Press Release

UCFC Announces Record Earnings for the Second Quarter and a Dividend Increase of 14%

Company Release - 7/23/2019 4:15 PM ET

YOUNGSTOWN, Ohio--(BUSINESS WIRE)-- United Community Financial Corp. (Company) (NASDAQ: UCFC), parent company of Home Savings Bank (Home Savings), announced today second quarter net income of $10.5 million, an increase of 9.9% compared to the second quarter of 2018. Diluted earnings per share (“EPS”) totaled $0.215, a 13.2% improvement over the $0.190 per share reported for the quarter ended June 30, 2018.

Second quarter 2019 highlights:

  • ROA of 1.48%, ROE of 13.2%, ROTE of 14.3% for the quarter
  • Total loan growth of 6.1% over the last twelve months
  • Average customer deposit growth of 7.7% compared to second quarter 2018
  • Revenue growth of 5.8% compared to second quarter 2018
  • Pretax preprovision income of $12.7 million, a 9.6% increase compared to second quarter 2018
  • Efficiency ratio of 55.4%
  • Declared a dividend of $0.08 per common share, an increase of 14% over the prior quarter
  • Authorized an additional one million shares for repurchase

Gary M. Small, President and Chief Executive Officer of the Company commented, “The team delivered an outstanding quarter and each business line continues to contribute to our success. Balanced improvements in commercial banking, residential mortgage and our consumer business produced a very strong 9.9% net income improvement for the quarter versus the same period last year.”

Small continued, “Excellent earnings growth and an accelerated stock repurchase program combined to deliver EPS growth of 13%. Based on the strength and momentum of our performance, the board approved a 14% dividend increase. Capital management will remain a strategic priority as we are focused on delivering top tier returns for our shareholders.”

Strong Loan and Deposit Growth

Total loans grew $129.5 million (excluding loans held for sale), or 6.1%, during the previous twelve months ended June 30, 2018 and $13.8 million compared to the previous quarter. At June 30, 2019, total net loans (excluding loans held for sale) aggregated $2.23 billion.

Home Savings continues to produce excellent results over all lending categories. The increase in total loans for the period was driven by an increase in commercial loans, which grew $73.5 million, or 8.2%, over the last twelve months, remaining flat compared to the prior quarter. This was as expected due to paydowns in the commercial real estate portfolio. Mortgage loans (excluding loans held for sale and permanent construction loans) increased $54.1 million, or 6.1%, over the previous twelve months and increased $8.1 million, during the past three months.

Average quarterly customer deposits (which exclude brokered certificates of deposit) increased 7.7% from June 30, 2018 and 5.7% from March 31, 2019. The growth in average customer deposits was driven by increases in average non-interest bearing accounts of 7.6% compared to the second quarter of 2018 and 1.2% over the past three months. Secondly, increases occurred in money market accounts of 19.8% compared to the second quarter of 2018 and 17.4% over the last three months. Finally, average business deposits continue to rise, increasing 29.6% compared to the second quarter of 2018 and 8.4% over the past three months.

Net Interest Income and Margin

Net interest income totaled $22.1 million on a fully taxable equivalent (FTE) basis for the quarter ended June 30, 2019 compared to $21.4 million for the quarter ended June 30, 2018, or an increase of 3.4%. This increase is the result of growth in average earning assets of 4.3% offset by a decline in purchase accounting adjustments.

The net interest margin on an FTE basis was 3.33% for the second quarter of 2019 compared to 3.36% in the second quarter of 2018. The decline was primarily due to lower purchase accounting adjustments. Excluding the effects of purchase accounting adjustments, the net interest margin was 3.29% in the second quarter of 2019 compared to 3.28% in the second quarter of 2018.

The net interest margin on a linked quarter basis declined 5 basis points from 3.38% in the first quarter of 2019 to 3.33% in the second quarter of 2019. Two basis points of this decline was the result of lower purchase accounting adjustments. One basis point is due to increased funding costs related to treasury share repurchases. The remaining difference can be attributed to a challenging interest rate environment with an inverted treasury curve along with falling treasury rates and LIBOR.

Asset Quality Remains Strong

Asset quality remained strong during the second quarter. At June 30, 2019, nonperforming loans aggregated $12.9 million compared to $10.8 million at June 30, 2018 and $7.1 million at the end of the previous quarter. The Company’s level of nonperforming loans moved up at the end of the quarter, primarily as a result of a single credit. A substantial portion of this credit was paid off in July, which should reduce nonperforming loans to levels seen in recent quarters. The allowance for loan losses at the end of the period, as a percent of nonperforming loans was 159.1%. Net recoveries for the quarter were $87,000, or two basis points. For the six months ended June 30, 2019, net recoveries totaled $29,000. The allowance for loan losses as a percent of loans totaled 0.91% at June 30, 2019 compared to 1.01% at June 30, 2018.

