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United Community Financial (NASDAQ:UCFC)
Q2 2018 Earnings Conference Call
Jul. 18, 2018 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the United Community Financial Corporation second-quarter 2018 earnings conference call. [Operator instructions] Please note, this event is being recorded. At this time, I would like to turn the conference over to Tim Esson, executive vice president and chief financial officer. Please go ahead, sir.

Tim Esson -- Executive Vice President and Chief Financial Officer.

Good morning, and thank you for participating in today's conference call. As always, before we begin, I would like to refer you to the company's forward-looking statements and risk factors that appear on the screen in front of you. Additionally, the risk factors can be found at our Investor Relations website, ir.ucfconline.com. This statement provides the standard cautionary language required by the Securities and Exchange Commission for forward-looking statements that may be included in today's call.

Also, a copy of the second quarter earnings release can be obtained at the same website. With that said, I would now like to introduce Gary Small, President and CEO of both UCFC and Home Savings.

Gary Small -- President and Chief Executive Officer

Thanks, Tim, and welcome to all. Thank you for joining us this morning. Let me say we are pleased with our second quarter results, $9.5 million net income and $0.19 per share. Second-quarter financial performance was right on par with our expectations for the quarter, and we continue to run a bit ahead of our earnings expectations on a year-to-date basis.

Loan and deposit growth continues to drive our performance. Excellent loan growth, combined with strong credit performance, is assisting in addressing near-term challenges presented by an uneven residential mortgage market, which we'll discuss later and the impacts of an aggressively flattening yield curve. Second quarter reflected excellent performance by our largest business groups. Commercial banking growth continues to be a strength and C&I activity is really picking up nicely.

Again, Matt will touch on that a bit later. Consumer banking continues to expand, delivering excellent deposit balance growth. The wealth management team's performance is right on target with private banking generating $25 million in new deposits since the beginning of the year. And the residential mortgage team has been delivering above industry origination activity in a very, very tight residential mortgage market.

Overall loans market. Overall loan growth is up 12.9% over the past 12 months and that's ahead of our original expectations by 1% or 2%, and again, led by commercial banking. Customer deposits, excluding broker deposits, are up over 10% over the last 12 months, certainly meeting our goals. Home Savings is well-funded as we head into the second half of the year.

We ended the period with a 98% loan-to-deposit ratio when you exclude the AFS portfolio and that's about a 4% improvement over where we were at year end. That figure will fluctuate as we move interchangeably between broker deposits and federal home loan bank borrowings to take advantage of lowering cost funding opportunities and so forth. Credit stats continue to be accrued for the quarter. Delinquencies are down 14%, nonperforming loans are down 11%, our ALLL to nonperforming loans improved and were just shy of 200% right now.

The economy shows relative strength. Our consumer households are really doing well. Evidence of that, our residential mortgage net charge-offs are only 2 basis points for the year. Expenses are very well managed as expected, and we continue to expect that over the remainder of the year.

The employment picture here in Northeast Ohio continues to improve along with the national market, but we are not experiencing undue wage pressure at this point. From a capital perspective, I'll offer the following. We did spend a lot of time over the last quarter evaluating our options. And obviously, we're well-capitalized in the discussions we've had in the prior calls.

And we've really made the decision to continue to use our well-capitalized position to support future growth and our M&A aspirations and continue to evaluate that on an ongoing basis. We do have a healthy respect for our tangible book value and the earned back relative to that, and we balance that against EPS pickups that are available, and so forth. Having said that, we have a range relative to price that if we see in the market will be opportunistic on buying back, but we do not have an aggressive buyback plan in play for the remainder of the year. And as anything on that front develops, we'll certainly let you know.

The $0.07 a share dividend that we moved to this quarter is reflective of information I think we provided back at the beginning of the year. As I said, we'll be looking at 35%-plus payout ratios. I think that certainly tracks with that and speaks to our confidence and our ability to perform at that level on a go-forward basis. With that, I'll turn it over to Matt Garrity to provide some more color on the commercial residential mortgage and credit activity. Matt?

Matt Garrity -- Executive Vice President, Commercial Lending and Credit Administration

Thanks, Gary. As Gary mentioned, our commercial business produced another solid quarter of overall performance, as we added 35 new commercial relationships and 34 treasury management relationships during the second quarter. Commercial portfolio growth was about 3.2% during the quarter with year-to-date portfolio growth of 9.5% in the commercial business. I would note that we began to experience the planned payoff activity during the second quarter that we had communicated on previous calls.

