United Community Financial Corp. Announces Fourth Quarter Income Of $7.9 Million; Improvements In Capital Ratios And Asset Quality

United Community Financial Corp. (Company) (Nasdaq: UCFC), holding company of The Home Savings and Loan Company of Youngstown, Ohio (Home Savings), today reported consolidated net income of $7.9 million, or $0.25 per diluted share, for the three months ended December 31, 2011. This compares to a net loss of $17.3 million, or $(0.56) per diluted share, for the three months ended December 31, 2010. Current earnings have been positively impacted by the successful completion of the sale of four branches and gains recognized on the sale of securities. Fourth quarter earnings also benefited from the need for only $2.4 million in loan loss provision expense, down from $22.6 million in the fourth quarter of 2010. The Company also reported net income of $230,000, or $0.01 per diluted share, for the year ended December 31, 2011, as compared to a net loss of $37.3 million, or $(1.22) per diluted share, for the year ended December 31, 2010.

Selected fourth quarter results:
  • Delinquent loans declined $4.0 million from the prior quarter to $126.9 million
  • Nonperforming loans declined $11.0 million from the prior quarter to $123.1 million
  • Nonperforming assets declined $15.8 million from the prior quarter to $156.6 million
  • Home Savings’ Tier 1 leverage ratio of 8.61% and the total risk based capital ratio of 14.57% both reflected increases from the prior quarter
  • Tangible book value per share at December 31, 2011 was $5.78

Patrick W. Bevack, President and Chief Executive Officer of UCFC and Home Savings, commented that, “The year 2011 was a year of progress. During the year, not only did UCFC return to profitability, but more significantly, Home Savings has positioned itself for the future with very positive improvement in asset quality measures. Delinquent loans, nonperforming loans and nonperforming assets are all headed in the right direction.” Bevack further commented, “I was also pleased that the Company was successful in attracting additional capital from an investor in the fourth quarter.”

Asset Quality

Delinquent loans declined to $126.9 million at December 31, 2011, down $68.3 million, or 35.0%, from their high point of $195.2 million at March 31, 2010. Nonperforming loans at December 31, 2011 fell to $123.1 million, down $32.0 million, or 20.7%, from their high point of $155.1 million at June 30, 2010. Nonperforming assets dropped to $156.6 million at December 31, 2011, down $40.6 million, or 20.6%, from their high point of $197.2 million at June 30, 2010.

The provision for loan losses was $2.4 million for the fourth quarter of 2011, as compared to $22.6 million for the same quarter in 2010. For the year ending December 31, 2011, the provision for loan losses was $24.7 million, as compared to $62.4 million for the year ended December 31, 2010. The overall improvement in provision expense is the result of a reduced level of outstanding loans as well as a lower level of charge-offs in the fourth quarter and all of 2011.

Net Interest Income and Margin

The average net interest margin was 3.04% for the fourth quarter of 2011 compared with 3.17% for the fourth quarter of 2010. The average net interest margin was 3.28% for the year ended 2011 compared with 3.30% for 2010.

Net interest income for the three months ended December 31, 2011 was $14.8 million compared to $16.9 million for the three months ended December 31, 2010. Total interest income decreased $3.0 million in the fourth quarter of 2011 compared to the fourth quarter of 2010. The decrease is the result of Home Savings recognizing $3.3 million less in interest on net loans due to a $280.0 million decline in the average balance of outstanding loans.

Total interest expense decreased $997,000 for the quarter ended December 31, 2011, as compared to the same quarter last year. The change was primarily attributable to a reduction of $851,000 in interest paid on deposits, which is a result of a shift in deposit balances from certificates of deposit to relatively lower cost non-time deposits.

Net interest income for the twelve months ended December 31, 2011, was $65.2 million, compared to $71.4 million for the twelve months ended December 31, 2010. Total interest income decreased $14.4 million in 2011 compared to 2010. The decrease is a result of Home Savings recognizing $13.2 million less in interest on net loans because of a $244.6 million reduction in the average balance of outstanding loans. Home Savings also experienced a decrease in interest income on net loans of $2.0 million due to lower rates.

