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….
am extremely gratified to report on both the record earnings produced and growth
achieved by United Bancorp, Inc. (UBCP) in 2018. In many ways, this past year was one
of the very best and most transformational in our company’s long and storied history! In
2018, UBCP reported basic and diluted earnings per share of $0.82 and net income of
$4,282,000. These levels were $0.11 per share and $736,000 over the respective levels reported
for each the previous year. In addition, the level of net income produced by UBCP in 2018 was
the highest that we have ever realized as a company. This record level of earnings was achieved
even though we recognized approximately $1.3 million in merger related expenses relating to our
acquisition of another bank holding company during the course of the year, which helped to
contribute to our company’s record growth this past year.
Scott A. Everson
President and CEO
Regarding the growth of our company in 2018, UBCP had total assets of $593.4 million at year end, which was an increase of
$133.9 million, or 29.1%, over the prior year. As previously mentioned, part of this growth was achieved due to merger and
acquisition activity that occurred during the course of the year. But, I am happy to report that a higher percentage of the growth
that we realized in 2018 tactically occurred due to properly executing our strategic plan and growing our balance sheet in an
organic fashion. With the level of growth that we achieved on a year-over-year basis, our current level of assets (along with our
level of earnings) is the highest in our company’s history.
As always, one of our primary foci is to reward you, our valued shareholder, by paying a solid cash dividend. With our improved
and extremely solid earnings in 2018, our company paid a regular cash dividend of $0.52, which was an increase of $0.06, or
13.0%, over that paid the previous year. At this present payout level, UBCP’s dividend yield is nearly twice the average being
paid by our peer within our industry. In addition, our shareholders were once again rewarded in the fourth quarter with a special
cash dividend payout of $0.05 per share. We also continue to strive to increase our shareholder value through increasing the
market value of our stock. Even though we saw our stock’s market value decline during the course of the fourth quarter--- as
did an overwhelming majority of companies operating in our national economy--- we continue to be extremely optimistic about
our future prospects as it relates to growing the market value of our stock, our company’s overall market capitalization and your
individual shareholder value. By continuing to drive and improve our earnings in the coming year, as we optimistically anticipate,
we are extremely hopeful that our company’s stock will trade at a higher valuation than we are currently seeing in today’s market!
We are extremely pleased with the record setting performance of United Bancorp, Inc. in 2018 and excited about the strong
potential for another solid year of performance in 2019. Overall, we are highly encouraged by our current trajectory 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 2018:
Executing upon Our Plan for Merger and Acquisition-Related Growth: We are extremely pleased that we were able to successfully acquire
another like-minded community banking organization, within our defined footprint, during the course of 2018. After many months of working
to bring it together, we proudly announced on June 14, 2018 that we had signed a definitive merger agreement to acquire Powhatan Point
Community Bancshares, Inc. (Powhatan Point), the parent company of the First National Bank of Powhatan Point, Ohio. For our company,
this acquisition added approximately $62.3 million to assets; $6.8 million to loans; $55.6 million to deposits; and, $4.7 million to consolidated
equity. We are extremely proud of the reality that our management team completed its due diligence and effected this transaction within a
four month timeframe… closing on October 15, 2018. After years of looking to gain geographic diversification by purchasing other bank
charters and offices outside of our “traditional” footprint within the Upper Ohio Valley, and Belmont County in specific… we are truly grateful
that we had this opportunity in our own back yard! Being so closely located to our core operations, we will be able to more effectively leverage
UNITEDBANCORP INC.
2 01 8 | A N N UA L R E P O RT
1
A Letter from the President and CEO - Continued
our local assets and brand building initiatives to maximize the return of this new addition to our UBCP family. Also, with our newest location,
the Powhatan Point Office of Unified Bank, being located in the heart of where a planned ethane cracker plant is anticipated to be constructed,
we are truly optimistic that this will be a phenomenal location for and further contribute to the growth of our company for many years to come.
From a “strategic” perspective, your management team considers both merger and acquisition (and, also, new branch construction) to be one
of our primary lines of business. Accordingly, this acquisition event was invaluable to growing the knowledge base of our team and developing
a template that can be replicated in the future. In perfecting our craft through relevant experience, we firmly believe that this will pay further
dividends as we seek to grow our organization!
Developing an Investment Strategy to more appropriately Leverage our Balance Sheet through our Investment Portfolio: This past year,
your management team successfully implemented an investment strategy, which enabled us to leverage the investment portfolio of our
company to levels that we have not seen since the Great Recession. During that time, our government (through the Federal Reserve) instigated
a policy to lower longer term investment yields with large scale asset purchases (LSAP’s)... more commonly known as Quantitative Easing
(QE)! Now that we are in a rising rate environment, our new investment strategy involved investing in highly-rated municipal securities that
produce attractive yields relative to other investment alternatives available to us. Accordingly, this past year we saw solid growth in our
investment portfolio, with securities and other restricted stock increasing by $79.1 million or 161%. Investment in these higher-yielding
municipal securities helped contribute to the 20.8% growth that our company experienced in the level of interest income that it generated in
2018 and was a stabilizing influence on our overall net interest margin.
Considering that our securities and other restricted stock balance currently exceeds the average securities and other restricted stock balance
by $21.7 million and that our new strategy provides extended call protection, we strongly anticipate that we will be able to generate higher
levels of interest income and maintain our net interest margin in the coming year. Even though this investment strategy did lead to significant
growth this past year in our investment portfolio, our overall investment position is still at levels that are well below those to which we are
accustomed in a historic sense. At year end, our total securities and restricted stock only comprised 21.6% of our company’s overall asset
base. At this current level (and, giving consideration to our overall capitalization), we have more room for growth opportunity in this area in
the coming year… assuming that the yields and terms that we see continue to be appealing and fit within our modeling.
Continuing to Build our Loan Origination and Support Platforms to Achieve Double Digit Growth in our Loan Portfolio while Maintaining
our Solid Credit Quality: The growth of our loan portfolio this past year strongly contributed to the general growth in our company’s earning
assets and earnings performance. In 2018, we were able to grow our total loans by $41.1 million or 11.2%. We were able to achieve this
very solid, double-digit growth in totals loans due to our continued focus on strongly supporting our current origination team and further
building this origination platform and the support thereof. With an internal focus on improving our origination turnaround through the
enhancement of our processing and underwriting functions, we have been able to provide a much higher level of service to our valued
customers. Accordingly, this commitment to serving our customers at a very high level, relative to industry standards, has led to us having
a competitive advantage, which is leading to this increased level of loan origination that we experienced this past year.
In 2018, we also addressed a weakness; whereby, we were successful in recruiting an extremely experienced and capable lender in our
Southern Region, which includes the Franklin County, Ohio market. This commitment to strengthening our lending function in this key market
for UBCP has led to us attracting many solid new relationships to our company and increasing our levels of loan originations in this valued
market.
With our enhanced loan volumes, we continued focusing on and building our loan support function. Once again, quick turnaround and robust
support will put us into a more competitive posture to win more of the loan opportunities that our origination personnel are routinely bringing
to our attention. But, securing new business is only one part of the lending equation. Also leading to our record earnings achievement this
past year was the continuation of our company’s very sound credit quality-related metrics. At year end, we had a very low level of nonaccrual
loans, which totaled approximately $1.2 million or 0.30 percent of total loans. Further--- net loans charged off, excluding overdrafts, was
$259,000 and net charge offs to average loans was 0.07% in 2018. Needless to say, at these levels we are presently very satisfied with the
performance of our loan portfolio from a credit quality perspective. Anticipating that our economy will remain fundamentally sound in the near
to intermediate term, we forecast that this trend will continue into the current year.
2
2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
In 2019, we firmly believe that our loan origination and support platforms will continue to produce very solid growth and sound results for our
company. Considering that our year-end gross loan balance exceeded our average loan balance by $21.7 million--- and, the fact that we are
again budgeting double digit loan growth in 2019--- we strongly anticipate that we will be able to maintain a very solid net interest margin
and further grow the interest income that we generate, which should produce even a higher level of earnings for UBCP!
Attracting Low Cost Retail Funding Alternatives to Fund our Record Growth: In order to achieve an almost thirty-percent (30%) growth
rate in our assets in 2018--- while maintaining our net interest margin and producing record earnings--- we had to be able to attract a
reasonable level of cost effective funding to our company. Being a community-oriented banking organization, most of this funding was in the
form of retail-based, core deposits. Ultimately, we were successful in attracting $139.5 million in retail deposits during this past year. Of
extreme importance to us, none of this new funding to our company was considered to be “brokered” deposits, which are becoming more
and more prevalent within our industry and utilized by many of our peer to fund their balance sheets and growth. We are proud of the reality
that in this area of retail funding and deposits, our focus continues to be relationship based!
As previously mentioned, with our acquisition of Powhatan Point, we gained approximately $55.6 million in retail deposits, which accounted
for approximately forty-percent (40%) of our growth in retail funding in 2018. The remainder of the growth that we experienced in our retail
funding was achieved on an organic basis. Organically speaking, approximately $83.9 million, or sixty percent (60%), of our growth in retail
funding was attributed to our successful attraction of new retail deposits to our company.
With the very significant growth in retail deposits that our company achieved in 2018 (in a very competitive environment; wherein, this feat
was not easily accomplished), we are most proud of the fact that an overwhelming majority of this growth occurred through the attraction of
lower-costing noninterest and interest bearing demand and savings deposits. Of the total growth in deposits in 2018, approximately $100.6
million, or seventy-two percent (72%), was in these lower-costing categories. The remaining growth in deposits came in the area of time
deposits (consisting of certificate of deposit or term funding), which totaled $38.9 million for the year.
By funding our above-peer growth in earning assets primarily with lower-costing retail, core funding this past year--- even though we operated
in an environment; whereby, the Federal Open Market Committee (FOMC) raised the target rate for federal funds by one percent (1.0%) over
the course of the year--- our company was able to increase the level of net interest income that it generated by $2.3 million or 14.2%. At year
end, our net interest margin was 3.84% versus 3.85% at the end of the previous year. We are extremely proud that we were able to substantially
grow our company while maintaining our overall margins!
All of the aforementioned occurrences led to our company’s historic performance in 2018. Our current vision is to grow the assets of our
company to a level greater than $1.0 billion. We anticipate using the “playbook” that we utilized this past year in order to achieve this vision…
growing organically through our strong origination platforms and expanding footprint and, also, finding other quality acquisition opportunities!
