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Section 1: 10-Q (10-Q)

ucfc-10q_20180930.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 September 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 every Interactive Data File required to be submitted 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 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: 49,729,061 common shares as of October 31, 2018.

 

 

 

 


TABLE OF CONTENTS

 

 

PAGE

 

 

Part I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

 

Financial Statements

3

 

 

 

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

3

 

 

 

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

4

 

 

 

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

6

 

 

 

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

7

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

8-59

 

 

 

Item 2.

 

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

60-68

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

69

 

 

 

Item 4.

 

Controls and Procedures

70

 

Part II.OTHER INFORMATION

71

 

 

 

Item 1.

 

Legal Proceedings

71

 

 

 

Item 1A.

 

Risk Factors

71

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

71

 

 

 

Item 3.

 

Defaults Upon Senior Securities (None)

71

 

 

 

Item 4.

 

Mine Safety Disclosures (None)

71

 

 

 

Item 5.

 

Other Information (None)

71

 

 

 

Item 6.

 

Exhibits

72

 

Signatures

73

 

2


PART I—FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

UNITED COMMUNITY FINANCIAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(Dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

Cash and deposits with banks

 

$

31,042

 

 

$

34,365

 

Federal funds sold

 

 

23,223

 

 

 

12,515

 

Total cash and cash equivalents

 

 

54,265

 

 

 

46,880

 

Securities:

 

 

 

 

 

 

 

 

Available for sale, at fair value

 

 

242,106

 

 

 

270,561

 

Held to maturity, (fair value of $74,812 and $82,126, respectively)

 

 

78,700

 

 

 

82,911

 

Loans held for sale, at lower of cost or market

 

 

 

 

 

211

 

Loans held for sale, at fair value

 

 

95,235

 

 

 

83,541

 

Loans, net of allowance for loan losses of $21,332 and $21,202

 

 

2,148,942

 

 

 

1,999,877

 

Federal Home Loan Bank stock, at cost

 

 

19,144

 

 

 

19,324

 

Premises and equipment, net

 

 

21,449

 

 

 

22,094

 

Accrued interest receivable

 

 

8,551

 

 

 

8,190

 

Real estate owned and other repossessed assets, net

 

 

907

 

 

 

1,253

 

Goodwill

 

 

20,221

 

 

 

20,221

 

Customer list intangible

 

 

2,259

 

 

 

2,060

 

Core deposit intangible

 

 

1,686

 

 

 

1,934

 

Cash surrender value of life insurance

 

 

63,789

 

 

 

62,488

 

Other assets

 

 

31,929

 

 

 

28,360

 

Total assets

 

$

2,789,183

 

 

$

2,649,905

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Non-interest bearing

 

$

383,535

 

 

$

354,970

 

Interest bearing

 

 

 

 

 

 

 

 

Customer deposits

 

 

1,553,204

 

 

 

1,445,293

 

Brokered deposits

 

 

415,737

 

 

 

156,476

 

Total interest bearing deposits

 

 

1,968,941

 

 

 

1,601,769

 

Total deposits

 

 

2,352,476

 

 

 

1,956,739

 

Borrowed funds:

 

 

 

 

 

 

 

 

Federal Home Loan Bank advances

 

 

 

 

 

 

 

 

Long-term Federal Home Loan Bank advances

 

 

49,025

 

 

 

48,536

 

Short-term Federal Home Loan Bank advances

 

 

46,000

 

 

 

308,000

 

Total Federal Home Loan Bank advances

 

 

95,025

 

 

 

356,536

 

Repurchase agreements and other

 

 

238

 

 

 

197

 

Total borrowed funds

 

 

95,263

 

 

 

356,733

 

Advance payments by borrowers for taxes and insurance

 

 

16,494

 

 

 

25,038

 

Accrued interest payable

 

 

1,177

 

 

 

1,097

 

Accrued expenses and other liabilities

 

 

17,730

 

 

 

16,033

 

Total liabilities

 

 

2,483,140

 

 

 

