UNITED BANCORP INC OH

Unfortunately for these few banks, when interest rates dramatically rose over the course of a short period of time, the cost of these formally low-cost deposits increased and caused financial hardship for them. Arguably, only a handful of banks were in this situation; but, the media sensationalized this as being an industry-wide phenomena, which created issues for our industry as a whole and caused concern with investors that many banks would fail or need to sell. This put extreme pressure on the market values of most banks in our country and induced unwarranted panic among many regarding the general health of the financial services industry.

With all of this turmoil that has occurred over the course of these past three years and the challenges with which our Company has been confronted, it is quite remarkable that United Bancorp, Inc. (UBCP) had the three best years of earnings performance in its entire one hundred twenty-one(121) year history during this period. Arguably, 2023 was the best year of performance that UBCP has ever seen on a “core” operating basis… when the negative provisioning realized by our Company in each of these three years is not considered. But, looking at the reported financial performance of UBCP (including the positive impact of negative provisioning), our Company had the second highest level of earnings performance in its history in 2023. For the year ended December 31, 2023, UBCP produced net income of $8,950,000 and diluted earnings per share of $1.57, respective increases over the results achieved for each the previous year of $293,000, or 3.4%, and $0.07 or 4.7% (and, only lower that that achieved in 2021). At the earnings level achieved in 2023, UBCP had a return on average assets (ROA) of 1.12% and a return on average equity of 17.12%, which compares very favorably with our peer group of banks and industry. In addition, Management was also extremely happy to report that UBCP, once again, was recognized by American Banker in their annual “Top 200 Publicly Traded Community Banks”, coming in at number 84, which matched the same rank achieved the previous year.

As previously mentioned, the year 2023 was marked by continued adjustment in monetary policy, with the Federal Reserve maintaining its stance on interest rates to navigate inflationary pressures and economic shifts. In addition, it was further marked by the “media-driven” banking crisis that develop late in the first quarter, which gave our entire industry a black eye. But, this event, in reality, was isolated to a few financial institutions within our industry and primarily caused by the poor management of these specific banks. Nonetheless, these events continued to create headwinds for our Company. Despite these challenges, United Bancorp, Inc. (UBCP) remained well-positioned to leverage the environment to our advantage by responding to each accordingly.

United Bancorp, Inc. (UBCP) has been able to capitalize on the historically extreme tightening of monetary policy undertaken by the Federal Open Market Committee of the Federal Reserve (FOMC) over the course of a short period of sixteen months. Although it has been somewhat challenging to produce improving results in such a fast-paced, increasing interest rate environment, UBCP was properly positioned to take advantage of this historic and dramatic increase in interest rates and our Company experienced an improvement in the level of net interest income that it realized this past year, while maintaining a very stable net interest margin… a feat not experienced by many financial institutions in 2023!

On the asset-side of our balance sheet, we achieved the positive result of increasing net interest income and a stabile net interest margin partly by seeing our overall loan portfolio yield increase in the current rising rate environment, even though from a volume perspective, our average loans were relatively flat, only increasing for the year ending December 31, 2023 by $920,000 or 0.20%. Of note is that our Company did see a more significant uptick in gross loans during the fourth quarter of this past year by $22.4 million, or 4.9%, to a level of $483.2 million at year-end.

More strongly contributing to the improvement in United Bancorp, Inc.’s (UBCP) net interest income level achieved and its stabile net interest margin in 2023 were its higher balance sheet totals for both average cash and due from the Federal Reserve Bank and average investment securities. Our Company’s overnight funds, that are parked in cash equivalents, have benefited from the inverted yield curve that continued over the course of the past year, which was driven by the aggressive tightening policy of the Federal Open Market Committee (FOMC). At year-end 2023, the average balance of these overnight, liquid funds totaled $53.8 million, an increase of $9.2 million, or 20.5%, over the previous year, and yielded approximately 5.1% for our Company after the final increase in the target for the federal funds rate by the FOMC in July of this past year. Each time the FOMC increased the target for the federal funds rate, UBCP benefited by seeing the yield on these liquid funds increase by a like amount.

