News Column

United Community Financial Corp. Announces Second Quarter Results

July 22, 2014

  • Net income for the second quarter of 2014 totaled $42.4 million which includes the recognition of $38.8 million of the tax benefit related to the reversal of the deferred tax asset valuation allowance
  • Strongest pretax quarter, adjusted for security gains, since March 2008
  • The quarter included a $923,000 charge as part of a cost reduction initiative designed to reduce annual costs on a go-forward basis by over $5.0 million
  • Annualized loan growth of 11% through the first two quarters of 2014
  • Tangible book value per share increased to $4.66 at June 30, 2014, from $3.76 at March 31, 2014
  • Declared a dividend of $0.01 per common share - first dividend since 2008
  • Initiated common stock repurchase effort during the second quarter

    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 $42.4 million (including the recognition of $38.8 million of income tax benefit from the reversal of a deferred tax asset valuation reserve) for the three months ended June 30, 2014. The Company also reported net income of $44.5 million (including the recognition of $38.7 million of income tax benefit from the reversal of a deferred tax asset valuation reserve) for the six months ended June 30, 2014.

    Gary M. Small, President and Chief Executive Officer of United Community and Home Savings, commented that, “The second quarter results reflect solid core earnings progress for Home Savings. The growth in commercial loan commitments combined with meaningful cost reduction efforts across the organization and expected to fuel continued performance improvement in future quarters.”

    Net Interest Income and Margin

    Net interest income was $12.7 million in the second quarter of 2014 compared to $12.6 million in second quarter of 2013. Net interest margin increased from 2.93% during the second quarter of 2013 to 3.09% in the second quarter of 2014. The increase in net interest margin over the last year is reflective of the migration of lower interest earning assets into loans outstanding. The yield on earning assets was 3.83% for the second quarter of 2014 compared to 3.71% for the second quarter of 2013 and average loan balances increased $52.9 million over this same period.

    Net interest income for the six months ended June 30, 2014, was $25.3 million compared to $25.6 million for the six months ended June 30, 2013. The net interest margin was 3.08% for the six months ended June 30, 2014 compared to 2.97% for the six months ended June 30, 2013. The yield on interest-earning assets increased from 3.77% to 3.83% during this period while the cost of interest-bearing liabilities decreased four basis points during the period to 0.92%.

    Noninterest Income

    Noninterest income decreased in the second quarter of 2014 to $3.4 million, as compared to noninterest income for the second quarter of 2013 of $6.4 million. Security gains of approximately $1.9 million were recognized in the second quarter of 2013. Additionally, mortgage banking income declined $1.1 million. Offsetting these declines was a reduction in losses incurred on the resolution of real estate owned of $1.1 million.

    In the first half of 2014, noninterest income was $6.7 million, compared to $12.1 million in the first half of 2013. Security gains of approximately $2.6 million were recognized in the first half of 2013. Additionally, mortgage banking income declined $2.1 million.

    Noninterest Expense

    During the second quarter of 2014, Home Savings incurred a $923,000 charge related to cost reduction initiatives. The Company anticipates a savings of approximately $5.0 million annualized on a go-forward basis or approximately 9.0% of annualized noninterest expenses as a result of this initiative.

    In spite of Home Savings incurring a $923,000 restructure charge in the second quarter of 2014, noninterest expense improved $143,000 to $14.2 million when compared to the second quarter of 2013.

    In the second quarter of 2014, salaries and employee benefits were approximately $1.2 million higher, primarily due to the above mentioned cost reduction initiative. These increases were offset by a decline in most other expense categories.

    Noninterest expense declined to $27.8 million in the first half of 2014 compared to $28.2 million in the first half of 2013. Similarly to the quarterly comparison, the first six months of 2014 included the accrual of restructuring charges previously mentioned. Franchise/financial institutions tax, FDIC insurance premiums and other expenses were also lower in the first six months of 2014.

    Asset Quality

    Asset quality continued to improve as delinquent loans declined through the second quarter of 2014. As of June 30, 2014, delinquent loans were $20.2 million, down $3.6 million, or 15.2%, from $23.8 million at December 31, 2013. Nonperforming loans also continued to decline, which as of June 30, 2014 were $20.3 million, down $3.3 million, or 13.9%, from $23.6 million at December 31, 2013. Nonperforming assets were $24.9 million as of June 30, 2014, down $5.1 million, or 16.9%, from $29.9 million at December 31, 2013. The allowance for loan loss as a percentage of total loans was 1.65% at June 30, 2014, as compared with 2.01% at December 31, 2013.

