We Are UNITED...To Better Serve You!
A N N UA L R E P O R T
We Are UNITED...To Better Serve You!
A Letter from the President and CEO
To the shareholders of United Bancorp, Inc….
I am extremely pleased to report about the record level of earnings that our company achieved
in 2017 on an operating basis (exclusive of the deferred tax asset revaluation that took place
in the fourth quarter). This past year, United Bancorp, Inc. (UBCP) reported diluted earnings
per share of $0.71 and net income of $3.546 million. In the fourth quarter and for the year ended
December 31, 2017, UBCP recorded a $216 thousand, or $0.04 per share, one-time write down
or revaluation of its net deferred tax asset as a result of the Tax Cuts and Jobs Act of 2017 (“tax
act”) enacted on December 22, 2017. Without this charge relating to the implementation of the
tax act, our company’s diluted earnings per share would have been $0.75 versus $0.71 for the
prior year end, an increase of 5.6%, and our net income would have been $3.762 million, which
represents record earnings for our company. Our company’s previous best year in net income performance was 2008, which
was prior to our industry being negatively impacted by the effects of the Great Recession.
Scott A. Everson
President and CEO
This past year, we continued to focus on growing our company and saw growth in the three primary balance sheet areas on
which we keenly focus: assets, loans and deposits. We seek to have growth in these key areas of the balance sheet if we can
do so in a profitable fashion in order to support our growth strategy. In addition, we continued to build and solidify the
infrastructure, or base, that will firmly support our envisioned growth in the coming years. Building our infrastructure during the
course of 2017 had the impact of driving our non-interest expense levels up to some degree; but, we firmly anticipate a nice
payback on this investment in future periods.
As always--- and of utmost importance to our company--- this past year we continued to focus on rewarding our valued
shareholders by increasing our dividend payout, while maintaining our market value position. For the year, we paid total cash
dividends of $0.51 (including a special cash dividend of $0.05 paid, once again, in the fourth quarter). This is an increase of
$0.04, or 8.5%, over the cash dividend paid in the previous year and puts our cash dividend yield at a level that is nearly twice
that currently seen within our industry! The market value of our company’s stock at year-end was $13.25, which is in-line with
where it finished at the previous year-end. At this market valuation, our company’s stock is trading above eighteen times (18x’s)
earnings, which is very respectable in the current market. With the present confidence that we have in improving our earnings
further in the coming year, we are very optimistic that the market will further reward us with an increase in our market valuation
in 2018. Overall, we are extremely pleased with the performance of our company in 2017 and the direction that we are going!
The following is a more detailed picture of how we achieved the record performance at United Bancorp, Inc. in 2017:
Continuing to Increase Net Interest Income: Once again this past year, we were able to achieve positive growth in our primary revenue
area--- net interest income. We achieved this by growing our balance sheet while maintaining our margins. In 2017, we saw our total assets
grow to $459.3 million at year-end, which is an increase of $21.3 million or 4.9% over the previous year. Contributing to this growth in total
assets this past year was the growth that we experienced in our loan portfolio. At year-end, gross loans totaled $368.6 million, which was
an increase of $11.9 million, or 3.3%, over 2016 totals. Also contributing to the increase in total assets in 2017 was the growth seen in our
securities portfolio. This past year, securities and other restricted stock was at a level of $49.1 million at year-end, which was an increase
over the previous year of $5.2 million, or 11.8%. With an increasing target for the Federal Funds Rate (FFR) this past year and an increasing
level of earning-assets, our company was able to realize an increase in the total interest income that it produced. In 2017, we generated $17.7
million in total interest income, which is an increase of $1.02 million, or 6.1%, year-over-year.
UNITEDBANCORP INC.
2 017 | A N N UA L R E P O RT
1
A Letter from the President and CEO - Continued
The other component of net interest income is interest expense. Once again, as we have experienced in recent years, our company was able
to lower its total interest expense. This is quite remarkable considering that we grew our total deposits by $47.2 million, or 14.0%, during the
course of this past year! Overall, total interest expense for 2017 was $1.76 million, a decrease of 1.1% from the previous year. As mentioned,
we were able to contain total interest expense even while growing total deposits. This was accomplished through our strategy of building
relationships with our depositors and, thereby, attracting lower-cost retail funding. Overall, we saw lower-cost retail funding (consisting of
non interest and interest bearing demand and savings deposits) comprise $34.6 million of this growth in core funding. Time deposits grew
by $12.6 million or 23.6%. This lower-cost and time retail funding that we were able to attract this past year was utilized to replace higher-cost
wholesale funding alternatives. Our company had $20.0 million in fixed rate advances from the Federal Home Loan Bank (FHLB) mature over
the course of 2017. By exchanging this higher-cost wholesale funding with lower-cost retail funding, we experienced a decline in our overall
interest expense to average assets, which decreased on a year-over-year basis from 0.43% to 0.39%. This occurrence fully explains our
company’s ability to fund its growth while lowering overall funding costs in 2017!
By increasing the level of interest income that we realized this past year through positive asset-related growth and controlling the level of
interest expense, we saw our net interest margin improve by two basis points to a level of 3.85% at year-end. In 2017, this led to our company
realizing net interest income of $15.9 million, an increase of $1.04 million or 7.0%.
Increasing Noninterest Expense to Support Future Growth while Maintaining Noninterest Income Levels: Focusing on the growth of our
company, this past year we continued building the base upon which we will grow in future periods. In addition, we absorbed expenses related
to several initiatives that were implemented the previous year, which led to our company realizing this cost for the entire year in 2017. With
our focus on the future, we saw our non-interest expense levels increase this past year (after seeing decline or relative containment thereof in
recent years). For the year, noninterest expense increased by $578 thousand or 4.4%. Most of the increase in noninterest expense was related
to either infrastructure or personnel enhancement in the following areas: hiring additional loan origination personnel to drive the revenue of
our company; completing the renovation of our Main Office to support an enhanced loan origination and product/ service delivery platform;
reorganizing and enhancing our Information Technology function to better manage risk and serve our valued customers; opening a new Loan
Production Office in the Wheeling, West Virginia market to increase overall loan production and to introduce our brand to a new, highly
appealing market; marketing expense related to supporting our strategy of attracting low-cost retail funding; and, lastly, legal and other
expenses associated with the renaming of our company’s single bank charter. Considering that most of the aforementioned noninterest
expenses are fixed or nonrecurring, we firmly believe that we should be able to drive higher levels of revenue without significantly adding to
our overall noninterest expense levels in the short-term; thereby, enhancing our earnings and returns in the near term!
Looking at the income-side of the net noninterest margin, the noninterest income realized by our company in 2017 was down $229 thousand
year-over-year. The majority of this decrease related to a $162 thousand non-recurring gain that we realized when we sold our Bankers
Bancshares, Inc. stock in 2016. Netting out the effect of this one-time event, the noninterest income realized by our company this past year
remained relatively stable and was driven primarily by service charges on deposit accounts. Going forward, we seek to focus on payments
and other services that will enhance the level of income generated by deposit or cash management-based services.
Protecting the Bottom-Line by Maintaining Solid Credit Quality Metrics--- Even while growing our loan portfolio, we were able to preserve
and improve our overall stability relating to credit quality. Year-over-year, we continued to have very solid credit quality-related metrics
supported by nonaccrual loans and loans past due thirty (30) plus days decreasing from a level of $3.1 million to $2.7 million, a decline of
$392 thousand or 12.6%. Further--- net loans charged off, excluding overdrafts, was $235 thousand for 2017, which is a decrease of $46
thousand, or 16.4%, from the previous year. As of year-end, total past dues and nonaccrual loans to gross loans was a very solid 0.73%,
versus 0.86% the prior year. In addition, net charge offs to average loans was a very respectable 0.07% for 2017. With these improving credit
quality metrics, it is anticipated that our Company will be able to keep contributions to its loan loss reserve at relatively low levels in the coming
year, which should help preserve and contribute to the enhancement of bottom-line earnings.
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2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Each of these aforementioned items led to the positive improvement in the earnings of our company in 2017. By keeping a steady focus on
and maintaining or improving our performance in these key operational areas, we strongly believe that our company will continue to produce
increasing levels of earnings and profitability in future periods!
There were several events that occurred and enhancements made over the course of this past year that will either help us achieve the level of
growth that we envision or lead to higher levels of performance for our company. These events and/or enhancements are:
Renaming our bank charter to more effectively build our brand and gain recognition. Effective on October 10, 2017, The Citizens
Savings Bank and its two divisions--- The Citizens Bank and The Community Bank--- were renamed Unified Bank. Renaming our
bank-level charter, Unified Bank, will allow us to establish a more effective brand and better support our envisioned growth objective.
Considering that there are roughly 5,700 bank charters in the United States and that ten (10) percent have a charter with the name
of either “Citizens” or “Community,” it was extremely difficult to differentiate our banks in the markets that we serve and leverage
those names as we seek to grow. Our Unified Bank name (and, charter) is the only one for a commercial banking entity in our country
at this time. We have registered this name in the three primary states in which we presently seek to operate and grow--- Ohio, West
Virginia and Pennsylvania--- and believe that we now truly have a brand that can be effectively promoted and leveraged. In addition,
operating as a “single” brand allows our company to reduce costs and gain efficiencies! No longer do we have to maintain multiple
platforms to effectively promote two brand names. This should lead to lower operating costs on a going forward basis. Lastly, our
team members are proud to be on and have a “common” platform and name. At Unified, we now truly have one bank and one
vision… together, we will accomplish more!
Restructuring our Information Technology Platform to more effectively manage the risks with which we are confronted as a
financial services organization, while delivering our services on an evolutionary platform that is progressive for a community-
banking organization. At mid-year in 2017, our company implemented a plan that it developed in conjunction with a leading
technology consulting partner to ensure that we are effectively managing the risks with which banking organizations are more
routinely confronted in this “Age of Technology!” By developing more effective risk management practices, we will mitigate potential
risks to our customers and be able to more effectively (and, confidently) expand our digital delivery services. Over the course of the
next three years, our company seeks to develop a true “Hybrid or Omni-Channel” structure that will allow us to adapt and compete
more effectively in today’s virtual banking environment. But, with that said, we will never forget our community-banking roots! Quite
simply, we want to maximize our potential by serving our present and future customers on “their” terms. Our hope and goal is to
ensure our overall relevance within our industry by having both a stellar “brick-and-mortar” delivery system to consult with our valued
customers “in-person” or “virtually” interacting with them by offering a digital delivery solution; whereby, they will never have to set
foot in one of our physical locations to conduct any of their business!