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

   49,922,514 and 49,800,126 shares, respectively, outstanding

 

 

177,412

 

 

 

177,458

 

Retained earnings

 

 

186,000

 

 

 

167,852

 

Accumulated other comprehensive loss

 

 

(25,783

)

 

 

(18,685

)

Treasury stock, at cost, 4,216,396 and 4,338,784 shares, respectively

 

 

(31,586

)

 

 

(32,360

)

Total shareholders’ equity

 

 

306,043

 

 

 

294,265

 

Total liabilities and shareholders’ equity

 

$

2,789,183

 

 

$

2,649,905

 

 

See Notes to Consolidated Financial Statements.

3


UNITED COMMUNITY FINANCIAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

 

 

 

For the Three Months Ended

September 30,

 

 

For the Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(Dollars in thousands, except per share data)

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

24,031

 

 

$

20,697

 

 

$

70,065

 

 

$

58,266

 

Loans held for sale

 

 

1,264

 

 

 

882

 

 

 

3,134

 

 

 

2,415

 

Securities available for sale, nontaxable

 

 

333

 

 

 

416

 

 

 

1,077

 

 

 

1,252

 

Securities available for sale, taxable

 

 

1,176

 

 

 

1,276

 

 

 

3,584

 

 

 

4,357

 

Securities held to maturity, nontaxable

 

 

69

 

 

 

49

 

 

 

181

 

 

 

163

 

Securities held to maturity, taxable

 

 

374

 

 

 

424

 

 

 

1,194

 

 

 

1,343

 

Federal Home Loan Bank stock dividends

 

 

289

 

 

 

253

 

 

 

843

 

 

 

694

 

Other interest earning assets

 

 

154

 

 

 

51

 

 

 

323

 

 

 

171

 

Total interest income

 

 

27,690

 

 

 

24,048

 

 

 

80,401

 

 

 

68,661

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

5,044

 

 

 

2,226

 

 

 

11,931

 

 

 

5,834

 

Federal Home Loan Bank advances

 

 

1,023

 

 

 

1,315

 

 

 

4,019

 

 

 

3,334

 

Repurchase agreements and other

 

 

 

 

 

4

 

 

 

 

 

 

20

 

Total interest expense

 

 

6,067

 

 

 

3,545

 

 

 

15,950

 

 

 

9,188

 

Net interest income

 

 

21,623

 

 

 

20,503

 

 

 

64,451

 

 

 

59,473

 

Provision for loan losses

 

 

251

 

 

 

721

 

 

 

520

 

 

 

3,038

 

Net interest income after provision for loan losses

 

 

21,372

 

 

 

19,782

 

 

 

63,931

 

 

 

56,435

 

Non-interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insurance agency income

 

 

545

 

 

 

509

 

 

 

1,635

 

 

 

1,454

 

Brokerage income

 

 

339

 

 

 

271

 

 

 

911

 

 

 

894

 

Deposit related fees

 

 

1,494

 

 

 

1,499

 

 

 

4,186

 

 

 

4,200

 

Mortgage servicing fees

 

 

821

 

 

 

760

 

 

 

2,446

 

 

 

2,225

 

Mortgage servicing rights valuation

 

 

(6

)

 

 

(10

)

 

 

(17

)

 

 

(15

)

Mortgage servicing rights amortization

 

 

(477

)

 

 

(491

)

 

 

(1,519

)

 

 

(1,426

)

Other service fees

 

 

26

 

 

 

21

 

 

 

125

 

 

 

83

 

Net gains (losses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale (includes $0, $236, $233, and $566,

   respectively, accumulated other comprehensive income reclassifications

   for unrealized net gains on available for sale securities)

 

 

 

 

 

236

 

 

 

233

 

 

 

566

 

Mortgage banking income

 

 

1,409

 

 

 

1,688

 

 

 

3,972

 

 

 

5,128

 

Real estate owned and other repossessed assets, net

 

 

(45

)

 

 

(73

)

 

 

(236

)

 

 

(143

)

Debit/credit card fees

 

 

1,000

 

 