Looking forward… your management team fully realizes that our company needs to continually evolve in order to remain both competitive
and relevant within our very dynamic industry. As a valued shareholder, I can assure you that we have the capability and commitment to make
this happen. Over the course of the next few short years, we clearly understand that we will need to accomplish the following items (among
others) to effectively grow both our single-bank charter, Unified Bank, and our bank holding company, United Bancorp, Inc.:
Developing a more modern origination platform and delivery system through “digital transformation” that will provide our
customers with “mobility” to interchangeably interact with our company on their terms and through their preferred channel(s).
Increasing our market capitalization to a level that will allow United Bancorp, Inc. (UBCP) to qualify for listing on the Russell 2000
Index; thereby, attracting more interest in our company by a broader range of investors and leading to enhanced growth
opportunities that will boost our company’s, and your, shareholder value.
UNITEDBANCORP INC.
2 01 8 | A N N UA L R E P O RT
3
A Letter from the President and CEO - Continued
Growing our footprint within the Tri-State Area of Ohio, West Virginia and Pennsylvania by constructing new branch facilities and
acquiring other like-minded community banking organizations.
And,
Capitalizing on the evolving oil and gas opportunity within our traditional footprint on both the Ohio and West Virginia sides of the
great Ohio River to create more positive operating leverage for our company in this valued region.
As you can see, United Bancorp, Inc. (UBCP) had one of the better (if not, the best) years of performance in its history in 2018. But, your
management team will never rest on its past laurels. We will continue to be fully committed to producing stellar performance and growth
related results for our great company. As always, we are truly blessed to have a “United and Unified” team, management, board of directors
and shareholder group. We truly appreciate everyone’s continued support… together, we will accomplish more!
Scott A. Everson
President and Chief Executive Officer
ceo@unitedbancorp.com
February 19, 2019
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 01 8 | 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
2019 ANTICIPATED
DIVIDEND PAYABLE DATES
First Quarter
March 20, 2019
Second Quarter*
June 20, 2019
Third Quarter*
September 20, 2019
Fourth Quarter*
December 20, 2019
*Subject to action by
Board of Directors
(1) Adjusted for stock dividends and exchanges.
(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.
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
2018
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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
0.52
-
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
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
December 28, 2018
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
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
Index
United Bancorp, Inc.
NASDAQ Composite
SNL Bank Index
SNL Bank $250M-$500M
SNL Midwest Bank
Dow Jones
12/31/13
100.00
100.00
100.00
100.00
100.00
100.00
12/31/14
104.63
114.75
111.79
114.11
108.71
110.04
12/31/15
130.48
122.74
113.69
130.55
110.36
110.28
12/31/16
191.80
133.62
143.65
163.81
147.46
128.47
12/31/17
196.30
173.22
169.64
200.19
158.46
164.58
12/31/18
177.06
168.30
140.98
171.03
135.31
158.85
5
Directors
Jonathan C. Clark2
Scott A. Everson1,2,4
Gary W. Glessner1,2
John R. Herzig2
John M. Hoopingarner1,2
Carl A. Novak1,2
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 01 8 | 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; President, Glessner & Associates, PLLC; Managing Member
Glessner Wharton Andrews LLC; Trustee Windmill Truckers Center, Inc.; Managing
Member Tiffany's LLC; Managing Member GWA Realty, LLC; Owner G. W. Rentals, LLC
John M. Hoopingarner1,2,3,4 . . . . . Executive Director & Secretary, Muskingum Watershed Conservancy District, New Philadelphia, Ohio
Carl A. Novak, DDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Novak Dental Clinic, Clarington, 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 - 2015
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. Glessner2. . . . . . . . . . . . . . . . . . . . . . . . . . Certified Public Accountant; President, Glessner & Associates, PLLC; Managing Member
Glessner Wharton Andrews LLC; Trustee Windmill Truckers Center, Inc.; Managing
Member Tiffany's LLC; Managing Member GWA Realty, LLC; Owner G. W. 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
Carl A. Novak, DDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Novak Dental Clinic, Clarington, Ohio
Richard L. Riesbeck1,2, F . . . . . . . . . . . . . . . . . . Chairman, United Bancorp, Inc.; President, Riesbeck Food Markets, Inc., St. Clairsville, Ohio
James W. Everson ............................................................................................................................................................... Chairman Emeritus 1969 - 2015
1 = Executive Committee 2 = Audit Committee 3 = Compensation Committee
4 = Nominating and Governance Committee F = Lead Director
UNITEDBANCORP INC.
2 01 8 | 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 2018, 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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2 01 8 | A N N UA L R E P O RT
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 2018, there were 5,926,851 shares issued, held among approximately
3,300 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, 2018 to December 31, 2018 compared to the same periods in 2017 as reported
by the NASDAQ.
Market Price Range
High ($)
Low ($)
Cash Dividends
Quarter ($)
Cumulative ($)
Special Cash Dividends
2 0 1 8
31-Mar 30-Jun 30-Sep 31-Dec
2 0 1 7
31-Mar 30-Jun 30-Sep
31-Dec
$ 13.79
$ 11.81
14.00
12.35
13.70
13.03
13.25
10.44
$ 13.44
$ 11.74
12.25
11.35
12.20
11.55
13.60
12.00
$
$
$
0.13
0.13
-
0.15
0.26
-
0.13
0.39
-
0.13
0.52
0.05
$
$
$
0.11
0.11
-
0.11
0.22
-
0.12
0.34
-
0.12
0.46
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 17,
2019 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 01 8 | 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, 2018 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 basic and diluted earnings per
share of $0.82 and net income of $4,282,000 for the year
ended December 31, 2018, as compared to $0.71 and
$3,546,000, respectively, for 2017. The net income reported
for the year 2018 is a record for the Company. The Company’s
basic and diluted earnings per share for the three months
ended December 31, 2018, was $0.11, as compared to $0.16
for the same period in 2017. Merger related expenses,
attributed to the acquisition of Powhatan Point Community
Bancshares, Inc. (Powhatan Point), which closed on October
15, 2018, were $1.3 million for the 12 months ended December
31, 2018. Of this total, $1.1 million in merger related expenses
were incurred during the fourth quarter of 2018.
Net income increased $736,000, or 20.8%, for the year
ended December 31, 2018, over the previous year. This
increase in net income includes merger related expenses
of $1.3 million realized during the course of the year, which
are attributed to the previously announced acquisition of
Powhatan Point. This increase in earnings is strongly
correlated to our Company’s growth in higher-yielding
earning assets, which saw an increase of $133.9 million, or
29.1%, for the year. This growth in assets was divided
between steady growth in our Company’s loan portfolio,
which increased by $41.1 million or 11.2%, and solid growth
in our investment portfolio, with securities and other
Total Assets (In Thousands)
$600,000
$560,000
$520,000
$480,000
$440,000
$400,000
$360,000
$438,018
$459,332
$593,213
2016
2017
2018
restricted stock increasing by $79.0 million or 161.0%. This
growth in higher-yielding earning assets helped our
Company increase the level of interest income that it
generated for the year by $3.7 million or 20.8%. Accordingly,
and as reported on an aforementioned basis, our Company
had record earnings in 2018, reporting net income of $4.3
million. From a qualitative perspective, our Company was
able to maintain its overall strength and stability within its
loan portfolio. Year-over-year, we continued to have very
solid credit quality-related metrics supported by low levels
of nonaccrual loans of approximately $1.2 million, or 0.30
percent of total loans, at December 31, 2018, compared to
$1.4 million at December 31, 2017, a decrease of $150,000.
Further--- net loans charged off, excluding overdrafts, was
10 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
$259,000 for 2018, which is a relatively modest increase of
$23,000 from the previous year. Net charge offs to average
loans (excluding overdraft charge offs) was 0.07% for 2018
and 2017. We are very satisfied with the continued strong
performance of our loan portfolio from a credit quality
perspective. With the anticipation of our economy
remaining fundamentally strong in the near to intermediate
term, it is expected that this trend will continue into the
current year.
We are very proud of the quality growth that we have
achieved this past year. With our current vision of becoming
a community banking organization with assets greater
than $1.0 billion, we need to look for opportunities to grow
our Company in a safe, sound and profitable manner. We
will achieve this vision through the acquisition of other
fundamentally sound community banks and double digit
organic growth, both of which were successfully
accomplished in 2018. As previously reported, we closed
on our acquisition of Powhatan Point, the parent company
of the First National Bank of Powhatan Point, Ohio, on
October 15, 2018. For our Company, this acquisition added
approximately $62.3 million to assets; $6.8 million to loans;
$55.6 million to deposits; and, $4.7 million to consolidated
equity. From an organic perspective, assets grew by
approximately $71.6 million, or 15.6%, over the previous
year. In order to fund this strong growth in assets, our
Company had above-peer growth in core, retail-oriented
funding in 2018. We were successful in attracting $139.5
million in retail deposits during this past year. Organically
speaking, $83.9 million, or 60% of the growth experienced,
was attributed to our successful attraction of new retail
deposits to our Company. Approximately $55.6 million, or
40%, of this growth in retail deposits was related to our
acquisition of Powhatan Point Community Bancshares, Inc.
(Powhatan Point). Of note, a majority of this new core,
retail funding attracted by our Company during the course
of 2018 was achieved by growing our lower-cost, retail
balances, which consists of noninterest bearing and
interest bearing demand deposits and savings deposits. Of
the total growth in deposits in 2018, $100.6 million, or 72%,
was in this lower-cost, retail funding category. The
remaining growth in deposits came in the area of time
deposits (consisting of certificate of deposit or term
funding), which totaled $38.9 million for the year. By
funding our above-peer growth in earning assets primarily
with lower-costing retail funding this past year--- even
though we operated in a rising rate environment; whereby,
the Federal Open Market Committee (FOMC) increased the
target rate for Federal funds by 1.0% over the course of the
year--- our Company was able to maintain its solid net
interest margin. At year end, our net interest margin was
3.84%, compared to 3.85% in 2017.
Loans-Net (In Thousands)
$410,000
$390,000
$370,000
$350,000
$330,000
$310,000
$290,000
354,380
366,467
407,640
2016
2017
2018
Considering that our securities and other restricted stock
balance currently exceeds the average securities and other
restricted stock balance by $44.0 million and, also, having
our gross loans balance exceed our average loans balance
by $21.7 million, we strongly anticipate that we will be able
to maintain a solid net interest margin in the coming year.
Also in the coming year, when considering merger related
expenses relating to our acquisition of Powhatan Point
Community Bancshares, Inc. (Powhatan Point) this past
year, we are extremely optimistic that our Company will
again have record earnings in 2019!
As is the situation with most companies, this past year
United Bancorp, Inc. benefited, to some degree, from the
lower rate of taxation with the enactment of the tax act.
