Edgar Filing: UNITED BANCORP INC /OH/

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, 2015

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)

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer,” and “small reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes ¨ No x

Indicate the number of shares outstanding of the issuer’s classes of common stock as of the latest practicable date: As of November 6, 2015, 5,377,454 shares of the Company’s common stock, $1.00 par value, were issued and outstanding.

PART I - FINANCIAL INFORMATION

Item 1	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Income	4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	8

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3	Quantitative and Qualitative Disclosures About Market Risk	44

Item 4	Controls and Procedures	45

PART II - OTHER INFORMATION

Item 1	Legal Proceedings	46

Item 1A	Risk Factors	46

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 3	Defaults Upon Senior Securities	46

Item 4	Other Information	47

Item 5	Exhibits	47

SIGNATURES		48

ITEM 1. Financial Statements

United Bancorp, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

	September 30,			December 31,
	2015			2014
	(Unaudited)
Assets
Cash and due from banks	$	5,577		$	5,170
Interest-bearing demand deposits		19,267			33,994
Cash and cash equivalents		24,844			39,164
Available-for-sale securities		30,646			19,348
Held-to-maturity securities		235			450
Loans, net of allowance for loan losses of $2,727 and $2,400 at September 30, 2015 and December 31, 2014, respectively		323,598			313,354
Premises and equipment		10,405			10,071
Federal Home Loan Bank stock		4,210			4,210
Foreclosed assets held for sale, net		362			1,140
Intangible assets		—			66
Accrued interest receivable		787			829
Deferred income taxes		516			493
Bank-owned life insurance		10,652			10,747
Other assets		2,000			1,940
Total assets	$	408,255		$	401,812

Liabilities and Stockholders’ Equity
Liabilities
Deposits
Demand	$	187,299		$	183,550
Savings		74,898			71,319
Time		61,000			67,812
Total deposits		323,197			322,681
Short-term borrowings		10,244			5,098
Federal Home Loan Bank advances		26,587			26,719
Subordinated debentures		4,124			4,124
Interest payable and other liabilities		2,536			2,800
Total liabilities		366,688			361,422
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 2015 –5,385,304 shares, 2014 – 5,385,304 shares		5,385			5,385
Additional paid-in capital		18,107			18,044
Retained earnings		21,384			20,478
Stock held by deferred compensation plan; 2015 –231,334 shares, 2014 – 230,446 shares		(1,981	)		(2,044	)
Unearned ESOP compensation		(1,322	)		(1,467	)
Accumulated other comprehensive income		57			57
Treasury stock, at cost
2015 –7,850 shares, 2014 – 7,850 shares		(63	)		(63	)
Total stockholders’ equity		41,567			40,390
Total liabilities and stockholders’ equity	$	408,255		$	401,812

See Notes to Condensed Consolidated Financial Statements

United Bancorp, Inc.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

	Three months ended				Nine months ended
	September 30,				September 30,
	2015		2014		2015		2014
Interest and dividend income
Loans, including fees	$	3,918	$	3,958	$	11,422	$	11,775
Taxable securities		90		58		252		198
Non-taxable securities		39		62		125		196
Federal funds sold		11		16		48		50
Dividends on Federal Home Loan Bank stock and other		60		41		170		147
Total interest and dividend income		4,118		4,135		12,017		12,366
Interest expense
Deposits
Demand		28		27		83		79
Savings		9		8		25		24
Time		219		256		675		795
Borrowings		322		324		958		963
Total interest expense		578		615		1,741		1,861
Net interest income		3,540		3,520		10,276		10,505
Provision for loan losses		126		225		387		657
Net interest income after provision for loan losses		3,414		3,295		9,889		9,848
Noninterest income
Service charges on deposit accounts		731		723		2,141		2,052
Realized gains on sales of loans		11		6		40		22
BOLI benefit in excess of surrender value		29		––		29		35
Realized gains on sales of available –for-sale securities, net		––		27		31		27
Other income		216		203		621		620
Total noninterest income		987		959		2,862		2,756
Noninterest expense
Salaries and employee benefits		1,587		1,643		4,757		4,905
Net occupancy and equipment expense		466		487		1,460		1,505
Professional services		187		153		555		581
Insurance		65		73		191		221
Deposit insurance premiums		63		57		177		194
Franchise and other taxes		78		69		218		193
Advertising		84		102		253		329
Stationery and office supplies		33		46		110		138
Amortization of intangible asset		7		30		66		89
Provision for losses on foreclosed real estate and net of gains and losses on sales		67		1		67		169
Other expenses		545		579		1,572		1,702
Total noninterest expense		3,182		3,240		9,426		10,026
Income before federal income taxes		1,219		1,014		3,325		2,578
Federal income taxes		360		296		967		660
Net income	$	859	$	718	$	2,358	$	1,918

EARNINGS PER COMMON SHARE
Basic	$	0.17	$	0.14	$	0.48	$	0.38
Diluted	$	0.17	$	0.14	$	0.47	$	0.38
DIVIDENDS PER COMMON SHARE	$	0.09	$	0.08	$	0.27	$	0.24

See Notes to Condensed Consolidated Financial Statements

United Bancorp, Inc.

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

	Three months ended					Nine months ended
	September 30,					September 30,
	2015		2014			2015			2014

Net income	$	859	$	718		$	2,358		$	1,918

Other comprehensive income, net of tax:
Reclassification adjustment for net realized gains on available-for-sale securities included in net income during the period, net of taxes of $($0), $(9), $(11) and $(9) for each respective period		—		(18	)		(20	)		(18	)
Unrealized holding gains on securities during the period, net of taxes of $(27), $13, $0 and $187 for each respective period		52		26			—			362

Comprehensive income	$	911	$	726		$	2,338		$	2,262

Accumulated comprehensive income	$	57	$	171		$	57		$	171

See Notes to Condensed Consolidated Financial Statements

United Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine months ended
	September 30,
	2015			2014
Operating Activities
Net income	$	2,358		$	1,918
Items not requiring (providing) cash
Depreciation and amortization		729			726
Amortization of intangible asset		66			89
Expense related to share based compensation plans		126			124
Provision for loan losses		387			657
Provision for losses on foreclosed real estate		55			179
Bank-owned life insurance		124			(162	)
(Accretion) amortization of premiums and discounts on securities, net		(1	)		2
Originations of loans held for sale		(2,337	)		(1,210	)
Proceeds from sale of loans held for sale		2,377			1,232
Realized gains on sales of loans		(40	)		(22	)
Amortization of ESOP		144			144
Realized losses (gain) on sales of other real estate and repossessed assets		12			(10	)
Realized gains on available-for-sale securities		(31	)		(27	)
Amortization of mortgage servicing rights		10			13
Net change in accrued interest receivable and other assets		(99	)		(469	)
Net change in accrued expenses and other liabilities		(284	)		(640	)

