UNITED BANCORP INC /OH/ - Quarter Report: 2022 March (Form 10-Q)

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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, 2022

☐ 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 9, 2022, 5,745,688 shares of the Company’s common stock, $1.00 par value, were issued and outstanding.

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PART I - FINANCIAL INFORMATION

Item 1	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Income	4

	Condensed Consolidated Statements of Comprehensive Loss	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	27

Item 3	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4	Controls and Procedures	33

PART II - OTHER INFORMATION

Item 1	Legal Proceedings	34

Item 1A	Risk Factors	34

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 3	Defaults Upon Senior Securities	34

Item 4	Mine Safety Disclosures	35

Item 5	Other Information	35

Item 6	Exhibits	35

SIGNATURES		36

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ITEM 1. Financial Statements

United Bancorp, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share data)


	March 31,		December 31,
	2022		2021
	(Unaudited)
Assets
Cash and due from banks	$	12,243	$	7,653
Interest-bearing demand deposits		56,520		75,346
Cash and cash equivalents		68,763		82,999
Available-for-sale securities		159,497		146,313
Loans, net of allowance for loan losses of $3,174 and $3,673 at March 31, 2022 and December 31, 2021, respectively		459,119		450,699
Premises and equipment		12,741		12,757
Federal Home Loan Bank stock		3,704		3,704
Foreclosed assets held for sale, net		261		415
Core deposit other intangible asset		522		560
Goodwill		682		682
Accrued interest receivable		2,297		2,345
Bank-owned life insurance		18,688		18,809
Other assets		7,125		5,173
Total assets	$	733,399	$	724,456
Liabilities and Stockholders’ Equity
Liabilities
Deposits
Demand	$	416,883	$	408,296
Savings		145,747		140,598
Time		49,864		56,242
Total deposits		612,494		605,136
Securities sold under repurchase agreements		22,751		15,701
Subordinated debentures		23,680		23,665
Deferred federal income tax		—		1,681
Interest payable and other liabilities		10,573		6,572
Total liabilities		669,498		652,755

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 6,053,851 shares at March 31, 2022, and 6,053,851 shares at December 31, 2021; outstanding – 5,742,584 and 5,791,853 shares at March 31, 2022 and December 31, 2021, respectively		6,054		6,054
Additional paid-in capital		24,457		23,635
Retained earnings		37,815		37,847
Stock held by deferred compensation plan; 176,807 and 172,538 shares at March 31, 2022 and December 31, 2021		(1,813)		(1,738)
Accumulated other comprehensive(loss) income		(784)		6,964
Treasury stock, at cost 129,363 and 84,363 shares at March 31, 2022 and December 31, 2021, respectively		(1,828)		(1,061)
Total stockholders’ equity		63,901		71,701
Total liabilities and stockholders’ equity	$	733,399	$	724,456

See Notes to Condensed Consolidated Financial Statements

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United Bancorp, Inc.

Condensed Consolidated Statements of Income

Three Months Ended March 31, 2022 and 2021

(In thousands, except per share data)

(Unaudited)


	2022		2021
Interest and Dividend Income
Loans, including fees	$	4,791	$	4,913
Securities
Taxable		268		29
Non-taxable		891		1,108
Federal funds sold		28		11
Dividends on Federal Home Loan Bank and other stock		19		27
Total interest and dividend income		5,997		6,088
Interest Expense
Deposits		150		406
Borrowings		337		369
Total interest expense		487		775
Net Interest Income		5,510		5,313
Provision (Credit) for Loan Losses		(500)		(205)
Net Interest Income After (Credit) Provision for Loan Losses		6,010		5,518
Noninterest Income
Service charges on deposit accounts		681		592
Realized gains on sales of loans		12		75
Earnings on bank-owned life insurance		186		182
Other income		108		77
Total noninterest income		987		926
Noninterest Expense
Salaries and employee benefits		3,005		2,304
Occupancy and equipment		583		600
Professional services		263		319
FDIC insurance		49		50
Insurance		139		129
Franchise and other taxes		135		134
Advertising		30		113
Stationery and office supplies		25		23
Amortization of intangibles		37		37
Other expenses		844		740
Total noninterest expense		5,110		4,449
Income Before Federal Income Taxes		1,887		1,995
Provision for Federal Income Taxes		136		87
Net Income	$	1,751	$	1,908
Basic Earnings Per Share	$	0.3025	$	0.33
Diluted Earnings Per Share	$	0.3025	$	0.33
Dividends Per Share (including special dividend of $.015 in March 2022 and $0.10 in March 2021)	$	0.3025	$	0.2425

See Notes to Condensed Consolidated Financial Statements

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United Bancorp, Inc.

Condensed Consolidated Statements of Comprehensive (Loss)

Three Months Ended March 31, 2022 and 2021

(In thousands, except per share data)

(Unaudited)


	2022		2021
Net Income	$	1,751	$	1,908
Other comprehensive income (loss), net of tax
Unrealized holding (loss) on available-for-sale securities during the period, net of (benefits) of $(2,060) and $(577) for each respective period		(7,748)		(2,170)

Comprehensive (Loss)	$	(5,997)	$	(262)

See Notes to Condensed Consolidated Financial Statements

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United Bancorp, Inc.

Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 2022 and 2021

(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, 2021		6,046		23,166		(2,664)		32,497		9,283		68,328
Net income		—		—		—		1,908		—		1,908
Other comprehensive loss		—		—		—		—		(2,170)		(2,170)
Cash dividends - $0.2425 per share		—		—		—		(1,447)		—		(1,447)
Restricted stock activity		—		—		—		—		—		—
Shares sold for deferred compensation plan		—		(95)		95		—		—		—
Repurchase of common stock		—		—		—		—		—		—
Expense related to share-based compensation plans		—		103		—		—		—		103
Amortization of ESOP		—		—		—		—		—		—
Balance, March 31, 2021	$	6,046	$	23,174	$	(2,569)	$	32,958	$	7,113	$	66,722
Balance January 1, 2022		6,054		23,635		(2,799)		37,847		6,964		71,701
Net income		—		—		—		1,751		—		1,751
Other comprehensive loss		—		—		—		—		(7,748)		(7,748)
Cash dividends - $0.3025 per share		—		—		—		(1,783)		—		(1,783)
Repurchase of common stock		—		—		(767)		—		—		(767)
Shares purchased for deferred compensation plan		—		75		(75)		—		—		—
Expense related to share-based compensation plans		—		747		—		—		—		747
Balance, March 31, 2022	$	6,054	$	24,457	$	(3,641)	$	37,815	$	(784)	$	63,901

See Notes to Condensed Consolidated Financial Statements

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United Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2022 and 2021

(In thousands)

(Unaudited)


	2022		2021
Operating Activities
Net income	$	1,751	$	1,908
Items not requiring (providing) cash
Depreciation and amortization		262		287
Amortization of intangible asset		37		37
Premium amortization on securities		126		94
Provision (Credit) for loan losses		(500)		(205)
Gain on sale foreclosed assets held for sale		—		(72)
Gain on sale of loans		(12)		(75)
Expense related to share based compensation programs		747		103
Increase (decrease) in value of bank-owned life insurance		189		(117)
Originations of loans held for sale		(900)		(4,112)
Proceeds from sale of loans held for sale		912		4,187
Expense related to share-based compensation plans and ESOP		—		—
Amortization of debt instrument costs		15		15
Net change in accrued interest receivable and other assets		(2,463)		293
Net change in accrued expenses and other liabilities		4,857		(941)

