United Bancorp(UBCP) - 2019 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements, management's discussion, market risk, and controls for the Company ITEM 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, and cash flows, along with detailed notes on accounting policies, securities, loans, and recent financial events Condensed Consolidated Balance Sheets This section provides a snapshot of the Company's financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates Condensed Consolidated Balance Sheets (In thousands) | Asset/Liability Category | June 30, 2019 | December 31, 2018 | | :----------------------- | :------------ | :---------------- | | Assets | | | | Cash and cash equivalents | $25,292 | $25,253 | | Available-for-sale securities | $161,605 | $123,991 | | Loans, net | $423,291 | $407,640 | | Total assets | $648,627 | $593,213 | | Liabilities | | | | Total deposits | $546,247 | $525,443 | | Subordinated debentures | $23,520 | $4,124 | | Total liabilities | $591,647 | $542,570 | | Stockholders' Equity | | | | Total stockholders' equity | $56,980 | $50,643 | | Total liabilities and stockholders' equity | $648,627 | $593,213 | - Total assets increased by $55.4 million (9.37%) from December 31, 2018, to June 30, 2019, driven primarily by increases in available-for-sale securities and net loans[6] - Total stockholders' equity increased by $6.3 million (12.5%) from December 31, 2018, to June 30, 2019[6] Condensed Consolidated Statements of Income This section details the Company's financial performance over specific periods, presenting revenues, expenses, and net income Condensed Consolidated Statements of Income (In thousands, except per share data) | Income Statement Item | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total interest and dividend income | $6,648 | $5,107 | $12,963 | $9,732 | | Total interest expense | $1,469 | $707 | $2,676 | $1,230 | | Net interest income | $5,179 | $4,400 | $10,287 | $8,502 | | Provision for loan losses | $120 | $72 | $210 | $129 | | Total noninterest income | $947 | $888 | $1,892 | $1,768 | | Total noninterest expense | $4,172 | $3,754 | $8,334 | $7,333 | | Net income | $1,646 | $1,212 | $3,260 | $2,360 | | Basic EPS | $0.29 | $0.23 | $0.57 | $0.46 | | Diluted EPS | $0.29 | $0.23 | $0.57 | $0.46 | | Dividends Per Common Share | $0.1350 | $0.1300 | $0.2675 | $0.2600 | - Net income for the three months ended June 30, 2019, increased by $434,000 (35.8%) year-over-year to $1,646,000[8] - Net income for the six months ended June 30, 2019, increased by $900,000 (38.1%) year-over-year to $3,260,000, setting a new earnings record[8][162] Condensed Consolidated Statements of Comprehensive Income This section presents the Company's comprehensive income, including net income and other comprehensive income components Condensed Consolidated Statements of Comprehensive Income (In thousands) | Comprehensive Income Item | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $1,646 | $1,212 | $3,260 | $2,360 | | Unrealized holding gains (losses) on securities, net of tax | $2,345 | $79 | $4,815 | $(91) | | Comprehensive income | $3,991 | $1,291 | $8,075 | $2,269 | - Comprehensive income significantly increased for both the three and six months ended June 30, 2019, primarily due to substantial unrealized holding gains on securities[10] Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in the Company's stockholders' equity, reflecting net income, other comprehensive income, and dividend distributions Condensed Consolidated Statements of Stockholders' Equity (In thousands) | Equity Component | Balance, April 1, 2019 | Net Income | Other Comprehensive Income | Cash Dividends | Shares Sold for Deferred Comp. Plan | Repurchase of Common Stock | Expense Related to Share-Based Comp. | Restricted Stock Activity | Amortization of ESOP | Balance, June 30, 2019 | | :--------------- | :--------------------- | :--------- | :------------------------- | :------------- | :---------------------------------- | :------------------------- | :----------------------------------- | :------------------------ | :------------------- | :--------------------- | | Common Stock | $5,927 | –– | –– | –– | –– | –– | –– | $12 | –– | $5,939 | | Additional Paid-in Capital | $22,826 | –– | –– | –– | $(379) | –– | $82 | $(12) | –– | $22,517 | | Retained Earnings | $25,153 | $1,646 | –– | $(797) | –– | –– | –– | –– | –– | $26,002 | | Accumulated Other Comprehensive Income (Loss) | $2,460 | –– | $2,345 | –– | –– | –– | –– | –– | –– | $4,805 | | Total Stockholders' Equity | $53,786 | $1,646 | $2,345 | $(797) | –– | $(149) | $82 | –– | $67 | $56,980 | - Total stockholders' equity increased from $53,786 thousand at April 1, 2019, to $56,980 thousand at June 30, 2019, primarily