Benefitting from the projected positive impact of the Tax Cuts and Jobs Act of 2017 (Tax Reform). Although our earnings were
negatively impacted in the fourth quarter of 2017 with the implementation of this act in the amount of $216 thousand, or $0.04 per
share, it is anticipated that we will benefit in the coming year with the reduction of our marginal tax rate from 35% to 21%. From the
information that we are gathering, financial industry observers and insiders believe that this could lead to improved earnings for
financial services organizations in the coming year in the range of 16% to 20%. On the basis of our internal projections, we believe
that we will also be within this range. With this enhanced level of earnings, we have rewarded our employees with higher merit-level
increases in salaries in the current year (which is a recurring benefit). In addition, we have recently announced our intention to reward
our valued shareholders with a higher cash dividend payout in 2018! With ambitious goals for growth, we will also reinvest some of
this anticipated windfall within our company to produce the higher-level results that we all anticipate and demand for our company!
UNITEDBANCORP INC.
2 017 | A N N UA L R E P O RT
3
A Letter from the President and CEO - Continued
As you can see, our company had a very solid year of performance and, we firmly believe, has outstanding future potential. Throughout a
large portion of our geographic footprint, we stand to benefit from the “oil and gas” play that has been underway for several years and is
becoming more developed. As a company, we are cautiously optimistic that positive news will be announced by mid-year 2018 in our Eastern
Region regarding the much anticipated ethane cracker plant that is being considered for construction in Dilles Bottom, Ohio. As we are told,
such a venture will create thousands of construction-related jobs over the course of several years and hundreds of high-paying jobs thereafter.
Quite frankly, the announcement of the building of this ethane cracker will be a game changer for our Valley! It will reverse decades of
economic decline and lead to economic recovery for our long stagnant area. With such a facility located within our Valley, it is anticipated
that there will be a tremendous “multiplier effect” with many other entities within the polymer industry building plants and creating jobs. What
a blessing this will be for our local populace and communities and, also, a great opportunity for our company!
As always, we are truly blessed to have a “United and Unified” team, management, board of directors and shareholder group. Ultimately, our
utmost goal is to continue increasing the value of your ownership in our company through market value appreciation and increasing dividends.
Being supportive of one another… we firmly believe that we will accomplish this and greater things!
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
2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
D I V I D E N D A N D S T O C K H I S T O R Y
D I V I D E N D A N D S T O C K H I S T O R Y
2018 ANTICIPATED
DIVIDEND PAYABLE DATES
Cash Dividends
Declared (1)
Special Cash Dividends
and Stock Dividends
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
2017
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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
0.46
-
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
5¢ Per Share Special Dividend
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
December 29, 2017
First Quarter
March 20, 2018
Second Quarter*
June 20, 2018
Third Quarter*
September 20, 2018
Fourth Quarter*
December 20, 2018
*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). Unified
Bank (formerly The Citizen's Saving Bank)
shareholders received 4 shares of UBCP stock in
exchange for 1 share of bank stock.
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
300
250
200
150
100
50
0
e
u
l
a
V
x
e
d
n
I
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
Index
United Bancorp, Inc.
NASDAQ Composite
SNL Bank Index
SNL Bank $250M-$500M
SNL Midwest Bank
Dow Jones
12/31/12
100.00
100.00
100.00
100.00
100.00
100.00
12/31/13
133.66
140.12
137.30
135.79
136.91
129.65
12/31/14
139.85
160.78
153.48
154.94
148.84
142.67
12/31/15
174.40
171.97
156.10
177.27
151.10
142.98
12/31/16
256.37
187.22
197.23
222.44
201.89
166.56
12/31/17
262.38
242.71
232.91
271.83
216.95
213.38
5
Directors
Jonathan 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 = Unified Bank
3 = Chairman - United Bancorp Inc. 4 = Chairman - Unified Bank
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2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Directors and Officers
DIRECTORS OF UNITED BANCORP, INC.
Scott A. Everson1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .President & Chief Executive Officer, United Bancorp, Inc.
Chairman, President & Chief Executive Officer, Unified Bank, Martins Ferry, Ohio
Gary W. Glessner2. . . . . . . . . . . Certified Public Accountant, Managing Member of Glessner & Associates, PLLC; Managing Member of
Glessner Wharton & Andrews Insurance Group, LLC; Managing Member of Wheeling Coin, LLC; Vice President
of Windmill Truckers Center, Inc.; Vice President of Glessner Enterprises, Inc.; Managing Member of GW Rentals, LLC
John M. Hoopingarner1,2,3,4 . . . . . Executive Director & Secretary, 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
Lisa A. Basinger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Corporate Secretary
DIRECTORS OF UNIFIED BANK
Jonathan C. Clark, Esq. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attorney at Law, Lancaster, Ohio
Scott A. Everson1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .President & Chief Executive Officer, United Bancorp, Inc.
Chairman, President & Chief Executive Officer, Unified Bank, Martins Ferry, Ohio
Gary W. Glessner1,2 . . . . . . . . . Certified Public Accountant, Managing Member of Glessner & Associates, PLLC; Managing Member of
Glessner Wharton & Andrews Insurance Group, LLC; Managing Member of Wheeling Coin, LLC; Vice President
of Windmill Truckers Center, Inc.; Vice President of Glessner Enterprises, Inc.; Managing Member of GW Rentals, LLC
John R. Herzig . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . President, Toland-Herzig Funeral Homes & Crematory, Strasburg, Ohio
John M. Hoopingarner1,2 . . . . . .Executive Director & Secretary, 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
UNITEDBANCORP INC.
2 017 | A N N UA L R E P O RT
7
Bank Past Presidents & Directors
The journey to becoming the institution we are today began in Martins Ferry,
Ohio in 1902. Originally founded as The German Savings Bank and renamed
to The Citizens Savings Bank in 1918, the last 115 years have seen growth
and change that would have been unimaginable at its' founding. The bank
has grown through sound management, the addition of new offices and the
acquisition of others. With the most recent name change from The Citizens
Savings Bank to Unified Bank in 2017, it has and will continue to move forward.
The growth and success of the bank has been attributed to the association
of many dedicated individuals.
PAST PRESIDENTS
Edward E. McCombs, 1902-1936
John E. Reynolds, 1936 – 1940
Harold H. Riethmiller, 1940 – 1973
James W. Everson, 1973 – 2002
Past Board of Directors
Edward E. McCombs, 1902-1936*
John E. Reynolds, 1902-1940
Dr. Joseph 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
Chris 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
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
Matthew C. Thomas, 1988-2016
Terry A. McGhee, 2001-2017
* Past Chairman
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UNITEDBANCORP INC.
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 2017, there were 5,435,304 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, 2017 to December 31, 2017 compared to the same periods in 2016 as reported
by the NASDAQ.
2 0 1 7
31-Mar 30-Jun 30-Sep 31-Dec
2 0 1 6
31-Mar 30-Jun 30-Sep
31-Dec
Market Price Range
High ($)
Low ($)
Cash Dividends
Quarter ($)
Cumulative ($)
Special Cash Dividends
$ 13.44
$ 11.74
12.25
11.35
12.20
11.55
13.60
12.00
$
$
$
0.11
0.11
-
0.11
0.22
-
0.12
0.34
-
0.12
0.46
0.05
$
$
$
$
$
9.55
8.80
10.00
9.02
11.30
9.77
13.50
10.45
0.10
0.10
-
0.10
0.20
-
0.11
0.31
-
0.11
0.42
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
Raymond James
222 South Riverside Plaza
7th Floor
Chicago, Illinois 60606
Anthony LanFranco
800-800-4693
Stifel, Nicolaus & Company Inc.
655 Metro Place South
Dublin, Ohio 43017
Steven Jefferis
877-875-9352
The Annual Meeting of Shareholders
will be held at 2:00 p.m., April 18,
2018 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:
Unified 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
UNITEDBANCORP INC.
2 017 | A N N UA L R E P O RT
9
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, 2017 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 reported diluted earnings per share of
$0.71 and net income of $3,546,000 for the year ended
December 31, 2017. In the fourth quarter and for the year
ended December 31, 2017, the Company recorded a
$216,000, or $0.04 per share, one-time write down or
revaluation of its net deferred tax asset as a result of the Tax
Cuts and Jobs Act (“Tax Act”) enacted on December 22,
2017. The tax act lowers the base corporate tax rate from
35% to 21%. Without this charge, the Company’s diluted
earnings per share would be $0.75 compared to $0.71 for
the year ended December 31, 2016, an increase of 5.63%,
and $0.20 versus $0.18 in the fourth quarter, an increase of
11.1%. Lastly, exclusive of the net deferred tax asset
revaluation taken in 2017, the Company had net income of
$3,762,000, which represents record earnings for the
Company.
We are happy to report that our Company had another solid
year of performance this past year. While the tax act
negatively impacted net income for 2017, the long term
benefit of lower corporate tax rates outweighs this one-
time write off. The Company had a solid increase in net
income before taxes for the year ended December 31, 2017.
During this period, the Company’s net income before taxes
increased by $429,000, or 8.3%, from the previous year. The
primary driver of this increase of the Company’s net income
Total Assets (In Thousands)
$460,000
$430,000
$400,000
$370,000
$340,000
$310,000
$280,000
$405,124
$438,018
$459,332
2015
2016
2017
before taxes was the increase in interest income on loans,
which was up by $785,000, or 4.9%, year-over-year. For the
year, the Company had an increase in its average loans of
$13.0 million or 3.8%. While growing its loan portfolio, the
Company was able to maintain its overall stability in credit
quality. Year-over-year, the Company continued to have
very solid credit quality-related metrics supported by
nonaccrual loans and loans past due 30+ days decreasing
from a level of $3.1 million to $2.7 million, a decline of
$392,000 or 12.6%. Further--- net loans charged off,
excluding overdrafts, was $235,000 for 2017, which is a
decrease of $46,000, or 16.4%, from the previous year. At
this present level, total past due and nonaccrual loans to
gross loans is a very solid 0.73%, versus 0.86% the prior year.
10 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
In addition, net charge offs to average loans was a very
respectable 0.07% for 2017. The net interest income for our
Company increased year-over-year by $1.04 million, or 7.0%,
even as we focused on growing retail core deposits to fund
our growth. Total deposits increased by $47.2 million, or
13.9%, to a level of $386.0 million as of December 31, 2017.
The Company was able to control its overall interest expense
levels by attracting lower-cost retail funding to replace
higher-cost wholesale funding advances that matured
throughout this past year. Overall, the Company saw low-
cost retail funding (consisting of non-interest and interest
bearing demand and savings deposits) comprise $34.6
million of its growth in retail deposits year-over-year. In
addition, the Company’s time deposits, which consist of
certificate of deposit or term funding, increased by $12.6
million, or 23.6%, for the same period. Even with the above-
peer growth in retail core deposit funding, the Company
experienced a decline in its overall interest expense to
average assets, which decreased on a year-over-year basis
from 0.43% to 0.39%. This decrease in the overall cost of
funding is directly attributed to the repricing of $20.0
million of the Company’s fixed rate advances from the
Federal Home Loan Bank (FHLB) during the course of this
past year. Not having these higher-costing wholesale
advances on its balance sheet should continue to provide
benefit to the company in 2018.
