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 JuneSeptember 30, 2017

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, or a non-accelerated filer or a smaller reporting 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

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. 49,738,73549,770,126 common shares as of JulyOctober 31, 2017.

 

 

 

 


TABLE OF CONTENTS

 

 

PAGE

 

 

Part I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

 

Financial Statements

3

 

 

 

Condensed Consolidated Statements of Financial Condition as of JuneSeptember 30, 2017 (Unaudited) and December 31, 2016

3

 

 

 

Condensed Consolidated Statements of Income and Comprehensive Income for the Three and SixNine Months Ended JuneSeptember 30, 2017 and 2016 (Unaudited)

4

 

 

 

Condensed Consolidated Statement of Shareholders’ Equity for the SixNine Months ended JuneSeptember 30, 2017and 2016 (Unaudited)

6

 

 

 

Condensed Consolidated Statements of Cash Flows for the SixNine Months Ended JuneSeptember 30, 2017and 2016 (Unaudited)

7

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

8-578-58

 

 

 

Item 2.

 

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

58-6759-68

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

6869

 

 

 

Item 4.

 

Controls and Procedures

6970

 

Part II.OTHER INFORMATION

7071

 

 

 

Item 1.

 

Legal Proceedings

7071

 

 

 

Item 1A.

 

Risk Factors

7071

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

7071

 

 

 

Item 3.

 

Defaults Upon Senior Securities (None)

7071

 

 

 

Item 4.

 

Mine Safety Disclosures (None)

7071

 

 

 

Item 5.

 

Other Information (None)

7071

 

 

 

Item 6.

 

Exhibits

7172

 

Signatures

72

Exhibits

73

 

2


PART I—FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

UNITED COMMUNITY FINANCIAL CORP.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

 

 

June 30,

 

 

December 31,

 

 

September 30,

 

 

December 31,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and deposits with banks

 

$

42,654

 

 

$

27,690

 

 

$

29,600

 

 

$

27,690

 

Federal funds sold

 

 

9,360

 

 

 

18,197

 

 

 

8,410

 

 

 

18,197

 

Total cash and cash equivalents

 

 

52,014

 

 

 

45,887

 

 

 

38,010

 

 

 

45,887

 

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale, at fair value

 

 

287,179

 

 

 

343,284

 

 

 

274,822

 

 

 

343,284

 

Held to maturity, (fair value of $87,775 and $96,150, respectively)

 

 

88,559

 

 

 

97,519

 

Held to maturity, (fair value of $85,024 and $96,150, respectively)

 

 

85,549

 

 

 

97,519

 

Loans held for sale, at lower of cost or market

 

 

199

 

 

 

165

 

 

 

196

 

 

 

165

 

Loans held for sale, at fair value

 

 

85,954

 

 

 

62,593

 

 

 

84,349

 

 

 

62,593

 

Loans, net of allowance for loan losses of $19,660 and $19,087

 

 

1,869,095

 

 

 

1,503,577

 

Loans, net of allowance for loan losses of $20,555 and $19,087

 

 

1,947,695

 

 

 

1,503,577

 

Federal Home Loan Bank stock, at cost

 

 

19,324

 

 

 

18,068

 

 

 

19,324

 

 

 

18,068

 

Premises and equipment, net

 

 

22,424

 

 

 

20,963

 

 

 

22,132

 

 

 

20,963

 

Accrued interest receivable

 

 

7,420

 

 

 

6,900

 

 

 

7,253

 

 

 

6,900

 

Real estate owned and other repossessed assets, net

 

 

1,197

 

 

 

1,777

 

 

 

1,143

 

 

 

1,777

 

Goodwill

 

 

19,467

 

 

 

208

 

 

 

19,488

 

 

 

208

 

Customer list intangible

 

 

2,060

 

 

 

1,356

 

 

 

2,090

 

 

 

1,356

 

Core deposit intangible

 

 

2,099

 

 

 

5

 

 

 

2,017

 

 

 

5

 

Cash surrender value of life insurance

 

 

56,628

 

 

 

55,861

 

 

 

62,050

 

 

 

55,861

 

Other assets

 

 

39,946

 

 

 

33,182

 

 

 

36,247

 

 

 

33,182

 

Total assets

 

$

2,553,565

 

 

$

2,191,345

 

 

$

2,602,365

 

 

$

2,191,345

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest bearing

 

$

339,067

 

 

$

256,918

 

 

$

343,146

 

 

$

256,918

 

Interest bearing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer deposits

 

 

1,423,327

 

 

 

1,181,557

 

 

 

1,438,944

 

 

 

1,181,557

 

Brokered deposits

 

 

131,599

 

 

 

76,516

 

 

 

156,609

 

 

 

76,516

 

Total interest bearing deposits

 

 

1,554,926

 

 

 

1,258,073

 

 

 

1,595,553

 

 

 

1,258,073

 

Total deposits

 

 

1,893,993

 

 

 

1,514,991

 

 

 

1,938,699

 

 

 

1,514,991

 

Borrowed funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank advances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term Federal Home Loan Bank advances

 

 

48,146

 

 

 

47,756

 

 

 

48,341

 

 

 

47,756

 

Short-term Federal Home Loan Bank advances

 

 

280,000

 

 

 

343,000

 

 

 

280,000

 

 

 

343,000

 

Total Federal Home Loan Bank advances

 

 

328,146

 

 

 

390,756

 

 

 

328,341

 

 

 

390,756

 

Repurchase agreements and other

 

 

8,045

 

 

 

512

 

 

 

10,191

 

 

 

512

 

Total borrowed funds

 

 

336,191

 

 

 

391,268

 

 

 

338,532

 

 

 

391,268

 

Advance payments by borrowers for taxes and insurance

 

 

21,989

 

 

 

23,812

 

 

 

16,048

 

 

 

23,812

 

Accrued interest payable

 

 

392

 

 

 

145

 

 

 

722

 

 

 

145

 

Accrued expenses and other liabilities

 

 

15,520

 

 

 

11,323

 

 

 

16,513

 

 

 

11,323

 

Total liabilities

 

 

2,268,085

 

 

 

1,941,539

 

 

 

2,310,514

 

 

 

1,941,539

 

Shareholders' Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

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

49,715,021 and 46,581,370 shares, respectively, outstanding

 

 

177,478

 

 

 

174,360

 

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

49,758,487 and 46,581,370 shares, respectively, outstanding

 

 

177,460

 

 

 

174,360

 

Retained earnings

 

 

159,422

 

 

 

152,675

 

 

 

164,988

 

 

 

152,675

 

Accumulated other comprehensive income (loss)

 

 

(18,448

)

 

 

(21,040

)

 

 

(17,929

)

 

 

(21,040

)

Treasury stock, at cost, 4,423,889 and 7,557,540 shares, respectively

 

 

(32,972

)

 

 

(56,189

)

Treasury stock, at cost, 4,380,423 and 7,557,540 shares, respectively

 

 

(32,668

)

 

 

(56,189

)

Total shareholders’ equity

 

 

285,480

 

 

 

249,806

 

 

 

291,851

 

 

 

249,806

 

Total liabilities and shareholders’ equity

 

$

2,553,565

 

 

$

2,191,345

 

 

$

2,602,365

 

 

$

2,191,345

 

 

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

June 30,

 

 

For the Six Months Ended

June 30,

 

 

For the Three Months Ended

September 30,

 

 

For the Nine Months Ended

September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

(Dollars in thousands, except per share data)

 

 

(Dollars in thousands, except per share data)

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

20,011

 

 

$

14,184

 

 

$

37,569

 

 

$

27,985

 

 

$

20,697

 

 

$

14,633

 

 

$

58,266

 

 

$

42,618

 

Loans held for sale

 

 

872

 

 

 

363

 

 

 

1,533

 

 

 

695

 

 

 

882

 

 

 

482

 

 

 

2,415

 

 

 

1,177

 

Securities available for sale, nontaxable

 

 

418

 

 

 

290

 

 

 

836

 

 

 

413

 

 

 

416

 

 

 

339

 

 

 

1,252

 

 

 

752

 

Securities available for sale, taxable

 

 

1,479

 

 

 

1,781

 

 

 

3,081

 

 

 

3,716

 

 

 

1,276

 

 

 

1,630

 

 

 

4,357

 

 

 

5,346

 

Securities held to maturity, nontaxable

 

 

52

 

 

 

62

 

 

 

114

 

 

 

117

 

 

 

49

 

 

 

66

 

 

 

163

 

 

 

183

 

Securities held to maturity, taxable

 

 

454

 

 

 

524

 

 

 

919

 

 

 

1,101

 

 

 

424

 

 

 

466

 

 

 

1,343

 

 

 

1,567

 

Federal Home Loan Bank stock dividends

 

 

227

 

 

 

180

 

 

 

441

 

 

 

362

 

 

 

253

 

 

 

180

 

 

 

694

 

 

 

542

 

Other interest earning assets

 

 

40

 

 

 

15

 

 

 

120

 

 

 

30

 

 

 

51

 

 

 

19

 

 

 

171

 

 

 

49

 

Total interest income

 

 

23,553

 

 

 

17,399

 

 

 

44,613

 

 

 

34,419

 

 

 

24,048

 

 

 

17,815

 

 

 

68,661

 

 

 

52,234

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,987

 

 

 

1,496

 

 

 

3,608

 

 

 

3,108

 

 

 

2,226

 

 

 

1,389

 

 

 

5,834

 

 

 

4,497

 

Federal Home Loan Bank advances

 

 

1,064

 

 

 

563

 

 

 

2,019

 

 

 

1,093

 

 

 

1,315

 

 

 

661

 

 

 

3,334

 

 

 

1,754

 

Repurchase agreements and other

 

 

8

 

 

 

6

 

 

 

16

 

 

 

11

 

 

 

4

 

 

 

5

 

 

 

20

 

 

 

16

 

Total interest expense

 

 

3,059

 

 

 

2,065

 

 

 

5,643

 

 

 

4,212

 

 

 

3,545

 

 

 

2,055

 

 

 

9,188

 

 

 

6,267

 

Net interest income

 

 

20,494

 

 

 

15,334

 

 

 

38,970

 

 

 

30,207

 

 

 

20,503

 

 

 

15,760

 

 

 

59,473

 

 

 

45,967

 

Provision for loan losses

 

 

842

 

 

 

395

 

 

 

2,317

 

 

 

2,550

 

 

 

721

 

 

 

1,344

 

 

 

3,038

 

 

 

3,894

 

Net interest income after provision for loan losses

 

 

19,652

 

 

 

14,939

 

 

 

36,653

 

 

 

27,657

 

 

 

19,782

 

 

 

14,416

 

 

 

56,435

 

 

 

42,073

 

Non-interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Insurance agency income

 

 

472

 

 

 

516

 

 

 

945

 

 

 

818

 

 

 

509

 

 

 

451

 

 

 

1,454

 

 

 

1,269

 

Brokerage income

 

 

301

 

 

 

396

 

 

 

623

 

 

 

696

 

 

 

271

 

 

 

337

 

 

 

894

 

 

 

1,033

 

Deposit related fees

 

 

1,411

 

 

 

1,362

 

 

 

2,701

 

 

 

2,688

 

 

 

1,499

 

 

 

1,418

 

 

 

4,200

 

 

 

4,106

 

Mortgage servicing fees

 

 

729

 

 

 

701

 

 

 

1,465

 

 

 

1,399

 

 

 

760

 

 

 

715

 

 

 

2,225

 

 

 

2,114

 

Mortgage servicing rights valuation

 

 

(2

)

 

 

(292

)

 

 

(5

)

 

 

(727

)

 

 

(10

)

 

 

25

 

 

 

(15

)

 

 

(702

)

Mortgage servicing rights amortization

 

 

(486

)

 

 

(567

)

 

 

(935

)

 

 

(1,035

)

 

 

(491

)

 

 

(525

)

 

 

(1,426

)

 

 

(1,560

)

Other service fees

 

 

33

 

 

 

47

 

 

 

62

 

 

 

65

 

 

 

21

 

 

 

43

 

 

 

83

 

 

 

108

 

Net gains:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale (includes $301, $233, $330 and $386,

respectively, accumulated other comprehensive income reclassifications

for unrealized net gains on available for sale securities)

 

 

301

 

 

 

233

 

 

 

330

 

 

 

386

 

Securities available for sale (includes $236, $218, $566 and $604,

respectively, accumulated other comprehensive income reclassifications

for unrealized net gains on available for sale securities)

 

 

236

 

 

 

218

 

 

 

566

 

 

 

604

 

Mortgage banking income

 

 

2,117

 

 

 

1,869

 

 

 

3,440

 

 

 

3,251

 

 

 

1,688

 

 

 

1,957

 

 

 

5,128

 

 

 

5,208

 

Real estate owned and other repossessed assets, net

 

 

(18

)

 

 

(63

)

 

 

(70

)

 

 

(76

)

 

 

(73

)

 

 

 

 

 

(143

)

 

 

(76

)

Debit/credit card fees

 

 

1,326

 

 

 

1,120

 

 

 

2,249

 

 

 

2,001

 

 

 

971

 

 

 

915

 

 

 

3,220

 

 

 

2,916

 

Trust fees

 

 

420

 

 

 

 

 

 

702

 

 

 

 

 

 

449

 

 

 

 

 

 

1,151

 

 

 

 

Other income

 

 

486

 

 

 

458

 

 

 

967

 

 

 

972

 

 

 

475

 

 

 

449

 

 

 

1,442

 

 

 

1,421

 

Total non-interest income

 

 

7,090

 

 

 

5,780

 

 

 

12,474

 

 

 

10,438

 

 

 

6,305

 

 

 

6,003

 

 

 

18,779

 

 

 

16,441

 

Non-interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits (includes $0, $(278), $0 and $(556),

respectively, accumulated other comprehensive income reclassifications

from prior service credit on postretirement plan).

 

 

8,749

 

 

 

7,186

 

 

 

17,724

 

 

 

14,274

 

Salaries and employee benefits (includes $0, $(445), $0 and $(1,001),

respectively, accumulated other comprehensive income reclassifications

from prior service credit on postretirement plan).

 

 

8,736

 

 

 

6,950

 

 

 

26,460

 

 

 

21,224

 

Occupancy

 

 

943

 

 

 

855

 

 

 

1,907

 

 

 

1,717

 

 

 

1,013

 

 

 

847

 

 

 

2,920

 

 

 

2,564

 

Equipment and data processing

 

 

2,306

 

 

 

1,887

 

 

 

4,385

 

 

 

3,722

 

 

 

2,303

 

 

 

1,926

 

 

 

6,688

 

 

 

5,648

 

Financial institutions tax

 

 

510

 

 

 

431

 

 

 

1,000

 

 

 

873

 

 

 

348

 

 

 

411

 

 

 

1,348

 

 

 

1,284

 

Advertising

 

 

265

 

 

 

221

 

 

 

389

 

 

 

348

 

 

 

285

 

 

 

290

 

 

 

674

 

 

 

638

 

Amortization of intangible assets

 

 

113

 

 

 

10

 

 

 

196

 

 

 

23

 

 

 

113

 

 

 

72

 

 

 

308

 

 

 

95

 

FDIC insurance premiums

 

 

340

 

 

 

287

 

 

 

528

 

 

 

613

 

 

 

301

 

 

 

155

 

 

 

829

 

 

 

768

 

Other insurance premiums

 

 

109

 

 

 

73

 

 

 

221

 

 

 

162

 

 

 

115

 

 

 

89

 

 

 

336

 

 

 

251

 

Legal and consulting fees

 

 

184

 

 

 

214

 

 

 

413

 

 

 

411

 

 

 

156

 

 

 

211

 

 

 

569

 

 

 

622

 

Other professional fees

 

 

420

 

 

 

351

 

 

 

940

 

 

 

421

 

 

 

666

 

 

 

341

 

 

 

1,606

 

 

 

762

 

Real estate owned and other repossessed asset expenses

 

 

23

 

 

 

77

 

 

 

85

 

 

 

149

 

 

 

33

 

 

 

41

 

 

 

118

 

 

 

190

 

Acquisition costs

 

 

 

 

 

 

 

 

4,962

 

 

 

 

 

 

 

 

 

 

 

 

4,962

 

 

 

 

Other expenses

 

 

1,214

 

 

 

1,268

 

 

 

2,716

 

 

 

2,611

 

 

 

1,395

 

 

 

1,645

 

 

 

4,112

 

 

 

4,256

 

Total non-interest expenses

 

 

15,176

 

 

 

12,860

 

 

 

35,466

 

 

 

25,324

 

 

 

15,464

 

 

 

12,978

 

 

 

50,930

 

 

 

38,302

 

Income before income taxes

 

 

11,566

 

 

 

7,859

 

 

 

13,661

 

 

 

12,771

 

 

 

10,623

 

 

 

7,441

 

 

 

24,284

 

 

 

20,212

 

Income tax expense (includes $105, $178, $115 and $329 income tax expense from reclassification items)

 

 

3,377

 

 

 

2,529

 

 

 

3,934

 

 

 

4,121

 

Income tax expense (includes $83, $232, $198 and $561 income tax expense

from reclassification items)

 

 

3,067

 

 

 

2,288

 

 

 

7,001

 

 

 

6,409

 

Net income

 

$

8,189

 

 

$

5,330

 

 

$

9,727

 

 

$

8,650

 

 

$

7,556

 

 

$

5,153

 

 

$

17,283

 

 

$

13,803

 

 

(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,

 

 

For the Three Months Ended

September 30,

 

 

For the Nine Months Ended

September 30,

 

 

 

2017

 

 

 

2016

 

 

 

2017

 

 

 

2016

 

 

 

2017

 

 

 

2016

 

 

 

2017

 

 

 

2016

 

 

(Dollars in thousands, except per share data)

 

 

(Dollars in thousands, except per share data)

 

Net income

 

$

8,189

 

 

$

5,330

 

 

$

9,727

 

 

$

8,650

 

 

$

7,556

 

 

$

5,153

 

 

$

17,283

 

 

$

13,803

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on securities, available for sale, net of

reclassifications and tax of $842, $2,392, $1,362 and

$5,852, respectively

 

 

1,562

 

 

 

4,442

 

 

 

2,527

 

 

 

10,871

 

Accretion of unrealized losses on securities transferred from

available for sale to held to maturity, net of tax of $17, $20,

$35 and $38, respectively

 

 

32

 

 

 

37

 

 

 

65

 

 

 

71

 

Accretion of unrecognized actuarial gains and amortization of

prior service credit on postretirement plan, net of tax of $0,

$(97), $0 and $(194), respectively recognized in net income

 

 

 

 

 

(181

)

 

 

 

 

 

(362

)

Total other comprehensive income

 

 

1,594

 

 

 

4,298

 

 

 

2,592

 

 

 

10,580

 

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

reclassifications and tax of $262, $(737), $1,624 and

$5,117, respectively

 

 

486

 

 

 

(1,369

)

 

 

3,013

 

 

 

9,502

 

Accretion of unrealized losses on securities transferred from

available for sale to held to maturity, net of tax of $18, $25,

$53 and $63, respectively

 

 

33

 

 

 

47

 

 

 

98

 

 

 

118

 

Accretion of unrecognized actuarial gains and amortization of

prior service credit on postretirement plan, net of tax of $0,

$(156), $0 and $(350), respectively recognized in net

income

 

 

 

 

 

(289

)

 

 

 

 

 

(651

)

Total other comprehensive income (loss)

 

 

519

 

 

 

(1,611

)

 

 

3,111

 

 

 

8,969

 

Comprehensive income

 

$

9,783

 

 

$

9,628

 

 

$

12,319

 

 

$

19,230

 

 

$

8,075

 

 

$

3,542

 

 

$

20,394

 

 

$

22,772

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.16

 

 

$

0.11

 

 

$

0.20

 

 

$

0.18

 

 

$

0.15

 

 

$

0.11

 

 

$

0.35

 

 

$

0.29

 

Diluted

 

 

0.16

 

 

 

0.11

 

 

 

0.20

 

 

 

0.18

 

 

 

0.15

 

 

 

0.11

 

 

 

0.35

 

 

 

0.29

 

 

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

 

 

Common

Shares

Outstanding

 

 

Common

Stock

 

 

Retained

Earnings

 

 

Accumulated Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

 

 

Total

 

 

(Dollars in thousands, except per share data)

 

 

(Dollars in thousands, except per share data)

 

Balance January 1, 2017

 

 

46,581,370

 

 

$

174,360

 

 

$

152,675

 

 

$

(21,040

)

 

$

(56,189

)

 

$

249,806

 

 

 

46,581,370

 

 

$

174,360

 

 

$

152,675

 

 

$

(21,040

)

 

$

(56,189

)

 

$

249,806

 

Net income

 

 

 

 

 

 

 

 

 

 

9,727

 

 

 

 

 

 

 

 

 

 

 

9,727

 

 

 

 

 

 

 

 

 

 

 

17,283

 

 

 

 

 

 

 

 

 

 

 

17,283

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,592

 

 

 

 

 

 

 

2,592

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,111

 

 

 

 

 

 

 

3,111

 

Stock option exercises

 

 

33,418

 

 

 

(176

)

 

 

 

 

 

 

 

 

 

 

250

 

 

 

74

 

 

 

80,085

 

 

 

(381

)

 

 

 

 

 

 

 

 

 

 

597

 

 

 

216

 

Stock option expense

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Restricted stock grants

 

 

68,761

 

 

 

(511

)

 

 

 

 

 

 

 

 

 

 

511

 

 

 

 

 

 

75,875

 

 

 

(564

)

 

 

 

 

 

 

 

 

 

 

564

 

 

 

 

Restricted stock expense

 

 

 

 

 

 

456

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

456

 

 

 

 

 

 

 

696

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

696

 

Vesting of Long-term Incentive Plan

 

 

68,783

 

 

 

87

 

 

 

 

 

 

 

 

 

 

 

510

 

 

 

597

 

 

 

68,783

 

 

 

87

 

 

 

 

 

 

 

 

 

 

 

510

 

 

 

597

 

Purchase of Ohio Legacy Corp.

 

 

3,033,604

 

 

 

3,261

 

 

 

 

 

 

 

 

 

 

 

22,555

 

 

 

25,816

 

 

 

3,033,604

 

 

 

3,261

 

 

 

 

 

 

 

 

 

 

 

22,555

 

 

 

25,816

 

Cash dividend payments ($0.06 per share)

 

 

 

 

 

 

 

 

 

 

(2,980

)

 

 

 

 

 

 

 

 

 

 

(2,980

)

Cash dividend payments ($0.10 per share)

 

 

 

 

 

 

 

 

 

 

(4,970

)

 

 

 

 

 

 

 

 

 

 

(4,970

)

Treasury stock purchases

 

 

(70,915

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(609

)

 

 

(609

)

 

 

(81,230

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(705

)

 

 

(705

)

Balance June 30, 2017

 

 

49,715,021

 

 

$

177,478

 

 

$

159,422

 

 

$

(18,448

)

 

$

(32,972

)

 

$

285,480

 

Balance September 30, 2017

 

 

49,758,487

 

 

$

177,460

 

 

$

164,988

 

 

$

(17,929

)

 

$

(32,668

)

 

$

291,851

 

 

 

Common

Shares

Outstanding

 

 

Common

Stock

 

 

Retained

Earnings

 

 

Accumulated Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

 

 

Total

 

 

Common

Shares

Outstanding

 

 

Common

Stock

 

 

Retained

Earnings

 

 

Accumulated Other

Comprehensive

Income (Loss)

 

 

Treasury

Stock

 

 

Total

 

 

(Dollars in thousands, except per share data)

 

 

(Dollars in thousands, except per share data)

 

Balance January 1, 2016

 

 

47,517,644

 

 

$

174,304

 

 

$

140,819

 

 

$

(19,220

)

 

$

(51,658

)

 

$

244,245

 

 

 

47,517,644

 

 

$

174,304

 

 

$

140,819

 

 

$

(19,220

)

 

$

(51,658

)

 

$

244,245

 

Net income

 

 

 

 

 

 

 

 

 

 

8,650

 

 

 

 

 

 

 

 

 

 

 

8,650

 

 

 

 

 

 

 

 

 

 

 

13,803

 

 

 

 

 

 

 

 

 

 

 

13,803

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,580

 

 

 

 

 

 

 

10,580

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,969

 

 

 

 

 

 

 

8,969

 

Stock option exercises

 

 

69,000

 

 

 

 

 

 

 

(397

)

 

 

 

 

 

 

527

 

 

 

130

 

 

 

165,405

 

 

 

 

 

 

 

(782

)

 

 

 

 

 

 

1,244

 

 

 

462

 

Stock option expense

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 

Restricted stock grants

 

 

173,904

 

 

 

(1,031

)

 

 

(313

)

 

 

 

 

 

 

1,344

 

 

 

 

 

 

192,874

 

 

 

(1,157

)

 

 

(328

)

 

 

 

 

 

 

1,485

 

 

 

 

Restricted stock forfeitures

 

 

(1,014

)

 

 

3

 

 

 

7

 

 

 

 

 

 

 

(10

)

 

 

 

 

 

(2,928

)

 

 

13

 

 

 

14

 

 

 

 

 

 

 

(27

)

 

 

 

Restricted stock expense

 

 

 

 

 

 

462

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

462

 

 

 

 

 

 

 

716

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

716

 

Purchase of James & Sons Insurance

 

 

262,705

 

 

 

 

 

 

 

(541

)

 

 

 

 

 

 

2,049

 

 

 

1,508

 

 

 

262,705

 

 

 

 

 

 

 

(501

)

 

 

 

 

 

 

2,048

 

 

 

1,547

 

Cash dividend payments ($0.05 per share)

 

 

 

 

 

 

 

 

 

 

(2,381

)

 

 

 

 

 

 

 

 

 

 

(2,381

)

Cash dividend payments ($0.08 per share)

 

 

 

 

 

 

 

 

 

 

(3,776

)

 

 

 

 

 

 

 

 

 

 

(3,776

)

Treasury stock purchases

 

 

(1,529,712

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,125

)

 

 

(9,125

)

 

 

(1,593,312

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,571

)

 

 

(9,571

)

Balance June 30, 2016

 

 

46,492,527

 

 

$

173,744

 

 

$

145,844

 

 

$

(8,640

)

 

$

(56,873

)

 

$

254,075

 

Balance September 30, 2016

 

 

46,542,388

 

 

$

173,884

 

 

$

149,249

 

 

$

(10,251

)

 

$

(56,479

)

 

$

256,403

 

 

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,

 

 

For the Nine Months Ended

September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net income

 

$

9,727

 

 

$

8,650

 

 

$

17,283

 

 

$

13,803

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for loan losses

 

 

2,317

 

 

 

2,550

 

 

 

3,038

 

 

 

3,894

 

Mortgage banking income

 

 

(540

)

 

 

(1,602

)

 

 

(1,140

)

 

 

(3,003

)

Changes in fair value on loans held for sale

 

 

(2,900

)

 

 

(1,649

)

 

 

(3,988

)

 

 

(2,205

)

Net losses on real estate owned and other repossessed assets sold

 

 

70

 

 

 

76

 

 

 

143

 

 

 

76

 

Net gain on available for sale securities sold

 

 

(330

)

 

 

(386

)

 

 

(566

)

 

 

(604

)

Net gain on other assets sold

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

Amortization of premiums and accretion of discounts

 

 

1,911

 

 

 

4,234

 

 

 

3,169

 

 

 

5,320

 

Depreciation and amortization

 

 

1,321

 

 

 

1,139

 

 

 

2,018

 

 

 

1,729

 

Net change in interest receivable

 

 

159

 

 

 

(456

)

 

 

326

 

 

 

(88

)

Net change in interest payable

 

 

176

 

 

 

46

 

 

 

506

 

 

 

64

 

Net change in prepaid and other assets

 

 

2,466

 

 

 

(75

)

 

 

2,107

 

 

 

(3,040

)

Net change in other liabilities

 

 

2,924

 

 

 

(130

)

 

 

3,956

 

 

 

2,570

 

Stock based compensation

 

 

457

 

 

 

468

 

 

 

697

 

 

 

724

 

Net principal disbursed on loans originated for sale

 

 

(114,733

)

 

 

(125,930

)

 

 

(194,232

)

 

 

(214,201

)

Proceeds from sale of loans held for sale

 

 

121,673

 

 

 

119,974

 

 

 

203,676

 

 

 

192,994

 

Net change in deferred tax assets

 

 

(2,043

)

 

 

3,595

 

 

 

2,047

 

 

 

5,707

 

Cash surrender value of life insurance

 

 

(767

)

 

 

(730

)

 

 

(1,189

)

 

 

(1,108

)

Tax benefit recognized on stock based compensation

 

 

(198

)

 

 

 

 

 

(300

)

 

 

 

Net change in interest rate caps

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Net cash from operating activities

 

 

21,690

 

 

 

9,775

 

 

 

37,551

 

 

 

2,633

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

16,063

 

 

 

16,845

 

 

 

19,164

 

 

 

21,896

 

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

 

 

8,732

 

 

 

6,126

 

 

 

11,625

 

 

 

10,270

 

Proceeds from the sale of securities available for sale

 

 

53,171

 

 

 

28,530

 

 

 

62,906

 

 

 

33,702

 

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

 

 

881

 

 

 

1,570

 

 

 

1,231

 

 

 

1,671

 

Proceeds from the sale of loans held for investment

 

 

2,250

 

 

 

1

 

 

 

2,250

 

 

 

1

 

Proceeds from the sale of premises and equipment

 

 

3

 

 

 

2

 

 

 

3

 

 

 

2

 

Purchases of premises and equipment

 

 

(1,547

)

 

 

(1,024

)

 

 

(1,943

)

 

 

(1,591

)

Principal disbursed on loans, net of repayments

 

 

(111,004

)

 

 

(69,959

)

 

 

(172,222

)

 

 

(129,388

)

Loans purchased

 

 

(27,039

)

 

 

(15,693

)

 

 

(45,350

)

 

 

(33,203

)

Purchase of bank owned life insurance

 

 

(5,000

)

 

 

 

Purchase of securities available for sale

 

 

 

 

 

(38,843

)

 

 

 

 

 

(38,843

)

Purchase of securities held to maturity

 

 

 

 

 

(3,200

)

 

 

 

 

 

(3,200

)

Net cash paid in acquisition of Eich Brothers Insurance

 

 

(107

)

 

 

 

Net cash (paid) received in acquisition of insurance agencies

 

 

(144

)

 

 

107

 

Net cash received in acquisition of OLCB

 

 

25,779

 

 

 

107

 

 

 

25,779

 

 

 

 

Net cash from investing activities

 

 

(32,818

)

 

 

(75,538

)

 

 

(101,701

)

 

 

(138,576

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase in checking, savings and money market accounts

 

 

47,573

 

 

 

44,415

 

 

 

37,125

 

 

 

44,937

 

Net (decrease) increase in certificates of deposit

 

 

65,291

 

 

 

(24,412

)

Net increase (decrease) in certificates of deposit

 

 

120,496

 

 

 

(7,637

)

Net decrease in advance payments by borrowers for taxes and insurance

 

 

(2,356

)

 

 

(1,575

)

 

 

(8,297

)

 

 

(6,416

)

Net change in short-term FHLB advances

 

 

(86,500

)

 

 

64,000

 

 

 

(86,500

)

 

 

126,000

 

Net change in repurchase agreements and other borrowed funds

 

 

(3,238

)

 

 

(12

)

 

 

(1,092

)

 

 

(18

)

Proceeds from the exercise of stock options

 

 

74

 

 

 

130

 

 

 

216

 

 

 

462

 

Dividends paid

 

 

(2,980

)

 

 

(2,381

)

 

 

(4,970

)

 

 

(3,776

)

Purchase of treasury stock

 

 

(609

)

 

 

(9,125

)

 

 

(705

)

 

 

(9,571

)

Net cash from financing activities

 

 

17,255

 

 

 

71,040

 

 

 

56,273

 

 

 

143,981

 

Change in cash and cash equivalents

 

 

6,127

 

 

 

5,277

 

 

 

(7,877

)

 

 

8,038

 

Cash and cash equivalents, beginning of period

 

 

45,887

 

 

 

35,910

 

 

 

45,887

 

 

 

35,910

 

Cash and cash equivalents, end of period

 

$

52,014

 

 

$

41,187

 

 

$

38,010

 

 

$

43,948

 

 

See Notes to Consolidated Financial Statements

7


UNITED COMMUNITY FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1.

BASIS OF PRESENTATION

United Community Financial Corp. (United Community or the Company) was incorporated in the State of Ohio in February 1998 for the purpose of owning all of the outstanding capital stock of Home Savings and Loan Company of Youngstown, Ohio (Home Savings or the Bank) issued upon the conversion of Home Savings from a mutual savings association to a permanent capital stock savings association (Conversion). Upon consummation of the Conversion on July 8, 1998, United Community became the unitary thrift holding company for Home Savings.  Home Savings conducts its business from its main office located in Youngstown, Ohio, 35 retail banking offices, and 1213 loan production centers and three wealth management offices located throughout Ohio, western Pennsylvania and West Virginia.  

On January 29, 2016, United Community acquired James & Sons Insurance.  James & Sons Insurance was merged into HSB Insurance, LLC.LLC, a wholly-owned subsidiary of United Community.  HSB Insurance, LLC d/b/a James & Sons Insurance is an insurance agency that offers a wide variety of insurance products for business and residential customers, which include auto, homeowners, life-health, commercial, surety bonds and aviation. On February 28, 2017, James & Sons Insurance acquired Eich Brothers Insurance. Eich Brothers Insurance is an insurance agency that offers insurance products for business and residential customers, which include auto, commercial, home ownershomeowners and life-health.  On July 1, 2017, James & Sons Insurance acquired Stevens Insurance Agency, that offers insurance products for business and residential customers, which include auto, commercial, homeowners and life-health.      

HSB Capital, LLC, a wholly-owned subsidiary of United Community, was formed by United Community during 2016 for the purpose of providing mezzanine funding for customers.  Mezzanine loans are offered to customers in United Community’s market area and are expected to repaid from the cash flow from the operations of the business.

On January 31, 2017, United Community completed its acquisition of Ohio Legacy Corp. (OLCB).  Immediately following the acquisition of OLCB, Home Savings was merged into Premier Bank & Trust, OLCB’s wholly-owned subsidiary state chartered bank (PB&T), and PB&T changed its name to Home Savings Bank.  As a result of the acquisition, United Community issued 3,033,604 United Community common shares and paid $20.4 million to OLCB shareholders.   Also, in connection with the acquisition, United Community became a financial holding company, and its wholly owned subsidiary is now an Ohio bank.

HSB Insurance, Inc., a wholly-owned subsidiary of the Company which was formed and began operations on June 1, 2017, is a Delaware-based captive insurance company which insures against certain risks unique to the operations of the Company and its subsidiaries and for which insurance may not be currently available or economically feasible in today's insurance marketplace. HSB Insurance, Inc. pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves.  HSB Insurance, Inc. is subject to regulations of the State of Delaware and undergoes periodic examinations by the Delaware Division of Insurance.

The accompanying consolidated financial statements of United Community have been prepared in accordance with instructions relating to Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles (U.S. GAAP) for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair statement of results for the interim periods.

The results of operations for the three and sixnine months ended JuneSeptember 30, 2017, are not necessarily indicative of the results to be expected for the year ending December 31, 2017. The consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes contained in United Community’s Form 10-K for the year ended December 31, 2016.

The consolidated financial statements include the accounts of United Community and its subsidiaries, Home Savings, HSB Insurance, LLC, HSB Capital, LLC and HSB Insurance, Inc.  All material inter-company transactions have been eliminated.  Some items in the prior year financial statements were reclassified to conform to the current presentation. These reclassifications had no effect on prior year consolidated statements of operations or shareholders’ equity.

 

 

8


 

2.

