UBAB

LLM Evaluations

Transcript Summary

United Bancorporation’s Q3 2025 results were characterized by a decrease in net income to $4.2 million, down from $5.1 million YoY, primarily due to $2 million in one-time costs related to a core system conversion and the absence of significant CDFI grant income. Despite these pressures, the bank maintained a strong net interest margin of 4.59% and grew its loan portfolio by 5.4% YoY, driven by its niche in affordable housing and multifamily construction. Credit metrics showed some volatility as the bank works through a resolution of the Camden consumer portfolio, resulting in $1 million in charge-offs. Management was candid about federal delays affecting CDFI and Capital Magnet Fund awards, noting that 2025 will serve as a baseline for "core" bank performance without these incentives. To offset headwinds, the bank continues to buy back shares and is investing in AI-driven operational efficiencies. While M&A remains a long-term goal, the bank is currently focused on organic growth and managing expenses as it transitions out of its heavy investment phase into a more efficient operating model in 2026.

5-year share-count history (top 10 holders by peak, incl. exited) + price

Full Earnings Call Transcript — Q3 • 2025-11-25

Brian Bruley: Good morning, and welcome to United Bancorporation's Third Quarter 2025 Earnings Call. I'm Brian Bruley. I'm joined today by Mike Vincent, our President and CEO; Leigh Jones, our Chief Financial Officer; and David Stewart, our Chief Credit Officer. We'll be taking questions through the Q&A function of the Zoom call, [Operator Instructions] So with that, Mike, I'll turn it over to you.
Michael Vincent: Very good. Thank you, Brian, and good morning, everyone. We appreciate you joining us once again for a quick call just to highlight some of the activities for the third quarter. So let me just jump right in. For Q3 2025, we are reporting a net income of $4.2 million and earnings per share of $1.29, that is compared to $5.1 million and earnings per share of $1.45 for the same period last year. Year-to-date, we are showing net income of $13.5 million and EPS of $4.07, that is compared to $20 million and $5.63 for the same period last year as well. Thus far, we talk about this almost on every one of these calls. Our net interest margin has remained strong as it has in prior quarters, this quarter was no exception. Year-to-date, we are reporting 4.59% on the margin. One thing I'll highlight, and we may touch on this a little bit later in the call, we do continue to repurchase shares. We have acquired 56,000 shares during the quarter. And I will tell you, for year-to-date, that's 163,000 shares that we have been able to repurchase thus far. So just with those few highlights, I'll turn it over to David Stewart, our Chief Credit Officer, let him talk a little bit about the loan book.
David Stewart: Sure. Good morning, everyone. Glad to have you this morning. Year-over-year loan growth has been right at $46.5 million or 5.4%. Loan growth in Q3 was right at 1.4% or $12.3 million. Kind of the same story we've been along -- same story line we've been on for the entire year and most of last year. That's driven by multifamily construction, continue to see good production within that book as we exploit our specialty within the affordable housing space. And we've also seen good growth in commercial real estate. So pleased with what's going there. You will notice that non-accruals decreased in Q3 by $1.2 million to $7.5 million. Doing a little cleanup work. I think we've talked about this on prior calls. The Camden portfolio in Wilcox County, continue to see some adjustments there we're having to make associated with some cleanup work, frankly, that's a forest county in the state of Alabama, a heavy book of consumer loans. So we're just sort of working through resolution in that book. Also, you'll see that the charge-offs for the quarter were right at $1 million. That's related to that book and taking some marks on a couple of other credits as well. On the positive side, you will notice that ORE did decrease by just over almost 800 -- $701,741. We had a piece of property that had been in the bank's inventory for quite some time. We had possibly help for branch expansion. We decided to go ahead and market that and take that off the books. So that was due to -- that's kind of tells the story on the decrease in ORE. I did want to just highlight nonperforming are still a little higher than we would like to. They've come down quarter-over-quarter. They were at 70 basis points and then past dues ticked down a little bit as well, hovering around 2%. That's primarily driven, as we've talked about, some sticky larger credits. They're just taking time to resolve. We do have one that's got a resolution in our target. I don't have an estimated time frame, the associated government shutdown has slowed down some of that. And then we've got some other kind of larger credits just working through resolution, spend a lot of time there. But I think we are optimistic right now. As you guys know, we have a pretty sizable ag portfolio. We've had pretty good weather through Q3. So everybody's crops look good, yields look good. So we're hopeful on that front as long as prices on commodities hold up. So that's all I've got on the loan book. So I'll pass it over to Leigh for securities discussion.
