United Community Financial Corp. Announces Third Quarter Results; Substantial Improvement in Asset Q

United Community Financial Corp. Announces Third Quarter Results; Substantial Improvement in Asset Quality Measures

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 a consolidated net loss of $26.9 million, or $(0.82) per diluted share, for the three months ended September 30, 2012. The loss was due primarily to a $33.0 million charge related to the bulk loan sale. The Company also reported a net loss of $23.0 million, or $(0.70) per diluted share, for the nine months ended September 30, 2012.

Selected third quarter results:

  • Delinquent loans were $51.2 million at September 30, 2012, down 59.6% year to date

  • Nonperforming assets were $66.8 million at September 30, 2012, down 57.4% year to date

  • Classified loans were $58.4 million at September 30, 2012, down 73.5% year to date

  • Home Savings' Tier 1 leverage ratiowas 8.27% and the total risk based capital ratio was 15.85%


Patrick W. Bevack, President and Chief Executive Officer of UCFC and Home Savings, commented that, "The bulk asset sale completed in September represented an enormous step forward for the Company. We have achieved a substantial improvement in our asset quality and a dramatic reduction in our risk profile, and have exceeded our regulatory asset quality targets well ahead of schedule."

Asset Quality

Delinquent loans were $51.2 million at September 30, 2012, down $144.0 million, or 74.8%, from their high point of $195.2 million at March 31, 2010. Nonperforming loans at September 30, 2012 were $46.6 million, down $108.5 million, or 70.0%, from their high point of $155.1 million at June 30, 2010. Nonperforming assets were $66.8 million at September 30, 2012, down $130.4 million, or 66.1%, from their high point of $197.2 million at June 30, 2010. Significant improvement in asset quality in the third quarter was driven by the bulk sale. Of the loans sold in the bulk sale, $91.6 million were classified, $63.3 million were nonperforming and $53.0 million were noncurrent.

The provision for loan losses was $30.3 million for the third quarter of 2012, as compared to $6.3 million for the second quarter in 2012. The provision expense in the third quarter of 2012 included $29.4 million directly associated with the bulk sale.

June 30, 2012

September 30, 2012

Asset Quality Measure (1)

(As Reported)

(As Reported)

Change

Classified Loans

$

171,839

$

58,373

$

(113,466

)

Other Real Estate Owned and Other Repossessed Assets

$

24,778

$

20,206

$

(4,572

)

Total Classified Assets

$

196,617

$

78,579

(118,038

)

Classified Assets/(Tier 1 + ALLL)

91.41

%

44.21

%

-47.20

%

Total Nonperforming Loans

$

114,529

$

46,557

$

(67,972

)

Allowance for Loan Losses

$

30,933

$

20,048

$

(10,885

)

Allowance for Loan Losses/Nonperforming Loans

27.01

%

43.06

%

16.05

%

Nonperforming Assets/Total Assets

7.31

%

3.65

%

-3.66

%

Noncurrent Loans (30+ Days Delinquent)

$

109,785

$

51,220

$

(58,565

)

Texas Ratio (2)

62.59

%

34.89

%

-27.70

%

(1) Dollar amounts in thousands. All dollar amounts shown are book balance prior to any allowance for loan losses
(2) Texas Ratio is defined as nonperforming assets divided by the sum of tangible common equity and the allowance for loan losses

Net Interest Income and Margin

Net interest income for the three months ended September 30, 2012 was $14.1 million, a decline of $2.3 million over the prior quarter. A decrease also was seen in the net interest margin, which changed 38 basis points from 3.55% during the second quarter to 3.17% during the third quarter.

Total interest income decreased $2.7 million in the third quarter of 2012 compared to the second quarter of 2012, primarily as a result of a decrease of $85.7 million in the average balance of outstanding loans.

