United Bancorp, Inc. (NASDAQ:UBCP) is a community bank serving customers in Ohio and West Virginia. The company has a rich history, having been founded in 1902 and headquartered in Martins Ferry, Ohio. Over the past decades, United Bancorp has navigated various economic conditions, adapting its strategies to maintain stability and drive growth.
Business Overview
United Bancorp, Inc. operates as the bank holding company for Unified Bank, which provides a range of commercial and consumer banking services. The company's primary deposit products include checking, savings, and term certificate accounts, while its lending products consist of commercial, commercial real estate, residential mortgage, and consumer loans. United Bancorp has a diverse geographic footprint, with its main office in Martins Ferry, Ohio and branches located across Athens, Belmont, Carroll, Fairfield, Harrison, Jefferson, and Tuscarawas Counties in Ohio, as well as Marshall and Ohio Counties in West Virginia.
United Bancorp, Inc. was founded in 1982 as a bank holding company, building upon the legacy of The Belmont County National Bank, which was established in 1902. The company has grown to operate 16 branch locations across eastern Ohio and the Northern Panhandle of West Virginia. In its early years, UBCP focused on building a strong retail deposit base and providing commercial and consumer lending services in its local markets.
During the savings and loan crisis of the late 1980s and early 1990s, which impacted many community banks, United Bancorp remained profitable by maintaining prudent underwriting standards and a diversified loan portfolio. This demonstration of resilience set the stage for future growth and expansion.
In the 2000s, United Bancorp began to expand its geographic footprint through strategic branch openings and acquisitions. This expansion allowed the company to diversify its revenue streams and customer base beyond its core markets. However, the 2008 financial crisis presented new obstacles, as UBCP had to manage an increase in problem loans and tighter regulatory requirements. The company successfully navigated this environment by strengthening its credit risk management practices and focusing on problem loan resolution.
Throughout its history, United Bancorp has maintained its community bank culture and commitment to serving local businesses and individuals. The company has consistently paid quarterly cash dividends to its shareholders, and in recent years has also issued special dividends. Additionally, UBCP has made investments in technology to enhance the customer experience and improve operational efficiency.
Financial Performance and Position
Financials
United Bancorp, Inc. has maintained a relatively stable financial performance over the years, despite facing various industry-wide challenges. As of the latest reported quarter ended September 30, 2024, the company had total assets of $825.48 million, up from $819.45 million as of December 31, 2023. This modest asset growth reflects the company's prudent approach to managing its balance sheet during the current economic environment.
The company's loan portfolio stood at $475.00 million as of September 30, 2024, down slightly from $483.24 million at the end of 2023. This slight decrease was driven by a $9.00 million reduction in commercial and commercial real estate loans, partially offset by a $2.80 million increase in consumer loans. United Bancorp's allowance for credit losses was $4.00 million, or 0.84% of total loans, as of September 30, 2024, indicating its commitment to maintaining a disciplined underwriting approach and proactive risk management.
In terms of profitability, United Bancorp reported net income of $5.55 million for the first nine months of 2024, down from $6.56 million in the same period of 2023. This decline was primarily driven by a $878,000, or 4.50%, decrease in net interest income, which was only partially offset by a $240,000, or 7.90%, increase in noninterest income. The company's diluted earnings per share for the first nine months of 2024 were $0.95, compared to $1.15 in the prior-year period.
For the most recent quarter (Q3 2024), United Bancorp reported revenue of $9.94 million, representing a 2.9% increase year-over-year. However, net income for the quarter decreased by 23.8% to $1.82 million. Operating cash flow (OCF) for Q3 2024 was $4.79 million, a 27.2% decrease from the previous year, while free cash flow (FCF) saw a slight increase of 0.9% to $8.75 million.
Looking at the full fiscal year 2023, United Bancorp reported revenue of $29.89 million, net income of $8.95 million, operating cash flow of $9.46 million, and free cash flow of $8.38 million.
Liquidity
Turning to the company's funding sources, United Bancorp had total deposits of $615.82 million as of September 30, 2024, down from $621.46 million at the end of 2023. This modest decrease in deposits was accompanied by a $9.34 million increase in securities sold under repurchase agreements, which stood at $36.12 million as of the most recent quarter-end. Additionally, the company maintained $75.00 million in Federal Home Loan Bank advances, which it had obtained in the first quarter of 2023 to support its liquidity position and funding needs.
As of September 30, 2024, United Bancorp's liquidity position remained strong. The company reported cash and cash equivalents of $37.78 million. The debt-to-equity ratio stood at 1.55, indicating a balanced approach to leverage. United Bancorp's current ratio and quick ratio were both 92.03, suggesting a strong ability to meet short-term obligations.