But, the most impactful force upon our Company achieving a higher level of net interest income in 2023 was the higher average balance in our investment securities portfolio in a rising rate environment. As we have previously reported, we did not invest in securities for almost two years beginning in March of 2020, when rates dramatically decreased due to the Zero Interest Rate Policy (ZIRP) by the Federal Open Market Committee (FOMC) due to the onset of the pandemic. Quite simply, we patiently waited for policy tightening by the FOMC to begin and rates to increase to more historically normalized levels. Accordingly, our Company started to, once again, invest in securities when rates began to rise to more appealing levels toward the end of the first quarter of 2022 and continued to regularly invest in new security offerings until March of 2023… when challenges arose for our industry and liquidity became more of a focus for us due to the aforementioned “media-driven” banking crisis. Even though this fabricated crisis caused our Company to refrain from purchasing investment securities from early March and throughout the majority of this past year in order to maintain a strong liquidity position, we did benefit from the leveraged position that we developed in our investment portfolio over the previous twelve months and, for the year, our average securities for our Company increased by $54.7 million, or 31.3%, to a level of $229.6 million.

On the liability-side of the balance sheet, this past year United Bancorp, Inc. (UBCP) did experience an increase in the interest expense that it incurred. As could be expected with the dramatic increase in interest rates that continued during the course of this past year, total interest expense increased by $7.7 million, or 236.5%, year-over-year in 2023. But, even with this dramatic increase in interest expense for our Company, we were able to control the level of increase in this key area; thereby, maintaining the previously discussed increase in our Company’s net interest income and a stabile net interest margin. We achieved this result by becoming less liability-sensitive in the first quarter in reaction to the “media driven” banking crisis, when liquidity became “king” for our industry and Company. With the developments that occurred within our industry in the late first quarter of 2023, we transitioned into a more conservative operating position that greatly increased our overall liquidity and “locked in” a fair portion of our funding as a hedge against further interest rate increases by taking a $75.0 million advance from the Federal Home Loan Bank (FHLB). Initially, this significant advance had somewhat of a dilutive impact on our returns and margins (such as our return on assets and our net interest margin); but, it was immediately accretive to our bottom-line earnings. Since rates continued to rise after the origination of these now competitively priced advances (to which we locked-in on a blended basis at a rate of approximately 4.2% for an approximate term of four years), we were able to more selectively manage our depository portfolio by allowing a portion of the “rate sensitive” funding to either roll-off or reinvest in other higher cost depository products which still cost less than overnight federal funds; thus, helping us to control our interest expense, while maintaining very adequate liquidity levels and generating increasing returns on this strategic posture. For the first time in several years, UBCP did experience a decline in its total deposits, which decreased by $28.5 million, or 4.4%, in 2023. This decline in total deposits included a decrease in low-cost deposits (consisting of noninterest bearing deposits, interest bearing demand and savings balances) of $78.1 million, which was partially offset by an increase in time deposits of $49.6 million. With this change in the mix of our funding, our Company’s interest expense to total assets was 1.34% at year-end, an increase of 91 basis points year-over-year. As previously mentioned, even with this increase in interest expense, UBCP was able to maintain a relatively stable net interest margin this past year, which only dropped by 8 basis points to a level of 3.65% at year-end. Each of these metrics compare very favorably to peer and contributed to UBCP achieving its solid earnings performance in 2023.

Relating to the noninterest margin of United Bancorp, Inc. (UBCP) in 2023, our Company was able to maintain the level of noninterest income that it generated even though there was both extreme political and regulatory pressure on the purported “junk fees” that our industry is accused of charging… even though, most customers believe that the fees charged by the banking industry are fair and the services provided relating thereto are desired. With a focus on the future, in September our Company hired new staffing relating to our newest division, Unified Mortgage. With the need to develop or enhance revenue lines within our Company, we hired an individual who successfully ran a mortgage company for over twenty years. In addition, we have developed a model; whereby, we finally have dedicated mortgage originators that strictly focus on the production of purchase money consumer mortgage loans. As we ramp up the operations of Unified Mortgage by revamping our product offerings and leveraging our origination platform, we are confident that we will generate higher levels of noninterest or fee income in the coming years, even though both nonsufficient fund and interchange income will remain under attack. In 2023, UBCP generated noninterest income of $4.1 million, a marginal decline of $29,000, or 0.71%, over the previous year.

Relating to the other half of the noninterest margin, United Bancorp, Inc. (UBCP) was able to somewhat control the inevitable increase in its noninterest expense level. Considering that inflation continues to remain well-above historic norms, our Company saw its noninterest expense increase by a respectable $962,000 or 4.8%. Much of this increase is attributed to higher personnel related expenses incurred to keep adequate staffing during this very challenging time--- when wage inflation remained high (along with a high level of job openings) and unemployment remained relatively low. In addition, UBCP maintained its focus on remaining relevant by keeping a focus on digital transformation and investing in the digital delivery services and channels demanded by our customer base, which further added to noninterest expense levels. Lastly, and very excitedly, our Company successfully negotiated a lease on a prime parcel of real estate in the desirable Wheeling, West Virginia Market that added to our noninterest expense in the fourth quarter. We are in the process of designing and building a new regional banking center at this location which should be finished sometime in the late fourth quarter of 2024 or early 2025. Overall, our Company is committed to eliminating unnecessary expenses where warranted… but, prudently taking on expenses in areas that will help us to maintain our relevancy and ensure our future success.

