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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 

10-Q

(Mark One)

       QUARTERLY REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended                           March 31, 2024                          

OR

       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT

For the transition period from ___________ to___________

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

 

(IRS Employer Identification No.)

incorporation or organization)

 

 

201 South Fourth Street, Martins Ferry, Ohio  43935-0010

(Address of principal executive offices)

 

(740) 633-0445

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

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        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        No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth 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           

Smaller Reporting Company 

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 

Indicate the number of shares outstanding of the issuer’s classes of common stock as of the latest practicable date: As of May 10, 2024, 5,953,778 shares of the Company’s common stock, $1.00 par value, were issued and outstanding.

PART I - FINANCIAL INFORMATION

 

 

Item 1

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Income

4

 

Condensed Consolidated Statements of Comprehensive Income

5

 

Condensed Consolidated Statements of Stockholders’ Equity

6

 

Condensed Consolidated Statements of Cash Flows

7

 

Notes to Condensed Consolidated Financial Statements

8

 

Item 2

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

30

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

37

 

 

Item 4

Controls and Procedures

37

 

PART II - OTHER INFORMATION

 

 

Item 1

Legal Proceedings

38

 

 

Item 1A

Risk Factors

38

 

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

38

 

 

Item 3

Defaults Upon Senior Securities

38

Item 4

Mine Safety Disclosures

38

 

 

Item 5

Other Information

38

 

 

Item 6

Exhibits

39

 

SIGNATURES

40

2

ITEM 1. Financial Statements

United Bancorp, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

    

March 31, 

    

December 31, 

2024

2023

(Unaudited)

Assets

 

  

 

  

Cash and due from banks

$

8,073

$

7,352

Interest-bearing demand deposits

 

38,804

 

33,418

Cash and cash equivalents

 

46,877

 

40,770

Available-for-sale securities, amortized cost of $261,146 net of allowance of allowance for credit losses of $0 at March 31, 2024 and December 31, 2023

 

251,807

 

242,760

Loans, net of allowance for credit losses of $3,870 and $3,918 at March 31, 2024 and December 31, 2023, respectively

 

476,437

 

479,318

Premises and equipment

 

18,115

 

14,984

Federal Home Loan Bank stock

 

3,979

 

3,979

Foreclosed assets held for sale, net

 

3,377

 

3,377

Core deposit other intangible asset

 

222

 

260

Goodwill

682

682

Accrued interest receivable

 

3,811

 

4,098

Deferred federal income tax

 

2,497

 

2,409

Bank-owned life insurance

 

19,537

 

19,423

Other assets

6,686

7,389

Total assets

$

834,027

$

819,449

Liabilities and Stockholders’ Equity

 

 

Liabilities

 

 

Deposits

 

 

Demand

$

333,606

$

339,280

Savings

 

128,810

 

130,821

Time

 

163,334

 

151,358

Total deposits

 

625,750

 

621,459

Securities sold under repurchase agreements

 

37,805

 

26,781

Subordinated debentures

 

23,802

 

23,787

Advances Federal Home Loan Bank

75,000

75,000

Lease liability – finance lease

2,795

2,764

Interest payable and other liabilities

 

5,669

 

6,065

Total liabilities

 

770,821

 

755,856

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 6,188,141 shares at March 31, 2024, and 6,063,851 shares at December 31, 2023; outstanding - 5,791,156 and 5,702,685 shares at March 31, 2024 and December 31, 2023, respectively

 

6,188

 

6,064

Additional paid-in capital

 

25,998

 

25,913

Retained earnings

 

44,073

 

44,018

Stock held by deferred compensation plan; 162,622 and 181,803 shares at March 31, 2024 and December 31, 2023, respectively

 

(2,029)

 

(2,363)

Accumulated other comprehensive loss

 

(7,807)

 

(7,478)

Treasury stock, at cost 234,363 and 179,363 shares at March 31, 2024 and December 31, 2023, respectively

 

(3,217)

 

(2,561)

Total stockholders’ equity

 

63,206

 

63,593

Total liabilities and stockholders’ equity

$

834,027

$

819,449

See Notes to Condensed Consolidated Financial Statements

3

United Bancorp, Inc.

