United Bancorp(UBCP) - 2020 Q1 - Quarterly Report

FORM 10-Q Filing Information This document is a Form 10-Q quarterly report for UNITED BANCORP, INC for the period ended March 31, 2020 Form 10-Q Filing Details | Detail | Value | | :----- | :---- | | Filing Type | Quarterly Report (Form 10-Q) | | Period Ended | March 31, 2020 | | Registrant | UNITED BANCORP, INC | | Commission File Number | 0-16540 | | State of Incorporation | Ohio | | IRS Employer Identification No | 34-1405357 | | Principal Executive Offices | 201 South Fourth Street, Martins Ferry, Ohio 43935-0010 | | Telephone Number | (740) 633-0445 | | Trading Symbol | UBCP | | Exchange | NASDQ Capital Market | | Filer Status | Non-accelerated filer, Smaller Reporting Company | | Common Stock Outstanding (May 15, 2020) | 5,729,113 shares | PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the period ended March 31, 2020 - The financial statements are unaudited and reflect all necessary adjustments for fair presentation[22] Condensed Consolidated Balance Sheets (March 31, 2020 vs. December 31, 2019) | Item (In thousands) | March 31, 2020 | December 31, 2019 | Change (vs. Dec 2019) | | :------------------ | :------------- | :---------------- | :-------------------- | | Assets | | | | | Cash and cash equivalents | $28,042 | $14,985 | +$13,057 | | Available-for-sale securities | $197,401 | $188,785 | +$8,616 | | Loans, net | $445,629 | $439,317 | +$6,312 | | Total assets | $715,281 | $685,706 | +$29,575 | | Liabilities | | | | | Total deposits | $555,518 | $548,069 | +$7,449 | | Securities sold under repurchase agreements | $14,587 | $6,915 | +$7,672 | | Federal Home Loan Bank advances | $51,000 | $39,800 | +$11,200 | | Total liabilities | $652,333 | $625,784 | +$26,549 | | Stockholders' Equity | | | | | Total stockholders' equity | $62,948 | $59,922 | +$3,026 | | Total liabilities and stockholders' equity | $715,281 | $685,706 | +$29,575 | Condensed Consolidated Statements of Income (Three Months Ended March 31, 2020 vs. 2019) | Item (In thousands, except per share data) | 2020 | 2019 | Change (YoY) | | :--------------------------------------- | :--- | :--- | :----------- | | Total interest and dividend income | $7,319 | $6,315 | +$1,004 | | Total interest expense | $1,685 | $1,207 | +$478 | | Net Interest Income | $5,634 | $5,108 | +$526 | | Provision for Loan Losses | $563 | $90 | +$473 | | Net Interest Income After Provision for Loan Losses | $5,071 | $5,018 | +$53 | | Total noninterest income | $1,044 | $945 | +$99 | | Total noninterest expense | $4,410 | $4,162 | +$248 | | Income Before Federal Income Taxes | $1,705 | $1,801 | -$96 | | Provision for Federal Income Taxes | $126 | $187 | -$61 | | Net Income | $1,579 | $1,614 | -$35 | | Basic Earnings Per Share | $0.28 | $0.28 | $0.00 | | Diluted Earnings Per Share | $0.28 | $0.28 | $0.00 | | Dividends Per Share | $0.1425 | $0.13 | +$0.0125 | Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31, 2020 vs. 2019) | Activity (In thousands) | 2020 | 2019 | Change (YoY) | | :---------------------- | :--- | :--- | :----------- | | Net cash provided by operating activities | $1,951 | $843 | +$1,108 | | Net cash used in investing activities | $(13,849) | $(11,190) | -$2,659 | | Net cash provided by financing activities | $24,955 | $17,786 | +$7,169 | | Increase in Cash and Cash Equivalents | $13,057 | $7,439 | +$5,618 | | Cash and Cash Equivalents, End of Period | $28,042 | $32,692 | -$4,650 | Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures on accounting policies, securities, loans, and other financial items Note 1: Summary of Significant Accounting Policies This note outlines key accounting principles, including revenue recognition, loan loss allowance, and new standards - The Company's operations are primarily banking services for customers in specific Ohio counties and West Virginia[24][26] - Revenue recognition for most transactions is not subject to ASC 606, while