Net cash provided by operating activities		5,021		1,402

Investing Activities
Purchase of available-for-sale securities		(26,153)		—
Proceeds from calls/redemptions of available-for-sale securities		3,035		8,914
Net change in loans		(7,908)		(6,629)
(Purchase) redemption of FHLB Stock		—		80
Proceeds from sales of foreclosed assets held for sale		156		385
Purchases of premises and equipment		(245)		(208)

Net cash provided by (used in) investing activities		(31,115)		2,542

Financing Activities
Net change in deposits		7,358		28,487
Net change in securities sold under repurchase agreements		7,050		14,475
Net change in Federal Home Loan Bank advances		—		—
Repurchase of common stock		(767)		—
Cash dividends paid		(1,783)		(1,447)

Net cash provided by financing activities		11,858		41,515

Increase (Decrease) in Cash and Cash Equivalents		(14,236)		45,459

Cash and Cash Equivalents, Beginning of Period		82,999		51,592

Cash and Cash Equivalents, End of Period	$	68,763	$	97,051

Supplemental Cash Flows Information
Federal income taxes paid	$	—		—
Interest paid on deposits and borrowings	$	257	$	450

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See Notes to Condensed Consolidated Financial Statements

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, 2022, 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, 2021 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 31,2022, 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, 2021 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 Amesville, 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 mortgage, commercial and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Real estate loans are secured by both residential and commercial real estate. Net interest income is affected by the relative amount of interest-earning assets and interest-bearing liabilities and the interest received or paid on these balances. The level of interest rates paid or received by the Company can be significantly influenced by a number of environmental factors, such as governmental monetary 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.

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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 loan losses and fair values of financial instruments are particularly subject to change.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.

For all loan classes, the accrual of interest is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. For all loan classes, the entire balance of the loan is considered past due if the minimum payment contractually required to be paid is not received by the contractual due date. For all loan classes, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

Management’s general practice is to proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral. Consistent with regulatory guidance, charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible. The Company’s policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.

For all loan portfolio segments except residential and consumer loans, the Company promptly charges-off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

The Company charges-off residential and consumer loans when the Company reasonably determines the amount of the loss. The Company adheres to timeframes established by applicable regulatory guidance which provides for the charge-down of 1-4 family first and junior lien mortgages to the net realizable value less costs to sell when the loan is 120 days past due, charge-off of unsecured open-end loans when the loan is 120 days past due, and charge down to the net realizable value when other secured loans are 120 days past due. Loans at these respective delinquency thresholds for which the Company can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged off.

For all classes, all interest accrued but not collected for loans that are placed on nonaccrual or charged off are reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost- recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or

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principal. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.

When cash payments are received on impaired loans in each loan class, the Company records the payment as interest income unless collection of the remaining recorded principal amount is doubtful, at which time payments are used to reduce the principal balance of the loan. Troubled debt restructured loans recognize interest income on an accrual basis at the renegotiated rate if the loan is in compliance with the modified terms, no principal reduction has been granted and the loan has demonstrated the ability to perform in accordance with the renegotiated terms for a period of at least six months.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-impaired loans and is based on historical charge-off experience by segment. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the prior five years. Management believes the five year historical loss experience methodology is appropriate in the current economic environment. Other adjustments (qualitative/environmental considerations) for each segment may be added to the allowance for each loan segment after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due based on the loan’s current payment status and the borrower’s financial condition including available sources of cash flows. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for non-homogenous type loans such as commercial, non-owner residential and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent. For impaired loans where the Company utilizes the discounted cash flows to determine the level of impairment, the Company includes the entire change in the present value of cash flows as bad debt expense.

The fair values of collateral dependent impaired loans are based on independent appraisals of the collateral. In general, the Company acquires an updated appraisal upon identification of impairment and annually thereafter for commercial, commercial real estate and multi-family loans. If the most recent appraisal is over a year old, and a new appraisal is not performed, due to lack of comparable values or other reasons, the existing appraisal is utilized and discounted generally 10% - 35% based on the age of the appraisal, condition of the subject property, and overall economic conditions. After determining the collateral value as described, the fair value is calculated based on the determined collateral value less selling expenses. The potential for outdated appraisal values is considered in our determination of the allowance for loan losses through our analysis of various trends and conditions including the local economy, trends in charge-offs and delinquencies, etc. and the related qualitative adjustments assigned by the Company.

Segments of loans with similar risk characteristics are collectively evaluated for impairment based on the segment’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

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In the course of working with borrowers, the Company may choose to restructure the contractual terms of certain loans. In this scenario, the Company attempts to work-out an alternative payment schedule with the borrower in order to optimize collectability of the loan. Any loans that are modified are reviewed by the Company to identify if a troubled debt restructuring (“TDR”) has occurred, which is when, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two. If such efforts by the Company do not result in a satisfactory arrangement, the loan is referred to legal counsel, at which time foreclosure proceedings are initiated. At any time prior to a sale of the property at foreclosure, the Company may terminate foreclosure proceedings if the borrower is able to work-out a satisfactory payment plan.

It is the Company’s policy to have any restructured loans which are on nonaccrual status prior to being restructured remain on nonaccrual status until six months of satisfactory borrower performance at which time management would consider its return to accrual status. If a loan was accruing at the time of restructuring, the Company reviews the loan to determine if it is appropriate to continue the accrual of interest on the restructured loan.

With regard to determination of the amount of the allowance for credit losses, trouble debt restructured loans are considered to be impaired. As a result, the determination of the amount of impaired loans for each portfolio segment within troubled debt restructurings is the same as detailed previously.

Earnings Per Share

Earnings per share (EPS) were computed as follows:


	Three Months Ended March 31, 2022
			Weighted-
	Net		Average	Per Share
	Income		Shares	Amount
	(In thousands)
Net income	$	1,751
Less allocated earnings on non-vested restricted stock		—
Less allocated dividends on non-vested restricted stock		(79)
Net income allocated to common stockholders		1,672
			5,457,403
Basic and diluted earnings per share				$	0.3025


	Three Months Ended March 31, 2021
			Weighted-
			Average	Per Share
	Net Income		Shares	Amount
	(In thousands)
Net income	$	1,908
Less allocated earnings on non-vested restricted stock		(78)
Less allocated dividends on non-vested restricted stock		(25)
Net income allocated to common stockholders		1,805
			5,472,033
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. 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 2018.

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Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments.” The provisions of ASU 2016-13 were issued to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments that are not accounted for at fair value through net income, including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other commitments to extend credit held by a reporting entity at each reporting date. ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The amendments in ASU 2016-13 eliminate the probable incurred loss recognition in current GAAP and reflect an entity’s current estimate of all expected credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets.

For purchased financial assets with a more-than-insignificant amount of credit deterioration since origination (“PCD assets”) that are measured at amortized cost, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense. Subsequent changes in the allowance for credit losses on PCD assets are recognized through the statement of income as a credit loss expense.

Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security.

On October 16, 2019, FASB approved a final ASU delaying the effective date of ASU 2016-13 for small reporting companies to interim and annual periods beginning after December 15, 2022. The Company is currently evaluating the impact of these amendments to the Company’s financial position and results of operations and currently does not know or cannot reasonably quantify the impact of the adoption of the amendments as a result of the complexity and extensive changes from the amendments. The Allowance for Loan Losses (ALL) estimate is material to the Company and given the change from an incurred loss model to a methodology that considers the credit loss over the life of the loan, there is the potential for an increase in the ALL at adoption date. The Company is anticipating a significant change in the processes and procedures to calculate the ALL, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. In addition, the current accounting policy and procedures for the other-than-temporary impairment on available-for-sale securities will be replaced with an allowance approach. The Company continues to run projections and review segmentation to ensure it is fully compliant with the amendments at adoption date. Additional work will be needed once additional guidance or clarification in the standard is given during the delay. For additional information on the allowance for loan losses, see Note 3.