In 2023, even with the continued heightened inflation levels and related increases in interest rates that impacted our borrowers with higher operating costs and potential rate resets to higher interest rate levels and payments on their loans, United Bancorp, Inc. (UBCP) maintained credit-related strength and stability in its loan portfolio. At year-end, our Company’s total nonaccrual loans and loans past due 30 plus days were $1.15 million, or 0.24%, which is a slight increase of $540,000 year-over-year. Nonaccrual loans and OREO to average assets wat 0.48%, a decrease of one(1) basis point over the previous year. Also, further highlighting the overall strength of our loan portfolio, our Company had net loans charged off of (-$19,000), or a net loan recovery (exclusive of overdraft charge-offs), this past year. Amazingly, all of the charge off activity that UBCP experienced in 2023 related to overdraft activity, which totaled $120,000 for the year. With the enhanced loan loss reserve build-up under CECL that occurred on January 1, 2023 (and, our Company’s stable and solid credit quality metrics), we were able to have a negative provision for credit losses, once again, this past year. Though UBCP’s provision for credit losses was a negative amount in 2023... it still increased by $501,000 over the previous year, which reduced net income and diluted earnings per share by respective amounts of $396,000 and $0.07, relative to the prior year. Even with this lower level of negative credit provisioning in 2023, we firmly believe that we are well reserved with very strong coverage… having a total allowance for credit losses to total loans of 0.81% and a total allowance for credit losses to nonperforming loans of 706% at year-end.

At United Bancorp, Inc. (UBCP), our primary focus is protecting the investment of our valued shareholders in our Company and rewarding you in a balanced fashion by growing our Company’s market value over time and paying an attractive cash dividend. This past year was a challenging one for the market values of all bank-related stocks and--- even though we had very solid earnings results--- we did see the market value of our Company’s stock decline from the previous year. At year-end, UBCP’s stock closed at $12.84. Once again in 2023, our Company rewarded its shareholders with a very solid dividend payout of $0.8150 per share, which was higher than the previous year’s cash dividend payout of $0.7750… an increase of $0.04 per share or 5.2%. At this dividend payout level and our year-end market value, our dividend yield is a very solid 6.3%. In looking at the Total Return Performance Chart in this annual report, the five-year total return performance--- which considers both market value appreciation and cash dividend payouts--- shows that your investment in UBCP compared very favorably to all of the other bank related indices, to which our Company compares, listed on this chart. As always, our goal is to provide the highest level of return to you, our valued shareholders, while growing our company in a safe and sound manner!

As you can see, United Bancorp, Inc. (UBCP) had one of its highest performing years in terms of earnings performance in 2023, while operating in a very dynamic economic and regulatory environment. But… your management team will never be satisfied resting on past performance and laurels. This past year, we grew our total assets by $62.1 million, or 8.2%, to a level of $819.4 million. Moving forward, we continue to remain strongly focusing on achieving our goal of becoming a $1.0 billion community banking organization in, hopefully, the not too distant future. While striving to reach this goal, we will maintain our commitment to and standard of producing stellar, above peer, performance-related results as we confidently move forward as one of the premier community banks in our industry. UBCP is truly blessed to have a “Unified and United” team, management, board of directors and shareholder group. As a successful financial services company, we truly appreciate everyone’s continued support…Together, We Will Accomplish More!

Scott A. Everson

President and Chief Executive Officer

ceo@unitedbancorp.com

February 19, 2024

Certain statements contained herein are not based on historical facts and are “forward-looking statements” within the meaning of Section 21A of the Securities Exchange Act of 1934. Forward-looking statements, which are based on various assumptions (some of which are beyond the Company’s control), may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of these terms. Actual results could differ materially from those set forth in forward-looking statements, due to a variety of factors, including, but not limited to, those related to the economic environment, particularly in the market areas in which the company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset/liability management, changes in the financial and securities markets, including changes with respect to the market value of our financial assets, and the availability of and costs associated with sources of liquidity. The Company undertakes no obligation to update or clarify forward-looking statements, whether as a result of new information, future events or otherwise.