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| UCBA > SEC Filings for UCBA > Form 10-Q on 15-Feb-2013 | All Recent SEC Filings |
15-Feb-2013
Quarterly Report
Forward-Looking Statements
This report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to, general economic conditions, changes in the interest rate environment, legislative or regulatory changes that may adversely affect our business, changes in accounting policies and practices, changes in competition and demand for financial services, adverse changes in the securities markets, changes in deposit flows, and changes in the quality or composition of the Company's loan or investment portfolios. Additionally, other risks and uncertainties may be described in the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission on September 7, 2012, which is available through the SEC's website at www.sec.gov. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake the responsibility, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.
Critical Accounting Policies
We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider the following to be our critical accounting policies: the allowance for loan losses and the valuation of deferred income taxes.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is the amount estimated by management as necessary to cover probable credit losses in the loan portfolio at the statement of financial condition date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impacted loans; and value of collateral. Inherent loss factors are then applied to the remaining loan portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance on a quarterly basis and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors related to the collectibility of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the Office of the Comptroller of the Currency ("OCC"), as an integral part of its examination process, periodically reviews our allowance for loan losses. Such agency may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect earnings. For additional discussion, see notes 11 and 12 of the Notes to the Consolidated Financial Statements included in Item 8 of the Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 7, 2012.
DEFERRED INCOME TAXES - We use the asset and liability method of accounting for income taxes as prescribed in Accounting Standards Codification ("ASC") 740-10-50. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. A valuation allowance would result in additional income tax expense in the period, which would negatively affect earnings. The Company applies the provisions of ASC 275-10-50-8 to account for uncertainty in income taxes. The Company had no unrecognized tax benefits as of December 31, 2012 and June 30, 2012. The Company recognized no interest and penalties on the underpayment of income taxes during the three and six month periods ended December 31, 2012 and 2011, and had no accrued interest and penalties on the balance sheet as of December 31, 2012 and June 30, 2012. The Company has no tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase with the next twelve months. The Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for tax years before the fiscal year ended June 30, 2009.
Comparison of Financial Condition at December 31, 2012 and June 30, 2012
Balance Sheet Analysis
Total assets were $516.7 million at December 31, 2012, compared to $495.9 million at June 30, 2012. Total assets increased $20.8 million, or 4.2%, primarily as a result of a $10.3 million increase in cash and a $26.9 million increase in investment securities, partially offset by a $16.5 million decrease in loans. The increase in cash is primarily due to subscription funds held in escrow at the Bank at December 31, 2012 in connection with our previously announced conversion from the mutual holding company form of organization to the stock holding company form on January 9, 2013. The increase in our investment securities was the result of purchases of mortgage-backed securities. The decrease in loans was primarily the result of payoffs aggregating $8.0 million for performing commercial real estate loans in addition to transfers to REO totaling $2.3 million during the six month period ending December 31, 2012.
Total liabilities were $438.5 million at December 31, 2012, compared to $440.9 million at June 30, 2012. Additionally, commitments and contingencies totaled $22.9 million at December 31, 2012 as a result of subscription funds received in conjunction with the aforementioned conversion. There was no recorded balance in commitments and contingencies at June 30, 2012.
Total stockholders' equity was $55.3 million at December 31, 2012, compared to $55.0 million at June 30, 2012. The increase was primarily the result of net income of $1.2 million for the six months ended December 31, partially offset by dividends paid of $812,000 during the six month period. As previously announced, the Company suspended the payment of dividends as a result of the cost and uncertainty associated with United Community MHC's ability to waive receipt of the Company's dividends. This cost and uncertainty was due to the Federal Reserve Board requirement that a "grandfathered" mutual holding company, like United Community MHC, obtain member (depositor) approval and comply with other procedural requirements prior to waiving dividends, which would make dividend waivers impracticable. Accordingly, on August 31, 2012, the Company paid a cash dividend to all stockholders, including United Community MHC, for the quarter ended June 30, 2012, which totalled $812,000, including $512,000 paid to United Community MHC.
