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Press release from Business Wire

United Community Financial Corp. Announces Fourth Quarter Results; Profitability Returns

Friday, March 15, 2013

United Community Financial Corp. Announces Fourth Quarter Results; Profitability Returns16:43 EDT Friday, March 15, 2013 YOUNGSTOWN, Ohio (Business Wire) -- 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 $2.6 million, or $0.08 per diluted share, for the three months ended December 31, 2012. The Company also reported a net loss of $20.4 million, or $(0.62) per diluted share, for the twelve months ended December 31, 2012. Selected fourth quarter results: Delinquent loans were $48.2 million at December 31, 2012, down 62.0% for the year Nonperforming assets were $66.2 million at December 31, 2012, down 57.7% for the year Classified loans were $59.9 million at December 31, 2012, down 72.8% for the year Home Savings' Tier 1 leverage ratiowas 8.70% and the total risk based capital ratio was 16.21% Patrick W. Bevack, President and Chief Executive Officer of UCFC and Home Savings, commented that, “Ending the year on a positive note with net income for the quarter is exactly where we want to be. More significantly, the announcements we made earlier this year regarding the capital raise and the rights offering, as well as the termination of the Consent Order, further exemplify the trust and confidence that investors and regulators have in our Company.” Asset Quality Delinquent loans were $48.2 million at December 31, 2012, down $147.0 million, or 75.3%, from their high point of $195.2 million at March 31, 2010. Nonperforming loans at December 31, 2012 were $47.8 million, down $107.3 million, or 69.2%, from their high point of $155.1 million at June 30, 2010. Nonperforming assets were $66.2 million at December 31, 2012, down $131.0 million, or 66.4%, from their high point of $197.2 million at June 30, 2010. Home Savings achieved this significant improvement in asset quality primarily as a result of the successful completion of a bulk asset sale in the third quarter of 2012. Of the loans sold in the bulk asset sale, $91.6 million were classified, $63.3 million were nonperforming and $53.0 million were noncurrent. The provision for loan losses was $2.1 million for the fourth quarter of 2012, as compared to $30.3 million for the third quarter in 2012. The provision expense in the third quarter of 2012 included $29.4 million directly associated with the bulk asset sale. The provision for loan losses was $39.3 million for all of 2012, as compared to $24.7 million for all of 2011. Net Interest Income and Margin Net interest income for the three months ended December 31, 2012 was $14.0 million, as compared to $14.1 million in the prior quarter. The net interest margin improved six basis points from 3.17% during the third quarter to 3.23% during the fourth quarter. Total interest income decreased $394,000 in the fourth quarter of 2012 compared to the third quarter of 2012, primarily as a result of a decrease of $128.8 million in the average balance of outstanding loans. Home Savings also experienced a decrease in yield on those assets of 31 basis points during the quarter. Total interest expense decreased $277,000 for the quarter ended December 31, 2012, as compared to the previous quarter. The change was due to a reduction of $278,000 in interest paid on deposits. The average outstanding balance of certificates of deposit declined by $51.9 million, while non-time deposits increased by $5.4 million. Also contributing to the change was a reduction of seven basis points in the cost of certificates of deposit. Net interest income for the twelve months ended December 31, 2012 and December 31, 2011, was $60.4 million and $65.2 million, respectively. Total interest income decreased $17.9 million in 2012 compared to 2011, primarily as a result of a decrease of $295.0 million in the average balance of outstanding loans. United Community also experienced a decrease in the yield on net loans of 28 basis points. Home Savings' construction and segments of its commercial real estate loan portfolios declined as a result of executing its strategic objective of reducing specific concentrations in these portfolios, as well as the bulk asset sale. Total interest expense decreased $13.2 million for the twelve months ended December 31, 2012, as compared to the same period last year. The change was due primarily to reductions of $12.4 million in interest paid on