United Bancorp 10Q 2023 Q3 Quarterly report

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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 September 30, 2023

☐ 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 November 9, 2023, 5,716,495 shares of the Company’s common stock, $1.00 par value, were issued and outstanding.

Table of Contents


PART I - FINANCIAL INFORMATION

Item 1	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Income	4

	Condensed Consolidated Statements of Comprehensive Income (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	30

Item 3	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4	Controls and Procedures	37

PART II - OTHER INFORMATION

Item 1	Legal Proceedings	38

Item 1A	Risk Factors	38

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3	Defaults Upon Senior Securities	38

Item 4	Mine Safety Disclosures	38

Item 5	Other Information	38

Item 6	Exhibits	39

SIGNATURES		40

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ITEM 1. Financial Statements

United Bancorp, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share data)


	September 30,		December 31,
	2023		2022
	(Unaudited)
Assets
Cash and due from banks	$	7,952	$	8,279
Interest-bearing demand deposits		62,940		21,801
Cash and cash equivalents		70,892		30,080
Available-for-sale securities, amortized cost of $245,389 net of allowance for credit losses of $0 at September 30, 2023		224,679		217,624
Loans, net of allowance for credit losses of $4,112 and $2,052 at September 30, 2023 and December 31, 2022, respectively		462,730		458,823
Premises and equipment		12,336		12,144
Federal Home Loan Bank stock		3,979		2,499
Foreclosed assets held for sale, net		3,480		3,519
Core deposit other intangible asset		297		410
Goodwill		682		682
Accrued interest receivable		3,724		3,403
Deferred federal income tax		5,094		2,423
Bank-owned life insurance		19,320		19,000
Other assets		7,068		6,793
Total assets	$	814,281	$	757,400
Liabilities and Stockholders’ Equity
Liabilities
Deposits
Demand	$	354,300	$	402,341
Savings		134,423		145,836
Time		139,289		101,736
Total deposits		628,012		649,913
Securities sold under repurchase agreements		28,584		18,106
Subordinated debentures		23,771		23,726
Advances Federal Home Loan Bank		75,000		—
Interest payable and other liabilities		6,324		5,918
Total liabilities		761,691		697,663

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 6,063,851 shares at September 30, 2023, and 6,043,851 shares at December 31, 2022; outstanding - 5,716,495 and 5,740,251 shares at September 30, 2023 and December 31, 2022, respectively		6,064		6,044
Additional paid-in capital		25,481		24,814
Retained earnings		42,629		41,945
Stock held by deferred compensation plan; 167,993 and 174,237 shares at September 30, 2023 and December 31, 2022		(2,003)		(1,902)
Accumulated other comprehensive loss		(17,020)		(9,336)
Treasury stock, at cost 179,363 and 129,363 shares- at September 30, 2023 and December 31, 2022, respectively		(2,561)		(1,828)
Total stockholders’ equity		52,590		59,737
Total liabilities and stockholders’ equity	$	814,281	$	757,400

See Notes to Condensed Consolidated Financial Statements

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United Bancorp, Inc.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Interest and dividend income
Loans, including fees	$	6,454	$	5,378	$	18,389	$	15,083
Taxable securities		707		558		2,068		1,228
Non-taxable securities		1,500		1,162		4,357		3,088
Federal funds sold		909		152		2,171		246
Dividends on Federal Home Loan Bank stock and other		81		47		160		94
Total interest and dividend income		9,651		7,297		27,145		19,739
Interest expense
Deposits
Demand		493		261		1,445		440
Savings		33		35		101		42
Time		1,071		194		2,595		290
Borrowings		1,488		438		3,670		1,120
Total interest expense		3,085		928		7,811		1,892
Net interest income		6,566		6,369		19,334		17,847
Provision for (reversal of) credit loss expense - loans		(154)		15		(300)		(970)
Net interest income after provision for (reversal of) credit loss expense		6,720		6,354		19,634		18,817
Noninterest income
Service charges on deposit accounts		704		754		2,202		2,181
Realized gains on sales of loans		1		6		8		33
Other income		258		283		815		804
Total noninterest income		963		1,043		3,025		3,018
Noninterest expense
Salaries and employee benefits		2,480		2,399		7,814		7,788
Net occupancy and equipment expense		546		569		1,550		1,731
Professional services		371		358		1,100		981
Insurance		144		144		448		422
Deposit insurance premiums		96		50		267		149
Franchise and other taxes		139		136		417		408
Advertising		100		124		300		277
Stationery and office supplies		33		32		92		78
Amortization of core deposit premium		38		38		113		113
Other expenses		1,286		1,029		3,659		2,891
Total noninterest expense		5,233		4,879		15,760		14,838
Income before federal income taxes		2,450		2,518		6,899		6,997
Federal income taxes		58		215		339		646
Net income	$	2,392	$	2,303	$	6,560	$	6,351
EARNINGS PER COMMON SHARE
Basic	$	0.42	$	0.40	$	1.15	$	1.10
Diluted	$	0.42	$	0.40	$	1.15	$	1.10
DIVIDENDS PER COMMON SHARE	$	0.1675	$	0.1575	$	0.6450	$	0.6150

See Notes to Condensed Consolidated Financial Statements

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United Bancorp, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

Three and Nine Months Ended September 30, 2023 and 2022

(In thousands, except per share data)

(Unaudited)


	Three months ended				Nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
Net income	$	2,392	$	2,303	$	6,560	$	6,351
Unrealized holding losses on securities during the period, net of tax (benefit) of ($1,940), ($1,773), ($2,043) and ($5,704) for each respective period		(7,298)		(6,670)		(7,684)		(21,444)
Comprehensive income (loss)	$	(4,906)	$	(4,367)	$	(1,124)	$	(15,093)

See Notes to Condensed Consolidated Financial Statements

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United Bancorp, Inc.