The Company recognized a negative provision for loan losses of $51,000 for the second quarter of 2019, compared to a negative provision of $138,000 in the second quarter of 2018. As of June 30, 2019 the allowance for loan losses to total loans amounted to 0.91% with no change from the prior quarter. Continued asset quality combined with net recoveries for the period resulted in the negative provision for the quarter.

Non-Interest Income

Non-interest income increased 14.0%, or $819,000, to $6.7 million for the second quarter of 2019 compared to $5.9 million for the same quarter last year. The primary reason for this is an increase in mortgage banking income of $1.4 million along with solid increases in brokerage income, mortgage servicing fees and trading and security gains. This was offset by a decrease in value of mortgage servicing rights of $975,000.

The increase in mortgage banking income was primarily driven by increased margins when comparing the second quarter of 2019 to the second quarter of 2018. Pricing in the market has been much more disciplined in 2019 compared to 2018 while hedging costs for the construction loans being sold have been much lower in 2019. At this time, the Company anticipates mortgage banking margins tracking higher than in 2018 for the remainder of the year. The decrease in the mortgage servicing rights valuation was due to the dramatic drop in long term interest rates and the commensurate rise in mortgage prepayment speeds.

Non-Interest Expense

Non-interest expense was $16.0 million for the second quarter of 2019 compared to $15.5 million during the second quarter of 2018, an increase of $446,000, or 2.9%. The Company’s efficiency ratio improved to 55.4% for the current quarter versus 57.8% for the same quarter a year ago.

Small added, “We are pleased with the positive operating leverage created during the quarter given the volatile rate environment. Revenue increased 5.8% with expenses up 2.9%. We anticipate continued expansion of operational leverage over the remainder of the year.”

Effective Tax Rate

The Company’s effective tax rate on an FTE basis for the quarter ended June 30, 2019 was 18.4% compared to 19.5% for the quarter ended June 30, 2018.

Dividend to be Paid and Equity

On July 23, 2019, the Board of Directors declared a 14.3% increase to the quarterly cash dividend to $0.08 per common share payable August 13, 2019 to shareholders of record August 5, 2019. On July 23, 2019 the Board also authorized an additional one million shares to the Company’s existing share repurchase program. The Company had 727,711 shares authorized as of June 30, 2019. During the second quarter of 2019, the Company repurchased 817,000 shares for a total of 1.1 million for 2019. The average cost was $9.33 per share for the quarter and $9.36 per share for the year.

Conference Call

United Community Financial Corp. will host an earnings conference call on Wednesday, July 24, 2019, at 10:00 a.m. ET, to provide an overview of the Company's second quarter 2019 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 2nd Quarter 2019 Conference Call on our corporate profile page to join the webcast.

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, 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)
 

June 30,

 

June 30,

 

 

2019

 

2018

 

F/(U)

(Dollars in thousands)

Assets:
Cash and deposits with banks

$

27,507

 

$

32,584

 

-15.6

%

Federal funds sold

 

27,055

 

 

34,393

 

-21.3

%

Total cash and cash equivalents

 

54,562

 

 

66,977

 

-18.5

%

Securities:
Trading, at fair value

 

705

 

 

0.0

%

Available for sale, at fair value

 

319,009

 

 

247,630

 

28.8

%

Held to maturity (fair value of $0 and $78,194, respectively)

 

 

81,294

 

-100.0

%

Loans held for sale, at fair value

 

97,477

 

 

107,701

 

-9.5

%

Gross loans

 

2,249,808

 

 

2,121,186

 

6.1

%

Allowance for loan losses

 

(20,482

)

 

(21,405

)

-4.3

%

Net loans

 

2,229,326

 

 

2,099,781

 

6.2

%

Federal Home Loan Bank stock, at cost

 

14,059

 

 

19,324

 

-27.2

%

Premises and equipment, net

 

22,130

 

 

21,645

 

2.2

%

Accrued interest receivable

 

9,184

 

 

8,454

 

8.6

%

Real estate owned and other repossessed assets

 

955

 

 

877

 

8.9

%

Goodwill

 

20,221

 

 

20,221

 

0.0

%

Core deposit intangible

 

1,439

 

 

1,769

 

-18.7

%

Customer list intangible

 

2,123

 

 

1,980

 

7.2

%

Cash surrender value of life insurance

 

65,002

 

 

63,354

 

2.6

%

Other assets

 

32,924

 

 

29,551

 

11.4

%

Total assets

$

2,869,116

 

$

2,770,558

 

3.6

%

 
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Interest bearing

$

1,672,764

 

$

1,563,043

 

7.0

%

Noninterest bearing

 

398,340

 

 

383,082

 

4.0

%

Customer deposits

 

