UB Bancorp (OTCQX: UBNC), (the “Company”) the parent of Union Bank (the “Bank”), is pleased to report its results for the quarter and nine months ended September 30, 2021.
Some of the highlights for the quarter and the year-to-date include:
- Record net income of $3.1 million, or 52 cents per basic common share for the quarter
- Record net income for the first nine months of $9.0 million, or $1.51 per basic common share
- Pre-tax loan fee revenue from Paycheck Protection Program (PPP) loans were $632k for the third quarter and $2.4 million year-to-date
- Total assets of $1.1 billion as of quarter end, an increase of $26.3 million from the end of the second quarter of 2021 and $118.7 million from December 2020
- Core loans (excluding PPP loans) grew $11.2 million or 1.8% during the third quarter and $37.7 million or 6.2% year-to-date
- Total deposit growth of $36.8 million, or 4.1% during the quarter, with non-interest-bearing deposits accounting for $32.4 million of the overall deposit growth
- Sound credit quality metrics
- Capital at the Bank is well above regulatory thresholds to be considered ‘Well Capitalized’
- Strong liquidity levels
- Declaration of a semi-annual cash dividend of $0.105 per share
- Repurchased 121,149 shares through the first nine months of 2021
- 5,934,849 common shares outstanding with tangible book value per share of $14.37 as of September 30, 2021
- Year-to-date annualized return on average tangible equity of 15.05%
Rob Jones, President and CEO, noted, “We are pleased to report record net income for the quarter and the year to date. We are especially pleased that we have been able to create loan growth with high quality credits during this period of muted loan demand. In addition, our earnings and solid capital position have allowed us to continue adding value to shareholders through share repurchases and dividends.”
Mr. Jones continued, “This COVID environment in which we find ourselves continues to be unusual. Non-interest bearing deposits continue to flow into the Bank at what we believe to be an ‘unsustainable pace‘, making balance sheet management more challenging. Our view is that we will continue to see an ebb and flow of economic disruption as the world deals with variants and various supply chain issues around the globe. However, at this time we have not seen additional downward pressure on our credit quality and would anticipate that our need to maintain loan loss reserves at its current level may decline in the coming months. At the same time, we remain committed to working with our customers to assist them in managing through this unusual environment.”
Net income for the third quarter of 2021 was $3.1 million, or $0.52 per basic common share, versus $793,000, or $0.13 per basic common share, earned for the same period in 2020. The Company’s return on average assets and average tangible equity (*) for the third quarter of 2021 was 1.13% and 14.82%, respectively. Revenues were positively impacted by solid growth in our earning asset base coupled with reduced funding costs and recognition of PPP fees. Average earning assets for third quarter of 2021 were $1.03 billion, an increase of $105.4 million from the same three-month period one year ago. The Company’s cost of funds fell 27 basis points to 0.32% for the third quarter of 2021 versus 0.59% for the same quarter one year ago. This reduction is funding costs helped offset a 22 basis point decline in earning asset yields between these same time periods. Net pre-tax revenue from PPP fees totaled $632,000 during the third quarter of 2021 versus $440,000 of net PPP revenue generated during the third quarter of 2020.
Earnings for these two periods were also impacted by provisions for loan losses. With the onset of the pandemic the Company began setting aside loan loss provisions for this uncertain credit environment. As a result, during the third quarter of 2020 the Company set aside $2.1 million of provisions for loan losses. Given that our asset quality metrics have remained solid, coupled with less credit cloudiness than a year ago, the Company has been able to hold less in its allowance for loan losses and reversed $489,000 in provisions during the current quarter. Should our credit quality metrics continue to improve, we anticipate that the Company may be able to release additional reserves in future periods.
Net income for the nine month period ended September 30, 2021, was $9.0 million, or $1.51 per basic common share, and represented a 1.13% return on average assets and a 15.05% return on average tangible equity (*). For the same nine-month period of 2020, the Bank posted $3.1 million of net income, or $0.53 per basic common share. On a pre-tax, pre-provision basis the Company earned $10.8 million through the first three quarters of 2021.
Year-to-date revenues have benefited from a higher level of earning assets than in prior periods, PPP related fee income, and reduced funding costs. Average earning assets for the nine months ended September 30, 2021, were $999.3 million, an increase of $139.3 million or 16.2%, compared to average earning assets for the same nine month period one year ago. This earning asset growth was funded primarily through growth in our core deposit base. Deposits as of the end of the third quarter of 2021 totaled $942.7 million compared to $741.2 million at September 30, 2020, an increase of $201.5 million, or 27.2%. During this same time period, non-interest-bearing deposits have increased $90.5 million, or 30.3%, to $389.0 million. When comparing the cost of funds for the first three quarters of 2021 to that of 2020, the Company has been able to reduce its funding costs 37 basis points to 0.35%, helping to offset margin compression due to declining earning assets yields in this low interest rate environment. Net pre-tax revenue from PPP fees of $2.4 million realized during the first nine months of 2021 versus $953,000 generated during the same period of 2020 have also helped offset margin compression for the Company.
During the pandemic, the Bank actively worked with borrowers to provide payment relief. Through September 30, 2021, the Bank had granted Covid related loan payment deferrals on 348 loans with an aggregate maximum outstanding balance of approximately $92.5 million. As of the end of the third quarter of 2021, the Bank had just one loan relationship with an active payment deferral.
Management had anticipated that because of this prolonged pandemic that some of our customers may face economic challenges. During 2020, the Bank added to its allowance for loan losses due to the credit uncertainty created by the COVID-19 pandemic. As of September 30, 2021, our allowance for loan losses totaled $9.6 million and represented 1.45% of total loans outstanding, exceeding state and national peer averages. Furthermore, our allowance relative to our originated loan portfolio (excluding purchased loans), net of PPP loans, stands at 1.60% at the end of the third quarter of 2021. Currently our asset quality remains very strong with total non-performing assets representing only 0.19% of total assets as of September 30, 2021, and is favorable when compared to our level of 0.36% for this same ratio at the end of the fourth quarter of 2020. Given some of the improvements in the overall economy, coupled with our current asset quality metrics, we do not anticipate a need to build our allowance above its current level at this point in time, and may have additional reversals of provisions in coming periods.
Capital levels at our Bank continue to be strong with total risk-based capital of 15.54%, common equity tier 1 to risk-weighted assets 13.43% and the tier 1 leverage ratio at 8.99% as of September 30, 2021. In addition, the parent company, UB Bancorp, has the capacity to inject additional capital into the Bank should the need arise.
On October 21, 2021, the Company’s Board of Directors approved a cash dividend of $0.105 per share which will be paid on December 31, 2021, to shareholders of record at the close of business on December 15, 2021.
UB Bancorp and Union Bank are headquartered in Greenville, North Carolina and operate 14 branches located in 12 counties throughout Eastern and Central North Carolina. UB Bancorp stock is traded on the OTCQX under the symbol UBNC.
This press release includes certain forward-looking statements in reliance on the “safe-harbor” provisions of The Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are subject to a number of risks and uncertainties. Actual results may differ materially from those anticipated in any such forward-looking statements. The Company undertakes no obligation to update or revise any such forward-looking statements. This press release contains financial information determined by methods other than in accordance with GAAP (*). The Company’s management uses these non-GAAP financial measures in their analysis of the Company’s performance. These measures typically adjust GAAP performance measures to exclude the effects of transactions that are infrequent in nature. Management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of the Company’s core businesses.
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Chief Financial Officer