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Section 1: 10-Q (UCFC-Q2-20190630)

ucfc-10q_20190630.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, 2019

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.

 

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  

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common shares, no par value

UCFC

Nasdaq Global Market

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 48,085,839 common shares as of July 31, 2019.

 

 

 

 


TABLE OF CONTENTS

 

 

PAGE

 

 

Part I. FINANCIAL INFORMATION

3

 

 

 

Item 1.

 

Financial Statements

3

 

 

 

Condensed Consolidated Statements of Financial Condition as of June 30, 2019 (Unaudited) and December 31, 2018

3

 

 

 

Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)

4

 

 

 

Condensed Consolidated Statement of Shareholders’ Equity for the Three and Six Months ended June 30, 2019 and 2018 (Unaudited)

6

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 (Unaudited)

7

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

8-54

 

 

 

Item 2.

 

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

55-63

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

64

 

 

 

Item 4.

 

Controls and Procedures

65

 

Part II. OTHER INFORMATION

66

 

 

 

Item 1.

 

Legal Proceedings

66

 

 

 

Item 1A.

 

Risk Factors

66

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

66

 

 

 

Item 3.

 

Defaults Upon Senior Securities (None)

66

 

 

 

Item 4.

 

Mine Safety Disclosures (None)

66

 

 

 

Item 5.

 

Other Information (None)

66

 

 

 

Item 6.

 

Exhibits

67

 

Signatures

68

 

2


PART I—FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

UNITED COMMUNITY FINANCIAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

Cash and deposits with banks

 

$

27,507

 

 

$

34,380

 

Federal funds sold

 

 

27,055

 

 

 

26,605

 

Total cash and cash equivalents

 

 

54,562

 

 

 

60,985

 

Securities:

 

 

 

 

 

 

 

 

Trading

 

 

705

 

 

 

364

 

Available for sale

 

 

319,009

 

 

 

241,643

 

Held to maturity, (fair value of $0 and $75,075, respectively)

 

 

 

 

 

77,491

 

Loans held for sale, at fair value

 

 

97,477

 

 

 

91,472

 

Gross loans

 

 

2,249,808

 

 

 

2,197,285

 

Allowance for loan losses

 

 

(20,482

)

 

 

(20,443

)

Loans, net

 

 

2,229,326

 

 

 

2,176,842

 

Federal Home Loan Bank stock, at cost

 

 

14,059

 

 

 

19,144

 

Premises and equipment, net

 

 

22,130

 

 

 

21,930

 

Accrued interest receivable

 

 

9,184

 

 

 

9,080

 

Real estate owned and other repossessed assets, net

 

 

955

 

 

 

1,088

 

Goodwill

 

 

20,221

 

 

 

20,221

 

Customer list intangible

 

 

2,123

 

 

 

2,214

 

Core deposit intangible

 

 

1,439

 

 

 

1,603

 

Cash surrender value of life insurance

 

 

65,002

 

 

 

64,220

 

Other assets

 

 

32,924

 

 

 

23,060

 

Total assets

 

$

2,869,116

 

 

$

2,811,357

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Non-interest bearing

 

$

398,340

 

 

$

394,208

 

Interest bearing

 

 

 

 

 

 

 

 

Customer deposits

 

 

1,672,764

 

 

 

1,528,057

 

Brokered deposits

 

 

188,075

 

 

 

290,955

 

Total interest bearing deposits

 

 

1,860,839

 

 

 

1,819,012

 

Total deposits

 

 

2,259,179

 

 

 

2,213,220

 

Borrowed funds:

 

 

 

 

 

 

 

 

Short-term Federal Home Loan Bank advances

 

 

233,000

 

 

 

243,000

 

Repurchase agreements and other

 

 

146

 

 

 

224

 

Total borrowed funds

 

 

233,146

 

 

 

243,224

 

Advance payments by borrowers for taxes and insurance

 

 

25,335

 

 

 

27,192

 

Accrued interest payable

 

 

1,378

 

 

 

1,279

 

Accrued expenses and other liabilities

 