Leigh Russell-Jones: Sure. Good morning, everyone. So the securities book still maintains a book value of about $316 million with a yield of about 3.64%. The weighted average life fluctuates a little bit, but that is 6.7 years at the end of September and the duration just under 5 years. We still have about 20% of the book is floating on the securities side. Switching gears to talk about deposits. Year-over-year deposit growth has been about 3.9% or about $42 million. So we still continue to see growth there, primarily in time deposits -- and we have a train coming through. So bear with us here for a second. Anyway, the time deposit rates, we've maintained those yields a little bit higher to be competitive in the market and to continue to attract new depositors into the bank. And the competition does still remain strong in our markets. This has all supported our liquidity position. Our cash-to-asset ratio is 11.15%, and we still continue to monitor liquidity on a daily, monthly basis. And that's really all that I have. So I'll turn it back over to Mike now.
Michael Vincent: Thank you, Leigh. I'll interject as well. That is our local economic barometer, I suppose. So the frequency of trains going by is actually a good thing, although maybe not as timely as we would like. So let me speak a little bit about the margin. I mentioned earlier that we've been able to maintain a pretty robust and strong margin year-to-date at 4.59%. That is pretty comparable to 2024 when we were reporting 4.57%. Earning assets at $5.78 versus 5.63% for prior year. Cost of funds, 1.40% versus 1.24% versus prior year. So all in all, pretty strong numbers, and we work very hard to maintain those levels. Quarter-to-date margin of 4.58%. So that's pretty well in line. You may see a few basis points tick up, tick down. But all in all, I think we're in pretty good shape. Looking at some forecasted impact of the rate environment that we find ourselves in. When we kind of shocked the balance sheet down 100 basis points, has an impact on net interest income of about 5%, down 200 is about 9.6%, 9.7%. So we recognize kind of what the interest rate environment looks like. Most likely, assuming a gradual 100 basis point decrease over a 12-month period, does show an income decrease of about $400,000. So we are managing it, I think, very closely, knowing what rates are likely to do over the next 12 months or so. One thing we've talked about with anybody that we've met with individually or we've had group conversations. This year has been a little bit different than many others. What you see in bank performance has pretty well been core bank activity. There's been very little impact from some of the CDFI programs that we have historically participated in. I will say UBCD, UB Community Development, our CDE entity recognized $560,000 in new market tax credit fee income during the quarter. So that is one thing I did want to point out to you as well. On the non-interest expense side, obviously, we've carried some elevated expenses higher than previous year. Much of this is related to the core conversion that we've talked about. Upgrading our cloud environment comes at about $1 million cost. Consulting fees to get us through the conversion about $0.5 million in cost. Miscellaneous, and I'll say miscellaneous, it's a very big number for miscellaneous, but $480,000 in various conversion-related expenses as well. So some of that -- much of that is, I would say, is onetime hits when you look at kind of a go-forward run rate. Some of these obviously will remain, the cloud environment kind of is where we are. But a lot of this, we will be glad to see in the rearview mirror and have behind us. On a capital perspective, tangible book increased to $45.06. That's up from $43.07. Price to tangible book at 1.23. Dividend is something that we continue to talk about. We focus on, we've been focusing on it for a couple of years more strategically with a yield of right around 2.5%. So all that being said, that gives us an ROA of 1.45%, return on tangible equity of 12.3%. I'll touch on ECIP. I know -- in fact, I think I saw an ECIP question. Leigh, I may enlist your input on this a little bit, too. So obviously, we have signed -- as we've talked about before, we've signed the ECIP option agreement outlining early disposition. We continue to measure and monitor. Obviously, with what's been going on with the government shutdown, there's been a lot of, I guess, a question and about what's going to happen, when it's going to happen. Leigh and her team continue to monitor and to measure what we're doing from a lending standpoint. Leigh, I don't know if there's something you may want to contribute from that perspective about how that's going.
