United Bancorporation of Alabama, Inc. (UBAB) Earnings Call Transcript & Summary

Good morning, and thank you for joining us for the second quarter earnings call of United Bancorporation. My name is Brooke Marsh. And joining me this morning are President and CEO, Mike Vincent; Chief Credit Officer, David Stewart; and Chief Financial Officer, Leigh Anne Jones. They'll be serving as our panelists for the call this morning. [Operator Instructions] And I'll turn it over to Mike so we can get started. Thank you.

Great. Thank you, Brooke, and good morning, everyone. We appreciate you joining our quarterly call. We look forward to presenting some results that we're very pleased with from the second quarter. So just to kind of get us kicked off, our year-to-date numbers, year-to-date '26 net income of $11.3 million and earnings per share of $3.71, and that is compared to $9.3 million and EPS of $2.78 for the same period last year. That represents a 21.5% increase in net income for same period last year and a 33.1% increase in EPS for the same period. On a quarterly basis, Q2 net income of $5.8 million and EPS of $1.91, compared to $4.5 million (sic) [ $4.6 million ] and EPS of $1.36 for the same period last year. That represents a 26.1% increase in net income and a 40.4% increase in EPS for the same period last year. Margins, as we talk about most every time on these calls, remain very strong. Year-to-date net interest margin of 4.42% was up a little bit from what would be kind of rightsized just due to recovery associated with one particular nonaccrual relationship that David may speak to. So that was one thing that impacted that number for the quarter. UB Community Development generated $1.2 million in fee revenue for the period. That is a combination of a few things. A lot of it is associated with timing of loan closings that they're working on. As we've probably talked about in the past, those loan closings vacillate a little bit from the timing perspective. But we were pleased to report that, as well as some consulting fees. They do consulting work in UB Community Development. That is one area of our strategy that we are trying to build out even a little bit further. As we've gained greater and greater knowledge in that space, we've kind of built a niche for that group as a consultant, and we hope to continue reporting results like that. Expenses stabilized around $11.5 million for the quarter. And then one last thing to report is the repurchase of about 8,500 shares during the quarter as well. So we'll touch on some of this in a little more detail in a little bit. But with that, David, I'll turn it to you and maybe talk about the loans a little bit.

Sure. Good morning, everyone. Glad to be here with you. So year-over-year growth stands at 5.6% for the loan book. That's roughly $49.5 million. So good growth we're seeing. Year-to-date 2026 -- we'll kind of roll through some numbers here for everyone. Year-to-date growth is 5.4% or $47.9 million. We've seen growth in our traditional growth buckets here. We'll go through those. First is going to be real estate construction is up 18.9% or $21.9 million. We've talked about this basically every quarter, we're having good growth primarily in the multifamily sector as our community housing group continues to see good traction and good results. Also related to that is going to be real estate multifamily permanent loans. Those have increased about 18.1% or $10.2 million. Continuing to work on that strategy. Some of the other growth I'd like to highlight, non-farm, nonresidential. Some of these transactions are related to our New Markets group and the CDE group that Mike mentioned here a few minutes ago. So they're up 2.8% or $7.7 million. We've also got some modest dollar growth, but we've put some plans in place in the last 6 months and we're starting to see a little traction there. So particularly in farmland, we're up $3.1 million or about 7.6%. While it's not a big dollar number, that does show a pretty good increase in the percentage growth. And then I would be remiss without mentioning consumer installment loans. That book is up about 9% or $2.7 million. Again, modest dollar growth, but we're moving those percentage increases in the right direction. We've put some plans in place, some rate specials and some other buckets. So going to continue to try to be aggressive there and grow that end of the loan book. So we're pleased year-to-date with growth thus far. So now we've gone through sort of the growth, we'll work through some of the nonaccruals and nonperformings. Mike mentioned the recovery on a large nonaccrual loan. That was about $3.6 million. So that took our nonaccruals down to $12.2 million for the quarter. That is down from $15.78 million at the end of Q1 or about a 23% decline. We did have roughly a $3.6 million loan that had been on nonaccrual for quite some time. It was fully resolved, full recovery, plus the default interest rate that had been triggered by a forbearance agreement. So big win that also drove our margin up a little bit. So that was a big help, a little extra win for the quarter. Moving on to nonperforming assets. At the end of the quarter, they stood at $14.6 million. Again, that's going to be down from the prior quarter. We were up at like $17.3 million, again, related to the resolution of that one big nonaccrual loan. One other thing I did want to mention on the call, and kind of kudos out to our special assets department. I know they've been working hard to put some additional discipline in place with the collection and resolution efforts. Our 30 to 90-day past-due loans is down at 35 basis points or $3.3 million. We had been up at 79 basis points at the end of Q1. So we've driven that down roughly almost $4 million. Special Assets Director has done an excellent job putting some protocol and a little more discipline and rigor in place into that side of the bank. So we're pleased with the movement there, and we'll continue to move in the right direction. A couple of other items to mention here before I'll turn it over to Leigh Anne. ORE remains unchanged at $1.3 million. And then lastly, moving on down to our allowance for credit loss, our CECL coverage ratio stands at 1.32% or $12.4 million. Of course, we update that quarterly. We're confident where we are and pleased with the reserves we have in place. So that's all from my desk, and I'll turn it over to Leigh Anne for liquidity -- excuse me, securities.