Total interest expense decreased $8.2 million for the twelve months ended December 31, 2011, as compared to the same period last year. This change was due primarily to reductions of $7.7 million in interest paid on deposits.

Noninterest Income

Noninterest income increased in the fourth quarter of 2011 to $12.0 million, as compared to $6.5 million in the fourth quarter of 2010. The largest impact on the comparison was the sale of four northwest branches (as previously disclosed), which closed in the fourth quarter of 2011. Home Savings recognized a $4.2 million gain on that sale. Additionally, Home Savings also sold available for sale securities in the fourth quarter of 2011, producing a gain of $5.1 million. The gains recognized were offset partially by lower service fees and by a valuation allowance established on Home Savings’ mortgage servicing rights, both in the fourth quarter of 2011. A similar valuation allowance was not required in 2010.

Noninterest income increased in 2011 to $23.2 million, as compared to $21.9 million in 2010. Two large transactions affect the comparison of noninterest income year over year. First, the branch sale mentioned above generated a net gain of $4.2 million. Secondly, Home Savings sold $70.4 million in mortgage loans in the second quarter of 2011. This transaction produced a gain of $2.7 million for the Bank. Both of these transactions were partially offset by lower service fees and other charges recognized in 2011.

Noninterest Expense

Noninterest expense was $16.5 million in the fourth quarter of 2011, compared to $18.4 million in the fourth quarter of 2010. The change was driven by lower expenses associated with the maintenance of real estate owned and other repossessed assets during the fourth quarter of 2011, compared to the same quarter last year. Also positively affecting the comparison, Home Savings recognized fewer expenses associated with deposit insurance premiums. Regulatory changes revised the method for calculating deposit insurance premiums and caused those expenses to decline.

Noninterest expense was $63.5 million in 2011, compared to $68.3 million in 2010. The decline was caused primarily by the recognition of lower expenses associated with real estate owned and other repossessed assets acquired in the settlement of loans. Lower salaries and benefits paid to employees along with lower deposit insurance premiums also contributed to the change.

Capital and Book Value

Home Savings’ Tier 1 leverage ratio was 8.61% as of December 31, 2011, compared to 8.13% at September 30, 2011. The Bank’s total risk-based capital ratio was 14.57% at December 31, 2011, as compared to 13.25% at September 30, 2011. Tangible book value per share at December 31, 2011 was $5.78, down from $5.88 at September 30, 2011.

Home Savings is a wholly-owned subsidiary of the Company and operates 34 full-service banking offices and eight 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)
   
December 31, December 31,
2011 2010
(Dollars in thousands)
Assets:
Cash and deposits with banks $ 26,573 $ 18,627
Federal funds sold and other   27,563     18,480  
Total cash and cash equivalents 54,136 37,107
Securities:
Available for sale, at fair value 459,598 362,042
Loans held for sale 12,727 10,870
Loans, net of allowance for loan losses of $42,271 and $50,883, respectively 1,379,276 1,649,486
Federal Home Loan Bank stock, at cost 26,464 26,464
Premises and equipment, net 19,175 22,076
Accrued interest receivable 6,741 7,720
Real estate owned and other repossessed assets 33,486 40,336
Core deposit intangible 346 485
Cash surrender value of life insurance 28,354 27,303
Other assets   10,384     13,409  
Total assets $ 2,030,687   $ 2,197,298  
 
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Interest bearing $ 1,440,448 $ 1,551,210
Non-interest bearing   148,049     138,571  
Total deposits 1,588,497 1,689,781
Borrowed funds:
Federal Home Loan Bank advances 128,155 202,818
Repurchase agreements and other   90,618     97,797  
Total borrowed funds 218,773 300,615
Advance payments by borrowers for taxes and insurance 23,282 20,668
Accrued interest payable 610 809
Accrued expenses and other liabilities   10,780     9,370  
Total liabilities   1,841,942     2,021,243  
 
