United Community Financial Corp. (Company) (Nasdaq: UCFC), holding company of The Home Savings and Loan Company (Home Savings), today reported a consolidated net loss of $3.0 million, or $(0.10) per diluted share, for the three months ended March 31, 2010. This compares to net income of $3.3 million, or $0.11 per diluted share, for the three months ended March 31, 2009.

Selected first quarter results:
  • Net interest margin was 3.28%
  • Tier 1 leverage ratio was 8.57%
  • Total Risk Based Capital was 12.84%
  • Tangible common equity to tangible assets was 9.47%
  • Nonperforming loans were $138.6 million
  • Nonperforming assets were $174.0 million
  • Book value per share and tangible book value per share were $7.01 and $6.99, respectively

Chairman, President and Chief Executive Officer Douglas M. McKay commented, “While we are disappointed in the lack of positive earnings for the first quarter, we recognize that the primary causes are the insufficient cash flows and reduced collateral valuations affecting the loans of our customers. In taking the difficult, but necessary, steps to provide for loan portfolio weaknesses, we are working together with our customers to take advantage of the opportunities that will present themselves once the effects of the slowly recovering economy are felt.”

Net Interest Income

Net interest income was $17.7 million in the first quarter of 2010, a decrease from $18.7 million for the first quarter of 2009. The change in net interest income for the quarter ended March 31, 2010 as compared to the quarter ended March 31, 2009 is primarily due to a planned decline in average interest earning assets.

Deposit expenses declined in the first quarter of 2010 to $9.3 million compared to $12.7 million in the first quarter of 2009. Interest expense on Federal Home Loan Bank advances declined $1.0 million from $1.9 million for the three months ended March 31, 2009 to $848,000 for the three months ended March 31, 2010. Interest expense on deposits declined primarily because of a decrease in the average balance of certificates of deposit of $154.2 million along with a 59 basis point reduction in interest paid on those deposits. Interest expense on Federal Home Loan Bank advances declined because of the decline in average balance of those liabilities of $168.8 million and a 25 basis point reduction in interest paid on those advances. This decline is driven by reduced funding needs.

The Company’s net interest margin in the first quarter increased to 3.28% compared to 3.04% in the first quarter of 2009.

Noninterest Income

Noninterest income increased in the first quarter of 2010 to $6.6 million, as compared to the first quarter of 2009 of $2.7 million. Driving the increase in noninterest income was the recognition of gains on the sale of available for sale securities of $2.8 million along with a gain recognized on the sale of Home Savings’ Findlay, Ohio branch of $1.4 million. The Company sold approximately $116.1 million in securities available for sale in order to realize gains on certain securities.

On November 30, 2009, Home Savings entered into an agreement for the sale of Home Savings’ Findlay, Ohio branch. The sale was completed on March 26, 2010, at which time Home Savings recognized a $1.4 million gain on the transaction.

Noninterest Expense

Noninterest expense was $17.0 million in the first quarter of 2010, compared to $16.4 million in the first quarter of 2009. The increase in noninterest expense was driven by higher professional fees associated with legal expenses paid by the Company during the first quarter of 2010 as compared to the first quarter of 2009. Professional fees include legal, audit, tax consulting and other professional services obtained by the Company. Legal fees were elevated during the first quarter of 2010 primarily because of the continued resolution of asset quality issues.

Asset Quality

The provision for loan losses increased to $10.9 million in the first quarter of 2010, compared to $8.4 million in the first quarter of 2009. The increase in the provision for loan losses in the first quarter of 2010 is primarily the result of credit downgrades within the commercial real estate portfolio and specific reserves assigned to a number of commercial real estate properties. Also contributing to the increase is the effect of charge-offs to record foreclosed and repossessed assets at fair market value before the Company takes possession of the properties in satisfaction of loans. The remaining increase in the provision for loan losses taken in the first quarter related primarily to the application of the Company’s elevated historical charge-off experience to the various pools of loans in the Company’s portfolio.

Net loan charge-offs were $7.0 million in the first quarter of 2010, compared to $6.6 million in the first quarter a year ago. The net charge-offs include partial charge-offs of select one-to four-family mortgage loans, multifamily loans, non-residential real estate loans and commercial loans to appropriately reflect the declining value of the collateral supporting such loans.