RECENT ACCOUNTING DEVELOPMENTS

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).  The ASU implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 was originally going to be effective on January 1, 2017; however, the FASB recently issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) – Deferral of the Effective Date which deferred the effective date of ASU 2014-09 by one year to January 1, 2018. United Community’s revenue is comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09, and non-interest income. We expect that ASU 2014-09 will require us to change how we recognize certain insurance commissions and fees; however,

8


we do not expect these changes to have a significant impact on our financial statements. Additional disclosures will be required to provide quantitative and qualitative information regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. We continue to evaluate the impact of ASU 2014-09 on other components of non-interest income.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (viii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. The new guidance is effective for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2017.  Management is currently evaluating the impact of the adoption of this guidance on the Company’s consolidated financial statements and expects revisions to disclosures included in the consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 - Leases (Topic 842). The ASU will require all organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Additional qualitative and quantitative disclosures will be required so that users can understand more about the nature of an entity’s leasing activities. The new guidance is effective for annual reporting periods and interim reporting periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted. Management is currently evaluating the impact of the adoption of this guidance on the Company’s consolidated financial statements and expects to recognize an increase in other assets and other liabilities for the rights and obligations created by leasing of branch offices.  Management also expects minimal impact in the income statement with respect to occupancy expense related to leases.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation - Stock Compensation. The ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements.  Key provisions include the elimination of “windfall pools” and removes the requirement to delay recognition of a windfall tax benefit until it reduces current taxes payable.  Additionally, the simplification permits entities to withhold an amount up to the employees’ maximum individual tax rate in the relevant jurisdiction without resulting in a liability classification of the award.  Entities are now permitted to make accounting policy elections for the impact of forfeitures on the recognition of expense for share-based payment awards.  This ASU was adopted on January 1, 2017.  The Company recognized a tax benefit of $198,000$300,000 in income tax expense during the sixnine months ended JuneSeptember 30, 2017 as a result of adoption related to vesting of restricted stock awards and exercised stock options.    

In June 2016, FASB Issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  This ASU adds a new Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under current U.S. GAAP, companies generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will remove all recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument’s contractual life. ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale

9


debt securities and beneficial interests in securitized financial assets. The guidance in ASU 2016-13 is effective for “public business entities,” as defined, that are SEC filers for fiscal years, and for interim periods with those fiscal years, beginning after December 15, 2019.  Early adoption of the guidance is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Management is currently evaluating the impact of the adoption of this guidance on the Company’s consolidated financial statements.  Management is aggregating the necessary data requirements and addressing any data-archiving improvements necessary for the implementation of this ASU.

9


In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments, which amends the guidance in ASC 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of the ASU is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic. The ASU’s amendments add or clarify guidance on eight cash flow issues:

Debt prepayment or debt extinguishment costs.

Settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing.

Contingent consideration payments made after a business combination.

Proceeds from the settlement of insurance claims.

Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies.

Distributions received from equity method investees.

Beneficial interests in securitization transactions.

Separately identifiable cash flows and application of the predominance principle.

For public business entities, the guidance in the ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  Early adoption is permitted for all entities. Entities must apply the guidance retrospectively to all periods presented but may apply it prospectively from the earliest date practicable if retrospective application would be impracticable.  Management is currently evaluating the impact of the adoption of this guidance on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU eliminates Step 2 from the goodwill impairment test. Instead, under the new guidance, an entity is to perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this guidance is not expected to have an impact on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. This ASU amends the amortization period for certain purchased callable debt securities held at a premium. It shortens the amortization period for the premium to the earliest call date. Under current U.S. GAAP, premiums on callable debt securities generally are amortized to the maturity date. The new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2018. Early adoption is permitted for interim or annual periods. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting . ASU 2017-09 applies to entities that change the terms or conditions of a share-based payment award.  The FASB adopted ASU 2017-09 to provide clarity and reduce diversity in practice as well as cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation , to the modification of the terms and conditions of a share-based payment award.

The amendments in ASU 2017-09 include guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718.

10


These amendments require the entity to account for the effects of a modification unless all of the following conditions are met:

The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or value using an alternative measurement method) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification;

The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and

The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.

10


The amendments are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period for. The amendments should be applied prospectively to an award modified on or after the adoption date.  The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In July 2017, the FASB ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815 ): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.  ASU 2017-11 simplifies the accounting for certain financial instruments with down round features, a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings.

The new ASU will require companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. Companies that provide earnings per share (EPS) data will adjust their basic EPS calculation for the effect of the feature when triggered (i.e., when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature) and will also recognize the effect of the trigger within equity.

The provisions of the new ASU related to down rounds are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities.  The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

 

 

3.

STOCK COMPENSATION

Stock Options:

On April 30, 2015, shareholders approved the United Community Financial Corp. 2015 Long-Term Incentive Compensation Plan (the 2015 Plan). The purpose of the 2015 Plan is to provide a means through which United Community may attract and retain employees and non-employee directors, to provide incentives that align their interest with those of United Community’s shareholders and promote the success of United Community’s business.  All employees and non-employee directors are eligible to participate in the 2015 Plan.  The 2015 Plan provides for the issuance of up to 1,200,000 shares that are to be used for awards of stock options, stock awards, stock units, stock appreciation rights, annual bonus awards and long-term incentive awards.

On April 26, 2007, shareholders approved the United Community Financial Corp. 2007 Long-Term Incentive Plan (as amended, the 2007 Plan). The purpose of the 2007 Plan was to promote and advance the interests of United Community and its shareholders by enabling United Community to attract, retain and reward directors, directors emeritus, managerial and other key employees of United Community, including Home Savings, by facilitating their purchase of an ownership interest in United Community. The 2007 Plan was terminated on April 30, 2015 upon the adoption of the 2015 Plan, although the 2007 Plan survives with respect to awards issued under the 2007 Plan that remain outstanding and exercisable.  The 2007 Plan provided for the issuance of up to 2,000,000 shares that were to be used for awards of restricted stock, stock options, performance awards, stock appreciation rights (SARs), or other forms of stock-based incentive awards.  Because the 2007 Plan terminated, no additional awards may be made under it.

On July 12, 1999, shareholders approved the United Community Financial Corp. 1999 Long-Term Incentive Plan (as amended, the 1999 Plan). The purpose of the 1999 Plan was the same as the 2007 Plan. The 1999 Plan terminated on May 20, 2009, although the 1999 Plan survives with respect to options issued under the 1999 Plan remain outstanding and exercisable. The 1999 Plan provided for the grant of either incentive or nonqualified stock options. Options were awarded at exercise prices that were not less than the fair

11


market value of the share at the grant date. The maximum number of common shares that could be issued under the 1999 Plan was 3,569,766. Because the 1999 Plan terminated, no additional options may be issued under it.

There were no stock options granted in the sixthree and nine months ended JuneSeptember 30, 2017 and 2016. Any options granted must be exercised within 10 years from the date of grant.  Expenses related to prior stock option grants are included with salaries and employee benefits. The Company recognized $0 and $1,000 in stock option expense for the three and sixnine months ended JuneSeptember 30, 2017.2017, respectively.  The Company recognized $3,000$2,000 and $6,000$8,000 in stock option expense for the three and sixnine months ended JuneSeptember 30, 2016.2016, respectively. The Company expectsdoes not expect to recognize additionalany stock option expense of $0 for the remainder of 2017.

11


A summary of option activity in the plans is as follows:

 

For the six months ended

 

For the nine months ended

 

June 30, 2017

 

September 30, 2017

 

 

 

 

 

Weighted

 

 

Aggregate

 

 

 

 

 

Weighted

 

 

Aggregate

 

 

 

 

 

average

 

 

intrinsic value

 

 

 

 

 

average

 

 

intrinsic value

 

Shares

 

 

exercise price

 

 

(in thousands)

 

Shares

 

 

exercise price

 

 

(in thousands)

 

Outstanding at beginning of year

 

371,218

 

 

$

2.55

 

 

 

 

 

 

371,218

 

 

$

2.55

 

 

 

 

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

(33,418

)

 

 

2.18

 

 

 

 

 

 

(80,085

)

 

 

2.69

 

 

 

 

 

Forfeited and expired

 

(600

)

 

 

2.10

 

 

 

 

 

 

(600

)

 

 

2.10

 

 

 

 

 

Outstanding at end of period

 

337,200

 

 

 

2.55

 

 

$

1,931

 

 

290,533

 

 

 

2.51

 

 

$

2,061

 

Shares subject to options exercisable at end of period

 

337,200

 

 

 

2.55

 

 

$

1,931

 

 

290,533

 

 

 

2.51

 

 

$

2,061

 

 

Information related to stock options for the threenine months ended JuneSeptember 30, 2017 and 2016 follows:

 

June 30, 2017

 

 

June 30, 2016

 

September 30, 2017

 

 

September 30, 2016

 

Intrinsic value of options exercised

$

208,633

 

 

$

283,310

 

$

487,000

 

 

$

631,000

 

Cash received from option exercises

 

72,818

 

 

 

129,940

 

 

216,000

 

 

 

462,000

 

Tax benefit realized from option exercises

 

73,022

 

 

 

 

 

170,523

 

 

 

 

Weighted average fair value of options granted, per share

$

 

 

$

 

$

 

 

$

 

 

As of JuneSeptember 30, 2017, the cost of nonvestedthere were no unvested stock options is expected to be recognized over a weighted-average period of 3 months.remaining.

 

Outstanding stock options at JuneSeptember 30, 2017 have a weighted average remaining life of 2.912.79 years and may be exercised in the range of $1.20 to $5.89 per share.

Restricted Stock Awards:

The 2007 Plan permitted and the 2015 Plan permits the issuance of restricted stock awards to employees and nonemployee directors. Nonvested shares at JuneSeptember 30, 2017 aggregated 277,168,275,438, of which 16,5537,709 are expected to vest during the remainder of 2017, 122,375129,044 in 2018, 105,567106,012 in 2019 and 32,673 in 2020. Expense related to restricted stock awards is charged to salaries and employee benefits and is recognized over the vesting period of the awards based on the fair value of the shares at the grant date. The Company recognized approximately $185,000$240,000 and $456,000$696,000 in restricted stock award expenses for the three and sixnine months ended JuneSeptember 30, 2017. The Company recognized approximately $247,000$254,000 and $462,000$716,000 in restricted stock award expense for the three and sixnine months ended JuneSeptember 30, 2016.  The Company expects to recognize additional expenses of approximately $365,000$203,000 in 2017, $503,000$581,000 in 2018, $210,000$259,000 in 2019 and $11,000$60,000 in 2020.  The total average per share fair value of shares vested during the sixnine months ended JuneSeptember 30, 2017 was $8.63.$8.52.

12


A summary of changes in the Company’s nonvested restricted shares for the sixnine months ended JuneSeptember 30, 2017 is as follows:

 

For the six months ended

 

For the nine months ended

 

June 30, 2017

 

September 30, 2017

 

 

 

 

 

Weighted

 

 

 

 

 

Weighted

 

 

 

 

 

average

 

 

 

 

 

average

 

 

 

 

 

grant date

 

 

 

 

 

grant date

 

Shares

 

 

fair value

 

Shares

 

 

fair value

 

Nonvested at beginning of year

 

341,184

 

 

$

5.50

 

 

341,184

 

 

$

5.50

 

Granted

 

68,761

 

 

$

8.62

 

 

75,875

 

 

$

8.60

 

Vested

 

(132,777

)

 

$

4.91

 

 

(141,621

)

 

$

4.98

 

Forfeited

 

 

 

$

 

 

 

 

$

 

Nonvested shares at end of period

 

277,168

 

 

$

6.56

 

 

275,438

 

 

$

6.63

 

 

12


Annual Incentive Plan

The Annual Incentive Plan (AIP) provides incentive compensation awards to certain officers of the Company. Annual incentive awards are generally based upon the actual performance of the Company and individual participant performance for the twelve months ending December 31, compared to the actual performance of a peer group during the same twelve-month period. The target incentive awards for each year are measured as a percentage of the base salary of participating officers.  Once the awards under the AIP are calculated, they are paid in cash and/or restricted stock. The restricted stock vests equally over three years, beginning on the first anniversary of the date the restricted stock is issued.  The Company incurred $46,000$100,000 and $122,000$222,000 in expense for the restricted stock portion of the AIP for the three and sixnine months ended JuneSeptember 30, 2017, respectively and $434,000$431,000 and $930,000for$1.3 million for the cash portion of the AIP for the three and sixnine months ended JuneSeptember 30, 2017, respectively.  The Company incurred $93,000$96,000 and $170,000$265,000 in expense for the restricted stock portion of the AIP for the three and sixnine months ended JuneSeptember 30, 2016, respectively and $293,000$306,000 and $618,000$924,000 for the cash portion of the AIP for the three and sixnine months ended JuneSeptember 30, 2016, respectively.  

Long-term Incentive Plan

The Long-term Incentive Plan (LTIP) provides a long-term incentive compensation opportunity to certain executive officers, whose participation and target award opportunities will be approved by the Compensation Committee of the Board of Directors. Each participant in the LTIP will be granted a target number of Performance Share Units (PSUs).  Target PSUs will be determined as a percentage of base salary and translated into share units based on the Company’s average stock price at the appropriate measurement date.  The performance period for the annual grant for a given year will be from January 1, year 1 through December 31, year 3.   The Company incurred $(4,000)$146,000 and $149,000$295,000 for the LTIP for the three and sixnine months ended JuneSeptember 30, 2017, respectively.  The Company incurred $97,000$96,000 and $193,000$289,000 in expense for the LTIP for the three and sixnine months ended JuneSeptember 30, 2016, respectively.

 

 

 

4.

BUSINESS COMBINATION

On January 31, 2017, United Community completed its acquisition of OLCB pursuant to the terms and conditions of the Agreement and Plan of Merger, dated as of September 8, 2016 by and among United Community, the Bank, OLCB and Premier Bank & Trust (Merger Agreement).  Pursuant to the terms of the Merger Agreement, OLCB was merged with and into United Community. Immediately following the merger, Home Savings was merged with and into Premier Bank & Trust, a subsidiary of OLCB, and changed its name to Home Savings Bank.

As a result of the acquisiton and in accordance with the terms of the Merger Agreement, each preferred share of OLCB was deemed to have been converted into OLCB common shares. Each OLCB common share was converted into the right to receive either $18.00 in cash or 2.736 United Community common shares, subject to certain allocation procedures set forth in the Merger Agreement that ensured that 50% of OLCB’s common shares outstanding were converted into United Community common shares and 50% of OLCB’s common shares outstanding were exchanged for the cash consideration. The Company issued cash in lieu of issuing fractional shares.  

After the allocation procedures were applied, the Company issued 3,033,604 United Community common shares and paid $20.4 million to OLCB shareholders as a result of the acquisition.  Acquisition related costs aggregating $5.0 million were included in United Community’s Consolidated Statements of Operations for the sixnine months ended JuneSeptember 30, 2017.  The fair value of the common shares issued as part of the consideration paid for OLCB was determined in the basis of the closing price of United Community’s commons shares on the acquisition date.

13


The following table summarizes the consideration paid for OLCB.

 

 

 

(In thousands)

 

Cash

 

$

20,379

 

United Community shares issued

 

 

25,816

 

Total fair value of consideration paid

 

$

46,195

 

 

13


At the acquisition date, United Community added the following to the Company’s consolidated statements of financial position:

 

 

 

(In thousands)

 

Cash

 

$

46,159

 

Loans

 

 

259,373

 

Available for sale securities

 

 

9,996

 

FHLB stock, at cost

 

 

1,256

 

Premises and equipment

 

 

2,940

 

Accrued interest

 

 

679

 

Other intangible assets

 

 

2,426

 

Other real estate owned

 

 

89

 

Other assets

 

 

7,988

 

Total assets acquired

 

$

330,906

 

 

 

 

 

 

Deposits assumed

 

$

266,279

 

Federal Home Loan Bank advances

 

 

23,500

 

Repurchase agreements and other borrowings

 

 

10,771

 

Accrued expenses and other liabilities

 

 

2,581

 

Total liabilities assumed

 

$

303,131

 

 

 

 

 

 

Goodwill created

 

$

18,420

 

The fair value of net assets acquired included fair value adjustments to certain receivables that were not considered impaired as of the acquisition date.  The fair value adjustments were determined using discounted contractual cash flows.  However, the Company believes that all contractual cash flows related to these financial instruments will be collected.  As such, these receivables were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence of credit deterioration since origination.  Receivables acquiredThe Company has purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that wereall contractually required payments would not subject to these requirements include impaired loans and customer receivablesbe collected with a fair value and gross contractual amounts receivable of $2.5 million and $2.6 million, respectively, on the date of acquisition.

Upon adoption of ASU 2016-16, Business Combinations (Topic 805), adjustments to provisional amounts booked in previous years are to be adjusted through current year goodwill with the full effect of changes to depreciation, amortization, or other income recorded in current year earnings as if the change had been completed as of the acquisition date.

The following table presents proforma information as if the OLCB acquisition had occurred at the beginning of 2016.  The proforma information includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, depreciation expense on property acquired, interest expense on deposits acquired, and the related income tax effects.  The proforma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed dates.  Net income includes the recognition of $4.1 million in acquisitonacquisition related expenses incurred by United Community and $368,000 in acquisitonacquisition related expenses for OLCB during the sixnine months ended JuneSeptember 30, 2017.  The impact of the acquired insurance agencies is considered immaterial and not included in the table below.  

 

 

For the Six Months Ended

June 30,

 

 

For the Nine Months Ended

September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

(In thousands, except per share data)

 

 

(In thousands, except per share data)

 

Net interest income

 

$

39,992

 

 

$

36,251

 

 

$

61,185

 

 

$

55,595

 

Net income

 

 

9,371

 

 

 

10,270

 

 

 

16,928

 

 

 

16,118

 

Basic earnings per share

 

$

0.19

 

 

$

0.20

 

 

$

0.34

 

 

$

0.32

 

Diluted earnings per share

 

$

0.19

 

 

$

0.20

 

 

$

0.34

 

 

$

0.32

 

14


Goodwill is recorded arising from the acquisition, which consisted largely of synergies and the cost savings resulting from combining the operations of the companies.  No goodwill is expected to be deductible for income tax purposes.  

At the time of the closing, Home SavingsSavings’ charter changed to a state chartered commercial bank and United Community became a financial holding company.

14


The acquisition benefits the Company and its shareholders by enabling the Company to further expand into the markets currently served by OLCB and strengthening the competitive position of the combined organization. Furthermore, the Company believes its increased asset size after the acquisition will create additional economies of scale and provide opportunities for asset and earnings growth in an extremely competitive banking environment.  OLCB results of operations were included in the Company’s results beginning January 31, 2017.

The fair value of $2.2 million of intangible assets related to core deposits is subject to change pending final receipt of the final valuation.  

On February 28, 2017, HSB Insurance, LLC completed the purchase of an insurance agency engaged in the business of selling insurance including auto, commercial, homeowners and life-health insurance.  Under the purchase agreement, the Company paid $535,000.$535,000, of which $107,000 was paid in cash at closing and the remaining $428,000 will be paid in four equal installments in connection with this acquisition.  Total assets purchased were $535,000,$722,000, which isincludes the customer list intangible.intangible and goodwill.

On July 1, 2017, HSB Insurance, LLC completed the purchase of an insurance agency engaged in the business of selling insurance including auto, commercial, homeowners and life-health insurance.  Under the purchase agreement, the Company paid $60,000, of which $23,000 was paid in cash at closing and the remaining $37,000 will be paid in two equal installments in connection with this acquisition.  Total assets purchased were $81,000, which includes the customer list intangible and goodwill

 

 

 

5.

SECURITIES

Components of the available for sale portfolio are as follows:

 

 

June 30, 2017

 

 

September 30, 2017

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Amortized

 

 

unrealized

 

 

unrealized

 

 

Fair

 

 

Amortized

 

 

unrealized

 

 

unrealized

 

 

Fair

 

 

cost

 

 

gains

 

 

losses

 

 

value

 

 

cost

 

 

gains

 

 

losses

 

 

value

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government sponsored entities' securities

 

$

134,820

 

 

$

273

 

 

$

(490

)

 

$

134,603

 

 

$

125,153

 

 

$

237

 

 

$

(330

)

 

$

125,060

 

States of the U.S. and political subdivisions

 

 

59,112

 

 

 

387

 

 

 

(675

)

 

 

58,824

 

 

 

58,959

 

 

 

699

 

 

 

(466

)

 

 

59,192

 

Mortgage-backed GSE securities: residential

 

 

94,173

 

 

 

91

 

 

 

(512

)

 

 

93,752

 

 

 

90,888

 

 

 

106

 

 

 

(424

)

 

 

90,570

 

Total

 

$

288,105

 

 

$

751

 

 

$

(1,677

)

 

$

287,179

 

 

$

275,000

 

 

$

1,042

 

 

$

(1,220

)

��

$

274,822

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

unrealized

 

 

unrealized

 

 

Fair

 

 

 

cost

 

 

gains

 

 

losses

 

 

value

 

 

 

(Dollars in thousands)

 

Available for Sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government sponsored entities' securities

 

$

188,082

 

 

$

172

 

 

$

(2,221

)

 

$

186,033

 

States of the U.S. and political subdivisions

 

 

59,415

 

 

 

3

 

 

 

(1,661

)

 

 

57,757

 

Mortgage-backed GSE securities: residential

 

 

100,602

 

 

 

50

 

 

 

(1,158

)

 

 

99,494

 

Total

 

$

348,099

 

 

$

225

 

 

$

(5,040

)

 

$

343,284

 

 

15


Components of held to maturity securities portfolio are as follows:

 

 

June 30, 2017

 

 

September 30, 2017

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Amortized

 

 

unrecognized

 

 

unrecognized

 

 

Fair

 

 

Amortized

 

 

unrecognized

 

 

unrecognized

 

 

Fair

 

 

cost

 

 

gains

 

 

losses

 

 

value

 

 

cost

 

 

gains

 

 

losses

 

 

value

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed GSE securities: residential

 

$

79,318

 

 

$

 

 

$

(892

)

 

$

78,426

 

 

$

76,314

 

 

$

 

 

$

(615

)

 

$

75,699

 

States of the U.S. and political subdivisions

 

 

9,241

 

 

 

109

 

 

 

(1

)

 

 

9,349

 

 

 

9,235

 

 

 

94

 

 

 

(4

)

 

 

9,325

 

Total

 

$

88,559

 

 

$

109

 

 

$

(893

)

 

$

87,775

 

 

$

85,549

 

 

$

94

 

 

$

(619

)

 

$

85,024

 


 

 

December 31, 2016

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

unrecognized

 

 

unrecognized

 

 

Fair

 

 

 

cost

 

 

gains

 

 

losses

 

 

value

 

 

 

(Dollars in thousands)

 

Held to maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed GSE securities: residential

 

$

85,065

 

 

$

 

 

$

(1,300

)

 

$

83,765

 

States of the U.S. and political subdivisions

 

 

12,454

 

 

 

17

 

 

 

(86

)

 

 

12,385

 

Total

 

$

97,519

 

 

$

17

 

 

$

(1,386

)

 

$

96,150

 

Debt securities available for sale by contractual maturity, repricing or expected call date are shown below:

 

 

June 30, 2017

 

 

September 30, 2017

 

 

Amortized cost

 

 

Fair value

 

 

Amortized cost

 

 

Fair value

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Due in one year or less

 

$

 

 

$

 

 

$

 

 

$

 

Due after one year through five years

 

 

4,594

 

 

 

4,579

 

 

 

14,556

 

 

 

14,570

 

Due after five years through ten years

 

 

130,641

 

 

 

130,447

 

 

 

111,011

 

 

 

110,912

 

Due after ten years

 

 

58,697

 

 

 

58,401

 

 

 

58,545

 

 

 

58,770

 

Mortgage-backed GSE securities: residential

 

 

94,173

 

 

 

93,752

 

 

 

90,888

 

 

 

90,570

 

Total

 

$

288,105

 

 

$

287,179

 

 

$

275,000

 

 

$

274,822

 

 

Debt securities held to maturity by contractual maturity, repricing or expected call date are shown below:

 

 

June 30, 2017

 

 

September 30, 2017

 

 

Amortized cost

 

 

Fair value

 

 

Amortized cost

 

 

Fair value

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Due in one year or less

 

$

 

 

$

 

 

$

 

 

$

 

Due after one year through five years

 

 

 

 

 

 

 

 

 

 

 

 

Due after five years through ten years

 

 

7,290

 

 

 

7,375

 

 

 

7,285

 

 

 

7,357

 

Due after ten years

 

 

1,951

 

 

 

1,974

 

 

 

1,950

 

 

 

1,968

 

Mortgage-backed GSE securities: residential

 

 

79,318

 

 

 

78,426

 

 

 

76,314

 

 

 

75,699

 

Total

 

$

88,559

 

 

$

87,775

 

 

$

85,549

 

 

$

85,024

 

 

 

Securities pledged for public funds were approximately $136.8$133.3 million at JuneSeptember 30, 2017 and approximately $146.5 million at December 31, 2016.  

16


Securities available for sale that have been in an unrealized loss position for less than twelve months or twelve months or more at JuneSeptember 30, 2017 are as follows:

 

 

June 30, 2017

 

 

September 30, 2017

 

 

Less than 12 months

 

 

12 months or more

 

 

Total

 

 

Less than 12 months

 

 

12 months or more

 

 

Total

 

 

Fair

 

 

Unrealized loss

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized loss

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

value

 

 

Loss

 

 

value

 

 

Loss

 

 

value

 

 

Loss

 

 

value

 

 

Loss

 

 

value

 

 

Loss

 

 

value

 

 

Loss

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Description of securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government sponsored entities

 

$

74,259

 

 

$

(490

)

 

$

 

 

$

 

 

$

74,259

 

 

$

(490

)

 

$

59,316

 

 

$

(330

)

 

$

 

 

$

 

 

$

59,316

 

 

$

(330

)

States of the U.S. and political subdivisions

 

 

37,694

 

 

 

(675

)

 

 

 

 

 

 

 

 

37,694

 

 

 

(675

)

 

 

21,789

 

 

 

(283

)

 

 

6,350

 

 

 

(183

)

 

 

28,139

 

 

 

(466

)

Mortgage-backed GSE securities: residential

 

 

71,176

 

 

 

(512

)

 

 

 

 

 

 

 

 

71,176

 

 

 

(512

)

 

 

68,648

 

 

 

(424

)

 

 

 

 

 

 

 

 

68,648

 

 

 

(424

)

Total temporarily impaired securities

 

$

183,129

 

 

$

(1,677

)

 

$

 

 

$

 

 

$

183,129

 

 

$

(1,677

)

 

$

149,753

 

 

$

(1,037

)

 

$

6,350

 

 

$

(183

)

 

$

156,103

 

 

$

(1,220

)

 

16


Securities available for sale that have been in an unrealized loss position for less than twelve months or twelve months or more at December 31, 2016 are as follows:

 

 

 

December 31, 2016

 

 

 

Less than 12 months

 

 

12 months or more

 

 

Total

 

 

 

Fair

 

 

Unrealized loss

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

 

value

 

 

Loss

 

 

value

 

 

Loss

 

 

value

 

 

Loss

 

 

 

(Dollars in thousands)

 

Description of securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government sponsored entities

 

$

171,411

 

 

$

(2,221

)

 

$

 

 

$

 

 

$

171,411

 

 

$

(2,221

)

States of the U.S. and political subdivisions

 

 

53,283

 

 

 

(1,661

)

 

 

 

 

 

 

 

 

53,283

 

 

 

(1,661

)

Mortgage-backed GSE securities: residential

 

 

98,775

 

 

 

(1,158

)

 

 

 

 

 

 

 

 

98,775

 

 

 

(1,158

)

Total temporarily impaired securities

 

$

323,469

 

 

$

(5,040

)

 

$

 

 

$

 

 

$

323,469

 

 

$

(5,040

)

All of the U.S. treasury and government sponsored entities and mortgage-backed securities available for sale that were temporarily impaired at JuneSeptember 30, 2017 and December 31, 2016, were impaired due to the level of interest rates at the time of purchase compared to current interest rates. Unrealized losses on these securities have not been recognized into income during the sixnine months ended JuneSeptember 30, 2017 or 2016 because the issuer’s securities are of high credit quality (rated AA or higher), it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. There is risk that longer term rates could rise further resulting in greater unrealized losses.  The Company expects to realize all interest and principal on these securities and has no intent to sell, and more than likely will not be required to sell, these securities before their anticipated recovery.

All of the obligations of U.S. states and political subdivisions held for sale that were temporarily impaired at JuneSeptember 30, 2017 and December 31, 2016, were impaired due to the level of interest rates at the time of purchase compared to current interest rates.  Unrealized losses on these securities have not been recognized into income for the sixnine months ended JuneSeptember 30, 2017 or 2016 because the issuer’s securities are of high credit quality (rated AA or higher), it is likely that management will not be required to sell, and has no intent to sell, the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions.

17


Securities held to maturity that have been in an unrecognized loss position for less than twelve months or twelve months or more are as follows: 

 

 

June 30, 2017

 

 

September 30, 2017

 

 

Less than 12 months

 

 

12 months or more

 

 

Total

 

 

Less than 12 months

 

 

12 months or more

 

 

Total

 

 

Fair

 

 

Unrealized loss

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized loss

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

value

 

 

Loss

 

 

value

 

 

Loss

 

 

value

 

 

Loss

 

 

value

 

 

Loss

 

 

value

 

 

Loss

 

 

value

 

 

Loss

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Description of securities:

 

 

 

 

��

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed GSE securities: residential

 

$

53,519

 

 

$

(934

)

 

$

24,907

 

 

$

(1,089

)

 

$

78,426

 

 

$

(2,023

)

 

$

48,309

 

 

$

(668

)

 

$

27,390

 

 

$

(1,027

)

 

$

75,699

 

 

$

(1,695

)

States of the U.S. and political subdivisions

 

 

962

 

 

 

(1

)

 

 

 

 

 

 

 

 

962

 

 

 

(1

)

 

 

1,543

 

 

 

(4

)

 

 

 

 

 

 

 

 

1,543

 

 

 

(4

)

Total temporarily impaired securities

 

$

54,481

 

 

$

(935

)

 

$

24,907

 

 

$

(1,089

)

 

$

79,388

 

 

$

(2,024

)

 

$

49,852

 

 

$

(672

)

 

$

27,390

 

 

$

(1,027

)

 

$

77,242

 

 

$

(1,699

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

December 31, 2016

 

 

Less than 12 months

 

 

12 months or more

 

 

Total

 

 

Less than 12 months

 

 

12 months or more

 

 

Total

 

 

Fair

 

 

Unrealized loss

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized loss

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

value

 

 

Loss

 

 

value

 

 

Loss

 

 

value

 

 

Loss

 

 

value

 

 

Loss

 

 

value

 

 

Loss

 

 

value

 

 

Loss

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Description of securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed GSE securities: residential

 

$

57,340

 

 

$

(1,243

)

 

$

26,426

 

 

$

(1,287

)

 

$

83,766

 

 

$

(2,530

)

 

$

57,340

 

 

$

(1,243

)

 

$

26,426

 

 

$

(1,287

)

 

$

83,766

 

 

$

(2,530

)

States of the U.S. and political subdivisions

 

 

7,416

 

 

 

(86

)

 

 

 

 

 

 

 

 

 

 

7,416

 

 

 

(86

)

 

 

7,416

 

 

 

(86

)

 

 

 

 

 

 

 

 

7,416

 

 

 

(86

)

Total temporarily impaired securities

 

$

64,756

 

 

$

(1,329

)

 

$

26,426

 

 

$

(1,287

)

 

$

91,182

 

 

$

(2,616

)

 

$

64,756

 

 

$

(1,329

)

 

$

26,426

 

 

$

(1,287

)

 

$

91,182

 

 

$

(2,616

)

17


During the third quarter of 2015, Home Savings transferred securities with a total amortized cost of $105.3 million with a corresponding fair value of $103.8 million from available for sale to held to maturity.  The net unrealizable loss, net of taxes, on these securities at the date of transfer was $999,000.  The fair value at the date of transfer becomes the securities’ new cost basis.  The unrealized holding loss at the time of transfer continues to be reported in accumulated other comprehensive income, net of tax and is amortized over the remaining lives of the securities as an adjustment of the yield.  The amortization of the unamortized holding loss reported in accumulated other comprehensive income will directly offset the effect on interest income from the accretion of the reduced amortized cost for the transferred securities.  Because of this transfer, the total losses less than 12 months and greater than 12 months reported in the table above will not agree to the unrealized losses reported in the inventory of held to maturity securities.  The inventory table reports unrealized gains and losses based upon the transferred securities adjusted cost basis and current fair value.  The reporting of losses less than 12 months and greater than 12 months represents that actual period of time that these securities have been in an unrealized loss position and the securities amortized cost basis as if the transfer did not occur.

All of the mortgage-backed securities held to maturity that were temporarily impaired at JuneSeptember 30, 2017 and December 31, 2016, were impaired due to the level of interest rates at the time of purchase compared to current interest rates. Unrealized losses on these securities have not been recognized into income for the sixnine months ended JuneSeptember 30, 2017 or 2016 because the issuer’s securities are of high credit quality (rated AA or higher), it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. There is risk that longer term rates could rise further resulting in greater unrealized losses.  The Company expects to realize all interest and principal on these securities and has no intent to sell and more than likely will not be required to sell these securities before their anticipated recovery.

All of the obligations of U.S. states and political subdivisions held to maturity that were temporarily impaired at JuneSeptember 30, 2017, and December 31, 2016, were impaired due to the level of interest rates at the time of purchase compared to current interest rates.  Unrealized losses on these securities have not been recognized into income for the sixnine months ended JuneSeptember 30, 2017 or 2016 because the issuer’s securities are of high credit quality (rated AA or higher), it is likely that management will not be required to sell and has no intent to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions.

Proceeds from the sale of available for sale securities were $48.1$9.7 million and $10.4$5.2 million, for the three months ended JuneSeptember 30, 2017 and 2016, respectively.  Gross gains of $345,000$236,000 and $233,000$218,000 were realized on these sales during the three months ended JuneSeptember 30, 2017 and 2016, respectively.  No gross losses were realized on these sales during the three months ended September 30, 2017 or 2016.  Income tax expense related to net realized gains and losses was $83,000 and $76,000 for the three months ended September 30, 2017 and 2016, respectively.

18


Proceeds from the sale of available for sale securities were $62.9 million and $33.7 million, for the nine months ended September 30, 2017 and 2016, respectively.  Gross gains of $610,000 and $609,000 were realized on these sales during the nine months ended September 30, 2017 and 2016, respectively.  Gross losses of $44,000 and $0 were realized on these sales during the threenine months ended JuneSeptember 30, 2017 and 2016, respectively.  Income tax expense related to net realized gains and losses was $105,000$198,000 and $81,000$211,000 for the threenine months ended JuneSeptember 30, 2017 and 2016, respectively.

Proceeds from the sale of available for sale securities were $53.2 million and $28.5 million, for the six months ended June 30, 2017 and 2016, respectively.  Gross gains of $374,000 and $386,000 were realized on these sales during the six months ended June 30 2017 and 2016, respectively.  Gross losses of $44,000 and $0 were realized on these sales during the six months ended June 30, 2017 and 2016, respectively.  Income tax expense related to net realized gains and losses was $115,000 and $135,000 for the six months ended June 30, 2017 and 2016, respectively.

 

 

18


 

6.

