United Bancorp, Inc. — Q2 2021 Form 10-Q
Business and period: Regional bank holding company operating Unified Bank in Ohio. This unaudited filing covers the quarter and six months ended June 30, 2021; balance-sheet comparisons are with December 31, 2020. Amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | Q2 2021 / June 30, 2021 | Comparable period / prior date |
|---|---|---|
| Interest and dividend income | $6.23 | Q2 2020: $6.95 |
| Net interest income | $5.56 | Q2 2020: $5.52 |
| Provision (credit) for loan losses | $(0.25) | Q2 2020: $1.41 provision |
| Noninterest income | $1.14 | Q2 2020: $2.16 |
| Noninterest expense | $4.55 | Q2 2020: $4.58 |
| Net income / diluted EPS | $2.19 / $0.38 | Q2 2020: $1.68 / $0.29 |
| Six-month net income / diluted EPS | $4.09 / $0.71 | First half 2020: $3.25 / $0.57 |
| Total assets | $730.3 | December 31, 2020: $693.4 |
| Gross loans / allowance for loan losses | $458.7 / $4.5 | December 31, 2020: $443.5 / $5.1 |
| Deposits | $604.2 | December 31, 2020: $579.5 |
| Cash and cash equivalents | $86.3 | December 31, 2020: $51.6 |
| Shareholders’ equity | $69.4 | December 31, 2020: $68.3 |
- For the first half, interest and dividend income was $12.32 million versus $14.27 million; net interest income was $10.87 million versus $11.16 million. Interest expense fell to $1.45 million from $3.11 million.
- Six-month operating cash flow was $3.45 million; investing activities used $2.62 million and financing activities provided $33.92 million. Cash increased $34.76 million to $86.35 million.
- At June 30, subordinated debentures were $23.6 million and repurchase-agreement borrowings were $24.3 million. The latter rose from $12.7 million at year-end; no FHLB overnight borrowings were reported on the balance sheet.
- Management reported capital ratios of 13.30% common equity Tier 1, 14.11% Tier 1, 19.05% total capital and 9.96% leverage. Equity-to-assets was 9.50%.
- The filing does not provide a clear numerical net interest margin. Management described first-half margin pressure and said Q2 net interest income increased slightly year over year.
Material changes versus comparable periods
- Q2 net income rose 30% and diluted EPS rose 31% year over year; first-half net income rose 26% and diluted EPS rose 25%.
- Lower interest expense partly offset reduced interest income, including lower loan and securities income. First-half net interest income declined 2.6% year over year.
- Noninterest income declined year over year, largely because 2020 included gains on securities sales: $1.18 million in Q2 and $1.25 million for the first half. No investment securities were sold in the first half of 2021.
- Credit-loss expense shifted to releases: $0.25 million in Q2 and $0.46 million for the first half of 2021, versus provisions of $1.41 million and $1.97 million, respectively, in 2020.
- Gross loans grew 3.4% from year-end, led by commercial real estate; available-for-sale securities declined $13.7 million from year-end. Deposits increased $24.6 million from year-end, while demand and savings balances grew and time deposits declined.
- Dividends per share were $0.145 for Q2 versus $0.1425 a year earlier; the first-half amount was $0.3875, including a $0.10 special dividend in Q1.
Outlook, commentary and risks
- Management was optimistic that economic recovery could support stronger loan production and better use of excess liquidity and the securities portfolio, potentially stabilizing or improving net interest income. These are forward-looking expectations, not formal numerical guidance.
- Management said further allowance releases may be possible if credit quality remains sound. Future provision levels remain sensitive to COVID-19 effects and economic conditions.
- Credit quality indicators included $3.13 million of loans past due 30 days or more or on nonaccrual (0.68% of loans), compared with $1.95 million (0.44%) a year earlier. One hospitality-related commercial real estate loan of about $2.5 million moved to nonaccrual during Q1 and had a specific reserve allocation. Net charge-offs, excluding overdrafts, were $95,000 for the first half.
- Four loans totaling approximately $16.8 million had interest-only payments related to COVID-19 assistance; the filing also identifies one commercial loan of about $2.5 million on payment deferral.
- Unused commercial lines and commitments to originate loans were $60.9 million and $58.5 million, respectively; consumer open-end lines were $37.3 million. These commitments may create credit exposure if drawn.
- Management cited low rates, limited growth in higher-yielding assets, deposit inflows and possible further securities prepayments as pressures. Risks include economic and interest-rate changes, competition, COVID-19 resurgence, credit deterioration and uncertainty in government actions.
- The Wheeling, West Virginia loan production office closed during Q2, and the company announced a planned Dillonvale, Ohio banking-center consolidation. Management anticipated cost savings with limited customer impact. It also described a longer-term ambition to reach $1 billion in assets through organic growth and potential acquisitions.
- The company said it remained well capitalized and had liquidity sources including cash, securities, correspondent-bank lines and FHLB borrowing capacity. Management assessed goodwill as not impaired at June 30, 2021. The CECL standard was not yet adopted; the company was evaluating its impact and noted the allowance could increase at adoption.
Most important facts for investors to verify
- Track whether loan growth and deployment of elevated cash balances offset weaker asset yields and sustain net interest income and margin.
- Monitor the hospitality-related nonaccrual loan, delinquency trends, COVID-related deferrals and allowance coverage as economic conditions evolve.
- Assess deposit composition and stability, the increase in repurchase-agreement funding, and available contingent liquidity.
- Confirm whether management’s anticipated cost savings, stronger lending and any further credit-reserve releases materialize; no specific earnings guidance was provided.
- Reconcile comparisons in management’s discussion with the financial statements: the filing cites deposit growth of $12.1 million in one discussion, while the balance sheet shows an increase of $24.6 million from December 31, 2020; loan-growth figures also use different comparison dates.