Net cash provided by operating activities		3,596			2,544

Investing Activities
Securities available for sale:
Maturities, prepayments and calls		27,348			7,612
Purchases		(38,997	)		(6,023	)
Proceeds from sale of available-for-sale securities		383			535
Securities held to maturity:
Maturities, prepayments and calls		215			120
Net change in loans		(10,591	)		(3,512	)
Mandatory redemption of Federal Home Loan Bank Stock		—			600
Purchases of premises and equipment		(1,063	)		(285	)
Proceeds from sale of other real estate and repossessed assets		710			562

Net cash used by investing activities		(21,995	)		(391	)

See Notes to Condensed Consolidated Financial Statements

United Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

(In thousands)

(Unaudited)

	Nine months ended
	September 30,
	2015			2014
Financing Activities
Net change in deposits	$	516		$	9,839
Net change in short-term borrowings		5,146			3,388
Repayments of long-term borrowings		(132	)		(211	)
Treasury stock activity		—			14
Cash dividends paid on common stock		(1,451	)		(1,290	)

Net cash provided by financing activities		4,079			11,740

(Decrease) increase in Cash and Cash Equivalents		(14,320	)		13,893
Cash and Cash Equivalents, Beginning of Period		39,164			23,474

Cash and Cash Equivalents, End of Period	$	24,844		$	37,367

Supplemental Cash Flows Information
Interest paid on deposits and borrowings	$	1,753		$	1,874

Federal income taxes paid	$	605		$	468

Supplemental Disclosure of Non-Cash Investing and Financing Activities
Transfers from loans to foreclosed assets held for sale	$	—		$	234

Vesting of restricted stock	$	39		$	203

See Notes to Condensed Consolidated Financial Statements

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

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, 2015, 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, 2014 included in its Annual Report on Form 10-K. Reference is made to the accounting policies of the Company described in the Notes to the Consolidated Financial Statements contained in its Annual Report on Form 10-K. The results of operations for the three months and nine months ended, 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, 2014 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, The Citizens Savings Bank of Martins Ferry, Ohio (“the Bank” or “Citizens”). The Bank operates two divisions, The Community Bank, a division of The Citizens Savings Bank and The Citizens Bank, a division of The Citizens Savings 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 and the surrounding localities in northeastern, east-central and southeastern Ohio, and include a wide range of individuals, businesses and other organizations. The Citizens Bank division conducts its business through its main office in Martins Ferry, Ohio and branches in Bridgeport, Colerain, Dellroy, Dillonvale, Dover, Jewett, New Philadelphia, St. Clairsville East, St. Clairsville West, Sherrodsville, Strasburg, and Tiltonsville, Ohio. The Community Bank division conducts its business through its main office in Lancaster, Ohio and branches in Amesville, Glouster, Lancaster, and Nelsonville, Ohio. 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 and are not considered “sub prime” type loans. The targeted lending areas of our Bank operations encompass four separate metropolitan areas, minimizing the risk to changes in economic conditions in the communities housing the Company’s branch locations.

Use of Estimates

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

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

Loans

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

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

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

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

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

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

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

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

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

Allowance for Loan Losses

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

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

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

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

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

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

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

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

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

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

Earnings Per Share

Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during each period. Diluted earnings per share reflects additional potential common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock options and restricted stock awards and are determined using the treasury stock method.

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

Treasury stock shares, deferred compensation shares and unearned ESOP shares are not deemed outstanding for earnings per share calculations.

	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
	(In thousands, except share and per share data)
Basic
Net income	$	859		$	718		$	2,358		$	1,918
Dividends on non-vested restricted stock		(14	)		(14	)		(42	)		(42	)
Net income allocated to stockholders	$	845		$	704		$	2,316		$	1,876
Weighted average common shares outstanding		4,860,742			4,857,652			4,856,308			4,841,235
Basic earnings per common share	$	0.17		$	0.14		$	0.48		$	0.38

Diluted
Net income allocated to stockholders	$	845		$	704		$	2,316		$	1,876
Weighted average common shares outstanding for basic earnings per common share		4,860,742			4,857,652			4,856,308			4,841,235
Add: Dilutive effects of assumed exercise of stock options and restricted stock		89,411			75,814			89,411			75,814
Average shares and dilutive potential common shares		4,950,153			4,933,466			4,945,719			4,917,049

Diluted earnings per common share	$	0.17		$	0.14		$	0.47		$	0.38

Options to purchase 53,714 shares of common stock at a weighted-average exercise price of $10.34 per share were outstanding at both September 30, 2015 and 2014, but were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares.

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 2011.

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09 Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). This update to the ASC is the culmination of efforts by the FASB and the International Accounting Standards Board (IASB) to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards (IFRS). ASU 2014-09 supersedes Topic 605 – Revenue Recognition and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance in ASU 2014-09 describes a 5-step process entities can apply to achieve the core principle of revenue recognition and requires disclosures sufficient to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers and the significant judgments used in determining that information. Originally, the amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and early application is not allowed. In July 2015, the FASB extended the implementation date to December 15, 2017. The Company is currently evaluating the effects of ASU 2014-09 on its financial statements and disclosures, if any.

ASU No. 2014-11, Transfer and Servicing (Topic) 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures

ASU No. 2014-11 was issued in June 2014 and requires two accounting changes:

The accounting for repurchase-to-maturity transactions is changed to secured borrowings accounting, and for repurchase financing arrangements, separate accounting is required for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which results in secured borrowing accounting.

Additional disclosures are required. ASU No. 2014-11 was effective for first interim or annual reporting period beginning after December 15, 2014. In addition, for public companies, the disclosure for certain transactions accounted for as a sale is effective for the first interim or annual period beginning on or after December 15, 2014, and the disclosure for transactions accounted for as secured borrowings is required fro annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. The Company adopted ASU 2014-11 as required, without a material impact on the Company’s financial position or results of operations.

