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UCFC Announces Strong Earnings for the Third Quarter and a Dividend of $0.07 Per Common Share

YOUNGSTOWN, Ohio--(BUSINESS WIRE)--

United Community Financial Corp. (Company) (UCFC), parent company of Home Savings Bank (Home Savings), announced today net income of $9.5 million and diluted earnings per share (“EPS”) of $0.190, a 25.8% improvement over the $0.151 per common share reported for the quarter ended September 30, 2017.

Third quarter 2018 highlights:

  • Total loans, net growth of 10.3% over the last twelve months, and 2.3% on a linked quarter basis
  • Monthly average customer deposit growth of 9.6% over the last twelve months
  • Total revenue up by 2.3% on a linked quarter basis
  • Efficiency Ratio of 57.3%
  • ROA of 1.37%, ROE of 12.25% and ROTE of 13.28%
  • Dividend of $0.07 per common share declared

Gary M. Small, President and Chief Executive Officer of the Company commented, “Home Savings’ strong quarterly performance reflected the continued favorable economic and business environment experienced in each of the markets we serve. We delivered excellent loan and solid revenue growth creating positive operating leverage for the organization…a winning formula. While the interest rate environment and trade/tariff issues create uncertainty, I believe our balanced business approach and the strength of our client base will serve us very well in the future.”

Strong Loan and Deposit Growth

Total loans, net grew $201.2 million, or 10.3%, during the previous twelve months ended September 30, 2018, and $49.2 million, or 2.3% compared to the previous quarter. At September 30, 2018, total net loans aggregated $2.15 billion.

Home Savings has produced excellent results within all lending categories. The increase in total loans for the period was driven by an increase in commercial loans, which grew $140.7 million, or 17.8%, over the last twelve months and $31.0 million, or 3.4%, versus June 30, 2018. Mortgage loans increased $40.1 million, or 4.4%, over the previous twelve months and increased $19.8 million, or 2.1%, during the past three months. Consumer loans increased $19.4 million, or 7.4%, since September 30, 2017 and remained consistent with the prior quarter.

Monthly average customer deposits (which exclude brokered certificates of deposit) increased 9.6% from September 30, 2017 and remained consistent on a linked quarter basis. Average customer deposit growth in the third quarter was muted by seasonality associated with one large, public fund deposit. This relationship historically experiences a high point in the deposit level during the second quarter with decreasing balances through the end of the calendar year. The growth in average customer deposits was driven by increases in non-interest bearing accounts of 13.6% over the past twelve months and an increase of 2.4% over the past three months. Average business deposits continue to rise, increasing 21.9% over the past twelve months and 6.2% over the past three months.

Net Interest Margin

The net interest margin was 3.33% for the three months ended September 30, 2018 compared to 3.36% for the previous quarter. This change is the result of several factors. First, the slowing of the recognition of loan and deposit marks from the 2017 acquisition accounted for one basis point of the decline. Also, the continued flattening of the yield curve during the third quarter put pressure on spreads. Finally, short-term LIBOR rates did not move in advance of the Federal Reserve Bank increasing rates at the end of September, as has occurred previously, resulting in lower loan yields than expected. The Company expects the delayed increase seen in LIBOR to favorably impact net interest margin during the fourth quarter. Adjustments made during the quarter resulted in a positive margin trend within the period.

Excluding the impact of purchase accounting yield adjustments, the net interest margin would have been 3.27%, or six basis points lower than the 3.33% reported, for the quarter ended September 30, 2018.

Nonperforming Loans to Total Loans Ratio Continued to Decrease during the Third Quarter

Asset quality remained very strong during the third quarter. The Company’s level of nonperforming loans and classified assets all improved during the quarter. Net chargeoffs for the quarter were 6.1 basis points of average loans. Additionally, over the past three months, the ratio of the allowance for loan losses as a percent of nonperforming loans has increased from 198.4% to 235.43% at September 30, 2018. Nonperforming loans to total loans, net at September 30, 2018 declined to 0.42%. Nonperforming assets declined $5.7 million to 0.36% of total assets.

The Company recognized a provision for loan losses of $251,000 for the third quarter of 2018, which was up $389,000 in comparison to the previous quarter. Loan growth offset by continued asset quality improvements and an improved credit environment has impacted the provision level. As of September 30, 2018, the Company’s allowance for loan losses to total loans was 0.98%, versus 1.01% at June 30, 2018.

Loans acquired through the acquisition during the first quarter of 2017 were recorded at fair value. When combining the remaining fair value adjustment of $2.6 million and the Company’s allowance, the combined coverage as a percentage of total loans is 1.10%.