The allowance for loan losses increased to $45.6 million, or 2.44% of the loan portfolio, as of March 31, 2010, compared to $42.3 million, or 2.22% of the loan portfolio, as of December 31, 2009. The allowance for loan losses was equal to 32.93% of nonperforming loans at March 31, 2010, compared to 36.49% at December 31, 2009.

During the first three months of 2010, nonperforming loans increased $22.7 million, to $138.6 million at March 31, 2010 as compared to $115.9 million at December 31, 2009. During the first three months of 2010, eight loans in excess of $1.0 million each, aggregating $20.5 million, became nonperforming. Commercial real estate had the most significant increase in nonperforming loans, with four loans aggregating $16.0 million becoming nonperforming.

Nonperforming assets, which consist of the nonperforming loans discussed above plus real estate owned and other repossessed assets, increased $27.1 million to $174.0 million at March 31, 2010 compared to $146.8 million at December 31, 2009. The increase in nonperforming assets was due primarily to the increase in nonperforming loans mentioned above along with an increase in real estate and tangible property of $4.5 million acquired in satisfaction of loans.

Net Loans

Net loans decreased $40.0 million during the first three months of 2010. The primary source of the decrease is the overall decline in construction loans and commercial real estate loans. Home Savings has made a conscious effort to decrease its construction and commercial real estate portfolios. The Company expects to experience continued declines in construction and commercial real estate loan balances as it continues to reduce loan concentration levels.

Available for Sale Securities

Available for sale securities decreased $9.1 million during the first three months of 2010 as a result of various security transactions initiated in the first quarter. During the first quarter of 2010, the Company sold approximately $116.1 million in securities and realized paydowns and maturities of $14.1 million. The Company also sold its investments in a Fannie Mae auction rate pass through trust security and an equity investment in which impairment charges had previously been recognized. The sale of these two securities had the benefit of reducing the Company’s remaining net deferred tax asset.

In order to replace the investments that were either sold, paid-down or matured, the Company purchased certain mortgage-backed and agency securities having a cost of $122.1 million.

Deposits and Borrowed Funds

Deposits decreased $40.9 million during the quarter ended March 31, 2010. The primary cause for the decline in deposits is the aforementioned sale of Home Savings’ Findlay, Ohio branch. Also affecting the change was the maturity and paydown of $12.7 million in brokered certificates of deposit during the first three months of 2010.

Borrowed funds decreased $7.5 million during the three-month period ending March 31, 2010. Federal Home Loan Bank advances declined $7.2 million and repurchase agreements and other borrowings decreased $280,000. The change is primarily the result of lower funding needs due to declining loan balances.

Income Taxes

Management recorded a valuation allowance against deferred tax assets at year-end 2009 based on its estimate of future reversal and utilization. When determining the amount of deferred tax assets that are more-likely-than-not to be realized, and therefore recorded as a benefit, the Company conducts a regular assessment of all available information. This information includes, but is not limited to, taxable income in prior periods, projected future income, tax planning strategies and projected future reversals of deferred tax items. Based on these criteria, the Company determined that it was not necessary to establish an additional valuation allowance against deferred tax assets as of March 31, 2010. The net deferred tax asset at March 31, 2010 is the amount of the asset supported by taxable income in prior periods available for carryback claims.

Home Savings is a wholly-owned subsidiary of the Company and operates 38 full-service banking offices and six loan production offices located throughout Ohio and western Pennsylvania. Additional information on the Company and Home Savings may be found on the Company’s web site: www.ucfconline.com.

When used in this press release, the words or phrases “believes,” “will likely result,” “are expected 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 the Company’s market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company’s market area, and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company advises readers that the factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The Company does not undertake, 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 such statements or to reflect the occurrence of anticipated or unanticipated events.
       
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
 
March 31, December 31,
2010 2009
(Dollars in thousands)
Assets:
Cash and deposits with banks $ 20,609 $ 22,330
Federal funds sold and other   19,446     22,744  
Total cash and cash equivalents 40,055 45,074
Securities:
Available for sale, at fair value 272,239 281,348
Loans held for sale 4,318 10,497
Loans, net of allowance for loan losses of $45,627 and $42,287, respectively 1,826,040 1,866,018
Federal Home Loan Bank stock, at cost 26,464 26,464
Premises and equipment, net 22,697 23,139
Accrued interest receivable 8,405 9,090
Real estate owned and other repossessed assets 35,418 30,962
Core deposit intangible 613 661
Cash surrender value of life insurance 26,475 26,198
Other assets   19,136     18,976  
Total assets $ 2,281,860   $ 2,338,427  
 