Condensed Consolidated Statements of Income

Three Months Ended March 31, 2024 and 2023

(In thousands, except per share data)

(Unaudited)

    

2024

    

2023

Interest and Dividend Income

Loans, including fees

$

6,762

$

5,809

Securities:

Taxable

560

676

Non-taxable

1,714

1,356

Federal funds sold

487

326

Dividends on Federal Home Loan Bank and other stock

98

41

Total interest and dividend income

9,621

8,208

Interest Expense

Deposits

1,962

1,057

Borrowings

1,544

728

Total interest expense

3,506

1,785

Net Interest Income

6,115

6,423

Credit Loss Expense

Provision for credit loss expense - loans

Provision for credit loss expense - off balance sheet commitments

Provision for Credit Loss Expense

Net Interest Income After Provision for Credit Losses

6,115

6,423

Noninterest Income

Service charges on deposit accounts

703

721

Realized loss on sale of available-for-sale securities

(194)

Realized gains on sales of loans

77

Earnings on bank-owned life insurance

197

188

Other income

83

107

Total noninterest income

866

1,016

Noninterest Expense

Salaries and employee benefits

1,787

2,864

Occupancy and equipment

624

497

Professional services

610

386

FDIC insurance

108

86

Insurance

150

150

Franchise and other taxes

148

140

Advertising

113

100

Stationery and office supplies

26

30

Amortization of intangibles

38

38

Other expenses

1,234

1,147

Total noninterest expense

4,838

5,438

Income Before Federal Income Taxes

2,143

2,001

Provision for Federal Income Taxes

150

113

Net Income

$

1,993

$

1,888

Basic Earnings Per Share

$

0.35

$

0.33

Diluted Earnings Per Share

$

0.35

$

0.33

Dividends Per Share (including special dividend of $0.15 in March 2024 and $0.15 in March 2023)

$

0.3225

$

0.3125

See Notes to Condensed Consolidated Financial Statements

4

United Bancorp, Inc.

Condensed Consolidated Statements of Comprehensive Income

Three Months Ended March 31, 2024 and 2023

(In thousands, except per share data)

(Unaudited)

    

2024

    

2023

Net Income

$

1,993

$

1,888

Other comprehensive income (loss), net of tax

Net realized loss included in net income, net of tax benefits of ($41)

 

153

Unrealized holding gain (loss) on available-for-sale securities during the period, net of taxes (benefits) of ($129) and $427 for each respective period

(482)

1,606

Comprehensive Income

$

1,664

$

3,494

See Notes to Condensed Consolidated Financial Statements

5

United Bancorp, Inc.

Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 2024 and 2023

(In thousands except per share data)

(Unaudited)

Treasury

Accumulated

Additional

 Stock and

Other

Common

Paid-in

Deferred

Retained

Comprehensive

    

Stock

    

Capital

    

Compensation

    

Earnings

    

Income (Loss)

    

Total

Balance January 1, 2023

$

6,044

$

24,814

$

(3,730)

$

41,945

$

(9,336)

$

59,737

Net income

 

 

 

 

1,888

 

 

1,888

Other comprehensive income

 

 

 

 

 

1,606

 

1,606

Cash dividends - $0.3125 per share

 

 

 

 

(1,848)

 

 

(1,848)

Repurchase of common stock

(733)

(733)

Shares purchased for deferred compensation plan

(87)

87

 

 

 

Cumulative effect of adoption of ASU 2016-13

 

 

 

(2,090)

(2,090)

Expense related to share-based compensation plans

445

445

Balance, March 31, 2023

$

6,044

$

25,172

$

(4,376)

$

39,895

$

(7,730)

$

59,005

Balance January 1, 2024

 

6,064

 

25,913

 

(4,924)

 

44,018

 

(7,478)

 

63,593

Net income

 

 

 

 

1,993

 

 

1,993

Restricted stock issued

 

124

 

(124)

 

 

 

 

Other comprehensive loss

 

 

 

 

 

(329)

 

(329)

Cash dividends - $0.3225 per share

(1,938)

(1,938)

Repurchase of common stock

(656)

(656)

Shares purchased for deferred compensation plan

 

 

(334)

 

334

 

 

 

Expense related to share-based compensation plans

543

543

Balance, March 31, 2024

$

6,188

$

25,998

$

(5,246)

$

44,073

$

(7,807)

$

63,206

See Notes to Condensed Consolidated Financial Statements

6

United Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2024 and 2023

(In thousands except per share data)

