.5%
21,387
21,287
6.0%
6.0
N/A N/A
$
28,382
8.0%
16,729
17,048
4.0%
4.0
N/A N/A
$
21,310
5.0%
25,573
25,378
8.0%
8.0
N/A
31,722
$
N/A
10.0%
14,385
14,275
4.5%
4.5
N/A N/A
$
20,619
6.5%
19,179
19,033
6.0%
6.0
N/A N/A
$
25,378
8.0%
16,376
16,200
4.0%
4.0
N/A N/A
$
20,251
5.0%
58
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Note 12: Related Party Transactions
At December 31, 2016 and 2015, the Bank had loan commitments outstanding to executive
officers, directors, significant stockholders and their affiliates (related parties).
In management’s
opinion, such loans and other extensions of credit and deposits were made in the ordinary course of
business and were made on substantially the same terms (including interest rates and collateral) as
those prevailing at the time for comparable transactions with other persons. Further, in
management’s opinion, these loans did not involve more than normal risk of collectibility or
present other unfavorable features. Such loans are summarized below.
Aggregate balance – January 1
New loans
Repayments
Aggregate balance – December 31
2016
2015
(In thousands)
$
$
$
10,546
4,864
(1,775)
9,684
1,474
(612)
13,635
$
10,546
Deposits from related parties held by the Bank at December 31, 2016 and 2015, totaled $1.4
million and $1.2 million, respectively.
Note 13: Benefit Plans
Pension and Other Postretirement Benefit Plans
The Company has a noncontributory defined benefit pension plan covering all employees who
meet the eligibility requirements. The Company’s funding policy is to make the minimum annual
contribution that is required by applicable regulations, plus such amounts as the Company may
determine to be appropriate from time to time. The Company expects to contribute $406,000 to the
plan in 2017.
2016
59
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
The Company uses a December 31st measurement date for the plan. Information about the plan’s
funded status and pension cost follows:
Pension Benefits
2016
2015
(In thousands)
Change in benefit obligation
Beginning of year
Service cost
Interest cost
Actuarial gain
Benefits paid
End of year
Change in fair value of plan assets
Beginning of year
Actual return on plan assets
Employer contribution
Benefits paid
End of year
$
(3,968) $
(312)
(198)
23
529
(3,926)
4,458
382
314
(529)
4,625
Funded status at end of year
$
699
$
(3,897)
(341)
(191)
187
274
(3,968)
4,485
(51)
298
(274)
4,458
490
Amounts recognized in accumulated other comprehensive loss not yet recognized as components
of net periodic benefit cost consist of:
Unamortized net loss
Unamortized prior service
Pension Benefits
2016
2015
(In thousands)
$
$
1,052
(847)
205
$
$
1,196
(935)
261
60
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
The estimated net loss and prior service credit for the defined benefit pension plan that will be
amortized from accumulated other comprehensive income as a credit into net periodic benefit cost
over the next fiscal year is approximately $88,000. The accumulated benefit obligation for the
defined benefit pension plan was $3.8 million and $3.8 million at December 31, 2016 and 2015,
respectively.
Information for the pension plan with respect to accumulated benefit obligation and plan assets is
as follows:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Components of net periodic benefit cost
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service (credit) cost
Amortization of net loss
Net periodic benefit cost
Significant assumptions include:
Weighted-average assumptions used to determine
benefit obligation:
Discount rate
Rate of compensation increase
Weighted-average assumptions used to determine
benefit cost:
Discount rate
Expected return on plan assets
Rate of compensation increase
December 31,
2016
2015
(In thousands)
3,926
3,756
4,625
$
$
$
3,968
3,804
4,458
December 31,
2016
2015
(In thousands)
$
312
198
(341)
(89)
81
161
$
341
191
(377)
(89)
43
109
$
$
$
$
$
Pension Benefits
2016
2015
5.39%
3.00%
5.39%
7.50%
3.00%
5.26%
3.00%
4.98%
8.00%
3.00%
2016
61
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
The Company has estimated the long-term rate of return on plan assets based primarily on
historical returns on plan assets, adjusted for changes in target portfolio allocations and recent
changes in long-term interest rates based on publicly available information. The long-term rate of
return did not change from 2015 to 2016.
The following benefit payments, which reflect expected future service, as appropriate, are expected
to be paid as of December 31, 2016:
2017
2018
2019
2020
2021
2022-2026
Total
Pension
Benefits
(In thousands)
$
$
503
193
180
798
489
1,351
3,514
Plan assets are held by an outside trustee which invests the plan assets in accordance with the
provisions of the plan agreement. All equity and fixed income investments are held in various
mutual funds with quoted market prices. Mutual fund equity securities primarily include
investment funds that are comprised of large-cap, mid-cap and international companies. Fixed
income mutual funds primarily include investments in corporate bonds, mortgage-backed securities
and U.S. Treasuries. Other types of investments include a prime money market fund.
