United Bncrp Of Al Inc A

thank you once again for joining us for one of our quarterly investor updates as is typical. I'm joined by David Stewart, our chief credit officer, Leanne Jones, our CFO. And just as an aside, if you're, if you're wondering, I've also got one of our board members here sitting here with us, Dale Ash. So thank you guys for joining. And a special thanks to any of y'all that, that attended or, or, are called regarding our annual shareholder meeting that we had last week. It was a good session. Enjoyed talking with a few of y'all regarding what's going on around the bank. Without further ado, let me kind of get into some of the results for the quarter. Q1 income was at $6.3 million or an earnings per share of $1.75 on the quarter. That is versus $6.7 million with an EPS of $1.87 for same period last year. So right on line with what we had done in prior years. One thing that we've talked about in here a number of times, and Leanne may speak to it a little bit later, is regarding our net interest margin. It does remain stable and fairly steady. Q1 NIM was 454 versus 4.6 last year, so we're pretty steady. We'll talk a little bit about cost of funds, the loan book, and kind of what rates we're seeing, but I will just tell you that first quarter was kind of a right down the fairway kind of quarter. It was nothing Nothing extraordinary, no treasury programs really to report on for the quarter. It was just kind of your basic blocking and tackling standard banking business. So let's get into the balance sheet and the loan book a little bit. So, David, I'll turn it over to you. Sure. Good morning, everyone.

Good to speak with you again. Year-over-year growth was right at 8.2% for $62.3 million. So that's pretty good. Last year, our first quarter was very strong. We had some transactions at the beginning of Q1 2023. So us to come be over and above of that by 8.2% we're real proud of. Q1 growth is a little more normal than before. Compared to last year, total growth was at 1.6% or $13.4 million. Most of that has been funded coming out of commercial real estate, some CNI transactions. And as we've covered in the past, multifamily, we did have a lot of multifamily construction transactions that closed the last portion of 2023, and we're just now starting to see those construction loans fund up. We're projecting that those will continue to grow. As you guys know, we're pretty active in the affordable housing space and low-income housing tax credit space as part of our CDFI mission. We have a substantial network within that community and have a lot of opportunity there for growth. So we'll continue to see those multifamily construction loans fund up as those projects come online. One item I'm happy to report that we've chased for quite some time, our loan-to-deposit ratio is a little higher, so we're putting our dollars to work. So historically speaking, we've had a lower loan-to-deposit ratio, so we've pushed that a little higher, up to 75.53%. Touching on... Kind of problem assets, special assets, if you will. Non-accruals at the end of the quarter totaled 3.1 million. So we had a couple of participations that went on non-accrual that we're working through resolution right now and hopefully have those resolved by mid-year. Also, another number I did want to mention is non-performing assets is ticked up. That's coupled with non-accruals. We've had some modifications to borrowers experiencing financial difficulty, formerly troubled debt restructures. That's a mouthful. We've got to come up with some kind of acronym that shortens that down for us all. Then, of course, Oreos in that bucket as well. Those three Oreos not ticked up, but the first two have non-accruals in those modifications to borrowers experiencing financial difficulty. That's just working through borrowers with some interest-only periods and terms within the loan book. Past use and non-accruals, it's still a little over 1% at 1.18% is where we finished the quarter. So it's seen a little tick up, particularly there in TCUB, Town & Country, United Bank, That, if you guys are familiar with that area, it's in Wilcox County of Alabama. It's a historically economically depressed area, so we've seen past use tick up there, of course, with elevated interest rates and seeing unemployment rate, particularly in that county, tick up, which is sort of out of balance with what we're seeing with some of our other markets. Texas ratio is good at 5.12%. That's on the consolidated basis. And then we're still carrying a strong allowance. So consolidated, we're at 1.45% on the allowance or $11.9 million. So we've continued to be conservative with our reserving. So elevated rates are going to create some pressure in the market. We acknowledge that, and we want to make sure we're prepared for anything that may come up. That's all I have for the loan book.

Before we, I guess, transition, David, while we're covering the loan portfolio, there is one question that's out there in the queue for you. Some of this you've touched on, but some not. So what are your trends on criticized and classified as of March 31st? Do you expect deterioration this year? And how are borrowers' debt service coverage from higher interest rates? What are you seeing as far as the trends on that?

