LYNWOOD, WA / ACCESSWIRE / April 30, 2024 / U & I Financial Corp. (OTCQX:UNIF), the holding company ("Company") for UniBank ("Bank"), today reported quarterly net income of $1.3 million or $0.23 per share in the first quarter of 2024, compared to $2.7 million or $0.49 per share for the same quarter of 2023, decreasing by $1.4 million or $0.26 per share, primarily due to less net interest income. The net income turned positive after the restated net loss of $18.2 million or $3.33 loss per share in fourth quarter of 2023, primarily due to not having to accrue for Provision for Credit Losses in the first quarter 2024 as compared to $26.3 million in provision for the fourth quarter of 2023.
As of March 31, 2024 in comparison to March 31, 2023, total assets increased by $4.9 million or 0.8% to $594.7 million from the year earlier period of $589.8 million. Net loans ended at $456.4 million, decreasing by $8.6 million or 1.8% from $465.0 million a year earlier. The net decrease was primarily due to higher Allowance for Credit Losses (ACL) on Loans by $10.1 million as compared to the same period of the previous year. Finally, total deposits decreased by $28.8 million or 5.7% to $474.9 million from the year earlier period balance of $503.7 million.
As noted above, the Company recorded a Provision for Credit Losses of $26.3 million in the fourth quarter of 2023, resulting in $26.4 million for the full fiscal year 2023. The ACL on Loans and ACL on Off-Balance Sheet Credit Exposure ended at $26.0 million and $5.6 million, respectively, at December 31, 2023. During the first quarter of 2024, the Bank charged-off $14.6 million in total credits, which had been fully reserved in ACL on Loans and ACL on Off-Balance Sheet Credit Exposure for $11.6 million and $3.0 million, respectively. Additional disclosures on credit quality are presented in the tables below.
Also discussed in the restated fourth quarter earnings release, certain borrowers of commercial-equipment loans have filed a lawsuit in Washington state court against the Bank after the case was dismissed in federal court caused by actions by the Securities and Exchange Commission against the manufacturer of the equipment for fraudulent activities. The Bank will continue to defend this litigation vigorously.
"It has been a challenging time for the Company over the past several months, and the dust seems to be settling as reflected in the first quarter 2024 results," said Stephanie Yoon, Interim-CEO. "It will take time to work though these loans. In the interim we hope to complete the search for the new CEO and continue our efforts to build franchise value. Meanwhile, the Bank continues to exceed the regulatory minimum well capitalized ratios by comfortable margins and have sufficient liquidity."
Non-GAAP Financial Metrics
This news release contains certain non-GAAP financial measure disclosures. Management believes these non-GAAP financial measures provide meaningful supplemental information regarding the Company's operational performance, credit quality and capital levels.
About U & I Financial Corp.
UniBank, the wholly owned subsidiary of U & I Financial Corp. (OTCQX: UNIF). Founded in 2006 and based in Lynnwood, Washington, the Bank serves small to medium-sized businesses, professionals, and individuals across the United States with a particular emphasis on government guaranteed loan programs. Customers can access their accounts in any of the four branches - Lynnwood, Bellevue, Federal Way and Tacoma - online, or through the Bank's ATM network.
Forward-Looking Statement Safe Harbor: This news release contains comments or information that constitutes forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on current expectations that involve a number of risks and uncertainties. Forward-looking statements describe the Company's projections, estimates, plans and expectations of future results and can be identified by words such as "believe," "intend," "estimate," "likely," "anticipate," "expect," "looking forward," and other similar expressions. They are not guarantees of future performance. Actual results may differ materially from the results expressed in these forward-looking statements, which because of their forward-looking nature, are difficult to predict. Investors should not place undue reliance on any forward-looking statement, and should consider factors that might cause differences including but not limited to the degree of competition by traditional and nontraditional competitors, declines in real estate markets, an increase in unemployment or sustained high levels of unemployment; changes in interest rates; adverse changes in local, national and international economies; changes in the Federal Reserve's actions that affect monetary and fiscal policies; changes in legislative or regulatory actions or reform, including without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act; demand for products and services; further declines in the quality of the loan portfolio that results in continued losses and our ability to succeed in our problem-asset resolution efforts; the impact of technological advances; changes in tax laws; and other risk factors. U & I Financial Corp. undertakes no obligation to publicly update or clarify any forward-looking statement to reflect the impact of events or circumstances that may arise after the date of this release.