The noninterest income of the Company was down by
$229,000 year-over-year. The majority of this decrease in
noninterest income is related to a $162,000 non-recurring
gain that the Company realized on the sale of Bankers
Bancshares, Inc. stock during 2016. On the noninterest
expense-side of the net noninterest margin (and, as
budgeted), the Company saw an increase in its overall
noninterest expense levels after several years of decline.
The Company saw its noninterest expense increase by
$579,000 or 4.4%. Most of the increase in noninterest
expense was related to infrastructure enhancement and
personnel-related expenses as we prepare for the future
growth that we envision and expenses related to our
expansion into the Wheeling, West Virginia market with our
new Loan Production Office, which should lead to our
Company realizing higher levels of revenue as we saw this
past year. Also adding to noninterest expense was the
renaming of our single bank charter, The Citizens Savings
Bank and its two divisions--- The Citizens Bank and The
Community Bank--- to Unified Bank, which became effective
on October 10, 2017. While we will not have the rebranding-
related expenses in 2018, the Company will most likely
dedicate to marketing-related expense a comparable
amount of funding to better establish our new Unified Bank
brand identity. Considering that most of the aforementioned
expenses are “fixed,” we firmly believe that we should be
Loans-Net (In Thousands)
$370,000
$355,000
$340,000
$325,000
$310,000
$295,000
$280,000
327,225
354,380
366,467
2015
2016
2017
able to drive higher levels of revenue without significantly
adding to our overall noninterest expense levels in the
short-term; therefore, enhancing our Company’s earnings
and returns.
We are pleased to report the record level on net income
realized by our Company in 2017 (exclusive of the deferred
tax write off), which came in at $3,762,000. Our previous
best year was 2008, which was prior to our industry being
negatively impacted by the effects of the Great Recession.
In addition, we are also pleased to report that we are
executing upon our growth strategy, Mission 2020, which
calls for our Company to grow its assets (in a profitable
fashion) to a level of $1.0 billion or greater by the end of
2020. This past year, a lot of our focus was on solidifying the
base that will firmly support our envisioned growth in the
coming years. Even though we realize that we have an
extremely long way to go in order to achieve our ambitious
growth goal, it is gratifying to see the progress that we
made toward supporting this goal and the organic growth
that we achieved year-over-year. Although we will need to
have a compounded annual growth rate of approximately
thirty percent from the beginning of 2018 to achieve the
level of growth envisioned under Mission 2020, we firmly
believe that it is achievable with the infrastructure that we
continue to build and the present vision that we have
(which includes both organic and acquisition-related
growth). From an organic perspective this past year, our
Company grew its assets $21.3 million, or 4.9%, to an overall
level of $459.3 million as of December 31, 2017. Most of this
growth in assets occurred in our Company’s higher-yielding
loan portfolio, which enhanced the overall interest income
that we realized. In addition, the overall level of net interest
income realized by our Company increased year-over-year.
Our Company was able to achieve this increase in net
interest income by growing both its loans outstanding and
lower-cost core deposit funding. We saw marginal growth
in the net income that our Company produced in the first
two quarters of this year and are extremely pleased to see
UNITEDBANCORP INC.
2 017 | A N N UA L R E P O RT
11
$420,000
$410,000
$400,000
$390,000
$380,000
$370,000
$360,000
Total Average Earning Assets
(In Thousands)
$381,426
$389,254
$413,262
2015
2016
2017
that our earnings growth level is back to double digits on a
percentage basis in the third and fourth quarters of 2017
(exclusive of the deferred tax write off in the fourth quarter
of 2017). After several years of containment, our Company
saw its overall noninterest expense levels increase this past
year as we continue to build for the future and support our
overall mission for growth. Most of the increase in our
noninterest expense levels occurred in the following areas:
hiring additional loan origination personnel to drive the
revenue of our Company; completing the renovation of our
Main Office to support an enhanced loan origination
platform; reorganizing and enhancing our Information
Technology function to better manage risk and serve our
valued customers; opening a new Loan Production Office
in the Wheeling, West Virginia market to increase overall
loan production and to introduce our Company to a new,
highly desirable market; marketing expense relating to the
prime retail deposit pricing that we have been successfully
promoting; and, lastly, legal and other expenses related to
the renaming of our Company’s single bank charter.
Renaming our bank-level charter, Unified Bank, will allow us
to establish a more effective brand and better support our
envisioned growth objective. We firmly believe with our
positioning over the course of the past year, our Company
has high operating leverage which should allow us to
enhance our revenue, while controlling our noninterest
expense levels--- thus, leading to higher earnings and
returns over the course of the next twelve to eighteen
months. We continue to have extremely sound credit
quality metrics, which should have a positive impact on our
earnings for the foreseeable future. In addition, we continue
to have a robust capital level, as evidenced by our overall
equity to asset ratio of 9.56%, which will support our vision
for growth in the intermediate term. Our Company
continues to pay a generous cash dividend, which totals
$0.51 on a trailing twelve month (TTM) basis (including the
$0.05 special dividend paid this past December), which
produces at TTM Yield of 3.9% as of year-end. At this level,
our Company’s cash dividend yield is significantly higher
than that of the average bank in our country. With our
recent focus of increasing the operating leverage and
revenue of our Company, we firmly believe that we will
continue to generate higher levels of net income and
reward our shareholders by paying higher dividends and
having further appreciation in our market value. 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 pleased with the performance
that our Company had in 2017 and the direction that we are
going. We are extremely optimistic about our future
potential and look forward to realizing this upside potential
in future periods!
Earning Assets – Loans
The Company’s gross loans totaled $368.6 million at
December 31, 2017, representing a 3.3% increase over the
$356.7 million at December 31, 2016. Average loans totaled
$343.2 million for 2016, representing a 3.8% increase
compared to average loans of $356.2 million for 2017.
The increase in gross loans from December 31, 2016 to
December 31, 2017 was primarily an increase in commercial
and commercial real estate loans by $14.1 million which was
offset by a decrease of $1.9 million in installment loans and a
decrease of $301,000 in residential real estate.
The Company's commercial and commercial real estate loan
portfolio represents 76.0% of the total portfolio at December
31, 2017, compared to 74.6% at December 31, 2016. 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
3.4% of the total portfolio at December 31, 2017, compared to
4.0% at December 31, 2016. 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
20.6% of the total portfolio at December 31, 2017, compared
to 21.4% at December 31, 2016. Residential real estate loans
12
2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
are comprised of 1, 3, and 5 year adjustable-rate mortgages
and 15 year fixed rated loans used to finance 1-4 family units.
The Company also offers fixed-rate real estate loans through
our Secondary Market Real Estate Mortgage Program. Once
these 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 2017, 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
$98,000 in 2017 and a gain of $97,000 in 2016.
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
Net Income (In Thousands)
$3,600
$3,300
$3,000
$2,700
$2,400
$2,100
$1,800
3,224
3,580
3,546
2015
2016
2017
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.
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. The Company does not hold any
derivative securities.
Securities available for sale at December 31, 2017 increased
$5.2 million, or 13.1%, from 2016. 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. However, given the recent increases in overall
interest rates the extent of bonds called in 2018 should be
minimal. Overall, the effective duration of the bond portfolio
is less than two years from December 31, 2017.
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 $47.2 million or 13.9% from $338.8 million
at December 31, 2016 to $386.0 million at December 31, 2017.
Overall total deposit growth was mainly focused on interest
bearing money market accounts and certificate of deposit
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
UNITEDBANCORP INC.
2 017 | A N N UA L R E P O RT
13
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, 2017, certificates of deposit greater than
$250,000 increased $4.0 million, from December 31, 2016
totals.
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®.
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 $1.7 million from
December 31, 2016 to December 31, 2017.
Advances from the Federal Home Loan Bank (FHLB)
decreased $29.8 million from December 31, 2016 to
December 31, 2017. During 2017, the Company repaid $20.0
million of fixed rate advances from the Federal Home Bank.
Performance Overview 2017 to 2016
Net Income
The Company reported diluted earnings per share of
$0.71 and net income of $3,546,000 for the year ended
December 31, 2017. In the fourth quarter and for the year
ended December 31, 2017, the Company recorded a
$216,000, or $0.04 per share, one-time write down or
revaluation of its net deferred tax asset as a result of the Tax
Cuts and Jobs Act (“tax act”) enacted on December 22, 2017.
The tax act lowers the base corporate tax rate from 35% to
21%. Without this charge, the Company’s diluted earnings
per share would be $0.75 compared to $0.71 for the year
ended December 31, 2016, an increase of 5.63%, and $0.20
versus $0.18 in the fourth quarter, an increase of 11.1%.
Lastly, exclusive of the net deferred tax asset revaluation
taken in 2017, the Company had net income of $3,762,000,
which represents record earnings for the Company.
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, 2017 to 2016, the Company’s net interest
margin was 3.85% compared to 3.83%, an increase of 2
basis points.
Average interest-earning assets increased $24.0 million in
2017 as compared to 2016 while the associated weighted-
average yield on these interest-earning assets decreased
from 4.29% in 2016 to 4.28% for 2017. Average interest-
bearing liabilities increased $28.3 million in 2017 as
compared to 2016, while the associated weighted-average
costs on these interest-bearing liabilities decreased from
0.59% in 2016 to 0.53% in 2017.
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.
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 $11.9 million year-over-year to a level of
$368.6 million as of December 31, 2017. During this same
period, the Company’s credit quality remained relatively
constant as non-accrual loans were up $34,000, or 2.5%, to
a level of $1.4 million and net loans charged off were down
by $46,000, or 16.3%, to a level of $235,000 (exclusive of
overdraft charge off). With this overall improvement in
Total Allowance for Loan Losses
to Nonperforming Loans
300%
250%
200%
150%
100%
50%
0%
233.46%
171.99%
152.10%
2015
2016
2017
14 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
credit quality, the Company decreased the provision for
loan losses which was $100,000 for the year ended
December 31, 2017 compared to $301,000 for the year
ended December 31, 2016, a decrease of $201,000 year-
over-year. Overall, the decreased loan loss provision net of
loans charged off resulted in a total allowance for loan
losses to total loans of 0.58% and a total allowance for loan
losses to nonperforming loans of 152.10% at year end 2017,
compared to 0.66% and 171.99% at year end 2016.