service charges are recognized upon completion[28][29] - The allowance for loan losses is a critical accounting policy involving subjective estimates based on multiple factors[41][42][45] - The Company adopted ASU 2016-02 "Leases (Topic 842)" on January 1, 2019, with an immaterial impact[57][58][59] - The Company is evaluating ASU 2016-13 (CECL), with adoption expected to significantly change ALL calculation processes[60][64] Basic and Diluted Earnings Per Share Calculation (Three Months Ended March 31) | Item (In thousands, except per share data) | 2020 | 2019 | | :--------------------------------------- | :--- | :--- | | Net income | $1,579 | $1,614 | | Less allocated earnings on non-vested restricted stock | (32) | (27) | | Less allocated dividends on non-vested restricted stock | (35) | (23) | | Net income allocated to common stockholders | $1,512 | $1,564 | | Weighted Average Shares | 5,463,739 | 5,515,418 | | Basic and diluted earnings per share | $0.28 | $0.28 | Note 2: Securities This note details the company's available-for-sale securities portfolio, including fair values and unrealized gains - The total fair value of temporarily impaired investments decreased significantly from $50.3 million to $8.0 million[70][71][73] - During Q1 2020, the Company sold $8.0 million of US Government Agency bonds, realizing a gain of approximately $69,000[75] Available-for-sale Securities (March 31, 2020 vs. December 31, 2019) | Category (In thousands) | Amortized Cost (Mar 31, 2020) | Fair Value (Mar 31, 2020) | Amortized Cost (Dec 31, 2019) | Fair Value (Dec 31, 2019) | | :---------------------- | :---------------------------- | :------------------------ | :---------------------------- | :------------------------ | | U.S. government agencies | $32,000 | $32,203 | $40,000 | $39,528 | | Subordinated notes | $4,500 | $4,530 | $4,500 | $4,532 | | State and municipal obligations | $149,144 | $160,668 | $135,897 | $144,725 | | Total debt securities | $185,644 | $197,401 | $180,397 | $188,785 | Gross Unrealized Gains and Losses on Available-for-Sale Securities (March 31, 2020 vs. December 31, 2019) | Item (In thousands) | Gross Unrealized Gains (Mar 31, 2020) | Gross Unrealized Losses (Mar 31, 2020) | Gross Unrealized Gains (Dec 31, 2019) | Gross Unrealized Losses (Dec 31, 2019) | | :------------------ | :------------------------------------ | :------------------------------------- | :------------------------------------ | :------------------------------------- | | Total debt securities | $11,858 | $(101) | $9,029 | $(641) | Note 3: Loans and Allowance for Loan Losses This note details the loan portfolio composition, risk characteristics, and allowance for loan losses activity - Commercial loans are primarily cash flow-based, while real estate and consumer loans depend on property values and personal income[77][78][79] - The Company uses credit grades (pass, special mention, substandard, doubtful) to monitor credit quality[89][90][91][92] - In Q1 2020, two commercial loans totaling $83,000 were restructured as troubled debt restructurings (TDRs)[104][105][107] Loan Portfolio Composition (March 31, 2020 vs. December 31, 2019) | Loan Category (In thousands) | March 31, 2020 | December 31, 2019 | Change (vs. Dec 2019) | | :--------------------------- | :------------- | :---------------- | :-------------------- | | Commercial loans | $106,476 | $99,995 | +$6,481 | | Commercial real estate | $252,351 | $254,651 | -$2,300 | | Residential real estate | $80,151 | $77,205 | +$2,946 | | Installment loans | $9,359 | $9,697 | -$338 | | Total gross loans | $448,337 | $441,548 | +$6,789 | | Less allowance for loan losses | $(2,708) | $(2,231) | -$(477) | | Total loans, net | $445,629 | $439,317 | +$6,312 | Allowance for Loan Losses Activity (Three Months Ended March 31, 2020) | Item (In thousands) | Commercial | Commercial Real Estate | Residential | Installment | Total | | :------------------ | :--------- | :--------------------- | :---------- | :---------- | :---- | | Balance, beginning of period | $568 | $792 | $572 | $299 | $2,231 | | Provision charged to expense | $529 | $19 | $1 | $14 | $563 | | Losses charged off | $(42) | $(30) | $(6) | $(31) | $(109) | | Recoveries | $0 | $0 | $0 | $23 | $23 | | Balance, end of period | $1,055 | $781 | $567 | $305 | $2,708 | Loan Portfolio Quality Indicators (March 31, 2020 vs. December 31, 2019) | Loan Class (In thousands) | March 31, 2020 | December 31, 2019 | | :------------------------ | :------------- | :---------------- | | Pass Grade | $442,786 | $435,795 | | Special Mention | $3,750 | $4,016 | | Substandard | $1,801 | $1,737 | | Doubtful | $0 | $0 | | Total | $448,337 | $441,548 | Loan Portfolio Aging Analysis (March 31, 2020 vs. December 31, 2019) | Status (In thousands) | March 31, 2020 | December 31, 2019 | | :-------------------- | :------------- | :---------------- | | 30-59 Days Past Due and Accruing | $507 | $635 | | 60-89 Days Past Due and Accruing | $258 | $347 | | Greater Than 90 Days and Accruing | $0 | $226 | | Non Accrual | $1,850 | $1,452 | | Total Past Due and Non Accrual | $2,615 | $2,660 | | Current | $445,722 | $438,888 | | Total Loans Receivable | $448,337 | $441,548 | Impaired Loans (As of March 31, 2020) | Loan Category (In thousands) | Recorded Balance | Unpaid Principal Balance | Specific Allowance | Average Investment in Impaired Loans | Interest Income Recognized | | :--------------------------- | :--------------- | :----------------------- | :----------------- | :----------------------------------- | :------------------------- | | Commercial | $138 | $138 | $16 | $143 | $8 | | Commercial real estate | $758 | $758 | $0 | $761 | $0 | | Residential | $505 | $512 | $0 | $590 | $2 | Note 4: Benefit Plans This note provides a summary of pension expense components for the first quarter of 2020 and 2019 Pension Expense (Three Months Ended March 31) | Item (In thousands) | 2020 | 2019 | | :------------------ | :--- | :--- | | Service cost | $98 | $75 | | Interest cost | $59 | $55 | | Expected return on assets | $(117) | $(102) | | Amortization of prior service cost and net loss | $13 | $1 | | Total Pension expense | $53 | $29 | Note 5: Off-balance-sheet Activities This note summarizes financial instruments with off-balance-sheet risk, such as loan commitments and credit lines - The Company issues financial instruments like loan commitments and credit lines that carry off-balance-sheet credit risk[109] Off-Balance-Sheet Financial Instruments (In thousands) | Item | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------- | :---------------- | | Commercial loans unused lines of credit | $48,485 | $40,538 | | Commitment to originate loans | $46,846 | $38,722 | | Consumer open end lines of credit | $38,295 | $38,575 | | Standby lines of credit | $46 | $46 | Note 6: Accumulated Other Comprehensive Income This note details the components of accumulated other comprehensive income included in stockholders' equity Components of Accumulated Other Comprehensive Income (In thousands) | Item | March 31, 2020 | December 31, 2019 | | :---------------------------------------------------- | :------------- | :---------------- | | Net unrealized gain (loss) on securities available-for-sale | $11,757 | $8,389 | | Net unrealized loss for unfunded status of defined benefit plan liability | $(1,381) | $(1,381) | | Subtotal | $10,376 | $7,008 | | Less: Tax effect | $2,179 | $1,472 | | Net-of-tax amount | $8,197 | $5,536 | Note 7: Fair Value Measurements This note explains the Company's fair value measurement methodologies using a three-level hierarchy - Fair value is measured using a three-level hierarchy based on the observability of inputs (Level 1, 2, and 3)[113][114] - Impaired loans and foreclosed assets are measured at fair value on a nonrecurring basis and classified as Level 3[120][121][123] Fair Value Measurements of