due to net income and other comprehensive income[12] - Cash dividends of $0.1350 per share were paid for the three months ended June 30, 2019[12] Condensed Consolidated Statements of Cash Flows This section details the Company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (In thousands) | Cash Flow Activity | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :----------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $4,654 | $2,010 | | Net cash used in investing activities | $(42,321) | $(53,249) | | Net cash provided by financing activities | $37,706 | $53,232 | | Increase in Cash and Cash Equivalents | $39 | $1,993 | | Cash and Cash Equivalents, End of Period | $25,292 | $16,308 | - Net cash provided by operating activities more than doubled year-over-year for the six months ended June 30, 2019, reaching $4,654 thousand[15] - Financing activities provided $37,706 thousand in cash for the six months ended June 30, 2019, primarily due to a net change in deposits and proceeds from subordinated debentures[17] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1: Summary of Significant Accounting Policies This note outlines the Company's significant accounting policies, including consolidation, revenue recognition, loan accounting, and the adoption of new accounting pronouncements - The Company's operations are almost exclusively derived from banking, primarily serving customers in specific Ohio counties and a Loan Production Office in Wheeling, West Virginia[21] - The Company adopted ASU 2016-02 (Leases) on January 1, 2019, recognizing a right-of-use asset and lease obligation of approximately $126,000[61] - The Company is evaluating ASU 2016-13 (Credit Losses), effective after December 15, 2019, which will shift from an incurred loss model to an expected credit loss model, potentially increasing the Allowance for Loan Losses at adoption[62][65] Note 2: Securities This note details the Company's available-for-sale securities portfolio, including fair values, unrealized gains and losses, and contractual maturities Available-for-sale Securities (In thousands) | Category | June 30, 2019 Fair Value | December 31, 2018 Fair Value | | :----------------------- | :----------------------- | :--------------------------- | | U.S. government agencies | $39,243 | $44,750 | | State and municipal obligations | $122,362 | $79,241 | | Total debt securities | $161,605 | $123,991 | - Total available-for-sale securities increased by $37.6 million from December 31, 2018, to June 30, 2019, with a significant increase in state and municipal obligations[67][186] Unrealized Losses on Securities (In thousands) | Category | June 30, 2019 Fair Value (Unrealized Losses) | December 31, 2018 Fair Value (Unrealized Losses) | | :----------------------- | :------------------------------------------- | :----------------------------------------------- | | U.S. Government agencies | $11,989 ($(11)) | $44,750 ($(500)) | | State and Political Subdivisions | $2,215 ($(10)) | $5,182 ($(36)) | | Total temporarily impaired securities | $14,204 ($(21)) | $49,932 ($(536)) | - Unrealized losses are considered temporary, primarily due to interest rate changes, and the Company does not intend to sell these investments before recovery of their amortized cost bases[71][74] Note 3: Loans and Allowance for Loan Losses This note provides a detailed breakdown of the loan portfolio, including categories, risk characteristics, credit quality indicators, and allowance for loan losses Loan Portfolio (In thousands) | Loan Category | June 30, 2019 | December 31, 2018 | | :-------------------- | :------------ | :---------------- | | Commercial loans | $103,177 | $93,690 | | Commercial real estate | $235,605 | $223,461 | | Residential real estate | $76,245 | $78,767 | | Installment loans | $10,406 | $13,765 | | Total gross loans | $425,433 | $409,683 | | Less allowance for loan losses | $(2,142) | $(2,043) | | Total loans | $423,291 | $407,640 | - Gross loans increased by $15.7 million (3.8%) from December 31, 2018, to June 30, 2019, primarily driven by growth in commercial and commercial real estate loans[76][180] Allowance for Loan Losses (In thousands) | Item | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :----------------------- | :----------------------------- | :----------------------------- | | Balance, January 1 | $2,043 | $2,122 | | Provision charged to expense | $210 | $129 | | Losses charged off | $(140) | $(203) | | Recoveries | $29 | $32 | | Balance, June 30 | $2,142 | $2,080 | - The allowance for loan losses increased to $2.142 million at June 30, 2019, representing 0.50% of total loans, consistent with December 31, 2018[81][184] Loan Portfolio Quality Indicators (In thousands) | Loan Class | June 30, 