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MarketScreener Homepage  >  Equities  >  Nasdaq  >  United Community Financial Corp    UCFC

UNITED COMMUNITY FINANCIAL CORP (UCFC)
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UNITED COMMUNITY FINANCIAL : MANAGEMENT'S DISCUSSION AND ANALYSIS (form 10-Q)

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11/09/2018 | 08:48pm CET

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                        UNITED COMMUNITY FINANCIAL CORP.



                                                  For the Three Months Ended              For the Nine Months Ended
                                                         September 30,                          September 30,
Selected financial ratios and other data:
(1)                                                2018                2017               2018                2017
Performance ratios:
Return on average assets (2)                            1.37 %              1.17 %             1.35 %              0.91 %
Return on average equity (3)                           12.25 %             10.43 %            12.09 %              8.17 %
Interest rate spread (4)                                3.09 %              3.30 %             3.15 %              3.27 %
Net interest margin (5)                                 3.33 %              3.45 %             3.38 %              3.40 %
Noninterest expense to average assets                   2.26 %              2.39 %             2.34 %              2.68 %
Efficiency ratio (6)                                   57.30 %             57.13 %            57.58 %             64.47 %
Average interest-earning assets to average
interest-bearing liabilities                          126.99 %            124.72 %           126.99 %            124.66 %
Capital ratios:
Average equity to average assets                       11.16 %             11.19 %            11.17 %             11.12 %
Equity to assets, end of period                        10.97 %             11.21 %            10.97 %             11.21 %
Tier 1 leverage ratio (Bank only)                      10.02 %             10.46 %            10.02 %             10.46 %
Common equity Tier 1 capital (Bank only)               12.96 %             13.69 %            12.96 %             13.69 %
Tier 1 risk-based capital ratio (Bank only)            12.96 %             13.69 %            12.96 %             13.69 %
Total risk-based capital ratio (Bank only)             13.95 %             14.74 %            13.95 %             14.74 %
Asset quality ratios:
Nonperforming loans to net loans at end of
period (7)                                              0.42 %              0.62 %             0.42 %              0.62 %
Nonperforming assets to average assets (8)              0.36 %              0.76 %             0.37 %              0.77 %
Nonperforming assets to total assets at end
of period                                               0.36 %              0.75 %             0.36 %              0.75 %
Allowance for loan losses as a percent of
loans                                                   0.98 %              1.04 %             0.98 %              1.04 %
Allowance for loan losses as a percent of
nonperforming loans (7)                               235.43 %            169.64 %           235.43 %            169.64 %
Total classified assets as a percent of Tier
1 Capital (Bank only)                                  14.95 %             21.05 %            14.95 %             21.05 %
Total classified loans as a percent of Tier
1 Capital and ALLL (Bank
  only)                                                13.57 %             16.93 %            13.57 %             16.93 %
Total classified assets as a percent of Tier
1 Capital and ALLL (Bank
  only)                                                13.87 %             19.55 %            13.87 %             19.55 %
Net chargeoffs as a percent of average loans            0.06 %             (0.04 )%            0.03 %              0.11 %
Total 90+ days past due as a percent of net
loans                                                   0.38 %              0.40 %             0.38 %              0.40 %
Per share data:
Basic earnings per common share (9)            $        0.19$        0.15$        0.55$        0.35
Diluted earnings per common share (9)                   0.19                0.15               0.55                0.35
Book value per common share (10)                        6.13                5.87               6.13                5.87
Tangible book value per common share (11)               5.65                5.38               5.65                5.38
Cash dividend per common share                         0.070               0.040              0.190               0.100
Dividend payout ratio (12)                             36.84 %             26.54 %            34.48 %             28.79 %




Notes:

1. Ratios for the three and nine 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


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                           Forward-Looking Statements

When used in this Form 10-Q or other materials we have filed or may file with
the Securities and Exchange Commission, 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 and Item 1A
in our Annual Report on Form 10-K for the year ended December 31, 2017 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 September 30, 2018 and December 31,

                                      2017

Cash and cash equivalents increased $7.4 million from December 31, 2017 to September 30, 2018. The increase was primarily due to additional fed funds sold that were on hand at September 30, 2018 offset by less cash held in the branches.


