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UCFC Announces Record Results for the Year Net Income $39.5 Million — $0.81 Per Share, or $40.8 Million — $0.84 Per Share Adjusted for Merger Costs

Fourth quarter 2019 highlights compared with the fourth quarter of 2018:

  • Net quarterly income of $9.8 million (or $11.2 million, excluding merger related costs, up 17.0%)
  • Diluted EPS of $0.20 (or $0.23, excluding merger related costs, up 20.9%)
  • Noninterest income $6.8 million, up 22.6%
  • Noninterest expense $16.8 million (or $15.4 million, excluding merger costs, down 10.2%)
  • ROA of 1.36% (or 1.55%, excluding merger related costs, versus 1.36%)
  • ROE of 12.03% (or 13.68%, excluding merger related costs, versus 12.15%)
  • Efficiency ratio improved to 53.6% compared to 54.8%

Full year 2019 highlights compared with 2018:

  • Net income of $39.5 million (or $40.8 million, excluding merger related costs, up 9.8%)
  • Diluted EPS of $0.81 (or $0.84, excluding merger related costs, up 13.1%)
  • Noninterest income $26.6 million, up 13.7%
  • Noninterest expense $65.4 million (or $64.1 million, excluding merger costs, down 1.5%)
  • ROA of 1.38% (or 1.43%, excluding merger related costs, versus 1.35%)
  • ROE of 12.34% (or 12.77%, excluding merger related costs, versus 12.10%)
  • Efficiency ratio improved to 55.8% compared to 57.7%
  • Average total loan growth 5.4%
  • Average total customer deposit growth 7.5%

United Community Financial Corp. (Company) (NASDAQ: UCFC), parent company of Home Savings Bank (Home Savings), announced today that net income for the quarter ended December 31, 2019, was $9.8 million, up 2.8% from the $9.6 million reported for the quarter ended December 31, 2018. Fourth quarter diluted earnings per share increased 6.3% to $0.20 from $0.19 per share reported at the same time last year. These results included $1.4 million of merger costs related to the previously announced merger with First Defiance Financial Corp. Excluding these acquisition costs, the Company’s adjusted net income (non-GAAP) was $11.2 million, up 17.0% and diluted earnings per share were $0.23 per share, up 20.9% for the quarter ending December 31, 2019 when compared to the same quarter last year.

Net income for the twelve months ended December 31, 2019 totaled $39.5 million, up 6.2% from the $37.2 million reported for the twelve months ended December 31, 2018. For the same time period, diluted earnings per share increased to $0.81, up 9.3% from the $0.74 per share previously reported in the prior year. Excluding the $1.4 million in merger costs (after-tax), adjusted net income (non-GAAP) for the twelve months ended December 31, 2019 was $40.8 million up 9.8%, or $0.84 per diluted share or 13.1% when compared to the prior year.

Gary M. Small, President and Chief Executive Officer of the Company, commented, "The year 2019 proved to be a challenging yet gratifying period for Home Savings. Our team took the steps necessary to overcome the difficulties presented by a tumultuous year for net interest margin management and a very active loan prepayment environment."

Small continued, "The organization set record levels of commercial and residential new business production, delivered exceptional fee income growth across all business lines, and drove strong deposit growth. As a result we posted excellent financial results … our best earnings on record."

Concluding, "I am very proud of the efforts of all of our associates. Thanks to their hard work, we remain right on track regarding our pending merger with First Defiance and we look forward to an exciting and successful 2020 with our new partners."

Strong Loan and Deposit Growth

Total average loans grew $119.2 million (including loans held for sale), or 5.4%, during the last twelve months and $90.6 million, or 4.0% when compared to the same quarter last year. At December 31, 2019, total net loans (including loans held for sale) aggregated $2.4 billion.

The increase in total loans for the period was driven by an increase in commercial loans, which grew $51.4 million, or 5.5%, over the last twelve months. Mortgage loans (including loans held for sale) increased $14.7 million, or 1.4%, over the previous twelve months. Consumer loan growth amounted to $9.2 million, or 3.4%, for the same time period.

