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| UCFC > SEC Filings for UCFC > Form 10-Q on 11-May-2009 | All Recent SEC Filings |
11-May-2009
Quarterly Report
UNITED COMMUNITY FINANCIAL CORP.
At or For the Three
Months Ended
March 31,
2009 2008
Selected financial ratios and other data: (1)
Performance ratios:
Return on average assets (2) 0.50 % 0.59 %
Return on average equity (3) 5.30 % 5.72 %
Interest rate spread (4) 2.74 % 2.21 %
Net interest margin (5) 3.04 % 2.61 %
Non-interest expense to average assets 2.51 % 2.17 %
Efficiency ratio (6) 71.85 % 66.39 %
Average interest-earning assets to average interest-bearing
liabilities 111.51 % 111.59 %
Capital ratios:
Average equity to average assets 9.45 % 10.25 %
Equity to assets, end of period 9.34 % 10.01 %
Tier 1 leverage ratio 8.33 % 7.67 %
Tier 1 risk-based capital ratio 11.22 % 9.83 %
Total risk-based capital ratio 12.48 % 12.51 %
Asset quality ratios:
Non-performing loans to total loans at end of period (7) 4.96 % 4.71 %
Non-performing assets to average assets (8) 5.19 % 4.15 %
Allowance for loan losses as a percent of loans 1.76 % 1.48 %
Allowance for loan losses as a percent of nonperforming
loans (7) 36.09 % 31.79 %
Office data:
Number of full service banking offices 39 39
Number of loan production offices 6 6
Per share data:
Basic earnings (loss) from continuing operations (9) $ (0.06 ) $ 0.13
Basic earnings from discontinued operations (9) 0.17 0.01
Basic earnings (loss) (9) 0.11 0.14
Diluted earnings (loss) from continuing operations (9) (0.06 ) 0.13
Diluted earnings from discontinued operations (9) 0.17 0.01
Diluted earnings (loss) (9) 0.11 0.14
Book value (10) 7.74 7.96
Tangible book value (11) 7.72 9.12
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(1) Ratios for the three month periods are annualized where appropriate. Ratios for the period ending March 31, 2008 have been revised to reflect the impact of discontinued operations.
(2) Net income divided by average total assets.
(3) Net income divided by average total equity.
(4) Difference between weighted average yield on interest-earning assets and weighted average cost of interest-bearing liabilities.
(5) Net interest income as a percentage of average interest-earning assets.
(6) Noninterest expense, excluding the amortization of core deposit intangible, divided by the sum of net interest income and noninterest income, excluding gains and losses on securities, other than temporary impairment charges and other.
(7) Nonperforming loans consist of nonaccrual loans, loans past due ninety days and still accruing, and restructured loans.
(8) Nonperforming assets consist of nonperforming loans, real estate acquired in the settlement of loans and other repossessed assets.
(9) Net income divided by average number of basic or diluted shares outstanding.
(10) Shareholders' equity divided by number of shares outstanding.
(11) Historical per share dividends declared and paid for the period divided by the diluted earnings per share for the period
(12) Market value divided by book value.