deposits. The overall decrease in interest expense was attributable to the maturity of higher cost Step CDs and a shift in deposit balances from certificates of deposit to relatively less expensive non-time deposits. Between December 31, 2011, and December 31, 2012, the average outstanding balance of certificates of deposit declined by $222.1 million (of which $140.0 million were Step CDs), while non-time deposits increased by $47.6 million. Also contributing to the decrease in interest expense was a reduction of 94 basis points in the cost of certificates of deposit, as well as a decrease in the cost of non-time deposits of 14 basis points. The primary cause of the decrease in interest expense on FHLB advances was a decrease in the average balance of those funds of $20.6 million, in addition to a rate decrease on those borrowings of 19 basis points in 2012 compared to 2011. These decreases were caused by the prepayment of $25.7 million of term advances in the second and third quarters of 2012 and the need to use fewer short-term overnight advances during the period. Noninterest Income Noninterest income increased in the fourth quarter of 2012 to $6.9 million, as compared to $3.8 million in the third quarter of 2012. The $3.1 million increase was driven by a recovery of $1.3 million on previously recorded valuation on mortgage servicing rights in December compared to an impairment charge of $672,000 recognized in September. Lower losses on the valuation and sales of REO were also recognized in the fourth quarter as compared to the previous quarter. Noninterest income decreased slightly in 2012 to $22.7 million, as compared to $23.2 million in 2011. Accounting for the change was the sale of four retail branches in 2011, at which time, Home Savings recorded a $4.2 million gain in noninterest income. No branch sale transactions occurred in 2012. Home Savings also sold fewer securities in 2012, recognizing fewer gains on the sale of those securities as a result. Partially offsetting these declines were net recoveries of $1.1 million in adjustments to mortgage servicing rights during 2012, recorded in service fees and other charges. Furthermore, Home Savings recognized higher mortgage banking income in 2012 and incurred fewer losses on the valuation and disposition of real estate owned and other repossessed assets in 2012 as compared to 2011. Noninterest Expense Noninterest expense was $14.3 million in the fourth quarter of 2012 as compared to $17.3 million in the third quarter of 2012, a decrease of $3.0 million. Professional fees, including legal and other consultants, were lower during the fourth quarter of 2012 due to the engagement of professionals in the third quarter to assist management in completing the bulk asset sale. Professional fees specifically associated with the bulk asset sale aggregated $1.2 million. Lower salaries and employee benefits also contributed to the change. Other expenses were also lower in the fourth quarter as the Bank recognized expenses in the third quarter aggregating $1.8 million for the payment of delinquent real estate taxes on properties that were part of the bulk asset sale. Noninterest expense was $65.2 million in 2012, compared to $63.5 million in 2011. During 2012, salaries and employee benefits increased because of the recognition of expenses associated with severance payments made during the year resulting from our expense reduction efforts, as well as increased hospitalization and incentive plans. Also contributing to the increase were expenses incurred due to the prepayment of FHLB term advances. Professional fees and real estate tax payments were higher in 2012 as a direct result of the bulk asset sale. Capital and Book Value Home Savings' Tier 1 leverage ratio was 8.70% as of December 31, 2012, as compared to 8.27% at September 30, 2012. Home Savings' total risk-based capital ratio was 16.21% at December 31, 2012, as compared to 15.85% at September 30, 2012. Tangible book value per share at December 31, 2012 was $5.16, as compared to $5.21 at September 30, 2012. The Consent Order issued by the FDIC and the Ohio Division of Financial Institutions in 2012 required Home Savings to maintain a Tier 1 Leverage Capital Ratio at a minimum of 9.0% and a total risk-based capital ratio of no less than 12.0%; however, the Memorandum of Understanding entered into on January 31, 2013, now requires Home Savings to maintain these ratios at 8.5% and 12.0%, respectively. As of December 31, 2012, the FDIC