United Bancorp, Inc. — Q1 2021 Form 10-Q
Business context and period: The unaudited filing covers the quarter ended March 31, 2021, compared with Q1 2020 for income and cash-flow results and with December 31, 2020 for balance-sheet changes. United Bancorp is a community bank holding company operating primarily in Ohio and West Virginia. Amounts below are in millions unless otherwise indicated.
Financial performance and condition
| Metric | Q1 2021 / March 31, 2021 | Comparable period / change |
|---|---|---|
| Interest and dividend income | $6.088 | $7.319 in Q1 2020; down 16.8% |
| Net interest income | $5.313 | $5.634 in Q1 2020; down 5.7% |
| Provision for loan losses | Credit of $0.205 | Expense of $0.563 in Q1 2020 |
| Noninterest income / expense | $0.926 / $4.449 | $1.044 / $4.410 in Q1 2020 |
| Net income; diluted EPS | $1.908; $0.33 | $1.579; $0.28 in Q1 2020 |
| Cash flow | $1.402 operating; $2.542 investing; $41.515 financing | Cash and cash equivalents increased $45.459 to $97.051 |
| Total assets | $733.256 | $693.402 at December 31, 2020 |
| Loans, net of allowance | $445.227; gross loans $450.034 | Net loans $438.378 at December 31, 2020 |
| Deposits | $608.022 | $579.535 at December 31, 2020 |
| Borrowings | $27.180 repurchase agreements; $23.619 subordinated debentures | Repurchase agreements were $12.705 at December 31, 2020 |
| Stockholders’ equity | $66.722 | $68.328 at December 31, 2020 |
The filing reports an effective federal tax rate of 4.4% versus 7.4% in Q1 2020. It does not provide a clear numerical net interest margin or profit margin; management said net interest margin compressed.
Material changes versus prior periods
- Net income rose 21% and diluted EPS rose 18% year over year, reaching first-quarter records, despite lower interest income and net interest income.
- Interest expense fell $0.910 million, or 54%, year over year, helping offset reduced interest income. Management attributed lower earning-asset income partly to weaker loan production and the smaller securities portfolio.
- Gross loans increased $6.5 million from year-end, while available-for-sale securities fell $11.8 million from year-end to $146.313 million. Cash and cash equivalents increased $45.459 million over the quarter.
- Deposits increased $28.487 million from year-end. Management separately reported year-over-year deposit growth of $52.5 million, with demand and savings balances increasing and higher-cost time deposits declining.
- Accumulated other comprehensive income fell to $7.113 million from $9.283 million at year-end, primarily reflecting a $2.170 million after-tax unrealized loss on available-for-sale securities during the quarter.
Outlook, risks and unusual items
- Management expects economic recovery over the next 12–24 months to support loan demand and better deployment of investments and excess cash, potentially improving interest income and net interest margin. These are expectations, not formal numerical guidance.
- Management cautioned that historically low rates, slow growth in higher-yielding assets and substantial cash balances earning about 0.10% may pressure net interest income and margin.
- Credit quality indicators included $3.180 million of past-due or nonaccrual loans, 0.71% of loans, versus $0.832 million at year-end. A hospitality-related commercial real estate loan of approximately $2.5 million went on nonaccrual during Q1; the company recorded an $85,000 specific allowance. The filing reports no loans more than 90 days past due and accruing.
- The allowance for loan losses was $4.807 million, or 1.07% of gross loans, after a $205,000 quarterly credit to provision. Management considered the allowance adequate, but estimates depend on economic conditions, borrower performance and collateral values.
- At March 31, the Bank reported $6.3 million of modified loans paying interest only and $4.1 million subject to total payment deferrals. Off-balance-sheet commercial unused lines and commitments to originate loans were $63.153 million and $60.710 million, respectively; material losses on commitments were not anticipated.
- The company paid a $0.2425 per-share dividend, including a $0.10 special dividend. It reported regulatory capital ratios of 12.49% CET1, 13.27% Tier 1, 18.11% total capital and 9.91% leverage, and described itself as well capitalized.
- COVID-19, local economic conditions, interest-rate fluctuations, loan demand, competition and regulatory changes are identified risks. The filing reports no material change in previously disclosed risk factors and no material legal proceedings beyond routine litigation.
- The company is evaluating adoption of the expected-credit-loss standard (CECL), then scheduled for small reporting companies for periods beginning after December 15, 2022. It said the impact could include an increase in the allowance but could not yet be quantified.
Important facts for investors to verify
- Whether the hospitality-related nonaccrual loan and other criticized or deferred loans improve, remain stable or require additional reserves.
- Whether loan growth and deployment of excess cash offset continued pressure on net interest income and margin.
- How interest-rate movements affect the securities portfolio, accumulated other comprehensive income and liquidity.
- Whether deposit growth and increased repurchase-agreement funding persist, and how the company manages funding costs and concentrations.
- The future sustainability of earnings and dividends, including the effect of the Q1 special dividend, and the eventual CECL adoption impact.