Consolidated Statements of Stockholders’ Equity

Three Months Ended September 30, 2023 and 2022

(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 July 1, 2022	$	6,044	$	24,528	$	(3,618)	$	39,169	$	(7,810)	$	58,313
Net income		—		—		—		2,303		—		2,303
Other comprehensive loss		—		—		—		—		(6,670)		(6,670)
Cash dividends - $0.1575 per share		—		—		—		(887)		—		(887)
Deferred compensation plan activity		—		108		(108)		—		—		—
Expense/shares repurchase related to share-based compensation plans		—		87		—		—		—		87
Balance, September 30, 2022	$	6,044	$	24,723	$	(3,726)	$	40,585	$	(14,480)	$	53,146
Balance July 1, 2023		6,044		25,328		(4,464)		41,223		(9,722)		58,409
Net income		—		—		—		2,392		—		2,392
Other comprehensive loss		—		—		—		—		(7,298)		(7,298)
Cash dividends - $0.1675 per share		—		—		—		(986)		—		(986)
Deferred compensation plan activity		—		100		(100)		—		—		—
Expense/shares repurchase related to share-based compensation plans		20		53		—		—		—		73
Balance, September 30, 2023	$	6,064	$	25,481	$	(4,564)	$	42,629	$	(17,020)	$	52,590


					Treasury				Accumulated
			Additional		Stock and				Other
	Common		Paid-in		Deferred		Retained		Comprehensive
	Stock		Capital		Compensation		Earnings		Income (Loss)		Total
Balance January 1, 2022	$	6,054	$	23,635	$	(2,799)	$	37,847	$	6,964	$	71,701
Net income		—		—		—		6,351		—		6,351
Other comprehensive loss		—		—		—		—		(21,444)		(21,444)
Cash dividends - $0.6150 per share		—		—		—		(3,613)		—		(3,613)
Deferred compensation plan activity		—		159		(927)		—		—		(768)
Repurchase of common stock		—		919		—		—		—		919
Expense/shares repurchase related to share-based compensation plans		(10)		10		—		—		—		—
Balance, September 30, 2022	$	6,044	$	24,723	$	(3,726)	$	40,585	$	(14,480)	$	53,146
Balance January 1, 2023		6,044		24,814		(3,730)		41,945		(9,336)		59,737
Net income		—		—		—		6,560		—		6,560
Other comprehensive loss		—		—		—		—		(7,684)		(7,684)
Cash dividends - $0.645 per share		—		—		—		(3,788)		—		(3,788)
Cumulative effect of adoption of ASU 2016-13		—		—		—		(2,088)		—		(2,088)
Deferred compensation plan activity		—		101		(101)		—		—		—
Repurchase of common stock		—		—		(733)		—		—		(733)
Expense/shares repurchase related to share-based compensation plans		20		566		—		—		—		586
Balance, September 30, 2023	$	6,064	$	25,481	$	(4,564)	$	42,629	$	(17,020)	$	52,590

See Notes to Condensed Consolidated Financial Statements

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United Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2023 and 2022

(In thousands except per share data)

(Unaudited)


	Nine months ended
	September 30,
	2023		2022
Operating Activities
Net income	$	6,560	$	6,351
Items not requiring (providing) cash
Accretion of premiums and discounts on securities, net		271		389
Amortization of intangible asset		113		113
Depreciation and amortization		744		768
Expense related to share based compensation plans		586		919
Provision for (reversal of) credit loss expense		(300)		(970)
Increase in value of bank-owned life insurance		(320)		(90)
Gain on sale of loans		(8)		(33)
Proceeds from sale of loans held for sale		396		1,819
Originations of loans held for sale		(404)		(1,786)
Loss on sale or write down of foreclosed assets		62		23
Amortization of debt instrument costs		46		46
Net change in accrued interest receivable and other assets		(1,227)		(2,014)
Net change in accrued expenses and other liabilities		229		(173)

Net cash provided by operating activities		6,748		5,362

Investing Activities
Securities available for sale:
Maturities, prepayments and calls		2,275		5,570
Purchases		(19,329)		(98,634)
Net change in loans		(5,524)		(14,043)
Purchase of FHLB stock		(3,149)		—
Redemption of Federal Home Loan Bank Stock		1,669		1,205
Purchases of premises and equipment		(952)		(425)
Proceeds from sale of foreclosed and fixed assets		16		267

Net cash used in investing activities		(24,994)		(106,060)

Financing Activities
Net change in deposits		(21,901)		44,965
Net change in securities sold under repurchase agreements		10,478		12,412
Peoceeds from Federal Home Loan Bank advances		75,000		—
Repurchase of common stock		(733)		(768)
Cash dividends paid on common stock		(3,786)		(3,613)
Net cash provided by financing activities		59,058		52,996

Increase (Decrease) in Cash and Cash Equivalents		40,812		(47,702)
Cash and Cash Equivalents, Beginning of Period		30,080		82,999

Cash and Cash Equivalents, End of Period	$	70,892	$	35,297

Supplemental Cash Flows Information
Interest paid on deposits and borrowings	$	7,604	$	2,257

Federal income taxes paid	$	—	$	300

Supplemental Disclosure of Non-Cash Investing and Financing Activities
Transfers from loans to foreclosed assets held for sale	$	13	$	—

See Notes to Condensed Consolidated Financial Statements

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)

Note 1: Summary of Significant Accounting Policies

These interim financial statements are prepared without audit and reflect all adjustments which, in the opinion of management, are necessary to present fairly the financial position of United Bancorp, Inc. (“Company”) at September 30, 2023, 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, 2022 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 and nine months ended September 30,2023, 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, 2022 has been derived from the audited consolidated balance sheet of the Company as of that date.

Principles of Consolidation

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

Nature of Operations

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

The Company’s primary deposit products are checking, savings and term certificate accounts and its primary lending products are residential 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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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)

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

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

Use of Estimates

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

Investment Securities

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

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

Allowance for Credit Losses – Available for Sale Securities

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

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

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)

Accrued interest receivable on available-for-sale debt securities totaled $2.5 million at September 30, 2023 and is included within the line item accrued interest receivable on the consolidated balance sheet. This amount is excluded from the estimate of expected credit losses. Available-for-sale debt securities are typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When available-for-sale debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed.

Loans

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for credit losses and any deferred fees or costs. Accrued interest receivable totaled $1.2 million at September 30, 2023 and was reported in the line item accrued interest receivable on the consolidated balance sheets and is excluded from the estimate of credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The Company is amortizing these amounts over the contractual life of the loan. Premiums and discounts on purchased loans are amortized as adjustments to interest income using the effective yield method.