STATEMENT OF INCOME (Unaudited)
Mar-24
Dec-23
Mar-23
Mar-23
Mar-23
(Dollars in thousands except EPS)
QTD
QTD
QTD
$ Var
% Var
Interest Income
$
9,285
$
9,306
$
8,775
$
510
5.8
%
Interest Expense
4,698
4,592
2,900
1,798
62.0
%
Net Interest Income
4,587
4,714
5,875
(1,288
)
(21.9
%)
Provision for Credit Losses
-
26,253
-
-
-
Gain (Loss) on Loan Sales
-
(23
)
824
(824
)
(100.0
%)
Loan Servicing Fees, Net of Amortization
184
83
205
(21
)
(10.2
%)
Other Non-interest Income
185
173
173
12
6.9
%
Non-interest Income
369
233
1,202
(833
)
(69.3
%)
Salaries & Benefits
1,989
1,250
2,634
(645
)
(24.5
%)
Occupancy Expense
192
188
179
13
7.3
%
Other Expense
1,184
586
951
233
24.5
%
Non-interest Expense
3,365
2,024
3,764
(399
)
(10.6
%)
Net Income (Loss) before Income Taxes
1,591
(23,330
)
3,313
(1,722
)
(52.0
%)
Income Tax Expense (Benefit)
322
(5,122
)
638
(316
)
(49.5
%)
Net Income (Loss)
$
1,269
$
(18,208
)
$
2,675
$
(1,406
)
(52.6
%)
Total Outstanding Shares (in thousands)
5,476
5,466
5,441
34
Basic Earnings (Loss) per Share
$
0.23
$
(3.33
)
$
0.49
$
(0.26
)
Statement of Condition (Unaudited)
Mar-24
Dec-23
Mar-23
Mar-23
Mar-23
(Dollars in thousands)
Qtr End
Qtr End
Qtr End
$ Var
% Var
Cash and Due from Banks
$
46,495
$
61,254
$
47,550
$
(1,055
)
(2.2
%)
Investments
52,355
51,346
50,303
2,052
4.1
%
Loans Held for Sale
6,110
-
-
6,110
100.0
%
Gross Loans
471,081
490,636
469,614
1,467
0.3
%
Allowance for Credit Losses (ACL) on Loans
(14,634
)
(25,950
)
(4,580
)
(10,054
)
219.5
%
Net Loans
456,447
464,686
465,034
(8,587
)
(1.8
%)
Fixed Assets
6,268
6,438
6,840
(572
)
(8.4
%)
Other Assets
27,029
26,325
20,062
6,967
34.7
%
Total Assets
$
594,704
$
610,049
$
589,789
$
4,915
0.8
%
Checking
$
95,698
$
100,135
$
111,023
$
(15,325
)
(13.8
%)
NOW
13,025
13,504
14,339
(1,314
)
(9.2
%)
Money Market
151,058
200,966
221,312
(70,254
)
(31.7
%)
Savings
7,468
8,063
11,448
(3,980
)
(34.8
%)
Certificates of Deposit
207,696
191,733
145,614
62,082
42.6
%
Total Deposits
474,945
514,401
503,736
(28,791
)
(5.7
%)
Borrowed Funds
52,000
20,000
7,000
45,000
642.9
%
ACL on Off-Balance Sheet Credit Exposure
2,256
5,551
15
2,241
100.0
%
Other Liabilities
3,039
8,678
3,801
(762
)
(20.0
%)
Total Liabilities
532,240
548,630
514,552
17,688
3.4
%
Shareholders' Equity
62,464
61,419
75,237
(12,773
)
(17.0
%)
Total Liabilities & Equity
$
594,704
$
610,049
$
589,789
$
4,915
0.8
%
Financial Ratios
Mar-24
Dec-23
Mar-23
Mar-23
Mar-23
(Dollars in thousands except BVS)
QTD
QTD
QTD
YTD
YTD
Performance Ratios
Return on Average Assets*
0.86
%
(11.85
%)
1.84
%
0.86
%
(1.85
%)
Return on Average Equity*
8.25
%
(92.41
%)
14.73
%
8.25
%
(14.53
%)
Net Interest Margin*
3.10
%
3.18
%
4.17
%
3.10
%
3.83
%
Efficiency Ratio
67.87
%
40.91
%
53.20
%
67.87
%
50.36
%
*Quarterly results are annualized
Well
Capitalized
Capital
Minimum
Tier 1 Leverage Ratio**
10.22
%
10.16
%
12.96
%
5.00
%
Common Equity Tier 1 Ratio**
12.56
%
12.42
%
16.36
%
6.50
%
Tier 1 Risk-Based Capital Ratio**
12.56
%
12.42
%
16.36
%
8.00
%
Total Risk-Based Capital Ratio **
13.83
%
13.71
%
17.24
%
10.00
%
Book Value per Share (BVS)
$
11.41
$
11.24
$
13.83
**Represents Bank capital ratios
Asset Quality
