UCFC Announces Strong Fourth Quarter Results and Declares Dividend

YOUNGSTOWN, Ohio--(BUSINESS WIRE)--United Community Financial Corp. (Company) (Nasdaq: UCFC), parent company of The Home Savings and Loan Company (Home Savings), announced today that net income for the quarter ended December 31, 2015 totaled $4.3 million, or $0.09 per diluted common share compared to $2.8 million, or $0.06 per diluted common share for the quarter ended December 31, 2014. Net income for the twelve months ended December 31, 2015 totaled $16.3 million, or $0.34 per diluted common share compared to $50.2 million or $1.00 per diluted common share ($10.5 million, or $0.20 per diluted share adjusted for the recognition of $39.7 million of income tax benefit from the reversal of a deferred tax asset valuation reserve) for the twelve months ended December 31, 2014.

Gary M. Small, President and Chief Executive Officer of the Company and Home Savings, commented that, “Strong performance in the fourth quarter closes out an excellent year for the organization. We achieved our growth and profitability objectives, expanded our client base, and added a talented group of bankers. The organization is very well positioned heading into 2016.”

Balance Sheet Highlights

Total Loans

Total outstanding loans, net of allowance for loan losses and including loans held for sale, increased $183.2 million, or 15.7% to $1.4 billion at December 31, 2015, compared to December 31, 2014. Driving the growth in loans was an increase of $116.8 million, or 46.2%, in commercial loans during 2015. Additionally, during the year, unfunded commercial loan commitments grew by 77.8% to approximately $103.4 million at December 31, 2015. Residential loans, including residential loans held for sale, increased 7.8%, or $58.4 million during 2015.

Total Deposits

Total deposits increased $87.9 million, or 6.5%, to $1.4 billion at December 31, 2015, compared to $1.3 billion at December 31, 2014. Non-interest bearing accounts increased $39.5 million, or 21.0%. During the same time period, interest-bearing deposits increased 4.2%, or $48.4 million. Origination of public funds continues to drive the growth of interest-bearing deposits along with an increase in commercial deposits.

Fourth Quarter Results

Net Interest Income and Margin

Net interest income on a fully taxable equivalent basis was $14.5 million in the fourth quarter of 2015, up from the $13.4 million recorded in the fourth quarter of 2014 and the $14.3 million recorded in the third quarter of 2015. The improvement in net interest income, when comparing the fourth quarter of 2015 to the fourth quarter of 2014, was due to an increase in average net loan balances totaling approximately $157.4 million. Additionally, funding costs were reduced due to a modification of an FHLB advance and the prepayment of two repurchase agreements late in 2014.

Net interest margin was 3.16% for the fourth quarter of 2015, which did not change from the fourth quarter of 2014, and decreased from the 3.18% recorded in the previous quarter. Late in December of 2015, Home Savings prepaid a high cost $30.0 million repurchase agreement. While the elimination of the debt will be beneficial going forward, minimal benefit was recognized during the quarter.

Provision for Loan Losses

The Company recognized a provision for loan losses of $893,000 in the fourth quarter of 2015 compared to a provision of $194,000 in the fourth quarter of 2014, and a provision of $673,000 in the previous quarter. Provision expense continues to be driven primarily by strong loan growth.

Non-Interest Income

Non-interest income was $5.5 million in the fourth quarter of 2015 compared to $2.9 million in the fourth quarter of 2014, and up from $4.9 million in the previous quarter. The increase in non-interest income in comparing the fourth quarter of 2015 to the fourth quarter of 2014 was primarily a result of higher mortgage banking income due to a greater volume of loans sold along with higher deposit related fees earned. The increase in noninterest income compared to the prior quarter is a result of increased deposit fees, a favorable adjustment in the mortgage servicing rights valuation allowance and gains on securities available for sale.

Non-Interest Expense

Non-interest expense was $12.8 million for the fourth quarter of 2015 compared to $13.9 million for the fourth quarter of 2014, a decrease of $1.2 million. Salaries and employee benefits decreased in that time period due to organizational restructuring and modification of certain employee benefit plans. Additionally, during the fourth quarter of 2015, the Company incurred lower prepayment penalties for the repayment of repurchase agreements. Total non-interest expense increased $470,000, when comparing the fourth quarter of 2015 to the prior quarter. This change was primarily a result of a prepayment penalty in connection with a repurchase agreement and the reversal of the residential mortgage repurchase reserve in the third quarter of 2015.

Year to Date Results

Net Interest Income and Margin

Net interest income on a fully taxable equivalent basis was $56.6 million for the twelve months ended December 31, 2015, an increase of $5.2 million from the same period in 2014. Net interest margin was 3.18% for the full year of 2015 compared to 3.10% for the full year of 2014. As in prior quarters of 2015, the net interest margin continues to be positively impacted by the modification of an FHLB advance and the prepayment of two repurchase agreements that occurred at the end of 2014.

Provision for Loan Losses

The Company recognized a provision for loan losses of $2.1 million for 2015 compared to a negative provision of $1.3 million in 2014. The additional provision for loan losses resulted from the growth in outstanding loans during 2015.

Non-Interest Income

Non-interest income was $19.7 million for the twelve months ended December 31, 2015, compared to $13.7 million for the twelve months ended December 31, 2014. This favorable comparison is a result of increased mortgage banking income. During the year, the Company realized a high level of mortgage loan production being sold into the secondary market along with improved pricing on loans sold.

Non-Interest Expense

Total non-interest expense was $49.9 million for the twelve months ended December 31, 2015, a decrease of $6.0 million over the twelve months ended December 31, 2014. All major expense categories declined as a result of effective process improvements and cost reduction efforts.

Asset Quality

Measures of asset quality continued to improve during 2015 as evidenced by nonperforming assets to total assets decreasing to 0.98%, compared to 1.30% for 2014. The allowance for loan loss as a percentage of total loans was 1.33% at December 31, 2015 compared with 1.52% at December 31, 2014.

Equity

Tangible book value per common share at December 31, 2015 improved to $5.14, as compared to $4.88 at December 31, 2014. During the third quarter of 2015, Home Savings reclassified approximately $105.0 million of available for sale securities to held to maturity, providing for additional stability of tangible book value. The Company continues its share repurchase program, repurchasing 116,000 shares during the quarter.

Dividend to be Paid

The Board of Directors declared a quarterly cash dividend of $0.025 per common share payable February 19, 2016 to shareholders of record at the close of business February 8, 2016.

Purchase of James & Sons Insurance Company

The Company also was pleased to announce yesterday, January 25, 2016, the purchase of James & Sons Insurance Company of Youngstown, Ohio. James & Sons Insurance is engaged in the business of selling insurance including auto, commercial, homeowners and life-health insurance. Completion of the transaction is anticipated in the first quarter of 2016.

Conference Call

United Community Financial Corp. will host an earnings conference call on Wednesday, January 27, 2016, at 10:00 a.m. ET., to provide an overview of the Company's fourth quarter 2015 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 www.ucfconline.com. Click on 4th Quarter 2015 Conference Call on our corporate profile page to join the webcast.

United Community Financial Corp.

Home Savings is a wholly-owned subsidiary of the Company and operates retail banking offices and loan production centers in Ohio and western Pennsylvania. Additional information on the Company and Home Savings may be found on the Company’s web site: www.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.