Non-Interest Income

Non-interest income increased 5.0% or $294,000 to $6.1 million on a linked quarter basis. During this same time period, the Company did see an increase of 16.9% in mortgage banking income. Additionally a 6.2% increase in agency income, a 13.0% increase in brokerage income, a 7.3% increase in deposit related fees and finally, a 2.1% increase in trust fees offset a 15% seasonal decrease in card fees. As experienced industry-wide, market conditions continue to impact the margin on salable loans. Also impacting the comparison negatively was the fact no security gains were recognized in the third quarter 2018.

At the end of the third quarter, trust assets under management and advisory totaled $775 million.

Non-Interest Expense

Non-interest expense was $15.8 million for the third quarter of 2018 compared to $15.5 million for the same quarter last year, an increase of $308,000, or 2.0%. This increase is reflective of digital banking expansion and additional incentive compensation resulting from increased loan production. The Company’s efficiency ratio remains consistent at 57.3%, compared to the prior quarter.

Effective Tax Rate

The Company’s effective tax rate on an FTE basis for the three months ended September 30, 2018 was 19.5% compared to 30.3% for the three months ended September 30, 2017. The decline was due to the enactment of tax legislation at the end of the year.

Dividend to be Paid

On October 16, 2018, the Board of Directors declared a quarterly cash dividend of $0.07 per common share payable November 9, 2018 to shareholders of record October 26, 2018.

Conference Call

United Community Financial Corp. will host an earnings conference call on Wednesday, October 17, 2018, at 10:00 a.m. ET, to provide an overview of the Company's third quarter 2018 results and highlights. The conference call may be accessed by calling 1-877-272-7661 ten minutes prior to the start time. Please ask to be joined into the United Community Financial Corp. (UCFC) call. Additionally, a live webcast may be accessed from the Company’s website ir.ucfconline.com. Click on 3rd Quarter 2018 Conference Call on our corporate profile page to join the webcast.

United Community Financial Corp.

Home Savings is a wholly owned subsidiary of the Company and operates retail banking offices and loan production centers in Ohio, western Pennsylvania and West Virginia. 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 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,
2018 2017 F/(U)

(Dollars in thousands)

Assets:
Cash and deposits with banks $ 31,042 $ 34,365 -9.7 %
Federal funds sold   23,223     12,515   85.6 %
Total cash and cash equivalents 54,265 46,880 15.8 %
Securities:
Available for sale, at fair value 242,106 270,561 -10.5 %
Held to maturity (fair value of $74,812 and $82,126, respectively) 78,700 82,911 -5.1 %
Loans held for sale, at lower of cost or market 211 -100.0 %
Loans held for sale, at fair value 95,235 83,541 14.0 %
Loans, net of allowance for loan losses of $21,332 and $21,202 2,148,942 1,999,877 7.5 %
Federal Home Loan Bank stock, at cost 19,144 19,324 -0.9 %
Premises and equipment, net 21,449 22,094 -2.9 %
Accrued interest receivable 8,551 8,190 4.4 %
Real estate owned and other repossessed assets 907 1,253 -27.6 %
Goodwill 20,221 20,221 0.0 %
Core deposit intangible 1,686 1,934 -12.8 %
Customer list intangible 2,259 2,060 9.7 %
Cash surrender value of life insurance 63,789 62,488 2.1 %
Other assets   31,929     28,360   12.6 %
Total assets $ 2,789,183   $ 2,649,905   5.3 %
 
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Interest bearing $ 1,553,204 $ 1,445,293 7.5 %
Noninterest bearing   383,535     354,970   8.0 %
Customer deposits 1,936,739 1,800,263 7.6 %
Brokered deposits   415,737     156,476   165.7 %
Total deposits 2,352,476 1,956,739 20.2 %
Borrowed funds:
Federal Home Loan Bank advances
Long-term advances 49,025 48,536 1.0 %
Short-term advances   46,000     308,000   -85.1 %
Total Federal Home Loan Bank advances 95,025 356,536 -73.3 %
Repurchase agreements and other   238     197   20.8 %
Total borrowed funds 95,263 356,733 -73.3 %
Advance payments by borrowers for taxes and insurance 16,494 25,038 -34.1 %
Accrued interest payable 1,177 1,097 7.3 %
Accrued expenses and other liabilities   17,730     16,033   10.6 %
Total liabilities   2,483,140     2,355,640   5.4 %
 