Note 2:

Securities

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Available-for-sale Securities:
September 30, 2015
U.S. government agencies	$	27,000	$	25	$	(2	)	$	27,023
State and political subdivisions		3,587		36		––			3,623

	$	30,587	$	61	$	(2	)	$	30,646

Available-for-sale Securities:
December 31, 2014:
U.S. government agencies	$	14,443	$	4	$	(67	)	$	14,380
State and political subdivisions		4,841		105		––			4,946
Equity securities		4		18		––			22

	$	19,288	$	127	$	(67	)	$	19,348

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
Held-to-maturity Securities:
September 30, 2015:
State and political subdivisions	$	235	$	1	$	––	$	236

December 31, 2014:
State and political subdivisions	$	450	$	1	$	––	$	451

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

The amortized cost and fair value of available-for-sale securities and held-to-maturity securities at September 30, 2015, 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.

	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)

Within one year	$	830	$	833	$	235	$	236
One to five years		28,264		28,308		—		—
Five to ten years		1,493		1,505		––		––
After ten years		—		—		––		––

Totals	$	30,587	$	30,646	$	235	$	236

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $25.9 and $19.5 million at September 30, 2015 and December 31, 2014, respectively.

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost. The total fair value of these investments at September 30, 2015 and December 31, 2014, was $5.0 million and $7.1 million, which represented approximately 16.18% and 35.7%, respectively, of the Company’s available-for-sale and held-to-maturity investment portfolio.

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 on an general increase in longer term interest rates.

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

The following tables show the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2015 and December 31, 2014:

September 30, 2015
	Less than 12 Months					12 Months or More				Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
(In thousands)

U.S. Government agencies	$	4,998	$	(2	)	$	—	$	—	$	4,998	$	(2	)

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

December 31, 2014
	Less than 12 Months					12 Months or More					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
(In thousands)
U.S. Government agencies	$	1,141	$	(2	)	$	5,935	$	(65	)	$	7,076	$	(67	)

The unrealized losses on the Company’s investments in U.S. Government agency 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 likely the Company will be required or need to sell the investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at September 30, 2015 and December 31, 2014.

For the nine months ended September 30, 2015, proceeds from the sale of investment securities available-for-sale were $383,000, with gross realized gains of $31,000, and gross realized losses of zero. The gain is included in realized gains on sales of available-for-sale securities, net in the noninterest income section of the statement of income. There were no investment sales for the three months ended September 30, 2015.

For the three and nine month periods ended September 30, 2014, proceeds from the sale of investment securities available-for-sale were $535,000, with gross realized gains of $27,000, and gross losses of zero. The gain is included in realized gains on sales of available-for-sale securities, net in the noninterest income section of the statement of income.

Note 3:

Loans and Allowance for Loan Losses

Categories of loans include:

	September 30,			December 31,
	2015			2014
	(In thousands)

Commercial loans	$	61,721		$	52,286
Commercial real estate		163,222			158,314
Residential real estate		83,200			83,870
Installment loans		18,182			21,284

Total gross loans		326,325			315,754

Less allowance for loan losses		(2,727	)		(2,400	)

Total loans	$	323,598		$	313,354

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

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

Commercial

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

Commercial Real Estate

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

Residential and Consumer

Residential 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.

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

Allowance for Loan Losses and Recorded Investment in Loans

As of and for the three and nine month period ended September 30, 2015

	Commercial			Commercial Real Estate			Residential			Installment			Unallocated		Total
(In thousands)
Allowance for loan losses:
Balance, July 1, 2015	$	234		$	771		$	172		$	276		$	1,244	$	2,697
Provision charged to expense		7			(28	)		14			46			87		126
Losses charged off		––			—			(20	)		(103	)		––		(123	)
Recoveries		—			4			7			16			––		27
Balance, September 30, 2015	$	241		$	747		$	173		$	235		$	1,331	$	2,727
Balance, January 1, 2015	$	254		$	1,116		$	92		$	147		$	791	$	2,400
Provision charged to expense		(39	)		(380	)		80			186			540		387
Losses charged off		—			—			(20	)		(196	)		––		(216	)
Recoveries		26			11			21			98			––		156
Balance, September 30, 2015	$	241		$	747		$	173		$	235		$	1,331	$	2,727
Ending balance: individually evaluated for impairment	$	84		$	331		$	––		$	129		$	––	$	544
Ending balance: collectively evaluated for impairment	$	157		$	416		$	173		$	106		$	1,331	$	2,183

Loans:
Ending balance: individually evaluated for impairment	$	96		$	1,496		$	––		$	224		$	––	$	1,816
Ending balance: collectively evaluated for impairment	$	61,625		$	161,726		$	83,200		$	17,958		$	––	$	324,509

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

Allowance for Loan Losses and Recorded Investment in Loans

As of and for the three and nine month period ended September 30, 2014

	Commercial			Commercial Real Estate			Residential			Installment			Unallocated		Total
(In thousands)
Allowance for loan losses:
Balance, July 1, 2014	$	472		$	1,838		$	91		$	146		$	585	$	3,132
Provision charged to expense		24			(171	)		47			93			232		225
Losses charged off		––			(205	)		(48	)		(107	)		––		(360	)
Recoveries		1			11			1			14			––		27
Balance, September 30, 2014	$	497		$	1,473		$	91		$	146		$	817	$	3,024
Balance, January 1, 2014	$	412		$	1,609		$	90		$	141		$	642	$	2,894
Provision charged to expense		107			45			116			214			175		657
Losses charged off		(25	)		(205	)		(119	)		(285	)		––		(634	)
Recoveries		3			24			4			76			––		107
Balance, September 30, 2014	$	497		$	1,473		$	91		$	146		$	817	$	3,024
Ending balance: individually evaluated for impairment	$	354		$	989		$	––		$	––		$	––	$	1,343
Ending balance: collectively evaluated for impairment	$	143		$	484		$	91		$	146		$	817	$	1,681

Loans:
Ending balance: individually evaluated for impairment	$	437		$	5,441		$	––		$	––		$	––	$	5,878
Ending balance: collectively evaluated for impairment	$	46,494		$	153,760		$	83,761		$	22,851		$	––	$	306,866

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

Allowance for Loan Losses and Recorded Investment in Loans

As of December 31, 2014

	Commercial		Commercial Real Estate		Residential		Installment		Unallocated		Total
	(In thousands)
Allowance for loan losses:

Ending balance: individually evaluated for impairment	$	92	$	622	$	––	$	––	$	––	$	714
Ending balance: collectively evaluated for impairment	$	162	$	494	$	92	$	147	$	791	$	1,686

Loans:
Ending balance: individually evaluated for impairment	$	112	$	1,756	$	––	$	––	$	––	$	1,868
Ending balance: collectively evaluated for impairment	$	52,174	$	156,558	$	83,870	$	21,284	$	––	$	313,886

The following tables show the portfolio quality indicators.