But, our Company also benefited from the positive execution
of our strategic plan, which calls for us to grow through
acquiring other
like-minded community banking
organizations and executing upon prudent, yet profitable,
organic opportunities. This past year, we announced our
intent to purchase and successfully closed on a great
community bank holding company, Powhatan Point, within
a four month timeframe. Our management team effected
this transaction in a very timely manner on January 25, 2019.
In addition, our Company was able to develop a new
investment strategy, which allowed us to leverage our
investment portfolio to levels that we have not seen for
several years. This strategy involved investing in quality
municipal securities, which are highly rated and produce
nice yields relative to other investment alternatives in
today’s investment market. Also, we were able to grow our
loans outstanding in the double-digits, while maintaining
our overall credit quality. In order to achieve almost a
thirty-percent growth rate in our assets, we had to be able
to attract a reasonable level of cost effective funding to our
Company.
We were successful in doing this in an
environment; wherein, it was not easily done, by bringing in
lower-cost retail funding in excess of $100.0 million. Each of
these events led to our Company producing record earnings
UNITEDBANCORP INC.
2 01 8 | A N N UA L R E P O RT
11
$480,000
$450,000
$420,000
$390,000
$360,000
$330,000
$300,000
Total Average Earning Assets
(In Thousands)
$389,254
$413,262
$479,975
2016
2017
2018
during 2018, even though we continued to invest in our
growth strategy and had expenses related to our recent
bank-charter acquisition. With the projected increase in our
average securities and loan-related balances in the coming
year, along with the additional growth that we project for
our Company, we are highly optimistic about our future and
look forward to having above-peer performance in the
coming quarters!
We have stated, for many quarters, that our goal is to
profitably grow our Company. We are extremely delighted
that we are presently accomplishing this. At year end, our
Company had total assets of $593.2 million, which is an
increase of $133.8 million, or 29.1%, over 2017. With the level
of growth that we have achieved on a year-over-year basis,
our current level of total assets is the highest in our Company’s
history. Our viewpoint is that profitable growth will continue
to lead to positive opportunities to further grow our
Company! In this area, we have very high expectations over
the course of the next few years. Our ultimate goal is to
become a “hybrid or omnichannel” bank that is capable of
serving our present and future customers on “their” terms.
By having both exceptional “in-branch” and “virtual” service
options for our customers, we believe that our Company will
have relevance within our industry for many years to come.
In addition, we will be able to deliver on our current vision for
growth, which is to have total assets greater than $1.0 billion
in order to gain greater operational efficiencies and a higher
market capitalization and,
in addition, capitalize on
opportunities within our industry.
As always, one of our primary focuses is to reward our
valued shareholders by paying a solid cash dividend. With
our improving earnings in 2018, we increased our quarterly
cash dividend payout level during the first quarter of the
year. On a year-over-year basis, our Company paid a regular
cash dividend of $0.52 versus $0.46 in 2017, an increase of
13.0%. At our present quarterly cash dividend payout level
of $0.13, our Company’s stock has a current dividend yield
of 4.55%, which is significantly higher than the average cash
dividend yield presently being paid within our industry. In
addition, our Company, once again, paid a special cash
dividend of $0.05 per share to our valued shareholders at
the end of this past year in recognition of another solid year
of performance. Another primary focus that we have
continues to be growing our shareholders’ value in our
Company through profitable operations and strategic
growth. Even though we saw our market value decrease
during the course of the fourth quarter due to negative
market forces, as did an overwhelming majority of other
financial institutions and companies operating in our
national economy, we are extremely optimistic about our
future prospects as it relates to growing our market value,
and; therefore, shareholders’ value in our Company, along
with our market capitalization. We are hopeful that our
market value will be more reflective of the above-peer core
earnings growth that our Company is generating and, as
forecast, will continue to generate in this current year. We
will continue to keenly focus on these two key areas to
create additional value for our loyal shareholders. Overall,
we are very pleased with the record-setting 2018
performance of our Company and the direction that we are
going. With the positive growth that we have experienced
in 2018, and with the anticipated growth that we project to
occur during 2019, we are extremely optimistic about our
potential to further improve the earnings of our Company
and look forward to realizing this upside potential in future
periods!
Earning Assets – Loans
The Company’s gross loans totaled $409.7 million at
December 31, 2018, representing an 11.1% increase over the
$368.6 million at December 31, 2017. Average loans totaled
$388.0 million for 2018, representing an 8.9% increase
compared to average loans of $356.2 million for 2017.
The increase in gross loans from December 31, 2017 to
December 31, 2018 was primarily an increase in commercial
and commercial real estate loans by $36.9 million, an
increase of $1.3 million in installment loans and an increase
of $2.9 million in residential real estate.
The Company's commercial and commercial real estate
loan portfolio represents 77.4% of the total portfolio
at December 31, 2018, compared to 76.0% at December 31,
2017. 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
12
2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
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, 2018, compared
to 3.4% at December 31, 2017. 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
19.2% of the total portfolio at December 31, 2018, compared
to 20.6% at December 31, 2017. Residential real estate loans
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.
to change over time. In general, the loan loss policy for
installment loans requires a charge-off if the loan reaches
120-day delinquent status or if notice of bankruptcy
liquidation is received. The Company follows lending
policies, with established criteria for determining the
repayment capacity of borrowers, requirements for down
payments and current market appraisals or other valuations
of collateral when loans are originated. Installment lending
also utilizes credit scoring to help in the determination of
credit quality and pricing.
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.
The Company did recognize a gain on the sale of secondary
market loans of $66,000 in 2018 and a gain of $98,000 in
2017.
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
Net Income (In Thousands)
$4,400
$4,100
$3,800
$3,500
$3,200
$2,900
$2,600
3,580
3,546
4,282
2016
2017
2018
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
agency-backed securities, tax-exempt obligations of state
and political subdivisions and certain other investments.
Securities available for sale at December 31, 2018 increased
approximately $79.0 million from December 31, 2017 totals.
Due to the rising rate environment in which we are currently
operating, we are seeing opportunities in the area of
securities investments; whereby, we are finally seeing yields
that are at acceptable levels, which is encouraging us to
leverage-up on state and political subdivision investments.
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 $139.5 million or 36.1% from
$386.0 million at December 31, 2017 to $525.4 million at
December 31, 2018. Overall total deposit growth was
mainly focused on
interest bearing money market
accounts and certificate of deposit accounts. Of the total
growth in deposits during 2018 the Powhatan Point
UNITEDBANCORP INC.
2 01 8 | A N N UA L R E P O RT
13
merger accounted for approximately $55.6 million of the
total growth.
The Company has a strong deposit base from public
agencies, including local school districts, city and township
municipalities, public works facilities and others, which may
tend to be more seasonal in nature resulting from the
receipt and disbursement of state and federal grants. These
entities have maintained relatively stable balances with the
Company due to various funding and disbursement
timeframes.
Certificates of deposit greater than $250,000 are not
considered part of core deposits and as such are used to
balance rate sensitivity as a tool of funds management. At
December 31, 2018, certificates of deposit greater than
$250,000 increased $10.9 million, from December 31, 2017
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 decreased approximately $3.0 million from
December 31, 2017 to December 31, 2018.
Advances from the Federal Home Loan Bank (FHLB)
decreased $9.9 million from December 31, 2017 to December
31, 2018.
Performance Overview 2018 to 2017
Net Income
The Company reported basic and diluted earnings per
share of $0.82 and net income of $4,282,000 for the year
ended December 31, 2018 an increase of $736,000 or 20.8%
over net income of $3,546,000 for the year ended December
31, 2017.
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, 2018 to 2017, the Company’s net interest
margin was 3.84% compared to 3.85%, a decrease of 1 basis
point.
Average interest-earning assets increased $66.7 million in
2018 as compared to 2017 while the associated weighted-
average yield on these interest-earning assets increased
from 4.28% in 2017 to 4.50% for 2018. Average interest-
bearing liabilities increased $50.5 million in 2018 as
compared to 2017, while the associated weighted-average
costs on these interest-bearing liabilities increased from
0.53% in 2017 to 0.83% in 2018.
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 $41.1 million year-over-year to a level of
$409.7 million as of December 31, 2018. During this same
period, the Company’s credit quality remained relatively
constant as non-accrual loans decreased $150,000, or 10.8%,
to a level of $1.2 million and net loans charged off were up
modestly by $23,000, or 9.8%, to a level of $259,000
(exclusive of overdraft charge off). With the strong growth
in loans the Company increased the provision for loan
losses which was $297,000 for the year ended December 31,
2018 compared to $100,000 for the year ended December
31, 2017, an increase of $197,000 year-over-year. Total
allowance for loan losses to total loans of 0.50% and a total
allowance for loan losses to nonperforming loans of
Total Allowance for Loan Losses
to Nonperforming Loans
180%
150%
120%
90%
60%
30%
0%
171.99%
152.10%
164.04%
2016
2017
2018
14 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
164.04% at year end 2018, compared to 0.58% and 152.10%
at year end 2017.
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.
acquisition of Powhatan Point Community Bancshares, Inc.
(Powhatan Point). Overall noninterest expense for 2018
increased $2.8 million, as compared to 2017. Merger related
expenses accounted for $1.3 million of the $2.8 million
increase. Specific areas of increase include the following.
Salaries and employee benefits increased $754,000, or
10.5%, from 2017 to 2018. As described above, additional
loan origination personnel, increased level of expense
related to stock and cash incentive plans were the drivers of
the increase.
Noninterest income for the year ended December 31, 2018
was $3.7 million, an increase of $208,000, or 6.0%, compared
to $3.5 million for the year ended December 31, 2017. The
majority of this increase is related to a $106,000 increase in
service charges on deposit accounts.
Professional fees increased $1.3 million, or 163.4% for 2018
as compared to 2017. This increase is the merger expenses
of approximately $1.3 million for the Powhatan Point
merger.
Noninterest Expense
After several years of containment, for the second year,
our Company saw its overall noninterest expense levels
increase 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; expense to support an enhanced
loan origination platform; enhancing our Information
Technology function to better manage risk and serve our
valued customers; expanding our foot print to increase
overall loan production; marketing expense relating to the
prime retail deposit pricing that we have been successfully
promoting; Lastly, we incurred expenses related to the
Marketing expense increased $67,000, or 15.7%, for 2018 as
compared to 2017. The increase is due to a focus on growing
retail deposits during 2018.
Other expenses increased $296,000, or 14.0%. The merger
with Powhatan Point outside of merger related expenses
increased other expenses by approximately $85,000.
