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….
t is with great pleasure that I report to you, our valued shareholders, on the
strong earnings and solid operational performance that United Bancorp, Inc.
(UBCP) achieved in 2019. This past year, UBCP reported diluted earnings per
share of $1.19 and net income of $6,810,000. These levels were $0.37 per share
(or, 45%) and $2,528,000 (or, 59%) greater than the respective levels for each of these
earnings metrics reported the previous year. And, yes… at these levels, our Company
has produced record earnings, once again, for the third consecutive year! These
record levels of earnings were achieved even though 2019 proved to be a somewhat
more challenging year for our industry. In 2019, our industry (as a whole) saw a year-
over-year decline in the net interest income that it realized for the first time since 2013.
Even with this phenomena and the emerging headwinds that developed for our
industry this past year, our Company greatly benefited from the positive execution of its strategic plan, which calls
for growing by acquiring other like-minded community banking organizations; building new banking centers in
key and complementary markets; capitalizing on prudent, yet profitable, organic growth opportunities; and,
wisely investing in its operational, service and delivery platforms and infrastructure to ensure its relevancy for
many years to come. Over the course of this past year, we had success in these key areas on which we keenly
focus, which allowed us to achieve a higher level of performance than that of our overall industry. For this, we
are genuinely grateful and truly proud!
Scott A. Everson
President and CEO
A Sudden, and Unexpected, Change in the Direction of Monetary Policy: As mentioned, this past year proved to be a somewhat challenging
one for our industry. At the beginning of 2019, our industry was poised for another good year with few anticipated challenges. Overall, the
monetary policy of the Federal Open Market Committee (FOMC) was tightening in recognition of a fundamentally sound and growing economy.
In 2018, the FOMC had implemented four twenty-five basis point (0.25%) increases in the target for the Federal Funds Rate over the entirety
of the year--- with the final increase occurring in December, 2018. Most economists projected and financial companies forecasted this trend
would continue into 2019 (even the FOMC’s forward guidance indicated upwards of three more twenty-five basis point (0.25%) increases
during the course of the year). How quickly things can change! During the course of the first quarter of 2019, the Treasury Yield Curve started
flattening and, actually, inverting toward the end of the first quarter for the first time since 2007. As we all well know through our experience
with what is now called the Great Recession--- an inverted yield curve many times is a precursor to a downward turn in economic activity or
a recession. In the first quarter of 2019, many factors contributed to the flattening and inverting of the yield curve… but, overall, our domestic
economy continued to grow; albeit, at a slower pace than the previous year. United Bancorp, Inc. (UBCP) responded to this change by
continuing to grow its balance sheet and focusing on becoming more liability sensitive during the course of the second quarter and throughout
the remainder of the year.
Even with these economic headwinds and the sudden change in monetary policy that United Bancorp, Inc. (UBCP) faced during the course of
2019, our Company continued its recent trend of producing record growth and earnings.
Continuing a Strong Trend of Growth this Past Year: Regarding growth, United Bancorp, Inc. (UBCP) continued to pursue its intermediate
term goal of growing its asset base to a level of $1.0 billion, or greater, in order to achieve greater efficiencies and produce higher levels of
earnings. During the course of the first quarter of 2019, UBCP crossed the $600 million asset threshold for the first time in its history. By
year end, our Company was pushing on the $700 million threshold--- having total assets of $686 million. For the year, higher-yielding earning
assets grew by $96.5 million or eighteen percent (18%). This growth in earning assets was nicely divided between steady growth in our
Company’s loan portfolio, with gross loans increasing by $31.9 million, or 7.8%, and very solid growth in our investment portfolio, with
securities increasing by $64.8 million or 52.3%. With our Company’s increased level of higher-yielding earning assets, our level of interest
income increased year-over-year by $5.7 million or twenty-seven percent (27%).
UNITEDBANCORP INC.
2 01 9 | A N N UA L R E P O RT
1
A Letter from the President and CEO - Continued
In order for United Bancorp, Inc. (UBCP) to fund the strong growth that it experienced in 2019--- while improving its overall level of
profitability--- it needed to effectively attract new funding while controlling all-around funding costs. Considering the sudden change in
monetary policy that our Company experienced this past year, this was a new challenge for us since, as previously mentioned, we began the
year being properly positioned for the rising rate environment in which we had operated since 2015. With our quick-changing, strategic
decision to become more liability-sensitive during the second quarter, we allowed some of the retail-based funding that had fueled our growth
the previous couple of years to runoff and be replaced with more price-sensitive, overnight wholesale funding alternatives. Accordingly, we
lowered the rates that we paid on all of our retail deposit products and shortened the terms of our certificate of deposit offerings. As a result,
retail deposits grew at a somewhat slower pace in 2019 ($22.6 million or 4.31%) than we had been experiencing prior thereto; while, overnight
advances from the Federal Home Loan Bank increased by $39.7 million year-over-year.
Even with the aforementioned action relating to the pricing strategy taken by United Bancorp, Inc. (UBCP) in 2019, our Company did see slight
compression in its net interest margin. Year-over-year, the net interest margin of UBCP dropped by seventeen basis points (17 bps), going
from 3.84% to 3.67%. In spite of this reduction, our Company’s overall net interest margin still compared extremely favorably to our peer…
in addition, we firmly believe that the actions that we took earlier in the year to become more liability-sensitive will benefit us in 2020. Also,
with the increasing volume of earning assets added to our Company’s balance sheet during the course of this past year off-setting the decline
in our net interest margin, UBCP experienced a very solid increase in the net interest income that it realized in 2019. For the year, net interest
income increased by $2.77 million or 15.3%. As previously mentioned, this level of improvement compares very favorably to our peer within
the financial services industry!
Outside of the net interest margin, United Bancorp, Inc. (UBCP) kept a close focus on its net non-interest margin by maintaining its overall
level of non-interest income, which increased in 2019 by $228,000 or 6.2%. In addition, non-interest expense only increased by $59,000, or
0.36%, year-over-year, which takes into consideration the merger-related expenses that it incurred the previous year with the acquisition of
Powhatan Point Community Bancshares (PPCB) in October, 2018.
Lastly, UBCP’s credit quality-related metrics continued to be very solid in 2019 and helped contribute to its strong financial performance during
the year. From a qualitative perspective, UBCP successfully maintained overall strength and stability within its loan portfolio. As of December
31, 2019, our Company had non-accrual loans and loans past due thirty (30) plus days of $2.7 million or 0.60% of total loans. Further, net
loans charged off (excluding overdrafts) was $601,000 in 2019, which was higher than the $259,000 charged off the previous year. Net loan
charge offs to average loans for the year was 0.14% versus 0.07% for the same period in 2018. Year-over-year, this number was slightly higher
due to a loan-related charge-off realized in the fourth quarter in the amount of $428,000, which we fully covered with an offsetting provision
to our loan loss reserve. Management firmly believes that this situation was an isolated (or, one-off) incident related to a character issue with
an individual borrower and not a systemic or core issue within the overall loan portfolio. On the basis of current trends related to credit quality,
we anticipate our overall credit quality to remain very solid in the near term.
All of this led to the record year of earnings performance that United Bancorp, Inc. (UBCP) achieved in 2019! As previously mentioned, this past
year UBCP reported net income of $6,810,000 and diluted earnings per share of $1.19. With our record earnings in 2019, our Company had a
Return on Assets (ROA) of 1.07% and a Return on Equity (ROE) of 12.5%. Each of these return metrics compare very favorably to our peer!
Achieving Solid Operational Performance in 2019--- Building for Our Future: United Bancorp, Inc. (UBCP) had solid operational
performance this past year and as we continued to focus on building our infrastructure (or foundation) in order to maintain relevancy within
our industry. The following items were either initiated or achieved during the course of 2019:
In January, UBCP completed the “operational” merger with Powhatan Point Community Bancshares. This operational merger
(which followed the financial merger that occurred in October 2018) went extremely well… as evidenced by no overall shrinkage
in the depository base that was acquired. By effecting this operational merger, the customer base of our newly acquired banking
center was fully integrated onto our systems and into our products and services.
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2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Early in the second quarter of 2019, our Company established a new line of business by hiring an experienced industry executive
to create a bona-fide Treasury Management function. This new organizational function allows us to provide higher-level cash
management, payment and depository services to our largest lending segment--- small business and commercial customers.
Offering these services will enable us to both attract and develop additional relationships with this valued, relationship-oriented
customer segment. In addition, it will add value by creating new revenue opportunities for our Company.
In the mid-second quarter, UBCP announced that it had acquired a parcel of land in Moundsville, West Virginia on which it planned
to build a new full-service banking center. Beginning in the early fourth quarter, construction of this new banking center
commenced in this very vibrant community in the heart of the proposed ethane cracker region. This new banking center will be
our Company’s first full-service banking center in the State of West Virginia and will further enhance our footprint in the Upper Ohio
Valley Region--- which is our “traditional” market. In addition, this new banking center will nicely complement our recent
expansion into Powhatan Point, Ohio, which is across the Ohio River from this new and exciting market. This new service area
has extremely high growth potential for our Company.
In the late second quarter, our Company took a major step forward in ensuring that we will achieve our lofty growth goal.
Specifically, we successfully raised $20.0 million of capital without diluting our shareholders through the issuance of subordinated
debt at very favorable terms to our Company! Although, this “leverage capital” is only measured at the bank-level; it will allow
United Bancorp, Inc. to effectively grow toward its goal of attaining an asset-level of $1.0 billion, or greater, in a truly cost-effective
manner.
During the course of this past year, UBCP developed a more dedicated Sales Function by hiring an experienced individual to help
build our sales platform. This hiring allowed our Company to better identify ways to more effectively on-board and expand
customer relationships on the consumer-side of our operation. In addition, this function has quickly evolved into strongly focusing
on the overall “customer experience,” to ensure the retention of consumer relationships for the long haul--- thus, generating longer-
term revenue streams for UBCP.
This past year, we also took a major step forward enhancing our Marketing Function by hiring an executive who truly understands
how to help us better build our brand identity. With our “Unified Bank” brand being unique within our industry, we are now more
optimally positioned to effectively build our brand through traditional and non-traditional channels. Our enhanced capabilities in
this area should help us reach more potential customers and entice them to start doing business with our Company through
in-person and digital interaction… once again, helping to ensure our relevancy for many years to come.
In the fourth quarter, UBCP focused on further enhancing the customer experience by developing the “Unified Care Center.” Being
a community-style bank, it is very important that we have a “high-touch” service culture. Through our Unified Care Center, we
now offer our prized customer base extended customer service hours to help them with their many needs--- most importantly--- on
their individual schedules. Our Company now provides “live” personal, customer-centric service to our valued customer base six
days a week, Monday through Saturday, at hours as late as 10:00 p.m.
Lastly, we began the process of completely updating our online and mobile banking platforms in order to serve our customers at
a higher level and create a better customer experience! We anticipate that these new systems--- and their enhanced functionality---
will be fully functional by the end of the current year. Our investment in these new technology platforms will enable us to serve
our customers without ever having to set foot into any one of our banking centers. In addition, our customers will be able to walk
out of any banking center with the ability to immediately utilize any service that we offer--- including instant issue debit cards,
mobile and online banking, person-to-person payments, bill pay and full fraud protection… among other services.
UNITEDBANCORP INC.
