How have deposits and share performance at UBAB compared to peers, according to the activist investors?

They state UBAB deposits have contracted at a 0.9% CAGR since 2022 while national deposits grew 1.4% annually. According to the investors, UBAB’s stock has also underperformed its peer set by 41% over the past year, reinforcing their call for change.

Merion Road Capital Management and Blue Hill Advisors urge United Bancorporation of Alabama to return excess capital, improve profitability, and strengthen corporate governance

Rhea-AI Impact

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Rhea-AI Sentiment

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Rhea-AI Summary

Merion Road Capital Management and Blue Hill Advisors, owning about 2% of United Bancorporation of Alabama (OTC: UBAB), sent a July 7, 2026 letter urging a sizable capital return, cost discipline, and stronger board-level capital allocation expertise.

They propose a $40M modified Dutch auction tender (about 25% of UBAB’s ~$170M market cap), citing high capital ratios following the $123.75M ECIP preferred issuance, a 46% expense increase since 2022 with largely flat deposits, and stock underperformance of 41% versus peers. At $55.36, they note UBAB trades at 9.4x LTM earnings, 1.18x TBV and 0.71x adjusted TBV, and outline potential EPS and adjusted TBV per-share accretion if such a tender is executed.

Positive

High capital levels after $123.75M ECIP preferred investment in 2022
Strong regulatory capital ratios well above ECIP and regional peer medians
Investors highlight valuation of 9.4x LTM earnings and 0.71x adjusted TBV
Illustrative $40M tender equals about 25% of current ~$170M market cap
Illustrated tender scenario shows 22% EPS and 6% adjusted TBV/share accretion

Negative

Operating expenses up 46% from 12/31/2022 to 3/31/2026
Operating expenses-to-assets ratio has risen back above 3.0%
Deposits contracting at 0.9% CAGR since 2022 versus 1.4% national growth
Stock underperformance of 41% versus peer set over the past year
Quarterly expense guidance raised from $8.5M to about $12M in two years
Capital ratios expanding as excess capital not fully deployed, pressuring ROE

News Market Reaction – UBAB

+3.11%

+3.11% Session close to close

In the Jul 7 session, UBAB gained 3.11%, reflecting a moderate positive market reaction.

Data tracked by StockTitan Argus on the day of publication.

AI-generated analysis. How Rhea-AI works. Not financial advice.

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07/07/2026 - 09:05 AM

MIAMI, July 7, 2026 /PRNewswire/ -- Merion Road Capital Management, LLC and Blue Hill Advisors LLC today issued a letter to United Bancorporation of Alabama, Inc (OTC: UBAB) urging the Board of Directors to execute a sizable tender offer utilizing its excess capital, improve operating efficiencies, and strengthen its corporate governance with a reassessment of its directors.

A full copy of the letter is provided below:

July 7, 2026

The Board of Directors
United Bancorporation of Alabama, Inc.
200 East Nashville Avenue
Atmore AL, 36502

Attention: Michael Vincent, President and CEO, and the Board of Directors

Merion Road Capital Management and Blue Hill Advisors (together, "we") have been investors in United Bancorporation of Alabama, Inc. ("UBAB" or the "Company") since 2022 and currently own approximately 2% of the outstanding shares. We invested because UBAB possesses unique advantages, including a sticky, low-cost deposit franchise, high-return fee income streams, and substantial excess capital which should support sustainable outsized returns.

Notwithstanding these benefits, recent results have been underwhelming. Deposit and loan growth have stalled, expenses have ballooned, and excess capital continues to weigh on the Company's return on equity ("ROE"). Consequently, shareholders have suffered lagging market returns leaving the stock at a deeply discounted valuation relative to similarly situated banks. At $55.36 per share, UBAB is priced at just 1.18x TBV, 0.71x adjusted TBV¹, and 9.4x LTM earnings – an incredible bargain given our view of the Company's durable earnings potential.

We have had numerous calls and in-person meetings with UBAB's management team expressing our concerns and offering tangible recommendations (detailed below). While we appreciate management's availability and openness, we are disappointed by the lack of concrete steps taken to address these issues. We are writing this letter to memorialize our views and urge the Board to take immediate, decisive action.

Our primary areas of focus are as follows:

Capital allocation: UBAB possesses some of the highest capital ratios in the industry, in large part due to the US Department of Treasury's July 2022 preferred investment via the Emergency Capital Investment Program ("ECIP"). While the Company has taken incremental steps to leverage its balance sheet – notably raising the dividend and repurchasing stock in the open market – capital continues to accrete and weigh on both UBAB's ROE and market performance. We believe it is time for the Company to take more aggressive steps.