LOANS

Portfolio loans consist of the following:

 

 

June 30,

 

 

December 31,

 

 

September 30,

 

 

December 31,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

$

121,565

 

 

$

93,597

 

 

$

126,977

 

 

$

93,597

 

Nonresidential

 

 

342,300

 

 

 

231,401

 

 

 

366,747

 

 

 

231,401

 

Land

 

 

10,867

 

 

 

8,373

 

 

 

13,666

 

 

 

8,373

 

Construction

 

 

96,765

 

 

 

68,158

 

 

 

108,105

 

 

 

68,158

 

Secured

 

 

162,109

 

 

 

95,343

 

 

 

167,433

 

 

 

95,343

 

Unsecured

 

 

8,649

 

 

 

7,386

 

 

 

8,148

 

 

 

7,386

 

Total commercial loans

 

 

742,255

 

 

 

504,258

 

 

 

791,076

 

 

 

504,258

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

834,349

 

 

 

762,926

 

 

 

851,863

 

 

 

762,926

 

Construction

 

 

56,946

 

 

 

35,695

 

 

 

57,081

 

 

 

35,695

 

Total residential mortgage loans

 

 

891,295

 

 

 

798,621

 

 

 

908,944

 

 

 

798,621

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

187,762

 

 

 

165,054

 

 

 

193,402

 

 

 

165,054

 

Auto

 

 

50,389

 

 

 

39,609

 

 

 

56,883

 

 

 

39,609

 

Marine

 

 

1,601

 

 

 

1,796

 

 

 

1,564

 

 

 

1,796

 

Recreational vehicle

 

 

6,401

 

 

 

7,602

 

 

 

6,249

 

 

 

7,602

 

Other

 

 

4,998

 

 

 

2,537

 

 

 

5,594

 

 

 

2,537

 

Total consumer loans

 

 

251,151

 

 

 

216,598

 

 

 

263,692

 

 

 

216,598

 

Total loans

 

 

1,884,701

 

 

 

1,519,477

 

 

 

1,963,712

 

 

 

1,519,477

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

 

19,660

 

 

 

19,087

 

 

 

20,555

 

 

 

19,087

 

Deferred loan costs, net

 

 

(4,054

)

 

 

(3,187

)

 

 

(4,538

)

 

 

(3,187

)

Total

 

 

15,606

 

 

 

15,900

 

 

 

16,017

 

 

 

15,900

 

Loans, net

 

$

1,869,095

 

 

$

1,503,577

 

 

$

1,947,695

 

 

$

1,503,577

 

 

19


The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and are based on impairment method as of JuneSeptember 30, 2017 and December 31, 2016 and activity for the three and sixnine months ended JuneSeptember 30, 2017 and 2016.

Allowance For Loan Losses

 

 

Commercial

Loans

 

 

Residential

Loans

 

 

Consumer

Loans

 

 

Total

 

 

Commercial

Loans

 

 

Residential

Loans

 

 

Consumer

Loans

 

 

Total

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

For the three months ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended September 30, 2017

For the three months ended September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

10,821

 

 

$

5,968

 

 

$

2,871

 

 

$

19,660

 

Provision (recovery)

 

 

512

 

 

 

369

 

 

 

(160

)

 

 

721

 

Charge-offs

 

 

(12

)

 

 

(427

)

 

 

(147

)

 

 

(586

)

Recoveries

 

 

361

 

 

 

136

 

 

 

263

 

 

 

760

 

Ending balance

 

$

11,682

 

 

$

6,046

 

 

$

2,827

 

 

$

20,555

 

For the nine months ended September 30, 2017

For the nine months ended September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

10,182

 

 

$

5,912

 

 

$

2,876

 

 

$

18,970

 

 

$

10,824

 

 

$

5,538

 

 

$

2,725

 

 

$

19,087

 

Provision

 

 

503

 

 

 

295

 

 

 

44

 

 

 

842

 

 

 

1,537

 

 

 

1,234

 

 

 

267

 

 

 

3,038

 

Charge-offs

 

 

(12

)

 

 

(273

)

 

 

(150

)

 

 

(435

)

 

 

(1,335

)

 

 

(930

)

 

 

(626

)

 

 

(2,891

)

Recoveries

 

 

148

 

 

 

34

 

 

 

101

 

 

 

283

 

 

 

656

 

 

 

204

 

 

 

461

 

 

 

1,321

 

Ending balance

 

$

10,821

 

 

$

5,968

 

 

$

2,871

 

 

$

19,660

 

 

$

11,682

 

 

$

6,046

 

 

$

2,827

 

 

$

20,555

 

For the six months ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

10,824

 

 

$

5,538

 

 

$

2,725

 

 

$

19,087

 

Provision (recovery)

 

 

1,025

 

 

 

865

 

 

 

427

 

 

 

2,317

 

Charge-offs

 

 

(1,323

)

 

 

(503

)

 

 

(479

)

 

 

(2,305

)

Recoveries

 

 

295

 

 

 

68

 

 

 

198

 

 

 

561

 

Ending balance

 

$

10,821

 

 

$

5,968

 

 

$

2,871

 

 

$

19,660

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period-end amount allocated to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

5

 

 

$

1,171

 

 

$

440

 

 

 

1,616

 

 

$

16

 

 

$

1,169

 

 

$

411

 

 

 

1,596

 

Loans collectively evaluated for impairment

 

 

10,816

 

 

 

4,797

 

 

 

2,431

 

 

 

18,044

 

 

 

11,612

 

 

 

4,877

 

 

 

2,416

 

 

 

18,905

 

Loans acquired with deteriorated credit quality

 

 

 

 

 

 

 

 

 

 

 

 

 

 

54

 

 

 

 

 

 

 

 

 

54

 

Ending balance

 

$

10,821

 

 

$

5,968

 

 

$

2,871

 

 

$

19,660

 

 

$

11,682

 

 

$

6,046

 

 

$

2,827

 

 

$

20,555

 

Period-end balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

 

2,532

 

 

 

16,190

 

 

 

7,588

 

 

 

26,310

 

 

 

2,322

 

 

 

16,718

 

 

 

7,314

 

 

 

26,354

 

Loans collectively evaluated for impairment

 

 

738,502

 

 

 

875,105

 

 

 

243,563

 

 

 

1,857,170

 

 

 

787,550

 

 

 

892,226

 

 

 

256,378

 

 

 

1,936,154

 

Loans acquired with deteriorated credit quality

 

 

1,221

 

 

 

 

 

 

 

 

 

1,221

 

 

 

1,204

 

 

 

 

 

 

 

 

 

1,204

 

Ending balance

 

$

742,255

 

 

$

891,295

 

 

$

251,151

 

 

$

1,884,701

 

 

$

791,076

 

 

$

908,944

 

 

$

263,692

 

 

$

1,963,712

 

 

20


Allowance For Loan Losses

 

 

Commercial

Loans

 

 

Residential

Loans

 

 

Consumer

Loans

 

 

Total

 

 

Commercial

Loans

 

 

Residential

Loans

 

 

Consumer

Loans

 

 

Total

 

For the three months ended June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended September 30, 2016

For the three months ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

8,958

 

 

$

5,644

 

 

$

2,570

 

 

$

17,172

 

Provision

 

 

842

 

 

 

268

 

 

 

234

 

 

 

1,344

 

Charge-offs

 

 

(533

)

 

 

(166

)

 

 

(222

)

 

 

(921

)

Recoveries

 

 

527

 

 

 

20

 

 

 

92

 

 

 

639

 

Ending balance

 

$

9,794

 

 

$

5,766

 

 

$

2,674

 

 

$

18,234

 

For the nine months ended September 30, 2016

For the nine months ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

8,521

 

 

$

5,736

 

 

$

2,646

 

 

$

16,903

 

 

$

8,077

 

 

$

6,630

 

 

$

3,005

 

 

$

17,712

 

Provision (recovery)

 

 

489

 

 

 

(33

)

 

 

(61

)

 

 

395

 

 

 

4,055

 

 

 

(359

)

 

 

198

 

 

 

3,894

 

Charge-offs

 

 

(147

)

 

 

(84

)

 

 

(276

)

 

 

(507

)

 

 

(3,026

)

 

 

(612

)

 

 

(977

)

 

 

(4,615

)

Recoveries

 

 

95

 

 

 

25

 

 

 

261

 

 

 

381

 

 

 

688

 

 

 

107

 

 

 

448

 

 

 

1,243

 

Ending balance

 

$

8,958

 

 

$

5,644

 

 

$

2,570

 

 

$

17,172

 

 

$

9,794

 

 

$

5,766

 

 

$

2,674

 

 

$

18,234

 

For the six months ended June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

8,077

 

 

$

6,630

 

 

$

3,005

 

 

$

17,712

 

Provision (recovery)

 

 

3,213

 

 

 

(627

)

 

 

(36

)

 

 

2,550

 

Charge-offs

 

 

(2,493

)

 

 

(446

)

 

 

(755

)

 

 

(3,694

)

Recoveries

 

 

161

 

 

 

87

 

 

 

356

 

 

 

604

 

Ending balance

 

$

8,958

 

 

$

5,644

 

 

$

2,570

 

 

$

17,172

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period-end amount allocated to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

1,271

 

 

$

1,245

 

 

$

500

 

 

$

3,016

 

 

$

1,271

 

 

$

1,245

 

 

$

500

 

 

$

3,016

 

Loans collectively evaluated for impairment

 

 

9,553

 

 

 

4,293

 

 

 

2,225

 

 

 

16,071

 

 

 

9,553

 

 

 

4,293

 

 

 

2,225

 

 

 

16,071

 

Ending balance

 

$

10,824

 

 

$

5,538

 

 

$

2,725

 

 

$

19,087

 

 

$

10,824

 

 

$

5,538

 

 

$

2,725

 

 

$

19,087

 

Period-end balances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

6,018

 

 

$

17,485

 

 

$

8,045

 

 

$

31,548

 

 

$

6,018

 

 

$

17,485

 

 

$

8,045

 

 

$

31,548

 

Loans collectively evaluated for impairment

 

 

498,240

 

 

 

781,136

 

 

 

208,553

 

 

 

1,487,929

 

 

 

498,240

 

 

 

781,136

 

 

 

208,553

 

 

 

1,487,929

 

Ending balance

 

$

504,258

 

 

$

798,621

 

 

$

216,598

 

 

$

1,519,477

 

 

$

504,258

 

 

$

798,621

 

 

$

216,598

 

 

$

1,519,477

 

The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required based on an analysis using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations, estimated collateral values, general economic conditions in the market area and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off.

Other loans not reviewed specifically by management are evaluated as a homogenous group of loans (generally single-family residential mortgage loans and all consumer credits except marine loans) using a loss factor applied to the outstanding loan balance to determine the level of reserve required. This loss factor consists of two components, a quantitative and a qualitative component. The quantitative component is based on a historical analysis of all charged-off loans, net of recoveries. In determining the qualitative factors, consideration is given to such attributes as lending policies, economic conditions, nature and volume of the portfolio, management, loan quality trend, loan review, collateral value, concentrations, economic cycles and other external factors.  As of JuneSeptember 30, 2017, the Company evaluated 2021 quarters of net charge-off history and applied this information to the current period.  This component is combined with the qualitative component to arrive at the loss factor, which is applied to the outstanding balance of homogenous loans.

 

21


The following table presents loans individually evaluated for impairment by class of loans as of and for sixnine months ended JuneSeptember 30, 2017:

Impaired Loans

(Dollars in thousands)

 

 

Unpaid

Principal

Balance

 

 

Recorded

Investment

 

 

Allowance

for Loan

Losses

Allocated

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

Cash Basis

Income

Recognized

 

 

Unpaid

Principal

Balance

 

 

Recorded

Investment

 

 

Allowance

for Loan

Losses

Allocated

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

Cash Basis

Income

Recognized

 

With no specific allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

$

470

 

 

$

413

 

 

$

 

 

$

277

 

 

$

3

 

 

$

3

 

 

$

466

 

 

$

402

 

 

$

 

 

$

309

 

 

$

3

 

 

$

3

 

Nonresidential

 

 

2,030

 

 

 

1,464

 

 

 

 

 

 

1,040

 

 

 

50

 

 

 

49

 

 

 

673

 

 

 

153

 

 

 

 

 

 

818

 

 

 

6

 

 

 

6

 

Land

 

 

3,922

 

 

 

9

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

715

 

 

 

9

 

 

 

 

 

 

15

 

 

 

 

 

 

 

Construction

 

 

3,593

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,467

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured

 

 

242

 

 

 

190

 

 

 

 

 

 

190

 

 

 

 

 

 

 

 

 

263

 

 

 

210

 

 

 

 

 

 

195

 

 

 

1

 

 

 

1

 

Unsecured

 

 

500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

194

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total commercial loans

 

 

10,757

 

 

 

2,076

 

 

 

 

 

 

1,524

 

 

 

53

 

 

 

52

 

 

 

4,778

 

 

 

774

 

 

 

 

 

 

1,337

 

 

 

10

 

 

 

10

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

7,704

 

 

 

5,762

 

 

 

 

 

 

6,095

 

 

 

50

 

 

 

41

 

 

 

6,793

 

 

 

5,814

 

 

 

 

 

 

6,025

 

 

 

81

 

 

 

73

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total residential mortgage loans

 

 

7,704

 

 

 

5,762

 

 

 

 

 

 

6,095

 

 

 

50

 

 

 

41

 

 

 

6,793

 

 

 

5,814

 

 

 

 

 

 

6,025

 

 

 

81

 

 

 

73

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

1,965

 

 

 

1,535

 

 

 

 

 

 

1,577

 

 

 

8

 

 

 

7

 

 

 

1,556

 

 

 

1,177

 

 

 

 

 

 

1,477

 

 

 

11

 

 

 

11

 

Auto

 

 

34

 

 

 

18

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

8

 

 

 

1

 

 

 

 

 

 

9

 

 

 

 

 

 

 

Marine

 

 

540

 

 

 

169

 

 

 

 

 

 

210

 

 

 

 

 

 

 

 

 

540

 

 

 

169

 

 

 

 

 

 

200

 

 

 

 

 

 

 

Recreational vehicle

 

 

560

 

 

 

152

 

 

 

 

 

 

164

 

 

 

5

 

 

 

5

 

 

 

809

 

 

 

389

 

 

 

 

 

 

220

 

 

 

12

 

 

 

12

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

Total consumer loans

 

 

3,099

 

 

 

1,874

 

 

 

 

 

 

1,962

 

 

 

13

 

 

 

12

 

 

 

2,914

 

 

 

1,737

 

 

 

 

 

 

1,906

 

 

 

23

 

 

 

23

 

Total

 

$

21,560

 

 

$

9,712

 

 

$

 

 

$

9,581

 

 

$

116

 

 

$

105

 

 

$

14,485

 

 

$

8,325

 

 

$

 

 

$

9,268

 

 

$

114

 

 

$

106

 

With a specific allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Nonresidential

 

 

501

 

 

 

456

 

 

 

5

 

 

 

2,164

 

 

 

12

 

 

 

11

 

 

 

1,582

 

 

 

1,548

 

 

 

16

 

 

 

2,010

 

 

 

86

 

 

 

85

 

Land

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured

 

 

 

 

 

 

 

 

 

 

 

57

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

43

 

 

 

 

 

 

 

Unsecured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total commercial loans

 

 

501

 

 

 

456

 

 

 

5

 

 

 

2,221

 

 

 

12

 

 

 

11

 

 

 

1,582

 

 

 

1,548

 

 

 

16

 

 

 

2,053

 

 

 

86

 

 

 

85

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

10,526

 

 

 

10,428

 

 

 

1,171

 

 

 

10,764

 

 

 

273

 

 

 

229

 

 

 

11,042

 

 

 

10,904

 

 

 

1,169

 

 

 

10,799

 

 

 

385

 

 

 

343

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total residential mortgage loans

 

 

10,526

 

 

 

10,428

 

 

 

1,171

 

 

 

10,764

 

 

 

273

 

 

 

229

 

 

 

11,042

 

 

 

10,904

 

 

 

1,169

 

 

 

10,799

 

 

 

385

 

 

 

343

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

4,973

 

 

 

4,919

 

 

 

377

 

 

 

5,212

 

 

 

151

 

 

 

134

 

 

 

5,132

 

 

 

5,055

 

 

 

387

 

 

 

5,173

 

 

 

214

 

 

 

199

 

Auto

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marine

 

 

104

 

 

 

104

 

 

 

1

 

 

 

106

 

 

 

3

 

 

 

3

 

 

 

102

 

 

 

102

 

 

 

1

 

 

 

105

 

 

 

4

 

 

 

4

 

Recreational vehicle

 

 

702

 

 

 

691

 

 

 

62

 

 

 

681

 

 

 

14

 

 

 

13

 

 

 

432

 

 

 

420

 

 

 

23

 

 

 

616

 

 

 

14

 

 

 

14

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total consumer loans

 

 

5,779

 

 

 

5,714

 

 

 

440

 

 

 

5,999

 

 

 

168

 

 

 

150

 

 

 

5,666

 

 

 

5,577

 

 

 

411

 

 

 

5,894

 

 

 

232

 

 

 

217

 

Total

 

 

16,806

 

 

 

16,598

 

 

 

1,616

 

 

 

18,984

 

 

 

453

 

 

 

390

 

 

 

18,290

 

 

 

18,029

 

 

 

1,596

 

 

 

18,746

 

 

 

703

 

 

 

645

 

Total impaired loans

 

$

38,366

 

 

$

26,310

 

 

$

1,616

 

 

$

28,565

 

 

$

569

 

 

$

495

 

 

$

32,775

 

 

$

26,354

 

 

$

1,596

 

 

$

28,014

 

 

$

817

 

 

$

751

 

 

22


The following table presents loans individually evaluated for impairment by class of loans as of and for sixnine months ended JuneSeptember 30, 2016:

Impaired Loans

(Dollars in thousands)

 

 

Unpaid

Principal

Balance

 

 

Recorded

Investment

 

 

Allowance

for Loan

Losses

Allocated

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

Cash Basis

Income

Recognized

 

 

Unpaid

Principal

Balance

 

 

Recorded

Investment

 

 

Allowance

for Loan

Losses

Allocated

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

 

Cash Basis

Income

Recognized

 

With no specific allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

$

95

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

59

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Nonresidential

 

 

1,382

 

 

 

326

 

 

 

 

 

 

281

 

 

 

3

 

 

 

3

 

 

 

952

 

 

 

149

 

 

 

 

 

 

248

 

 

 

4

 

 

 

4

 

Land

 

 

3,922

 

 

 

384

 

 

 

 

 

 

384

 

 

 

 

 

 

 

 

 

3,922

 

 

 

134

 

 

 

 

 

 

322

 

 

 

 

 

 

 

Construction

 

 

3,594

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,594

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured

 

 

3,745

 

 

 

3,700

 

 

 

 

 

 

3,700

 

 

 

 

 

 

 

 

 

3,743

 

 

 

3,700

 

 

 

 

 

 

3,700

 

 

 

 

 

 

 

Unsecured

 

 

1,118

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

821

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

7

 

Total commercial loans

 

 

13,856

 

 

 

4,410

 

 

 

 

 

 

4,365

 

 

 

3

 

 

 

3

 

 

 

13,091

 

 

 

3,983

 

 

 

 

 

 

4,270

 

 

 

11

 

 

 

11

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

8,102

 

 

 

6,522

 

 

 

 

 

 

6,156

 

 

 

52

 

 

 

42

 

 

 

7,401

 

 

 

5,727

 

 

 

 

 

 

6,049

 

 

 

55

 

 

 

49

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total residential mortgage loans

 

 

8,102

 

 

 

6,522

 

 

 

 

 

 

6,156

 

 

 

52

 

 

 

42

 

 

 

7,401

 

 

 

5,727

 

 

 

 

 

 

6,049

 

 

 

55

 

 

 

49

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

1,858

 

 

 

1,339

 

 

 

 

 

 

1,463

 

 

 

4

 

 

 

4

 

 

 

1,728

 

 

 

1,272

 

 

 

 

 

 

1,415

 

 

 

14

 

 

 

14

 

Auto

 

 

16

 

 

 

9

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

13

 

 

 

8

 

 

 

 

 

 

10

 

 

 

 

 

 

 

Marine

 

 

544

 

 

 

302

 

 

 

 

 

 

292

 

 

 

 

 

 

 

 

 

543

 

 

 

301

 

 

 

 

 

 

294

 

 

 

 

 

 

 

Recreational vehicle

 

 

518

 

 

 

273

 

 

 

 

 

 

213

 

 

 

2

 

 

 

2

 

 

 

637

 

 

 

322

 

 

 

 

 

 

241

 

 

 

4

 

 

 

4

 

Other

 

 

4

 

 

 

4

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

Total consumer loans

 

 

2,940

 

 

 

1,927

 

 

 

 

 

 

1,982

 

 

 

6

 

 

 

6

 

 

 

2,921

 

 

 

1,903

 

 

 

 

 

 

1,963

 

 

 

18

 

 

 

18

 

Total

 

$

24,898

 

 

$

12,859

 

 

$

 

 

$

12,503

 

 

$

61

 

 

$

51

 

 

$

23,413

 

 

$

11,613

 

 

$

 

 

$

12,282

 

 

$

84

 

 

$

78

 

With a specific allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Nonresidential

 

 

10,854

 

 

 

8,571

 

 

 

922

 

 

 

7,493

 

 

 

124

 

 

 

122

 

 

 

11,660

 

 

 

9,164

 

 

 

935

 

 

 

7,911

 

 

 

208

 

 

 

206

 

Land

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured

 

 

1,027

 

 

 

933

 

 

 

93

 

 

 

739

 

 

 

 

 

 

 

 

 

616

 

 

 

550

 

 

 

81

 

 

 

692

 

 

 

 

 

 

 

Unsecured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total commercial loans

 

 

11,881

 

 

 

9,504

 

 

 

1,015

 

 

 

8,232

 

 

 

124

 

 

 

122

 

 

 

12,276

 

 

 

9,714

 

 

 

1,016

 

 

 

8,603

 

 

 

208

 

 

 

206

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

12,033

 

 

 

12,033

 

 

 

1,333

 

 

 

12,742

 

 

 

297

 

 

 

251

 

 

 

12,123

 

 

 

12,121

 

 

 

1,342

 

 

 

12,587

 

 

 

423

 

 

 

373

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total residential mortgage loans

 

 

12,033

 

 

 

12,033

 

 

 

1,333

 

 

 

12,742

 

 

 

297

 

 

 

251

 

 

 

12,123

 

 

 

12,121

 

 

 

1,342

 

 

 

12,587

 

 

 

423

 

 

 

373

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

6,279

 

 

 

6,279

 

 

 

447

 

 

 

6,791

 

 

 

188

 

 

 

167

 

 

 

5,997

 

 

 

5,997

 

 

 

435

 

 

 

6,592

 

 

 

257

 

 

 

238

 

Auto

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marine

 

 

156

 

 

 

156

 

 

 

4

 

 

 

159

 

 

 

4

 

 

 

4

 

 

 

153

 

 

 

153

 

 

 

4

 

 

 

158

 

 

 

6

 

 

 

4

 

Recreational vehicle

 

 

793

 

 

 

793

 

 

 

85

 

 

 

868

 

 

 

15

 

 

 

14

 

 

 

655

 

 

 

655

 

 

 

77

 

 

 

815

 

 

 

20

 

 

 

19

 

Other

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

Total consumer loans

 

 

7,228

 

 

 

7,228

 

 

 

536

 

 

 

7,821

 

 

 

207

 

 

 

185

 

 

 

6,805

 

 

 

6,805

 

 

 

516

 

 

 

7,567

 

 

 

283

 

 

 

261

 

Total

 

 

31,142

 

 

 

28,765

 

 

 

2,884

 

 

 

28,795

 

 

 

628

 

 

 

558

 

 

 

31,204

 

 

 

28,640

 

 

 

2,874

 

 

 

28,757

 

 

 

914

 

 

 

840

 

Total impaired loans

 

$

56,040

 

 

$

41,624

 

 

$

2,884

 

 

$

41,298

 

 

$

689

 

 

$

609

 

 

$

54,617

 

 

$

40,253

 

 

$

2,874

 

 

$

41,039

 

 

$

998

 

 

$

918

 

 

23


The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2016:

Impaired Loans

(Dollars in thousands)

 

 

 

Unpaid

Principal

Balance

 

 

Recorded

Investment

 

 

Allowance

for Loan

Losses

Allocated

 

With no specific allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

$

55

 

 

$

 

 

$

 

Nonresidential

 

 

2,278

 

 

 

1,489

 

 

 

 

Land

 

 

3,922

 

 

 

34

 

 

 

 

Construction

 

 

3,594

 

 

 

 

 

 

 

Secured

 

 

242

 

 

 

190

 

 

 

 

Unsecured

 

 

713

 

 

 

 

 

 

 

Total commercial loans

 

 

10,804

 

 

 

1,713

 

 

 

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

8,736

 

 

 

6,758

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

Total residential mortgage loans

 

 

8,736

 

 

 

6,758

 

 

 

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

2,159

 

 

 

1,583

 

 

 

 

Auto

 

 

11

 

 

 

3

 

 

 

 

Marine

 

 

585

 

 

 

267

 

 

 

 

Recreational vehicle

 

 

433

 

 

 

120

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Total consumer loans

 

 

3,188

 

 

 

1,973

 

 

 

 

Total

 

$

22,728

 

 

$

10,444

 

 

$

 

With a specific allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

$

 

 

$

 

 

$

 

Nonresidential

 

 

6,930

 

 

 

4,133

 

 

 

1,193

 

Land

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

Secured

 

 

237

 

 

 

172

 

 

 

78

 

Unsecured

 

 

 

 

 

 

 

 

 

Total commercial loans

 

 

7,167

 

 

 

4,305

 

 

 

1,271

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

10,810

 

 

 

10,727

 

 

 

1,245

 

Construction

 

 

 

 

 

 

 

 

 

Total residential mortgage loans

 

 

10,810

 

 

 

10,727

 

 

 

1,245

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

5,390

 

 

 

5,335

 

 

 

426

 

Auto

 

 

 

 

 

 

 

 

 

Marine

 

 

108

 

 

 

108

 

 

 

1

 

Recreational vehicle

 

 

639

 

 

 

629

 

 

 

73

 

Other

 

 

 

 

 

 

 

 

 

Total consumer loans

 

 

6,137

 

 

 

6,072

 

 

 

500

 

Total

 

 

24,114

 

 

 

21,104

 

 

 

3,016

 

Total impaired loans

 

$

46,842

 

 

$

31,548

 

 

$

3,016

 

 

 

 

The unpaid principal balance is the total amount of the loan that is due to Home Savings. The recorded investment includes the unpaid principal balance less any charge-offs or partial charge-offs applied to specific loans. The unpaid principal balance and the recorded investment both exclude accrued interest receivable and deferred loan costs, both of which are immaterial.


24


The following table presents loans individually evaluated for impairment by class of loans as of and for the three months ended JuneSeptember 30, 2017:

 

 

Average Recorded Investment

 

 

Interest Income Recognized

 

 

Cash Basis Income Recognized

 

 

Average Recorded Investment

 

 

Interest Income Recognized

 

 

Cash Basis Income Recognized

 

With no specific allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

$

416

 

 

$

 

 

$

 

 

$

408

 

 

$

 

 

$

 

Nonresidential

 

 

815

 

 

 

25

 

 

 

25

 

 

 

809

 

 

 

3

 

 

 

3

 

Land

 

 

9

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured

 

 

190

 

 

 

 

 

 

 

 

 

200

 

 

 

1

 

 

 

1

 

Unsecured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total commercial loans

 

 

1,430

 

 

 

25

 

 

 

25

 

 

 

1,426

 

 

 

4

 

 

 

4

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

5,763

 

 

 

20

 

 

 

20

 

 

 

5,788

 

 

 

35

 

 

 

33

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total residential mortgage loans

 

 

5,763

 

 

 

20

 

 

 

20

 

 

 

5,788

 

 

 

35

 

 

 

33

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

1,574

 

 

 

3

 

 

 

3

 

 

 

1,356

 

 

 

4

 

 

 

4

 

Auto

 

 

16

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

Marine

 

 

182

 

 

 

 

 

 

 

 

 

169

 

 

 

 

 

 

 

Recreational vehicle

 

 

186

 

 

 

2

 

 

 

2

 

 

 

271

 

 

 

3

 

 

 

3

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

Total consumer loans

 

 

1,958

 

 

 

5

 

 

 

5

 

 

 

1,807

 

 

 

7

 

 

 

7

 

Total

 

$

9,151

 

 

$

50

 

 

$

50

 

 

$

9,021

 

 

$

46

 

 

$

44

 

With a specific allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Nonresidential

 

 

1,179

 

 

 

5

 

 

 

5

 

 

 

1,002

 

 

 

26

 

 

 

26

 

Land

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total commercial loans

 

 

1,179

 

 

 

5

 

 

 

5

 

 

 

1,002

 

 

 

26

 

 

 

26

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

10,783

 

 

 

114

 

 

 

111

 

 

 

10,666

 

 

 

112

 

 

 

112

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total residential mortgage loans

 

 

10,783

 

 

 

114

 

 

 

111

 

 

 

10,666

 

 

 

112

 

 

 

112

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

5,151

 

 

 

66

 

 

 

66

 

 

 

4,987

 

 

 

65

 

 

 

65

 

Auto

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marine

 

 

105

 

 

 

1

 

 

 

1

 

 

 

103

 

 

 

1

 

 

 

1

 

Recreational vehicle

 

 

708

 

 

 

7

 

 

 

6

 

 

 

556

 

 

 

5

 

 

 

5

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total consumer loans

 

 

5,964

 

 

 

74

 

 

 

73

 

 

 

5,646

 

 

 

71

 

 

 

71

 

Total

 

 

17,926

 

 

 

193

 

 

 

189

 

 

 

17,314

 

 

 

209

 

 

 

209

 

Total impaired loans

 

$

27,077

 

 

$

243

 

 

$

239

 

 

$

26,335

 

 

$

255

 

 

$

253

 

25


The following table presents loans individually evaluated for impairment by class of loans as of and for the three months ended JuneSeptember 30, 2016:

 

 

Average Recorded Investment

 

 

Interest Income Recognized

 

 

Cash Basis Income Recognized

 

 

Average Recorded Investment

 

 

Interest Income Recognized

 

 

Cash Basis Income Recognized

 

With no specific allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Nonresidential

 

 

269

 

 

 

1

 

 

 

1

 

 

 

238

 

 

 

1

 

 

 

1

 

Land

 

 

384

 

 

 

 

 

 

 

 

 

 

259

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured

 

 

3,700

 

 

 

 

 

 

 

 

 

3,700

 

 

 

 

 

 

 

Unsecured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total commercial loans

 

 

4,353

 

 

 

1

 

 

 

1

 

 

 

4,197

 

 

 

1

 

 

 

1

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

6,302

 

 

 

17

 

 

 

17

 

 

 

6,125

 

 

 

19

 

 

 

19

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total residential mortgage loans

 

 

6,302

 

 

 

17

 

 

 

17

 

 

 

6,125

 

 

 

19

 

 

 

19

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

1,336

 

 

 

1

 

 

 

1

 

 

 

1,306

 

 

 

9

 

 

 

9

 

Auto

 

 

9

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

 

Marine

 

 

303

 

 

 

 

 

 

 

 

 

302

 

 

 

 

 

 

 

Recreational vehicle

 

 

281

 

 

 

1

 

 

 

1

 

 

 

298

 

 

 

1

 

 

 

1

 

Other

 

 

4

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

Total consumer loans

 

 

1,933

 

 

 

2

 

 

 

2

 

 

 

1,917

 

 

 

10

 

 

 

10

 

Total

 

$

12,588

 

 

$

20

 

 

$

20

 

 

$

12,239

 

 

$

30

 

 

$

30

 

With a specific allowance recorded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Nonresidential

 

 

8,748

 

 

 

15

 

 

 

15

 

 

 

8,868

 

 

 

84

 

 

 

84

 

Land

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured

 

 

947

 

 

 

 

 

 

 

 

 

742

 

 

 

 

 

 

 

Unsecured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total commercial loans

 

 

9,695

 

 

 

15

 

 

 

15

 

 

 

9,610

 

 

 

84

 

 

 

84

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

12,372

 

 

 

124

 

 

 

122

 

 

 

12,077

 

 

 

132

 

 

 

127

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total residential mortgage loans

 

 

12,372

 

 

 

124

 

 

 

122

 

 

 

12,077

 

 

 

132

 

 

 

127

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

6,568

 

 

 

84

 

 

 

82

 

 

 

6,138

 

 

 

77

 

 

 

76

 

Auto

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marine

 

 

158

 

 

 

2

 

 

 

2

 

 

 

155

 

 

 

2

 

 

 

2

 

Recreational vehicle

 

 

741

 

 

 

8

 

 

 

8

 

 

 

724

 

 

 

6

 

 

 

6

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total consumer loans

 

 

7,467

 

 

 

94

 

 

 

92

 

 

 

7,017

 

 

 

85

 

 

 

84

 

Total

 

 

29,534

 

 

 

233

 

 

 

229

 

 

 

28,704

 

 

 

301

 

 

 

295

 

Total impaired loans

 

$

42,122

 

 

$

253

 

 

$

249

 

 

$

40,943

 

 

$

331

 

 

$

325

 

 

26


Home Savings reclassifies a collateralized mortgage loan and a consumer loan secured by real estate to real estate owned and other repossessed assets once it has either obtained legal title to the real estate collateral or the borrower voluntarily conveys all interest in the real property to the Bank to satisfy the loan through a deed in lieu of foreclosure or similar legal agreement.  The table below presents loans that are in the process of foreclosure at JuneSeptember 30, 2017 and December 31, 2016, but legal title, deed in lieu of foreclosure or similar legal agreement to the property has not yet been obtained:

 

 

June 30, 2017

 

 

December 31, 2016

 

 

September 30, 2017

 

 

December 31, 2016

 

 

Unpaid

Principal

Balance

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Recorded

Investment

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Mortgage loans in process of foreclosure

 

$

3,188

 

 

$

2,816

 

 

$

3,025

 

 

$

2,576

 

 

$

2,975

 

 

$

2,805

 

 

$

3,025

 

 

$

2,576

 

Consumer loans in process of foreclosure

 

 

931

 

 

 

751

 

 

 

1,069

 

 

 

795

 

 

 

955

 

 

 

798

 

 

 

1,069

 

 

 

795

 

 

The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days and still on accrual by class of loans as of JuneSeptember 30, 2017:

Nonaccrual Loans and Loans Past Due Over 90 Days and Still Accruing

As of JuneSeptember 30, 2017

 

 

Nonaccrual

 

 

Loans past due

over 90 days and

still accruing

 

 

Nonaccrual

 

 

Loans past due

over 90 days and

still accruing

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

$

413

 

 

$

 

 

$

402

 

 

$

 

Nonresidential

 

 

1,331

 

 

 

 

 

 

1,234

 

 

 

 

Land

 

 

9

 

 

 

 

 

 

9

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

Secured

 

 

190

 

 

 

 

 

 

234

 

 

 

 

Unsecured

 

 

 

 

 

 

 

 

 

 

 

 

Total commercial loans

 

 

1,943

 

 

 

 

 

 

1,879

 

 

 

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

6,701

 

 

 

 

 

 

6,627

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

Total residential mortgage loans

 

 

6,701

 

 

 

 

 

 

6,627

 

 

 

 

Consumer Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

1,707

 

 

 

 

 

 

1,714

 

 

 

 

Auto

 

 

94

 

 

 

 

 

 

38

 

 

 

 

Marine

 

 

169

 

 

 

 

 

 

169

 

 

 

 

Recreational vehicle

 

 

166

 

 

 

 

 

 

409

 

 

 

6

 

Other

 

 

1

 

 

 

2

 

 

 

2

 

 

 

2

 

Total consumer loans

 

 

2,137

 

 

 

2

 

 

 

2,332

 

 

 

8

 

Total nonaccrual loans and loans past due over 90 days and still accruing

 

$

10,781

 

 

$

2

 

 

$

10,838

 

 

$

8

 

 

27


The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days and still on accrual by class of loans as of December 31, 2016:

Nonaccrual Loans and Loans Past Due Over 90 Days and Still Accruing

As of December 31, 2016

 

 

 

Nonaccrual

 

 

Loans past due

over 90 days and

still accruing

 

 

 

(Dollars in thousands)

 

Commercial loans

 

 

 

 

 

 

 

 

Multifamily

 

$

 

 

$

 