Available for sale securities decreased $28.5 million during the first nine
months of 2018. The decrease in the available for sale securities balance since
December 31, 2017 was mainly the result of pay downs, amortization of
premiums/discounts on the securities and sales totaling $10.4 million. The sales
were completed to provide additional liquidity for lending activity. In
addition, the unrealized loss in the available for sale portfolio was $1.1
million at December 31, 2017, compared to a net unrealized loss of $10.3 million
at September 30, 2018. The increase in interest rates during 2018 impacted the
change in unrealized losses.

Held to maturity securities declined $4.2 million to $78.7 million at September
30, 2018 compared to December 31, 2017. This change was primarily the result of
pay downs and the amortization of premiums/discounts on the securities.

Net loans increased $149.1 million to $2.1 billion during the first nine months
of 2018 primarily as a result of growth in the commercial loan
portfolio. Commercial loan balances were $931.8 million at September 30, 2018
compared to $822.6 million at December 31, 2017.  Residential one-to four-family
mortgage loans increased $29.0 million during the last nine months and consumer
loan balances increased $9.6 million for the same period. 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 $21.3 million at September 30, 2018,
up from $21.2 million reported at December 31, 2017.  The increase in the
allowance was primarily driven by the increase in loan balances. The allowance
for loan losses as a percentage of loans was 0.98% at September 30, 2018,
compared to 1.05% at December 31, 2017.

The allowance for loan losses as a percentage of nonperforming loans was 235.43%
at September 30, 2018, compared to 181.17% at December 31, 2017. 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
September 30, 2018, the Company evaluated 25 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, including purchase credit impaired loans, was $23.9
million at September 30, 2018 as compared to $27.4 million at December 31, 2017.

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.

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TDR loans aggregated $17.6 million at September 30, 2018 compared to $19.8
million at December 31, 2017. Of the $17.6 million at September 30, 2018, $15.6
million were performing loans according to their modified terms. The remaining
balance of TDR loans of $2.0 million were considered nonperforming.

Nonperforming loans consist of nonaccrual loans and loans past due 90 days and
still accruing. Nonperforming loans were $9.1 million, or 0.42% of loans, at
September 30, 2018, compared to $11.7 million, or 0.59% of loans, at
December 31, 2017.

Loans held for sale, carried at lower of cost or market, were $0 at September
30, 2018, compared to $211,000 at December 31, 2017. Loans held for sale,
carried at fair value, were $95.2 million at September 30, 2018, compared to
$83.5 million at December 31, 2017. The change was primarily due to increased
volume of construction loans. 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 $346,000 to $907,000
primarily due to sales exceeding acquisitions during the nine months ended
September 30, 2018. 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.

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 $1.3 million as other
non-interest income based on the change in cash value of the policies in the
nine months ended September 30, 2018 compared to $1.2 million for the nine
months ended September 30, 2017.

Total deposits increased $395.7 million from $2.0 billion at December 31, 2017,
to $2.4 billion at September 30, 2018. The increase in deposits is the result of
growth in customer deposits (excluding brokered certificates of deposits) which
totaled $136.5 million for the nine months ended September 30,
2018. Non-interest bearing customer deposits grew $28.6 million during the first
nine months of 2018 while interest bearing customer deposits grew $107.9
million. Growth in money market accounts and certificate of deposit balances
drove the majority of the increase in interest bearing deposits. Brokered
deposits grew by $259.3 million for the nine months ended September 30,
2018. Brokered CD balances were increased to take advantage of favorable pricing
relative to FHLB advances. Proceeds from this increase were used to pay down
FHLB advances.