The asset allocation strategy of the plan is designed to allow flexibility in the determination of the
appropriate investment allocations between equity and fixed income investments. This strategy is
designed to help achieve the actuarial long term rate on plan assets of 7.5%. The target asset
allocation percentages for both 2016 and 2015 are as follows:
Large-Cap stocks
Small-Cap stocks
Mid-Cap stocks
International equity securities
Fixed income investments
Alternative investments
Not to exceed 68%
Not to exceed 23%
Not to exceed 23%
Not to exceed 30%
Not to exceed 35%
Not to exceed 19%
62
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
At December 31, 2016 and 2015, the fair value of plan assets as a percentage of the total was
invested in the following:
Equity securities
Debt securities
Cash and cash equivalents
Pension Plan Assets
December 31,
2016
2015
68.1%
29.6
2.3
75.3%
23.9
0.8
100.0%
100.0%
Following is a description of the valuation methodologies used for pension plan assets measured at
fair value on a recurring basis, as well as the general classification of pension plan assets pursuant
to the valuation hierarchy.
Where quoted market prices are available in an active market, plan assets are classified within
Level 1 of the valuation hierarchy. Level 1 plan assets include investments in mutual funds that
involve equity, bond and money market investments. All of the Plan’s assets are classified as
Level 1. If quoted market prices are not available, then fair values are estimated by using pricing
models, quoted prices of plan assets with similar characteristics or discounted cash flows. In
certain cases where Level 1 or Level 2 inputs are not available, plan assets are classified within
Level 3 of the hierarchy. At December 31, 2016 and 2015, the Plan did not contain Level 2 or
Level 3 investments.
2016
63
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
The fair values of Company’s pension plan assets at December 31st, by asset category are as
follows:
December 31, 2016
Asset Category
Total Fair Value
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Fair Value Measurements Using
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Mutual money market
Mutual funds – equities
ETF mutual funds
Large and small Cap
Commodities
Mutual funds – fixed income
Fixed income
ETF fixed income
(In thousands)
$
106
$
106
$
––
$
2,561
584
140
1,022
212
2,561
584
140
1,022
212
––
––
––
––
––
Total
$
4,625
$
4,625
$
––
$
––
––
––
––
––
––
––
December 31, 2015
Asset Category
Total Fair Value
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Fair Value Measurements Using
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Mutual money market
Mutual funds – equities
International
Large Cap
Small and Mid Cap
Mutual funds – fixed income
Core bond
High yield corporate
(In thousands)
$
37
$
37
$
––
$
494
1,876
985
845
221
494
1,876
985
845
221
––
––
––
––
––
Total
$
4,458
$
4,458
$
––
$
––
––
––
––
––
––
––
64
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Employee Stock Ownership Plan
The Company has an Employee Stock Ownership Plan (“ESOP”) with an integrated 401(k) plan
covering substantially all employees of the Company. The ESOP acquired 354,551 shares of
Company common stock at $9.64 per share in 2005 with funds provided by a loan from the
Company. Accordingly, $3.4 million of common stock acquired by the ESOP was shown as a
reduction of stockholders’ equity. Shares are released to participants proportionately as the loan is
repaid. Dividends on allocated shares are recorded as dividends and charged to retained earnings.
Compensation expense is recorded equal to the fair market value of the stock when contributions,
which are determined annually by the Board of Directors of the Company, are made to the ESOP.
The Company’s 401(k) matching percentage was 50% of the employees’ first 6% of contributions
for 2016 and 2015.
ESOP and 401(k) expense for the years ended December 31, 2016 and 2015 was approximately
$231,000 and $196,000, respectively.
Share information for the ESOP is as follows at December 31, 2016 and 2015:
2016
2015
Allocated shares at beginning of the year
Shares released for allocation during the year
Net shares acquired on reinvestment of cash or
(distributed) due to retirement/diversification
Unearned shares
$
267,558
23,635
$
42,597
94,541
199,242
23,635
44,681
118,176
Total ESOP shares
428,331
385,734
Fair value of unearned shares at December 31st
$
1,276,000
$
1,133,000
At December 31, 2016, the fair value of the 333,740 allocated shares held by the ESOP was
approximately $4,506,000.