And without that level of payoff activity, growth for the second quarter would have looked more like our first-quarter growth. Also of note is that our origination mix for the second quarter, which made up of 47% commercial and industrial production with year-to-date 2018 C&I production of 41%. C&I now represents over 24% of our commercial portfolio with solid momentum in the segment. While the competitive environment in the commercial segment remains challenging both in terms of rate and structure, we remain pleased with our pipeline levels.

For the balance of the year, we remain comfortable with our previously disclosed guidance of 12% to 15% portfolio growth for the full year 2018, as we expect heightened levels of planned payoff activity during the third and fourth quarters. In our mortgage business, originations during the second quarter of 2018 increased by over 25% compared to the first quarter of 2018 and increased over 17% when compared to the second quarter of 2017. Balances remain relatively flat consistent with our strategy to focus on our mix of saleable originations. As we mentioned on the last quarter's call, market conditions remain very competitive and continue to impact mortgage banking income across the industry.

For the second quarter of 2018, mortgage banking income declined by 11.3% compared to the first quarter of 2018 and for the first half of 2018, declined 25.5% when compared to the first half of 2017. While we expect the second half of 2018 to show improved mortgage banking income compared to the first half of the year, we are not planning on the competitive environment to change the remainder of this year. While mortgage banking income has been a headwind across the industry, our long-term view for the business remains positive, and we remain committed to it long term. We are pleased that we've been able to address the industry softness and other portions of our mortgage model by achieving greater operating efficiencies, reducing year-over-year noninterest expense, strong credit performance, and improved yield.

Consumer lending continued to perform well during the second quarter with our core retail portfolio growing approximately 2.3% during the period. Asset quality continues to perform exceptionally well. Nonperforming loan levels improved by over 11% in the second quarter compared to the first quarter, while nonperforming asset levels improved by over 10% during the same period. Our delinquency percentage for the second quarter was excellent, improving by over 17% compared to the first quarter.

There were virtually no charge-offs to speak of during the quarter. With that said, we still maintain a strong level of loan loss allowance at 115% of total loans when adjusted for purchase accounting marks and a ratio of allowance nonperforming loans of over 198%. Our outlook for asset quality remains stable.I would now like to turn the call over to Tim Esson, who will discuss our financial performance in greater detail.

Tim Esson -- Executive Vice President and Chief Financial Officer.

Thank you, Matt. Let me start by reiterating Gary's opening comments that Q2 demonstrated solid performance numbers, along with very positive growth in both loans and deposits, in addition to outstanding credit performance and tight expense management. As anticipated, the results for the quarter are running ahead of plan at $0.19 per share on a fully diluted basis. Matt provided commentary regarding the various sectors of loans, commercial, mortgage, and consumer.

Now let's touch briefly on the total portfolio. During Q2, we saw the total loan portfolio, including loans held-for-sale, increase $67.7 million or about 3%. As has been our plan for the last several years, commercial loan growth dominated the increase. Asset quality remains outstanding at the end of the quarter with measures of asset quality, delinquency, nonperforming, and classified loans trending positively.

And looking further at the balance sheet, average customer deposit growth, which excludes broker deposits, was 2.2% during Q2 and 10.1% over the last 12 months. Aiding in that growth was an increase in average noninterest-bearing deposits, which increased 12.7% over the past 12 months. Also in the same time period, we saw an increase in business deposits of 16.6%. Competition is becoming more intense, which could limit some of the growth moving forward, but we still expect to see strong growth in core deposits.

As far as cost of customer deposits is concerned, we did see an increase of 10 basis points during the quarter and anticipate this cost will continue to increase for the remainder of '18, but at a slower pace. Net interest income continues to hold steady at approximately $21.5 million on a fully tax equivalent basis for Q2 compared to $21.2 million the previous quarter. The change we have seen quarter over quarter in the margin is essentially attributable to three items: first, a one-time prepayment penalty on a commercial loan in the first quarter of '18 increased the margin five basis points; secondly, purchase accounting adjustments were two basis points less favorable to the margin compared to the first quarter; lastly, the remaining four basis points difference is the result of a 38 basis point increase in the class of federal home loan bank advances. While this accounts for the change, the significant point here is that we anticipate margin for the year to hold in the 340 range.