Available-for-Sale Securities (Recurring Basis, In thousands) | Item | Fair Value (Mar 31, 2020) | Level 1 | Level 2 | Level 3 | | :------------------------ | :------------------------ | :------ | :------ | :------ | | U.S. government agencies | $32,203 | $0 | $32,203 | $0 | | Subordinated Notes | $4,530 | $0 | $4,530 | $0 | | State and municipal obligations | $160,668 | $0 | $160,668 | $0 | | Total (Mar 31, 2020) | $197,401 | $0 | $197,401 | $0 | | Fair Value (Dec 31, 2019) | $188,785 | $0 | $188,785 | $0 | Fair Value Measurements of Nonrecurring Assets (In thousands) | Item | Fair Value (Mar 31, 2020) | Level 1 | Level 2 | Level 3 | | :-------------------------- | :------------------------ | :------ | :------ | :------ | | Collateral dependent impaired loans | $28 | $0 | $0 | $28 | | Foreclosed assets held for sale | $0 | $0 | $0 | $0 | Estimated Fair Values of Financial Instruments (March 31, 2020, In thousands) | Item | Carrying Amount | Fair Value (Level 1) | Fair Value (Level 2) | Fair Value (Level 3) | | :-------------------------- | :-------------- | :------------------- | :------------------- | :------------------- | | Financial assets | | | | | | Cash and cash equivalents | $28,042 | $28,042 | $0 | $0 | | Loans, net of allowance | $445,629 | $0 | $0 | $444,229 | | Federal Home Loan Bank stock | $4,452 | $0 | $4,452 | $0 | | Accrued interest receivable | $2,563 | $0 | $2,563 | $0 | | Financial liabilities | | | | | | Deposits | $555,518 | $0 | $554,096 | $0 | | Short term borrowings | $14,587 | $0 | $14,587 | $0 | | Federal Home Loan Bank Advances | $51,000 | $0 | $51,033 | $0 | | Subordinated debentures | $23,558 | $0 | $25,513 | $0 | | Interest payable | $704 | $0 | $704 | $0 | Note 8: Repurchase Agreements This note describes the Company's repurchase agreements, which are secured borrowings collateralized by securities - Repurchase agreements are secured borrowings with customers, collateralized by the Company's investment securities[143][145][146] Repurchase Agreements (In thousands) | Item | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------- | :---------------- | | U.S. government agencies (Overnight and Continuous) | $14,587 | $6,915 | | Total Repurchase Agreements | $14,587 | $6,915 | | Carrying value of collateral | $17,400 | $9,400 | Note 9: Core Deposits and Other Intangible Assets This note provides information on goodwill and core deposit intangible assets, including amortization and impairment tests - Despite COVID-19 uncertainty, the Company concluded that no goodwill impairment was identified as of March 31, 2020[149] Goodwill and Core Deposit Intangibles (In thousands) | Item | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------- | :---------------- | | Goodwill (Balance end of period) | $682 | $682 | | Core deposit intangibles (Net) | $822 | $860 | Estimated Future Amortization Expense for Intangible Assets (In thousands) | Year | Amortization Expense | | :--- | :------------------- | | 2020 | $136 | | 2021 | $181 | | 2022 | $181 | | 2023 | $181 | | 2024 | $136 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, results of operations, and the impacts of the COVID-19 pandemic Introduction and Overview The Company maintained stable EPS despite a higher loan loss provision, supported by strong asset growth and net interest income - The Company has adapted its operating structure due to COVID-19, with remote work and services via drive-ups and digital channels[157] Key Financial Highlights (Three Months Ended March 31, 2020 vs. 2019) | Metric | 2020 | 2019 | Change (YoY) | | :-------------------------- | :--- | :--- | :----------- | | Diluted Earnings Per Share | $0.28 | $0.28 | $0.00 | | Net Income (in thousands) | $1,579 | $1,614 | -$35 | | Loan Loss Provision (in thousands) | $563 | $90 | +$473 | | Gross Loans (YoY increase) | +$34.4 million | N/A | +8.3% | | Securities & Other Restricted Stock (YoY increase) | +$57.5 million | N/A | +39.8% | | Total Interest Income (YoY increase) | +$1.0 million | N/A | +15.9% | | Net Interest Income (YoY increase) | +$525 thousand | N/A | +10.3% | | Net Interest Margin (Mar 31, 2020) | 3.76% | N/A | Relatively stable | | Nonaccrual loans & 30+ days past due (Mar 31, 2020) | $2.6 million | $3.5 million | -$0.9 million | | Nonaccrual loans & 30+ days past due (% of total loans) | 0.58% | 0.85% | -0.27% | | Net loans charged off (annualized) | $63 thousand | N/A | 0.06% | | Allowance for Loan Losses (% of total loans) | 0.60% | 0.50% | +0.10% | | ALL to Nonperforming Loans | 146.4% | 132.2% | +14.2% | | Shareholders' Equity (YoY increase) | +$9.1 million | N/A | +17.0% | | Book Value Per Share (YoY increase) | $10.75 | N/A | +17.0% | Forward-Looking Statements and Critical Accounting Policies This section outlines risks associated with forward-looking statements and identifies the allowance for loan losses as critical - Forward-looking statements are subject to risks including economic conditions, regulatory changes, and interest rate fluctuations[158][161] - The allowance for loan losses is a critical accounting policy involving complex and subjective management decisions[163][164][165] Analysis of Financial Condition This section analyzes changes in earning assets and funding sources, noting growth in loans, securities, and core deposits - Securities available for sale increased by approximately $8.6 million from December 31, 2019[174] - Repurchase agreements increased by approximately $7.7 million from December 31, 2019[178] Gross Loans by Category (March 31, 2020 vs. December 31, 2019) | Loan Category (In millions) | March 31, 2020 | December 31, 2019 | Change | | :-------------------------- | :------------- | :---------------- | :----- | | Gross Loans | $448.3 | $441.5 | +$6.8 | | Commercial & Commercial Real Estate | 80.0% of total | 80.3% of total | +$4.1 | | Residential Real Estate | 17.8% of total | 17.6% of total | +$2.9 | | Installment Loans | 2.2% of total | 2.1% of total | -$0.337 | Allowance for Loan Losses (March 31, 2020 vs. December 31, 2019) | Metric | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------- | :---------------- | | Allowance for loan losses | $2.7 million | $2.2 million | | % of total loans | 0.60% | 0.51% | | Net loan charge-offs (Q1 2020) | $63,000 | N/A | Deposit Growth (March 31, 2020 vs. December 31, 2019) | Deposit Category (In millions) | Change | | :----------------------------- | :----- | | Total core deposits | +$9.2 (1.7%) | | Savings accounts | +$2.8 (2.6%) | | Interest-bearing & non-interest bearing demand deposits | +$11.1 | | Certificates of deposit under $250,000 | +$4.7 | | Certificates of deposit greater than $250,000 | -$1.7 (12.2%) | Results of Operations for the Three Months Ended March 31, 2020 and 2019 This section details financial performance for Q1 2020, highlighting changes in income, expenses, and provisions - The increase in noninterest expense was mainly due to personnel-related expenses and enhanced marketing functions[184] Key Income Statement Changes (Three Months Ended March 31, 2020 vs. 2019) | Item | 2020 (in thousands) | 2019 (in thousands) | Change (YoY) | | :-------------------------- | :------------------ | :------------------ | :----------- | | Diluted Earnings Per Share | $0.28 | $0.28 | $0.00 | | Net Interest Income | $5,634 | $5,108 | +$526 (10.3%) | | Provision for Loan Losses | $563 | $90 | +$473 | | Noninterest Income | $1,044 | $945 | +$99 | | Noninterest Expense | $4,410 | $4,162 | +$248 (6.0%) | | Provision for Federal Income Taxes | $126 | $187 | -$61 | | Effective Tax Rate | 7.4% | 10.4% | -3.0% | COVID-19: Update on Company Action and Ongoing Risks This section details the Company's response to the COVID-19 pandemic, including operational changes and customer assistance - In response to COVID-19, the Bank temporarily suspended branch lobby hours, encouraging use of drive-thru and digital