United Community Financial Earns $2.1M in First Quarter

YOUNGSTOWN, Ohio -- United Community Financial Corp., holding company of The Home Savings and Loan Co., reports consolidated net income of $2.1 million for the three months ended March 31.

This compares to net income of $2.2 million for the prior quarter and $2.7 million for the same quarter last year.

Gary M. Small, President and Chief Executive Officer of the Company and Home Savings, commented, “We are very pleased to deliver first quarter loan growth of $31 million, up 3%, with meaningful growth in both the residential mortgage and commercial and industrial loan categories,” said Gary M. Small, president and CEO of UCFC and Home Saving.

“Credit quality remains strong and our cost of funds has improved 9 basis points as compared to the first quarter of 2013. These achievements are in keeping with 2014 objectives to grow and diversify our loan portfolio and improve operating efficiencies,” Small said in a prepared statement.

Among the results UCFC highlights in its earnings announcement:

  • Net loans increased $31.7 million from the prior quarter, or 3.0%.
  • Noninterest expense for the first quarter of 2014 was $13.5 million, down 9.6% from the previous quarter and down 2.3% from the first quarter of 2013.
  • Credit quality continues to improve as nonperforming loans, nonperforming assets and delinquent loans decreased during the first quarter of 2014.
  • Home Savings’ continues to be well capitalized. At quarter end, the Tier 1 leverage ratiowas 10.71% and the total risk based capital ratio was 19.68%.

Here are more results as stated by UCFC in its earnings release:

Net interest income for the three months ended March 31, 2014 and 2013 was $12.6 million and $12.9 million, respectively. Net interest margin for the three months ended March 31 and 2013 was 3.07% and 3.01%, respectively.

Total interest income decreased $731,000 in the first quarter of 2014 compared to the first quarter of 2013, primarily as a result of a decrease of $5.4 million in the average balance of outstanding loans as well as a decrease in the yield on net loans of 17 basis points. Further impacting the comparison, the company also recognized a decrease in the average balance of available for sale securities of $86.2 million in the first quarter of 2014 as compared to the same quarter last year, despite an increase in the yield on those assets of 23 basis points.

Total interest expense decreased $416,000 for the quarter ended March 31, as compared to the same quarter last year. The change was due primarily to reductions of $410,000 in interest paid on deposits. The overall decrease in interest expense was partially attributable to a 9.3% growth in noninterest bearing deposits. Also contributing to the decrease between the two quarterly periods was a reduction of 8 basis points in the cost of certificates of deposit. . The average outstanding balance of certificates of deposit in the first quarter of 2014 declined by $69.0 million as compared to the first quarter of 2013. Furthermore, the average balance of non-time deposits decreased $10.6 million and the cost of non-time deposits decreased 5 basis points.

Net interest income for the three months ended March 31 and December 31, 2013 was $12.6 million and $13.1 million, respectively. Net interest margin for the three months ended March 31 and December 31, 2013 was 3.07% and 3.17%, respectively.

Total interest income decreased $607,000 in first quarter of 2014 compared to the fourth quarter of 2013, primarily as a result of a decrease in the yield on net loans of 34 basis points offset by an increase of $26.9 million in the average balance of outstanding loans. Further affecting the comparison, the Company also recognized a decrease in the average balance of available for sale securities of $7.7 million in the first quarter of 2014 as compared to the prior quarter despite a minimal increase in the yield on available for sale securities of one basis point.

Total interest expense decreased $135,000 for the three months ended March 31, 2014, as compared to the quarter ended Dec. 31. The change was due primarily to reductions of $103,000 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 less expensive non-time deposits. Between Dec. 31, 2013, and March 31, the average outstanding balance of certificates of deposit declined by $24.1 million, while non-time deposits increased by $5.7 million. Also contributing to the decrease in interest expense was a reduction of three basis points in the cost of certificates of deposit.

Asset Quality

Delinquent loans continued to decline in the first quarter of 2014. As of March 31, delinquent loans were $22.0 million, down $1.8 million, or 7.7%, from $23.8 million at Dec. 31. Nonperforming loans also continued to decline; as of March 31, nonperforming loans were $23.0 million, down $605,000, or 2.6%, from $23.6 million at Dec. 31. Nonperforming assets were $27.7 million as of March 31, down $2.2 million, or 7.5%, from $29.9 million at Dec. 31.