Split Dollar Life Insurance Arrangements
The Company has split-dollar life insurance arrangements with its executive officers and certain
directors that provide certain death benefits to the executive’s beneficiaries upon his or her death.
The agreements provide a pre- and post-retirement death benefit payable to the beneficiaries of the
executive in the event of the executive’s death. The Company has purchased life insurance policies
on the lives of all participants covered by these agreements in amounts sufficient to provide the
sums necessary to pay the beneficiaries, and the Company pays all premiums due on the policies.
In the case of an early separation from the Company, the nonvested executive portion of the death
benefit is retained by the Company. The accumulated post retirement benefit obligation was $1.5
million at December 31, 2016 and $1.4 million at December 31, 2015.
2016
65
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Note 14: Restricted Stock Plan
During 2008, the Company’s stockholders authorized the adoption of the United Bancorp, Inc.
2008 Stock Incentive Plan (the “2008 Plan”). No more than 500,000 shares of the Company’s
common stock may be issued under the 2008 Plan. The shares that may be issued can be
authorized but unissued shares or treasury shares. The 2008 Plan permits the grant of incentive
awards in the form of options, stock appreciation rights, restricted share and share unit awards, and
performance share awards. The 2008 Plan contains annual limits on certain types of awards to
individual participants. In any calendar year, no participant may be granted awards covering more
than 25,000 shares.
The Company believes that such awards better align the interests of its employees with those of its
stockholders. Stock options are generally granted with an exercise price, and restricted stock
awards are valued, equal to the market price of the Company’s stock at the date of grant; stock
option awards generally vest within 9.25 years of continuous service and have a 9.5 year
contractual term. Restricted stock awards generally vest over a 9.5 year contractual term, or over
the period to retirement, whichever is shorter. Restricted stock awards have no post-vesting
restrictions. Restricted stock awards provide for accelerated vesting if there is a change in control
(as defined in the Plans).
A summary of the status of the Company’s nonvested restricted shares as of December 31, 2016,
and changes during the year then ended, is presented below:
Nonvested, beginning of year
Granted
Vested
Forfeited
Nonvested, end of year
Weighted-
Average
Grant-Date
Fair Value
8.39
8.17
9.94
.---
8.75
Shares
$
140,000
40,000
(10,000)
---
170,000
$
Total compensation cost recognized in the income statement for share-based payment arrangements
during the years ended December 31, 2016 and 2015 was $147,000 and $158,000, respectively.
The recognized tax benefits related thereto were $50,000 and $54,000, for the years ended
December 31, 2016 and 2015, respectively.
As of December 31, 2016 and 2015, there was $660,000 and $412,000, respectively, of total
unrecognized compensation cost related to nonvested share-based compensation arrangements
granted under the Plan. That cost is expected to be recognized over a weighted-average period of
3.2 years.
66
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Note 15: Earnings Per Share
Earnings per share (EPS) were computed as follows:
Year Ended December 31, 2016
Weighted-
Average
Shares
Per Share
Amount
Net
Income
(In thousands)
Net income
$
3,580
Dividends on non-vested restricted
stock
Net income allocated to stockholders
Basic earnings per share
Income available to common
stockholders
Effect of dilutive securities
Restricted stock awards
Diluted earnings per share
Income available to common
stockholders and assumed
conversions
(31)
3,549
––
––
4,907,799
$
0.72
108,521
$
3,549
5,016,320
$
0.71
2016
67
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Year Ended December 31, 2015
Weighted-
Average
Shares
Per Share
Amount
Net
Income
(In thousands)
Net income
$
3,224
Dividends on non-vested restricted
stock
Net income allocated to stockholders
Basic earnings per share
Income available to common
stockholders
Effect of dilutive securities
Restricted stock awards
Diluted earnings per share
Income available to common
stockholders and assumed
conversions
(67)
3,157
––
––
4,856,735
$
0.65
76,421
$
3,157
4,933,156
$
0.64
68
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Note 16: Disclosures about Fair Value of Financial Instruments and Other
Assets and Liabilities
The Company defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date.
The Company also utilizes a fair value hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. The
standard describes three levels of inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets for identical assets or liabilities
Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the
full term of the assets or liabilities
Level 3 Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities
Following is a description of the valuation methodologies used for assets measured at fair value on
a recurring basis and recognized in the accompanying balance sheets, as well as the general
classification of such assets pursuant to the valuation hierarchy.
Available-for-sale Securities
Where quoted market prices are available in an active market, securities are classified within
Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are
estimated by using quoted prices of securities with similar characteristics or independent asset
pricing services and pricing models, the inputs of which are market-based or independently sourced
market parameters, including, but not limited to, yield curves, interest rates, volatilities,
prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in
Level 2 of the valuation hierarchy.