So, of course, underwriting, working through some of the elevated rates. Yes, I think you're going to see some pressure on the loan book. We've started to work through, as I mentioned, those modifications to borrowers experiencing financial difficulties. We did have one, you know, large participation that we put on non-accrual. So, yeah. It's not necessarily rate pressures that we're seeing that's totally the problem. It's a number of different things and no one common thing that I'm seeing at this point. We historically shocked rates and are underwriting to ensure borrowers can handle the increased rates. So I don't know that it's necessarily elevated rate environment that's creating the direct pressure. Maybe it's creating some indirect pressure on borrowers, but... We do expect there to be some challenges moving through the year. And I think just economically speaking, speak to other bankers. They're kind of seeing the same thing and feeling the same things, particularly in the South.

David, can you speak to maybe your expectation for loan growth in 24 pipeline and kind of what you're expecting to see?

Sure. So I mentioned multifamily construction. So still going to be continuing to see good growth. We've had several transactions related to our new markets efforts. So as you guys, we've talked about in the past, we monetize those tax credits and then allows us to get our foot in the door for some larger projects to provide leverage into them. So we have a good pipeline of transactions related to those new markets related loans. So between the multifamily, the new markets-related transactions, and then this traditional banking footprint along the coast, I think we'll still see good growth. I mean, we're still projecting not where we were last year, but still strong growth throughout the year. The pipeline looks good. Just still a lot of moving parts and pieces as any time here with the bank. But those specialized programs that we've utilized between the affordable housing and new markets are going to benefit us into the future for this year.

All right. Well, Ian, we'll turn it over to you to talk about securities and deposits as well.

Sure. Good morning, everybody. So the securities book remains pretty much unchanged. We continue to add to that portfolio to try to lock in some higher rates. The weighted average life of the portfolio is just about seven years, and the duration is about 4.89 years. We can continue to buy mortgage backs to get cash flow coming out, so we've got some good cash flow to fund loans over the next several years. On the deposit side, we've seen a modest increase in deposits. Year over year, growth about 1% or a little over $10 million, as we haven't really been a rate chaser. And that's reflected really in our cost of funds. Our cost of funds has increased to 1.21% from 93 basis points in the fourth quarter of last year. And that is, as everyone else, all the consumers are chasing rate and are gravitating towards CDs and the higher rate offerings that we do have. but we still feel that our cost of funds is very competitive and looks much better than a lot of our peer groups. So as Mike mentioned earlier, our margin has been pretty stable, 4.54% for the first quarter, you know, compared to last year's of 460. We still have a good yield on earning assets that continues to grow really at a faster pace than the cost of funds growth. So that's allowing us to keep our strong margin there. And so once again, the margin, you know, it looks pretty good. And Outlook, I think, will continue to be strong. Liquidity, you know, as I said earlier, we've had a small increase in deposits. Liquidity still remains strong, you know, about 15, 16 percent cash to asset ratio. So we still are monitoring liquidity and that's still very important to us, you know, as we go through the year and think that that looks very good. Kind of switching gears to talk about non-interest items, non-interest income. As Mike said earlier, we did not have any Treasury awards this quarter, but the projection for our expectation really for award announcements for the year, we think the Financial Assistance Award will be announced maybe Q2 or early Q3. The Capital Magnet Fund Award about Q3 and and New Markets Award either late Q3 or Q4 of this year. So that's just best guess on when Treasury will be announcing those awards. So hopefully more to come later on in the year on that front. Non-interest expense, as Mike said, this is a pretty vanilla quarter. So the non-interest expense would probably be a good run rate when you're thinking about that. It probably is a little on the high side. There are a couple of one-time items there. But, you know, but a good run rate would be probably eight point seven to eight point eight million dollars. So that's really all I have. And Mike, I'll turn it over to you.

All right. Thank you. And so a couple of questions that are outstanding here for you. Expectation for peak cost of funds in the cycle. You know, we're asked that from time to time if we if we. think we've reached the plateau or kind of where we might be. So if you have any thoughts about that.

Sure. No, I think the cost of funds will continue to rise through the year. As I said, as everyone gravitates toward the higher offerings, maybe we'll get some relief if rates do decline in the year. But I think, you know, I think probably that peak will be later in the year as people still are trying to renew, you know, the closer to 5% rates or get whatever money in at 5% that they can.

Question regarding the balance sheet structure itself, asset or liability sensitive currently. And if we're in a higher for longer rate environment, what impact on earnings compared to if we get three or four rate cuts versus… what we were expecting six months ago. How does that kind of that interplay with rate cuts and the balance sheet itself?