2 01 9 | A N N UA L R E P O RT
3
A Letter from the President and CEO - Continued
As evidenced by the aforementioned accomplishments achieved this past year, United Bancorp, Inc. (UBCP) is firmly committed to
continually enhancing and building its infrastructure (or, foundation) to support further growth, while achieving greater efficiencies. We
maintain (and, will continue to maintain) a strong focus on remaining relevant within our industry by investing in our technology, support,
origination and service platforms to ensure that we serve our valued customers at the highest possible level by enhancing the overall
customer experience. We look forward to further expanding our footprint and bringing “The Unified Way” to many new markets, as we
continue to pursue profitable growth. Ultimately, our vision is to be a leader amongst all community banks in digital transformation--- having
complete channel integration and offering mobility to our customers--- thereby, serving them on their terms and through their preferred
channels. Such commitment should ensure UBCP’s relevancy and high level performance for many years to come!
At United Bancorp, Inc. (UBCP), none of our accomplishments would be possible without the genuine and steadfast support of you, our
valued shareholders. Our primary focus continues to be rewarding you by paying a very solid cash dividend and increasing your shareholder
value in our Company. During the course of 2019, we increased our cash dividend payout by $0.0025 each quarter. In the fourth quarter,
we increased our quarterly cash dividend to $0.14… our fourth increase for the year! On a forward basis, our current cash dividend
produces a yield of 3.912%, based on our year end closing price. Regarding our present market valuation, the market rewarded our solid
performance this past year by pushing our market value to a higher level. Our Company’s stock finished the year trading at $14.30, which
was an increase of 25% year-over-year. Giving consideration to all of the positive achievements that were realized by UBCP during the past
year, we are extremely hopeful that the increasing earnings that we project in the current year (along with the positive operational
enhancements that we have made to our banking model) will drive our market valuation to even higher levels than the current twelve times
(12x’s) at which we were trading at year-end. On this basis, we are very optimistic about our future prospects!
As you can see, United Bancorp, Inc. (UBCP) had one of its most historic years in terms of performance in 2019. But… as always… your
management team will never be satisfied resting on past performance and laurels. We are strongly focused on moving forward and achieving
our goal of becoming a $1.0 billion community banking organization in the not too distant future. To reach this goal, we will maintain our
commitment to and standard of producing stellar, above peer, performance and growth related results as we confidently move forward as
one of the premier community-banking competitors within our industry. UBCP is truly blessed to have a “United and Unified” team,
management, board of directors and shareholder group. As a successful financial service company, we truly appreciate everyone’s
continued support… together, we will accomplish more!
Scott A. Everson
President and Chief Executive Officer
ceo@unitedbancorp.com
February 18, 2020
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.
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2 01 9 | 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
2020 ANTICIPATED
DIVIDEND PAYABLE DATES
First Quarter
March 20, 2020
Second Quarter*
June 19, 2020
Third Quarter*
September 18, 2020
Fourth Quarter*
December 18, 2020
*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
2019
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
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
0.545
-
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
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
Index
United Bancorp, Inc.
NASDAQ Composite
SNL Bank Index
SNL Bank $250M-$500M
SNL Midwest Bank
Dow Jones
12/31/14
100.00
100.00
100.00
100.00
100.00
100.00
12/31/15
124.71
106.96
101.71
114.41
101.52
100.21
12/31/16
183.32
116.45
128.51
143.56
135.64
116.74
12/31/17
187.62
150.96
151.75
175.44
145.76
149.56
12/31/18
169.23
146.67
126.12
149.89
124.47
144.35
12/31/19
221.79
200.49
170.79
171.84
161.94
180.94
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 9 | 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .CPA & CGMA, Managing Member, Glessner & Associates, PLLC;
Glessner Wharton Andrews Insurance, LLC; Tiffany's, LLC; GWA Realty, LLC,
GW Rentals, LLC; Trustee, Windmill Truckers Center, Inc.
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .CPA & CGMA, Managing Member, Glessner & Associates, PLLC;
Glessner Wharton Andrews Insurance, LLC; Tiffany's, LLC; GWA Realty, LLC,
GW Rentals, LLC; Trustee, Windmill Truckers Center, Inc.
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 9 | 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 name change from The Citizens Savings Bank to
Unified Bank in 2017, it has and will continue to move forward.
The growth and success of the bank has been attributed to the association of
many dedicated individuals.
PAST PRESIDENTS
Edward E. McCombs, 1902-1936
John E. Reynolds, 1936 – 1940
Harold H. Riethmiller, 1940 – 1973
James W. Everson, 1973 – 2002
Past Board of Directors
Edward E. McCombs, 1902-1936*
John E. Reynolds, 1902-1940
Dr. Joseph W. Darrah, 1902-1937
J.A. Crossley, 1902-1903
William M. Lupton, 1902-1902
F.K. Dixon, 1902-1909
Dr. R.H. Wilson, 1902-1905
Chris A. Heil, 1903-1909
David Coss, 1904-1938
L.L. Scheele, 1905-1917
A.T. Selby, 1906-1954
H.H. Rothermund, 1907-1912
Dr. J.G. Parr, 1912-1930
T.E. Pugh, 1920-1953
J.J. Weiskircher, 1925-1942
David H. James, 1925-1963
Dr. C.B. Messerly, 1931-1957
H.H. Riethmiller, 1936-1980*
E.M. Nickles, 1938-1968
L.A. Darrah, 1939-1962
R.L. Heslop, 1941-1983
Joseph E. Weiskircher, 1943-1975
Edward M. Selby, 1953-1976
David W. Thompson, 1954-1966
Dr. Charles D. Messerly, 1957-1987
James M. Blackford, 1962-1968
John H. Morgan, 1967-1976
Emil F. Snyder, 1968-1975
James H. Cook, 1976-1986
Paul Ochsenbein, 1978-1991
David W. Totterdale, 1981-1995
Albert W. Lash, 1975-1996
Premo R. Funari, 1976-1997
Donald A. Davison, 1963-1997*
Harold W. Price, 1999-1999
John H. Clark, Jr., 1976-2001
Dwain R. Hicks, 1999-2002
Michael A. Ley, 1999-2002
Michael J. Arciello 1992 - 2009
Leon F. Favede, O.D., 1981-2012
Herman E. Borkoski, 1987-2012
James W. Everson, 1969-2014*
Robin L. Rhodes, 2007-2015
Andrew C. Phillips, 2007-2015
Errol C. Sambuco, 1996-2015
Samuel J. Jones, 2007-2015
Matthew C. Thomas, 1988-2016
Terry A. McGhee, 2001-2017
* Past Chairman
8
2 01 9 | 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 2019, there were 5,951,351 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, 2019 to December 31, 2019 compared to the same periods in 2018 as reported
by the NASDAQ.
Market Price Range
High ($)
Low ($)
Cash Dividends
Quarter ($)
Cumulative ($)
Special Cash Dividends
2 0 1 9
31-Mar 30-Jun 30-Sep 31-Dec
2 0 1 8
31-Mar 30-Jun 30-Sep
31-Dec
$ 11.75
$ 10.25
11.84
10.57
11.85
11.01
15.30
10.87
$ 13.79
$ 11.81
14.00
12.35
13.70
13.03
13.25
10.44
$ 0.1325
$ 0.1325
-
$
0.1350
0.2675
-
0.1375
0.4050
-
0.1400
0.5450
-
$
$
$
0.13
0.13
-
0.15
0.26
-
0.13
0.39
-
0.13
0.52
0.05
Investor Relations:
Annual Meeting:
Stock Trading:
A copy of the Company’s Annual
Report on form 10-K as filed with
the SEC, will be furnished free of
charge upon written or E-mail
request to:
Randall M. Greenwood, CFO
United Bancorp, Inc.
201 South 4th Street
PO Box 10
Martins Ferry, OH 43935
or
cfo@unitedbancorp.com
Dividend Reinvestment and
Stock Purchase Plan:
Shareholders may elect to reinvest
their dividends in additional shares of
United Bancorp, Inc.’s common stock
through the Company’s Dividend
Reinvestment Plan. Shareholders may
also invest optional cash payments of
up to $5,000 per month in our
common stock at market price. To
arrange automatic purchase of shares
with quarterly dividend proceeds,
please contact:
American Stock Transfer
and Trust Company
Attn: Dividend Reinvestment
6201 15th Avenue, 3rd Floor
Brooklyn, NY 11219
1-800-278-4353
The Annual Meeting of Shareholders
will be held at 2:00 p.m., April 22,
2020 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:
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
Tom Thurston
Piper Sandler Companies
1251 Avenue of the Americas,
New York, NY 10020
212-466-8027
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 9 | 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, 2019 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
Total Assets (In Thousands)
Overview
United Bancorp, Inc. reported diluted earnings per share
of $1.19 and net income of $6,810,000 for the twelve months
ended December 31, 2019, as compared to $0.82 and
$4,282,000, respectively, for the corresponding twelve-
month period in 2018. The Company’s diluted earnings per
share for the three months ended December 31, 2019 was
$0.31 as compared to $0.11 for the same period in the
previous year. Last year’s fourth quarter performance was
impacted by the Company’s acquisition of Powhatan Point
Community
year-over-year
improvements in UBCP’s earnings are directly related to the
Company executing its strategic vision of achieving
profitable growth by both growing organically and
acquiring other
like-minded community banking
organizations.
Bancshares.
These
For the most recently-ended quarter, UBCP had an increase
in net income of $1,178,000. For the twelve-month period
ending December 31, 2019, the Company saw its net
income increase by $2,528,000, or 59%, to a level of
$6,810,000, which is a new earnings record for our Company.
This increase in earnings is highly correlated to the strong
organic and acquisition-related growth that our Company
experienced during the past year. Even with the issuance of
common shares to facilitate our most recent acquisition
completed in the fourth quarter of 2018, our diluted
10 2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
$700,000
$625,000
$550,000
$475,000
$400,000
$325,000
$250,000
$459,332
$593,213
$685,706
2017
2018
2019
earnings per share was $1.19 versus $0.82 in 2018, an
increase of 45%. The combination of the acquisition-related
and strong organic growth that we achieved this past year
facilitated the increase in the level of the Company’s higher-
yielding earning assets (loans and investment portfolio),
which grew by $96.5 million, or 18%, on a year-over-year
basis. This growth in earning assets was divided between
steady growth in our Company’s loan portfolio, which
increased by $31.9 million, or 7.8%, and solid growth in our
investment portfolio, with securities and other restricted
stock increasing by $64.6 million, or 50.4%. With our increased
level of higher-yielding earning assets, our Company saw a
year-over-year increase in the level of interest income that it
generated in 2019 of $5.7 million or 27%.
In order to fund this strong growth in our earning assets
while improving overall levels of profitability, the Company
needed to effectively attract new funding while controlling
its overall cost of funding. Considering that the Federal
Open Market Committee (FOMC) was postured to increase
its target rate for the overnight borrowing rate (known as
the Fed Funds Rate) at year-end 2018, we were positioned
for a rising rate environment. With the sudden turn in
monetary policy by the FOMC during the course of this past
year, our Company made a strategic decision to become
more liability-sensitive by the late second quarter of this
past year and allowed some of the retail funding that we
had on our balance sheet to runoff and be replaced with
more price-sensitive, overnight wholesale
funding.
Accordingly, total deposits grew at a somewhat slower pace
than we had been experiencing prior thereto; while
overnight advances from the Federal Home Loan Bank
increased by $39.7 million, year-over-year. By adopting this
position, we are hopeful that our Company will mitigate
further compression of our net interest margin in the
coming year. As of year-end 2019, our Company’s net
interest margin was 3.67%, which compares very favorably
with our peers. Also, by reasonably controlling our overall
cost of funding, our Company experienced a very solid
increase in net interest income in 2019 of $2,769,000, or
15.3%, which also compares very favorably to our
competitors within our industry.