Nonresidential

 

 

3,546

 

 

 

 

Land

 

 

34

 

 

 

 

Construction

 

 

 

 

 

 

Secured

 

 

361

 

 

 

 

Unsecured

 

 

 

 

 

 

Total commercial loans

 

 

3,941

 

 

 

 

Residential mortgage loans

 

 

 

 

 

 

 

 

One-to four-family

 

 

6,084

 

 

 

 

Construction

 

 

 

 

 

 

Total residential mortgage loans

 

 

6,084

 

 

 

 

Consumer Loans

 

 

 

 

 

 

 

 

Home equity

 

 

1,936

 

 

 

 

Auto

 

 

31

 

 

 

 

Marine

 

 

267

 

 

 

 

Recreational vehicle

 

 

178

 

 

 

 

Other

 

 

2

 

 

 

 

Total consumer loans

 

 

2,414

 

 

 

 

Total nonaccrual loans and loans past due over 90 days and still accruing

 

$

12,439

 

 

$

 

 

28


The following table presents an age analysis of past-due loans, segregated by class of loans as of JuneSeptember 30, 2017:

Past Due Loans

(Dollars in thousands)

 

 

30-59 Days

Past Due

 

 

60-89 Days

Past Due

 

 

Greater

than 90

Days Past

Due

 

 

Total Past

Due

 

 

Current

Loans

 

 

Total Loans

 

 

30-59 Days

Past Due

 

 

60-89 Days

Past Due

 

 

Greater

than 90

Days Past

Due

 

 

Total Past

Due

 

 

Current

Loans

 

 

Total Loans

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

$

 

 

$

187

 

 

$

 

 

$

187

 

 

$

121,378

 

 

$

121,565

 

 

$

 

 

 

 

 

 

$

402

 

 

$

402

 

 

$

126,575

 

 

$

126,977

 

Nonresidential

 

 

199

 

 

 

 

 

 

153

 

 

 

352

 

 

 

341,948

 

 

 

342,300

 

 

 

206

 

 

 

1,204

 

 

 

7

 

 

 

1,417

 

 

 

365,330

 

 

 

366,747

 

Land

 

 

 

 

 

 

 

 

9

 

 

 

9

 

 

 

10,858

 

 

 

10,867

 

 

 

 

 

 

 

 

 

9

 

 

 

9

 

 

 

13,657

 

 

 

13,666

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

96,765

 

 

 

96,765

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

108,105

 

 

 

108,105

 

Secured

 

 

135

 

 

 

22

 

 

 

189

 

 

 

346

 

 

 

161,763

 

 

 

162,109

 

 

 

157

 

 

 

16

 

 

 

212

 

 

 

385

 

 

 

167,048

 

 

 

167,433

 

Unsecured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,649

 

 

 

8,649

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,148

 

 

 

8,148

 

Total commercial loans

 

 

334

 

 

 

209

 

 

 

351

 

 

 

894

 

 

 

741,361

 

 

 

742,255

 

 

 

363

 

 

 

1,220

 

 

 

630

 

 

 

2,213

 

 

 

788,863

 

 

 

791,076

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

2,643

 

 

 

1,584

 

 

 

5,646

 

 

 

9,873

 

 

 

824,476

 

 

 

834,349

 

 

 

3,588

 

 

 

1,305

 

 

 

5,066

 

 

 

9,959

 

 

 

841,904

 

 

 

851,863

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56,946

 

 

 

56,946

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

57,081

 

 

 

57,081

 

Total residential mortgage loans

 

 

2,643

 

 

 

1,584

 

 

 

5,646

 

 

 

9,873

 

 

 

881,422

 

 

 

891,295

 

 

 

3,588

 

 

 

1,305

 

 

 

5,066

 

 

 

9,959

 

 

 

898,985

 

 

 

908,944

 

Consumer Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

1,141

 

 

 

113

 

 

 

1,429

 

 

 

2,683

 

 

 

185,079

 

 

 

187,762

 

 

 

1,026

 

 

 

192

 

 

 

1,467

 

 

 

2,685

 

 

 

190,717

 

 

 

193,402

 

Automobile

 

 

123

 

 

 

119

 

 

 

17

 

 

 

259

 

 

 

50,130

 

 

 

50,389

 

 

 

137

 

 

 

76

 

 

 

17

 

 

 

230

 

 

 

56,653

 

 

 

56,883

 

Marine

 

 

 

 

 

 

 

 

169

 

 

 

169

 

 

 

1,432

 

 

 

1,601

 

 

 

13

 

 

 

 

 

 

169

 

 

 

182

 

 

 

1,382

 

 

 

1,564

 

Recreational vehicle

 

 

199

 

 

 

149

 

 

 

95

 

 

 

443

 

 

 

5,958

 

 

 

6,401

 

 

 

357

 

 

 

164

 

 

 

298

 

 

 

819

 

 

 

5,430

 

 

 

6,249

 

Other

 

 

2

 

 

 

4

 

 

 

3

 

 

 

9

 

 

 

4,989

 

 

 

4,998

 

 

 

2

 

 

 

13

 

 

 

3

 

 

 

18

 

 

 

5,576

 

 

 

5,594

 

Total consumer loans

 

 

1,465

 

 

 

385

 

 

 

1,713

 

 

 

3,563

 

 

 

247,588

 

 

 

251,151

 

 

 

1,535

 

 

 

445

 

 

 

1,954

 

 

 

3,934

 

 

 

259,758

 

 

 

263,692

 

Total loans

 

$

4,442

 

 

$

2,178

 

 

$

7,710

 

 

$

14,330

 

 

$

1,870,371

 

 

$

1,884,701

 

 

$

5,486

 

 

$

2,970

 

 

$

7,650

 

 

$

16,106

 

 

$

1,947,606

 

 

$

1,963,712

 

 

29


The following table presents an age analysis of past-due loans, segregated by class of loans as of December 31, 2016:

Past Due Loans

(Dollars in thousands)

 

 

 

30-59 Days

Past Due

 

 

60-89 Days

Past Due

 

 

Greater

than 90

Days Past

Due

 

 

Total Past

Due

 

 

Current

Loans

 

 

Total Loans

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

$

 

 

$

 

 

$

 

 

$

 

 

$

93,597

 

 

$

93,597

 

Nonresidential

 

 

3,511

 

 

 

 

 

 

61

 

 

 

3,572

 

 

 

227,829

 

 

 

231,401

 

Land

 

 

 

 

 

 

 

 

34

 

 

 

34

 

 

 

8,339

 

 

 

8,373

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

68,158

 

 

 

68,158

 

Secured

 

 

 

 

 

 

 

 

361

 

 

 

361

 

 

 

94,982

 

 

 

95,343

 

Unsecured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,386

 

 

 

7,386

 

Total commercial loans

 

 

3,511

 

 

 

 

 

 

456

 

 

 

3,967

 

 

 

500,291

 

 

 

504,258

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

3,774

 

 

 

1,717

 

 

 

5,461

 

 

 

10,952

 

 

 

751,974

 

 

 

762,926

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35,695

 

 

 

35,695

 

Total residential mortgage loans

 

 

3,774

 

 

 

1,717

 

 

 

5,461

 

 

 

10,952

 

 

 

787,669

 

 

 

798,621

 

Consumer Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

941

 

 

 

458

 

 

 

1,669

 

 

 

3,068

 

 

 

161,986

 

 

 

165,054

 

Automobile

 

 

130

 

 

 

 

 

 

3

 

 

 

133

 

 

 

39,476

 

 

 

39,609

 

Marine

 

 

 

 

 

 

 

 

267

 

 

 

267

 

 

 

1,529

 

 

 

1,796

 

Recreational vehicle

 

 

131

 

 

 

347

 

 

 

 

 

 

478

 

 

 

7,124

 

 

 

7,602

 

Other

 

 

1

 

 

 

3

 

 

 

2

 

 

 

6

 

 

 

2,531

 

 

 

2,537

 

Total consumer loans

 

 

1,203

 

 

 

808

 

 

 

1,941

 

 

 

3,952

 

 

 

212,646

 

 

 

216,598

 

Total loans

 

$

8,488

 

 

$

2,525

 

 

$

7,858

 

 

$

18,871

 

 

$

1,500,606

 

 

$

1,519,477

 

 

As of JuneSeptember 30, 2017 and December 31, 2016, the Company has a recorded investment in troubled debt restructurings of $22.2$21.3 million and $26.6 million, respectively.  The Company allocated $1.6 million of specific allowance for those loans at JuneSeptember 30, 2017 and $3.0 million at December 31, 2016.  The Company has committed to lend additional amounts totaling up to $35,000$37,000 and $31,000 at JuneSeptember 30, 2017 and December 31, 2016, respectively.  


There were noThe following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended JuneSeptember 30, 2017.2017:

 

 

Number of

Loans

 

 

Pre-Modification

Outstanding

Recorded

Investment

 

 

Post-Modification

Recorded

Investment

 

 

 

 

 

 

 

(In thousands)

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

 

 

 

$

 

 

$

 

Nonresidential

 

 

 

 

 

 

 

 

 

Land

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

Secured

 

 

 

 

 

 

 

 

 

Unsecured

 

 

 

 

 

 

 

 

 

Total commercial loans

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

1

 

 

 

147

 

 

 

169

 

Construction

 

 

 

 

 

 

 

 

 

Total residential mortgage loans

 

 

1

 

 

 

147

 

 

 

169

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

 

 

 

 

 

 

 

Auto

 

 

 

 

 

 

 

 

 

Marine

 

 

 

 

 

 

 

 

 

Recreational vehicle

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Total consumer loans

 

 

 

 

 

 

 

 

 

Total restructured loans

 

 

1

 

 

$

147

 

 

$

169

 

 

The troubled debt restructurings described above had no effect on the allowance for loan losses and resulted in no charge-offs during the three months ended JuneSeptember 30, 2017.

 

3031


The following table presents loans by class modified as troubled debt restructurings that occurred during the sixnine months ended JuneSeptember 30, 2017:

 

 

Number of

Loans

 

 

Pre-Modification

Outstanding

Recorded

Investment

 

 

Post-Modification

Recorded

Investment

 

 

Number of

Loans

 

 

Pre-Modification

Outstanding

Recorded

Investment

 

 

Post-Modification

Recorded

Investment

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

(In thousands)

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

 

 

 

$

 

 

$

 

 

 

 

 

$

 

 

$

 

Nonresidential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

 

 

 

 

 

 

 

��

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

1

 

 

 

75

 

 

 

84

 

 

 

2

 

 

 

222

 

 

 

253

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total residential mortgage loans

 

 

1

 

 

 

75

 

 

 

84

 

 

 

2

 

 

 

222

 

 

 

253

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marine

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recreational vehicle

 

 

1

 

 

 

115

 

 

 

115

 

 

 

1

 

 

 

115

 

 

 

115

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total consumer loans

 

 

1

 

 

 

115

 

 

 

115

 

 

 

1

 

 

 

115

 

 

 

115

 

Total restructured loans

 

 

2

 

 

$

190

 

 

$

199

 

 

 

3

 

 

$

337

 

 

$

368

 

The troubled debt restructurings described above increased the allowance for loan losses by $6,000 and resulted in no charge-offs during the sixnine months ended JuneSeptember 30, 2017.

 

3132


The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended JuneSeptember 30, 2016:

 

 

Number of

Loans

 

 

Pre-Modification

Outstanding

Recorded

Investment

 

 

Post-Modification

Recorded

Investment

 

 

Number of

Loans

 

 

Pre-Modification

Outstanding

Recorded

Investment

 

 

Post-Modification

Recorded

Investment

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

(Dollars in thousands)

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

 

 

 

$

 

 

$

 

 

 

 

 

$

 

 

$

 

Nonresidential

 

 

1

 

 

 

4,000

 

 

 

4,000

 

 

 

1

 

 

 

1,371

 

 

 

1,377

 

Land

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total commercial loans

 

 

1

 

 

 

4,000

 

 

 

4,000

 

 

 

1

 

 

 

1,371

 

 

 

1,377

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

1

 

 

 

97

 

 

 

98

 

 

 

1

 

 

 

113

 

 

 

114

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total residential mortgage loans

 

 

1

 

 

 

97

 

 

 

98

 

 

 

1

 

 

 

113

 

 

 

114

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

2

 

 

 

110

 

 

 

114

 

 

 

 

 

 

 

 

 

 

Auto

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marine

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recreational vehicle

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total consumer loans

 

 

2

 

 

 

110

 

 

 

114

 

 

 

 

 

 

 

 

 

 

Total restructured loans

 

 

4

 

 

$

4,207

 

 

$

4,212

 

 

 

2

 

 

$

1,484

 

 

$

1,491

 

 

The troubled debt restructurings described above increased the allowance for loan losses by $6,000,$20,000, and resulted in no charge-offs during the three months ended JuneSeptember 30, 2016.

3233


The following table presents loans by class modified as troubled debt restructurings that occurred during the sixnine months ended JuneSeptember 30, 2016:

 

 

Number of

Loans

 

 

Pre-Modification

Outstanding

Recorded

Investment

 

 

Post-Modification

Recorded

Investment

 

 

Number of

Loans

 

 

Pre-Modification

Outstanding

Recorded

Investment

 

 

Post-Modification

Recorded

Investment

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

(Dollars in thousands)

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

 

 

 

$

 

 

$

 

 

 

 

 

$

 

 

$

 

Nonresidential

 

 

2

 

 

 

4,088

 

 

 

4,088

 

 

 

3

 

 

 

5,459

 

 

 

5,465

 

Land

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total commercial loans

 

 

2

 

 

 

4,088

 

 

 

4,088

 

 

 

3

 

 

 

5,459

 

 

 

5,465

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

3

 

 

 

316

 

 

 

335

 

 

 

4

 

 

 

429

 

 

 

449

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total residential mortgage loans

 

 

3

 

 

 

316

 

 

 

335

 

 

 

4

 

 

 

429

 

 

 

449

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

3

 

 

 

130

 

 

 

134

 

 

 

3

 

 

 

130

 

 

 

134

 

Auto

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marine

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recreational vehicle

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total consumer loans

 

 

3

 

 

 

130

 

 

 

134

 

 

 

3

 

 

 

130

 

 

 

134

 

Total restructured loans

 

 

8

 

 

$

4,534

 

 

$

4,557

 

 

 

10

 

 

$

6,018

 

 

$

6,048

 

 

The troubled debt restructurings described above increased the allowance for loan losses by $11,000$31,000 and resulted in no charge-offs during the sixnine months ended JuneSeptember 30, 2017.

 

3334


The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within a twelve-month cycle following the modification during the period ended JuneSeptember 30, 2017.

 

 

Number

of loans

 

 

Recorded

Investment

 

 

Number

of loans

 

 

Recorded

Investment

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

(Dollars in thousands)

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

 

 

 

$

 

 

 

 

 

$

 

Nonresidential

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

Secured

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured

 

 

 

 

 

 

 

 

 

 

 

 

Total commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

1

 

 

 

164

 

 

 

1

 

 

 

162

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

Total residential mortgage loans

 

 

1

 

 

 

164

 

 

 

1

 

 

 

162

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

1

 

 

 

47

 

 

 

1

 

 

 

47

 

Auto

 

 

 

 

 

 

 

 

 

 

 

 

Marine

 

 

 

 

 

 

 

 

 

 

 

 

Recreational vehicle

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

Total consumer loans

 

 

1

 

 

 

47

 

 

 

1

 

 

 

47

 

Total restructured loans

 

 

2

 

 

$

211

 

 

 

2

 

 

$

209

 

 

The troubled debt restructurings that subsequently defaulted described above resulted in no charge-offs during the three and sixnine months ended JuneSeptember 30, 2017, and had no effect on the provision for loan losses.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within a twelve month cycle following the modification during the period ended JuneSeptember 30, 2016:

 

Number

of loans

Recorded

Investment

(Dollars in thousands)

Commercial loans

Multifamily

$

Nonresidential

Land

Construction

Secured

Unsecured

Total commercial loans

Residential mortgage loans

One-to four-family

Construction

Total residential mortgage loans

Consumer loans

Home equity

Auto

Marine

Recreational vehicle

Other

Total consumer loans

Total restructured loans

$

 

 

Number

of loans

 

 

Recorded

Investment

 

 

 

 

 

 

 

(Dollars in thousands)

 

Commercial loans

 

 

 

 

 

 

 

 

Multifamily

 

 

 

 

$

 

Nonresidential

 

 

 

 

 

 

Land

 

 

 

 

 

 

Construction

 

 

 

 

 

 

Secured

 

 

 

 

 

 

Unsecured

 

 

 

 

 

 

Total commercial loans

 

 

 

 

 

 

Residential mortgage loans

 

 

 

 

 

 

 

 

One-to four-family

 

 

1

 

 

 

4

 

Construction

 

 

 

 

 

 

Total residential mortgage loans

 

 

1

 

 

 

4

 

Consumer loans

 

 

 

 

 

 

 

 

Home equity

 

 

 

 

 

 

Auto

 

 

 

 

 

 

Marine

 

 

 

 

 

 

Recreational vehicle

 

 

 

 

 

 

Other

 

 

 

 

 

 

Total consumer loans

 

 

 

 

 

 

Total restructured loans

 

 

1

 

 

$

4

 

 

3435


The troubled debt restructurings that subsequently defaulted described above resulted in no of charge-offs during the three and sixnine months ended JuneSeptember 30, 2016, and had no effect on the provision for loan losses.

A troubled debt restructuring is considered to be in payment default once it is 30 days contractually past due under the modified terms.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Company’s internal underwriting policy.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information and current economic trends. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes homogeneous loans past due 90 cumulative days, and all non-homogeneous loans, including commercial loans and commercial real estate loans. Smaller balance homogeneous loans are primarily monitored by payment status.

Asset quality ratings are divided into two groups: Pass (unclassified) and Classified. Within the unclassified group, certain loans that display potential weakness are risk rated as special mention. In addition, there are three classified risk ratings: substandard, doubtful and loss. These specific credit risk categories are defined as follows:

Special Mention. Loans classified as special mention have potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Loss. Loans classified as loss are considered uncollectible and of such little value, that continuance as assets is not warranted. Although there may be a chance of recovery on these assets, it is not practical or desirable to defer writing off the asset.

The Company monitors loans on a monthly basis to determine if they should be included in one of the categories listed above. All impaired non-homogeneous credits classified as substandard, doubtful or loss are analyzed on an individual basis for a specific reserve requirement. This analysis is performed on each individual credit at least annually or more frequently if warranted.

3536


As of JuneSeptember 30, 2017 and December 31, 2016, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

Loans

JuneSeptember 30, 2017

(Dollars in thousands)

 

 

 

Unclassified

 

 

Classified

 

 

 

Unclassified

 

 

Classified

 

 

 

Unclassified

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

Loss

 

 

Total

Classified

 

 

Total Loans

 

 

 

Unclassified

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

Loss

 

 

Total

Classified

 

 

Total Loans

 

Commercial Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

 

$

117,375

 

 

$

3,482

 

 

$

708

 

 

$

 

 

$

 

 

$

708

 

 

$

121,565

 

 

 

$

124,441

 

 

$

1,975

 

 

$

561

 

 

$

 

 

$

 

 

$

561

 

 

$

126,977

 

Nonresidential

 

 

 

333,010

 

 

 

3,208

 

 

 

6,082

 

 

 

 

 

 

 

 

 

6,082

 

 

 

342,300

 

 

 

 

355,846

 

 

 

3,171

 

 

 

7,730

 

 

 

 

 

 

 

 

 

7,730

 

 

 

366,747

 

Land

 

 

 

10,858

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

9

 

 

 

10,867

 

 

 

 

13,657

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

9

 

 

 

13,666

 

Construction

 

 

 

96,362

 

 

 

403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

96,765

 

 

 

 

107,702

 

 

 

403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

108,105

 

Secured

 

 

 

134,433

 

 

 

10,839

 

 

 

16,837

 

 

 

 

 

 

 

 

 

16,837

 

 

 

162,109

 

 

 

 

137,977

 

 

 

1,421

 

 

 

28,035

 

 

 

 

 

 

 

 

 

28,035

 

 

 

167,433

 

Unsecured

 

 

 

8,555

 

 

 

 

 

 

94

 

 

 

 

 

 

 

 

 

94

 

 

 

8,649

 

 

 

 

8,054

 

 

 

 

 

 

94

 

 

 

 

 

 

 

 

 

94

 

 

 

8,148

 

Total commercial loans

 

 

 

700,593

 

 

 

17,932

 

 

 

23,730

 

 

 

 

 

 

 

 

 

23,730

 

 

 

742,255

 

 

 

 

747,677

 

 

 

6,970

 

 

 

36,429

 

 

 

 

 

 

 

 

 

36,429

 

 

 

791,076

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

 

825,270

 

 

 

779

 

 

 

8,300

 

 

 

 

 

 

 

 

 

8,300

 

 

 

834,349

 

 

 

 

842,928

 

 

 

769

 

 

 

8,166

 

 

 

 

 

 

 

 

 

8,166

 

 

 

851,863

 

Construction

 

 

 

56,946

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56,946

 

 

 

 

57,081

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

57,081

 

Total residential mortgage loans

 

 

 

882,216

 

 

 

779

 

 

 

8,300

 

 

 

 

 

 

 

 

 

8,300

 

 

 

891,295

 

 

 

 

900,009

 

 

 

769

 

 

 

8,166

 

 

 

 

 

 

 

 

 

8,166

 

 

 

908,944

 

Consumer Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

 

186,055

 

 

 

 

 

 

1,707

 

 

 

 

 

 

 

 

 

1,707

 

 

 

187,762

 

 

 

 

191,689

 

 

 

 

 

 

1,713

 

 

 

 

 

 

 

 

 

1,713

 

 

 

193,402

 

Auto

 

 

 

50,258

 

 

 

 

 

 

131

 

 

 

 

 

 

 

 

 

131

 

 

 

50,389

 

 

 

 

56,845

 

 

 

 

 

 

38

 

 

 

 

 

 

 

 

 

38

 

 

 

56,883

 

Marine

 

 

 

1,432

 

 

 

 

 

 

169

 

 

 

 

 

 

 

 

 

169

 

 

 

1,601

 

 

 

 

1,395

 

 

 

 

 

 

169

 

 

 

 

 

 

 

 

 

169

 

 

 

1,564

 

Recreational vehicle

 

 

 

6,234

 

 

 

 

 

 

167

 

 

 

 

 

 

 

 

 

167

 

 

 

6,401

 

 

 

 

5,840

 

 

 

 

 

 

409

 

 

 

 

 

 

 

 

 

409

 

 

 

6,249

 

Other

 

 

 

4,997

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

 

 

4,998

 

 

 

 

5,592

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

 

 

5,594

 

Total consumer loans

 

 

 

248,976

 

 

 

 

 

 

2,175

 

 

 

 

 

 

 

 

 

2,175

 

 

 

251,151

 

 

 

 

261,361

 

 

 

 

 

 

2,331

 

 

 

 

 

 

 

 

 

2,331

 

 

 

263,692

 

Total loans

 

 

$

1,831,785

 

 

$

18,711

 

 

$

34,205

 

 

$

 

 

$

 

 

$

34,205

 

 

$

1,884,701

 

 

 

$

1,909,047

 

 

$

7,739

 

 

$

46,926

 

 

$

 

 

$

 

 

$

46,926

 

 

$

1,963,712

 

 

3637


Loans

December 31, 2016

(Dollars in thousands)

 

 

 

Unclassified

 

 

Classified

 

 

 

Unclassified

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful

 

 

Loss

 

 

Total

Classified

 

 

Total Loans

 

Commercial Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

$

89,468

 

 

$

3,564

 

 

$

565

 

 

$

 

 

$

 

 

$

565

 

 

$

93,597

 

Nonresidential

 

 

217,204

 

 

 

6,037

 

 

 

8,160

 

 

 

 

 

 

 

 

 

8,160

 

 

 

231,401

 

Land

 

 

8,339

 

 

 

 

 

 

34

 

 

 

 

 

 

 

 

 

34

 

 

 

8,373

 

Construction

 

 

68,158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

68,158

 

Secured

 

 

89,756

 

 

 

3,420

 

 

 

2,167

 

 

 

 

 

 

 

 

 

2,167

 

 

 

95,343

 

Unsecured

 

 

7,291

 

 

 

 

 

 

95

 

 

 

 

 

 

 

 

 

95

 

 

 

7,386

 

Total commercial loans

 

 

480,216

 

 

 

13,021

 

 

 

11,021

 

 

 

 

 

 

 

 

 

11,021

 

 

 

504,258

 

Residential mortgage loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family

 

 

754,996

 

 

 

104

 

 

 

7,826

 

 

 

 

 

 

 

 

 

7,826

 

 

 

762,926

 

Construction

 

 

35,695

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35,695

 

Total residential mortgage loans

 

 

790,691

 

 

 

104

 

 

 

7,826

 

 

 

 

 

 

 

 

 

7,826

 

 

 

798,621

 

Consumer Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

 

163,101

 

 

 

 

 

 

1,953

 

 

 

 

 

 

 

 

 

1,953

 

 

 

165,054

 

Auto

 

 

39,577

 

 

 

1

 

 

 

31

 

 

 

 

 

 

 

 

 

31

 

 

 

39,609

 

Marine

 

 

1,530

 

 

 

 

 

 

266

 

 

 

 

 

 

 

 

 

266

 

 

 

1,796

 

Recreational vehicle

 

 

7,424

 

 

 

 

 

 

178

 

 

 

 

 

 

 

 

 

178

 

 

 

7,602

 

Other

 

 

2,535

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

 

 

2,537

 

Total consumer loans

 

 

214,167

 

 

 

1

 

 

 

2,430

 

 

 

 

 

 

 

 

 

2,430

 

 

 

216,598

 

Total loans

 

$

1,485,074

 

 

$

13,126

 

 

$

21,277

 

 

$

 

 

$

 

 

$

21,277

 

 

$

1,519,477

 

 

 

Purchased Credit Impaired Loans:

The Company has purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected.  The carrying amount of those loans is as follows:

 

June 30, 2017

 

September 30, 2017

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Commercial loans

$

1,221

 

$

1,204

 

Residential mortgage loans

 

 

 

 

Consumer loans

 

 

 

 

Outstanding balance

$

1,221

 

$

1,204

 

 

 

 

 

 

 

Carrying amount, net of allowance of $0

$

1,221

 

Carrying amount, net of allowance of $54,000

$

1,150

 

 

Accretable yield, or income expected to be collected, is as follows:

 

Three Months Ended

 

 

Six Months Ended

 

Three Months Ended

 

 

Nine Months Ended

 

June 30, 2017

 

 

June 30, 2017

 

September 30, 2017

 

 

September 30, 2017

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

(Dollars in thousands)

 

Beginning of period

$

128

 

 

$

 

$

116

 

 

$

 

New loans purchased

 

 

 

 

158

 

 

 

 

 

158

 

Accretion of income

 

12

 

 

 

42

 

 

12

 

 

 

54

 

Balance at June 30

$

116

 

 

$

116

 

Balance at September 30

$

104

 

 

$

104

 

 

For the purchased credit impaired loans disclosed above, there was no changean increase of $54,000 in the allowance for loan losses for the three and sixnine months ended JuneSeptember 30, 2017.  

3738


Purchased credit impaired loans purchasedacquired during the sixnine months ended JuneSeptember 30, 2017 for which it was probable at acquisition that all contractually required payments would not be collected are as follows:

 

June 30, 2017

 

September 30, 2017

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Contractually required payments receivable of

loans purchased during the year:

 

 

 

 

 

 

Commercial loans

$

4,499

 

$

4,499

 

Residential mortgage loans

 

 

 

 

Consumer loans

 

 

 

 

$

4,499

 

$

4,499

 

 

 

 

 

 

 

Cash flow expected to be collected at acquisition

$

1,955

 

$

1,955

 

Fair value of acquired loans at acquisition

 

1,797

 

 

1,797

 

 

Income is not recognized on purchased credit impaired loans if the Company cannot reasonably estimate cash flows expected to be collected.  The carrying amounts of such loans are as follows:

 

 

JuneSeptember 30, 2017

 

 

(Dollars in thousands)

 

Loans at beginning of year

$

 

Loans purchased during the year

 

1,797

 

Loans at end of period

 

1,2211,204

 

 

 

 

7.

MORTGAGE BANKING ACTIVITIES

Mortgage loans serviced for others, which are not reported in United Community’s assets, totaled $1.2 billion as of JuneSeptember 30, 2017 and $1.2 billion as of December 31, 2016. Mortgage banking income is comprised of gains recognized on the sale of loans and changes in fair value of mortgage banking derivatives.

The principal balances of mortgage loans serviced for others are as follows:

 

 

June 30, 2017

 

 

December 31, 2016

 

 

September 30, 2017

 

 

December 31, 2016

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Mortgage loan portfolios serviced for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FHLMC

 

$

963,748

 

 

$

956,278

 

 

$

979,546

 

 

$

956,278

 

FNMA

 

 

213,848

 

 

 

208,114

 

 

 

235,246

 

 

 

208,114

 

Private investor

 

 

27,917

 

 

 

 

 

 

26,350

 

 

 

 

 

During the second quarter of 2017, the Company sold $27.9 million of adjustable rate 1-4 family mortgages to a private investor in a bulk mortgage loan sale.  The Company recognized 45 basis points of mortgage service release premium as part of the gain recognized on this sale.   Customer escrow balances with loans serviced for FHLMC, FNMA and the private investor totaled $12.1$9.2 million and $14.3 million at JuneSeptember 30, 2017 and December 31, 2016, respectively.

Activity for capitalized mortgage servicing rights, included in other assets, was as follows:

 

 

For the Three Months Ended

June 30,

 

 

For the Six Months Ended

June 30,

 

 

For the Three Months Ended

September 30,

 

 

For the Nine Months Ended

September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Balance, beginning of period

 

$

5,977

 

 

$

5,727

 

 

$

6,070

 

 

$

5,686

 

 

$

6,161

 

 

$

5,813

 

 

$

6,070

 

 

$

5,686

 

Originations

 

 

670

 

 

 

653

 

 

 

1,026

 

 

 

1,162

 

 

 

793

 

 

 

708

 

 

 

1,819

 

 

 

1,870

 

Amortized to expense

 

 

(486

)

 

 

(567

)

 

 

(935

)

 

 

(1,035

)

 

 

(491

)

 

 

(525

)

 

 

(1,426

)

 

 

(1,560

)

Balance, end of period

 

 

6,161

 

 

 

5,813

 

 

 

6,161

 

 

 

5,813

 

 

 

6,463

 

 

 

5,996

 

 

 

6,463

 

 

 

5,996

 

Less valuation allowance

 

 

(5

)

 

 

(766

)

 

 

(5

)

 

 

(766

)

 

 

(15

)

 

 

(741

)

 

 

(15

)

 

 

(741

)

Net balance

 

$

6,156

 

 

$

5,047

 

 

$

6,156

 

 

$

5,047

 

 

$

6,448

 

 

$

5,255

 

 

$

6,448

 

 

$

5,255

 

 

3839


Activity in the valuation allowance for mortgage servicing rights was as follows:

 

 

For the Three Months Ended

June 30,

 

 

For the Six Months Ended

June 30,

 

 

For the Three Months Ended

September 30,

 

 

For the Nine Months Ended

September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Balance, beginning of period

 

$

(3

)

 

$

(474

)

 

$

 

 

$

(39

)

 

$

(5

)

 

$

(766

)

 

$

 

 

$

(39

)

Impairment charges

 

 

(2

)

 

 

(292

)

 

 

(5

)

 

 

(727

)

 

 

(10

)

 

 

 

 

 

(15

)

 

 

(727

)

Recoveries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25

 

 

 

 

 

 

25

 

Balance, end of period

 

$

(5

)

 

$

(766

)

 

$

(5

)

 

$

(766

)

 

$

(15

)

 

$

(741

)

 

$

(15

)

 

$

(741

)

 

The fair value of mortgage servicing rights as of JuneSeptember 30, 2017, was approximately $10.3$10.5 million and at December 31, 2016, the fair value was approximately $10.2 million.

Key economic assumptions in measuring the value of mortgage servicing rights at JuneSeptember 30, 2017, and December 31, 2016, were as follows:

 

 

June 30, 2017

 

 

December 31, 2016

 

 

September 30, 2017

 

 

December 31, 2016

 

Weighted average prepayment rate

 

178 PSA

 

 

165 PSA

 

 

187 PSA

 

 

165 PSA

 

Weighted average life (in years)

 

6.38

 

 

6.64

 

 

6.22

 

 

6.64

 

Weighted average discount rate

 

 

9.06%

 

 

 

9.00%

 

 

 

9.00%

 

 

 

9.00%

 

 

 

 

8.

OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS

Real estate owned and other repossessed assets at JuneSeptember 30, 2017 and December 31, 2016 were as follows:

 

June 30, 2017

 

 

December 31, 2016

 

September 30, 2017

 

 

December 31, 2016

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Real estate owned and other repossessed assets

$

1,586

 

 

$

2,789

 

$

1,566

 

 

$

2,789

 

Valuation allowance

 

(389

)

 

 

(1,012

)

 

(423

)

 

 

(1,012

)

End of period

$

1,197

 

 

$

1,777

 

$

1,143

 

 

$

1,777

 

 

Activity in the valuation allowance was as follows:

 

Three Months Ended

 

 

Six Months Ended

 

Three Months Ended

 

 

Nine Months Ended

 

June 30, 2017

 

 

June 30, 2016

 

 

June 30, 2017

 

 

June 30, 2016

 

September 30, 2017

 

 

September 30, 2016

 

 

September 30, 2017

 

 

September 30, 2016

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Beginning of period

$

549

 

 

$

1,124

 

 

$

1,012

 

 

$

1,229

 

$

389

 

 

$

1,001

 

 

$

1,012

 

 

$

1,229

 

Recovery of expense

 

 

 

 

(27

)

 

 

(38

)

 

 

(26

)

Amounts charged to (recovery of) expense

 

53

 

 

 

1

 

 

 

15

 

 

 

(25

)

Reductions due to sales

 

(160

)

 

 

(96

)

 

 

(585

)

 

 

(202

)

 

(19

)

 

 

1

 

 

 

(604

)

 

 

(201

)

End of period

$

389

 

 

$

1,001

 

 

$

389

 

 

$

1,001

 

$

423

 

 

$

1,003

 

 

$

423

 

 

$

1,003

 

 

Expenses related to foreclosed and repossessed assets include:

 

Three Months Ended

 

 

Six Months Ended

 

Three Months Ended

 

 

Nine Months Ended

 

June 30, 2017

 

 

June 30, 2016

 

 

June 30, 2017

 

 

June 30, 2016

 

September 30, 2017

 

 

September 30, 2016

 

 

September 30, 2017

 

 

September 30, 2016

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Net loss on sales

$

18

 

 

$

90

 

 

$

108

 

 

$

102

 

Net loss (gains) on sales

$

20

 

 

$

(1

)

 

$

128

 

 

$

101

 

Provision for unrealized (gains) losses , net

 

 

 

 

(27

)

 

 

(38

)

 

 

(26

)

 

53

 

 

 

1

 

 

 

15

 

 

 

(25

)

Operating expenses, net of rental income

 

23

 

 

 

77

 

 

 

85

 

 

 

149

 

 

33

 

 

 

41

 

 

 

118

 

 

 

190

 

Total expenses

$

41

 

 

$

140

 

 

$

155

 

 

$

225

 

$

106

 

 

$

41

 

 

$

261

 

 

$

266

 

 

 

3940


 

9.

FAIR VALUE MEASUREMENT

Fair value is the exchange price that would be received for an asset if paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own beliefs about the assumptions that market participants would use in pricing an asset or liability.

United Community uses the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Available for sale securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing.  Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded, values debt securities without relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

Impaired loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Other real estate owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Real estate owned properties are individually evaluated at least annually for additional impairment and adjusted accordingly.