 

971

 

 

 

3,126

 

 

 

3,220

 

Trust fees

 

 

483

 

 

 

449

 

 

 

1,425

 

 

 

1,151

 

Other income

 

 

557

 

 

 

475

 

 

 

1,530

 

 

 

1,442

 

Total non-interest income

 

 

6,146

 

 

 

6,305

 

 

 

17,817

 

 

 

18,779

 

Non-interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

9,107

 

 

 

8,736

 

 

 

28,042

 

 

 

26,460

 

Occupancy

 

 

1,094

 

 

 

1,013

 

 

 

3,144

 

 

 

2,920

 

Equipment and data processing

 

 

2,032

 

 

 

2,303

 

 

 

6,558

 

 

 

6,688

 

Financial institutions tax

 

 

495

 

 

 

348

 

 

 

1,486

 

 

 

1,348

 

Advertising

 

 

340

 

 

 

285

 

 

 

865

 

 

 

674

 

Amortization of intangible assets

 

 

128

 

 

 

113

 

 

 

373

 

 

 

308

 

FDIC insurance premiums

 

 

294

 

 

 

301

 

 

 

872

 

 

 

829

 

Other insurance premiums

 

 

85

 

 

 

115

 

 

 

303

 

 

 

336

 

Legal and consulting fees

 

 

356

 

 

 

156

 

 

 

802

 

 

 

569

 

Other professional fees

 

 

651

 

 

 

666

 

 

 

1,541

 

 

 

1,606

 

Supervisory fees

 

 

34

 

 

 

 

 

 

118

 

 

 

 

Real estate owned and other repossessed asset expenses

 

 

25

 

 

 

33

 

 

 

95

 

 

 

118

 

Acquisition costs

 

 

 

 

 

 

 

 

 

 

 

4,962

 

Other expenses

 

 

1,131

 

 

 

1,395

 

 

 

3,703

 

 

 

4,112

 

Total non-interest expenses

 

 

15,772

 

 

 

15,464

 

 

 

47,902

 

 

 

50,930

 

Income before income taxes

 

 

11,746

 

 

 

10,623

 

 

 

33,846

 

 

 

24,284

 

Income tax expense (includes $0, $83, $49 and $198 income tax expense

   from reclassification items)

 

 

2,217

 

 

 

3,067

 

 

 

6,220

 

 

 

7,001

 

Net income

 

$

9,529

 

 

$

7,556

 

 

$

27,626

 

 

$

17,283

 

 

(Continued)

4


(Continued)

UNITED COMMUNITY FINANCIAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

 

 

 

For the Three Months Ended

September 30,

 

 

For the Nine Months Ended

September 30,

 

 

 

 

2018

 

 

 

2017

 

 

 

2018

 

 

 

2017

 

 

 

(Dollars in thousands, except per share data)

 

Net income

 

$

9,529

 

 

$

7,556

 

 

$

27,626

 

 

$

17,283

 

Other comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

   reclassifications and tax of $(463), $262, $(1,912) and

   $1,624, respectively

 

 

(1,741

)

 

 

486

 

 

 

(7,194

)

 

 

3,013

 

Accretion of unrealized losses on securities transferred from

   available for sale to held to maturity, net of tax of $10, $18,

   $26 and $53, respectively

 

 

35

 

 

 

33

 

 

 

96

 

 

 

98

 

Total other comprehensive (loss) income

 

 

(1,706

)

 

 

519

 

 

 

(7,098

)

 

 

3,111

 

Comprehensive income

 

$

7,823

 

 

$

8,075

 

 

$

20,528

 

 

$

20,394

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.19

 

 

$

0.15

 

 

$

0.55

 

 

$

0.35

 

Diluted

 

 

0.19

 

 

 

0.15

 

 

 

0.55

 

 

 

0.35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

27,626

 

 

 

 

 

 

 

 

 

 

 

27,626

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,098

)

 

 

 

 

 

 

(7,098

)

Stock option exercises

 

 

70,101

 

 

 

(292

)

 

 

 