From a qualitative perspective, United Bancorp, Inc. has
successfully maintained overall strength and stability
within its loan portfolio. Year-over-year, the Company
continues to have very solid credit quality-related metrics
supported by a relatively low level of nonaccrual loans and
loans past due 30 plus days, which were $2.7 million, or
0.60% of total loans, at December 31, 2019. Further, net
loans charged off, excluding overdrafts, was $601,000 in
2019, which was higher than the $259,000 charged off the
previous year. Net loan charge offs to average loans for the
year was 0.14% versus 0.07% for the same period in 2018.
Year-over-year, this number was slightly higher due to a
loan-related charge-off realized in the fourth quarter in the
amount of $428,000, which we fully covered with an
offsetting provision to our loan loss reserve. This was an
isolated incident resulting from an individual borrower
having legal issues. With the borrower facing upcoming
incarceration,
loans became non-
performing. With this matter being highly correlated to a
character issue with the borrower and an isolated incident,
we firmly believe that our credit quality remains very
sound and are very satisfied with the overall stable
performance of our loan portfolio from a credit quality
perspective.
the borrower’s
Loans-Net (In Thousands)
$440,000
$420,000
$400,000
$380,000
$360,000
$340,000
$320,000
$366,467
$407,640
$439,317
2017
2018
2019
United Bancorp, Inc. greatly benefited from the positive
execution of its strategic plan, which calls for growth
through acquiring other like-minded community banking
organizations, building new banking centers in key and
complementary markets and capitalizing on prudent, yet
profitable, organic opportunities. Over the course of the
past year, we had success in these key areas on which we
keenly focus. With the double-digit growth in assets that
we have experienced during this time frame, our Company
has produced record earnings. In addition, we are well on
our way to achieving our strategic vision of growing our
assets to a level of $1.0 billion, or greater, which should also
help our Company gain even greater efficiencies and higher
levels of earnings. As previously announced, in the late
second quarter of this past year, our Company issued $20.0
million in subordinated debt at very favorable terms.
Although this does not contribute to our Tier I Capital at the
corporate-level, it does add to our Tier I Capital at our bank-
level. Having this new leverageable (or growth) capital at
our affiliate bank-level will greatly aid in helping us attain
our lofty goal for growth and driving our earnings in a
positive fashion in future periods.
By continuing to utilize its “playbook” to achieve profitable
growth, Management
is very optimistic about the
Company’s future prospects. In addition, we will continue
focusing on building our infrastructure (or, foundation) to
support further growth while achieving greater efficiencies.
We are strongly committed to remaining relevant within
our industry by investing in our technology and support/
origination/service platforms. Ultimately, our vision is to be
a
in digital
transformation--- having complete channel integration and
offering mobility to our customers; thereby, serving them
on their terms and through their preferred channels. We
have started this initiative and believe that, for a community-
minded bank, we will have a complete digital solution that
will be highly appealing to our target clientele. Coupling
this investment in technology with continued investment in
growing our Company through acquisition and new branch
leader amongst community banks
UNITEDBANCORP INC.
2 01 9 | A N N UA L R E P O RT
11
$650,000
$590,000
$530,000
$470,000
$410,000
$350,000
$290,000
Total Average Earning Assets
(In Thousands)
$413,262
$479,975
$597,260
2017
2018
2019
construction in key complementary markets, we firmly
believe that we can continue to grow at acceptable levels
while remaining very profitable.
The Company purchased land in Moundsville, West Virginia,
and has started the construction of a new banking center in
this very vibrant community in the heart of the proposed
ethane cracker region. This will be the Company’s first full
service office in the State of West Virginia and this new
location will further enhance our developing footprint in
the Upper Ohio Valley Region (which is our traditional
market). In addition, this new banking center will nicely
complement our expansion into Powhatan Point, Ohio,
which is across the Ohio River from this new and exciting
market. We anticipate that our new Moundsville Banking
Center will be open for business early in the second quarter
of this year. Even with the high level of growth that we
experienced over the course of the past several quarters,
we continued to maintain our overall profitability. With our
record earnings in 2019, our Company had a return on
equity (ROE) of 12.5% and a return on assets (ROA) of 1.07%.
For many quarters, we have stated that our pursuit of
growth must be accomplished in a satisfactorily profitable
fashion. We are extremely delighted that we are presently
achieving this and strongly anticipate this trend will carry
into 2020.
Earning Assets – Loans
The Company’s gross loans totaled $441.5 million at
December 31, 2019, representing a 7.8% increase over the
$409.7 million at December 31, 2018. Average loans totaled
$420.5 million for 2019, representing an 10.1% increase
compared to average loans of $382.0 million for 2018.
The increase in gross loans from December 31, 2018 to
December 31, 2019 was primarily an increase in commercial
and commercial real estate loans by $37.5 million.
The Company's commercial and commercial real estate
loan portfolio represents 80.3% of the total portfolio
at December 31, 2019, compared to 77.4% at December 31,
2018. During this past year, we found many new customers
within our lending areas and our focus continues on our
small business customers that operate in our defined
market area. We utilize all the SBA, Ohio Department of
Development and State of Ohio loan programs as well as
local revolving loan funds to best fit the needs of our
customers.
The Company’s installment lending portfolio represented
2.2% of the total portfolio at December 31, 2019, compared
to 3.4% at December 31, 2018. 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
17.5% of the total portfolio at December 31, 2019, compared
to 19.2% at December 31, 2018. Residential real estate loans
are comprised of 1, 3, and 5-year adjustable-rate mortgages
and 15-year fixed rate 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.
The Company did recognize a gain on the sale of secondary
market loans of $54,000 in 2019 and a gain of $66,000 in
2018.
The allowance for loan losses represents the amount which
management and the Board of Directors estimates is
adequate to provide for probable incurred losses in the
loan portfolio. Accounting for the allowance and the related
provision for loan losses is viewed by management as a
critical accounting policy. The allowance balance and the
annual provision charged to expense are reviewed by
management and the Board of Directors on a monthly
basis. The allowance calculation is determined by utilizing a
risk grading model that considers borrowers’ past due
experience, coverage ratio to industry averages, economic
conditions and various other circumstances that are subject
to change over time. In general, the loan loss policy for
installment loans requires a charge-off if the loan reaches
120-day delinquent status or if notice of bankruptcy
liquidation is received. The Company follows lending
policies, with established criteria for determining the
12
2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
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.
excluding certificates of deposit greater than $250,000.
Total deposits increased $22.6 million or 4.3% from $525.4
million at December 31, 2018 to $548.1 million at December
31, 2019. Overall total deposit growth was mainly focused
on interest bearing money market accounts and certificate
of deposit accounts.
The Company generally recognizes interest income on the
accrual basis, except for certain loans which are placed on
non-accrual status, when in the opinion of management;
doubt exists as to collection on the loan. The Company’s
policy is to generally place loans greater than 90 days past
due on non-accrual status unless the loan is both well
secured and in the process of collection. When a loan is
placed on non-accrual status, interest income may be
recognized on a cash basis as payment is received if the
loan is well secured. If the loan is not deemed well secured,
payments are credited to principal.
Management and the Board of Directors believe the current
balance of the allowance for loan losses is sufficient to cover
probable incurred losses. Refer to the Provision for Loan
Losses section for further discussion on the Company’s
credit quality.
Earning Assets – Securities and Federal Funds Sold
The securities portfolio is comprised of U.S. Government
agency-backed securities, tax-exempt obligations of state
and political subdivisions and certain other investments.
Securities available for sale at December 31, 2019 increased
approximately $64.8 million from December 31, 2018 totals.
The increase in the balances of securities available for sale is
part of the Company’s strategy to maintain a highly liquid
base of earning assets that are readily available to fund new
loan growth, as needed.
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,
Net Income (In Thousands)
$7,200
$6,000
$4,800
$3,600
$2,400
$1,200
$0
$3,546
$4,282
$6,810
2017
2018
2019
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, 2019, certificates of deposit greater than
$250,000 decreased $2.0 million, from December 31, 2018
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 $1.1 million from
December 31, 2018 to December 31, 2019.
Advances from the Federal Home Loan Bank (FHLB)
increased $39.6 million from December 31, 2018 to
December 31, 2019.
On May 14, 2019 the Company issued $20,000,000 of junior
subordinated debentures in denominations of not less than
$250,000. The debentures bear interest at a fixed rate of
6.0% until May 2024, which then becomes a floating interest
rate equal to the three-month LIBOR (or an equivalent
index) plus 3.625%, resetting quarterly. Interest on the
subordinated notes will be payable semiannually through
May 2024 and quarterly thereafter through the maturity
date of May 2029. Principal is due upon maturity. The
debentures are unsecured and payable to various investors.
For purposes of computing regulatory capital, the
UNITEDBANCORP INC.
2 01 9 | A N N UA L R E P O RT
13
debentures are included in Tier 2 Capital. The subordinated
notes may not be repaid in whole or in part prior to the fifth
anniversary of the issue date (May 2019).
Performance Overview 2019 to 2018
Net Income
The Company reported basic and diluted earnings per
share of $1.19 and net income of $6,810,000 for the year
ended December 31, 2019, an increase of $2.5 million, or
59.0%, over net income of $4,282,000 for the year ended
December 31, 2018.
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, 2019 to 2018, the Company’s net interest
margin was 3.67% compared to 3.84%, a decrease of 17
basis points.
Average interest-earning assets increased $117.3 million in
2019 as compared to 2018 while the associated weighted-
average yield on these interest-earning assets increased
from 4.50% in 2018 to 4.69% for 2019. Average interest-
bearing liabilities increased $85.0 million in 2019 as
compared to 2018, while the associated weighted-average
costs on these interest-bearing liabilities increased from
0.83% in 2018 to 1.31% in 2019.
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 $31.9 million year-over-year to a level of
$441.5 million as of December 31, 2019. During this same
period, the Company’s non-accrual
increased
$207,000, or 16.6%, to a level of $1.5 million and net loans
charged off were up by $342,000, or 132.4%, to a level of
$601,000 (exclusive of overdraft charge off). With the
loans
strong growth in loans and the increase in non-accrual
loans, the Company increased the provision for loan losses
which was $908,000 for the year ended December 31, 2019
compared to $297,000 for the year ended December 31,
2018, an increase of $611,000 year-over-year. Total
allowance for loan losses to total loans was 0.51% and the
total allowance for loan losses to nonperforming loans was
153.6% at year end 2019, compared to 0.50% and 164.04%
at year end 2018.
Noninterest Income
Total noninterest income is made up of bank-related fees
and service charges, as well as other income producing
services , sales of loans in the secondary market, ATM
income, early redemption penalties for certificates of
deposit, safe deposit rental income, internet bank service
fees, earnings on bank-owned life insurance and other
miscellaneous items.
Noninterest income for the year ended December 31, 2019
was $3.9 million, an increase of $228,000, or 6.2%, compared
to $3.7 million for the year ended December 31, 2018. The
majority of this increase is related to a $235,000 increase in
service charges on deposit accounts.
Noninterest Expense
In 2019, 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 credit personnel to
support the loan platform, we hired a Treasury Management
Specialist, added to the depth of our Marketing Department,
brought in an individual to lead our front line team to
enhance the overall customer experience; and we enhanced
our Information Technology function to better manage risk
and serve our valued customers. Overall noninterest
expense for 2019 increased $59,000, as compared to 2018.