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by Home Savings. Once received, a member of the Special Assets Department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with the independent data sources such as recent market data or industry-wide statistics. In addition to the Special Assets Department review, a third party independent review is also performed.  On an annual basis, Home Savings compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value. At the time a property is acquired and classified as real estate owned, the fair value is determined utilizing the most appropriate method. A fair value in excess of $250,000 will be supported by an appraisal. After determination of fair value, each property will be recorded at the lower of cost (i.e., recorded investment in the loan) or the estimated net realizable value on the date of transfer to real estate owned. In determining net realizable value, reductions to fair market value may be taken for estimated costs of sale, conditions that must be remedied immediately upon acquisition, and other factors that negatively impact the marketability and prompt sale of the property.

4041


Mortgage servicing rights: On a quarterly basis, loan servicing rights are evaluated for impairment based upon the fair value of the rights as compared to carrying amount. If the carrying amount of an individual tranche exceeds fair value, impairment is recorded on that tranche so that the servicing asset is carried at fair value. Fair value is determined at a tranche level, based on market prices for comparable mortgage servicing contracts, when available, or alternatively based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model utilizes assumptions that market participants would use in estimating future net servicing income and that can be validated against available market data (Level 2).

Loans held for sale: Loans held for sale are carried at the lower of cost or fair value, which is evaluated on a pool-level basis. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 2).

Loans held for sale, at fair value:  The Company elected the fair value option for all conventional residential one-to four-family loans held for sale originated after January 1, 2016 and all permanent construction loans held for sale originated on or after January 1, 2015.   The fair value of conventional loans held for sale is determined using the current 15 day forward contract price for either 15 or 30 year conventional mortgages (Level 2).

The fair value of the Company’s permanent construction loans held for sale is determined using the current 60 day forward contract price for 30 year conventional loans which is then adjusted by extrapolating this rate to the estimated time period remaining until construction is complete.  The fair value is also adjusted for unobservable market data such as estimated fall out rates and the estimated time from origination to completion of construction (Level 3).  

Interest rate caps: Home Savings uses an independent third party that performs a market valuation analysis for interest rate caps. The methodology used consists of a discounted cash flow model, all future floating cash flows are projected and both floating and fixed cash flows are discounted to the valuation date. The yield curve utilized for discounting and projecting is built by obtaining publicly available third party market quotes from Reuters, which handle up to 30-year swap maturities (Level 3). Assumptions used in the valuation of interest rate caps are back-tested for reasonableness on a quarterly basis using an independent source along with a third party service.

Purchased and written certificate of deposit option: Home Savings periodically enters into written and purchased option derivative instruments to facilitate the Power CD. The written and purchased options are mirror derivative instruments which are carried at fair value on the consolidated balance sheets. Home Savings uses an independent third party that performs a market valuation analysis for purchased and written certificate of deposit options. (Level 2).

Assets and Liabilities Measured on a Recurring Basis: Assets and liabilities measured at fair value on a recurring basis are summarized below:

 

 

 

 

 

Fair Value Measurements at June 30, 2017 Using:

 

 

 

 

 

Fair Value Measurements at September 30, 2017 Using:

 

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 

Prices in

 

 

 

 

 

 

 

 

 

 

 

 

 

Prices in

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

 

Significant

 

 

 

 

 

 

 

 

 

Active

 

 

Significant

 

 

 

 

 

 

 

 

 

Markets for

 

 

Other

 

 

Significant

 

 

 

 

 

Markets for

 

 

Other

 

 

Significant

 

 

 

 

 

Identical

 

 

Observable

 

 

Unobservable

 

 

 

 

 

Identical

 

 

Observable

 

 

Unobservable

 

June 30,

 

 

Assets

 

 

Inputs

 

 

Inputs

 

September 30,

 

 

Assets

 

 

Inputs

 

 

Inputs

 

2017

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

2017

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government sponsored entities'

securities

$

134,603

 

 

$

 

 

$

134,603

 

 

$

 

$

125,060

 

 

$

 

 

$

125,060

 

 

$

 

States of the U.S. and political subdivisions

 

58,824

 

 

 

 

 

 

58,824

 

 

 

 

 

 

59,192

 

 

 

 

 

 

59,192

 

 

 

 

 

Mortgage-backed GSE securities: residential

 

93,752

 

 

 

 

 

 

93,752

 

 

 

 

 

90,570

 

 

 

 

 

 

90,570

 

 

 

 

Loans held for sale, at fair value

 

85,954

 

 

 

 

 

 

15,959

 

 

 

69,995

 

 

84,349

 

 

 

 

 

 

14,111

 

 

 

70,238

 

Purchased certificate of deposit option

 

746

 

 

 

 

 

 

746

 

 

 

 

 

823

 

 

 

 

 

 

823

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Written certificate of deposit option

 

746

 

 

 

 

 

 

746

 

 

 

 

 

823

 

 

 

 

 

 

823

 

 

 

 

 

4142


 

 

 

 

 

Fair Value Measurements at December 31, 2016 Using:

 

 

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prices in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

 

Significant

 

 

 

 

 

 

 

 

 

 

Markets for

 

 

Other

 

 

Significant

 

 

 

 

 

 

Identical

 

 

Observable

 

 

Unobservable

 

 

December 31,

 

 

Assets

 

 

Inputs

 

 

Inputs

 

 

2016

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

(Dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and government sponsored entities'

   securities

$

186,033

 

 

$

 

 

$

186,033

 

 

$

 

States of the U.S. and political subdivisions

 

57,757

 

 

 

 

 

 

57,757

 

 

 

 

Mortgage-backed GSE securities: residential

 

99,494

 

 

 

 

 

 

99,494

 

 

 

 

Loans held for sale, at fair value

 

62,593

 

 

 

 

 

 

8,832

 

 

 

53,761

 

Purchased certificate of deposit option

 

882

 

 

 

 

 

 

882

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Written certificate of deposit option

 

882

 

 

 

 

 

 

882

 

 

 

 

 

There were no transfers between Level 1 and Level 2 during 2017 or 2016.

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and sixnine months ended JuneSeptember 30, 2017 and 2016.  

 

Loans Held for Sale, At Fair Value

 

 

Loans Held for Sale, At Fair Value

 

Loans Held for Sale, At Fair Value

 

 

Loans Held for Sale, At Fair Value

 

For the Three Months Ended

June 30,

 

 

For the Six Months Ended

June 30,

 

For the Three Months Ended

September 30,

 

 

For the Nine Months Ended

September 30,

 

2017

 

 

2016

 

 

2017

 

 

2016

 

2017

 

 

2016

 

 

2017

 

 

2016

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Balance of recurring Level 3 assets at beginning of period

$

67,439

 

 

$

26,760

 

 

$

53,761

 

 

$

26,716

 

$

69,995

 

 

$

33,605

 

 

$

53,761

 

 

$

26,716

 

Total gains (losses) for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in change in fair value of loans held for sale

 

1,822

 

 

 

622

 

 

 

2,412

 

 

 

1,291

 

 

1,145

 

 

 

414

 

 

 

3,557

 

 

 

1,705

 

Included in other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originations/Draws on construction perm loans

 

25,945

 

 

 

19,132

 

 

 

51,245

 

 

 

35,819

 

 

28,864

 

 

 

25,464

 

 

 

80,109

 

 

 

60,925

 

Amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

(25,211

)

 

 

(12,909

)

 

 

(37,423

)

 

 

(30,221

)

 

(29,766

)

 

 

(12,347

)

 

 

(67,189

)

 

 

(42,210

)

Balance of recurring Level 3 assets at end of period

$

69,995

 

 

$

33,605

 

 

$

69,995

 

 

$

33,605

 

$

70,238

 

 

$

47,136

 

 

$

70,238

 

 

$

47,136

 

 

The following table presents quantitative information about recurring Level 3 fair value measurements at JuneSeptember 30, 2017:

 

 

 

 

 

 

Valuation

 

Unobservable

 

 

 

Fair Value

 

 

Technique(s)

 

Input(s)

 

Range

Loans held for sale, at fair value

$

69,995

 

 

Comparable sales

 

Time discount

 

0.00-1.80%

 

 

 

 

 

Valuation

 

Unobservable

 

 

 

Fair Value

 

 

Technique(s)

 

Input(s)

 

Range

Loans held for sale, at fair value

$

70,238

 

 

Comparable sales

 

Time discount

 

0.00-1.80%

 

The following table presents quantitative information about recurring Level 3 fair value measurements at December 31, 2016:

 

 

 

 

 

 

Valuation

 

Unobservable

 

 

 

Fair Value

 

 

Technique(s)

 

Input(s)

 

Range

Loans held for sale, at fair value

$

53,761

 

 

Comparable sales

 

Time discount

 

0.00-1.80%

The fair value of loans held for sale, at fair value was determined using pricing from a quoted market, discounted for the length of time to the completion of the construction project.

4243


Assets and Liabilities Measured on a Non-Recurring Basis: Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

 

 

 

 

 

Fair Value Measurements at June 30, 2017 Using:

 

 

 

 

 

Fair Value Measurements at September 30, 2017 Using:

 

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 

Prices in

 

 

 

 

 

 

 

 

 

 

 

 

 

Prices in

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

 

Significant

 

 

 

 

 

 

 

 

 

Active

 

 

Significant

 

 

 

 

 

 

 

 

 

Markets for

 

 

Other

 

 

Significant

 

 

 

 

 

Markets for

 

 

Other

 

 

Significant

 

 

 

 

 

Identical

 

 

Observable

 

 

Unobservable

 

 

 

 

 

Identical

 

 

Observable

 

 

Unobservable

 

June 30,

 

 

Assets

 

 

Inputs

 

 

Inputs

 

September 30,

 

 

Assets

 

 

Inputs

 

 

Inputs

 

2017

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

2017

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

$

418

 

 

$

 

 

$

 

 

$

418

 

$

443

 

 

$

 

 

$

 

 

$

443

 

Residential loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family residential

 

756

 

 

 

 

 

 

 

 

 

756

 

 

536

 

 

 

 

 

 

 

 

 

536

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home Equity

 

28

 

 

 

 

 

 

 

 

 

28

 

 

92

 

 

 

 

 

 

 

 

 

92

 

Auto

 

17

 

 

 

 

 

 

 

 

 

17

 

Marine

 

169

 

 

 

 

 

 

 

 

 

169

 

 

169

 

 

 

 

 

 

 

 

 

169

 

Recreational vehicle

 

55

 

 

 

 

 

 

 

 

 

55

 

Mortgage servicing rights

 

82

 

 

 

 

 

 

82

 

 

 

 

 

125

 

 

 

 

 

 

125

 

 

 

 

Other real estate owned, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction loans

 

448

 

 

 

 

 

 

 

 

 

448

 

 

443

 

 

 

 

 

 

 

 

 

443

 

Residential loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family residential

 

35

 

 

 

 

 

 

 

 

 

35

 

 

136

 

 

 

 

 

 

 

 

 

136

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2016 Using:

 

 

 

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prices in

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

 

Significant

 

 

 

 

 

 

 

 

 

 

Markets for

 

 

Other

 

 

Significant

 

 

 

 

 

 

Identical

 

 

Observable

 

 

Unobservable

 

 

December 31,

 

 

Assets

 

 

Inputs

 

 

Inputs

 

 

2016

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

(Dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonresidential

$

2,257

 

 

$

 

 

$

 

 

$

2,257

 

Secured

 

284

 

 

 

 

 

 

 

 

 

284

 

Residential loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family residential

 

919

 

 

 

 

 

 

 

 

 

919

 

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home Equity

 

228

 

 

 

 

 

 

 

 

 

228

 

Auto

 

177

 

 

 

 

 

 

 

 

 

177

 

Recreational vehicle

 

89

 

 

 

 

 

 

 

 

 

89

 

Other real estate owned, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction loans

 

748

 

 

 

 

 

 

 

 

 

748

 

Residential loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family residential

 

281

 

 

 

 

 

 

 

 

 

281

 

 

4344


Impaired loans with specific allocations of the allowance for loan losses, carried at fair value, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a net carrying amount of $1.4$1.2 million at JuneSeptember 30, 2017, that includes a specific valuation allowance of $5,000.$42,000. This resulted in an increase of the provision for loan losses of $252,000$92,000 and $479,000$571,000 during the three and sixnine months ended JuneSeptember 30, 2017, respectively. Impaired loans with specific allocations of the allowance for loan losses, carried at fair value, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a net carrying amount of $8.2$7.7 million at JuneSeptember 30, 2016, which includes a specific valuation allowance of $1.0 million.$989,000. This resulted in an increase in the provision for loan losses of $592,000$134,000 and $3.6$3.7 million for the three and sixnine months ended JuneSeptember 30, 2016.  Impaired loans with specific allocations of the allowance for loan losses, carried at fair value, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a net carrying amount of $4.0 million at December 31, 2016, that includes a specific valuation allowance of $1.3 million.

The significant unobservable (Level 3) inputs used in the fair value measurement of collateral for collateral dependent impaired loans included in the above table primarily relate to the adjustment between carrying values versus appraised value. During the reported periods, discounts applied to appraisals for estimated selling costs were 10%.

At JuneSeptember 30, 2017, mortgage servicing rights carried at fair value were $87,000,$125,000, with a net valuation allowance of $5,000.$15,000.  At JuneSeptember 30, 2016, mortgage servicing rights, carried at fair value totaled $2.8$3.3 million, resulting in a net valuation allowance of $766,000.$741,000.  Mortgage servicing rights are valued by an independent third party that is active in purchasing and selling these instruments.  Net impairment reflected in other income totaled $2,000$10,000 and $5,000$15,000 for the three and sixnine months ended JuneSeptember 30, 2017.2017, respectively.  Net (recovery) impairment reflected in other income totaled $292,000$(25,000) and $727,000$702,000 for the three and sixnine months ended JuneSeptember 30, 2016.  The value reflects the characteristics of the underlying loans.  

At JuneSeptember 30, 2017, other real estate owned, carried at fair value, which is measured for impairment using the fair value of the property less estimated selling costs, and had a net carrying amount of $483,000,$580,000, with a valuation allowance of $389,000.$423,000. This resulted in a recovery of expense of $0$53,000 and $(38,000)$15,000 during the three and sixnine months ended JuneSeptember 30, 2017.  At JuneSeptember 30, 2016, other real estate owned, carried at fair value, which is measured for impairment using the fair value of the property less estimated selling costs, and had a net carrying amount of $1.0 million with a valuation allowance of $1.0 million. This resulted in a recoveryan expense (recovery) of $(27,000)$1,000 and $(26,000)$(25,000) during the three and sixnine months ended JuneSeptember 30, 2016.2016, respectively. At December 31, 2016, other real estate owned had a net carrying amount of $1.0 million, with a valuation allowance of $1.0  million.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at JuneSeptember 30, 2017:

 

 

Fair Value

 

 

Valuation Technique(s)

 

Unobservable Input(s)

 

Range     (Weighted Average)

 

Fair Value

 

 

Valuation Technique(s)

 

Unobservable Input(s)

 

Range (Weighted Average)

Impaired loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi Family

 

$

418

 

 

Sales comparison approach

 

Adjustment for differences

between comparable sales

 

0.00%-35.00%  (15.00%)

 

$

443

 

 

Sales comparison approach

 

Adjustment for differences

between comparable sales

 

0.00%-35.00%  (15.00%)

Residential loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family residential

 

 

756

 

 

Sales comparison approach

 

Adjustment for differences

between comparable sales

 

0.00%-10.77%  (4.27%)

 

 

536

 

 

Sales comparison approach

 

Adjustment for differences

between comparable sales

 

0.00%-10.77%  (4.27%)

Consumer loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home Equity

 

 

28

 

 

Sales comparison approach

 

Adjustment for differences

between comparable sales

 

0.00%-17.85%  (8.93%)

 

 

92

 

 

Sales comparison approach

 

Adjustment for differences

between comparable sales

 

0.00%-17.85%  (8.93%)

Marine

 

 

169

 

 

Sales comparison approach

 

Adjustment for differences

between comparable sales

 

0.00%-37.00%  (37.00%)

 

 

169

 

 

Sales comparison approach

 

Adjustment for differences

between comparable sales

 

0.00%-37.00%  (37.00%)

Other real estate owned, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction loans

 

 

448

 

 

Sales comparison approach

 

Adjustment for differences

between comparable sales

 

0.00%-80.00%  (24.03%)

 

 

443

 

 

Sales comparison approach

 

Adjustment for differences

between comparable sales

 

0.00%-80.00%  (24.03%)

Residential loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to four-family residential

 

 

35

 

 

Sales comparison approach

 

Adjustment for differences

between comparable sales

 

0.00%-3.77%  (3.77%)

 

 

136

 

 

Sales comparison approach

 

Adjustment for differences

between comparable sales

 

0.00%-0.00%  (0.00%)

 

4445


The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at December 31, 2016:

 

Fair Value

Valuation Technique(s)

Unobservable Input(s)

Range     (Weighted Average)

Impaired loans:

Commercial loans

Nonresidential

$

2,257

Sales comparison approach

Adjustment for differences

between comparable sales

0.00-35.00%  (15.00%)

Secured

284

Sales comparison approach

Adjustment for differences

between comparable sales

0.00%-64.00%  (16.00%)

Residential loans

One-to four-family residential

919

Sales comparison approach

Adjustment for differences

between comparable sales

0.00%-10.77%  (4.27%)

Consumer loans

Home Equity

228

Sales comparison approach

Adjustment for differences

between comparable sales

0.00%-17.85%  (8.93%)

Other real estate owned:

Commercial loans

Construction loans

748

Sales comparison approach

Adjustment for differences

between comparable sales

0.00%-90.40%  (27.46%)

Cost approach

Adjustment for differences in cost

0.00%-33.33%  (16.67%)

Residential loans

One-to four-family residential

281

Sales comparison approach

Adjustment for differences

between comparable sales

0.00%-27.00%  (7.74%)

 

 

Fair Value

 

 

Valuation Technique(s)

 

Unobservable Input(s)

 

Range (Weighted Average)

Impaired loans:

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

Nonresidential

 

$

2,257

 

 

Sales comparison approach

 

Adjustment for differences

between comparable sales

 

0.00-35.00%  (15.00%)

Secured

 

 

284

 

 

Sales comparison approach

 

Adjustment for differences

between comparable sales

 

0.00%-64.00%  (16.00%)

Residential loans

 

 

 

 

 

 

 

 

 

 

One-to four-family residential

 

 

919

 

 

Sales comparison approach

 

Adjustment for differences

between comparable sales

 

0.00%-10.77%  (4.27%)

Consumer loans

 

 

 

 

 

 

 

 

 

 

Home Equity

 

 

228

 

 

Sales comparison approach

 

Adjustment for differences

between comparable sales

 

0.00%-17.85%  (8.93%)

Other real estate owned:

 

 

 

 

 

 

 

 

 

 

Commercial loans

 

 

 

 

 

 

 

 

 

 

Construction loans

 

 

748

 

 

Sales comparison approach

 

Adjustment for differences

between comparable sales

 

0.00%-90.40%  (27.46%)

 

 

 

 

 

 

Cost approach

 

Adjustment for differences in cost

 

0.00%-33.33%  (16.67%)

Residential loans

 

 

 

 

 

 

 

 

 

 

One-to four-family residential

 

 

281

 

 

Sales comparison approach

 

Adjustment for differences

between comparable sales

 

0.00%-27.00%  (7.74%)

Auto and recreational vehicle loans were excluded from the table above as their value is considered immaterial.

The Company has elected the fair value option for newly originated residential mortgage and permanent construction loans held for sale.  These loans are intended for sale and the Company believes that fair value is the best indicator of the resolution of these loans.  Interest income is recorded based on the contractual terms of the loan and in accordance with the Company’s policy on loans held for investment.  None of these loans are 90 or more days past due nor on nonaccrual status as of JuneSeptember 30, 2017 and December 31, 2016.  

 

 

June 30, 2017

 

 

December 31, 2016

 

 

September 30, 2017

 

 

December 31, 2016

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Aggregate fair value

 

$

85,954

 

 

$

62,593

 

 

$

84,349

 

 

$

62,593

 

Contractual balance

 

 

83,304

 

 

 

62,843

 

 

 

80,611

 

 

 

62,843

 

Gain (loss)

 

 

2,650

 

 

 

(250

)

 

 

3,738

 

 

 

(250

)

 

The total amount of gains and losses from changes in fair value included in earnings for the three and sixnine months ended JuneSeptember 30, 2017 and 2016 for loans held for sale, at fair value were:

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

June 30, 2017

 

 

June 30, 2016

 

 

June 30, 2017

 

 

June 30, 2016

 

 

September 30, 2017

 

 

September 30, 2016

 

 

September 30, 2017

 

 

September 30, 2016

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Interest income

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value

 

 

2,149

 

 

 

845

 

 

 

2,900

 

 

 

1,649

 

 

 

1,088

 

 

 

556

 

 

 

3,988

 

 

 

2,205

 

Total change in fair value

 

$

2,149

 

 

$

845

 

 

$

2,900

 

 

$

1,649

 

 

$

1,088

 

 

$

556

 

 

$

3,988

 

 

$

2,205

 

 

4546


In accordance with U.S. GAAP, the carrying value and estimated fair values of financial instruments at JuneSeptember 30, 2017 and December 31, 2016, were as follows:

 

 

 

 

 

Fair Value Measurements at June 30, 2017 Using:

 

 

 

 

 

Fair Value Measurements at September 30, 2017 Using:

 

June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Carrying Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

52,014

 

 

$

52,014

 

 

$

 

 

$

 

$

38,010

 

 

$

38,010

 

 

$

 

 

$

 

Available for sale securities

 

287,179

 

 

 

 

 

 

287,179

 

 

 

 

 

274,822

 

 

 

 

 

 

274,822

 

 

 

 

Held to maturity securities

 

88,559

 

 

 

 

 

 

87,775

 

 

 

 

 

85,549

 

 

 

 

 

 

85,024

 

 

 

 

Loans held for sale

 

199

 

 

 

 

 

 

205

 

 

 

 

 

196

 

 

 

 

 

 

203

 

 

 

 

Loans held for sale, at fair value

 

85,954

 

 

 

 

 

 

15,959

 

 

 

69,995

 

 

84,349

 

 

 

 

 

 

14,111

 

 

 

70,238

 

Loans, net

 

1,869,095

 

 

 

 

 

 

 

 

 

1,864,169

 

 

1,947,695

 

 

 

 

 

 

 

 

 

1,942,267

 

FHLB stock

 

19,324

 

 

n/a

 

 

n/a

 

 

n/a

 

 

19,324

 

 

n/a

 

 

n/a

 

 

n/a

 

Accrued interest receivable

 

7,420

 

 

 

 

 

 

2,225

 

 

 

5,195

 

 

7,253

 

 

 

 

 

 

1,733

 

 

 

5,520

 

Purchased certificate of deposit option

 

746

 

 

 

 

 

 

746

 

 

 

 

 

823

 

 

 

 

 

 

823

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Checking, savings and money market accounts

 

(1,252,227

)

 

 

(1,252,227

)

 

 

 

 

 

 

 

(1,241,779

)

 

 

(1,241,779

)

 

 

 

 

 

 

Certificates of deposit

 

(641,766

)

 

 

 

 

 

(642,416

)

 

 

 

 

(696,920

)

 

 

 

 

 

(698,045

)

 

 

 

FHLB advances

 

(328,146

)

 

 

 

 

 

(328,151

)

 

 

 

 

(328,341

)

 

 

 

 

 

(328,342

)

 

 

 

Repurchase agreements and other

 

(8,045

)

 

 

 

 

 

(7,837

)

 

 

 

 

(10,191

)

 

 

 

 

 

(9,911

)

 

 

 

Advance payments by borrowers for taxes and insurance

 

(21,989

)

 

 

(21,989

)

 

 

 

 

 

 

 

(16,048

)

 

 

(16,048

)

 

 

 

 

 

 

Accrued interest payable

 

(392

)

 

 

 

 

 

(392

)

 

 

 

 

(722

)

 

 

 

 

 

(722

)

 

 

 

Written certificate of deposit option

 

(746

)

 

 

 

 

 

(746

)

 

 

 

 

(823

)

 

 

 

 

 

(823

)

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2016 Using:

 

 

December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

(Dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

45,887

 

 

$

45,887

 

 

$

 

 

$

 

Available for sale securities

 

343,284

 

 

 

 

 

 

343,284

 

 

 

 

Held to maturity securities

 

97,519

 

 

 

 

 

 

92,940

 

 

 

3,210

 

Loans held for sale at lower of cost or market

 

165

 

 

 

 

 

 

169

 

 

 

 

Loans held for sale, at fair value

 

62,593

 

 

 

 

 

 

8,832

 

 

 

53,761

 

Loans, net

 

1,503,577

 

 

 

 

 

 

 

 

 

1,494,534

 

FHLB stock

 

18,068

 

 

n/a

 

 

n/a

 

 

n/a

 

Accrued interest receivable

 

6,900

 

 

 

 

 

 

2,624

 

 

 

4,276

 

Purchased certificate of deposit option

 

882

 

 

 

 

 

 

882

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Checking, savings and money market accounts

 

(1,026,565

)

 

 

(1,026,565

)

 

 

 

 

 

 

Certificates of deposit

 

(488,426

)

 

 

 

 

 

(491,278

)

 

 

 

FHLB advances

 

(390,756

)

 

 

 

 

 

(390,750

)

 

 

 

Repurchase agreements and other

 

(512

)

 

 

 

 

 

(513

)

 

 

 

Advance payments by borrowers for taxes and insurance

 

(23,812

)

 

 

(23,812

)

 

 

 

 

 

 

Accrued interest payable

 

(145

)

 

 

 

 

 

(145

)

 

 

 

Written certificate of deposit option

 

(882

)

 

 

 

 

 

(882

)

 

 

 

 

4647


The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

(a) Cash and Cash Equivalents

The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

(b) FHLB Stock

It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

(c) Held to maturity securities

Fair values for held to maturity securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows.

(d) Loans

Fair values of loans, excluding loans held for sale, are estimated as follows: for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification; fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification; and impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

(e) Deposits

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. The carrying amounts of variable rate, fixed-term money market accounts approximate their fair values at the reporting date resulting in a Level 1 classification. Fair values for fixed and variable rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates of deposit to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

(f) Other Borrowings

Short-term borrowings, generally maturing within 90 days, approximate their fair values resulting in a Level 2 classification. The fair values of Home Savings long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

(g) Accrued Interest Receivable/Payable

The carrying amounts of accrued interest approximate fair value resulting in a Level 2 or Level 3 classification, depending on the classification of the underlying asset or liability.

(h) Off-balance Sheet Instruments

Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.

 

 

4748


 

10.

STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURE

Supplemental disclosures of cash flow information are summarized below.

 

For the Six Months Ended

June 30,

 

For the Nine Months Ended

September 30,

 

2017

 

 

2016

 

2017

 

 

2016

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits and borrowings

$

5,396

 

 

$

4,166

 

$

8,611

 

 

$

6,203

 

Income taxes

 

250

 

 

 

150

 

 

425

 

 

 

275

 

Supplemental schedule of noncash activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers from loans to real estate owned and other repossessed assets

 

282

 

 

 

534

 

 

651

 

 

 

813

 

Transfers from loans to loans held for sale

 

27,921

 

 

 

 

 

27,921

 

 

 

 

Transfers from premises and equipment to other assets, held for sale

 

1,720

 

 

 

 

 

1,720

 

 

 

 

Accretion of securities held to maturity

 

100

 

 

 

109

 

 

151

 

 

 

181

 

Issuance of common stock - James & Sons acquisition

 

 

 

 

1,508

 

 

 

 

 

1,547

 

Issuance of common stock - Ohio Legacy Corp. acquisition

 

25,816

 

 

 

 

 

25,816

 

 

 

 

Net assets acquired from Ohio Legacy Corp., excluding cash and cash equivalents

 

36

 

 

 

 

 

36

 

 

 

 

 

 

 

11.

EARNINGS PER SHARE

The Company has granted stock compensation awards with nonforfeitable dividend rights which are considered participating securities. As such, earnings per share is computed using the two-class method as required by ASC 206-10-45. Basic earnings per common share is computed by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding during the period which excludes the participating securities. Diluted earnings per common share includes the dilutive effect of additional potential common shares from stock compensation awards, but also excludes awards considered participating securities. No stock options were anti-dilutive for the three and sixnine months ended JuneSeptember 30, 2017.  No stock options were anti-dilutive for the three months ended June 30, 2016 and stock options for 71,391 shares were anti-dilutive for the sixnine months ended JuneSeptember 30, 2016.  

 

For the Three Months Ended

June 30,

 

 

For the Six Months Ended

June 30,

 

For the Three Months Ended

September 30,

 

 

For the Nine Months Ended

September 30,

 

2017

 

 

2016

 

 

2017

 

 

2016

 

2017

 

 

2016

 

 

2017

 

 

2016

 

(Dollars in thousands, except per share data)

 

(Dollars in thousands, except per share data)

 

Net income per consolidated statements of income

$

8,189

 

 

$

5,330

 

 

$

9,727

 

 

$

8,650

 

$

7,556

 

 

$

5,153

 

 

$

17,283

 

 

$

13,803

 

Net income allocated to participating securities

 

(49

)

 

 

(40

)

 

 

(61

)

 

 

(55

)

 

(42

)

 

 

(38

)

 

 

(108

)

 

 

(88

)

Net income allocated to common stock

$

8,140

 

 

$

5,290

 

 

$

9,666

 

 

$

8,595

 

$

7,514

 

 

$

5,115

 

 

$

17,175

 

 

$

13,715

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share computation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributed earnings allocated to common stock

$

1,483

 

 

$

1,180

 

 

$

2,962

 

 

$

2,368

 

$

1,979

 

 

$

1,385

 

 

$

4,941

 

 

$

3,753

 

Undistributed earnings allocated to common stock

 

6,657

 

 

 

4,110

 

 

 

6,704

 

 

 

6,227

 

 

5,535

 

 

 

3,730

 

 

 

12,234

 

 

 

9,962

 

Net income allocated to common stock

$

8,140

 

 

$

5,290

 

 

$

9,666

 

 

$

8,595

 

$

7,514

 

 

$

5,115

 

 

$

17,175

 

 

$

13,715

 

Weighted average common shares outstanding, including shares

considered participating securities

 

49,691

 

 

 

47,223

 

 

 

49,158

 

 

 

47,405

 

 

49,736

 

 

 

46,508

 

 

 

49,353

 

 

 

47,104

 

Less: Average participating securities

 

(299

)

 

 

(354

)

 

 

(309

)

 

 

(299

)

 

(276

)

 

 

(341

)

 

 

(308

)

 

 

(302

)

Weighted average shares

 

49,392

 

 

 

46,869

 

 

 

48,849

 

 

 

47,106

 

 

49,460

 

 

 

46,167

 

 

 

49,045

 

 

 

46,802

 

Basic earnings per common share

$

0.16

 

 

$

0.11

 

 

$

0.20

 

 

$

0.18

 

$

0.15

 

 

$

0.11

 

 

$

0.35

 

 

$

0.29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share computation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocated to common stock

$

8,140

 

 

$

5,290

 

 

$

9,666

 

 

$

8,595

 

$

7,514

 

 

$

5,115

 

 

$

17,175

 

 

$

13,715

 

Weighted average common shares outstanding for basic

earnings per common share

 

49,392

 

 

 

46,869

 

 

 

48,849

 

 

 

47,106

 

 

49,460

 

 

 

46,167

 

 

 

49,045

 

 

 

46,802

 

Add: Dilutive effects of assumed exercises of stock options and LTIP

awards

 

403

 

 

 

248

 

 

 

398

 

 

 

247

 

 

391

 

 

 

225

 

 

 

396

 

 

 

214

 

Weighted average shares and dilutive potential common shares

 

49,795

 

 

 

47,117

 

 

 

49,247

 

 

 

47,353

 

 

49,851

 

 

 

46,392

 

 

 

49,441

 

 

 

47,016

 

Diluted earnings per common share

$

0.16

 

 

$

0.11

 

 

$

0.20

 

 

$

0.18

 

$

0.15

 

 

$

0.11

 

 

$

0.35

 

 

$

0.29

 

 


 

12.

OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) included in the consolidated statements of shareholders’ equity consists of unrealized gains and losses on available for sale securities, disproportional tax effects and changes in unrealized gains and losses on the postretirement liability. The change includes reclassification of net gains or (losses) on sales of securities of $301,000$236,000 and $233,000$218,000 for the three months ended JuneSeptember 30, 2017 and 2016, respectively and $330,000$566,000 and $386,000$604,000 for the sixnine months ended JuneSeptember 30, 2017 and 2016, respectively.  Reclassifications also include amortization of unrealized gains on postretirement plan and accretion of unrealized loss on held to maturity securities.    

