UNITED BANCSHARE(UBOH) - 2022 Q4 - Annual Report

Part I Business United Bancshares, Inc is an Ohio-based financial holding company with its principal subsidiary, The Union Bank Company, offering a full range of banking and wealth management services - United Bancshares, Inc (UBOH) is a financial holding company with consolidated total assets of $1.1 billion at December 31, 2022[17] - The Union Bank Company offers a full range of commercial and consumer banking services, including deposit services, various loan products (commercial, residential, agricultural), and wealth management services through an arrangement with LPL Financial LLC[20][21][22] - The company operates through twenty-two offices serving eleven counties in Ohio[25] - The company faces substantial competition from commercial banks, savings associations, credit unions, and other financial service providers[34]35 Supervision and Regulation The company operates under a comprehensive regulatory framework from the Federal Reserve, ODFI, and FDIC, and its subsidiary bank exceeds all minimum capital requirements - UBOH is a financial holding company subject to supervision by the Federal Reserve Board, while its subsidiary, Union Bank, is supervised by the State of Ohio, Division of Financial Institutions (ODFI) and the Federal Deposit Insurance Corporation (FDIC)[40][45] - The Dodd-Frank Act has introduced significant regulatory changes, including the creation of the Consumer Financial Protection Bureau, new corporate governance requirements, and an expanded deposit insurance assessment base[63][67] - Dividends from Union Bank to UBOH are subject to regulatory approval and limitations, potentially affecting UBOH's ability to pay dividends on its common shares[58] Union Bank Capital Ratios as of December 31, 2022 | Capital Ratio | Bank's Ratio | Well-Capitalized Minimum | Required Minimum | | :--- | :--- | :--- | :--- | | Total risk-based capital | 16.7% | 10.0% | 8.0% | | Tier 1 risk-based capital | 15.5% | 8.0% | 6.0% | | Common equity tier 1 (CET1) | 15.5% | 6.5% | 4.5% | | Tier 1 leverage capital | 10.1% | 5.0% | 4.0% | Statistical Financial Information The company's financial data shows stable net interest income, a slight increase in interest-earning assets, and improved credit quality leading to a negative loan loss provision in 2022 - The company recognized a negative provision for loan losses of ($1,000,000) in 2022, compared to provisions of $300,000 in 2021 and $6,200,000 in 2020, attributed to the waning impact of COVID-related concerns[90] Average Balance Sheet Summary (in thousands) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total interest-earning assets | $979,562 | $969,413 | $891,850 | | Total assets | $1,072,002 | $1,046,350 | $967,828 | | Total interest-bearing liabilities | $764,395 | $731,430 | $688,218 | | Shareholders' equity | $92,471 | $114,981 | $101,631 | Net Interest Income and Margin (Tax Equivalent Basis, in thousands) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total Interest Income | $39,942 | $39,588 | $40,598 | | Total Interest Expense | $3,258 | $3,069 | $6,988 | | Net Interest Income | $36,684 | $36,519 | $33,610 | | Net Interest Margin | 3.74% | 3.77% | 3.77% | Loan Loss Experience Ratios | Ratio | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net charge-offs to average loans | -0.01% | -0.01% | 0.05% | | Allowance for credit losses to total loans | 1.38% | 1.70% | 1.58% | | Nonaccrual loans to total loans | 0.14% | 0.05% | 0.15% | Risk Factors The company faces primary risks from interest rate volatility, credit quality tied to Ohio's economy, liquidity management, and intense industry competition - The Corporation's earnings are largely dependent on net interest income and are highly sensitive to interest rate changes, which are beyond its control[99] - The company is subject to credit risk from its lending activities, with potential for increased non-performing loans if economic conditions in its Ohio markets deteriorate[103][104] - Liquidity risk is significant, as an inability to raise funds through deposits or borrowings could materially affect operations[106] - The allowance for loan losses is based on management estimates and may be insufficient if economic conditions worsen, potentially requiring increased provisions that would decrease net income[109] - The company faces substantial competition from a variety of financial institutions, including larger banks and non-banks, which could affect growth and profitability[117] - UBOH, the holding company, is a separate legal entity that relies on dividends from its subsidiary, Union Bank, for revenue, which are subject to regulatory limitations[123] Other Part I Information This section confirms the company has no unresolved staff comments, no material legal proceedings, and lists its operational properties in Ohio - Item 1B Unresolved Staff Comments: Not applicable[138] - Item 2 Properties: The Corporation operates from its headquarters in Columbus Grove, Ohio, with eighteen full-service banking centers and three loan production offices in northwest and central Ohio[138][139] - Item 3 Legal Proceedings: There are no material pending legal proceedings against the Corporation or its subsidiary outside of routine business matters[140] - Item 4 Mine Safety Disclosures: Not applicable[141] Part II Market for Common Equity and Share Repurchases The company actively repurchased its common stock in the fourth quarter of 2022 under a plan authorizing up to 800,000 shares for repurchase - The stock repurchase plan authorizes the Corporation to repurchase up to 800,000 of its common shares[142] Share Repurchases in Q4 2022 | Period | Total Shares Purchased | Weighted Avg. Price Paid | Shares Remaining in Plan | | :--- | :--- | :--- | :--- | | Oct 2022 | 0 | $- | 338,693 | | Nov 2022 | 10,000 | $18.59 | 328,693 | | Dec 2022 | 76,953 | $23.64 | 251,740 | Selected Financial Data, MD&A, and Financial Statements Key financial data and management's discussion are incorporated by reference from the company's 2022 Annual Report to Shareholders - The information required for Items 6, 7, and 8 is incorporated by reference from the United Bancshares' Annual Report to Shareholders for 2022 (Exhibit 13)[143][144] Controls and Procedures Management concluded that the company's disclosure controls, procedures, and internal control over financial reporting were effective as of year-end 2022 - Management concluded that the Corporation's disclosure controls and procedures were effective as of December 31, 2022[146] - Based on an assessment using the COSO framework, management believes the Corporation's internal control over financial reporting was effective as of December 31, 2022[149] - There were no changes in the Corporation's internal control over financial reporting during the fiscal year that materially affected, or are reasonably likely to materially affect, its internal controls[150] Part III Directors, Executive Officers and Corporate Governance The company maintains a governance structure with a seven-member board, separate CEO and Chairman roles, independent committees, and a designated audit committee financial expert - The Board of Directors is set at seven members, and the offices of Chairman of the Board and Chief Executive Officer are separated[158][178] - The company has standing Audit, Compensation, and Nominating Committees, each with a written charter and composed of independent directors[183][188][190] - The Board has determined that director Robert L Benroth is an 'audit committee financial expert' as defined by SEC regulations[160][190] - The company has adopted a Code of Ethics applicable to its senior officers, which is available on the company's website[195] Executive Compensation Executive compensation includes salary, bonuses, and stock awards, with the CEO participating in a supplemental retirement plan and stock options featuring a double-trigger clause - CEO Brian D Young participates in a non-qualified supplemental retirement plan (Salary Continuation Agreement) with an accrued benefit of $343,371 as of December 31, 2022[200][209] - Stock options granted under the 2016 Stock Option Plan have a double-trigger change of control clause, allowing for accelerated vesting if an employee is terminated without cause or resigns for good reason following a change of control[212] - Non-employee directors receive annual compensation of up to $15,000 for service on the United Bancshares board and up to $15,000 for service on The Union Bank Company board, with additional fees for committee chairs[220] 2022 Summary Compensation Table | Name and Principal Position | Year | Salary($) | Bonus($) | Option Awards ($) | All Other Compensation($) | Total($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Brian D. Young, President and CEO | 2022 | $395,000 | $90,000 | $95,000 | $72,254 | $652,254 | | Klint D. Manz, CFO | 2022 | $171,250 | $45,150 | $24,375 | $19,720 | $260,495 | Security Ownership Significant stock ownership is held by the company's ESOP and two other entities, while directors and executive officers as a group own 4.84% of common stock - As of February 28, 2023, all directors, nominees, and officers as a group (9 persons) beneficially owned 151,753 shares, representing 4.84% of the outstanding common stock[225] Beneficial Owners of More Than 5% (as of Dec 31, 2022) | Name of Beneficial Owner | Percent of Class | | :--- | :--- | | United Bancshares, Inc. Restated Employee Stock Ownership Plan | 10.98% | | Tontine Financial Partners, L.P. | 9.33% | | Joe S. Edwards, Jr. | 5.87% | Certain Relationships, Related Transactions, and Director Independence All directors except the CEO are independent, and all related party transactions are conducted on standard market terms and pre-approved by the Audit Committee - The Board of Directors has determined that all directors, with the exception of CEO Brian D Young, are independent under applicable NASDAQ Rules[228] - All banking transactions with directors and officers were made in the ordinary course of business on substantially the same terms as those for comparable transactions with other persons and did not involve more than a normal risk of collectability[227][229] - The Corporation's Audit Committee is required to pre-approve all related party transactions, though routine banking transactions are exempt if they comply with all banking regulations[230] Principal Accountant Fees and Services CliftonLarsonAllen LLP's fees for 2022 totaled $282,472 for audit and audit-related services, all of which were pre-approved by the Audit Committee - The Audit Committee is responsible for the approval of all audit and permitted non-audit services and approved 100% of the services performed by CliftonLarsonAllen LLP[238] Accountant Fees Billed | Fee Type | 2022 | 2021 | | :--- | :--- | :--- | | Audit Fees | $254,779 | $185,393 | | Audit-Related Fees | $27,693 | $21,600 | | Tax Fees | $0 | $0 | | All Other Fees | $0 | $0 | Part IV Exhibits and Financial Statement Schedules This section lists all financial statements and exhibits filed with the Form 10-K, with key financial reports incorporated by reference from the 2022 Annual Report - The consolidated financial statements for the years ended December 31, 2022, 2021, and 2020 are incorporated by reference from the Corporation's 2022 Annual Report to Shareholders (Exhibit 13)[240] - A list of exhibits filed with the report includes Articles of Incorporation, executive agreements, the 2016 Stock Option Plan, the 2022 Annual Report, and various certifications required by the SEC[243][246]