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Ask the Investor: Is United Community Financial well positioned for growth after the acquisition of Premier Bank & Trust (a.k.a. Ohio Legacy)?

By: Ryan T. Fulmer
Sunday, April 2, 2017

Last September, Ohio Legacy Corporation, the bank holding company for Premier Bank & Trust, was purchased by United Community Financial (UCFC), headquartered in Youngstown, Ohio but with a wide geographic footprint that includes branches and loan production offices in Sandusky, Pittsburgh, and Columbus.
In past Ask the Investor articles, I have written about bank consolidation and the impact on our local community. Without researching too much, I can easily point to the FirstMerit/Huntington, KeyBank/First Niagara, Ohio Legacy/United Community, and Farmers National Bancorp/ Monitor Bancorp mergers.
The next question often asked is why are banks consolidating so rapidly?
After the great recession, regulators and politicians announced many new rules that were supposed to prevent another banking crisis. Unfortunately, complying with these new procedures has increased costs for smaller banks disproportionately compared to larger banks.
As a result, board rooms across the country and soon-to-be-retiring management teams are looking at the horizon and viewing a sale as perhaps the best way to maximize shareholder interests.
Based on company filings, United Community Financial was attracted to Premier Bank & Trust due to their lending presence in the Canton-Akron area and meaningful deposit market share. United Community will also gain access to the coveted wealth management and trust space once again, as they sold Butler Wick in 2008 to help offset losses in their loan portfolio.
Before the acquisition, UCFC had about $1.4 billion in loans, and Premier had $274 million. Approximately 55% of United’s loan portfolio consists of plain vanilla 1-4 family mortgages, which is a concentration for a bank. On a pro-forma basis, 1-4 family mortgages should decrease to about 50% of loans due to Premier Bank’s commercial lending concentration at ~53% of loans. 
The combined United Community commercial real estate mix will improve to about 16% (from 13% before the merger) of total loans and will help improve the asset sensitivity of the combined franchise as interest rates rise.
Over the last several years, United Community Financial has been able to improve profitability through loan growth and improved asset quality. In 2013, the bank had elevated problem loans (non-performing assets) of 3.25% of all assets--a relatively high figure compared to other institutions. Many of these lingering problem assets and foreclosure-related expenses have now rolled off, and as a result, profitability has improved.
In the fourth quarter of 2016, reported tangible book value (or liquidation value) was $5.32, and the stock was trading around $8.30 per share (or a price-to-tangible-book-value ratio of about 155%--or about in line to slightly less expensive than peer banks).
The acquisition of Premier Bank & Trust will grow United’s footprint in Canton, while providing additional scale, which should result in accelerating earnings growth.
Source: Company filings

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