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

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

YOUNGSTOWN, Ohio--(BUSINESS WIRE)-- United Community Financial Corp. (Company) (NAS: 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,
20122011
(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 equivalents42,61354,136
Securities:
Available for sale, at fair value574,562459,598
Loans held for sale13,03112,727
Loans, net of allowance for loan losses of $21,130 and $42,271, respectively1,066,2401,379,276
Federal Home Loan Bank stock, at cost26,46426,464
Premises and equipment, net21,54919,175
Accrued interest receivable6,2386,741
Real estate owned and other repossessed assets18,44033,486
Core deposit intangible238346
Cash surrender value of life insurance28,88128,354
Other assets 10,109  10,384 
Total assets$1,808,365 $2,030,687 
 
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Interest bearing$1,302,307$1,440,448
Noninterest bearing 159,767  148,049 
Total deposits1,462,0741,588,497
Borrowed funds:
Federal Home Loan Bank advances50,000128,155
Repurchase agreements and other 90,598  90,618 
Total borrowed funds140,598218,773
Advance payments by borrowers for taxes and insurance23,59023,282
Accrued interest payable563610
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, outstanding128,026128,031
Retained earnings86,345110,681
Accumulated other comprehensive income6,6825,032
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 EndedFor the Twelve Months Ended
December 31,September 30,December 31,December 31,December 31,
20122012201120122011
(Dollars in thousands, except per share data)
Interest income
Loans$13,862$14,567$18,801$63,044$82,290
Loans held for sale119101272424542
Securities:
Available for sale3,4883,2193,10213,74112,366
Federal Home Loan Bank stock dividends3162792671,1751,125
Other interest earning assets 12  25  29  60  64 
Total interest income17,79718,19122,47178,44496,387
Interest expense
Deposits2,3222,6005,95711,89624,341
Federal Home Loan Bank advances5355357482,4153,162
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 income14,01114,12814,83860,43865,175
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 income3734783481,8981,398
Service fees and other charges2,7947931,1726,8054,416
Net gains (losses):
Securities available for sale1,1641,1925,1336,3258,633
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 income2,0832,1101,2437,3915,675
Real estate owned and other repossessed assets(744)(1,795)(1,184)(4,191) Read Full Story

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