#USA #Atmore #United Bancorporation #Merion Road Capital #Blue Hill Advisors

Investors Urge United Bancorporation to Optimize Capital and Governance

In a significant move, investment firms Merion Road Capital Management and Blue Hill Advisors have expressed their concerns regarding the operations and governance of United Bancorporation of Alabama, Inc. (OTC: UBAB). In a formal letter to the company's Board of Directors, they emphasized the need for immediate action to optimize capital allocation, enhance profitability, and fortify governance practices.

Background of the Firms Behind the Initiative

Merion Road Capital Management and Blue Hill Advisors have maintained an investment stake in United Bancorporation since 2022, collectively holding around 2% of the shares. They have recognized the company's potential, citing its robust low-cost deposit franchise and high-return fee income streams as key advantages. However, recent performance has been disappointing, prompting these investors to urge significant changes.

Underperformance Despite Strong Assets

The letter highlighted that, despite possessing high capital ratios and substantial excess capital, the company has not translated these advantages into impressive returns for shareholders. Current valuations show UBAB’s stock trading at only 1.18x tangible book value, making it undervalued compared to its peers. With a share price of $55.36, investors feel the stock should reflect the company’s durable earnings potential but has been weighed down by stagnating growth and ballooning expenses.

Proposal for Immediate Changes

Merion Road and Blue Hill Advisors are advocating for a series of decisive measures:
1. Capital Return Strategy: They suggest that UBAB conduct a $40 million tender offer, which would allow the company to repurchase shares at current undervalued prices. This strategy is designed to enhance shareholder value and improve market perception.

2. Operational Efficiency: The investors are calling for the company to tackle its rising expenses, which have surged nearly 50% in recent years without a corresponding growth in deposits or loans. The firms stress that management needs to develop a credible plan addressing this imbalance or begin implementing cost-reduction measures.

3. Boardroom Enhancement: They advocate for an overhaul of the board, emphasizing the importance of capital allocation expertise at the board level. Merion Road and Blue Hill believe that appointing independent directors with substantial experience in mergers and acquisitions could provide essential strategic insights critical for enhancing returns.

Investor Concerns Addressed

The letter articulates specific queries aimed at the board:

• - What capital ratio targets are set, and when are they expected to be met?
• - Does the management have a defined strategy to control operational expenses effectively?
• - Which current board members possess the expertise needed for capital allocation, and what changes are necessary to align the board with the company’s growth objectives?

The Path Forward

The investors urge the Board to take immediate action to revitalize operations and restore shareholder confidence. They believe that it’s imperative to explore the capital allocated from the Emergency Capital Investment Program (ECIP) effectively and suggest a proactive stance for utilizing excess capital.

Merion Road and Blue Hill Advisors have stated that the current challenges should not overshadow the company's advantageous position in the banking sector. They stress that with the right strategy and execution, United Bancorporation can return to a path of growth, stabilizing its performance and enhancing shareholder returns.

In conclusion, their message is clear: improving governance and making strategic decisions now is vital if UBAB aims to capitalize on its strong foundation and safeguard investors’ interests.