Press Release

United Bancorp, Inc. Reports a 17% Increase in Diluted Earnings per Share, a Forward Dividend Yield of 4.09% and an 8.6% Increase in Net Interest Income for the Six Months Ended June 30, 2016

Company Release - 7/27/2016 11:00 AM ET

MARTINS FERRY, Ohio, July 27, 2016 /PRNewswire/ -- United Bancorp, Inc. (NASDAQ: UBCP), headquartered in Martins Ferry, Ohio reported diluted earnings per share of $0.35 for the six months ended June 30, 2016, as compared to $0.30 for the six months ended June 30, 2015, an increase of 17%.  This growth in earnings can be attributed to several factors that are explained below in detail. The Company's diluted earnings per share for the three months ended June 30, 2016 was $0.18, compared to $0.16 for the same period last year, an increase of 13%.

Randall M. Greenwood, Senior Vice President, CFO and Treasurer remarked, "We are very happy to report on the earnings improvement of our Company for the six months ended June 30, 2016.  During this period, the Company's net interest margin increased to a level of 3.87%, as compared to 3.75% for the same period in 2015. This increase in the net interest margin is primarily attributed to the Company experiencing significant organic growth in its loan portfolio, which produced higher levels of interest income, and the continued lowering of its interest expense levels year-over-year.  As of June 30, 2016, the Company had gross loans of $348.8 million, which is an increase of $36.9 million, or 11.83%, over the same period last year.  This is a direct result of the Company's enhanced loan origination platform started in the late second quarter of last year.  Having a higher level of funding invested in quality loans, as compared to lower-yielding federal funds, helped drive the increase in the margin.  This occurred even though the loan portfolio continued to reprice downward over the course of the past year as the long-end of the yield curve remained at historic low levels.  Considering that longer-term Treasury rates (which have a correlation to how the Company's loans reprice) have been priced at relatively the same levels for the past several years, the overall yield in the Company's loan portfolio has stabilized in recent months.  The combination of both loan growth and the stabilization of the yield in the Company's loan portfolio should lead to higher levels of interest income being generated in the coming quarters.  With stronger loan growth, the Company's funds management policy changed during the first six months of 2016.  In prior years, the majority of surplus funding was invested in very liquid, lower-yielding excess reserves at the Federal Reserve.  During the first quarter of 2016, these excess reserves previously invested in lower-yielding investment alternatives were fully depleted and the Company, for the first time in several years, switched to a borrowed position to fund its loan growth by utilizing wholesale funding alternatives.  Also, with stronger loan growth, securities and other restricted stock balances decreased by $8.0 million to a level of $36.0 million at the most recent quarter-end.  Going forward, it is anticipated that the Company's securities portfolio will be maintained at this present level to support its pledge requirement for public depository accounts until investment yields get to more normalized levels.  The Company's credit quality has not changed significantly and has remained strong on a year-over-year basis, as nonaccrual loans decreased by $296,000 to a level of $1.2 million.  Net charge-offs for the six months ended June 30, 2016 were $149,000, or 0.09% of average loans, as compared to a net recovery of $35,000 for the same period in 2015.  In addition, the Company continued to see a decrease in its other real estate and repossessions ("OREO"), as balances decreased by $781,000, or 70.6%, to a level of $326,000.  Lastly, the overall total allowance for loan losses to total loans was 0.71%, resulting in a total allowance for loan losses to nonperforming loans of 200.74% at June 30, 2016, as compared to 0.86% and 177.00% respectively at June 30, 2015. 