So the bank is asset sensitive and higher rates really do benefit us. As you can see, in 2023, we had a really strong increase in the, or a quick increase in the margin. You know, as we stay at higher rates, I would expect that to continue. I think a lot of it will depend on our management on the cost of funds, you know, and able to book loans at a higher rate also. You know, when rates do come down, I think as long as we're managing our cost of funds, we can still maintain a strong margin. I think rates would need to decline 200 basis points or more really for us to see our margin dip below 4%.

Yeah. And I think with that answer, you've answered a few that were outstanding. So thank you for that. I will ask this one here. What is the outlook for deposit costs? You've touched on this a little bit. Outlook for deposit costs and should these stabilize in the next few quarters if there are no change in Fed funds policy?

So, yes, I mean, you know, I think I've covered that, but yeah.

Let me speak to capital a little bit. It's something that I've had some conversations with several shareholders and it's certainly something that we talk about a great deal around here. Just to give you some metrics right out of the gate. Tangible book at quarter end is $34.60 with a price to tangible at $1.21. We are looking for improvement in the performance of that metric. Um, you know, the PE ratio at just under six times, um, is kind of where we're reporting at, uh, at quarter end. Um, you know, as we look at dividend yield, uh, approximately, you know, 170, um, it's up. I still say it's probably not where it needs to be, but it's up and we are, we're committed to, uh, to continue pushing that number upwards. Um, Probably the biggest question that I'm asked on an ongoing basis is about capital allocation, stock buyback, tender offer, and kind of what we're thinking in that realm. So I will just kind of as a recap, we did have a buyback program in place during 2023. We did repurchase a little over 92,000 shares on the year. We are currently modeling both a buyback and a tender offer scenario that we'll be using and talking about with our board of directors here in the coming days and weeks. So we recognize that we're in a unique position. You know, for those of you that remember, you know, we did take ESIP Capital. We're coming up on two years now. Just as a way of recap, I think most of you know this, but the ECIP capital was basically to lend as a result of the pandemic, utilizing CDFIs like ourselves to make that happen. You know, we will start paying dividends on those preferred shares the second half of this year. As you recall, that is a cap of 2%. It's possible that it would be less than that, depending on how the money has been utilized. But that is the anticipation. We went in knowing that, you know, kind of 2% was the number. So as we've accepted all of that capital, and capital just in and of itself organically through business operations continues to grow, the questions are, what are you going to do with it? So there's a lot of options. Number one, and probably the biggest one that was under consideration when we took these funds, was acquisition. And we had been looking at that for a couple of years. Through market conditions, mainly, the M&A space has been very difficult. Most of what we've seen, and I imagine you have seen, have been credit union buyers, just because of the advantages that they have on how those deals can be structured. We have been steadfastly committed that we are not going to be in a position where we're going to overpay for a bank. We are going to be patient. We're going to be diligent in our underwriting and our due diligence of any organization. We've talked with a number of them. We continue to talk with a number of them. And I believe fully that, you know, when you start seeing Fed policy change a little bit, you will see the dam break, so to speak. And you'll see a number of deals that have been just on the sidelines that will start to show themselves. You know, it is my belief that if we've established those relationships and we're ready to go when the timing is right, you know, even if the market's not exactly how I want it to be, if we're, if we're closer and it makes more sense to the bank and to the shareholders, then we're going to pull the trigger on it. Um, it's just gotta make sense and it's gotta be at the right time. So acquisition is number one. Buyback is number two. Um, You know, we believe in it. We've had multiple programs in place over the last couple of years. And I would anticipate that there would be some announcement on that fairly soon. Internal investment amongst ourselves. There's a lot going on inside the bank that we don't we don't talk about a lot. But, you know, we're going through the initial stages of a core conversion program. Most of you, if you're investing in community bank stocks, know, frankly, what a pain that is going to be. But it is an investment into ourselves and our customers. So there is a lot going on. There's a big outlay and expense that comes along with that. But working through that is about an 18-month process. So we've got a lot of work to do. we are putting new branches in our existing footprint. As we stand now, there is a new branch coming out of the ground in Brewton, Alabama. That is a market that is not far from here, one that we have kind of dabbled in from a loan production office to more of a temporary facility. And by the end of the year, we will have a brand new facility in that community. And I frankly expect us to be the number one institution in that town. That is a big expense. Number two, we're doing a complete remodel on our PACE facility. It's a newer facility that we bought, but it was purchased from another institution and it was kind of an older looking building. So we had to put some money into that and that's an ongoing facility. We are opening up a new administration office in Baldwin County to basically bring some of our employees middle management, senior management in that county together. So a lot of expense associated with that. And then obviously, as we talk through this whole process and through this whole cycle, there's lending programs that are involved. And David, I may ask you maybe to speak to that a little bit, kind of what you guys are doing and seeing. Sure.

