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Section 1: 10-K (FORM 10-K)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-K

 

xANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2019

 

OR

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from       N/A      to      N/A     

 

Commission File Number 0-16540

 

  UNITED BANCORP, INC.  
  (Exact name of registrant as specified in its Charter.)  

 

Ohio   34-1405357
(State or other jurisdiction of incorporation or organization)   (IRS) Employer Identification No.)

 

201 South Fourth Street, Martins Ferry, Ohio   43935
(Address of principal executive offices)   (ZIP Code)

 

Registrant’s telephone number, including area code: (740) 633-0445

 

Securities registered pursuant to Section 12(b) of the Act:

         
Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, Par Value $1.00   UBCP   NASDQ Capital Market

 

Securities registered pursuant to Section 12(g) of the Act:      None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x.

 

Indicated by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No x.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x. No ¨.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer  ¨ Accelerated filer                     ¨
   
Non-accelerated filer     x Smaller reporting company  x

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

 

As of June 30, 2019 the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $55,046,501 based on the closing sale price as reported on the National Association of Securities Dealers Automated Quotation System.

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Registrant had 5,916,951 common shares outstanding as of March 6, 2020.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the proxy statement for the Annual Shareholders meeting to be held April 22, 2020 are incorporated by reference into Part III.

 

Portions of the Annual Report to Shareholders for the year ended December 31, 2019 are incorporated by reference into Parts I and II.

 

 

 

 

 

 

PART I

 

Item 1Business

 

Business

 

United Bancorp, Inc. (Company) is a bank holding company headquartered in Martins Ferry, Ohio. The Company is an Ohio corporation which filed its initial articles of incorporation on July 8, 1983. At December 31, 2019 the Company has one wholly-owned subsidiary bank, Unified Bank, Martins Ferry, Ohio (Unified, or the Bank).

 

Unified serves customers in northeastern, eastern, southeastern and south central Ohio and is engaged in the business of commercial and retail banking in Belmont, Harrison, Jefferson, Tuscarawas, Carroll, Athens, Hocking, and Fairfield counties and the surrounding localities. The Bank provides a broad range of banking and financial services, which includes accepting demand, savings and time deposits and granting commercial, real estate and consumer loans. Unified conducts its business through its main office and stand alone operations center in Martins Ferry, Ohio and eighteen branches located in the counties mentioned above. Unified operates a Loan Production Office in Wheeling, West Virginia. Unified also offers full brokerage service through LPL Financial® member NASD/SIPC.

 

Unified has no single customer or related group of customers whose banking activities, whether through deposits or lending, would have a material impact on the continued earnings capabilities if those activities were removed.

 

Competition

 

The markets in which Unified operates continue to be highly competitive. Unified competes for loans and deposits with other retail commercial banks, savings and loan associations, finance companies, credit unions and other types of financial institutions within the Mid-Ohio valley geographic area along the eastern border of Ohio including Belmont, Harrison and Jefferson counties and extending into the northern panhandle of West Virginia and the Tuscarawas and Carroll County geographic areas of northeastern Ohio. Unified also encounters similar competition for loans and deposits throughout the Athens, and Fairfield County geographic areas of central and southeastern Ohio.

 

In its primary market, including the Ohio counties of Belmont, Harrison, Jefferson, Athens and Fairfiled, Unified ranks sixth in total deposit market share out of thirty-one non-credit union insured depository institutions operationg in the market. The Bank’s market share, as reported by the FDIC, was 7.44% as of June 30, 2019. The Huntington National Bank, JPMorgan Chase Bank, NA and PNC Bank, NA are the top three in the Bank’s primary market, with each institution having in excess of 10% of the deposit market share. No other institution in the market had a deposit market share in excess of 10% as of June 30, 2019.

 

Supervision and Regulation

 

General

 

The Company is a corporation organized under the laws of the State of Ohio. The business in which the Company and its subsidiary are engaged is subject to extensive supervision, regulation and examination by various bank regulatory authorities. The supervision, regulation and examination to which the Company and its subsidiary are subject are intended primarily for the protection of depositors and the deposit insurance funds that insure the deposits of banks, rather than for the protection of shareholders.

 

Several of the more significant regulatory provisions applicable to banks and bank holding companies to which the Company and Unified are subject are discussed below. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory provisions. Any change in applicable law or regulation may have a material effect on the business and prospects of the Company and Unified.

 

 

 

 

Regulatory Agencies

 

The Company is a registered bank holding company and is subject to inspection, examination and supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) pursuant to the Bank Holding Company Act of 1956, as amended.

 

Unified is an Ohio chartered commercial bank. It is subject to regulation and examination by both the Ohio Division of Financial Institutions (the “ODFI”) and the Federal Deposit Insurance Corporation (the “FDIC”).

 

Regulatory Reform

 

Overview. Congress, the U.S. Department of the Treasury (“Treasury”), and the federal banking regulators, including the FDIC, have taken broad action since early September 2008 to address volatility in the U.S. banking system and financial markets. Beginning in late 2008, the U.S. and global financial markets experienced deterioration of the worldwide credit markets, which created significant challenges for financial institutions both in the United States and around the world. These actions included the adoption by Congress of both the Emergency Economic Stabilization Act of 2008 (“EESA”), and the American Recovery and Reinvestment Act of 2009 (“ARRA”). The most recent significant piece of legislation adopted in response to this crisis was the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), which was signed into law on July 21, 2010, and which is discussed more thoroughly below.

 

Dodd-Frank Wall Street Reform and Consumer Protection Act. The Dodd-Frank Act created many new restrictions and an expanded framework of regulatory oversight for financial institutions, including insured depository institutions. Currently, federal regulators are still in the process of drafting the implementing regulations for many portions of the Dodd-Frank Act. Federal regulators continue to implement many provisions of the Dodd-Frank Act. The Dodd-Frank Act created an independent regulatory body, the Bureau of Consumer Financial Protection (“Bureau”), with authority and responsibility to set rules and regulations for most consumer protection laws applicable to all banks - both large and small. Oversight of Federal consumer financial protection functions have been transferred to the Bureau. The Bureau has responsibility for mortgage reform and enforcement, as well as broad new powers over consumer financial activities which could impact what consumer financial services would be available and how they are provided. The following consumer protection laws are the designated laws that fall under the Bureau’s rulemaking authority: the Alternative Mortgage Transactions Parity Act of 1928, the Consumer Leasing Act of 1976, the Electronic Fund Transfer Act, the Equal Credit Opportunity Act, the Fair Credit Billing Act, the Fair Credit Reporting Act subject to certain exclusions, the Fair Debt Collection Practices Act, the Home Owners Protection Act, certain privacy provisions of the Gramm-Leach-Bliley Act, the Home Mortgage Disclosure Act (HMDA), the Home Ownership and Equity Protection Act of 1994, the Real Estate Settlement Procedures Act (RESPA), the S.A.F.E. Mortgage Licensing Act of 2008 (SAFE Act), and the Truth in Lending Act. Review and revision of current financial regulations in conjunction with added new financial service regulations will heighten the regulatory compliance burden and increase litigation risk for the banking industry.

 

Many aspects of the Dodd-Frank Act are still subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the Company, its subsidiaries, their respective customers or the financial services industry more generally. The Company is closely monitoring all relevant sections of the Dodd-Frank Act to ensure continued compliance with these regulatory requirements.

 

The Holding Company Regulation

 

As a holding company incorporated and doing business within the State of Ohio, the Company is subject to regulation and supervision under the Bank Holding Act of 1956, as amended (the "Act"). The Company is required to file with the Federal Reserve on quarterly basis information pursuant to the Act. The Federal Reserve may conduct examinations or inspections of the Company and Unified.

 

The Company is required to obtain prior approval from the Federal Reserve for the acquisition of more than five percent of the voting shares or substantially all of the assets of any bank or bank holding company. In addition, the Company is generally prohibited by the Act from acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company which is not a bank or bank holding company and from engaging directly or indirectly in activities other than those of banking, managing or controlling banks or furnishing services to its subsidiaries. The Company may, however, subject to certain prior approval requirements of the Federal Reserve, engage in, or acquire shares of companies engaged in activities which are deemed by the Federal Reserve by order or by regulation to be financial in nature or closely related to banking.

 

 

 

 

On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLB Act") was enacted into law. The GLB Act made sweeping changes with respect to the permissible financial services which various types of financial institutions may now provide. The Glass-Steagall Act, which had generally prevented banks from affiliation with securities and insurance firms, was repealed. Pursuant to the GLB Act, bank holding companies may elect to become a "financial holding company," provided that all of the depository institution subsidiaries of the bank holding company are “well capitalized” and “well managed” under applicable regulatory standards.

 

Under the GLB Act, a bank holding company that has elected to become a financial holding company may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature. Activities that are "financial in nature" include securities underwriting, dealing and market-making, sponsoring mutual funds and investment companies, insurance underwriting and agency, merchant banking, and activities that the Federal Reserve has determined to be closely related to banking. No Federal Reserve approval is required for a financial holding company to acquire a company, other than a bank holding company, bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve. As with bank holding companies, prior Federal Reserve approval is required before a financial holding company may acquire the beneficial ownership or control of more than five percent of the voting shares, or substantially all of the assets, of a bank holding company, bank or savings association. If any subsidiary bank of a financial holding company ceases to be "well capitalized" or "well managed" under applicable regulatory standards, the Federal Reserve may, among other actions, order the Company to divest the subsidiary bank. Alternatively, the company may elect to conform its activities to those permissible for a bank holding company that is not also a financial holding company. If any subsidiary bank of a financial holding company receives a rating under the Community Reinvestment Act of 1977 of less than satisfactory, the company will be prohibited from engaging in new activities or acquiring companies other than bank holding companies, banks or savings associations. The Company is not a financial holding company and has no current intention of making such an election.

 

Dividends and Capital Reductions. The Board of Governors of the Federal Reserve has issued Supervisory Guidance and Regulations on the Payment of Dividends, Stock Redemptions, and Stock Repurchases by Bank Holding Companies (the “Policy Statement”). In the Policy Statement, the Federal Reserve stated that it is important for a banking organization’s board of directors to ensure that the dividend level is prudent relative to the organization’s financial position and is not based on overly optimistic earnings scenarios. As a general matter, the Policy Statement provides that the board of directors of a bank holding company should inform the Federal Reserve and should eliminate, defer, or significantly reduce its dividends if:

 

(1) net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends;

(2) the prospective rate of earnings retention is not consistent with the company’s capital needs and overall current and prospective financial condition; or

(3) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

 

Failure to do so could result in a supervisory finding that the organization is operating in an unsafe and unsound manner. Moreover, the Policy Statement requires a bank holding company to inform the Federal Reserve reasonably in advance of declaring or paying a dividend that exceeds earnings for the period (e.g., quarter) for which the dividend is being paid or that could result in a material adverse change to the organization’s capital structure. Declaring or paying a dividend in either circumstance could raise supervisory concerns. As described above, Unifed exceeded its minimum capital requirements under applicable guidelines as of December 31, 2018.