2019 Total | December 31, 2018 Total | | :----------------------- | :------------------ | :-------------------- | | Pass Grade | $419,769 | $405,544 | | Special Mention | $2,716 | $2,710 | | Substandard | $2,948 | $1,429 | | Doubtful | $–– | $–– | | Total | $425,433 | $409,683 | Loan Portfolio Aging Analysis (In thousands) | Delinquency Status | June 30, 2019 Total Past Due and Non Accrual | December 31, 2018 Total Past Due and Non Accrual | | :----------------- | :------------------------------------------- | :----------------------------------------------- | | Commercial | $74 | $192 | | Commercial real estate | $1,092 | $741 | | Residential | $2,136 | $2,606 | | Installment | $43 | $95 | | Total | $3,345 | $3,634 | - Total past due and nonaccrual loans decreased from $3.634 million at December 31, 2018, to $3.345 million at June 30, 2019, representing a solid 0.79% of total loans[96][98][196] Note 4: Benefit Plans This note summarizes the Company's pension expense, detailing components such as service cost, interest cost, and amortization of prior service cost Pension Expense (In thousands) | Item | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Service cost | $76 | $75 | $150 | $152 | | Interest cost | $55 | $55 | $110 | $110 | | Expected return on assets | $(102) | $(111) | $(204) | $(222) | | Amortization of prior service cost and net loss | $(10) | $1 | $2 | $(20) | | Pension expense | $10 | $29 | $58 | $20 | - Pension expense for the six months ended June 30, 2019, increased to $58 thousand from $20 thousand in the prior year, primarily due to changes in amortization of prior service cost and net loss[110] Note 5: Off-balance-sheet Activities This note summarizes the Company's off-balance-sheet financial instruments, including loan commitments and credit lines, with no material losses anticipated Off-balance-sheet Financial Instruments (In thousands) | Instrument Category | June 30, 2019 | December 31, 2018 | | :-------------------------- | :------------ | :---------------- | | Commercial loans unused lines of credit | $38,073 | $34,148 | | Commitment to originate loans | $24,001 | $21,319 | | Consumer open end lines of credit | $38,963 | $37,726 | | Standby lines of credit | $46 | $–– | - Commercial loans unused lines of credit increased by $3.9 million from December 31, 2018, to June 30, 2019[113] Note 6: Accumulated Other Comprehensive Income (Loss) This note details the components of accumulated other comprehensive income (loss), primarily driven by net unrealized gains on available-for-sale securities Accumulated Other Comprehensive Income (Loss) (In thousands) | Component | June 30, 2019 | December 31, 2018 | | :------------------------------------------------ | :------------ | :---------------- | | Net unrealized gain on securities available-for-sale | $6,754 | $658 | | Net unrealized loss for unfunded status of defined benefit plan liability | $(671) | $(671) |\ | Subtotal | $6,083 | $(13) | | Tax effect | $(1,278) | $3 | | Net-of-tax amount | $4,805 | $(10) | - Accumulated other comprehensive income (loss) significantly improved from a net loss of $(10) thousand at December 31, 2018, to a net gain of $4,805 thousand at June 30, 2019, primarily due to increased unrealized gains on available-for-sale securities[114] Note 7: Fair Value Measurements This note describes the Company's fair value measurements, categorizing assets and liabilities into a three-level hierarchy based on input observability Fair Value Measurements of Available-for-sale Securities (In thousands) | Category | June 30, 2019 Fair Value (Level 2) | December 31, 2018 Fair Value (Level 2) | | :----------------------- | :------------------------------- | :------------------------------- | | U.S. government agencies | $39,243 | $44,750 | | State and municipal obligations | $122,362 | $79,241 | Fair Value Measurements of Nonrecurring Assets (Level 3, In thousands) | Asset Category | June 30, 2019 Fair Value | December 31, 2018 Fair Value | | :-------------------------- | :----------------------- | :--------------------------- | | Collateral dependent impaired loans | $1,301 | $314 | | Foreclosed assets held for sale | $30 | $91 | - Fair values for collateral-dependent impaired loans and foreclosed assets held for sale are classified as Level 3, relying on unobservable inputs like marketability discounts (10%-35%) applied to appraisals[123][125][131] Estimated Fair Values of Financial Instruments (In thousands) | Instrument | June 30, 2019 Carrying Amount | June 30, 2019 Fair Value (Level 3 for Loans) | December 31, 2018 Carrying Amount | December 31, 2018 Fair Value (Level 3 for Loans) | | :----------------------- | :---------------------------- | :------------------------------------------- | :-------------------------------- | :----------------------------------------------- | | Loans, net