2016
69
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
The following tables present the fair value measurements of assets recognized in the accompanying
balance sheets measured at fair value on a recurring basis and the level within the fair value
hierarchy in which the fair value measurements fall at December 31, 2016 and 2015:
December 31, 2016
Fair Value Measurements Using
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Unobservable
Inputs
(Level 3)
Fair
Value
U.S government agencies
$
38,514
$
State and political subdivisions
1,252
––
––
$
38,514
$
1,252
––
––
(In thousands)
December 31, 2015
Fair Value Measurements Using
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Unobservable
Inputs
(Level 3)
Fair
Value
(In thousands)
U.S government agencies
$
31,961
$
State and political subdivisions
2,662
––
––
$
31,961
$
2,662
––
––
Following is a description of the valuation methodologies used for instruments measured at fair
value on a non-recurring basis and recognized in the accompanying balance sheets, as well as the
general classification of such instruments pursuant to the valuation hierarchy.
Impaired Loans (Collateral Dependent)
Collateral dependent impaired loans consisted primarily of loans secured by nonresidential real
estate. Management has determined fair value measurements on impaired loans primarily through
evaluations of appraisals performed. Due to the nature of the valuation inputs, impaired loans are
classified within Level 3 of the hierarchy.
70
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
The Company considers the appraisal or evaluation as the starting point for determining fair value
and then considers other factors and events in the environment that may affect the fair value.
Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is
determined to be collateral-dependent and subsequently as deemed necessary by the Company’s
Chief Lender. Appraisals are reviewed for accuracy and consistency by the Company’s Chief
Lender. Appraisers are selected from the list of approved appraisers maintained by management.
The appraised values are reduced by discounts to consider lack of marketability and estimated cost
to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These
discounts and estimates are developed by the Company’s Chief Lender by comparison to historical
results.
Foreclosed Assets Held for Sale
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at
fair value (based on current appraised value) at the date of foreclosure, establishing a new cost
basis. Subsequent to foreclosure, valuations are periodically performed by management and the
assets are carried at the lower of carrying amount or fair value less cost to sell. Management has
determined fair value measurements on other real estate owned primarily through evaluations of
appraisals performed, and current and past offers for the other real estate under evaluation. Due to
the nature of the valuation inputs, foreclosed assets held for sale are classified within Level 3 of the
hierarchy.
Appraisals of other real estate owned (OREO) are obtained when the real estate is acquired and
subsequently as deemed necessary by the Company’s Chief Lender. Appraisals are reviewed for
accuracy and consistency by the Company’s Chief Lender and are selected from the list of
approved appraisers maintained by management.
The following tables present the fair value measurements of assets recognized in the accompanying
balance sheets measured at fair value on a non-recurring basis and the level within the fair value
hierarchy in which the fair value measurements fall at December 31, 2016 and 2015:
December 31, 2016
Fair Value Measurements Using
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Unobservable
Inputs
(Level 3)
Fair
Value
Collateral dependent impaired
loans
Foreclosed assets held for sale
$
$
3,435
249
$
––
––
$
––
––
3,435
249
(In thousands)
2016
71
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
December 31, 2015
Fair Value Measurements Using
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Unobservable
Inputs
(Level 3)
Fair
Value
Collateral dependent impaired
loans
Foreclosed assets held for sale
Unobservable (Level 3) Inputs
(In thousands)
$
$
641
327
$
––
––
$
––
––
641
327
The following tables present quantitative information about unobservable inputs used in recurring
and nonrecurring Level 3 fair value measurements.
Fair Value at
12/31/16
(In thousands)
Valuation
Technique
Unobservable Inputs
Range
Collateral-dependent
impaired loans
$
3,435 Market comparable
Comparability adjustments
Not available
properties
Foreclosed assets held for
249 Market comparable
Marketability discount
10% – 35%
sale
properties
Fair Value at
12/31/15
(In thousands)
Valuation
Technique
Unobservable Inputs
Range
Collateral-dependent
impaired loans
$
641 Market comparable
Comparability adjustments
Not available
properties
Foreclosed assets held for
327 Market comparable
Marketability discount
10% – 35%
sale
properties
There were no significant changes in the valuation techniques used during 2016.
72
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
The following table presents estimated fair values of the Company’s financial instruments. The fair
values of certain of these instruments were calculated by discounting expected cash flows, which involves
significant judgments by management and uncertainties. Fair value is the estimated amount at which
financial assets or liabilities could be exchanged in a current transaction between willing parties, other
than in a forced or liquidation sale. Because no market exists for certain of these financial instruments
and because management does not intend to sell these financial instruments, the Company does not know
whether the fair values shown below represent values at which the respective financial instruments could
be sold individually or in the aggregate.
