United Bancorporation of Alabama, Inc.

Good morning, and welcome to our quarter United Bank earnings call. I'm Brian Brule, and joined by our panelists, President and CEO Mike Benson, Chief Credit Officer David Stewart, and Chief Financial Officer Leanne Jones. We'll be taking questions through the Q&A function of your app this morning, whether at the top or bottom of your screen, and we'll be monitoring that feature throughout the call. So with that, turn it over to you, Mike.

Great. Thank you, Brian. Good morning, everyone, and thank you for joining our call once again. This is our Q4 2025 recap. We'll go over some of the high points for the fourth quarter and for 2025. So for the quarter, United Bank reported net income of $3.7 million, and that's an earnings per share of $1.15 million. That is compared to $6.9 million in earnings per share of $2 for the same period last year. On a year-to-date basis, that is net income of $17.2 million, earnings per share of $5.23. and that is compared to the prior year of $26.9 million and earnings per share of $7.65. We'll get into some of the details of that throughout the call, but one thing that you'll hear as you compare year-over-year numbers is some of the differences in the CDFI programs, some of the grant programs that we were able to participate in in 2024 that were not available in 2025. One thing that we're happy to report is the continued strong and stable net interest margin of 455. That has been a hallmark of this bank for quite some time and our ability to continue keeping strong margins. One highlight that we wanted to recognize is our continued stock repurchase program. During the quarter, we acquired 176,000 shares. That's a total of 328,000 shares during the year overall. And then one last highlight regarding UBCD, one of our subs, was their award of $75 million in new market tax credit allocation. That's a number of years in a row for that group, and we're very pleased and excited that they're able to continue some of the good work that they've been able to do so far. So, with that, David, I'll turn it over to you, and maybe you can talk a little bit about the loan book.

Sure. Thank you, Mike. Good morning, everyone. Good to be with you all again. Just a little summary, year-over-year growth was right at 2.4% or $20.9 million. Down a little bit from the last couple of years, a few things were going on, particularly in the fourth quarter. If you guys were watching that multifamily construction budget, that declined by about $10 million. I think we've talked about that in the past. We have a very active affordable housing group that does a lot of construction lending for families. Those low-income housing projects, we got caught where we have several projects coming to stabilization for a year and going out to the permanent financing with housing tax credits. So that reported that significant decline that we saw earlier. Also, if you were watching sort of buckets between call codes, you saw some vacillation. There was a cleanup that we did internally in credit during the fourth quarter of moving some of the call codes from the construction bucket over into the commercial real estate perm loan bucket. So there was a pretty big swing that you might have noticed, and that was related to some of the call code cleanup to make sure we had everything aligned properly within those buckets. But all in all, you know... Decent year. We're looking forward to next year. We did have strong closings in the fourth quarter for some construction-related items with the affordable housing groups. So we're looking forward to good things and also good news with the new markets allocation for UBCD and the associated loan growth we typically see with funding those allocations and those projects as well. A couple of highlights that I wanted to note. Non-accruals was up. That was related to two large relationships we put on non-accrual at the end of the year. We're sort of back in that range where we were towards the end of 2024 in Q3 and Q4 of 2024. So non-accruals are higher than we would like them to be. However, that's allocated to three large relationships, which make up about 89% of that non-accrual total. We're actively working through those credits and seeking resolution. Also, non-performance as well, non-performance assets was up. Related to the same thing as well, NPA ratios at 1.12 net of the government guarantees. So we're going to be spending a lot of our time focusing on that in Q1 and Q2 to bring those down for the bank. In terms of ORE, it's remained unchanged at 1.3%. Again, that's the focus of mine, working those through. We've got some things that are out being marketed and spending a little dollars in terms of some advertising to make sure those get moved off the balance sheet. Last highlight, just wanted to – the allowance for credit loss remains good at 1.32% or $11.7 million. We spend a significant amount of time working through the CECL model each quarter and are confident with that result and that reserve. So that's all I have from my seat as Chief Credit Officer. So I'll pass it on to Leanne for the securities overview.