Note 2: Securities

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


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value

	(In thousands)
Available-for-sale Securities:
March 31, 2022:
U.S. government agencies	$	5,000	$	—	$	—	$	5,000
Subordinated notes		31,294		22		(991)		30,325
State and municipal obligations		122,068	$	4,016		(1,912)		124,172
Total debt securities	$	158,362	$	4,038	$	(2,903)	$	159,497

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			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value

	(In thousands)
Available-for-sale Securities:
December 31, 2021:
U.S. government agencies	$	—	$	—	$	—	$	—
Subordinated notes		28,837		76		(148)		28,765
State and municipal obligations		106,533	$	11,015		—		117,548
Total debt securities	$	135,370	$	11,091	$	(148)	$	146,313

The amortized cost and fair value of available-for-sale securities at March 31, 2022, 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	$	—	$	—
One to five years		3,190		3,061
Five to ten years		28,104		27,264
Over ten years		127,068		129,172
Totals	$	158,362	$	159,497

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $58.9 million and $55.8 million at March 31, 2022 and December 31, 2021, 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, 2022 was $64.1 million, which represented 40.2% of the Company’s available-for-sale investment portfolio. The total fair value of these investments at December 31, 2021 was $14.2 million, which represented less than 10% of the Company's available-for-sale.

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.

Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

The following tables show the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31,2022:


	March 31, 2022
	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	$	—	$	—	$	—	$	—	$	—	$	—
State and municipal obligations		36,326		(1,912)		—		—		36,326		(1,912)
Subordinated notes		27,794		(991)		—		—		27,794		(991)
Total temporarily impaired securities	$	64,120	$	(2,903)	$	—	$	—	$	64,120	$	(2,903)

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	December 31, 2021
	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	$	—	$	—	$	—	$	—	$	—	$	—
Subordinated notes		14,204		(148)		—		—		14,204		(148)
State and municipal obligations		—		—		—		—		—		—
Total temporarily impaired securities	$	14,204	$	(148)	$	—	$	—	$	14,204	$	(148)

The unrealized losses on the Company’s investments in available for sale securities were caused primarily by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost bases of the investments. Because the Company does not intend to sell the investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at March 31, 2022.

There were no sales of investment securities for the three months ended March 31, 2021 and 2022.

Note 3: Loans and Allowance for Loan Losses

Categories of loans include:


	March 31,		December 31,
	2022		2021

	(In thousands)
Commercial loans	$	91,371	$	90,892
Commercial real estate		271,723		266,777
Residential real estate		92,768		90,132
Installment loans		6,431		6,571

Total gross loans		462,293		454,372

Less allowance for loan losses		(3,174)		(3,673)

Total loans	$	459,119	$	450,699

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The risk characteristics of each loan portfolio segment are as follows:

Commercial

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and may include a personal guarantee. Short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial Real Estate

Commercial real estate loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The characteristics of properties securing the Company’s commercial real estate portfolio are diverse, but with geographic location almost entirely in the Company’s market area. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. In general, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate versus nonowner-occupied loans.

Residential Real Estate and Consumer

Residential real estate and consumer loans consist of two segments - residential mortgage loans and personal loans. For residential mortgage loans that are secured by 1-4 family residences and are generally owner-occupied, the Company generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer personal loans are secured by consumer personal assets, such as automobiles or recreational vehicles. Some consumer personal loans are unsecured, such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas, such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

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Allowance for Loan Losses and Recorded Investment in Loans

As of and for the three month period ended March 31, 2022



			Commercial
	Commercial		Real Estate		Residential		Installment		Total

	(In thousands)
Allowance for loan losses:

Balance, beginning of period	$	1,046	$	1,235	$	1,121	$	271	$	3,673
Provision (credit) charged to expense		(420)		54		(162)		28		(500)
Losses charged off		—		—		—		(35)		(35)
Recoveries		22		—		—		14		36
Balance, end of period	$	648	$	1,289	$	959	$	278	$	3,174
Ending balance: individually evaluated for impairment	$	—	$	232	$	—	$	—	$	232
Ending balance: collectively evaluated for impairment	$	648	$	1,057	$	959	$	278	$	2,942
Loans:
Ending balance: individually evaluated for impairment	$	—	$	3,799	$	—	$	—	$	3,799
Ending balance: collectively evaluated for impairment	$	91,371	$	267,924	$	92,768	$	6,431	$	458,494

Allowance for Loan Losses and Recorded Investment in Loans

As of and for the three month period ended March 31, 2021



			Commercial
	Commercial		Real Estate		Residential		Installment		Total

	(In thousands)
Allowance for loan losses:

Balance, beginning of period	$	1,397	$	1,821	$	1,471	$	424	$	5,113
Provision charged to expense		(98)		(1)		(75)		(31)		(205)
Losses charged off		(78)		—		(17)		(18)		(113)
Recoveries		—		—		2		10		12
Balance, end of period	$	1,221	$	1,820	$	1,381	$	385	$	4,807
Ending balance: individually evaluated for impairment	$	—	$	85	$	—	$	—	$	85
Ending balance: collectively evaluated for impairment	$	1,221	$	1,735	$	1,381	$	385	$	4,722
Loans:
Ending balance: individually evaluated for impairment	$	—	$	2,594	$	114	$	—	$	2,708
Ending balance: collectively evaluated for impairment	$	99,728	$	251,983	$	88,000	$	7,615	$	447,326

Allowance for Loan Losses and Recorded Investment in Loans

As of December 31, 2021


			Commercial
	Commercial		Real Estate		Residential		Installment		Total

	(In thousands)
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	—	$	230	$	––	$	––	$	230
Ending balance: collectively evaluated for impairment	$	1,046	$	1,005	$	1,121	$	271	$	3,443

Loans:
Ending balance: individually evaluated for impairment	$	—	$	3,933	$	—	$	—	$	3,933
Ending balance: collectively evaluated for impairment	$	90,892	$	262,844	$	90,132	$	6,571	$	450,439

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The following tables show the portfolio quality indicators.


	March 31, 2022
			Commercial
Loan Class	Commercial		Real Estate		Residential		Installment		Total

	(In thousands)
Pass Grade	$	91,371	$	259,877	$	92,768	$	6,431	$	450,447
Special Mention		—		4,111		—		—		4,111
Substandard		—		7,735		—		—		7,735
Doubtful		—		—		—		—		—

	$	91,371	$	271,723	$	92,768	$	6,431	$	462,293


	December 31, 2021
			Commercial
Loan Class	Commercial		Real Estate		Residential		Installment		Total

	(In thousands)
Pass Grade	$	90,892	$	254,760	$	90,132	$	6,571	$	442,355
Special Mention		—		4,115		—		—		4,115
Substandard		—		7,902		—		—		7,902
Doubtful		—		—		—		—		—

	$	90,892	$	266,777	$	90,132	$	6,571	$	454,372

To facilitate the monitoring of credit quality within the loan portfolio, and for purposes of analyzing historical loss rates used in the determination of the ALLL, the Company utilizes the following categories of credit grades: pass, special mention, substandard, and doubtful. The four categories, which are derived from standard regulatory rating definitions, are assigned upon initial approval of credit to borrowers and updated periodically thereafter. Pass ratings, which are assigned to those borrowers that do not have identified potential or well defined weaknesses and for which there is a high likelihood of orderly repayment, are updated periodically based on the size and credit characteristics of the borrower. All other categories are updated on at least a quarterly basis.