categorized Home Savings as adequately capitalized pursuant to the Consent Order. However, because the FDIC and the Ohio Division terminated the Consent Order on January 31, 2013, Home Savings is now considered well capitalized. Home Savings is also no longer considered to be in troubled condition. On January 11, 2013, United Community entered into securities purchase agreements with 28 accredited investors (the Investors) pursuant to which the Investors will, in a private offering, invest an aggregate of approximately $39.9 million in United Community. United Community has confirmed that no bank regulatory approvals are required. United Community presently expects the private offering to close on March 22, 2013. Home Savings is a wholly-owned subsidiary of the Company and operates 33 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. This press release does not constitute an offer to sell or a solicitation of an offer to buy any securities, nor shall there be any sale of securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.No offer of securities shall be made except by means of a prospectus satisfying the requirements of Section 10 of the Securities Act of 1933, as amended (the “Act”).The securities offered in the private offerings have not been registered under the Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.When used in this press release, the words or phrases “believes,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project”, “will have” 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, 2012 2011 (Dollars in thousands)Assets: Cash and deposits with banks $ 26,041 $ 26,573 Federal funds sold and other   16,572     27,563   Total cash and cash equivalents 42,613 54,136 Securities: Available for sale, at fair value 574,562 459,598 Loans held for sale 13,031 12,727 Loans, net of allowance for loan losses of $21,130 and $42,271, respectively 1,066,240 1,379,276 Federal Home Loan Bank stock, at cost 26,464 26,464 Premises and equipment, net 21,549 19,175 Accrued interest receivable 6,238 6,741 Real estate owned and other repossessed assets 18,440 33,486 Core deposit intangible 238 346 Cash surrender value of life insurance 28,881 28,354 Other assets   10,109     10,384   Total assets $ 1,808,365   $ 2,030,687     Liabilities and Shareholders' EquityLiabilities: Deposits: Interest bearing $ 1,302,307 $ 1,440,448 Noninterest bearing   159,767     148,049   Total deposits 1,462,074 1,588,497 Borrowed funds: Federal Home Loan Bank advances 50,000 128,155 Repurchase agreements and other   90,598     90,618   Total borrowed funds 140,598 218,773 Advance payments by borrowers for taxes and insurance 23,590 23,282 Accrued interest payable 563 610 Accrued expenses and other liabilities   10,780     10,780   Total liabilities   1,637,605     1,841,942     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 33,027,886 and 32,597,762 shares, respectively, outstanding 128,026 128,031 Retained earnings 86,345 110,681 Accumulated other comprehensive income 6,682 5,032 Treasury stock, at cost, 4,776,571 and 5,206,695 shares, respectively   (50,293 )   (54,999 ) Total shareholders' equity   170,760     188,745   Total liabilities and shareholders' equity $ 1,808,365   $ 2,030,687                         UNITED COMMUNITY FINANCIAL CORP.CONSOLIDATED STATEMENTS OF NET INCOME(Unaudited)   For the Three Months Ended For the Twelve Months Ended December 31, September 30, December 31, December 31, December 31, 2012 2012 2011 2012 2011 (Dollars in thousands, except per share data)Interest income Loans $ 13,862 $ 14,567 $ 18,801 $ 63,044 $ 82,290 Loans held for sale 119 101 272 424 542 Securities: Available for sale 3,488 3,219 3,102 13,741 12,366 Federal Home Loan Bank stock dividends 316 279 267 1,175 1,125 Other interest earning assets   12     25     29     60     64   Total interest income 17,797 18,191 22,471 78,444 96,387 Interest expense Deposits 2,322 2,600 5,957 11,896 24,341 Federal Home Loan Bank advances 535 535 748 2,415 3,162 Repurchase agreements and other   929     928     928     3,695     3,709   Total interest expense   3,786     4,063     7,633     18,006     31,212   Net interest income 14,011 14,128 14,838 60,438 65,175 Provision for loan losses   2,102     30,279     2,386     39,325     24,658   Net interest income after provision for loan losses   11,909     (16,151 )   12,452     21,113     40,517   Non-interest income Non-deposit investment income 373 478 348 1,898 1,398 Service fees and other charges 