Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

ucfc-10q_20180630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

 

UNITED COMMUNITY FINANCIAL CORP.

(Exact name of the registrant as specified in its charter)

 

 

OHIO

 

000-024399

 

34-1856319

(State or other jurisdiction of incorporation)

 

(Commission File No.)

 

(IRS Employer I.D. No.)

275 West Federal Street, Youngstown, Ohio 44503-1203

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (330) 742-0500

Not Applicable

(Former name or former address, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

   

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 49,929,496 common shares as of July 31, 2018.

 

 

 

 


TABLE OF CONTENTS

 

 

PAGE

 

 

Part I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

 

Financial Statements

3

 

 

 

Condensed Consolidated Statements of Financial Condition as of June 30, 2018 (Unaudited) and December 31, 2017

3

 

 

 

Condensed Consolidated Statements of Income and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2018 and 2017 (Unaudited)

4

 

 

 

Condensed Consolidated Statement of Shareholders’ Equity for the Six Months ended June 30, 2018 and 2017 (Unaudited)

6

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 (Unaudited)

7

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

8-56

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

57-65

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

66

 

 

 

Item 4.

 

Controls and Procedures

67

 

Part II.OTHER INFORMATION

68

 

 

 

Item 1.

 

Legal Proceedings

68

 

 

 

Item 1A.

 

Risk Factors

68

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

68

 

 

 

Item 3.

 

Defaults Upon Senior Securities (None)

68

 

 

 

Item 4.

 

Mine Safety Disclosures (None)

68

 

 

 

Item 5.

 

Other Information (None)

68

 

 

 

Item 6.

 

Exhibits

69

 

Signatures

70

 

2


PART I—FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

UNITED COMMUNITY FINANCIAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(Dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

Cash and deposits with banks

 

$

32,584

 

 

$

34,365

 

Federal funds sold

 

 

34,393

 

 

 

12,515

 

Total cash and cash equivalents

 

 

66,977

 

 

 

46,880

 

Securities:

 

 

 

 

 

 

 

 

Available for sale, at fair value

 

 

247,630

 

 

 

270,561

 

Held to maturity, (fair value of $78,194 and $82,126, respectively)

 

 

81,294

 

 

 

82,911

 

Loans held for sale, at lower of cost or market

 

 

 

 

 

211

 

Loans held for sale, at fair value

 

 

107,701

 

 

 

83,541

 

Loans, net of allowance for loan losses of $21,405 and $21,202

 

 

2,099,781

 

 

 

1,999,877

 

Federal Home Loan Bank stock, at cost

 

 

19,324

 

 

 

19,324

 

Premises and equipment, net

 

 

21,645

 

 

 

22,094

 

Accrued interest receivable

 

 

8,454

 

 

 

8,190

 

Real estate owned and other repossessed assets, net

 

 

877

 

 

 

1,253

 

Goodwill

 

 

20,221

 

 

 

20,221

 

Customer list intangible

 

 

1,980

 

 

 

2,060

 

Core deposit intangible

 

 

1,769

 

 

 

1,934

 

Cash surrender value of life insurance

 

 

63,354

 

 

 

62,488

 

Other assets

 

 

29,551

 

 

 

28,360

 

Total assets

 

$

2,770,558

 

 

$

2,649,905

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Non-interest bearing

 

$

383,082

 

 

$

354,970

 

Interest bearing

 

 

 

 

 

 

 

 

Customer deposits

 

 

1,563,043

 

 

 

1,445,293

 

Brokered deposits

 

 

189,220

 

 

 

156,476

 

Total interest bearing deposits

 

 

1,752,263

 

 

 

1,601,769

 

Total deposits

 

 

2,135,345

 

 

 

1,956,739

 

Borrowed funds:

 

 

 

 

 

 

 

 

Federal Home Loan Bank advances

 

 

 

 

 

 

 

 

Long-term Federal Home Loan Bank advances

 

 

48,927

 

 

 

48,536

 

Short-term Federal Home Loan Bank advances

 

 

248,000

 

 

 

308,000

 

Total Federal Home Loan Bank advances

 

 

296,927

 

 

 

356,536

 

Repurchase agreements and other

 

 

191

 

 

 

197

 

Total borrowed funds

 

 

297,118

 

 

 

356,733

 

Advance payments by borrowers for taxes and insurance

 

 

19,253

 

 

 

25,038

 

Accrued interest payable

 

 

964

 

 

 

1,097

 

Accrued expenses and other liabilities

 

 

16,394

 

 

 

16,033

 

Total liabilities

 

 

2,469,074

 

 

 

2,355,640

 

Shareholders' Equity:

 

