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UNITED BANCORP INC /OH/ 10-K Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

United Bancorp, Inc.

Filing date:

03/14/2025

TLDR:

ELI5:

United Bancorp, a bank, made less money this year than last year and had some problems with how they value their investments. They’re trying new things to make more money, but they need to fix their internal problems first.

Accession #:

0001410578-25-000351

Published on

Analyst Summary

  • Net income decreased from $8.95 million in 2023 to $7.40 million in 2024, driven by margin compression and increased interest expenses.
  • Earnings per share (diluted) decreased from $1.57 in 2023 to $1.27 in 2024.
  • Net interest margin decreased from 3.65% in 2023 to 3.51% in 2024.
  • A material weakness was identified in internal controls related to the fair value of available-for-sale investment securities.
  • Management is focused on strategic initiatives such as enhancing the mortgage origination function, developing the Treasury Management function, and constructing a new banking center in Wheeling, West Virginia, to drive future growth.
  • Operating Profit Margin decreased significantly from 23.3% to 15.1%, which is lower than the industry average of 35%.
  • Net Profit Margin decreased from 22.9% to 16.8%, which is lower than the industry average of 30%.
  • Return on Assets (ROA) decreased from 1.12% to 0.89%, slightly below the industry average of 1%.
  • Return on Equity (ROE) decreased from 17.1% to 10.9%, within the industry average range of 10-12%.
  • Debt-to-Equity Ratio remained relatively stable at around 11.87, within the industry average range of 8-12.
  • Interest Coverage Ratio decreased from 1.86 to 1.49, below the generally acceptable level of 2 for banks.
  • Revenue grew by 7.8%, above the industry average of 5%, while net income decreased by 17.3%, below the industry average of 5%.

Opportunities and Risks

  • Interest Rate Risk: Continued volatility in interest rates could further compress margins.
  • Credit Risk: Economic uncertainty could lead to increased loan losses.
  • Regulatory Risk: Changes in banking regulations could increase compliance costs.
  • Internal Control Weakness: The identified material weakness could lead to misstatements in financial reporting.
  • Competition: The banking industry is highly competitive, which could limit growth opportunities.
  • Strategic Initiatives: The new mortgage origination function, Treasury Management function, and new banking center offer potential for revenue growth.
  • Strong Capital Position: The bank’s strong capital ratios provide a buffer against potential losses.
  • Solid Credit Quality: Despite economic uncertainty, the loan portfolio maintains relatively strong credit quality.
  • Core Deposit Base: The company’s focus on building strong relationships with long-term, core deposits is a strength.

Potential Implications

Company Performance

  • Successful remediation of the material weakness in internal controls is crucial for maintaining investor confidence and regulatory compliance.
  • The effectiveness of strategic initiatives in driving revenue growth and offsetting margin compression will determine future profitability.
  • Maintaining strong asset quality and managing credit risk are essential for weathering economic uncertainty.
  • Controlling expenses and achieving the target asset threshold of $1.0 billion are key objectives for long-term growth.

Stock Price

  • The identified material weakness could negatively impact the stock price if not addressed effectively.
  • Positive results from strategic initiatives and improved financial performance could boost investor confidence and drive stock price appreciation.
  • Overall market conditions and investor sentiment towards the banking sector will also influence the stock price.

SEC Filing Report: United Bancorp Inc /OH/ – Form 10-K (2024)

Executive Summary

This report analyzes United Bancorp Inc /OH/’s Form 10-K filing for the fiscal year ended December 31, 2024. Key findings include a decrease in net income compared to the previous year, margin compression due to the interest rate environment, and a material weakness identified in internal controls related to the valuation of available-for-sale securities. Despite these challenges, the bank maintains strong capital ratios and asset quality. Overall, a HOLD recommendation is appropriate, pending further observation of the effectiveness of remediation efforts for the identified material weakness and the impact of strategic initiatives on future earnings.

Company Overview

United Bancorp, Inc. is a bank holding company headquartered in Martins Ferry, Ohio, operating primarily through its wholly-owned subsidiary, Unified Bank. The bank provides commercial and retail banking services in northeastern, eastern, southeastern, and south-central Ohio, and the Northern Panhandle of West Virginia. The company competes with other banks, credit unions, and financial institutions in its operating areas.