Income tax expense for 2018 was $800,000 compared to
$2.0 million in 2017, a decrease of $1.2 million. The
Company’s effective income tax rate was 15.7% in 2018 and
36.6% in 2017. The Tax Act lowered the statutory tax rate to
21% for the Company in 2018. Refer to note Note 9 Income
Taxes for a reconciliation for the effective tax rate for the
Company.
(In thousands)
2018
2017
Noninterest income
Customer service fee .............................................................................................................................................................$
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 ..............................................................................................................................................$
2,608
66
986
3,660
7,964
2,140
71
2,173
433
190
364
493
165
2,430
16,423
$
$
$
$
2,502
98
852
3,452
7,210
2,071
20
825
346
185
347
426
112
2,107
13,649
UNITEDBANCORP INC.
2 01 8 | A N N UA L R E P O RT
15
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
16 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
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.
increase
in a falling
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
interest rate
cause profits to
environment. Conversely a positive gap will cause profits
to decline in a falling interest rate environment and
increase
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.
is a rising
Management of the income statement is called spread
management and is defined as managing investments,
loans, and liabilities to achieve an acceptable spread
between the Company’s return on its earning assets and
its cost of funds. Gap management without consideration
of interest spread can cause unacceptable low profit
margins while assuring that the level of profits is steady.
Spread management without consideration of gap
positions can cause acceptable profits in some interest
rate environments and unacceptable profits in others. A
sound asset/liability management program combines gap
and spread management into a single cohesive system.
Management measures the Company’s interest rate risk by
computing estimated changes in net interest income and
the Net Portfolio Value (“NPV”) of its cash flows from
assets, liabilities and off-balance-sheet items in the event
of a range of assumed changes in market interest rates.
The Bank’s senior management and the Executive
Committee of the Board of Directors, comprising the
Asset/Liability Committee (“ALCO”), review the exposure
to interest rates monthly. Exposure to 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
increase. In a 200 basis point rate increase, the Company’s
NPV would increase 5%. This increase is attributable to a
portion of the Company’s loan portfolios that have variable
rates but is somewhat offset by deposit pricing based on
short term interest rates.
(Dollars in Thousands)
Net Portfolio Value - December 31, 2018
Change in Rates
+200
+100
Base
-100
-200
$ Amount $ Change % Change
8,102
134,438
134,450
5,114
129,336
117,270
98,346
(12,066)
(30,990)
-9%
-24%
6%
4%
(Dollars in Thousands)
Net Portfolio Value - December 31, 2017
$ 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%
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
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.
in
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, 2018 and 2017 fall within the general
guidelines established by the Board of Directors. The 2018
NPV table shows that in a falling interest rate environment,
in the event of a 100 basis point change, the NPV would
decrease 9%, and with a 200 basis point change the NPV
would decrease 24%. This decrease is the result of fixed
rate certificates of deposit 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 4% with a 100 basis point interest rate
UNITEDBANCORP INC.
2 01 8 | 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, 2018 and 2017.
Three Months Ended
March 31
June 30
September 30
December 31
(In thousands, except per share data)
2018
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
$
4,625
523
4,102
57
880
3,579
1,346
198
1,148
0.23
0.23
$
5,107
707
4,400
72
888
3,754
1,462
250
1,212
0.23
0.23
$
5,523
893
4,630
72
897
3,855
1,600
269
1,331
0.25
0.25
$
6,065
1,055
5,010
96
995
5,235
674
83
591
0.11
0.11
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
0.16
0.16
18
2 01 8 | 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,
2018 and 2017. 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)
2018
Interest
Average
Income/ Yield/
Balance Expense Rate
2017
Interest
Average
Income/ Yield/
Balance Expense Rate
Assets
Interest-earning assets
Loans ........................................................................................................... $ 382,164
45,250
Taxable securities - AFS ........................................................................
35,424
Tax-exempt securities - AFS.....................................................................
12,958
Federal funds sold .......................................................................................
FHLB stock and other.................................................................................
4,179
Total interest-earning assets ................................................................... 479,975
Noninterest-earning assets
Cash and due from banks ...................................................................
2,000
Premises and equipment (net) ..........................................................
11,838
Other nonearning assets .....................................................................
20,274
Less: allowance for loan losses ..........................................................
(2,085)
32,027
Total noninterest-earning assets ...........................................................
Total assets..................................................................................................... 512,002
Liabilities & stockholders’ equity
Interest-bearing liabilities
Demand deposits ................................................................................... $ 183,754
88,900
Savings deposits .....................................................................................
77,558
Time deposits ...............................................................................................
14,393
FHLB advances .............................................................................................
162
Federal funds purchased ..........................................................................
4,124
Trust preferred debentures .....................................................................
Repurchase agreements ...........................................................................
12,874
Total interest-bearing liabilities ............................................................. 381,756
Noninterest-bearing liabilities
80,243
Demand deposits ...................................................................................
3,102
Other liabilities ........................................................................................
83,345
Total noninterest-bearing liabilities .....................................................
-
Total liabilities ...............................................................................................
Total stockholders’ equity ........................................................................
46,904
Total liabilities & stockholders’ equity ................................................. $ 512,002
Net interest income ....................................................................................
Net interest spread .....................................................................................
$ 18,411
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.
18,885
765
1,493
197
249
21,589
4.94%
1.69
4.21
1.59
5.91
4.50
$ 356,224
39,586
178
13,109
4,165
413,262
16,827
481
11
151
209
17,679
4.72%
1.22
6.18
1.15
5.02
4.28
1,433
54
1,104
299
9
143
136
3,178
0.78%
0.06
1.42
2.08
5.56
3.47
1.06
0.83
6,880
11,849
18,688
(2,282)
35,135
448,397
$ 154,661
81,874
62,744
9,911
4,296
4,124
13,578
331,218
70,272
2,446
72,718
44,461
$ 448,397
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
3.67%
3.84%
$ 15,915
3.75%
3.85%
UNITEDBANCORP INC.
2 01 8 | 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 2018. 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.
$0.82
$0.79
$0.76
$0.73
$0.70
$0.67
$0.64
Diluted Earning Per Share
0.71
0.71
0.82
2016
2017
2018
• Rate/volume variance results when the change in
Capital Resources
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.
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 $50.6 million and $43.9 million at December 31,
2018 and 2017, respectively. Total stockholders’ equity in
relation to total assets was 8.54% at December 31, 2018 and
9.56% at December 31, 2017.
(In thousands)
2018 Compared to 2017
Increase/(Decrease)
Total
Change
Change
Due To
Volume
Interest and dividend income
Loans ....................................................................................................................................$
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 ........................................................................................................
2,058
285
1,482
46
38
3,909
939
16
418
( 355 )
262
39
96
1,415
1,260
76
1,487
( 9 )
1
2,875
94
3
215
( 479 )
164
–
( 2 )
( 5 )
Change
Due To
Rate
798
209
( 5 )
55
37
1,094
840
13
203
124
98
39
98
1,420
Net interest income .............................................................................................................$
2,494
2,820
( 326 )
20 2 01 8 | 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, 2018 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
$0.60
$0.55
$0.50
$0.45
$0.40
$0.35
$0.30
$0.47
$0.51
$0.57
2016
2017
2018
Equity Capital (In Thousands)
$52,000
$49,000
$46,000
$43,000
$40,000
$37,000
$33,000
$42,641
$43,895
$50,643
2016
2017
2018
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 $149.2 million at December 31, 2018,
compared to $59.3 million at December 31, 2017.
Management recognizes securities may need to be sold in
the future to help fund loan demand and, accordingly, as of
December 31, 2018, $124.0 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 2018 and 2017 follows.
Net cash provided by operating activities totaled $5.8
million and $4.6 million for the years ended December 31,
2018 and 2017, 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 $62.5 million for
the year ended December 31, 2018. For year ended
UNITEDBANCORP INC.
2 01 8 | A N N UA L R E P O RT
21
December 31, 2017 net cash used by investing activities
totaled $18.0 million. The changes in net cash from investing
activities include loan growth, net cash received in the
acquisition of Powhatan Bank of $23.4 million, 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 $23.9 million and $7.2 million in 2018 and 2017,
respectively.
Net cash provided by financing activities totaled $67.7
million and $16.2 for the years ended December 31, 2018
and 2017, respectively. The net cash provided by financing
activities in 2018 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 2017 was primarily attributable to an increase in
total deposits.
Management feels that it has the capital adequacy,
profitability, liquidity and reputation to meet the current
and projected financial needs of its customers.
Inflation
The majority of assets and liabilities of the Company are
monetary in nature and therefore the Company differs
greatly from most commercial and industrial companies
that have significant investments in fixed assets or
Return On Average Assets
0.90%
0.80%
0.70%
0.60%
0.50%
0.40%
0.30%
0.86%
0.79%
0.83%
2016
2017
2018
inventories. However, inflation does have an important
impact on the growth of total assets in the banking
industry and the resulting need to increase equity capital
at higher than normal rates in order to maintain an
appropriate equity to assets ratio. Inflation significantly
affects noninterest expense, which tends to rise during
periods of general inflation. Management believes the
most significant
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.
impact on financial results
22 2 01 8 | 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, 2018 and 2017, the related consolidated statements of income, stockholders' equity and cash flows
31, 2011 and 2010, and the related consolidated statements of income, stockholders’ equity and cash
for each of the years in the two-year period ended December 31, 2018, and the related notes (collectively referred
flows for each of the years in the two-year period ended December 31, 2011. The Company's
to as the "financial statements"). In our opinion, the consolidated financial statements referred to above present
Report of Independent Registered Public Accounting Firm
management is responsible for these financial statements. Our responsibility is to express an opinion on
fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the
these financial statements based on our audits.
results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2018,
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, 2019
Cincinnati, Ohio
March 2, 2012
25
December 31, 2004 and 2003
ASSETS
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
Assets
Premises and equipment
Accrued interest receivable
Other real estate and repossessions
Core deposit and other intangible assets
Bank owned life insurance
Other assets
Cash and due from banks
Interest-bearing demand deposits
Cash and cash equivalents
Loans – net
2004
137,816,329
$ 7,580,576
United Bancorp, Inc.