FHLB advances decreased from $356.5 million at December 31, 2017 to $95.0 million at September 30, 2018. The change was primarily due to an increase in brokered deposit balances that were used to pay down FHLB advances.


Shareholders' equity increased $11.8 million to $306.0 million at September 30,
2018 from $294.3 million at December 31, 2017. The increase is primarily due to
the $27.6 million of net income earned during the period offset by dividends
paid to shareholders of $9.5 million. In addition, a negative change in
accumulated other comprehensive income of $7.1 million also offset the increase
due to earnings.

Book value per common share as of September 30, 2018 was $6.13 as compared to
$5.90 per common share as of December 31, 2017. 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

                   September 30, 2018 and September 30, 2017

Net Income. United Community recognized net income for the three months ended
September 30, 2018, of $9.5 million, or $0.19 per diluted common share compared
to net income of $7.6 million for the three months ended September 30, 2017, or
$0.15 per diluted share. The continued growth in net interest income from higher
earning assets, strong credit metrics, a lower provision for loan loss allowance
along with a strong focus on expense control and change in tax law have all
contributed to the increase in net income.

                                       62

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Net Interest Income. Net interest income was $21.6 million in the third quarter
of 2018 up from the $20.5 million recorded in the third quarter of 2017. The
growth of interest earning assets drove this increase offset by a 12 basis point
decline in the net interest margin. Net interest margin was 3.33% for the third
quarter of 2018 compared to 3.45% in the third quarter of 2017. The net interest
margin was positively impacted in the third quarter of 2017 by the recognition
of additional purchase accounting accretion related to the acquisition completed
in the first quarter of 2017. The yield on interest earning assets increased 22
basis points year over year driven by an increase in the yield on net loans of
20 basis points. The yield on loans increased due to increases in market rates
and the subsequent repricing of floating and adjustable rate loans. The yield on
securities was down 13 basis points compared to a year ago due to the passage of
the Tax Cuts and Jobs Act of 2017 in December 2017 which negatively impacts the
yield on tax exempt securities in 2018.

Interest income increased by $3.6 million in the third quarter of 2018 compared
to the same period in 2017, to $27.7 million from $24.0 million. The increase is
primarily a result of an increase in average earning assets of $204.3 million
along with the increase in the yield on average interest earning assets of 22
basis points. Average total loans, net increased $230.9 million in the third
quarter of 2018 compared to the same period in 2017 while average securities
declined $37.7 million during this same period. Interest income from total
loans, net increased to $25.3 million for the quarter ended September 30, 2018
compared to $21.6 million for the same period in 2017. Income from securities
decreased $213,000 for the quarter ended September 30, 2018 compared to the
quarter ended September 30, 2017.



Interest expense increased by $2.5 million in the third quarter of 2018 to $6.1
million compared to the same period in 2017. This increase was primarily due to
a $126.4 million increase in average interest-bearing liabilities due to growth
along with a 43 basis point increase in the cost of interest-bearing
liabilities. The increase in the cost of interest-bearing liabilities was
primarily due to increases in market rates. The cost of average interest-bearing
deposits increased 49 basis points to 106 basis points for the three months
ended September 30, 2018 from 57 basis points for the three months ended
September 30, 2017. The cost of average borrowed funds increased to 2.39% for
the quarter ending September 30, 2018 compared to 1.45% for the quarter ended
September 30, 2017.



