Two activist investors are urging $1.4 billion-asset United Bancorporation of Alabama to make better use of its equity, control its expenses and determine why deposits have lagged compared to peers.
Among other suggestions, Merion Road Capital Management and Blue Hill Advisors recommended the bank launch a $40 million stock buyback and appoint “one or two independent directors with deep [merger and acquisition] and capital markets expertise” to its board.
The investors cited United’s historically “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,” Merion and Blue Hill wrote Tuesday in an open letter to the bank. “While we believe the fundamentals are still in place, the Company needs to refocus its efforts on getting back to its roots.”
In a statement Wednesday, United acknowledged receiving the letter, adding that management would discuss the issues the investors raised at the bank’s next earnings call Aug. 6.
“The Board and management team are always willing to evaluate the viewpoints of any investor,” United said. “The Company's continued focus will be to optimize long-term shareholder value through execution of its strategic plan, capital deployment objectives, and amid the regulatory environment.”
Merion and Blue Hill point to a $123 million capital boon United received in 2022 through the Treasury Department’s Emergency Capital Investment Program. United is designated as a community development financial institution.
Treasury’s cash infusion “nearly doubled [United’s] equity base,” the investors said.
“UBAB can eventually repurchase these preferred shares at a substantial discount … effectively creating a massive, one-time gain to tangible common equity,” Merion and Blue Hill said. “Unfortunately, instead of utilizing it, UBAB's capital ratios have expanded.”
The investors cite 2022 as an inflection point. From 2004 to that year, United’s deposits grew organically at an 8.2% compound annual growth rate, outpacing the average for all U.S. commercial banks by a full percentage point, the investors said. Since 2022, however, United’s deposits have shrunk at a 0.9% CAGR while commercial deposits nationally have grown by 1.4%, Merion and Blue Hill added.
Meanwhile, expenses at the bank have jumped 46% from full-year 2022 to the 12 months ahead of March 2026, the investors said.
Merion and Blue Hill pointed to earnings call transcripts from the past 2½ years, indicating a steadily higher threshold for normalized expenses.
"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,” United CEO Mike Vincent said in April, after a quarter in which the bank counted $11.5 million in noninterest expenses.
Merion and Blue Hill called United’s “prolonged period of negative operating leverage” unacceptable.
“Management must either clearly articulate a credible plan to grow into its elevated expense base or immediately identify areas to reduce costs,” the investors said.
Bank leaders have “repeatedly held out the carrot of leveraging its balance sheet via M&A,” Merion and Blue Hill said. “Yet for all its efforts, UBAB has completed only one M&A transaction in its entire history. … 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.”
The investors said United’s board has one independent director with commercial banking experience and none with a strong background in regional bank M&A.
“The Board needs to reassess whether it has the right people in place for the next leg of its journey,” Merion and Blue Hill said.
In the meantime, to boost United’s share price, the investors recommend the bank execute a $40 million stock buyback that would “efficiently retire a significant percentage of the Company's outstanding shares at current undervalued levels.”
The bank, for its part, noted in April that it “returned almost $18 million to shareholders.”
Merion and Blue Hill are seeking what they label “more aggressive steps.”
“Management has repeatedly stated that they believe the stock is undervalued. It is time to prove it,” the investors wrote.
Blue Hill, for one, is no stranger to prodding toward what it sees as more lucrative results. The activist investor repeatedly made unsolicited counteroffers to buy Honolulu-based Territorial Bancorp in 2024, in the face of Los Angeles-based Hope Bancorp’s ultimately successful bid to acquire the Hawaii lender.
Activist investors pushed several banks to make changes in the past year. Most notably, HoldCo Asset Management sued Fifth Third and Comerica in the lead-up to the two banks’ combination. The investor argued the deal was “rushed” and sealed because it offered then-Comerica CEO Curt Farmer “a lucrative post-closing role.”
HoldCo later lodged unsuccessful bids against KeyBank and Eastern Bank.
Activist investor Diligence Capital Management pressed Maryland-based EagleBank in March to develop a performance improvement plan and replace three board members.
Merion and Blue Hill collectively own about 2% of outstanding shares in United Bancorporation of Alabama.