Salaries and employee benefits increased $812,000, or
Total Allowance for Loan Losses
to Nonperforming Loans
180%
150%
120%
90%
60%
30%
0%
152.10%
164.04%
153.65%
2017
2018
2019
14 2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
10.2%, from 2018 to 2019. As described above, additional
personnel were added to support our growing Company
and we had an increased level of personnel from the 2018
acquisition of Powhatan Point Community Bancshares, Inc.
Professional fees decreased $881,000, or 40.5% for 2019 as
compared to 2018. This decrease is the 2018 merger
expenses of approximately $1.3 million for the Powhatan
Point Community Bancshares (Powhatan Point) merger.
Marketing expense decreased $110,000, or 22.3%, for 2019
as compared to 2018.
Other expenses increased $273,000, or 11.4%. Items
contributing to this increase were ATM expense of $58,000
as we issue and grow our debit card usage. Internet bank
expense increased $39,000, which is also related to the
growth in the number of depository accounts and increased
usage.
Income tax expense for 2019 was $599,000 compared to
$800,000 in 2018, a decrease of $201,000. The Company’s
effective income tax rate was 8.1% in 2019 and 15.7% in
2018. Refer to note Note 9 Income Taxes for a reconciliation
of the effective tax rate for the Company.
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 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, 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.
(In thousands)
2019
2018
Noninterest income
Customer service fees............................................................................................................................................................$
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 ..............................................................................................................................................$
2,843
54
991
3,888
8,776
2,263
-
1,292
468
75
408
383
136
2,681
16,482
$
$
$
$
2,608
66
986
3,660
7,964
2,140
71
2,173
433
190
364
493
165
2,430
16,423
UNITEDBANCORP INC.
2 01 9 | A N N UA L R E P O RT
15
Gap is defined as the dollar difference between rate
sensitive assets and rate sensitive liabilities with respect to
a specified time frame. A gap has three components – the
asset component, the liability component, and the time
component. Gap management involves the management
of all three components.
Gap management is defined as those actions taken to
measure and match rate-sensitive assets to rate-sensitive
liabilities. A rate-sensitive asset is any interest-earning
asset, which can be repriced to a market rate in a given time
frame. Similarly, a rate-sensitive liability is any interest-
bearing liability, which can have its interest rate changed to
a market rate during the specified time period. Caps, collars
and prepayment penalties may prevent certain loans and
securities from adjusting to the market rate.
A negative gap is created when rate-sensitive liabilities
exceed rate-sensitive assets and conversely a positive gap
occurs when rate-sensitive assets exceed rate-sensitive
liabilities. Generally, a negative gap position will cause
profits to decline in a rising interest rate environment and
cause profits to increase in a falling interest rate environment.
Conversely, a positive gap will cause profits to decline in a
falling interest rate environment and increase is a rising
interest rate environment. The Company’s goal is to have
acceptable profits under any interest rate environment. To
avoid volatile profits as a result of interest rate fluctuations,
the Company attempts to match interest rate sensitivities.
The Company achieves this by pricing both the asset and
liability components to yield a sufficient interest rate spread,
so that profits will remain relatively consistent across
interest rate cycles.
Management of the income statement is called spread
management and is defined as managing investments,
loans, and liabilities to achieve an acceptable spread
between the Company’s return on its earning assets and its
cost of funds. Gap management without consideration of
interest spread can cause unacceptably low profit margins.
Spread management without consideration of gap positions
can cause acceptable profits
interest rate
environments and unacceptable profits in others. A sound
asset/liability management program combines gap and
spread management into a single cohesive system.
in some
the Board of Directors, comprising the Asset/Liability
Committee (“ALCO”), review the exposure to interest rates
monthly. Exposure to interest rate risk is measured with the
use of an interest rate sensitivity analysis to determine the
change in NPV in the event of hypothetical changes in
interest rates, while interest rate sensitivity gap analysis is
used to determine the repricing characteristics of the assets
and liabilities.
NPV represents the market value of portfolio equity and is
equal to the market value of assets minus the market value
of liabilities, with adjustments made for off-balance-sheet
items.
Computations of prospective effects of hypothetical
interest rate changes are based on numerous assumptions,
including relative levels of market interest rates, loan
prepayments and deposit decay rates, and should not be
relied upon as indicative of actual results. Further, the
computations do not contemplate any actions the Company
may undertake in response to changes in interest rates. The
NPV calculation is based on the net present value of
discounted cash flows utilizing market prepayment
assumptions and market rates of interest provided by
surveys performed during each quarterly period, with
adjustments made to reflect the shift in the Treasury yield
curve between the survey date and quarter-end date.
Certain shortcomings are inherent in this method of analysis
presented in the computation of estimated NPV. Certain
assets such as adjustable-rate loans have features that
restrict changes in interest rates on a short-term basis and
over the life of the asset. In addition, the portion of
adjustable-rate loans in the Company’s portfolio could
decrease in future periods if market interest rates remain at
or decrease below current levels due to refinancing activity.
Further, in the event of a change in interest rates, prepayment
and early withdrawal levels would likely deviate from those
assumed in the table. Finally, the ability of many borrowers
to repay their adjustable-rate debt may decrease in the case
of an increase in interest rates.
The following tables present an analysis of the potential
sensitivity of the Company’s net present value of its financial
instruments to sudden and sustained changes in the
prevailing interest rates.
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 projected volatility of the net present value at both
December 31, 2019 and 2018 fall within the general
guidelines established by the Board of Directors. The 2019
NPV table shows that in a falling interest rate environment,
in the event of a 100 basis point change, the NPV would
decrease 7%, and with a 200 basis point change, the NPV
16 2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
would decrease 18%. 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 consideration 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 basically 0% with a 100 basis point interest
rate increase. In a 200 basis point rate increase, the
Company’s NPV would decrease 1%. This decrease is
attributable to a portion of the Company’s deposit pricing
tied to the overnight borrowing rate.
(Dollars in Thousands)
Net Portfolio Value - December 31, 2019
Change in Rates
+200
+100
Base
-100
-200
$ Amount $ Change % Change
(1,628)
128,125
129,388
(365)
129,752
120,886
105,871
(8,866)
(23,882)
-7%
-18%
-1%
0%
(Dollars in Thousands)
Net Portfolio Value - December 31, 2018
Change in Rates
+200
+100
Base
-100
-200
$ Amount $ Change % Change
8,102
134,438
5,114
134,450
129,336
117,270
98,346
(12,066)
(30,990)
-9%
-24%
6%
4%
UNITEDBANCORP INC.
2 01 9 | 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, 2019 and 2018.
Three Months Ended
March 31
June 30
September 30
December 31
(In thousands, except per share data)
2019
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
$
6,315
1,207
5,108
90
945
4,162
1,801
187
1,614
0.28
0.28
$
6,648
1,469
5,179
120
947
4,172
1,835
188
1,646
0.29
0.29
$
6,921
1,726
5,195
120
1,003
4,162
1,916
135
1,781
0.31
0.31
$
7,150
1,721
5,429
578
993
3,986
1,858
89
1,769
0.31
0.31
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
18
2 01 9 | 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,
2019 and 2018. 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)
2019
Interest
Average
Income/ Yield/
Balance Expense Rate
2018
Interest
Average
Income/ Yield/
Balance Expense Rate
Assets
Interest-earning assets
Loans (1) ..................................................................................................... $ 420,487
Taxable securities - AFS ........................................................................
48,911
Tax-exempt securities - AFS (1) .............................................................. 106,528
17,285
Federal funds sold .......................................................................................
FHLB stock and other.................................................................................
4,049
Total interest-earning assets ................................................................... 597,260
Noninterest-earning assets
Cash and due from banks ...................................................................
5,405
Premises and equipment (net) ..........................................................
12,232
Other nonearning assets .....................................................................
22,787
Less: allowance for loan losses ..........................................................
(2,127)
38,297
Total noninterest-earning assets ...........................................................
Total assets..................................................................................................... 635,557
Liabilities & stockholders’ equity
Interest-bearing liabilities
Demand deposits ................................................................................... $ 209,810
Savings deposits ..................................................................................... 109,806
Time deposits ............................................................................................... 112,211
27
FHLB advances .............................................................................................
8,933
Federal funds purchased ..........................................................................
16,276
Subordinated debentures ........................................................................
Repurchase agreements ...........................................................................
9,699
Total interest-bearing liabilities ............................................................. 466,762
Noninterest-bearing liabilities
Demand deposits ................................................................................... 109,349
Other liabilities ........................................................................................
5,054
Total noninterest-bearing liabilities ..................................................... 114,403
Total liabilities ...............................................................................................
Total stockholders’ equity ........................................................................
54,392
Total liabilities & stockholders’ equity ................................................. $ 635,557
Net interest income ....................................................................................
Net interest spread .....................................................................................
$ 21,906
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.
(1) Shown on a tax equivalent basis.
21,803
996
4,687
333
211
28,030
5.19%
2.04
4.40
1.93
5.21
4.69
$ 382,164
45,250
35,424
12,958
4,179
479,975
18,885
765
1,493
197
249
21,589
4.94%
1.69
4.21
1.59
5.91
4.50
2,381
188
2,258
1
185
975
136
6,124
1.13%
0.17
2.01
3.70
2.07
5.99
1.40
1.31
2,000
11,838
20,274
(2,085)
32,027
512,002
$ 183,754
88,900
77,558
14,393
162
4,124
12,874
381,756
80,243
3,102
83,345
46,904
$ 512,002
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
3.38%
3.67%
$ 18,411
3.67%
3.84%
UNITEDBANCORP INC.
2 01 9 | 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 2019. 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.
$1.20
$1.05
$0.90
$0.75
$0.60
$0.45
$0.30
Diluted Earning Per Share
0.71
0.82
1.19
2017
2018
2019
• 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 $59.9 million and $50.6 million at December 31,
2019 and 2018, respectively. Total stockholders’ equity in
relation to total assets was 8.74% at December 31, 2019 and
8.54% at December 31, 2018. Please refer to the Consolidated
(In thousands)
2019 Compared to 2018
Increase/(Decrease)
Total
Change
Change
Due To
Volume
Interest and dividend income
Loans ....................................................................................................................................$
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 ...............................................................................................
Subordinated debentures ............................................................................................
Repurchase agreements................................................................................................
Total interest expense ........................................................................................................
2,918
231
3,194
136
( 38 )
6,441
948
134
1,154
( 298 )
176
832
-
2,946
1,956
65
3,126
76
( 8 )
5,215
225
15
599
( 429 )
185
-
( 38 )
557
Change
Due To
Rate
962
166
68
60
( 30 )
1,226
723
119
555
131
( 9 )
832
38
2,389
Net interest income .............................................................................................................$
3,495
4,658
( 1,163 )
20 2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Statements of Stockholders’ Equity for a detailed roll
forward of stockholders’ equity from 2018 to 2019.
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.
$60,000
$55,000
$50,000
$45,000
$40,000
$35,000
$30,000
Equity Capital (In Thousands)
$43,895
$50,643
$59,922
2017
2018
2019
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, 2019 the
Company has not issued any preferred shares.
On May 14, 2019 the Company issued $20,000,000 of junior
subordinated debentures in denominations of not less than
$250,000. The debentures bear interest at a fixed rate of
6.0% until May 2024, which then becomes a floating interest
rate equal to the three-month LIBOR (or an equivalent
index) plus 3.625%, resetting quarterly. Interest on the
subordinated notes will be payable semiannually through
May 2024 and quarterly thereafter through the maturity
date of May 2029. Principal is due upon maturity. The
debentures are unsecured and payable to various investors.