Total interest expense decreased $411,000 for the quarter ended September 30, 2012, as compared to the previous quarter. The change was due primarily to a reduction of $342,000 in interest paid on deposits. The average outstanding balance of certificates of deposit declined by $34.2 million, while non-time deposits increased by $852,000. Also contributing to the change was a reduction of 10 basis points in the cost of certificates of deposit. Interest expense also improved due to the prepayment of $690,000 in term borrowings.

Net interest income for the nine months ended September 30, 2012, and September 30, 2011, was $46.4 million and $50.3 million, respectively. Despite a decrease of $3.9 million in net interest income, the net interest margin for the two periods was comparable. The net interest margin was 3.34% for the nine months ended September 30, 2012, and 3.36% the nine months ended September 30, 2011.

Total interest income decreased $13.3 million in the first nine months of 2012 compared to the first nine months of 2011, primarily as a result of a decrease of $283.7 million in the average balance of outstanding loans. This change in interest income was further impacted by a decrease in the yield on net loans of 30 basis points.

Total interest expense decreased $9.4 million for the nine months ended September 30, 2012, as compared to the same period last year. The change was due primarily to reductions of $8.1 million in interest paid on deposits. The overall decrease in interest expense was attributable to the maturity of the Step CDs and a shift in deposit balances from certificates of deposit to relatively less expensive non-time deposits. The average outstanding balance of certificates of deposit declined by $212.0 million, while non-time deposits increased by $45.9 million. The decrease in certificates of deposit balances also can be attributable to the sale of four of the Bank's branches, which took place in the fourth quarter of 2011. The maturing of the Step CDs led to a reduction of 84 basis points in the cost of certificates of deposit. The yield on non-time deposits declined 16 basis points.

Noninterest Income

Noninterest income decreased in the third quarter of 2012 to $3.8 million, as compared to $6.9 million in the second quarter of 2012. The $3.1 million decrease in noninterest income was largely driven by lower gains recognized on the sale of available for sale securities. Lower gains were driven by a decrease in the volume of sales in the third quarter of 2012 as compared to the prior quarter. Also affecting the decrease in noninterest income were higher losses recognized on the valuation and disposal of real estate owned in the third quarter. During the three months ended September 30, 2012, Home Savings increased the valuation allowance on certain properties to absorb estimated closing costs at the time of disposal.

Noninterest income increased in the first nine months of 2012 to $15.8 million, as compared to $11.2 million for the first nine months of 2011. Driving the increase in noninterest income were gains recognized on the sale of available for sale securities. In the first nine months of 2012, Home Savings sold securities totaling approximately $281.8 million and consequently recognized a $5.2 million gain. Fees generated on nondeposit investments increased $475,000 during the first nine months of 2012 as compared to the same period last year. The change was driven by the volume of investment activity in 2012. Some of Home Savings' customers that had funds deposited in Step CDs that matured in the first quarter of 2012 were retained and their deposits were invested in various mutual funds and insurance annuities offered through Home Savings' Investments Division. Finally, lower losses incurred on real estate owned and other repossessed assets during the nine months ended September 30, 2012, as compared to the same period last year, were the result of the need to mark fewer properties down to fair market value as real estate values have stabilized.

Noninterest Expense

Noninterest expense was $17.3 million in the third quarter of 2012 as compared to $17.0 million in the second quarter of 2012, or an increase of $287,000. Professional fees, including legal and other consultants, were higher during the third quarter of 2012 due to the engagement of professionals hired to assist management in completing the bulk sale. Professional fees specifically associated with the bulk asset sale aggregated $1.2 million. Primarily offsetting this increase in professional fees were lower prepayment penalties associated with the prepayment of FHLB term advances.

Noninterest expense was $50.9 million in the first nine months of 2012, compared to $47.0 million in the first nine months of 2011. This increase of $3.9 million was caused by an increase in salaries and employee benefits of $2.3 million and an increase in professional fees of $1.6 million. Partially offsetting these two increases was a decrease in real estate owned and other repossessed asset expenses of $621,000.