Allowance For Loan Losses
(Dollars in thousands)
December 31, March 31,
2008 Provision Recovery Chargeoff 2009
Real Estate Loans
Permanent
One-to four-family residential $ 4,986 $ 957 $ 2 $ (1,098 ) $ 4,847
Multifamily residential 2,344 578 3 (1,384 ) 1,541
Nonresidential 4,870 1,333 1 (653 ) 5,551
Land 585 50 - - 635
Total 12,785 2,918 6 (3,135 ) 12,574
Construction Loans
One-to four-family residential 10,620 3,814 4 (1,554 ) 12,884
Multifamily and nonresidential 722 (15 ) - - 707
Total 11,342 3,799 4 (1,554 ) 13,591
Consumer Loans
Home Equity 1,386 503 - (362 ) 1,527
Auto 242 30 5 (64 ) 213
Marine 1,504 125 4 (6 ) 1,627
Recreational vehicle 1,425 548 22 (559 ) 1,436
Other 313 88 100 (218 ) 283
Total 4,870 1,294 131 (1,209 ) 5,086
Commercial Loans
Secured 3,355 (340 ) - (212 ) 2,803
Unsecured 3,610 773 - (581 ) 3,802
Total 6,965 433 - (793 ) 6,605
Total $ 35,962 $ 8,444 $ 141 $ (6,691 ) $ 37,856
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Nonperforming loans consist of loans past due 90 days or more, loans past due less than 90 days that are on nonaccrual status, and restructured loans. Nonperforming loans were $104.9 million, or 4.96% of net loans, at March 31, 2009, compared to $106.7 million, or 4.84% of net loans, at December 31, 2008. The schedule below summarizes the change in nonperforming loans for the first three months of 2009.
Nonperforming Loans
(Dollars in thousands)
March 31, December 31,
2009 2008 Change
Real Estate Loans
Permanent
One-to four-family residential $ 24,409 $ 21,669 $ 2,740
Multifamily residential 5,747 8,724 (2,977 )
Nonresidential 13,191 15,246 (2,055 )
Land 5,179 4,840 339
Total 48,526 50,479 (1,953 )
Construction Loans
One-to four-family residential 42,232 43,167 (935 )
Multifamily and nonresidential 789 816 (27 )
Total 43,021 43,983 (962 )
Consumer Loans
Home Equity 2,654 2,312 342
Auto 138 154 (16 )
Marine 2,612 2,614 (2 )
Recreational vehicle 939 756 183
Other 32 33 (1 )
Total 6,375 5,869 506
Commercial Loans
Secured 3,331 3,496 (165 )
Unsecured 924 1,057 (133 )
Total 4,255 4,553 (298 )
Restructured Loans 2,726 1,797 929
Total Nonperforming Loans $ 104,903 $ 106,681 $ (1,778 )
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The $2.7 million increase in nonperforming loans secured by one-to four-family
properties was primarily a result of the overall increase in the number of loans
becoming 90 or more days past due. The decrease in nonperforming multifamily
residential, nonresidential real estate and construction loans was primarily the
result of Home Savings taking into possession property in Michigan and Northeast
Ohio in the first quarter of 2009.
A loan is considered impaired when, based on current information and events, it
is probable that Home Savings will be unable to collect the scheduled payments
of principal or interest when due according to the contractual terms of the loan
agreement and the loan is non-homogeneous in nature. Factors considered by
management in determining impairment include payment status, collateral value,
and the probability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant payment delays and payment shortfalls
generally are not classified as impaired. Management determines the significance
of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the facts and circumstances surrounding the loans and the
borrower, including the length of the delay, the reasons for the delay, the
borrower's prior payment record, and the amount of shortfall in relation to the
principal and interest owed. Impairment is measured on a loan-by-loan basis by
either the present value of expected future cash flows discounted at the loan's
effective interest rate or the fair value of the collateral if the loan
is collateral dependent. As shown in the following table, the largest component of $7.6 million increase in impaired loans is a result of one-to four-family loans increasing $6.1 million.