    The provision for loan losses decreased $2.7 million in the second quarter of 2014, compared to the second quarter of 2013. The provision for loan losses also decreased $4.8 million in the first six months of 2014, compared to the first six months of 2013. During the second quarter of 2014, a large commercial real estate loan paid off, releasing approximately $748,000 in reserves. In addition, Home Savings individually analyzed a large portion of impaired mortgage and home equity loans in 2014. Many of these loans were deemed to have adequate collateral to cover any potential future losses allowing for the release of reserves. Finally, as a result of continued improvement in asset quality and a decline in loan loss history, Home Savings has adjusted historical and environmental factors resulting in a decrease in reserves.

    Deferred Tax Asset Valuation

    At the end of 2010, the Company established a deferred tax asset (“DTA”) valuation allowance. In the course of its periodic assessment of its DTA position, the Company was able to reverse this valuation allowance in the second quarter of 2014. The Company has determined that it is more likely than not it will be able to fully realize its net deferred tax asset, including its tax loss carryforward. This action resulted in the recognition of a $38.8 million income tax benefit during the current year. As a result of this reversal, tangible book value increased $0.77 cents per share to $4.66.

    Small continued, “Thanks to a steady stream of positive quarterly earnings, we are in a position to reflect the value of the tax asset on the balance sheet. The Company’s book value better reflects the value of the organization.”

    Capital and Book Value per Common Share

    The Board of Directors declared a quarterly cash dividend of $0.01 per common share payable August 15, 2014 to shareholders of record at the close of business August 1, 2014.

    In addition, as part of the Company’s capital management strategies of maximizing shareholder value and returns, during the second quarter, the Company reinstated its share repurchase program to take advantage of the favorable market conditions.

    Small added, “The dividend reflects a conservative payout ratio of normalized annual earnings. Investors can expect prudent capital management designed to deliver the best return for our shareholders.”

    Home Savings is a wholly-owned subsidiary of the Company and operates 33 full-service banking offices and nine 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”, “will have”, “can expect” 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)
     

    June 30,

    December 31,
    2014 2013
    (Dollars in thousands)
    Assets:
    Cash and deposits with banks $ 27,363 $ 20,937
    Federal funds sold   16,227     56,394  
    Total cash and cash equivalents 43,590 77,331
    Securities:
    Available for sale, at fair value 516,637 511,006
    Loans held for sale 9,290 4,838
    Loans, net of allowance for loan losses of $18,264 and $21,116 1,086,771 1,029,192
    Federal Home Loan Bank stock, at cost 18,068 26,464
    Premises and equipment, net 20,391 20,924
    Accrued interest receivable 5,762 5,694
    Real estate owned and other repossessed assets 4,548 6,341
    Core deposit intangible 117 152
    Cash surrender value of life insurance 45,684 44,972
    Other assets   39,081     10,936  
    Total assets $ 1,789,939   $ 1,737,850  
     
    Liabilities and Shareholders' Equity
    Liabilities:
    Deposits:
    Interest bearing $ 1,190,063 $ 1,221,162
    Non-interest bearing   185,411     170,590  
    Total deposits 1,375,474 1,391,752
    Borrowed funds:
    Federal Home Loan Bank advances 65,000 50,000
    Repurchase agreements and other   90,567     90,578  
    Total borrowed funds 155,567 140,578
    Advance payments by borrowers for taxes and insurance 12,708 20,060
    Accrued interest payable 573 550
    Accrued expenses and other liabilities   10,568     9,836  
    Total liabilities   1,554,890     1,562,776  
     
    Shareholders' Equity:
    Preferred stock-no par value; 1,000,000 shares authorized and no shares outstanding - -

    Common stock-no par value; 499,000,000 shares authorized; 54,138,910 shares issued and 50,452,083 and 50,339,089 shares, respectively, outstanding

    174,176 174,719
    Retained earnings 123,893 81,515
    Accumulated other comprehensive loss (25,901 ) (41,665 )
    Treasury stock, at cost, 3,686,827 and 3,799,821 shares, respectively   (37,119 )   (39,495 )
    Total shareholders’ equity   235,049     175,074  
    Total liabilities and shareholders’ equity $ 1,789,939   $ 1,737,850  
     
                     
     
    UNITED COMMUNITY FINANCIAL CORP.
    CONSOLIDATED STATEMENTS OF OPERATIONS
    (Unaudited)
     