Other comprehensive income (loss) components and related tax effects for the three-month periods are as follows:

 

 

Unrealized

Gains (Losses)

on Securities

Available for

Sale

 

 

Disproportionate

Tax Effect from

Securities

Available for

Sale

 

 

Losses on

Securities

Transferred

From

Available for

Sale

to Held to

Maturity

 

 

Total

 

 

Unrealized

Gains (Losses)

on Securities

Available for

Sale

 

 

Disproportionate

Tax Effect from

Securities

Available for

Sale

 

 

Losses on

Securities

Transferred

From

Available for

Sale

to Held to

Maturity

 

 

Total

 

June 30, 2017

 

(Dollars in thousands)

 

 

 

 

 

September 30, 2017

 

(Dollars in thousands)

 

 

 

 

 

Balances at beginning of period, net of tax

 

$

(2,165

)

 

$

(17,110

)

 

$

(767

)

 

$

(20,042

)

 

$

(603

)

 

$

(17,110

)

 

$

(735

)

 

$

(18,448

)

Other comprehensive income before

reclassifications

 

 

1,758

 

 

 

 

 

 

 

 

 

1,758

 

 

 

639

 

 

 

 

 

 

 

 

 

639

 

Accretion of unrealized losses of securities

transferred from available for sale to

held to maturity recognized in other

comprehensive income

 

 

 

 

 

 

 

 

32

 

 

 

32

 

 

 

 

 

 

 

 

 

33

 

 

 

33

 

Reclassification adjustment for gains realized

in income

 

 

(196

)

 

 

 

 

 

 

 

 

(196

)

 

 

(153

)

 

 

 

 

 

 

 

 

(153

)

Net current period other comprehensive income

 

 

1,562

 

 

 

 

 

 

32

 

 

 

1,594

 

 

 

486

 

 

 

 

 

 

33

 

 

 

519

 

Balances at end of period, net of tax

 

$

(603

)

 

$

(17,110

)

 

$

(735

)

 

$

(18,448

)

 

$

(117

)

 

$

(17,110

)

 

$

(702

)

 

$

(17,929

)

 

 

Unrealized

Gains (Losses)

on Securities

Available for

Sale

 

 

Disproportionate

Tax Effect from

Securities

Available for

Sale

 

 

Losses on

Securities

Transferred

From

Available for

Sale to Held

to Maturity

 

 

Unrealized

Gains (Losses)

from

Postretirement

Plan

 

 

Disproportionate

Tax Effect from Postretirement

Plan

 

 

Total

 

 

Unrealized

Gains (Losses)

on Securities

Available for

Sale

 

 

Disproportionate

Tax Effect from

Securities

Available for

Sale

 

 

Losses on

Securities

Transferred

From

Available for

Sale to Held

to Maturity

 

 

Unrealized

Gains (Losses)

from

Postretirement

Plan

 

 

Disproportionate

Tax Effect from Postretirement

Plan

 

 

Total

 

June 30, 2016

 

(Dollars in thousands)

 

 

 

 

 

September 30, 2016

 

(Dollars in thousands)

 

 

 

 

 

Balances at beginning of period,

net of tax

 

$

3,937

 

 

$

(17,110

)

 

$

(926

)

 

$

650

 

 

$

511

 

 

$

(12,938

)

 

$

8,379

 

 

$

(17,110

)

 

$

(889

)

 

$

469

 

 

$

511

 

 

$

(8,640

)

Other comprehensive income

before reclassifications

 

 

4,594

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,594

 

 

 

(1,227

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,227

)

Amortization of unrealized gains

of postretirement plan

recognized in other

comprehensive income

 

 

 

 

 

 

 

 

 

 

 

(181

)

 

 

 

 

 

(181

)

 

 

 

 

 

 

 

 

 

 

 

(289

)

 

 

 

 

 

(289

)

Accretion of unrealized losses of

securities transferred from

available for sale to held

to maturity recognized in

other comprehensive income

 

 

 

 

 

 

 

 

37

 

 

 

 

 

 

 

 

 

37

 

 

 

 

 

 

 

 

 

47

 

 

 

 

 

 

 

 

 

47

 

Reclassification adjustment for

gains realized in income

 

 

(152

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(152

)

 

 

(142

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(142

)

Net current period other

comprehensive income

 

 

4,442

 

 

 

 

 

 

37

 

 

 

(181

)

 

 

 

 

 

4,298

 

 

 

(1,369

)

 

 

 

 

 

47

 

 

 

(289

)

 

 

 

 

 

(1,611

)

Balances at end of period, net of

tax

 

$

8,379

 

 

$

(17,110

)

 

$

(889

)

 

$

469

 

 

$

511

 

 

$

(8,640

)

 

$

7,010

 

 

$

(17,110

)

 

$

(842

)

 

$

180

 

 

$

511

 

 

$

(10,251

)

 

4950


Other comprehensive income (loss) components and related tax effects for the six-monthnine-month periods are as follows:

 

 

Unrealized

Gains (Losses)

on Securities

Available for

Sale

 

 

Disproportionate

Tax Effect from

Securities

Available for

Sale

 

 

Losses on

Securities

Transferred

From

Available for

Sale

to Held to

Maturity

 

 

Total

 

 

Unrealized

Gains (Losses)

on Securities

Available for

Sale

 

 

Disproportionate

Tax Effect from

Securities

Available for

Sale

 

 

Losses on

Securities

Transferred

From

Available for

Sale

to Held to

Maturity

 

 

Total

 

June 30, 2017

 

(Dollars in thousands)

 

September 30, 2017

 

(Dollars in thousands)

 

Balances at beginning of period, net of tax

 

$

(3,130

)

 

$

(17,110

)

 

$

(800

)

 

$

(21,040

)

 

$

(3,130

)

 

$

(17,110

)

 

$

(800

)

 

$

(21,040

)

Other comprehensive income before

reclassifications

 

 

2,742

 

 

 

 

 

 

 

 

 

2,742

 

 

 

3,381

 

 

 

 

 

 

 

 

 

3,381

 

Accretion of unrealized losses of securities

transferred from available for sale to held

to maturity recognized in other

comprehensive income

 

 

 

 

 

 

 

 

65

 

 

 

65

 

 

 

 

 

 

 

 

 

98

 

 

 

98

 

Reclassification adjustment for gains realized

in income

 

 

(215

)

 

 

 

 

 

 

 

 

(215

)

 

 

(368

)

 

 

 

 

 

 

 

 

(368

)

Net current period other comprehensive

income

 

 

2,527

 

 

 

 

 

 

65

 

 

 

2,592

 

 

 

3,013

 

 

 

 

 

 

98

 

 

 

3,111

 

Balances at end of period, net of tax

 

$

(603

)

 

$

(17,110

)

 

$

(735

)

 

$

(18,448

)

 

$

(117

)

 

$

(17,110

)

 

$

(702

)

 

$

(17,929

)

 

 

Unrealized

Gains (Losses)

on Securities

Available for

Sale

 

 

Disproportionate

Tax Effect from

Securities

Available for

Sale

 

 

Losses on

Securities

Transferred

From

Available for

Sale

to Held to

Maturity

 

 

Unrealized

Gains (Losses)

from

Postretirement

Plan

 

 

Disproportionate

Tax Effect from

Postretirement

Plan

 

 

Total

 

 

Unrealized

Gains (Losses)

on Securities

Available for

Sale

 

 

Disproportionate

Tax Effect from

Securities

Available for

Sale

 

 

Losses on

Securities

Transferred

From

Available for

Sale

to Held to

Maturity

 

 

Unrealized

Gains (Losses)

from

Postretirement

Plan

 

 

Disproportionate

Tax Effect from

Postretirement

Plan

 

 

Total

 

June 30, 2016

 

(Dollars in thousands)

 

 

 

 

 

September 30, 2016

 

(Dollars in thousands)

 

 

 

 

 

Balances at beginning of period,

net of tax

 

$

(2,492

)

 

$

(17,110

)

 

$

(960

)

 

$

831

 

 

$

511

 

 

$

(19,220

)

 

$

(2,492

)

 

$

(17,110

)

 

$

(960

)

 

$

831

 

 

$

511

 

 

$

(19,220

)

Other comprehensive income

before reclassifications

 

 

11,122

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,122

 

 

 

9,895

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,895

 

Amortization of unrealized

gains of postretirement plan

recognized in other

comprehensive income

 

 

 

 

 

 

 

 

 

 

 

(362

)

 

 

 

 

 

(362

)

 

 

 

 

 

 

 

 

 

 

 

(651

)

 

 

 

 

 

(651

)

Accretion of unrealized losses

of securities transferred

from available for sale to

held to maturity recognized

in other comprehensive

income

 

 

 

 

 

 

 

 

71

 

 

 

 

 

 

 

 

 

71

 

 

 

 

 

 

 

 

 

118

 

 

 

 

 

 

 

 

 

118

 

Reclassification adjustment

for gains realized in income

 

 

(251

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(251

)

 

 

(393

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(393

)

Net current period other

comprehensive income

 

 

10,871

 

 

 

 

 

 

71

 

 

 

(362

)

 

 

 

 

 

10,580

 

 

 

9,502

 

 

 

 

 

 

118

 

 

 

(651

)

 

 

 

 

 

8,969

 

Balances at end of period, net of

tax

 

$

8,379

 

 

$

(17,110

)

 

$

(889

)

 

$

469

 

 

$

511

 

 

$

(8,640

)

 

$

7,010

 

 

$

(17,110

)

 

$

(842

)

 

$

180

 

 

$

511

 

 

$

(10,251

)

 

5051


As of June 30, 2014, management concluded it was more likely than not that the Company’s net deferred tax asset (DTA) would be realized and accordingly determined a full deferred tax valuation allowance was no longer required. Upon reversal of the former full deferred tax valuation allowance as of June 30, 2014, certain disproportionate tax effects are retained in accumulated other comprehensive income (loss) totaling approximately a ($16.6) million loss. Almost the entire disproportionate tax effect is attributable to valuation allowance expense recorded through other comprehensive income (loss) on the tax benefit of losses sustained on the available for sale securities portfolio while the Company was in a full deferred tax valuation allowance. This valuation allowance was appropriately reversed through continuing operations at June 30, 2014, leaving the original expense in accumulated other comprehensive income (loss), where it will remain in accordance with the Company’s election of the “portfolio approach”, until such time as the Company would cease to have an available for sale security portfolio.

The following are significant amounts reclassified out of each component of accumulated comprehensive income (loss) for the three months ended JuneSeptember 30, 2017:

 

 

Amount Reclassified

 

 

Affected Line Item on

 

Amount Reclassified

 

 

Affected Line Item on

 

From Accumulated

 

 

the Statement Where

 

From Accumulated

 

 

the Statement Where

Details About Accumulated Other Comprehensive

 

Other Comprehensive

 

 

Net Income is

 

Other Comprehensive

 

 

Net Income is

Income Components

 

Income

 

 

Presented

 

Income

 

 

Presented

 

(Dollars in thousands)

 

 

 

 

(Dollars in thousands)

 

 

 

Realized net gains on the sale of available for sale securities

 

$

(301

)

 

Net gains on securities available for sale

 

$

236

 

 

Net gains on securities available for sale

 

 

105

 

 

Tax expense

 

 

(83

)

 

Tax expense

Total reclassification during the period

 

$

(196

)

 

Net of tax, increase to net income

 

$

153

 

 

Net of tax, increase to net income

 

The following are significant amounts reclassified out of each component of accumulated comprehensive income (loss) for the three months ended JuneSeptember 30, 2016:

 

 

Amount Reclassified

 

 

Affected Line Item on

 

Amount Reclassified

 

 

Affected Line Item on

 

From Accumulated

 

 

the Statement Where

 

From Accumulated

 

 

the Statement Where

Details About Accumulated Other Comprehensive

 

Other Comprehensive

 

 

Net Income is

 

Other Comprehensive

 

 

Net Income is

Income Components

 

Income

 

 

Presented

 

Income

 

 

Presented

 

(Dollars in thousands)

 

 

 

 

(Dollars in thousands)

 

 

 

Realized net gains on the sale of available for sale securities

 

$

(233

)

 

Net gains on securities available for sale

 

$

218

 

 

Net gains on securities available for sale

 

 

81

 

 

Tax expense

 

 

(76

)

 

Tax expense

 

 

(152

)

 

Net of tax

 

 

142

 

 

Net of tax

Amortization of postretirement benefits prior service costs

 

 

(278

)

 

Reduction in salaries and employee benefits

 

 

445

 

 

Reduction in salaries and employee benefits

 

 

97

 

 

Tax expense

 

 

(156

)

 

Tax expense

 

 

(181

)

 

Net of tax

 

 

289

 

 

Net of tax

Total reclassification during the period

 

$

(333

)

 

Increase to net income

 

$

431

 

 

Increase to net income

 

The following are significant amounts reclassified out of each component of accumulated comprehensive income (loss) for the sixnine months ended JuneSeptember 30, 2017:

 

 

Amount Reclassified

 

 

Affected Line Item on

 

Amount Reclassified

 

 

Affected Line Item on

 

From Accumulated

 

 

the Statement Where

 

From Accumulated

 

 

the Statement Where

Details About Accumulated Other Comprehensive

 

Other Comprehensive

 

 

Net Income is

 

Other Comprehensive

 

 

Net Income is

Income Components

 

Income

 

 

Presented

 

Income

 

 

Presented

 

(Dollars in thousands)

 

 

 

 

(Dollars in thousands)

 

 

 

Realized net gains on the sale of available for sale securities

 

$

(330

)

 

Net gains on securities available for sale

 

$

566

 

 

Net gains on securities available for sale

 

 

115

 

 

Tax expense

 

 

(198

)

 

Tax expense

Total reclassification during the period

 

$

(215

)

 

Net of tax, increase to net income

 

$

368

 

 

Net of tax, increase to net income

 

5152


The following are significant amounts reclassified out of each component of accumulated comprehensive income (loss) for the sixnine months ended JuneSeptember 30, 2016:

 

 

Amount Reclassified

 

 

Affected Line Item on

 

Amount Reclassified

 

 

Affected Line Item on

 

From Accumulated

 

 

the Statement Where

 

From Accumulated

 

 

the Statement Where

Details About Accumulated Other Comprehensive

 

Other Comprehensive

 

 

Net Income is

 

Other Comprehensive

 

 

Net Income is

Income Components

 

Income

 

 

Presented

 

Income

 

 

Presented

 

(Dollars in thousands)

 

 

 

 

(Dollars in thousands)

 

 

 

Realized net gains on the sale of available for sale securities

 

$

(386

)

 

Net gains on securities available for sale

 

$

604

 

 

Net gains on securities available for sale

 

 

135

 

 

Tax expense

 

 

(211

)

 

Tax expense

 

 

(251

)

 

Net of tax

 

 

393

 

 

Net of tax

Amortization of postretirement benefits prior service costs

 

 

(556

)

 

Reduction in salaries and employee benefits

 

 

1,001

 

 

Reduction in salaries and employee benefits

 

 

194

 

 

Tax expense

 

 

(350

)

 

Tax expense

 

 

(362

)

 

Net of tax

 

 

651

 

 

Net of tax

Total reclassification during the period

 

$

(613

)

 

Increase to net income

 

$

1,044

 

 

Increase to net income

 

 

13.

REGULATORY CAPITAL REQUIREMENTS

Home Savings and United Community are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Home Savings and United Community. The regulations require Home Savings to meet specific capital adequacy guidelines in keeping with the regulatory framework for prompt corrective action that involve quantitative measures of Home Savings’ assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. Home Savings’ capital classification is also subject to qualitative judgments by the regulators about components of capital, risk weightings, and other factors.

The Basel III Capital Rules establish a common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), a minimum Tier 1 capital to risk-based assets requirement (6% of risk-weighted assets) and assigns a risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The rules also require unrealized gains and losses on certain available-for-sale securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised. In connection with the adoption of the Basel III Capital Rules, United Community and Home Savings elected to opt-out of the requirement to include most components of accumulated other comprehensive income in Common Equity Tier 1.  The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital risk-based weighted assets in addition to the amount necessary to meeting its minimum risk-based capital requirements.

The capital conservation buffer requirement will be phased in through January 1, 2019, when the full capital conservation buffer requirement will be effective. The capital conservation buffer for 2017 is 1.25%.  The capital conservation buffer for 2016 was 0.625%.  The final rule also implemented consolidated capital requirements.

Quantitative measures established by regulation for capital adequacy require Home Savings to maintain minimum ratios of Tier 1 (or Core) capital (as defined in the regulations) to average total assets (as defined) and of total risk-based capital (as defined) to risk-weighted assets (as defined).  United Community and Home Savings’ Common Equity Tier 1 capital consists of common stock and related paid-in capital, net of treasury stock, and retained earnings. Common Equity Tier 1 for both United Community and Home Savings is reduced by intangible assets, net of associated deferred tax liabilities and subject to transition provisions. Actual and regulatory required capital ratios for Home Savings, along with the dollar amount of capital implied by such ratios, are presented below.

 

June 30, 2017

 

September 30, 2017

 

 

 

 

 

 

 

To Be Well Capitalized

 

 

 

 

 

 

 

To Be Well Capitalized

 

 

 

 

 

 

 

 

 

Minimum Capital

 

 

Under Prompt

 

 

 

 

 

 

 

 

 

Minimum Capital

 

 

Under Prompt

 

 

 

 

 

 

 

 

 

Requirements For Capital

 

 

Corrective Action

 

 

 

 

 

 

 

 

 

Requirements For Capital

 

 

Corrective Action

 

Actual

 

 

Adequacy Purposes***

 

 

Provisions

 

Actual

 

 

Adequacy Purposes***

 

 

Provisions

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Total capital (to risk-weighted assets)

$

277,583

 

 

 

14.83

%

 

$

173,129

 

 

 

9.25

%

 

$

187,166

 

 

 

10.00

%

$

287,665

 

 

 

14.74

%

 

$

180,469

 

 

 

9.25

%

 

$

195,101

 

 

 

10.00

%

Tier 1 capital (to risk-weighted assets)

 

257,947

 

 

 

13.78

%

 

 

135,695

 

 

 

7.25

%

 

 

149,733

 

 

 

8.00

%

 

267,141

 

 

 

13.69

%

 

 

141,448

 

 

 

7.25

%

 

 

156,081

 

 

 

8.00

%

Common equity Tier 1 capital (to risk-weighted

assets)

 

257,947

 

 

 

13.78

%

 

 

107,621

 

 

 

5.75

%

 

 

121,658

 

 

 

6.50

%

 

267,141

 

 

 

13.69

%

 

 

112,183

 

 

 

5.75

%

 

 

126,816

 

 

 

6.50

%

Tier 1 capital (to average assets)**

 

257,947

 

 

 

10.14

%

 

 

101,794

 

 

 

4.00

%

 

 

127,242

 

 

 

5.00

%

 

267,141

 

 

 

10.46

%

 

 

102,142

 

 

 

4.00

%

 

 

127,677

 

 

 

5.00

%


 

 

December 31, 2016

 

 

 

 

 

 

 

 

To Be Well Capitalized

 

 

 

 

 

 

 

 

 

 

Minimum Capital

 

 

Under Prompt

 

 

 

 

 

 

 

 

 

 

Requirements

 

 

Corrective Action

 

 

Actual

 

 

Per Regulation***

 

 

Provisions

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

(Dollars in thousands)

 

Total capital (to risk-weighted assets)

$

248,861

 

 

 

16.47

%

 

$

130,292

 

 

 

8.625

%

 

$

151,063

 

 

 

10.00

%

Tier 1 capital (to risk-weighted assets)

 

229,938

 

 

 

15.22

%

 

 

100,079

 

 

 

6.625

%

 

 

120,850

 

 

 

8.00

%

Common equity Tier 1 capital (to risk-weighted

   assets)

 

229,938

 

 

 

15.22

%

 

 

77,420

 

 

 

5.125

%

 

 

98,191

 

 

 

6.50

%

Tier 1 capital (to average assets)**

 

229,938

 

 

 

10.65

%

 

 

86,360

 

 

 

4.000

%

 

 

107,950

 

 

 

5.00

%

 

**

Tier 1 Leverage Capital Ratio

***

The capital ratios are reflective of the capital conservation buffer

Management believes that as of JuneSeptember 30, 2017 and December 31, 2016, Home Savings met all capital adequacy requirements to which it was subject.  As of JuneSeptember 30, 2017 and December 31, 2016, Home Savings met the capital requirements to be deemed well capitalized. There are no known conditions that would change this classification subsequent to JuneSeptember 30, 2017.  

 

The components of Home Savings’ regulatory capital are as follows:

 

June 30, 2017

 

 

December 31, 2016

 

September 30, 2017

 

 

December 31, 2016

 

Total shareholders' equity

$

264,512

 

 

$

216,475

 

$

272,589

 

 

$

216,475

 

Add (deduct)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive income

 

18,463

 

 

 

21,056

 

 

17,944

 

 

 

21,056

 

Intangible assets

 

(20,313

)

 

 

(3

)

 

(20,241

)

 

 

(3

)

Disallowed deferred tax assets

 

(4,715

)

 

 

(7,590

)

 

(3,151

)

 

 

(7,590

)

Disallowed capitalized mortgage loan servicing rights

 

 

 

 

 

 

 

 

 

 

Tier 1 Capital

 

257,947

 

 

 

229,938

 

 

267,141

 

 

 

229,938

 

Allowance for loan losses and allowance for unfunded lending commitments

limited to 1.25% of total risk-weighted assets

 

19,636

 

 

 

18,923

 

 

20,524

 

 

 

18,923

 

Total risk-based capital

$

277,583

 

 

$

248,861

 

$

287,665

 

 

$

248,861

 

 

5354


Actual and regulatory required consolidated capital ratios for United Community, along with the dollar amount of capital implied by such ratios, are presented below.

 

September 30, 2017

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minimum Capital

 

 

 

 

 

 

 

 

 

Minimum Capital

 

 

 

 

 

 

 

 

 

Requirements

 

 

 

 

 

 

 

 

 

Requirements

 

Actual

 

 

Per Regulation***

 

Actual

 

 

Per Regulation***

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Total capital (to risk-weighted assets)

$

293,814

 

 

 

15.66

%

 

$

173,548

 

 

 

9.25

%

$

300,578

 

 

 

15.38

%

 

$

180,758

 

 

 

9.25

%

Tier 1 capital (to risk-weighted assets)

 

274,154

 

 

 

14.61

%

 

 

136,024

 

 

 

7.25

%

 

280,023

 

 

 

14.33

%

 

 

141,675

 

 

 

7.25

%

Common equity Tier 1 capital (to risk-weighted assets)

 

274,154

 

 

 

14.61

%

 

 

107,881

 

 

 

5.75

%

 

280,023

 

 

 

14.33

%

 

 

112,363

 

 

 

5.75

%

Tier 1 capital (to average assets)**

 

274,154

 

 

 

10.76

%

 

 

101,870

 

 

 

4.00

%

 

280,023

 

 

 

10.95

%

 

 

102,306

 

 

 

4.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minimum Capital

 

 

 

 

 

 

 

 

 

Minimum Capital

 

 

 

 

 

 

 

 

 

Requirements

 

 

 

 

 

 

 

 

 

Requirements

 

Actual

 

 

Per Regulation***

 

Actual

 

 

Per Regulation***

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Total capital (to risk-weighted assets)

$

277,817

 

 

 

18.38

%

 

$

130,369

 

 

 

8.625

%

$

277,817

 

 

 

18.38

%

 

$

130,369

 

 

 

8.625

%

Tier 1 capital (to risk-weighted assets)

 

258,869

 

 

 

17.13

%

 

 

100,139

 

 

 

6.625

%

 

258,869

 

 

 

17.13

%

 

 

100,139

 

 

 

6.625

%

Common equity Tier 1 capital (to risk-weighted assets)

 

258,869

 

 

 

17.13

%

 

 

77,466

 

 

 

5.125

%

 

258,869

 

 

 

17.13

%

 

 

77,466

 

 

 

5.125

%

Tier 1 capital (to average assets)**

 

258,869

 

 

 

11.98

%

 

 

86,425

 

 

 

4.000

%

 

258,869

 

 

 

11.98

%

 

 

86,425

 

 

 

4.000

%

**

Tier 1 Leverage Capital Ratio

***

The capital ratios are reflective of the capital conservation buffer

 

As of June 30, 2017 and December 31, 2016, United Community’s capital exceeded the requirements to be deemed well capitalized.

The components of United Community’s consolidated regulatory capital are as follows:

 

June 30, 2017

 

 

December 31, 2016

 

September 30, 2017

 

 

December 31, 2016

 

Total shareholders' equity

$

285,480

 

 

$

249,806

 

$

291,851

 

 

$

249,806

 

Add (deduct)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive income

 

18,463

 

 

 

21,040

 

 

17,929

 

 

 

21,040

 

Intangible assets

 

(21,352

)

 

 

(1,567

)

 

(22,773

)

 

 

(1,567

)

Disallowed deferred tax assets

 

(8,437

)

 

 

(10,410

)

 

(6,984

)

 

 

(10,410

)

Disallowed capitalized mortgage loan servicing rights

 

 

 

 

 

 

 

 

 

 

Tier 1 Capital

 

274,154

 

 

 

258,869

 

 

280,023

 

 

 

258,869

 

Allowance for loan losses and allowance for unfunded lending commitments

limited to 1.25% of total risk-weighted assets

 

19,660

 

 

 

18,948

 

 

20,555

 

 

 

18,948

 

Total risk-based capital

$

293,814

 

 

$

277,817

 

$

300,578

 

 

$

277,817

 

 

 

5455


 

14.

INCOME TAXES

Significant components of the deferred tax assets and liabilities are as follows:

 

June 30,

 

 

December 31,

 

September 30,

 

 

December 31,

 

2017

 

 

2016

 

2017

 

 

2016

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Deferred tax assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan loss reserves

$

6,881

 

 

$

6,680

 

$

7,194

 

 

$

6,680

 

Depreciation

 

886

 

 

 

748

 

 

940

 

 

 

748

 

Other real estate owned valuation

 

136

 

 

 

354

 

 

148

 

 

 

354

 

Tax credits carryforward

 

1,845

 

 

 

1,471

 

 

2,816

 

 

 

1,471

 

Unrealized loss on securities available for sale

 

324

 

 

 

1,685

 

 

62

 

 

 

1,685

 

Unrealized loss on securities held to maturity

 

396

 

 

 

431

 

 

378

 

 

 

431

 

Interest on nonaccrual loans

 

952

 

 

 

1,039

 

 

887

 

 

 

1,039

 

Net operating loss carryforward

 

6,593

 

 

 

8,574

 

 

4,613

 

 

 

8,574

 

Purchase accounting adjustment

 

1,000

 

 

 

 

 

781

 

 

 

 

Accrued bonuses

 

756

 

 

 

812

 

 

991

 

 

 

812

 

Other

 

79

 

 

 

221

 

 

80

 

 

 

221

 

Deferred tax assets

 

19,848

 

 

 

22,015

 

 

18,890

 

 

 

22,015

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred loan fees

 

1,622

 

 

 

1,275

 

 

1,772

 

 

 

1,275

 

Federal Home Loan Bank stock dividends

 

4,645

 

 

 

4,585

 

 

4,645

 

 

 

4,585

 

Mortgage servicing rights

 

2,155

 

 

 

2,124

 

 

2,257

 

 

 

2,124

 

FHLB prepayment penalty

 

649

 

 

 

786

 

 

649

 

 

 

786

 

Purchase accounting adjustment

 

 

 

 

371

 

 

 

 

 

371

 

Prepaid expenses

 

671

 

 

 

139

 

 

555

 

 

 

139

 

Deferred tax liabilities

 

9,742

 

 

 

9,280

 

 

9,878

 

 

 

9,280

 

Net deferred tax asset

$

10,106

 

 

$

12,735

 

$

9,012

 

 

$

12,735

 

 

As of JuneSeptember 30, 2017, the net deferred tax asset was $10.1$9.0 million, and as of December 31, 2016, the net deferred tax asset was $12.7 million.

The Company’s ultimate realization of the net deferred tax asset is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the nature and amount of historical and projected future taxable income, the scheduled reversal of deferred tax assets and liabilities, and available tax planning strategies in making this assessment. The amount of deferred taxes recognized could be impacted by changes to any of these variables.

United Community’s net operating loss of $18.8$13.2 million at JuneSeptember 30, 2017 will be carried forward to use against future taxable income. The net operating loss carryforwards begin to expire in the year ending December 31, 2030. In addition, United Community is carrying forward $1.8$2.8 million of alternative minimum tax credits. The alternative minimum tax credits are carried forward indefinitely.

 

Effective tax rates differrdiffer from the statutory federal income tax rate of 35% due to the following:

 

For the Three Months Ended

June 30,

 

For the Three Months Ended

September 30,

 

2017

 

 

2016

 

2017

 

 

2016

 

Dollars

 

 

Rate

 

 

Dollars

 

 

Rate

 

Dollars

 

 

Rate

 

 

Dollars

 

 

Rate

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Tax at statutory rate:

$

4,048

 

 

 

35.00

%

 

$

2,751

 

 

 

35.00

%

$

3,718

 

 

 

35.00

%

 

$

2,604

 

 

 

35.00

%

Increase (decrease) due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax exempt income

 

(166

)

 

 

(1.44

)%

 

 

(124

)

 

 

(1.57

)%

 

(164

)

 

 

(1.54

)%

 

 

(142

)

 

 

(1.91

)%

Life insurance

 

(137

)

 

 

(1.18

)%

 

 

(128

)

 

 

(1.63

)%

 

(148

)

 

 

(1.39

)%

 

 

(132

)

 

 

(1.78

)%

Stock compensation

 

(138

)

 

 

(1.19

)%

 

 

 

 

 

%

 

(102

)

 

 

(0.96

)%

 

 

 

 

 

%

Other

 

(230

)

 

 

(1.99

)%

 

 

30

 

 

 

0.38

%

 

(237

)

 

 

(2.23

)%

 

 

(42

)

 

 

(0.56

)%

Income tax provision

$

3,377

 

 

 

29.20

%

 

$

2,529

 

 

 

32.18

%

$

3,067

 

 

 

28.88

%

 

$

2,288

 

 

 

30.75

%

 

5556


For the Six Months Ended

June 30,

 

For the Nine Months Ended

September 30,

 

2017

 

 

2016

 

2017

 

 

2016

 

Dollars

 

 

Rate

 

 

Dollars

 

 

Rate

 

Dollars

 

 

Rate

 

 

Dollars

 

 

Rate

 

(Dollars in thousands)

 

(Dollars in thousands)

 

Tax at statutory rate:

$

4,781

 

 

 

35.00

%

 

$

4,470

 

 

 

35.00

%

$

8,499

 

 

 

35.00

%

 

$

7,074

 

 

 

35.00

%

Increase (decrease) due to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax exempt income

 

(337

)

 

 

(2.47

)%

 

 

(187

)

 

 

(1.47

)%

 

(499

)

 

 

(2.05

)%

 

 

(327

)

 

 

(1.62

)%

Life insurance

 

(269

)

 

 

(1.97

)%

 

 

(256

)

 

 

(2.00

)%

 

(416

)

 

 

(1.71

)%

 

 

(388

)

 

 

(1.92

)%

Stock compensation

 

(198

)

 

 

(1.45

)%

 

 

 

 

 

%

 

(300

)

 

 

(1.24

)%

 

 

 

 

 

%

Other

 

(43

)

 

 

(0.31

)%

 

 

94

 

 

 

0.74

%

 

(283

)

 

 

(1.17

)%

 

 

50

 

 

 

0.25

%

Income tax provision

$

3,934

 

 

 

28.80

%

 

$

4,121

 

 

 

32.27

%

$

7,001

 

 

 

28.83

%

 

$

6,409

 

 

 

31.71

%

 

 

 

15.

GOODWILL AND INTANGIBLE ASSETS

 

Goodwill:

The change in goodwill during the periods presented is as follows:

 

June 30, 2017

 

 

December 31, 2016

 

September 30, 2017

 

 

December 31, 2016

 

(In thousands)

 

(In thousands)

 

Beginning of the year

$

208

 

 

$

 

$

208

 

 

$

 

Effect of adjustments-James & Sons Insurance

 

636

 

 

 

 

 

636

 

 

 

 

Acquired goodwill-OLCB

 

18,420

 

 

 

 

 

18,420

 

 

 

 

Effect of adjustments-OLCB

 

15

 

 

 

 

 

15

 

 

 

 

Acquired goodwill-Eich Brothers Insurance

 

188

 

 

 

 

 

188

 

 

 

 

Acquired goodwill-Stevens Insurance

 

21

 

 

 

 

Acquired goodwill-James & Sons Insurance

 

 

 

 

208

 

 

 

 

 

208

 

Impairment

 

 

 

 

 

 

End of the year

$

19,467

 

 

$

208

 

$

19,488

 

 

$

208

 

 

The changes to goodwill during the sixnine months ended JuneSeptember 30, 2017 are primarily due to changes in the final market value for the customer list intangible asset, as well as the related tax effect from those adjustments related to the James & Sons acquisition in January 2016.  

 

Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value.  If the carrying amount of a reporting unit is zero or less than zero, a qualitative analysis of whether it is more likely than not that the reporting unit goodwill is impaired will be performed.  The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment.  The Company did not have any reporting units with a carrying amount of zero or less than zero at JuneSeptember 30, 2017 or December 31, 2016.

Acquired Intangible Assets:

 

June 30, 2017

 

 

December 31, 2016

 

September 30, 2017

 

 

December 31, 2016

 

Gross

 

 

 

 

 

 

Gross

 

 

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Accumulated

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Accumulated

 

Amount

 

 

Amortization

 

 

Amount

 

 

Amortization

 

Amount

 

 

Amortization

 

 

Amount

 

 

Amortization

 

(In thousands)

 

(In thousands)

 

Amortized intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core deposit intangibles

$

11,184

 

 

$

9,085

 

 

$

8,952

 

 

$

8,947

 

$

11,184

 

 

$

9,167

 

 

$

8,952

 

 

$

8,947

 

Customer list intangible

 

2,162

 

 

 

102

 

 

 

1,400

 

 

 

44

 

 

2,222

 

 

 

132

 

 

 

1,400

 

 

 

44

 

Total

$

13,346

 

 

$

9,187

 

 

$

10,352

 

 

$

8,991

 

$

13,406

 

 

$

9,299

 

 

$

10,352

 

 

$

8,991

 


Core deposit intangible:

 

For the six months ended

June 30, 2017

 

 

For the year ended

December 31, 2016

 

For the nine months ended

September 30, 2017

 

 

For the year ended

December 31, 2016

 

(In thousands)

 

(In thousands)

 

Beginning of the year

$

5

 

 

$

30

 

$

5

 

 

$

30

 

Acquired core deposit intangible-OLCB

 

2,232

 

 

 

 

 

2,232

 

 

 

 

Amortization

 

(138

)

 

 

(25

)

 

(220

)

 

 

(25

)

End of the period

$

2,099

 

 

$

5

 

$

2,017

 

 

$

5

 

 

Customer list intangible:

 

For the six months ended

June 30, 2017

 

 

For the year ended

December 31, 2016

 

For the nine months ended

September 30, 2017

 

 

For the year ended

December 31, 2016

 

(In thousands)

 

(In thousands)

 

Beginning of the year

$

1,356

 

 

$

 

$

1,356

 

 

$

 

Effect of adjustments-James & Sons Insurance

 

(41

)

 

 

 

 

(41

)

 

 

 

Acquired customer list intangible-OLCB

 

268

 

 

 

 

 

268

 

 

 

 

Acquired customer list intangible-Eich Brothers Insurance

 

535

 

 

 

 

 

535

 

 

 

 

Acquired customer list intangible-Stevens Insurance

 

60

 

 

 

 

Acquired customer list intangible-James & Sons Insurance

 

 

 

 

1,400

 

 

 

 

 

1,400

 

Amortization

 

(58

)

 

 

(44

)

 

(88

)

 

 

(44

)

End of the period

$

2,060

 

 

$

1,356

 

$

2,090

 

 

$

1,356

 

Aggregate amortization expense for the three months ended JuneSeptember 30, 2017 and 2016 was $113,000 and $10,000,$72,000, respectively.  Aggregate amortization expense for the sixnine months ended JuneSeptember 30, 2017 and 2016 was $196,000$308,000 and $23,000,$95,000, respectively.  Estimated amortization expense for the remainder of 2017 and the next five years is as follows:

 

Remainder of 2017

$

224,000

 

$

112,000

 

2018

 

448,000

 

 

448,000

 

2019

 

448,000

 

 

448,000

 

2020

 

448,000

 

 

448,000

 

2021

 

448,000

 

 

448,000

 

2022

 

448,000

 

 

448,000

 

 

 

 

16.

QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS

The Company invests in qualified affordable housing projects.  At JuneSeptember 30, 2017 and December 31, 2016, the balance of the investment for qualified affordable housing projects was $6.0$5.8 million and $3.0 million, respectively.  These balances are reflected in other assets on the consolidated balance sheet.  Total unfunded commitments related to the investments in qualified affordable housing projects totaled $5.9$5.7 million and $2.9 million at JuneSeptember 30, 2017 and December 31, 2016, respectively.  The Company expects to fulfill these commitments over the next eight to ten years.

 

During the three months ended JuneSeptember 30, 2017 and 2016, the Company recognized amortization expense of $36,000$44,000 and $0,$5,000, respectively, which was included within income tax expense on the consolidated statements of income. During the sixnine months ended JuneSeptember 30, 2017 and 2016, the Company recognized amortization expense of $90,000$134,000 and $0,$5,000, respectively.

 

Additionally, during the three months ended JuneSeptember 30, 2017 and 2016, the Company recognized tax credits and other benefits from its investment in affordable housing tax credits of $44,000$55,000 and $0,$6,000, respectively.  During the sixnine months ended JuneSeptember 30, 2017 and 2016, the Company recognized tax credits and other benefits from its investment in affordable housing tax credits of $110,000$165,000 and $0,$6,000, respectively.  During the three and sixnine months ended JuneSeptember 30, 2017 and 2016, the Company incurred no impairment losses.

 

 

5758


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNITED COMMUNITY FINANCIAL CORP.