 

 

 

 

Control Acquisitions. The Federal Change in Bank Control Act prohibits a person or group of persons from acquiring "control" of the Company unless the Federal Reserve has been notified and has not objected to the transaction. The acquisition of 10% or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as the Company, is rebuttably presumed to constitute the acquisition of control of the bank holding company. In addition, a company is required to obtain the approval of the Federal Reserve under the Federal Bank Holding Company Act before acquiring 25% (5% in the case of an acquirer that is a bank holding company) or more of any class of outstanding voting stock of a bank holding company, or otherwise obtaining control or a "controlling influence" over that bank holding company.

 

Liability for Banking Subsidiaries. Under the current Federal Reserve policy, the Company is expected to act as a source of financial and managerial strength to its subsidiary bank and to maintain resources adequate to support the Bank. This support may be required at times when the Company may not have the resources to provide it. In the event of the Company's bankruptcy, any commitment to a U.S. federal bank regulatory agency to maintain the capital of the Bank would be assumed by the bankruptcy trustee and entitled to priority of payment.

 

 

 

 


                Regulation of the Bank

 

General. Unified is an Ohio-chartered bank that is not a member of the Federal Reserve System. Unified is therefore regulated by the ODFI as well as the FDIC. The regulatory agencies have the authority to regularly examine Unified, which is subject to all applicable rules and regulations promulgated by its supervisory agencies. In addition, the deposits of Unified are insured by the FDIC to the fullest extent permitted by law.

 

Deposit Insurance. As an FDIC-insured institution, Unified is required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums based upon their respective levels of capital and results of supervisory evaluations. Institutions classified as well-capitalized (as defined by the FDIC) and considered healthy pay the lowest premium while institutions that are less than adequately capitalized (as defined by the FDIC) and considered of substantial supervisory concern pay the highest premium. Risk classification of all insured institutions is made by the FDIC for each semi-annual assessment period.

 

The FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines, after a hearing, that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, order, or any condition imposed in writing by, or written agreement with, the FDIC. The FDIC may also suspend deposit insurance temporarily during the hearing process for a permanent termination of insurance if the institution has no tangible capital. Management of the Company is not aware of any activity or condition that could result in termination of the deposit insurance of Unified.

 

The Dodd-Frank Act revised the statutory authorities governing the FDIC’s management of the DIF. Key requirements from the Dodd-Frank Act resulted in the FDIC’s adoption of new rules in February 2011 regarding Assessments, Dividends, Assessment Base, and Large Bank Pricing. The new rules implemented the following changes: (1) redefined the definition of an institution’s deposit insurance assessment base from one based on domestic deposits to one based on assets now defined as “average consolidated total assets minus average tangible equity”; (2) changed the assessment rate adjustments to better account for risk based on an institution’s funding sources; (3) revised the deposit insurance assessment rate schedule in light of the new assessment base and assessment rate adjustments; (4) implemented Dodd-Frank Act dividend provisions; (5) revised the large insured depository institution assessment system to better differentiate for risk and to take into account losses the FDIC may incur from large institution failures; and (6) provided technical and other changes to the FDIC’s assessment rules. Though deposit insurance assessments maintain a risk-based approach, the FDIC imposed a more extensive risk-based assessment system on large insured depository institutions with at least $10 billion in total assets since they are more complex in nature and could pose greater risk.

Regulatory Capital Requirements Unified is required to maintain minimum levels of capital in accordance with FDIC capital adequacy guidelines. If capital falls below minimum guideline levels, a bank, among other things, may be denied approval to acquire or establish additional branches or organize or acquire other non-bank businesses. The required capital levels and the Bank’s's capital position at December 31, 2018 and 2017 are summarized in the table included in Note 11 to the consolidated financial statements.

 

Beginning in 2015, bank holding companies and banks were required to measure capital adequacy using Basel III accounting. Basel III is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector. Implementation of the rules will be overseen by the Federal Reserve, the FDIC and the OCC. Reporting under the new rules began with the March 2015 quarterly regulatory filings.

 

FDICIA

 

The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), and the regulations promulgated under FDICIA, among other things, established five capital categories for insured depository institutions-well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized-and requires U.S. federal bank regulatory agencies to implement systems for "prompt corrective action" for insured depository institutions that do not meet minimum capital requirements based on these categories. Unless a bank is well capitalized, it is subject to restrictions on its ability to offer brokered deposits and on certain other aspects of its operations. An undercapitalized bank must develop a capital restoration plan and its parent bank holding company must guarantee the bank's compliance with the plan up to the lesser of 5% of the bank’s assets at the time it became undercapitalized and the amount needed to comply with the plan. As of December 31, 2018 the Bank was well capitalized pursuant to these prompt corrective action guidelines.

 

 

 

 

Dividends. Ohio law prohibits Unified, without the prior approval of the ODFI, from paying dividends in an amount greater than the lesser of its undivided profits or the total of its net income for that year, combined with its retained net income from the preceding two years. The payment of dividends by any financial institution or its holding company is also affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations.

 

Safety and Soundness Standards. The Federal banking agencies have adopted guidelines that establish operational and managerial standards to promote the safety and soundness of federally insured depository institutions. The guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings.

 

In general, the safety and soundness guidelines prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals. If an institution fails to comply with any of the standards set forth in the guidelines, the institution’s primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. If an institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency. Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the institution’s rate of growth, require the institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances. Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal banking regulators, including cease and desist orders and civil money penalty assessments. 

 

Branching Authority. Ohio chartered banks have the authority under Ohio law to establish branches anywhere in the State of Ohio, subject to receipt of all required regulatory approvals. Additionally, in May 1997 Ohio adopted legislation “opting in” to the provisions of Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Act”) which allows banks to establish interstate branch networks through acquisitions of other banks, subject to certain conditions, including certain limitations on the aggregate amount of deposits that may be held by the surviving bank and all of its insured depository institution affiliates. Effective with the enactment of The Dodd-Frank Act, the FDI Act and the National Bank Act have been amended to remove the expressly required “opt-in” concept applicable to de novo interstate branching and now permits national and insured state banks to engage in de novo in interstate branching if, under the laws of the state where the new branch is to be established, a state bank chartered in that state would be permitted to establish a branch.

 

Affiliate Transactions. Various governmental requirements, including Sections 23A and 23B of the Federal Reserve Act, limit borrowings by holding companies and non-bank subsidiaries from affiliated insured depository institutions, and also limit various other transactions between holding companies and their non-bank subsidiaries, on the one hand, and their affiliated insured depository institutions on the other. Section 23A of the Federal Reserve Act also generally requires that an insured depository institution's loan to its non-bank affiliates be secured, and Section 23B of the Federal Reserve Act generally requires that an insured depository institution's transactions with its non-bank affiliates be on arms-length terms.

 

Depositor Preference. The Federal Deposit Insurance Act provides that, in the event of the “liquidation or other resolution” of an insured depository institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution. If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non deposit creditors and shareholders of the institution.

 

Privacy Provisions of Gramm-Leach-Bliley Act. Under GLB, federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to non-affiliated third parties. The privacy provisions of GLB affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.

 

 

 

 

Anti-Money Laundering Provisions of the USA Patriot Act of 2001. On October 26, 2001, the USA Patriot Act of 2001 (the “Patriot Act”) was signed into law. The Patriot Act is intended to strengthen U.S. law enforcement’s and the intelligence community’s ability to work cohesively to combat terrorism on a variety of fronts. The potential impact of the Patriot Act on financial institutions of all kinds is significant and wide-ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and requires various regulations, including: (a) due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons; (b) standards for verifying customer identification at account opening; and (c) rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering.

 

Fiscal and Monetary Policies. Unified’s business and earnings are affected significantly by the fiscal and monetary policies of the federal government and its agencies. Unified is particularly affected by the policies of the Federal Reserve, which regulates the supply of money and credit in the United States. Among the instruments of monetary policy available to the Federal Reserve are (a) conducting open market operations in United States government securities, (b) changing the discount rates of borrowings of depository institutions, (c) imposing or changing reserve requirements against depository institutions’ deposits, and (d) imposing or changing reserve requirements against certain borrowing by banks and their affiliates. These methods are used in varying degrees and combinations to affect directly the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. For that reason alone, the policies of the Federal Reserve have a material effect on the earnings of Unified.

 

Additional and Pending Regulation. Unified is also subject to federal regulation as to such matters as the maintenance of required reserves against deposits, limitations in connection with affiliate transactions, limitations as to the nature and amount of its loans and investments, regulatory approval of any merger or consolidation, issuance or retirement by Unified of its own securities and other aspects of banking operations. In addition, the activities and operations of Unified are subject to a number of additional detailed, complex and sometimes overlapping laws and regulations. These include state usury and consumer credit laws, state laws relating to fiduciaries, the Federal Truth-in-Lending Act and Regulation Z, the Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting Act, the Truth in Savings Act, the Community Reinvestment Act, anti-redlining legislation and antitrust laws.

 

Congress regularly considers legislation that may have an impact upon the operation of the Company and Unified. At this time, the Company is unable to predict whether any proposed legislation will be enacted and, therefore, is unable to predict the impact such legislation may have on the operations of the Company.

 

Employees

 

The Company itself, as a holding company, has no compensated employees. Unified has 112 full time employees, with 22 of these serving in a management capacity, and 20 part time employees.

 

Executive Officers

  Name   Age     Positions and Offices
Held for Past Five Years
  Officer Since  
                 
Scott A. Everson   52     President and Chief Executive Officer, United Bancorp, Inc.
 
Chairman, President and Chief Executive Officer, Unified Bank
  1999  
                 
Matthew F. Branstetter   52     Senior Vice President Chief Operating Officer United Bancorp, Inc.
 
Principal Position Chief Operating and Lending Officer Unified Bank
  2009  
                 
Randall M. Greenwood   56     Senior Vice President and Chief Financial Officer United Bancorp, Inc.
 
Chief Financial Officer, Unified Bank
  1997  

 

 

 

 

Industry Segments

 

United Bancorp and its subsidiary are engaged in one line of business, banking. Item 8 of this 10-K provides financial information for United Bancorp’s business.

 

Statistical Disclosures by Bank Holding Companies

 

I       Distribution of Assets, Liabilities and Stockholders’ Equity; Interest Rates and Interest Differential

 

Refer to Management’s Discussion and Analysis “Average Balances, Net Interest Income and Yields Earned and Rates Paid” and “Rate/Volume Analysis on pages 19 and 20 of our 2019 Annual Report filed herewith as Exhibit 13, which is incorporated by reference.