of allowance | $423,291 | $426,938 | $407,640 | $405,033 | | Deposits | $546,247 | $546,354 | $525,443 | $546,354 | | Subordinated debentures | $23,520 | $23,681 | $4,124 | $3,647 | Note 8: Repurchase Agreements This note details the Company's repurchase agreements, accounted for as secured borrowings and collateralized by U.S. government and agency securities Repurchase Agreements (In thousands) | Category | June 30, 2019 Total | December 31, 2018 Total | | :----------------------- | :------------------ | :-------------------- | | U.S. government agencies | $7,674 | $8,068 | | Total | $7,674 | $8,068 | - Repurchase agreement borrowings decreased by $394 thousand from December 31, 2018, to June 30, 2019[146][191] - These borrowings were collateralized with U.S. government and agency securities with a carrying value of $15.5 million at June 30, 2019[149] Note 9: Acquisition This note describes the acquisition of Powhatan Point Community Bancshares, Inc., detailing the purchase price allocation, goodwill, and core deposit intangible - On October 15, 2018, United Bancorp acquired Powhatan Point Community Bancshares, Inc., with shareholders receiving 6.9233 shares of UBCP common stock and $28.52 in cash per share[150][151] Acquisition Purchase Price Allocation (In thousands) | Item | Amount | | :----------------------- | :----- | | Total assets purchased | $62,328 | | Total liabilities assumed | $56,088 | | Estimated purchase price | $6,240 | | Core deposit intangible | $1,028 | | Goodwill | $682 | - The acquisition resulted in $1.0 million allocated to core deposit intangible (amortized over 7 years) and $682 thousand to goodwill (not amortizable, subject to annual impairment test)[154] Note 10: Subordinated Debentures This note details the issuance of $20 million in junior subordinated debentures, structured as Tier 2 capital, and existing mandatorily redeemable debt securities - On May 14, 2019, the Company issued $20 million of junior subordinated debentures, bearing a fixed interest rate of 6.0% until May 2024, then a floating rate (3-month LIBOR + 3.625%), maturing in May 2029[156] - These debentures qualify as Tier 2 capital and the proceeds are used to support regulatory capital ratios and growth initiatives at Unified Bank[156][190] - The Company also has $4.1 million of subordinated debentures issued in 2005, maturing in 2035, which are includible in Tier I Capital for regulatory purposes[158] Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial performance, condition, and strategic initiatives, covering earnings, asset growth, credit quality, and capital resources - Diluted EPS for the six months ended June 30, 2019, increased to $0.57 from $0.46 in 2018, and net income rose to $3,260,000 from $2,360,000, representing a 38.1% increase[161][162][193] - Earning assets grew by $117.2 million (24.9%) year-over-year, with loans increasing by $45.9 million (12.1%) and investment securities by $71.2 million (78.8%)[162] - Lower-cost retail deposits (noninterest-bearing, interest-bearing demand, and savings) grew by $83.3 million (24%) year-over-year, comprising 79% of total deposits[163] - Credit quality remains strong with nonaccrual loans and loans past due 30+ days at $3.4 million (0.79% of total loans) at June 30, 2019, and net charge-offs to average loans at 0.05% for the first six months of 2019[164][196] - The Company aims to grow assets to $1.0 billion or greater, invest in technology for an omnichannel banking solution, and expand through acquisitions and new branch construction, including a new full-service office in Moundsville, West Virginia[167] - Return on equity (ROE) was 11.4% and return on assets (ROA) was 1.04% for the six months ended June 30, 2019[167] Introduction This introduction highlights the Company's strong financial performance, including record net income and significant growth in earning assets and deposits - United Bancorp, Inc. reported diluted EPS of $0.57 and net income of $3,260,000 for the six months ended June 30, 2019, up from $0.46 and $2,360,000 in the prior year[161] - Net income increased by $900,000 (38.1%) for the six-month period, setting a new earnings record, driven by strong organic and acquisition-related growth[162] - Higher-yielding earning assets grew by $117.2 million (24.9%) year-over-year, funded primarily by a $83.3 million (24%) increase in lower-cost retail deposits[162][163] Strategic Vision and Performance This section outlines the Company's strategic plan for growth, including acquisitions, new banking centers, and technology investments - The Company's strategic plan focuses on growth through acquisitions, new