The Company assigns a special mention rating to loans that have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects for the loan or the Company’s credit position.

The Company assigns a substandard rating to loans that are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged. Substandard loans have well defined weaknesses or weaknesses that could jeopardize the orderly repayment of the debt. Loans and leases in this grade also are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies noted are not addressed and corrected.

The Company assigns a doubtful rating to loans that have all the attributes of a substandard rating with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors that may work to the advantage of and strengthen the credit quality of the loan or lease, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceeding, capital injection, perfecting liens on additional collateral or refinancing plans.

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The Company evaluates the loan risk grading system definitions and allowance for loan losses methodology on an ongoing basis. No significant changes were made to either during the past year to date period.

Loan Portfolio Aging Analysis

As of March 31, 2022



	30-59 Days		60‑89 Days		Greater Than				Total Past
	Past Due and		Past Due and		90 Days and				Due and Non				Total Loans
	Accruing		Accruing		Accruing		Non Accrual		Accrual		Current		Receivable

	(In thousands)
Commercial	$	—	$	—	$	—	$	—	$	—	$	91,371	$	91,371
Commercial real estate		—		—		—		3,799		3,799		267,924		271,723
Residential		17		—		24		318		359		92,409		92,768
Installment		12		18		—		—		30		6,401		6,431
Total	$	29	$	18	$	24	$	4,117	$	4,188	$	458,105	$	462,293

Loan Portfolio Aging Analysis

As of December 31, 2021



	30‑59 Days		60‑89 Days		Greater Than				Total Past
	Past Due and		Past Due and		90 Days and				Due and Non				Total Loans
	Accruing		Accruing		Accruing		Non Accrual		Accrual		Current		Receivable

	(In thousands)
Commercial	$	63	$	—	$	—	$	—	$	63	$	90,829	$	90,892
Commercial real estate		220		—		—		3,818		4,038		262,739		266,777
Residential		22		—		—		391		413		89,719		90,132
Installment		40		—		—		—		40		6,531		6,571
Total	$	345	$	—	$	—	$	4,209	$	4,554	$	449,818	$	454,372

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

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Impaired Loans


				As of			Three Months Ended
		March 31, 2022					March 31, 2022
							Average
			Unpaid				Investment		Interest
	Recorded		Principal		Specific		in Impaired		Income
	Balance		Balance		Allowance		Loans		Recognized

	(In thousands)
Loans without a specific valuation allowance:
Commercial	$	—	$	—	$	—	$	—	$	—
Commercial real estate		2,836		2,836		—		2,836		—
Residential		—		—		—		—		—
		2,836		2,836		—		2,836		—
Loans with a specific valuation allowance:
Commercial		—		—		—		—		—
Commercial real estate		963		963		232		983		20
Residential		—		—		—		—		—
		963		963		232		983		—
Total:
Commercial	$	—	$	—	$	—	$	—	$	—
Commercial real estate	$	3,799	$	3,799	$	232	$	3,819	$	20
Residential	$	—	$	—	$	—	$	—	$	—

Impaired Loans


							Three Months Ended
		As of December 31, 2021					March 31, 2021
			Unpaid				Average
							Investment in		Interest
	Recorded		Principal		Specific		Impaired		Income
	Balance		Balance		Allowance		Loans		Recognized

	(In thousands)
Loans without a specific valuation allowance:
Commercial	$	—	$	—	$	—	$	—	$	—
Commercial real estate		128		128		—		112		—
Residential		—		—		—		118		—
Installment		—		—		—		—		—
		128		128		—		230		—
Loans with a specific valuation allowance:
Commercial		—		—		—		—		—
Commercial real estate		3,805		3,805		230		2,489		—
Residential		––		—		—		—		––
		3,805	$	3,805	$	230	$	2,489	$	—
Total:
Commercial	$					—
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Residential	$	3,933	$	3,933	$	230	$	2,601	$	—
Installment	$	—	$	—	$	—	$	118	$	—

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Interest income recognized on a cash basis was not materiality different than interest income recognized.

For the TDRs noted in the tables below, the Company extended the maturity dates and granted interest rate concessions as part of each of those loan restructurings. The loans included in the tables are considered impaired and specific loss calculations are performed on the individual loans. In conjunction with the restructuring there were no amounts charged-off.


	Three Months ended March 31, 2022
		Pre-		Post-
			Modification		Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
	Contracts	Investment		Investment

	(In thousands)
Commercial	—	$	—	$	—
Commercial real estate	1		49		49
Residential	—		—		—
Installment	—		—		—


	Three Months ended March 31, 2022
	Interest						Total
	Only		Term		Combination		Modification

	(In thousands)
Commercial	$	—	$	—	$	—	$	—
Commercial real estate		—		49		—		49
Residential		—		—		—		—
Consumer		—		—		—		—


	Three Months ended March 31, 2021
		Pre- Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
	Contracts	Investment		Investment

	(In thousands)
Commercial	1	$	86	$	67
Commercial real estate	—		—		—
Residential	—		—		—
Installment	—		—		—


	Three Months ended March 31, 2021
	Interest						Total
	Only		Term		Combination		Modification

	(In thousands)
Commercial	$	—	$	67	$	—	$	67
Commercial real estate		—		—		—		—
Residential		—		—		—		—
Consumer		—		—		—		—

During the three months ended March 31, 2022 and 2021, there were no material defaults of any troubled debt restructurings that were modified in the last 12 months. The Company generally considers TDR’s that become 90 days or more past due under the modified terms as subsequently defaulted.

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Note 4: Benefit Plans

Pension expense includes the following:


	Three months ended
	March 31,
	2022		2021

	(In thousands)
Service cost	$	130	$	132
Interest cost		68		60
Expected return on assets		(144)		(122)
Amortization of prior service cost and net loss		24		45

Pension expense	$	78	$	115

All components of pension expense are reflected within the salaries and employee benefits line of the consolidated income statement.

Note 5: Off-balance-sheet Activities

Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contracts are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

A summary of the notional or contractual amounts of financial instruments with off-balance-sheet risk at the indicated dates is as follows:


	March 31,		December 31,
	2022		2021

	(In thousands)
Commercial loans unused lines of credit	$	31,035	$	78,148
Commitment to originate loans		29,750		75,832
Consumer open end lines of credit		34,418		39,622
Standby lines of credit		127		127

Note 6: Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, included in stockholders’ equity, are as follows:


	March 31,		December 31,
	2022		2021

	(In thousands)
Net unrealized gain (loss) on securities available-for-sale	$	1,134	$	10,943
Net unrealized loss for unfunded status of defined benefit plan liability		(2,127)		(2,127)
		(993)		8,816
Less: Tax effect		209		(1,852)
Net-of-tax amount	$	(784)	$	6,964

Note 7: Fair Value Measurements

The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company also utilizes a fair value hierarchy which requires

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an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Following is a description of the valuation methodologies used for assets measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Available-for-sale Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. The Company's equity securities are classified within Level 1 of the hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy.

