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Income Drops at United Community Financial Corp.
YOUNGSTOWN, Ohio -- A higher provision for loan losses dropped third-quarter net income for United Community Financial Corp. (Nasdaq: UCFC) to $3 million, or 10 cents per share, compared to $5.8 million, or 17 cents per share, for the third quarter of 2003. As a result, annualized return on average equity for the third quarter was 4.86%; in 2003's third quarter it was 8.28%, the company reported Wednesday.For the nine months ended Sept. 30, net income was $13.5 million, or 45 cents per share, compared with $17.8 million, or 55 cents per share, for the nine months ended Sept. 30,. Annualized return on average equity for the nine months was 7.03%, as compared to 8.58% in the prior year."When comparing the first three quarters of 2004 with the same period last year, two items stand out," said Douglas M. McKay, president and chief executive officer. "First and foremost, the provision for loan losses has been larger than anticipated this year. The other factor, which I have discussed previously, is that loan sale gains have declined significantly from previous years as anticipated. Aside from the increased provision for loan losses, results for 2004 to date have been in line with our expectations."UCFC is the holding company for The Home Savings and Loan Co. and Butler Wick Co. Inc., both of Youngstown. Here is the text of the company's earnings release:Net interest income totaled $18.5 million for the third quarter compared to $17.5 million for the third quarter of 2003. This increase was the result of a 12.6% increase in average interest earning assets offset by lower yields received on these assets. Growth in average loans continues to drive the increase in average interest earning assets, as average loans increased 21.0% over the third quarter of 2003.The net interest margin for the third quarter was 3.55% compared to 3.79% for the same period a year ago. While the company has continued to shift dollars from lower yielding investments to loans, the company's net interest margin has declined as a result of the continued low interest rate environment. The provision for loan losses increased $4.3 million for the three months ended Sept. 30, compared to the same period in 2003. The increase in the provision for loan losses was primarily a result of a determination that during the quarter impairment charges totaling $4.0 million were necessary for twenty-one consumer loans and two commercial loans. At Sept. 30, he outstanding principal balance of the impaired loans was $13.7 million, which includes $8.4 million of consumer loans and $5.3 million of commercial loans.Total non-interest income decreased $1.6 million to $8.7 million for the three months ended Sept. 30, compared to $10.3 million for the same period in 2003. During the third quarter, Home Savings realized gains on the sale of loans in the amount of $807,000 compared to $2.5 million during the third quarter of 2003. Partially offsetting the reduced gain on loans sold was an increase of $818,000 in service fees and other charges. Year to Date ResultsNet income for the first nine months decreased $4.3 million from the same period in 2003. The decrease is attributed to a decrease in non-interest income of $3.8 million and an increase in the provision for loan losses of $3.7 million. These changes were offset partially by a decrease in the provision for income taxes of $2.5 million. Net interest income increased $490,000 as a result of a $1.4 million decrease in interest income offset by a decrease in interest expense of $1.9 million. The decrease in interest income is a result of a 47 basis point decrease in yield on interest earning assets caused by the continued repricing of assets in a low rate environment. The company offset partially the effect of low rates on interest income by shifting funds from securities to loans. The average balance of securities dropped $59.8 million while the average balance of loans increased $228.7 million. Interest expense decreased $1.9 million primarily as a result of a 31 basis point reduction in the cost of total interest bearing liabilities offset by an increase of $116.9 million in total interest bearing liabilities.The provision for loan losses increased $3.7 million for the nine months ended Sept. 30, compared to the first nine months of 2003. This increase was due to the impairment charges discussed above.Non-interest income for the first nine months decreased as a result of a reduction in gains on loans sold of $8.4 million. This decrease was offset partially by increases in service fees and other charges of $3.0 million and brokerage commissions of $1.5 million.Non-interest expense for the first nine months decreased $250,000 primarily as a result of decreases in equipment and data processing of $408,000, advertising in the amount of $311,000 and amortization of the core deposit intangible of $336,000. The provision for income tax decreased $2.5 million during the first nine months of 2004 compared to the same period in 2003 as a result of lower pretax income in 2004 than in 2003. The effective tax rate at Sept. 30 was 34.6% as compared to 35.0% for the same period in 2003.Financial ConditionUnited Community's return on average assets and return on average equity were 0.85% and 7.03%, respectively, for the nine months. The returns on average assets and average equity were 0.55% and 4.86%, respectively, for the three months ended Sept. 30. Total assets increased by $154.8 million, or 7.5%, to $2.2 billion at Sept. 30, compared to Dec. 31. The net change in assets was a result of increases of $200.3 million in net loans, $21.1 million in loans held for sale, $13.2 million in trading securities and $2.9 million in other assets, partially offset by decreases of $46.0 million in cash and cash equivalents and $37.7 million in available for sale securities. Total liabilities increased $186.8 million primarily as a result of a $69.1 million increase in interest bearing deposits, a $12.1 million increase in non-interest bearing deposits and a $113.5 million increase in borrowings. Net loans increased $200.3 million, or 12.7%, from Dec. 31 o Sept. 30. Home Savings had increases of $73.3 million in real estate loans, $48.7 million in construction loans, $57.1 million in consumer loans and $25.9 million in commercial loans. The allowance for loan losses increased $5.6 million at Sept. 30 to $20.7 million from $15.1 million at Dec. 31. The allowance for loan losses is monitored closely and may be increased or decreased depending on a variety of factors such as levels and trends of delinquencies, chargeoffs and recoveries and perceived risk in the portfolios. The allowance for loan losses as a percentage of total loans was1.15% at Sept. 30 compared to 0.96% at Dec. 31.The increase on borrowed funds was due primarily to an increase in short-term borrowings of $106.2 million from Dec. 31 to Sept. 30. These funds were used to fund loan growth in excess of deposit growth in addition to the completion of the self-tender offer during the first quarter of 2004. Total shareholders' equity decreased $32.0 million from Dec. 31 to Sept. 30, largely due to the self-tender offer. Tangible book value and book value as of Sept. 30 were $6.77 and $7.95 per share, respectively. For the period ending Dec. 31, tangible book value and book value were $7.11 and $8.21 per share, respectively. Visit United Community Financial Corp. at www.ucfconline.com"