For purposes of computing regulatory capital, the
debentures are included in Tier 2 Capital. The subordinated
notes may not be repaid in whole or in part prior to the fifth
anniversary of the issue date (May 2019).
In 2005, a Delaware statutory business trust owned by the
Company, United Bancorp Statutory Trust I (“Trust I” or the
Cash Dividends Per Share
(Without Special Dividend)
$0.55
$0.50
$0.45
$0.40
$0.35
$0.30
$0.25
$0.46
$0.52
$0.55
2017
2018
2019
“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
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 $203.8 million at December 31, 2019,
compared to $149.2 million at December 31, 2018.
Management recognizes securities may need to be sold in
the future to help fund loan demand and, accordingly, as of
December 31, 2019, $188.8 million of the securities portfolio
was classified as available for sale. The Company’s residential
real estate portfolio can and has been readily used to
collateralize borrowings as an additional source of liquidity.
Management believes its current liquidity level is sufficient
to meet cash requirements.
The Cash Flow Statements for the periods presented
provide an indication of the Company’s sources and uses of
UNITEDBANCORP INC.
2 01 9 | A N N UA L R E P O RT
21
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 2019 and 2018 follows.
Net cash provided by operating activities totaled $8.5
million and $5.8 million for the years ended December 31,
2019 and 2018, 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.
1.10%
1.00%
0.90%
0.80%
0.70%
0.60%
0.50%
Return On Average Assets
0.79%
0.83%
1.07%
2017
2018
2019
Net cash used in investing activities totaled $95.8 million for
the year ended December 31, 2019. For year ended
December 31, 2018 net cash used by investing activities
totaled $62.5 million. The changes in net cash from investing
activities include loan growth, security purchases as well as
normal maturities, security calls and reinvestments of
securities and premises and equipment expenditures.
Net cash provided by financing activities totaled $76.9
million and $67.7 for the years ended December 31, 2019
and 2018, respectively. The net cash provided by financing
activities in 2019 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 2018 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.
investments
Inflation
The majority of assets and liabilities of the Company are
monetary in nature and therefore the Company differs
greatly from most commercial and industrial companies
that have significant
in fixed assets or
inventories. However, inflation does have an important
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
Inflation significantly affects
equity to assets ratio.
noninterest expense, which tends to rise during periods of
general inflation. Management believes the most significant
impact on financial results is the Company’s ability to react
to changes in interest rates. Management seeks to maintain
an essentially balanced position between interest sensitive
assets and liabilities and actively manages the amount of
securities available for sale in order to protect against the
effects of wide interest rate fluctuations on net income and
shareholders' equity.
22 2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Report of Independent Registered Public Accounting Firm
To the Shareholders, Board of Directors and Audit Committee
United Bancorp, Inc.
Martins Ferry, Ohio
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of United Bancorp, Inc. (the "Company") as of
December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, stockholders'
equity and cash flows for each of the years in the two-year period ended December 31, 2019, and the related
notes (collectively referred to as the "financial statements"). In our opinion, the consolidated financial statements
Report of Independent Registered Public Accounting Firm
referred to above present fairly, in all material respects, the financial position of the Company as of December 31,
2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended
December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Audit Committee, Board of Directors and Stockholders
Basis for Opinion
United Bancorp, Inc.
These financial statements are the responsibility of the Company's management. Our responsibility is to express
Martins Ferry, Ohio
an opinion on the Company's financial statements based on our audits.
We have audited the accompanying consolidated balance sheets of United Bancorp, Inc. as of December
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
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
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
the PCAOB.
these financial statements based on our audits.
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
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
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
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.
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.
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.
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, 2020
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, 2019 and 2018
(In thousands, except share data)
December 31, 2019 and 2018
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
Total assets
Available-for-sale securities
Loans, net of allowance for loan losses of $2,231 and $2,043 at
$397,521,584
LIABILITIES AND SHAREHOLDERS’ EQUITY
December 31, 2019 and 2018, respectively
Premises and equipment
Demand deposits
Federal Home Loan Bank stock
Noninterest-bearing
Foreclosed assets held for sale, net
Interest-bearing
Core deposit and other intangible assets
Savings deposits
Accrued interest receivable
Time deposits – under $100,000
Time deposits - $100,000 and over
Bank-owned life insurance
Total deposits
Other assets
Federal funds purchased
Advances from the Federal Home Loan Bank
Securities sold under agreements to repurchase
Other borrowed funds
Accrued expenses and other liabilities
Total Assets
Liabilities and Stockholders’ Equity
Total liabilities
Liabilities
Commitments
Deposits
Demand
Savings
Time
Total deposits
Shareholders’ equity
Preferred stock - 2,000,000 shares without par value authorized;
no shares issued
Common stock - $1 par value; 10,000,000 shares authorized;
4,126,970 and 3,752,105 shares issued at December 31,
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
Stockholders’ Equity
Securities sold under repurchase agreements
Federal Home Loan Bank advances
Subordinated debentures
Deferred federal income tax
Interest payable and other liabilities
Total liabilities
Total shareholders’ equity
2003
$ 8,386,575
140,818,167
2019
15,594,408
3,954,300
198,608,574
(2,843,484 )
195,765,090
8,152,480
5,697 $
2,373,573
940,015
9,288
57,452
14,985
7,185,507
2,295,402
188,785
$ 385,522,969
439,317
12,402
4,012
$ 30,049,919
819
61,137,605
48,274,042
2,697
128,443,059
36,621,372
17,196
304,525,997
3,951
9,714,000
30,974,611
$
685,706
5,485,399
159,398
2,149,105
353,008,510
2018
15,573
9,680
25,253
123,991
407,640
12,117
4,243
91
1,542 1,692
1,798
13,115
3,273
593,213
$ 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
-
$
-
334,380
108,217
105,471
$
-
309,505
111,251
104,687
548,069
6,915
3,752,105
39,800
25,712,990
6,047,652
23,543
1,736
(633,842)
5,721
(2,115,855)
525,443
8,068
106
4,124
219
4,610
542,570
625,784
(248,591 )
32,514,459
4,126,970
25,831,585
7,021,185
(752,437)
(2,767,751)
(635,441)
32,824,111
Preferred stock, no par value, authorized 2,000,000 shares; no shares
Total liabilities and shareholders’ equity
issued
$397,521,584
$ 385,522,969
––
––
Common stock, $1 par value; authorized 10,000,000 shares; issued
2019 – 5,959,351 shares, 2018 - 5,926,851 shares; outstanding
2019 – 5,516,203, 2018 – 5,739,203
Additional paid-in capital
Retained earnings
Stock held by deferred compensation plan; 2019 – 176,134 shares,
2018 – 182,457 shares
Unearned ESOP compensation
Accumulated other comprehensive income (loss)
Treasury stock, at cost
The accompanying notes are an integral part of these statements.
2019 – 42,400 shares, 2018 – 5,744 shares
Total stockholders’ equity
5,959
22,871
27,905
(1,659)
(228)
5,536
(462)
59,922
5,927
22,556
24,321
(1,701)
(404)
(10)
(46)
50,643
Total liabilities and stockholders’ equity
$
685,706
$
593,213
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
24 2 01 9 | 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, 2019 and 2018
Years Ended December 31, 2019 and 2018
(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
2019
2018
$
21,790
$
18,875
996
3,704
333
211
27,034
4,827
1,296
6,123
20,911
908
20,003
765
1,234
197
249
21,320
2,591
587
3,178
18,142
297
17,845
2,843
54
533
---
458
2,608
66
477
100
409
3,888
3,660
8,776
2,263
---
1,292
468
75
408
383
136
5
2,676
7,964
2,140
71
2,173
433
190
364
493
165
27
2,403
16,482
7,409
599
6,810
$
1.19
$
1.19
$
16,423
5,082
800
4,282
0.82
0.82
$
$
$
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
UNITEDBANCORP INC.
2 01 9 | 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, 2019 and 2018
Years Ended December 31, 2019 and 2018
(In thousands)
(In thousands)
Net income
Other comprehensive income (loss), net of tax
Unrealized holding gains on available-for-sale securities during the
period, net of taxes of $1,622 and $199 for each respective
period
Change in funded status of defined benefit plan, net of tax benefits
of $150 and $82 for each respective period
Amortization of prior service included in net periodic pension
expense, net of tax benefits of $19 and $19 for each respective
period
Amortization of net loss included in net periodic pension cost, net
of taxes of $20 and $11 for each respective period
2019
2018
$
6,810 $
4,282
6,107
(564)
(70)
73
749
(309)
(70)
40
Comprehensive income
$
12,356 $
4,692
See Notes to Consolidated Financial Statements
26 2 01 9 | 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, 2019 and 2018
Years Ended December 31, 2019 and 2018
(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, 2018
$
5,435 $ 18,020 $
(1,717)
$
(683)
$ 23,260
$
(420)
$
43,895
Net income
Other comprehensive loss
––
––
––
––
––
––
––
––
4,282
––
––
410
4,282
410
Share issuance in connection with merger
367
4,344 ---
---
---
---
4,711
Cash dividends - $0.570 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
Net income
Other comprehensive income
Cash dividends - $0.545 per share
Shares purchased for deferred compensation plan
Shares purchased for treasury stock
Expense related to share-based compensation plans
Restricted stock activity
Amortization of ESOP
––
––
––
––
––
––
32
––
––
––
––
(42)
---
293
(32)
96
––
––
––
42
(416)
––
––
––
––
––
––
––
––
––
––
176
6,810
––
6,810
––
5,546
5,546
(3,226)
––
––
––
––
––
––
––
––
––
––
––
(3,226)
––
(416)
293
––
272
Balance, December 31, 2019
$
5,959 $ 22,871 $
(2,121)
$
(228)_ $ 27,905
$
5,536
$
59,922
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
UNITEDBANCORP INC.
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27
United Bancorp, Inc.
Consolidated Statements of Cash Flows
Consolidated Statements of Cash Flows
Years Ended December 31, 2019 and 2018
(In thousands)
Years Ended December 31, 2019 and 2018
(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 intangible assets
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
Gain on sale of fixed assets
Amortization of debt issuance costs
Changes in
Accrued interest receivable
Other assets
Interest payable and other liabilities
2019
2018
$
6,810 $
4,282
1,040
908
---
326
150
42
(2,796)
2,850
(54)
272
293
5
974
297
70
135
42
375
(3,064)
3,130
(66)
280
287
27
(81) (389)
(8) ---
36 ---
(898)
(1,188)
891
(660)
589
(554)
Net cash provided by operating activities
8,617
5,755
Investing Activities
Purchases of available-for-sale securities
Sale of available-for-sale securities
Sale of interest-bearing time deposits
Net change in loans
Mandatory redemption of Federal Home Loan Bank Stock
Purchases of bank-owned life insurance
Purchases of premises and equipment, net
Net cash received from acquisition of Powhatan Point Community
Bancshares, Inc.
Proceeds from sale of premises and equipment
Proceeds from sales of foreclosed assets
---
(102,645)
45,255
(33,403)
231
(4,000)
(1,336)
(78,117)
23,865
3,461
(34,971)
---
(785)
---
23,457
---
543
19
86
Net cash used in investing activities
(95,793)
(62,547)
See Notes to Consolidated Financial Statements
28 2 01 9 | 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, 2019 and 2018
(In thousands)
Years Ended December 31, 2019 and 2018
(In thousands)
Financing Activities
2019
2018
Net increase in deposits
Proceeds of Federal Home Loan Bank advances
Repayments of Federal Home Loan Bank advances
Proceeds from issuance of subordinated debentures, net of origination
22,626 $
83,884
$
39,800 ---
(106) (9,916)
fees
Net change in securities sold under repurchase agreements
Repurchase of common stock
Cash dividends paid
Net cash provided by financing activities
Decrease (Increase) in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
19,383 ---
(3,017)
(1,153)
(416)
(3,226)
76,908
(10,268)
25,253
(3,221)
67,730
10,938
14,315
Cash and Cash Equivalents, End of Year
$
14,985 $
25,253
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
$
$
$
6,098 $
3,285
25 $
818 $
715
280
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
UNITEDBANCORP INC.