 

 

 

  

Average Balances, Net Interest Income and Yields Earned and Rates Paid

 

The following table provides average balance sheet information and reflects the taxable equivalent average yield on interest-earning assets and the average cost of interest-bearing liabilities for the years ended December 31, 2018 and 2017. The yields and costs are calculated by dividing income or expense by the average balance of interest-earning assets or interest-bearing liabilities.

 

The average balance of available-for-sale securities is computed using the carrying value of securities while the yield for available for sale securities has been computed using the average amortized cost. Average balances are derived from average month-end balances, which include nonaccruing loans in the loan portfolio, net of the allowance for loan losses. Interest income has been adjusted to tax-equivalent basis.

 

   2018   2017 
(Dollars In thousands)      Interest           Interest     
   Average   Income/   Yield/   Average   Income/   Yield/ 
   Balance   Expense   Rate   Balance   Expense   Rate 
Assets                        
Interest-earning assets                              
Loans  $382,164    18,885    4.94%  $356,224    16,827    4.72%
Taxable securities - AFS   45,250    765    1.69    39,586    481    1.22 
Tax-exempt securities - AFS   35,424    1,493    4.21    178    11    6.18 
Federal funds sold   12,958    197    1.59    13,109    151    1.15 
FHLB stock and other   4,179    249    5.91    4,165    209    5.02 
Total interest-earning assets   479,975    21,589    4.50    413,262    17,679    4.28 
                               
Noninterest-earning assets                              
Cash and due from banks   2,000              6,880           
Premises and equipment (net)   11,838              11,849           
Other nonearning assets   20,274              18,688           
Less: allowance for loan losses   (2,085)             (2,282)          
Total noninterest-earning assets   32,027              35,135           
Total assets   512,002              448,397           
                               
Liabilities & stockholders’ equity                              
Interest-bearing liabilities                              
Demand deposits  $183,754    1,433    0.78%  $154,661    495    0.32%
Savings deposits   88,900    54    0.06    81,874    38    0.05 
Time deposits   77,558    1,104    1.42    62,744    686    1.09 
FHLB advances   14,393    299    2.08    9,911    364    3.67 
Federal funds purchased   162    9    5.56    4,296    37    0.86 
Trust preferred debentures   4,124    143    3.47    4,124    104    2.52 
Repurchase agreements   12,874    136    1.06    13,578    40    0.29 
Total interest-bearing liabilities   381,756    3,178    0.83    331,218    1,764    0.53 
                               
Noninterest-bearing liabilities                              
Demand deposits   80,243              70,272           
Other liabilities   3,102              2,446           
Total noninterest-bearing liabilities   83,345              72,718           
Total liabilities   -                          
Total stockholders’ equity   46,904              44,461           
Total liabilities & stockholders’ equity  $512,002             $448,397           
Net interest income       $18,411             $15,915      
Net interest spread             3.67%             3.75%
                               
Net yield on interest-earning assets             3.84%             3.85%

 

•   For purposes of this schedule, nonaccrual loans are included in loans.

•   Fees collected on loans are included in interest on loans.

 

 

 

 

Rate/Volume Analysis

 

The table below describes the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected interest income and expense during 2018. For purposes of this table, changes in interest due to volume and rate were determined using the following methods:

 

•     Volume variance results when the change in volume is multiplied by the previous year’s rate.

 

•     Rate variance results when the change in rate is multiplied by the previous year’s volume.

 

•     Rate/volume variance results when the change in volume is multiplied by the change in rate.

 

NOTE: The rate/volume variance was allocated to volume variance and rate variance in proportion to the relationship of the absolute dollar amount of the change in each. Non accrual loans are ignored for purposes of the calculations due to the nominal amount of the loans.

 

   2018 Compared to 2017
Increase/(Decrease)
 
(In thousands)      Change   Change 
   Total   Due To   Due To 
  Change   Volume   Rate 
Interest and dividend income               
Loans  $2,058    1,260    798 
Taxable securities available for sale   285    76    209 
Tax-exempt securities available for sale   1,482    1,487    (5)
Federal funds sold   46    (9)   55 
FHLB stock and other   38    1    37 
Total interest and dividend income   3,909    2,875    1,094 
                
Interest expense               
Demand deposits   939    94    840 
Savings deposits   16    3    13 
Time deposits   418    215    203 
FHLB advances   (355)   (479)   124 
Federal funds purchased   262    164    98 
Trust Preferred debentures   39        39 
Repurchase agreements   96    (2)   98 
Total interest expense   1,415    (5)   1,420 
                
Net interest income  $2,494    2,820    (326)

  

 

 

 

IIInvestment Portfolio

 

AThe following table sets forth the carrying amount of securities at December 31, 2019, 2018 and 2017.

 

       December 31,     
   2019   2018   2017 
   (In thousands) 
Available for sale (at fair value)               
U. S. government agencies  $39,528   $44,750   $44,959 
State and municipal obligations   144,725    79,241     
Subordinated notes   4,532         
                
Total securities available for sale  $188,785   $123,991   $44,959 

 

BContractual maturities of securities at year-end 2019 were as follows:

 

   Amortized
Cost
   Estimated
Fair Value
   Average Tax
Equivalent Yield
 
    (dollars in
thousands)
 
Available for Sale               
                
US government agencies               
Under 1 Year   6,000    5,995    1.99%
1 – 5 Years   34,000    33,533    2.40%
5-10 Years            
Over 10 Years            
                
State and municipal obligations               
Under 1 Year            
1 – 5 Years            
5-10 Years            
Over 10 Years   135,897    144,725    4.03%
                
Subordinated Debt               
Under 1 Year            
1 – 5 Years   4,500    4,532    4.78%
5-10 Years            
Over 10 Years            
                
Total securities available for sale  $180,397   $188,785    3.67%

 

CExcluding holdings of U.S. Government agency obligations, there were no investments in securities of any one issuer exceeding 10% of the Company’s consolidated shareholders’ equity at December 31, 2019.

  

 

 

 

IIILoan Portfolio

 

ATypes of Loans

 

The amounts of gross loans outstanding at December 31, 2019, 2018, 2017, 2016, and 2015 are shown in the following table according to types of loans:

 

   December 31, 
   2019   2018   2017   2016   2015 
   (In thousands) 
Commercial loans  $99,995   $93,690   $81,327   $74,514   $67,247 
Commercial real estate loans   254,651    223,462    198,936    191,686    163,459 
Residential real estate loans   77,205    78,767    75,853    76,154    81,498 
Installment loans   9,697    13,765    12,473    14,367    17,459 
                          
Total loans  $441,548   $409,684   $368,589   $356,721   $329,663 

 

Construction loans were not significant at any date indicated above.

 

BMaturities and Sensitivities of Loans to Changes in Interest Rates

 

The following is a schedule of commercial and commercial real estate loans at December 31, 2019 maturing within the various time frames indicated:

 

   One Year or
Less
   One Through
Five Years
   After
Five Years
   Total 
   (In thousands) 
Commercial loans  $7,291   $55,158   $37,546   $99,995 
Commercial real estate loans   8,875    22,141    223,635    254,651 
                     
Total  $16,166   $77,299   $261,181   $354,646 

 

The following is a schedule of fixed-rate and variable-rate commercial and commercial real estate loans at December 31, 2019 due to mature after one year:

 

   Fixed Rate   Variable Rate   Total > One
Year
 
   (In thousands) 
Commercial loans  $51,337   $41,367   $92,704 
Commercial real estate loans   17,853    227,923    245,776 
                
Total  $69,190   $269,290   $338,480 

 

Variable rate loans are those loans with floating or adjustable interest rates.

 

 

 

CRisk Elements

 

1.     Nonaccrual, Past Due, Restructured and Impaired Loans

 

The following schedule summarizes nonaccrual loans, accruing loans which are contractually 90 days or more past due, impaired loans and newly classified troubled debt restructurings at December 31, 2019, 2018, 2017, 2016 and 2015:

 

   December 31, 
   2019   2018   2017   2016   2015 
   (In thousands) 
Nonaccrual basis  $1,452   $1,245   $1,395   $1,361   $1,044 
Accruing loans 90 days or greater past due   226    155        236    132 
Total impaired loans   1,036    960    1,008    4,652    1,410 
Impaired loan with related allowance for unconfirmed losses       400    410    693    822 
Impaired loan without related allowance for unconfirmed losses   1,036    560    598    3,959    588 
Troubled debt restructings   83        228    133    102 

 

The additional amount of interest income that would have been recorded on nonaccrual loans, had they been current, totaled approximately $68,000 for the year ended December 31, 2018. Interest income that was recorded for the year on nonaccrual loans, totaled $59,000 for the year ended December 31, 2018.

 

The Company’s policy is to generally not allow loans greater than 90 days past due to accrue interest unless the loan is both well secured and in the process of collection. Interest income is not reported when full loan repayment is doubtful, typically when the loan is impaired. Payments received on such loans are reported as principal reductions.

 

2.     Potential Problem Loans

 

The Company had no potential problem loans as of December 31, 2019 which have not been disclosed in Table C 1., but where known information about possible credit problems of borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in disclosure of such loans into one of the problem loan categories.

 

IVSummary of Loan Loss Experience

 

The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required based on past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. The Company accounts for impaired loans in accordance with ASC 310-10-35-16, “Accounting by Creditors for Impairment of a Loan.” ASC 310-10-35-16 requires that impaired loans be measured based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or, as an alternative, at the loan’s observable market price or fair value of the collateral. A loan is defined under ASC 310-10-35-16 as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. In applying the provisions of ASC 310-10-35-16, the Company considers its investment in one-to-four family residential loans and consumer installment loans to be homogenous and therefore excluded from separate identification for evaluation of impairment. With respect to the Company’s investment in nonresidential and multi-family residential real estate loans, and its evaluation of impairment thereof, such loans are generally collateral dependent and, as a result, are carried as a practical expedient at the fair value of the collateral.

 

 

 

Collateral dependent loans which are more than ninety days delinquent are considered to constitute more than a minimum delay in repayment and are evaluated for impairment under ASC 310-10-35-16 at that time.

 

For additional explanation of factors which influence management’s judgment in determining amounts charged to expense, refer to pages 13-15 of the “Management’s Discussion and Analysis” and Notes to Consolidated Financial Statements set forth in our 2018 Annual Report, which is incorporated herein by reference.