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, 2017
was $3.5 million, a decrease of $229,000, or 6.2%, compared
to $3.7 million for the year ended December 31, 2016. The
majority of this decrease in noninterest income is related to
a $162,000 non-recurring gain that the Company realized
on the sale of Bankers Bancshares, Inc. stock during 2016.
The Company’s service charges on deposit accounts
decreased by $92,000 for 2017 as compared to 2016.
Noninterest Expense
After several years of containment, our Company saw its
overall noninterest expense levels increase this past year as
we continue to build for the future and support our overall
mission for growth. Most of the increase in our noninterest
expense levels occurred in the following areas: hiring
additional loan origination personnel to drive the revenue
of our Company; completing the renovation of our Main
Office to support an enhanced loan origination platform;
reorganizing and enhancing our Information Technology
function to better manage risk and serve our valued
customers; opening a new Loan Production Office in the
Wheeling, West Virginia market to increase overall loan
production and to introduce our Company to a new, highly
desirable market; marketing expense relating to the prime
retail deposit pricing that we have been successfully
promoting; and, lastly, legal and other expenses related to
the renaming of our Company’s single bank charter.
Renaming our bank-level charter, Unified Bank, will allow us
to establish a more effective brand and better support our
envisioned growth objective. Overall noninterest expense
for 2017 increased $579,000, or 4.4%, as compared to 2016.
Specific areas of increase include the following.
Salaries and employee benefits increased $189,000, or 2.7%,
from 2016 to 2017. As described above additional loan
origination personnel were hired in 2017.
Occupancy and equipment expense increased $174,000, or
9.2%. The market expansion into Wheeling, West Virginia is
the main driver for the increase.
Professional fees increased $105,000, or 14.6%, for 2017 as
compared to 2016. This increase is due to increased
regulatory costs and legal expenses to open the Loan
Production Office (“LPO”) in Wheeling West Virginia.
Marketing expense increased $102,000, or 31.5%, for 2017 as
compared to 2016. The renaming process in 2017 to Unified
Bank was the primarily reason for this increase
(In thousands)
2017
2016
Noninterest income
Customer service fee .............................................................................................................................................................$
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 .................................................................................................................................................
Other expenses ........................................................................................................................................................................
Total noninterest expense ..............................................................................................................................................$
2,502
98
852
3,452
7,210
2,071
20
825
346
185
347
426
112
2,107
13,649
$
$
$
$
2,594
97
990
3,681
7,021
1,897
6
720
225
198
325
324
117
2,238
13,071
UNITEDBANCORP INC.
2 017 | A N N UA L R E P O RT
15
Other expenses decreased $131,000, or 5.9%. As reported in
2016, the Company incurred 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 of 2016, the Company
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.
Income tax expense for 2017 was $2.0 million compared to
$1.6 million in 2016, an increase of $464,000. The Company’s
effective income tax rate was 36.6% in 2017 and 30.6% in
2016. In 2016, 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. For 2017, the Company recorded a
$216,000, or $0.04 per share, one-time write down or
revaluation of its net deferred tax asset as a result of the Tax
Act enacted on December 22, 2017. Without this write-down
the Company’s effective tax rate would have been 32.7%.
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 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.
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 sensitivities,
while pricing both the asset and liability 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
16 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
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 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.
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, 2017 and 2016 fall within the general
guidelines established by the Board of Directors. The 2017
NPV table shows that in a falling interest rate environment,
in the event of a 100 basis point change, the NPV would
(Dollars in Thousands)
Net Portfolio Value - December 31, 2017
$ Amount $ Change % Change
456
854
1%
1%
Change in Rates
+200
+100
Base
-100
-200
71,517
71,915
71,061
64,069
53,477
(6,992)
(17,584)
-10%
-24%
(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%
decrease 10%, and with a 200 basis point change the NPV
would decrease 24%. 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 reach a floor on
how low depository rates can adjust downward.
In an upward change in interest rates, the Company’s NPV
would increase 1% with a 100 basis point interest rate
increase. In a 200 basis point rate increase, the Company’s
NPV would increase 1%. This increase is attributable to a
portion of the Company’s loan portfolios that have variable
rates but is somewhat offset by deposit pricing based on
short term interest rates.
UNITEDBANCORP INC.
2 017 | A N N UA L R E P O RT
17
The following table is a summary of selected quarterly results of operations for the years ended December 31, 2017 and 2016.
Three Months Ended
March 31
June 30
September 30
December 31
(In thousands, except per share data)
2017
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
$
4,184
438
3,746
25
832
3,334
1,219
369
850
0.17
0.17
4,290
438
3,852
25
869
3,365
1,331
415
916
0.18
0.18
4,586
449
4,137
25
892
3,456
1,548
548
1,000
0.20
0.20
4,591
439
4,152
25
859
3,494
1,492
712
780
0.17
0.16
Three Months Ended
March 31
June 30
September 30
December 31
(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
$
$
$
$
4,244
440
3,804
(6)
856
3,333
1,333
432
901
0.18
0.18
18
2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
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,
2017 and 2016. 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)
2017
Interest
Average
Income/ Yield/
Balance Expense Rate
2016
Interest
Average
Income/ Yield/
Balance Expense Rate
Assets
Interest-earning assets
Loans ........................................................................................................... $ 356,224
39,586
Taxable securities - AFS ........................................................................
178
Tax-exempt securities - AFS.....................................................................
13,109
Federal funds sold .......................................................................................
FHLB stock and other.................................................................................
4,165
Total interest-earning assets ................................................................... 413,262
Noninterest-earning assets
Cash and due from banks ...................................................................
6,880
Premises and equipment (net) ..........................................................
11,849
Other nonearning assets .....................................................................
18,688
Less: allowance for loan losses ..........................................................
(2,282)
35,135
Total noninterest-earning assets ...........................................................
Total assets..................................................................................................... 448,397
Liabilities & stockholders’ equity
Interest-bearing liabilities
Demand deposits ................................................................................... $ 154,661
81,874
Savings deposits .....................................................................................
62,744
Time deposits ...............................................................................................
9,911
FHLB advances .............................................................................................
4,296
Federal funds purchased ..........................................................................
4,124
Trust preferred debentures .....................................................................
Repurchase agreements ...........................................................................
13,578
Total interest-bearing liabilities ............................................................. 331,218
Noninterest-bearing liabilities
Demand deposits ...................................................................................
Other liabilities ........................................................................................
Total noninterest-bearing liabilities .....................................................
Total liabilities ...............................................................................................
Total stockholders’ equity ........................................................................
44,461
Total liabilities & stockholders’ equity ................................................. 448,397
Net interest income ....................................................................................
Net interest spread .....................................................................................
70,272
2,446
72,718
Net yield on interest-earning assets ....................................................
• For purposes of this schedule, nonaccrual loans are included in loans.
• Fees collected on loans are included in interest on loans.
16,827
481
11
151
209
17,679
4.72%
1.22
6.18
1.15
5.02
4.28
$ 343,243
31,292
2,003
8,547
4,169
389,254
16,041
325
123
36
175
16,700
4.67%
1.04
6.13
0.42
4.20
4.29
495
38
686
364
37
104
40
1,764
0.32%
0.05
1.09
3.67
0.86
2.52
0.29
0.53
4,972
11,340
13,955
(752)
29,515
418,769
$ 123,051
78,811
54,954
30,885
-
4,124
11,094
302,919
70,723
2,493
73,216
376,135
42,634
$ 418,769
136
36
593
924
-
82
13
1,784
0.11%
0.05
1.08
2.99
-
1.99
0.12
0.59
$ 15,915
3.75%
3.85%
$ 14,916
3.70%
3.83%
UNITEDBANCORP INC.
2 017 | A N N UA L R E P O RT
19
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 2017. 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 Earning Per Share
$0.72
$0.60
$0.48
$0.36
$0.24
$0.12
$0
0.64
0.71
0.71
2015
2016
2017
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 $43.9 million and $42.6 million at December 31,
2017 and 2016, respectively. Total stockholders’ equity in
relation to total assets was 9.56% at December 31, 2017 and
9.74% at December 31, 2016.
(In thousands)
2017 Compared to 2016
Increase/(Decrease)
Total
Change
Change
Due To
Volume
Change
Due To
Rate
Interest and dividend income
Loans ....................................................................................................................................$
Taxable securities available for sale ..........................................................................
Tax-exempt securities available for sale ..................................................................
Federal funds sold ...........................................................................................................
FHLB stock and other .....................................................................................................
Total interest and dividend income ..............................................................................
Interest expense
Demand deposits.............................................................................................................
Savings deposits...............................................................................................................
Time deposits ....................................................................................................................
FHLB advances ..................................................................................................................
Federal funds purchased ...............................................................................................
Trust Preferred debentures ..........................................................................................
Repurchase agreements................................................................................................
Total interest expense ........................................................................................................
786
156
( 112 )
115
34
979
359
2
93
( 513 )
( 10 )
22
27
( 20 )
612
95
( 113 )
27
–
621
48
1
64
( 467 )
( 28 )
–
3
( 379 )
Net interest income .............................................................................................................$
999
1,000
174
61
1
88
34
358
311
1
29
( 46 )
18
22
24
359
( 1 )
20 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
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, 2017
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. 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 an Employee Stock Option Plan (ESOP). The ESOP in
Cash Dividends Per Share
$0.55
$0.51
$0.47
$0.43
$0.39
$0.35
$0.31
$0.42
$0.47
$0.51
2015
2016
2017
Equity Capital (In Thousands)
$44,000
$42,000
$40,000
$38,000
$36,000
$34,000
$32,000
$41,686
$42,641
$43,895
2015
2016
2017
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 $59.3 million at December 31, 2017,
compared to $51.3 million at December 31, 2016.
Management recognizes securities may need to be sold in
the future to help fund loan demand and, accordingly, as of
December 31, 2017, $45.0 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 2017 and 2016 follows.
Net cash provided by operating activities totaled $4.6
million and $4.2 million for the years ended December 31,
2017 and 2016, 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 $18.0 million for
the year ended December 31, 2017. For year ended
UNITEDBANCORP INC.
2 017 | A N N UA L R E P O RT
21
December 31, 2016 net cash used by investing activities
totaled $35.0 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 $7.2 million and $36.4
million in 2017 and 2016, respectively.
Net cash provided by financing activities totaled $16.3
million and $29.7 for the years ended December 31, 2017
and 2016, respectively. The net cash provided by financing
activities in 2017 was primarily attributable to an increase in
deposits net of repayments in borrowings from the Federal
Home Loan Bank. The net cash provided by financing
activities in 2016 was primarily attributable to an increase in
total deposits and FHLB advances.
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
in fixed assets or
inventories. However, inflation does have an important
investments
Return On Average Assets
0.90%
0.80%
0.70%
0.60%
0.50%
0.40%
0.30%
0.79%
0.86%
0.79%
2015
2016
2017
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.