 

32,524

 

 

 

17,108

 

Total liabilities

 

 

2,551,562

 

 

 

2,502,023

 

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

   48,068,790 and 49,128,875 shares, respectively, outstanding

 

 

177,319

 

 

 

177,492

 

Retained earnings

 

 

204,355

 

 

 

192,062

 

Accumulated other comprehensive loss

 

 

(15,180

)

 

 

(21,436

)

Treasury stock, at cost, 6,070,120 and 5,010,035 shares, respectively

 

 

(48,940

)

 

 

(38,784

)

Total shareholders’ equity

 

 

317,554

 

 

 

309,334

 

Total liabilities and shareholders’ equity

 

$

2,869,116

 

 

$

2,811,357

 

 

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,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(Dollars in thousands, except per share data)

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

26,373

 

 

$

23,275

 

 

$

52,229

 

 

$

46,034

 

Loans held for sale

 

 

991

 

 

 

1,012

 

 

 

1,998

 

 

 

1,870

 

Securities available for sale, nontaxable

 

 

236

 

 

 

356

 

 

 

544

 

 

 

744

 

Securities available for sale, taxable

 

 

1,611

 

 

 

1,193

 

 

 

2,874

 

 

 

2,408

 

Securities held to maturity, nontaxable

 

 

25

 

 

 

61

 

 

 

100

 

 

 

112

 

Securities held to maturity, taxable

 

 

118

 

 

 

398

 

 

 

497

 

 

 

820

 

Federal Home Loan Bank stock dividends

 

 

245

 

 

 

274

 

 

 

534

 

 

 

554

 

Other interest earning assets

 

 

200

 

 

 

92

 

 

 

424

 

 

 

169

 

Total interest income

 

 

29,799

 

 

 

26,661

 

 

 

59,200

 

 

 

52,711

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

7,197

 

 

 

3,790

 

 

 

13,771

 

 

 

6,887

 

Federal Home Loan Bank advances

 

 

559

 

 

 

1,576

 

 

 

1,200

 

 

 

2,996

 

Total interest expense

 

 

7,756

 

 

 

5,366

 

 

 

14,971

 

 

 

9,883

 

Net interest income

 

 

22,043

 

 

 

21,295

 

 

 

44,229

 

 

 

42,828

 

Provision for loan losses

 

 

(51

)

 

 

(138

)

 

 

10

 

 

 

269

 

Net interest income after provision for loan losses

 

 

22,094

 

 

 

21,433

 

 

 

44,219

 

 

 

42,559

 

Non-interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insurance agency income

 

 

545

 

 

 

513

 

 

 

1,246

 

 

 

1,090

 

Brokerage income

 

 

409

 

 

 

300

 

 

 

779

 

 

 

572

 

Deposit related fees

 

 

1,417

 

 

 

1,392

 

 

 

2,758

 

 

 

2,692

 

Mortgage servicing fees

 

 

881

 

 

 

813

 

 

 

1,754

 

 

 

1,625

 

Mortgage servicing rights valuation

 

 

(996

)

 

 

(20

)

 

 

(1,495

)

 

 

(11

)

Mortgage servicing rights amortization

 

 

(553

)

 

 

(542

)

 

 

(999

)

 

 

(1,042

)

Other service fees

 

 

21

 

 

 

61

 

 

 

59

 

 

 

99

 

Net Gains (losses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading securities, including change in fair value

 

 

39

 

 

 

 

 

 

103

 

 

 

 

Securities available for sale (includes $148, $94, $292 and $233,

   respectively, accumulated other comprehensive income

   reclassifications for unrealized net gains on available for sale

   securities)

 

 

148

 

 

 

94

 

 

 

292

 

 

 

233

 

Mortgage banking income

 

 

2,631

 

 

 

1,205

 

 

 

4,307

 

 

 

2,563

 

Real estate owned and other repossessed assets, net

 

 

(33

)

 

 

(113

)

 

 

(64

)

 

 

(191

)

Debit/credit card fees

 

 

