United Community Bancorp

Accounting Standards Update 2018-02 was issued in February 2018 and allows for the reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The Company has early adopted this amendment and the $222,000 reclassification is reflected in the consolidated financial statements for the nine months ending March 31, 2018.

On March 11, 2018, the Company, United Community Bank, Civista Bancshares, Inc. (“Civista”) and Civista Bank entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which the Company will merge with and into Civista (the “Merger”). Immediately following the Merger, United Community Bank will merge with and into Civista Bank. Under the terms of the Merger Agreement, each outstanding share of the Company’s common stock will be converted into the right to receive 1.027 shares of Civista’s common stock and $2.54 in cash. At the effective time of the Merger, each share of unvested Company common stock will fully vest and will be converted into the right to receive the merger consideration. In addition, at the effective time of the Merger, each option to acquire shares of the Company’s common stock will automatically vest and be cancelled and converted into the right to receive in cash from United Community Bank the amount by which the sum of $2.54 and the “effective time value” per share exceeds the exercise or strike price of such stock option, subject to receipt of Civista of executed stock option surrender agreements in a form acceptable to Civista and United Community. If the exercise price of a stock option equals or exceeds the sum of $2.54 and the effective time value, such stock option will be cancelled without any payment in exchange. United Community will be entitled to deduct and withhold from any amounts payable in respect of any United Community stock option all such amounts as United Community is required to deduct and withhold under the Code or any provisions of state, local, or foreign tax law. “Effective time value” means the product of (A) the average of the per share closing price of a Civista common share on the Nasdaq Capital Market during the five (5) consecutive full trading days ending on the trading day prior to the effective time of the Merger and (B) the exchange ratio. The transaction is expected to close in the third calendar quarter of 2018, subject to the satisfaction of customary closing conditions, including the receipt of all required regulatory approvals and the approval of the shareholders of both the Company and Civista. Merger expenses totaled $650,000 during the three and nine months ended March 31, 2018.

As was announced by the Company in a joint press release with Civista Bancshares, Inc. on March 12, 2018, the Company’s Board of Directors signed a definitive agreement with Civista Bancshares, Inc. to merge with and into Civista Bancshares, Inc. The merger is pending customary regulatory and shareholder approvals. The Company incurred approximately $650,000 in pre-tax merger related expenses during the quarter ended March 31, 2018, which negatively impacted the Company’s net income.

Noninterest income totaled $1.1 million for the quarter ended March 31, 2018, which represents an increase of $67,000, or 6.5%, when compared to the prior year quarter. The increase was primarily due to a $77,000 increase in the market value of mortgage servicing rights during the quarter, which compares to a $25,000 decrease in the prior year quarter for a net change of $102,000. The increase is also partially due to a $25,000 increase in service charge income on deposit accounts. These increases were partially offset by a $55,000 decrease in gain on the sale of mortgage loans due to a decrease in sales volume.

The land was purchased by the co-borrowers in 1997 as an investment for future development. The Bank originated Loan R on the land in November 2003. Since the Bank made the original loan in 2003, this loan has been renewed three times. The loan was set to renew again in March 2017. The Bank ordered an appraisal during the March 2017 quarter. The Bank also analyzed the cash flow and the liquid assets of the remaining co-borrower. After this analysis, the Bank ordered an appraisal based on the market value and the liquidation value of the property. The market value of the property was $1,940,000 and the liquidation value of the property was $1,070,000. Because of the results of the financial analysis performed on the co-borrower, and the fact that the property had not been sold, the Bank completed an impairment analysis of the property using the liquidation value. After the impairment analysis was completed, it was determined that an impairment of $255,000 was needed. An impairment in the amount of $255,000 was established through a charge-off to the general allowance. The remaining balance of $601,000 was put on nonaccrual as stated above. This loan was renewed for one year in March 2017 with the new maturity date being in March 2018. The borrower has confirmed her intent to have the property sold by the date. As stated above, the property was sold during the March 31, 2018 quarter, at which time the loan was totally paid off and the Bank experienced no further loss. Loan Relationship R will no longer be reported in the narrative section.