Thanks, David. Good morning, everybody. I'm going to talk about securities and deposits and liquidity real quick. So the securities portfolio continues to perform nicely. It has a weighted average life of about six and a half years and a duration of about 4.75 years. We continue to see solid cash flows coming out of that portfolio, and it has little extension risk and rates up. And we continue to see improvement in AOCI, as I'm sure most other institutions are seeing as well. On the deposit side, year-over-year deposits increased about 4.3%, or about $47 million. A lot of this growth came in the second half of the year, and really in the CD space. as our net interest margin has allowed us to keep slightly higher rates on the CD side to be more competitive and attract more customers. And we continue to see success with that strategy. Although, you know, competition does remain strong, you know, we're still seeing short-term rates on CDs in about the 4% range, give or take. So, obviously, this is all impacted on liquidity. Our cash-to-asset ratio is just about 13%, so we remain very liquid and very agile going into 2026. And that's all I have, so I'm going to turn it over to Mike.

Go ahead. Thank you, Leanne. So we mentioned one of the strengths of the bank being our margin. That has always been, you know, we like to say around here kind of your secret sauce a little bit. Low-cost deposits has always been something that we have prided ourselves on. So as I mentioned earlier, the year-to-date margin of $455, that's compared to $458 for 2024. So we've been pretty well able to maintain that. uh you know what we were expecting earning assets uh yielding at 575 and cost of funds sitting at 141. so some of that stuff obviously the cost of funds has ticked up a little bit we've had when you look at the deposit mix and an increase in time deposits but certainly in the in the markets that we operate in we do a pretty good job of attracting good low-cost deposits You know, that puts us in a situation where, you know, down rates if we, you know, contemplate further rate cuts over 2026. It would certainly have an impact on net interest income. Reducing a 100 basis point reduction would make a reduction of 3.83% or a little over $2 million. So, you know, we're obviously watching it. We've budgeted for some levels of rate reductions, and we'll manage it accordingly as we've always done. One question I'm asked a lot about is non-interest expenses. Certainly for 2025, those expenses were up from where we would like to see them. A number of things impacted the increase in net interest expenses, core conversion being probably the main one of those things. We, as we've reported before, have gone through a core conversion converting to Jack Henry's Silver Lake platform. That went live around August of 25, but there was a lot of work, obviously, that went into that. Upgrading our cloud platform certainly was an impact of about a million dollars. One thing we – We committed to do was to try to make this conversion as seamless as possible. We brought in a consultant to help with that, to help with the transition, working with the staff, being on the calls and making sure that all questions were answered and all details were handled. But that obviously comes with a price, and the consultants, while expensive, did really help us make it a very successful conversion, so we're excited about that. So, you know, when you look at kind of our go-forward run rate, I would say the expectation is to probably model about $12 million a quarter. That is still higher than we would like, but I feel like we've put some infrastructure in place. As the bank continues to grow, that allows us to scale a little bit with some of the infrastructure already in place. From a capital perspective, tangible book continues to improve, increasing to 45, 48, which is up a little bit from the prior quarter. Price to tangible book at about 117. So that's one thing that we certainly are focused on is increasing the book value of the stock, and we've been able to do it slow and steady year over year. Dividend yield of approximately 2.5%. That is also up from prior years as we've made that a focus of trying to reward our shareholders as best we can as the bank continues to grow. ROA of 138 and a return on tangible common equity of 12.36. So all good numbers, and we're excited to report all of that. I will touch on ECIP for just a moment. As you remember, we did accept ECIP capital of nearly $124 million. That was at 0% interest for the first two years. We are now paying dividend to Treasury of 2%. There's been a lot of talk and a lot of questions about disposition of ECIP and what banks are going to do, who can qualify and who cannot qualify. That is something that obviously we model, we report. We are not in a position as a bank to, you know, exercise ESIP disposition at this point. But we are working towards those goals, and we are strategically, you know, structuring things as best we can to kind of help us get to that point. But it certainly won't be this year and not next year, I don't believe, that we would qualify for that. And, you know, we can maybe provide a little bit more color if you'd like. But other than that, we're excited that, you know, the capital that we have is growing organically, and I think we're doing a pretty good job of putting our bank in a position to go forward. So a lot of positives, a lot of positives in 2025. All of these things that we've talked about are, you know, they're a good core part of our business. I'm asked often about CDFI and kind of what the status of that fund is, what's happening with the programs. And I will tell you, it's a process working through Treasury, working with our legislators. We certainly do a lot of advocacy work with our senators and our House members, making sure that they understand the good that these programs do. As you may have seen, the 2026 appropriation for a CDFI was approved in we will see when that money is released. So a lot of things I think are positive signs, but we've just got to work through some wrangling, I guess, in Washington, I guess I would say, regarding the release of some of these funds. But we're very excited about where things are going in that perspective. David mentioned earlier, again, our group that manages our new market tax credit program has got ample projects, ample work to do. They're still fulfilling allocation from prior awards as well. Our group that administers the Capital Magnet Fund program, affordable housing projects throughout the Southeast, they have got an abundance of projects that they're working on. And, David, I don't know if you maybe can speak to their pipeline or what they're thinking, but they've got a lot coming in this year too.

