Executive Summary / Key Takeaways

• United Bancorp, Inc. (UBCP) is executing a strategic shift from a defensive posture to an offensive growth strategy, targeting an asset base of $1 billion or greater, driven by investments in new markets, technology, and specialized banking services.
• Recent financial performance shows resilience, with Q1 2025 net interest income and margin improving year-over-year and linked-quarter, benefiting from loan growth and interest rate dynamics despite a slight decrease in reported net income due to prior-year non-recurring items.
• The company is investing significantly in digital transformation, AI, and a centralized service/sales center to enhance efficiency, improve customer experience, and drive future business growth, aiming to counter larger competitors' technological advantages.
• Credit quality remains sound, with key metrics comparing favorably to peers, although nonaccrual loans saw an increase primarily from a single, well-collateralized commercial relationship.
• UBCP offers a near-industry leading dividend yield, providing attractive shareholder returns while the company executes its intermediate and longer-term growth initiatives, which are expected to stress short-term performance but yield above-industry results in the future.

A Regional Bank's Strategic Evolution

United Bancorp, Inc., founded in 1902 and headquartered in Martins Ferry, Ohio, operates as the bank holding company for Unified Bank. The company serves a diverse customer base of individuals, businesses, and organizations across specific counties in Ohio and West Virginia through its network of branches. For many years, UBCP has focused on traditional commercial and retail banking, building deep relationships within its community markets.

In recent years, the banking industry and the broader economy have faced significant challenges, including volatile interest rates, inflation, and policy shifts. This environment led UBCP to adopt a more conservative, defensive stance, prioritizing balance sheet stability and sound performance. However, beginning in 2024, the company initiated a strategic pivot towards an offensive growth strategy, setting a clear vision to expand its asset base to $1 billion or greater. This shift is aimed at ensuring long-term relevance and driving higher levels of earnings and profitability.

The competitive landscape for regional banks like UBCP is intense, marked by the presence of larger institutions such as Huntington Bancshares , KeyCorp (KEY), WesBanco (WSBC), and PNC Financial Services Group , as well as disruptive fintech firms and online banks. UBCP holds an estimated 5% deposit market share within its specific operating areas, positioning it as a significant local player but one that faces considerable scale and technological advantages from larger rivals. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, the company's focus on relationship-driven community banking provides a distinct value proposition in its target markets.

Investing in the Future: Technology and Expansion

Central to UBCP's growth strategy is a commitment to enhancing its operational capabilities and market reach through targeted investments. Over the past year, the company has significantly invested in technology, focusing on digital transformation and omni-channel delivery. This includes the implementation of Artificial Intelligence (AI) solutions. The stated goal of AI integration is to improve customer service efficiency by more effectively answering inquiries and guiding customers to appropriate financial solutions.

Furthermore, AI is intended to support a new sales-oriented function by routing inbound inquiries from various banking channels to skilled professionals, facilitating relationship development and cross-selling. While specific quantifiable performance metrics for these technologies are not yet disclosed, the strategic intent is to leverage technology to meet evolving customer needs, attract new clients, and enhance operational effectiveness, thereby helping to narrow the technology gap with larger competitors.

Beyond technology, UBCP is expanding its physical footprint and specialized service offerings. A new regional banking center is under construction in Wheeling, West Virginia, a market identified as desirable for growth, with an expected opening in late the third quarter of 2025. This new location is already contributing to loan growth through the efforts of a dedicated business development team and is anticipated to become a top-performing branch within five years. The company has also developed its Unified Mortgage Division and is increasing its focus on the Treasury Management function, particularly for small business customers. These initiatives are designed to generate higher levels of fee income and attract valuable low-cost deposits, both crucial for funding loan growth and improving profitability. Additionally, the acquisition of a property in St. Clairsville, Ohio, for a new "Unified Center" will centralize key administrative and customer support functions, aiming for greater efficiency and a more cohesive customer experience.

Financial Performance and Credit Strength

UBCP's recent financial results reflect the dynamics of the current economic environment and the initial impacts of its strategic investments. For the three months ended March 31, 2025, the company reported net income of $1.87 million, or $0.32 per diluted share. This compares to net income of $1.993 million, or $0.35 per diluted share, in the same period of 2024. The year-over-year decrease in reported earnings is primarily attributed to non-recurring items in Q1 2024, which added approximately $271,000 to net income and $0.05 to diluted EPS. Excluding these one-time items and a gain on securities sale in Q1 2025 ($113,000 net income, $0.02 EPS), core diluted earnings per share were $0.30 in both periods.

Net interest income saw a positive trend, increasing by $132,000, or 2.2%, year-over-year to $6.247 million in Q1 2025. The net interest margin improved by fourteen basis points to 3.60% compared to 3.46% in Q1 2024, and by nine basis points on a linked-quarter basis from 3.51%. This improvement was driven by growth in gross loans and the repricing of the loan portfolio in the prevailing higher-rate environment. Gross loans increased by $5.9 million since December 31, 2024, reaching $496.9 million, and were up 3.5% year-over-year. Deposits also increased by $10.6 million on a linked-quarter basis to $624.1 million, though total deposits saw a slight decrease year-over-year. The company managed interest expense by selectively pricing its retail deposit offerings.