As we discussed earlier, asset quality remained strong. We did recognize the negative provision for loan losses of $138,000 in the quarter. Net charge-offs for the quarter were 1.3 basis points. The allowance for loan losses as compared to total loans was 1.01%.

This percentage increases to 1.15% when combining the remaining fair value adjustment of $3 million from loans acquired through acquisition last year. Continuing on, noninterest income was $5.9 million in Q2. While this level of performance is similar to Q1, we are below the same quarter last year by $1.2 million. Lower mortgage banking income of $912,000 is the reason for the decrease. While we have seen the volume of mortgage loan production increase 17% over the prior year, industrywide competitiveness continues to negatively impact the margin on saleable loans.

While mortgage banking income accounts for the majority of the difference, we also saw the benefit of a one-time receipt of a VISA chip card rebate of $150,000 last year, along with greater security gains of $207,000 in the same time period. Noninterest expense was $15.5 million for the quarter. This level aligns with plan and meets our expectations. Important to note, going forward, we would anticipate noninterest expense to be less than $16 million per quarter on an average basis, or essentially about a set 3% increase over last year's level normalized.

This level of increase is consistent with the guidance we offered you at the beginning of the year. Our efficiency ratio remains constant at about 57.8%. One final comment regarding our effective tax rate. On an FTE basis, for the second quarter, the effective tax rate was 19.5%.

For the remaining of the year, we see the effective tax rate holding at this level. With that said, I'd now like to turn the call back to Gary Small.

Gary Small -- President and Chief Executive Officer

Thanks, again, Tim. To summarize, we remain comfortable with analysts' full-year performance estimates for the organization. However, I do anticipate a couple of changes in how we achieve the 2018 performance targets versus the guidance I provided back in January. We expect residential mortgage income related to gain on sale to underperform last year by about 20%.

Market pricing might correct itself by year end, but as Matt mentioned, we're not going to depend upon that. Improving credit metrics will contribute more favorably than originally expected. We foresee very little in the way of net charge-offs over the remainder of the year and the performance and mix of the portfolio continues to benefit the organization. So, expect less loan loss provision than originally forecasted under the original scenario. Our margin may be down 0.5% or a couple basis points for the year versus our initial expectation, but expect loan growth to offset the revenue difference.

We anticipate loan growth will continue to outperform original expectations. We characterize ourselves as interest rate neutral over a three-month or a full year time frame, but acknowledge we are slightly liability sensitive in the first 30 to 45 days following a rate move, and we certainly felt that with the move in June. It is worth noting to that end that we have $575 million in loans, LIBOR, prime-based and ARM resets that are set to reprice or finish repricing in July and August. So, all things being equal, the repricing on those loans would bring four basis points back to our margin.

Of course, there will be other movement in the marketplace, but it gives you some idea of the slight lag that we have on any rate change from month to month. Less visible activity over the course of the year, we continue to invest in our organization. We have a new consumer loan system coming on board, which will be a great thing for the clients and reduce our cost in the back room. We're refreshing our ATM fleet and that's a planned-on expense.

And we're investing in customer-based digital capabilities, that's both in terms of talent and technology. This will be a long-term play and our first foray in earnest into that area. So, all efforts are positioned to organize or bring the organization to better meet the needs of our growing client base and to improve our operating effectiveness going forward. So with that, I'll turn it over for questions. Back to you, operator.

Questions and Answers:

Operator

Thank you, Mr. Small. We will now begin the question-and-answer session. [Operator instructions] And your first question will come from Scott Siefers of Sandler O'Neill and Partners.

Scott Siefers -- Sandler O'Neill & Partners -- Analyst

Good morning, guys.

Gary Small -- President and Chief Executive Officer

Good morning, Scott.

Scott Siefers -- Sandler O'Neill & Partners -- Analyst

Gary, I was just hoping for a little additional clarification on margin. I think in Tim's comments he had said still comfortable with 340 for the year. Then you had suggested in your remarks, maybe margin a little weaker than you had thought, but additionally though it sounds like maybe we get a little pickup from the lag repricing effect. I guess, just if you put all these things together, is the margin outlook from the second quarter base sort of flat to potentially the applicable basis points when you sort of aggregate all the puts and takes?

