United Community Financial Corp. Announces Strong Second Quarter Results

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United Community Financial Corp. Announces Strong Second Quarter Results

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 $3.4 million (before amortization of the discount on preferred stock1) for the three months ended June 30, 2013. The Company also reported net income of $6.1 million (before amortization of the discount on preferred stock1) for the six months ended June 30, 2013.

Selected second quarter results:

  • Net income for the first half of 2013 was $6.1 million, up 57.4% from the first half of 2012
  • Delinquent loans were $34.1 million at June 30, 2013, down 29.2% from December 31, 2012
  • Nonperforming assets were $40.5 million at June 30, 2013, down 42.6% from December 31, 2012
  • Classified loans were $44.9 million at June 30, 2013, down 24.9% from December 31, 2012
  • Home Savings' Tier 1 leverage ratiowas 10.03% and the total risk based capital ratio was 19.42%

Patrick W. Bevack, President and Chief Executive Officer of United Community and Home Savings, commented that, "Strong performance throughout the second quarter continues the positive trend for our Company. In May, shareholders approved the conversion of preferred shares issued earlier in the year into common shares and an investment of $2.1 million by certain inside investors. We also completed the rights offering where by existing shareholders invested another $5.0 million in capital. These final steps brought to a close our successful efforts in raising $47.0 million in capital. Subsequently, the Federal Reserve lifted the Order to Cease and Desist that United Community had been operating under since August 2008." Bevack continued, "We will continue to focus our efforts on maintaining the strength and profitability of our Company."

Asset Quality

Delinquent loans continued to decline through the second quarter of 2013. As of June 30, 2013, delinquent loans were $34.1 million, down $14.1 million, or 31.1%, from $48.2 million at December 31, 2012. Nonperforming loans also continued to decline, which as of June 30, 2013 were $29.1 million, down $18.7 million, or 41.8%, from $47.8 million at December 31, 2012. Nonperforming assets were $40.5 million as of June 30, 2013, down $25.8 million, or 24.9%, from $66.2 million at December 31, 2012.

The provision for loan losses decreased to $1.1 million in the second quarter of 2013, compared to $6.3 million in the second quarter of 2012. The provision for loan losses also decreased to $3.2 million in the first six months of 2013, compared to $6.9 million in the first six months of 2012. The improvement in the provision for loan losses is primarily a result of improvements in asset quality. Specifically, the resolution in the second quarter of the Company's largest classified loan relationship, consisting of eight loans, resulted in a reduction of $16.7 million in classified loans in the second quarter of 2012.

In addition, the Company made significant progress in the resolution of foreclosed properties in the second quarter and for the year to date. At December 31, 2012, other real estate owned and other repossessed assets (OREO) consisted of 166 properties worth $18.4 million. The Company sold 47 properties worth $3.7 million in the second quarter of 2013 and 80 properties worth $6.4 million in the first half, bringing total OREO, net of inflows, to 105 properties worth $11.2 million as of June 30, 2013.

Net Interest Income and Margin

Net interest income for the three months ended June 30, 2013 and June 30, 2012, was $12.6 million and $16.4 million, respectively.

Total interest income decreased $4.9 million in the second quarter of 2013 compared to the second quarter of 2012, primarily as a result of a decrease of $282.0 million in the average balance of outstanding loans. United Community also experienced a decrease in the yield on net loans of 42 basis points.

Total interest expense decreased $1.1 million for the quarter ended June 30, 2013, as compared to the same quarter last year. The change was due primarily to reductions of $1.0 million in interest paid on deposits. The overall decrease in deposit interest expense was attributable to a shift in deposit balances from certificates of deposit to relatively less expensive non-time deposits. Between June 30, 2012 and

June 30, 2013, the average outstanding balance of certificates of deposit declined by $131.3 million, while non-time deposits increased by $14.1 million. Also contributing to the decrease in interest expense was a reduction of 27 basis points in the cost of certificates of deposit, as well as a decrease in the cost of non-time deposits of 10 basis points.

For the six months ended June 30, 2013 and June 30, 2012, net interest income was $25.6 million and $32.3 million, respectively.

Total interest income decreased $10.0 million in the first half of 2013 compared to the first half of 2012, primarily as a result of a decrease of $296.5 million in the average balance of outstanding loans. United Community also experienced a decrease in the yield on net loans of 40 basis points.

Total interest expense decreased $3.3 million for the six months ended June 30, 2013, as compared to the same period last year. The change was due primarily to reductions of $3.0 million in interest paid on deposits. The overall decrease in interest expense was attributable to a shift in deposit balances from certificates of deposit to relatively less expensive non-time deposits. Between June 30, 2012 and

June 30, 2013, the average outstanding balance of certificates of deposit declined by $151.9 million, while non-time deposits increased by $31.5 million. Also contributing to the decrease was a reduction of 49 basis points in the cost of certificates of deposit, as well as a decrease in the cost of non-time deposits of 11 basis points.