                                                  For the Three Months Ended
                                                         September 30,
                                                         2018 vs. 2017
                                                   Increase                Total
                                               (decrease) due to         increase
                                              Rate          Volume      (decrease)
                                                    (Dollars in thousands)
       Interest earning assets:
       Loans                                $     995$  2,337$     3,332
       Loans held for sale                        139           243             382
       Securities:
       Available for sale-taxable                  15          (115 )          (100 )
       Available for sale-nontaxable             (111 )        (100 )          (211 )
       Held to maturity-taxable                     5           (55 )           (50 )
       Held to maturity-nontaxable                 (8 )          18              10
       Federal Home Loan Bank stock                38            (2 )            36
       Other interest earning assets               62            41             103
       Total interest earning assets        $   1,135$  2,367$     3,502
       Interest bearing liabilities:
       Interest bearing deposits:
       Savings accounts                     $       -      $     (1 )$        (1 )
       Checking accounts                          521            37             558
       Customer certificates of deposit           861           263           1,124
       Brokered certificates of deposit           342           795           1,137
       Federal Home Loan Bank advances:
       Long-term advances                          19             6              25
       Short-term advances                      2,476        (2,793 )          (317 )
       Repurchase agreements and other             (2 )          (2 )            (4 )
       Total interest bearing liabilities   $   4,217$ (1,695 )         2,522
       Change in net interest income                                    $       980




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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
$251,000 in the third quarter of 2018, compared to $721,000 in the third quarter
of 2017. The decrease in provision expense in the third quarter of 2018 was
primarily driven by improving credit quality.

Noninterest Income. Non-interest income was $6.1 million in the third quarter of
2018 compared to $6.3 million in the third quarter of 2017. The majority of the
difference between periods was due to a $279,000 change in mortgage banking
income. The decline in mortgage banking income was primarily due to competitive
conditions which compressed the Company's margin in this business unit even as
saleable origination volumes were greater. In addition, during the third quarter
of 2017, the Company recognized $236,000 in security gains compared to none in
the third quarter of 2018. Increases in fee income related to agency, brokerage,
debit card and trust helped to offset the declines in mortgage banking and
security gains.

Noninterest Expense. Non-interest expense increased to $15.8 million during the
third quarter of 2018 compared to $15.5 million during the third quarter of
2017. The increase is primarily due to normal increases in salaries and employee
benefits, higher financial institutions tax and legal and consulting fees offset
by declines in equipment and data processing and other expenses.

Income Taxes. During the three months ended September 30, 2018, the Company
recognized tax expense of $2.2 million on pre-tax income of $11.7 million,
compared to tax expense of $3.1 million on pre-tax income of $10.6 million for
the three months ended September 30, 2017.  The decline in tax expense was
primarily due to the reduction in the Company's tax rate to 21% from 35% due to
the passage of the Tax Cuts and Jobs Act of 2017 on December 22, 2017. See Note
15 to the consolidated financial statements for additional information regarding
the composition of income taxes.

      Material Changes in Results of Operations for the Nine Months Ended

                   September 30, 2018 and September 30, 2017

Net Income. United Community recognized net income for the nine months ended
September 30, 2018, of $27.6 million, or $0.55 per diluted common share compared
to net income of $17.3 million for the nine months ended September 30, 2017, or
$0.35 per diluted share. The results for the first nine months of 2017 were
negatively impacted by the recognition of $5.0 million of merger expense related
to the acquisition of OLCB. The continued growth in net interest income from
higher earning assets, reduced loan loss provision along with a strong focus on
expense control have all contributed to the increase in net income.

Net Interest Income. Net interest income was $64.5 million in the first nine
months of 2018 up from the $59.5 million recorded in the first nine months of
2017. The growth of interest earning assets drove this increase offset by a 2
basis point decline in the net interest margin. Net interest margin was 3.38%
for the first nine months of 2018 compared to 3.40% for the first nine months of
2017. The yield on interest earning assets increased 29 basis points year over
year driven by an increase in yield on net loans of 26 basis points. The yield
on loans increased due to increases in market rates and the subsequent repricing
of floating and adjustable rate loans. The yield on securities was down 8 basis
points compared to a year ago due to the passage of the Tax Cuts and Jobs Act of
2017 in December 2017 negatively impacting the yield on tax exempt securities in
2018.