 

 

 

 

 

 

 

Preferred stock-no par value; 1,000,000 shares authorized and no shares issued or outstanding

 

 

 

 

 

 

Common stock-no par value; 499,000,000 shares authorized; 54,138,910 shares issued and

   49,904,074 and 49,800,126 shares, respectively, outstanding

 

 

177,311

 

 

 

177,458

 

Retained earnings

 

 

179,965

 

 

 

167,852

 

Accumulated other comprehensive loss

 

 

(24,077

)

 

 

(18,685

)

Treasury stock, at cost, 4,234,836 and 4,338,784 shares, respectively

 

 

(31,715

)

 

 

(32,360

)

Total shareholders’ equity

 

 

301,484

 

 

 

294,265

 

Total liabilities and shareholders’ equity

 

$

2,770,558

 

 

$

2,649,905

 

 

See Notes to Consolidated Financial Statements.

3


UNITED COMMUNITY FINANCIAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

For the Three Months Ended

June 30,

 

 

For the Six Months Ended

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(Dollars in thousands, except per share data)

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

23,275

 

 

$

20,011

 

 

$

46,034

 

 

$

37,569

 

Loans held for sale

 

 

1,012

 

 

 

872

 

 

 

1,870

 

 

 

1,533

 

Securities available for sale, nontaxable

 

 

356

 

 

 

418

 

 

 

744

 

 

 

836

 

Securities available for sale, taxable

 

 

1,193

 

 

 

1,479

 

 

 

2,408

 

 

 

3,081

 

Securities held to maturity, nontaxable

 

 

61

 

 

 

52

 

 

 

112

 

 

 

114

 

Securities held to maturity, taxable

 

 

398

 

 

 

454

 

 

 

820

 

 

 

919

 

Federal Home Loan Bank stock dividends

 

 

274

 

 

 

227

 

 

 

554

 

 

 

441

 

Other interest earning assets

 

 

92

 

 

 

40

 

 

 

169

 

 

 

120

 

Total interest income

 

 

26,661

 

 

 

23,553

 

 

 

52,711

 

 

 

44,613

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

3,790

 

 

 

1,987

 

 

 

6,887

 

 

 

3,608

 

Federal Home Loan Bank advances

 

 

1,576

 

 

 

1,064

 

 

 

2,996

 

 

 

2,019

 

Repurchase agreements and other

 

 

 

 

 

8

 

 

 

 

 

 

16

 

Total interest expense

 

 

5,366

 

 

 

3,059

 

 

 

9,883

 

 

 

5,643

 

Net interest income

 

 

21,295

 

 

 

20,494

 

 

 

42,828

 

 

 

38,970

 

(Recovery) provision for loan losses

 

 

(138

)

 

 

842

 

 

 

269

 

 

 

2,317

 

Net interest income after provision for loan losses

 

 

21,433

 

 

 

19,652

 

 

 

42,559

 

 

 

36,653

 

Non-interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insurance agency income

 

 

513

 

 

 

472

 

 

 

1,090

 

 

 

945

 

Brokerage income

 

 

300

 

 

 

301

 

 

 

572

 

 

 

623

 

Deposit related fees

 

 

1,392

 

 

 

1,411

 

 

 

2,692

 

 

 

2,701

 

Mortgage servicing fees

 

 

813

 

 

 

729

 

 

 

1,625

 

 

 

1,465

 

Mortgage servicing rights valuation

 

 

(20

)

 

 

(2

)

 

 

(11

)

 

 

(5

)

Mortgage servicing rights amortization

 

 

(542

)

 

 

(486

)

 

 

(1,042

)

 

 

(935

)

Other service fees

 

 

61

 

 

 

33

 

 

 

99

 

 

 

62

 

Net gains (losses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale (includes $94, $301, $233, and $330,

   respectively, accumulated other comprehensive income reclassifications

   for unrealized net gains on available for sale securities)

 

 

94

 

 

 

301

 

 

 

233

 

 

 

330

 

Mortgage banking income

 

 

1,205

 

 

 

2,117

 

 

 

2,563

 

 

 

3,440

 

Real estate owned and other repossessed assets, net

 

 

(113

)

 

 

(18

)

 

 

(191

)

 

 

(70

)

Debit/credit card fees

 

 

1,177

 

 

 

1,326

 

 

 

2,126

 

 

 

2,249

 

Trust fees

 

 

473

 

 

 

420

 

 

 

942

 

 

 

702

 

Other income

 

 

499

 

 

 

486

 

 

 

973

 

 

 

967

 

Total non-interest income

 

 

5,852

 

 

 

7,090

 

 

 