2,071,104

 

 

1,946,125

 

6.4

%

Brokered deposits

 

188,075

 

 

189,220

 

-0.6

%

Total deposits

 

2,259,179

 

 

2,135,345

 

5.8

%

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

 

 

48,927

 

-100.0

%

Short-term advances

 

233,000

 

 

248,000

 

-6.0

%

Total Federal Home Loan Bank advances

 

233,000

 

 

296,927

 

-21.5

%

Repurchase agreements and other

 

146

 

 

191

 

-23.6

%

Total borrowed funds

 

233,146

 

 

297,118

 

-21.5

%

Advance payments by borrowers for taxes and insurance

 

25,335

 

 

19,253

 

31.6

%

Accrued interest payable

 

1,378

 

 

964

 

42.9

%

Accrued expenses and other liabilities

 

32,524

 

 

16,394

 

98.4

%

Total liabilities

 

2,551,562

 

 

2,469,074

 

3.3

%

 
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 48,068,790 and 49,904,074 shares, respectively, outstanding

 

177,319

 

 

177,311

 

0.0

%

Retained earnings

 

204,355

 

 

179,965

 

13.6

%

Accumulated other comprehensive loss

 

(15,180

)

 

(24,077

)

-37.0

%

Treasury stock, at cost, 6,070,120 and 4,234,836 shares, respectively

 

(48,940

)

 

(31,715

)

54.3

%

Total shareholders’ equity

 

317,554

 

 

301,484

 

5.3

%

Total liabilities and shareholders’ equity

$

2,869,116

 

$

2,770,558

 

3.6

%

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

For the Three Months Ended

 

For the Six Months Ended

June 30,

 

March 31,

 

 

 

 

 

June 30,

 

 

 

 

 

June 30,

 

June 30,

 

 

 

 

2019

 

2019

 

Variance

 

F/(U)

 

2018

 

Variance

 

F/(U)

 

2019

 

2018

 

Variance

 

F/(U)

(Dollars in thousands, except per share data)

Interest income
Loans

$

26,373

 

$

25,856

 

$

517

 

2.0

%

$

23,275

 

$

3,098

 

13.3

%

$

52,229

 

$

46,034

 

$

6,195

 

13.5

%

Loans held for sale

 

991

 

 

1,007

 

 

(16

)

-1.6

%

 

1,012

 

 

(21

)

-2.1

%

 

1,998

 

 

1,870

 

 

128

 

6.8

%

Securities:
Available for sale, nontaxable

 

236

 

 

307

 

 

(71

)

-23.1

%

 

356

 

 

(120

)

-33.7

%

 

544

 

 

744

 

 

(200

)

-26.9

%

Available for sale, taxable

 

1,611

 

 

1,263

 

 

348

 

27.6

%

 

1,193

 

 

418

 

35.0

%

 

2,874

 

 

2,408

 

 

466

 

19.4

%

Held to maturity, nontaxable

 

25

 

 

75

 

 

(50

)

-66.7

%

 

61

 

 

(36

)

-59.0

%

 

100

 

 

112

 

 

(12

)

-10.7

%

Held to maturity, taxable

 

118

 

 

379

 

 

(261

)

-68.9

%

 

398

 

 

(280

)

-70.4

%

 

497

 

 

820

 

 

(323

)

-39.4

%

Federal Home Loan Bank stock dividends

 

245

 

 

290

 

 

(45

)

-15.5

%

 

274

 

 

(29

)

-10.6

%

 

534

 

 

554

 

 

(20

)

-3.6

%

Other interest earning assets

 

200

 

 

224

 

 

(24

)

-10.7

%

 

92

 

 

108

 

117.4

%

 

424

 

 

169

 

 

255

 

150.9

%

Total interest income

 

29,799

 

 

29,401

 

 

398

 

1.4

%

 

26,661

 

 

3,138

 

11.8

%

 

59,200

 

 

52,711

 

 

6,489

 

12.3

%

Interest expense
Deposits

 

7,197

 

 

6,574

 

 

(623

)

-9.5

%

 

3,790

 

 

(3,407

)

-89.9

%

 

13,771

 

 

6,887

 

 

(6,884

)

-100.0

%

Federal Home Loan Bank advances

 

559

 

 

641

 

 

82

 

12.8

%

 

1,576

 

 

1,017

 

64.5

%

 

1,200

 

 

2,996

 

 

1,796

 

59.9

%

Total interest expense

 

7,756

 

 

7,215

 

 

(541

)

-7.5

%

 

5,366

 

 

(2,390

)

-44.5

%

 

14,971

 

 

9,883

 

 

(5,088

)

-51.5

%

Net interest income

 

22,043

 

 

22,186

 

 

(143

)

-0.6

%

 

21,295

 

 

748

 

3.5

%

 