banking centers in key markets, and profitable organic opportunities[167] - A $20.0 million subordinated debt issuance provides leverageable capital for growth, contributing to Tier I Capital at the bank level[167] - The Company is investing in technology to become an omnichannel bank, aiming for complete digital solutions within one to two years, and plans to construct a new banking center in Moundsville, West Virginia[167] Shareholder Value and Outlook This section discusses the Company's commitment to shareholder value through increased dividends and its market valuation - The Company increased its cash dividend payout by $0.0025 per quarter, now paying $0.1350, resulting in a forward dividend yield of 4.70%[169] - The Company is trading at a forward price-to-earnings multiple of 10.0 times, below the market sector average of 13 times, indicating potential for higher market valuation[169] Forward-Looking Statements This section cautions that forward-looking statements are subject to various risks and uncertainties, and the Company disclaims any obligation to revise them - Forward-looking statements are subject to risks and uncertainties, including economic conditions, regulatory policies, interest rate fluctuations, loan demand, and competition[170] - The Company disclaims any obligation to publicly revise forward-looking statements to reflect future events or circumstances[172] Critical Accounting Policies This section discusses management's critical accounting policies, particularly the estimation and judgment involved in the allowance for loan losses - Management's assessment of the allowance for loan losses relies on estimates and judgments regarding economic factors, industry developments, and individual borrowers, which are susceptible to change[174] - The allowance is regularly reviewed by management and the board, considering specific and statistical loss estimates, loan portfolio characteristics, and economic conditions[175] Analysis of Financial Condition This section analyzes the Company's financial condition, focusing on earning assets, sources of funds, and overall balance sheet health Earning Assets – Loans This section details the growth and composition of the Company's loan portfolio and the associated allowance for loan losses - Gross loans increased by $15.7 million to $425.4 million at June 30, 2019, from $409.7 million at December 31, 2018[180] - Commercial and commercial real estate loans increased by $21.6 million (6.8%) and comprised 79.6% of total loans at June 30, 2019[180][181] - The allowance for loan losses was $2.1 million (0.50% of total loans) at June 30, 2019, with net charge-offs of $111,000 for the six months ended June 30, 2019[184] Earning Assets – Securities This section discusses the changes in the Company's available-for-sale securities portfolio and investment strategy - Securities available for sale increased by approximately $37.6 million from December 31, 2018, to June 30, 2019, with continued value seen in state and political subdivision investments[186] Sources of Funds – Deposits This section analyzes the growth and composition of the Company's deposit base, including core deposits and certificates of deposit - Total core deposits increased by approximately $19.8 million (3.9%) for the period ended June 30, 2019[187] - Interest-bearing and non-interest bearing demand deposits increased by $9.7 million (3.1%), and certificates of deposit under $250,000 increased by $10.4 million (11.8%)[187] - Certificates of deposit greater than $250,000 increased by $1.0 million (6.6%) and are used for rate sensitivity management[189] Sources of Funds – Long Term Debt This section details the Company's long-term debt, specifically the issuance of subordinated notes to support capital ratios and growth - The Company completed a private placement of $20 million in fixed-to-floating rate subordinated notes due 2029, structured as Tier 2 capital to support regulatory capital ratios and growth initiatives[190] Sources of Funds – Securities Sold under Agreements to Repurchase and Other Borrowings This section discusses changes in the Company's short-term borrowings, including securities sold under repurchase agreements - Short-term borrowings, including securities sold under repurchase agreements, decreased by approximately $394,000 from December 31, 2018[191] Results of Operations for the Six Months Ended June 30, 2019 and 2018 This section analyzes the Company's financial performance for the six-month periods, focusing on key income statement components Net Income This section highlights the significant increase in net earnings and diluted earnings per share for the six-month period - Net earnings for the six months ended June 30, 2019, were $3,260,000, an