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

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

Allowance for Credit Losses - Loans

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

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

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

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

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)

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

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

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


			January 1, 2023
Loan Categories (in thousands)	Pre-adoption		Adoption Impact		As Reported
Commercial and Industrial	$	215	$	755	$	970
Commercial Real Estate		815		388		1,203
Residential Real Estate		816		1,379		2,195
Consumer		206		(103)		103

	$	2,052	$	2,419	$	4,471

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

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

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)

Earnings Per Share

Earnings per share (EPS) were computed as follows:


	Three Months Ended September 30, 2023
			Weighted-	Per
	Net		Average	Share
	Income		Shares	Amount
	(In thousands)
Net income	$	2,392
Less allocated earnings on non-vested restricted stock		(54)
Less allocated dividends on non-vested restricted stock		(38)
Net income allocated to common stockholders		2,300
			5,488,995
Basic and diluted earnings per share				$	0.42


	Three Months Ended September 30, 2022
			Weighted-
	Net		Average	Per Share
	Income		Shares	Amount
	(In thousands)
Net income	$	2,303
Less allocated earnings on non-vested restricted stock		(61)
Less allocated dividends on non-vested restricted stock		(40)
Net income allocated to common stockholders		2,202
			5,488,121
Basic and diluted earnings per share				$	0.40


	Nine Months Ended September 30, 2023
			Weighted-	Per
	Net		Average	Share
	Income		Shares	Amount
	(In thousands)
Net income	$	6,560
Less allocated earnings on non-vested restricted stock		(111)
Less allocated dividends on non-vested restricted stock		(153)
Net income allocated to common stockholders		6,296
			5,490,072
Basic and diluted earnings per share				$	1.15


	Nine Months Ended September 30, 2022
			Weighted-
			Average	Per Share
	Net Income		Shares	Amount
	(In thousands)
Net income	$	6,351
Less allocated earnings on non-vested restricted stock		(124)
Less dividends on non-vested restricted stock		(161)
Net income allocated to common stockholders		6,066
			5,482,865
Basic and diluted earnings per share				$	1.10

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)

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 2019.

Accounting Pronouncements Adopted in 2023

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

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

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

In January 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”), which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis. Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications to borrowers experiencing financial difficulty. Instead, these modifications are included in their historical loss rate which is applied to the current loan balance to arrive at the quantitative baseline portion of the Allowance for Credit Losses.

Note 2: Securities

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


			Gross		Gross		Allowance
			Unrealized		Unrealized		for Credit
	Amortized Cost		Gains		Losses		Losses		Fair Value

	(In thousands)
Available-for-sale Securities:
September 30, 2023:
U.S. government agencies	$	45,000	$	—	$	(1,355)	$	—	$	43,645
State and municipal obligations		171,346		6		(14,353)		—		156,999
Subordinated notes		29,043		—		(5,008)		—		24,035
Total debt securities	$	245,389	$	6	$	(20,716)	$	—	$	224,679

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)


			Gross		Gross
			Unrealized		Unrealized
	Amortized Cost		Gains		Losses		Fair Value

	(In thousands)
Available-for-sale Securities:
December 31, 2022:
U.S. government agencies	$	45,000	$	—	$	(968)	$	44,032
State and municipal obligations		152,447		459		(7,408)		145,498
Subordinated note		31,160		—		(3,066)		28,094
Total debt securities	$	228,607	$	459	$	(11,442)	$	217,624

The amortized cost and fair value of available-for-sale securities at September 30, 2023, 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	$	10,000	$	9,841
One to five years		35,611		34,394
Five to ten years		31,358		26,065
Over ten years		168,420		154,379
Totals	$	245,389	$	224,679

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $68.1 million and $68.7 million at September 30, 2023 and December 31, 2022, 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 September 30, 2023 was $222.7 million, which represented 99% of the Company’s available-for-sale investment portfolio. The total fair value of these investments at December 31, 2022 was $166.1 million, which represented less than 76% 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.

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 September 30, 2023:


	September 30, 2023
	Less than 12 Months				12 Months or More				Total
Description of			Unrealized				Unrealized				Unrealized
Securities	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

	(In thousands)
U.S. Government agencies	$	—	$	—	$	43,645	$	(1,355)	$	43,645	$	(1,355)
State and municipal obligations		107,520		(4,831)		47,455		(9,522)		154,975		(14,353)
Subordinated notes		3,710		(822)		20,325		(4,186)		24,035		(5,008)
Total temporarily impaired securities	$	111,230	$	(5,653)	$	111,425	$	(15,063)	$	222,655	$	(20,716)

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)


	December 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)
US government agencies	$	44,032	$	(968)	$	—	$	—	$	44,032	$	(968)
State and municipal obligations		100,599		(7,408)		—		—		100,599		(7,408)
Subordinated notes		11,185		(1,565)		10,300		(1,501)		21,485		(3,066)
Total temporarily impaired securities	$	155,816	$	(9,941)	$	10,300	$	(1,501)	$	166,116	$	(11,442)

The unrealized losses on the Company’s 125 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 basis, which may be maturity, the Company does not consider those investments to be indicative of credit losses at September 30, 2023.

There were no sales of investment securities for the three and nine months ended September 30, 2023 and 2022.

Note 3: Loans and Allowance for Credit Losses

Categories of loans include:


	September 30,		December 31,
	2023		2022

	(In thousands)
Commercial and Industrial	$	94,840	$	90,548
Commercial real estate		272,457		270,312
Residential real estate		92,746		94,012
Consumer loans		6,799		6,003

Total gross loans		466,842		460,875

Less allowance for credit losses		(4,112)		(2,052)

Total loans	$	462,730	$	458,823

The amount of deferred loan fees at September 30, 2023 was $64 and $96 at December 31, 2022. The risk characteristics of each loan portfolio segment are as follows:

Commercial and Industrial, and Commercial Real Estate

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 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,

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)

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.

Allowance for Credit Losses and Recorded Investment in Loans

As of and for the three and nine month periods ended September 30, 2023


			Commercial
	Commercial		Real Estate		Residential		Consumer		Total

	(in thousands)
Allowance for credit losses:

Balance, July 1, 2023	$	902	$	1,079	$	2,092	$	208	$	4,281
Provision (credit) for credit loss exposure		(26)		11		(75)		(64)		(154)
Losses charged off		(1)		—		—		(32)		(33)
Recoveries		12		—		—		6		18
Balance, September 30, 2023	$	887	$	1,090	$	2,017	$	118	$	4,112
Balance, January 1, 2023	$	215	$	815	$	816	$	206	$	2,052
Impact of adopting ASC 326		755		388		1,379		(103)		2,419
Provision (credit) for credit loss exposure		(104)		(113)		(178)		95		(300)
Losses charged off		(1)		—		—		(94)		(95)
Recoveries		22		—		—		14		36
Balance, September 30, 2023	$	887	$	1,090	$	2,017	$	118	$	4,112

Allocation:

Ending balance: individually evaluated for credit losses	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively evaluated for credit losses	$	887	$	1,090	$	2,017	$	118	$	4,112
Loans:
Ending balance: individually evaluated for credit losses	$	—	$	24	$	—	$	—	$	24
Ending balance: collectively evaluated for credit losses	$	94,840	$	272,433	$	92,746	$	6,799	$	466,818

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)

Allowance for Loan Losses and Recorded Investment in Loans

As of and for the three and nine month periods ended September 30, 2022


			Commercial
	Commercial		Real Estate		Residential		Consumer		Total

	(In thousands)
Allowance for loan losses:

Balance, July 1, 2022	$	497	$	1,219	$	814	$	123	$	2,653
Provision (credit) charged to expense		(125)		24		(7)		123		15
Losses charged off		(16)		—		(2)		(38)		(56)
Recoveries		—		—		—		7		7
Balance, September 30, 2022	$	356	$	1,243	$	805	$	215	$	2,619
Balance, January 1, 2022	$	1,046	$	1,235	$	1,121	$	271	$	3,673
Provision (credit) charged to expense		(696)		8		(314)		32		(970)
Losses charged off		(16)		—		(2)		(112)		(130)
Recoveries		22		—		—		24		46
Balance, September 30, 2022	$	356	$	1,243	$	805	$	215	$	2,619

Allocation:

Ending balance: individually evaluated for impairment	$	—	$	406	$	—	$	—	$	406
Ending balance: collectively evaluated for impairment	$	356	$	837	$	805	$	215	$	2,213
Loans:
Ending balance: individually evaluated for impairment	$	15	$	3,792	$	—	$	—	$	3,807
Ending balance: collectively evaluated for impairment	$	92,455	$	270,206	$	95,666	$	6,230	$	464,557

Allowance for Loan Losses and Recorded Investment in Loans

As of December 31, 2022


			Commercial
	Commercial		Real Estate		Residential		Consumer		Total

	(In thousands)
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	—	$	—	$	––	$	––	$	—
Ending balance: collectively evaluated for impairment	$	215	$	815	$	816	$	206	$	2,052

Loans:
Ending balance: individually evaluated for impairment	$	—	$	57	$	—	$	—	$	57
Ending balance: collectively evaluated for impairment	$	90,548	$	270,255	$	94,012	$	6,003	$	460,875

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)

The following tables show the portfolio quality indicators.

Based on the most recent analysis performed, the following table presents the recorded investment in non-homogeneous loans by internal risk rating system as of September 30, 2023 (in thousands):


													Revolving		Revolving
													Loans		Loans
													Amortized		Converted
September 30, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		to Term		Total
Commercial and industrial
Risk Rating
Pass	$	15,880	$	16,474	$	14,235	$	15,192	$	6,537	$	6,092	$	20,279	$	—	$	94,689
Special Mention		—		26		—		—		—		125		—		—		151
Substandard		—		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	15,880	$	16,500	$	14,235	$	15,192	$	6,537	$	6,217	$	20,279	$	—	$	94,840

Commercial and industrial
Current period gross charge-offs	$	1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	1

Commercial real estate
Risk Rating
Pass	$	7,915	$	31,262	$	49,136	$	25,267	$	27,223	$	60,548	$	66,892	$	—	$	268,243
Special Mention		—		—		244		2,067		—		1,879		—		—		4,190
Substandard		—		—		—		—		—		24		—		—		24
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	7,915	$	31,262	$	49,380	$	27,334	$	27,223	$	62,451	$	66,892	$	—	$	272,457

Commercial real estate
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Total
Pass	$	23,795	$	47,736	$	63,371	$	40,459	$	33,760	$	66,640	$	87,171	$	—	$	362,932
Special Mention		—		26		244		2,067		—		2,004		—		—		4,341
Substandard		—		—		—		—		—		24		—		—		24
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	23,795	$	47,762	$	63,615	$	42,526	$	33,760	$	68,668	$	87,171	$	—	$	367,297
Current period gross charge-offs	$	1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	1

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)

The Company monitors the credit risk profile by payment activity for residential and consumer loan classes. Loans past due 90 days or more and loans on nonaccrual status are considered nonperforming. Nonperforming loans are reviewed quarterly. The following table presents the amortized cost in residential and consumer loans based on payment activity (in thousands):


													Revolving		Revolving
													Loans		Loans
													Amortized		Converted
September 30, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		to Term		Total
Residential Real Estate
Payment Performance
Performing	$	8,489	$	18,664	$	16,479	$	20,070	$	5,945	$	22,891	$	—	$	—	$	92,538
Nonperforming		—		—		—		—		39		169		—		—		208
Total	$	8,489	$	18,664	$	16,479	$	20,070	$	5,984	$	23,060	$	—	$	—	$	92,746

Residential real estate
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer
Payment Performance
Performing	$	2,227	$	1,554	$	750	$	503	$	358	$	1,035	$	372	$	—	$	6,799
Nonperforming		—		—		—		—		—		—		—		—		—
Total	$	2,227	$	1,554	$	750	$	503	$	358	$	1,035	$	372	$	—	$	6,799

Consumer
Current period gross charge-offs	$	93	$	1	$	—	$	—	$	—	$	—	$	—	$	—	$	94

Total
Payment Performance
Performing	$	10,716	$	20,218	$	17,229	$	20,573	$	6,303	$	23,926	$	372	$	—	$	99,337
Nonperforming		—		—		—		—		39		169		—		—		208
Total	$	10,716	$	20,218	$	17,229	$	20,573	$	6,342	$	24,095	$	372	$	—	$	99,545


	December 31, 2022
			Commercial
Loan Class	Commercial		Real Estate		Residential		Consumer		Total

	(In thousands)
Pass Grade	$	90,548	$	262,472	$	94,012	$	6,003	$	453,035
Special Mention		—		4,066		—		—		4,066
Substandard		—		3,774		—		—		3,774
Doubtful		—		—		—		—		—

	$	90,548	$	270,312	$	94,012	$	6,003	$	460,875

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)

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 allowance for credit losses, 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.

The Company evaluates the loan risk grading system definitions and allowance for credit 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 September 30, 2023


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

	(In thousands)
Commercial	$	58	$	218	$	—	$	—	$	276	$	94,564	$	94,840
Commercial real estate		—		—		—		8		8		272,449		272,457
Residential		159		42		—		208		409		92,337		92,746
Consumer		16		—		—		—		16		6,783		6,799
Total	$	233	$	260	$	—	$	216	$	709	$	466,133	$	466,842

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)

Loan Portfolio Aging Analysis

As of December 31, 2022


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

	(In thousands)
Commercial	$	126	$	—	$	—	$	—	$	126	$	90,422	$	90,548
Commercial real estate		158		—		—		9		167		270,145		270,312
Residential		102		24		—		173		299		93,713		94,012
Consumer		15		—		—		—		15		5,988		6,003
Total	$	401	$	24	$	—	$	182	$	607	$	460,268	$	460,875

Nonperforming Loans

The following table present the amortized cost basis of loans on nonaccrual status and loans past due over 90 days still accruing interest as of September 30, 2023:


							Loans Past
							Due Over 90 Days		Total
	Nonaccrual with no ACL		Nonaccrual with ACL		Total Nonaccrual		Still Accruing		Nonperforming

	(In thousands)
Commercial	$	—	$	—	$	—	$	—	$	—
Commercial real estate		—		8		8		—		8
Residential		192		16		208		—		208
Consumer		—		—		—		—		—
Total	$	192	$	24	$	216	$	—	$	216

The Company did recognized approximately $6,000 interest income on nonaccrual loans during the the period ended September 30, 2023.