Gary Small -- President and Chief Executive Officer

I think that's well said, Scott. When I look back at our guidance historically on margin, I went back to the second quarter of last year's discussion, and we professed in that we were from a core standpoint of 338 to 340. And that has been-- the 340 number has been our consistent guidance going forward. We knew this year we'd be a couple basis points better in the first half of the year than in the second half of the year because purchase accounting amortization is little different between those two periods.

We still maintain our target of being 340 on a full year basis, 341 at the end of six months, but knowledge slippage of a basis point or two. But if we do, that won't pound earnings, it would just be a slippage of a basis point or two. We're not targeting that but we acknowledge that that's, again, back it up 338 to 340 range could be a reality for the second half.

Scott Siefers -- Sandler O'Neill & Partners -- Analyst

OK. Perfect. Thank you. And then just on maybe segueing to the volume side of the equation, it sounds like maybe some elevated paydowns did indeed impact the, I think, growth rate in the second quarter.

All else equal, is your thinking-- I know you reiterated kind of the full-year guide at least on the commercial side. Is the thinking that we would see a bit an acceleration in net growth in the back half of the year, or how does that dynamic all come into play? And I think you had been kind of saying 9% loan growth for the full year previously. Does that still hold?

Matt Garrity -- Executive Vice President, Commercial Lending and Credit Administration

Scott, this is Matt. Good morning. What we're looking at in the second half of the year with respect to our commercial book, we do have elevated payoffs. Q3 will actually look a lot like Q2 in terms of the level of payoffs based on our current thinking, so we would expect that growth for Q3 in the commercial space to be in line with Q2, perhaps a little better.

Our pipelines are actually holding up pretty well. Q4 will be a much flatter year. We've got a much bigger bandwidth of the payoffs coming in Q4, so it'll be a little closer to flat. Now, what we experienced last year, which is a little bit of an unknown is we did have a few of those push into 2018, this year.

And there's always that opportunity that a portion of that flows into 2019 as well. But I think overall, the underpinnings in terms of the momentum, the pipelines, and our lending activities actually holding up quite well in spite of the competition.

Gary Small -- President and Chief Executive Officer

To your specific questions, Scott, on the 9%, which was our original guide, was the trend that we've seen through first two quarters and then married with Matt's comments on the back of that, we feel a little bit more comfortable that we'll keep over 10%. I don't want to spouse too much more than that because we have some volatility around paydown. Specifically on our six-month activity, Tim's feeling more appropriate with the 9% for the full year.

Scott Siefers -- Sandler O'Neill & Partners -- Analyst

OK. Perfect. Thank you, and then final question just on the capital plans. Got the dividend announcement last night, which I appreciate.

Just overall thinking, I think, some of us might have hoped for something a bit, I guess, more substantial. It sounds like maybe we're in sort of a holding pattern on more substantial capital return, or what may be just if you can explain upon the comments you made at the outset of the call?

Gary Small -- President and Chief Executive Officer

You bet. I know on our last call, we talked about the-- as an executive team and the board, we were evaluating our capital position and nothing was off the board. We were going and with any preconceived notions, and we did a pretty exhaustive study on the issue and kind of walked away with confirming that we wanted to hold onto our strong capital position because we do feel we've got M&A opportunities in the offing, nothing tomorrow, but in the offing and that excess capital comes in well for that, and we still see a lot of growth in our portfolio. So, we'll continue to play that as our primary track.

The other things that we will consider were all the normal things, an aggressive buyback, a one-time-only payout, higher annual dividend, things like that. And when we balanced out the variables and the impacts relative to capital, tangible book value, payback periods, EPS improvements so forth, we didn't change our original position. Having said that, we will be opportunistic on the buying side within a range, but it's not as if we're going to go out and say, take down 1.5% or 2% in the market per plan. It will be opportunistic.

And I could actually say we saw an opportunity and made a small transaction during the quarter, but within a week, the stock had moved 8% of 9% moved well out of the range, and we'll step back. And that would be consistent with what in the near term you should expect from us. It'd be very opportunistic on the buyback. We're very focused on maintaining and preserving tangible book value and making sure that we get an adequate return with a low number of years on the payback and that's pretty consistent with where we've been in the past.

