United Bancorp, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Interim financial statements are unaudited. United Bancorp operates Unified Bank, serving communities primarily in Ohio and nearby West Virginia.
Financial performance and condition
| Metric | Q3 2021 / September 30, 2021 | Comparable period / prior date |
|---|---|---|
| Net income | $2.902 million for the quarter; $6.995 million for nine months | $2.059 million and $5.313 million, respectively, in 2020 |
| Diluted EPS | $0.50 for the quarter; $1.21 for nine months | $0.36 and $0.93, respectively, in 2020 |
| Net interest income | $5.605 million for the quarter; $16.475 million for nine months | Down 2.4% and 2.5%, respectively, year over year |
| Net interest margin | 3.57% year to date | Down 1 basis point year over year |
| Total assets | $730.4 million | $693.4 million at December 31, 2020 |
| Gross loans / allowance | $462.1 million / $4.1 million; allowance equals 0.89% of loans | $443.5 million / $5.1 million; 1.15% at December 31, 2020 |
| Deposits | $608.5 million | $579.5 million at December 31, 2020 |
| Cash and cash equivalents | $91.4 million | $51.6 million at December 31, 2020 |
| Stockholders’ equity | $70.1 million; 9.59% of assets | $68.3 million; 9.85% at December 31, 2020 |
| Borrowings | $18.3 million in repurchase agreements and $23.7 million in subordinated debentures | Repurchase agreements were $12.7 million at December 31, 2020 |
For the nine months, operating cash flow was $6.3 million, investing cash flow was $2.1 million, and financing cash flow was $31.3 million. Cash increased $39.8 million. The company reported regulatory capital ratios of 13.57% common equity Tier 1, 14.38% Tier 1, 19.24% total capital, and 10.09% leverage.
Material changes and drivers
- Quarterly net income rose 41% and nine-month net income rose 32% year over year; diluted EPS increased 39% and 30%, respectively. Management described both periods’ results as records for the company.
- Nine-month interest income fell 11.5%, but interest expense fell 48.8%, moderating the decline in net interest income. Low-cost demand and savings deposits grew, while time deposits declined.
- Credit-loss provision was a credit of $400,000 in Q3 and $855,000 for the first nine months, compared with provisions of $1.333 million and $3.304 million in the respective 2020 periods. Management attributed releases to sound credit quality and improving economic conditions.
- Nine-month noninterest income decreased 21.4%, principally because realized securities gains were $1.25 million versus $2.594 million in 2020. Noninterest expense increased 3.4% for the nine months, primarily from personnel-related costs.
- Available-for-sale securities were $135.5 million, down from $158.1 million at year-end 2020. Management cited calls, prepayments, and securities sales; it reported $1.25 million of realized gains from sales during the first nine months.
- Gross loans increased about 4.2% from year-end, led by commercial real estate and residential lending. Cash balances also rose substantially as deposits accumulated and loan growth remained limited.
Outlook, commentary, and risks
- Management expects economic recovery and potentially higher rates to create opportunities to shift liquid funds into higher-yielding loans and securities, supporting interest income and core earnings. It also anticipates possible further reserve releases if credit quality remains sound. These are forward-looking expectations, not guarantees.
- The company aims to grow into a $1.0 billion community banking organization through organic growth and potential acquisitions. It closed a loan production office and consolidated a banking center, expecting cost savings to become more evident in the coming year.
- At quarter-end, nonaccrual and loans 30 or more days past due totaled approximately $3.1 million, or 0.67% of loans. Management attributed most of the increase from the prior year to a hospitality-related loan of approximately $2.5 million placed on nonaccrual; it reported that this loan paid off after quarter-end.
- COVID-19-related uncertainty, borrower performance, local and broader economic conditions, interest-rate movements, competition, and regulatory changes could affect results. Management said it continued to monitor higher-risk borrowers and could need additional loan-loss provisions if conditions worsen.
- The company was evaluating adoption of the expected-credit-loss standard (CECL), effective for it in periods beginning after December 15, 2022. Management said the impact was not yet reasonably quantifiable and that adoption could increase the allowance.
- Management reported no material change in internal control over financial reporting and concluded disclosure controls were effective. Legal proceedings were limited to routine matters incidental to the business.
Key facts for investors to verify
- Confirm the hospitality-loan payoff and subsequent-period nonaccrual, delinquency, and allowance coverage figures.
- Track whether loan growth and deployment of excess cash improve net interest income and margin, particularly as interest rates change.
- Separate recurring earnings from securities gains and credit-reserve releases when assessing reported profit growth.
- Monitor deposit mix and stability, liquidity needs, and the cost and maturity profile of borrowings.
- Review CECL implementation disclosures for expected effects on the allowance, capital, and earnings.
- Assess whether planned branch consolidation, organic growth, and any acquisition opportunities deliver the expected efficiencies and returns.