Impaired Loans
(Dollars in thousands
March 31, December 31,
2009 2008 Change
Real Estate Loans
Permanent
One-to four-family residential $ 18,784 $ 12,675 $ 6,109
Multifamily residential 5,747 8,724 (2,977 )
Nonresidential 13,047 14,855 (1,808 )
Land 5,180 4,757 423
Total 42,758 41,011 1,747
Construction Loans
One-to four-family residential 42,232 36,903 5,329
Multifamily and nonresidential 789 816 (27 )
Total 43,021 37,719 5,302
Consumer Loans
Home Equity 1,819 1,657 162
Auto 14 - 14
Boat 2,612 2,614 (2 )
Recreational vehicle 361 - 361
Other - - -
Total 4,806 4,271 535
Commercial Loans
Secured 3,416 3,496 (80 )
Unsecured 839 751 88
Total 4,255 4,247 8
Total Impaired Loans $ 94,840 $ 87,248 $ 7,592
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Other nonperforming assets, consisting of real estate and other consumer
property acquired in the settlement of loans, totaled $30.4 million at March 31,
2009, compared to $29.3 million at December 31, 2008. The $1.2 million increase
is primarily attributable to the acquisition of properties having an estimated
market value of $1.8 million that collateralized commercial construction loans
primarily in the central Ohio market area, one property with an estimated market
value of $1.7 million that secured a commercial real estate loan in Michigan and
four properties with an estimated value of $386,000 that secured four commercial
real estate loans in northern Ohio. Home Savings disposed of property with a
value of $2.8 million in the first quarter of 2009, partially offsetting the
increase. Other consumer property, such as boats, recreational vehicles, and
automobiles that were received by Home Savings in the satisfaction of loans,
makes up the remainder of the change.
Loans held for sale decreased $1.9 million, or 11.6%, to $14.2 million at
March 31, 2009, compared to $16.0 million at December 31, 2008. The change in
loans held for sale was due largely to the increase in volume of loan
originations during the period because of the lower interest rate environment.
Home Savings sells newly originated loans into the secondary market as part of
its risk management strategy and anticipates continuing to do so in the future.
Federal Home Loan Bank stock remained at $26.4 million at March 31, 2009,
compared to December 31, 2008. During the first quarter of 2009, the Federal
Home Loan Bank paid a cash dividend in lieu of a stock dividend to its member
banks.
Home Savings maintains a contra account for uncollected interest for loans on
non-accrual status that represents the reduction in interest income from the
time the borrower stopped making payments until the loan is repaid, charged off
or the default is cured and performance resumes. The increases in these
reserves, from $14.8 million at December 31, 2008, to $15.6 million at March 31,
2009,
and the impact of the reduction in loan balances mentioned above, were the
primary reasons that accrued interest receivable decreased $845,000 to
$9.2 million at March 31, 2009, compared to $10.1 million at December 31, 2008.
Other assets increased $3.8 million to $20.9 million at March 31, 2009, compared
to $17.1 million at December 31, 2008. Home Savings had increases in deferred
federal income taxes of $296,000 related to the market valuation of available
for sale securities, prepaid Ohio franchise tax of $959,000, and current federal
income tax benefit of $1.7 million. These increases were offset by cash due on
payments of mortgage-backed securities of $1.4 million and $190,000 in deferred
mortgage servicing rights.
Total deposits decreased $50.4 million to $1.8 billion at March 31, 2009,
compared to $1.9 billion at December 31, 2008. This change was due primarily to
a decrease of $52.9 million in brokered certificates of deposit and a
$17.4 million decrease in retail certificates of deposit offset by a
$17.0 million increase in savings accounts and a $2.8 million increase in money
market accounts and other demand deposit accounts. To supplement its funding
needs, United Community began obtaining brokered certificates of deposit in
2007. Such deposits have maturities ranging from six months to two years. The
total balance of brokered certificates of deposit was $92.1 million at March 31,
2009 and $145.0 million at December 31, 2008. Home Savings cannot obtain
additional brokered certificates of deposit without the approval of the FDIC.
Federal Home Loan Bank advances decreased $2.8 million during the first three
months of 2009, reflecting an increase in overnight advances of $17.4 million
and a decrease in term advances of $20.2 million. Home Savings had approximately
$230.8 million in unused borrowing capacity at the FHLB at March 31, 2009.
Repurchase agreements and other borrowed funds, including United Community's
line of credit with JP Morgan Chase Bank, N.A. (JP Morgan Chase), decreased $5.9
million to $119.4 million at March 31, 2009 from $125.3 million at December 31,
2008. United Community's line of credit with JP Morgan Chase was paid in full
with proceeds from the sale of Butler Wick Trust on March 31, 2009.