"On the liability-side of the balance sheet, the Company continued to see a positive return on its strategy of attracting lower-cost funding accounts, while allowing higher-cost funding to run off.  Year-over-year, lower-cost funding, consisting of demand and savings deposits, increased by $12.7 million and comprised 83.68% of total deposits as of June 30, 2016, as compared to 80.65% of total deposits the year prior.  This was one factor that helped the Company reduce its total interest expense by $251,000, or 21.6%, on a year-over-year basis.  The other factors that helped the Company reduce its total interest expense levels during the first six months of 2016 were the previously announced repricing of the Company's $4.1 million subordinated debenture on January 1, 2016 from a fixed rate of 6.25% to a current variable rate of 1.97% (which is based on three-month LIBOR plus a margin of 1.35%), and a $6.0 million Federal Home Loan Bank advance that matured in May at a rate of 3.28%, which was replaced with a short-term borrowing at approximately 50 basis points.  Both of these events should save the Company approximately $344,000 in interest expense on an annualized basis.  Lastly, for the quarter, noninterest expense levels increased by $139,000 or 4.5%.  Part of this increase is attributed to the increase in lending personnel that have driven the solid growth in loan production.  But, during the second quarter of 2016, the Company was not immune to industry trends related to debit card fraud losses occurring in the primary markets that it serves.  As a result, fraud losses and card-related reissuance costs of approximately $208,000 ($138,000 after tax or approximately $0.025 per share dilution) were realized for the three- and six-month periods ending June 30, 2016.  Under consumer regulation, the Company bears the financial loss relating to debit card fraud and its customers are made whole on the loss.  The Company did respond and implemented procedures that mitigated such losses in the latter half of the second quarter.  It is anticipated with the early third quarter implementation of newer fraud prevention technology relating to its debit cards, the Company will experience more normalized loss levels during the third quarter.  The Company is presently exploring its legal options to recoup these fraud losses; but, at this point, a recovery is uncertain."  Greenwood also stated that, "Our goal is to control our level of noninterest expense while continuing to build and strengthen our operational foundation, which should lead to future growth, higher levels of operating income and, ultimately, a higher level of performance."  Greenwood concluded, "Over the next 18 months, it is projected that our Company's interest expense will be positively impacted by the repricing of $20 million in fixed-rate advances with the Federal Home Loan Bank ("FHLB") that are set to mature.  The average cost of these advances is 3.91% and, given the current interest rate environment, should lead to continued savings in interest expense.  By growing our loan portfolio and reducing our overall levels of interest expense, we believe that we will see continued growth in the level of the net interest income that our Company generates.  It is projected that this will lead to a higher level of earnings and profitability for our Company in future periods." 

Scott A. Everson, President and CEO stated, "We are extremely pleased with the double-digit earnings growth results that our Company has once again experienced this year on a quarterly and year-to-date basis as of June 30th.  We are seeing the positive results of the efforts expended over the course of the past couple of years within our company to gain efficiencies through process improvement, while building and leveraging our loan origination platforms and generating higher levels of revenue.  We are pleased with these results that we are now seeing and will continue looking for additional opportunities that will help our organization become more operationally efficient, generate higher levels of revenue and produce higher levels of quality earnings.  As we previously announced, our Company is embarking upon a new period, whereby our exclusive focus is to grow our assets in a profitable fashion that will produce consistent and increasing earnings.  This vision, which is called Mission 2020, sets the course for our Company to grow its assets to a level of $1.0 billion, or greater, by the end of 2020.  In order to achieve this ambitious growth plan, we will need to continue focusing on being operationally efficient, while taking on higher levels of non-interest expense to support an origination platform that will drive the organic growth of our Company.  It is projected that this enhanced platform, which began being implemented in the late second quarter of last year, will continue to lead to the origination of higher levels of quality loans as seen in recent quarters.  This will help our Company generate higher levels of interest income, which, in turn, should produce an increase in the all-important revenue line… net interest income.  The Company also envisions acquiring other community-minded banking organizations to help it achieve the lofty level of growth envisioned under Mission 2020.  Being a very well capitalized and profitable Company in today's environment will help us achieve the goals that are defined under this vision within our current strategic plan.  With the aforementioned change in our funds management during the first half of this year, our Company is now positioned to attract higher levels of funding, both retail and wholesale, which will allow us to leverage our capital at a more optimal level and produce higher earnings and returns.  As of June 30, 2016, our Company is considered to be well-capitalized by regulatory standards, having equity to assets of 10.1%.  With the excess capital that our Company presently has, we will be able to begin the growth trajectory that we envision, which should benefit all of our valued shareholders.  In 2015, we paid a regular cash dividend of $0.37 and a special dividend of $0.05.  With our Company's present regular cash dividend of $0.10, which began being paid in the fourth quarter of 2015, our forward yield as of quarter-end is 4.09%.  At this level, our Company's cash dividend yield is nearly twice that of the average bank in our country.  With our present focus of increasing our operating leverage by driving the revenue of our Company while containing expenses, we firmly believe that we will continue to reward our shareholders by paying higher dividends, while seeing appreciation in our market value.  Year-over-year, the market value of our Company's stock increased by $0.80, or 8.9%, to a level of $9.77."  Everson concluded, "Our number one focus continues to be protecting and growing our shareholders' investment in our Company through sound and profitable operations and strategic growth.  In addition to driving the market value appreciation of our shareholders' ownership, we will continue striving to reward our owners by paying a solid cash dividend.  Overall, we are very pleased with the present operating performance of our Company and the direction that we are going.  We are extremely optimistic about our future potential and look forward to carrying the earnings momentum that we have seen in recent quarters well into the foreseeable future!"      