Leigh Russell-Jones: Sure. We are required to report quarterly to the Treasury, regarding our lending in the various categories of deep impact and qualified lending. So we are looking at that in relation to repurchase. I think that repurchase according to the lower guidelines as far as being able to repurchase through the mission-aligned nonprofit looks pretty favorable at this point. It's still kind of early to tell. We're very focused, as Mike said, on lending and what we can do to ensure that we are able to repurchase the capital in a timely manner and at the lowest rate possible.
Michael Vincent: So let me give you just some -- I guess, some high-level comments on the quarter itself. We've mentioned core conversion multiple times. So that was finally put to bed. And I say put to bed, at least the actual conversion itself, it went about as well as I think a core conversion can go. Obviously, there's always going to be some hiccups here and there. You try to minimize the customer disruption, any kind of issues from a customer-facing perspective. But I think, all in all, that went extremely well. We are working on what we are calling day 2 items, things that were not part of the initial conversion weekend. We've got teams working on things like consumer lending efficiencies, that sort of thing, online activities. So there's more to come. There's more efficiencies to be gained. But all in all, having that behind us, one, from a cost perspective; and two, from an employee focus perspective is a very positive thing. It's been a heavy lift, as you would expect, for a whole lot of people, and we're glad to get that behind us. I do want to speak a little bit about CDFI and kind of what we hear, what I know, and what this means for us. So obviously, all year long, there has been some uncertainty regarding the fund itself, funding for the various programs, what support do you have or not have on a congressional level. So I will tell you, this year, it's really no different than other years, but we've certainly focused on congressional advocacy, making sure that we're in front of our leaders, both in the House and the Senate, making sure that they understand the importance of these programs, which they do. They have understood it. But it's interesting time right now, obviously, in Washington to try to get certain things done. Overlaying this, the government shutdown certainly did not help working through some of these issues. The employees, the fund, themselves received a reduction-in-force notification. So that put a lot of things at a standstill. Now that the CR has been approved and people are back to work, what that means about recertification applications, the various programs, the funding and that sort of thing. Still remains to be seen to a degree, the experts in that area seem to think that they would likely consider some extension to some deadlines. As we sit, there's a 12/31 deadline on recertification applications. Being shut down for as long as they were, obviously, has put them well behind the 8 ball, and they've got a lot of ground to make up. So what happens with that deadline remains to be seen. From our perspective, we have tried to take it as business as usual. We have continued to administer the funds as we were supposed to. We are doing all the reporting as we're supposed to, and we'll go from there. So -- as far as funding that is waiting to be, I guess, given out, that is a function of what can get pushed through OMB. We've had conversations with the Treasury Secretary, with others. And frankly, that process is just going to play itself out just a little bit, I think. As far as our group in Alabama, though, everybody seems to be really on board with what we're doing and they understand the importance so much so that the greater amount of our delegation did, in fact, actually sign a letter to Treasury and OMB advocating for the program and the funding to be released. So we keep on fighting and keep on making the calls and doing the things that we need to do. Running concurrently with all of that, though, interestingly enough, is the New Market Tax Credit Program itself being made permanent through the Big Beautiful Bill. It's something that we, along with many others in the space, have been advocating for, for quite some time. So we are excited to see that, that is going to happen. And as you might expect, those groups, our new markets group, our affordable housing group, they've got ample deals. They've got more deals, frankly, to get them through next year than we can really report on here. So it's not as if things have come to a grinding halt because they do have prior awards that they're trying to work through as well. So from that perspective, that's kind of where things are. So we've got a little bit of time. So I thought maybe we could kind of go through some of the questions. We do have a few in the queue here. So let's see if we can address some of this.