Net Credit Charge-Offs (Recoveries)
$
14,611
$
0
$
0
Allowance for Credit Losses to Loans %
3.11
%
5.29
%
0.98
%
Nonperforming Assets to Total Assets
0.78
%
2.42
%
0.05
%
Additional Credit Disclosures
Loan Segmentation - The following table presents the Bank's total loans outstanding at amortized cost by portfolio segment and by internally assigned grades as of March 31, 2024 and December 31, 2023 (in thousands):
March 31, 2024
Special
Portfolio Segment
Pass
Mention
Substandard
Doubtful
Loss
Total
Commercial real estate
$
205,433
$
25,360
$
-
$
-
$
-
$
230,793
Residential real estate
174,798
-
-
-
-
174,798
Commercial - equipment
31,270
2,975
15,394
3,005
-
52,644
Commercial - all other
8,951
-
-
-
-
8,951
Multifamily
2,864
-
-
-
-
2,864
Construction and land
955
-
-
-
-
955
Consumer and other
76
-
-
-
-
76
$
424,347
$
28,335
$
15,394
$
3,005
$
-
$
471,081
December 31, 2023
Special
Portfolio Segment
Pass
Mention
Substandard
Doubtful
Loss
Total
Commercial real estate
$
239,876
$
1,570
$
-
$
-
$
-
$
241,446
Residential real estate
168,708
-
-
-
-
168,708
Commercial - equipment
33,770
14,630
4,173
2,898
11,643
67,114
Commercial - all other
9,429
-
-
-
-
9,429
Multifamily
2,884
-
-
-
-
2,884
Construction and land
979
-
-
-
-
979
Consumer and other
76
-
-
-
-
76
$
455,722
$
16,200
$
4,173
$
2,898
$
11,643
$
490,636
The commercial real estate (CRE) loans that were graded Special Mention increased to $25.4 million as of March 31, 2024, increasing by $23.8 million from December 31, 2023. The increase was due to the downgrades of three franchise hotel loans, each with a Loan-to-value (LTV) less than 50%. Per the grading definitions below, they did not warrant adverse classifications but may require actions by the Bank to prevent further degradations. In addition, the commercial-equipment loans graded Substandard increased to $15.4 million, increasing by $11.2 million from December 31, 2023. The increase was composed of loans that migrated from Special Mention as of December 31, 2023. Management did not believe any more provisions would be required on these loans as they were generally current on payments and the ACL on these migrated loans totaled $5.7 million or approximately 50%.
Descriptions of the various risk grades are as follows:
Special Mention: Assets having potential weaknesses that if left uncorrected, may result in decline in borrower's repayment ability. However, these assets are not adversely classified and do not expose the Bank to sufficent risk to warrant adverse classificaiton.
Substandard: An asset is considered substandard if it is inadequately protected by the current net worth and pay capacity of the borrower or of any collateral pledged. Substandard assets include those characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful: Assets classified as doubtful have all the weaknesses inherent in those classified substandard, with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts, conditions, and values.
Loss: Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Any loans downgraded to this category are generally charged off soon after.