    For the Three Months Ended For the Six Months Ended
    June 30, March 31, June 30, June 30, June 30,
    2014 2014 2013 2014 2013
    (Dollars in thousands, except per share data)
    Interest income
    Loans $ 12,361 $ 12,122 $ 12,207 $ 24,483 $ 24,834
    Loans held for sale 74 49 78 123 167
    Securities:
    Available for sale 3,125 3,241 3,384 6,366 6,812
    Federal Home Loan Bank stock dividends 230 267 277 497 560
    Other interest earning assets   21     26     41     47     50  
    Total interest income 15,811 15,705 15,987 31,516 32,423
    Interest expense
    Deposits 1,627 1,677 1,909 3,304 3,996
    Federal Home Loan Bank advances 524 518 524 1,042 1,047
    Repurchase agreements and other   919     908     918     1,827     1,827  
    Total interest expense   3,070     3,103     3,351     6,173     6,870  
    Net interest income 12,741 12,602 12,636 25,343 25,553
    Provision for loan losses   (1,614 )   33     1,113     (1,581 )   3,177  
    Net interest income after provision for loan losses   14,355     12,569     11,523     26,924     22,376  
    Non-interest income
    Non-deposit investment income 407 341 373 748 914
    Service fees and other charges
    Mortgage servicing fees 686 689 698 1,375 1,402
    Deposit related fees 1,331 1,198 1,334 2,529 2,594
    Mortgage servicing rights valuation (5 ) (1 ) 211 (6 ) 646
    Mortgage servicing rights amortization (432 ) (392 ) (570 ) (824 ) (1,230 )
    Other service fees - - 18 - 61
    Net gains (losses):
    Securities available for sale 31 3 1,857 34 2,578
    Mortgage banking income 312 612 1,389 924 3,032
    Real estate owned and other repossessed assets charges, net (42 ) (383 ) (1,140 ) (425 ) (1,571 )
    Card fees 852 772 1,179 1,624 1,913
    Other income   298     385     1,035     683     1,738  
    Total non-interest income   3,438     3,224     6,384     6,662     12,077  
    Non-interest expense
    Salaries and employee benefits 8,282 7,580 7,132 15,862 14,005
    Occupancy 815 933 851 1,748 1,673
    Equipment and data processing 1,963 1,798 1,782 3,761 3,542
    Franchise tax 198 198 400 396 831
    Advertising 247 189 281 436 420
    Amortization of core deposit intangible 16 19 23 35 46
    Deposit insurance premiums 327 253 603 580 1,157
    Other insurance premiums 135 137 175 272 351
    Professional fees
    Legal and consulting fees 177 161 (43 ) 338 149
    Other professional fees 617 392 917 1,009 1,133
    Real estate owned and other repossessed asset expenses 137 213 293 350 786
    Other expenses   1,312     1,670     1,954     2,982     4,139  
    Total non-interest expenses   14,226     13,543     14,368     27,769     28,232  
    Income before income taxes 3,567 2,250 3,539 5,817 6,221
    Income tax expense (benefit)   (38,837 )   156     150     (38,681 )   150  
    Net income 42,404 2,094 3,389 44,498 6,071
    Amortization of discount on preferred stock   -     -     5,930     -     6,751  
    Earnings available to common shareholders $ 42,404   $ 2,094   $ (2,541 ) $ 44,498   $ (680 )
     
    Earnings per common share
    Basic $ 0.84 $ 0.04 $ (0.06 ) $ 0.88 $ (0.02 )
    Diluted 0.84 0.04 (0.06 ) 0.88 (0.02 )
     
                   
     
    UNITED COMMUNITY FINANCIAL CORP.
    SELECTED FINANCIAL HIGHLIGHTS
    (Unaudited)
     
    At or for the quarters ended

    June 30,

    2014

    March 31,

    2014

    December 31,

    2013

    September 30,

    2013

    June 30,

    2013

    (Dollars in thousands, except per share data)
    Financial Data
    Total assets $ 1,789,939 $ 1,749,144 $ 1,737,850 $ 1,756,202 $ 1,787,071
    Total loans, net 1,086,771 1,060,901 1,029,192 1,009,029 1,008,843
    Total securities 516,637 517,388 511,006 542,811 555,188
    Total deposits 1,375,474 1,398,067 1,391,752 1,410,610 1,433,815
    Total shareholders' equity 235,049 189,829 175,074 183,322 183,759
    Net interest income 12,741 12,602 13,074 12,704 12,636
    Provision for loan losses (1,614 ) 33 282 657 1,113
    Noninterest income 3,438 3,224 4,124 3,548 6,384
    Noninterest expense 14,226 13,543 14,977 13,528 14,368
    Income tax expense (benefit) (38,837 ) 156 (300 ) 350 150
    Net income 42,404 2,094 2,239 1,717 3,389
     