The following table presents the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2022 and December 31, 2021:


			Fair Value Measurements Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)

	(In thousands)
March 31, 2022
U.S. government agencies	$	5,000	$	—	$	5,000	$	—
Subordinated Notes	$	30,325		—	$	30,325		—
State and municipal obligations	$	124,172	$	—	$	124,172	$	—


December 31, 2021
U.S. government agencies	$	—	$	—	$	—	$	—
Subordinated Notes	$	28,765		—	$	28,765		—
State and municipal obligations	$	117,548	$	—	$	117,548	$	—

Following is a description of the valuation methodologies used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Impaired Loans (Collateral Dependent)

Collateral dependent impaired loans consisted primarily of loans secured by nonresidential real estate. Management has determined fair value measurements on impaired loans primarily through evaluations of appraisals performed. Due to the nature of the valuation inputs, impaired loans are classified within Level 3 of the hierarchy.

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The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by the Company’s Chief Lender. Appraisals are reviewed for accuracy and consistency by the Company’s Chief Lender. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the Company’s Chief Lender by comparison to historical results.

Foreclosed Assets Held for Sale

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value (based on current appraised value) at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Management has determined fair value measurements on other real estate owned primarily through evaluations of appraisals performed, and current and past offers for the other real estate under evaluation. Due to the nature of the valuation inputs, foreclosed assets held for sale are classified within Level 3 of the hierarchy.

Appraisals of OREO are obtained when the real estate is acquired and subsequently as deemed necessary by the Company’s Chief lender. Appraisals are reviewed for accuracy and consistency by the Company’s Chief Lender and are selected from the list of approved appraisers maintained by management.

The following table presents the fair value measurements of assets recognized in the accompanying consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2022 and December 31, 2021.


			Fair Value Measurements Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	Fair		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)

	(In thousands)
March 31, 2022
Collateral dependent impaired loans	$	731	$	—	$	—	$	731
Foreclosed assets held for sale		—		—		—		—

December 31, 2021
Collateral dependent impaired loans	$	2,822	$	—	$	—	$	2,822
Foreclosed assets held for sale		—		—		—		—

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.


	Fair Value at		Valuation
	3/31/22		Technique	Unobservable Inputs	Range

	(In thousands)
Collateral-dependent impaired loans	$	731	Market comparable properties	Comparability adjustments	5% – 15%


	Fair Value at		Valuation	Unobservable
	12/31/21		Technique	Inputs	Range

	(In thousands)
Collateral-dependent impaired loans	$	2,822	Market comparable properties	Comparability adjustments	5% – 10%

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There were no significant changes in the valuation techniques used during 2022.

The following table presents estimated fair values of the Company’s financial instruments. The fair values of certain of these instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.


			Fair Value Measurements Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	Carrying		Assets		Inputs		Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)

	(In thousands)
March 31, 2022:

Financial assets
Cash and cash equivalents	$	68,763	$	68,763	$	—	$	—
Loans, net of allowance		459,119		—		—		464,763
Federal Home Loan Bank stock		3,704		—		3,704		—
Accrued interest receivable		2,297		—		2,297		—

Financial liabilities
Deposits		612,494		—		611,408		—
Short term borrowings		22,751		—		22,751		—
Subordinated debentures		23,680		—		24,036		—
Interest payable		471				471		—

Fair Value Measurements Using

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

Carrying

Assets

Inputs

Amount

(Level 1)

(Level 2)

(Level 3)

(In thousands)

December 31, 2021:

Financial assets

Cash and cash equivalents

82,999

––

Loans, net of allowance

450,699

––

459,031

Federal Home Loan Bank stock

3,704

––

3,704

––

Accrued interest receivable

2,345

––

2,345

––

Financial liabilities

Deposits

605,136

––

605,855

––

Short term borrowings

15,701

––

15,701

––

Subordinated debentures

23,665

––

23,575

––

Interest payable

180

––

180

––

The following methods and assumptions were used to estimate the fair value of each class of financial instruments.

Cash and Cash Equivalents, Accrued Interest Receivable and Federal Home Loan Bank Stock

The carrying amounts approximate fair value.

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Loans

Fair values of loans and leases are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.

Deposits

Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

Interest Payable

The carrying amount approximates fair value.

Short-term Borrowings, Federal Home Loan Bank Advances and Subordinated Debentures

Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.

Commitments to Originate Loans, Letters of Credit and Lines of Credit

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated 31 cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. Fair values of commitments were not material at March 31, 2022 and December 31, 2021.

Note 8: Repurchase Agreements

Securities sold under agreements to repurchase (“repurchase agreements”) with customers represent funds deposited by customers, generally on an overnight basis that are collateralized by investment securities owned by the Company.

The following table presents the Company’s repurchase agreements accounted for as secured borrowings:

Remaining Contractual Maturity of the Agreement

(In thousands)


		Overnight						Greater
	and			Up to 30			than
March 31, 2022	Continuous		Days		30‑90 Days		90 Days		Total
Repurchase Agreements
State and municipal obligations	$	22,751	$	—	$	—	$	—	$	22,751
Total	$	22,751	$	—	$	—	$	—	$	22,751


	Overnight						Greater
		and		Up to 30				than
December 31, 2021	Continuous		Days		30‑90 Days		90 Days		Total
Repurchase Agreements
State and municipal obligations	$	15,701	$	—	$	—	$	—	$	15,701
Total	$	15,701	$	—	$	—	$	—	$	15,701

These borrowings were collateralized with State and municipal obligations with a carrying value of $33.7 million at March 31, 2022 and $37.5 million at December 31, 2021. Declines in the fair value would require the Company to pledge additional securities.

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Note 9: Core Deposits and other Intangible Assets

The following table shows the changes in the carrying amount of goodwill for March 31, 2022 and December 31, 2021 (in thousands):


	March 31,		December 31,
	2022		2021
Balance beginning of year	$	682	$	682
Additions from acquisition		—		—
Balance, end of period	$	682	$	682

Intangible assets in the consolidated balance sheets at March 31, 2022 and December 31, 2021 were as follows (in thousands):

Three Months Ended March 31, 2022

Year Ended December 31, 2021

Gross

Intangible

Accumulated

Net Intangible

Intangible

Accumulated

Net Intangible

Assets

Amortization

Assets

Amortization

Assets

Core deposit intangibles

1,041

519

522

1,041

481

560

The estimated aggregate future amortization expense for each of the next four years for intangible assets remaining as of March 31, 2022 is as follows (in thousands):


2022	$	114
2023		150
2024		150
2025		108

At each reporting date between annual goodwill impairment tests, the Company considers potential indicators of impairment. Given the current economic uncertainty and volatility surrounding COVID-19, the Company assessed whether the events and circumstances resulted in it being more likely than not that the fair value of any reporting unit was less than its carrying value. Impairment indicators considered comprised the condition of the economy and banking industry; government intervention and regulatory updates; the impact of recent events to financial performance and cost factors of the reporting unit; performance of the Company’s stock and other relevant events. The Company further considered the amount by which fair value exceeded book value in the most recent quantitative analysis and sensitivities performed. At the conclusion of the assessment, the Company determined that as of March 31, 2022 it was more likely than not that the fair value exceeded its carrying values. The Company will continue to monitor developments regarding the COVID-19 pandemic and measures implemented in response to the pandemic, market capitalization, overall economic conditions and any other triggering events or circumstances that may indicate an impairment of goodwill in the future.

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United Bancorp, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

The following discusses the consolidated financial condition of the Company as of March 31, 2022, as compared to December 31, 2021, and the results of consolidated operations for the three months ended March 31, 2022, compared to the same period in 2021. This discussion should be read in conjunction with the interim condensed consolidated financial statements and related footnotes included herein.

Introduction

United Bancorp, Inc. (NASDAQ: UBCP) reported diluted earnings per share of $0.31 and net income of $1,751,000 for the three months ended March 31, 2022. This compares to the record diluted earnings per share of $0.33 and net income of $1,908,000 that were reported in the first quarter of the previous year.