What are UBAB's capital ratio targets and when will the Company hit them?

Efficiency: Historically, UBAB's expense growth has tracked balance sheet and earnings growth. In recent years, however, expenses have soared by 46% for the twelve months ending 12/31/2022 to the twelve months ending 3/31/2026 while balance sheet growth has lagged. Expense growth in itself is not a bad thing, but UBAB must either articulate a plan to grow into this elevated expense base or take measures to reduce costs.

Does UBAB have a plan to grow into this expense base or has it identified areas to cut costs?

Governance: While we appreciate that UBAB's board comprises professionals with ties to the local community, we believe the board lacks much-needed capital allocation expertise. Because this skillset is so central to the Company's prospective return profile, we believe it is critical that UBAB have the right person(s) in the boardroom to ensure no missteps.

Which current directors, if any, possess the requisite expertise to help leverage/deploy UBAB's excess capital?

As previously discussed with management, we believe the following steps need to be taken and are calling on the Board to take decisive action:

Repurchase $40M in shares via a tender offer: Given the Company's low trading liquidity, we have consistently urged UBAB to conduct a modified Dutch auction reverse tender offer. This is an ideal mechanism to efficiently retire a significant percentage of the Company's outstanding shares at current undervalued levels. Executing this strategy carries minimal risk and sends a powerful signal to the market. A $40M tender offer, representing approximately 25% of UBAB's current ~$170 million market capitalization, would be highly accretive, well-received by shareholders, and leave sufficient capital to fund organic growth or actionable M&A.
Improve operating efficiency: UBAB's expenses have risen nearly 50% over the last few years despite stagnant top-line growth. While management may have previously been granted latitude to invest in the business, a prolonged period of negative operating leverage is unacceptable. Management must either clearly articulate a credible plan to grow into its elevated expense base or immediately identify areas to reduce costs. Returning to a level of operational efficiency that aligns with historical and peer benchmarks is critical to maximizing returns.
Bolster boardroom capital allocation expertise: We believe UBAB urgently requires enhanced capital allocation oversight at the Board level. Appointing one or two independent directors with deep M&A and capital markets expertise would provide the strategic discipline currently lacking and serve as a powerful catalyst to restore investor confidence.

Our detailed analysis and observations are provided below.

Capital Allocation Concerns

UBAB possesses some of the highest capital ratios in the banking sector following its receipt of $123.75M via the sale of ECIP preferred equity to the US Treasury in 2022. This investment nearly doubled the Company's equity base and provided highly advantageous capital featuring no maturity date, no voting rights, a maximum dividend rate of 2.0%, and Tier 1 capital treatment. Furthermore, subject to meeting specific US Treasury conditions, UBAB can eventually repurchase these preferred shares at a substantial discount — potentially as low as 0.5% of par — effectively creating a massive, one-time gain to tangible common equity.

While meeting these repurchase conditions will take several years, the Company can and should utilize this capital today. Unfortunately, instead of utilizing it, UBAB's capital ratios have expanded since receiving the ECIP funds as its modest efforts have been insufficient to offset the combined effects of the Company's earnings generation and slowing growth.

Management has repeatedly held out the carrot of leveraging its balance sheet via M&A. Yet for all its efforts, UBAB has completed only one M&A transaction in its entire history. Management's justifications have been numerous, including AOCI marks, competition from credit unions, and overall sluggishness in its target market. We appreciate that the Company has opted to be disciplined on price, but maintaining excessive levels of capital as an indefinite holding strategy for an elusive transaction is an unacceptable drag on returns.

Operational Concerns

UBAB has a long history of strong fundamental operations characterized by an attractive and growing deposit base, participation in high return incentive programs, and cost discipline. Over the last several years, however, the Company's performance has deteriorated as stagnating deposit levels have coincided with unbridled expense growth. While we believe the fundamentals are still in place, the Company needs to refocus its efforts on getting back to its roots.

Deposits

From 2004 to 2022 UBAB deposits grew organically at an 8.2% CAGR versus the 7.2% CAGR experienced by all US commercial banks (1.0% annual outperformance). Since then, UBAB deposits have contracted at a 0.9% CAGR while national commercial deposits have continued to grow at a 1.4% CAGR (2.4% annual underperformance).