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 49,922,514 and 49,800,126 shares, respectively, outstanding 177,412 177,458 0.0 %
Retained earnings 186,000 167,852 10.8 %
Accumulated other comprehensive loss (25,783 ) (18,685 ) 38.0 %
Treasury stock, at cost, 4,216,396 and 4,338,784 shares, respectively   (31,586 )   (32,360 ) -2.4 %
Total shareholders’ equity   306,043     294,265   4.0 %
Total liabilities and shareholders’ equity $ 2,789,183   $ 2,649,905   5.3 %
 
               

UNITED COMMUNITY FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)
     
For the Three Months Ended For the Nine Months Ended
September 30, September 30, September 30, September 30,
2018 2017 Variance F/(U) 2018 2017 Variance F/(U)
(Dollars in thousands, except per share data)
Interest income
Loans $ 24,031 $ 20,697 $ 3,334 16.1 % $ 70,065 $ 58,266 $ 11,799 20.3 %
Loans held for sale 1,264 882 382 43.3 % 3,134 2,415 719 29.8 %
Securities:
Available for sale, nontaxable 333 416 (83 ) -20.0 % 1,077 1,252 (175 ) -14.0 %
Available for sale, taxable 1,176 1,276 (100 ) -7.8 % 3,584 4,357 (773 ) -17.7 %
Held to maturity, nontaxable 69 49 20 40.8 % 181 163 18 11.0 %
Held to maturity, taxable 374 424 (50 ) -11.8 % 1,194 1,343 (149 ) -11.1 %
Federal Home Loan Bank stock dividends 289 253 36 14.2 % 843 694 149 21.5 %
Other interest earning assets   154     51     103   202.0 %   323     171     152   88.9 %
Total interest income 27,690 24,048 3,642 15.1 % 80,401 68,661 11,740 17.1 %
Interest expense
Deposits 5,044 2,226 (2,818 ) -126.6 % 11,931 5,834 (6,097 ) -104.5 %
Federal Home Loan Bank advances 1,023 1,315 292 22.2 % 4,019 3,334 (685 ) -20.5 %
Repurchase agreements and other       4     4   100.0 %       20     20   100.0 %
Total interest expense   6,067     3,545     (2,522 ) -71.1 %   15,950     9,188     (6,762 ) -73.6 %
Net interest income 21,623 20,503 1,120 5.5 % 64,451 59,473 4,978 8.4 %
Taxable equivalent adjustment   84     224     (140 ) -62.5 %   271     690     (419 ) -60.7 %
Net interest income (FTE) (1) 21,707 20,727 980 4.7 % 64,722 60,163 4,559 7.6 %
Provision for loan losses   251     721     470   65.2 %   520     3,038     2,518   82.9 %
Net interest income after provision for loan losses (FTE)   21,456     20,006     1,450   7.2 %   64,202     57,125     7,077   12.4 %
Non-interest income
Insurance agency income 545 509 36 7.1 % 1,635 1,454 181 12.4 %
Brokerage income 339 271 68 25.1 % 911 894 17 1.9 %
Service fees and other charges:
Deposit related fees 1,494 1,499 (5 ) -0.3 % 4,186 4,200 (14 ) -0.3 %
Mortgage servicing fees 821 760 61 8.0 % 2,446 2,225 221 9.9 %
Mortgage servicing rights valuation (6 ) (10 ) 4 -40.0 % (17 ) (15 ) 2 -13.3 %
Mortgage servicing rights amortization (477 ) (491 ) 14 -2.9 % (1,519 ) (1,426 ) 93 -6.5 %
Other service fees 26 21 5 23.8 % 125 83 42 50.6 %
Net gains (losses):
Securities available for sale 236 (236 ) -100.0 % 233 566 (333 ) -58.8 %
Mortgage banking income 1,409 1,688 (279 ) -16.5 % 3,972 5,128 (1,156 ) -22.5 %
Real estate owned and other repossessed assets charges, net (45 ) (73 ) 28 -38.4 % (236 ) (143 ) 93 -65.0 %
Debit/credit card fees 1,000 971 29 3.0 % 3,126 3,220 (94 ) -2.9 %
Trust fee income 483 449 34 7.6 % 1,425 1,151 274 23.8 %
Other income   557     475     82   17.3 %   1,530     1,442     88   6.1 %
Total non-interest income   6,146     6,305     (159 ) -2.5 %   17,817     18,779     (962 ) -5.1 %
Non-interest expense
Salaries and employee benefits 9,107 8,736 (371 ) -4.2 % 28,042 26,460 (1,582 ) -6.0 %
Occupancy 1,094 1,013 (81 ) -8.0 % 3,144 2,920 (224 ) -7.7 %
Equipment and data processing 2,032 2,303 271 11.8 % 6,558 6,688 130 1.9 %
Financial institutions tax 495 348 (147 ) -42.2 % 1,486 1,348 (138 ) -10.2 %
Advertising 340 285 (55 ) -19.3 % 865 674 (191 ) -28.3 %
Amortization of intangible assets 128 113 (15 ) -13.3 % 373 308 (65 ) -21.1 %
FDIC insurance premiums 294 301 7 2.3 % 872 829 (43 ) -5.2 %
Other insurance premiums 85 115 30 26.1 % 303 336 33 9.8 %
Professional fees:
Legal fees 356 156 (200 ) -128.2 % 802 569 (233 ) -40.9 %
Other professional fees 651 666 15 2.3 % 1,541 1,606 65 4.0 %
Supervisory fees 34 (34 ) 0.0 % 118 (118 ) -100.0 %
Real estate owned and other repossessed asset expenses 25 33 8 24.2 % 95 118 23 19.5 %
Acquisition related expenses 0.0 % 4,962 4,962 100.0 %
Other expenses   1,131     1,395     264   18.9 %   3,703     4,112     409   9.9 %
Total non-interest expenses   15,772     15,464     (308 ) -2.0 %   47,902     50,930     3,028   5.9 %
Income before income taxes 11,830 10,847 983 9.1 % 34,117 24,974 9,143 36.6 %
Taxable equivalent adjustment 84 224 140 62.5 % 271 690 419 60.7 %
Income tax expense   2,217     3,067     850   27.7 %   6,220     7,001     781   11.2 %
Net income $ 9,529   $ 7,556   $ 1,973   26.1 % $ 27,626   $ 17,283   $ 10,343   59.8 %
 