Impaired Loans

For 2022, 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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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)

Impaired Loans


							For the three months ended				For the nine months ended
	As of September 30, 2022						September 30, 2022				September 30, 2022
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Specific		Investment in		Income		Investment in		Income
	Balance		Balance		Allowance		Impaired Loans		Recognized		Impaired Loans		Recognized

	(In thousands)
Loans without a specific valuation allowance:
Commercial	$	15	$	30	$	—	$	30	$	—	$	31	$	1
Commercial real estate		2,839		2,839		—		2,844		—		2,842		—
Residential		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—
		2,854		2,869		—		2,874		—		2,873		—
Loans with a specific valuation allowance:
Commercial		—		—		—		—		—		—		—
Commercial real estate		953		953		406		983		—		983		30
Residential		—		—		—		—		—		—		––
Consumer		––		––		––		––		—		—		—
		953		953		406		983		—		983		30
Total:
Commercial	$	15	$	30	$	—	$	30	$	—	$	31	$	1
Commercial real estate	$	3,792	$	3,792	$	406	$	3,827	$	—	$	3,825	$	30
Residential	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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.


	Nine Months Ended September 30, 2022
	Interest						Total
	Only		Term		Combination		Modification

	(In thousands)
Commercial	$	—	$	—	$	—	$	—
Commercial real estate		1		1		—		1
Residential		—		—		—		—
Consumer		—		—		—		—

During the nine months ended September 30, 2022 there were no material defaults of any modified loans or 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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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)

Note 4: Benefit Plans

Pension expense includes the following:


	Three months ended				Nine months ended
	September 30,				September 30,
	2023		2022		2023		2022

	(In thousands)
Service cost	$	76	$	130	$	228	$	390
Interest cost		78		68		234		204
Expected return on assets		(133)		(144)		(399)		(432)
Amortization (accretion) of prior service cost and net loss		(10)		24		(30)		72

Pension expense	$	11	$	78	$	33	$	234

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:


	September 30,		December 31,
	2023		2022

	(In thousands)
Commercial loans unused lines of credit	$	92,083	$	79,718
Commitment to originate loans		89,514		77,889
Consumer open end lines of credit		37,371		37,600
Standby lines of credit		136		136

The Company adopted the provisions of ASC 326 and recognized an initial implementation amount of $224,000. During the nine months ended June 30, 2023, there was no change in the provision for credit expense for off balance sheet exposure.

Note 6: Accumulated Other Comprehensive Income (Loss)

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


	September 30,		December 31,
	2023		2022

	(In thousands)
Net unrealized loss on securities available-for-sale	$	(20,710)	$	(10,984)
Net unrealized loss for unfunded status of defined benefit plan liability		(835)		(835)
		(21,545)		(11,819)
Less: Tax effect		4,525		2,483
Net-of-tax amount	$	(17,020)	$	(9,336)

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)

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 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 September 30, 2023 and December 31, 2022:


			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)
September 30, 2023
U.S. government agencies	$	43,645	$	—	$	43,645	$	—
Subordinated notes		24,038		—		24,038		—
State and municipal obligations		156,996		—		156,996		—


December 31, 2022
U.S. government agencies	$	44,032	$	—	$	44,032	$	—
Subordinated notes		28,094		—		28,094		—
State and municipal obligations		145,498		—		145,498		—

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)

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.

Collateral Dependent

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

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 September 30, 2023 and December 31, 2022.


			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)
September 30, 2023
Collateral dependent loans	$	—	$	—	$	—	$	—
Foreclosed assets held for sale		3,480		—		—		3,480

December 31, 2022
Collateral dependent loans	$	9	$	—	$	—	$	9
Foreclosed assets held for sale		3,519		—		—		3,519

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)

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	Unobservable
	9/30/23		Technique	Inputs	Range

	(In thousands)
Collateral-dependent loans	$	—	Market comparable properties	Comparability adjustments	5% – 10%
Foreclosed assets held for sale		3,480	Market comparable properties	Marketability discount	10% – 35%


	Fair Value at		Valuation	Unobservable
	12/31/22		Technique	Inputs	Range

	(In thousands)
Collateral-dependent loans	$	9	Market comparable properties	Comparability adjustments	5% – 10%
Foreclosed assets held for sale		3,519	Market comparable properties	Marketability discount	10% – 35%

There were no significant changes in the valuation techniques used during 2023.

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)
September 30, 2023:

Financial assets
Cash and cash equivalents	$	70,892	$	70,892	$	—	$	—
Loans, net of allowance		462,730		—		—		440,243
Federal Home Loan Bank stock		3,979		—		3,979		—
Accrued interest receivable		3,724		—		3,724		—

Financial liabilities
Deposits	$	628,012	$	—	$	626,332	$	—
Securities sold under agreements to repurchase		28,584		—		28,584		—
Subordinated debentures		23,771		—		21,953		—
Advance Federal Home Loan Bank		75,000		—		73,195		—
Interest payable		514		—		514		—

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)


			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)
December 31, 2022:

Financial assets
Cash and cash equivalents	$	30,080	$	30,080	$	—	$	—
Loans, net of allowance		458,823		—		—		444,704
Federal Home Loan Bank stock		2,499		—		2,499		—
Accrued interest receivable		3,403		—		3,403		—

Financial liabilities
Deposits	$	649,913	$	—	$	646,455	$	—
Securities sold under agreements to repurchase		18,106		—		18,106		—
Subordinated debentures		23,726		—		24,454		—
Interest payable		304		—		304		—

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.

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.

Securities sold under agreements to repurchase, 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.

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)

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 cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. Fair values of commitments were not material at September 30, 2023 and December 31, 2022.

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 and						Greater than
September 30, 2023	Continuous		Up to 30 Days		30‑90 Days		90 Days		Total
Repurchase Agreements
State and municipal obligations	$	28,584	$	—	$	—	$	—	$	28,584
Total	$	28,584	$	—	$	—	$	—	$	28,584


	Overnight and						Greater than
December 31, 2022	Continuous		Up to 30 Days		30‑90 Days		90 Days		Total
Repurchase Agreements
State and municipal obligations	$	18,106	$	—	$	—	$	—	$	18,106
Total	$	18,106	$	—	$	—	$	—	$	18,106

These borrowings were collateralized with state and municipal obligations with a carrying value of $37.8 million at September 30, 2023 and $38.8 million at December 31, 2022. Declines in the fair value would require the Company to pledge additional securities.