A similar trend emerges when comparing UBAB's deposit growth to its direct peers: UBAB operated in the upper echelon of its direct competitors for the 18 years leading up to 2022 but has been one of the worst growers since then.

Understanding that UBAB must balance growth objectives against customer acquisition costs, we remain concerned that the Company is sacrificing market share and long-term customer growth to defend a net interest margin that is already amongst the highest of its peer group. Given that UBAB's cost of deposits remains well below peer averages, the Company possesses a distinct competitive advantage that can be leveraged to capture market share in this current interest rate environment.³

Non-Interest Expense:

Until recently, UBAB consistently generated positive operating. Impressively, from 2004 to 2022, UBAB's operating expenses-to-assets ratio declined from 3.65% to 2.31% as the Company effectively leveraged its growing deposit base. Since then, however, total operating expenses have increased by an astounding 46%. With deposits remaining essentially flat, operating expenses as a percentage of assets have ballooned back to over 3.0%.

With annualized expenses having increased by $15M, shareholders must ask: What is the return on this investment? Furthermore, it is deeply disconcerting that management has been unable to accurately forecast its baseline expenses. Over the course of just two years, the Company has increased its normalized quarterly expense guidance by over 40%, seriously eroding its credibility:

Q4 2023 Earnings Call: "So, other than that [onetime expenses], I think, a good a good run rates probably $8.5 million [per quarter]."

Q3 2024 Earnings Call: "Non-interest expense. I think a good quarterly run rate is about $9.5 million [per quarter]."

Q4 2025 Earnings Call: "So, you know, when you look at a kind of our go-forward run rate, I would say the expectation is to probably model about $12 million a quarter."

Q1 2026 Earnings Release: "We recognize that IT and people expenses are higher and do not expect this trend to continue. We need to grow into what we have. We also recognized that to grow our balance sheet we needed efficient and more robust technology. We invested heavily in a new partnership culminating in our core conversion in 2025."

Recent statements regarding expense discipline are encouraging, but meaningless without action.

The Path Forward

UBAB stock has underperformed its peer-set by 41% over the past year in due in large part to these aforementioned concerns.

This drastic underperformance has left UBAB trading at a steeply discounted valuation despite its attractive deposit base, excess capital, and stable earnings profile.

All of our interactions with the Company to date have indicated that the Board and management care about doing well for its constituents. We call on the Company to take the following steps.

1. Capital Return

The Company should immediately take steps to execute a modified Dutch auction reverse tender offer to repurchase a significant percentage of its outstanding shares at today's attractive valuation levels. Based on our analysis, UBAB could execute a $40M buyback while maintaining strong pro forma capital levels relative to peers and industry benchmarks. Under ECIP guidelines, the Company may request approval from the Department of the Treasury for distributions above the formulaic lookback threshold, and our understanding is that the Company should be able to receive such approval. For illustrative purposes, we have assumed a $40M repurchase funded through a combination of holding company cash and borrowings that would leave bank level capital ratios unimpacted:

	UBAB Current	UBAB PF	ECIP Peer Median	AL & MI Peer Median
Bank Tier 1 Leverage	15.5 %	15.5 %	13.6 %	9.8 %
Bank CET1	20.9 %	20.9 %	20.2 %	12.5 %
Bank Tier 1	20.9 %	20.9 %	20.2 %	12.5 %
Bank Total	22.1 %	22.1 %	21.4 %	13.6 %
Consolidated E/A	18.8 %	16.5 %	17.5 %	9.0 %

A distribution of this magnitude could be accomplished via a tender offer, special dividend or some combination of the two. If the company executes a $40M tender at a premium to current trading levels, it would be 22% and 6% accretive to earnings and Adj. TBV / Share.

$M	Current	Tender	Pro Forma
Shares Outstanding	3.055	(0.667)	2.388
Price	$55.36	$60.00	$55.36
Market Cap.	169.1		132.2

P/E	9.44x		7.75x
P/TBV	1.18x		1.28x
P/Adj TBV	0.71x		0.67x

Earnings / Share	$5.86	+22% ----------------------->	$7.14
TBV / Share	$46.88		$43.22
Adj TBV / Share	$77.92	+6% -----------------------> (0.9)	$82.92

LTM Earnings	17.9		16.8
TBV	143.2	(40.0)	93.2
ECIP Preferred	123.8		123.8
Adj TBV	238.0	(40.0)	188.0

2. Operational Improvement

We are calling on management to:

A. Re-examine its growth strategy. Identify what has caused the Company to lose deposits over the last several years while national and peer deposits have continued to grow, and what has changed versus the prior two decades. The earnings accretion from deposit growth is quite compelling, even assuming incremental rates above current levels.