    Share Data
    Basic earnings (loss) per common share $ 0.84 $ 0.04 $ 0.04 $ 0.03 $ (0.06 )
    Diluted earnings (loss) per common share 0.84 0.04 0.04 0.03 (0.06 )
    Book value per common share 4.66 3.76 3.48 3.65 3.66
    Tangible book value per common share 4.66 3.76 3.47 3.65 3.66
    Market value per common share 4.13 3.92 3.57 3.89 4.65
     
    Common shares outstanding at end of period 50,452 50,422 50,339 50,225 50,189
    Weighted average shares outstanding--basic 50,274 50,196 50,114 50,110 43,160
    Weighted average shares outstanding--diluted 50,495 50,451 50,360 50,382 43,160
     
    Key Ratios
    Return on average assets (1) 9.67 % 0.48 % 0.51 % 0.39 % 0.74 %
    Return on average equity (2) 84.84 % 4.52 % 4.82 % 3.75 % 6.46 %
    Net interest margin 3.09 % 3.07 % 3.17 % 3.04 % 2.93 %
    Efficiency ratio 87.77 % 83.45 % 85.89 % 81.14 % 78.38 %
    Nonperforming loans to total loans, end of period 1.87 % 2.17 % 2.29 % 2.72 % 2.88 %
    Nonperforming assets to total assets, end of period 1.39 % 1.58 % 1.72 % 2.10 % 2.26 %
    Allowance for loan loss as a percent of loans, end of period 1.65 % 1.90 % 2.01 % 2.04 % 1.85 %
    Delinquent loans to total loans, end of period 1.86 % 2.07 % 2.32 % 2.77 % 3.38 %
     
    (1) Net income divided by average total assets
    (2) Net income divided by average total equity
     
                   
     
    UNITED COMMUNITY FINANCIAL CORP.
    SELECTED FINANCIAL HIGHLIGHTS
    (Unaudited)
     
    At or for the quarters ended

    June 30,

    2014

    March 31,

    2014

    December 31,

    2013

    September 30,

    2013

    June 30,

    2013

    (Dollars in thousands)
    Loan Portfolio Composition
    Real Estate Loans
    One-to four-family residential $ 645,211 $ 610,879 $ 585,025 $ 575,791 $ 572,575
    Multi-family residential* 52,938 54,233 54,485 55,696 62,559
    Nonresidential* 122,066 125,796 131,251 127,699 120,586
    Land* 9,635 9,829 9,683 9,546 9,821
    Construction Loans
    One-to four-family residential and land development 51,974 55,082 53,349 38,932 32,512
    Multi-family and nonresidential*   1,010     207     -     -     4,584  
    Total real estate loans 882,834 856,026 833,793 807,664 802,637
    Consumer Loans 182,027 184,409 189,231 194,383 199,634
    Commercial Loans   39,127     40,013     26,141     26,888     24,526  
    Total Loans 1,103,988 1,080,448 1,049,165 1,028,935 1,026,797
    Less:
    Allowance for loan losses 18,264 20,554 21,116 21,032 19,037
    Deferred loan costs, net   (1,047 )   (1,007 )   (1,143 )   (1,126 )   (1,083 )
    Total   17,217     19,547     19,973     19,906     17,954  
    Loans, net $ 1,086,771   $ 1,060,901   $ 1,029,192   $ 1,009,029   $ 1,008,843  
    * Categories are considered commercial real estate
     
     
    At or for the quarters ended

    June 30,

    2014

    March 31,

    2014

    December 31,

    2013

    September 30,

    2013

    June 30,

    2013

    (Dollars in thousands)
    Deposit Portfolio Composition
    Checking accounts
    Interest bearing checking accounts $ 133,999 $ 136,031 $ 132,751 $ 134,766 $ 135,228
    Non-interest bearing checking accounts   185,411     185,620     170,590     167,167     165,224  
    Total checking accounts 319,410 321,651 303,341 301,933 300,452
    Savings accounts 277,404 278,906 267,515 267,062 272,991
    Money market accounts   326,738     329,163     328,625     331,449     334,242  
    Total non-time deposits 923,552 929,720 899,481 900,444 907,685
    Retail certificates of deposit   451,922     468,347     492,271     510,166     526,130  
    Total certificates of deposit   451,922     468,347     492,271     510,166     526,130  
    Total deposits $ 1,375,474   $ 1,398,067   $ 1,391,752   $ 1,410,610   $ 1,433,815  
     