11,671

 

 

 

12,474

 

Non-interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

8,937

 

 

 

8,749

 

 

 

18,935

 

 

 

17,724

 

Occupancy

 

 

950

 

 

 

943

 

 

 

2,050

 

 

 

1,907

 

Equipment and data processing

 

 

2,372

 

 

 

2,306

 

 

 

4,526

 

 

 

4,385

 

Financial institutions tax

 

 

495

 

 

 

510

 

 

 

991

 

 

 

1,000

 

Advertising

 

 

290

 

 

 

265

 

 

 

525

 

 

 

389

 

Amortization of intangible assets

 

 

132

 

 

 

113

 

 

 

245

 

 

 

196

 

FDIC insurance premiums

 

 

288

 

 

 

340

 

 

 

578

 

 

 

528

 

Other insurance premiums

 

 

109

 

 

 

109

 

 

 

218

 

 

 

221

 

Legal and consulting fees

 

 

147

 

 

 

184

 

 

 

446

 

 

 

413

 

Other professional fees

 

 

499

 

 

 

420

 

 

 

890

 

 

 

940

 

Supervisory fees

 

 

42

 

 

 

 

 

 

84

 

 

 

 

Real estate owned and other repossessed asset expenses

 

 

34

 

 

 

23

 

 

 

70

 

 

 

85

 

Acquisition costs

 

 

 

 

 

 

 

 

 

 

 

4,962

 

Other expenses

 

 

1,235

 

 

 

1,214

 

 

 

2,572

 

 

 

2,716

 

Total non-interest expenses

 

 

15,530

 

 

 

15,176

 

 

 

32,130

 

 

 

35,466

 

Income before income taxes

 

 

11,755

 

 

 

11,566

 

 

 

22,100

 

 

 

13,661

 

Income tax expense (includes $20, $105, $49 and $115 income tax expense

   from reclassification items)

 

 

2,214

 

 

 

3,377

 

 

 

4,003

 

 

 

3,934

 

Net income

 

$

9,541

 

 

$

8,189

 

 

$

18,097

 

 

$

9,727

 

 

(Continued)

4


(Continued)

UNITED COMMUNITY FINANCIAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

For the Three Months Ended

June 30,

 

 

For the Six Months Ended

June 30,

 

 

 

 

2018

 

 

 

2017

 

 

 

2018

 

 

 

2017

 

 

 

(Dollars in thousands, except per share data)

 

Net income

 

$

9,541

 

 

$

8,189

 

 

$

18,097

 

 

$

9,727

 

Other comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on securities, available for sale, net of

   reclassifications and tax of $ 381, $842, $1,449 and

   $1,362, respectively

 

 

(1,433

)

 

 

1,562

 

 

 

(5,453

)

 

 

2,527

 

Accretion of unrealized losses on securities transferred from

   available for sale to held to maturity, net of tax of $8, $17,

   $16 and $35, respectively

 

 

31

 

 

 

32

 

 

 

61

 

 

 

65

 

Total other comprehensive (loss) income

 

 

(1,402

)

 

 

1,594

 

 

 

(5,392

)

 

 

2,592

 

Comprehensive income

 

$

8,139

 

 

$

9,783

 

 

$

12,705

 

 

$

12,319

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.19

 

 

$

0.16

 

 

$

0.36

 

 

$

0.20

 

Diluted

 

 

0.19

 

 

 

0.16

 

 

 

0.36

 

 

 

0.20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements.

5


UNITED COMMUNITY FINANCIAL CORP.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(Unaudited)

 

 

 

Common

Shares

Outstanding

 

 

Common

Stock

 

 

Retained

Earnings

 

 

Accumulated Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

 

 

Total

 

 

 

(Dollars in thousands, except per share data)

 

Balance January 1, 2018

 

 

49,800,126

 

 

$

177,458

 

 

$

167,852

 

 

$

(18,685

)

 

$

(32,360

)

 

$

294,265

 

Net income

 

 

 

 

 

 

 

 

 

 

18,097

 

 

 

 

 

 

 

 

 

 

 

18,097

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,392

)

 

 

 

 

 

 

(5,392

)

Stock option exercises

 

 

70,101

 

 

 

(292

)

 

 

 

 

 

 

 

 

 

 

524

 

 

 

232

 

Stock option expense

 

 

 

 

 

 

32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32

 

Restricted stock grants

 

 

57,985

 

 

 

(433

)

 

 

 

 

 

 

 

 

 

 

433

 

 

 

 

Restricted stock forfeitures

 

 

(807

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock expense

 

 

 

 

 

 

477

 

 

 

 

 

 

 

 

 

 