Earnings per common share:
Basic $ 0.191 $ 0.152 $ 0.039 25.7 % $ 0.554 $ 0.350 $ 0.204 58.3 %
Diluted 0.190 0.151 0.039 25.8 % 0.551 0.347 0.204 58.8 %
(1)  

Net interest income is also presented on a fully taxable equivalent (FTE) basis, the Company believes this non-GAAP measure is the preferred industry measurement for this item.

 
     

UNITED COMMUNITY FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
       
For the Three Months Ended
September 30, June 30,
2018 2018 Variance F/(U)
(Dollars in thousands, except per share data)
Interest income
Loans $ 24,031 $ 23,275 $ 756 3.2 %
Loans held for sale 1,264 1,012 252 24.9 %
Securities:
Available for sale, nontaxable 333 356 (23 ) -6.5 %
Available for sale, taxable 1,176 1,193 (17 ) -1.4 %
Held to maturity, nontaxable 69 61 8 13.1 %
Held to maturity, taxable 374 398 (24 ) -6.0 %
Federal Home Loan Bank stock dividends 289 274 15 5.5 %
Other interest earning assets   154     92     62   67.4 %
Total interest income 27,690 26,661 1,029 3.9 %
Interest expense
Deposits 5,044 3,790 (1,254 ) -33.1 %
Federal Home Loan Bank advances 1,023 1,576 553 35.1 %
Repurchase agreements and other             0.0 %
Total interest expense   6,067     5,366     (701 ) -13.1 %
Net interest income 21,623 21,295 328 1.5 %
Taxable equivalent adjustment   84     90     (6 ) -6.7 %
Net interest income (FTE) (1) 21,707 21,385 322 1.5 %
Provision for loan losses   251     (138 )   (389 ) 281.9 %
Net interest income after provision for loan losses (FTE)   21,456     21,523     (67 ) -0.3 %
Non-interest income
Insurance agency income 545 513 32 6.2 %
Brokerage income 339 300 39 13.0 %
Service fees and other charges:
Deposit related fees 1,494 1,392 102 7.3 %
Mortgage servicing fees 821 813 8 1.0 %
Mortgage servicing rights valuation (6 ) (20 ) 14 -70.0 %
Mortgage servicing rights amortization (477 ) (542 ) 65 -12.0 %
Other service fees 26 61 (35 ) -57.4 %
Net gains (losses):
Securities available for sale 94 (94 ) -100.0 %
Mortgage banking income 1,409 1,205 204 16.9 %

