United Community Financial Corp. Posts Another Strong Quarter

YOUNGSTOWN, Ohio--(BUSINESS WIRE)--United Community Financial Corp. (Company) (Nasdaq: UCFC), parent company of The Home Savings and Loan Company of Youngstown, Ohio (Home Savings), announced today that net income for the third quarter of 2014 totaled $2.9 million. The Company also reported net income of $47.4 million (including the recognition of $39.1 million of income tax benefit from the reversal of a deferred tax asset valuation reserve) for the nine months ended September 30, 2014.

Gary M. Small, President and Chief Executive Officer of United Community and Home Savings, commented that, “Our strong performance is evidence that our strategies are working. We have been able to grow our loan portfolio, manage expenses, reduce our funding costs and attract new customers. These are all signs that we are headed in the right direction.”

Net Loans

Net loans increased $90.8 million from $1.0 billion at December 31, 2013 to $1.1 billion at September 30, 2014. The increase was driven by an $84.2 million increase in one-to four-family residential loans. Commercial and commercial real estate loans also increased $12.2 million during this period. Commercial commitments also continue to show strong growth with an increase of $49.6 million, or 20.9% year to date.

Small noted, “We are very pleased with the third quarter loan activity, particularly in the commercial lending segment. The growth reflects the success we are experiencing in attracting new business.”

Net Interest Income and Margin

The Company’s net interest margin was 3.06% in the third quarter of 2014, up from 3.04% in the third quarter of 2013. The net interest margin for the nine months ended September 30, 2014 was 3.07% compared to 2.99% in the prior year period. Despite the prolonged period of low interest rates and downward pressure on loan yields, the Company continues to make progress in expanding its net interest margin. The expansion is attributable to loan growth coupled with declines in deposit and borrowing costs. At the end of September 2014, Home Savings prepaid one $30.0 million tranche of the Company’s repurchase agreements and incurred a $1.4 million prepayment charge. Due to the timing of the debt extinguishment, there was minimal impact on the third quarter margin. The debt prepayment actions are one of many efforts underway to reduce the Company’s funding costs.

Noninterest Income

Noninterest income increased to $4.2 million in the third quarter of 2014, compared to $3.5 million in the third quarter of 2013. A portfolio of bank equities was sold in the third quarter of 2014, resulting in the recognition of security gains of approximately $328,000. Additionally, Home Savings recognized reduction in losses incurred on the resolution of real estate owned of $192,000. The Company also recognized higher non-deposit investment income due to a higher sales volume in the third quarter of 2014, as compared to the same quarter last year. Offsetting these changes was a reduction in mortgage banking income of $219,000.

In the first nine months of 2014, noninterest income totaled $10.8 million, compared to $15.6 million in the first nine months of 2013. The difference in noninterest income year over year is due to security gains of approximately $2.6 million that were recognized in the first nine months of 2013. Also, during the first nine months of 2013, Home Savings recognized a $676,000 recovery on mortgage servicing rights. A similar recovery was not recognized in 2014. These declines over the same period in 2013 were offset partially by a reduction in losses incurred on the resolution of real estate owned of $1.3 million. Lastly, mortgage banking income has declined $2.3 million, which is being driven by lower mortgage production due to lower mortgage refinance activity.

Noninterest Expense

Noninterest expenses increased $724,000 for the quarter ending September 30, 2014, as compared to the same quarter last year. The third quarter of 2014 included a $1.4 million prepayment penalty on the early termination of a $30.0 million borrowing. Reduced FDIC insurance premiums, financial institutions taxes, legal and consulting fees partially offset the impact of the prepayment penalty.

Noninterest expense increased to $42.0 million during the first nine months of 2014 compared to $41.8 million in the first nine months of 2013. The first nine months of 2014 included charges related to cost reduction initiatives of $923,000 and the prepayment penalty of $1.4 million referenced above. Partially offsetting these expenses were decreases in financial institutions tax, FDIC insurance premiums and other expenses. Lower expenses due to the cost reduction initiatives will have a positive impact on earnings in the fourth quarter and beyond.

Small added, “The organization has effectively reduced the operating expense run rate by 9%. We are now much better prepared to invest in business initiatives designed to grow revenues and improve performance.”

Asset Quality

Nonperforming assets decreased 32% to $25.2 million as of September 30, 2014, compared to $36.8 million at September 30, 2013. On a linked quarter basis, nonperforming assets increased approximately $300,000. The ratio of nonperforming assets to assets at September 30, 2014 was 1.40% compared to 1.39% at June 30, 2014 and 2.72% at September 30, 2014. Net charge-offs to average loans were 0.19% for the nine months ended September 30, 2014, compared to 0.51% for the same period in 2013.

As a result of the improving metrics discussed above, the Company’s provision for loan losses continues to show improvement totaling $116,000 for the quarter ended September 30, 2014 and a negative provision of $1.5 million for the nine months ended September 30, 2014. The allowance for loan losses totaled $18.1 million at September 30, 2014 which was 1.59% of total loans at the end of the quarter.

Deferred Tax Asset Valuation

At the end of 2010, the Company established a deferred tax asset (“DTA”) valuation allowance. In the course of its periodic assessment of its DTA position, the Company was able to reverse this valuation allowance in the second quarter of 2014. The Company has determined that it is more likely than not it will be able to fully realize its net deferred tax asset, including its tax loss carryforward. This action resulted in the recognition of a $38.8 million income tax benefit in June of 2014.

Capital and Book Value per Common Share

The Board of Directors declared a quarterly cash dividend of $0.01 per common share payable November 14, 2014 to shareholders of record at the close of business November 3, 2014.

In addition, as part of the Company’s capital management strategies of maximizing shareholder value and returns, during the third quarter, the Company repurchased 778,400 shares of its stock.

Home Savings is a wholly-owned subsidiary of the Company and operates 32 full-service banking offices and nine loan production offices located throughout 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.