 

AAnalysis of the Allowance for Loan Losses

 

The following schedule presents an analysis of the allowance for loan losses, average loan data and related ratios for the years ended December 31, 2019, 2018, 2017, 2016 and 2015:

 

   2019   2018   2017   2016   2015 
   (In thousands) 
Loans                    
Gross loans outstanding  $441,548   $409,684   $368,589   $356,721   $329,663 
Average loans outstanding  $420,487   $382,164   $356,224   $343,243   $318,337 
                          
Allowance for Loan Losses                         
Balance at beginning of year  $2,043   $2,122   $2,341   $2,437   $2,400 
Loan charge-offs:                         
Commercial   18        49    2    117 
Commercial real estate   431        81    108    152 
Residential real estate   141    208    78    143    42 
Installment   180    241    230    417    400 
Total loan charge-offs   770    449    438    670    711 
                          
Loan recoveries                         
Commercial   1    3    52    78    27 
Commercial real estate       2    2    102    15 
Residential real estate   14    4    20    22    42 
Installment   35    64    45    71    111 
Total loan recoveries   50    73    119    273    195 
                          
Net loan charge-offs   720    376    319    397    516 
                          
Provision for loan losses   908    297    100    301    553 
                          
Balance at end of year  $2,231   $2,043   $2,122   $2,341   $2,437 
                          
Ratio of net charge-offs to average loans outstanding for the year   0.17%   0.10%   0.09%   0.12%   0.16%

 

BAllocation of the Allowance for Loan Losses

 

The following table allocates the allowance for loan losses at December 31, 2019, 2018, 2017, 2016 and 2015. Management adjusts the allowance periodically to account for changes in national trends and economic conditions in the Bank’s service areas. The allowance has been allocated according to the amount deemed to be reasonably necessary to provide for the probability of losses being incurred within the following categories of loans at the dates indicated:

 

   2019   2018   2017   2016   2015 
   Allowance
Amount
   % of Loans
to Total
Loans
   Allowance
Amount
   % of Loans
to Total
Loans
   Allowance
Amount
   % of Loans
to Total
Loans
   Allowance
Amount
   % of Loans
to Total
Loans
  

 

Allowance
Amount

   % of Loans
to Total
Loans
 
   (In thousands) 
Loan type                                                  
Commercial  $568    22.65%  $389    22.87%  $537    22.06%  $495    20.89%  $184    20.40%
Commercial real estate   792    57.67%   672    54.54%   843    53.97%   804    53.73%   597    49.58%
Residential real estate   572    17.49%   519    19.23%   436    20.58%   591    21.35%   170    24.72%
Installment   299    2.19%   463    3.36%   218    3.39%   107    4.03%   113    5.30%
General       N/A        N/A    88    N/A    344    N/A    1,373    N/A 
                                                   
Total  $2,231    100.00%  $2,043    100.00%  $2,122    100.00%  $2,431    100.00%  $2,437    100.00%

 

 

 

V           Deposits

 

A       Schedule of Average Deposit Amounts and Rates

 

Refer to Section I of this “Statistical Disclosures by Bank Holding Companies” section and to Management’s Discussion and Analysis “Average Balances, Net Interest Income and Yields Earned and Rates Paid” on page 19 of our 2019 Annual Report filed herewith as Exhibit 13, which is incorporated by reference.

 

B     Maturity analysis of time deposits greater than $250,000.

 

At December 31, 2019, the time to remaining maturity for time deposits in excess of $250,000 was:

 

   2019 
   (In thousands) 
Three months or less  $2,011 
Over three through six months   2,174 
Over six through twelve months   4,506 
Over twelve months   5,296 
      
Total  $13,987 

 

VI       Return on Equity and Assets

 

Our dividend payout ratio and equity to assets ratio were as follows:

 

   December 31, 
   2019   2018   2017 
Dividend Payout Ratio   45.80%   63.41%   63.89%
Equity to Assets   8.74%   8.53%   9.56%
Return on Average Assets   1.07%   0.84%   0.79%
Return on Average Equity   12.52%   8.03%   8.03%

 

VIIShort-Term Borrowings

 

Information concerning securities sold under agreements to repurchase is summarized as follows:

 

   2019   2018   2017 
   (Dollars in thousands) 
Balance at December 31,  $6,915   $8,068   $10,022 
Weighted average interest rate at December 31   0.01%   1.06%   0.28%
Average daily balance during the year  $9,699   $12,874   $13,578 
Average interest rate during the year   0.01%   1.13%   0.28%
Maximum month-end balance during the year  $13,441   $16,161   $17,033 

 

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.

 

 

 

No other individual component of borrowed funds with the exception of borrowings from the Federal Home Loan Bank comprised more than 30% of shareholders’ equity and accordingly is not disclosed in detail.

 

Supplemental Item - Executive Officers of the Registrant

 

Pursuant to General Instruction G(3) of Form 10-K, the following information on the executive officers of the Company is included as an additional item in Part I:

 

      Executive Officers Positions held with Company;
Name  Age   Business Experience
Scott Everson  52   President and Chief Executive Officer
        
Matthew F. Branstetter  52   Senior Vice President – Chief Operating Officer
        
Randall M. Greenwood  56   Senior Vice President, Chief Financial Officer & Treasurer
        
Lisa A. Basinger  59   Corporate Secretary

 

Each individual has held the position noted during the past five years.

 

Each of these Executive Officers is appointed annually by the Company’s board of directors and is serving at-will in their current positions.

 

Item 1A. Risk Factors

 

Smaller Reporting Companies are not required to provide this disclosure.

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2Properties

 

The Company owns and operates its Main Office and stand alone operations center in Martins Ferry, Ohio and the following offices:

 

Branch Office Location   Owned or Leased   Location   Owned or Leased
Bridgeport, Ohio   Owned   Sherrodsville, Ohio   Owned
Colerain, Ohio   Owned   Glouster, Ohio   Owned
Jewett, Ohio   Owned   Amesville, Ohio   Owned
St. Clairsville, Ohio   Owned   Nelsonville, Ohio   Owned
Dover, Ohio   Owned   Lancaster, Ohio   Owned
Dellroy, Ohio   Owned   Lancaster, Ohio   Owned
New Philadelphia, Ohio   Owned   Powhatan, Ohio   Owned
Strasburg, Ohio   Owned        
Tiltonsville, Ohio   Owned        
Dillonvale, Ohio   Leased        
St. Clairsville, Ohio   Owned        

 

Loan Production Office
Location
  Owned or Leased    
Wheeling, West Virginia   Leased    

 

Management believes the properties described above to be in good operating condition for the purpose for which they are used. The properties are unencumbered by any mortgage or security interest and are, in management’s opinion, adequately insured.

 

 

 

Item 3Legal Proceedings

 

There are no material legal proceedings, other than ordinary routine litigation incidental to its business, to which the Company or its subsidiary is a party or to which any of its property is subject.

 

Item 4Mine Safety Disclosures

 

Not applicable.

 

PART II

 

Item 5Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

 

Refer to Page 9, “Shareholder Information” of the 2019 Annual Report To Shareholders filed herewith as Exhibit 13 and refer to Page 31, Note 1 of the Notes to the Consolidated Financial Statements of the Company in the 2019 Annual Report To Shareholders for common stock trading ranges, cash dividends declared and information relating to dividend restrictions, which information is incorporated herein by reference. Additional disclosure regarding dividend restrictions is also included under Part I, Item 1 of this 10-K in the section captioned “Supervision and Regulation.”

 

 

 

ISSUER PURCHASES OF EQUITY SECURITIES

 

Period   (a)
Total Number of
Shares (or Units)
Purchased
  (b)
Average Price Paid
per Share (or Unit)
 

(c)
Total Number of
Shares (or Units)

Purchased as Part

of Publicly
Announced Plans
or Programs

   (d)
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs
Month #l 10/1/2019 to 10/31/2019    4,292 (1) $11.93    -     -
Month #2 11/1/2019 to 11/30/2019    -    -    -     -
Month #3 12/1/2019 to 12/31/2019    -  -    -     -
Total    4,292 (1) $11.93    -     -

 

(1)All of these shares were purchased by the Company on the open market to fund acquisitions under the Company’s Directors and Officers Deferred Compensation Plan..

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

The Company adopted the United Bancorp, Inc. Affiliate Banks Directors and Officers Deferred Compensation Plan (the “Plan”), which is an unfunded deferred compensation plan. Amounts deferred pursuant to the Plan remain unrestricted assets of the Company, and the right to participate in the Plan is limited to members of the Board of Directors and Company officers. Under the Plan, directors or other eligible participants may defer fees and up to 50% of their annual cash incentive award payable to them by the Company, which are used to acquire common shares which are credited to a participant’s respective account. Except in the event of certain emergencies, no distributions are to be made from any account as long as the participant continues to be an employee or member of the Board of Directors. Upon termination of service, the aggregate number of shares credited to the participant’s account are distributed to him or her along with any cash proceeds credited to the account which have not yet been invested in the Company’s stock. During the quarter ended December 31, 2019, the Plan purchased 4,792 shares at an average cost of $11.93, which were allocated to participant accounts. All purchases under the Plan are funded with either earned director fees or officer incentive award payments. No underwriting fees, discounts, or commissions are paid in connection with the Plan. The shares allocated to participant accounts under the Plan have not been registered under the Securities Act of 1933 in reliance upon the exemption provided by Section 4(a)(2) thereof.

 

Item 6Selected Consolidated Financial Data

 

Not Applicable

 

Item 7Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Refer to Pages 10-22, “Management’s Discussion and Analysis” of the 2019 Annual Report To Shareholders filed herewith as Exhibit 13, which section is incorporated herein by reference.

 

 

 

Critical Accounting Policy

 

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices within the financial services industry. The application of these principles requires management to make certain estimates, assumptions and judgements that affect the amounts reported in the financial statements and footnotes. These estimates, assumptions and judgements are based on information available as of the date of the financial statements, and as this information changes, the financial statements could reflect different estimates, assumptions, and judgements.

 

The procedures for assessing the adequacy of the allowance for loan losses reflect our evaluations of credit risk after careful consideration of all information available to management. In developing this assessment, management must rely on estimates and exercise judgement regarding matters where the ultimate outcome is unknown such as economic factors, development affecting companies in specific industries and issues with respect to single borrowers. Depending on changes in circumstances, future assessments of credit risk may yield materially different results, which may require an increase or a decrease in the allowance for loan losses.

 

The allowance is regularly reviewed by management to determine whether the amount is considered adequate to absorb probable losses. This evaluation includes specific loss estimates on certain individually reviewed loans, statistical losses, estimates for loan pools that are based on historical loss experience, and general loss estimates that are based on the size, quality and concentration characteristics of the various loan portfolios, adverse situations that may affect a borrower’s ability to repay, and current economic and industry conditions. Also considered as part of that judgement is a review of the Bank’s trends in delinquencies and loan losses, and economic factors.