22 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
To the Shareholders, Board of Directors and Audit Committee
Audit Committee, Board of Directors and Stockholders
United Bancorp, Inc.
United Bancorp, Inc.
Martins Ferry, Ohio
Martins Ferry, Ohio
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of United Bancorp, Inc. (the "Company") as of
We have audited the accompanying consolidated balance sheets of United Bancorp, Inc. as of December
December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, stockholders'
31, 2011 and 2010, and the related consolidated statements of income, stockholders’ equity and cash
equity and cash flows for each of the years in the two-year period ended December 31, 2017, and the related notes
flows for each of the years in the two-year period ended December 31, 2011. The Company's
(collectively referred to as the "financial statements"). In our opinion, the financial statements referred to above
Report of Independent Registered Public Accounting Firm
management is responsible for these financial statements. Our responsibility is to express an opinion on
present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016,
these financial statements based on our audits.
and the results of its operations and its cash flows for each of the years in the two-year period ended December
31, 2017, in conformity with accounting principles generally accepted in the United States of America.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Audit Committee, Board of Directors and Stockholders
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
Basis for Opinion
United Bancorp, Inc.
assurance about whether the financial statements are free of material misstatement. The Company is not
These financial statements are the responsibility of the Company's management. Our responsibility is to express
Martins Ferry, Ohio
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
an opinion on the Company's financial statements based on our audits.
Our audits included consideration of internal control over financial reporting as a basis for designing
auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an
We have audited the accompanying consolidated balance sheets of United Bancorp, Inc. as of December
opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
31, 2011 and 2010, and the related consolidated statements of income, stockholders’ equity and cash
express no such opinion. Our audits also included examining, on a test basis, evidence supporting the
States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.
flows for each of the years in the two-year period ended December 31, 2011. The Company's
amounts and disclosures in the financial statements, assessing the accounting principles used and
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
management is responsible for these financial statements. Our responsibility is to express an opinion on
significant estimates made by management and evaluating the overall financial statement presentation.
the PCAOB.
these financial statements based on our audits.
We believe that our audits provide a reasonable basis for our opinion.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
In our opinion, the consolidated financial statements referred to above present fairly, in all material
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
respects, the financial position of United Bancorp, Inc. as of December 31, 2011 and 2010, and the results
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
assurance about whether the financial statements are free of material misstatement. The Company is not
of its operations and its cash flows for each of the years in the two-year period ended December 31, 2011,
perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
in conformity with accounting principles generally accepted in the United States of America.
an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
Our audits included consideration of internal control over financial reporting as a basis for designing
on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such
auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion.
opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we
express no such opinion. Our audits also included examining, on a test basis, evidence supporting the
Our audits included performing procedures to assess the risks of material misstatement of the financial
amounts and disclosures in the financial statements, assessing the accounting principles used and
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
significant estimates made by management and evaluating the overall financial statement presentation.
Cincinnati, Ohio
procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial
We believe that our audits provide a reasonable basis for our opinion.
March 2, 2012
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
In our opinion, the consolidated financial statements referred to above present fairly, in all material
provide a reasonable basis for our opinion.
respects, the financial position of United Bancorp, Inc. as of December 31, 2011 and 2010, and the results
of its operations and its cash flows for each of the years in the two-year period ended December 31, 2011,
We have served as the Company's auditor since 2007.
in conformity with accounting principles generally accepted in the United States of America.
Cincinnati, Ohio
March 20, 2018
Cincinnati, Ohio
March 2, 2012
25
December 31, 2004 and 2003
ASSETS
2004
2003
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
Accrued interest receivable
Other real estate and repossessions
Assets
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
$ 7,580,576
137,816,329
United Bancorp, Inc.
Consolidated Balance Sheets
Consolidated Balance Sheets
December 31, 2017 and 2016
December 31, 2017 and 2016
14,947,520
(In thousands, except share data)
4,115,200
(In thousands, except share data)
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
$ 8,386,575
140,818,167
2017
15,594,408
3,954,300
198,608,574
(2,843,484 )
195,765,090
8,152,480
2,373,573
940,015
57,452
4,662 $
7,185,507
9,653
2,295,402
14,315
$ 385,522,969
$397,521,584
Total assets
2016
4,233
7,308
11,541
LIABILITIES AND SHAREHOLDERS’ EQUITY
Available-for-sale securities
Loans, net of allowance for loan losses of $2,122 and $2,341 at
December 31, 2017 and 2016, 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
Federal funds purchased
Bank-owned life insurance
Advances from the Federal Home Loan Bank
Securities sold under agreements to repurchase
Other assets
Other borrowed funds
Accrued expenses and other liabilities
Total liabilities
Total assets
Commitments
Liabilities and Stockholders’ Equity
Liabilities
Deposits
Shareholders’ equity
Preferred stock - 2,000,000 shares without par value authorized;
Demand
no shares issued
Savings
Common stock - $1 par value; 10,000,000 shares authorized;
Time
4,126,970 and 3,752,105 shares issued at December 31,
2004 and 2003, respectively
Additional paid-in capital
Retained earnings
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
Securities sold under repurchase agreements
Federal Home Loan Bank advances
Subordinated debentures
Interest payable and other liabilities
Total liabilities
Total deposits
Total shareholders’ equity
Stockholders’ Equity
Total liabilities and shareholders’ equity
issued
Preferred stock, no par value, authorized 2,000,000 shares; no shares
$397,521,584
Common stock, $1 par value; authorized 10,000,000 shares; issued
2017 – 5,435,304 shares, 2016 - 5,425,304 shares; outstanding
2017 – 5,244,105, 2016 – 5,208,015
Additional paid-in capital
Retained earnings
Stock held by deferred compensation plan; 2017 – 185,355 shares,
2016 – 211,509 shares
Unearned ESOP compensation
Accumulated other comprehensive income loss
The accompanying notes are an integral part of these statements.
Treasury stock, at cost
2017 – 5,744 shares, 2016 – 5,744 shares
Total stockholders’ equity
44,959
39,766
$ 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
366,467
$ 30,049,919
11,740
61,137,605
4,164
48,274,042
128,443,059
397
36,621,372
993
304,525,997
349
9,714,000
12,114
30,974,611
5,485,399
3,834
159,398
2,149,105
459,332
353,008,510
354,380
11,884
4,164
335
840
850
11,822
2,436
$ 438,018
-
$
-
4,126,970
25,831,585
7,021,185
(752,437)
(2,767,751)
(635,441)
32,824,111
237,980 $
-
82,169
65,817
3,752,105
385,966
25,712,990
11,085
6,047,652
10,022
4,124
4,240
(2,115,855)
(633,842)
415,437
(248,591 )
32,514,459
$ 385,522,969
––
5,435
18,020
23,260
(1,671)
(683)
(420)
(46)
43,895
203,745
81,825
53,233
338,803
9,393
39,855
4,124
3,202
395,377
––
5,425
18,024
22,483
(1,880)
(911)
(454)
(46)
42,641
Total liabilities and stockholders’ equity
$
459,332 $
438,018
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
24 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Consolidated Statements of Income
United Bancorp, Inc.
Consolidated Statements of Income
Years Ended December 31, 2017 and 2016
Years Ended December 31, 2017 and 2016
(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
2017
2016
$
16,803
$
16,018
481
7
151
209
325
81
36
175
Total interest and dividend income
17,651
16,635
Interest Expense
Deposits
Borrowings
Total interest expense
Net Interest Income
Provision for Loan Losses
Net Interest Income After Provision for Loan Losses
Noninterest Income
Customer service fees
Net gains on loan sales
Earnings on bank-owned life insurance
Other
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
Other
Total noninterest expense
Income Before Federal Income Taxes
Provision for Federal Income Taxes
Net Income
Basic Earnings Per Share
Diluted Earnings Per Share
1,219
545
1,764
15,887
100
15,787
2,502
98
471
381
3,452
7,210
2,071
20
825
346
185
347
426
112
2,107
13,649
5,590
2,044
$
$
$
3,546
$
0.72
$
0.71
$
765
1,019
1,784
14,851
301
14,550
2,594
97
463
527
3,681
7,021
1,897
6
720
225
198
325
324
117
2,238
13,071
5,160
1,580
3,580
0.72
0.71
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
UNITEDBANCORP INC.
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25
Consolidated Statements of Comprehensive Income
United Bancorp, Inc.
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2017 and 2016
Years Ended December 31, 2017 and 2016
(In thousands)
(In thousands)
Net income
Other comprehensive income (loss), net of tax
Unrealized holding gains (losses) on available-for-sale securities
during the period, net of taxes (benefits) of $24 and $(159) for
each respective period
Change in funded status of defined benefit plan, net of (benefits)
$(20) and taxes of $22 for each respective period
Amortization of prior service included in net periodic pension
expense, (benefits) of $(30) and $(30) for each respective period
Amortization of net loss included in net periodic pension cost, net
of tax of $21 and $27 for each respective period
2017
2016
$
3,546 $
3,580
89
(40)
(59)
44
(310)
42
(59)
54
Comprehensive income
$
3,580 $
3,307
See Notes to Consolidated Financial Statements
26 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
See Notes to Consolidated Financial Statements
United Bancorp, Inc.
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2017 and 2016
Years Ended December 31, 2017 and 2016
(In thousands except per share data)
(In thousands, except per share data)
Treasury
Additional Stock and
Paid-in
Deferred
Capital Compensation ESOP
Shares
Acquired
By
Common
Stock
Accumulated
Other
Retained Comprehensive
Earnings
Loss
Total
Balance, January 1, 2016
$
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
––
(2,540)
––
––
––
––
––
(273)
––
––
––
––
––
3,580
(273)
(2,540)
––
147
---
231
Balance, December 31, 2016
5,425
18,024
(1,926)
(911)
22,483
(454)
42,641
Net income
Other comprehensive income
Cash dividends - $0.51 per share
Shares purchased for deferred compensation plan
Expense related to share-based compensation plans
Restricted stock activity
Amortization of ESOP
––
––
––
––
––
10
––
––
––
––
(209)
163
(10)
52
––
––
––
209
––
––
––
––
––
––
––
––
––
228
3,546
––
3,546
––
34
34
(2,769)
––
––
––
––
––
––
––
––
––
(2,769)
––
163
––
280
Balance, December 31, 2017
$
5,435 $ 18,020 $
(1,717)
$
(683)_ $ 23,260
$
(420)
$
43,895
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
UNITEDBANCORP INC.
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27
United Bancorp, Inc.