Consolidated Balance Sheets
Consolidated Balance Sheets
December 31, 2018 and 2017
(In thousands, except share data)
December 31, 2018 and 2017
14,947,520
(In thousands, except share data)
4,115,200
215,446,870
(2,995,422 )
212,451,448
7,760,360
2,253,212
1,014,207
34,417
7,517,548
2,030,767
$
2003
$ 8,386,575
140,818,167
2018
15,594,408
3,954,300
198,608,574
(2,843,484 )
195,765,090
8,152,480
2,373,573
15,573 $
940,015
9,680
57,452
25,253
7,185,507
2,295,402
123,991
$ 385,522,969
Total assets
Available-for-sale securities
Loans, net of allowance for loan losses of $2,043 and $2,122 at
$397,521,584
LIABILITIES AND SHAREHOLDERS’ EQUITY
December 31, 2018 and 2017, 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
Core deposit and other intangible assets
Accrued interest receivable
Deferred federal income tax
Bank-owned life insurance
Other assets
Federal funds purchased
Advances from the Federal Home Loan Bank
Securities sold under agreements to repurchase
Other borrowed funds
Accrued expenses and other liabilities
Total Assets
Total liabilities
Liabilities and Stockholders’ Equity
Commitments
Liabilities
Deposits
Demand
Shareholders’ equity
Preferred stock - 2,000,000 shares without par value authorized;
Savings
no shares issued
Time
Common stock - $1 par value; 10,000,000 shares authorized;
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
Deferred federal income tax
Interest payable and other liabilities
Total liabilities
Total deposits
2017
4,662
9,653
14,315
44,959
366,467
11,740
4,164
397
407,640
12,117
4,243
$ 30,049,919
91
61,137,605
1,692
48,274,042
128,443,059
1,798
36,621,372
---
304,525,997
13,115
9,714,000
3,273
30,974,611
5,485,399
593,213
159,398
2,149,105
353,008,510
$ 31,777,495
62,038,985
45,143,133
122,018,788
39,651,142
300,629,543
3,180,000
46,680,311
12,612,270
$
399,283
1,196,066
364,697,473
993
349
12,114
3,834
$ 459,332
-
$
-
$
309,505
111,251
104,687
-
237,980
82,169
65,817
4,126,970
25,831,585
7,021,185
(752,437)
(2,767,751)
525,443
3,752,105
8,068
25,712,990
6,047,652
106
4,124
(633,842)
219
(2,115,855)
4,610
385,966
11,085
10,022
4,124
---
4,240
(635,441)
32,824,111
542,570
(248,591 )
32,514,459
415,437
Total shareholders’ equity
Stockholders’ Equity
Total liabilities and shareholders’ equity
Preferred stock, no par value, authorized 2,000,000 shares; no shares
$397,521,584
issued
Common stock, $1 par value; authorized 10,000,000 shares; issued
2018 – 5,926,851 shares, 2017 - 5,435,304 shares; outstanding
2018 – 5,739,203, 2017 – 5,244,105
Additional paid-in capital
Retained earnings
Stock held by deferred compensation plan; 2018 – 182,457 shares,
2017 – 185,355 shares
Unearned ESOP compensation
Accumulated other comprehensive income loss
The accompanying notes are an integral part of these statements.
Treasury stock, at cost
2018 – 5,744 shares, 2017 – 5,744 shares
Total stockholders’ equity
$ 385,522,969
––
––
5,927
22,556
24,321
(1,701)
(404)
(10)
(46)
50,643
5,435
18,020
23,260
(1,671)
(683)
(420)
(46)
43,895
Total liabilities and stockholders’ equity
$
593,213 $ 459,332
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
24 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
United Bancorp, Inc.
Consolidated Statements of Income
Consolidated Statements of Income
Years Ended December 31, 2018 and 2017
Years Ended December 31, 2018 and 2017
(In thousands, except per share data)
(In thousands except per share data)
Interest and Dividend Income
Loans
Securities
Taxable
Tax-exempt
Federal funds sold
Dividends on Federal Home Loan Bank and other stock
Total interest and dividend income
Interest Expense
Deposits
Borrowings
Total interest expense
Net Interest Income
Provision for Loan Losses
Net Interest Income After Provision for Loan Losses
Noninterest Income
Customer service fees
Net gains on loan sales
Earnings on bank-owned life insurance
Bank-owned life insurance death benefit
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
OREO and repossession losses
Other
Total noninterest expense
Income Before Federal Income Taxes
Provision for Federal Income Taxes
Net Income
Basic Earnings Per Share
Diluted Earnings Per Share
2018
2017
$
18,875
$
16,803
765
1,234
197
249
21,320
2,591
587
3,178
18,142
297
17,845
2,608
66
477
100
409
3,660
481
7
151
209
17,651
1,219
545
1,764
15,887
100
15,787
2,502
98
471
--
381
3,452
7,964
2,140
71
2,173
433
190
364
493
165
27
2,403
7,210
2,071
20
825
346
185
347
426
112
--
2,107
16,423
5,082
800
4,282
$
0.82
$
0.82
$
13,649
5,590
2,044
3,546
0.71
0.71
$
$
$
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
UNITEDBANCORP INC.
2 01 8 | A N N UA L R E P O RT
25
Consolidated Statements of Comprehensive Income
United Bancorp, Inc.
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2018 and 2017
Years Ended December 31, 2018 and 2017
(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 of $199 and $24 for each
respective period
Change in funded status of defined benefit plan, net of tax benefits
of $82 and $20 for each respective period
Amortization of prior service included in net periodic pension
expense, net of tax benefits of $19 and $30 for each respective
period
Amortization of net loss included in net periodic pension cost, net
of taxes of $11 and $21 for each respective period
2018
2017
$
4,282 $
3,546
749
(309)
(70)
40
89
(40)
(59)
44
Comprehensive income
$
4,692 $
3,580
See Notes to Consolidated Financial Statements
26 2 01 8 | 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, 2018 and 2017
Years Ended December 31, 2018 and 2017
(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, 2017
$
5,425 $ 18,024 $
(1,926)
$
(911)
$ 22,483
$
(454)
$
42,641
Net income
Other comprehensive loss
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
––
(2,769)
––
––
––
––
––
34
––
––
––
––
––
3,546
34
(2,769)
––
163
---
280
Balance, December 31, 2017
5,435
18,020
(1,717)
(683)
23,260
(420)
43,895
Net income
Other comprehensive income
––
––
––
––
––
––
––
––
4,282
––
4,282
––
410
410
Share issuance in connection with merger
367
4,344 ---
---
---
---
4,711
Cash dividends - $0.57 per share
Shares purchased for deferred compensation plan
Expense related to share-based compensation plans
Restricted stock activity
Amortization of ESOP
––
––
––
125
––
––
30
287
(125)
---
––
(30)
––
––
––
––
––
––
––
279
(3,221)
––
––
––
––
––
––
––
––
––
(3,221)
––
287
––
279
Balance, December 31, 2018
$
5,927 $ 22,556 $
(1,747)
$
(404)_ $ 24,321
$
(10)
$
50,643
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
UNITEDBANCORP INC.
2 01 8 | A N N UA L R E P O RT
27
United Bancorp, Inc.
Consolidated Statements of Cash Flows
Consolidated Statements of Cash Flows
Years Ended December 31, 2018 and 2017
(In thousands)
Years Ended December 31, 2018 and 2017
(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
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
2018
2017
$
4,282 $
3,546
918
100
20
(1)
6
545
(4,424)
4,522
(98)
280
163
24
(389) (292)
974
297
70
135
42
375
(3,064)
3,130
(66)
280
287
27
(660)
589
(554)
(153)
(1,627)
1,038
Net cash provided by operating activities
5,755
4,567
Investing Activities
Purchases of available-for-sale securities
Sale of available-for-sale securities
Sale of interest-bearing time deposits
Net change in loans
Purchases of premises and equipment
Net cash received from acquisition of Powhatan Point Community
Bancshares, Inc.
Proceeds from sales of foreclosed assets
(78,117)
23,865
(12,248)
7,249
3,461 ---
(34,971)
(785)
(12,336)
(782)
23,457 ---
71
543
Net cash used in investing activities
(62,547)
(18,046)
See Notes to Consolidated Financial Statements
28 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
See Notes to Consolidated Financial Statements
Consolidated Statements of Cash Flows Continued
United Bancorp, Inc.
Consolidated Statements of Cash Flows (continued)
December 31, 2018 and 2017
(In thousands)
Years Ended December 31, 2018 and 2017
(In thousands)
Financing Activities
2018
2017
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
47,163
$
--- 11,000
(9,916) (40,833)
1,692
(2,769)
(3,017)
(3,221)
83,884 $
Net cash provided by financing activities
Increase (decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
67,730
16,253
10,938
2,774
14,315
11,541
Cash and Cash Equivalents, End of Year
$
25,253 $
14,315
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
The Company purchased all of the stock of Powhatan Point Community
Bancshares, Inc. on October 15, 2018. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $62,328
Less common stock issued 4,711
Less cash paid for common stock 1,529
Liabilities assumed $56,088
$
$
$
3,285 $
715 $
1,807
1,575
280 $
149
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
UNITEDBANCORP INC.
2 01 8 | A N N UA L R E P O RT
29
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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, Powhatan Point, 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.
Revenue Recognition
Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC
606"), establishes principles for reporting information about the nature, amount, timing and
uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or
services to customers. The core principle requires an entity to recognize revenue to depict the
transfer of goods or services to customers in an amount that reflects the consideration that it expects
to be entitled to receive in exchange for those goods or services recognized as performance
obligations are satisfied.
The majority of our revenue-generating transactions are not subject to ASC 606, including revenue
generated from financial instruments, such as our loans, investment securities, as well as revenue
related to our mortgage banking activities, as these activities are subject to other GAAP discussed
elsewhere within our disclosures.
30 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
Descriptions of our revenue-generating activities that are within the scope of ASC 606, which are
presented in our income statements as components of non-interest income are as follows:
Service charges on deposit accounts - these represent general service fees for monthly account
maintenance and activity- or transaction-based fees and consist of transaction-based revenue,
time-based revenue (service period), item-based revenue or some other individual attribute-
based revenue. Revenue is recognized when our performance obligation is completed which is
generally monthly for account maintenance services or when a transaction has been completed
(such as a wire transfer). Payment for such performance obligations are generally received at
the time the performance obligations are satisfied.
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.
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, 2018 and 2017, 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, 2018 and 2017,
approximately $6,566,000 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
would be 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
UNITEDBANCORP INC.
2 01 8 | A N N UA L R E P O RT
31
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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, 2018 and 2017, the Company did not have any
loans held for sale.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity
or payoffs are reported at their outstanding principal balances adjusted for unearned income,
charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated
loans and unamortized premiums or discounts on purchased loans.
For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan
origination fees, net of certain direct origination costs, as well as premiums and discounts, are
deferred and amortized as a level yield adjustment over the respective term of the loan.
For all loan classes, the accrual of interest is discontinued at the time the loan is 90 days past due
unless the credit is well-secured and in process of collection. Past due status is based on
contractual terms of the loan. For all loan classes, the entire balance of the loan is considered past
due if the minimum payment contractually required to be paid is not received by the contractual
due date. For all loan classes, loans are placed on nonaccrual or charged off at an earlier date if
collection of principal or interest is considered doubtful.