	September 30, 2015
Loan Class	Commercial		Commercial Real Estate		Residential		Installment		Total
	(In thousands)

Pass Grade	$	61,583	$	157,863	$	83,200	$	17,941	$	320,587
Special Mention		40		1,014		––		––		1,054
Substandard		98		4,345		––		241		4,684
Doubtful		––		––		––		––		––

	$	61,721	$	163,222	$	83,200	$	18,182	$	326,325

	December 31, 2014
Loan Class	Commercial		Commercial Real Estate		Residential		Installment		Total
	(In thousands)

Pass Grade	$	51,895	$	151,535	$	83,870	$	21,284	$	308,584
Special Mention		265		1,980		––		––		2,245
Substandard		126		4,799		––		––		4,925
Doubtful		––		––		––		––		––

	$	52,286	$	158,314	$	83,870	$	21,284	$	315,754

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

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

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

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

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

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

Loan Portfolio Aging Analysis

As of September 30, 2015

	30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Greater Than 90 Days and Accruing		Non Accrual		Total Past Due and Non Accrual		Current		Total Loans Receivable
	(In thousands)
Commercial	$	200	$	––	$	––	$	29	$	229	$	61,492	$	61,721
Commercial real estate		137		40		131		404		712		162,510		163,222
Residential		1,068		79		––		869		2,016		81,184		83,200
Installment		172		30		––		247		449		17,733		18,182
Total	$	1,577	$	149	$	131	$	1,549	$	3,406	$	322,919	$	326,325

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

Loan Portfolio Aging Analysis

As of December 31, 2014

	30-59 Days Past Due and Accruing		60-89 Days Past Due and Accruing		Greater Than 90 Days and Accruing		Non Accrual		Total Past Due and Non Accrual		Current		Total Loans Receivable
	(In thousands)
Commercial	$	—	$	––	$	—	$	46	$	46	$	52,240	$	52,286
Commercial real estate		394		––		127		247		768		157,546		158,314
Residential		292		17		—		658		967		82,903		83,870
Installment		70		11		—		7		88		21,196		21,284
Total	$	756	$	28	$	127	$	958	$	1,869	$	313,885	$	315,754

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.

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

Impaired Loans

	As of September 30, 2015						For the three months ended September 30, 2015				For the nine months ended September 30, 2015
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
	(In thousands)
Loans without a specific valuation allowance:
Commercial	$	—	$	—	$	––	$	—	$	––	$	—	$	—
Commercial real estate		507		507		––		895		5		1,162		31
Residential		––		––		––		––		––		––		––
Installment		––		––		––		––		––		––		––
		507		507		––		895		5		1,162		31
Loans with a specific valuation allowance:
Commercial		96		96		84		98		1		101		5
Commercial real estate		989		989		331		1,077		9		1,078		27
Residential		––		––		––		––		––		––		––
Installment		224		224		129		235		10		237		14
		1,309		1,309		544		1,410		20		1,416		46

Total:
Commercial	$	96	$	96	$	84	$	98	$	1	$	101	$	5
Commercial real estate	$	1,496	$	1,496	$	331	$	1,972	$	14	$	2,240	$	58
Residential	$	––	$	––	$	––	$	––	$	––	$	––	$	––
Installment	$	224	$	224	$	129	$	235	$	10	$	237	$	14

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

Impaired Loans

	As of December 31, 2014						For the three months ended September 30, 2014				For the nine months ended September 30, 2014
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
	(In thousands)
Loans without a specific valuation allowance:
Commercial	$	7	$	7	$	––	$	9	$	––	$	12	$	1
Commercial real estate		794		1,144		––		1,786		59		1,809		73
Residential		––		––		––		––		––		––		––
Installment		––		––		––		––		––		––		––
		801		1,151		––		1,795		59		1,821		74
Loans with a specific valuation allowance:
Commercial		105		105		92		407		19		417		23
Commercial real estate		962		962		622		3,751		76		3,823		197
Residential		––		––		––		––		––		––		––
Installment		––		––		––		––		––		––		––
		1,067		1,067		714		4,158		95		4,240		220

Total:
Commercial	$	112	$	112	$	92	$	416	$	19	$	429	$	24
Commercial real estate	$	1,756	$	2,106	$	622	$	5,537	$	135	$	5,632	$	270
Residential	$	––	$	––	$	––	$	––	$	––	$	––	$	––
Installment	$	––	$	––	$	––	$	––	$	––	$	––	$	––

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

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

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

Three Months ended September 30, 2015

Number of
Contracts

Pre- Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

(In thousands)

Commercial

Commercial real estate

Residential

––

Installment

––

Three Months ended September 30, 2015

Interest
Only

Term

Combination

Total
Modification

(In thousands)

Commercial

––

Commercial real estate

––

Residential

––

Consumer

––

Nine Months ended September 30, 2015

Number of
Contracts

Pre- Modification
Outstanding
Recorded

Investment

Post-Modification
Outstanding
Recorded
Investment

(In thousands)

Commercial

Commercial real estate

Residential

––

Installment

––

Nine Months Ended September 30, 2015

Interest
Only

Term

Combination

Total
Modification

(In thousands)

Commercial

––

Commercial real estate

––

Residential

––

Consumer

––

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

Three Months ended September 30, 2014

Number of
Contracts

Pre- Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

(In thousands)

Commercial

––

Commercial real estate

––

Residential

––

Installment

––

Three Months Ended September 30, 2014

Interest
Only

Term

Combination

Total
Modification

(In thousands)

Commercial

––

Commercial real estate

––

Residential

––

Consumer

––

Nine Months ended September 30, 2014

Number of
Contracts

Pre- Modification
Outstanding
Recorded
Investment

Post-Modification
Outstanding
Recorded
Investment

(In thousands)

Commercial

––

Commercial real estate

155

Residential

––

Installment

––

Nine Months Ended September 30, 2014

Interest
Only

Term

Combination

Total
Modification

(In thousands)

Commercial

––

Commercial real estate

––

Residential

––

Consumer

––

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

During the nine months ended September 30, 2015, troubled debt restructurings did not have an impact on the allowance for loan losses. During the nine the months ended September 30, 2014, troubled debt restructurings described above increased the allowance for loan losses by $90,000.

At September 30, 2015 and 2014 and for three and nine month periods then ended, there were no material defaults of any troubled debt restructurings that were modified in the last 12 months. The Company generally considers TDR’s that become 90 days or more past due under the modified terms as subsequently defaulted.