Advance payments by borrowers for taxes and insurance decreased $5.7 million
during the first three months of 2009. Payments for real estate taxes and
property insurance made on behalf of customers of Home Savings account for
$3.5 million of the decrease. In addition, funds held for payments received on
loans sold where servicing was retained by Home Savings decreased $2.2 million.
Accrued expenses and other liabilities increased $7.3 million, to $16.4 million
at March 31, 2009 from $9.1 million at December 31, 2008. United Community had
an increase in accrued liabilities for taxes related to the net income and sale
of Butler Wick Trust in the first quarter of 2009 aggregating $4.3 million. Home
Savings had an increase in deferred income taxes related to the valuation of the
securities available for sale portfolio of $550,000 along with an increase in
accrued payroll and related expenses of $731,000.
Shareholders' equity increased $4.4 million to $239.3 million at March 31, 2009,
from $234.9 million at December 31, 2008. An after-tax gain of $4.7 million from
the sale of Butler Wick Trust and net operating income of $238,000 for the first
three months of 2008 from Butler Wick were partially offset by a $1.2 million
net loss recognized by Home Savings. An increase in other comprehensive income
resulting from changes in available for sale securities, net of tax, of $910,000
also contributed to the increase.
Comparison of Operating Results for the Three Months Ended
March 31, 2009 and March 31, 2008
Net Income. United Community recognized net income for the three months ended
March 31, 2009, of $3.3 million, or $0.11 per diluted share, compared to net
income of $4.0 million, or $0.14 per share, for the three months ended March 31,
2008. Compared with the first quarter of 2008, net interest income increased
$1.8 million, the provision for loan losses increased $6.0 million, non-interest
income decreased $3.5 million, and non-interest expense increased $1.4 million.
United Community's annualized return on average assets and return on average
equity were 0.50% and 5.30%, respectively, for the three months ended March 31,
2009. The annualized return on average assets and return on average equity for
the comparable period in 2008 were 0.59% and 5.72%, respectively.
Net Interest Income. Net interest income for the three months ended March 31,
2009, was $18.7 million compared to $16.9 million for the same period last year.
Both interest income and interest expense decreased with a smaller decline in
interest income. Interest income decreased $5.2 million in the first quarter of
2009 compared to the first quarter of 2008. The change in interest income was
due primarily to decreases in interest earned on net loans. Home Savings had a
decrease in the average balance of net loans of $116.2 million and a reduction
of 54 basis points in the rate earned on those loans during the first quarter of
2009 as compared to the same quarter in 2008. Also contributing to the change in
interest income was a decrease in interest earned on available for sale
securities, as the average balance of those assets declined by $23.8 million and
the yield earned on those securities decreased 30 basis points.
Total interest expense decreased $7.0 million for the quarter ended March 31,
2009, as compared to the same quarter last year. The change was due primarily to
a reduction of $4.4 million in interest paid on deposits, $1.8 million in
interest paid on Federal Home
Loan Bank advances and interest paid on repurchase agreements and other
borrowings of $767,000. The overall decrease in interest expense is attributable
to a decline in the average balances of interest bearing checking accounts of
$57.8 million as well as a reduction of 155 basis points on those liabilities.
Furthermore, Home Savings experienced a decline in the cost of certificates of
deposit of 91 basis points despite an increase in the average balance of those
deposits of $6.8 million. These declines were offset partially by an increase in
the average balance of savings accounts of $12.1 million along with an increase
in the cost of those deposits of 10 basis points.
The primary cause of the decrease in interest expense on Federal Home Loan Bank
advances was a decrease in the average balance of those funds of $39.2 million,
as well as a rate decrease on those borrowings of 167 basis points in the first
quarter compared to the same quarter in 2008. The rate on short term advances
. . .
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