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 32,597,762 and 30,937,704 shares, respectively, outstanding
128,031 142,318
Retained earnings 110,681 111,049
Accumulated other comprehensive income (loss) 5,032 (4,778 )
Treasury stock, at cost, 5,206,695 and 6,866,753 shares, respectively   (54,999 )   (72,534 )
Total shareholders’ equity   188,745     176,055  
Total liabilities and shareholders’ equity $ 2,030,687   $ 2,197,298  
 
       
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
     
For the Three Months Ended For the Twelve Months Ended
December 31, December 31,
2011 2010 2011 2010
(Dollars in thousands, except per share data)
Interest income
Loans $ 18,801 $ 22,063 $ 82,290 $ 97,413
Loans held for sale 272 167 542 415
Securities:
Available for sale 3,102 3,011 12,366 11,727
Federal Home Loan Bank stock dividends 267 267 1,125 1,158
Other interest earning assets   29     10     64     35  
Total interest income 22,471 25,518 96,387 110,748
Interest expense
Deposits 5,957 6,808 24,341 32,062
Federal Home Loan Bank advances 748 881 3,162 3,588
Repurchase agreements and other   928     941     3,709     3,737  
Total interest expense   7,633     8,630     31,212     39,387  
Net interest income 14,838 16,888 65,175 71,361
Provision for loan losses   2,386     22,551     24,658     62,427  
Net interest income after provision for loan losses   12,452     (5,663 )   40,517     8,934  
Non-interest income
Non-deposit investment income 348 319 1,398 1,619
Service fees and other charges 1,172 2,631 4,416 6,369
Net gains (losses):
Securities available for sale 5,133 1,508 8,633 8,803
Other -than-temporary loss on equity securities
Total impairment loss (16 ) (14 ) (89 ) (58 )
Loss recognized in other comprehensive income   -     -     -     -  
Net impairment loss recognized in earnings (16 ) (14 ) (89 ) (58 )
Mortgage banking income 1,243 1,909 5,675 4,365
Real estate owned and other repossessed assets (1,184 ) (1,611 ) (6,165 ) (6,123 )
Gain on retail branch sale 4,154 - 4,154 1,387
Other income   1,171     1,731     5,203     5,531  
Total non-interest income   12,021     6,473     23,225     21,893  
Non-interest expense
Salaries and employee benefits 7,863 7,852 31,160 32,699
Occupancy 794 890 3,409 3,583
Equipment and data processing 1,680 1,678 6,590 6,627
Franchise tax 254 499 1,495 2,011
Advertising 354 286 820 860
Amortization of core deposit intangible 33 40 139 176
Deposit insurance premiums 1,282 1,375 4,855 5,686
Professional fees 1,132 1,185 3,677 4,106
Real estate owned and other repossessed asset expenses 766 2,313 2,891 4,971
Other expenses   2,387     2,254     8,476     7,612  
Total non-interest expenses   16,545     18,372     63,512     68,331  
Income (loss) before income taxes 7,928 (17,562 ) 230 (37,504 )
Income tax expense (benefit)   -     (231 )   -     (231 )
Net income (loss) $ 7,928   $ (17,331 ) $ 230   $ (37,273 )
 
Earnings (loss) per share
Basic $ 0.25 $ (0.56 ) $ 0.01 $ (1.22 )
Diluted 0.25 (0.56 ) 0.01 (1.22 )
 
 
UNITED COMMUNITY FINANCIAL CORP.
SELECTED FINANCIAL HIGHLIGHTS
(Unaudited)
         
At or for the quarters ended

December 31,2011

September 30,2011

June 30,2011

March 31,2011

December 31,2010
(In thousands, except per share data)
Financial Data
Total assets $ 2,030,687 $ 2,071,001 $ 2,102,419 $ 2,115,080 $ 2,197,298
Total loans, net 1,379,276 1,437,575 1,509,399 1,620,094 1,649,486
Total securities 459,598 416,460 392,749 289,388 362,042
Total deposits 1,588,497 1,687,941 1,697,797 1,712,523 1,689,781
Total shareholders' equity 188,745 182,697 183,142 177,371 176,055
Net interest income 14,838 15,625 17,058 17,654 16,888
Provision for loan losses 2,386 11,836 8,244 2,192 22,551
Noninterest income, excluding other-than-temporary impairment losses 12,037 1,951 5,328 3,998 6,487
Net impairment losses recognized in earnings 16 35 28 10 14
Noninterest expense 16,545 14,569 15,910 16,488 18,372
Income tax expense (benefit) - - - - (231 )
Net income (loss) 7,928 (8,864 ) (1,796 ) 2,962 (17,331 )
 