Management’s general practice is to proactively charge down loans individually evaluated for
impairment to the fair value of the underlying collateral. Consistent with regulatory guidance,
charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered
uncollectible. The Company’s policy is to promptly charge these loans off in the period the
uncollectible loss is reasonably determined.
For all loan portfolio segments except residential and consumer loans, the Company promptly
charges-off loans, or portions thereof, when available information confirms that specific loans are
uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial
condition of the borrower, (2) declining collateral values, and/or (3) legal action, including
bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired
loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a
loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.
The Company charges-off residential and consumer loans when the Company reasonably
determines the amount of the loss. The Company adheres to timeframes established by applicable
regulatory guidance which provides for the charge-down of 1-4 family first and junior lien
32 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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
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
UNITEDBANCORP INC.
2 01 8 | A N N UA L R E P O RT
33
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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.
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
34 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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.
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.
UNITEDBANCORP INC.
2 01 8 | A N N UA L R E P O RT
35
Notes to Consolidated Financial Statements
Restricted Stock Awards
December 31, 2018 and 2017
The Company has a share-based employee compensation plan, which is described more fully in
Note 14.
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance
(ASC 740, Income Taxes). The income tax accounting guidance results in two components of
income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or
refunded for the current period by applying the provisions of the enacted tax law to the taxable
income or excess of deductions over revenues. The Company determines deferred income taxes
using the liability (or balance sheet) method. Under this method, the net deferred tax asset or
liability is based on the tax effects of the differences between the book and tax bases of assets and
liabilities, and enacted changes in tax rates and laws are recognized in the period in which they
occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between
periods. Deferred tax assets are reduced by a valuation allowance if based on the weight of
evidence available it is more likely than not that some portion or all of a deferred tax asset will not
be realized.
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, 2018, 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 was 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 2015.
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
36 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
the option to defer up to 50% of their annual incentive award into this plan. The plan does not
permit diversification and must be settled by the delivery of a fixed number of shares of the
Company stock. The stock held in the plan is included in equity as deferred shares and is
accounted for in a manner similar to treasury stock. Subsequent changes in the fair value of the
Company’s stock are not recognized. The deferred compensation obligation is also classified as an
equity instrument and changes in the fair value of the amount owed to the participant are not
recognized.
The Company has entered into supplemental income agreements for certain individuals. These
agreements call for a fixed payment over 180 months after the individual reaches normal retirement
age.
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 allocated to common stockholders is calculated using the two-class
method and is computed by dividing net income allocated to common stockholders by the weighted
average number of commons shares outstanding during the period. Diluted earnings per share is
adjusted for the dilutive effects of stock based compensation and is calculated using the two-class
method or the treasury method. There were no dilutive effects for the years ended December 31,
2018 and 2017.
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.
UNITEDBANCORP INC.
2 01 8 | A N N UA L R E P O RT
37
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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, 2018 and 2017, was $2.7 million and $3.5
million, respectively.
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, 2018:
U.S. government agencies
$
45,250 $
–– $
(500) $
44,750
State and municipal obligations $ 78,083 $ 1,194 $ (36) $ 79,241
Total debt securities
$ 123,333 $
1,194 $
(536) $
123,991
Available-for-sale Securities:
December 31, 2017:
U.S. government agencies
$
$
45,249 $
45,249 $
–– $
–– $
(290) $
44,959
(290) $
44,959
The amortized cost and fair value of available-for-sale securities at December 31, 2018, 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)
Under 1 year
One to five years
Over ten years
$
3,000 $
42,250
78,083
2,992
41,758
79,241
Totals
$
123,333 $
123,991
38 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
The carrying value of securities pledged as collateral, to secure public deposits and for other
purposes, was $48.4 million and $41.5 million at December 31, 2018 and 2017, 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, 2018 and 2017, was
$49.9 million and $44.9 million, which represented approximately 40% and 100%, respectively, of
the Company’s available-for-sale investment portfolio.
Based on evaluation of available evidence, including recent changes in market interest rates, credit
rating information and information obtained from regulatory filings, management believes the
declines in fair value for these securities are temporary.
The following tables show the Company’s investments’ gross unrealized losses and fair value,
aggregated by investment category and length of time that individual securities have been in a
continuous unrealized loss position at December 31, 2018 and 2017:
December 31, 2018
Description of
Securities
US Government
agencies
State and municipal
obligations
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
$
–– $
––
$
44,750
$
(500) $
44,750
$
(500)
$ 5,182 $ (36) $ –– $ –– $ 5,182 $ (36)
$
5,182 $
(36) $
44,750
$
(500) $
49,932
$
(536)
December 31, 2017
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)
The unrealized losses on the Company’s investments in direct obligations of U. S. Government
agencies and state and political obligation 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
UNITEDBANCORP INC.
2 01 8 | A N N UA L R E P O RT
39
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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, 2018.
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
$
2018
2017
(In thousands)
$
93,690
223,461
78,767
13,765
409,683
81,327
198,936
75,853
12,473
368,589
(2,043)
(2,122)
Total loans
$
407,640
$
366,467
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
40 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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.
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, 2018
and 2017:
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
2018
$
537
$
843
$
436
$
218
$
88
$
2,122
(151)
––
3
(173)
––
2
287
(208)
4
422
(241)
64
(88)
––
––
297
(449)
73
Balance, end of year
$
389
$
672
$
519
$
463
$
––
$
2,043
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
$
---
$
85
$
––
$
––
$
––
$
85
$
389
$
587
$
519
$
463
$
––
$
1,958
$
57
$
809
$
––
$
93
$
––
$
959
$
93,633
$ 222,652
$
78,767
$
13,672
$
––
$ 408,724
UNITEDBANCORP INC.
2 01 8 | A N N UA L R E P O RT
41
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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
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 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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, 2018:
Loan Class
Commercial
Commercial
Real Estate
Residential
(In thousands)
Installment
Total
Pass Grade
Special Mention
Substandard
Doubtful
$
$
93,620
––
70
––
$
219,485
2,710
1,266
––
$
78,767
––
––
––
$
13,672
––
93
––
405,544
2,710
1,429
––
$
93,690
$
223,461
$
78,767
$
13,765
$
409,683
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
UNITEDBANCORP INC.
2 01 8 | A N N UA L R E P O RT
43
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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 2018
and 2017.
The following table shows the loan portfolio aging analysis of the recorded investment in loans as
of December 31, 2018:
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
$
98
$
94 $
––
$
–– $
192 $
93,498
$
93,690
––
1,704
72
––
262
4
––
155
––
741
485
19
741 222,720
76,161
13,670
2,606
95
223,461
78,767
13,765
Total
$
1,874
$
360 $
155
$
1,245 $
3,634 $ 406,049
$ 409,683
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)
$
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
Commercial
Commercial real
estate
Residential
Installment
Total
$
938
$
346 $
---
$
1,395 $
2,679 $ 365,910
$ 368,589
44 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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, 2018:
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
$
$
$
$
$
$
$
57
409
93
559
---
400
---
400
57
$
809
$
93
$
$
$
57
409
93
559
---
400
---
400
57
$
809
$
93
$
$
$
––
––
––
––
---
85
---
85
---
$
85
$
---
$
$
$
59
444
99
602
---
407
---
407
59
851
99
$
$
$
2
18
4
24
1
---
---
1
3
18
4
UNITEDBANCORP INC.
2 01 8 | A N N UA L R E P O RT
45
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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
706
---
410
---
410
83
$
727
$
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
At December 31, 2018 and 2017, 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 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
The Company did not have any troubled debt restructurings that occurred during the year ended
December 31, 2018. The following tables present information regarding troubled debt
restructurings by class and by type of modification for the year ended December 31, 2017:
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
During the 2018 and 2017, troubled debt restructurings did not have an impact on the allowance for
loan losses. At December 31, 2018 and 2017 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.
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
2018
2017
(In thousands)
17,839 $
13,359
2,164
33,362
(21,245)
12,117 $
17,282
12,637
2,143
32,062
(20,322)
11,740
$
$
UNITEDBANCORP INC.
2 01 8 | A N N UA L R E P O RT
47
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
Note 6: Time Deposits
Time deposits in denominations of $250,000 or more were $16.0 million at December 31, 2018 and
$5.1 million at December 31, 2017. At December 31, 2017, the scheduled maturities of time
deposits are as follows:
Due during the year ending December 31,
(In thousands)
2019
2020
2021
2022
2023
Thereafter
$
$
49,306
25,587
25,654
2,395
783
962
104,687
Note 7: Borrowings
At December 31, advances from the Federal Home Loan Bank were as follows:
Maturities March 2019 through August 2025,
primarily at fixed rates ranging from 4.64% to
6.65%, averaging 5.29%
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
at floating rates averaging 1.52%
2018
2017
(In thousands)
$
106
$
---
––
200
$
––
106
$
9,822
10,022
At December 31, 2018 required annual principal payments on Federal Home Loan Bank advances
were as follows:
For the year ending December 31,
(In thousands)
2019
2020
2021
2022
2023
Thereafter
$
46
14
14
14
10
8
$
106
At December 31, 2018 and 2017, as a member of the Federal Home Loan Bank system the Bank
had the ability to obtain up to $117.6 million and $94.1 million, respectively, in additional
48 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
borrowings based on securities and certain loans pledged to the FHLB. At December 31, 2018 and
2017, the Bank had approximately $113.3 million and $121.6 million, respectively of one- to four-
family residential real estate and commercial real estate loans pledged as collateral for borrowings.
Also at December 31, 2018 and 2017, 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 $8.1 million and $11.0 million at
December 31, 2018 and 2017.
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:
2018
2017
(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
$
$
$
8,068
12,874
$
$
1.06%
16,161
$
1.13%
10,022
13,578
0.28%
17,033
0.28%
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.
The following table presents the Company’s repurchase agreements accounted for as secured
borrowings:
Remaining Contractual Maturity of the Agreement
(In thousands)
December 31, 2018
Continuous Up to 30 Days 30-90 Days
Overnight and
Greater than 90
Days
Total
Repurchase Agreements
U.S government agencies
8,068
$
$
––
$
––
$
Total
$
8,068
$
––
$
––
$
––
––
$
$
8,068
8,068
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(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
$
––
$
––
$
––
––
$
$
10,022
10,022
Securities with an approximate carrying value of $18.3 million and $18.4 million at December 31,
2018 and 2017, respectively, were pledged as collateral for repurchase borrowings.