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29
Notes to Consolidated Financial Statements
Note 1: Nature of Operations and Summary of Significant Accounting Policies
December 31, 2019 and 2018
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 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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, 2019 and 2018, 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, 2019 and 2018, the
Company’s various cash accounts did not exceed the federally insured limit of $250,000. At
December 31, 2019 and 2018, the Company held $7,830,000 and $6,566,000 at the Federal Home
Loan Bank and the Federal Reserve Bank, respectively, which are not subject to FDIC limits.
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
UNITEDBANCORP INC.
2 01 9 | A N N UA L R E P O RT
31
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
recovery of its cost basis, it recognizes the credit component of an other-than-temporary
impairment of a debt security in earnings and the remaining portion in other comprehensive
income.
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, 2019 and 2018, 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
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-
32 2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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
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
UNITEDBANCORP INC.
2 01 9 | A N N UA L R E P O RT
33
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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
modification of loan terms, or a combination of the two. If such efforts by the Company do not
result in a satisfactory arrangement, the loan is referred to legal counsel, at which time foreclosure
proceedings are initiated. At any time prior to a sale of the property at foreclosure, the Company
may terminate foreclosure proceedings if the borrower is able to work-out a satisfactory payment
plan.
34 2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
It is the Company’s policy to have any restructured loans which are on nonaccrual status prior to
being restructured remain on nonaccrual status until six months of satisfactory borrower
performance at which time management would consider its return to accrual status. If a loan was
accruing at the time of restructuring, the Company reviews the loan to determine if it is appropriate
to continue the accrual of interest on the restructured loan.
With regard to determination of the amount of the allowance for credit losses, trouble debt
restructured loans are considered to be impaired. As a result, the determination of the amount of
impaired loans for each portfolio segment within troubled debt restructurings is the same as detailed
previously.
Premises and Equipment
Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to
expense using the straight-line method over the estimated useful lives of the assets. An accelerated
method is used for tax purposes.
Federal Home Loan Bank Stock
Federal Home Loan Bank stock is a required investment for institutions that are members of the
Federal Home Loan Bank system. The required investment in the common stock is based on a
predetermined formula, carried at cost and evaluated for impairment.
Foreclosed Assets Held for Sale
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at
fair value, less costs to sell, at the date of foreclosure, establishing a new cost basis. Subsequent to
foreclosure, valuations are periodically performed by management and the assets are carried at the
lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and
changes in the valuation allowance are included in net income or expense from foreclosed assets.
Bank-Owned Life Insurance
The Company and the Bank have purchased life insurance policies on certain key executives.
Company and bank-owned life insurance is recorded at its cash surrender value, or the amount that
can be realized.
Treasury Stock
Common shares repurchased are recorded at cost. Cost of shares retired or reissued is determined
using the weighted average cost.
Restricted Stock Awards
The Company has a share-based employee compensation plan, which is described more fully in
Note 14.
UNITEDBANCORP INC.
2 01 9 | A N N UA L R E P O RT
35
Notes to Consolidated Financial Statements
Income Taxes
December 31, 2019 and 2018
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, 2019, the Company had no uncertain tax positions.
The Company recognizes interest and penalties on income taxes as a component of income tax
expense.
The Company files consolidated income tax returns with its subsidiary. With a few exceptions, the
Company is no longer subject to the examination by tax authorities for years before 2016.
Deferred Compensation Plan
Directors have the option to defer all or a portion of fees for their services into a deferred stock
compensation plan that invests in common shares of the Company. Officers of the Company have
the option to defer up to 50% of their annual incentive award into this plan. The plan does not
permit diversification and must be settled by the delivery of a fixed number of shares of the
Company stock. The stock held in the plan is included in equity as deferred shares and is
accounted for in a manner similar to treasury stock. Subsequent changes in the fair value of the
Company’s stock are not recognized. The deferred compensation obligation is also classified as an
equity instrument and changes in the fair value of the amount owed to the participant are not
recognized.
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.
36 2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
Stockholders’ Equity and Dividend Restrictions
December 31, 2019 and 2018
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,
2019 and 2018.
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 9 | A N N UA L R E P O RT
37
Notes to Consolidated Financial Statements
Note 2: Restriction on Cash and Due From Banks
December 31, 2019 and 2018
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, 2019 and 2018, was $5.8 million and $2.7
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)
Fair Value
Available-for-sale Securities:
December 31, 2019:
U.S. government agencies
$
40,000 $
–– $
(472) $
39,528
Subordinated notes
4,500
36
(4) 4,532
State and municipal obligations 135,897 $ 8,993 (165) 144,725
Total debt securities
$ 180,397 $
9,029 $
(641) $
188,785
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
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.
38 2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
Amortized
Cost
Fair
Value
(In thousands)
Under 1 year
One to five years
Over ten years
$
6,000 $
38,500
135,897
5,995
38,065
144,725
Totals
$
180,397 $
188,785
The carrying value of securities pledged as collateral, to secure public deposits and for other
purposes, was $46.8 million and $48.4 million at December 31, 2019 and 2018, 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, 2019 and 2018, was
$50.3 million and $49.9 million, which represented approximately 27% and 40%, 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, 2019 and 2018:
December 31, 2019
Description of
Securities
US government
agencies
Less than 12 Months
Unrealized
Losses
Fair
Value
12 Months or More
Fair
Value
(In thousands)
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
$
39,528 $
(472) $
---
$
---
$
39,528
$
(472)
Subordinated notes
996 $
(4) $
---
$
---
$
996
$
(4)
State and municipal
obligations
Total temporarily
impaired
securities
$ 9,831 $ (165) $ –– $ –– $ 9,831 $ (165)
$
50,355 $
(641) $
---
$
---
$
50,355
$
(641)
UNITEDBANCORP INC.
2 01 9 | A N N UA L R E P O RT
39
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
December 31, 2018
Description of
Securities
US government
agencies
State and municipal
obligations
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)
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
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, 2019.
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
$
2019
2018
(In thousands)
$
99,995
254,651
77,205
9,697
441,548
93,690
223,461
78,767
13,765
409,683
(2,231)
(2,043)
Total loans
$
439,317
$
407,640
40 2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
The risk characteristics of each loan portfolio segment are as follows:
Commercial
Commercial loans are primarily based on the identified cash flows of the borrower and secondarily
on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may
not be as expected and the collateral securing these loans may fluctuate in value. Most commercial
loans are secured by the assets being financed or other business assets, such as accounts receivable
or inventory, and may include a personal guarantee. Short-term loans may be made on an
unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for
the repayment of these loans may be substantially dependent on the ability of the borrower to
collect amounts due from its customers.
Commercial Real Estate
Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans
secured by real estate. Commercial real estate lending typically involves higher loan principal
amounts and the repayment of these loans is generally dependent on the successful operation of the
property securing the loan or the business conducted on the property securing the loan.
Commercial real estate loans may be more adversely affected by conditions in the real estate
markets or in the general economy. The characteristics of properties securing the Company’s
commercial real estate portfolio are diverse, but with geographic location almost entirely in the
Company’s market area. Management monitors and evaluates commercial real estate loans based
on collateral, geography and risk grade criteria. In general, the Company avoids financing single
purpose projects unless other underwriting factors are present to help mitigate risk. In addition,
management tracks the level of owner-occupied commercial real estate versus nonowner-occupied
loans.
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.
UNITEDBANCORP INC.
2 01 9 | A N N UA L R E P O RT
41
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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, 2019
and 2018:
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
2019
$
389
$
672
$
519
$
463
$
---
$
2,043
196
(18)
1
551
(431)
---
180
(141)
14
(19)
(180)
35
---
––
––
908
(770)
50
Balance, end of year
$
568
$
792
$
572
$
299
$
---
$
2,231
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
Allowance for loan losses:
Balance, beginning of year
Provision charged to
expense
Losses charged off
Recoveries
$
---
$
---
$
––
$
––
$
––
$
---
$
568
$
792
$
572
$
299
$
---
$
2,231
$
71
$
371
$
594
$
---
$
––
$
1,036
$
99,924
$ 254,280
$
76,611
$
9,697
$
––
$ 440,512
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
42 2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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.
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, 2019:
Loan Class
Commercial
Commercial
Real Estate
Residential
(In thousands)
Installment
Total
Pass Grade
Special Mention
Substandard
Doubtful
$
$
99,924
––
71
––
$
249,563
4,016
1,072
––
$
76,611
––
594
––
$
9,697
––
---
––
435,795
4,016
1,737
––
$
99,995
$
254,651
$
77,205
$
9,697
$
441,558
UNITEDBANCORP INC.
2 01 9 | A N N UA L R E P O RT
43
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
The following table shows the portfolio quality indicators as of December 31, 2018:
Loan Class
Commercial
Commercial
Real Estate
Pass Grade
Special Mention
Substandard
Doubtful
$
$
93,620
––
70
––
219,485
2,710
1,266
––
Residential
(In thousands)
78,767
$
––
––
––
Installment
Total
$
$
13,672
––
93
––
405,544
2,710
1,429
––
$
93,690
$
223,461
$
78,767
$
13,765
$
409,683
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 2019
and 2018.
The following table shows the loan portfolio aging analysis of the recorded investment in loans as
of December 31, 2019:
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)
$
129
$
132 $
––
$
30 $
291 $
99,704
$
99,995
––
448
58
214
---
1
197
29
––
348
1,074
---
759 253,892
75,654
9,638
1,551
59
254,651
77,205
9,697
Commercial
Commercial real
estate
Residential
Installment
Total
$
635
$
347 $
226
$
1,452 $
2,660 $ 438,888
$ 441,548
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
44 2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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, 2019:
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
Real Estate
Loans with a specific
valuation allowance:
Commercial
Commercial real estate
Real Estate
$
$
$
71
371
594
$
71
371
594
1,036
1,036
$
---
---
---
$
---
---
---
$
$
––
––
––
––
---
---
---
$
71
356
683
1,110
$
---
---
---
$
---
$
---
$
---
$
--- $
Total:
Commercial
Commercial Real Estate
Real Estate
$
$
$
71
$
371
$
594
$
71
$
371
$
594
$
---
$
---
$
---
$
71
356
683
$
$
$
13
8
23
44
---
---
---
---
13
8
23
UNITEDBANCORP INC.