1,221

 

 

 

1,177

 

 

 

2,156

 

 

 

2,126

 

Trust fees

 

 

461

 

 

 

473

 

 

 

926

 

 

 

942

 

Increase in cash surrender value of life insurance

 

 

397

 

 

 

433

 

 

 

782

 

 

 

866

 

Other income

 

 

83

 

 

 

66

 

 

 

140

 

 

 

107

 

Total non-interest income

 

 

6,671

 

 

 

5,852

 

 

 

12,744

 

 

 

11,671

 

Non-interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

9,106

 

 

 

8,937

 

 

 

19,681

 

 

 

18,935

 

Occupancy

 

 

1,028

 

 

 

950

 

 

 

2,074

 

 

 

2,050

 

Equipment and data processing

 

 

2,208

 

 

 

2,372

 

 

 

4,501

 

 

 

4,526

 

Financial institutions tax

 

 

509

 

 

 

495

 

 

 

1,018

 

 

 

991

 

Advertising

 

 

465

 

 

 

290

 

 

 

854

 

 

 

525

 

Amortization of intangible assets

 

 

127

 

 

 

132

 

 

 

255

 

 

 

245

 

FDIC insurance premiums

 

 

297

 

 

 

288

 

 

 

628

 

 

 

578

 

Other insurance premiums

 

 

76

 

 

 

109

 

 

 

151

 

 

 

218

 

Legal and consulting fees

 

 

214

 

 

 

147

 

 

 

274

 

 

 

446

 

Other professional fees

 

 

562

 

 

 

499

 

 

 

1,150

 

 

 

890

 

Supervisory fees

 

 

34

 

 

 

42

 

 

 

68

 

 

 

84

 

Real estate owned and other repossessed asset expenses

 

 

17

 

 

 

34

 

 

 

56

 

 

 

70

 

Other expenses

 

 

1,333

 

 

 

1,235

 

 

 

2,940

 

 

 

2,572

 

Total non-interest expenses

 

 

15,976

 

 

 

15,530

 

 

 

33,650

 

 

 

32,130

 

Income before income taxes

 

 

12,789

 

 

 

11,755

 

 

 

23,313

 

 

 

22,100

 

Income tax expense (includes $31, $20, $61 and $49 income tax expense from

   reclassification items)

 

 

2,303

 

 

 

2,214

 

 

 

4,171

 

 

 

4,003

 

Net income

 

$

10,486

 

 

$

9,541

 

 

$

19,142

 

 

$

18,097

 

 

(Continued)

4


(Continued)

UNITED COMMUNITY FINANCIAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

 

 

 

For the Three Months Ended

June 30,

 

 

For the Six Months Ended

June 30,

 

 

 

 

2019

 

 

 

2018

 

 

 

2019

 

 

 

2018

 

 

 

(Dollars in thousands, except per share data)

 

Net income

 

$

10,486

 

 

$

9,541

 

 

$

19,142

 

 

$

18,097

 

Other comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

   reclassifications and tax of $724, $381, $1,518 and $1,449,

   respectively

 

 

2,715

 

 

 

(1,433

)

 

 

5,711

 

 

 

(5,453

)

Unamortized unrealized losses on securities transferred from

   available for sale to held to maturity and then transferred

   back to available for sale

 

 

512

 

 

 

 

 

 

512

 

 

 

 

Accretion of unrealized losses on securities transferred from

   available for sale to held to maturity, net of tax of $2, $8, $9

   and $16, respectively

 

 

9

 

 

 

31

 

 

 

33

 

 

 

61

 

Total other comprehensive income (loss)

 

 

3,236

 

 

 

(1,402

)

 

 

6,256

 

 

 

(5,392

)

Comprehensive income

 

$

13,722

 

 

$

8,139

 

 

$

25,398

 

 

$

12,705

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.22

 

 

$

0.19

 

 

$

0.39

 

 

$

0.36

 

Diluted

 

 

0.22

 

 

 

0.19

 

 

 

0.39

 

 

 

0.36

 

 