 

The allowance for loan losses is maintained at a level believed adequate by management to absorb probable losses inherent in the loan portfolio. Management’s evaluation of the adequacy of the allowance is an estimate based on management’s current judgement about the credit quality of the loan portfolio. While the Company strives to reflect all known risk factors in its evaluation, judgement errors may occur.

 

Item 7AQuantitative and Qualitative Disclosures About Market Risk

 

Smaller Reporting Companies are not required to provide this disclosure.

 

Item 8Financial Statements and Supplementary Data

 

Refer to the Report of the Company’s Independent Registered Public Accounting Firm and the related audited financial statements and notes thereto contained in the 2019 Annual Report To Shareholders filed herewith as Exhibit 13, which items are incorporated herein by reference.

 

Item 9Changes In and Disagreements with Accountants

 

Not applicable.

 

Item 9AControls and Procedures

 

The Company, under the supervision, and with the participation, of its management and its outsourced internal audit firm Greenestock Consulting LLC, including the Company's principal executive and principal financial officers, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as of December 31, 2019, pursuant to the requirements of Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of December 31, 2019, in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings.

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Under the supervision and with the participation of management, including our principal executive and principal financial officers, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, as required by paragraph (c) of Exchange Act Rule13a-15. Based on the evaluation under Internal Control – Integrated Framework, management concluded that the Company’s internal control over financial reporting was effective as of December 31,2019. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm.

 

 

 

There was no change in the Company's internal control over financial reporting that occurred during the Company's fiscal quarter ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

 

Item 9BOther Information

 

None.

 

PART III

 

Item 10Directors and Executive Officers of the Registrant

 

Information concerning executive officers of the Company is set forth in Part I, “Supplemental Item – Executive Officers of Registrant.” Other information responding to this Item 10 is included in the Registrant’s Proxy Statement for the 2019 Annual Meeting of Shareholders and is incorporated by reference under the captions “Proposal 1 – Election of Directors,” “Corporate Governance and Committees of the Board” and “Delinquent Section 16(a) Reports”. Information concerning the designation of the Audit Committee and the Audit Committee Financial Expert is included in the Registrant’s Proxy Statement for the 2020 Annual Meeting of Shareholders under the caption “Corporate Governance and Committees of the Board – Audit Committee”, and is incorporated herein by reference.

 

The Company's Board of Directors has adopted a Code of Ethics that applies to its Principal Executive, Principal Financial, and Principal Accounting Officers. A copy of the Company's Code of Ethics is posted and can be viewed on the Company's internet web site at http://www.unitedbancorp.com. In the event the Company amends or waives any provision of its Code of Ethics which applies to its Principal Executive, Principal Financial, or Principal Accounting Officers, and which relates to any element of the code of ethics definition set forth in Item 406(b) of Regulation S-K, the Company shall post a description of the nature of such amendment or waiver on its internet web site. With respect to a waiver of any relevant provision of the code of ethics, the Company shall also post the name of the person to whom the waiver was granted and the date of the waiver grant.

 

Item 11Executive Compensation

 

The information required by this item is incorporated by reference from the section of the Registrant’s Proxy Statement for the 2020 Annual Meeting of Shareholders captioned “Executive Compensation and Other Information”.

 

Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stock Holder Matters

 

The information contained in the Registrant’s Proxy Statement for the 2020 Annual Meeting of Shareholders under the caption “Ownership of Voting Shares” is incorporated herein by reference.

 

The following table is a disclosure of securities authorized for issuance under equity compensation plans:

 

Equity Compensation Plan Information December 31, 2019
   Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
   Weighted-average exercise
price of outstanding options,
warrants and rights
   Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
 
Equity compensation plans approved by security holders   237,500   $11.15    447,500 
Equity compensation plans not approved by security holders               
Total    237,500   $11.15    447,500 

 

 

 

Item 13Certain Relationships and Related Transactions

 

The information required by this item is incorporated herein by reference to the sections in the Registrant’s Proxy Statement for the 2020 Annual Meeting of Shareholders captioned “Director Independence and Related Party Transactions.”

 

Item 14Principal Accountant Fees and Services

 

The information required by this item is incorporated by reference from the section under the caption “Principal Accounting Firm Fees” of the Registrant’s Proxy Statement for the 2020 Annual Meeting of Shareholders.

 

 

 

PART IV

 

Item 15Exhibits and Financial Statement/Schedules

 

Financial Statements

 

The following Consolidated Financial Statements and related Notes to Consolidated Financial Statements, together with the report of the Independent Registered Public Accounting Firm, appear on pages 25 through 85 of the United Bancorp, Inc. 2019 Annual Report and are incorporated herein by reference.

 

Consolidated Balance Sheets

December 31, 2019 and 2018

 

Consolidated Statements of Income

Years Ended December 31, 2019 and 2018

 

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2019 and 2018

 

Consolidated Statements of Stockholders’ Equity

Years Ended December 31, 2019 and 2018

 

Consolidated Statements of Cash Flows

Years Ended December 31, 2019 and 2018

 

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

 

Report of Independent Registered Public Accounting Firm

 

Exhibits

 

Exhibit Number   Exhibit Description
     
3.1   Amended Articles of Incorporation (1)
     
3.2   Amended and Restated Code of Regulations (2)
     
4   Description of Registrant’s Common Stock
     
4.2   Forms of 6.00% Fixed to Floating Rate Subordinated Note due May 15, 2029 (11)
     
10.1  Randall M. Greenwood Change in Control agreement (3)
    
10.2  Scott A. Everson Change in Control Agreement (3)
    
10.3  Matthew F. Branstetter Change in Control Agreement (3)
    
10.4  United Bancorp, Inc. Stock Option Plan (4)
    
10.5  United Bancorp, Inc. and Subsidiaries Director Supplemental Life Insurance Plan, covering Messrs. Glessner, Hoopingarner, Jones, McGehee, and Riesbeck. (5)
    
10.6  United Bancorp, Inc. and Subsidiaries Senior Executive Supplemental Life Insurance Plan, covering, Scott A. Everson, Matthew Branstetter and Randall M. Greenwood. (3)
    
10.7  Amended and Restated United Bancorp, Inc. and United Bancorp, Inc. Affiliate Banks Directors and Officers Deferred Compensation Plan. (9)
    
10.8  Amended and Restated Trust Agreement among United Bancorp, Inc. as Depository, Wilmington Trust Company, as Property Trustee, Wilmington Trust Company, as Delaware Trustee, and Administrative Trustees, dated as of November 17, 2005. (6)

 

 

 

 

10.9  Junior Subordinated Indenture between United Bancorp, Inc. and Wilmington Trust Company, as Trustee, dated as of November 17, 2005. (6)
    
10.10  Guaranty Agreement between United Bancorp, Inc., as Guarantor, and Wilmington Trust Company, as Guarantee Trustee, dated as of November 17, 2005. (6)
    
10.11  United Bancorp, Inc. 2008 Stock Incentive Plan (8)
    
10.12  United Bancorp, Inc. 2018 Stock Incentive Plan (10)
    
10.13  Form of Subordinated Note Purchase Agreement, dated May 14, 2019, by and among United Bancorp, Inc. and the Purchasers (12)
    
13  2019 Annual Report
    
21  Subsidiaries of the Registrant (5)
    
23.1  Consent of BKD, LLP
    
31.1  Rule 13a-14(a) Certification – CEO
    
31.2  Rule 13a-14(a) Certification – CFO
    
32.1  Section 1350 Certification – CEO
    
32.2  Section 1350 Certification – CFO
    
101  The following materials from United Bancorp, Inc. on Form 10-K for the year ended December 31, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income and Comprehensive Income; (iii) the Consolidated Statements of Cash Flows and (iv) Notes to Consolidated Financial Statements, tagged as blocks of text.

 

(1)  Incorporated by reference to Appendix B to the registrant’s Definitive Proxy Statement filed with the Securities and Exchange Commission on March 14, 2001.
     
(2)  Incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 18, 2016
     
(3)  Incorporated by reference to the registrant’s 10-K filed with the Securities and Exchange Commission on March 27, 2003.
     
(4)  Incorporated by reference to Exhibit A to the registrant’s Definitive Proxy Statement filed with the Securities and Exchange Commission on March 11, 1996.
     
(5)  Incorporated by reference to the registrant’s 10-K filed with the Securities and Exchange Commission on March 29, 2004.
     
(6)  Incorporated by reference to the registrant’s 10-K filed with the Securities and Exchanges Commission on March 30, 2006.
     
(7)  Incorporated by reference to the registrant’s 8-K filed with the Securities and Exchange Commission on September 24, 2008.
     
(8)  Incorporated by reference to the registrant’s 8-K filed with the Securities and Exchange Commission on April 22, 2008.
     
(9)  Incorporated by reference to Exhibit 10.10 to the registant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 19, 2014

 

 

 

 

(10)  Incorporated by reference to Exhibit 10.1 to the registant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 14, 2018
     
(11)  Incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 14, 2019.
     
(12)  Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 14, 2019.

 

 

 

 

United Bancorp Inc.

Signatures

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

(Registrant) United Bancorp, Inc.

 

By: /s/Scott A. Everson   March 20, 2020
  Scott A. Everson, President & Chief Executive Officer    

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By: /s/Scott A. Everson  March 20, 2020
Scott A. Everson, President & Chief Executive Officer   
      
By: /s/Randall M. Greenwood  March 20, 2020
Randall M. Greenwood, Senior Vice President & CFO   
      
By: /s/Gary W. Glessner  March 20, 2020
Gary W. Glessner, Director   
      
By: /s/John M. Hoopingarner  March 20, 2020
John M. Hoopingarner, Director   
      
By: /s/Carl A. Novak  March 20, 2020  
Carl A. Novak, Director   
      
By: /s/Richard L. Riesbeck  March 20, 2020
Richard L. Riesbeck, Director   

 

 

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Section 2: EX-4 (EXHIBIT 4)

 

Exhibit 4

 

DESCRIPTION OF REGISTRANT’S SECURITIES

 

The common shares of United Bancorp are registered with the Securities and Exchange Commission under Section 12(b) of the Securities Exchange Act of 1934. Set forth below is a summary of the rights of common shareholders under the United Bancorp Articles of Incorporation (“Articles”) and Code of Regulations (“Code”), as well as under certain provisions of the Ohio Revised Code. The summary set forth below is not intended to provide a comprehensive discussion of the Company’s governing documents and is qualified in its entirety by reference to the full text of the United Bancorp Articles and Code.