Detailed Analysis

Financial Statement Analysis

Key Ratios and Trends

  • Net Income: Decreased from $8.95 million in 2023 to $7.40 million in 2024.
  • Earnings Per Share (Diluted): Decreased from $1.57 in 2023 to $1.27 in 2024.
  • Net Interest Margin: Decreased from 3.65% in 2023 to 3.51% in 2024.
  • Total Assets: Increased marginally from $802.05 million in 2023 to $816.66 million in 2024.
  • Loans: Increased slightly from $483.24 million in 2023 to $490.97 million in 2024.
  • Allowance for Credit Losses to Total Loans: Increased slightly from 0.81% in 2023 to 0.82% in 2024.
  • Nonaccrual Loans to Total Loans: Increased from 0.10% in 2023 to 0.15% in 2024.

Balance Sheet Highlights

The balance sheet reflects a slight increase in total assets, driven primarily by loan growth. The investment securities portfolio remains a significant component of earning assets. Deposit levels decreased slightly, with a shift from lower-cost demand and savings deposits to higher-cost time deposits.

Income Statement Highlights

The income statement reveals a decline in net income due to margin compression. While interest income increased, interest expense increased at a faster rate, resulting in lower net interest income. The provision for credit losses also increased, further impacting profitability.

Cash Flow Statement Highlights

Operating cash flow decreased slightly. Investing activities used cash, primarily for loan growth and premises and equipment purchases. Financing activities also used cash, mainly due to a decrease in deposits and dividend payments.

Management’s Discussion and Analysis (MD&A)

Management acknowledges the challenges of margin compression and the impact of the interest rate environment. They express optimism about future growth, citing strategic initiatives such as enhancing the mortgage origination function, developing the Treasury Management function, and constructing a new banking center in Wheeling, West Virginia. The MD&A emphasizes a commitment to controlling expenses and growing the company to an asset threshold of $1.0 billion.

Red Flags and Uncommon Metrics

  • Material Weakness in Internal Controls: Management identified a material weakness related to the fair value of available-for-sale investment securities. This requires close monitoring of remediation efforts.
  • Net Interest Margin Compression: The decline in net interest margin is a concern, reflecting the impact of rising interest rates on funding costs.
  • Shift in Deposit Mix: The shift from lower-cost deposits to higher-cost time deposits is contributing to margin pressure.

Risk and Opportunity Assessment

Risks

  • Interest Rate Risk: Continued volatility in interest rates could further compress margins.
  • Credit Risk: Economic uncertainty could lead to increased loan losses.
  • Regulatory Risk: Changes in banking regulations could increase compliance costs.
  • Internal Control Weakness: The identified material weakness could lead to misstatements in financial reporting.
  • Competition: The banking industry is highly competitive, which could limit growth opportunities.

Opportunities

  • Strategic Initiatives: The new mortgage origination function, Treasury Management function, and new banking center offer potential for revenue growth.
  • Strong Capital Position: The bank’s strong capital ratios provide a buffer against potential losses.
  • Solid Credit Quality: Despite economic uncertainty, the loan portfolio maintains relatively strong credit quality.
  • Core Deposit Base: The company’s focus on building strong relationships with long-term, core deposits is a strength.

Conclusion and Actionable Insights

United Bancorp faces challenges related to margin compression and internal controls. However, the company is taking steps to address these challenges and capitalize on growth opportunities. The identified material weakness is a significant concern and requires close monitoring. The bank’s strong capital position and asset quality provide a degree of stability.

Recommendations:

  • Monitor Remediation Efforts: Closely track the progress of remediation efforts to address the identified material weakness in internal controls.
  • Evaluate Strategic Initiatives: Assess the effectiveness of the new mortgage origination function, Treasury Management function, and new banking center in driving revenue growth.
  • Manage Interest Rate Risk: Implement strategies to mitigate the impact of interest rate volatility on net interest margin.
  • Maintain Asset Quality: Continue to monitor loan portfolio performance and maintain adequate reserves for potential losses.

Financial Analysis of United Bancorp, Inc. (UBCP) – 2024

1. Commentary

United Bancorp, Inc. (UBCP) demonstrates a mixed financial performance in 2024. The bank experienced a decrease in net income compared to the previous year, driven by increased interest expenses and a slight decrease in net interest income. However, UBCP strategically focused on enhancing fee income through mortgage originations and treasury management, and is expanding into new markets like Wheeling, WV. While asset quality metrics remain stable, the decline in profitability warrants attention, and the company’s growth initiatives will be key to future performance.

2. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin: Not applicable for banks.
  • Operating Profit Margin:

    • Metric: (Net Interest Income + Noninterest Income – Noninterest Expense) / Total Revenue = (24,800 + 4,460 – 21,666) / (39,521 + 4,460) = 15.1%
    • Trend: Previous year (2023) Operating Profit Margin = (25,835 + 4,054 – 20,852) / (36,849 + 4,054) = 23.3%. The operating profit margin decreased significantly from 23.3% to 15.1%.
    • Industry: The industry average operating profit margin for banks is around 35%. UBCP’s operating profit margin is significantly lower than the industry average.
  • Net Profit Margin:

    • Metric: Net Income / Total Revenue = 7,402 / (39,521 + 4,460) = 16.8%
    • Trend: Previous year (2023) Net Profit Margin = 8,950 / (36,849 + 4,054) = 22.9%. The net profit margin decreased from 22.9% to 16.8%.
    • Industry: The industry average net profit margin for banks is around 30%. UBCP’s net profit margin is lower than the industry average.
  • Return on Assets (ROA):

    • Metric: Net Income / Average Total Assets = 7,402 / 828,079 = 0.89%
    • Trend: Previous year (2023) ROA = 8,950 / 802,054 = 1.12%. ROA decreased from 1.12% to 0.89%.
    • Industry: The industry average ROA for banks is around 1%. UBCP’s ROA is slightly below the industry average.
  • Return on Equity (ROE):

    • Metric: Net Income / Average Stockholders’ Equity = 7,402 / 67,733 = 10.9%
    • Trend: Previous year (2023) ROE = 8,950 / 52,288 = 17.1%. ROE decreased from 17.1% to 10.9%.
    • Industry: The industry average ROE for banks is around 10-12%. UBCP’s ROE is within the industry average range.
  • Earnings Per Share (EPS) – Basic and Diluted:

    • Metric: Basic EPS = $1.27, Diluted EPS = $1.27
    • Trend: Previous year (2023) Basic EPS = $1.57, Diluted EPS = $1.57. EPS decreased from $1.57 to $1.27.
    • Industry: The industry average P/E ratio for banks is around 10-15. UBCP’s P/E ratio is below the industry average.

Liquidity

  • Current Ratio:

    • Metric: Current Assets / Current Liabilities = (19,608 + 240,631 + 486,945 + 4026 + 4322) / (320,690 + 125,120 + 167,684 + 30494 + 7491) = 1.21
    • Trend: To determine the trend, we would need the Current Ratio from the previous comparable period, which is not provided in the filing.
    • Industry: A current ratio of 1 or greater is generally considered acceptable for banks. UBCP’s current ratio is above 1.
  • Quick Ratio (Acid-Test Ratio):

    • Metric: (Current Assets – Inventory) / Current Liabilities = (19,608 + 240,631 + 486,945 + 4026 + 4322) / (320,690 + 125,120 + 167,684 + 30494 + 7491) = 1.21 (Assuming no inventory)
    • Trend: To determine the trend, we would need the Quick Ratio from the previous comparable period, which is not provided in the filing.
    • Industry: A quick ratio of 1 or greater is generally considered acceptable for banks. UBCP’s quick ratio is above 1.
  • Cash Ratio:

    • Metric: (Cash + Marketable Securities) / Current Liabilities = (8,171 + 11,437 + 240,631) / (320,690 + 125,120 + 167,684 + 30494 + 7491) = 0.42
    • Trend: To determine the trend, we would need the Cash Ratio from the previous comparable period, which is not provided in the filing.
    • Industry: A cash ratio of 0.2 or greater is generally considered acceptable for banks. UBCP’s cash ratio is above 0.2.

Solvency/Leverage

  • Debt-to-Equity Ratio:

    • Metric: Total Liabilities / Total Stockholders’ Equity = 753,199 / 63,457 = 11.87
    • Trend: Previous year (2023) Debt-to-Equity Ratio = 755,856 / 63,593 = 11.89. The debt-to-equity ratio remained relatively stable.
    • Industry: The industry average debt-to-equity ratio for banks is around 8-12. UBCP’s debt-to-equity ratio is within the industry average range.
  • Debt-to-Assets Ratio:

    • Metric: Total Liabilities / Total Assets = 753,199 / 816,656 = 0.92
    • Trend: Previous year (2023) Debt-to-Assets Ratio = 755,856 / 819,449 = 0.92. The debt-to-assets ratio remained relatively stable.
    • Industry: The industry average debt-to-assets ratio for banks is around 0.8-0.9. UBCP’s debt-to-assets ratio is slightly above the industry average.
  • Interest Coverage Ratio (Times Interest Earned):

    • Metric: EBIT / Interest Expense = (7,295 + 14,721) / 14,721 = 1.49
    • Trend: Previous year (2023) Interest Coverage Ratio = (9,491 + 11,014) / 11,014 = 1.86. The interest coverage ratio decreased from 1.86 to 1.49.
    • Industry: An interest coverage ratio of 2 or greater is generally considered acceptable for banks. UBCP’s interest coverage ratio is below 2.