Share Data
Basic earnings (loss) per share $ 0.25 $ (0.29 ) $ (0.06 ) $ 0.10 $ (0.56 )
Diluted earnings (loss) per share 0.25 (0.29 ) (0.06 ) 0.10 (0.56 )
Book value per share 5.79 5.90 5.91 5.73 5.69
Tangible book value per share 5.78 5.88 5.90 5.72 5.67
Market value per share 1.27 1.35 1.27 1.33 1.34
 
Shares outstanding at end of period 32,598 30,984 30,969 30,951 30,938
Weighted average shares outstanding--basic 31,295 30,953 30,932 30,917 30,906
Weighted average shares outstanding--diluted 31,295 30,953 30,932 30,919 30,906
 
Key Ratios
Return on average assets 1.53 % -1.69 % -0.34 % 0.55 % -3.06 %
Return on average equity 16.97 % -18.98 % -3.95 % 6.56 % -33.91 %
Net interest margin 3.04 % 3.18 % 3.39 % 3.49 % 3.17 %
Efficiency ratio 87.96 % 79.67 % 67.49 % 77.12 % 78.08 %
 
Capital Ratios
Tier 1 leverage ratio 8.61 % 8.13 % 8.40 % 8.44 % 7.84 %
Tier 1 risk-based capital ratio 13.30 % 11.98 % 12.20 % 11.74 % 11.26 %
Total risk-based capital ratio 14.57 % 13.25 % 13.47 % 13.02 % 12.54 %
Equity to assets 9.29 % 8.82 % 8.71 % 8.39 % 8.01 %
Tangible common equity to tangible assets 9.28 % 8.80 % 8.69 % 8.37 % 7.99 %
 
 
UNITED COMMUNITY FINANCIAL CORP.
SELECTED FINANCIAL HIGHLIGHTS
(Unaudited)
         
At or for the quarters ended

December 31,2011

September 30,2011

June 30,2011

March 31,2011

December 31,2010
(Dollars in thousands)
Loan Portfolio Composition
Real Estate Loans
One-to four-family residential $ 667,375 $ 677,708 $ 693,435 $ 762,065 $ 757,426
Multi-family residential* 120,991 125,370 129,767 131,246 135,771
Nonresidential* 276,198 303,165 307,702 328,772 331,390
Land* 23,222 22,172 25,515 25,624 25,138
Construction Loans
One-to four-family residential and land development 59,339 66,761 87,827 88,075 108,583
Multi-family and nonresidential*   4,528     4,528     5,524     11,201     15,077  
Total real estate loans 1,151,653 1,199,704 1,249,770 1,346,983 1,373,385
Consumer Loans 238,397 245,367 266,075 272,478 279,453
Commercial Loans   30,146     35,277     38,354     45,772     46,304  
Total Loans 1,420,196 1,480,348 1,554,199 1,665,233 1,699,142
Less:
Allowance for loan losses 42,271 44,162 46,223 46,415 50,883
Deferred loan costs, net   (1,351 )   (1,389 )   (1,423 )   (1,276 )   (1,227 )
Total   40,920     42,773     44,800     45,139     49,656  
Loans, net $ 1,379,276   $ 1,437,575   $ 1,509,399   $ 1,620,094   $ 1,649,486  
* Such categories are considered commercial real estate
 