 

 

 

 

 

 

 

524

 

 

 

232

 

Stock option expense

 

 

 

 

 

 

51

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

51

 

Restricted stock grants

 

 

83,407

 

 

 

(624

)

 

 

 

 

 

 

 

 

 

 

624

 

 

 

 

Restricted stock forfeitures

 

 

(4,599

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock expense

 

 

 

 

 

 

750

 

 

 

 

 

 

 

 

 

 

 

(36

)

 

 

714

 

Vesting of Long-term Incentive Plan

 

 

36,871

 

 

 

69

 

 

 

 

 

 

 

 

 

 

 

275

 

 

 

344

 

Cash dividend payments ($0.19 per share)

 

 

 

 

 

 

 

 

 

 

(9,478

)

 

 

 

 

 

 

 

 

 

 

(9,478

)

Treasury stock purchases

 

 

(63,392

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(613

)

 

 

(613

)

Balance September 30, 2018

 

 

49,922,514

 

 

$

177,412

 

 

$

186,000

 

 

$

(25,783

)

 

$

(31,586

)

 

$

306,043

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

17,283

 

 

 

 

 

 

 

 

 

 

 

17,283

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,111

 

 

 

 

 

 

 

3,111

 

Stock option exercises

 

 

80,085

 

 

 

(381

)

 

 

 

 

 

 

 

 

 

 

597

 

 

 

216

 

Stock option expense

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Restricted stock grants

 

 

75,875

 

 

 

(564

)

 

 

 

 

 

 

 

 

 

 

564

 

 

 

 

Restricted stock expense

 

 

 

 

 

 

696

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

696

 

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 ($0.10 per share)

 

 

 

 

 

 

 

 

 

 

(4,970

)

 

 

 

 

 

 

 

 

 

 

(4,970

)

Treasury stock purchases

 

 

(81,230

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(705

)

 

 

(705

)

Balance September 30, 2017

 

 

49,758,487

 

 

$

177,460

 

 

$

164,988

 

 

$

(17,929

)

 

$

(32,668

)

 

$

291,851

 

 

See Notes to Consolidated Financial Statements.

 

6


UNITED COMMUNITY FINANCIAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

For the Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

 

(Dollars in thousands)

 

Cash Flows from Operating Activities

 

 

 

Net income

 

$

27,626

 

 

$

17,283

 

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

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

520

 

 

 

3,038

 

Mortgage banking income

 

 

(6,531

)

 

 

(1,140

)

Changes in fair value on loans held for sale

 

 

2,559

 

 

 

(3,988

)

Net losses on real estate owned and other repossessed assets sold

 

 

236

 

 

 

143

 

Net gain on available for sale securities sold

 

 

(233

)

 

 

(566

)

Amortization of premiums and accretion of discounts

 

 

4,311

 

 

 

3,169

 

Depreciation and amortization

 

 

2,030

 

 

 

2,018

 

Net change in interest receivable

 

 

(361

)

 

 

326

 

Net change in interest payable

 

 

80

 

 

 

506

 

Net change in prepaid and other assets

 

 

(4,746

)

 

 

1,807

 

Net change in other liabilities

 

 

2,041

 

 

 

3,956

 

Stock based compensation

 

 

765

 

 

 

697

 

Net principal disbursed on loans originated for sale

 

 

(249,923

)

 

 

(194,232

)

Proceeds from sale of loans held for sale

 

 

240,181

 

 

 

203,676

 

Net change in deferred tax assets

 

 

3,434

 

 

 

2,047

 

Cash surrender value of life insurance

 

 

(1,301

)

 

 

(1,189

)

Net cash from operating activities

 

 

20,688

 

 

 

37,551

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

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

 

 

7,880

 

 

 

19,164

 

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

 

 

6,924

 

 

 

11,625

 

Proceeds from the sale of securities available for sale

 

 

10,361

 

 

 

62,906

 

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

 

 

1,002

 

 

 

1,231

 

Proceeds from the sale of loans held for investment

 

 

150

 

 

 

2,250