 

 

For the Three Months Ended

June 30,

 

 

For the Six Months Ended

June 30,

 

 

For the Three Months Ended

September 30,

 

 

For the Nine Months Ended

September 30,

 

Selected financial ratios and other data: (1)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Performance ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets (2)

 

 

1.27

%

 

 

1.04

%

 

 

0.78

%

 

 

0.86

%

 

 

1.17

%

 

 

0.98

%

 

 

0.91

%

 

 

0.90

%

Return on average equity (3)

 

 

11.60

%

 

 

8.63

%

 

 

6.99

%

 

 

6.98

%

 

 

10.43

%

 

 

8.38

%

 

 

8.17

%

 

 

7.44

%

Interest rate spread (4)

 

 

3.34

%

 

 

3.14

%

 

 

3.26

%

 

 

3.11

%

 

 

3.30

%

 

 

3.14

%

 

 

3.27

%

 

 

3.13

%

Net interest margin (5)

 

 

3.46

%

 

 

3.25

%

 

 

3.38

%

 

 

3.23

%

 

 

3.45

%

 

 

3.25

%

 

 

3.40

%

 

 

3.23

%

Noninterest expense to average assets

 

 

2.36

%

 

 

2.52

%

 

 

2.83

%

 

 

2.50

%

 

 

2.39

%

 

 

2.47

%

 

 

2.68

%

 

 

2.49

%

Efficiency ratio (6)

 

 

54.71

%

 

 

60.81

%

 

 

68.29

%

 

 

62.34

%

 

 

57.13

%

 

 

59.40

%

 

 

64.47

%

 

 

61.28

%

Average interest-earning assets to average interest-bearing liabilities

 

 

124.72

%

 

 

125.25

%

 

 

124.62

%

 

 

125.00

%

 

 

124.72

%

 

 

124.21

%

 

 

124.66

%

 

 

124.74

%

Capital ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average equity to average assets

 

 

10.97

%

 

 

12.09

%

 

 

11.09

%

 

 

12.25

%

 

 

11.19

%

 

 

11.72

%

 

 

11.12

%

 

 

12.08

%

Equity to assets, end of period

 

 

11.18

%

 

 

12.21

%

 

 

11.18

%

 

 

12.21

%

 

 

11.21

%

 

 

11.87

%

 

 

11.21

%

 

 

11.87

%

Tier 1 leverage ratio (Bank only)

 

 

10.14

%

 

 

11.69

%

 

 

10.14

%

 

 

11.69

%

 

 

10.46

%

 

 

11.28

%

 

 

10.46

%

 

 

11.28

%

Common equity Tier 1 capital (Bank only)

 

 

13.78

%

 

 

17.31

%

 

 

13.78

%

 

 

17.31

%

 

 

13.69

%

 

 

15.97

%

 

 

13.69

%

 

 

15.97

%

Tier 1 risk-based capital ratio (Bank only)

 

 

13.78

%

 

 

17.31

%

 

 

13.78

%

 

 

17.31

%

 

 

13.69

%

 

 

15.97

%

 

 

13.69

%

 

 

15.97

%

Total risk-based capital ratio (Bank only)

 

 

14.83

%

 

 

18.56

%

 

 

14.83

%

 

 

18.56

%

 

 

14.74

%

 

 

17.21

%

 

 

14.74

%

 

 

17.21

%

Asset quality ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonperforming loans to net loans at end of period (7)

 

 

0.58

%

 

 

1.45

%

 

 

0.58

%

 

 

1.45

%

 

 

0.62

%

 

 

1.32

%

 

 

0.62

%

 

 

1.32

%

Nonperforming assets to average assets (8)

 

 

0.71

%

 

 

1.07

%

 

 

0.73

%

 

 

1.09

%

 

 

0.76

%

 

 

1.01

%

 

 

0.77

%

 

 

1.04

%

Nonperforming assets to total assets at end of period

 

 

0.72

%

 

 

1.06

%

 

 

0.72

%

 

 

1.06

%

 

 

0.75

%

 

 

0.98

%

 

 

0.75

%

 

 

0.98

%

Allowance for loan losses as a percent of loans

��

 

1.04

%

 

 

1.21

%

 

 

1.04

%

 

 

1.21

%

 

 

1.04

%

 

 

1.22

%

 

 

1.04

%

 

 

1.22

%

Allowance for loan losses as a percent of nonperforming loans (7)

 

 

182.32

%

 

 

84.42

%

 

 

182.32

%

 

 

84.42

%

 

 

169.64

%

 

 

93.76

%

 

 

169.64

%

 

 

93.76

%

Total classified assets as a percent of Tier 1 Capital (Bank only)

 

 

16.92

%

 

 

17.38

%

 

 

16.92

%

 

 

17.38

%

 

 

21.05

%

 

 

14.83

%

 

 

21.05

%

 

 

14.83

%

Total classified loans as a percent of Tier 1 Capital and ALLL (Bank

only)

 

 

12.99

%

 

 

15.57

%

 

 

12.99

%

 

 

15.57

%

 

 

16.93

%

 

 

13.06

%

 

 

16.93

%

 

 

13.06

%

Total classified assets as a percent of Tier 1 Capital and ALLL (Bank

only)

 

 

15.72

%

 

 

16.21

%

 

 

15.72

%

 

 

16.21

%

 

 

19.55

%

 

 

13.76

%

 

 

19.55

%

 

 

13.76

%

Net chargeoffs as a percent of average loans

 

 

0.03

%

 

 

0.04

%

 

 

0.20

%

 

 

0.46

%

Net (recoveries) chargeoffs as a percent of average loans

 

 

(0.04

)%

 

 

0.08

%

 

 

0.11

%

 

 

0.33

%

Total 90+ days past due as a percent of net loans

 

 

0.41

%

 

 

1.13

%

 

 

0.41

%

 

 

1.13

%

 

 

0.40

%

 

 

1.04

%

 

 

0.40

%

 

 

1.04

%

Per share data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share (9)

 

$

0.16

 

 

$

0.11

 

 

$

0.20

 

 

$

0.18

 

 

$

0.15

 

 

$

0.11

 

 

$

0.35

 

 

$

0.29

 

Diluted earnings per common share (9)

 

 

0.16

 

 

 

0.11

 

 

 

0.20

 

 

 

0.18

 

 

 

0.15

 

 

 

0.11

 

 

 

0.35

 

 

 

0.29

 

Book value per common share (10)

 

 

5.74

 

 

 

5.46

 

 

 

5.74

 

 

 

5.46

 

 

 

5.87

 

 

 

5.51

 

 

 

5.87

 

 

 

5.51

 

Tangible book value per common share (11)

 

 

5.27

 

 

 

5.43

 

 

 

5.27

 

 

 

5.43

 

 

 

5.38

 

 

 

5.48

 

 

 

5.38

 

 

 

5.48

 

Cash dividend per common share

 

 

0.030

 

 

 

0.025

 

 

 

0.060

 

 

 

0.050

 

 

 

0.040

 

 

 

0.030

 

 

 

0.100

 

 

 

0.080

 

Dividend payout ratio (12)

 

 

18.77

%

 

 

22.32

%

 

 

30.57

%

 

 

27.47

%

 

 

26.54

%

 

 

27.27

%

 

 

28.79

%

 

 

27.59

%

 

Notes:

1.

Ratios for the three and sixnine month periods are annualized where appropriate

2.

Net income divided by average total assets

3.

Net income divided by average total equity

4.

Difference between weighted average yield on interest-earning assets and weighted average cost of interest-bearing liabilities

5.

Net interest income as a percent of average interest-earning assets

6.

Noninterest expense, excluding the amortization of the core deposit intangible and prepayment penalty, divided by the sum of net interest income and noninterest income, excluding gains and losses on securities and gains and losses on foreclosed assets

7.

Nonperforming loans consist of nonaccrual loans and loans past due ninety days and still accruing

8.

Nonperforming assets consist of nonperforming loans, real estate owned and other repossessed assets and other assets

9.

Net income divided by the number of basic or diluted shares outstanding

10.

Shareholders’ equity divided by number of shares outstanding

11.

Shareholders’ equity minus goodwill and core deposit intangible divided by number of shares outstanding

12.

Historical per share dividends declared and paid for the period divided by the diluted earnings per share for that year

5859


Forward-Looking Statements

When used in this Form 10-Q, the words or phrases “will likely result,” “are expected to,” “plan to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including changes in economic conditions in United Community’s market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in Home Savings’ market area and competition that could cause actual results to differ materially from results presently anticipated or projected. United Community cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. United Community advises readers that the factors listed above could affect United Community’s financial performance and could cause United Community’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. United Community undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made.

Material Changes in Financial Condition at JuneSeptember 30, 2017 and December 31, 2016

On January 31, 2017, United Community completed its acquisition of OLCB.  Pursuant to the terms of the Merger Agreement, OLCB was merged with and into United Community (the merger). Immediately following the merger, Home Savings was merged with and into Premier Bank & Trust, a subsidiary of OLCB, and changed its name to Home Savings Bank.

As a result of the merger and in accordance with the terms of the Merger Agreement, each preferred share of OLCB was deemed to have been converted into OLCB common shares. Each OLCB common share was converted into the right to receive either $18.00 in cash or 2.736 United Community common shares, subject to certain allocation procedures set forth in the Merger Agreement that ensured that 50% of OLCB’s common shares outstanding were converted into United Community common shares, and 50% of OLCB’s common shares outstanding were converted into the right to receive the cash consideration. The Company paid cash in lieu of issuing fractional shares.  This transaction resulted in the addition of approximately $349.0$349.3 million in assets and the addition of 4 branches in Summit, Stark and Belmont counties.  See Note 4 to the consolidated financial statements for additional information regarding this transaction.

HSB Insurance, Inc., a wholly-owned subsidiary of the Company which was formed and began operations on June 1, 2017, is a Delaware-based captive insurance company which insures against certain risks unique to the operations of the Corporation and its subsidiaries and for which insurance may not be currently available or economically feasible in today's insurance marketplace. HSB Insurance, Inc. pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves.  HSB Insurance, Inc. is subject to regulations of the State of Delaware and undergoes periodic examinations by the Delaware Division of Insurance.

Cash and cash equivalents increased $6.1decreased $7.9 million during the first sixnine months of 2017.  The additionCash levels can fluctuate period to period based on expectations of OLCB added cash and cash equivalents of $46.2 million to the combined company.  This cash was used to pay for the cash portion of the merger and to support lending activities of the combined companies.  Cash levelsfunding needs but are expected to remain stable during the remainder of 2017.  

Available for sale securities decreased $56.1$68.5 million during the first sixnine months of 2017.  The acquisition of OLCB added $10.0 million dollars in securities to the available for sale portfolio, but the securities matured prior to the end of the first quarter.  The decrease in the available for sale securities balance since December 31, 2016 was the result of paydownspay downs and the amortization of premiums/discounts on the securities along with sales totaling $53.2$62.3 million.  The sales were completed to provide additional liquidity for lending activity.  The shrinkage of the securities portfolio to fund loan growth has been part of the Company’s strategic plan.  Partially offsetting this activity was a decrease in the unrealized loss on securities. The unrealized loss in the available for sale portfolio was $926,000 million$178,000 at JuneSeptember 30, 2017, compared to an unrealized loss of $4.8 million at December 31, 2016.

Held to maturity securities declined $9.0$12.0 million at JuneSeptember 30, 2017 compared to December 31, 2016.  This change was the result of maturities, paydownspay downs and the amortization of premiums/discounts on the securities.

Net loans increased $365.5$444.1 million during the first sixnine months of 2017 primarily as a result of the acquisition of OLCB, which added $259.4 million in balances, but also due to $150.6$184.7 million of organic loan growth. The organic loan growth increase was substantially attributed to the commercial portfolio during the period. Offsetting this growth was a mortgage loan sale of $27.7 million during the second quarter of 2017.  See Note 6 to the consolidated financial statements for additional information regarding the composition of loans.

The allowance for loan losses is a valuation allowance for probable incurred credit losses established through a provision for loan losses charged to expense. The allowance for loan losses was $19.6$20.6 million at JuneSeptember 30, 2017, up from the $19.1 million reported at December 31, 2016. The allowance for loan losses as a percentage of loans was 1.04% at JuneSeptember 30, 2017, compared to 1.25% at December 31, 2016.  The decrease is the result of the acquired loan portfolio being recorded at fair value without an allowance for loan losses.    

5960


The allowance for loan losses as a percentage of nonperforming loans was 182.3%169.6% at JuneSeptember 30, 2017, compared to 153.4%153.5% at December 31, 2016.  Loan losses are charged against the allowance when the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are added back to the allowance. Home Savings’ allowance for loan loss methodology includes allowance allocations calculated in accordance with ASC Topic 310, “Receivables,” and allowance allocations calculated in accordance with ASC Topic 450, “Contingencies”. As of JuneSeptember 30, 2017, the Company evaluated 2021 quarters of net charge-off history and applied this information to the current period.  This component is combined with the qualitative component to arrive at the loss factor, which is applied to the outstanding balance of homogenous loans.

A loan is considered impaired when there is a deterioration of the credit worthiness of the borrower to the extent that the collection of the full amount of principal and interest is no longer probable. The total outstanding balance of all impaired loans was $26.2$26.4 million at JuneSeptember 30, 2017 as compared to $31.5 million at December 31, 2016.

Included in impaired loans above are certain loans Home Savings considers to be troubled debt restructurings (TDR). A loan is considered a TDR if Home Savings grants a concession to a debtor experiencing financial difficulty that it would otherwise not consider. The concession either stems from an agreement between the creditor and the debtor or is imposed by law or a court. If the debtor is not currently experiencing financial difficulties, but would probably be in payment default in the future without the modification, then this type of restructure also could be considered a TDR.

TDR loans aggregated $22.2$21.3 million at JuneSeptember 30, 2017 compared to $26.6 million at December 31, 2016.  Of the $22.2$21.3 million at JuneSeptember 30, 2017, $19.3$18.5 million were performing loans according to their modified terms.  The remaining balance of TDR loans of $2.9$2.8 million were considered nonperforming.

Nonperforming loans consist of nonaccrual loans and loans past due 90 days and still accruing. Nonperforming loans were $10.8 million, or 0.58%0.56% of loans, at JuneSeptember 30, 2017, compared to $12.4 million, or 0.83% of loans, at December 31, 2016.

Loans held for sale, carried at lower of cost or market, were $199,000$196,000 at JuneSeptember 30, 2017, compared to $165,000 at December 31, 2016.  Loans held for sale, carried at fair value, were $86.0$84.3 million at JuneSeptember 30, 2017, compared to $62.6 million at December 31, 2016. OLCB had no loans held for sale at the time of acquisition.  The change was primarily attributable to the origination of permanent construction loans during the period.  These loans are not sold until construction of the residence is complete, which is usually within nine to ten months of origination.  Home Savings continues to sell a majority of its newly originated fixed rate mortgage loans into the secondary market as part of its risk management strategy and anticipates continuing to do so in the future.

Real estate owned and other repossessed assets decreased $580,000$634,000 to $1.2$1.1 million during the sixnine months ended JuneSeptember 30, 2017.  Real estate owned and other repossessed assets are recorded at the fair market value of the property less costs to sell. Appraisals are obtained at least annually on real estate properties that exceed $1.0 million in value. A valuation allowance may be established on any property to properly reflect the asset at fair value.  

Goodwill and other intangible assets increased $22.1$22.0 million during the first sixnine months of 2017, which was primarily due to the acquisition of OLCB.  

Bank Owned Life Insurance (BOLI) is maintained on select officers and employees of Home Savings whereby Home Savings is the beneficiary. BOLI is recorded at its cash surrender value, or the amount currently realizable. Increases in the Home Savings’ policy cash surrender value are tax exempt and death benefit proceeds received by Home Savings are tax-free. Income from these policies and changes in the cash surrender value are recorded in other income. There is no post-termination coverage, split dollar or other benefits provided to participants covered by the BOLI. Home Savings recognized $767,000$1.2 million as other non-interest income based on the change in cash value of the policies in the sixnine months ended JuneSeptember 30, 2017 compared to $730,000$1.1 million for the sixnine months ended JuneSeptember 30, 2016.

Total deposits increased $379.0$423.7 million from $1.5 billion at December 31, 2016, to $1.9 billion at JuneSeptember 30, 2017.  The increase in deposits is primarily the result of the $266.3 in deposits acquired in the OLCB transaction.  In addition, brokered certificates of deposit increased $55.1$80.1 million during the first halfnine months of 2017 from $76.5 million at December 31, 2016 to $131.6$156.6 million at JuneSeptember 30, 2017.  The remaining $57.2$77.3 million in balance change was attributable to organic growth.  All deposit types have shown increases as a result of the acquisition.  As of JuneSeptember 30, 2017, the Company had $120.9$113.5 million in public funds compared to $106.3 million in public funds at December 31, 2016.  No public funds were acquired in the merger.        

FHLB advances decreased from $390.8 million at December 31, 2016 to $328.1$328.3 million at JuneSeptember 30, 2017.  The change was primarily due to an increase in brokered certificates of deposit that were used to pay down FHLB advances.

6061


Shareholders’ equity increased $35.7$42.0 million to $285.5$291.8 million at JuneSeptember 30, 2017 from $249.8 million at December 31, 2016.  The increase is primarily due to the $25.8 million of stock that was issued as part of the purchase of OLCB.  In addition, the Company has earned $9.7$17.3 million during the first sixnine months of 2017 while paying out $3.0$5.0 million in common dividends.  AccumulatedA positive change in accumulated other comprehensive income of $2.6$3.1 million also contributed to the change in shareholders’ equity.

Book value per common share as of JuneSeptember 30, 2017 was $5.74$5.87 as compared to $5.36 per common share as of December 31, 2016.  The Company’s tangible book value per share decreasedincreased from $5.32 per share at December 31, 2016 to $5.27$5.38 at JuneSeptember 30, 2017.  The increase in book value was due to the issuance of shares in the OLCB acquisition while the decreaseincrease in tangible book value can be attributed to the creationearnings of goodwill andthe Company along with an improvement in accumulated other intangible assets.comprehensive income. Book value per share is calculated as total shareholders’ equity divided by the number of common shares outstanding. Tangible book value per share is calculated as total shareholders’ equity less goodwill and other intangible assets divided by the number of common shares outstanding.

Material Changes in Results of Operations for the Three Months Ended

JuneSeptember 30, 2017 and JuneSeptember 30, 2016

Net Income. United Community recognized net income for the three months ended JuneSeptember 30, 2017, of $8.2$7.6 million, or $0.16$0.15 per diluted common share compared to net income of $5.3$5.2 million for the three months ended JuneSeptember 30, 2016, or $0.11 per diluted share.  The acquisition of OLCB, the continued growth in earning assets and noninterest income along with a strong focus on expense control have all led to the growth in net income.

Net Interest Income. Net interest income was $20.5 million in the secondthird quarter of 2017 up from the $15.3$15.8 million recorded in the secondthird quarter of 2016.  The growth of interest earning assets, both organically and from the acquisition of OLCB, drove this increase along with a 2938 basis point improvement in the yield on interest earning assets.  Net interest margin was 3.46%3.45% for the secondthird quarter of 2017 compared to 3.25% in the secondthird quarter of 2016.  The increase in the yield on interest earning assets was driven by an increase in yield on total securities of 1521 basis points along with a 1622 basis point increase in the yield on net loans.  The yield on securities improved primarily due to a change in mix toward higher yielding municipal securities.  The improvement in the yield on net loans was primarily due to the accretion of loan discounts recognized in the acquisition of OLCB.OLCB along with an increase in market rates on floating and adjustable rate loans.

Interest income increased by $6.2$6.3 million in the secondthird quarter of 2017 compared to the same period in 2016, to $23.6$24.0 million from $17.4$17.8 million. The increase is primarily a result of an increase in average net loans and loans held for sale from both the acquisition and organic growth along with accretion of loan discounts discussed above.  Average net loans increased $493.8$484.5 million in the secondthird quarter compared to the same period in 2016. Interest income from net loans increased to $20.0$20.7 million for the quarter ended JuneSeptember 30, 2017 compared to $14.2$14.6 million for the same period in 2016.  Income from loans held for sale increased to $872,000$882,000 for the quarter ended JuneSeptember 30, 2017 compared to $363,000$482,000 for the quarter ended JuneSeptember 30, 2016.  

 

6162


Interest expense increased by $994,000$1.5 million in the secondthird quarter of 2017 to $3.1$3.5 million compared to the same period in 2016. This increase was primarily due to a $393.1$346.3 million increase in average interest-bearing liabilities from the acquisition and growth over the previous twelve months along with a 1022 basis point increase in the cost of interest-bearing liabilities.  The cost of average interest-bearing deposits increased 111 basis pointpoints to 5057 basis points for the three months ended JuneSeptember 30, 2017 from 4946 basis points at Junefor the three months ended September 30, 2016.  The cost of average borrowed funds however, increased to 1.26%1.45% for the quarter ending JuneSeptember 30, 2017 compared to 0.77%0.71% for the quarter ended JuneSeptember 30, 2016.

 

 

For the Three Months Ended

June 30,

 

 

For the Three Months Ended

September 30,

 

 

2017 vs. 2016

 

 

2017 vs. 2016

 

 

Increase

 

 

Total

 

 

Increase

 

 

Total

 

 

(decrease) due to

 

 

increase

 

 

(decrease) due to

 

 

increase

 

 

Rate

 

 

Volume

 

 

(decrease)

 

 

Rate

 

 

Volume

 

 

(decrease)

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Interest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

540

 

 

$

5,286

 

 

$

5,826

 

 

$

844

 

 

$

5,221

 

 

$

6,065

 

Loans held for sale

 

 

50

 

 

 

459

 

 

 

509

 

 

 

5

 

 

 

395

 

 

 

400

 

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale-taxable

 

 

27

 

 

 

(329

)

 

 

(302

)

 

 

79

 

 

 

(433

)

 

 

(354

)

Available for sale-nontaxable

 

 

3

 

 

 

176

 

 

 

179

 

 

 

25

 

 

 

97

 

 

 

122

 

Held to maturity-taxable

 

 

15

 

 

 

(85

)

 

 

(70

)

 

 

40

 

 

 

(82

)

 

 

(42

)

Held to maturity-nontaxable

 

 

9

 

 

 

(26

)

 

 

(17

)

 

 

14

 

 

 

(38

)

 

 

(24

)

Federal Home Loan Bank stock

 

 

34

 

 

 

13

 

 

 

47

 

 

 

60

 

 

 

13

 

 

 

73

 

Other interest earning assets

 

 

22

 

 

 

3

 

 

 

25

 

 

 

33

 

 

 

(1

)

 

 

32

 

Total interest earning assets

 

$

700

 

 

$

5,497

 

 

$

6,197

 

 

$

1,100

 

 

$

5,172

 

 

$

6,272

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings accounts

 

$

(9

)

 

$

2

 

 

$

(7

)

 

$

2

 

 

$

2

 

 

$

4

 

Checking accounts

 

 

142

 

 

 

77

 

 

 

219

 

 

 

174

 

 

 

56

 

 

 

230

 

Customer certificates of deposit

 

 

(2,325

)

 

 

2,290

 

 

 

(35

)

 

 

(49

)

 

 

255

 

 

 

206

 

Brokered certificates of deposit

 

 

157

 

 

 

157

 

 

 

314

 

 

 

3

 

 

 

394

 

 

 

397

 

Federal Home Loan Bank advances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term advances

 

 

58

 

 

 

5

 

 

 

63

 

 

 

64

 

 

 

5

 

 

 

69

 

Short-term advances

 

 

391

 

 

 

47

 

 

 

438

 

 

 

601

 

 

 

(16

)

 

 

585

 

Repurchase agreements and other

 

 

 

 

 

2

 

 

 

2

 

 

 

 

 

 

(1

)

 

 

(1

)

Total interest bearing liabilities

 

$

(1,586

)

 

$

2,580

 

 

 

994

 

 

$

795

 

 

$

695

 

 

 

1,490

 

Change in net interest income

 

 

 

 

 

 

 

 

 

$

5,203

 

 

 

 

 

 

 

 

 

 

$

4,782

 

 

Provision for Loan Losses. A provision for loan losses is charged to income to bring the total allowance for loan losses to a level considered by management to be adequate, based on management’s evaluation of such factors as the delinquency status of loans, current economic conditions, the net realizable value of the underlying collateral, changes in the composition of the loan portfolio and prior loan loss experience. The Company recognized a loan loss provision of $842,000$721,000 in the secondthird quarter of 2017, compared to $395,000$1.3 million in the secondthird quarter of 2016.  Provision expense in the secondthird quarter of 2017 was primarily driven by organic loan growth during the period.  

Noninterest Income. Non-interest income was $7.1$6.3 million in the secondthird quarter of 2017 compared to $5.8$6.0 million in the secondthird quarter of 2016.  Favorably affecting this change was the recognition of OLCB’sincreased customer base due to the OLCB acquisition increasing various fee income for a full quarter including $420,000$449,000 in trust fees recognized during that time frame.  The Company also realized betterOffsetting the increase was a decline in mortgage banking income in the second quarter of 2017 due to a one-time bulk mortgage loan sale of $27.7 million, which generated $527,000 in gain on salelower sales volumes compared to the prior year quarter.

Noninterest Expense. Non-interest expense increased to $15.2$15.5 million during the secondthird quarter of 2017 compared to $12.9$13.0 million during the secondthird quarter of 2016.  The increase is primarily due to the acquisition of OLCB. Cost savings associated with reduced salary and employee benefits were not realized for the entire second quarter due to the timing of employee departures.

6263


Income Taxes. During the three months ended JuneSeptember 30, 2017, the Company recognized tax expense of $3.4$3.1 million on pre-tax income of $11.6$10.6 million, compared to tax expense of $2.5$2.3 million on pre-tax income of $7.8$7.4 million for the three months ended JuneSeptember 30, 2016.  The increased pre-tax income discussed in the narratives above was the primary reason for the increased income tax along with a lower effective tax rate compared to the same quarter a year ago.  The lower effective tax rate is due primarily to nontaxable municipal securitessecurities income, BOLI income, tax benefits derived from vesting of restricted stock above grant price, stock option exercises and affordable housing tax credits. See Note 14 to the consolidated financial statements for additional information regarding the composition of income taxes.

Material Changes in Results of Operations for the SixNine Months Ended

JuneSeptember 30, 2017 and JuneSeptember 30, 2016

Net Income. United Community recognized net income for the sixnine months ended JuneSeptember 30, 2017, of $9.7$17.3 million, or $0.20$0.35 per diluted common share compared to net income of $8.7$13.8 million for the sixnine months ended JuneSeptember 30, 2016, or $0.18$0.29 per diluted share.  The increase is primarily the result of the acquisition of OLCB and continued growth in earning assets and fee income lines of business.  Acquisition expenses, net of tax, of $3.3 million related to acquisition activities in the first quarter of 2017 reduced net income and diluted earnings per common share.  

Net Interest Income. Net interest income was $39.0$59.5 million in the first sixnine months of 2017 up from the $30.2$46.0 million recorded in the first sixnine months of 2016.  The growth of interest earning assets, both organically and from the acquisition of OLCB, drove this increase along with a 1925 basis point improvement in the yield on interest earning assets.  Net interest margin was 3.38%3.40% for the first sixnine months of 2017 compared to 3.23% for the first sixnine months of 2016.  The increase in the yield on interest earning assets was driven by an increase in yield on total securities of 1215 basis points along with a 712 basis point increase in the yield on net loans.  The yield on securities improved primarily due to a change in mix toward higher yielding municipal securities.  The improvement in the yield on net loans was primarily due to the accretion of loan discounts recognized in the acquisition of OLCB.OLCB along with an increase in market rates on floating and adjustable rate loans.

Interest income increased by $10.2$16.4 million in the first halfnine months of 2017 compared to the same period in 2016, to $44.6$68.7 million from $34.4$52.2 million. The increase is primarily a result of an increase in average net loans and loans held for sale from both the acquisition and organic growth.  Average total loans, net increased $472.4$489.9 million during the first sixnine months of 2017 compared to the same period in 2016. Interest income from loans increased to $37.6$58.3 million for the first halfnine months of 2017 compared to $28.0$42.6 million for the same period in 2016.  Income from loans held for sale increased to $1.5$2.4 million for the sixnine months ended JuneSeptember 30, 2017 compared to $695,000$1.2 million for the sixnine months ended JuneSeptember 30, 2016.  

 

6364


Interest expense increased by $1.4$2.9 million in the first sixnine months of 2017 to $5.6$9.2 million compared to the same period in 2016. This increase was primarily due to a $363.4$357.8 million increase in average interest-bearing liabilities from the acquisition and growth over the previous twelve months.  The cost of average interest-bearing deposits declined 3increased 2 basis points to 4851 basis points for the sixnine months ended JuneSeptember 30, 2017 from 5149 basis points at JuneSeptember 30, 2016.  Offsetting this was a 35 basis point increase in the cost of averageAverage borrowed funds increased 48 basis for the sixnine months ended JuneSeptember 30, 2017 compared to the sixnine months ended JuneSeptember 30, 2016.

 

 

For the Six Months Ended

June 30,

 

 

For the Nine Months Ended

September 30,

 

 

2017 vs. 2016

 

 

2017 vs. 2016

 

 

Increase

 

 

Total

 

 

Increase

 

 

Total

 

 

(decrease) due to

 

 

increase

 

 

(decrease) due to

 

 

increase

 

 

Rate

 

 

Volume

 

 

(decrease)

 

 

Rate

 

 

Volume

 

 

(decrease)

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Interest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

441

 

 

$

9,143

 

 

$

9,584

 

 

$

1,273

 

 

$

14,376

 

 

$

15,649

 

Loans held for sale

 

 

64

 

 

 

774

 

 

 

838

 

 

 

70

 

 

 

1,168

 

 

 

1,238

 

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale-taxable

 

 

(32

)

 

 

(603

)

 

 

(635

)

 

 

47

 

 

 

(1,036

)

 

 

(989

)

Available for sale-nontaxable

 

 

5

 

 

 

605

 

 

 

610

 

 

 

29

 

 

 

704

 

 

 

733

 

Held to maturity-taxable

 

 

(11

)

 

 

(171

)

 

 

(182

)

 

 

24

 

 

 

(248

)

 

 

(224

)

Held to maturity-nontaxable

 

 

2

 

 

 

(8

)

 

 

(6

)

 

 

14

 

 

 

(44

)

 

 

(30

)

Federal Home Loan Bank stock

 

 

57

 

 

 

22

 

 

 

79

 

 

 

117

 

 

 

35

 

 

 

152

 

Other interest earning assets

 

 

57

 

 

 

33

 

 

 

90

 

 

 

92

 

 

 

30

 

 

 

122

 

Total interest earning assets

 

$

583

 

 

$

9,795

 

 

$

10,378

 

 

$

1,666

 

 

$

14,985

 

 

$

16,651

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings accounts

 

$

(23

)

 

$

5

 

 

$

(18

)

 

$

(21

)

 

$

7

 

 

$

(14

)

Checking accounts

 

 

163

 

 

 

127

 

 

 

290

 

 

 

336

 

 

 

184

 

 

 

520

 

Customer certificates of deposit

 

 

(588

)

 

 

321

 

 

 

(267

)

 

 

1,751

 

 

 

(1,812

)

 

 

(61

)

Brokered certificates of deposit

 

 

247

 

 

 

248

 

 

 

495

 

 

 

2

 

 

 

890

 

 

 

892

 

Federal Home Loan Bank advances:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term advances

 

 

112

 

 

 

10

 

 

 

122

 

 

 

176

 

 

 

15

 

 

 

191

 

Short-term advances

 

 

614

 

 

 

190

 

 

 

804

 

 

 

1,232

 

 

 

157

 

 

 

1,389

 

Repurchase agreements and other

 

 

(1

)

 

 

6

 

 

 

5

 

 

 

(1

)

 

 

5

 

 

 

4

 

Total interest bearing liabilities

 

$

524

 

 

$

907

 

 

 

1,431

 

 

$

3,475

 

 

$

(554

)

 

 

2,921

 

Change in net interest income

 

 

 

 

 

 

 

 

 

$

8,947

 

 

 

 

 

 

 

 

 

 

$

13,730

 

 

Provision for Loan Losses. The Company recognized a loan loss provision of $2.3$3.0 million in the first halfnine months of 2017, compared to $2.6$3.9 million in the first halfnine months of 2016.  Provision expense in the last two yearsyear has primarily been driven by organic loan growth.  

Noninterest Income. Non-interest income was $12.5$18.8 million in the first halfnine months of 2017 compared to $10.4$16.4 million in the first halfnine months of 2016.  Favorably affecting this change was the recognition of OLCB’sincreased customer base due to the OLCB acquisition increasing various fee income for fiveeight months including $702,000$1.2 million in trust fees recognized during that time frame. The Company also a had minimal negative change in the valuation adjustment of the mortgage serving asset in the first halfnine months of 2017, compared with a negative adjustment of $727,000$702,000 in the first halfnine months of 2016.

Noninterest Expense. Non-interest expense increased to $35.5$50.9 million during the first halfnine months of 2017 compared to $25.3$38.3 million during the first halfnine months of 2016.  Excluding the $5.0 million of acquisition related expense, non-interest expense was up $5.2$7.6 million during the first halfnine months of 2017 compared to the first halfnine months of 2016.  The increase is primarily due to the acquisition of OLCB.    Much of the cost savings associated with the acquisition, primarily in salaries and employee benefits, will not be realized until the second half of 2017.  

Income Taxes. During the sixnine months ended JuneSeptember 30, 2017, the Company recognized tax expense of $3.9$7.0 million on pre-tax income of $13.7$24.3 million, compared to tax expense of $4.1$6.4 million on pre-tax income of $12.8$20.2 million for the sixnine months ended JuneSeptember 30, 2016.  A lower effective tax rate is the primary reason for the decrease in income tax.  The lower effective tax rate is due primarily to nontaxable municipal securitessecurities income, BOLI income, tax benefits derived from vesting of restricted stock above grant price, stock option exercises and affordable housing tax credits. See Note 14 to the consolidated financial statements for additional information regarding the composition of income taxes.

6465


Liquidity

United Community's liquidity, primarily represented by cash and cash equivalents, is a result of its operating, investing and financing activities.

The principal sources of funds for United Community are deposits, loan repayments, maturities of securities, borrowings from financial institutions, repurchase agreements and other funds provided by operations.  Home Savings also has the ability to borrow from the Federal Home Loan Bank.  While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and early loan prepayments are more influenced by interest rates, general economic conditions and competition.  Investments in liquid assets maintained by United Community and Home Savings are based upon management's assessment of (1) the need for funds, (2) expected deposit flows, (3) yields available on short-term liquid assets, and (4) objectives of the asset and liability management program.  At JuneSeptember 30, 2017, approximately $408.1$440.6 million of Home Savings’ certificates of deposit were expected to mature within one year.  Based on past experience and Home Savings’ prevailing pricing strategies, management believes that a substantial percentage of such certificates will be renewed with Home Savings at maturity, although there can be no assurance that this will occur.

Home Savings’ Asset/Liability Committee (ALCO) is responsible for establishing and monitoring liquidity guidelines, policies and procedures.  ALCO uses a variety of methods to monitor the liquidity position of Home Savings including a liquidity analysis that measures potential sources and uses of funds over future time periods out to one year.  ALCO also performs contingency funding analyses to determine Home Savings’ ability to meet potential liquidity needs under stress scenarios that cover varying time horizons ranging from immediate to long-term.

At JuneSeptember 30, 2017, United Community had total on-hand liquidity, defined as cash and cash equivalents, unencumbered securities and additional FHLB borrowing capacity, of $521.6$500.6 million.

6566


UNITED COMMUNITY FINANCIAL CORP.

AVERAGE BALANCE SHEETS

The following table presents the total dollar amounts of interest income and interest expense on the indicated amounts of average interest-earning assets or interest-bearing liabilities, together with the weighted average interest rates for the three months ended JuneSeptember 30, 2017 and 2016. Average balance calculations were based on daily balances.

