United Community Financial Corp. :UCFC-US: Earnings Analysis: Q1, 2017 By the Numbers : June 19, 2017

United Community Financial Corp. reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of United Community Financial Corp. – FFD Financial Corporation, New York Community Bancorp, Inc. and TFS Financial Corporation (FFDF-US, NYCB-US and TFSL-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 23.70 million, Net Earnings of USD 1.53 million.
  • Net interest income margins widened from 73.24% to 77.97% compared to the same period last year.
  • Net loan assets changed 35.01% compared to same period last year and 22.04% from previous period, total deposits changed 29.91% compared to same period last year and 25.76% from previous period.
  • Year-on-year change in operating cash flow of 4.78% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings declined although operating margins improved from 26.33% to 29.78%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 23.7 22.19 22.19 21.85 20.31
Revenue Growth (%YOY) 16.68 -1.06 21.44 11.83 9.14
Earnings (mil) 1.53 4.99 5.12 5.29 3.3
Earnings Growth (%YOY) -53.7 15.9 24.15 29.02 -10.01
Net Margin (%) 6.44 22.5 23.06 24.21 16.24
EPS 0.03 0.11 0.11 0.11 0.07
Return on Equity (%) 2.32 7.89 8.02 8.37 5.32
Return on Assets (%) 0.26 0.91 0.96 1.02 0.65

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Market Share Versus Profits

Revenues History
Earnings History

UCFC-US‘s change in revenue this period compared to the same period last year of 16.68% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that UCFC-US is holding onto its market share. Also, for comparison purposes, revenues changed by 6.79% and earnings by -69.41% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year earnings decline has not come as a result of decline in net interest income margins or because of any loan loss provisions. Both net interest income margins and net interest income after provisions margins have actually improved. In fact, net interest income margins went from 73.24% to 77.97% and net interest income after provisions margins improved from 62.63% to 71.75% over this period. In addition, loan loss provisions as a percentage of net interest income were 7.98% this period , and 14.49% a year ago.

Net Interest Income Margin Versus Loan Loss Provisions Margin

Quadrant label definitions. Hover to know more

High Risk; High Reward Loans, Risky Loan Portfolio, Conservative Loan Portfolio, Safer Loan Portfolio
Net Interest Income Margin History
Loan Loss Provisions Margin History

Net Loans and Total Deposits

A financial institution’s core operations represented by Net Interest Income and Net Interest Income after Provisions are dependent on both the growth and quality of its deposits as well as the growth and quality of its loans. A firm could boost its interest income in the short-term by just increasing its loan assets with less concern about their quality – but this would eventually lead to greater loan loss provisions. Similarly a drive to increase deposits could result in higher interest expenses and eventually effect the firm’s equity. It is thus important to understand net interest income performance in context to loan loss provisions, loan assets and deposits.

Loan Assets Growth Rate History (Qtr YOY)
Total Deposits Growth Rate History (Qtr YOY)

The firm’s improvement in net interest income margins was influenced by both the relative increase in the levels of net loan assets and the level of total deposits as a percentage of equity. On an absolute basis, net loan assets changed 35.01% compared to the same period last year and 22.04% from the previous period. Total deposits changed 29.91% compared to the same period last year and 25.76% from the previous period.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

UCFC-US‘s change in operating cash flow of 4.78% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings declined despite overall improvement in operating margins. Operating margins went from 26.33% to 29.78%. The decline in earnings seems to be largely because of one-time item. Pretax margins narrowed from 24.19% to 8.84%.

EBIT Margin History
PreTax Margin History
EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables

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Company Profile

United Community Financial Corp. operates as a financial holding company, which provides retail and business banking products and services. The company’s lending activity include conventional residential real estate loans secured by real estate located in home savings primary market area. It provides commercial real estate, commercial and industrial loans, and various types of consumer loans, including home equity loans, loans secured by savings accounts, motor vehicles, boats and recreational vehicles and unsecured loans. The company offers various deposit products, including regular passbook savings accounts, demand deposits, individual retirement accounts, checking accounts, money market accounts and certificates of deposit. United Community Financial was founded in February 1998 and is headquartered in Youngstown, OH.

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