The East Sub-Capital provides us some special ammunition, if you will, to compete in historical markets that we've used. The ag and timber space is traditionally dominated by your ag credit Not-for-profit quasi-government lenders with these ESIP dollars with such low cost of capital were able to deploy them into loan books, particularly in ag and timber land. So our first loan as a bank in 1904 was in ag land. So we continue to embrace that. that option and that business line. So we're putting dollars to work to provide a little longer fixed rate options that compete with the ag credit entities. Other thing I mentioned earlier is new markets related loans. We have a bucket of funding that we've set aside to lend into the new markets transactions. So as you can imagine, with bringing those tax credits to a deal, we're able to do some cherry picking along the way and provide capital into some really attractive projects. And then also, I mentioned earlier, the affordable housing space. Multifamily is going to continue to be a growth opportunity for us. We fully expect future fundings, and we're putting some of those dollars to work into that space as well. So it's nice to have low-cost capital to go out and be aggressive in a higher-rate environment and take advantage of these opportunities.

Thank you, David. So one question that's out here in the queue asking, it says, could you review for us the rules on merger options for CDFI banks? Are they restricted to other CDFI banks? Could a non-CDFI buy United? So let me say this, you know, any if we are an acquirer, it's going to matter to me where the target bank would be located, where their deposits, where their loans are being done, because we are consistently going through the recertification process. We have to show where are loans being done, where are deposits being acquired. So, you know, it would have to basically be additive to our CDFI status. It's possible for a non-CDFI to buy United Bank, but I will tell you the ESIP capital that we hold they would not be able to hold, right? There's $124 million in preferred stock that's out there that cannot be held by a non-CDFI. So that in and of itself would be something that is restrictive. Um, so as we look, it doesn't really matter to me whether they are actually a CDFI bank. Um, It matters to me more their business model, where they're operating. And I will tell you, Town Country United Bank, we went through the certification process with that bank, where they operate. They should be a CDFI through some... I'll just say uniqueness in the approval, in the process and the methodology of getting certified, they were not able to be certified. And I could talk to you for about a half hour about how little sense that makes, but I won't do that other than to say, I don't necessarily care that what we're looking for is a CDFI, but I care more about how it fits with United and where those loans and deposits are coming from. Can I lay out the operating synergies from an acquisition? Well, yes, I would say, you know, we learned a lot through the acquisition of Town Country National Bank and now Town Country United Bank. you know, what we do is unique. And having a separately chartered institution provides some challenges, right? So there's a lot of reporting, as you would expect, that we have to do. We have a lot of infrastructure in place to deliver the types of loan programs that we deliver. So we steadfastly believe that what we have to bring to the table would benefit these other communities wherever they are. So, you know, yeah, there'd be the typical efficiencies that would be built in, you know, you, you've got the back office staff and things like that, that, that you might would acquire. But, you know, I don't, I don't, I don't really look at it so much, you know, from that standpoint, what I, what I think is I'm looking for people that have, people that are involved in their communities that can find deals that can be additive to the programs that we offer. So that's kind of how I look at the synergies. We have a lot of tools in our tool belt. What I need are people to help deliver it to areas that also need it as well. So I hope that answers your question. Every bank that we've looked at and talked to is a little bit different and a little more unique. But obviously, we're proud of what we've done, and we think we've got a lot to offer to other parts of the state just beyond our traditional footprint.

And I think some of the technology investments we're making are an eye towards creating some efficiencies moving forward so that acquisitions go smoother and allow us to provide efficient tools to deploy those funds that we talked about earlier.

All right. We are about three minutes. So let me see if we've got anything else here. Leanne, one thing, and if you are able to speak to this, if not, we need to come back with this. But the question is, do you anticipate a change on the tax credit gains in future periods? So, you know, if that's something you want to speak to live or if you need to get back, then you can.

Probably would need to get back. I'm not exactly sure what they're referring to. Actually, from an investor perspective, I guess maybe, or just tax credits themselves. So maybe need to circle back later on and get some clarity on that.

Okay. All right. All right.

Well, I know that means we've done an awesome job because there are no other questions in the queue. So, Brian, I'm going to turn it back over to you to kind of recap for us, please.

Okay. Well, thank you for... for joining us today. We will have this up on our investor relations page, the recording, as soon as we can get that work through with our company, our vendor with that. But if you have any other questions, you can send them to me and I'll get them to the team at brian.brewley, B-R-I-A-N dot B-R-U-L-E-Y at unitedbank.com. Thank you again.