Fair Value Measurements Using
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
(In thousands)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Amount
December 31, 2016
Financial assets
Cash and cash equivalents
Loans, net of allowance
Federal Home Loan Bank
stock
Accrued interest receivable
Financial liabilities
Deposits
Short term borrowings
Federal Home Loan Bank
advances
Subordinated debentures
Interest payable
$
11,541
354,380
$
11,541
––
$
–– $
––
––
355,753
4,164
840
338,803
9,393
39,855
4,124
111
––
––
––
––
––
––
––
4,164
840
312,240
9,393
40,120
3,435
111
––
––
––
––
––
––
––
2016
73
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
The classification of the assets and liabilities pursuant to the valuation hierarchy as of December
31, 2015 in the following table have not been audited. The fair value has been derived from the
December 31, 2015 audited consolidated financial statements.
Fair Value Measurements Using
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
(In thousands)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Amount
December 31, 2015
Financial assets
Cash and cash equivalents
Loans, net of allowance
Federal Home Loan Bank
stock
Accrued interest receivable
Financial liabilities
Deposits
Short term borrowings
Federal Home Loan Bank
advances
Subordinated debentures
Interest payable
$
12,701
327,226
$
12,701
––
$
–– $
––
––
325,354
4,210
803
323,622
5,691
26,530
4,124
123
––
––
––
––
––
––
––
4,210
803
307,172
5,691
27,347
3,238
123
––
––
––
––
––
––
––
74
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
The following methods and assumptions were used to estimate the fair value of each class of
financial instruments.
Cash and Cash Equivalents, Accrued Interest Receivable and Federal Home Loan
Bank Stock
The carrying amounts approximate fair value.
Loans
The fair value of 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. Loans with similar characteristics were aggregated for purposes of the
calculations.
Deposits
Deposits include demand deposits, savings accounts, NOW accounts and certain money market
deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time
deposits is estimated using a discounted cash flow calculation that applies the rates currently
offered for deposits of similar remaining maturities.
Interest Payable
The carrying amount approximates fair value.
Short-term Borrowings, Federal Home Loan Bank Advances and Subordinated
Debentures
Rates currently available to the Company for debt with similar terms and remaining maturities are
used to estimate the fair value of existing debt.
Commitments to Originate Loans, Letters of Credit and Lines of Credit
The fair value of commitments to originate loans is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the committed rates. The fair
values of letters of credit and lines of credit are based on fees currently charged for similar
agreements or on the estimated cost to terminate or otherwise settle the obligations with the
counterparties at the reporting date. Fair values of commitments were not material at December
31, 2016 and 2015.
2016
75
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Note 17: Significant Estimates and Concentrations
Accounting principles generally accepted in the United States of America require disclosure of
certain significant estimates and current vulnerabilities due to certain concentrations. Estimates
related to the allowance for loan losses are reflected in the footnote regarding loans. Current
vulnerabilities due to certain concentrations of credit risk are discussed in the footnote on
commitments and credit risk.
Note 18: Commitments and Credit Risk
At December 31, 2016 and 2015, total commercial and commercial real estate loans made up
74.6% and 70.0%, respectively, of the loan portfolio.
Installment loans account for 4.03% and
5.3%, respectively, of the loan portfolio. Real estate loans comprise 21.4% and 24.7% of the loan
portfolio as of December 31, 2016 and 2015, respectively, and primarily include first mortgage
loans on residential properties and home equity lines of credit.
Included in cash and due from banks as of December 31, 2016 and 2015, is $7.3 million and $7.8
million, respectively, of deposits with the Federal Reserve Bank of Cleveland.
Commitments to Originate Loans
Commitments to originate loans are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since a portion of
the commitments may expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a
case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on
management’s credit evaluation of the counterparty. Collateral held varies, but may include
accounts receivable, inventory, property, plant and equipment, commercial real estate and
residential real estate.
At December 31, 2016 and 2015, the Company had outstanding commitments to originate variable
rate loans aggregating approximately $12.3 million and $11.3 million, respectively. The
commitments extended over varying periods of time with the majority being disbursed within a
one-year period.
Mortgage loans in the process of origination represent amounts that the Company plans to fund
within a normal period of 60 to 90 days, some of which are intended for sale to investors in the
secondary market. The Company did not have any mortgage loans in the process of origination
which are intended for sale at December 31, 2016 or 2015.