Capital and Book Value

Home Savings' Tier 1 leverage ratio was 8.27% as of September 30, 2012, as compared to 9.32% at June 30, 2012. Home Savings' total risk-based capital ratio was 15.85% at September 30, 2012, as compared to 16.43% at June 30, 2012. Tangible book value per share at September 30, 2012 was $5.21, as compared to $5.94 at June 30, 2012.

While Home Savings is still operating under a Consent Order requiring a minimum Tier 1 leverage ratio of 9.0%, the Company worked closely with its regulators to keep them informed of the bulk sale of problem assets that took place in the third quarter, and obtained their concurrence to complete the sale along with the Bank's commitment to meet the 9.0% requirement by March 31, 2013.

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", "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)

September 30,

December 31,

2012

2011

(Dollars in thousands)

Assets:

Cash and deposits with banks

$

20,904

$

26,573

Federal funds sold and other

36,626

27,563

Total cash and cash equivalents

57,530

54,136

Securities:

Available for sale, at fair value

551,795

459,598

Loans held for sale

9,076

12,727

Loans, net of allowance for loan losses of $20,048 and $42,271, respectively

1,100,328

1,379,276

Federal Home Loan Bank stock, at cost

26,464

26,464

Premises and equipment, net

21,355

19,175

Accrued interest receivable

5,660

6,741

Real estate owned and other repossessed assets

20,206

33,486

Core deposit intangible

263

346

Cash surrender value of life insurance

28,626

28,354

Other assets

9,641

10,384

Total assets

$

1,830,944

$

2,030,687

Liabilities and Shareholders' Equity

Liabilities:

Deposits:

Interest bearing

$

1,331,281

$

1,440,448

Noninterest bearing

159,361

148,049

Total deposits

1,490,642

1,588,497

Borrowed funds:

Federal Home Loan Bank advances

50,000

128,155

Repurchase agreements and other

90,603

90,618

Total borrowed funds

140,603

218,773

Advance payments by borrowers for taxes and insurance

14,121

23,282

Accrued interest payable

628

610

Accrued expenses and other liabilities

13,370

10,780

Total liabilities

1,659,364

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 32,891,495 and 32,597,762 shares, respectively, outstanding

128,228

128,031

Retained earnings

84,778

110,681

Accumulated other comprehensive income

10,303

5,032

Treasury stock, at cost, 4,912,962 and 5,206,695 shares, respectively

(51,729

)

(54,999

)

Total shareholders' equity

171,580

188,745

Total liabilities and shareholders' equity

$

1,830,944

$

2,030,687

UNITED COMMUNITY FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF NET INCOME

(Unaudited)

For the Three Months Ended

For the Nine Months Ended

September 30,

June 30,

September 30,

September 30,

September 30,

2012

2012

2011

2012

2011

(Dollars in thousands, except per share data)

Interest income

Loans

$

14,567

$

16,959

$

19,558

$

49,182

$

63,489

Loans held for sale

101

104

163

305

270

Securities:

Available for sale

3,219

3,540

3,323

10,253

9,264

Federal Home Loan Bank stock dividends

279

280

264

859

858

Other interest earning assets

25

11

13

48

35

Total interest income

18,191

20,894

23,321

60,647

73,916

Interest expense

Deposits

2,600

2,942

5,972

9,574

18,384

Federal Home Loan Bank advances

535

613

793

1,880

2,414

Repurchase agreements and other

928

919

931

2,766

2,781

Total interest expense

4,063

4,474

7,696

14,220

23,579

Net interest income

14,128

16,420

15,625

46,427

50,337

Provision for loan losses

30,279

6,264

11,836

37,223

22,272

Net interest income after provision for loan losses

(16,151

)

10,156

3,789

9,204

28,065

Non-interest income

Non-deposit investment income

478

506

389

1,525

1,050

Service fees and other charges

793

901

203

4,011

3,244

Net gains (losses):

Securities available for sale

1,192

3,555

1,958

5,161

3,500

Other -than-temporary loss on equity securities

Total impairment loss

-

-

(35

)

-

(73

)

Loss recognized in other comprehensive income

-

-

-