Loans. At December 31, 2012, one- to four- family residential loans totaled $135.0 million, or 49.7% of total gross loans, compared to $139.5 million, or 48.4% of total gross loans, at June 30, 2012. The reduction in the one- to four-family residential portfolio during the 2012 period was primarily due principal repayments coupled with our strategy of selling in the secondary market newly-originated fixed-rate loans with terms longer than 10 years.
Multi-family and nonresidential real estate loans totaled $89.0 million and represented 32.8% of total loans at December 31, 2012, compared to $101.4 million, or 35.2% of total loans, at June 30, 2012. The decrease was primarily attributable to the repayment of one nonresidential real estate loan totaling $1.8 million and two multi-family real estate loans totaling $4.0 million.
The following table sets forth the composition of our loan portfolio at the dates indicated.
At December 31, At June 30,
2012 2012
Amount Percent Amount Percent
(Dollars in thousands)
Residential real estate:
One- to four-family $ 135,049 49.7 % $ 139,522 48.4 %
Multi-family 34,641 12.8 42,325 14.7
Construction 771 0.3 1,189 0.4
Nonresidential real estate 54,357 20.0 59,123 20.5
Land 3,589 1.3 3,441 1.2
Commercial business 3,858 1.4 3,854 1.3
Agricultural 3,263 1.2 3,150 1.1
Consumer:
Home equity 31,610 11.6 31,242 10.9
Auto 1,703 0.7 1,820 0.6
Share loans 1,546 0.6 1,200 0.4
Other 1,181 0.4 1,333 0.5
Total consumer loans 36,040 13.3 35,595 12.4
Total loans $ 271,568 100.0 % $ 288,199 100.0 %
Less (plus):
Deferred loan costs, net (998 ) (924 )
Undisbursed portion of loans in process 172 355
Allowance for loan losses 5,710 5,614
Loans, net 266,684 $ 283,154
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Loan Maturity
The following table sets forth certain information at December 31, 2012 regarding the dollar amount of loan principal repayments becoming due during the periods indicated. The table does not include any estimate of prepayments, which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from the contractual requirements shown below. Demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less.
More Than
Less Than One Year to More Than Total
One Year Five Years Five Years Loans
(in thousands)
One- to four-family residential real estate $ 7,943 $ 31,028 $ 96,078 $ 135,049
Multi-family real estate 4,733 4,674 25,234 34,641
Construction 771 - - 771
Nonresidential real estate 6,965 17,442 29,950 54,357
Land 991 1,400 1,198 3,589
Commercial 1,400 1,359 1,099 3,858
Agricultural 306 1,117 1,840 3,263
Consumer 5,970 1,921 28,149 36,040
Total $ 29,079 $ 58,941 $ 183,548 $ 271,568
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The following table sets forth the dollar amount of all loans at December 31, 2012 due after December 31, 2013 that have either fixed interest rates or adjustable interest rates. The amounts shown below exclude unearned interest on consumer loans and deferred loan fees.
Fixed Floating or
Rates Adjustable Rates Total
(in thousands)
One- to four-family residential real estate $ 39,330 $ 87,776 $ 127,106
Multi-family real estate 1,738 28,170 29,908
Construction - - -
Nonresidential real estate 9,119 38,273 47,392
Land 343 2,255 2,598
Commercial 563 1,895 2,458
Agricultural 455 2,502 2,957
Consumer 1,842 28,228 30,070
Total $ 53,390 $ 189,099 $ 242,489
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Loan Activity
The following table shows loan origination, repayment and sale activity during the periods indicated.