Note 4:

Benefit Plans

Pension expense includes the following:

	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
	(In thousands)

Service cost	$	85		$	74		$	255		$	222
Interest cost		48			35			144			105
Expected return on assets		(94	)		(83	)		(282	)		(249	)
Amortization of prior service cost and net loss		(12	)		(15	)		(36	)		(45	)

Pension expense	$	27		$	11		$	81		$	33

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.

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

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,
	2015		2014
	(In thousands)

Commercial loans unused lines of credit	$	14,738	$	13,950
Commitment to originate loans		8,173		9,228
Consumer open end lines of credit		36,218		35,604
Standby letters of credit		1,058		220

Note 6:

Accumulated Other Comprehensive Income

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

	September 30, 2015		December 31, 2014
	(In thousands)

Net unrealized gain on securities available-for-sale	$	59	$	60
Net unrealized gain for funded status of defined benefit plan liability		25		25

		84		85
Tax effect		27		28

Net-of-tax amount	$	57	$	57

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

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

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

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, 2015 and December 31, 2014:

			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
September 30, 2015
U.S. government agencies	$	27,023	$	––	$	27,023	$	––
State and political subdivisions		3,623		––		3,623		––

December 31, 2014
U.S. government agencies	$	14,380	$	––	$	14,380	$	––
State and political subdivisions		4,946		––		4,946		––
Equity securities		22		22		––		––

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

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

Impaired Loans (Collateral Dependent)

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

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.

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

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, 2015 and December 31, 2014.

			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
September 30, 2015
Collateral dependent impaired loans	$	766	$	––	$	––	$	766
Foreclosed assets held for sale		253		––		––		253

December 31, 2014
Collateral dependent impaired loans	$	301	$	––	$	––	$	301
Foreclosed assets held for sale		991		––		––		991

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 9/30/15		Valuation Technique	Unobservable Inputs	Range
	(In thousands)

Collateral-dependent impaired loans	$	766	Market comparable properties	Comparability adjustments	Not available

Foreclosed assets held for sale		253	Market comparable properties	Marketability discount	10% – 15%

	Fair Value at 12/31/14		Valuation Technique	Unobservable Inputs	Range
	(In thousands)

Collateral-dependent impaired loans	$	301	Market comparable properties	Comparability adjustments	Not available

Foreclosed assets held for sale		991	Market comparable properties	Marketability discount	10% – 15%

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

There were no significant changes in the valuation techniques used during 2015.

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

Carrying
Amount

Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

(In thousands)

September 30, 2015

Financial assets

Cash and cash equivalents

24,844

––

Held-to-maturity securities

235

––

236

––

Loans, net of allowance

323,598

––

321,027

Federal Home Loan Bank stock

4,210

––

4,210

––

Accrued interest receivable

787

––

787

––

Financial liabilities

Deposits

323,197

––

310,493

––

Short term borrowings

10,244

––

10,244

––

Federal Home Loan Bank Advances

26,587

––

27,709

––

Subordinated debentures

4,124

––

3,962

––

Interest payable

123

––

123

––

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

			Fair Value Measurements Using
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
December 31, 2014

Financial assets

Cash and cash equivalents	$	39,164	$	39,164	$	—	$	––
Held-to-maturity securities		450		––		451		––
Loans, net of allowance		313,354		—		––		312,014
Federal Home Loan Bank stock		4,210		––		4,210		––
Accrued interest receivable		829		––		829		––

Financial liabilities
Deposits		322,681		––		309,186		––
Short term borrowings		5,098		––		5,098		––
Federal Home Loan Bank Advances		26,719		––		26,703		––
Subordinated debentures		4,124		––		3,962		––
Interest payable		135		––		135		––

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.

Held-to-maturity Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated 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. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 2 of the hierarchy. The Company has no securities classified as Level 3 of the hierarchy.

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

Loans

The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations.

Deposits

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

Interest Payable

The carrying amount approximates fair value.

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

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

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

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated 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, 2015 and December 31, 2014.

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.

At September 30, 2015 and December 31, 2014, repurchase agreement borrowings totaled $10,244,000 and $5,098,000, respectively and are included in short-term borrowings on the consolidated condensed balance sheets. All repurchase agreements are subject to term and conditions of repurchase/security agreements between the Company and the customer and are accounted for as secured borrowings. The Company’s repurchase agreements reflected in short-term borrowings consist of customer accounts and securities which are pledged on an individual security basis.

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

United Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2015 and 2014

Remaining Contractual Maturity of the Agreement

(In thousands)

September 30, 2015	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater than 90 Days		Total

Repurchase Agreements
U.S. government agencies	$	10,503	$	––	$	––	$	––	$	10,503
State and political subdivisions		1,503		––		––		––		1,503

Total	$	12,006	$	––	$	––	$	––	$	12,006

These borrowings were collateralized with U.S. government and agency securities with a carrying value of $12.0 million at September 30, 2015. Declines in the fair value would require the Company to pledge additional securities.

	United Bancorp, Inc.
ITEM 2.	Management’s Discussion and Analysis of Financial
	Condition and Results of Operations

The following discusses the financial condition of the Company as of September 30, 2015, as compared to December 31, 2014, and the results of operations for the three and nine months ended September 30, 2015, compared to the same period in 2014. This discussion should be read in conjunction with the interim condensed consolidated financial statements and related footnotes included herein.

Introduction

United Bancorp, Inc. (NASDAQ: UBCP), headquartered in Martins Ferry, Ohio reported diluted earnings per share of $0.47 for the nine months ended September 30, 2015 compared to $0.38 for the nine months ended September 30, 2014, an increase of 24%. This growth in earnings can be attributed to several factors which are explained below in detail. The Company’s diluted earnings per share for the three months ended September 30, 2015 increased 21% to $0.17 from $0.14 for the three months ended September 30, 2014.