Note 9: Core Deposits and Intangible Assets

The following table shows the changes in the carrying amount of goodwill for September 30, 2023 and December 31, 2022 (in thousands):


	September 30,		December 31,
	2023		2022
Balance beginning of year	$	682	$	682
Additions from acquisition		—		—
Balance, end of period	$	682	$	682

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United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands)

Intangible assets in the consolidated balance sheets at September 30, 2023 and December 31, 2022 were as follows (in thousands):

Nine Months Ended September 30, 2023

Year Ended December 31, 2022

Gross

Intangible

Accumulated

Net Intangible

Intangible

Accumulated

Net Intangible

Assets

Amortization

Assets

Amortization

Assets

Core deposit intangibles

1,041

744

297

1,041

631

410

The estimated aggregate future amortization expense remaining as of September 30, 2023 is as follows (in thousands):


2023	$	38
2024		150
2025		109

At each reporting date between annual goodwill impairment tests, the Company considers potential indicators of impairment. At the conclusion of the assessment, the Company determined that as of September 30, 2023 it was more likely than not that the fair value exceeded its carrying values. The Company will continue to monitor the overall economic conditions and any other triggering events or circumstances that may indicate an impairment of goodwill in the future.

Note 10: Advances from the Federal Home Loan Bank

At September 30, 2023, advance from the Federal Home Loan Bank were $75 million. The Company did not have any advances from the Federal Home Loan Bank at December 31, 2022.

At September 30, 2023, required annual payments on Federal Home Loan Bank advances were for year ending December 31, 2026 $20 million (4.39% fixed rate), December 31, 2027 $35 million (4.24% fixed rate) and December 31, 2028 $20 million (4.11% fixed rate).

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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 September 30, 2023, as compared to December 31, 2022, and the results of consolidated operations for the three and nine months ended September 30, 2023, compared to the same period in 2022. This discussion should be read in conjunction with the interim condensed consolidated financial statements and related footnotes included herein.

Introduction

Our Company reported diluted earnings per share of $0.42 and net income of $2,392,000 for the three months ended September 30, 2023. For the first nine months of the current year, UBCP reported diluted earnings per share of $1.15 and net income of $6,560,000. Both of the reported quarterly and year-to-date numbers are increases over the levels achieved the previous year.

We are pleased to report on the earnings performance of United Bancorp, Inc. (UBCP) for the third quarter ended September 30, 2023 and the first nine months of 2023. For the quarter, our Company achieved solid net income and diluted earnings per share results of $2,392,000 and $0.42, which were respective increases of $89,000, or 3.9%, and $0.02, or 5.0%, over the results achieved during the third quarter of last year. For the nine months ended September 30, 2023, our Company produced net income of $6,560,000 and diluted earnings per share of $1.15, increases over the results achieved for the same nine-month period the prior year of $209,000, or 3.3%, and $0.05, or 5.0%, respectively. As we have previously reported, UBCP has been able to capitalize on the historically extreme tightening of monetary policy undertaken by the Federal Open Market Committee of the Federal Reserve (FOMC) over the course of the past eighteen months, which has caused interest rates to rise rapidly during this timeframe from a range of 25 to 50 basis points in March 2022 to a range of 5.25% to 5.50% as of September 2023. Although it has been somewhat challenging to produce improving results in such a fast-paced, increasing interest rate environment, our Company was properly positioned to take advantage of this dramatic increase in interest rates over the course of the past eighteen months and, accordingly, we experienced an improvement in the level of net interest income that we generated on both a quarterly and year-to-date basis as of September 30, 2023. For the most recently ended quarter, our Company’s net interest income increased by $197,000, or 3.1%, over the previous year. Year-to-date, for the first nine months of the current year our Company’s net interest income increased by $1,487,000 or 8.3%. Accordingly, as September 30, 2023, our net interest margin improved by 3 basis points to 3.63% over the previous year and, additionally, increased on a linked-quarter basis by 5 basis points.

We are grateful to see that our net interest income and net interest margin levels continue to increase in the current, dynamic economic environment in which we are operating. We have achieved this positive result by seeing our loan portfolio yield increase in the current rising rate environment, even though from a volume perspective, our gross loans are marginally lower on a year-over-year basis by $1,522,000 or 0.3%. More strongly contributing to the improvement in our net interest income level achieved and net interest margin improvement in the current year are our higher balance sheet totals for both our average Cash and due from the Federal Reserve Bank and average investment securities. Our overnight funds that are parked in cash have benefited from the inverted yield curve that we have experienced over the course of the past year, which has been driven by the aggressive tightening policy of the Federal Open Market Committee (FOMC). At September 30, 2023, these overnight, liquid funds totaled $71.0 million, an increase of $35.6 million over the previous year, and are presently yielding approximately 5.4% for our Company. Each time the FOMC increases the target for the federal funds rate, our Company benefits by seeing the yield on these liquid funds increase by a like amount. The most impactful force upon our Company’s improving level of net interest income is the increasing balance in our investment securities portfolio in this rising rate environment. As we have previously stated, we did not invest in securities for almost two years beginning in March of 2020 when rates dramatically decreased due to the Zero Interest Rate policy implemented by the FOMC due to the pandemic. Quite simply, we patiently waited for policy tightening by the FOMC to begin and rates to increase to more historically normalized levels. Accordingly, we started to, once again, invest in securities when rates began to rise to more appealing levels toward the end of the first quarter of last year and continued until March of this year when challenges arose for our industry and liquidity became more of a focus for us. On a year-over-year basis, average securities for our Company increased by $87.0 million to a level of $245.9 million. Although this has helped the returns for our Company, it has led to an accumulated other comprehensive loss net of taxes (AOCI) of $17.0 million at the most recent quarter end. Even with this adjustment, which does not impact regulatory capital, our Company saw its level of shareholder’s equity decrease by a marginal $556,000 on a year-over-year basis to a level of $52.6 million and equity to assets lower from 7.0% to 6.5% as of the most recent quarter end. With the overall quality of our investment portfolio, our well capitalized position, our solid liquidity position and our low level of uninsured deposits (which are 17.7% of total deposits as of the most recent quarter-end), we firmly believe that any issues, which could potentially create a risk to our capital and capital position, are very minimal.

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United Bancorp, Inc.