increase of 38.1% from $2,360,000 in the same period of 2018[193] - Diluted earnings per share increased by 23.91% to $0.57 for the six months ended June 30, 2019, from $0.46 in 2018[193] Net Interest Income This section discusses the growth in net interest income after provision for loan losses, driven by strong loan and securities growth - Net interest income after provision for loan losses increased by 21.0% ($1.7 million) for the six months ended June 30, 2019, compared to the same period in 2018, driven by strong loan and securities growth[195] Provision for Loan Losses This section details the increase in provision for loan losses due to loan growth and the decrease in nonaccrual and past due loans - The provision for loan losses increased by $81,000 to $210,000 for the six months ended June 30, 2019, from $129,000 in 2018, reflecting solid loan growth[196] - Nonaccrual loans and loans past due 30+ days decreased by $289,000 to $3.34 million, representing 0.79% of total loans[196] Noninterest Income This section reports the increase in noninterest income, primarily driven by service charges on deposit accounts - Service charges on deposit accounts increased by $126,000 for the six months ended June 30, 2019, compared to the same period in 2018[198] Noninterest Expense This section explains the increase in noninterest expense, mainly due to personnel costs and acquisition-related expenses - Noninterest expense increased by $1 million (13.7%) year-over-year, primarily due to personnel-related expenses on the production side and the inclusion of expenses from the Powhatan Point acquisition[199] Federal Income Taxes This section details the decrease in federal income tax provision and the effective tax rate due to increased tax-exempt investments - The provision for federal income taxes decreased by $73,000 to $375,000 for the six months ended June 30, 2019[200] - The effective tax rate decreased to 10.1% in 2019 from 16.0% in 2018, due to an increase in tax-exempt state and political subdivision investments[200] Results of Operations for the Three Months Ended June 30, 2019 and 2018 This section analyzes the Company's financial performance for the three-month periods, focusing on key income statement components Net Income This section highlights the increase in net earnings and diluted earnings per share for the three-month period - Net earnings for the three months ended June 30, 2019, were $1,646,000, up from $1,212,000 in the same period of 2018[202] - Diluted earnings per share increased to $0.29 for the three months ended June 30, 2019, from $0.23 in 2018[202] Net Interest Income This section discusses the growth in net interest income, primarily driven by increased loan interest income and fees - Net interest income increased by 17.7% ($779,000) for the three months ended June 30, 2019, primarily due to an $837,000 (18.3%) increase in loan interest income and fees[203] Provision for Loan Losses This section details the increase in provision for loan losses, mainly attributed to solid loan growth - The provision for loan losses was $120,000 for the three months ended June 30, 2019, up from $72,000 in 2018, mainly due to solid loan growth[204] Noninterest Income This section reports the increase in noninterest income, primarily from service charges on deposit accounts - Service charges on deposit accounts increased by $44,000 for the three months ended June 30, 2019, compared to the same period in 2018[206] Noninterest Expense This section explains the increase in noninterest expense, driven by personnel costs and acquisition-related expenses - Noninterest expense increased by $418,000 for the three months ended June 30, 2019, driven by personnel-related expenses and the Powhatan Point acquisition[207] Federal Income Taxes This section details the decrease in federal income tax provision and the effective tax rate due to increased tax-exempt investments - The provision for federal income taxes decreased by $62,000 to $188,000 for the three months ended June 30, 2019[208] - The effective tax rate was 10.25% in 2019, down from 17.1% in 2018, due to increased tax-exempt investments[208] Capital Resources This section discusses the Company's capital position, including stockholders' equity, subordinated debentures, and regulatory capital ratios - Stockholders' equity increased by $6.4 million to $57.0 million at June 30, 2019, from $50.6 million at December 31, 2018[210] - The Company issued $20 million in junior subordinated debentures, with $16 million paid as a dividend to Unified Bank to increase its capital for future growth, and $4 million retained for corporate purposes[210] Capital Ratios (Consolidated, as of June 30, 2019, in thousands) | Capital Ratio | Actual