The increase in the Company’s earnings is reflective of the growth in loan related earning assets for the Company, especially over the past quarter. The Company’s net interest margin decreased slightly for the first nine months of 2015 to a level of 3.68% compared to 3.86% for the same period in 2014. This decrease in the net interest margin is attributed to the Company having a higher level of investment securities for the nine months ended September 30, 2015 as compared to the same period in 2014. Even though the yield on these short-duration securities had somewhat of a dilutive impact on the net interest margin, the increased position in these securities helped keep the Company’s level of investment income relatively stable. In addition, the net interest margin was impacted by the downward repricing of the loan portfolio in this extended low rate environment. Period-over-period, the Company’s average loans increased $1.9 million while gross loans increased by $13.6 million, or 4.34%, which helped to stabilize the interest income on loans. The Company maintained its funds management policy by keeping the majority of its surplus funding in very liquid, lower-yielding excess reserves at the Federal Reserve, which totaled $32.6 million on an average basis for the nine months ended September 30, 2015, and resisting the temptation of extending the duration of its investment portfolio to achieve higher investment yields; although, investment in shorter-duration securities accelerated for the year as previously mentioned. As a result, the average securities and other restricted stock balance increased by $8.5 million to a level of $38.3 million at quarter-end. On a year-over-year basis, the Company’s credit quality has not changed significantly as nonaccrual loans marginally increased by $187,000 to a level of $1.5 million or 0.47% of total loans. For the nine months ended September 30, 2015, the Company actually recorded a net loan recovery of $44,000 as compared to having a net charge off of $405,000 for the nine months ended September 30, 2014. With the net recovery position in 2015, the Company decreased the provision for loan losses by $270,000 year-over-year. The overall total allowance for loan losses to total loans was 0.84% resulting in a total allowance for loan losses to nonperforming loans of 176.08% at September 30, 2015 compared to 0.97% and 221.92% respectively at September 30, 2014. With this continued trend of improving credit quality and strong coverage, the Company projects a further reduction of its provision for loan losses which should have a positive impact on future earnings.

United Bancorp, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

On the liability-side of the balance sheet, the Company continued to see a positive return on its strategy of attracting additional customers into lower-cost funding accounts while allowing higher-cost funding to run off. Year-over-year, low-cost funding, consisting of demand and savings deposits, increased by $12.1 million while higher-cost time deposit balances decreased by over $9.4 million, helping to reduce the overall interest expense of the Company. The Company continued to see the positive impact of attracting a higher number of active transaction accounts which resulted in service charges on deposit accounts increasing by $89,000, or 4.32%, on a year-over-year basis as of September 30, 2015. It is projected that this trend will continue even with the Government mandated regulations relating to the Dodd-Frank Act being more fully implemented. The heightened implementation of this legislation may potentially have a limiting effect on the level of revenue realized per account which should be offset by the Company’s focus on attracting a higher number of transaction accounts that can generate fee-based income. Lastly, the Company was able to further reduce its level of noninterest expense or overhead. As of September 30, 2015, noninterest expense decreased on a year-over-year basis by $609,000 or 6.07%. A portion of this cost savings is attributed to a pre-tax impairment charge of $162,000 on foreclosed real estate that was realized in the first quarter of 2014. Even without consideration of this impairment charge, noninterest expense still decreased $447,000. As previously announced, the Company’s office consolidation in its Glouster, Ohio marketplace was completed late in the first quarter of this year and has lead to additional cost savings which should help to further contain noninterest expense in future periods. Our goal is to control our level of noninterest expense while continuing to build and strengthen our operational foundation which should lead to future growth, higher levels of operating income and, ultimately, a higher level of performance. Over the next 24 months, it is projected that the Company’s interest expense will be positively impacted by the repricing of $26 million in fixed-rate advances with the Federal Home Loan Bank (”FHLB”) that are set to mature. The average cost of these advances is 3.66% and, given the current interest rate environment, the Company will either pay off these advances with its current liquidity or replace the advances at a substantial savings to interest expense. In May 2016, a $6.0 million FHLB advance matures at a rate of 3.28%. If this advance is replaced with short term floating rate debt at a current rate of 25 basis points, the Company will save approximately $197,000 annually in interest expense beginning in May 2016. In addition, the Company’s $4.1 million subordinated debenture is set to reprice January 1, 2016 from a fixed rate of 6.25% to a variable rate based on the three-month LIBOR plus a margin of 1.35%. With three-month LIBOR currently priced at approximately 32 basis points, the Company’s rate on its debenture would decrease approximately 4.55%. This would save approximately $182,000 in interest expense annually beginning January 1, 2016. With our continued focus of shifting lower-yielding liquid assets into higher-yielding quality loans, growing service charge income on deposit accounts, controlling of our noninterest expense, reducing our interest expense in 2016 and the potential lowering of our loan loss provision even further, we are projecting continued improvement in our earnings for 2015 and into 2016.

The results that we are seeing today are reflective of the somewhat conservative posturing that we undertook in recent years to protect both our capital base and earnings stream. Most of these recent earnings improvements have come from process changes and product enhancements that have been undertaken in recent years which have led to operational efficiencies that have lowered our non-interest expense levels while driving higher levels of fee based revenue for our Company. We are pleased with the results that we are now seeing and will continue to look for additional opportunities in these key areas as we have done this year with the office consolidation that we completed in the late first quarter in our Glouster, Ohio market and other internal process enhancements that continue to help our organization become more operationally efficient and produce higher levels of quality earnings. Such opportunities have led to our Company decreasing our federal tax equivalent employee count by 4.5% year-over-year while still serving our customer base at a high level and building profitable relationships as demonstrated by our continued growth in fee based revenue. Being a very well capitalized Bank in today’s environment will allow us to enhance our focus in the coming quarters by further implementing a growth strategy that was initiated late in the second quarter of this current year which exclusively focusses on driving the loan volumes of our company. This strategy, which entails adding additional origination personnel to our commercial and residential lending platforms and enhancing the lending programs that our Company offers, should generate higher levels of interest and fee based revenue in the coming quarters. We have begun to see the results of this initiative with our gross loans increasing by $13.6 million year-over-year. In looking at our linked quarter gross loan growth, gross loans were up by $14.4 million or 18.5% on a forward basis. We strongly anticipate that this newly initiated revenue enhancement strategy, along with the aforementioned downward pricing of a large portion of our borrowed funds base, should help enhance the overall operating income that our Company generates over the course of the next twenty-four months and drive earnings growth that is similar to what we have seen in recent quarters. Our Company is beginning to be rewarded by the markets for this level of performance as we have seen the market value of our stock increase from $8.07 at year-end to $9.07 at the most recent quarter-end, an increase of 12.39%. We believe with our Company’s present price-to-earnings multiple and projected direction of earnings that our stock can continue to trade at higher market valuations in the near term. Our number one focus continues to be protecting and growing our shareholders investment in our Company through sound and profitable operations and strategic growth. In addition to driving the market value appreciation of our shareholders ownership, we will continue striving to reward our owners by paying a solid cash dividend which increased 12.39% on a year-over-year basis and is presently yielding 4.00%. At this level, our Company’s cash dividend is yielding nearly twice that of the average bank in our country. Overall, we are very pleased with the present operating performance of our Company and the direction that we are going.