United Bancorp, Inc. is headquartered in Martins Ferry, Ohio and has total assets of approximately $420.1 million and total shareholder's equity of approximately $42.4 million as of June 30, 2016.  Through its single bank charter, The Citizens Savings Bank, the Company has eighteen banking offices that serve the Ohio Counties of Athens and Fairfield through its Community Bank Division and Belmont, Carroll, Harrison, Jefferson and Tuscarawas through its Citizens Bank Division.  United Bancorp, Inc. is a part of the Russell Microcap Index and trades on the NASDAQ Capital Market tier of the NASDAQ Stock Market under the symbol UBCP, Cusip #909911109.

Certain statements contained herein are not based on historical facts and are "forward-looking statements" within the meaning of Section 21A of the Securities Exchange Act of 1934.  Forward-looking statements, which are based on various assumptions (some of which are beyond the Company's control), may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "estimate," "anticipate," "continue," or similar terms or variations on those terms, or the negative of these terms.  Actual results could differ materially from those set forth in forward-looking statements, due to a variety of factors, including, but not limited to, those related to the economic environment, particularly in the market areas in which the company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset/liability management, changes in the financial and securities markets, including changes with respect to the market value of our financial  assets, and the availability of and costs associated with sources of liquidity.  The Company undertakes no obligation to update or carry forward-looking statements, whether as a result of new information, future events or otherwise.

 

United Bancorp, Inc. ("UBCP")