United Bancorp has maintained strong capital ratios, with a common equity Tier 1 capital ratio of 13.37% and a total capital ratio of 14.07% as of September 30, 2024, well above regulatory minimums. These robust capital ratios provide the company with a solid foundation to support future growth and navigate potential economic uncertainties.
Product Segments
United Bancorp's loan portfolio is diversified across several key product segments:
1. Commercial Real Estate Loans: This is the largest segment, comprising 58.5% of the total loan portfolio. These loans are primarily viewed as cash flow loans, with repayment dependent on the successful operation of the property or the business conducted on the property. The largest concentration within this segment is owner-occupied non-farm/non-residential properties, accounting for 20.6% of total loans.
2. Commercial and Industrial Loans: Making up 20.4% of the total loan portfolio, this segment includes originated loans in UBCP's market areas as well as purchased participations in loans from other banks. The risk characteristics of this segment include reliance on the identified cash flows of the borrower and the underlying collateral provided, such as business assets, accounts receivable, and inventory.
3. Residential Real Estate Loans: Comprising 19.2% of the loan book, this segment includes residential mortgages and home equity loans secured by 1-4 family residences, generally owner-occupied. The company establishes maximum loan-to-value ratios and requires private mortgage insurance if that ratio is exceeded.
4. Consumer Loans: Representing 2.0% of total loans, this segment typically consists of loans secured by consumer assets, such as automobiles or recreational vehicles, though some are unsecured.
Navigating Challenges and Maintaining Stability
United Bancorp, like many financial institutions, has faced various challenges in recent years, including the impact of the COVID-19 pandemic, rising interest rates, and a sluggish economic environment. However, the company has demonstrated its ability to navigate these obstacles and maintain a stable financial position.
During the pandemic, United Bancorp proactively worked with its borrowers to provide loan modifications and support, helping to mitigate the impact on its loan portfolio. The company's solid credit quality metrics, with nonperforming assets representing just 0.46% of total assets as of September 30, 2024, are a testament to its prudent underwriting practices and effective risk management strategies.
The rising interest rate environment has presented both opportunities and challenges for United Bancorp. While the company has been able to benefit from higher yields on its interest-earning assets, it has also faced increased pressure on its net interest margin due to the rising cost of deposits and borrowings. To address this, the company has focused on optimizing its funding mix, leveraging its FHLB advances to manage its cost of funds, and strategically pricing its deposit products to maintain profitability.
Positioning for Future Growth
Despite the current economic headwinds, United Bancorp remains committed to positioning the company for future growth and profitability. The company is actively exploring new revenue streams and diversifying its business lines to mitigate the impact of the challenges facing the banking industry.
One key initiative is the development of Unified Mortgage, the company's mortgage origination function. This division has already begun to contribute to United Bancorp's noninterest income, with a $355,000 year-over-year increase in net realized gains on the sale of loans during the first nine months of 2024. The company plans to further scale this business line, leveraging its customer relationships and local market expertise to drive growth in this higher-margin revenue stream.
Additionally, United Bancorp is focusing on enhancing its Treasury Management services, which provide fee-based cash management and payment solutions to its commercial customers. By investing in this area, the company aims to generate additional noninterest income while also strengthening its core deposit franchise.
The company's most ambitious growth initiative is the construction of a new banking center in Wheeling, West Virginia. This strategic expansion into a new market, which is slated for completion in the third quarter of 2025, will allow United Bancorp to better serve its existing customer relationships in the region and build new ones, ultimately contributing to the company's long-term growth and profitability.
Conclusion
United Bancorp, Inc. has weathered various economic storms throughout its long history, demonstrating its ability to adapt and maintain stability. Despite the current challenges facing the banking industry, the company is proactively positioning itself for future growth through strategic initiatives, such as the development of its mortgage origination and treasury management capabilities, as well as its planned expansion into the Wheeling, West Virginia market.
While the company's recent financial performance has been impacted by factors like net interest margin compression and limited loan growth, United Bancorp's solid credit quality, well-capitalized balance sheet, and experienced management team suggest that it is well-equipped to navigate the current environment and capitalize on emerging opportunities. The company's focus on core deposit generation and prudent lending practices has supported its solid financial position amidst the current economic environment.
As United Bancorp continues to execute on its growth strategies and navigate the evolving financial landscape, investors will be closely watching to see how the company leverages its strengths and addresses challenges to drive long-term value creation. With its strong community banking foundation and strategic growth initiatives, United Bancorp appears well-positioned to continue serving its markets and stakeholders in the years to come.