(Unaudited)

    

2024

    

2023

Operating Activities

Net income

$

1,993

$

1,888

Items not requiring (providing) cash

Depreciation and amortization

 

261

 

246

Amortization of intangible asset

38

37

Premium amortization on securities

 

122

 

136

Provision for credit loss expense

 

 

Gain on sale of loans

 

(77)

Loss on sale of available-for-sale securities

194

Expense related to share based compensation programs

 

543

445

Increase in value of bank-owned life insurance

(114)

(113)

Originations of loans held for sale

(1,970)

Proceeds from sale of loans held for sale

2,047

Amortization of debt instrument costs

 

15

 

15

Net change in accrued interest receivable and other assets

931

(1,590)

Net change in accrued expenses and other liabilities

 

(368)

 

(223)

Net cash provided by operating activities

 

3,615

841

Investing Activities

Purchase of available-for-sale securities

(34,905)

(14,733)

Proceeds from calls/redemptions of available-for-sale securities

35

195

Sale of available-for-sale securities

25,091

Net change in loans

2,959

(2,325)

Purchase of FHLB Stock

(3,149)

Redemption of FHLB Stock

1,692

Purchases of premises and equipment

(3,392)

(286)

Net cash (used in) investing activities

(10,212)

(18,606)

Financing Activities

Net change in deposits

4,291

3,452

Net change in securities sold under repurchase agreements

 

11,024

 

12,403

Net change in Federal Home Loan Bank advances

75,000

Finance lease principal payment

(17)

Repurchase of common stock

(656)

(733)

Cash dividends paid

(1,938)

(1,848)

Net cash provided by financing activities

 

12,704

88,274

Increase (Decrease) in Cash and Cash Equivalents

 

6,107

70,509

Cash and Cash Equivalents, Beginning of Period

40,770

30,080

Cash and Cash Equivalents, End of Period

$

46,877

$

100,589

Supplemental Cash Flows Information

Federal income taxes paid

$

$

Adoption of ASC 326

$

$

2,089

Interest paid on deposits and borrowings

$

3,477

$

1,286

See Notes to Condensed Consolidated Financial Statements

7

Table of Contents

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31, 2024 and 2023

(In thousands)

Note 1:         Summary of Significant Accounting Policies

These interim financial statements are prepared without audit and reflect all adjustments which, in the opinion of management, are necessary to present fairly the financial position of United Bancorp, Inc. (“Company”) at March 31, 2024, and its results of operations and cash flows for the interim periods presented. All such adjustments are normal and recurring in nature. The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not purport to contain all the necessary financial disclosures required by accounting principles generally accepted in the United States of America that might otherwise be necessary in the circumstances and should be read in conjunction with the Company’s consolidated financial statements and related notes for the year ended December 31, 2023 included in its Annual Report on Form 10-K. Reference is made to the accounting policies of the Company described in the Notes to the Consolidated Financial Statements contained in its Annual Report on Form 10-K. The results of operations for the three months ended March 31, 2024, are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet of the Company as of December 31, 2023 has been derived from the audited consolidated balance sheet of the Company as of that date.

Principles of Consolidation

The consolidated financial statements include the accounts of United Bancorp, Inc. (“United” or “the Company”) and its wholly-owned subsidiary, Unified Bank of Martins Ferry, Ohio (“the Bank”). All intercompany transactions and balances have been eliminated in consolidation.

Nature of Operations

The Company’s revenues, operating income and assets are almost exclusively derived from banking. Accordingly, all of the Company’s banking operations are considered by management to be aggregated in one reportable operating segment. Customers are mainly located in Athens, Belmont, Carroll, Fairfield, Harrison, Jefferson and Tuscarawas Counties in Ohio and Marshall and Ohio Counties in West Virginia and the surrounding localities in northeastern, east-central and southeastern Ohio and include a wide range of individuals, businesses and other organizations. Unified Bank conducts its business through its main office in Martins Ferry, Ohio and branches in Bridgeport, Colerain, Dellroy, Dover, Glouster, Jewett, Lancaster Downtown, Lancaster East, Nelsonville, New Philadelphia, Powhatan Point, St. Clairsville East, St. Clairsville West, Sherrodsville, Strasburg, Tiltonsville, Ohio and Moundsville West Virginia.