    Certificates of deposit as a percent of total deposits 32.86 % 33.50 % 35.37 % 36.17 % 36.69 %
     
                   
     
    UNITED COMMUNITY FINANCIAL CORP.
    SELECTED FINANCIAL HIGHLIGHTS
    (Unaudited)
     
    At or for the quarters ended

    June 30,

    2014

    March 31,

    2014

    December 31,

    2013

    September 30,

    2013

    June 30,

    2013

    (Dollars in thousands)
     
    Allowance For Loan Losses
    Beginning balance $ 20,554 $ 21,116 $ 21,032 $ 19,037 $ 21,827
    Provision (1,614 ) 33 282 657 1,113
    Net (chargeoffs) recoveries   (676 )   (595 )   (198 )   1,338     (3,903 )
    Ending balance $ 18,264   $ 20,554   $ 21,116   $ 21,032   $ 19,037  
     
    Net (Charge-offs) Recoveries
    Real Estate Loans
    One-to four-family $ (181 ) $ (163 ) $ 42 $ (201 ) $ (487 )
    Multi-family (135 ) (5 ) - 13 (113 )
    Nonresidential 56 (252 ) (29 ) (381 ) (1,288 )
    Land - - 12 10 (1,639 )
    Construction Loans
    One-to four-family residential and land development (330 ) (79 ) 451 1,876 (108 )
    Multi-family and nonresidential   -     -     (620 )   -     4  
    Total real estate loans (590 ) (499 ) (144 ) 1,317 (3,631 )
    Consumer Loans (304 ) (233 ) (193 ) (143 ) (387 )
    Commercial Loans   218     137     139     164     115  
    Total $ (676 ) $ (595 ) $ (198 ) $ 1,338   $ (3,903 )
     
     
    At or for the quarters ended

    June 30,

    2014

    March 31,

    2014

    December 31,

    2013

    September 30,

    2013

    June 30,

    2013

    (Dollars in thousands)
    Nonperforming Loans
    Real Estate Loans
    One-to four-family residential $ 5,380 $ 6,133 $ 6,356 $ 6,127 $ 4,993
    Multi-family residential 133 1,158 641 705 727
    Nonresidential 4,902 5,033 5,560 8,963 10,429
    Land 532 532 496 628 656
    Construction Loans
    One-to four-family residential and land development   2,553     2,884     3,084     3,320     4,385  
    Total real estate loans 13,500 15,740 16,137 19,743 21,190
    Consumer Loans 2,663 3,089 3,293 3,564 3,459
    Commercial Loans   4,151     4,155     4,158     4,177     4,453  
    Total Loans $ 20,314   $ 22,984   $ 23,588   $ 27,484   $ 29,102  
     
    Total Nonperforming Loans and Nonperforming Assets
    Past due 90 days and on nonaccrual status $ 16,636 $ 18,708 $ 20,188 $ 20,946 $ 22,487
    Past due 90 days and still accruing   -     -     45     3,413     3,501  
    Past due 90 days 16,636 18,708 20,233 24,359 25,988
    Past due less than 90 days and on nonaccrual   3,678     4,276     3,355     3,125     3,114  
    Total Nonperforming Loans 20,314 22,984 23,588 27,484 29,102
    Other real estate owned 4,546 4,700 6,318 9,276 11,203
    Repossessed assets   2     -     23     39     156  
    Total Nonperforming Assets $ 24,862   $ 27,684   $ 29,929   $ 36,799   $ 40,461  
     
    Total Troubled Debt Restructured Loans
    Accruing $ 25,905 $ 26,614 $ 26,577 $ 26,629 $ 25,165
    Nonaccruing   4,328     4,724     4,941     5,474     5,455  
    Total $ 30,233   $ 31,338   $ 31,518   $ 32,103   $ 30,620  
     





    Media Contact:

    Home Savings

    Colleen Scott, 330-742-0638

    Vice President of Marketing

    cscott@homesavings.com

    or

    Investor Contact:

    United Community Financial Corp.

    Gary M. Small, 330-742-0472

    President and Chief Executive Officer

    Source: United Community Financial Corp.


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