Consolidated Statements of Cash Flows
Consolidated Statements of Cash Flows
Years Ended December 31, 2017 and 2016
(In thousands)
Years Ended December 31, 2017 and 2016
(In thousands)
Operating Activities
Net income
Items not requiring (providing) cash
Depreciation and amortization
Provision for loan losses
Provision for losses on foreclosed real estate
Amortization of premiums and discounts on securities-net
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
Increase in cash surrender value of bank-owned life insurance
Changes in
Accrued interest receivable
Other assets
Interest payable and other liabilities
2017
2016
$
3,546 $
3,580
---
918
100
20
(1)
819
301
6
(1)
(162)
12
82
(4,451)
4,548
(97)
231
147
4
(292) (313)
6
545
(4,424)
4,522
(98)
280
163
24
(153)
(1,627)
1,038
(37)
(34)
(458)
Net cash provided by operating activities
4,567
4,177
Investing Activities
Purchases of available-for-sale securities
Proceeds from maturities of available-for-sale securities
Net change in loans
Proceeds from sale of Great Lake Bankers Bank stock
Purchases of premises and equipment
Proceeds from sales of foreclosed assets
(12,248)
7,249
(12,336)
(782)
71
(42,000)
36,389
(27,468)
208
(2,257)
124
---
Net cash used in investing activities
(18,046)
(35,004)
See Notes to Consolidated Financial Statements
28 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
See Notes to Consolidated Financial Statements
United Bancorp, Inc.
Consolidated Statements of Cash Flows (continued)
Consolidated Statements of Cash Flows Continued
December 31, 2017 and 2016
(In thousands)
Years Ended December 31, 2017 and 2016
(In thousands)
Financing Activities
2017
2016
Net increase in deposits
Proceeds of Federal Home Loan Bank advances
Repayments of Federal Home Loan Bank advances
Net change in securities sold under repurchase agreements
Cash dividends paid
15,181
$
11,000
19,500
(40,833) (6,175)
3,701
(2,540)
1,692
(2,769)
47,163 $
Net cash provided by (used in) financing activities
16,253
29,667
Increase (decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
2,774
(1,160)
11,541
12,701
Cash and Cash Equivalents, End of Year
$
14,315 $
11,541
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
$
$
$
1,807 $
1,575 $
1,796
1,133
149 $
111
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
UNITEDBANCORP INC.
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29
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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, Unified Bank of Martins Ferry, Ohio (“the
Bank” or “Unified”). 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. Unified Bank conducts its business through its
main office in Martins Ferry, Ohio and branches in Amesville, Bridgeport, Colerain, Dellroy,
Dillonvale, Dover, Glouster, Jewett, Lancaster Downtown, Lancaster East, Nelsonville, New
Philadelphia, St. Clairsville East, St. Clairsville West, Sherrodsville, Strasburg and Tiltonsville,
Ohio. The Bank also operates a Loan Production Office in Wheeling, West Virginia.
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.
30 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
United Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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, 2017 and 2016, 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, 2017 and 2016, 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, 2017 and 2016, the Company did not have any
loans held for sale.
UNITEDBANCORP INC.
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31
United Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Loans
December 31, 2017 and 2016
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
32 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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 five years. Management believes the five 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.
UNITEDBANCORP INC.
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33
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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.
34 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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.
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.
UNITEDBANCORP INC.
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35
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
Notes to Consolidated Financial Statements
Income Taxes
December 31, 2017 and 2016
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.
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, 2017, the Company had no uncertain tax positions. On December 22,
2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax
Cuts and Jobs Act (the “Tax Act”). The Company’s impact of this Tax Act resulted in a charge
against net income of approximately $216,000. This is primarily due to the write down of its
deferred tax assets as a result of the Tax Act’s reduction in the base corporate tax rate from 35% to
21%.
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 2014.
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
36 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
United Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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.
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, 2017 and 2016, was $3.5 million and $2.8
million, respectively.
UNITEDBANCORP INC.
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37
United Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
Note 3: Securities
The amortized cost and approximate fair values, together with gross unrealized gains and losses of
securities are as follows:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In thousands)
Approximate
Fair Value
Available-for-sale Securities:
December 31, 2017:
U.S. government agencies
Available-for-sale Securities:
December 31, 2016:
U.S. government agencies
State and political subdivisions
$
$
$
45,249 $
45,249 $
--- $
--- $
(290) $
44,959
(290) $
44,959
39,000 $
1,249
--- $
3
(486) $
---
38,514
1,252
$
40,249 $
3 $
(486) $
39,766
The amortized cost and fair value of available-for-sale securities at December 31, 2017, 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)
One to five years
Totals
$
$
45,249 $
44,959
45,249 $
44,959
The carrying value of securities pledged as collateral, to secure public deposits and for other
purposes, was $41.5 million and $27.9 million at December 31, 2017 and 2016, 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, 2017 and 2016, was
$44.9 million and $38.5 million, which represented approximately 100% and 96.8%, respectively,
of the Company’s available-for-sale investment portfolio.
38 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
United Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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, 2017 and 2016:
December 31, 2017
Description of
Securities
US Government
agencies
Total temporarily
impaired
securities
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
$
12,190 $
(59) $
32,769
$
(231) $
44,959
$
(290)
$
12,190 $
(59) $
32,769
$
(231) $
44,959
$
(290)
December 31, 2016
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)
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, 2017.
UNITEDBANCORP INC.
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39
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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
$
2017
2016
(In thousands)
$
81,327
198,936
75,853
12,473
368,589
74,514
191,686
76,154
14,367
356,721
(2,122)
(2,341)
Total loans
$
366,467
$
354,380
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
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.
40 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
United Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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.
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, 2017
and 2016:
Allowance for loan losses:
Balance, beginning of year
Provision charged to
expense
Losses charged off
Recoveries
Commercial
Commercial
Real Estate Residential Installment Unallocated
(In thousands)
Total
2017
$
495
$
804
$
591
$
107
$
344
$
2,341
39
(49)
52
118
(81)
2
(97)
(78)
20
296
(230)
45
(256)
100
––
––
(438)
119
Balance, end of year
$
537
$
843
$
436
$
218
$
88
$
2,122
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
$
---
$
73
$
––
$
––
$
––
$
73
$
537
$
770
$
436
$
218
$
88
$
2,049
$
83
$
619
$
––
$
306
$
––
$
1,008
$
75,205
$ 195,108
$
76,501
$
12,567
$
––
$ 359,381
UNITEDBANCORP INC.
2 017 | A N N UA L R E P O RT
41
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
Allowance for loan losses:
Balance, beginning of year
Provision charged to
expense
Commercial
Commercial
Real Estate Residential Installment Unallocated
(In thousands)
Total
2016
$
184
$
597
$
170
$
113
$
1,373
$
2,437
235
213
542
340
(1,029)
301
Losses charged off
Recoveries
(2)
78
(108)
102
(143)
22
(417)
71
––
––
(670)
273
Balance, end of year
$
495
$
804
$
591
$
107
$
344
$
2,341
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
$
11
$
108
$
––
$
––
$
––
$
119
$
484
$
696
$
591
$
107
$
344
$
2,222
$
3,148
$
1,178
$
––
$
326
$
––
$
4,652
$
71,366
$ 190,508
$
76,154
$
14,041
$
––
$ 352,069
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.
42 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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, 2017:
Loan Class
Commercial
Commercial
Real Estate
Residential
(In thousands)
Installment
Total
Pass Grade
Special Mention
Substandard
Doubtful
$
$
78,652
20
2,655
––
$
195,063
3,066
807
––
$
75,853
––
––
––
$
12,167
––
306
––
361,735
3,086
3,768
––
$
81,327
$
198,936
$
75,853
$
12,473
$
368,589
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
UNITEDBANCORP INC.
2 017 | A N N UA L R E P O RT
43
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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 2017
and 2016.
The following table shows the loan portfolio aging analysis of the recorded investment in loans as
of December 31, 2017:
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
$
56
$
--- $
---
$
83 $
139 $
81,188
$
81,327
262
559
61
---
306
40
––
---
––
500
760
52
762 198,174
74,228
12,320
1,625
153
198,936
75,853
12,473
Total
$
938
$
346 $
---
$
1,395 $
2,679 $ 365,910
$ 368,589
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)
$
153
$
105 $
75
$
49 $
382 $
74,132
$
74,514
---
805
213
55
135
8
––
161
––
335
922
55
390 191,296
74,131
14,091
2,023
276
191,686
76,154
14,367
Commercial
Commercial real
estate
Residential
Installment
Total
$
1,171
$
303 $
236
$
1,361 $
3,071 $ 353,650
$ 356,721
44 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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, 2017:
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In thousands)
Average
Investment in
Impaired
Loans
Interest
Income
Recognized
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
$
$
$
$
$
$
$
83
209
306
598
---
410
---
410
83
$
619
$
306
$
$
$
83
317
306
598
---
410
---
410
83
$
619
$
306
$
$
$
––
––
––
––
---
73
---
73
$
90
635
312
1,037
$
---
392
---
392
---
$
90
73
$
1,027
---
$
312
$
$
$
5
13
3
21
7
14
---
21
12
27
3
UNITEDBANCORP INC.
2 017 | A N N UA L R E P O RT
45
United Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
The following table presents impaired loans for the year ended December 31, 2016:
Loans without a specific
valuation allowance:
Commercial
Commercial real estate
Installment
Recorded
Balance
Unpaid
Principal
Balance
Specific
Allowance
(In thousands)
Average
Investment in
Impaired
Loans
Interest
Income
Recognized
$
$
2,975
658
326
3,959
$
2,975
766
326
4,067
$
––
––
––
––
$
2,930
1,176
328
4,434
142
43
13
198
Loans with a specific
valuation allowance:
Commercial
Commercial real estate
Installment
173
520
––
173
520
––
11
108
––
188
586
––
8
26
2
693
693
119
774
36
Total:
Commercial
Commercial Real Estate
Installment
$
$
$
3,148
$
3,148
$
11
$
1,178
$
1,286
$
108
$
326
$
326
$
---
$
3,118
1,762
328
$
$
$
150
69
15
At December 31, 2017 and 2016, 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.
46 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
United Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
The following tables present information regarding troubled debt restructurings by class and by
type of modification for the years ended December 31, 2017 and 2016:
Year Ended December 31, 2017
Number of
Contracts
Pre-Modification
Outstanding
Recorded
Investment
Post-Modification
Outstanding
Recorded
Investment
(In thousands)
Commercial
Commercial real estate
2 $ 40
208
3
$ 40
188
Year Ended December 31, 2017
Interest
Only
Term
Combination
(In thousands)
Total
Modification
Commercial
Commercial real estate
$ ––
––
$ 40
188
$ ––
––
$ 40
188
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
During the 2017 and 2016, troubled debt restructurings did not have an impact on the allowance for
loan losses. At December 31, 2017 and 2016 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.