 

Authorized Stock
  · The United Bancorp Articles authorize 12,000,000 shares of capital stock, consisting of 10,000,000 shares of common stock, $1.00 par value, and 2,000,000 shares of preferred stock, no par value.
  · Shareholders do not have the preemptive right to subscribe to additional shares of common stock when issued by United Bancorp.
Voting Rights
  · Shareholders are entitled to one vote per share.
  · Unless otherwise provided in the Ohio General Corporation Law, Code or the Articles, the affirmative vote of a majority of the voting power of United Bancorp is sufficient to pass on any matter before the shareholders.
  · Holders of common shares may not cumulate their votes for the election of directors. Directors are elected by a plurality of the votes cast by the holders of Common Stock entitled to vote in the election.
Quorum
  · A majority of the outstanding shares of United Bancorp stock entitled to vote in an election of directors, represented in person or by proxy, constitutes a quorum for the transaction of business at a shareholder meeting.
Director Nominations
  · United Bancorp shareholders generally must submit director nominations not less than 40 days nor more than 60 days prior to the United Bancorp shareholders’ meeting.
Size of Board of Directors
  · The Code of Regulations provides that the number of directors, to be fixed by shareholder resolution, shall not be less than 4 nor more than 25, the exact number to be determined from time to time by the majority vote of the directors then in office.
  · The board is not divided into classes. The current board of directors consists of five directors, who are elected annually.
Director Removal
  · The Code provides that a director may be removed only for cause and only by the affirmative vote of 75% of the votes eligible to be cast by shareholders.

  

 

 

 

Required Vote for Business Combinations
  · If a “business combination” involving a “interested shareholder” does not receive approval of the directors who are unaffiliated with such interested shareholder, at least 80% of the outstanding shares entitled to vote thereon. With the approval of the directors who are unaffiliated with the interested shareholders, the business combination must be approved by a majority of the outstanding shares entitled to vote thereon.
  · In addition to the foregoing voting and approval requirement, if a business combination does not receive the approval of either (i) the directors who are unaffiliated with such interested shareholder or (ii) “independent shareholders” owning not less than 66 2/3% of the of the outstanding shares entitled to vote thereon, then all independent shareholders must receive consideration in connection with the business combination that satisfies the “fair price” provisions contained in the Articles.
  · The term “interested shareholder” is defined to include any individual, corporation, partnership, trust or other entity which owns beneficially or controls, directly or indirectly, 10% or more of the outstanding shares of United Bancorp common stock.
  · The term “independent shareholder” is defined to include any shareholder of United Bancorp other than the interested shareholder engaged in or proposing the business combination.
  · A “business combination” is defined to include:
    o any merger or consolidation of United Bancorp with an interested shareholder, regardless of which is the surviving entity;
    o any sale, lease, exchange, mortgage, transfer, or other disposition to or from an interested shareholder involving assets having an aggregate value of 20% or more of United Bancorp’s total shareholder’s equity;
    o the issuance of any securities of United Bancorp or its subsidiaries to a an interested shareholder;
    o the acquisition by United Bancorp or its subsidiaries of any securities of the interested shareholder;
    o the adoption of any plan for the liquidation or dissolution of United Bancorp proposed by or on behalf of an interested shareholder;
    o any reclassification of the United Bancorp common stock, or any recapitalization involving the common stock of United Bancorp if the effect is to increase the relative voting power of the interested shareholder; and
    o any agreement, contract or other arrangement providing for any of the above transactions.
 Special Meetings
  · Special meetings of shareholders may be called by (i) the president; or (ii) the board of directors; or (iii) the holders of a majority of all outstanding shares of United Bancorp common stock.
 Notice of Shareholder Meetings
  · Written notice of a shareholder meeting must be mailed to shareholders of record entitled to vote at such meeting at least 7 days, but no more than 60 days, before the date fixed for the meeting
 Action by Shareholders Without a Meeting 
  · Any action required to be taken at an annual or special meeting of shareholders may alternatively be taken without a meeting by a signed written consent by all shareholders entitled to vote.

  

 

 

 

Amendment of the Code of Regulations 
  · The Code of Regulations may be amended or repealed: (i) by the vote of the holders of not less than a majority of United Bancorp shares entitled to vote on the matter, or (ii) by the board of directors where the Ohio General Corporation Law has not reserved the authority over such amendment to the shareholders. Amendments to specified sections of the Code, including sections governing director removal and the election by United Bancorp regarding the coverage of the Ohio Control Share Acquisition statute discussed more thoroughly below, require the affirmative vote of holders of at least 80% of the of the outstanding shares entitled to vote thereon, unless such amendment has received the recommendation of at least two-thirds of the members of the of the board of directors
Amendment of the Articles of Incorporation
  · The Articles may be amended or repealed upon approval by the affirmative vote of a majority of the voting power of United Bancorp, except for certain specified provisions.
  · Any amendment to the Articles that would be inconsistent with, or have the effect of altering or repealing any the following provisions contained in the Code shall require the same affirmative vote needed to amend the applicable sections of the Code:
    o Number, election, term and removal of directors;
    o The election made by United Bancorp regarding the application to it of the Ohio Control Share Acquisition statute; and
    o Requirements amending the Code.
    In addition, any amendment or alteration to the article governing supermajority voting and fair price provisions in connection with certain business combinations must either be: (i) recommended by the continuing directors and approved by a majority of the outstanding shares entitled to vote on such proposal; or (ii) approved by at least 80% of the outstanding voting shares of United Bancorp and 66 2/3% of the outstanding voting shares held by independent shareholders. 
Conversion, redemption and sinking fund rights; shares nonassessable
  · Upon receipt of consideration by United Bancorp, as fixed by its board, each common share issued is then fully paid and nonassessable. There are no conversion terms, sinking fund provisions or redemption rights associated with the shares. When authorized by the board of directors, without any action or approval of shareholders required, United Bancorp may from time repurchase shares of its common stock, either in the open market or in privately negotiated transactions, for such mutually agreed upon terms, prices and conditions as the directors shall deem appropriate.
Payment of dividends
  · The holders of United Bancorp common shares, are entitled to the payment of dividends when, as and if the board may in its discretion periodically declare, which dividends may be paid out of funds legally available for dividends and distributions under applicable laws and regulations.
  · In the event of any liquidation, dissolution or winding up of United Bancorp, any remaining assets, after the payment of all debts and necessary expenses, will be distributed among the holders of the common shares pro rata in accordance with their respective holdings.

  

The following section describes anti-takeover statues and other shareholder protections provided by Ohio law. Such protections apply to the shareholders of eligible corporations unless such corporation’s Articles or Code provide otherwise.

 

 

 

  

Ohio Control Share Acquisition Statute
The Ohio Revised Code provides in Section 1701.831 that specified notice and informational filings and special shareholder meetings and voting procedures must occur before consummation of a proposed “control share acquisition.” A control share acquisition is defined as any acquisition, directly or indirectly, of an issuer’s shares that would entitle the acquirer to exercise or direct the voting power of the issuer in the election of directors within any of the following ranges:
  · one-fifth or more, but less than one-third, of the voting power;
  · one-third or more, but less than a majority, of the voting power; or
  · a majority or more of the voting power.
Assuming compliance with the notice and information filing requirements, the proposed control share acquisition may take place only if, at a duly convened special meeting of shareholders, the acquisition is approved by both a majority of the voting power of the issuer represented at the meeting and a majority of the voting power remaining after excluding the combined voting power of the intended acquirer and the directors and officers of the issuer.
The Company has opted out of the Ohio Control Share Acquisition Statute.
Ohio Merger Moratorium Statute
Chapter 1704 of the Ohio Revised Code prohibits specified business combinations and transactions between an “issuing public corporation” and an “interested shareholder” for at least three years after the interested shareholder attains 10% ownership, unless the board of directors of the issuing public corporation approves the transaction before the interested shareholder attains 10% ownership.
An interested shareholder is a person who either:
  · owns 10% or more of the shares of the corporation or
  · was the owner, at any time within the three-year period immediately prior to the date on which it is sought to be determined whether the person is an interested shareholder, of a number of shares of the public corporation sufficient to exercise 10% of the voting power of the public corporation.

An issuing public corporation is defined as an Ohio corporation with 50 or more shareholders that has its principal place of business, principal executive offices, or substantial assets within the State of Ohio, and as to which no close corporation agreement exists. Examples of transactions regulated by the merger moratorium provisions include mergers, consolidations, voluntary dissolutions, the disposition of assets and the transfer of shares 

After the three-year period, a moratorium transaction may take place provided that certain conditions are satisfied, including that: 

  · prior to the interested shareholders’ share acquisition date, the board of directors approved the purchase of shares by the interested shareholder;
  · the transaction is approved by the holders of shares with at least two-thirds of the voting power of the corporation (or a different proportion set forth in the Articles), including at least a majority of the outstanding shares after excluding shares controlled by the interested shareholder; or
  · the business combination results in shareholders, other than the interested shareholder, receiving a fair price plus interest for their shares, as determined in accordance with the statute.

The Company has not opted out of the Ohio merger moratorium statute.  

  

 

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Section 3: EX-13 (EXHIBIT 13)

Exhibit 13

 

A Letter from the President and CEO

 

 

To the shareholders of United Bancorp, Inc….

 

It 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!

 

 

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%).

 

 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.

 

2 

 

 

·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.

 

 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

[email protected]

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.    

 

4 

 

 

DIVIDEND AND STOCK HISTORY

 

          Distribution Date of
   Cash Dividends   Special Cash Dividends  Dividends and
   Declared (1)   and Stock Dividends  Exchanges
1983  $0.05   -  -
1984  $0.06   4 for 1 Exchange(2)  January 2, 1984
1985  $0.07   -  -
1986  $0.09   -  -
1987  $0.09   50% Stock Dividend  October 2, 1987
1988  $0.10   -  -
1989  $0.10   -  -
1990  $0.11   -  -
1991  $0.12   -  -
1992  $0.12   100% Stock Dividend  September 10, 1992
1993  $0.12   100% Stock Dividend  November 30, 1993
1994  $0.13   10% Stock Dividend  September 9, 1994
1995  $0.19   -  -
1996  $0.20   10% Stock Dividend  June 20, 1996
1997  $0.23   10% Stock Dividend  September 19, 1997
1998  $0.26   5% Stock Dividend  December 18, 1998
1999  $0.30   5% Stock Dividend  December 20, 1999
2000  $0.31   5% Stock Dividend  December 20, 2000
2001  $0.32   5% Stock Dividend  December 20, 2001
2002  $0.33   5% Stock Dividend  December 20, 2002
2003  $0.35   10% Stock Dividend  December 19, 2003
2004  $0.39   10% Stock Dividend  December 20, 2004
2005  $0.43   10% Stock Dividend  December 20, 2005
2006  $0.48   10% Stock Dividend  December 20, 2006
2007  $0.52    
2008  $0.54    
2009  $0.56    
2010  $0.56    
2011  $0.56    
2012  $0.42    
2013  $0.29    
2014  $0.33    
2015  $0.37   5¢ Per Share Special Dividend  December 29, 2015
2016  $0.42   5¢ Per Share Special Dividend  December 29, 2016
2017  $0.46   5¢ Per Share Special Dividend  December 29, 2017
2018  $0.52   5¢ Per Share Special Dividend  December 28, 2018
2019  $0.545    

 

2020 ANTICIPATED DIVIDEND PAYABLE DATES

 

t First Quarter
March 20, 2020
t Second Quarter*
June 19, 2020
t Third Quarter*
September 18, 2020
t 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.