Six Months Ended Three Months Ended
December 31, December 31,
2012 2011 2012 2011
(in thousands)
Total loans at beginning of period $ 288,199 $ 290,834 $ 277,169 $ 288,199
Loans originated (1):
One- to four-family residential real
estate 18,522 12,882 8,886 10,276
Multi-family residential real estate 88 138 88 138
Construction 471 351 - -
Nonresidential real estate 3,482 - 3,430 -
Land 640 58 640 -
Commercial business 524 25 133 -
Consumer 4,602 985 1,470 436
Total loans originated 28,329 14,439 14,647 10,850
Deduct:
Loan principal repayments 31,583 7,756 2,075 4,991
Loans originated for sale 13,377 6,900 6,838 3,441
Net loan activity (16,631 ) (217 ) (5,601 ) 2,418
Total loans at end of period $ 271,568 $ 290,617 $ 271,568 $ 290,617
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(1) Includes loan renewals, loan refinancings and restructured loans.
Results of Operations for the Three Months and Six Months Ended December 31, 2012 and 2011
Overview. Net income decreased $16,000 to $696,000 for the quarter ended December 31, 2012, compared to net income of $712,000 for the quarter ended December 31, 2011. Net income stayed flat at $1.2 million for the six months ended December 31, 2012 and 2011.
Net Interest Income. The following table summarizes changes in interest income and interest expense for the three and six months ended December 31, 2012 and 2011.
Three Months Ended Six Months Ended
December 31, % December 31, %
2012 2011 Change 2012 2011 Change
(Dollars in thousands)
Interest income:
Loans $ 3,323 $ 3,999 (16.9 )% $ 6,773 $ 7,897 (14.2 )%
Investment and mortgage
backed securities 776 698 11.2 1,548 1,484 4.3
Other interest-earning
assets 4 3 33.3 7 6 16.7
Total interest income 4,103 4,700 (12.7 ) 8,328 9,387 (11.3 )
Interest expense:
NOW and money market
deposit accounts 70 130 (46.2 ) 197 305 (35.4 )
Passbook accounts 98 61 60.7 202 129 56.6
Certificates of deposit 676 854 (20.8 ) 1,401 1,749 (19.9 )
Total interest-bearing
deposits 844 1,045 (19.2 ) 1,800 2,183 (17.5 )
FHLB advances 45 12 275.0 92 26 253.8
Total interest expense 889 1,057 (15.9 ) 1,892 2,209 (14.4 )
Net interest income $ 3,214 $ 3,643 (11.8 ) $ 6,436 $ 7,178 (10.3 )
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Net interest income decreased $429,000, or 11.8%, to $3.2 million for the quarter ended December 31, 2012 as compared to $3.6 million for the quarter ended December 31, 2011. The decrease of $597,000 in interest income was partially offset by a $168,000 decrease in interest expense. The decrease in interest income was the result of a decrease in the average interest rate earned on loans from 5.60% to 4.94%, a $16.4 million decrease in the average balance of loans and a decrease in the average rate earned on investments from 2.16% to 1.81%, partially offset by a $42.2 million increase in the average balance of investments. The decrease in interest expense was primarily the result of a decrease in the average interest rate paid on deposits from 1.01% to 0.78%, partially offset by a $17.0 million increase in the average balance of outstanding deposits and a $9.0 million increase in the average balance of outstanding advances from the Federal Home Loan Bank.
Net interest income decreased $742,000, or 10.3%, to $6.4 million for the six months ended December 31, 2012 as compared to $7.2 million for the six months ended December 31, 2011. The decrease of $1.1 million in interest income was partially offset by a $317,000 decrease in interest expense. The decrease in interest income was the result of a decrease in the average interest rate earned on loans from 5.54% to 4.96%, a $12.3 million decrease in the average balance of loans and a decrease in the average rate earned on investments from 2.28% to 1.90%, partially offset by a $32.9 million increase in the average balance of investments. The decrease in interest expense was primarily the result of a decrease in the average interest rate paid on deposits from 1.06% to 0.84%, partially offset by a $16.0 million increase in the average balance of outstanding deposits and a $9.0 million increase in the average balance of outstanding advances from the Federal Home Loan Bank. Changes in interest rates are reflective of decreases in overall market rates.
The following table summarizes average balances and average yields and costs of interest-earning assets and interest-bearing liabilities for the three and six months ended December 31, 2012 and 2011. For the purposes of this table, average balances have been calculated using month-end balances, and nonaccrual loans are included in average balances only. Yields are not presented on a tax equivalent basis.