2,794 793 1,172 6,805 4,416 Net gains (losses): Securities available for sale 1,164 1,192 5,133 6,325 8,633 Other -than-temporary loss on equity securities Total impairment loss (13 ) - (16 ) (13 ) (89 ) Loss recognized in other comprehensive income   -     -     -     -     -   Net impairment loss recognized in earnings (13 ) - (16 ) (13 ) (89 ) Mortgage banking income 2,083 2,110 1,243 7,391 5,675 Real estate owned and other repossessed assets (744 ) (1,795 ) (1,184 ) (4,191 ) (6,165 ) Gain on retail branch sale - - 4,154 - 4,154 Other income   1,282     974     1,171     4,516     5,203   Total non-interest income   6,939     3,752     12,021     22,731     23,225   Non-interest expense Salaries and employee benefits 7,253 8,634 7,863 32,934 31,160 Occupancy 849 845 794 3,344 3,409 Equipment and data processing 1,821 1,665 1,680 6,895 6,590 Franchise tax 445 521 254 1,841 1,495 Advertising 292 134 354 778 820 Amortization of core deposit intangible 25 26 33 108 139 Prepayment penalty - 65 - 803 - Deposit insurance premiums 1,026 1,012 1,282 4,202 4,855 Professional fees 1,204 2,219 1,132 5,342 3,677 Real estate owned and other repossessed asset expenses 239 383 766 1,743 2,891 Other expenses   1,148     1,826     2,387     7,179     8,476   Total non-interest expenses   14,302     17,330     16,545     65,169     63,512   Income (loss) before income taxes 4,546 (29,729 ) 7,928 (21,325 ) 230 Income tax expense (benefit)   1,950     (2,838 )   -     (888 )   -   Net income (loss) $ 2,596   $ (26,891 ) $ 7,928   $ (20,437 ) $ 230     Earnings (loss) per share Basic $ 0.08 $ (0.82 ) $ 0.25 $ (0.62 ) $ 0.01 Diluted 0.08 (0.82 ) 0.25 (0.62 ) 0.01                     UNITED COMMUNITY FINANCIAL CORP.SELECTED FINANCIAL HIGHLIGHTS(Unaudited)   At or for the quarters ended December 31,2012 September 30,2012 June 30,2012 March 31,2012 December 31,2011 (In thousands, except per share data)Financial Data Total assets $ 1,808,365 $ 1,830,944 $ 1,906,995 $ 2,041,964 $ 2,030,687 Total loans, net 1,066,240 1,100,328 1,249,595 1,325,101 1,379,276 Total securities 574,562 551,795 431,040 530,283 459,598 Total deposits 1,462,074 1,490,642 1,541,699 1,571,859 1,588,497 Total shareholders' equity 170,760 171,580 195,631 190,014 188,745 Net interest income 14,011 14,128 16,420 15,879 14,838 Provision for loan losses 2,102 30,279 6,264 680 2,386 Noninterest income, excluding other-than-temporary impairment losses 6,952 3,752 6,949 5,091 12,037 Net impairment losses recognized in earnings 13 - - - 16 Noninterest expense 14,302 17,330 17,043 16,494 16,545 Income tax expense (benefit) 1,950 (2,838 ) - - - Net income (loss) 2,596 (26,891 ) 62 3,796 7,928   Share Data Basic earnings (loss) per share $ 0.08 $ (0.82 ) $ - $ 0.12 $ 0.25 Diluted earnings (loss) per share 0.08 (0.82 ) - 0.12 0.25 Book value per share 5.17 5.22 5.95 5.78 5.79 Tangible book value per share 5.16 5.21 5.94 5.77 5.78 Market value per share 2.89 3.49 2.98 2.44 1.27   Shares outstanding at end of period 33,028 32,891 32,885 32,876 32,598 Weighted average shares outstanding--basic 32,880 32,751 32,802 32,693 31,295 Weighted average shares outstanding--diluted 33,153 32,751 32,843 23,697 31,295   Key Ratios Return on average assets 0.57 % -5.67 % 0.01 % 0.74 % 1.53 % Return on average equity 6.06 % -53.53 % 0.12 % 7.89 % 16.97 % Net interest margin 3.23 % 3.17 % 3.55 % 3.30 % 3.04 % Efficiency ratio 69.50 % 93.62 % 78.50 % 77.35 % 87.96 %   Capital Ratios Tier 1 leverage ratio 8.70 % 8.27 % 9.32 % 8.96 % 8.61 % Tier 1 risk-based capital ratio 14.95 % 14.59 % 15.16 % 13.94 % 13.30 % Total risk-based capital ratio 16.21 % 15.85 % 16.43 % 15.21 % 14.57 % Equity to assets 9.44 % 9.37 % 10.26 % 9.31 % 9.29 % Tangible common equity to tangible assets 9.43 % 9.36 % 10.24 % 9.29 % 9.28 %             UNITED COMMUNITY FINANCIAL CORP.SELECTED FINANCIAL HIGHLIGHTS(Unaudited)             At or for the quarters ended December 31,2012 September 30,2012 June 30,2012 March 31,2012 December 31,2011   (Dollars in thousands)Loan Portfolio CompositionReal Estate Loans One-to four-family residential $ 577,249 $ 587,220 $ 635,756 $ 649,000 $ 667,375 Multi-family residential* 80,923 82,518 98,545 114,493 120,991 Nonresidential* 138,188 150,693 229,303 263,891 276,198 Land* 15,808 16,363 19,113 19,735 23,222 Construction Loans One-to four-family residential and land development 28,318 32,483 42,077 49,311 59,339 Multi-family and nonresidential*   4,534     4,480     4,528     4,527     4,528   Total real estate