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Interest bearing $ 1,602,851 $ 1,642,722
Non-interest bearing   125,741     126,779  
Total deposits 1,728,592 1,769,501
Borrowed funds:
Federal Home Loan Bank advances 214,099 221,323
Repurchase agreements and other   96,553     96,833  
Total borrowed funds 310,652 318,156
Advance payments by borrowers for taxes and insurance 13,761 19,791
Accrued interest payable 1,751 1,421
Accrued expenses and other liabilities   10,481     9,775  
Total liabilities   2,065,237     2,118,644  
 
Shareholders' Equity:
Preferred stock-no par value; 1,000,000 shares authorized and unissued - -

Common stock-no par value; 499,000,000 shares authorized; 37,804,457

shares issued and 30,897,825 shares outstanding
145,586 145,775
Retained earnings 145,673 148,674
Accumulated other comprehensive income 3,685 4,110
Unearned employee stock ownership plan shares (5,366 ) (5,821 )
Treasury stock, at cost, 6,906,632 shares   (72,955 )   (72,955 )
Total shareholders’ equity   216,623     219,783  
Total liabilities and shareholders’ equity $ 2,281,860   $ 2,338,427  
 
   
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
     
For the Three Months Ended
March 31,
2010 2009

(Dollars in thousands,except per share data)
Interest income
Loans $ 25,843 $ 31,067
Loans held for sale 70 263
Securities:
Available for sale 2,585 2,770
Federal Home Loan Bank stock dividends 300 299
Other interest earning assets   7     29  
Total interest income 28,805 34,428
Interest expense
Deposits 9,318 12,651
Federal Home Loan Bank advances 848 1,858
Repurchase agreements and other   923     1,190  
Total interest expense   11,089     15,699  
Net interest income 17,716 18,729
Provision for loan losses   10,309     8,444  
Net interest income after provision for loan losses   7,407     10,285  
Non-interest income
Non-deposit investment income 428 304
Service fees and other charges 1,751 1,512
Net gains (losses):
Securities available for sale 2,843 -
Other -than-temporary loss in equity securities
Total impairment loss - (150 )
Loss recognized in other comprehensive income   -     -  
Net impairment loss recognized in earnings - (150 )
Mortgage banking income 386 1,140
Real estate owned and other repossessed assets (1,484 ) (1,138 )
Gain on retail branch sale 1,387 -
Other income   1,249     1,075  
Total non-interest income   6,560     2,743  
Non-interest expense
Salaries and employee benefits 8,174 8,023
Occupancy 1,004 984
Equipment and data processing 1,667 1,730
Franchise tax 511 592
Advertising 222 229
Amortization of core deposit intangible 48 60
Deposit insurance premiums 1,461 1,783
Professional fees 1,033 716
Real estate owned and other repossessed asset expenses 607 951
Other expenses   2,241     1,331  
Total non-interest expenses   16,968     16,399  
Income (loss) before income taxes and discontinued operations (3,001 ) (3,371 )
Income taxes expense (benefit)   -     (1,692 )
Net income (loss) before discontinued operations (3,001 ) (1,679 )
Discontinued operations
Net income of Butler Wick Corp., net of tax   -     4,949  
Net income (loss) $ (3,001 ) $ 3,270  
 
Earnings (loss) per share
Basic--continuing operations $ (0.10 ) $ (0.06 )
Basic--discontinued operations - 0.17
Basic (0.10 ) 0.11
Diluted--continuing operations (0.10 ) (0.06 )
Diluted--discontinued operations - 0.17
Diluted (0.10 ) 0.11
 
         
UNITED COMMUNITY FINANCIAL CORP.
SELECTED FINANCIAL HIGHLIGHTS
(Unaudited)
 
