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UCFC Reports 4th Quarter Earnings Rise to $7.2M
YOUNGSTOWN, Ohio -- United Community Financial Corp. (Nasdaq:UCFC), holding company of The Home Savings and Loan Co. and Butler Wick Corp., Wednesday reported net income of $7.2 million, or 24 cents per diluted share, for the quarter ended Dec. 31, compared to $5.1 million, or 17 cents per diluted share, for the quarter ended Dec. 31, 2003.Annualized return on average equity for the fourth quarter of 2004 was 11.49% compared 7.34% for the same period in 2003, UCFC said. For the 12 months ended Dec. 31, net income was $17.9 million, or 60 cents per diluted share, compared with $22.9 million, or 72 cents per diluted share, for the year ended Dec. 31, 2003. Return on average equity for the period was 7.01% compared to 8.27% for 2003."We are pleased with the results of the fourth quarter, with net income increasing approximately $2 million from last year," said UCFC's chairman and chief executive officer, Douglas M. McKay. "Aside from the impairment charges that affected us in the third quarter, 2004 was a positive year for us. As we begin 2005, we believe that those issues are being adequately addressed and we are starting the new year with optimism." Fourth Quarter Results Net interest income totaled $18.4 million compared to $17.2 million for the same fourth-quarter period of 2003. This increase resulted from a 13.9% increase in average interest earning assets, offset by lower yields received on these assets, UCFC said. Growth in average loans continues to drive the increase in average interest earning assets; average loans increased $238.8 million, or 15.4%, over the fourth quarter 2003. The net interest margin was 3.47% compared to 3.70% for the same period 2003. The compression in UCFC's margin resulted from the flattening of the yield curve in 2004 as longer-term interest rates did not rise in tandem with increases in the federal funds rate, the company said. The provision for loan losses decreased $1.9 million, compared to the same period in 2003. UCFC attributed the decrease to a continuing evaluation of its level of collateral securing delinquent one-to-four family residential mortgage loans. Additionally, specific reserves assigned to certain commercial loans were deemed no longer necessary because of improved credit quality and adequate collateral. Total non-interest income decreased $964,000 to $8.4 million, compared to $9.4 million for the same period in 2003. During the quarter, Home Savings recorded an other-than-temporary charge for the impairment of the Fannie Mae preferred stock it holds in its available-for-sale portfolio of $1.4 million. UCFC said it is taking the charge because the market value of the stock declined significantly in the fourth quarter, following several negative announcements by Fannie Mae involving regulatory actions, restatements of its earnings and management turnover.UCFC said these events made the likelihood of future price appreciation less certain in the near term and would extend the time period for a recovery of its investment cost. Partially offsetting the impairment charge were increases in brokerage commissions, service fees and other charges. Year to Date Results Net income for 2004 fell $5.1 million compared to 2003. An increase in net interest income of $1.7 million was more than offset by a decrease in non-interest income of $4.7 million and an increase in the provision for loan losses of $6.2 million. The $1.7 million rise in net interest income resulted from the $1.8 million increase in interest income offset by an increase in interest expense of only $126,000, UCFC said. The positive change in interest income is a result of an increase in the average balance of interest-earning assets of $157.6 million, offset by a 38-basis point decrease in yield on those assets. A basis point is 0.01%.As UCFC shifted funds from securities to loans during the year, the average balance of securities dropped $47.6 million while the average balance of net loans increased $231.6 million. Interest expense moderately increased $126,000 primarily as a result of an increase of $154.8 million in average total interest bearing liabilities offset by a 21-basis point reduction in the cost of total interest bearing liabilities. The net interest margin for the year was 3.60% compared to 3.81% for 2003. The provision for loan losses increased $6.2 million for 2004 compared to 2003. The increased provision is largely attributable to impairment charges aggregating $8.4 million incurred in the third quarter, UCFC said. As it disclosed earlier, the impairment charges relate to two loans made to a boat dealer and to customers who bought boats from that dealer. Non-interest income for the year decreased $4.7 million as a result of a reduction in gains on loans sold of $8.5 million and a reduction in gains on trading securities of $857,000 along with the write-down of the Fannie Mae preferred stock of $1.4 million. This decrease was offset partially by increases in service fees and other charges of $3.4 million and brokerage commissions of $2.3 million. Non-interest expense for the year decreased $738,000, the result of decreases in salary and employee benefit expense of $437,000, equipment and data processing of $373,000, advertising in the amount of $379,000 and amortization of the core deposit intangible of $415,000. These decreases were offset by an increase in other non-interest expenses of $457,000. UCFC said it continues to place a high priority on controlling expenses. The provision for income tax decreased $3.5 million during 2004 compared to 2003 because of lower pretax income and a lower effective tax rate in 2004 than 2003. The effective tax rate at Dec. 31 was 33.8% as compared to 35.4% for 2003. Financial Condition UCFC's return on average assets and return on average equity were 0.83% and 7.01% respectively, for the year ended Dec. 31. The returns on average assets and average equity were 1.27% and 11.49%, respectively, for the fourth quarter.Total assets increased $214 million, or 10.3%, to $2.3 billion at Dec. 31 compared to Dec. 31, 2003. UCFC attributed the net change in assets to increases of $239.5 million in net loans, $21.4 million in loans held for sale, $16.7 million in trading securities and $3.3 million in other assets, offset by decreases of $40.9 million in cash and cash equivalents and $29.1 million in available for sale securities.Total liabilities increased $241.4 million primarily as a result of a $77.7 million increase in interest-bearing deposits, a $21.5 million increase in non-interest bearing deposits and a $145 million increase in borrowings. Net loans increased $239.5 million, or 15.2% in 2004. Home Savings had increases of $94.4 million in real estate loans, $76 million in construction loans, $48.9 million in consumer loans and $20 million in commercial loans. The allowance for loan losses increased $766,000 at Dec. 31 to $15.9 million from $15.1 million at Dec. 31, 2003.The allowance for loan losses is monitored closely, UCFC said, and may be increased or decreased depending on a variety of factors such as levels and trends of delinquencies, chargeoffs and recoveries and incurred risk in the portfolios. The allowance for loan losses as a percentage of total loans was 0.87% Dec. 31 compared to 0.96% Dec. 31, 2003. The increase in borrowed funds resulted primarily from an increase in short-term borrowings of $116.4 million during 2004. These funds were used to fund loan growth in excess of deposit growth and to complete the self-tender offer during the first quarter. Total shareholders' equity decreased $27.5 million from Dec. 31, 2003 to Dec. 31, which UCFC attributed to its self-tender offer. Tangible book value and book value as of Dec. 31 were $6.92 and $8.09 per share, respectively. For the year ended Dec. 31, 2003, tangible book value and book value were $7.11 and $8.21 per share, respectively. Home Savings and Butler Wick are wholly owned subsidiaries of UCFC. Home Savings operates 36 full-service banking offices and five loan production offices throughout Ohio and western Pennsylvania. Butler Wick has 12 offices that provide full-service retail brokerage, capital markets and trust services throughout northern Ohio and western Pennsylvania. Visit United Community Financial Corp. at www.ucfc.com"