United Bancorp, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

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 cause actual results to differ materially from historical earnings and those presently anticipated or projected. Factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any statements expressed with respect to future periods.

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

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.

The procedures for assessing the adequacy of the allowance for loan losses reflect our evaluation of credit risk after careful consideration of all information available to management. In developing this assessment, management must rely on estimates and exercise judgment regarding matters where the ultimate outcome is unknown such as economic factors, developments affecting companies in specific industries and issues with respect to single borrowers. Depending on changes in circumstances, future assessments of credit risk may yield materially different results, which may require an increase or a decrease in the allowance for loan losses.

The allowance is regularly reviewed by management and the board to determine whether the amount is considered adequate to absorb probable losses. This evaluation includes specific loss estimates on certain individually reviewed loans, statistical loss estimates for loan pools that are based on historical loss experience, and general loss estimates that are based on the size, quality and concentration characteristics of the various loan portfolios, adverse situations that may affect a borrower’s ability to repay and current economic and industry conditions. Also considered as part of that judgment is a review of the Bank’s trend in delinquencies and loan losses, and economic factors.

	United Bancorp, Inc.
ITEM 2.	Management’s Discussion and Analysis of Financial
	Condition and Results of Operations

The allowance for loan losses is maintained at a level believed adequate by management to absorb probable loan losses inherent in the loan portfolio. Management’s evaluation of the adequacy of the allowance is an estimate based on management’s current judgment about the credit quality of the loan portfolio. While the Company strives to reflect all known risk factors in its evaluation, judgment errors may occur.

Analysis of Financial Condition

Earning Assets – Loans

Our focus as a community bank is to meet the credit needs of the markets we serve. At September 30, 2015, gross loans were $326.3 million, compared to $315.8 million at December 31, 2014, an increase of $10.6 million after offsetting repayments for the period. The overall increase in the loan portfolio was comprised of a $14.3 million increase in commercial and commercial real estate loans a $670,000 decrease in residential loans and a $3.1 million decrease in installment loans since December 31, 2014.

Commercial and commercial real estate loans comprised 68.9% of total loans at September 30, 2015, compared to 66.7% at December 31, 2014. Commercial and commercial real estate loans have increased $14.3 million, or 6.8% since December 31, 2014. This segment of the loan portfolio includes originated loans in our 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, but mainly within the state of Ohio.

Residential real estate loans were 25.5% of total loans at September 30, 2015 and 26.6% at December 31, 2014, representing a decrease of $670,000, or less than 1.0% since December 31, 2014. As of September 30, 2015, the Bank has approximately $7.7 million in fixed-rate loans that have been sold in the secondary market but still serviced by the Company as compared to $10.7 million at December 31, 2014. The level of fixed rate mortgages serviced by the Company will continue to decline as the Company will not retain servicing rights on new sales going forward for these types of products. The Company will continue to service these loans for a fee that is typically 25 basis points. At September 30, 2015, the Company did not hold any loans for sale.

Installment loans represented 5.6% of total loans at September 30, 2015 and 6.7% at December 31, 2014. Some of the installment loans carry somewhat more risk than real estate lending; however, it also provides for higher yields. Installment loans have decreased $3.1 million, or 14.6%, since December 31, 2014. 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. The strategic direction of the Company is not to grow installment based loans at this time.

The allowance for loan losses totaled $2.7 million at September 30, 2015, which represented 0.84% of total loans, and $2.4 million at December 31, 2014, or 0.76% of total loans. The allowance represents the amount which management and the Board of Directors estimates is adequate to provide for probable losses inherent in the loan portfolio. The allowance balance and the provision charged to expense are reviewed by management and the Board of Directors monthly using a risk evaluation model that considers borrowers’ past due experience, economic conditions and various other circumstances that are subject to change over time. Management believes the current balance of the allowance for loan losses is adequate to absorb probable incurred credit losses associated with the loan portfolio. Net charge-offs for the nine months ended September 30, 2014 were approximately $527,000 Net loans charged off decreased approximately $467,000 for the nine months ended September 30, 2015 as compared to the same period in 2014.

	United Bancorp, Inc.
ITEM 2.	Management’s Discussion and Analysis of Financial
	Condition and Results of Operations

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 and held-to-maturity at September 30, 2015 increased approximately $11.3 million from December 31, 2014 totals. The Company has invested in shorter duration securities to reinvest liquid funds.

Sources of Funds – Deposits

The Company’s primary source of funds is core deposits from retail and business customers. These core deposits include all categories of interest-bearing and noninterest-bearing deposits, excluding certificates of deposit greater than $100,000. For the period ended September 30, 2015, total core deposits increased approximately $2.0 million, or less than 1.0%. The Company’s savings accounts increased $3.6 million or 5.0% from December 31, 2014 totals. The Company’s interest-bearing and non-interest bearing demand deposits increased $3.7 million or 2.0% while certificates of deposit under $100,000 decreased by $1.5 million, or 9.0%. The Company considers core deposit to be stable; therefore, the amount of funds anticipated to flow out in the next three to six months is not considered material to the overall liquidity position of the Company.

The Company has a strong deposit base from public agencies, including local school districts, city and township municipalities, public works facilities and others that may tend to be more seasonal in nature resulting from the receipt and disbursement of state and federal grants. These entities have maintained fairly static balances with the Company due to various funding and disbursement timeframes.

Certificates of deposit greater than $100,000 are not considered part of core deposits and as such are used to balance rate sensitivity as a tool of funds management. At September 30, 2015, certificates of deposit greater than $100,000 decreased $1.3 million or 7.6%, from December 31, 2014 totals.

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

Other interest-bearing liabilities include securities sold under agreements to repurchase and Federal Home Loan Bank (“FHLB”) advances. The majority of the Company’s repurchase agreements are with local school districts and city and county governments. The Company’s short-term borrowings increased approximately $5.1 million from December 31, 2014 totals.

Results of Operations for the Nine Months Ended September 30, 2015 and 2014

Net Income

For the nine months ended September 30, 2015 the Company reported net earnings of $2,358,000, compared to $1,918,000 for the nine months ended September 30, 2014. On a per share basis, the Company’s diluted earnings were $0.48 for the nine months ended September 30, 2015, as compared to $0.38 for the nine months ended September 30, 2014.