76
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Standby Letters of Credit
Standby letters of credit are irrevocable conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Financial standby letters of credit are
primarily issued to support public and private borrowing arrangements, including commercial
paper, bond financing and similar transactions. Performance standby letters of credit are issued to
guarantee performance of certain customers under non-financial contractual obligations. The credit
risk involved in issuing standby letters of credit is essentially the same as that involved in
extending loans to customers. Fees for letters of credit are initially recorded by the Company as
deferred revenue and are included in earnings at the termination of the respective agreements.
Should the Company be obligated to perform under the standby letters of credit, the Company may
seek recourse from the customer for reimbursement of amounts paid.
The Company did not have any total outstanding standby letters of credit at December 31, 2016
and 2015. At both December 31, 2016 and 2015, the Company had no deferred revenue under
standby letter of credit agreements.
Lines of Credit and Other
Lines of credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Lines of credit generally have fixed expiration dates. Since a
portion of the line may expire without being drawn upon, the total unused lines do not necessarily
represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-
case basis. The amount of collateral obtained, if deemed necessary, is based on management’s
credit evaluation of the counterparty. Collateral held varies but may include accounts receivable,
inventory, property, plant and equipment, commercial real estate and residential real estate.
Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet
instruments.
At December 31, 2016, the Company had granted unused lines of credit to borrowers aggregating
approximately $20.9 million and $35.6 million for commercial lines and open-end consumer lines,
respectively. At December 31, 2015, the Company had granted unused lines of credit to borrowers
aggregating approximately $18.6 million and $36.4 million for commercial lines and open-end
consumer lines, respectively.
2016
77
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Note 19: Recent Accounting Pronouncements
In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2016-15 "Statement of Cash Flows (Topic 230) - Classification of Certain Cash
Receipts and Cash Payments. " ASU 2016-15 provides cash flow statement classification guidance
for certain transactions including how the predominance principle should be applied when cash
receipts and cash payments have aspects of more than one class of cash flows. The guidance is
effective for public business entities for fiscal years beginning after December 15, 2017, and
interim periods within those fiscal years. Early adoption is permitted, including adoption in an
interim period. The Company assessed ASU 2016-15 and does not expect a significant impact on
its accounting and disclosures.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic
326) - Measurement of Credit Losses on Financial Instruments.” The provisions of ASU 2016-13
were issued to provide financial statement users with more decision-useful information about the
expected credit losses on financial instruments that are not accounted for at fair value through net
income, including loans held for investment, held-to-maturity debt securities, trade and other
receivables, net investment in leases and other commitments to extend credit held by a reporting
entity at each reporting date. ASU 2016-13 requires that financial assets measured at amortized cost
be presented at the net amount expected to be collected, through an allowance for credit losses that
is deducted from the amortized cost basis. The amendments in ASU 2016-13 eliminate the probable
incurred loss recognition in current GAAP and reflect an entity’s current estimate of all expected
credit losses. The measurement of expected credit losses is based upon historical experience,
current conditions, and reasonable and supportable forecasts that affect the collectability of the
financial assets.
For purchased financial assets with a more-than-insignificant amount of credit deterioration since
origination (“PCD assets”) that are measured at amortized cost, the initial allowance for credit
losses is added to the purchase price rather than being reported as a credit loss expense. Subsequent
changes in the allowance for credit losses on PCD assets are recognized through the statement of
income as a credit loss expense.
Credit losses relating to available-for-sale debt securities will be recorded through an allowance for
credit losses rather than as a direct write-down to the security.
ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the
impact of these amendments to the Company’s financial position and results of operations and
currently does not know or cannot reasonably quantify the impact of the adoption of the
amendments as a result of the complexity and extensive changes from the amendments. The
Allowance for Loan Losses (ALL) estimate is material to the Company and given the change from
an incurred loss model to a methodology that considers the credit loss over the life of the loan, there
is the potential for an increase in the ALL at adoption date. The Company is anticipating a
significant change in the processes and procedures to calculate the ALL, including changes in
assumptions and estimates to consider expected credit losses over the life of the loan versus the
78
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Allowance for Loan Losses (ALL) estimate is material to the Company and given the change from
an incurred loss model to a methodology that considers the credit loss over the life of the loan, there
is the potential for an increase in the ALL at adoption date. The Company is anticipating a
significant change in the processes and procedures to calculate the ALL, including changes in
assumptions and estimates to consider expected credit losses over the life of the loan versus the
current accounting practice that utilizes the incurred loss model. In addition, the current accounting
policy and procedures for the other-than-temporary impairment on available-for-sale securities will
be replaced with an allowance approach. The Company is expecting to begin developing and
implementing processes during the next two years to ensure it is fully compliant with the
amendments at adoption date. For additional information on the allowance for loan losses. See Note
4.