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Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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
2017
2016
(In thousands)
$
$
17,282 $
12,637
2,143
32,062
(20,322)
11,740 $
17,025
12,164
2,116
31,305
(19,421)
11,884
Time deposits in denominations of $250,000 or more were $5.1 million at December 31, 2017 and
$1.4 million at December 31, 2016. At December 31, 2017, the scheduled maturities of time
deposits are as follows:
Due during the year ending December 31,
(In thousands)
2018
2019
2020
2021
2022
Thereafter
$
$
33,954
14,364
12,473
2,176
758
2,092
65,817
Note 7: Borrowings
At December 31, advances from the Federal Home Loan Bank were as follows:
Maturities March 2018 through August 2025,
primarily at fixed rates ranging from 3.15% to
6.65%, averaging 5.15%
Cash Management advances maturities in March 2018
2017
2016
(In thousands)
$
200
$
––
at floating rates averaging 1.52%
9,822
––
Cash Management advances maturities January 2017
through March 2017 at floating rates averaging
0.74%
Maturities January 2017 through August 2025,
primarily at fixed rates ranging from 3.08% to
6.65%, averaging 3.93%
––
19,500
$
––
10,022
$
20,355
39,855
48 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
At December 31, 2017 required annual principal payments on Federal Home Loan Bank advances
were as follows:
For the year ending December 31,
(In thousands)
2018
2019
2020
2021
2022
Thereafter
$
9,919
38
15
15
15
20
$
10,022
At December 31, 2017 and 2016, as a member of the Federal Home Loan Bank system the Bank
had the ability to obtain up to $94.1 million and $60.8 million, respectively, in additional
borrowings based on securities and certain loans pledged to the FHLB. At December 31, 2017 and
2016, the Bank had approximately $121.6 million and $122.6 million, respectively of one- to four-
family residential real estate and commercial real estate loans pledged as collateral for borrowings.
Also at December 31, 2017 and 2016, 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 $11.0 million and $9.4 million at
December 31, 2017 and 2016.
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:
2017
2016
(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
$
$
$
10,022
13,578
$
$
0.28%
17,033
$
0.28%
9,393
11,058
0.12%
14,200
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.
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United Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
The following table presents the Company’s repurchase agreements accounted for as secured
borrowings:
Remaining Contractual Maturity of the Agreement
(In thousands)
December 31, 2017
Continuous Up to 30 Days 30-90 Days
Overnight and
Greater than 90
Days
Total
Repurchase Agreements
U.S government agencies
10,022
$
$
––
$
––
$
Total
$
10,022
$
––
$
––
$
(In thousands)
––
––
$
$
10,022
10,022
December 31, 2016
Continuous Up to 30 Days 30-90 Days
Overnight and
Greater than 90
Days
Total
Repurchase Agreements
U.S. government agencies
Total
$
$
9,393
––
––
9,393
$
––
$
––
$
––
––
9,393
$
9,393
Securities with an approximate carrying value of $18.4 million and $13.0 million at December 31,
2017 and 2016, respectively, were pledged as collateral for repurchase borrowings.
50 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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
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
Income tax expense
2017
2016
(In thousands)
$
$
1,499 $
545
1,498
82
2,044 $
1,580
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
Deferred tax re-valuation
Other
2017
2016
(In thousands)
$
1,901 $
1,755
(17)
(160)
(42)
(160)
216 ---
27
104
Actual tax expense
$
2,044 $
1,580
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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 and ESOP
Intangible assets
Non-accrual loan interest
Unrealized losses on securities available for sale
2017
2016
(In thousands)
$
244 $
221
31
422
65
52
61
382
375
82
690
124
79
164
Total deferred tax assets
1,096
1,896
Deferred tax liabilities
Depreciation
Deferred loan costs, net
Accretion
FHLB stock dividends
Mortgage servicing rights
Employee benefit expense
Total deferred tax liabilities
(144)
(86)
---
(315)
(9)
(193)
(747)
(199)
(158)
(1)
(510)
(16)
(162)
(1,046)
Net deferred tax asset
$
349 $
850
Note 10: Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, included in stockholders’ equity, are as
follows:
2017
2016
(In thousands)
Net unrealized loss on securities available-for-sale
Net unrealized loss for funded status of defined
$
(290) $
benefit plan liability
Tax effect
(289)
(579)
159
Net-of-tax amount
$
(420) $
(483)
(205)
(688)
234
(454)
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UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
Note 11: Regulatory Matters
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.
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 Unified 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 1.250% at December 31, 2017. The net
unrealized gain or loss on available-for-sale securities is not included in computing regulatory
capital.
As of December 31, 2017, the Company exceeded its minimum regulatory capital requirements
with a total risk-based capital ratio of 13.2%, common equity tier 1 ratio of 11.5%, Tier 1 risk-
based capital ratio of 12.6% and a Tier 1 leverage ratio of 10.6%.
As of December 31, 2017, 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
UNITEDBANCORP INC.
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United Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
the table. There are no conditions or events since that notification that management believes have
changed the Bank’s category.
The Company’s and Bank’s actual capital amounts and ratios are presented in the following table.
Actual
Amount
Ratio
For Capital Adequacy
Purposes
Amount
Ratio
(Dollars in thousands)
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
Ratio
Amount
$
49,590
44,637
13.2%
11.9
$
30,149
30,026
8.0%
8.0
$
N/A
37,532
N/A
10.0%
$
43,468
42,515
11.5%
11.3
$
16,959
16,889
4.5%
4.5
$
N/A
24,396
N/A
6.5%
$
47,468
42,515
12.6%
11.3
$
22,612
22,519
6.0%
6.0
$
N/A
30,026
N/A
8.0%
$
47,468
42,515
10.6%
9.4
$
17,904
18,017
4.0%
4.0
$
N/A
22,521
N/A
5.0%
$
48,429
41,801
13.6%
11.8
$
28,516
28,382
8.0%
8.0
$
N/A
35,478
N/A
10.0%
$
42,088
39,460
11.8%
11.1
$
16,040
15,965
4.5%
4.5
$
N/A
23,061
N/A
6.5%
$
46,088
39,460
12.9%
11.1
$
21,387
21,287
6.0%
6.0
$
N/A
28,382
N/A
8.0%
$
46,088
39,460
11.0%
9.3
$
16,729
17,048
4.0%
4.0
$
N/A
21,310
N/A
5.0%
As of December 31, 2017
Total Capital
(to Risk-Weighted Assets)
Consolidated
Unified
Common Equity Tier 1 Capital
(to Risk-Weighted Assets)
Consolidated
Unified
Tier I Capital
(to Risk-Weighted Assets)
Consolidated
Unified
Tier I Capital
(to Average Assets)
Consolidated
Unified
As of December 31, 2016
Total Capital
(to Risk-Weighted Assets)
Consolidated
Unified
Common Equity Tier 1 Capital
(to Risk-Weighted Assets)
Consolidated
Unified
Tier I Capital
(to Risk-Weighted Assets)
Consolidated
Unified
Tier I Capital
(to Average Assets)
Consolidated
Unified
54 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
United Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
Note 12: Related Party Transactions
At December 31, 2017 and 2016, 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.
2017
2016
(In thousands)
Aggregate balance – January 1
New loans
Repayments
13,635 $
10,546
$
189 4,864
(1,775)
(828)
Aggregate balance – December 31
$
12,996 $
13,635
Deposits from related parties held by the Bank at December 31, 2017 and 2016, totaled
approximately $691,000 and $1.4 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 $421,000 to the
plan in 2018.
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United Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
The Company uses a December 31st measurement date for the plan. Information about the plan’s
funded status and pension cost follows:
Change in benefit obligation
Beginning of year
Service cost
Interest cost
Actuarial (loss) 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
$
Pension Benefits
2017
2016
(In thousands)
(3,926) $
(273)
(198)
(403)
128
(3,968)
(312)
(198)
23
529
(4,672)
(3,926)
4,625
702
406
(128)
5,605
4,458
382
314
(529)
4,625
Funded status at end of year
$
933 $
699
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
2017
2016
(In thousands)
$
$
$
1,048
(758)
1,052
(847)
290
$
205
56 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
United Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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 $41,000. The accumulated benefit obligation for the
defined benefit pension plan was $4.4 million and $3.8 million at December 31, 2017 and 2016,
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
December 31,
2017
2016
(In thousands)
$
$
$
4,672
4,375
5,605
$
$
$
3,926
3,756
4,625
December 31,
2017
2016
(In thousands)
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
$
$
273
198
(357)
(89)
63
Net periodic benefit cost
$
88
$
312
198
(341)
(89)
81
161
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
Pension Benefits
2017
2016
4.83%
3.00%
4.83%
7.50%
3.00%
5.39%
3.00%
5.39%
7.50%
3.00%
UNITEDBANCORP INC.
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57
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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 2016 to 2017.
The following benefit payments, which reflect expected future service, as appropriate, are expected
to be paid as of December 31, 2017:
2018
2019
2020
2021
2022
2023-2027
Total
Pension
Benefits
(In thousands)
$
186
199
843
548
373
1,796
$
3,945
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 2017 and 2016 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%
58 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
At December 31, 2017 and 2016, 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,
2017
2016
70.1%
27.3
2.6
68.1%
29.6
2.3
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, 2017 and 2016, the Plan did not contain Level 2 or
Level 3 investments.
UNITEDBANCORP INC.
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59
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
The fair values of Company’s pension plan assets at December 31st, by asset category are as
follows:
December 31, 2017
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
International
Commodities
Mutual funds – fixed income
Fixed income
ETF fixed income
(In thousands)
$
199 $
199 $
–– $
420
3,042
301
182
3,042
301
420
182
1,145
316
1,145
316
––
––
––
––
––
Total
$
5,605 $
5,605 $
–– $
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
Eft mutual funds
Large and Small Cap
Commodies
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 $
–– $
––
––
––
––
––
––
––
60 2 017 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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 2017 and 2016.
ESOP and 401(k) expense for the years ended December 31, 2017 and 2016 was approximately
$280,000 and $231,000, respectively.
Share information for the ESOP is as follows at December 31, 2017 and 2016:
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
Total ESOP shares
2017
2016
$
333,790 $
23,635
267,558
23,635
(21,063)
70,906
42,597
94,541
407,268
428,331
Fair value of unearned shares at December 31st
$
943,000 $
1,276,000
At December 31, 2017, the fair value of the 336,362 allocated shares held by the ESOP was
approximately $4,474,000.
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, 2017 and $1.5 million at December 31, 2016.
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Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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, 2017,
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
Shares
8.75
170,000 $
10,000 11.99
(5,000) 8.40
.---
---
175,000 $
8.95
Total compensation cost recognized in the income statement for share-based payment arrangements
during the years ended December 31, 2017 and 2016 was $163,000 and $147,000, respectively.
