U & I Financial Stock Price, News & Analysis

U & I Financial Corp. (OTCQX: UNIF) is a financial holding company for UniBank, a commercial bank founded in 2006 and based in Lynnwood, Washington. According to the company’s disclosures, UniBank serves small to medium-sized businesses, professionals, and individuals across the United States, with a particular emphasis on government guaranteed loan programs. The bank operates through four branches in Lynnwood, Bellevue, Federal Way and Tacoma, and also provides access to accounts online and through its ATM network.

As a commercial banking organization in the finance and insurance sector, U & I Financial Corp. focuses on traditional banking activities conducted through UniBank. The bank’s balance sheet and earnings releases describe a loan portfolio that includes commercial real estate, residential real estate, commercial equipment, commercial loans classified as “all other,” multifamily, construction and land, and consumer and other loans. These portfolio segments are reported at amortized cost and are monitored using internal credit grades such as Pass, Special Mention, Substandard, Doubtful and Loss.

Business model and loan portfolio

UniBank’s business model, as reflected in its financial reports, centers on generating net interest income from earning assets such as loans and investments, offset by interest expense on deposits and borrowed funds. The bank also reports non-interest income from items such as loan servicing fees and other banking-related fees, and non-interest expense from salaries and benefits, occupancy, and other operating costs. Financial tables in the company’s releases show how interest income, interest expense, provision for credit losses, and non-interest items combine to produce net income or loss each quarter.

The bank’s loan portfolio is segmented into several categories:

• Commercial real estate – loans secured by commercial properties.
• Residential real estate – loans secured by residential properties.
• Commercial – equipment – loans that, according to company disclosures, have provided financing to borrowers to purchase equipment from manufacturers, with manufacturers also servicing the equipment through operating arrangements with borrowers.
• Commercial – all other – other commercial credits not categorized as equipment loans.
• Multifamily – loans related to multifamily properties.
• Construction and land – loans for construction projects and land.
• Consumer and other – smaller consumer and miscellaneous credits.

These segments are presented in detail in the company’s quarterly financial results, which also break out the distribution of balances by internal risk grade. The grading framework described in the releases defines Special Mention, Substandard, Doubtful and Loss categories based on the borrower’s repayment capacity, collateral protection and the likelihood of loss.

Credit quality and risk management focus

Recent disclosures highlight that UniBank has experienced credit deterioration in its commercial-equipment loan segment. The company reports significant charge-offs and provisions for credit losses associated with these loans, as well as changes in the Allowance for Credit Losses (ACL) on Loans and ACL on Off-Balance Sheet Credit Exposure. Management commentary in the earnings releases notes that the bank has been working through problem credits, including commercial-equipment loans, and that these loans have been the subject of litigation involving borrowers and actions by the Securities and Exchange Commission against an equipment manufacturer.

The bank provides extensive quantitative information on asset quality, including net charge-offs, non-accrual loan balances, nonperforming assets to total assets ratios, and ACL-to-loans ratios. These metrics are reported for each quarter and year-to-date period and are tied to the underlying loan segmentation tables. The company also discloses that it uses the ASC 326 credit loss framework to estimate expected credit losses by portfolio segment and risk grade.

Capital, funding and branch network

U & I Financial Corp.’s releases include detailed capital and funding information for UniBank. The bank reports Tier 1 Leverage, Common Equity Tier 1, Tier 1 Risk-Based Capital and Total Risk-Based Capital ratios, along with the regulatory thresholds for “well capitalized” and “adequately capitalized” categories. At various points in the reported periods, the bank states that its capital ratios either exceeded the “well capitalized” minimums or met “adequately capitalized” guidelines, depending on the quarter.

On the funding side, UniBank’s liabilities consist primarily of customer deposits and borrowed funds. Deposits are broken down into checking, NOW, money market, savings and certificates of deposit. Borrowed funds are also reported as a separate category. Changes in total deposits, total assets and total loans are discussed in the context of deleveraging efforts and shifts in the balance sheet over time.

Operationally, UniBank serves customers through four physical branches in Lynnwood, Bellevue, Federal Way and Tacoma, as well as through online banking and an ATM network. The bank emphasizes service to small and medium-sized businesses, professionals and individuals, and notes a particular focus on government guaranteed loan programs in its “About” section across multiple releases.

Governance and leadership developments

Company news includes governance and leadership changes. U & I Financial Corp. announced the appointment of a permanent Chief Executive Officer for the Company and the Bank and the addition of new directors to the boards. The bank also reported the hiring of an Executive Vice President and Chief Credit Officer and an Executive Vice President and Chief Banking Officer. These announcements emphasize experience in credit quality, lending, operations, and regional banking markets, and are presented as part of efforts to strengthen leadership and credit oversight.

Regulatory and legal context

The company’s earnings releases consistently include forward-looking statement safe harbor language referencing risks such as competition, real estate market conditions, unemployment, interest rate changes, economic conditions, monetary and fiscal policy, legislative and regulatory changes, demand for products and services, credit deterioration, technological changes and tax law changes. In addition, the company notes compliance with a Written Agreement with the Federal Reserve Bank of San Francisco and the Washington Department of Financial Institutions as one of the factors that could affect future results.

In the context of commercial-equipment loans, the company discloses that certain borrowers have filed a lawsuit in Washington state court after a case was dismissed in federal court, related to actions by the Securities and Exchange Commission against an equipment manufacturer for fraudulent activities. The bank states that it intends to defend this litigation vigorously.

How investors use information on U & I Financial Corp.

Investors and analysts following U & I Financial Corp. and UniBank can use the company’s publicly released financial information to understand trends in net interest income, non-interest income, credit costs, and overall profitability. The detailed loan segmentation and asset quality tables provide insight into the composition and risk characteristics of the loan portfolio, while capital ratio disclosures show how the bank’s regulatory capital position compares to required minimums.

Because UniBank focuses on small to medium-sized businesses, professionals and individuals, and emphasizes government guaranteed loan programs, its performance is closely tied to credit quality in these customer segments and to the behavior of its commercial real estate, residential real estate, commercial-equipment and other loan portfolios. The bank’s branch footprint in Washington and its nationwide customer base, combined with online and ATM access, define the operational scope described in its releases.