Allowance for Credit Losses on Loans - The following table presents the allowance for credit losses under ASC 326, Financial Instruments - Credit Losses by portfolio segment and by internally assigned grades as of March 31, 2024 and December 31, 2023 (in thousands):
March 31, 2024
Special
Portfolio Segment
Pass
Mention
Substandard
Doubtful
Loss
Total
Commercial real estate
$
1,059
$
111
$
-
$
-
$
-
$
1,170
Residential real estate
2,141
-
-
-
-
2,141
Commercial - equipment
467
1,487
6,274
2,989
-
11,217
Commercial - all other
69
-
-
-
-
69
Multifamily
3
-
-
-
-
3
Construction and land
30
-
-
-
-
30
Consumer and other
3
-
-
-
-
3
$
3,772
$
1,598
$
6,274
$
2,989
$
-
$
14,633
December 31, 2023
Special
Portfolio Segment
Pass
Mention
Substandard
Doubtful
Loss
Total
Commercial real estate
$
1,641
$
48
$
-
$
-
$
-
$
1,689
Residential real estate
1,252
-
-
-
-
1,252
Commercial - equipment
426
7,315
621
2,898
11,643
22,903
Commercial - all other
65
-
-
-
-
65
Multifamily
3
-
-
-
-
3
Construction and land
34
-
-
-
-
34
Consumer and other
4
-
-
-
-
4
$
3,425
$
7,363
$
621
$
2,898
$
11,643
$
25,950
Past due loans - The following table presents past due loans at amortized cost by portfolio segment as of March 31, 2024 and December 31, 2023 (in thousands):
March 31, 2024
30 - 59 Days
60 - 89 Days
90 Days or
Total
Total
Portfolio Segment
Past Due
Past Due
More
Past Due
Current
Loans
Commercial real estate
$
220
$
79
$
-
$
299
$
230,494
$
230,793
Residential real estate
-
-
-
-
174,798
174,798
Commercial - equipment
247
2,585
162
2,994
49,650
52,644
Commercial - all other
-
-
-
-
8,951
8,951
Multifamily
-
-
-
-
2,864
2,864
Construction and land
-
-
-
-
955
955
Consumer and other
-
-
-
-
76
76
$
467
$
2,664
$
162
$
3,293
$
467,788
$
471,081
December 31, 2023
30 - 59 Days
60 - 89 Days
90 Days or
Total
Total
Portfolio Segment
Past Due
Past Due
More
Past Due
Current
Loans
Commercial real estate
$
-
$
-
$
484
$
484
$
240,962
$
241,446
Residential real estate
-
-
-
-
168,708
168,708
Commercial - equipment
260
407
10,186
10,853
56,261
67,114
Commercial - all other
-
-
-
-
9,429
9,429
Multifamily
-
-
-
-
2,884
2,884
Construction and land
-
-
-
-
979
979
Consumer and other
-
-
-
-
76
76
$
260
$
407
$
10,670
$
11,337
$
479,299
$
490,636
Non-accrual loans - Loans are placed on nonaccrual once the loan is 90 days past due or sooner if, in management's opinion, the borrower may be unable to meet payment of obligations as they become due, as well as when required by regulatory provisions. The following table presents the nonaccrual loans at amortized cost by portfolio segment as of March 31, 2024 and December 31, 2023 (in thousands):
March 31, 2024
Portfolio Segment
Nonaccrual with no Allowance for Credit Losses
Nonaccrual with Allowance for Credit Losses
Total Nonaccrual
Loans Past Due Over 89 Days Still Accruing
Commercial real estate
$
-
$
1,883
$
1,883
$
-
Commercial - equipment
-
2,747
2,747
-
$
-
$
4,630
$
4,630
$
-
December 31, 2023
Portfolio Segment
Nonaccrual with no Allowance for Credit Losses
Nonaccrual with Allowance for Credit Losses
Total Nonaccrual
Loans Past Due Over 89 Days Still Accruing
Commercial real estate
$
-
$
484
$
484
$
-
Commercial - equipment
-
14,281
14,281
-
$
-
$
14,765
$
14,765
$
-
Off-Balance Sheet Credit Exposure - The Bank has originated certain loans in the commercial-equipment segment with government guarantees and has subsequently sold many of the guaranteed portions of these loans in the secondary market. Upon defaults by the borrowers, the Bank would be required to repurchase the guaranteed portions of the loans and submit the repayment requests to the respective government agency. The agency may decide not to honor the guarantees if certain conditions are not met. Guarantees, as defined under ASC 460, Guarantees, that create off-balance sheet credit exposure are in the scope of ASC 326-20 (CECL) when such guarantees for loans have an implicit repurchase arrangement and thus may present an off-balance sheet credit risk. As of March 31, 2024 and December 31, 2023 the Bank had $3.9 million and $7.1 million, respectively, of such guarantees sold of commercial-equipment loans that were graded below Pass. The Allowance for Credit Losses on Off-Balance Sheet Credit Exposure for these sold guarantees were $2.3 million and $5.5 million as of March 31, 2024 and December 31, 2023, respectively.