Or both. So good morning, everyone. To touch on securities for a little bit. Not much has really changed in that particular space of the balance sheet, but the book value of the securities portfolio is about $334 million with about a 3.6% book yield, with a weighted average life of about 6.36 years and duration of a little over 4.5 years. We continue to see solid and consistent cash flows coming out of the portfolio. We have a laddered portfolio, both with bullets and just looking at MBS securities as well. And so there's a little extension -- the way we structured it, there really is very little extension risk in rates-up environment with the portfolio. So we're pleased with how it's performing right now. On the deposit side of the house, year-over-year deposits increased about $60 million, about 5.5%. So we've been pleased with that growth. And over the quarter, from March to June, we saw just shy of a 2% increase in deposits. And that was about a $21 million, almost $22 million increase there. And so this also marks about 6 consecutive quarters of deposit growth that we've seen. Competition in our markets remains strong. We're starting to see more 4% CDs, short term, things with terms less than 6 months. So as the year continues on and depending on what the Fed does, we will probably see some increase maybe on the deposit side on yields there. Talking about liquidity and impact on deposits on liquidity, our cash-to-asset ratio is about 11.2%. We always have remained fairly liquid. I think as we've talked about in the past, maybe not so much recently, we have a couple of large deposit concentrations. So between that and then the new market tax credit transactions, we'll also bring some larger deposits onto the balance sheet. That will come on and then roll off over 12 to 24 months as those funds are being used for construction or other disbursements for those transactions. So we have some variability in our balance sheet on the deposit side. I just want to mention that because we do tend to run higher liquidity just to be responsive to those larger deposit concentrations and changes that may occur there. And with that, I'll turn it back over to Mike to talk about the margin.