Interest income increased by $11.7 million in the first nine months of 2018
compared to the same period in 2017, to $80.4 million from $68.7 million. The
increase is primarily a result of an increase in average earning assets of
$193.0 million along with an increase in the yield on average interest earning
assets of 29 basis points. Average total loans, net increased $262.1 million in
the first nine months compared to the same period in 2017 while average
securities declined $66.7 million during this same period. Interest income from
total loans, net increased to $73.2 million for the nine months ended September
30, 2018 compared to $60.7 million for the same period in 2017. Income from
securities decreased to $6.0 million for the nine months ended September 30,
2018 compared to $7.1 million for the nine months ended September 30, 2017.



                                       64

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Interest expense increased by $6.8 million in the first nine months of 2018 to
$16.0 million compared to the same period in 2017. This increase was primarily
due to a $117.2 million increase in average interest-bearing liabilities due to
growth along with a 41 basis point increase in the cost of interest-bearing
liabilities. The increase in the cost of interest-bearing liabilities was
primarily due to increases in market interest rates. The cost of average
interest-bearing deposits increased 40 basis points to 91 basis points for the
nine months ended September 30, 2018 from 51 basis points for the nine months
ended September 30, 2017. The cost of average borrowed funds increased to 2.10%
for the nine months ending September 30, 2018 compared to 1.22% for the nine
months ended September 30, 2017.



                                                   For the Nine Months Ended
                                                         September 30,
                                                         2018 vs. 2017
                                                   Increase               Total
                                              (decrease) due to          increase
                                               Rate        Volume       (decrease)
                                                    (Dollars in thousands)

Interest earning assets:

       Loans                                $    3,608$ 8,187$     11,795
       Loans held for sale                         212         507              719
       Securities:
       Available for sale-taxable                   67        (840 )           (773 )
       Available for sale-nontaxable              (321 )      (229 )           (550 )
       Held to maturity-taxable                     29        (178 )           (149 )
       Held to maturity-nontaxable                 (32 )        10              (22 )
       Federal Home Loan Bank stock                146           3              149
       Other interest earning assets               165         (13 )            152
       Total interest earning assets        $    3,874$ 7,447     $   

11,321

       Interest bearing liabilities:
       Interest bearing deposits:
       Savings accounts                     $        -     $    (5 )   $         (5 )
       Checking accounts                         1,308          68         

1,376

Customer certificates of deposit 2,004 841

2,845

       Brokered certificates of deposit            913         968          

1,881

       Federal Home Loan Bank advances:
       Long-term advances                          213          18              231
       Short-term advances                         773        (319 )            454
       Repurchase agreements and other             (10 )       (10 )            (20 )
       Total interest bearing liabilities   $    5,201$ 1,561

6,762

       Change in net interest income                                   $      4,559




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
$520,000 in the first nine months of 2018, compared to $3.0 million in the first
nine months of 2017. Provision expense in the first nine months of 2017 was
primarily driven by net charge-offs totaling $1.6 million while there has only
been $390,000 in net charge-offs during the first nine months of 2018. Improving
credit quality continues to drive the low levels of loan loss provision.

Noninterest Income. Non-interest income was $17.8 million in the first nine
months of 2018 compared to $18.8 million in the first nine months of 2017. The
primary driver of the decrease was mortgage banking income which was down $1.2
million year over year. The decrease was primarily due to margin compression
offset by increased saleable volume.

Noninterest Expense. Non-interest expense decreased to $47.9 million during the
first nine months of 2018 compared to $50.9 million during the first nine months
of 2017. The decrease is primarily due to $5.0 million in merger expense
incurred during the first quarter of 2017. Offsetting this was an increase in
salaries and employee benefits expense of $1.6 million.

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Income Taxes. During the nine months ended September 30, 2018, the Company
recognized tax expense of $6.2 million on pre-tax income of $33.8 million,
compared to tax expense of $7.0 million on pre-tax income of $24.3 million for
the nine months ended September 30, 2017.  The increased pre-tax income
discussed above was the primary reason for the increased income tax offset by a
reduction in the Company's tax rate to 21% from 35% due to the passage of the
Tax Cuts and Jobs Act of 2017 on December 22, 2017. See Note 15 to the
consolidated financial statements for additional information regarding the
composition of income taxes.

