10-K: United Bancorp Reports Solid Earnings Despite Net Interest Margin Compression in 2024

United Bancorp, Inc. (UBCP) announces solid earnings for 2024, achieving net income of $7.402 million and diluted earnings per share of $1.27, despite challenges in the financial services industry.

Summary

• United Bancorp, Inc. (UBCP) reported net income of $7.402 million and diluted earnings per share of $1.27 for 2024.
• These earnings are the fifth highest in the company's 122-year history, with the top five years occurring since 2020.
• Over the past decade (2014-2024), UBCP has grown its asset base by over $406 million (99%), net income by $4.8 million (179%), diluted earnings per share by $0.74 (140%), market value per share by $4.95 (61%), and dividend payout per share by $0.5250 (159%).
• UBCP paid out a total of $36.0 million in cash dividends to its shareholders from January 2015 to year-end 2024.
• The company faced challenges in 2024, including net interest margin compression, increased provision for credit loss expense, and limited balance sheet growth due to elevated interest rates.
• Total average assets increased by $26.0 million (3.2%) year-over-year to $828.1 million.
• Gross loans increased by $7.7 million (1.6%) to $491.0 million, with a significant increase of $16.0 million in the fourth quarter.
• Average investment securities increased by $5.6 million (2.3%) to $251.3 million.
• Total interest income increased by $2.7 million (7.3%), but this was offset by a $3.7 million (33.7%) increase in total interest expense.
• Net interest income declined by $1.0 million (4.0%) to $24.8 million, and the net interest margin decreased by 14 basis points to 3.51%.
• Nonaccrual loans and loans past due 30+ days were $1.0 million (0.21% of gross loans), down from the previous year.
• Nonperforming assets to total assets was 0.50%, a slight increase from the previous year.
• Net loans charged off (excluding overdrafts) were $204,000, or 0.04% of average loans.
• The provision for credit loss expense was $299,000 for the year, an increase of $752,000 year-over-year.
• The total allowance for credit losses to total loans was 0.82%, and the total allowance for credit losses to nonaccrual loans was 547% as of December 31, 2024.
• Average shareholders equity increased by $11.2 million (21.4%) to $63.5 million, with equity to assets at 7.8%.

Sentiment

Score: 7

Explanation: The document presents a balanced view, acknowledging challenges while highlighting positive growth and strategic initiatives. The tone is optimistic about the future, but realistic about current headwinds.

Positives

• UBCP achieved the fifth highest earnings in its history.
• The company has experienced significant growth in assets, net income, EPS, market value, and dividend payout over the past decade.
• The loan portfolio maintains credit-related strength and stability.
• The company is well-reserved with strong coverage.
• UBCP remains very well capitalized by industry standards.
• The company is focused on enhancing and expanding existing lines of business and growing new lines of business.
• The company paid both its regular cash dividend, which increased by $0.04 to a level of $0.7050, and a special cash dividend of $0.15 for a total payout of $0.8550 this past year, which is an increase of $0.04, or 4.9%, for the year.
• The company's market price to tangible book value was 122%, which compares favorably to its peer group.

Negatives

• Net interest margin compression negatively impacted profitability.
• Increased provision for credit loss expense reduced earnings.
• Limited balance sheet growth due to elevated interest rates.
• Total interest expense increased significantly, offsetting gains in interest income.
• Net interest income and net interest margin declined.
• Some fee-generating services and lines of business continued to be under attack by both regulatory and political authorities in 2024, which ultimately put pressure on the level of noninterest income that our Company was able to realize.

Risks

• Continued heightened inflation levels and related increases in interest rates may impact borrowers.
• Economic uncertainty and macroeconomic trends could affect the company's performance.
• The company faces challenges in a competitive and evolving industry.
• The company's new initiatives may stress short-term performance.

Future Outlook

The company is optimistic about future growth and earnings potential, aiming to grow UBCP to an asset threshold of $1.0 billion or greater in the near term.

Management Comments

• Your management team is very proud of this level of performance achieved by our great Company over the course of the past ten years and looks forward, with tremendous anticipation, to what the next decade will bring!
• We firmly believe that these challenges will be short-lived and will be overcome as we execute on some of our strategic objectives and get a return on current capital investments--that began or were committed to this past year--over the course of the next twelve to twenty four months, which should lead to higher levels of growth and improved performance in future periods.
• We are truly excited about our Companys direction and the potential that it brings.

Industry Context

The report acknowledges the challenges faced by most companies operating in the financial services industry, including net interest margin compression and increased provision for credit loss expense, due to elevated interest rates.

Comparison to Industry Standards

• The company's total uninsured deposits totaled 17.6% of total deposits, which are both very low compared to industry standards.
• The company's net interest margin of 3.51% as of December 31, 2024, compares favorably to that of its peer group and industry at present.
• The company's market price to tangible book value was 115%, which compares favorably to its peer group.

Management Changes

Related Party Transactions

• At December 31, 2024 and 2023, the Bank had loan commitments outstanding to executive officers, directors, significant stockholders and their affiliates (related parties).
• Deposits from related parties held by the Bank at December 31, 2024 and 2023, totaled approximately $6.4 million and $5.9 million, respectively.

Stakeholder Impact

• Shareholders have been rewarded with increased dividends and a rising stock price.
• The company's performance impacts employees through compensation and benefits.
• Customers benefit from the company's focus on building strong relationships and providing financial services.
• The company's success contributes to the economic well-being of the communities it serves.

Next Steps

• The company plans to execute on strategic objectives and get a return on current capital investments over the next twelve to twenty-four months.
• The company will continue to focus on enhancing and expanding existing lines of business and growing new lines of business.
• The company plans to open its newest banking center in Wheeling, West Virginia in the late third quarter of 2025.

Key Dates