Average customer deposits (which exclude brokered certificates of deposit) increased $142.7 million, or 7.5%, from December 31, 2018. During that same time period total business deposits increased $69.1 million, or 26.6%. Average non-interest bearing accounts increased $43.9 million or 10.4% while average non-interest bearing business deposits increased $27.1 million or 13.4% during the same time period.

Net Interest Income and Margin

Net interest income totaled $21.8 million on a fully taxable equivalent (FTE) basis for the quarter ended December 31, 2019 compared to $23.6 million for the quarter ended December 31, 2018. The fourth quarter of 2018 included the impact of the favorable resolution of an impaired loan that added approximately $1.1 million to loan income during that quarter.

The net interest margin on an FTE basis was 3.22% for the fourth quarter of 2019 compared to 3.58% in the fourth quarter of 2018. Excluding the 16 basis point impact of the aforementioned resolution of an impaired loan, the net interest margin declined 20 basis points. Of this, 5 basis points were from reduced purchase accounting accretion, while the remainder of the decline reflects the near term impact of multiple rate reductions by the Federal Reserve in 2019.

For the full year 2019, the net interest margin was 3.28% compared to 3.43% for the full year 2018. Excluding the income impact of the loan resolution, calendar year 2018 net interest margin would have been 3.39%. Of the 11 basis point reduction 3 basis points were from reduced purchase accounting accretion, and the remaining 8 basis points of the decline can be attributed to the fall in interest rates in 2019.

Asset Quality Remains Strong

Asset quality remained strong during the fourth quarter despite movement in nonperforming loans. At December 31, 2019, nonperforming loans aggregated $12.9 million compared to $6.5 million at the end of the same quarter in the previous year. The Company’s level of nonperforming loans increased primarily as a result of a single credit. The allowance for loan losses at the end of the quarter, as a percent of nonperforming loans was 149.6%. The allowance for loan losses as a percent of loans totaled 0.86% at December 31, 2019 compared to 0.93% the same quarter last year.

The Company recognized a negative provision for loan losses of $422,000 for the fourth quarter of 2019, compared to a provision of $178,000 in the fourth quarter of 2018. The decline in provision is a result of decreased loan balances in the fourth quarter of 2019, quarterly realignment of factors and the resolution of one credit with a specific reserve. For the year, the provision totaled $290,000 compared to $699,000 the previous year. Net charge offs to average loans were 6.6 basis points for the year ended December 31, 2019.

Non-Interest Income

Non-interest income increased 22.6%, or $1.3 million to $6.9 million for the fourth quarter of 2019 compared to $5.6 million for the same quarter last year. The primary drivers for the increase are mortgage banking income (gain on sale) of $686,000 and an increase of $356,000 in the value of mortgage servicing rights along with a $260,000 improvement in security sales. These gains were offset by an increase in the amortization of mortgage servicing rights of $427,000.

The increase in mortgage banking income was primarily driven by increased saleable volumes when comparing the fourth quarter of 2019 to the fourth quarter of 2018. The drop in interest rates resulting in increased refinance activity is the primary driver for the increased volume.

For the full year 2019, non-interest income increased 13.7%, or $3.2 million to $26.6 million compared to $23.4 million for calendar year 2018. The primary reason for this is an increase in mortgage banking income (gain on sale) of $3.5 million along with increased mortgage servicing fees of $289,000. Also adding to the increase was $578,000 from improvement in security gains, along with an 11.6% increase in insurance income and 9.9% increase in investment management fees. This was offset by an increase in mortgage serving rights amortization of $608,000 and a negative mortgage servicing rights valuation adjustment of $1,457,000. The increase in mortgage banking income was primarily driven by an increase in saleable loan volumes of 24.1% and in increase in the gain on sale margin of 43 basis points.