The Company’s primary deposit products are checking, savings and term certificate accounts and its primary lending products are residential real estate, commercial and industrial, commercial real estate and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and real estate. Commercial and industrial loans are expected to be repaid from cash flow from operations of businesses. Real estate loans are secured by both residential and commercial real estate. Net interest income is affected by the relative amount of interest-earning assets and interest-bearing liabilities and the interest received or paid on these balances. The level of interest rates paid or received by the Company can be significantly influenced by a number of environmental factors, such as governmental monetary and fiscal policies, that are outside of management’s control.

Revenue Recognition

Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

The majority of the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as loans, investment securities, as well as revenue related to mortgage banking activities, as these activities are subject to other GAAP discussed elsewhere within the Company’s disclosures.

8

Table of Contents

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31, 2024 and 2023

(In thousands)

Descriptions of the Company’s revenue-generating activities that are within the scope of ASC 606, which are presented in the income statements as components of non-interest income are as follows:

Service charges on deposit accounts - these represent general service fees for monthly account maintenance and activity- or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when the performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations are generally received at the time the performance obligations are satisfied.

Use of Estimates

To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided and future results could differ. The allowance for credit losses and fair values of financial instruments are particularly subject to change.

Investment Securities

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date.

Investment securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time but not necessarily to maturity. Securities available for sale are carried at fair value. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Unrealized gains or losses are reported as increases or decreases in other comprehensive income (loss), net of the deferred tax effect. Realized gains or losses, determined on the basis of the cost of the specific securities sold, are included in earnings. Premiums and discounts are recognized in interest income using the interest method over the terms of the securities.

Allowance for Credit Losses – Available for Sale Securities

The Company measures expected credit losses on available-for-sale debt securities when the Company does not intend to sell, or when it is not more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value is less than the amortized cost basis. The Company utilizes independent firms to evaluate the Company’s State and Municipal Obligations and Subordinated Notes to measure any expected credit losses. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

The allowance for credit losses on available-for-sale debt securities is included within investment securities available-for-sale on the consolidated balance sheet. Changes in the allowance for credit losses are recorded within provision for credit losses on the consolidated statement of income. Losses are charged against the allowance when the Company believes the collectability of an available-for-sale security is in jeopardy or when either of the criteria regarding intent or requirement to sell is met.

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Table of Contents

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31, 2024 and 2023

(In thousands)

Accrued interest receivable on available-for-sale debt securities totaled $2.4 million at March 31, 2024 and $2.7 million at December 31, 2023 and is included within the line item accrued interest receivable on the consolidated balance sheet. This amount is excluded from the estimate of expected credit losses. Available-for-sale debt securities are typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When available-for-sale debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed.

Loans

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for credit losses and any deferred fees or costs. Accrued interest receivable totaled $1.4 million at March 31, 2024 and $1.4 million at December 31, 2023 and was reported in the line item accrued interest receivable on the Consolidated Balance Sheets and is excluded from the estimate of credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The Company is amortizing these amounts over the contractual life of the loan. Premiums and discounts on purchased loans are amortized as adjustments to interest income using the effective yield method.

The loans receivable portfolio is segmented into commercial and industrial, which are typically utilized for general business purposes and commercial real estate, which are collaterized by real estate. Homogenouse loans consisting similar products that are smaller in amount and distributed over a large number of individual borrowers include residential real estate and consumer loans.

For all classes of loans receivable, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for credit losses. Interest generally is either applied against principal or reported as interest income on a cash basis, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months), and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past-due status of all classes of loans receivable is determined based on contractual due dates for loan payments.

Allowance for Credit Losses - Loans

The allowance for credit losses (“ACL”) is a valuation reserve established and maintained by charges against income and is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The ACL is an estimate of expected credit losses, measured over the contractual life of a loan, that considers our historical loss experience, current conditions and forecasts of future economic conditions. Determination of an appropriate ACL is inherently subjective and may have significant changes from period to period.

The methodology for determining the ACL has two main components: evaluation of expected credit losses for certain groups of homogeneous loans that share similar risk characteristics and evaluation of loans that do not share risk characteristics with other loans.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company uses the call report classification as its segment breakout and measures the allowance for credit losses using the Weighted Average Remaining Maturity method for all loan segments.