So it's thought through and that's where we came out.

Scott Siefers -- Sandler O'Neill & Partners -- Analyst

Perfect. Thank you very much. That's all.

Operator

Your next question will be from Michael Perito of KBW. Please go ahead.

Michael Perito -- Keefe, Bruyette & Woods -- Analyst

Good morning, guys.

Gary Small -- President and Chief Executive Officer

Good morning, Mike.

Michael Perito -- Keefe, Bruyette & Woods -- Analyst

A couple of questions for me. I want to maybe start on the mortgage side. It sounds like you guys expect some level, nothing too material with some level of rebound in the back half of the year, but then also it doesn't sound like you expect much to change in terms of the environment. So I was just curious, I guess, one, what, I guess, what's driving some of the optimism about a rebound in the back half of the year? And two, I mean, is the environment challenging enough, especially as rates continue to rise, where there is some internal review about kind of the resources in that platform? I mean, are there any kind of expense adjustments that can be made if the profitability continues to be a little lower than what it's been? Or just curious if you guys have any thoughts there as well?

Matt Garrity -- Executive Vice President, Commercial Lending and Credit Administration

Mike, this is Matt. I'll give you a couple of more comments on mortgage to your questions. We do expect the second half to be better. There is a little bit of a seasonality play.

The second half is always a little bit better than the first half relative to volumes and things of that nature. We do think there is an opportunity from our own side as well, particularly given the timing as we looked at the performance of the mortgage banking model in the second quarter, it really impacted us more severely during the month of June itself versus the prior two months. So, we have some opportunity, we think, on the economic side to improve from June. So, that gives us a little more optimism as well.

From a cost perspective, we're grabbing some nice efficiencies and actually, some reductions on a year-over-year basis on our noninterest expense. So, we expect that to hold through the balance of the year as well. So it will still be a difficult environment that we do have some thoughts around the idea that we think pricing is actually potentially going to rebound slightly in the second half of the year.

Michael Perito -- Keefe, Bruyette & Woods -- Analyst

OK. And then the $25 million of deposits year to date that I think you mentioned, Gary, that the private banking team has generated. I was curious if you can give any kind of rough parameters around what the pricing of those have been relative to kind of the legacy deposit base? And what the pipeline is there to bring more of those deposits on the books as we move forward here?

Gary Small -- President and Chief Executive Officer

Mike, it's going to be the normal liquid-- premium liquid products, which we've grown 160 to 180. There is a [Inaudible] of time in there and there is noninterest bearing. So relative to the actual pricing on that portfolio, it'll skew higher than the portfolio as a whole because it's all new money, if you will. And so there is no legacy that hasn't repriced that sort of thing, but right in line with the market, nothing special done versus market pricing.

We didn't have a fire sale or anything. It really goes back to the team we put together, private bankers out of the market that we started to accumulate in the middle of last year and it's a long sales lead time to get into the wealth management clients' business and it's just started to pay off in the first half.

Michael Perito -- Keefe, Bruyette & Woods -- Analyst

And then, in terms of the pipeline, I guess, is there any kind of specific thoughts you could provide on, where-- I guess, what kind of penetration or what type of growth you think is still kind of to come from that platform on the deposit side?

Gary Small -- President and Chief Executive Officer

Oh, I could even put a cap on it, Mike, because of the books that we have to work through and the market as a whole, we did cap private banking in here all in the Youngstown market, we didn't have it in the Cleveland market. So 25 sets the starting point, that could become 75, that could become 100. There is no end to that game at this point. There is no reason to put constraints on it.

Michael Perito -- Keefe, Bruyette & Woods -- Analyst

OK. And then just one last one for me. It's just kind of a follow-up question, Scott. I mean, Gary, it seems like, and correct me if I'm wrong, but it seems like you sound a little bit more optimistic on the M&A side than maybe at the start of the year.

Just curious if I guess, one, do you think that's a fair characterization? And two, maybe what are you seeing out there that, that has you feeling like that avenue of capital deployments a little more realistic today than maybe it seemed like it was-- maybe not realistic, but more near-term today than maybe it was six months ago?

Gary Small -- President and Chief Executive Officer

Mike, I would say the discussion level and formal discussion level is healthier now than it was in the first quarter. And so that would be the short answer to your question. I don't think that you would see anymore overactivity in the marketplace vis-à-vis more books and more announced deals in play by the investment team. But certainly, there is-- things are settling down.