44,229

 

 

42,828

 

 

1,401

 

3.3

%

Taxable equivalent adjustment

 

62

 

 

84

 

 

(22

)

-26.2

%

 

90

 

 

(28

)

-31.1

%

 

146

 

 

187

 

 

(41

)

-21.9

%

Net interest income (FTE) (1)

 

22,105

 

 

22,270

 

 

(165

)

-0.7

%

 

21,385

 

 

720

 

3.4

%

 

44,375

 

 

43,015

 

 

1,360

 

3.2

%

Provision for loan losses

 

(51

)

 

61

 

 

112

 

183.6

%

 

(138

)

 

(87

)

63.0

%

 

10

 

 

269

 

 

259

 

96.3

%

Net interest income after provision for loan losses (FTE)

 

22,156

 

 

22,209

 

 

(53

)

-0.2

%

 

21,523

 

 

633

 

2.9

%

 

44,365

 

 

42,746

 

 

1,619

 

3.8

%

Non-interest income
Insurance agency income

 

545

 

 

701

 

 

(156

)

-22.3

%

 

513

 

 

32

 

6.2

%

 

1,246

 

 

1,090

 

 

156

 

14.3

%

Brokerage income

 

409

 

 

370

 

 

39

 

10.5

%

 

300

 

 

109

 

36.3

%

 

779

 

 

572

 

 

207

 

36.2

%

Service fees and other charges:
Deposit related fees

 

1,417

 

 

1,341

 

 

76

 

5.7

%

 

1,392

 

 

25

 

1.8

%

 

2,758

 

 

2,692

 

 

66

 

2.5

%

Mortgage servicing fees

 

881

 

 

873

 

 

8

 

0.9

%

 

813

 

 

68

 

8.4

%

 

1,754

 

 

1,625

 

 

129

 

7.9

%

Mortgage servicing rights valuation

 

(995

)

 

(499

)

 

(496

)

99.4

%

 

(20

)

 

(975

)

4875.0

%

 

(1,494

)

 

(11

)

 

1,483

 

-13481.8

%

Mortgage servicing rights amortization

 

(553

)

 

(446

)

 

(107

)

24.0

%

 

(542

)

 

(11

)

2.0

%

 

(999

)

 

(1,042

)

 

(43

)

4.1

%

Other service fees

 

21

 

 

38

 

 

(17

)

-44.7

%

 

61

 

 

(40

)

-65.6

%

 

59

 

 

99

 

 

(40

)

-40.4

%

Net gains (losses):
Trading securities

 

39

 

 

64

 

 

(25

)

-39.1

%

 

39

 

0.0

%

 

103

 

Securities available for sale

 

148

 

 

144

 

 

4

 

2.8

%

 

94

 

 

54

 

57.4

%

 

292

 

 

233

 

 

59

 

25.3

%

Mortgage banking income

 

2,631

 

 

1,676

 

 

955

 

57.0

%

 

1,205

 

 

1,426

 

118.3

%

 

4,307

 

 

2,563

 

 

1,744

 

68.0

%

Real estate owned and other repossessed assets charges, net

 

(33

)

 

(31

)

 

(2

)

6.5

%

 

(113

)

 

80

 

-70.8

%

 

(64

)

 

(191

)

 

(127

)

66.5

%

Debit/credit card fees

 

1,221

 

 

934

 

 

287

 

30.7

%

 

1,177

 

 

44

 

3.7

%

 

2,156

 

 

2,126

 

 

30

 

1.4

%

Trust fee income

 

461

 

 

465

 

 

(4

)

-0.9

%

 

473

 

 

(12

)

-2.5

%

 

926

 

 

942

 

 

(16

)

-1.7

%

Bank owned life insurance

 

397

 

 

385

 

 

12

 

3.1

%

 

433

 

 

(36

)

-8.3

%

 

782

 

 

866

 

 

(84

)

-9.7

%

Other income

 

82

 

 

58

 

 

24

 

41.4

%

 

66

 

 

16

 

24.2

%

 

139

 

 

107

 

 

32

 

29.9

%

Total non-interest income

 

6,671

 

 

6,073

 

 

598

 

9.8

%

 

5,852

 

 

819

 

14.0

%

 

12,744

 

 

11,671

 

 

1,073

 

9.2

%

Non-interest expense
Salaries and employee benefits

 

9,106

 

 

10,575

 

 

1,469

 

13.9

%

 

8,937

 

 

(169

)

-1.9

%

 

19,681

 

 

18,935

 

 

(746

)

-3.9

%

Occupancy

 

1,028

 

 

1,046

 

 

18

 

1.7

%

 

950

 

 

(78

)

-8.2

%

 

2,074

 

 

2,050

 

 

(24

)

-1.2

%

Equipment and data processing

 

2,208