Note 8: Subordinated Debentures
In 2005, a Delaware statutory business trust owned by the Company, United Bancorp Statutory
Trust I (“Trust I” or the “Trust”), issued $4.1 million of mandatorily redeemable debt securities.
The sale proceeds were utilized to purchase $4.1 million of the Company’s subordinated
debentures which mature in 2035. The Company’s subordinated debentures are the sole asset of
Trust I. The Company’s investment in Trust I is not consolidated herein as the Company is not
deemed the primary beneficiary of the Trust. However, the $4.1 million of mandatorily
redeemable debt securities issued by the Trust are includible for regulatory purposes as a
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
2018
2017
(In thousands)
$
$
425 $
375
1,499
545
800 $
2,044
50 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax
expense is shown below:
2018
2017
(In thousands)
Computed at the statutory rate (21% in 2018 and 34% in
$
1,067 $
1,901
2017)
(Decrease) increase resulting from
---
---
Tax exempt interest
Earnings on bank-owned life insurance - net
Deferred tax re-valuation
Low income housing credit
Merger related expenses
Other
(262)
(121)
(17)
(160)
--- 216
(73) ---
---
55
104
134
Actual tax expense
$
800 $
2,044
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
2018
2017
(In thousands)
$
292 $
282
11
521
54
11
---
244
221
31
422
65
52
61
Total deferred tax assets
1,171
1,096
Deferred tax liabilities
Depreciation
Deferred loan costs, net
FHLB stock dividends
Unrealized gains on securities available for sale
Prepaid expenses
Intangibles
Mortgage servicing rights
Employee benefit expense
(208)
(97)
(321)
(144)
(86)
(315)
(138) ---
(163) ---
(280) ---
(9)
---
(193)
(183)
Total deferred tax liabilities
(1,390)
Net deferred tax (liability) asset
$
(219) $
(747)
349
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2018 and 2017
Note 10: Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, included in stockholders’ equity, are as
follows:
2018
2017
(In thousands)
Net unrealized gain (loss) on securities available-for-
sale
$
658 $
Net unrealized loss for funded status of defined
benefit plan liability
Tax effect
(671)
(13)
3
Net-of-tax amount
$
(10) $
(290)
(289)
(579)
159
(420)
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.
52 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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 2.50% at December 31, 2018. The net unrealized gain or loss on available-for-sale
securities is not included in computing regulatory capital.
As of December 31, 2018, the Company exceeded its minimum regulatory capital requirements
with a total risk-based capital ratio of 12.0%, common equity tier 1 ratio of 10.6%, Tier 1 risk-
based capital ratio of 11.5% and a Tier 1 leverage ratio of 8.8%.
As of December 31, 2018, the most recent notification from Federal Deposit Insurance Corporation
categorized the Bank as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well-capitalized, the Bank must maintain capital ratios as set forth in
the table. There are no conditions or events since that notification that management believes have
changed the Bank’s category.
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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
As of December 31, 2018
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, 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
$
53,461
50,690
12.0%
11.4
$
35,720
35,643
8.0%
8.0
$
N/A
44,554
N/A
10.0%
$
47,418
48,647
10.6%
10.9
$
20,092
20,049
4.5%
4.5
$
N/A
28,960
N/A
6.5%
$
51,418
48,647
11.5%
10.9
$
26,790
26,733
6.0%
6.0
$
N/A
35,643
N/A
8.0%
$
51,418
48,647
$
8.8%
8.4
23,275
23,189
4.0%
4.0
$
N/A
28,986
N/A
5.0%
$
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%
54 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
Note 12: Related Party Transactions
At December 31, 2018 and 2017, 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.
2018
2017
(In thousands)
Aggregate balance – January 1
New loans
Repayments
$
12,996
2,386
(1,276)
$
13,635
189
(828)
Aggregate balance – December 31
$
14,106
$
12,996
Deposits from related parties held by the Bank at December 31, 2018 and 2017, totaled
approximately $2.3 million and $691,000, 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 $465,000 to the
plan in 2019.
In connection with the acquisition of Powhatan Point Community Bancshares, Inc., the Company
assumed supplemental income agreements for certain individuals. The agreements provide for a
fixed number of payments once the individual reaches normal retirement age. At December 31,
2018, the present value of these future payments was approximately $424,000.
UNITEDBANCORP INC.
2 01 8 | A N N UA L R E P O RT
55
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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
2018
2017
(In thousands)
(4,672) $
(302)
(221)
470
568
(3,926)
(273)
(198)
(403)
128
(4,157)
(4,672)
5,605
(417)
421
(568)
5,041
4,625
702
406
(128)
5,605
Funded status at end of year
$
884 $
933
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
2018
2017
(In thousands)
$
$
$
1,388
(670)
1,048
(758)
718
$
290
56 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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 $4,000. The accumulated benefit obligation for the
defined benefit pension plan was $3.8 million and $4.4 million at December 31, 2018 and 2017,
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,
2018
2017
(In thousands)
$
$
$
4,157
3,840
5,041
$
$
$
4,672
4,375
5,605
December 31,
2018
2017
(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
$
$
302
221
(445)
(89)
51
Net periodic benefit cost
$
40
$
273
198
(357)
(89)
63
88
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
2018
2017
5.37%
3.00%
5.37%
7.50%
3.00%
4.83%
3.00%
4.83%
7.50%
3.00%
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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 2017 to 2018.
The following benefit payments, which reflect expected future service, as appropriate, are expected
to be paid as of December 31, 2018:
2019
2020
2021
2022
2023
2024-2028
Total
Pension
Benefits
(In thousands)
$
185
803
536
384
254
1,843
$
4,005
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 2018 and 2017 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 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
At December 31, 2018 and 2017, 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,
2018
2017
71.8%
27.0
1.2
70.1%
27.3
2.6
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, 2018 and 2017, the Plan did not contain Level 2 or
Level 3 investments.
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2018 and 2017
The fair values of Company’s pension plan assets at December 31st, by asset category are as
follows:
December 31, 2018
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)
$
63 $
63 $
–– $
346
2,860
260
149
2,860
260
346
149
996
367
996
367
––
––
––
––
––
Total
$
5,041 $
5,041 $
–– $
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 $
–– $
60 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
––
––
––
––
––
––
––
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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 2018 and 2017.
ESOP and 401(k) expense for the years ended December 31, 2018 and 2017 was approximately
$280,000 and $280,000, respectively.
Share information for the ESOP is as follows at December 31, 2018 and 2017:
Allocated shares at beginning of the year
Shares released for allocation during the year
Net shares distributed due to
retirement/diversification
Unearned shares
Total ESOP shares
2018
2017
$
407,268 $
23,635
333,790
23,635
(61,192)
47,271
(21,063)
70,906
416,982
407,268
Fair value of unearned shares at December 31st
$
539,000 $
943,000
At December 31, 2018, the fair value of the 369,711 allocated shares held by the ESOP was
approximately $4,226,000.
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 $1.6
million at December 31, 2018 and $1.5 million at December 31, 2017.
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2018 and 2017
Note 14: Restricted Stock Plan
During 2018, the Company’s stockholders authorized the adoption of the United Bancorp, Inc.
2018 Stock Incentive Plan (the “2018 Plan”). No more than 500,000 shares of the Company’s
common stock may be issued under the 2018 Plan. As of December 31, 2018, no shares have been
issued under this plan. The shares that may be issued can be authorized but unissued shares or
treasury shares. The 2018 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
2018 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.
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. As of December 31, 2018, no additional shares can be awarded under the 2008
Plan.
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, 2018,
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
175,000 $
8.95
125,000 12.02
--- ---
---
---
300,000 $
10.23
62 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
Total compensation cost recognized in the income statement for share-based payment arrangements
during the years ended December 31, 2018 and 2017 was $287,000 and $163,000, respectively.
The recognized tax benefits related thereto were $60,000 and $55,000, for the years ended
December 31, 2018 and 2017, respectively.
As of December 31, 2018 and 2017, there was $1,917,544 and $728,000, 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
5.9 years.
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2018 and 2017
Note 15: Earnings Per Share
Earnings per share (EPS) were computed as follows:
Year Ended December 31, 2018
Weighted-
Average
Shares
Per Share
Amount
Net
Income
(In thousands)
Net income
$
4,282
Less allocated earnings on non-vested
restricted stock
(59)
Less allocated dividends on non-
vested restricted stock
Net income allocated to common
stockholders
(155)
4,068
Basic and diluted earnings per share
4,952,471
$
0.82
Year Ended December 31, 2017
Weighted-
Average
Shares
Per Share
Amount
Net
Income
(In thousands)
Net income
$
3,546
Less allocated earnings on non-vested
restricted stock
(27)
Less dividends on non-vested
restricted stock
Net income allocated to common
stockholders
(88)
3,431
Basic and diluted earnings per share
4,981,942
$
0.71
64 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
During 2018, earnings per share began to be presented using the two-class method. This two
class method is an earnings allocation method under which earnings per share is calculated for
common stock and participating securities, considering both dividends declared and
participation rights in undistributed earnings as if all such earnings had been distributed during
the period. Basic earnings per share was previously disclosed at $0.72 and diluted earnings per
share at $0.71 for the year ended December 31, 2017.
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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.
66 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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, 2018 and 2017:
December 31, 2018
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
$
44,750
$
–– $
44,750 $
––
State and Municipal
Obligations
$ 79,241
--- $ 79,241 ---
(In thousands)
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)
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.
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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, 2018 and 2017:
December 31, 2018
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
$
$
314
91
–– $
––
–– $
––
314
91
(In thousands)
68 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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
(In thousands)
Collateral dependent impaired
loans
Foreclosed assets held for sale
$
$
336
34
–– $
––
–– $
––
336
34
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
12/31/18
(In thousands)
Valuation
Technique
Unobservable Inputs
Range
Collateral-dependent
impaired loans
$
314 Market comparable
Comparability adjustments
Not available
properties
Foreclosed assets held for
91 Market comparable
Marketability discount
10% – 35%
sale
properties
Fair Value at
12/31/17
(In thousands)
Valuation
Technique
Unobservable Inputs
Range
Collateral-dependent
impaired loans
$
336 Market comparable
Comparability adjustments
Not available
properties
Foreclosed assets held for
34 Market comparable
Marketability discount
10% – 35%
sale
properties
There were no significant changes in the valuation techniques used during 2018.