At or for the quarters ended

March 31,2010

December 31,2009

September 30,2009

June 30,2009

March 31,2009

(In thousands, except per share data)
Financial Data
Total assets $ 2,281,860 $ 2,338,427 $ 2,462,185 $ 2,487,055 $ 2,562,588
Total loans, net 1,826,040 1,866,018 1,919,803 2,032,404 2,114,855
Total securities 272,239 281,348 296,461 255,845 248,981
Total deposits 1,728,592 1,769,501 1,755,503 1,828,214 1,835,515
Total shareholders' equity 216,623 219,783 235,926 234,613 239,297
Net interest income 17,716 19,093 19,405 18,687 18,729
Provision for loan losses 10,309 22,740 5,579 12,311 8,444
Noninterest income, excluding other-than-temporary impairment losses 6,560 4,907 691 6,205 2,893
Net impairment losses recognized in earnings - 56 572 - 150
Noninterest expense 16,968 14,654 15,385 17,202 16,399
Income tax expense (benefit) - 2,812 (573 ) (1,707 ) (1,692 )
Net income (loss) (3,001 ) (16,262 ) (867 ) (2,914 ) 3,270
 
Share Data
Basic earnings (loss) per share $ (0.10 ) $ (0.54 ) $ (0.03 ) $ (0.10 ) $ 0.11
Diluted earnings (loss) per share (0.10 ) (0.54 ) (0.03 ) (0.10 ) 0.11
Dividends declared per share - - - - -
Book value per share 7.01 7.11 7.64 7.59 7.74
Tangible book value per share 6.99 7.09 7.61 7.57 7.72
Market value per share 1.50 1.45 1.74 1.09 1.21
 
Shares outstanding at end of period 30,898 30,898 30,898 30,898 30,898
Weighted average shares outstanding--basic 29,955 29,879 29,803 29,727 29,632
Weighted average shares outstanding--diluted 29,955 29,879 29,803 29,727 29,632
 
Key Ratios
Return on average assets -0.52 % -2.69 % -0.14 % -0.46 % 0.50 %
Return on average equity -5.36 % -27.18 % -1.45 % -4.74 % 5.30 %
Net interest margin 3.28 % 3.33 % 3.32 % 3.12 % 3.04 %
Efficiency ratio 78.59 % 56.97 % 65.02 % 69.38 % 71.85 %
 
Capital Ratios
Tier 1 leverage ratio 8.57 % 8.22 % 8.68 % 8.50 % 8.33 %
Tier 1 risk-based capital ratio 11.58 % 11.53 % 11.77 % 11.50 % 11.22 %
Total risk-based capital ratio 12.84 % 12.80 % 13.03 % 12.76 % 12.48 %
Equity to assets 9.49 % 9.40 % 9.58 % 9.43 % 9.34 %
Tangible common equity to tangible assets 9.47 % 9.37 % 9.56 % 9.41 % 9.31 %
 
           
UNITED COMMUNITY FINANCIAL CORP.
SELECTED FINANCIAL HIGHLIGHTS
(Unaudited)
 
At or for the quarters ended

March 31,2010

December 31,2009

September 30,2009

June 30,2009

March 31,2009

(Dollars in thousands, except per share data)
Loan Portfolio Composition
Real Estate Loans
One-to four-family residential $ 777,380 $ 773,831 $ 771,891 $ 852,833 $ 888,948
Multi-family residential* 143,992 150,480 158,342 164,376 168,432
Nonresidential* 389,407 397,895 407,853 396,688 381,263
Land* 25,122 23,502 23,625 23,221 22,968
Construction Loans
One-to four-family residential and land development 161,625 178,095 190,123 209,610 233,708
Multi-family and nonresidential*   14,682     13,741     13,675     15,007     33,992  
Total real estate loans 1,512,208 1,537,544 1,565,509 1,661,735 1,729,311
Consumer Loans 301,457 309,202 320,106 322,874 331,853
Commercial Loans   56,726     60,217     71,727     86,286     90,089  
Total Loans 1,870,391 1,906,963 1,957,342 2,070,895 2,151,253
Less:
Allowance for loan losses 45,627 42,287 38,845 39,832 37,856
Deferred loan costs, net   (1,276 )   (1,342 )   (1,306 )   (1,341 )   (1,458 )
Total   44,351     40,945     37,539     38,491     36,398  
Loans, net $ 1,826,040   $ 1,866,018   $ 1,919,803   $ 2,032,404   $ 2,114,855  
* Such categories are considered commercial real estate
 