 

TOTAL RETURN PERFORMANCE

 

 

Index  12/31/14   12/31/15   12/31/16   12/31/17   12/31/18   12/31/19 
United Bancorp, Inc.   100.00    124.71    183.32    187.62    169.23    221.79 
NASDAQ Composite   100.00    106.96    116.45    150.96    146.67    200.49 
SNL Bank Index   100.00    101.71    128.51    151.75    126.12    170.79 
SNL Bank $250M-$500M   100.00    114.41    143.56    175.44    149.89    171.84 
SNL Midwest Bank   100.00    101.52    135.64    145.76    124.47    161.94 
Dow Jones   100.00    100.21    116.74    149.56    144.35    180.94 

 

 5

 

 

Directors

 

 

1 = United Bancorp, Inc.   2 = Unified Bank
3 = Chairman - United Bancorp Inc.   4 = Chairman - Unified Bank

 

6 

 

 

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,ª 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   ª = Lead Director

 

 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* Dr. Charles D. Messerly, 1957-1987
John E. Reynolds, 1902-1940 James M. Blackford, 1962-1968
Dr. Joseph W. Darrah, 1902-1937 John H. Morgan, 1967-1976
J.A. Crossley, 1902-1903 Emil F. Snyder, 1968-1975
William M. Lupton, 1902-1902 James H. Cook, 1976-1986
F.K. Dixon, 1902-1909 Paul Ochsenbein, 1978-1991
Dr. R.H. Wilson, 1902-1905 David W. Totterdale, 1981-1995
Chris A. Heil, 1903-1909 Albert W. Lash, 1975-1996
David Coss, 1904-1938 Premo R. Funari, 1976-1997
L.L. Scheele, 1905-1917 Donald A. Davison, 1963-1997*
A.T. Selby, 1906-1954 Harold W. Price, 1999-1999
H.H. Rothermund, 1907-1912 John H. Clark, Jr., 1976-2001
Dr. J.G. Parr, 1912-1930 Dwain R. Hicks, 1999-2002
T.E. Pugh, 1920-1953 Michael A. Ley, 1999-2002
J.J. Weiskircher, 1925-1942 Michael J. Arciello 1992 - 2009
David H. James, 1925-1963 Leon F. Favede, O.D., 1981-2012
Dr. C.B. Messerly, 1931-1957 Herman E. Borkoski, 1987-2012
H.H. Riethmiller, 1936-1980* James W. Everson, 1969-2014*
E.M. Nickles, 1938-1968 Robin L. Rhodes, 2007-2015
L.A. Darrah, 1939-1962 Andrew C. Phillips, 2007-2015
R.L. Heslop, 1941-1983 Errol C. Sambuco, 1996-2015
Joseph E. Weiskircher, 1943-1975 Samuel J. Jones, 2007-2015
Edward M. Selby, 1953-1976 Matthew C. Thomas, 1988-2016
David W. Thompson, 1954-1966 Terry A. McGhee, 2001-2017

 

* Past Chairman

 

8 

 

 

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.

 

   2019   2018 
   31-Mar   30-Jun   30-Sep   31-Dec   31-Mar   30-Jun   30-Sep   31-Dec 
Market Price Range                                        
High ($)  $11.75    11.84    11.85    15.30   $13.79    14.00    13.70    13.25 
Low ($)  $10.25    10.57    11.01    10.87   $11.81    12.35    13.03    10.44 
Cash Dividends                                        
Quarter ($)  $0.1325    0.1350    0.1375    0.1400   $0.13    0.15    0.13    0.13 
Cumulative ($)  $0.1325    0.2675    0.4050    0.5450   $0.13    0.26    0.39    0.52 
Special Cash Dividends  $-    -    -    -   $-    -    -    0.05 

 

Investor Relations:

 

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

[email protected]

 

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

 

Annual Meeting:

 

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:

 

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

 

Stock Trading:

 

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

 

 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

 

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 Bancshares. These 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.

 

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

 

 

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%.

 

10 

 

 

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, the borrower’s 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.

 

 

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 leader amongst 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. 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

 

 11

 

 

 

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 

 

 

repayment capacity of borrowers, requirements for down payments and current market appraisals or other valuations of collateral when loans are originated. Installment lending also utilizes credit scoring to help in the determination of credit quality and pricing.

 

The Company generally recognizes interest income on the accrual basis, except for certain loans which are placed on non-accrual status, when in the opinion of management; doubt exists as to collection on the loan. The Company’s policy is to generally place loans greater than 90 days past due on non-accrual status unless the loan is both well secured and in the process of collection. When a loan is placed on non-accrual status, interest income may be recognized on a cash basis as payment is received if the loan is well secured. If the loan is not deemed well secured, payments are credited to principal.

 

Management and the Board of Directors believe the current balance of the allowance for loan losses is sufficient to cover probable incurred losses. Refer to the Provision for Loan Losses section for further discussion on the Company’s credit quality.

 

Earning Assets – Securities and Federal Funds Sold

 

The securities portfolio is comprised of U.S. Government 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,

 

 

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 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

 

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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 loans 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 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

 

 

14 

 

 

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  $2,843   $2,608 
Gains on sales of loans   54    66 
Other income   991    986 
Total noninterest income  $3,888   $3,660 
Noninterest expense          
Salaries and employee benefits  $8,776   $7,964 
Occupancy and equipment   2,263    2,140 
Provision for losses on foreclosed real estate   -    71 
Professional services   1,292    2,173 
Insurance   468    433 
Deposit insurance premiums   75    190 
Franchise and other taxes   408    364 
Marketing expense   383    493 
Printing and office supplies   136    165 
Other expenses   2,681    2,430 
Total noninterest expense  $16,482   $16,423 

 

 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 in some interest rate environments and unacceptable profits in others. A sound asset/liability management program combines gap and spread management into a single cohesive system.

 

Management measures the Company’s interest rate risk by computing estimated changes in net interest income and the Net Portfolio Value (“NPV”) of its cash flows from assets, liabilities and off-balance-sheet items in the event of a range of assumed changes in market interest rates. The Bank’s senior management and the Executive Committee of the Board of Directors, comprising the Asset/Liability Committee (“ALCO”), review the exposure to interest rates monthly. Exposure to interest rate risk is measured with the use of an interest rate sensitivity analysis to determine the change in NPV in the event of hypothetical changes in interest rates, while interest rate sensitivity gap analysis is used to determine the repricing characteristics of the assets and liabilities.

 

NPV represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance-sheet items.

 

Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay rates, and should not be relied upon as indicative of actual results. Further, the computations do not contemplate any actions the Company may undertake in response to changes in interest rates. The NPV calculation is based on the net present value of discounted cash flows utilizing market prepayment assumptions and market rates of interest provided by surveys performed during each quarterly period, with adjustments made to reflect the shift in the Treasury yield curve between the survey date and quarter-end date. Certain shortcomings are inherent in this method of analysis presented in the computation of estimated NPV. Certain assets such as adjustable-rate loans have features that restrict changes in interest rates on a short-term basis and over the life of the asset. In addition, the portion of adjustable-rate loans in the Company’s portfolio could decrease in future periods if market interest rates remain at or decrease below current levels due to refinancing activity. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate from those assumed in the table. Finally, the ability of many borrowers to repay their adjustable-rate debt may decrease in the case of an increase in interest rates.

 

The following tables present an analysis of the potential sensitivity of the Company’s net present value of its financial instruments to sudden and sustained changes in the prevailing interest rates.

 

The projected volatility of the net present value at both December 31, 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 

 

 

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  $ Amount   $ Change   % Change 
+200   128,125    (1,628)   -1%
+100   129,388    (365)   0%
Base   129,752           
-100   120,886    (8,866)   -7%
-200   105,871    (23,882)   -18%

 

(Dollars in Thousands)
Net Portfolio Value - December 31, 2018
 
Change in Rates  $ Amount   $ Change   % Change 
+200   134,438    8,102    6%
+100   134,450    5,114    4%
Base   129,336           
-100   117,270    (12,066)   -9%
-200   98,346    (30,990)   -24%

 

 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  $6,315   $6,648  $6,921   $7,150 
Total interest expense   1,207    1,469    1,726    1,721 
                     
Net interest income   5,108    5,179    5,195    5,429 
                     
Provision for losses on loans   90    120    120    578 
Other income   945    947    1,003    993 
General, administrative and other expense   4,162    4,172    4,162    3,986 
                     
Income before income taxes   1,801    1,835    1,916    1,858 
Federal income taxes   187    188    135    89 
                     
Net income   1,614    1,646    1,781    1,769 
                    
Earnings per share                    
Basic   0.28    0.29    0.31    0.31 
Diluted   0.28    0.29    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  $4,625   $5,107   $5,523   $6,065 
Total interest expense   523    707    893    1,055 
                     
Net interest income   4,102    4,400    4,630    5,010 
                     
Provision for losses on loans   57    72    72    96 
Other income   880    888    897    995 
General, administrative and other expense   3,579    3,754    3,855    5,235 
                     
Income before income taxes   1,346    1,462    1,600    674 
Federal income taxes   198    250    269    83 
                     
Net income   1,148    1,212    1,331    591 
Earnings per share                    
Basic   0.23    0.23    0.25    0.11 
Diluted   0.23    0.23    0.25    0.11 

 

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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.