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, 2019

 

 

49,128,875

 

 

$

177,492

 

 

$

192,062

 

 

$

(21,436

)

 

$

(38,784

)

 

$

309,334

 

Net income

 

 

 

 

 

 

 

 

 

 

8,656

 

 

 

 

 

 

 

 

 

 

 

8,656

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,020

 

 

 

 

 

 

 

3,020

 

Stock option exercises

 

 

33,000

 

 

 

(187

)

 

 

 

 

 

 

 

 

 

 

257

 

 

 

70

 

Stock option expense

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

Restricted stock grants

 

 

18,969

 

 

 

(148

)

 

 

 

 

 

 

 

 

 

 

148

 

 

 

 

Restricted stock forfeitures

 

 

(834

)

 

 

6

 

 

 

 

 

 

 

 

 

 

 

(6

)

 

 

 

Restricted stock expense

 

 

 

 

 

 

143

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

143

 

Vesting of Long-term Incentive Plan

 

 

54,463

 

 

 

98

 

 

 

 

 

 

 

 

 

 

 

425

 

 

 

523

 

Cash dividend payments ($0.07 per share)

 

 

 

 

 

 

 

 

 

 

(3,432

)

 

 

 

 

 

 

 

 

 

 

(3,432

)

Treasury stock purchases

 

 

(381,785

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,611

)

 

 

(3,611

)

Balance March 31, 2019

 

 

48,852,688

 

 

$

177,410

 

 

$

197,286

 

 

$

(18,416

)

 

$

(41,571

)

 

$

314,709

 

Net income

 

 

 

 

 

 

 

 

 

$

10,486

 

 

 

 

 

 

 

 

 

 

 

10,486

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,236

 

 

 

 

 

 

 

3,236

 

Stock option exercises

 

 

26,600

 

 

 

(157

)

 

 

 

 

 

 

 

 

 

 

209

 

 

 

52

 

Restricted stock grants

 

 

11,489

 

 

 

(90

)

 

 

 

 

 

 

 

 

 

 

90

 

 

 

 

Restricted stock expense

 

 

 

 

 

 

156

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

156

 

Cash dividend payments ($0.07 per share)

 

 

 

 

 

 

 

 

 

 

(3,417

)

 

 

 

 

 

 

 

 

 

 

(3,417

)

Treasury stock purchases

 

 

(821,987

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,668

)

 

 

(7,668

)

Balance June 30, 2019

 

 

48,068,790

 

 

$

177,319

 

 

$

204,355

 

 

$

(15,180

)

 

$

(48,940

)

 

$

317,554

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

8,556

 

 

 

 

 

 

 

 

 

 

 

8,556

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,990

)

 

 

 

 

 

 

(3,990

)

Stock option exercises

 

 

68,801

 

 

 

(284

)

 

 

 

 

 

 

 

 

 

 

513

 

 

 

229

 

Stock option expense

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

 

Restricted stock grants

 

 

27,702

 

 

 

(207

)

 

 

 

 

 

 

 

 

 

 

207

 

 

 

 

Restricted stock forfeitures

 

 

(807

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock expense

 

 

 

 

 

 

248

 

 

 

 

 

 

 

 

 

 

 

(6

)

 

 

242

 

Vesting of Long-term Incentive Plan

 

 

36,871

 

 

 

69

 

 

 

 

 

 

 

 

 

 

 

275

 

 

 

344

 

Cash dividend payments ($0.06 per share)

 

 

 

 

 

 

 

 

 

 

(2,989

)

 

 

 

 

 

 

 

 

 

 

(2,989

)

Treasury stock purchases

 

 

(50,202

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(475

)

 

 

(475

)

Balance March 31, 2018

 

 

49,882,491

 

 

$

177,297

 

 

$

173,419

 

 

$

(22,675

)

 

$

(31,846

)

 

$

296,195

 

Net income

 

 

 

 

 

 

 

 

 

 

9,541

 

 

 

 

 

 

 

 

 

 

 

9,541

 

Other comprehensive loss