Non-Interest Expense

Non-interest expense was $15.4 million (excluding merger costs) for the fourth quarter of 2019 compared to $17.2 million for the similar quarter last year, a decrease of $1.8 million, or 10.2%. The fourth quarter of 2018 includes a prepayment penalty of $937,000 for the early extinguishment of Federal Home Loan Bank debt. Excluding this expense non-interest expense was down 4.8%. Non-interest expense for the year was $64.1 million (excluding merger costs). When compared to the prior year of $65.1 million, expenses were down 1.5%. When excluding the Federal Home Loan Bank prepayment penalty expenses year over year remained flat. The Company’s efficiency ratio improved to 55.8% for the year versus 57.7% for the same time period a year ago.

Equity

During 2019, the Company repurchased 1,145,434 of its common shares in the open market at an average price of $9.36. Tangible book value per common share at December 31, 2019 was $6.41 compared to $5.18 at December 31, 2018.

Dividend to be paid

Subject to the closing of the merger of United Community with and into First Defiance Financial Corp., which was announced on September 9, 2019, and is expected to close on January 31, 2020, it is anticipated that a dividend will be paid to all First Defiance shareholders, including UCFC’s shareholders whose shares will be converted to First Defiance common shares upon the closing of the merger. First Defiance declared a dividend of $0.22 per share payable on February 21, to shareholders of record as of February 14. This action would be the equivalent of UCFC paying a dividend of $0.08173 on UCFC shares.

Other

Home Savings is a wholly owned subsidiary of the Company, offering a full line of commercial, wealth management and consumer banking products and services with 33 retail banking offices (32 in Ohio and one in Pennsylvania). Home Savings also has residential mortgage loan centers servicing Ohio, West Virginia, western Pennsylvania, northern Kentucky, and eastern Indiana. Additional information on the Company, Home Savings and James & Sons Insurance may be found on the Company’s web site: ir.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, competition, and the ability to close the merger of the Company with and into First Defiance Financial Corp. 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,

 

 

 

2019

 

2018

 

F/(U)

 (Dollars in thousands)
Assets:     
Cash and deposits with banks  

$

30,218

 

 

$

34,380

 

 

-12.1

%

Federal funds sold  

 

21,635

 

 

 

26,605

 

 

-18.7

%

Total cash and cash equivalents  

 

51,853

 

 

 

60,985

 

 

-15.0

%

Securities:     
Trading, at fair value  

 

516

 

 

 

364

 

 

41.8

%

Available for sale, at fair value  

 

306,786

 

 

 

241,643

 

 

27.0

%

Held to maturity (fair value of $0 and $75,075, respectively)  

 

 

77,491

 

 

-100.0

%

Loans held for sale, at fair value  

 

127,839

 

 

 

91,472

 

 

39.8

%

Gross loans  

 

2,237,224

 

 

 

2,197,285

 

 

1.8

%

Allowance for loan losses  

 

(19,281

)

 

 

(20,443

)

 

-5.7

%

Net loans  

 

2,217,943

 

 

 

2,176,842

 

 

1.9

%

Federal Home Loan Bank stock, at cost  

 

13,639

 

 

 

19,144

 

 

-28.8

%

Premises and equipment, net  

 

22,337

 

 

 

21,930

 

 

1.9

%

Accrued interest receivable  

 

8,660

 

 

 

9,080

 

 

-4.6

%

Real estate owned and other repossessed assets  

 

816

 

 

 

1,088

 

 

-25.0

%

Goodwill  

 

20,221

 

 

 

20,221

 

 

0.0

%

Core deposit intangible  

 

1,275

 

 

 

1,603

 

 

-20.5

%

Customer list intangible  

 

2,032

 

 

 

2,214

 

 

-8.2

%

Cash surrender value of life insurance  

 

65,798

 

 

 

64,220

 

 

2.5

%

Other assets  

 

28,598

 

 

 

23,060

 

 

24.0

%

Total assets  

$

2,868,313

 

 

$

2,811,357

 

 

2.0

%

    
Liabilities and Shareholders' Equity     
Liabilities:     
Deposits:     
Interest bearing  

$

1,665,042

 

 

$

1,528,057

 

 

9.0

%

Noninterest bearing  

 

430,040

 

 

 

394,208

 

 

9.1

%

Customer deposits  

 