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

Even with the continued heightened inflation levels and related increases in interest rates that may be impacting some of our borrowers with higher operating costs and rate resets to higher interest rate levels on their loans, we have successfully maintained credit-related strength and stability within our loan portfolio as of the most recently ended quarter. As of September 30, 2023, our Company’s total nonaccrual loans and loans past due 30 plus days were $709,000, or 0.15% of gross loans, a decrease of $3.7 million, or 84%, year-over-year. Nonaccrual assets to average assets (which includes other real estate or OREO) was 0.46%, a decrease of thirteen basis points over the previous year, and net charge-offs to average loans totaled 0.02% annualized as of September 30, 2023. Interestingly, our Company had net charge offs of $59,000 year-to-date, which included a net recovery of $22,000 in loans and a net charge off in overdrafts of $82,000. As of the most recently ended quarter and with the enhanced loan loss reserve build-up under CECL in the current year (and, our Company’s improved credit quality metrics), we were able to have a negative provision for credit losses in the third quarter of $154,000, which added approximately $122,000 to net income and $0.02 to diluted earnings per share for the quarter. For the year though, our Company’s provision for credit losses increased by $670,000 over the previous year, which reduced our year-to-date net income and diluted earnings per share by respective amounts of $529,000 and $0.10 relative to the prior year. We are very happy that we were able to overcome the lower level of negative credit provisioning in the current year while maintaining a robust total allowance for credit losses to total loans of 0.88% and having total allowance for credit losses to nonperforming loans of 1,899%. Overall, we firmly believe that we are presently well reserved with very strong coverage.

Considering the exceedingly dynamic monetary policy environment in which we have operated for the past eighteen months and the more recent issues which have impacted our industry since mid-March, we are very happy to report on the very strong earnings performance that United Bancorp, Inc. (UBCP) achieved in the first nine months of 2023. Relating to the excessive tightening of our country’s monetary policy over the course of the past year and a half, we are extremely pleased that we have been able to grow the level of interest income that our Company generated while controlling overall interest expense levels; thereby, expanding the level of net interest income that we realized and our net interest margin. This is somewhat of a counter-trend to what occurred within our industry over this timeframe. With the aforementioned developments that occurred within our industry late in the first quarter of this year, we transitioned into a more conservative operating position that greatly increased our overall liquidity and locked in a fair portion of our funding as a hedge against further interest rate increases by taking a $75.0 million advance from the Federal Home Loan Bank (FHLB). Initially, this significant advance had somewhat of a dilutive impact on our returns and margins (such as our return on assets and our net interest margin); but, it was immediately accretive to our bottom-line earnings. Since rates have continued to rise since the origination of this now competitively priced advance (to which we locked in on a blended basis at a rate of approximately 4.24% for an approximate term of four years), we have been able to more selectively manage our depository portfolio; thus, helping us to control our interest expense, while maintaining very adequate liquidity levels and generating increasing returns on this strategic posture. Overall, our capital levels remain very strong and our Company is classified as being well-capitalized based on industry standards. We firmly believe with our strong liquidity, our relatively stable core deposits base with minimal levels of uninsured deposits and our solid earnings, our risk to capital is very low, and, fundamentally, our Company’s financial position and future prospects are very solid.

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 the third quarter, we paid a regular cash dividend of $0.1675, which was an increase of $0.01, or 6.3%, over that paid in the third quarter of the previous year. On a year-to-date basis, our total cash dividend payout was $0.6450, which included a special cash dividend of $0.15 paid in the first quarter. This is a 4.9% increase over the total cash dividend paid during the first nine months of the previous year and produces a near-industry leading total dividend yield of 7.10%. This total dividend yield is based on our third quarter cash dividend on a forward basis, plus the special dividend paid in the first quarter (which combined total $0.82) and our quarter-end fair market value of $11.55. Even though our fair market value decreased during the most recent quarter (as did the fair market value of many financial institution stocks), our Company still had a market price to tangible book value of 132%, which compares favorably to industry standards as of quarter-end.

Considering that we continue to operate in a challenging economic and concerning industry-related environment, we are very pleased with our overall present performance and future prospects. Even with the present threats with which our overall industry is exposed, we are very optimistic about the future growth and earnings prospects for United Bancorp, Inc. (UBCP). We firmly believe that with the challenges that our industry has experienced over the course of the past few years, our Company has evolved into a more fundamentally sound organization with a focus of growing to achieve greater efficiencies and scales, while controlling overall costs. We have invested in areas that will lead to our continued and future relevancy within our industry along with anticipated higher revenue generation while implementing cost control initiatives, where needed, by consolidating delivery channels in markets in which we had low banking center performance and considerable overlap. We still have a vision of growing UBCP to an asset threshold of $1.0 billion or greater in the near term in a prudent and profitable fashion. Excitingly, our Company announced in the third quarter that we have

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United Bancorp, Inc.

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

plans to open a new regional banking center in the very appealing market of Wheeling, West Virginia. This is a market in which we already have a solid customer base, which we firmly believe we can more fully leverage to help us achieve our growth goals in a profitable fashion. We are truly excited about our Company’s direction and the potential that it brings. In addition, we will continue to build upon our solid foundation and maintain 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.

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 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.

See Note 1, “Summary of Significant Accounting Policies” for additional information on the adoption of ASC 326, which changes the methodology under which management calculates its reserve for loans, investment securities, and off balance sheet exposures, now referred to as the allowance for credit losses. Management considers the measurement of the allowance for credit losses on loans to be a critical accounting policy. The procedures for assessing the adequacy of the allowance for credit losses reflect our evaluations of credit risk after careful consideration of all information available to management. In developing this assessment, management must rely on estimates and exercise judgement regarding matters where the ultimate outcome is unknown such as economic factors, development 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 credit loan losses.

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 September 30, 2023, gross loans were $466.8 million, compared to $460.9 million at December 31, 2022, an increase of $5.9 million after offsetting repayments for the period. The overall increase in the loan portfolio was comprised of a $6.4 million increase in commercial and commercial real estate loans and a $1.3 million decrease in residential real estate lending and a $796,000 increase in installment loans since December 31, 2022.

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United Bancorp, Inc.

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

Commercial and commercial real estate loans comprised 78.7% of total loans at September 30, 2023, compared to 78.3% at December 31, 2022. Commercial and commercial real estate loans have increased $6.4 million, or 1.8% since December 31, 2022. This segment of 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 1.5% of total loans at September 30, 2023 and 1.3% at December 31, 2022. Some of the installment loans carry somewhat more risk than real estate lending; however, it also provides for higher yields. Installment loans have increased $796,000, or 13.3%, since December 31, 2022. 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 19.9% of total loans at September 30, 2023 and 20.4% at December 31, 2022, representing a decrease of $1.3 million or 1.3% since December 31, 2022. At September 30, 2023, the Company did not hold any loans for sale.

The Company adopted ASU No. 2016-13 effective January 1, 2023. The impact of the adoption was and $2.4 million in the allowance for credit losses. The allowance for credit losses totaled $4.5 million at September 30, 2023, which represented 0.88% of total loans. The allowance for loan losses prior to adopting ASU 2016-13 December 31, 2021, or was $2.1 million or 0.45% 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 credit 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 $82,000) for the nine months ended September 30, 2023 were approximately ($22,000) . Net loans charged off (exclusive of overdrafts net charge-offs $85,000) was ($1,000) for the nine months ended September 30, 2022.