Everybody is used to making a little more money, and-- but we are starting to have more of those same dialogues. For us though, it's still a matter fit for the organization, fit for the market, doesn't mean to low loan-to-deposit ratio or doesn't mean the other tests that we're looking for to check the boxes for what makes sense for us to move on. So, we haven't changed our approach in that regard, but more conversation.

Michael Perito -- Keefe, Bruyette & Woods -- Analyst

OK. And then actually just one more from me. Hiring pipeline, just curious if there's still good opportunities out there that you guys are looking at both from a private banking, but also commercial lending side?

Gary Small -- President and Chief Executive Officer

I can speak to the private banking side. We kind of have our complement right now on the wealth side to move forward with. Matt's in the market more on the commercial side. Why don't you just comment on that?

Matt Garrity -- Executive Vice President, Commercial Lending and Credit Administration

The activity remains pretty good there, Mike, although we feel pretty good about the team that we have in place today. So if we were going to look to bring in new talent, it would probably be a situation where we were replacing existing talent in our organization.

Michael Perito -- Keefe, Bruyette & Woods -- Analyst

OK. Great. Thanks for the color, guys. I appreciate it.

Operator

The next question will be from Daniel Cardenas of Raymond James. Please go ahead.

Daniel Cardenas -- Raymond James -- Analyst

Hey, good morning, guys.

Gary Small -- President and Chief Executive Officer

Good morning, Dan.

Daniel Cardenas -- Raymond James -- Analyst

Most of my questions have been asked and answered. But maybe, Gary, if you could, give us some color on competitive factors both on the loan and the deposit side? Are you beginning to see, especially on the deposit side, a pickup in competition? And if so, where is that coming from, the larger guys or the smaller guys?

Gary Small -- President and Chief Executive Officer

Good question, Dan. I'll do the deposit side and I'll ask Matt to think about that loan side, how he would like to answer that. We made a strategic move or a tactical move this time last year in anticipation of what was going to go on with the Fed and on no need to get our funding in order to support our growth. We went out early, fourth quarter last year, first quarter this year to try to be just to take ahead of the Fed's moves and thinking that those banks that are out there that are only going to grow a couple of percent or need to be defensive, that won't happen until you are deeper into the second quarter.

And so we've got our deposits in, we've got a minute if that was time-driven at 1.75% to 2%, just to give you some perspective. Now in the marketplace, we are seeing 3% for time money and so forth. So, back to our whole margin management, we're happily not aggressively in the market trying to raise that money right now, and we're pleased with the way the first half worked out. But the bigs are jumping back in and there is an element of defense on that because for those of us that are still growing in a double-digit fashion, we're-- we'd probably put some pressure relative to that.

And so, the particular markets, Cleveland is a very expensive market and one that we operate in selectively on deposit gathering relative to this type of deposit gathering, but it's very competitive over there, which speaks to our model of we like to be in the community markets, we like the value, we like Akron, Canton, there are some other ways for us to win, but that one in particular is really key to that. So we're in a stand-down mode on promotionals and so forth for the next couple of months as per our plan. And we'll evaluate and see as we get more toward the September rate move, is anything changing in the world and is it time to get back in, but we're solid with where we're at right now.

Matt Garrity -- Executive Vice President, Commercial Lending and Credit Administration

Dan, this is Matt. On the competitive standpoint, in our lending businesses, clearly, the mortgage business is incredibly competitive from a rate perspective now as we talked about. Our commercial space is a continuation of what we've really been seeing for the last nine to 12 months, although it continues to sort of intensify as 2018 went on. Price competition is very, very steep right now and also competition with respect to structure.

So, on the commercial space, we're seeing longer amortizations, we're seeing limited to no recourse, we're seeing higher loan to values, we're seeing weakened debt service coverages or debt service coverage covenants from our competition. With all that said, we're really happy with the level of pipeline that we have. And our success rate and our win rate on commercial because back to our asset quality stance and our culture there, we're just not going to go in that direction. That's just not good business for us to do.

So we've been able to get the kind of the business that we want to get. We think priced fairly and get the kind of growth that we expect to get. So far, we've navigated through it pretty well.