loans 845,020 873,757 1,029,322 1,100,957 1,151,653 Consumer Loans 214,593 222,995 225,067 231,008 238,397 Commercial Loans   26,543     22,183     24,799     26,434     30,146   Total Loans 1,086,156 1,118,935 1,279,188 1,358,399 1,420,196 Less: Allowance for loan losses 21,130 20,048 30,933 34,523 42,271 Deferred loan costs, net   (1,214 )   (1,441 )   (1,340 )   (1,225 )   (1,351 ) Total   19,916     18,607     29,593     33,298     40,920   Loans, net $ 1,066,240   $ 1,100,328   $ 1,249,595   $ 1,325,101   $ 1,379,276   * Categories are considered commercial real estate     At or for the quarters ended December 31,2012 September 30,2012 June 30,2012 March 31,2012 December 31,2011   (Dollars in thousands)Deposit Portfolio CompositionChecking accounts Interest bearing checking accounts $ 132,947 $ 128,794 $ 126,502 $ 129,795 $ 119,298 Non-interest bearing checking accounts   159,767     159,361     162,152     164,155     148,049   Total checking accounts 292,714 288,155 288,654 293,950 267,347 Savings accounts 264,411 259,578 259,593 256,628 234,828 Money market accounts   345,651     345,428     344,750     339,824     314,907   Total non-time deposits 902,776 893,161 892,997 890,402 817,082 Retail certificates of deposit   559,298     597,481     648,632     681,457     771,415   Total certificates of deposit   559,298     597,481     648,632     681,457     771,415   Total deposits $ 1,462,074   $ 1,490,642   $ 1,541,629   $ 1,571,859   $ 1,588,497   Certificates of deposit as a percent of total deposits 38.25 % 40.08 % 42.07 % 43.35 % 48.56 %                     UNITED COMMUNITY FINANCIAL CORP.SELECTED FINANCIAL HIGHLIGHTS(Unaudited)   At or for the quarters ended December 31,2012 September 30,2012 June 30,2012 March 31,2012 December 31,2011 (Dollars in thousands)Allowance For Loan Losses Beginning balance $ 20,048 $ 30,933 $ 34,523 $ 42,271 $ 44,162 Provision 2,102 30,279 6,264 680 2,386 Net chargeoffs   (1,020 )   (41,164 )   (9,854 )   (8,428 )   (4,277 ) Ending balance $ 21,130   $ 20,048   $ 30,933   $ 34,523   $ 42,271     Net Charge-offsReal Estate Loans One-to four-family $ 317 $ 15,010 $ 962 $ 762 $ 366 Multi-family (1 ) 5,632 588 68 203 Nonresidential 224 15,340 7,057 2,579 975 Land (155 ) 1,561 44 1,776 217 Construction Loans One-to four-family residential and land development 259 2,658 516 2,098 1,874 Multi-family and nonresidential   (16 )   (120 )   4     -     -   Total real estate loans 628 40,081 9,171 7,283 3,635 Consumer Loans 397 1,536 160 745 493 Commercial Loans   (5 )   (453 )   523     400     149   Total $ 1,020   $ 41,164   $ 9,854   $ 8,428   $ 4,277       At or for the quarters ended December 31,2012 September 30,2012 June 30,2012 March 31,2012 December 31,2011 (Dollars in thousands)Nonperforming LoansReal Estate Loans One-to four family residential $ 5,437 $ 5,817 $ 26,705 $ 23,721 $ 26,637 Multi-family residential 2,027 1,512 9,582 5,411 5,860 Nonresidential 20,743 17,484 43,103 41,871 42,902 Land 6,047 6,228 8,316 8,472 11,142 Construction Loans One-to four-family residential and land development 7,466 9,527 18,335 22,455 27,104 Multi-family and nonresidential   -     -     -     -     -   Total real estate loans 41,720 40,568 106,041 101,930 113,645 Consumer Loans 4,842 4,921 6,702 6,165 6,620 Commercial Loans   1,225     1,068     1,786     1,813     2,830   Total Loans $ 47,787   $ 46,557   $ 114,529   $ 109,908   $ 123,095     Total Nonperforming Loans and Nonperforming Assets Past due 90 days and on nonaccrual status $ 38,378 $ 41,335 $ 97,357 $ 91,153 $ 104,812 Past due 90 days and still accruing   3,678     47     47     303     39   Past due 90 days 42,056 41,382 97,404 91,456 104,851 Past due less than 90 days and on nonaccrual   5,731     5,175     17,125     18,452     18,244   Total Nonperforming Loans 47,787 46,557 114,529 109,908 123,095 Other Real Estate Owned 18,075 19,732 24,325 28,517 32,946 Repossessed Assets   365     474     453     540     540   Total Nonperforming Assets $ 66,227   $ 66,763   $ 139,307   $ 138,965   $ 156,581     Total Troubled Debt Restructured Loans Accruing $ 21,006 $ 17,002 $ 18,530 $ 35,657 $ 33,146 Non-accruing   4,430     4,531     14,250     15,161     17,752   Total $ 25,436   $ 21,533   $ 32,780   $ 50,818   $ 50,898     Media Contact:Home SavingsColleen Scott, 330-742-0638Vice President of Marketingcscott@homesavings.comorInvestor Contact:United Community Financial Corp.James R. Reske, 330-742-0592Chief Financial Officerjreske@ucfconline.com