2,095,082

 

 

 

1,922,265

 

 

9.0

%

Brokered deposits  

 

192,027

 

 

 

290,955

 

 

-34.0

%

Total deposits  

 

2,287,109

 

 

 

2,213,220

 

 

3.3

%

Borrowed funds:     
Federal Home Loan Bank advances     
Short-term advances  

 

191,000

 

 

 

243,000

 

 

-21.4

%

Total Federal Home Loan Bank advances  

 

191,000

 

 

 

243,000

 

 

-21.4

%

Repurchase agreements and other  

 

 

224

 

 

-100.0

%

Total borrowed funds  

 

191,000

 

 

 

243,224

 

 

-21.5

%

Advance payments by borrowers for taxes and insurance  

 

31,650

 

 

 

27,192

 

 

16.4

%

Accrued interest payable  

 

656

 

 

 

1,279

 

 

-48.7

%

Accrued expenses and other liabilities  

 

25,789

 

 

 

17,108

 

 

50.7

%

Total liabilities  

 

2,536,204

 

 

 

2,502,023

 

 

1.4

%

    
Shareholders' Equity:     
Preferred stock-no par value; 1,000,000 shares authorized and no shares outstanding  

 

 

0.0

%

Common stock-no par value; 499,000,000 shares authorized; 54,138,910 shares issued and 48,104,055 and 49,128,875 shares, respectively, outstanding  

 

177,392

 

 

 

177,492

 

 

-0.1

%

Retained earnings  

 

216,868

 

 

 

192,062

 

 

12.9

%

Accumulated other comprehensive loss  

 

(13,461

)

 

 

(21,436

)

 

-37.2

%

Treasury stock, at cost, 6,034,855 and 5,010,035 shares, respectively  

 

(48,690

)

 

 

(38,784

)

 

25.5

%

Total shareholders’ equity  

 

332,109

 

 

 

309,334

 

 

7.4

%

Total liabilities and shareholders’ equity  

$

2,868,313

 

 

$

2,811,357

 

 

2.0

%

    
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Twelve Months Ended

December 31,

 

September 30,

 

 

 

 

 

December 31,

 

 

 

 

 

December 31,

 

December 31,

 

 

 

 

2019

 

2019

 

Variance

 

F/(U)

 

2018

 

Variance

 

F/(U)

 

2019

 

2018

 

Variance

 

F/(U)

(Dollars in thousands, except per share data)
Interest income
Loans

$

25,501

 

$

26,037

 

$

(536

)

-2.1

%

$

26,587

 

$

(1,086

)

-4.1

%

$

103,768

 

$

96,653

 

$

7,115

 

7.4

%

Loans held for sale

 

1,219

 

 

1,067

 

 

152

 

14.2

%

 

1,184

 

 

35

 

3.0

%

 

4,284

 

 

4,318

 

 

(34

)

-0.8

%

Securities:
Available for sale, nontaxable

 

234

 

 

235

 

 

(1

)

-0.4

%

 

334

 

 

(100

)

-29.9

%

 

1,012

 

 

1,412

 

 

(400

)

-28.3

%

Available for sale, taxable

 

1,781

 

 

1,828

 

 

(47

)

-2.6

%

 

1,148

 

 

633

 

55.1

%

 

6,483

 

 

4,732

 

 

1,751

 

37.0

%

Held to maturity, nontaxable

0.0

%

 

69

 

 

(69

)

-100.0

%

 

99

 

 

250

 

 

(151

)

-60.4

%

Held to maturity, taxable

0.0

%

 

380

 

 

(380

)

-100.0

%

 

497

 

 

1,574

 

 

(1,077

)

-68.4

%

Federal Home Loan Bank stock dividends

 

140

 

 

173

 

 

(33

)

-19.1

%

 

290

 

 

(150

)

-51.7

%

 

847

 

 

1,133

 

 

(286

)

-25.2

%

Other interest earning assets

 

125

 

 

203

 

 

(78

)

-38.4

%

 

178

 

 

(53

)

-29.8

%

 

752