We are pleased to report on the earnings performance of our Company for the first quarter ended March 31, 2022. For the quarter, our Company achieved solid net income and diluted earnings per share results of $1,751,000 and $0.31, which compares favorably to the record levels of earnings that we achieved in the first quarter of last year. As our economy is normalizing and, actually, heating-up with inflation being at nearly forty-year highs--- we are starting to have some opportunities that we have not had in the past couple of years to change the mix of assets on our balance sheet; especially, as the most recently ended quarter progressed. With the increasing tightening bias of the Federal Open Market Committee (FOMC) with monetary policy that began developing in the first quarter of this year, we have experienced a prime opportunity to invest, once again, in both municipal and agency securities as both intermediate and longer-term yields have risen to levels that we have not seen for a couple of years. Having remained patient and not invested in any municipal or agency securities since the first quarter of 2020, we are presently pleased with this opportunity that we have. Even though our total assets remained relatively unchanged year-over-year in the first quarter of this year compared to the same period last year at $733.4 million, we have seen both our gross loans and securities and other restricted stock increase. As of March 31, 2022, gross loans increased by $12.3 million, or 2.7%, over the previous year to a level of $462.3 million. Regarding securities and other restricted stock, we saw our balances increase year-over-year by $12.8 million, or 8.5%, to a level of $163.2 million. Of significance is the quarter-ending balances for both gross loans and securities and other restricted stock are at higher levels than their respective quarterly averages by $8.8 million and $20.7 million. With the changing mix and added horsepower to our balance sheet in this most recently ended quarter, we are highly optimistic that we will see improvement in the level of interest income that we will generate in the coming quarters and our bottom line as the year progresses.

Even though we did see a decline in the level of interest income that we generated in the first quarter, we experienced a year-over-year increase in our level of net interest income of $198,000, an increase of 3.7%. We were able to achieve this increase in our net interest income because we continued to have success in the current year in lowering our overall interest expense. As of March 31, 2022, our interest expense decreased by $289,000, or 37.3%, from the previous year. Even though our ability to lower the interest expense of our Company will diminish as the monetary policy of the FOMC tightens, we firmly believe that the increase in the level of the interest income that we realize will outpace the degree to which interest expense increases in the current year; thus, producing a better bottom-line result for us. Interestingly, we reduced our interest expense levels even though our total deposits increased by $4.4 million, to a level of $612.5 million. We achieved this by continuing to attract lower-cost funding, consisting of demand and savings balances, and reducing our higher-cost time balances. As of March 31, 2022, our lower-costing demand and savings balances increased on a year-over-year basis by $29.0 million, or 5.4%, to a level of $562.6 million. During this same timeframe, our higher-costing time balances decreased by $24.5 million, or 33.0%, to a level of $49.9 million. Even though our net interest margin declined in the first quarter of 2022 by four basis points (4 bps) to a level of 3.45%, we expect this to increase in the coming quarters with the aforementioned change in the mix of our balance sheet with our lower-yielding overnight investments being replaced with higher-yielding, intermediate and longer-term assets.

Our first quarter bottom line net income was impacted by the inflationary environment in which we are presently operating. Even though we saw an increase in the level of non-interest income that our Company generated, our non-interest expense levels increased to a greater degree. Even with a decline in fee income related to secondary market mortgage production, we were able to increase our total noninterest income to a level of $987,000 for the quarter, which is a year-over-year increase of $61,000 or 6.5%. Total noninterest expense increased year-over-year by $661,000, or 14.9%. This increase in the current year is linked to a higher level of employee related expenses tied to more optimum staffing levels throughout our company, higher wage levels attributed to the tight labor market and non-recurring incentive payouts. We firmly believe that we have a high degree of positive operating leverage which will improve efficiencies and our net-noninterest margin in the coming quarters.

We have successfully maintained credit-related strength and stability within our loan portfolio over the course of the past two years during the economic downturn and this trend continued for our Company into the new year. As of March 31, 2022, our total nonaccrual loans and loans past due 30 plus days were $4.2 million or 0.9% of gross loans. Even though this total has increased year-over-year, it

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United Bancorp, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

is down on a linked-quarter basis by $400,000. In general, the underlying trend of solid credit quality within our overall loan portfolio has remained stable. A majority of the total for nonaccrual loans, $3.8 million or 92%, is related to one commercial lending relationship for which we allocated a portion of specific reserves. Regarding net loans charged off in the first quarter of 2022, our Company actually realized a net-recovery of $29,000. Considering our overall sound credit quality and the improving economy, our Company had credit reserve releases of $500,000 during the most recently ended quarter. Barring any unforeseen events, we anticipate being able to release additional reserves in the current year. As of the end of the first quarter in 2022, our Company continues to be very well capitalized with equity to assets of 8.7% and total shareholders’ equity of $63.9 million. As with most financial institutions in this time of rising rates from an exceedingly low-rate environment, our Company did see a reduction in accumulated other comprehensive income. This was primarily due to the decreased value of our investment portfolio which had an impact on our capital-related metrics. Accordingly, we saw our book value decline from $11.18 to $10.79, a decrease of 3.5% period-over-period.

As our country is getting back to a regular rhythm and our economy operating at more normalized, pre-pandemic levels, we are starting to see promising opportunities to more fully leverage our capital by changing the mix of our balance sheet into longer-term, higher-yielding assets and, once again, grow our Company. We are optimistic that this positive trend will continue, assuming that the Federal Open Market Committee (FOMC) of the Federal Reserve is able to achieve a soft-landing. Assuming that the FOMC is able to achieve this as they aggressively combat the real threat of inflation to our economy and avoid a hard-landing which could potentially lead to a recession--- we believe that rising rates should benefit the bottom-line of our Company as the current year progresses. This past quarter, we saw an increase in the level of net interest income that our Company generated for the first time in several quarters. With the change in the mix of our balance sheet into more rewarding investments, we firmly believe that we will see our net interest margin also increase in a positive fashion in the coming quarters. In addition, by investing in municipal securities and having higher balances in this tax-exempt investment for the first time since the beginning of the pandemic, we believe that our Company will see greater tax efficiency going forward which should provide additional benefit to our bottom-line. Our growth goal for our Company remains to increase our total assets to a level of $1.0 billion or greater in the short to intermediate term. We are optimistic that we will see better opportunities to achieve the growth that we seek as our economy more fully recovers and gets back to more normalized performance. We have seen some increase in our overhead expense level as we set-the stage for growth. But, we firmly believe that we have positive operating leverage that will help us achieve greater efficiencies and better returns as we execute on our strategy for growth.

Our primary focus is protecting the investment of our shareholders in our Company and rewarding them in a balanced fashion by growing their value and paying an attractive cash dividend. In these areas, our shareholders have been nicely rewarded with a year-over-year increase in cash dividends paid of $0.06, or 24.7%, (inclusive of a special cash dividend of $0.15 paid in the first quarter), and a market value increase of $3.57, or 24.9%, to a level of $17.89 as of March 31, 2022. Even though these past couple of years have been very challenging ones for both our Company and industry, we are optimistic that those challenges are now behind us and we can, once again, focus on growing and building a better, more profitable company. In the short-term, there is clearly a threat that the FOMC could overcorrect by raising rates too quickly and highly; thus, having a negative impact on our economy by pushing it into a recessionary state. We are hopeful that this does not occur and get in the way of our vision for growth. As previously stated, with the many challenges that we have faced over the course of the past couple of years, our Company today is more fundamentally sound with a focus on the potential of the future. We will continue to build upon our solid foundation and have a longer-term vision. With a keen focus on continual process improvement, product development and delivery, we firmly believe the future for our Company is very bright.