Noninterest Income

Noninterest income decreased in the second quarter of 2013 to $6.4 million, as compared to noninterest income for the second quarter of 2012 of $6.9 million. Decreased noninterest income was a result of lower gains recognized on the sale of securities available for sale, higher losses recognized on the valuation and disposal of real estate owned and other repossessed assets as the Company increased the pace of the disposition of foreclosed properties. Home Savings also recognized a decrease in mortgage banking income in the second quarter of 2013 as compared to the same quarter in 2012 as a result of a lower volume of loans being originated for sale in the secondary market. These changes were offset by higher service fees and other charges recognized compared to the first quarter of 2012. The change in service fees was a result of a positive valuation adjustment of $212,000 recognized on deferred mortgage servicing rights in the second quarter of 2013 as compared to the same period in 2012. The positive valuation adjustment is the result of higher interest rates on newly originated loans in the current period. Other income also positively affected the comparison due to a positive valuation adjustment of $561,000 on interest rate caps and increased debit card fee income of $374,000 during the current quarter, as compared to the same quarter last year. The increase in debit card income is the result of higher usage of debit cards by Home Savings' customers, along with a one-time payment from VISA.

In the first half of 2013, noninterest income increased $37,000 to $12.1 million, as compared to noninterest income for the first half of 2012 of $12.0 million. While in total the change was only $37,000, components within the various categories changed significantly. During the first six months of 2013, service fees and other charges increased as a result of a positive valuation adjustment on deferred mortgage servicing rights of $646,000. Additionally, other income increased $1.4 million due primarily to Home Savings recognizing a positive valuation adjustment of $700,000 on interest rate caps during 2013 as compared to a negative valuation adjustment of $843,000 during the first six months of 2012. Increased debit card fee income of $303,000 earned during the first half of 2013 also contributed to the increase in noninterest income. These increases in noninterest income were offset by a decline of $1.4 million in gains on the sale of securities in the first half of 2013, as compared to the same period last year.

Noninterest Expense

Noninterest expense was $14.4 million in the second quarter of 2013, compared to $17.0 million in the second quarter of 2012. In the second quarter of 2013, salaries and employee benefits were down because of lower expenses associated with incentive payments and a lower level of salaries as a result of fewer full-time equivalent employees at June 30, 2013, as compared to June 30, 2012. Deposit insurance premiums were lower in the second quarter of 2013 due to the Bank being able to avail itself of more favorable insurance rates and a lower average asset base used in the calculation of insurance premiums. Professional fees were $165,000 lower during the quarter ended June 30, 2013, as compared to the same quarter last year. The improvement in asset quality has reduced the need to engage legal and other consultants to assist in the resolution of problem assets. Other expenses were lower in the second quarter of 2013, as compared to the same quarter in 2012. This positive variance is the result of lower expenses incurred for real estate taxes and other expenses paid prior to loans going into foreclosure. Lastly, prepayment penalties of $738,000 incurred for the early payoff of FHLB advances in the second quarter of 2012 were not a recurring expenditure in 2013.

Noninterest expense was $28.2 million in the first half of 2013 compared to $33.5 million in the first half of 2012. In the first six months of 2013, salaries and employee benefits were down because of the recognition of expenses associated with a restricted stock grant that occurred in the first quarter of 2012. A similar award was not granted in 2013. Deposit insurance premiums were lower in the first six months of 2013 due to the Bank being able to avail itself of more favorable insurance rates and a lower average asset base used in the calculation of insurance premiums. Professional fees were $637,000 lower during the six months ended June 30, 2013 as compared to the same period last year. The reduction was significantly due to the improvement in asset quality, which has reduced the need to engage legal and other consultants to assist in the resolution of problem assets. Other expenses were lower in the first half of 2013 as compared to the same period in 2012. This positive variance is the result of lower expenses incurred for real estate taxes and other expenses paid prior to loans going into foreclosure. Lastly, prepayment penalties incurred on the early payoff of FHLB advances in the second quarter of 2012 were not a recurring expenditure in 2013.

Capital and Book Value per Common Share

Home Savings' Tier 1 leverage ratio was 10.03% as of June 30, 2013, as compared to 8.70% as of December 31, 2012. Home Savings' total risk-based capital ratio was 19.42% at June 30, 2013, as compared to 16.21% at December 31, 2012. Tangible book value per common share at June 30, 2013 was $3.66, as compared to $5.16 at December 31, 2012. Book value per share at June 30, 2013 was affected by two items that took place in the first half of 2013: the $35.9 million unrealized loss on available for sale securities and the dilutive effect of the capital raise, in which the Company issued 17.1 million shares in exchange for net proceeds of $42.5 million, after expenses.

Home Savings is considered well capitalized and is no longer considered a troubled institution. The Memorandum of Understanding (MOU) entered into on January 31, 2013, requires Home Savings to maintain a Tier 1 leverage ratio of 8.5% and a total risk-based capital ratio of 12.0%. As of June 30, 2013, Home Savings was in compliance with the MOU.