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Table of Contents

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31, 2024 and 2023

(In thousands)

Historical credit loss experience is the basis for the estimation of expected credit losses. We apply historical loss rates to pools of loans with similar risk characteristics. After consideration of the historic loss calculation, management applies qualitative adjustments to reflect the current conditions and reasonable and supportable forecasts not already reflected in the historical loss information at the balance sheet date. Our reasonable and supportable forecast adjustment is based on a 2 year unemployment forecast provided by Bloomberg and management judgment. For periods beyond our reasonable and supportable forecast, we revert back to historical annual loss rates for the remainder of the life of each pool after the forecast period. The qualitative adjustments for current conditions are based upon current level of inflation, changes in lending policies and practices, experience and ability of lending staff, quality of the Company’s loan review system, value of underlying collateral, the existence of and changes in concentrations and other external factors. These modified historical loss rates are multiplied by the outstanding principal balance of each loan to calculate a required reserve.

The Company has elected to exclude accrued interest receivable from the measurement of its ACL. When a loan is placed on non-accrual status, any outstanding accrued interest is reversed against interest income.

The ACL for individual loans begins with the use of normal credit review procedures to identify whether a loan no longer shares similar risk characteristics with other pooled loans and therefore, should be individually assessed. We evaluate all commercial and industrial loans and residential and installment loans greater than $100,000 that meet the following criteria: 1) when it is determined that foreclosure is probable, 2) substandard, doubtful and nonperforming loans when repayment is expected to be provided substantially through the operation or sale of the collateral, 3) when it is determined by management that a loan does not share similar risk characteristics with other loans. Specific reserves are established based on the following three acceptable methods for measuring the ACL: 1) the present value of expected future cash flows discounted at the loan’s original effective interest rate; 2) the loan’s observable market price; or 3) the fair value of the collateral when the loan is collateral dependent. Our individual loan evaluations consist primarily of the fair value of collateral method because most of our loans are collateral dependent. Collateral values are discounted to consider disposition costs when appropriate. A specific reserve is established or a charge-off is taken if the fair value of the loan is less than the loan balance.

Accounting Pronouncements Adopted in 2023

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and subsequent related updates. This ASU replaces the incurred loss methodology for recognizing credit losses and requires businesses and other organizations to measure the current expected credit losses (CECL) on financial assets measured at amortized cost, including loans and held-to-maturity securities, net investments in leases, off-balance sheet credit exposures such as unfunded commitments, and other financial instruments. In addition, ASC 326 requires credit losses on available-for-sale debt securities to be presented as an allowance rather than as a write-down when management does not intend to sell or believes that it is not more likely than not they will be required to sell. This guidance became effective on January 1, 2023 for the Company. The results reported for periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable accounting standards.

The Company adopted this guidance, and subsequent related updates, using the modified retrospective approach for all financial assets measured at amortized cost, including loans and available-for-sale debt securities and unfunded commitments. On January 1, 2023, the Company recorded a cumulative effect decrease to retained earnings of $2,088,000, net of tax, of which $1,911,000 related to loans, $177,000 related to unfunded commitments.

The Company adopted the provisions of ASC 326 related to presenting other-than-temporary impairment on available-for-sale debt securities prior to January 1, 2023 using the prospective transition approach, though no such charges had been recorded on the securities held by the Company as of the date of adoption. The Company did not change the segmentation from the incurred loss method upon adoption of ASC 326.

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31, 2024 and 2023

(In thousands)

The impact of the change from the incurred loss model to the current expected credit loss model is detailed below

January 1, 2024

Loan Categories (in thousands)

    

Pre-adoption

    

Adoption Impact

    

As Reported

Commercial and Industrial

$

215

$

755

$

970

Commercial Real Estate

 

815

 

388

 

1,203

Residential Real Estate

 

816

 

1,379

 

2,195

Consumer

 

206

 

(103)

 

103

$

2,052

$

2,419

$

4,471

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted through credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

Earnings Per Share

Earnings per share (EPS) were computed as follows:

    

Three Months Ended March 31, 2024

    

Weighted-

    

Per 

Net

Average 

Share

    

Income

    

Shares

    

 Amount

 

(In thousands)

Net income

$

1,993

 

 

Less allocated earnings on non-vested restricted stock

 

(2)

 

 

Less allocated dividends on non-vested restricted stock

(88)

Net income allocated to common stockholders

1,903

5,499,877

Basic and diluted earnings per share

 

  

 

$

0.35

Three Months Ended March 31, 2023

Weighted-

 

Net

Average 

Per Share

    

Income

    

Shares

    

 Amount

 

(In thousands)

Net income

$

1,888

Less allocated earnings on non-vested restricted stock

 

(2)

 

Less allocated dividends on non-vested restricted stock

(81)

Net income allocated to common stockholders

1,805

5,484,610

Basic and diluted earnings per share

 

 

$

0.33

Income Taxes

The Company is subject to income taxes in the U.S. federal jurisdiction, as well as various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply.