Michael Vincent: I have a question about repurchasing shares, given our capital levels and what are we expecting in '26 on buybacks and capital allocation, generally speaking. So good question. We have tried to keep a buyback program in place. I'm pleased that we've been able to make up some ground this year and find shares to repurchase as we obviously feel like it's a good value and a good investment for us. I have no plans on changing that. We have -- we continue to find, albeit smaller blocks. That's fine. That's perfectly fine with me. So we continue to be in that space, looking for sellers if they exist. As far as just capital allocation in general, yes, it's really no different than what we've been doing. I think the M&A space certainly has picked up and gained a little bit of momentum, maybe not so much in Alabama, but we do know that any momentum is a good thing as far as that is concerned if you are a potential buyer. So we continue to kind of work our contacts, work with as many people as we need to and have those discussions, and we continue to do that. So I think that's certainly well in play. Leigh, there is a question in here. You may have touched on it just a little bit, but I'll ask you if you want to -- if you have any comments about the outlook for deposit pricing and just general cost of funds.
Leigh Russell-Jones: Sure. So I guess thinking about deposit pricing, how we're thinking about it is we do have a strong margin right now. So we feel like we do have a little leeway on deposit pricing to continue to try to grow and attract new customers, as I said earlier, with some higher rates and establish those relationships. So that's kind of our thought process for this year, and we'll see how things kind of go into next year. We are anticipating some lower rates, and so we will be reviewing our deposits and pricing accordingly. So I guess I would expect deposit pricing to remain steady to fall slightly depending on what happens with Fed funds and markets. Competition, as I said earlier, still remains pretty strong in our markets for deposits and rates still remain on the higher end by some of the more local banks. So thinking about that, we're just having to be strategic about how we're pricing it and thinking about that.
Michael Vincent: Okay. David, I wanted to hear for you maybe to speak about the level of the allowance to loans comparing to what it looked like earlier in the year, that sort of thing.
David Stewart: Sure. As discussed, we have taken some right, some charge-offs and non-accruals off the table with the Camden book. So we were a little heavier on the allowance previously as we saw that there were some emerging issues there we would have to address. And also, we had some larger credits with kind of work towards resolution as well in the legacy United Bank book. So we're confident with the allowance where it is. I don't predict any substantial changes at this point. We proactively on a monthly and quarterly basis, identify specific credits that may need -- have some impairment, and we reserve accordingly. So we've also been very proactive in ensuring that we've got sort of a forward-looking view of any credit challenges. So short or long, I feel like we're in a pretty good spot where we are. It is down from where it has been in the past. But like I said, we've taken some of those credit issues and work them through to resolution. So that's kind of why you're seeing a little lower amount.
Michael Vincent: There was a question here, and I'll speak to this and then maybe, Leigh, I'll see if you have any comments about it. Regarding salaries and benefits expense line item up from similar period from 2 years ago and then looking at deposits up substantially less than that over that same period. Asking for guidance on what this may look like in 2026. So I will say a couple of things about salaries and benefits. One, we've -- obviously, the cost of attracting and retaining talent continues to go up. It's obviously something that we look at very closely on a monthly and quarterly basis. We have made some strategic hires as well, knowing that the bank is growing. We're moving into new areas. And then I think the roll-in of the branch in Camden came with a little bit of, I guess, I'll say, maybe not the efficiencies that you might have expected to see with something like that. I do expect that to stabilize a little bit. I mean, as we go into 2026, that's been a very hot topic of discussion as far as controlling salary and benefit expenses, making sure that if we bring somebody else on that they are going to be somebody that can contribute to our revenue generation and not really wanting to add to overhead expenses as much as possible. I mean, Leigh, I don't know if you've got maybe a different perspective or some thoughts on that.