As of March 31, 2022, United Bancorp, Inc. has total assets of $733.4 million and total shareholders’ equity of $63.9 million. Through its single bank charter, Unified Bank, the Company currently has nineteen banking centers that serve the Ohio Counties of Athens, Belmont, Carroll, Fairfield, Harrison, Jefferson and Tuscarawas and Marshall County in West Virginia. United Bancorp, Inc. trades on the NASDAQ Capital Market tier of the NASDAQ Stock Market under the symbol UBCP, Cusip #909911109.

Forward-Looking Statements

When used in this document, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “projected” or similar expressions are intended to identify “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the Bank’s market areas, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Bank’s market areas and competition, that could affect the Company’s financial performance and cause actual results to differ materially from historical earnings and those presently anticipated or projected with respect to future periods. These risks and uncertainties should be

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United Bancorp, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

considered in evaluating forward looking statements, and undue reliance should not be placed on such statements. Additional information concerning the Company and its business, including other factors that could materially affect the Company’s financial results, is included in the Company’s filings with the Securities and Exchange Commission.

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 financial condition, results of operations, liquidity or capital resources except as discussed herein. The Company is not aware of any current recommendation by regulatory authorities that would have such effect if implemented except as discussed herein.

The Company does not undertake, and specifically disclaims any obligation, to publicly revise any forward-looking statements to reflect events or circumstances after the date such statements were made or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. Management makes certain judgments that affect the amounts reported in the financial statements and footnotes. These estimates, assumptions and judgments 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 judgments.

Based on its consideration of accounting policies that involve the most complex and subjective decisions and assessments, management has identified its most critical accounting policies to be those which are related to the allowance for loan losses. The procedures for assessing the adequacy of the allowance for loan losses reflect our evaluation of credit risk after careful consideration of all information available to management. In developing this assessment, management must rely on estimates and exercise subjective judgment regarding matters where the ultimate outcome is unknown such as economic factors, developments 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 and the board to determine whether the amount is considered adequate to absorb probable losses. This evaluation includes specific loss estimates on certain individually reviewed loans, statistical loss 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 judgment is a review of the Bank’s trend 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 loan losses inherent in the loan portfolio. Management’s evaluation of the adequacy of the allowance is an estimate based on management’s current judgment about the credit quality of the loan portfolio. While the Company strives to reflect all known risk factors in its evaluation, judgment errors may occur.

This discussion of the Company’s critical accounting policies should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes presented elsewhere herein, as well as other relevant portions of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Analysis of Financial Condition

Earning Assets – Loans

The Company’s focus as a community bank is to meet the credit needs of the markets it serves. At March 31, 2022, gross loans were $462.3 million, compared to $454.4 million at December 31, 2021, an increase of $7.9 million after offsetting repayments for the period. The overall increase in the loan portfolio was comprised of a $5.4 million increase in commercial and commercial real estate loans and a $2.6 million increase in real estate lending and a $140,000 decrease in installment loans since December 31, 2021.

Commercial and commercial real estate loans comprised 78.5% of total loans at March 31, 2022, compared to 78.7% at December 31, 2021. Commercial and commercial real estate loans have increased $5.4 million, or 1.5% since December 31, 2021. This segment of

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United Bancorp, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

the loan portfolio includes originated loans in its market areas and purchased participations in loans from other banks for out-of-area commercial and commercial real estate loans to benefit from consistent economic growth outside the Company’s primary market area.

Installment loans represented 1.4% of total loans at March 31, 2022 and 1.5% at December 31, 2021. Some of the installment loans carry somewhat more risk than real estate lending; however, it also provides for higher yields. Installment loans have decreased $140,000, or 2.1%, since December 31, 2021. The targeted lending areas encompass four separate metropolitan areas, minimizing the risk to changes in economic conditions in the communities housing the Company’s banking locations.

Residential real estate loans were 20.1% of total loans at March 31, 2022 and 19.8% at December 31, 2021, representing an increase of $2.6 million, or 2.9% since December 31, 2021. At March 31, 2022, the Company did not hold any loans for sale.

The allowance for loan losses totaled $3.2 million at March 31, 2022, which represented 0.69% of total loans, and $3.7 million at December 31, 2021, or 0.81% of total loans. The allowance represents the amount which management and the Board of Directors estimates is adequate to provide for probable losses inherent in the loan portfolio. The allowance balance and the provision charged to expense are reviewed by management and the Board of Directors monthly using a risk evaluation model that considers borrowers’ past due experience, economic conditions and various other circumstances that are subject to change over time. Management believes the current balance of the allowance for loan losses is adequate to absorb probable incurred credit losses associated with the loan portfolio. Net loan (recoveries) charge-offs (exclusive of overdrafts net charge-offs of $31,000) for the three months ended March 31, 2022 were approximately ($2,000) . Net loans charged off (exclusive of overdrafts net charge-offs $9,000) was $91,000 for the three months ended March 31, 2021.

Earning Assets – Securities

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 March 31, 2022 increased approximately $13.2 million from December 31, 2021 totals.

Sources of Funds – Deposits

The Company’s primary source of funds is core deposits from retail and business customers. These core deposits include all categories of interest-bearing and noninterest-bearing deposits, excluding certificates of deposit greater than $250,000. For the period ended March 31, 2022, total core deposits (interest and non interest bearing accounts and savings) increased approximately $9.2 million, or 1.5% from December 31, 2021 totals. The Company’s savings accounts increased $5.1 million or 3.7% from December 31, 2021 totals. The Company’s interest-bearing and non-interest bearing demand deposits increased $8.6 million while certificates of deposit under $250,000 decreased by $4.5 million.

The Company has a strong deposit base from public agencies, including local school districts, city and township municipalities, public works facilities and others that may tend to be more seasonal in nature resulting from the receipt and disbursement of state and federal grants. These entities have maintained fairly static 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 March 31, 2022, certificates of deposit greater than $250,000 decreased $1.9 million or 41.7%, from December 31, 2021 totals.

Sources of Funds – Securities Sold under Agreements to Repurchase and Other Borrowings

Other interest-bearing liabilities include securities sold under agreements to repurchase and Federal Home Loan Bank (“FHLB”) advances. The majority of the Company’s repurchase agreements are with local school districts and city and county governments. The Company’s repurchase agreements increased approximately $15,000 from December 31, 2021 totals.

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United Bancorp, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Results of Operations for the Three Months Ended March 31, 2022 and 2021

Net Income

The reported diluted earnings per share was $0.31 for the quarter ended March 31, 2022 compared to $0.33 for the quarter ended March 31, 2021.

Net Interest Income

Net interest income increased $197,000 or 3.7% for the three months ended March 31, 2022 compared to the same period in 2021. With overall interest rates increasing the Company’s net interest should increase during 2022 from its current level.

Provision for Loan Losses

The provision for loan losses was a credit to expense of $500,000 and $205,000 for the three months ended March 31, 2022, and March 31, 2021. With the overall concerns with the COVID-19 pandemic decreasing in its local markets due to vaccine availability, decreased hospitalizations, and employment metrics gaining momentum, the Company released a portion of its reserve related to COVID-19 during the three months ended March 31, 2022 and 2021.

Noninterest Income

Noninterest income of the Company increased $61,000 year-over-year. This increase was in part due to the increase in service charge income by $89,000.