Activity/Efficiency

  • Inventory Turnover: Not applicable for banks.
  • Days Sales Outstanding (DSO): Not applicable for banks.
  • Days Payable Outstanding (DPO): Not applicable for banks.
  • Asset Turnover:

    • Metric: Total Revenue / Average Total Assets = (39,521 + 4,460) / 828,079 = 0.053
    • Trend: Previous year (2023) Asset Turnover = (36,849 + 4,054) / 802,054 = 0.051. The asset turnover ratio increased slightly.
    • Industry: The industry average asset turnover ratio for banks is around 0.1-0.2. UBCP’s asset turnover ratio is below the industry average.

Valuation

  • Price-to-Earnings Ratio (P/E):

    • Metric: Stock Price / EPS = 13.18 / 1.27 = 10.38
    • Trend: To determine the trend, we would need the P/E ratio from the previous comparable period, which is not provided in the filing.
    • Industry: The industry average P/E ratio for banks is around 10-15. UBCP’s P/E ratio is below the industry average.
  • Price-to-Book Ratio (P/B):

    • Metric: Market Cap / Book Value of Equity = (5,793,611 * 13.18) / 63,457,000 = 1.20
    • Trend: To determine the trend, we would need the P/B ratio from the previous comparable period, which is not provided in the filing.
    • Industry: The industry average P/B ratio for banks is around 1-1.5. UBCP’s P/B ratio is within the industry average range.
  • Price-to-Sales Ratio (P/S):

    • Metric: Market Cap / Total Revenue = (5,793,611 * 13.18) / (39,521,000 + 4,460,000) = 1.73
    • Trend: To determine the trend, we would need the P/S ratio from the previous comparable period, which is not provided in the filing.
    • Industry: The industry average P/S ratio for banks is around 2-3. UBCP’s P/S ratio is below the industry average.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Metric: (Market Cap + Total Debt – Cash) / EBITDA = ((5,793,611 * 13.18) + 753,199,000 – (8,171,000 + 11,437,000)) / (7,295,000 + 14,721,000) = 40.25
    • Trend: To determine the trend, we would need the EV/EBITDA ratio from the previous comparable period, which is not provided in the filing.
    • Industry: The industry average EV/EBITDA ratio for banks is around 10-15. UBCP’s EV/EBITDA ratio is significantly higher than the industry average.

Growth Rates

  • Revenue Growth:

    • Metric: (Current Year Revenue – Previous Year Revenue) / Previous Year Revenue = ((39,521 + 4,460) – (36,849 + 4,054)) / (36,849 + 4,054) = 7.8%
    • Trend: Revenue grew by 7.8%
    • Industry: The industry average revenue growth for banks is around 5%. UBCP’s revenue growth is above the industry average.
  • Net Income Growth:

    • Metric: (Current Year Net Income – Previous Year Net Income) / Previous Year Net Income = (7,402 – 8,950) / 8,950 = -17.3%
    • Trend: Net income decreased by 17.3%
    • Industry: The industry average net income growth for banks is around 5%. UBCP’s net income growth is below the industry average.
  • EPS Growth:

    • Metric: (Current Year EPS – Previous Year EPS) / Previous Year EPS = (1.27 – 1.57) / 1.57 = -19.1%
    • Trend: EPS decreased by 19.1%
    • Industry: The industry average EPS growth for banks is around 5%. UBCP’s EPS growth is below the industry average.

Other Relevant Metrics

  • Company-Specific KPIs: The commentary highlights the company’s focus on enhancing mortgage origination, treasury management, and expanding into new markets. These initiatives are aimed at increasing fee income, controlling interest expense, and growing total assets. The $453,000 increase in net realized gain on loan sales indicates success in the mortgage origination function. The development of the Wheeling, WV banking center is a strategic move to leverage existing customer relationships and build new ones.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️