The recognized tax benefits related thereto were $55,000 and $50,000, for the years ended
December 31, 2017 and 2016, respectively.
As of December 31, 2017 and 2016, there was $728,000 and $660,000, 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
3.7 years.
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UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
Note 15: Earnings Per Share
Earnings per share (EPS) were computed as follows:
Year Ended December 31, 2017
Weighted-
Average
Shares
Per Share
Amount
Net
Income
(In thousands)
Net income
$
3,546
Dividends on non-vested restricted
stock
Net income allocated to stockholders
(31)
3,515
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
––
4,861,942 $
0.72
––
123,857
$
3,515
4,985,799 $
0.71
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United Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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
(31)
3,549
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
––
4,907,799 $
0.72
––
108,521
$
3,549
5,016,320 $
0.71
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UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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.
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Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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, 2017 and 2016:
December 31, 2017
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
$
44,959
$
–– $
44,959 $
––
(In thousands)
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
(In thousands)
U.S government agencies
$
38,514
$
–– $
38,514 $
State and political subdivisions
1,252
––
1,252
––
––
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.
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UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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, 2017 and 2016:
December 31, 2017
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
$
$
336
34
–– $
––
–– $
––
336
34
(In thousands)
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Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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
(In thousands)
Collateral dependent impaired
loans
Foreclosed assets held for sale
$
$
3,435
249
–– $
––
–– $
––
3,435
249
Unobservable (Level 3) Inputs
The following tables present quantitative information about unobservable inputs used in recurring
and nonrecurring Level 3 fair value measurements.
Fair Value at
12/31/17
(In thousands)
Valuation
Technique
Unobservable Inputs
Range
Collateral-dependent
impaired loans
$
333 Market comparable
Comparability adjustments
Not available
properties
Foreclosed assets held for
34 Market comparable
Marketability discount
10% – 35%
sale
properties
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
There were no significant changes in the valuation techniques used during 2017.
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UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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, 2017
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
$
14,315 $
366,467
14,315 $
––
–– $
––
––
368,033
4,164
993
385,966
11,085
10,022
4,124
70
––
––
––
––
––
––
––
4,164
993
358,722
11,085
10,012
3,590
70
––
––
––
––
––
––
––
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Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
The classification of the assets and liabilities pursuant to the valuation hierarchy as of December
31, 2016 in the following table have not been audited. The fair value has been derived from the
December 31, 2016 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, 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
––
––
––
––
––
––
––
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UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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, 2017 and 2016.
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Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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, 2017 and 2016, total commercial and commercial real estate loans made up
76.0% and 74.6%, respectively, of the loan portfolio. Installment loans account for 3.4% and
4.0%, respectively, of the loan portfolio. Real estate loans comprise 20.6% and 21.4% of the loan
portfolio as of December 31, 2017 and 2016, 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, 2017 and 2016, is $9.5 million and $7.3
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, 2017 and 2016, the Company had outstanding commitments to originate variable
rate loans aggregating approximately $15.4 million and $12.3 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, 2017 or 2016.
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UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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, 2017
and 2016. At both December 31, 2017 and 2016, 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, 2017, the Company had granted unused lines of credit to borrowers aggregating
approximately $25.8 million and $36.9 million for commercial lines and open-end consumer lines,
respectively. 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.
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United Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
Note 19: Recent Accounting Pronouncements
ASU No. 2018-02 was issued in February 2018 to provide guidance to allow a reclassification
from accumulated other comprehensive income to retained earnings for stranded tax effects
resulting from the Tax Act. Consequently, the amendments eliminate the stranded tax effects
resulting from the Tax Act and will improve usefulness of information reported to financial
statement users. The amendments in this ASU will also require certain disclosures about stranded
tax effects and is effective for fiscal years beginning after December 31, 2018. The impact of this
guidance is not material to the Company’s financial statements.
ASU No. 2017-09 was issued in May 2017 and provides guidance about which changes to the
terms or condition of a share-based payment award require and entity to apply modification
accounting in Topic 718. The amendments in this Update are effective for all entities for annual
periods, and interim periods within those annual periods, beginning after December 15, 2017. The
Company has adopted ASU 2017-09 on January 1, 2018 and it did not have a significant impact on
its accounting and disclosures.
ASU No. 2017-07 was issued in March 2017 and applies to all employers that offer to their
employees defined benefit pension plans, other postretirement benefit plans, or other types of
benefits accounted for under Topic 715. The amendments in this update require that an employer
report the service cost component in the same line item or items as other compensation costs
arising from services rendered by the pertinent employees during the period. The other
components of net benefit cost, as defined, are required to be presented in the income statement
separately from the service cost component and outside a subtotal of income from operations, if
one is presented. If a separate line item or items are not used, the line item or items used in the
income statement to present the other components of net benefit cost must be disclosed. The
amendments in ASU No. 2017-07 are effective for public business entities for annual periods
beginning after December 15, 2017, including interim periods within those annual periods. The
amendments in this update are to be applied retrospectively for the presentation of the service cost
component and the other components of net periodic pension cost and net periodic postretirement
benefit cost in the income statement. The Company has adopted ASU 2017-07 on January 1, 2018
and it did not have a significant impact on its accounting and disclosures.
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 has adopted ASU 2016-15 on January 1, 2018 and it did not have 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
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UNITEDBANCORP INC.
United Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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
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 continues to work with an outside vendor
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. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities"
ASU No. 2016-01 was issued in January 2016 and applies to all entities that hold financial assets or
owe financial liabilities. ASU 2016-01 is intended to improve the recognition and measurement of
financial instruments by requiring equity investments to be measured at fair value with changes in
fair value recognized in net income; requiring public entities to use the exit price notion when
measuring the fair value of financial instruments for disclosure purposes; requiring separate
presentation of financial assets and financial liabilities by measurement category and form of
UNITEDBANCORP INC.
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United Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
financial asset on the balance sheet or the accompanying notes to the financial statements;
eliminating the requirement for public business entities to disclose the method(s) and significant
assumptions used to estimate the fair value that is required to be disclosed for financial instruments
measured and amortized at cost on the balance sheet; and requiring a reporting organization to
present separately in other comprehensive income the portion of the total change in the fair value of
a liability resulting from a change in the instruments specific credit risk when the organization has
elected to measure the liability at fair value in accordance with the fair value option for financial
instruments. ASU 2016-01 is effective for annual periods and interim periods within those periods,
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 value that are not
currently utilizing the exit price notion when measuring fair value. The Company has adopted ASU
2016-01 on January 1, 2018 and it did not have a material effect on its fair value disclosures and
other disclosure requirements. 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’s revenue is
comprised of net interest income, which is explicitly excluded from the scope of ASU 2014-09, and
non interest income. The Company has adopted ASU 2014-09 on January 1, 2018 and it did not
identify any changes in the timing of revenue recognition when considering the amended
accounting guidance. The Company will have additional disclosures beginning in the first quarter
of 2018 as required by the guidance.
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UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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:
(a)
Some leases are classified as capital where by the lessee would recognize lease assets and
liabilities on the balance sheet.
(b) 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.
UNITEDBANCORP INC.
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77
United Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
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
December 31,
2017
2016
(In thousands)
$
2,771 $
42,286
---
3,042
4,644
39,141
7
2,973
Total assets
$
48,099 $
46,765
Liabilities and Stockholders’ Equity
Subordinated debentures
Other liabilities
Stockholders’ equity
$
4,124 $
80
43,895
4,124
---
42,641
Total liabilities and stockholders’ equity
$
48,099 $
46,765
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UNITEDBANCORP INC.
United Bancorp, Inc.
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
Condensed Statements of Income and Comprehensive Income
Years Ended December 31,
2017
2016
(In thousands)
Operating Income
Dividends from subsidiary
Interest and dividend income from securities and federal funds
$
2,035 $
1
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
2,036
1,961
75
416
491
3,055
4,701
7
4,708
1,651
3,057
484
3,541
39
Net Income
Comprehensive Income
$
$
3,546 $
3,580
3,578
$
3,307
UNITEDBANCORP INC.
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79
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
Condensed Statements of Cash Flows
Operating Activities
Net income
Items not requiring (providing) cash
Years Ended December 31,
2017
2016
(In thousands)
$
3,546
$
3,580
Equity in undistributed income of subsidiary
Amortization of ESOP and share-based compensation plans
Net change in other assets and other liabilities
(3,055)
443
(38)
(39)
378
(190)
Net cash provided by operating activities
896
3,729
Financing Activities
Dividends paid to stockholders
Net cash used in financing activities
Net Change in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
(2,769)
(2,769)
(1,873)
4,644
(2,540)
(2,540)
1,189
3,455
Cash and Cash Equivalents at End of Year
$
2,771
$
4,644
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UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
Note 21: Quarterly Financial Data (Unaudited)
The following tables summarize the Company’s quarterly results of operations for the years ended
December 31, 2017 and 2016.
2017:
March 31,
June 30, September 30, December 31,
(In thousands, except per share data)
Three Months Ended
Total interest income
Total interest expense
$
4,184 $
438
4,290 $
438
4,586 $
449
Net interest income
3,746
3,852
4,137
Provision for loan losses
Other income
General, administrative and other
expense
Income before income taxes
Federal income taxes
25
832
3,334
1,219
369
25
869
3,365
1,331
415
25
892
3,456
1,548
548
4,591
439
4,152
25
859
3,494
1,492
712
Net income
Earnings per share
Basic
Diluted
$
$
$
850 $
916 $
1,000 $
780
0.17 $
0.18 $
0.20 $
0.17 $
0.18 $
0.20 $
0.17
0.16
UNITEDBANCORP INC.
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81
Notes to Consolidated Financial Statements
United Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2017 and 2016
December 31, 2017 and 2016
2016:
March 31,
June 30, September 30, December 31,
(In thousands, except per share data)
Three Months Ended
Total interest income
Total interest expense
$
4,038 $
475
4,187 $
437
4,166 $
432
Net interest income
3,563
3,750
Provision (credit) for loan losses
Other income
General, administrative and other
expense
Income before income taxes
Federal income taxes
71
867
3,141
1,218
373
105
902
3,251
1,296
389
3,734
131
1,056
3,345
1,314
386
4,244
440
3,804
(6)
856
3,333
1,333
432
Net income
Earnings per share
Basic
Diluted
$
$
$
845 $
907 $
928 $
901
0.18 $
0.18 $
0.18 $
0.17 $
0.18 $
0.18 $
0.18
0.18
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UNITEDBANCORP INC.
UNITEDBANCORP INC.
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83
201 South Fourth Street
Martins Ferry, OH 43935
(740) 633-0445
w w w.U N ITE D BAN CO R P.com