Daniel Cardenas -- Raymond James -- Analyst

Excellent. Excellent. All right. Thanks, guys.

Operator

The next question will be from Scott Beury of Boenning and Scattergood.

Scott Beury -- Boenning & Scattergood -- Analyst

Hey, good morning, guys.

Gary Small -- President and Chief Executive Officer

Good morning, Scott.

Scott Beury -- Boenning & Scattergood -- Analyst

Most of my questions have been covered pretty thoroughly. But I mean, just one that I was looking at with the securities book, you're running down now at this point right just south of 12% of assets. And I guess, just if you could add any color that could maybe give me a better idea on how low that can go and where you're comfortable with the securities as it relates to managing the balance sheet and managing the margin as well with the growth and the funding needs?

Gary Small -- President and Chief Executive Officer

Scott, with our relative size right now $275 million to $300 million would be a target range for us that we'd be comfortable with that still leave us at 10%-or-so of the total. And I think you'll see some of that movement as we go through the remainder of the year. We'll be swapping out some tax exempts, I would suspect as long as the pricing opportunity remains there, those will become less attractive, but there are some opportunities that we want to take advantage of. But generally, we're going to let that book atrophy off to about that level, and we may have select sell downs if the market anomaly says now is the time to do it and then we'll go from there.

Scott Beury -- Boenning & Scattergood -- Analyst

Great. That's certainly helpful. And then--

Gary Small -- President and Chief Executive Officer

It's a pretty simple, good point, Scott, relative to just earning asset growth. Although our loan growth year over year, we would expect to be 10%-or-so, we're still looking at earning asset growth as it has been on an organic basis for the last couple of-- three years at about 8%-plus or minus 0.25%, which means we expect the securities portfolios to fall to some degree, big piece of our pie.

Scott Beury -- Boenning & Scattergood -- Analyst

Excellent. No, that certainly makes sense. And one of the unrelated one, just kind of from an industry perspective, are there any characteristics in who you've been seeing pricing more aggressively in the mortgage market? Is it coming from more community banks that's similar to yourself or it really more the bigger guys or also some of the nonbanks? Is there any color you could give there on where you're seeing the more aggressive pricing?

Matt Garrity -- Executive Vice President, Commercial Lending and Credit Administration

Yes. This is Matt. The sort of the price leaders of the-- the low price leaders are typically in the markets we compete in smaller thrifts or smaller-- community banks similar to ourselves, maybe folks that don't have-- maybe other platforms in which to lend money, as like we do in terms of our commercial business. So folks that are maybe a little bit more mortgage-centric tend to be those lows leaders, if you will, on the pricing side that we see.

We tend not to tag ourselves against those folks in terms of our competitive aspirations. We tend to let those go. We tend to look at ourselves like more of the rational players in the market, which tend to be the larger institutions.

Scott Beury -- Boenning & Scattergood -- Analyst

Great. No, that's helpful. Thank you. That's all I have.

Gary Small -- President and Chief Executive Officer

Thanks, Scott.

Operator

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to hand the conference back over to Gary Small for his closing remarks.

Gary Small -- President and Chief Executive Officer

Well, again, I appreciate you being with us this morning. To reiterate, mortgage is a tough environment. We'll make some adjustments, but we will wait to make sure the market comes to us before we claim victory there, but we've got ways to overcome. Margin for the quarter was 1 bps or 2 below where we would have thought, but when we unpack it and look at our repricing situation and so forth, we're comfortable with it.

Again, at our size, it doesn't take much to lose 1 basis point, about $50,000 bookkeeping adjustment in one quarter and other equates to 1 basis point for us. So keep that in mind as well. We like to look at the year-to-date numbers than the average trend. And we feel very good about where we're at.

So again, thanks for joining us this morning and enjoy the earnings season.

Operator

[Operator signoff]

Duration: 39 minutes

Call Participants:

Tim Esson -- Executive Vice President and Chief Financial Officer.

Gary Small -- President and Chief Executive Officer

Matt Garrity -- Executive Vice President, Commercial Lending and Credit Administration

Scott Siefers -- Sandler O'Neill & Partners -- Analyst

Michael Perito -- Keefe, Bruyette & Woods -- Analyst

Daniel Cardenas -- Raymond James -- Analyst

Scott Beury -- Boenning & Scattergood -- Analyst

More UCFC analysis

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