Real estate owned and other repossessed assets charges, net

(45 ) (113 ) 68 -60.2 %
Debit/credit card fees 1,000 1,177 (177 ) -15.0 %
Trust fee income 483 473 10 2.1 %
Other income   557     499     58   11.6 %
Total non-interest income   6,146     5,852     294   5.0 %
Non-interest expense
Salaries and employee benefits 9,107 8,937 (170 ) -1.9 %
Occupancy 1,094 950 (144 ) -15.2 %
Equipment and data processing 2,032 2,372 340 14.3 %
Financial institutions tax 495 495 0.0 %
Advertising 340 290 (50 ) -17.2 %
Amortization of intangible assets 128 132 4 3.0 %
FDIC insurance premiums 294 288 (6 ) -2.1 %
Other insurance premiums 85 109 24 22.0 %
Professional fees:
Legal fees 356 147 (209 ) -142.2 %
Other professional fees 651 499 (152 ) -30.5 %
Supervisory fees 34 42 8 0.0 %
Real estate owned and other repossessed asset expenses 25 34 9 26.5 %
Acquisition related expenses 0.0 %
Other expenses   1,131     1,235     104   8.4 %
Total non-interest expenses   15,772     15,530     (242 ) -1.6 %
Income before income taxes 11,830 11,845 (15 ) -0.1 %
Taxable equivalent adjustment 84 90 6 6.7 %
Income tax expense   2,217     2,214     (3 ) -0.1 %
Net income $ 9,529   $ 9,541   $ (12 ) -0.1 %
 
Earnings per common share:
Basic $ 0.191 $ 0.191 $ - 0.0 %
Diluted 0.190 0.190 - 0.0 %
 
(1)  

Net interest income is also presented on a fully taxable equivalent (FTE) basis, the Company believes this non-GAAP measure is the preferred industry measurement for this item.

...
                 

UNITED COMMUNITY FINANCIAL CORP.

CONSOLIDATED AVERAGE BALANCES

(Unaudited)

 
 
For the three months ended
September 30, 2018 June 30, 2018 September 30, 2017
Average Interest Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Yield/ outstanding earned/ Yield/
balance paid rate balance paid rate balance paid rate
(Dollars in thousands)
Interest earning assets:
Net loans (1) $ 2,115,227 $ 24,031 4.54 % $ 2,075,307 $ 23,275 4.49 % $ 1,906,786 $ 20,699 4.34 %
Loans held for sale   111,295   1,264 4.51 %   91,836   1,012 4.42 %   88,854   882 3.97 %
Total loans, net 2,226,522 25,295 4.54 % 2,167,143 24,287 4.48 % 1,995,640 21,581 4.33 %
Securities:
Available for sale-taxable 204,924 1,176 2.30 % 207,908 1,193 2.30 % 224,927 1,276 2.27 %
Available for sale-nontaxable (2) 48,370 400 3.31 % 50,710 429 3.38 % 59,057 611 4.14 %
Held to maturity-taxable 67,979 374 2.20 % 70,406 398 2.26 % 77,947 424 2.18 %
Held to maturity-nontaxable (2)   12,215   86 2.82 %   11,265   78 2.77 %   9,239   76 3.29 %
Total securities 333,488 2,036 2.44 % 340,289 2,098 2.47 % 371,170 2,387 2.57 %
Federal Home Loan Bank stock 19,160 289 6.03 % 19,324 274 5.67 % 19,324 253 5.24 %
Other interest earning assets   30,140   154 2.03 %   23,831   92 1.55 %   18,881   51 1.08 %
Total interest earning assets 2,609,310 27,774 4.26 % 2,550,587 26,751 4.20 % 2,405,015 24,272 4.04 %
Non-interest earning assets   177,553   174,270   185,773
Total assets $ 2,786,863 $ 2,724,857 $ 2,590,788
Interest bearing liabilities:
Deposits:
Checking accounts $ 635,705 1,026 0.64 % $ 638,910 948 0.60 % $ 591,982 468 0.32 %
Savings accounts 303,247 27 0.04 % 307,250 26 0.03 % 308,829 28 0.04 %
Certificates of deposit
Customer certificates of deposit 618,545 2,457 1.58 % 608,079 2,143 1.41 % 526,697 1,333 1.01 %
Brokered certificates of deposit   327,120   1,534 1.86 %   164,400   673 1.64 %   135,956   397 1.17 %
Total certificates of deposit   945,665   3,991 1.67 %   772,479   2,816 1.46 %   662,653   1,730 1.04 %
Total interest bearing deposits 1,884,617 5,044 1.06 % 1,718,639 3,790 0.88 % 1,563,464 2,226 0.57