Great. Thanks, guys. We spoke about net interest margin just a little bit ago. Margin was bolstered a little bit as we've talked about that recovery. So at 4.42%, really rightsizing, what that means was about a 4.28% margin, excluding kind of what we consider to be a onetime event. Year-to-date earning asset yields reported at 5.62%, which was down a little bit from where we stood at the same period in 2025. And again, adjusting for that same event that we spoke of, really we're looking closer to 5.47% on a yield perspective. Cost of funds continues to tick up a little bit. We're at 1.39%, which is up just a little bit year-over-year. So I think on a quarterly basis, the NIM has been pretty consistent. Year-over-year was actually flat, earning assets pretty consistent. So we feel pretty good about all of that. So we'll continue to manage that. We realize that from a margin perspective, we are excelling above peers, and we will try to use that to our advantage whenever we can. We do obviously do some modeling looking at rate forecasts. And I think in the most likely scenario, we're probably recognizing an increase of about $1.5 million or maybe a 2.5% adjustment on a rolling 12-month basis. So we feel like we're pretty well positioned for what we expect in the market going forward. Noninterest expense. We talk about this a lot on these calls. 2026 run rate at the holding company level has been about $11.5 million. We feel like that that number has stabilized. The number that we're posting now is actually pretty well in line with what we had, if not down just a little bit. The conversion and all those related expenses, obviously, the onetime things are all behind us at this point. So it's something that we continue to look at. On a holding company basis, that translates to about 2.98% of average assets as we currently sit today at that level. So we continue to manage and monitor that very, very closely. We recognize that any investment that the bank makes certainly has to be strategic in nature and expenses that we incur are either to further our strategic mission, not just to balloon operating expenses. So it's something that, obviously, the bank has made significant investment in, and we expect to grow into a number that is better than where we sit today. I'll speak about capital just a little bit. Tangible book continues to improve. We are reporting $47.89 in tangible book. That is, at least in most recent trading, that's a price to tangible book of 1.25. I will say, a tangible book at $47.89 is about 11.2% increase year-over-year from where it stood in June of 2025. It was at $43.07 at that time. Price to tangible book has also increased by about 7.8% over that same period of time. The dividend yield of about 2.5%, we have consistently tried to look at dividends, tried to increase where we felt it was appropriate and in furtherance of our strategic goals, but not put ourselves in a position where we had to move backwards. We wanted to do something that was what we felt was fair to shareholders and something that was sustainable as we go forward. Capital ratios are strong, have trended down just a little bit over the last few months. But most of that is related to dividends and repurchases. We mentioned earlier, we had purchased 8,500 shares just this past quarter. Now we have returned over $41 million to shareholders over the last 12 to 18 months as we continue to buy shares back. And as I think most people are aware, we have a rather significant buyback program that is currently in place, and hope to have that in place for the foreseeable future. ROA -- just a couple of metrics here. ROA at 1.73% and return on tangible common equity at 16%, both up from prior periods, same periods last year, and we're very, very pleased about that. When we speak of capital, I will say that the Board is diligent and deliberate and responsible for, I guess, returning to shareholders what can be done, what we think is fair, and trying to remain nimble with some optionality for things that are to come in the future. We spoke about a number of things: M&A opportunities, buybacks. M&A, I will continue to report, is something that the bank is very, very interested in. We go to a multitude of conferences. We have a number of conversations with people. And we have tried to be disciplined and not overpay. What we find is that the deals that are out there, at least in the State of Alabama where credit unions are allowed to participate in that space, we're finding that the pricing of deals is what I would not consider, I guess, a good price for our shareholder value. When we try to look forward long term, I don't want to do a deal for the sake of doing a deal. It needs to have a fit in a multitude of ways. It needs to be a cultural fit, first and foremost. I want to do it with a reasonable amount of earn-back, minimizing dilution and all of the things associated with those deals. So yes, we have been deliberate on the few that we've been able to take a look at over the last few years, and we continue to have those conversations and look at that. But it's important for us, we feel like, to deliver what we consider to be top-tier profitability and return a fair dividend to our shareholders, and certainly put ourselves in a position where we can act on things as they become available. I'll give you a couple of CDFI updates. We finally have seen some movement on a couple of the programs. We did just last week submit applications for the Small Dollar Award program and for the Bank Enterprise Award. Those are not, from a dollar perspective, 2 of the larger awards that they give out, but it was at least something. And after the long period of time that we've been waiting on some of that stuff to move, that was welcome. We expect, obviously, to hear more and more about that kind of stuff, but we continue to advocate, to continue to go to Washington, to continue to talk to decision-makers and policymakers and see what movement we can make. I'll also mention ECIP. As you probably know, we are getting close to the period of time when maybe some of the first round of people seeking early disposition can make their application. As you do know, we entered into our disposition agreement with Treasury a number of years ago. We are not amongst the people that are initially eligible to do that. It's going to be, I think, in the best of cases probably, and Leigh Anne, correct me if I'm wrong with this, but it's going to be a couple of years before we're going to be eligible to do something with it.

Correct.