For the Three Months Ended June 30,


%


2016


2015


Change

Earnings 






     Interest income on loans

$             3,733,583


$     3,529,684


5.78%

     Loan fees

303,593


292,324


3.85%

     Interest income on securities

150,029


218,473


-31.33%

     Total interest income

4,187,205


4,040,481


3.63%

    Total interest expense

437,713


582,326


-24.83%

    Net interest income

3,749,492


3,458,155


8.42%

    Provision for loan losses

105,749


145,749


-27.44%

    Net interest income after provision for loan losses

3,643,743


3,312,406


10.00%

    Service charges on deposit accounts

667,463


710,848


-6.10%

    Net realized gains on sale of loans

27,195


17,767


53.06%

    Net realized gain on sale of available-sale-securities

-


11,261


N/A

    Net realized gain on sale of  other real






         estate and repossessions

-


2,160


N/A

    Other noninterest income

207,315


192,276


7.82%

         Total noninterest income

901,973


934,312


-3.46%

    Total noninterest expense

3,250,088


3,111,032


4.47%

    Income tax expense

389,215


330,913


17.62%

    Net income

$                906,413


$        804,773


12.63%







Per share






    Earnings per common share - Basic

$                      0.18


$              0.16


12.50%

    Earnings per common share - Diluted 

0.18


0.16


12.50%

    Cash dividends paid

0.10


0.09


11.11%

    Annualized yield based on quarter end close

4.09%


4.01%


0.08%







Shares Outstanding






    Average - Basic

4,901,947


4,854,020


--------

    Average - Diluted 

4,997,001


4,938,542


--------








For the Six Months Ended June 30,


%


2016


2015


Change

Earnings 






     Interest income on loans

$             7,409,703


$     7,076,281


4.71%

     Loan fees

507,305


427,755


18.60%

     Interest income on securities

309,076


395,340


-21.82%

     Total interest income

8,226,084


7,899,376


4.14%

    Total interest expense

912,175


1,163,165


-21.58%

    Net interest income

7,313,909


6,736,211


8.58%

    Provision for loan losses

176,498


261,498


-32.51%

    Net interest income after provision for loan losses

7,137,411


6,474,713


10.24%

    Service charges on deposit accounts

1,300,922


1,410,110


-7.74%

    Net realized gains on sale of loans

43,044


29,020


48.33%

    Net realized gain on sale of available-sale-securities

-


31,672


N/A

    Net realized gain on sale of  other real






         estate and repossessions

-


2,160


N/A

    Other noninterest income

425,408


404,888


5.07%

         Total noninterest income

1,769,374


1,877,850


-5.78%

    Total noninterest expense 

6,393,993


6,246,857


2.36%

    Income tax expense

761,804


607,076


25.49%

    Net income

$             1,750,988


$     1,498,630


16.84%







Per share






    Earnings per common share - Basic

$                      0.35


$              0.30


16.67%

    Earnings per common share - Diluted 

0.35


0.30


16.67%

    Cash dividends paid

0.20


0.18


11.11%

Shares Outstanding






    Average - Basic

4,887,546


4,854,684


--------

    Average - Diluted 

4,982,600


4,939,207


--------

    Common stock, shares issued

5,385,304


5,385,304


--------

    Shares held as Treasury

5,744


7,850


--------

At quarter end 






    Total assets

$         420,102,539


$ 406,736,513


3.29%

    Total assets (average)

411,066,000


413,385,000


-0.56%

    Other real estate and repossessions ("OREO")

325,700


1,106,686


-70.57%

    Gross loans

348,822,129


311,921,669


11.83%

    Allowance for loan losses

2,465,226


2,696,989


-8.59%

    Net loans

346,356,903


309,224,680


12.01%

    Non-accrual loans

1,228,051


1,523,704


-19.40%

    Loans past due 30+ days (excludes non accrual loans)

1,579,526


1,545,388


2.21%

    Net loans charged-off (recovery)

99,585


(98,374)


-201.23%

    Net overdrafts charged-off 

48,965


63,309


-22.66%

    Net charge-offs (recovery)

148,550


(35,065)


-523.64%

    Average loans

335,430,000


313,093,000


7.13%

    Cash and due from Federal Reserve Bank

9,788,179


25,291,544


-61.30%

    Average cash and due from Federal Reserve Bank

5,020,000


31,064,000


-83.84%

    Securities and other restricted stock

36,021,781


44,010,357


-18.15%

    Average securities and other restricted stock

31,892,000


37,889,000


-15.83%

    Total deposits

326,979,155


323,442,487


1.09%

       Non interest bearing demand

70,099,453


66,187,349


5.91%

       Interest bearing demand

123,720,480


121,138,736


2.13%

       Savings

79,787,694


73,537,041


8.50%

       Time < $100,000

40,182,495


47,150,087


-14.78%

       Time > $100,000

13,189,033


15,429,274


-14.52%

     Average total deposits

325,819,000


328,946,000


-0.95%

    Advances from the Federal Home Loan Bank

33,249,273


26,634,955


24.83%

        Overnight advances

12,800,000


-


N/A

        Term advances

20,449,273


26,634,955


-23.22%

    Securities sold under agreements to repurchase

10,065,356


9,027,663


11.49%

    Stockholders' equity

42,355,767


41,053,106


3.17%

    Stockholders' equity (average)

42,286,000


40,627,000


4.08%

Stock data






    Market value - last close (end of period)

$                      9.77


$              8.97


8.92%

    Dividend payout ratio

57.14%


60.00%


-2.86%

    Price earnings ratio

13.96

x

14.95

x

-1.00%

    Book value (end of period)

8.58


8.44


1.66%

    Market price to book value

113.87%


106.28%


7.14%

Key performance ratios 






    Return on average assets (ROA)

0.85%


0.73%


0.12%

    Return on average equity (ROE)

8.28%


7.38%


0.90%

    Net interest margin (federal tax equivalent))

3.87%


3.75%


0.12%

    Interest expense to average assets

0.44%


0.56%


-0.12%

    Total allowance for loan losses






        to nonaccrual loans

200.74%


177.00%


23.74%

    Total allowance for loan losses






        to total loans

0.71%


0.86%


-0.15%

   Nonaccrual loans to total loans

0.35%


0.49%


-0.14%

   Nonaccrual loans and OREO to total assets

0.37%


0.65%


-0.28%

   Net charge-offs (recoveries) to average loans

0.09%


-0.02%


0.11%

   Equity to assets at period end

10.08%


10.09%


-0.01%

   Full time equivalent (FTE) employees

123


128


-3.91%

 

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SOURCE United Bancorp, Inc.