Sure, yeah. So that's been a prolific driver of loan growth in the past. We like that business. Number one, it's pretty low credit risk. Number two, we have some experts in the field that run that shop. It is kind of a cyclical type business, so we saw those declines in the fourth quarter of last year that drove loan growth a little lower than what we have seen in the past. So that was sort of a driver of those lower balances. However, we did have a number of closings in Q4. Those are all construction projects, so not a lot funded in closing, but it's those closings. Projects go vertical during 2026. We're optimistic for loan growth and have a healthy pipeline associated with those projects.

Great. So, David, there's a couple of credit-related questions that I'll let you take.

Sure. Kind of dovetailing on that expectation for loan growth in the affordable housing space, expectations for loan growth in general, we've got conversion behind us, which is a good thing. We've put some infrastructure in place for the new loan origination system, as well as that new – operating system. I think that our lenders are very focused now on growth. We've put the conversion behind us, so we are... I have an aggressive budget for the year in terms of low growth, and we're committed to making those numbers. So I would say that I'm strongly optimistic about growth, putting it something, you know, possibly what we've seen in the prior years, 23, 24, back to what I would consider a normal growth period for us in our business model. Another good question here, and I appreciate that ask on expected losses for the associated non-accruals. So we have reviewed those credits for any specific impairment. You know, I can say without any hesitation that of those three, I know two of the three, there's no impairment there or a very small impairment. The third we are assessing right now, we've got some possible suitors for the projects that would just assume the debt structure. So any kind of loss that we may incur associated with those is already built into our allowance model.

All right. Thank you, David. There is a question that we've got regarding the Capital Magnet Fund and our expectation for additional awards over the coming year, I guess I would say. Anything that I would tell you would be speculation, I will say. Our team is diligently working, and they've gotten a number of awards. You may recall in 2024 it was $9 million that they were awarded through the Capital Magnet Fund. They've got a number of projects, and David spoke to kind of how some of that stuff works. What will happen in the coming year is a great question, and I don't know that I have an answer to it, to be honest with you. We have, frankly, more questions than answers on some of these things right now. We have actually been able to, with some of the capital that we've had, we've been able to give them additional funding as well so they can continue to do, you know, some of the affordable housing work that they do, which, one, you know, means that we don't have kind of a lag in the activity that they're doing. Two, it provides them with an additional, you know, record of funding. of loans that they can put into future applications. So, you know, I am eternally optimistic when it comes to these things because I think these programs are too important. Now, there's one, I guess, unique piece about the Capital Magnet Fund is the funding source is a little bit different than some of the other CDFI programs. These really come out of proceeds from Freddie and Fannie, so it's slightly different on how they're funded. But I just think the need is too great and there's too much support. And I stand by that. Now, it's been a road to hoe, I think, to get some of these appropriated funds released. And I'm, again, optimistic that maybe in the short term we can get kind of the dam broken here a little bit. But that is my hope anyway. And, Ron, with that, I don't see any other questions.

Thank you. Well, thank you for joining us this morning. If you do have any other questions, you can send them to me, brian.brewley at unitedbank.com. With that, have a great rest of your week.