2 01 9 | A N N UA L R E P O RT
45
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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
At December 31, 2019 and 2018, 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 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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, 2019:
Year Ended December 31, 2019
Number of
Contracts
Pre-Modification
Outstanding
Recorded
Investment
Post-Modification
Outstanding
Recorded
Investment
(In thousands)
Commercial
2 $ 83
$ 83
Year Ended December 31, 2019
Interest
Only
Term
Combination
(In thousands)
Total
Modification
Commercial
$ ––
$ 83
$ ––
$ 83
During the 2019, troubled debt restructurings did not have an impact on the allowance for loan
losses. At December 31, 2019 and 2018 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
Note 6: Time Deposits
2019
2018
(In thousands)
18,297 $
14,220
2,196
34,713
(22,311)
12,402 $
17,839
13,359
2,164
33,362
(21,245)
12,117
$
$
Time deposits in denominations of $250,000 or more were $14.0 million at December 31, 2019 and
$16.0 million at December 31, 2018. At December 31, 2019, the scheduled maturities of time
deposits are as follows:
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2019 and 2018
Due during the year ending December 31,
(In thousands)
2020
2021
2022
2023
2024
Thereafter
$
$
52,902
38,655
12,023
1,161
393
337
105,471
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%
Cash Management Advances maturities from January
2020 to March 2020 at floating rates averaging
1.73%
2019
2018
(In thousands)
$
---
$
106
$
39,800
39,800
$
---
106
At December 31, 2019 and 2018, as a member of the Federal Home Loan Bank system the Bank
had the ability to obtain up to $119.0 million and $117.6 million, respectively, in additional
borrowings based on securities and certain loans pledged to the FHLB. At December 31, 2019 and
2018, the Bank had approximately $79.7 million and $113.3 million, respectively of one- to four-
family residential real estate and commercial real estate loans pledged as collateral for borrowings.
Also at December 31, 2019 and 2018, 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 $18.0 million.
Securities sold under repurchase agreements were approximately $6.9 million and $8.1 million at
December 31, 2019 and 2018.
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:
2019
2018
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
$
$
$
48 2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
(Dollars in thousands)
$
$
6,915
9,272
8,068
12,874
1.37%
13,441
$
1.40%
1.06%
16,161
1.13%
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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)
Overnight and
December 31, 2019
Continuous Up to 30 Days 30-90 Days
Greater than 90
Days
Total
Repurchase Agreements
U.S government agencies
6,915
$
$
––
$
––
$
Total
$
6,915
$
––
$
––
$
––
––
$
$
6,915
6,915
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
Securities with an approximate carrying value of $9.4 million and $18.3 million at December 31,
2019 and 2018, respectively, were pledged as collateral for repurchase borrowings.
Note 8: Subordinated Debentures
On May 14, 2019 the Company issued $20,000,000 of junior subordinated debentures in
denominations of not less than $250,000. The debentures bear interest at a fixed rate of 6.0% until
May 2024, which then becomes a floating interest rate equal to the three-month LIBOR (or an
equivalent index) plus 3.625%, resetting quarterly. Interest on the subordinated notes will be
payable semiannually through May 2024 and quarterly thereafter through the maturity date of May
2029. Principal is due upon maturity. The debentures are unsecured and payable to various
investors. For purposes of computing regulatory capital, the debentures are included in Tier 2
Capital. The subordinated notes may not be repaid in whole or in part prior to the fifth anniversary
of the issue date (May 2019). Unamortized debt costs were $580,787 as of December 31, 2019.
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.
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2019 and 2018
Subordinated debentures, net of unamortized debt costs, totaled $23.5 million and $4.1 million at
December 31, 2019 and 2018, respectively
Note 9: Income Taxes
The provision for income taxes includes these components:
Taxes currently payable
Deferred income taxes
Income tax expense
2019
2018
(In thousands)
$
$
557 $
42
599 $
425
375
800
A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax
expense is shown below:
Computed at the statutory rate (21%)
(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
Actual tax expense
2019
2018
(In thousands)
1,556 $
1,067
$
(780)
(112)
(262)
(121)
--- ---
(74) (73)
--- 55
134
9
800
599 $
$
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
Other
Total deferred tax assets
$
2019
2018
(In thousands)
326 $
138
--
494
---
8
13
979
292
282
11
521
54
11
---
1,171
50 2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
2019
2018
Deferred tax liabilities
Depreciation
Deferred loan costs, net
FHLB stock dividends
Unrealized gains on securities available for sale
Prepaid expenses
Intangibles
Employee benefit expense
(266)
(73)
(321)
(208)
(97)
(321)
(1,762) (138)
(48) (163)
(138) (280)
(183)
(107)
Total deferred tax liabilities
(2,715)
(1,390)
Net deferred tax (liability) asset
$
(1,736) $
(219)
Note 10: Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss), included in stockholders’
equity, are as follows:
2019
2018
Net unrealized gain on securities available-for-sale
Net unrealized loss for funded status of defined
$
benefit plan liability
Tax effect
(In thousands)
8,389 $
(1,381)
7,008
1,472
Net-of-tax amount
$
5,536 $
658
(671)
(13)
3
(10)
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.
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2019 and 2018
In July 2013, the Federal Reserve approved final rules, referred to herein as the Basel III Rules,
establishing a new comprehensive capital framework for U.S. banking organizations. The Basel III
Rules generally implement the Basel Committee on Banking Supervision’s December 2010 final
capital framework referred to as “Basel III” for strengthening international capital standards. The
Basel III Rules substantially revise the risk-based capital requirements applicable to bank holding
companies and their depository institution subsidiaries, including the Company and Citizens, as
compared to the current U.S. general risk-based capital rules. The Basel III Rules revise the
definitions and the components of regulatory capital, as well as address other issues affecting the
computation of regulatory capital ratios. The Basel III rules added another capital ratio component
“Tier 1 Common Capital Ratio” which is a measurement of a bank’s core equity capital compared
with its total risk-weighted assets The Basel III Rules also prescribe a new standardized approach
for risk weightings that expand the risk-weighting categories from the current categories to a larger
more risk-sensitive number of categories, depending on the nature of the assets, generally ranging
from 0% for U.S. government and agency securities, to 600% for certain equity exposures, and
resulting in higher risk weights for a variety of asset classes.
The Basel III capital rules became effective for the Company and Unified on January 1, 2015,
subject to phase-in periods for certain components. The net unrealized gain or loss on available-for-
sale securities is not included in computing regulatory capital.
As of December 31, 2019, the Company exceeded its minimum regulatory capital requirements
with a total risk-based capital ratio of 19.0%, common equity tier 1 ratio of 13.1%, Tier 1 risk-
based capital ratio of 14.0% and a Tier 1 leverage ratio of 9.5%.
As of December 31, 2019, 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.
52 2 01 9 | A N N UA L R E P O RT
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Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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
$
83,653
68,953
16.7%
13.8
$
40,027
39,972
8.0%
8.0
$
N/A
49,776
N/A
10.0%
$
57,422
66,722
11.5%
13.4
$
22,515
22,484
4.5%
4.5
$
N/A
32,355
N/A
6.5%
$
61,422
66,722
12.3%
13.4
$
30,020
29,979
6.0%
6.0
$
N/A
39,821
N/A
8.0%
$
61,422
66,722
9.5%
$
10.1
30,020
29,979
4.0%
4.0
$
N/A
33,10
N/A
5.0%
$
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%
As of December 31, 2019
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, 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
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2019 and 2018
Note 12: Related Party Transactions
At December 31, 2019 and 2018, 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.
2019
2018
(In thousands)
Aggregate balance – January 1
New loans
Repayments
$
14,106
4,459
$
12,996
2,386
(1,276)
(797)
Aggregate balance – December 31
$
17,768
$
14,106
Deposits from related parties held by the Bank at December 31, 2018 and 2018, totaled
approximately $2.5 million and $2.3 million, respectively.
Note 13: Benefit Plans
Pension and Other Postretirement Benefit Plans
The Company has a noncontributory defined benefit pension plan covering all employees who
meet the eligibility requirements. The Company’s funding policy is to make the minimum annual
contribution that is required by applicable regulations, plus such amounts as the Company may
determine to be appropriate from time to time. The Company expects to contribute $378,000 to the
plan in 2020.
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,
2019, the present value of these future payments was approximately $429,000.
54 2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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
2019
2018
(In thousands)
(4,157) $
(299)
(218)
(1,276)
362
(4,672)
(302)
(221)
470
568
(5,588)
(4,157)
5,041
967
465
(362)
6,111
5,605
(417)
421
(568)
5,041
Funded status at end of year
$
523 $
884
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
2019
2018
(In thousands)
$
$
2,009
(581)
1,388
(670)
$
1,428
$
718
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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 $56,000. The accumulated benefit obligation for the
defined benefit pension plan was $5.0 million and $3.8 million at December 31, 2019 and 2018,
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,
2019
2018
(In thousands)
$
$
$
5,588
5,032
6,111
$
$
$
4,157
3,840
5,041
December 31,
2019
2018
(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
$
$
390
235
(468)
(89)
145
Net periodic benefit cost
$
213
$
302
221
(445)
(89)
51
40
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
2019
2018
4.39%
3.50%
4.39%
7.50%
3.00%
5.37%
3.00%
5.37%
7.50%
3.00%
56 2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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 2018 to 2019.
The following benefit payments, which reflect expected future service, as appropriate, are expected
to be paid as of December 31, 2019:
2020
2021
2022
2023
2024
2025-2029
Total
Pension
Benefits
(In thousands)
$
516
639
412
329
339
3,055
$
5,290
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 2019 and 2018 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%
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2019 and 2018
At December 31, 2019 and 2018, 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,
2019
2018
70.6%
29.1
0.3
71.8%
27.0
1.2
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, 2019 and 2018, the Plan did not contain Level 2 or
Level 3 investments.
58 2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
The fair values of Company’s pension plan assets at December 31st, by asset category are as
follows:
December 31, 2019
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)
$
186 $
186 $
–– $
3,404
317
3,404
317
419 419
178
178
1,324
283
1,324
283
––
––
––
––
––
Total
$
6,111 $
6,111 $
–– $
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 $
–– $
2,860
260
2,860
260
346 346
149
149
996
367
996
367
––
––
––
––
––
Total
$
5,041 $
5,041 $
–– $
––
––
––
––
––
––
––
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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 2019 and 2018.
ESOP and 401(k) expense for the years ended December 31, 2019 and 2018 was approximately
$272,000 and $280,000, respectively.
Share information for the ESOP is as follows at December 31, 2019 and 2018:
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
2019
2018
$
416,982 $
23,635
407,268
23,635
(52,841)
23,635
(61,192)
47,271
411,411
416,982
Fair value of unearned shares at December 31st
$
338,000 $
539,000
At December 31, 2019, the fair value of the 387,776 allocated shares held by the ESOP was
approximately $5,545,000.
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, 2019 and December 31, 2018.
60 2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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, 2019, 32,500 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, 2019,
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
300,000 $
10.23
32,500 11.35
(95,000) 8.40
---
---
237,500 $
11.15
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Notes to Consolidated Financial Statements
December 31, 2019 and 2018
Total compensation cost recognized in the income statement for share-based payment arrangements
during the years ended December 31, 2019 and 2018 was $293,000 and $287,000, respectively.
The recognized tax benefits related thereto were $62,000 and $55,000, for the years ended
December 31, 2019 and 2018, respectively.
As of December 31, 2019 and 2018, there was $2,114,000 and $1,918,000, 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
7.2 years.
Note 15: Earnings Per Share
Earnings per share (EPS) were computed as follows:
Year Ended December 31, 2019
Weighted-
Average
Shares
Per Share
Amount
Net
Income
(In thousands)
6,810
$
(111)
(145)
6,554
Net income
Less allocated earnings on non-vested
restricted stock
Less allocated dividends on non-
vested restricted stock
Net income allocated to common
stockholders
Basic and diluted earnings per share
5,525,965
$
1.19
Year Ended December 31, 2018
Weighted-
Average
Shares
Per Share
Amount
Net
Income
(In thousands)
4,282
$
(59)
(155)
4,068
Net income
Less allocated earnings on non-vested
restricted stock
Less allocated dividends on non-
vested restricted stock
Net income allocated to common
stockholders
Basic and diluted earnings per share
4,952,471
$
0.82
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UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
Note 16: Disclosures about Fair Value of Financial Instruments and Other
Assets and Liabilities
The Company defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date.