 

   2019     2018 
(Dollars In thousands)      Interest             Interest     
   Average   Income/   Yield/     Average   Income/   Yield/ 
   Balance   Expense   Rate     Balance   Expense   Rate 
Assets                          
Interest-earning assets                                
Loans (1)  $420,487    21,803    5.19%    $382,164    18,885    4.94%
Taxable securities - AFS   48,911    996    2.04      45,250    765    1.69 
Tax-exempt securities - AFS (1)   106,528    4,687    4.40      35,424    1,493    4.21 
Federal funds sold   17,285    333    1.93      12,958    197    1.59 
FHLB stock and other   4,049    211    5.21      4,179    249    5.91 
Total interest-earning assets   597,260    28,030    4.69      479,975    21,589    4.50 
                                 
Noninterest-earning assets                                
Cash and due from banks   5,405                2,000           
Premises and equipment (net)   12,232                11,838           
Other nonearning assets   22,787                20,274           
Less: allowance for loan losses   (2,127)               (2,085)          
Total noninterest-earning assets   38,297                32,027           
Total assets   635,557                512,002           
                                 
Liabilities & stockholders’ equity                                
Interest-bearing liabilities                                
Demand deposits  $209,810    2,381    1.13%    $183,754    1,433    0.78%
Savings deposits   109,806    188    0.17      88,900    54    0.06 
Time deposits   112,211    2,258    2.01      77,558    1,104    1.42 
FHLB advances   27    1    3.70      14,393    299    2.08 
Federal funds purchased   8,933    185    2.07      162    9    5.56 
Subordinated debentures   16,276    975    5.99      4,124    143    3.47 
Repurchase agreements   9,699    136    1.40      12,874    136    1.06 
Total interest-bearing liabilities   466,762    6,124    1.31      381,756    3,178    0.83 
                                 
Noninterest-bearing liabilities                                
Demand deposits   109,349                80,243           
Other liabilities   5,054                3,102           
Total noninterest-bearing liabilities   114,403                83,345           
Total liabilities                                
Total stockholders’ equity   54,392                46,904           
Total liabilities & stockholders’ equity  $635,557               $512,002           
Net interest income       $21,906               $18,411      
Net interest spread             3.38%               3.67%
                                 
Net yield on interest-earning assets             3.67%               3.84%

 

                     • 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.

 

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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.

 

Rate/volume variance results when the change in volume is multiplied by the change in rate.

 

NOTE: The rate/volume variance was allocated to volume variance and rate variance in proportion to the relationship of the absolute dollar amount of the change in each. Nonaccrual loans are ignored for purposes of the calculations due to the nominal amount of the loans.

 

 

Capital Resources

 

Internal capital growth, through the retention of earnings, is the primary means of maintaining capital adequacy for the Bank. The Company’s stockholders’ equity was $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

 

   2019 Compared to 2018 
   Increase/(Decrease) 
(In thousands)      Change   Change 
   Total   Due To   Due To 
   Change   Volume   Rate 
Interest and dividend income               
Loans  $2,918    1,956    962 
Taxable securities available for sale   231    65    166 
Tax-exempt securities available for sale   3,194    3,126    68 
Federal funds sold   136    76    60 
FHLB stock and other   (38)   (8)   (30)
                
Total interest and dividend income   6,441    5,215    1,226 
Interest expense               
Demand deposits   948    225    723 
Savings deposits   134    15    119 
Time deposits   1,154    599    555 
FHLB advances   (298)   (429)   131 
Federal funds purchased   176    185    (9)
Subordinated debentures   832    -    832 
Repurchase agreements   -    (38)   38 
Total interest expense   2,946    557    2,389 
                
Net interest income  $3,495    4,658    (1,163)

 

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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.

 

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

 

 

 

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

 

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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.

 

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.

 

 

Inflation

 

The majority of assets and liabilities of the Company are monetary in nature and therefore the Company differs greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories. However, inflation does have an important impact on the growth of total assets in the banking industry and the resulting need to increase equity capital at higher than normal rates in order to maintain an appropriate equity to assets ratio. Inflation significantly affects noninterest expense, which tends to rise during periods of general inflation. Management believes the most significant impact on financial results is the Company’s ability to react to changes in interest rates. Management seeks to maintain an essentially balanced position between interest sensitive assets and liabilities and actively manages the amount of securities available for sale in order to protect against the effects of wide interest rate fluctuations on net income and shareholders' equity.

 

22 

 

 

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 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.

 

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits.

 

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial 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 provide a reasonable basis for our opinion.

 

We have served as the Company's auditor since 2007.

 

Cincinnati, Ohio
March 20, 2020

 

 

 

 

 

United Bancorp, Inc.

Consolidated Balance Sheets

December 31, 2019 and 2018

(In thousands, except share data)

 

   2019   2018 
Assets          
Cash and due from banks  $5,697   $15,573 
Interest-bearing demand deposits   9,288    9,680 
Cash and cash equivalents   14,985    25,253 
           
Available-for-sale securities   188,785    123,991 
Loans, net of allowance for loan losses of $2,231 and $2,043 at December 31, 2019 and 2018, respectively   439,317    407,640 
Premises and equipment   12,402    12,117 
Federal Home Loan Bank stock   4,012    4,243 
Foreclosed assets held for sale, net   819    91 
Core deposit and other intangible assets   1,542    1,692 
Accrued interest receivable   2,697    1,798 
Bank-owned life insurance   17,196    13,115 
Other assets   3,951    3,273 
Total Assets  $685,706   $593,213 
Liabilities and Stockholders’ Equity          
Liabilities          
Deposits          
Demand  $334,380   $309,505 
Savings   108,218    111,251 
Time   105,471    104,687 
Total deposits   548,069    525,443 
Securities sold under repurchase agreements   6,915    8,068 
Federal Home Loan Bank advances   39,800    106 
Subordinated debentures   23,543    4,124 
Deferred federal income tax   1,736    219 
Interest payable and other liabilities   5,721    4,610 
Total liabilities   625,784    542,570 
Stockholders’ Equity          
Preferred stock, no par value, authorized 2,000,000 shares; no shares issued   ––    –– 
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   5,959    5,927 
Additional paid-in capital   22,871    22,556 
Retained earnings   27,905    24,321 
Stock held by deferred compensation plan; 2019 – 176,134 shares, 2018 – 182,457 shares   (1,659)   (1,701)
Unearned ESOP compensation   (228)   (404)
Accumulated other comprehensive income (loss)   5,536    (10)
Treasury stock, at cost 2019 – 42,400 shares, 2018 – 5,744 shares   (462)   (46)
Total stockholders’ equity   59,922    50,643 
Total liabilities and stockholders’ equity  $685,706   $593,213 

 

See Notes to Consolidated Financial Statements

 

 

 

 

United Bancorp, Inc.

Consolidated Statements of Income

Years Ended December 31, 2019 and 2018

(In thousands except per share data)

 

   2019   2018 
Interest and Dividend Income          
Loans  $21,790   $18,875 
Securities          
Taxable   996    765 
Tax-exempt   3,704    1,234 
Federal funds sold   333    197 
Dividends on Federal Home Loan Bank and other stock   211    249 
Total interest and dividend income   27,034    21,320 
Interest Expense          
Deposits   4,827    2,591 
Borrowings   1,296    587 
Total interest expense   6,123    3,178 
Net Interest Income   20,911    18,142 
Provision for Loan Losses   908    297 
Net Interest Income After Provision for Loan Losses   20,003    17,845 
Noninterest Income          
Customer service fees   2,843    2,608 
Net gains on loan sales   54    66 
Earnings on bank-owned life insurance   533    477 
Bank-owned life insurance death benefit   ––    100 
Other   458    409 
Total noninterest income   3,888    3,660 
Noninterest Expense          
Salaries and employee benefits   8,776    7,964 
Net occupancy and equipment expense   2,263    2,140 
Provision for losses on foreclosed real estate   ––    71 
Professional fees   1,292    2,173 
Insurance   468    433 
Deposit insurance premiums   75    190 
Franchise and other taxes   408    364 
Marketing expense   383    493 
Printing and office supplies   136    165 
OREO and  repossession losses   5    27 
Other   2,676    2,403 
Total noninterest expense   16,482    16,423 
           
Income Before Federal Income Taxes   7,409    5,082 
Provision for Federal Income Taxes   599    800 
Net Income  $6,810   $4,282 
Basic Earnings Per Share  $1.19   $0.82 
Diluted Earnings Per Share  $1.19   $0.82 

 

See Notes to Consolidated Financial Statements

 

 

 

 

United Bancorp, Inc.

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2019 and 2018

(In thousands)

 

   2019   2018 
Net income  $6,810   $4,282 
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   6,107    749 
Change in funded status of defined benefit plan, net of tax benefits of $150 and $82 for each respective period   (564)   (309)
Amortization of prior service included in net periodic pension expense, net of tax benefits of $19 and $19 for each respective period   (70)   (70)
Amortization of net loss included in net periodic pension cost, net of taxes of $20 and $11 for each respective period   73    40 
           
Comprehensive income  $12,356   $4,692 

 

See Notes to Consolidated Financial Statements

 

 

 

 

United Bancorp, Inc.

Consolidated Statements of Stockholders’ Equity

Years Ended December 31, 2019 and 2018

(In thousands except per share data)

 

           Treasury
   Shares
       Accumulated
     
       Additional
   Stock and
   Acquired
       Other
     
   Common
   Paid-in
   Deferred
   By
   Retained
   Comprehensive
     
   Stock   Capital   Compensation   ESOP   Earnings   Loss   Total 
Balance, January 1, 2018  $5,435   $18,020   $(1,717)  $(683)  $23,260   $(420)  $43,895 
                                    
Net income   ––    ––    ––    ––    4,282    ––    4,282 
Other comprehensive loss   ––    ––    ––    ––    ––    410    410 
Share issuance in connection with merger   367    4,344    ---    ---    ---    ---    4,711 
Cash dividends - $0.570 per share   ––    ––    ––    ––    (3,221)   ––    (3,221)
Shares purchased for deferred compensation plan   ––    30    (30)   ––    ––    ––    –– 
Expense related to share-based compensation plans   ––    287    ––    ––    ––    ––    287 
Restricted stock activity   125    (125)   ---    ––    ––    ––    --- 
Amortization of ESOP   ––         ––    279    ––    ––    279 
Balance, December 31, 2018   5,927    22,556    (1,747)   (404)   24,321    (10)   50,643 
                                    
Net income   ––    ––    ––    ––    6,810    ––    6,810 
Other comprehensive income   ––    ––    ––    ––    ––    5,546    5,546 
Cash dividends - $0.545 per share   ––    ––    ––    ––    (3,226)   ––    (3,226)
Shares purchased for deferred compensation plan   ––    (42)   42    ––    ––    ––    –– 
Shares purchased for treasury stock   ––    ---    (416)   ––    ––    ––    (416)
Expense related to share-based compensation plans   ––    293    ––    ––    ––    ––    293 
Restricted stock activity   32    (32)   ––    ––    ––    ––    –– 
Amortization of ESOP   ––    96    ––    176    ––    ––    272 
                                    
Balance, December 31, 2019  $5,959   $22,871   $(2,121)  $(228)  $27,905   $5,536   $59,922 

 

See Notes to Consolidated Financial Statements

 

 

 

 

United Bancorp, Inc.

Consolidated Statements of Cash Flows

Years Ended December 31, 2019 and 2018

(In thousands)

 

   2019   2018 
Operating Activities          
Net income  $6,810   $4,282 
Items not requiring (providing) cash