                                   Liquidity

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


The principal source 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 September 30, 2018, approximately $757.8 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 September 30, 2018, United Community had total on-hand liquidity, defined as
cash and cash equivalents, unencumbered securities and additional FHLB borrowing
capacity, of $774.5 million.

                                       66
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                        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 September 30, 2018 and 2017. Average balance
calculations were based on daily balances.



                                                              For the Three Months Ended
                                                                     September 30,
                                                   2018                                        2017
                                    Average        Interest                     Average        Interest
                                  outstanding       earned/       Yield/      outstanding       earned/       Yield/
                                    balance          paid          rate         balance          paid          rate
                                                                (Dollars in thousands)
Interest earning assets:
Net loans (1)                     $  2,115,227$  24,031         4.54 %   $  1,906,786$  20,699         4.34 %
Loans held for sale                    111,295         1,264         4.51 %         88,854           882         3.97 %
Total loans, net                     2,226,522        25,295         4.54 %      1,995,640        21,581         4.33 %
Securities:
Available for sale-taxable             204,924         1,176         2.30 %        224,927         1,276         2.27 %
Available for sale-nontaxable
(2)                                     48,370           400         3.31 %         59,057           611         4.14 %
Held to maturity-taxable                67,979           374         2.20 %         77,947           424         2.18 %
Held to maturity-nontaxable (2)         12,215            86         2.82 %          9,239            76         3.29 %
Total securities                       333,488         2,036         2.44 %        371,170         2,387         2.57 %
Federal Home Loan Bank stock            19,160           289         6.03 %         19,324           253         5.24 %
Other interest earning assets           30,140           154         2.03 %         18,881            51         1.08 %
Total interest earning assets        2,609,310        27,774         4.26 %      2,405,015        24,272         4.04 %
Non-interest earning assets            177,553                                     185,773
Total assets                      $  2,786,863$  2,590,788
Interest bearing liabilities:
Deposits:
Checking accounts                 $    635,705         1,026         0.64 %   $    591,982           468         0.32 %
Savings accounts                       303,247            27         0.04 %        308,829            28         0.04 %
Certificates of deposit
Customer certificates of
deposit                                618,545         2,457         1.58 %        526,697         1,333         1.01 %
Brokered certificates of
deposit                                327,120         1,534         1.86 %        135,956           397         1.17 %
Total certificates of deposit          945,665         3,991         1.67 %        662,653         1,730         1.04 %
Total interest bearing deposits      1,884,617         5,044         1.06 %      1,563,464         2,226         0.57 %
Federal Home Loan Bank advances
Long-term advances                      48,976           413         3.35 %         48,212           388         3.22 %
Short-term advances                    120,880           610         2.00 %        310,152           927         1.20 %
Total Federal Home Loan Bank
advances                               169,856         1,023         2.39 %        358,364         1,315         1.47 %
Repurchase agreements and other            213             -         0.25 %          6,483             4         0.25 %
Total borrowed funds                   170,069         1,023         2.39 %        364,847         1,319         1.45 %
Total interest bearing
liabilities                       $  2,054,686         6,067         1.17 %   $  1,928,311         3,545         0.74 %
Non-interest bearing
liabilities
Noninterest-bearing deposits           382,044                                     337,067
Other noninterest-bearing
liabilities                             39,075                                      35,576
Total noninterest bearing
liabilities                            421,119                                     372,643
Total liabilities                 $  2,475,805$  2,300,954
Shareholders' equity                   311,058                                     289,834
Total liabilities and equity      $  2,786,863$  2,590,788
Net interest income and
interest rate spread                               $  21,707         3.09 %                    $  20,727         3.30 %
Net interest margin                                                  3.33 %                                      3.45 %
Average interest earning assets
to average interest
  bearing liabilities                                              126.99 %                                    124.72 %



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

(2) Yields are on a fully taxable equivalent basis.