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31, 2024 and 2023

(In thousands)

With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for the years before 2020.

Note 2:         Securities

The amortized cost and fair values, together with gross unrealized gains and losses of securities are as follows:

    

Gross

    

Gross

Unrealized

Unrealized

    

Amortized Cost

    

Gains

    

Losses

    

Fair Value

Available-for-sale Securities:

March 31, 2024:

 

  

 

  

 

  

  

U.S. government agencies

$

27,500

$

$

(417)

$

27,083

Subordinated notes

28,984

(4,042)

24,942

State and municipal obligations

 

204,662

1,479

(6,359)

199,782

Total debt securities

$

261,146

$

1,479

$

(10,818)

$

251,807

    

Gross

    

Gross

Unrealized

Unrealized

    

Amortized Cost

    

Gains

    

Losses

    

Fair Value

(In thousands)

Available-for-sale Securities:

 

  

 

  

 

  

 

  

December 31, 2023:

 

  

 

  

 

  

 

  

U.S. government agencies

$

45,000

$

$

(732)

$

44,268

Subordinated notes

29,013

(4,713)

24,300

State and municipal obligations

177,670

2,264

(5,742)

174,192

Total debt securities

$

251,683

$

2,264

$

(11,187)

$

242,760

There was no allowance for credit losses at March 31, 2024 or December 31, 2024.

The amortized cost and fair value of available-for-sale securities at March 31, 2024, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Amortized

Fair 

    

Cost

    

Value

(In thousands)

Under 1 year

$

15,000

$

14,909

One to five years

 

13,084

12,698

Five to ten years

 

31,321

27,244

Over ten years

 

201,741

196,956

Totals

$

261,146

$

251,807

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $76.6 million and $72.8 million at March 31, 2024 and December 31, 2023, respectively.

Certain investments in debt securities are reported in the consolidated financial statements at an amount less than their historical cost. The total fair value of these investments at March 31, 2024 was $153.8 million, which represented 61% of the Company’s available-for-sale investment portfolio. The total fair value of these investments at December 31, 2023 was $123.1 million, which represented less than 51% of the Company’s available-for-sale.

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31, 2024 and 2023

(In thousands)

Based on evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes the declines in fair value for these securities are temporary and are a result of an increase in longer term interest rates.

The following tables show the Company’s available for sale securities and the related gross unrealized losses and fair value,for which an allowance for credit losses has not been recorded,  aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2024 and December 31. 2023:

March 31, 2024

Less than 12 Months

12 Months or More

Total

Description of

Unrealized

Unrealized

Unrealized

Securities

    

Fair Value

    

Losses

    

Fair Value

    

Losses

    

Fair Value

    

Losses

 

(In thousands)

U.S. Government agencies

$

$

$

27,083

$

(417)

$

27,083

$

(417)

Subordinated notes

4,110

(390)

20,832

(3,652)

24,942

(4,042)

State and municipal obligations

51,346

(432)

50,402

(5,927)

101,748

(6,359)

Total temporarily impaired securities

$

55,456

$

(822)

$

98,317

$

(9,996)

$

153,773

$

(10,818)

December 31, 2023

Less than 12 Months

12 Months or More

Total

Description of

Unrealized

Unrealized

Unrealized

Securities

    

Fair Value

    

Losses

    

Fair Value

    

Losses

    

Fair Value

    

Losses

 

(In thousands)

US government agencies

$

$

$

44,268

$

(732)

$

44,268

$

(732)

Subordinated notes

3,717

(799)

20,583

(3,914)

24,300

(4,713)

State and municipal obligations

3,365

(12)

51,163

(5,730)

54,528

(5,742)

Total temporarily impaired securities

$

7,082

$

(811)

$

116,014

$

(10,376)