8-K: United Bancorp, Inc. Reports Solid 2024 Earnings Despite Interest Rate Challenges

United Bancorp, Inc. (UBCP) announces its 2024 fourth quarter and full-year earnings, highlighting solid performance amidst net interest margin compression and increased credit loss provisions.

Summary

• United Bancorp, Inc. (UBCP) reported diluted earnings per share of $0.31 and net income of $1.85 million for the three months ended December 31, 2024.
• For the year ended December 31, 2024, UBCP reported diluted earnings per share of $1.27 and net income of $7.402 million.
• The company faced challenges including net interest margin compression and increased provision for credit loss expense due to elevated interest rates.
• Total average assets increased by $26.0 million, or 3.2%, year-over-year, reaching $828.1 million as of December 31, 2024.
• Gross loans increased by $7.7 million, or 1.6%, to $491.0 million, with a significant increase of $16.0 million in the fourth quarter.
• Net interest income decreased by $1.0 million, or 4.0%, to $24.8 million, while net interest margin declined by 14 basis points to 3.51%.
• The company's total nonaccrual loans and loans past due 30+ days were $1.0 million, or 0.21% of gross loans.
• Tangible shareholders' equity increased by $4.2 million, or 6.7%, to $66.8 million, with tangible book value per share increasing by $0.55, or 5.2%, to $11.21.
• The company paid a regular cash dividend that increased by $0.04 to $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.

Sentiment

Score: 6

Explanation: The sentiment is cautiously optimistic. While the company reports solid earnings and stable performance, it also acknowledges challenges related to interest rates and increased expenses. Management expresses confidence in future growth but recognizes the need to overcome current obstacles.

Positives

• The company saw a linked-quarter increase in net interest income and net interest margin in Q4 2024.
• The company's loan portfolio maintained credit-related strength and stability.
• The company remains well-capitalized by industry standards.
• The company experienced year-over-year growth in the level of total interest income that it generated for the year-ended December 31, 2024.
• The company does not have any brokered deposits and total uninsured deposits as of December 31, 2024 totaled 17.6% of total deposits, which are both very low compared to industry standards.
• The company is enhancing its mortgage origination function with the development of Unified Mortgage, which helped the company generate higher levels of fee income this past year with the heightened production and sale of secondary market mortgage products, along with the enhancement of our interest income levels through the origination of higher levels of portfolio-type mortgage products.
• The company is developing its Treasury Management function, which offers fee-based services to our commercial customers in the areas of cash management and payments that produce noninterest income in addition to helping to control interest expense by generating a higher level of low or no-cost depository balances for our Company.
• The company's market price to tangible book value was 115%, which compares favorably to our peer group.

Negatives

• Net income and diluted earnings per share decreased compared to the previous year.
• The company experienced net interest margin compression due to rising interest rates.
• Total interest expense increased significantly, offsetting the increase in total interest income.
• The company had an increased provision for credit loss expense for the quarter and the year.
• The company experienced a decrease in lower cost demand and savings balances.
• The company experienced a net realized loss on sale of available-for-sale securities.

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.
• Regulatory and political authorities may continue to put pressure on fee-generating services and lines of business.
• The company's success depends on the execution of strategic objectives and return on current capital investments.
• The company's future performance is subject to various factors, including economic conditions, competitive products and pricing, and changes in government regulations.

Future Outlook

The company anticipates higher levels of growth and improved performance in future periods as they execute on strategic objectives and get a return on current capital investments over the next twelve to twenty-four months. The company also has a vision of growing UBCP to an asset threshold of $1.0 billion or greater in the near term in a prudent and profitable fashion.

Management Comments

• 'We are happy to report on the solid earnings and, overall, stable performance of United Bancorp, Inc. (UBCP) for the fourth quarter and year ended December 31, 2024,' said Randall M. Greenwood, Senior Vice President, CFO and Treasurer.
• Greenwood believes that the challenges faced in 2024 will be short-lived and will be overcome as the company executes on strategic objectives.
• Scott A. Everson, President and CEO, stated that the company is beginning to see more positive financial performance results with the unwinding of more restrictive monetary policy.
• Everson mentioned that the company is very pleased with its current performance and future prospects.

Industry Context

The report acknowledges that United Bancorp, Inc., like most companies in the financial services industry, faced challenges related to net interest margin compression and increased credit loss provisions due to elevated interest rates. The company's performance is being compared to that of its peer group and the broader industry.

Comparison to Industry Standards

• The company's management believes that a 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 total uninsured deposits as of December 31, 2024 totaled 17.6% of total deposits, which are both very low compared to industry standards.
• The company's market price to tangible book value was 115%, which compares favorably to our peer group.
• The company remains very well capitalized by industry standards.

Stakeholder Impact

• Shareholders have been rewarded with increased cash dividends and a special cash dividend.
• The company's performance impacts employees through potential growth and stability.
• Customers benefit from the company's focus on building strong relationships and providing relevant services.
• The company's financial health affects its ability to support local communities and economies.

Next Steps

• The company will continue to execute on its strategic objectives.
• The company will focus on enhancing and expanding existing lines of business and growing new lines of business.
• The company will continue to invest in areas that will lead to its continued and future relevancy within its industry.
• The company will open its newest banking center in Wheeling, West Virginia in the third quarter of 2025.

Key Dates

Keywords

earnings, net income, interest rates, net interest margin, credit loss, loans, deposits, assets, UBCP, United Bancorp