United Bancorp, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

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 decreased 2.2%, or $229,000 for the nine months ended September 30, 2015 compared to the same period in 2014. Not wanting to take undue interest rate risk, we are keeping our liquidity in short term low yielding funds as Cash and due from Bank. With a 25 basis point return, this has impacted our 2015 earnings.

Provision for Loan Losses

Non-accrual loans were up $591,000 to a level of $1.5 million as of September 30, 2015. Although non-accrual loans increased, the level of risk in loss exposure has decreased since December 31, 2014. Net loans charged off were $60,000 or 0.02% of average loans. The Company decreased the provision for loan losses which was $387,000 for the nine months ended September 30, 2015 compared to $657,000 for the nine months ended September 30, 2014, a decrease of $270,000 or 41.1%.

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.

A positive effect of attracting a higher level of transaction accounts was the Company’s service charges on deposit accounts increased by $89,000 for the nine months ended September 30, 2015 as compared to the same period in 2014. The Company’s continues its focus on attracting more transaction account customers and having a higher overall level of transaction accounts that can generate fee based income.

Noninterest Expense

Noninterest expense decreased on a year-over-year basis by $610,000 or 6.1%. Salaries and employee benefit expense decreased $148,000, or 3.0%, for the nine month period ended September 30, 2015, compared to the same period in 2014. Provision for losses on foreclosed real estate decreased $124,000 for the nine months ended September 30, 2015 as compared to the same period in 2014. Net occupancy decreased $45,000, or 2.9% for the nine months ended September 30, 2015, compared to the same period in 2014.

Federal Income Taxes

The provision for federal income taxes was $967,000 for the nine months ended September 30, 2015, an increase of $307,000 compared to the same period in 2014. The effective tax rate was 29.1% and 25.6% for the nine months ended September 30, 2015 and 2014, respectively.

United Bancorp, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Results of Operations for the Three Months Ended September 30, 2015 and 2014

Net Income

For the three months ended September 30, 2015 the Company reported net earnings of $859,000, compared to $718,000 for the three months ended September 30, 2014. On a per share basis, the Company’s diluted earnings were $0.17 for the three months ended September 30, 2015, as compared to $0.14 for the three months ended September 30, 2014.

Net Interest Income

Net interest income increased less than 1.0%, or $20,000 for the three months ended September 30, 2015 compared to the same period in 2014.

Provision for Loan Losses

The provision for loan losses was $126,000 for the three months ended September 30, 2015, compared to $225,000 for the same period in 2014. As previously discussed, the decrease in the provision for loan losses was primarily due to the overall improvement in the Company’s credit quality.

Noninterest Income

As previously mentioned attracting a higher level of transaction accounts has a positive impact on noninterest income. The Company’s service charges on deposit accounts, a component of non interest income increased by $8,000 for the three months ended September 30, 2015 as compared to the same period in 2014. It is projected this trend will continue as the Company has focused on attracting more transaction account customers and having a higher overall level of transaction accounts that can generate fee based income.

Noninterest Expense

Noninterest expense was $3,182,000 for the three months ended September 30, 2015 a decrease of $74,000, compared to the three months ended September 30, 2014. Salaries and employee benefit expense decreased $56,000, or 3.4%, for the three month period ended September 30, 2015, compared to the same period in 2014. Provision for losses on foreclosed real estate increased $38,000 for the three months ended September 30, 2015 as compared to the same period in 2014. Net occupancy decreased $21,000, or 4.3% for the three months ended September 30, 2015, compared to the same period in 2014.

Federal Income Taxes

The provision for federal income taxes was $360,000 for the three months ended September 30, 2015, an increase of $64,000 compared to the same period in 2014. The effective tax rate was 29.5% and 29.2% for the three months ended September 30, 2015 and 2014, respectively.

United Bancorp, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Capital Resources

Internal capital growth, through the retention of earnings, is the primary means of maintaining capital adequacy for the Company. Stockholders’ equity totaled $41.6 million at September 30, 2015 compared to $40.4 million at December 31, 2014, a $1.2 million increase. Total average stockholders’ equity in relation to total average assets was 10.18% at September 30, 2015 and 9.63% at December 31, 2014. Our shareholders approved an amendment to the Company’s Articles of Incorporation to create 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.

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.

As of September 30, 2015, the Company continues to be well-capitalized in accordance with Federal regulatory capital requirements as the capital ratios below show:

Common equity tier 1 capital ratio	12.89	%
Tier 1 capital ratio	14.16	%
Total capital ratio	15.02	%
Leverage ratio	10.91	%

United Bancorp, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Liquidity

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

Inflation

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

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

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

There has been no significant change from disclosures included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

United Bancorp, Inc.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

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, 2015, in timely alerting them to material information relating to the Company (including its consolidated subsidiary) required to be included in the Company's periodic SEC filings.

There was no change in the Company's internal control over financial reporting that occurred during the Company's fiscal quarter ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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

There have been no material changes from risk factors as previously disclosed in Part 1 Item 1A of the Company’s Form 10-K for the year ended December 31, 2014, filed on March 15, 2015.

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

ISSUER PURCHASES OF EQUITY SECURITIES

Period

(a)
Total Number of
Shares (or Units)
Purchased

(b)
Average Price Paid
Per Share (or Unit)

(d)
Maximum Number or
Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs

Month #1
7/1/2015 to
7/31/2015

––

Month #2
8/1/2015 to
8/31/2015

––

Month #3
9/1/2015 to
9/30/2015

––

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 the participant’s account are distributed to him or her along with any cash proceeds credited to the account which have not yet been invested in the Company’s stock. On May 27, 2015, the Plan purchased a total of 2,140 common shares for participant accounts. 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.

United Bancorp, Inc.

Part II – Other Information

ITEM 4.

Mine Safety Disclosures

Not applicable.

ITEM
    5.

Exhibits
    

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

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

	EX-4.0	Instruments Defining the Rights of Security Holders (See Exhibits 3.1 and 3.2)

	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

⁽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 August 22, 2014.

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 16, 2015	By:	/s/Scott A. Everson
		Scott A. Everson
		President and Chief Executive Officer

Date: November 16, 2015	By:	/s/Randall M. Greenwood
		Randall M. Greenwood
		Senior Vice President, Chief Financial Officer and Treasurer

Exhibit Index

Exhibit No.

Description

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

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

	EX-4.0	Instruments Defining the Rights of Security Holders (See Exhibits 3.1 and 3.2)

	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

⁽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 August 22, 2014.