Three Months Ended December 31, Six Months Ended December 31,
2012 2011 2012 2011
Interest Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost
(Dollars in thousands)
Assets:
Interest-earning
assets:
Loans $ 269,073 $ 3,323 4.94 % $ 285,480 $ 3,999 5.60 % $ 272,961 $ 6,773 4.96 % $ 285,216 $ 7,897 5.54 %
Investment and
mortgage backed
securities 171,270 776 1.81 129,101 698 2.16 162,811 1,548 1.90 129,916 1,484 2.28
Other interest-earning
assets 27,502 4 0.06 20,904 3 0.06 28,946 7 0.05 21,913 6 0.05
467,845 4,103 3.51 435,485 4,700 4.32 464,718 8,328 3.58 437,045 9,387 4.30
Noninterest-earning
assets 37,078 37,491 36,791 35,833
Total assets $ 504,923 $ 472,976 $ 501,509 $ 472,878
Liabilities and
stockholders' equity:
Interest-bearing
liabilities:
NOW and money market
deposit accounts (1) 160,754 70 0.17 144,690 130 0.36 158,477 197 0.25 145,263 305 0.42
Passbook accounts (1) 81,994 98 0.48 70,919 61 0.34 81,611 202 0.50 70,776 129 0.36
Certificates of
deposit (1) 187,456 676 1.44 197,575 854 1.73 188,942 1,401 1.48 196,984 1,749 1.78
Total interest-bearing
deposits 430,204 844 0.78 413,184 1,045 1.01 429,030 1,800 0.84 413,023 2,183 1.06
FHLB advances 10,458 45 1.72 1,458 12 3.29 10,583 92 1.74 1,583 26 3.28
Total interest-bearing
liabilities 440,662 889 0.81 414,642 1,057 1.02 439,613 1,892 0.86 414,606 2,209 1.07
Noninterest bearing
liabilities,
commitments and
contingencies 8,818 3,741 6,585 3,794
Total liabilities,
commitments and
contingencies 449,480 418,383 446,198 418,400
Stockholders' equity 55,443 54,593 55,311 54,478
Total liabilities and
stockholders' equity $ 504,923 $ 472,976 $ 501,509 $ 472,878
Net interest income $ 3,214 $ 3,643 $ 6,436 $ 7,178
Interest rate spread 2.70 % 3.30 % 2.72 % 3.23 %
Net interest margin
(annualized) 2.75 % 3.35 % 2.77 % 3.28 %
Average
interest-earning
assets to average
interest-bearing
liabilities 106.17 % 105.03 % 105.71 % 105.41 %
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1) Includes municipal deposits
Provision for Loan Losses.The provision for loan losses was $225,000 for the quarter ended December 31, 2012, compared to $681,000 for the same quarter in the prior year, representing a decrease of $456,000 or 67.0%. The provision for loan losses was $475,000 for the six months ended December 31, 2012, compared to $1.6 million for the same period in the prior year, a decrease of $1.1 million or 69.9%. The decreases in the loan loss provision was primarily due to a decrease in impairment charges in multi-family real estate loans in the three and six months ended December 31, 2012 as compared to the three and six months ended December 31, 2011.
Other Income. The following table summarizes other income for the three and six months ended December 31, 2012 and 2011.
Three Months Ended Six Months Ended
December 31, December 31,
2012 2011 % Change 2012 2011 % Change
(Dollars in thousands)
Service charges $ 629 $ 621 1.3 % $ 1,250 $ 1,260 (0.8 )%
Gain on sale of
loans 284 130 118.5 532 213 149.8
Gain on sale of
investments 263 327 (19.6 ) 263 563 (53.3 )
Loss on sale of
other real
estate owned 40 2 1,900.0 47 2 2,250.0
Income from Bank
Owned Life
Insurance 82 64 28.1 217 131 65.6
Other 69 61 13.1 125 162 (22.8 )
Total $ 1,367 $ 1,205 13.4 $ 2,434 $ 2,331 4.4
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