 

(6

)

 

 

471

 

Vesting of Long-term Incentive Plan

 

 

36,871

 

 

 

69

 

 

 

 

 

 

 

 

 

 

 

275

 

 

 

344

 

Cash dividend payments ($0.12 per share)

 

 

 

 

 

 

 

 

 

 

(5,984

)

 

 

 

 

 

 

 

 

 

 

(5,984

)

Treasury stock purchases

 

 

(60,202

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(581

)

 

 

(581

)

Balance June 30, 2018

 

 

49,904,074

 

 

$

177,311

 

 

$

179,965

 

 

$

(24,077

)

 

$

(31,715

)

 

$

301,484

 

 

 

 

Common

Shares

Outstanding

 

 

Common

Stock

 

 

Retained

Earnings

 

 

Accumulated Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

 

 

Total

 

 

 

(Dollars in thousands, except per share data)

 

Balance January 1, 2017

 

 

46,581,370

 

 

$

174,360

 

 

$

152,675

 

 

$

(21,040

)

 

$

(56,189

)

 

$

249,806

 

Net income

 

 

 

 

 

 

 

 

 

 

9,727

 

 

 

 

 

 

 

 

 

 

 

9,727

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,592

 

 

 

 

 

 

 

2,592

 

Stock option exercises

 

 

33,418

 

 

 

(176

)

 

 

 

 

 

 

 

 

 

 

250

 

 

 

74

 

Stock option expense

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Restricted stock grants

 

 

68,761

 

 

 

(511

)

 

 

 

 

 

 

 

 

 

 

511

 

 

 

 

Restricted stock expense

 

 

 

 

 

 

456

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

456

 

Vesting of Long-term Incentive Plan

 

 

68,783

 

 

 

87

 

 

 

 

 

 

 

 

 

 

 

510

 

 

 

597

 

Purchase of Ohio Legacy Corp.

 

 

3,033,604

 

 

 

3,261

 

 

 

 

 

 

 

 

 

 

 

22,555

 

 

 

25,816

 

Cash dividend payments ($0.06 per share)

 

 

 

 

 

 

 

 

 

 

(2,980

)

 

 

 

 

 

 

 

 

 

 

(2,980

)

Treasury stock purchases

 

 

(70,915

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(609

)

 

 

(609

)

Balance June 30, 2017

 

 

49,715,021

 

 

$

177,478

 

 

$

159,422

 

 

$

(18,448

)

 

$

(32,972

)

 

$

285,480

 

 

See Notes to Consolidated Financial Statements.

 

6


UNITED COMMUNITY FINANCIAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

For the Six Months Ended

June 30,

 

 

 

2018

 

 

2017

 

 

 

(Dollars in thousands)

 

Cash Flows from Operating Activities

 

 

 

Net income

 

$

18,097

 

 

$

9,727

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

269

 

 

 

2,317

 

Mortgage banking income

 

 

(4,760

)

 

 

(540

)

Changes in fair value on loans held for sale

 

 

2,197

 

 

 

(2,900

)

Net losses on real estate owned and other repossessed assets sold

 

 

191

 

 

 

70

 

Net gain on available for sale securities sold

 

 

(233

)

 

 

(330

)

Amortization of premiums and accretion of discounts

 

 

2,781

 

 

 

1,911

 

Depreciation and amortization

 

 

1,359

 

 

 

1,321

 

Net change in interest receivable

 

 

(264

)

 

 

159

 

Net change in interest payable

 

 

(133

)

 

 

176

 

Net change in prepaid and other assets

 

 

(3,545

)

 

 

2,268

 

Net change in other liabilities

 

 

705

 

 

 

2,924

 

Stock based compensation

 

 

503

 

 

 

457

 

Net principal disbursed on loans originated for sale

 

 

(165,861

)

 

 

(114,733

)

Proceeds from sale of loans held for sale

 

 

143,172

 

 

 

121,673

 

Net change in deferred tax assets

 

 

3,547

 

 

 

(2,043

)

Cash surrender value of life insurance

 

 

(866

)

 

 

(767

)

Net cash from operating activities

 

 

(2,841

)

 

 

21,690

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Proceeds from the principal repayments and maturities of securities available for sale

 

 

5,488

 

 

 

16,063

 

Proceeds from the principal repayments and maturities of securities held to maturity

 

 

4,428

 

 

 

8,732

 

Proceeds from the sale of securities available for sale

 

 

10,361

 

 

 

53,171

 

Proceeds from the sale of real estate owned and other repossessed assets

 

 

674

 

 

 

881

 

Proceeds from the sale of loans held for investment

 

 

 

 

 

2,250