ASU No. 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting"
ASU No. 2016-09 was issued in March 2016 and affects all entities that issue share-based payment
awards to their employees. The new guidance involves several aspects of the accounting for share-
based payment transactions, including income tax consequences, classification of awards as either
equity or liabilities, and classification on the statement of cash flows. Under ASU No. 2016-09, any
excess tax benefits or tax deficiencies should be recognized as income tax expense or benefit in the
income statement. Excess tax benefits are to be classified as an operating activity in the statement
of cash flows. In accruing compensation cost, an entity can make an entity-wide accounting policy
election to either estimate the number of awards that are expected to vest, as required under current
guidance, or account for forfeitures when they occur. For an award to qualify for equity
classification, an entity cannot partially settle the award in excess of the employer's maximum
statutory withholding requirements. Such cash paid by an employer when directly withholding
shares for tax withholding purposes should be classified as a financing activity in the statement of
cash flows. The amendments in ASU No. 2016-09 are effective for public business entities for
fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016.
Early adoption is permitted. The stock based compensation plan has not historically generated
material amounts of excess tax benefits or deficiencies and, therefore, the Company does not
anticipate a material change in the Company’s financial position or results of operations, as a result
of adopting ASU No. 2016-09. The Company is currently implementing the new processes and
does not anticipate significant changes.
ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities"
2016
79
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
beginning after December 15, 2017. The amendments should be applied by means of a cumulative-
effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The
amendments related to equity securities without readily determinable fair values (including
disclosure requirements) should be applied prospectively to equity instruments that exist as of the
date of adoption. The Company is currently evaluating the impact of these amendments, but does
not expect them to have a material effect on the Company’s financial position or results of
operations since it does not have any equity securities or a valuation allowance. However, the
amendments will have an impact on certain items that are disclosed at fair that are not currently
utilizing the exit price notion when measuring fair value. At this time the Company cannot
quantify the change in the fair value of such disclosures since the Company is currently evaluating
the full impact of the Update and is in the planning stages of developing appropriate procedures and
processes to comply with the disclosure requirements of such amendments. The current accounting
policies and procedures will be modified after the Company has fully evaluated the standard to
comply with the accounting changes mentioned above. For additional information on fair value of
assets and liabilities, see Note 16.
In May 2014, the FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers (Topic
606)” (ASU 2014-09). This update to the ASC is the culmination of efforts by the FASB and the
International Accounting Standards Board (IASB) to develop a common revenue standard for U.S.
GAAP and International Financial Reporting Standards (IFRS). ASU 2014-09 supersedes Topic
605 – Revenue Recognition and most industry-specific guidance. The core principle of the
guidance is that an entity should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. The guidance in ASU 2014-09 describes a 5-step
process entities can apply to achieve the core principle of revenue recognition and requires
disclosures sufficient to enable users of financial statements to understand the nature, amount,
timing, and uncertainty of revenue and cash flows arising from contracts with customers and the
significant judgments used in determining that information. Originally, the amendments in ASU
2014-09 were effective for annual reporting periods beginning after December 15, 2016, including
interim periods within that reporting period and early application is not allowed. In July 2015, the
FASB extended the implementation date to annual reporting periods beginning after December 15,
2017 including interim periods within that reporting period. Transitional guidance is included in the
update. Earlier adoption is permitted only as of annual reporting periods beginning after December
31, 2016, including interim periods within that reporting period. The Company is in its preliminary
stages of evaluating the impact of these amendments, although it doesn’t expect the amendments to
have a significant impact to the Company’s financial position or results of operations. The
amendments could potentially impact the accounting procedures and processes over the recognition
of certain revenue sources, including, but not limited to, non-interest income. The Company is
expecting to begin developing processes and procedures during 2017 to ensure it is fully compliant
with these amendments at the date of adoption.
On February 25, 2016, the FASB issued ASU 2016-02 “Leases (Topic 842).” ASU 2016-02 is
intended to improve financial reporting about leasing transactions. This ASU affects all companies
and other organization that lease assets such as real estate, airplanes, and manufacturing equipment.
Under the current accounting model, an organization applies a classification test to determine the
accounting for the lease arrangement:
80
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
(a)
(b)
Some leases are classified as capital where by the lessee would recognize lease assets and
liabilities on the balance sheet.
Other leases are classified as operating leases whereby the lessee would not recognize lease
assets and liabilities on the balance sheet.
Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease
terms of more than 12 months. Consistent with Generally Accepted Accounting Principles (GAAP), the
recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee
primarily will depend on its classification as a finance or operating lease.
However, unlike current GAAP—which requires only capital leases to be recognized on the balance
sheet—the new ASU will require both types of leases to be recognized on the balance sheet.
For public companies, the ASU is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018. Thus, for a calendar year company, it would be effective January 1,
2019. The impact is not expected to have a material effect on the Company’s financial position or results
of operations since the Company does not have a material amount of lease agreements. The Company is
currently in the process of fully evaluating the amendments and will subsequently implement new
processes to comply with the ASU. In addition, the Company will change its current accounting practice
to comply with the amendments and such changes as mentioned above.
Note 20: Condensed Financial Information (Parent Company Only)
Presented below is condensed financial information as to financial position, results of operations
and cash flows of the Company:
Condensed Balance Sheets
Assets
Cash and cash equivalents
Investment in the Bank
Corporate owned life insurance
Other assets
Total assets
Liabilities and Stockholders’ Equity
Subordinated debentures
Other liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2016
2015
(In thousands)
$
4,644
39,141
7
2,973
3,455
39,412
---
2,814
46,765
$
45,681
$
4,124
---
42,641
4,124
61
41,496
46,765
$
45,681
$
$
$
$
2016
81
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Condensed Statements of Income and Comprehensive Income
Years Ended December 31,
2016
2015
(In thousands)
Operating Income
Dividends from subsidiary
Interest and dividend income from securities and federal funds
$
Total operating income
General, Administrative and Other Expenses
Income Before Income Taxes and Equity in Undistributed
Income of Subsidiary
Income Tax Benefits
Income Before Equity in Undistributed Income of Subsidiary
Equity in Undistributed Income of Subsidiary
Net Income
Comprehensive Income
$
$
3,550
7
3,557
1,651
1,906
484
2,390
1,190
3,580
3,307
$
$
$
3,550
43
3,593
1,755
1,838
569
2,407
817
3,224
2,986
82
2016
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Condensed Statements of Cash Flows
Years Ended December 31,
2016
2015
(In thousands)
Operating Activities
Net income
Items not requiring (providing) cash
Depreciation and amortization
Equity in undistributed income of subsidiary
Amortization of ESOP and share-based compensation plans
Gain on Corporate owned life insurance
Net change in other assets and other liabilities
---
(39)
378
---
(190)
3,580
$
$
3,224
13
(817)
360
(29)
(11)
Net cash provided by operating activities
3,729
2,740
Investing Activities
Redemption of Corporate owned life insurance
Net cash provided by financing activities
Financing Activities
Dividends paid to stockholders
Treasury stock –net
Net cash used in financing activities
Net Change in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
---
---
(2,540)
---
(2,540)
1,189
3,455
347
347
(2,259)
19
(2,240)
847
2,608
Cash and Cash Equivalents at End of Year
$
4,644
$
3,455
2016
83
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
December 31, 2016 and 2015
Note 21: Quarterly Financial Data (Unaudited)
The following tables summarize the Company’s quarterly results of operations for the years ended
December 31, 2016 and 2015.
2016:
March 31,
June 30,
September 30, December 31,
Three Months Ended
Total interest income
Total interest expense
Net interest income
Provision (credit) for loan losses
Other income
General, administrative and other
expense
Income before income taxes
Federal income taxes
Net income
Earnings per share
Basic
Diluted
$
$
$
$
(In thousands, except per share data)
4,038 $
475
4,187 $
437
4,166 $
432
3,563
71
867
3,141
1,218
373
3,750
105
902
3,251
1,296
389
3,734
131
1,056
3,345
1,314
386
845 $
907 $
928 $
0.18 $
0.18 $
0.18 $
0.17 $
0.18 $
0.18 $
4,244
440
3,804
(6)
856
3,333
1,333
432
901
0.18
0.18
84
2016
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
2015:
March 31,
June 30,
September 30, December 31,
Three Months Ended
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Other income
Gain on sale of securities - net
General, administrative and other
expense
Income before income taxes
Federal income taxes
Net income
Earnings per share
Basic
Diluted
$
$
$
$
(In thousands, except per share data)
3,859 $
581
4,040 $
582
4,118 $
578
3,278
116
992
3,184
970
276
3,458
145
935
3,112
1,136
331
3,540
126
987
3,182
1,219
360
694 $
805 $
859 $
0.14 $
0.16 $
0.17 $
0.14 $
0.16 $
0.17 $
4,065
542
3,523
166
938
3,062
1,233
367
866
0.18
0.17
2016
85
86 2016