Leigh Russell-Jones: No. I mean I think you touched on all the things. Like Mike said, that's been a hot topic, and we've been very focused on salary and benefits, and where the number is and just trying to manage it. So I think you should start to see some gains and some efficiencies into next year, I think, as we focus on that.
Michael Vincent: A question about the M&A environment. I hope I've answered that, but I'll just say that in Alabama specifically, it has not been as robust as other areas. I work and I have conversations with a number of groups that are advising, counseling, helping us consider our options. Certainly, when we look at growth, I mean, it's going to come from either organic growth within the footprint, which is not off the table. We look at some of our existing markets and think where do we -- where can we bolster the franchise, and we've got some opportunities there. I look at our franchise in the Florida Panhandle and oftentimes, we talk about Alabama, and we don't talk as much about the Florida markets, but I think there's a lot of opportunity there. Obviously, in some of these areas, there is a glut of competition. You've got the overlay of the credit unions and that sort of thing and what that means from the M&A space. But I will say I'm not less optimistic. I won't say on the call that I'm more optimistic, but sometimes patience will pay off, I think, with this kind of stuff. And as long as you've got conversations in the works. I think we're, as an organization, are probably respected as much as anybody about how we have done things in the past. And certainly, we will have a seat at the table whenever there's opportunities that are there. There is a question about thoughts on receiving a Capital Magnet Fund award in 2025. Leigh, you can tell me the hush, but I don't see a Capital Magnet Fund award in 2025.
Leigh Russell-Jones: Yes, I would not count on it.
Michael Vincent: No, I don't think so. And I just -- with, frankly, the backlog of what's going on right now, I just don't know how they would even get to it if they really wanted to try to get it done. Now what that means for 2026, I don't know. But obviously, it's an impactful difference when you look back at prior years and you see Capital Magnet Fund awards of $9 million, I mean, you're going to see obviously a definite impact on the balance sheet and the income statement. So we will keep advocating and keep communicating, I guess, regarding what we hear from the CDFI fund in these various programs. But until something moves in Washington, I don't know that I would feel good about predicting anything on any of these words. So if nothing else, I'm asked often, what does the bank look like if you strip back some of this other stuff. And I think 2025 is going to be a good example of that. In what ways are we using AI in the organization? That is a great question. And one that we wrestle with almost daily at this point. We know that AI has got -- it is immensely powerful from a banking organization strategy perspective. It's -- I won't say dangerous, but it's something that we better understand how we're using it. Certainly, from a back-office noncustomer-facing perspective, if you can gain efficiencies either with meeting minutes, with policies and procedures and things like that, then I think it's immensely powerful. But what I will say is we are committed to making sure that we are at least -- I won't say on the cutting edge, but at least on the front end of how AI can be used in the banking space. Right now, I have got our head of our IT department that is going through a certification program, if you will. It's basically an AI strategist designation to try to help us determine what our options are and what makes sense. Certainly, we've got to have conversations with regulators and make sure that they understand how we're using AI. But I recognize the power of it and I recognize the necessity. If you don't figure it out and if you don't use it to the extent that you can, you're going to get left behind. And certainly, from a cost control perspective, it's something that we just have to have. So that is a great question. It's very timely, and it's one that we are wrestling with really on a monthly basis right now. So that is something that we'll talk more and more about going forward, I'm sure. I don't know that I've missed any questions. So if there's nothing else, Brian, I'll turn it back over to you.
Brian Bruley: Thank you. If you have any other questions or think of something else you'd like to ask the team, you can send them to me at brian.bruley@unitedbank.com, B-R-I-A-N dot B-R-U-L-E-Y @unitedbank.com. Thank you for joining us today.