 

 

For the Three Months Ended

June 30,

 

 

For the Three Months Ended

September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

Average

 

 

Interest

 

 

 

 

 

 

Average

 

 

Interest

 

 

 

 

 

 

Average

 

 

Interest

 

 

 

 

 

 

Average

 

 

Interest

 

 

 

 

 

 

outstanding

 

 

earned/

 

 

Yield/

 

 

outstanding

 

 

earned/

 

 

Yield/

 

 

outstanding

 

 

earned/

 

 

Yield/

 

 

outstanding

 

 

earned/

 

 

Yield/

 

 

balance

 

 

paid

 

 

rate

 

 

balance

 

 

paid

 

 

rate

 

 

balance

 

 

paid

 

 

rate

 

 

balance

 

 

paid

 

 

rate

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Interest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loans (1)

 

$

1,863,525

 

 

$

20,012

 

 

 

4.30

%

 

$

1,369,683

 

 

$

14,186

 

 

 

4.14

%

 

$

1,906,786

 

 

$

20,699

 

 

 

4.34

%

 

$

1,422,294

 

 

$

14,634

 

 

 

4.12

%

Loans held for sale

 

 

80,205

 

 

 

872

 

 

 

4.35

%

 

 

37,521

 

 

 

363

 

 

 

3.87

%

 

 

88,854

 

 

 

882

 

 

 

3.97

%

 

 

49,095

 

 

 

482

 

 

 

3.93

%

Total loans, net

 

 

1,943,730

 

 

 

20,884

 

 

 

4.30

%

 

 

1,407,204

 

 

 

14,549

 

 

 

4.14

%

 

 

1,995,640

 

 

 

21,581

 

 

 

4.33

%

 

 

1,471,389

 

 

 

15,116

 

 

 

4.11

%

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale-taxable

 

 

258,217

 

 

 

1,479

 

 

 

2.29

%

 

 

315,583

 

 

 

1,781

 

 

 

2.26

%

 

 

224,927

 

 

 

1,276

 

 

 

2.27

%

 

 

300,522

 

 

 

1,630

 

 

 

2.17

%

Available for sale-nontaxable (2)

 

 

59,209

 

 

 

619

 

 

 

4.18

%

 

 

42,394

 

 

 

440

 

 

 

4.15

%

 

 

59,057

 

 

 

611

 

 

 

4.14

%

 

 

49,489

 

 

 

489

 

 

 

3.95

%

Held to maturity-taxable

 

 

80,817

 

 

 

454

 

 

 

2.25

%

 

 

95,933

 

 

 

524

 

 

 

2.18

%

 

 

77,947

 

 

 

424

 

 

 

2.18

%

 

 

92,077

 

 

 

466

 

 

 

2.02

%

Held to maturity-nontaxable (2)

 

 

9,843

 

 

 

79

 

 

 

3.21

%

 

 

12,971

 

 

 

96

 

 

 

2.96

%

 

 

9,239

 

 

 

76

 

 

 

3.29

%

 

 

13,563

 

 

 

100

 

 

 

2.95

%

Total securities

 

 

408,086

 

 

 

2,631

 

 

 

2.58

%

 

 

466,881

 

 

 

2,841

 

 

 

2.43

%

 

 

371,170

 

 

 

2,387

 

 

 

2.57

%

 

 

455,651

 

 

 

2,685

 

 

 

2.36

%

Federal Home Loan Bank stock

 

 

19,324

 

 

 

227

 

 

 

4.70

%

 

 

18,068

 

 

 

180

 

 

 

3.98

%

 

 

19,324

 

 

 

253

 

 

 

5.24

%

 

 

18,068

 

 

 

180

 

 

 

3.98

%

Other interest earning assets

 

 

22,129

 

 

 

40

 

 

 

0.72

%

 

 

18,978

 

 

 

15

 

 

 

0.32

%

 

 

18,881

 

 

 

51

 

 

 

1.08

%

 

 

20,028

 

 

 

19

 

 

 

0.38

%

Total interest earning assets

 

 

2,393,269

 

 

 

23,782

 

 

 

3.97

%

 

 

1,911,131

 

 

 

17,585

 

 

 

3.68

%

 

 

2,405,015

 

 

 

24,272

 

 

 

4.04

%

 

 

1,965,136

 

 

 

18,000

 

 

 

3.66

%

Non-interest earning assets

 

 

180,524

 

 

 

 

 

 

 

 

 

 

 

132,780

 

 

 

 

 

 

 

 

 

 

 

185,773

 

 

 

 

 

 

 

 

 

 

 

132,922

 

 

 

 

 

 

 

 

 

Total assets

 

$

2,573,793

 

 

 

 

 

 

 

 

 

 

$

2,043,911

 

 

 

 

 

 

 

 

 

 

$

2,590,788

 

 

 

 

 

 

 

 

 

 

$

2,098,058

 

 

 

 

 

 

 

 

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Checking accounts

 

$

633,276

 

 

 

480

 

 

 

0.30

%

 

$

505,284

 

 

 

261

 

 

 

0.21

%

 

$

591,982

 

 

 

468

 

 

 

0.32

%

 

$

491,553

 

 

 

238

 

 

 

0.19

%

Savings accounts

 

 

308,683

 

 

 

27

 

 

 

0.03

%

 

 

291,820

 

 

 

34

 

 

 

0.05

%

 

 

308,829

 

 

 

28

 

 

 

0.04

%

 

 

290,998

 

 

 

24

 

 

 

0.03

%

Certificates of deposit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer certificates of deposit

 

 

504,397

 

 

 

1,166

 

 

 

0.92

%

 

 

434,053

 

 

 

1,201

 

 

 

1.11

%

 

 

526,697

 

 

 

1,333

 

 

 

1.01

%

 

 

425,307

 

 

 

1,127

 

 

 

1.06

%

Brokered certificates of deposit

 

 

133,082

 

 

 

314

 

 

 

0.94

%

 

 

 

 

 

 

 

 

%

 

 

135,956

 

 

 

397

 

 

 

1.17

%

 

 

 

 

 

 

 

 

%

Total certificates of deposit

 

 

637,479

 

 

 

1,480

 

 

 

0.93

%

 

 

434,053

 

 

 

1,201

 

 

 

1.11

%

 

 

662,653

 

 

 

1,730

 

 

 

1.04

%

 

 

425,307

 

 

 

1,127

 

 

 

1.06

%

Total interest bearing deposits

 

 

1,579,438

 

 

 

1,987

 

 

 

0.50

%

 

 

1,231,157

 

 

 

1,496

 

 

 

0.49

%

 

 

1,563,464

 

 

 

2,226

 

 

 

0.57

%

 

 

1,207,858

 

 

 

1,389

 

 

 

0.46

%

Federal Home Loan Bank advances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term advances

 

 

48,019

 

 

 

370

 

 

 

3.08

%

 

 

47,237

 

 

 

307

 

 

 

2.60

%

 

 

48,212

 

 

 

388

 

 

 

3.22

%

 

 

47,432

 

 

 

319

 

 

 

2.69

%

Short-term advances

 

 

286,604

 

 

 

694

 

 

 

0.97

%

 

 

246,967

 

 

 

256

 

 

 

0.41

%

 

 

310,152

 

 

 

927

 

 

 

1.20

%

 

 

326,250

 

 

 

342

 

 

 

0.42

%

Total Federal Home Loan Bank advances

 

 

334,623

 

 

 

1,064

 

 

 

1.27

%

 

 

294,204

 

 

 

563

 

 

 

0.77

%

 

 

358,364

 

 

 

1,315

 

 

 

1.47

%

 

 

373,682

 

 

 

661

 

 

 

0.71

%

Repurchase agreements and other

 

 

4,844

 

 

 

8

 

 

 

0.66

%

 

 

527

 

 

 

6

 

 

 

4.55

%

 

 

6,483

 

 

 

4

 

 

 

0.25

%

 

 

520

 

 

 

5

 

 

 

3.85

%

Total borrowed funds

 

 

339,467

 

 

 

1,072

 

 

 

1.26

%

 

 

294,731

 

 

 

569

 

 

 

0.77

%

 

 

364,847

 

 

 

1,319

 

 

 

1.45

%

 

 

374,202

 

 

 

666

 

 

 

0.71

%

Total interest bearing liabilities

 

$

1,918,905

 

 

 

3,059

 

 

 

0.64

%

 

$

1,525,888

 

 

 

2,065

 

 

 

0.54

%

 

$

1,928,311

 

 

 

3,545

 

 

 

0.74

%

 

$

1,582,060

 

 

 

2,055

 

 

 

0.52

%

Non-interest bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

333,784

 

 

 

 

 

 

 

 

 

 

 

241,098

 

 

 

 

 

 

 

 

 

 

 

337,067

 

 

 

 

 

 

 

 

 

 

 

242,310

 

 

 

 

 

 

 

 

 

Other noninterest-bearing liabilities

 

 

38,771

 

 

 

 

 

 

 

 

 

 

 

29,751

 

 

 

 

 

 

 

 

 

 

 

35,577

 

 

 

 

 

 

 

 

 

 

 

27,769

 

 

 

 

 

 

 

 

 

Total noninterest bearing liabilities

 

 

372,555

 

 

 

 

 

 

 

 

 

 

 

270,849

 

 

 

 

 

 

 

 

 

 

 

372,644

 

 

 

 

 

 

 

 

 

 

 

270,079

 

 

 

 

 

 

 

 

 

Total liabilities

 

$

2,291,460

 

 

 

 

 

 

 

 

 

 

$

1,796,737

 

 

 

 

 

 

 

 

 

 

$

2,300,955

 

 

 

 

 

 

 

 

 

 

$

1,852,139

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

282,333

 

 

 

 

 

 

 

 

 

 

 

247,174

 

 

 

 

 

 

 

 

 

 

 

289,834

 

 

 

 

 

 

 

 

 

 

 

245,919

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

2,573,793

 

 

 

 

 

 

 

 

 

 

$

2,043,911

 

 

 

 

 

 

 

 

 

 

$

2,590,789

 

 

 

 

 

 

 

 

 

 

$

2,098,058

 

 

 

 

 

 

 

 

 

Net interest income and interest rate spread

 

 

 

 

 

$

20,723

 

 

 

3.33

%

 

 

 

 

 

$

15,520

 

 

 

3.14

%

 

 

 

 

 

$

20,727

 

 

 

3.30

%

 

 

 

 

 

$

15,945

 

 

 

3.14

%

Net interest margin

 

 

 

 

 

 

 

 

 

 

3.46

%

 

 

 

 

 

 

 

 

 

 

3.25

%

 

 

 

 

 

 

 

 

 

 

3.45

%

 

 

 

 

 

 

 

 

 

 

3.25

%

Average interest earning assets to average interest

bearing liabilities

 

 

 

 

 

 

 

 

 

 

124.72

%

 

 

 

 

 

 

 

 

 

 

125.25

%

 

 

 

 

 

 

 

 

 

 

124.72

%

 

 

 

 

 

 

 

 

 

 

124.21

%

 

(1)

Nonaccrual loans are included in the average balance at a yield of 0%.

(2)

Yields are on a fully taxable equivalent basis.

6667


The following table presents the total dollar amounts of interest income and interest expense on the indicated amounts of average interest-earning assets or interest-bearing liabilities, together with the weighted average interest rates for the sixnine months ended JuneSeptember 30, 2017 and 2016. Average balance calculations were based on daily balances.

 

 

For the Six Months Ended

June 30,

 

 

For the Nine Months Ended

September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

Average

 

 

Interest

 

 

 

 

 

 

Average

 

 

Interest

 

 

 

 

 

 

Average

 

 

Interest

 

 

 

 

 

 

Average

 

 

Interest

 

 

 

 

 

 

outstanding

 

 

earned/

 

 

Yield/

 

 

outstanding

 

 

earned/

 

 

Yield/

 

 

outstanding

 

 

earned/

 

 

Yield/

 

 

outstanding

 

 

earned/

 

 

Yield/

 

 

balance

 

 

paid

 

 

rate

 

 

balance

 

 

paid

 

 

rate

 

 

balance

 

 

paid

 

 

rate

 

 

balance

 

 

paid

 

 

rate

 

 

(Dollars in thousands)

 

 

(Dollars in thousands)

 

Interest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loans (1)

 

$

1,785,202

 

 

$

37,572

 

 

 

4.21

%

 

$

1,350,474

 

 

$

27,988

 

 

 

4.14

%

 

$

1,826,175

 

 

$

58,271

 

 

 

4.25

%

 

$

1,374,588

 

 

$

42,622

 

 

 

4.13

%

Loans held for sale

 

 

74,067

 

 

 

1,533

 

 

 

4.14

%

 

 

36,440

 

 

 

695

 

 

 

3.81

%

 

 

79,050

 

 

 

2,415

 

 

 

4.07

%

 

 

40,689

 

 

 

1,177

 

 

 

3.86

%

Total loans, net

 

 

1,859,269

 

 

 

39,105

 

 

 

4.21

%

 

 

1,386,914

 

 

 

28,683

 

 

 

4.14

%

 

 

1,905,225

 

 

 

60,686

 

 

 

4.25

%

 

 

1,415,277

 

 

 

43,799

 

 

 

4.13

%

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale-taxable

 

 

272,914

 

 

 

3,081

 

 

 

2.26

%

 

 

326,306

 

 

 

3,716

 

 

 

2.28

%

 

 

256,742

 

 

 

4,357

 

 

 

2.26

%

 

 

317,752

 

 

 

5,346

 

 

 

2.24

%

Available for sale-nontaxable (2)

 

 

59,285

 

 

 

1,240

 

 

 

4.18

%

 

 

30,362

 

 

 

630

 

 

 

4.15

%

 

 

59,208

 

 

 

1,851

 

 

 

4.17

%

 

 

36,681

 

 

 

1,118

 

 

 

4.06

%

Held to maturity-taxable

 

 

82,228

 

 

 

919

 

 

 

2.24

%

 

 

97,488

 

 

 

1,101

 

 

 

2.26

%

 

 

80,785

 

 

 

1,343

 

 

 

2.22

%

 

 

95,671

 

 

 

1,567

 

 

 

2.18

%

Held to maturity-nontaxable (2)

 

 

11,140

 

 

 

173

 

 

 

3.11

%

 

 

11,673

 

 

 

179

 

 

 

3.07

%

 

 

10,499

 

 

 

249

 

 

 

3.16

%

 

 

12,308

 

 

 

279

 

 

 

3.02

%

Total securities

 

 

425,567

 

 

 

5,413

 

 

 

2.54

%

 

 

465,829

 

 

 

5,626

 

 

 

2.42

%

 

 

407,234

 

 

 

7,800

 

 

 

2.55

%

 

 

462,412

 

 

 

8,310

 

 

 

2.40

%

Federal Home Loan Bank stock

 

 

19,116

 

 

 

441

 

 

 

4.61

%

 

 

18,068

 

 

 

362

 

 

 

4.01

%

 

 

19,186

 

 

 

694

 

 

 

4.82

%

 

 

18,068

 

 

 

542

 

 

 

4.00

%

Other interest earning assets

 

 

32,537

 

 

 

120

 

 

 

0.74

%

 

 

18,554

 

 

 

30

 

 

 

0.32

%

 

 

27,934

 

 

 

171

 

 

 

0.82

%

 

 

19,144

 

 

 

49

 

 

 

0.34

%

Total interest earning assets

 

 

2,336,489

 

 

 

45,079

 

 

 

3.86

%

 

 

1,889,365

 

 

 

34,701

 

 

 

3.67

%

 

 

2,359,579

 

 

 

69,351

 

 

 

3.92

%

 

 

1,914,901

 

 

 

52,700

 

 

 

3.67

%

Non-interest earning assets

 

 

173,537

 

 

 

 

 

 

 

 

 

 

 

132,985

 

 

 

 

 

 

 

 

 

 

 

177,643

 

 

 

 

 

 

 

 

 

 

 

133,202

 

 

 

 

 

 

 

 

 

Total assets

 

$

2,510,026

 

 

 

 

 

 

 

 

 

 

$

2,022,350

 

 

 

 

 

 

 

 

 

 

$

2,537,222

 

 

 

 

 

 

 

 

 

 

$

2,048,103

 

 

 

 

 

 

 

 

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Checking accounts

 

$

599,279

 

 

 

817

 

 

 

0.27

%

 

$

493,318

 

 

 

527

 

 

 

0.21

%

 

$

596,820

 

 

 

1,285

 

 

 

0.29

%

 

$

492,698

 

 

 

765

 

 

 

0.21

%

Savings accounts

 

 

305,198

 

 

 

57

 

 

 

0.04

%

 

 

287,856

 

 

 

75

 

 

 

0.05

%

 

 

306,422

 

 

 

85

 

 

 

0.04

%

 

 

288,911

 

 

 

99

 

 

 

0.05

%

Certificates of deposit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer certificates of deposit

 

 

486,639

 

 

 

2,239

 

 

 

0.92

%

 

 

440,756

 

 

 

2,506

 

 

 

1.14

%

 

 

500,139

 

 

 

3,572

 

 

 

0.95

%

 

 

435,569

 

 

 

3,633

 

 

 

1.11

%

Brokered certificates of deposit

 

 

116,324

 

 

 

495

 

 

 

0.85

%

 

 

 

 

 

 

 

 

%

 

 

122,940

 

 

 

892

 

 

 

0.97

%

 

 

 

 

 

 

 

 

%

Total certificates of deposit

 

 

602,963

 

 

 

2,734

 

 

 

0.91

%

 

 

440,756

 

 

 

2,506

 

 

 

1.14

%

 

 

623,079

 

 

 

4,464

 

 

 

0.96

%

 

 

435,569

 

 

 

3,633

 

 

 

1.11

%

Total interest bearing deposits

 

 

1,507,440

 

 

 

3,608

 

 

 

0.48

%

 

 

1,221,930

 

 

 

3,108

 

 

 

0.51

%

 

 

1,526,321

 

 

 

5,834

 

 

 

0.51

%

 

 

1,217,178

 

 

 

4,497

 

 

 

0.49

%

Federal Home Loan Bank advances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term advances

 

 

47,921

 

 

 

718

 

 

 

3.00

%

 

 

47,140

 

 

 

596

 

 

 

2.53

%

 

 

48,019

 

 

 

1,106

 

 

 

3.07

%

 

 

47,238

 

 

 

915

 

 

 

2.58

%

Short-term advances

 

 

316,660

 

 

 

1,301

 

 

 

0.82

%

 

 

241,857

 

 

 

497

 

 

 

0.41

%

 

 

314,467

 

 

 

2,228

 

 

 

0.94

%

 

 

270,193

 

 

 

839

 

 

 

0.41

%

Total Federal Home Loan Bank advances

 

 

364,581

 

 

 

2,019

 

 

 

1.11

%

 

 

288,997

 

 

 

1,093

 

 

 

0.76

%

 

 

362,486

 

 

 

3,334

 

 

 

1.23

%

 

 

317,431

 

 

 

1,754

 

 

 

0.74

%

Repurchase agreements and other

 

 

2,857

 

 

 

16

 

 

 

1.12

%

 

 

530

 

 

 

11

 

 

 

4.15

%

 

 

4,079

 

 

 

20

 

 

 

0.65

%

 

 

526

 

 

 

16

 

 

 

4.06

%

Total borrowed funds

 

 

367,438

 

 

 

2,035

 

 

 

1.11

%

 

 

289,527

 

 

 

1,104

 

 

 

0.76

%

 

 

366,565

 

 

 

3,354

 

 

 

1.22

%

 

 

317,957

 

 

 

1,770

 

 

 

0.74

%

Total interest bearing liabilities

 

$

1,874,878

 

 

 

5,643

 

 

 

0.60

%

 

$

1,511,457

 

 

 

4,212

 

 

 

0.56

%

 

$

1,892,886

 

 

 

9,188

 

 

 

0.65

%

 

$

1,535,135

 

 

 

6,267

 

 

 

0.54

%

Non-interest bearing liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

320,578

 

 

 

 

 

 

 

 

 

 

 

234,714

 

 

 

 

 

 

 

 

 

 

 

326,151

 

 

 

 

 

 

 

 

 

 

 

237,281

 

 

 

 

 

 

 

 

 

Other noninterest-bearing liabilities

 

 

36,278

 

 

 

 

 

 

 

 

 

 

 

28,346

 

 

 

 

 

 

 

 

 

 

 

36,019

 

 

 

 

 

 

 

 

 

 

 

28,279

 

 

 

 

 

 

 

 

 

Total noninterest bearing liabilities

 

 

356,856

 

 

 

 

 

 

 

 

 

 

 

263,060

 

 

 

 

 

 

 

 

 

 

 

362,170

 

 

 

 

 

 

 

 

 

 

 

265,560

 

 

 

 

 

 

 

 

 

Total liabilities

 

$

2,231,734

 

 

 

 

 

 

 

 

 

 

$

1,774,517

 

 

 

 

 

 

 

 

 

 

$

2,255,056

 

 

 

 

 

 

 

 

 

 

$

1,800,695

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

278,292

 

 

 

 

 

 

 

 

 

 

 

247,833

 

 

 

 

 

 

 

 

 

 

 

282,166

 

 

 

 

 

 

 

 

 

 

 

247,408

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

2,510,026

 

 

 

 

 

 

 

 

 

 

$

2,022,350

 

 

 

 

 

 

 

 

 

 

$

2,537,222

 

 

 

 

 

 

 

 

 

 

$

2,048,103

 

 

 

 

 

 

 

 

 

Net interest income and interest rate spread

 

 

 

 

 

$

39,436

 

 

 

3.26

%

 

 

 

 

 

$

30,489

 

 

 

3.11

%

 

 

 

 

 

$

60,163

 

 

 

3.27

%

 

 

 

 

 

$

46,433

 

 

 

3.13

%

Net interest margin

 

 

 

 

 

 

 

 

 

 

3.38

%

 

 

 

 

 

 

 

 

 

 

3.23

%

 

 

 

 

 

 

 

 

 

 

3.40

%

 

 

 

 

 

 

 

 

 

 

3.23

%

Average interest earning assets to average interest

bearing liabilities

 

 

 

 

 

 

 

 

 

 

124.62

%

 

 

 

 

 

 

 

 

 

 

125.00

%

 

 

 

 

 

 

 

 

 

 

124.66

%

 

 

 

 

 

 

 

 

 

 

124.74

%

 

(1)

Nonaccrual loans are included in the average balance at a yield of 0%.

(2)

Yields are on a fully taxable equivalent basis.

6768


ITEM 3. QuantitativeQuantitative and Qualitative Disclosures About Market Risk.

Qualitative Aspects of Market Risk. The principal market risk affecting United Community is interest rate risk. United Community is subject to interest rate risk to the extent that its interest-earning assets reprice differently than its interest-bearing liabilities. Interest rate risk is defined as the sensitivity of United Community’s earnings and net asset values to changes in interest rates. As part of its efforts to monitor and manage the interest rate risk, the Board of Directors of Home Savings has adopted an interest rate risk policy that requires the Home Savings Board to review quarterly reports related to interest rate risk and to annually set exposure limits for Home Savings as a guide to management in setting and implementing day to day operating strategies.

Quantitative Aspects of Market Risk. As part of its interest rate risk analysis, Home Savings uses the net portfolio value (NPV) and net interest income methodology. Generally, NPV is the discounted present value of the difference between incoming cash flows on interest-earning and other assets and outgoing cash flows on interest-bearing and other liabilities. The application of the methodology attempts to quantify interest rate risk as the change in the NPV and net interest income that would result from various levels of theoretical basis point changes in market interest rates.

Home Savings uses an NPV and earnings simulation model prepared internally as its primary method to identify and manage its interest rate risk profile. The model is based on actual cash flows and repricing characteristics for all financial instruments and incorporates market-based assumptions regarding the impact of changing interest rates on future volumes and the prepayment rate of applicable financial instruments. Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates also are incorporated into the model. These assumptions inherently are uncertain and, as a result, the model cannot measure precisely NPV or net interest income or precisely predict the impact of fluctuations in interest rates on net interest rate changes as well as changes in market conditions and management strategies.

Presented below are analyses of Home Savings’ interest rate risk as measured by changes in NPV and net interest income for instantaneous and sustained parallel shifts of 100 basis point increments in market interest rates.  As noted, for the quarter ended JuneSeptember 30, 2017 and the year ended December 31, 2016, the percentage changes fall within the policy limits set by the Board of Directors of Home Savings as the minimum NPV ratio and the maximum change in interest income the Home Savings Board deems advisable in the event of various changes in interest rates. See the table below for Board adopted policy limits.

 

Quarter Ended June 30, 2017

 

Quarter Ended September 30, 2017

Quarter Ended September 30, 2017

 

NPV as % of portfolio value of assets

NPV as % of portfolio value of assets

 

 

Next 12 months net interest income

 

NPV as % of portfolio value of assets

 

 

Next 12 months net interest income

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

(Dollars in thousands)

 

Change

in rates

(Basis points)

 

NPV Ratio

 

 

Internal

policy

limitations

 

 

Change

in %

 

 

Internal

policy

limitations

on NPV

Change

 

 

$ Change

 

 

Internal

policy

limitations

 

 

% Change

 

 

NPV Ratio

 

 

Internal

policy

limitations

 

 

Change

in %

 

 

Internal

policy

limitations

on NPV

Change

 

 

$ Change

 

 

Internal

policy

limitations

 

 

% Change

 

400

 

 

11.63

%

 

 

6.00

%

 

 

(0.32

)%

 

 

-25.00

%

 

$

(1,574

)

 

 

(18.00

)%

 

 

(1.94

)%

 

 

11.25

%

 

 

6.00

%

 

 

(0.66

)%

 

 

-25.00

%

 

$

(2,763

)

 

 

(18.00

)%

 

 

(3.39

)%

300

 

 

11.93

%

 

 

6.00

%

 

 

(0.01

)%

 

 

-20.00

%

 

 

(1,094

)

 

 

(13.00

)%

 

 

(1.35

)%

 

 

11.64

%

 

 

6.00

%

 

 

(0.27

)%

 

 

-20.00

%

 

 

(1,879

)

 

 

(13.00

)%

 

 

(2.31

)%

200

 

 

12.14

%

 

 

7.00

%

 

 

0.20

%

 

 

-15.00

%

 

 

(637

)

 

 

(8.00

)%

 

 

(0.78

)%

 

 

12.00

%

 

 

7.00

%

 

 

0.08

%

 

 

-15.00

%

 

 

(1,020

)

 

 

(8.00

)%

 

 

(1.25

)%

100

 

 

12.37

%

 

 

7.00

%

 

 

0.43

%

 

 

-10.00

%

 

 

(553

)

 

 

(3.00

)%

 

 

(0.68

)%

 

 

12.11

%

 

 

7.00

%

 

 

0.20

%

 

 

-10.00

%

 

 

(545

)

 

 

(3.00

)%

 

 

(0.67

)%

Static

 

 

11.94

%

 

 

9.00

%

 

 

%

 

 

0.00

%

 

 

 

 

 

%

 

 

%

 

 

11.91

%

 

 

9.00

%

 

 

%

 

 

0.00

%

 

 

 

 

 

%

 

 

%

-100

 

 

11.06

%

 

 

7.00

%

 

 

(0.88

)%

 

 

-15.00

%

 

 

(1,727

)

 

 

(5.00

)%

 

 

(2.13

)%

 

 

11.23

%

 

 

7.00

%

 

 

(0.68

)%

 

 

-15.00

%

 

 

(1,864

)

 

 

(5.00

)%

 

 

(2.29

)%

 

Year Ended December 31, 2016

 

NPV as % of portfolio value of assets

 

 

Next 12 months net interest income

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Change

in rates

(Basis points)

 

NPV Ratio

 

 

Internal

policy

limitations

 

 

Change

in %

 

 

Internal

policy

limitations

on NPV

Change

 

 

$ Change

 

 

Internal

policy

limitations

 

 

% Change

 

400

 

 

10.04

%

 

 

6.00

%

 

 

(2.07

)%

 

 

-30.00

%

 

$

(8,716

)

 

 

(20.00

)%

 

 

(13.27

)%

300

 

 

10.73

%

 

 

6.00

%

 

 

(1.39

)%

 

 

-25.00

%

 

 

(6,903

)

 

 

(15.00

)%

 

 

(10.51

)%

200

 

 

11.35

%

 

 

7.00

%

 

 

(0.77

)%

 

 

-20.00

%

 

 

(4,198

)

 

 

(10.00

)%

 

 

(6.39

)%

100

 

 

11.88

%

 

 

7.00

%

 

 

(0.24

)%

 

 

-15.00

%

 

 

(1,726

)

 

 

(5.00

)%

 

 

(2.63

)%

Static

 

 

12.12

%

 

 

9.00

%

 

 

%

 

 

0.00

%

 

 

 

 

 

%

 

 

%

 

Due to a low interest rate environment, it was not meaningful to calculate results for a drop in interest rates at December 31, 2016.  For the quarter ended JuneSeptember 30, 2017, it was only meaningful to calculate a drop of 100 basis points.  

6869


As with any method of measuring interest rate risk, certain shortcomings are inherent in the above approach. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Further, in the event of a change in interest rates, expected rates of prepayment on loans and early withdrawal levels from certificates of deposit may deviate significantly from those assumed in making risk calculations.

Potential Impact of Changes in Interest Rates. Home Savings’ profitability depends to a large extent on its net interest income, which is the difference between interest income from loans and securities and interest expense on deposits and borrowings. Like most financial institutions, Home Savings’ short-term interest income and interest expense are affected significantly by changes in market interest rates and other economic factors beyond its control.

ITEM 4. Controls and Procedures.

An evaluation was carried out by United Community’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of United Community’s disclosure controls and procedures (as defined in Rules 13a-15(e)/15d-15(e) of the Securities Exchange Act of 1934 (the Exchange Act)) as of JuneSeptember 30, 2017. Based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that United Community’s disclosure controls and procedures as of JuneSeptember 30, 2017, were effective in ensuring that information required to be disclosed in the reports that United Community files or submits under the Exchange Act was recorded, processed, summarized and reported on a timely basis, including those controls and procedures designed to ensure that such information is accumulated and communicated to management, including United Community’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. During the quarter ended JuneSeptember 30, 2017, there were no changes in United Community’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect United Community’s internal control over financial reporting.

 

 

6970


PART II. OTHER INFORMATION

UNITED COMMUNITY FINANCIAL CORP.

ITEM 1. Legal Proceedings.

United Community and its subsidiaries are parties to litigation arising in the normal course of business. While it is impossible to determine the ultimate resolution of these contingent matters, management believes any resulting liability would not have a material effect upon United Community’s financial statements.

ITEM 1A. Risk Factors.

There have been no material changes in United Community’s risk factors as outlined in United Community’s Annual Report on Form 10-K for the year ended December 31, 2016.  The risk factors described in the Annual Report on Form 10-K are not the only risks facing the Company.  Additional risks and uncertainties not currently known to the Company or that management currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.  Moreover, the Company undertakes no obligation and disclaims any intention to publish revised information or updates to forward-looking statements contained in such risk factors or in any other statement made at any time by the Company or any of its directors, officers, employees or other representatives, unless and until any such revisions or updates are expressly required to be disclosed by securities laws or regulations.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

(a)

None.

 

(b)

Not applicable.

 

(c)

The following table provides information concerning purchases of United Community’s common shares made by United Community during the three months ended JuneSeptember 30, 2017:

 

Period

 

Total number of

common shares purchased

 

 

Average price paid

per common share

 

 

Total number of

common shares

purchased as part of

publicly announced

plans

 

 

Maximum number

of shares that may

yet be purchased

under the plan(2)

 

April 1 through April 30, 2017(1)

 

 

20,709

 

 

$

8.34

 

 

 

 

 

 

1,683,830

 

May 1 through May 31, 2017

 

 

 

 

 

 

 

 

 

 

 

1,683,830

 

June 1 through June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

1,683,830

 

Total

 

 

20,709

 

 

$

8.34

 

 

 

 

 

 

1,683,830

 

Period

 

Total number of

common shares purchased

 

 

Average price paid

per common share

 

 

Total number of

common shares

purchased as part of

publicly announced

plans

 

 

Maximum number

of shares that may

yet be purchased

under the plan(2)

 

July 1 through July 31, 2017

 

 

 

 

$

 

 

 

 

 

 

1,683,830

 

August 1 through August 31, 2017

 

 

 

 

 

 

 

 

 

 

 

1,683,830

 

September 1 through September 30,

   2017(1)

 

 

10,315

 

 

 

9.37

 

 

 

 

 

 

1,683,830

 

Total

 

 

10,315

 

 

$

9.37

 

 

 

 

 

 

1,683,830

 

 

(1)

In AprilSeptember 2017, United Community purchased 20,709195 shares at $8.34$8.78 per share from employees for the payment of employment taxes.  Additionally during September 2017, United Community purchased 10,120 shares at $9.38 per share from an employee for the exercise of stock options in a stock-swap transaction.  The purchase of these shares was not part of United Community’s share repurchase program.  

(2)

United Community’s stock repurchase program was publically announced on April 28, 2016 in a press release, a copy of which can be found in United Community’s Form 8-K filed on May 2, 2016.  The program permits the repurchase of up to 2,500,000 common shares.  There is no expiration date for the program.

ITEM 3. Defaults Upon Senior Securities

Not Applicable

ITEM 4. Mine Safety Disclosures

Not Applicable

ITEM 5. Other Information

 

(a)

None.

 

(b)

None.

7071


ITEM 6. Exhibits.

 

Exhibit Number

  

Description

 

    2.1

  

 

Agreement and Plan of Merger by and among United Community Financial Corp., The Home Savings and Loan Company of Youngstown, Ohio, Ohio Legacy Corp. and Premier Bank & Trust, dated September 8, 2016.2016, incorporated by reference to Exhibit 2.1 in the Third Quarter Form 10-Q filed by United Community on November 8, 2016 with the SEC, film number 161981248.

 

    3.1

  

 

Articles of Incorporation (reflecting all amendments filed with the Ohio Secretary of State) [for purposes of SEC reporting compliance only – not filed with the Ohio Secretary of State], incorporated by reference to Exhibit 3.1 in the Second Quarter 2016 Form 10-Q filed by United Community on August 5, 2016 with the SEC, film number 161811451.

 

    3.2

  

 

Amended Code of Regulations,

  10.1

Severance and Change incorporated by reference to Exhibit 3.2 in Control Agreementthe 1998 Form 10-K filed by United Community on March 31, 1999 with Timothy W. Esson

  10.2

Severance and Change in Control Agreement with Matthew T. Garrity

  10.3

Severance and Change in Control Agreement with Jude J. Nohra

  10.4

Severance and Change in Control Agreement with Barbara J. Radisthe SEC, film number 99582343.

 

  31.1

  

 

Section 302 Certification by Chief Executive Officer

 

  31.2

  

 

Section 302 Certification by Chief Financial Officer

 

  32

  

 

Section 1350 Certifications by Chief Executive Officer and Chief Financial Officer

 

101

  

 

The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended JuneSeptember 30, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) the Consolidated Statements of Changes in Shareholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Unaudited Consolidated Financial Statements.

 

 

7172


UNITED COMMUNITY FINANCIAL CORP.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

UNITED COMMUNITY FINANCIAL CORP.

 

Date: AugustNovember 9, 2017

 

 

 

/s/ Gary M. Small 

 

 

 

Gary M. Small

President and Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

Date: AugustNovember 9, 2017

 

 

 

/s/ Timothy W. Esson 

 

 

 

Timothy W. Esson

Chief Financial Officer

 

 

 

(Principal Financial Officer)

 

 

72


UNITED COMMUNITY FINANCIAL CORP.

EXHIBIT INDEX

Exhibit 2.1

Incorporated by reference to Exhibit 2.1 in the Third Quarter Form 10-Q filed by United Community on November 8, 2016 with the SEC, film number 161981248.

Exhibit 3.1

Incorporated by reference to Exhibit 3.1 in the Second Quarter 2016 Form 10-Q filed by United Community on August 5, 2016 with the SEC, film number 161811451.

Exhibit 3.2

Incorporated by reference to Exhibit 3.2 in the 1998 Form 10-K filed by United Community on March 31, 1999 with the SEC, film number 99582343.

Exhibit 10.1

Incorporated by reference to Exhibit 10.1 in the Form 8-K filed by United Community on July 7, 2017 with the SEC, film number 17955395.

Exhibit 10.2

Incorporated by reference to Exhibit 10.2 in the Form 8-K filed by United Community on July 7, 2017 with the SEC, film number 17955395.

Exhibit 10.3

Incorporated by reference to Exhibit 10.3 in the Form 8-K filed by United Community on July 7, 2017 with the SEC, film number 17955395.

Exhibit 10.4

Incorporated by reference to Exhibit 10.4 in the Form 8-K filed by United Community on July 7, 2017 with the SEC, film number 17955395.

73