United Bancorp, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are to December 31, 2021. United Bancorp operates a single community-banking segment through Unified Bank, serving markets in Ohio and West Virginia. Amounts below are in U.S. dollars; financial-statement amounts are generally in millions unless otherwise noted.
Financial performance and position
| Metric | Q1 2022 / March 31, 2022 | Comparison |
|---|---|---|
| Interest and dividend income | $6.00 million | $6.09 million in Q1 2021 |
| Net interest income | $5.51 million | Up 3.7% from $5.31 million |
| Net interest margin | 3.45% | Down 4 basis points year over year |
| Noninterest income / expense | $0.99 million / $5.11 million | Income up 6.5%; expense up 14.9% year over year |
| Net income / diluted EPS | $1.75 million / $0.3025 (reported as $0.31) | $1.91 million / $0.33 in Q1 2021 |
| Total assets | $733.4 million | $724.5 million at year-end 2021 |
| Gross loans / deposits | $462.3 million / $612.5 million | Gross loans up $7.9 million; deposits up $7.4 million since year-end |
| Cash and cash equivalents | $68.8 million | $83.0 million at year-end 2021 |
| Shareholders’ equity | $63.9 million | $71.7 million at year-end; equity/assets 8.7% |
| Borrowings | $22.8 million in repurchase agreements and $23.7 million in subordinated debentures | No FHLB advances outstanding |
- Cash flow: Operating activities provided $5.0 million, investing activities used $31.1 million, and financing activities provided $11.9 million. Cash and cash equivalents decreased $14.2 million during the quarter.
- Capital: Regulatory ratios were 11.40% common equity tier 1, 12.13% tier 1, 16.34% total capital, and 9.28% leverage. Management described the Company as well capitalized.
- Credit: The Company recorded a $0.5 million credit to loan-loss provision. The allowance declined to $3.2 million, or 0.69% of loans, from $3.7 million, or 0.81%, at year-end. Net recoveries were reported for the quarter.
Material changes and notable items
- Net income fell 8.2% year over year as higher noninterest expense more than offset higher net interest and noninterest income. Salaries and benefits rose $0.7 million; management attributed much of the increase to a one-time vesting of stock awards, alongside staffing and wage costs. Share-based compensation expense was $0.75 million, versus $0.10 million in Q1 2021.
- Interest expense declined $0.29 million, or 37.3%, year over year, while interest and dividend income decreased $0.09 million. Demand and savings deposits increased as higher-cost time deposits declined.
- Available-for-sale securities grew to $159.5 million from $146.3 million at year-end. The quarter included a $7.75 million after-tax unrealized securities loss in other comprehensive income, reducing equity; management attributed the market-value decline primarily to rising interest rates and considered it temporary.
- Nonaccrual loans and loans past due 30 days or more totaled $4.2 million, or 0.9% of gross loans. Management said $3.8 million, or 92% of this amount, related to one commercial real-estate relationship; a portion had specific reserves. One commercial real-estate loan was restructured during the quarter, and the filing reports no material defaults on recently modified troubled debt restructurings.
Outlook, risks, and contingencies
- Management expects rising rates and a shift from overnight funds into longer-term, higher-yielding assets to support interest income and improve net interest margin in coming quarters. It also expects higher interest income to outpace any rise in interest expense, while noting that deposit-cost increases may limit expense savings.
- Management stated a goal of growing total assets to $1.0 billion or more in the short to intermediate term and expects positive operating leverage to improve efficiency. These are forward-looking expectations, not guarantees.
- Management said further reserve releases may be possible, subject to unforeseen events. The allowance depends on estimates and could change with borrower conditions, collateral values, and economic developments.
- Risks discussed include inflation, rapidly rising rates and possible recession if the Federal Reserve over-tightens, COVID-19 and new variants, local economic and loan demand conditions, and competition. The Company also noted potential exposure under unused credit lines and loan commitments, although it does not anticipate material losses.
- The Company is evaluating adoption of the expected-credit-loss standard (CECL), effective for it after December 15, 2022. It cannot yet quantify the impact and anticipates possible changes to the allowance and related processes.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. Legal proceedings were limited to ordinary routine litigation.
Key facts investors should verify
- Resolve the filing’s dividend disclosure inconsistency: the financial statements give Q1 dividends of $0.3025 per share and describe a special dividend of $0.015, while MD&A refers to a special cash dividend of $0.15.
- Track the $7.75 million securities-related comprehensive loss, further rate-driven valuation changes, and their effects on equity and capital measures.
- Monitor the large nonaccrual commercial real-estate relationship, loan delinquency trends, and whether reserve releases remain appropriate.
- Assess whether anticipated margin improvement and asset growth materialize as rates, deposit costs, inflation, and credit conditions change.
- Review the eventual CECL adoption impact and confirm the sustainability of earnings after the one-time stock-award vesting expense.