The Company also utilizes a fair value hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. The
standard describes three levels of inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets for identical assets or liabilities
Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the
full term of the assets or liabilities
Level 3 Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities
Following is a description of the valuation methodologies used for assets measured at fair value on
a recurring basis and recognized in the accompanying balance sheets, as well as the general
classification of such assets pursuant to the valuation hierarchy.
Available-for-sale Securities
Where quoted market prices are available in an active market, securities are classified within
Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are
estimated by using quoted prices of securities with similar characteristics or independent asset
pricing services and pricing models, the inputs of which are market-based or independently sourced
market parameters, including, but not limited to, yield curves, interest rates, volatilities,
prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in
Level 2 of the valuation hierarchy.
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Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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, 2019 and 2018:
December 31, 2019
Fair Value Measurements Using
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Unobservable
Inputs
(Level 3)
Fair
Value
(In thousands)
U.S government agencies
$
39,528
$
–– $
39,528
$
––
Subordinated notes
$ 4,500
--- $ 4,532 ---
State and Municipal
Obligations
$ 144,725
--- $ 144,725 ---
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
(In thousands)
U.S government agencies
$
44,750
$
–– $
44,750
$
––
State and Municipal
Obligations
$ 79,241
--- $ 79,241 ---
Following is a description of the valuation methodologies used for instruments measured at fair
value on a non-recurring basis and recognized in the accompanying balance sheets, as well as the
general classification of such instruments pursuant to the valuation hierarchy.
Impaired Loans (Collateral Dependent)
Collateral dependent impaired loans consisted primarily of loans secured by nonresidential real
estate. Management has determined fair value measurements on impaired loans primarily through
evaluations of appraisals performed. Due to the nature of the valuation inputs, impaired loans are
classified within Level 3 of the hierarchy.
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Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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, 2019 and 2018:
December 31, 2019
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
$
$
---
---
–– $
––
–– $
––
---
---
(In thousands)
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Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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
(In thousands)
Collateral dependent impaired
loans
Foreclosed assets held for sale
$
$
314
91
–– $
––
–– $
––
314
91
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
12/31/19
(In thousands)
Valuation
Technique
Unobservable Inputs
Range
Collateral-dependent
impaired loans
$
--- Market comparable
Comparability adjustments
Not available
properties
Foreclosed assets held for
--- Market comparable
Marketability discount
10% – 35%
sale
properties
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
There were no significant changes in the valuation techniques used during 2019.
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Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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, 2019
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
$
14,985 $
439,317
14,985 $
––
–– $
––
––
437,688
4,012
2,696
548,069
6,915
39,800
23,543
213
––
––
––
––
––
––
––
4,012
2,696
548,130
6,915
39,800
22,857
213
––
––
––
––
––
––
––
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Notes to Consolidated Financial Statements
December 31, 2019 and 2018
The classification of the assets and liabilities pursuant to the valuation hierarchy as of December
31, 2018 in the following table have not been audited. The fair value has been derived from the
December 31, 2018 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, 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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Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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
Fair values of loans and leases are estimated on an exit price basis incorporating discounts for
credit, liquidity and marketability factors.
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, 2019 and 2018.
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Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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.
The Company invests in various investment securities. Investment securities are exposed to various
risks such as interest rate, market and credit risks. Due to the level of risk associated with certain
investment securities, it is possible that changes in the values of investment securities may occur
and that such changes could affect the amounts reported in the accompanying statements of
financial position.
Note 18: Commitments and Credit Risk
At December 31, 2019 and 2018, total commercial and commercial real estate loans made up
80.3% and 77.4%, respectively, of the loan portfolio. Installment loans account for 2.2% and
3.4%, respectively, of the loan portfolio. Real estate loans comprise 17.5% and 19.2% of the loan
portfolio as of December 31, 2019 and 2018, respectively, and primarily include first mortgage
loans on residential properties and home equity lines of credit.
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, 2019 and 2018, the Company had outstanding commitments to originate variable
rate loans aggregating approximately $38.7 million and $21.3 million, respectively. The
commitments extended over varying periods of time with the majority being disbursed within a
one-year period.
Mortgage loans in the process of origination represent amounts that the Company plans to fund
within a normal period of 60 to 90 days, some of which are intended for sale to investors in the
secondary market. The Company did not have any mortgage loans in the process of origination
which are intended for sale at December 31, 2019 or 2018.
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UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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 had $46,000 at both December 31, 2018 and 2019 in outstanding standby letters of
credit. At both December 31, 2019 and 2018, 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, 2019, the Company had granted unused lines of credit to borrowers aggregating
approximately $40.5 million and $38.6 million for commercial lines and open-end consumer lines,
respectively. At December 31, 2018, the Company had granted unused lines of credit to borrowers
aggregating approximately $34.1 million and $38.0 million for commercial lines and open-end
consumer lines, respectively.
Note 19: Recent Accounting Pronouncements
On February 25, 2016, the FASB issued ASU 2016-02 “Leases (Topic 842).” ASU 2016-02 is
intended to improve financial reporting about leasing transactions. This ASU affects all companies
and other organization that lease assets such as real estate, airplanes, and manufacturing equipment.
Under the current accounting model, an organization applies a classification test to determine the
accounting for the lease arrangement:
(a)
Some leases are classified as capital where by the lessee would recognize lease assets and
liabilities on the balance sheet.
(b) Other leases are classified as operating leases whereby the lessee would not recognize lease
assets and liabilities on the balance sheet.
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Notes to Consolidated Financial Statements
December 31, 2019 and 2018
Under the new guidance, a lessee will be required to recognize assets and liabilities for all 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. Right of use assets represents the Company’s right to use the underlying assets for their lease
terms and lease liabilities represent the obligation to make lease payments.
The Company adopted ASU 2016-02 January 1, 2019. The right of use asset and lease obligation
recorded as of March 31, 2019 was approximately $126,000 and is reflected in other assets and
interest payable and other liabilities, respectively on the balance sheet. The modified retrospective
method was applied. Due to the immateriality of the impact, certain disclosures under ASU 842
have been omitted.
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.
On October 16, 2019, FASB approved a final ASU delaying the effective date of ASU 2016-13 for
small reporting companies to interim and annual periods beginning after December 15, 2022. 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
72 2 01 9 | A N N UA L R E P O RT
UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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 review segmentation to ensure it is fully compliant with the amendments at adoption date.
Additional work will be needed once additional guidance or clarification in the standard is given
during the delay. For additional information on the allowance for loan losses, see Note 3.
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
Other assets
December 31,
2019
2018
(In thousands)
$
6,846 $
74,890
2,719
1,595
50,813
2,913
Total assets
$
84,455 $
55,321
Liabilities and Stockholders’ Equity
Subordinated debentures
Other liabilities
Stockholders’ equity
$
23,543 $
990
59,922
4,124
555
50,642
Total liabilities and stockholders’ equity
$
84,455 $
55,321
UNITEDBANCORP INC.
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Notes to Consolidated Financial Statements
December 31, 2019 and 2018
Condensed Statements of Income and Comprehensive Income
Years Ended December 31,
2019
2018
(In thousands)
Operating Income
Dividends from subsidiary
Interest and dividend income from securities and federal funds
$
Total operating income
7,625 $
1
7,626
5,501
---
5,501
Merger related expenses
General, Administrative and Other Expenses
--- 1,306
2,220
3,456
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
4,170
710
4,880
1,930
1,975
750
2,725
1,557
$
$
6,810 $
4,282
12,356
$
4,692
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UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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
Equity infusion into the Bank
Cash paid for acquisition of Powhatan Point Community
Bancshares, Inc.
Net cash used in investing activities
Financing Activities
Proceeds from issuance of subordinated debentures, net of
origination fees
Repurchase of Common Stock
Dividends paid to stockholders
Net cash provided by (used in) financing activities
Net Change in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Years Ended December 31,
2019
2018
(In thousands)
$
6,810
$
4,282
(1,930)
565
29
5,474
(16,000)
---
(16,000)
(1,557)
567
282
3,574
---
(1,529)
(1,529)
19,419
---
---
(3,221)
(416)
(3,226)
15,777
5,251
1,595
(3,221)
(1,176)
2,771
Cash and Cash Equivalents at End of Year
$
6,846
$
1,595
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Notes to Consolidated Financial Statements
December 31, 2019 and 2018
Note 21: Quarterly Financial Data (Unaudited)
The following tables summarize the Company’s quarterly results of operations for the years ended
December 31, 2019 and 2018.
2019:
March 31,
June 30, September 30, December 31,
(In thousands, except per share data)
Three Months Ended
Total interest income
Total interest expense
$
6,315 $
1,207
6,648 $
1,469
6,921 $
1,727
Net interest income
5,108
5,179
Provision for loan losses
Other income
General, administrative and other
expense
Income before income taxes
Federal income taxes
90
945
4,162
1,801
187
120
947
4,172
1,834
188
5,194
120
1,003
4,162
1,916
135
7,150
1,721
5,429
578
993
3,986
1,858
89
Net income
Earnings per share
Basic
Diluted
$
$
$
1,614 $
1,646 $
1,781 $
1,769
0.28 $
0.29 $
0.31 $
0.28 $
0.29 $
0.31 $
0.31
0.31
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UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
2018:
March 31,
June 30, September 30, December 31,
(In thousands, except per share data)
Three Months Ended
Total interest income
Total interest expense
Net interest income
$
4,625 $
523
4,102
5,107 $
707
4,400
5,523 $
893
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 $
0.23 $
0.23 $
0.25 $
0.25 $
6,065
1,055
5,010
96
995
5,235
674
83
591
0.11
0.11
Note 22: Core Deposits and Other Intangible Assets
The following table shows the changes in the carrying amount of goodwill for the years ended
December 31, 2019 and 2018 (in thousands):
Balance beginning of year
Additions from acquisition
Balance, end of year
2019
$ 682
---
$ 682
2018
$ ---
682
$ 682
Intangible assets in the consolidated balance sheets at December 31, 2019 and 2018 were as
follows (in thousands):
Core deposit intangibles
2019
2018
Gross
Intangible
Assets
$ 1,041
Accumulated
Amortization
181
Net Intangible
Assets
860
Gross
Intangible
Assets
1,041
Accumulated
Amortization
31
Net Intangible
Assets
1,010
The estimated aggregate future amortization expense for each of the next five years for intangible
assets remaining as of December 31, 2019 is as follows (in thousands):
2020
2021
2022
2023
2024
$ 181
181
181
181
136
UNITEDBANCORP INC.
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77
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
Note 23: 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 Point, 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.
(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
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
3,019
2,403
1,357
6,779
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
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UNITEDBANCORP INC.
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
Of the total purchase price of $6.2 million, $1.0 million 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.
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
Provision for Loan Losses
Net Interest Income after
Dec 31, 2018
$ 19,409
Dec 31, 2017
$ 16,977
302
110
Provision for Loan Losses
19,107
16,817
Non-interest Income
Non-interest Expense
3,736
16,017
3,547
14,500
Income before Income Taxes
Income Tax Expense
Net Income
Net Income Available to
Common Shareholders
Basic and Diluted Earnings Per
Share
6,826
563
6,263
5,914
2,088
3,825
$ 6,049
$ 3,710
$ 1.22
$ 0.79
UNITEDBANCORP INC.
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79
Notes to Consolidated Financial Statements
December 31, 2019 and 2018
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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