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 September 30, 2023 increased approximately $7.1 million from December 31, 2022 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, and certificates of deposits. For the period ended September 30, 2023, total deposits decreased approximately $30.0 million, or 3.4% from December 31, 2022 totals. In addition to the decrease in deposits for the nine months ended September 30, 2023, the Company has also experienced a shift of deposits from interest bearing and savings to certificate of deposits during the nine months ended September 30, 2023.

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.

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 $10.5 million from December 31, 2022 totals. At September 30, 2023, the Company has $75 million of fixed rate advances that mature over the next 3 to 5 years. Refer to footnote 10 for further information.

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United Bancorp, Inc.

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

Results of Operations for the Nine Months Ended September 30, 2023 and 2022

Net Income

For the nine months ended September 30, 2023 the Company reported net earnings of $6,560,000, compared to $6,351,000 for the nine months ended September 30, 2022. On a per share basis, the Company’s diluted earnings were $1.15 for the nine months ended September 30, 2023 and $1.10 for the nine months ended September 30, 2022, an increase of 4.5%.

Net Interest Income

Net interest income, by definition, is the difference between interest income generated on interest-earning assets and the interest expense incurred on interest-bearing liabilities. Various factors contribute to changes in net interest income, including volumes, interest rates and the composition or mix of interest-earning assets in relation to interest-bearing liabilities. Net interest income before the provision for credit losses increased 8.3%, or $1.5 million for the nine months ended September 30, 2023 compared to the same period in 2022. The increase is mainly attributable to an increase in available-for-sale securities and the repricing of loans in an updward rate environment.

Provision for (Reversal of ) Credit Loss Expense - Loans

Net loans recovered for the nine months ended September 30, 2023, excluding overdrafts, was $22,000. Giving strong consideration to our overall solid credit related metrics our Company had a reversal of credit loss expense of $300,000 during the nine months ended September 30, 2023. The overall improvement in the economy post COVID also contributed to the reversal of credit loss expense.

Noninterest Income

Total noninterest income is made up of bank related fees and service charges, as well as other income producing services provided, sales of loans in the secondary market, ATM income, early redemption penalties for certificates of deposit, safe deposit rental income, internet bank service fees, earnings on bank-owned life insurance and other miscellaneous items.

Noninterest income for the nine months ended September 30, 2023 as compared to the same period in 2022 increased $7,000 or less than 1.0%.

Noninterest Expense

The Company saw its noninterest expense increase by $922,000 or 6.2% year-over-year. A general increase due to inflation contributed to most of the increase in noninterest expense.

Federal Income Taxes

The provision for federal income taxes was $339,000 for the nine months ended September 30, 2023, a decrease of $307,000 compared to the same period in 2022. The effective tax rate was 4.9% and 9.2% for the nine months ended September 30, 2023 and 2022, respectively.

Results of Operations for the Three Months Ended September 30, 2023 and 2022

Net Income

For the three months ended September 30, 2023 the Company reported net earnings of $2,392,000, compared to $2,303,000 for the three months ended September 30, 2022. On a per share basis, the Company’s diluted earnings were $0.42 for the three months ended September 30, 2023 and $0.40 for 2022.

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United Bancorp, Inc.

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

Net Interest Income

Net interest income increased 3.1%, or $197,000, for the three months ended September 30, 2023 compared to the same period in 2022. This increase was mainly driven by income on loans and fed funds sold and investment securities, for the three months ended September 30, 2023 over the same period in 2022.

Provision for (Reversal of ) Credit Loss Expense - Loans

Giving strong consideration to our overall solid credit related metrics and the forecast for unemployment improving, our Company had a reversal of credit loss expense of $154,000 during the three months ended September 30, 2023. During the three months ended September 30, 2022, the Company recorded a credit loss expense of $15,000.

Noninterest Income

Noninterest income for the three months ended September 30, 2023 as compared to the same period in 2022 decreased $80,000 or 7.7%. The main component of the change is a decrease in service charges on deposit accounts for the three months ended September 30, 2023.

Noninterest Expense

The Company saw its noninterest expense increase by $354,000 or 7.3% year-over-year.

Federal Income Taxes

The provision for federal income taxes was $58,000 for the three months ended September 30, 2023, a decrease of $157,000 compared to the same period in 2022.

Capital Resources

Internal capital growth, through the retention of earnings, is the primary means of maintaining capital adequacy for the Company. Stockholders’ equity totaled $52.6 million at September 30, 2023, compared to $59.7 million at December 31, 2022, a $7.1 million decrease. The Company adopted this guidance, and subsequent related updates, using the modified retrospective approach for all financial assets measured at amortized cost, including loans and available-for-sale debt securities and unfunded commitments. On January 1, 2023, the Company adopted ASU 2016-12 and recorded a cumulative effect decrease to retained earnings of $2,088,000, net of tax, of which $1,911,000 related to loans, $177,000 related to unfunded commitments.

Total stockholders’ equity in relation to total assets was 6.46% at September 30, 2023 and 7.89% at December 31, 2022. 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.

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.

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United Bancorp, Inc.

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

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


Common equity tier 1 capital ratio	14.18	%
Tier 1 capital ratio	14.18	%
Total capital ratio	14.93	%
Leverage ratio	9.47	%

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 collateral dependent 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 September 30, 2023, 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 changes in the Company’s internal controls over financial reporting that occurred during the Company’s fiscal quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect the Compay’s internal controls 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


				(c)	(d)
				Total Number of	Maximum Number or
				Shares (or Units)	Approximate Dollar
	(a)			Purchased as Part	Value) of Shares (or
	Total Number of	(b)		Of Publicly	Units) that May Yet
	Shares (or Units)	Average Price Paid		Announced Plans	Be Purchased Under
Period	Purchased	Per Share (or Unit)		Or Programs	the Plans or Programs
Month #1 7/1/2023 to 7/32/2023	––		––	––	––
Month #2 8/1/2023 to 8/31/2023	—		—	––	––
Month #3 9/1/2023 to 9/30/2023	––		––	––	––

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.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Indormation

Not applicable

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United Bancorp, Inc.

Part II – Other Information

ITEM 6. 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.


	/s/ United Bancorp, Inc.

Date: November 13, 2023	By:	/s/Scott A. Everson
		Scott A. Everson
		President and Chief Executive Officer

Date: November 13, 2023	By:	/s/Randall M. Greenwood
		Randall M. Greenwood
		EXECUTIVE VICE PRESIDENT CHIEF FINANCIAL AND RISK OFFICER

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United Bancorp (UBCP) 10-Q2023 Q3 Quarterly report

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