Deposits ($M)^[4]	Current	+$200M	+$400M
Assets	1,458	1,658	1,858

Non-Int Bearing	457	457	457
Int Bearing	689	889	1,089
Deposits	1,146	1,346	1,546
Total Liabilities	1,184	1,384	1,584

Equity	274	274	274
Equity / Assets	18.8 %	16.5 %	14.7 %

Interest Income		9.2	18.3
Interest Expense		6.0	12.0
NII		3.2	6.3

EPS Impact		$0.80	$1.59
Accretion to LTM		17 %	33 %

B. Take a fine comb to run-rate costs and justify exactly how they are helping to grow or improve the business.

C. Establish clear targets that management is working towards including target deposits, loans as a percentage of deposits, and expenses. Justify any incremental costs with a return on investment analysis.

3. Corporate Governance

For many years the Company had a relatively small balance sheet with less than $50M in equity. Today UBAB boasts nearly $275M in equity. Success for all shareholders in UBAB will largely be determined by the Company's ability to effectively tap its capital base through high-return initiatives – share repurchases, organic growth, and inorganic opportunities alike. Given the dramatically larger equity base, the Board needs to reassess whether it has the right people in place for the next leg of its journey. Today, the Board only has one independent director with commercial banking experience and none with a strong background in regional bank M&A.

In Conclusion

Management has repeatedly stated that they believe the stock is undervalued. It is time to prove it. Leverage your capital and operational infrastructure through shareholder returns, organic growth, and cost discipline. We trust that you will take the steps to right the ship and will be monitoring our investment closely.

Sincerely,

Aaron Sallen Jason Blumberg
Manager Managing Member
Merion Road Capital Management Blue Hill Advisors

¹ Adjusted TBV assumes a repurchase of the ECIP preferred at 0.5% of par with gains taxed at 23%.

² Select ECIP Banks are limited to public banks with a market capitalization greater than $50M who received ECIP funds in excess of 50% of their book value and include: BFCC, BYFC, CZBS, MFBP, MNMB, NMBF, PDLB and SFDL.

³ AL & MI Peers are limited to public banks with between $750M and $5B in assets and include: AUBN, BFCC, CIZN, FUSB, MNMB, OAKC, PFBX and RVRF.

⁴ Assumes deposits raised at a cost of 3.0% and invested 75% into Treasuries yielding 4.1% and 25% into new loans yielding 6.0%. Tax adjusted at 23%.

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SOURCE Merion Road Capital Management

FAQ

Why are Merion Road Capital and Blue Hill Advisors pressuring United Bancorporation of Alabama (OTC: UBAB) in July 2026?

They are urging UBAB to return excess capital, improve efficiency, and strengthen governance. According to the investors, high capital ratios, rising expenses, slowing deposits, and share underperformance justify immediate action on capital returns, cost discipline, and adding board-level capital allocation expertise.

What capital return are investors proposing for United Bancorporation of Alabama (OTC: UBAB)?

They propose a $40M modified Dutch auction tender offer for UBAB shares. According to Merion Road and Blue Hill, this equals about 25% of the ~$170M market cap and, in their illustrative model, would materially increase earnings per share and adjusted tangible book value per share.

How do Merion Road and Blue Hill describe UBAB’s current valuation and profitability metrics?

They describe UBAB as trading at 9.4x LTM earnings, 1.18x TBV and 0.71x adjusted TBV at $55.36. According to the investors, these multiples appear low relative to UBAB’s capital levels and earnings profile, contributing to their push for a large capital return.

What operating efficiency concerns do investors raise about United Bancorporation of Alabama (OTC: UBAB)?

They highlight a 46% increase in operating expenses from 2022 to early 2026 with flat deposits. According to Merion Road and Blue Hill, the operating expenses-to-assets ratio has moved back above 3%, and quarterly expense guidance has climbed from about $8.5M to roughly $12M.

What corporate governance changes are being requested at United Bancorporation of Alabama (OTC: UBAB)?

The investors want additional independent directors with strong M&A and capital markets experience. According to Merion Road and Blue Hill, UBAB’s much larger equity base requires enhanced board-level capital allocation oversight to guide share repurchases, organic growth initiatives, and potential acquisitions.