                                       67

--------------------------------------------------------------------------------



                                                               For the Nine Months Ended
                                                                     September 30,
                                                   2018                                        2017
                                    Average        Interest                     Average        Interest
                                  outstanding       earned/       Yield/      outstanding       earned/       Yield/
                                    balance          paid          rate         balance          paid          rate
                                                                (Dollars in thousands)
Interest earning assets:
Net loans (1)                     $  2,072,592$  70,066         4.51 %   $  1,826,175$  58,271         4.25 %
Loans held for sale                     94,716         3,134         4.42 %         79,050         2,415         4.07 %
Total loans, net                     2,167,308        73,200         4.50 %      1,905,225        60,686         4.25 %
Securities:
Available for sale-taxable             208,030         3,584         2.30 %        256,742         4,357         2.26 %
Available for sale-nontaxable
(2)                                     51,249         1,301         3.38 %         59,208         1,851         4.17 %
Held to maturity-taxable                70,321         1,194         2.26 %         80,785         1,343         2.22 %
Held to maturity-nontaxable (2)         10,913           227         2.77 %         10,499           249         3.16 %
Total securities                       340,513         6,306         2.47 %        407,234         7,800         2.55 %
Federal Home Loan Bank stock            19,269           843         5.83 %         19,186           694         4.82 %
Other interest earning assets           25,511           323         1.69 %         27,934           171         0.82 %
Total interest earning assets        2,552,601        80,672         4.21 %      2,359,579        69,351         3.92 %
Non-interest earning assets            176,208                                     177,643
Total assets                      $  2,728,809$  2,537,222
Interest bearing liabilities:
Deposits:
Checking accounts                 $    626,766         2,661         0.57 %   $    596,820         1,285         0.29 %
Savings accounts                       304,711            80         0.04 %        306,422            85         0.04 %
Certificates of deposit
Customer certificates of
deposit                                602,961         6,417         1.42 %        500,139         3,572         0.95 %
Brokered certificates of
deposit                                219,490         2,773         1.69 %        122,940           892         0.97 %
Total certificates of deposit          822,451         9,190         1.49 %        623,079         4,464         0.96 %
Total interest bearing deposits      1,753,928        11,931         0.91 %      1,526,321         5,834         0.51 %
Federal Home Loan Bank advances
Long-term advances                      48,794         1,337         3.66 %         48,019         1,106         3.07 %
Short-term advances                    207,121         2,682         1.73 %        314,467         2,228         0.94 %
Total Federal Home Loan Bank
advances                               255,915         4,019         2.10 %        362,486         3,334         1.23 %
Repurchase agreements and other            207             -         0.25 %          4,079            20         0.65 %
Total borrowed funds                   256,122         4,019         2.10 %        366,565         3,354         1.22 %
Total interest bearing
liabilities                       $  2,010,050        15,950         1.06 %   $  1,892,886         9,188         0.65 %
Non-interest bearing
liabilities
Noninterest-bearing deposits           374,149                                     326,151
Other noninterest-bearing
liabilities                             39,876                                      36,019
Total noninterest bearing
liabilities                            414,025                                     362,170
Total liabilities                 $  2,424,075$  2,255,056
Shareholders' equity                   304,734                                     282,166
Total liabilities and equity      $  2,728,809$  2,537,222
Net interest income and
interest rate spread                               $  64,722         3.15 %                    $  60,163         3.27 %
Net interest margin                                                  3.38 %                                      3.40 %
Average interest earning assets
to average interest
  bearing liabilities                                              126.99 %                                    124.66 %



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

(2) Yields are on a fully taxable equivalent basis.

                                       68

--------------------------------------------------------------------------------

© Edgar Online, source Glimpses

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