services[188] - The Company received customer requests for payment deferrals covering 630 loans totaling approximately $167 million[189] - Employees are encouraged to work remotely, and the Bank is following the Families First Coronavirus Response Act (FFCRA)[191] - Management believes Q1 2020 performance was not significantly impacted by COVID-19 but acknowledges significant future uncertainty[192] - Potential ongoing risks include declining demand, increased loan delinquencies, collateral value depreciation, and higher loan loss provisions[194][196] Capital Resources This section discusses the Company's capital adequacy, internal capital growth, and compliance with regulatory requirements - The Company is well-capitalized according to Federal regulatory capital requirements under Basel III rules[200][201][202][203] Stockholders' Equity and Capital Ratios (March 31, 2020 vs. December 31, 2019) | Metric | March 31, 2020 | December 31, 2019 | Change | | :-------------------------- | :------------- | :---------------- | :----- | | Stockholders' equity | $62.9 million | $59.9 million | +$3.0 million | | Total average stockholders' equity to total assets | 8.79% | 8.74% | +0.05% | | Common equity tier 1 capital ratio | 11.48% | N/A | N/A | | Tier 1 capital ratio | 12.27% | N/A | N/A | | Total capital ratio | 16.81% | N/A | N/A | | Leverage ratio | 8.93% | N/A | N/A | Liquidity and Inflation This section addresses liquidity management and the impact of inflation on the Company's financial condition - The Company manages liquidity to meet commitments using sources like net income, loan payments, and maturing securities[205] - Interest rate movements have a greater impact on the Company's financial condition than inflation rates[206][207] Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risk disclosures remain unchanged from the Annual Report on Form 10-K for the year ended December 31, 2019 - No significant changes in market risk disclosures from the previous Form 10-K[208] Item 4. Controls and Procedures Management confirms the effectiveness of disclosure controls and procedures as of the quarter's end - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2020[210] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2020[211] PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is not involved in any legal proceedings outside of ordinary routine litigation incidental to its business - No material legal proceedings beyond routine business litigation[213] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's Form 10-K - No material changes to risk factors from the previous Form 10-K[214] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on issuer purchases of equity securities under a deferred compensation plan - Shares were purchased under the unfunded Deferred Compensation Plan for directors and officers, relying on Section 4(2) exemption[215] Issuer Purchases of Equity Securities (Common Stock) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :---------------- | :----------------------------- | :--------------------------- | | 1/1/20 to 1/31/2020 | -- | -- | | 2/1/2020 to 2/28/2020 | 3,200 | $14.65 | | 3/1/2020 to 3/31/2020 | -- | -- | Item 3. Defaults Upon Senior Securities This section confirms there are no defaults upon senior securities - Not applicable[216] Item 4. Other Information This section confirms there are no mine safety disclosures to report - Not applicable (Mine Safety Disclosures)[218] Item 5. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance and certification documents - The exhibits include corporate governance documents, description of common stock, CEO and CFO certifications, and XBRL financial data[219] SIGNATURES Signatures The report is duly signed by the CEO and CFO on behalf of the company as of May 15, 2020 - The report was signed by Scott A Everson (President and CEO) and Randall M Greenwood (SVP, CFO, and Treasurer) on May 15, 2020[221][223]