At or for the quarters ended

December 31,2011

September 30,2011

June 30,2011

March 31,2011

December 31,2010
(Dollars in thousands)
Deposit Portfolio Composition
Checking accounts
Interest bearing checking accounts $ 119,298 $ 120,115 $ 112,412 $ 110,711 $ 110,092
Non-interest bearing checking accounts   148,049     152,577     138,752     144,362     138,571  
Total checking accounts 267,347 272,692 251,164 255,073 248,663
Savings accounts 234,828 249,426 245,838 234,295 218,946
Money market accounts   314,907     327,751     322,955     318,395     311,692  
Total non-time deposits 817,082 849,869 819,957 807,763 779,301
Retail certificates of deposit   771,415     838,073     877,840     904,760     910,480  
Total certificates of deposit   771,415     838,073     877,840     904,760     910,480  
Total deposits $ 1,588,497   $ 1,687,942   $ 1,697,797   $ 1,712,523   $ 1,689,781  
Certificates of deposit as a percent of total deposits 48.56 % 49.65 % 51.70 % 52.83 % 53.88 %
 
         
UNITED COMMUNITY FINANCIAL CORP.
SELECTED FINANCIAL HIGHLIGHTS
(Unaudited)
 
At or for the quarters ended

December 31,2011

September 30,2011

June 30,2011

March 31,2011

December 31,2010
(Dollars in thousands)
 
Allowance For Loan Losses
Beginning balance $ 44,162 $ 46,223 $ 46,415 $ 50,883 $ 40,884
Provision 2,386 11,836 8,244 2,192 22,551
Net chargeoffs   (4,277 )   (13,897 )   (8,436 )   (6,660 )   (12,552 )
Ending balance $ 42,271   $ 44,162   $ 46,223   $ 46,415   $ 50,883  
 
Net Charge-offs
Real Estate Loans
One-to four-family $ 366 $ 1,380 $ 501 $ 924 $ 1,483
Multi-family 203 14 1,451 163 1,819
Nonresidential 975 3,693 1,873 1,038 6,923
Land 217 281 233 504 284
Construction Loans
One-to four-family residential and land development 1,874 6,737 1,159 2,295 669
Multi-family and nonresidential   -     -     101     -     (1 )
Total real estate loans 3,635 12,105 5,318 4,924 11,177
Consumer Loans 493 864 642 856 639
Commercial Loans   149     928     2,476     880     736  
Total $ 4,277   $ 13,897   $ 8,436   $ 6,660   $ 12,552  
 
 
At or for the quarters ended

December 31,2011

September 30,2011

June 30,2011

March 31,2011

December 31,2010
(Dollars in thousands)
Nonperforming Loans
Real Estate Loans
One-to four family residential $ 26,637 $ 27,250 $ 28,776 $ 29,062 $ 27,417
Multi-family residential 5,860 6,517 6,414 8,239 10,983
Nonresidential 42,902 44,243 36,382 37,353 39,838
Land 11,142 11,655 8,316 6,722 5,188
Construction Loans
One-to four-family residential and land development 27,104 31,166 43,389 46,139 44,021
Multi-family and nonresidential   -     -     382     382     2,414  
Total real estate loans 113,645 120,831 123,659 127,897 129,861
Consumer Loans 6,620 5,890 5,781 4,224 3,725
Commercial Loans   2,830     7,361     9,650     13,735     5,944  
Total Loans $ 123,095   $ 134,082   $ 139,090   $ 145,856   $ 139,530  
 
Total Nonperforming Loans and Nonperforming Assets
Past due 90 days and on nonaccrual status $ 104,812 $ 102,890 $ 122,856 $ 112,705 $ 117,498
Past due 90 days and still accruing   39     3     1,121     2,868     6,330  
Past due 90 days 104,851 102,893 123,977 115,573 123,828
Past due less than 90 days and on nonaccrual   18,244     31,189     15,112     30,283     15,702  
Total Nonperforming Loans 123,095 134,082 139,089 145,856 139,530
Other Real Estate Owned 32,946 37,697 43,009 42,386 39,914
Repossessed Assets   540     619     676     487     422  
Total Nonperforming Assets $ 156,581   $ 172,398   $ 182,774   $ 188,729   $ 179,866  
 
Total Troubled Debt Restructured Loans
Accruing $ 33,146 $ 30,784 $ 30,546 $ 30,129 $ 33,331
Non-accruing   17,752     16,932     28,066     24,420     11,240  
Total $ 50,898   $ 47,716   $ 58,612   $ 54,549   $ 44,571  
 

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