As previously announced, on March 22, 2013, pursuant to the securities purchase agreements entered into on January 11, 2013 between United Community and certain accredited investors, the investors invested an aggregate of $39.9 million in UCFC for 6,574,272 newly issued common shares of United Community, at a purchase price of $2.75 per share, and 7,942 newly created and issued perpetual mandatorily convertible non-cumulative preferred shares of UCFC at a purchase price of $2,750 per share. On May 28, 2013, United Community shareholders approved the conversion of the 7,942 preferred shares into 7,942,000 common shares and the purchase of 755,820 newly issued common shares by some of United Community's directors, officers and their affiliates at a purchase price of $2.75 per share for an aggregate investment of $2.1 million.

On April 26, 2013, United Community commenced a $5.0 million rights offering of United Community common shares at $2.75 per share. The rights offering, which was fully subscribed, was completed on June 10, 2013, and United Community issued 1,818,181 shares to existing shareholders that elected to participate.

As of June 30, 2013 and December 31, 2012, the deferred tax asset was $28.8 million. The Company has established a full valuation allowance against the entire net deferred tax asset.

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" 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.

_________________________
(1)As part of the capital raise, we issued preferred stock that was later converted to common stock.No dividend was declared or paid on the preferred stock.However, because the preferred stock was issued at a price below the then market price of our common stock, the difference is deemed a non-cash dividend under U.S. Generally Accepted Accounting Principles (GAAP) and is deducted in the calculation of net income available to common shareholders.Please refer to Note 12 of the Consolidated Financial Statements found in United Community's Form 10-Q for the period ended June 30, 2013 for further detail.

      
 
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
 
June 30,December 31,
20132012
(Dollars in thousands)
Assets:
Cash and deposits with banks$24,705$26,041
Federal funds sold 85,551  16,572 
Total cash and cash equivalents110,25642,613
Securities:
Available for sale, at fair value555,188574,562
Loans held for sale9,33213,031
Loans, net of allowance for loan losses of $19,037 and $21,1301,008,8431,066,240
Federal Home Loan Bank stock, at cost26,46426,464
Premises and equipment, net21,18321,549
Accrued interest receivable5,8386,238
Real estate owned and other repossessed assets11,35918,440
Core deposit intangible192238
Cash surrender value of life insurance29,34028,881
Other assets 9,076  10,109 
Total assets$1,787,071 $1,808,365 
 
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Interest bearing$1,268,591$1,302,307
Non-interest bearing 165,224  159,767 
Total deposits1,433,8151,462,074
Borrowed funds:
Federal Home Loan Bank advances50,00050,000
Repurchase agreements and other 90,588  90,598 
Total borrowed funds140,588140,598
Advance payments by borrowers for taxes and insurance13,42823,590
Accrued interest payable597563
Accrued expenses and other liabilities 14,884  10,780 
Total liabilities 1,603,312  1,637,605 
 
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 and 37,804,457 shares, respectively, issued and 50,188,664 and 33,027,886 shares, respectively, outstanding

175,346128,026
Retained earnings79,20986,345
Accumulated other comprehensive income(29,203)6,682
Treasury stock, at cost, 3,950,246 and 4,776,571 shares, respectively (41,593) (50,293)
Total shareholders' equity 183,759  170,760 
Total liabilities and shareholders' equity$1,787,071 $1,808,365 
 
         
 
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF NET INCOME
(Unaudited)
 
For the Three Months EndedFor the Six Months Ended
June 30March 31,June 30June 30,June 30,
20132013201220132012
(Dollars in thousands, except per share data)
Interest income
Loans$12,207$12,627$16,959$24,834$34,615
Loans held for sale7889104167204
Securities:
Available for sale3,3843,4283,5406,8127,034
Federal Home Loan Bank stock dividends277283280560580
Other interest earning assets 41  9  11  50  23 
Total interest income15,98716,43620,89432,42342,456
Interest expense
Deposits1,9092,0872,9423,9966,974
Federal Home Loan Bank advances5245236131,0471,345
Repurchase agreements and other 918  909  919  1,827  1,838 
Total interest expense 3,351  3,519  4,474  6,870  10,157 
Net interest income12,63612,91716,42025,55332,299
Provision for loan losses 1,113  2,064  6,264  3,177  6,944 
Net interest income after provision for loan losses 11,523  10,853  10,156  22,376  25,355 
Non-interest income
Non-deposit investment income3735415069141,047
Service fees and other charges1,6911,7829013,4733,218
Net gains (losses):

Securities available for sale (includes $1,857, $721, $3,555, $2,578 and $3,969, respectively, accumulated other comprehensive income reclassifications for unrealized net gains on available for sale securities)

1,8577213,5552,5783,969

Mortgage banking income

1,3891,6431,7273,0323,198
Real estate owned and other repossessed assets(1,140)(431)(923)(1,571)(1,652 Read Full Story

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