Amount | Actual Ratio | For Capital Adequacy Purposes Amount | For Capital Adequacy Purposes Ratio | | :-------------------------------- | :------------ | :----------- | :----------------------------------- | :---------------------------------- | | Total Capital (to Risk-Weighted Assets) | $75,409 | 16.1% | $37,572 | 8.0% | | Common Equity Tier 1 Capital (to Risk-Weighted Assets) | $49,266 | 10.5% | $21,134 | 4.5% | | Tier I Capital (to Risk-Weighted Assets) | $53,266 | 15.6% | $28,179 | 6.0% | | Tier I Capital (to Average Assets) | $53,266 | 11.7% | $25,086 | 4.0% | - The Company and Unified Bank exceed all minimum capital adequacy requirements under Basel III, including the common equity tier 1, tier 1, and total capital ratios[215][218] Liquidity This section describes the Company's liquidity management strategies, including sources of funds and available credit lines - The Company maintains liquidity through net income, loan payments, maturing securities, sales of available-for-sale securities, federal funds sold, and cash[220] - Additional liquidity sources include lines of credit with correspondent banks and a borrowing agreement with the Federal Home Loan Bank of Cincinnati[220] Inflation This section addresses the impact of inflation and interest rate movements on the Company's financial condition and operations - Management believes movements in interest rates affect financial condition and results of operations more significantly than changes in inflation[222] - The Company's asset/liability management aims to minimize the effect of interest rate changes by matching interest sensitivity[222] Item 3 Quantitative and Qualitative Disclosures About Market Risk This section confirms no significant changes in market risk disclosures compared to the prior year's Annual Report on Form 10-K - No significant changes in quantitative and qualitative disclosures about market risk from the prior year's Form 10-K[223] Item 4 Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and the absence of material changes in internal control over financial reporting - The Company's CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2019[225] - No material changes occurred in the Company's internal control over financial reporting during the quarter ended June 30, 2019[226] PART II - OTHER INFORMATION This part provides additional information including legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1 Legal Proceedings This section confirms no legal proceedings beyond ordinary routine litigation incidental to the Company's business - No legal proceedings beyond ordinary routine litigation incidental to the Company's business[228] Item 1A Risk Factors This section indicates no material changes to the risk factors previously disclosed in the Company's Form 10-K - No material changes to risk factors since the Form 10-K for the year ended December 31, 2018[229] Item 2 Unregistered Sales of Equity Securities and Use of Proceeds This section reports no issuer purchases of equity securities and describes the Deferred Compensation Plan for directors and officers - No issuer purchases of equity securities were made during the three months ended June 30, 2019[230] - The Company operates a Deferred Compensation Plan for directors and officers, allowing them to defer fees and awards to acquire common shares, which are not registered under the Securities Act of 1933[230] Item 3 Defaults Upon Senior Securities This section confirms no defaults upon senior securities - Not applicable; no defaults upon senior securities[231] Item 4 Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the Company - Not applicable; no mine safety disclosures[232] Item 5 Other Information This section confirms no other information to report - Not applicable; no other information to report[233] Item 6 Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate documents, subordinated note forms, and certifications - Exhibits include Amended Articles of Incorporation, Amended and Restated Code of Regulations, Forms of 6.00% Fixed to Floating Rate Subordinated Note due May 15, 2029, and the Subordinated Note Purchase Agreement[234] - Certifications from the CEO and CFO (Rule 13a-14(a) and Section 1350) are also included[234] SIGNATURES This section contains the duly authorized signatures of the Company's President and Chief Executive Officer and Chief Financial Officer SIGNATURES This section contains the duly authorized signatures of the Company's President and CEO, and Senior VP, CFO and Treasurer, certifying the report - The report is signed by Scott A. Everson, President and Chief Executive Officer, and Randall M. Greenwood, Senior Vice President, Chief Financial Officer and Treasurer, on August 13, 2019[238][240]