The provision for loan losses decreased to $33,000 in the first quarter of 2014, compared to $2.1 million in the first quarter of 2013, and $282,000 in the preceding quarter reflecting the continual improvement in asset quality.

The company continued to make significant progress in the resolution of foreclosed properties in the first quarter of 2014. At March 31, other real estate owned and other repossessed assets consisted of properties with a net book value of $4.7 million, a decrease of $1.6 million from the prior quarter.

Noninterest Income

Noninterest income in the first quarter of 2014 was $3.2 million, as compared to noninterest income for the first quarter of 2013 of $5.7 million. The decrease in noninterest income was driven by decreases in investment advisory income, mortgage banking income, gains on the sale of available for sale securities and other income. The decrease in investment advisory income was the result of lower sales volume in the current quarter, as compared to the same quarter last year. A $50.5 million reduction in mortgage originations sold resulted in a $1.0 million decline in mortgage banking income. The change in gains recognized on the sale of available for sale securities was the result of sales made in the first quarter of 2013 that did not reoccur in the first quarter of 2014. The change in other income was the result of lower net rental income received on real estate owned in the current quarter, compared to the same quarter last year. Also, Home Savings recognized a recovery of $138,000 on interest rate caps in the first quarter of 2013.

When comparing the current quarter to the prior quarter, noninterest income decreased $900,000. Deposit related fee income, mortgage banking income, and losses on the valuation and disposal of other real estate owned (“OREO”) accounted for the change. The change in deposit related fees can be attributed to a decline in NSF and overdraft service charges. A $238,000 reduction in mortgage banking income was due to a decline in volume of $9.6 million in mortgages being sold. In addition a $209,000 OREO valuation reserve was established in the first quarter.

Noninterest Expense

Noninterest expense was $13.5 million in the first quarter of 2014, compared to $13.9 million in the first quarter of 2013; a difference of $321,000. In the first quarter of 2014, other expenses decreased primarily because of lower expenses incurred on loans sold in the secondary market. Reduced FDIC premiums of $301,000 and franchise/financial institutions tax expenses of $233,000 also contributed to the change. These reductions were offset by an increase of $707,000 in salaries and employee benefits, due primarily to annual wage and benefit increases, incentive accruals, and lower deferred salary expenses related to loan origination.

Compared to the prior quarter, noninterest expense in the first quarter of 2014 decreased $1.4 million. Compared to the prior quarter, other expenses decreased because of lower expenses incurred on loans sold in the secondary market. Reduced FDIC insurance premiums of $339,000 and franchise/financial institutions tax expense of $153,000 also contributed to the positive variance. Professional fees were $320,000 lower during the three months ended March 31, 2014 as compared to the prior quarter. These reductions were offset by an increase of $729,000 in salaries and employee benefits, substantially due to annual wage and benefit increases and lower deferred salary expenses related to loan originations.

Capital and Book Value per Common Share

Home Savings’ Tier 1 leverage ratio was 10.71% as of March 31,, as compared to 10.50% as of Dec. 31. Home Savings’ total risk-based capital ratio was 19.68% at March 31,, as compared to 19.76% at Dec. 31. Home Savings is considered well capitalized. Tangible book value per common share at March 31 was $3.76, as compared to $3.47 at Dec. 31.

As of March 31, 2014, the net deferred tax asset (DTA), before valuation allowance, was $37.3 million compared to $42.8 million at Dec. 31. The primary cause of the change in the net DTA at March 31 was the tax effect of the redemption of stock by the Federal Home Loan Bank in March. The Company has established a full valuation allowance against the entire net DTA. Management will continue to conduct a regular assessment of the need to maintain a full valuation allowance against its deferred tax asset. To that end, management will continue to apply its judgment in weighing positive and negative evidence in anticipation of the ultimate reversal of the deferred tax asset valuation allowance.

Home Savings is a wholly-owned subsidiary of the Company and operates 33 full-service banking offices and 10 loan production offices located throughout Ohio and western Pennsylvania.

SOURCE: United Community Financial Corp.

Copyright 2014 The Business Journal, Youngstown, Ohio.
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