Noninterest Expense

The Company saw its noninterest expense Increased by $661,000 or 14.9% year-over-year. Salary and employee benefits increased $700,000 year over year. This majority of this increase was due to the one time vesting of certain stock awards.

Federal Income Taxes

The provision for federal income taxes was $136,000 for the three months ended March 31, 2022, an increase of $49,000 compared to the same period in 2021. The effective tax rate was approximately 7.24% and 4.4% for the three months ended March 31, 2022 and 2021, respectively.

COVID-19: Update on Company Action and Ongoing Risks

The U.S. economy continued its recovery during the first quarter of 2022 despite pressures from higher inflation and rising energy prices as well as concerns over the Russia-Ukraine war and the continued economic uncertainty caused by the COVID-19 pandemic. As previously discussed, the COVID-19 pandemic has resulted in disruption to business and economic activity. While the Omicron variant took COVID-19 infection rates to a new high in January 2022, COVID-19 cases declined by the end of the first quarter. However, the duration of the pandemic, including the emergence of new variants, and the ultimate repercussions continue to remain unclear.

Capital Resources

Internal capital growth, through the retention of earnings, is the primary means of maintaining capital adequacy for the Company. Stockholders’ equity totaled $63.9 million at March 31, 2022, compared to $71.7 million at December 31, 2021, a $7.8 million decrease related to the accumulated other comprehensive loss driven by higher interest rates relative to the Company’s available-for-sale securities portfolio. Total average stockholders’ equity in relation to total assets was 8.71% at March 31, 2022 and 9.90% at December 31, 2021. The Company’s Articles of Incorporation allows for a class of preferred shares with 2,000,000 authorized shares. This enables 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 amendment also provides greater flexibility to the Board of Directors in structuring the terms of equity securities that may be issued by the Company. Although this preferred stock is a financial tool, it has not been utilized to date.

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United Bancorp, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

The Company has offered for many years a Dividend Reinvestment Plan (“The Plan”) for shareholders 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 Company’s dividend policy or a guarantee of future dividends.

The Company is subject to the regulatory requirements of The Federal Reserve System as a bank holding company. The Bank is subject to regulations of the FDIC and the State of Ohio, Division of Financial Institutions. The most important of these various regulations address capital adequacy.

On January 1, 2015, the final rules of the Federal Reserve Board went into effect implementing in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Under the final rule, minimum requirements increased for both the quality and quantity of capital held by banking organizations. The rule requires a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5 percent and a common equity tier 1 capital conservation buffer of 2.5 percent of risk-weighted assets that will apply to all supervised financial institutions. The rule also raises the minimum ratio of tier 1 capital to risk-weighted assets from 4 percent to 6 percent and includes a minimum leverage ratio of 4 percent for all banking organizations.

The Company continues to be well-capitalized in accordance with Federal regulatory capital requirements as the capital ratios below show:


Common equity tier 1 capital ratio	11.40	%
Tier 1 capital ratio	12.13	%
Total capital ratio	16.34	%
Leverage ratio	9.28	%

Liquidity

Management’s objective in managing liquidity is maintaining the ability to continue meeting the cash flow needs of its customers, such as borrowings or deposit withdrawals, as well as its own financial commitments. The principal sources of liquidity are net income, loan payments, maturing securities and sales of securities available for sale, federal funds sold and cash and deposits with banks. Along with its liquid assets, the Company has additional sources of liquidity available to ensure that adequate funds are available as needed. These include, but are not limited to, the purchase of federal funds, the ability to borrow funds under line of credit agreements with correspondent banks, a borrowing agreement with the Federal Home Loan Bank of Cincinnati and the adjustment of interest rates to obtain depositors. Management feels that it has the capital adequacy and profitability to meet the current and projected liquidity needs of its customers.

Inflation

Substantially all of the Company’s assets and liabilities relate to banking activities and are monetary in nature. The consolidated financial statements and related financial data are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). U.S. GAAP currently requires the Company to measure the financial position and results of operations in terms of historical dollars, with the exception of securities available for sale, certain impaired loans and certain other real estate and loans that may be measured at fair value. Changes in the value of money due to rising inflation can cause purchasing power loss.

Management’s opinion is that movements in interest rates affect the financial condition and results of operations to a greater degree than changes in the rate of inflation. It should be noted that interest rates and inflation do affect each other, but do not always move in correlation with each other. The Company’s ability to match the interest sensitivity of its financial assets to the interest sensitivity of its liabilities in its asset/liability management may tend to minimize the effect of changes in interest rates on the Company’s performance.

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United Bancorp, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk

Smaller Reporting Companies are not required to provide this disclosures.

ITEM 4.Controls and Procedures

The Company, under the supervision, and with the participation, of its management, including the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures 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 March 31, 2022, in timely alerting them to material information relating to the Company (including its consolidated subsidiary) required to be included in the Company’s periodic SEC filings.

There was no change in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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United Bancorp, Inc.

Part II – Other Information

ITEM 1. Legal Proceedings

None, other than ordinary routine litigation incidental to the Company’s business.

ITEM 1A. Risk Factors

Smaller reporting companies are not required to provide this information.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

ISSUER PURCHASES OF EQUITY SECURITIES


	(a)			(c)	(d)
	Total			Total Number of	Maximum Number or
	Number			Shares (or Units)	Approximate Dollar
	of			Purchased as Part	Value) of Shares (or
	Shares (or	(b)		Of Publicly	Units) that May Yet Be
	Units)	Average Price Paid		Announced Plans	Purchased Under the
Period	Purchased	Per Share (or Unit)		Or Programs	Plans or Programs
Month #1 1/1/2022 to 1/31/2022	––		––	––	––
Month #2 2/1/2022 to 2/28/2022	2,447	$	17.47	––	––
Month #3 3/1/2022 to 3/31/2022	––		––	––	––

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 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 a participant’s account is distributed with any cash proceeds credited to the account which have not yet been invested in the Company’s stock. All purchases under this deferred compensation 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 have not been registered under the Securities Act of 1933 in reliance upon the exemption provided by Section 4(2) thereof.

ITEM 3.Defaults Upon Senior Securities

Not applicable.

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United Bancorp, Inc.

Part II – Other Information

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Exhibits


	EX-3.1		Amended Articles of Incorporation of United Bancorp, Inc. ⁽¹⁾

	EX-3.2		Amended and Restated Code of Regulations of United Bancorp, Inc. ⁽²⁾

	EX-4.1		Description of Registrant’s Common Stock ⁽³⁾

	EX 4.2		Forms of 6.00% Fixed to Floating Rate Subordinated Note due May 15, 2029 ⁽⁴⁾

	EX 31.1		Rule 13a-14(a) Certification – CEO

	EX 31.2		Rule 13a-14(a) Certification – CFO

	EX 32.1		Section 1350 Certification – CEO

	EX 32.2		Section 1350 Certification – CFO

	EX 101.INS		XBRL Instance Document

	EX 101.SCH		XBRL Taxonomy Extension Schema Document

	EX 101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

	EX 101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

	EX 101.LAB		XBRL Taxonomy Extension Label Linkbase Document

	EX 101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

	104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

(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 Exhibit 4 to the registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 20, 2020.

(4)

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.

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SIGNATURES

Pursuant to the requirements 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.


	United Bancorp, Inc.

Date: May 13, 2022	By:	/s/ Scott A. Everson
		Scott A. Everson
		President and Chief Executive Officer

Date: May 13, 2022	By:	/s/ Randall M. Greenwood
		Randall M. Greenwood
		Executive Vice President Chief Financial and Risk Officer