At or for the quarters ended

March 31,2010

December 31,2009

September 30,2009

June 30,2009

March 31,2009

(Dollars in thousands, except per share data)
Deposit Portfolio Composition
Checking accounts
Interest bearing checking accounts $ 101,068 $ 108,513 $ 102,525 $ 102,584 $ 99,326
Non-interest bearing checking accounts   125,741     126,779     115,092     116,899     112,769  
Total checking accounts 226,809 235,292 217,617 219,483 212,095
Savings accounts 210,091 202,900 199,233 196,541 194,107
Money market accounts   300,610     291,320     282,438     274,931     274,345  
Total non-time deposits 737,510 729,512 699,288 690,955 680,547
Retail certificates of deposit 988,747 1,024,961 1,041,196 1,045,079 1,062,837
Brokered certificates of deposit   2,335     15,028     15,019     92,181     92,131  
Total certificates of deposit   991,082     1,039,989     1,056,215     1,137,260     1,154,968  
Total deposits $ 1,728,592   $ 1,769,501   $ 1,755,503   $ 1,828,215   $ 1,835,515  
Certificates of deposit as a percent of total deposits 57.33 % 58.77 % 60.17 % 62.21 % 62.92 %
 
           
UNITED COMMUNITY FINANCIAL CORP.
SELECTED FINANCIAL HIGHLIGHTS
(Unaudited)
 
At or for the quarters ended

March 31,2010

December 31,2009

September 30,2009

June 30,2009

March 31,2009

(Dollars in thousands, except per share data)
 
Allowance For Loan Losses
Beginning balance $ 42,287 $ 38,845 $ 39,832 $ 37,856 $ 35,962
Provision 10,309 22,740 5,579 12,311 8,444
Net chargeoffs   (6,969 )   (19,298 )   (6,566 )   (10,335 )   (6,550 )
Ending balance $ 45,627   $ 42,287   $ 38,845   $ 39,832   $ 37,856  
 
Net Charge-offs
Real Estate Loans
One-to four-family $ 998 $ 762 $ 1,634 $ 1,258 $ 1,096
Multi-family 1,585 208 254 652 1,381
Nonresidential 1,951 1,410 435 1,693 652
Land 318 - - - -
Construction Loans
One-to four-family residential and land development 1,018 3,860 2,724 4,532 1,550
Multi-family and nonresidential   -     118     -     -     -  
Total real estate loans 5,870 6,358 5,047 8,135 4,679
Consumer Loans 904 1,312 1,447 1,466 1,078
Commercial Loans   195     11,628     72     734     793  
Total $ 6,969   $ 19,298   $ 6,566   $ 10,335   $ 6,550  
 
 
At or for the quarters ended

March 31,2010

December 31,2009

September 30,2009

June 30,2009

March 31,2009

(Dollars in thousands, except per share data)
Nonperforming Loans
Real Estate Loans
One-to four family residential $ 30,054 $ 26,766 $ 25,808 $ 23,081 $ 24,409
Multi-family residential 7,885 7,863 5,612 5,349 5,747
Nonresidential 36,083 24,091 16,623 15,046 13,191
Land 11,627 5,160 5,168 5,169 5,179
Construction Loans
One-to four-family residential and land development 42,963 42,819 46,623 36,806 42,232
Multi-family and nonresidential   382     392     531     555     789  
Total real estate loans 128,994 107,091 100,365 86,006 91,547
Consumer Loans 3,898 5,383 5,253 5,889 6,375
Commercial Loans   5,672     3,413     6,174     7,614     4,255  
Total Loans $ 138,564   $ 115,887   $ 111,792   $ 99,509   $ 102,177  
 
Total Nonperforming Loans and Nonperforming Assets
Past due 90 days and on nonaccrual status $ 131,951 $ 103,864 $ 93,806 $ 91,757 $ 90,573
Past due 90 days and still accruing   536     3,669     4,330     3,007     607  
Past due 90 days 132,487 107,533 98,136 94,764 91,180
Past due less than 90 days and on nonaccrual   6,077     8,354     13,656     4,745     10,997  
Total Nonperforming Loans 138,564 115,887 111,792 99,509 102,177
Other Real Estate Owned 34,605 30,340 26,905 31,411 29,001
Repossessed Assets   813     622     702     1,666     1,429  
Total Nonperforming Assets $ 173,982   $ 146,849   $ 139,399   $ 132,586   $ 132,607  
 
Total Troubled Debt Restructured Loans
Accruing $ 23,153 $ 17,640 $ 1,949 $ 2,494 $ 2,726
Non-accruing   8,764     5,008     1,469     1,998     1,837  
Total $ 31,917   $ 22,648   $ 3,418   $ 4,492   $ 4,563  

Copyright Business Wire 2010

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