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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, 2018
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
$
25,253 $
407,640
25,253 $
––
–– $
––
––
405,033
4,243
1,798
525,443
8,068
106
4,124
188
––
––
––
––
––
––
––
4,243
1,798
524,010
8,068
101
3,647
188
––
––
––
––
––
––
––
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UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
The classification of the assets and liabilities pursuant to the valuation hierarchy as of December
31, 2017 in the following table have not been audited. The fair value has been derived from the
December 31, 2017 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, 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
––
––
––
––
––
––
––
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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
For December 31, 2018, fair values of loans and leases are estimated on an exit price basis
incorporating discounts for credit, liquidity and marketability factors. This is not comparable with
the fair values disclosed for December 31, 2017, which were based on an entrance price basis. For
that date, fair values of variable rate loans and leases that reprice frequently and with no significant
change in credit risk were based on carrying values. The fair values of other loans and leases as of
that date were estimated using discounted cash flow analyses which used interest rates then being
offered for loans and leases with similar terms to borrowers of similar credit quality.
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, 2018 and 2017.
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UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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, 2018 and 2017, total commercial and commercial real estate loans made up
77.4% and 76.0%, respectively, of the loan portfolio. Installment loans account for 3.4% and
3.4%, respectively, of the loan portfolio. Real estate loans comprise 19.2% and 20.6% of the loan
portfolio as of December 31, 2018 and 2017, 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, 2018 and 2017, is $9.7 million and $9.5
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, 2018 and 2017, the Company had outstanding commitments to originate variable
rate loans aggregating approximately $21.3 million and $15.4 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, 2018 or 2017.
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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, 2018
and 2017. At both December 31, 2018 and 2017, 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, 2018, the Company had granted unused lines of credit to borrowers aggregating
approximately $34.1 million and $37.7 million for commercial lines and open-end consumer lines,
respectively. 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.
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UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
Note 19: Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic
326) - Measurement of Credit Losses on Financial Instruments.” The provisions of ASU 2016-13
were issued to provide financial statement users with more decision-useful information about the
expected credit losses on financial instruments that are not accounted for at fair value through net
income, including loans held for investment, held-to-maturity debt securities, trade and other
receivables, net investment in leases and other commitments to extend credit held by a reporting
entity at each reporting date. ASU 2016-13 requires that financial assets measured at amortized cost
be presented at the net amount expected to be collected, through an allowance for credit losses that
is deducted from the amortized cost basis. The amendments in ASU 2016-13 eliminate the probable
incurred loss recognition in current GAAP and reflect an entity’s current estimate of all expected
credit losses. The measurement of expected credit losses is based upon historical experience,
current conditions, and reasonable and supportable forecasts that affect the collectability of the
financial assets.
For purchased financial assets with a more-than-insignificant amount of credit deterioration since
origination (“PCD assets”) that are measured at amortized cost, the initial allowance for credit
losses is added to the purchase price rather than being reported as a credit loss expense. Subsequent
changes in the allowance for credit losses on PCD assets are recognized through the statement of
income as a credit loss expense.
Credit losses relating to available-for-sale debt securities will be recorded through an allowance for
credit losses rather than as a direct write-down to the security.
ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the
impact of these amendments to the Company’s financial position and results of operations and
currently does not know or cannot reasonably quantify the impact of the adoption of the
amendments as a result of the complexity and extensive changes from the amendments. The
Allowance for Loan Losses (ALL) estimate is material to the Company and given the change from
an incurred loss model to a methodology that considers the credit loss over the life of the loan, there
is the potential for an increase in the ALL at adoption date. The Company is anticipating a
significant change in the processes and procedures to calculate the ALL, including changes in
assumptions and estimates to consider expected credit losses over the life of the loan versus the
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 run projections and reviewing
segmentation to ensure it is fully compliant with the amendments at adoption date. For additional
information on the allowance for loan losses, see Note 4.
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.
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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 did not 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.
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,
2018
2017
(In thousands)
$
1,595 $
50,813
---
2,913
2,771
42,286
---
3,042
Total assets
$
55,321 $
48,099
Liabilities and Stockholders’ Equity
Subordinated debentures
Other liabilities
Stockholders’ equity
$
4,124 $
555
50,642
4,124
80
43,895
Total liabilities and stockholders’ equity
$
55,321 $
48,099
76 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
Condensed Statements of Income and Comprehensive Income
Years Ended December 31,
2018
2017
(In thousands)
Operating Income
Dividends from subsidiary
Interest and dividend income from securities and federal funds
$
Total operating income
5,501 $
---
5,501
2,035
1
2,036
Merger related expenses
General, Administrative and Other Expenses
1,306 ---
1,961
2,220
Income Before Income Taxes and Equity in Undistributed
Income of Subsidiary
Income Tax Benefits
Income Before Equity in Undistributed Income of Subsidiary
Equity in Undistributed Income of Subsidiary
Net Income
Comprehensive Income
1,975
750
2,725
75
416
491
1,557
3,055
4,282 $
3,546
4,692
$
3,580
$
$
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2018 and 2017
Condensed Statements of Cash Flows
Operating Activities
Net income
Items not requiring (providing) cash
Equity in undistributed income of subsidiary
Amortization of ESOP and share-based compensation plans
Net change in other assets and other liabilities
Net cash provided by operating activities
Investing Activities
Cash paid for acquisition of Powhatan Point Community
Bancshares, Inc.
Net cash used in investing activities
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
Years Ended December 31,
2018
2017
(In thousands)
$
4,282
$
3,546
(1,557)
567
282
3,574
(1,529)
(1,529)
(3,221)
(3,221)
(1,176)
2,771
(3,055)
443
(38)
896
---
(2,769)
(2,769)
(2,769)
(1,873)
4,644
Cash and Cash Equivalents at End of Year
$
1,595
$
2,771
78 2 01 8 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
Note 21: Quarterly Financial Data (Unaudited)
The following tables summarize the Company’s quarterly results of operations for the years ended
December 31, 2018 and 2017.
2018:
March 31,
June 30, September 30, December 31,
(In thousands, except per share data)
Three Months Ended
Total interest income
Total interest expense
$
4,625 $
523
5,107 $
707
5,523 $
893
Net interest income
4,102
4,400
4,630
Provision for loan losses
Other income
General, administrative and other
expense
Income before income taxes
Federal income taxes
Net income
Earnings per share
Basic
Diluted
$
$
$
57
880
3,579
1,346
198
72
888
3,754
1,462
250
72
897
3,855
1,600
269
1,148 $
1,212 $
1,331 $
0.23 $
0.23 $
0.25 $
0.23 $
0.23 $
0.25 $
6,065
1,055
5,010
96
995
5,235
674
83
591
0.11
0.11
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2018 and 2017
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 (credit) 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 $
0.16
0.16
Note 22: Acquisition
On June 14, 2018, the Company and Powhatan Point Community Bancshares, Inc. (“Powhatan
Point”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to
which Powhatan Point merged with and into the Company on October 15, 2018. The First National
Bank of Powhatan , wholly-owned subsidiary of Powhatan Point, operated from one full-service
office located in Powhatan Point, Ohio. That office became a branch of Unified Bank after the
merger.
Under the terms of the Merger Agreement, the shareholders of Powhatan Point received 6.9233
shares of common stock of United Bancorp and $28.52 in cash per outstanding share of Powhatan
Point stock.
The merger with Powhatan Point was accounted for using the acquisition method of accounting
and, accordingly, assets acquired, liabilities assumed and consideration paid were recorded at their
estimated fair values as of the merger date. The following table summarizes the allocation
purchase prices for Powhatan Point.
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UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2018 and 2017
(in thousands)
ASSETS
Cash and cash equivalents $ 24,986
3,461
Deposits in other banks
78
FHLB stock
23,865
Investments
LIABILITIES
Deposits
Non interest bearing
Savings
Certificates of Deposit
$ 19,287
30,533
5,772
Commercial
Residential
Installment
Total loans
3,019
2,403
1,357
6,779
Premise and equipment, net
Core deposit intangible
Goodwill
Bank owned life insurance
Accrued interest receivable
Deferred federal income taxes
Other assets
Total assets purchased
Common shares issued
Cash paid
Estimated purchase price
548
1,028
682
612
145
20
124
$ 62,328
$ 4,711
1,529
$ 6,240
Total Deposits
55,592
Interest payable and other
liabilities
496
Total liabilities assumed
$ 56,088
Of the total purchase price of $6.2 million, $1.0 has been allocated to core deposit intangible. Additionally,
$682,000 has been allocated to goodwill. The core deposit will be amortized over 7 years on a straight line
basis. Direct costs related to the acquisition were expensed as incurred and reflected in other noninterest
expense in the consolidated statement of income for the year ended December 31, 2018. The amount of
goodwill reflects the Company’s expansion in the Powhatan Point market and related synergies that are
expected to result from the acquisition and represent the excess purchase price over the estimated fair value
of the net assets acquired. The goodwill will not be amortizable in the Company’s financial statements and
will not be deductible for tax purposes. Goodwill will be subject to an annual test for impairment and the
amount impaired, if any, will be charged to expense at the time of impairment.
The Company acquired various loans in the acquisition for which none had evidence of deterioration of
credit quality since origination. The fair value of assets acquired includes loans with a fair value of
$6,779,000. The gross principal and contractual interest due under the contracts is $6,875,000, of which
$86,000 is expected to be uncollectible.
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Notes to Consolidated Financial Statements
December 31, 2018 and 2017
The results of Powhatan Point have been included in the Company’s consolidated financial statements since
the October 15, 2018 acquisition date. The following schedule includes pro-forma results for the period
ended December 31, 2018 and 2017 as if Powhatan Point had occurred as of the beginning of the
comparable prior-reporting periods.
Summary of Operations
(Unaudited):
Net Interest Income
Dec 31, 2018
$ 19,409
Dec 31, 2017
$ 16,977
Provision for Loan Losses
302
110
Net Interest Income after
Provision for Loan Losses
19,107
3,736
16,017
16,817
3,547
14,500
Non-interest Income
Non interest Expense
Income before Income Taxes
Income Tax Expense
6,826
563
5,914
2,088
Net Income
Net Income Available to
Common Shareholders
6,263
3,825
$ 6,049
$ 3,710
Basic and Diluted Earnings Per
Share
$ 1.22
$ 0.79
The pro forma information includes adjustments for merger related expenses, amortization of intangible,
adjustments to accruals and related tax effects. The pro-forma information for the year ended 2018
includes approximately $220,000, net of tax operating revenue from Powhatan Point since the acquisition,
$1.1 million of non-recurring expenses directly related to the acquisition, and approximately $156,000 net
of tax related to an accrual adjustment for retirement benefits.
The pro-forma financial information is presented for informational purposes as is not indicative of the
results of operations that actually would of have been achieved had the acquisition been consummated as
of that time, nor is it intended to be a projection of future results.
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UNITEDBANCORP INC.
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