Noninterest income increased significantly by $415,000 year-over-year, partly due to a $143,000 gain on the sale of available-for-sale securities in Q1 2025 compared to a $194,000 loss in Q1 2024. Noninterest expense rose by $748,000, or 15.5%, year-over-year, reflecting the costs associated with the transformative projects undertaken over the past twelve months. A provision for credit loss expense of $96,000 was recorded in Q1 2025, compared to zero in Q1 2024, reflecting economic uncertainty and loan growth.

Credit quality metrics remain a point of strength for UBCP. Total nonaccrual loans and loans past due 30 days or more stood at $2.8 million, or 0.57% of gross loans, at March 31, 2025. While this represents an increase of $1.4 million year-over-year, the majority of the increase in nonaccrual loans ($1.5 million) is attributed to a single commercial relationship that management assesses as "very well secured" with an "extremely low" loss given default. Loans past due 30 days or more actually decreased year-over-year. The ratio of nonperforming assets to total assets was 0.68%, an increase from 0.51% the previous year, but these levels remain "well-below historic levels and compare very favorably to peer." Net loans charged off were minimal at $3,000 in Q1 2025, down from the previous year. The allowance for credit losses totaled $4.1 million, or 0.82% of total loans, and provided strong coverage of 211.00% of nonaccrual loans, indicating the company is "well reserved."

Capital, Liquidity, and Shareholder Returns

UBCP maintains a solid capital position, remaining "very well capitalized" by regulatory standards under Basel III. As of March 31, 2025, the Common Equity Tier 1 capital ratio was 12.66%, the Tier 1 capital ratio was 12.66%, the Total capital ratio was 13.33%, and the Leverage ratio was 9.51%, all comfortably above minimum requirements. Stockholders equity totaled $60.8 million, representing 7.32% of total assets.

Liquidity is managed to ensure the company can meet customer needs and financial commitments, drawing on sources like net income, loan payments, and securities. Additional liquidity is available through Federal Home Loan Bank (FHLB) advances ($75 million outstanding at March 31, 2025, with fixed rates maturing over 1-3 years) and repurchase agreements ($37.6 million outstanding). The company holds available-for-sale securities with unrealized losses primarily due to interest rate changes, but management views these declines as temporary and does not anticipate needing to sell before recovery of amortized cost.

Rewarding shareholders remains a primary focus. In Q1 2025, UBCP paid a regular cash dividend of $0.18 per share, an increase of $0.0025, and a special cash dividend of $0.17, an increase of $0.03. The total payout of $0.36 represents a 10.9% increase year-over-year and results in a "near-industry leading total dividend yield of 6.70%," based on the annualized Q1 dividend plus special dividend relative to the quarter-end stock price. The company's market price to book value of 132.00 also "compares favorably to current industry standards."

Competitive Dynamics and Outlook

UBCP operates in a "highly competitive industry-related environment," facing pressure from larger, more technologically advanced regional banks and disruptive indirect competitors. While larger peers like Huntington Bancshares (HBAN) and PNC Financial Services Group (PNC) demonstrate higher revenue growth rates (5-7% range) and often better efficiency metrics (operating margins in the 20%+ range compared to UBCP's TTM operating margin of 15.68%), UBCP leverages its local network, community focus, and relationship-driven approach, particularly in the small business segment which constitutes approximately 80% of its loan portfolio. The investment in digital transformation and AI is a strategic response aimed at enhancing efficiency and customer engagement to better compete with the technological capabilities of larger rivals and the cost advantages of online-only institutions.

Management is "very optimistic about the future growth and earnings potential" despite the prevailing economic uncertainty, including the impact of newly implemented trade policy. They anticipate the positive trend in net interest margin to continue in the coming quarters, particularly if the Federal Reserve proceeds with forecast interest rate reductions. The strategic initiatives, while acknowledged to "stress the short-term performance," are expected to drive growth and lead to "increasingly higher performance over the course of the next twelve to twenty-four months" and produce "above industry earnings and overall performance" in the intermediate and longer term.

Conclusion

United Bancorp is a regional bank at a pivotal point, actively transitioning from a period of defensive consolidation to an ambitious growth phase. Fueled by a clear vision to surpass the $1 billion asset mark, the company is making deliberate investments in expanding its physical presence in promising markets, enhancing its technological capabilities with digital tools and AI, and developing specialized banking services. While these initiatives contribute to increased expenses in the short term, they lay the groundwork for future revenue generation, operational efficiency, and long-term relevance in a competitive landscape.

Despite facing economic headwinds and competition from larger, more technologically advanced institutions, UBCP demonstrates solid credit quality and maintains robust capital levels, providing a stable foundation for its growth strategy. The company's commitment to shareholder returns, highlighted by its attractive dividend yield, offers investors income while they await the realization of the strategic plan's full potential. The success of the new Wheeling branch, the scaling of mortgage and treasury management services, and the effective integration of new technology will be key indicators to monitor as UBCP pursues its growth objectives and aims to deliver enhanced performance in the coming years.