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United Community Financial Corp. Posts Another Strong Quarter

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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 fiscal year ended December 31, 2014 totaled $50.2 million (including the recognition of $39.7 million of income tax benefit from the reversal of a deferred tax asset valuation reserve), or $1.00 per diluted common share, compared to $10.0 million or $0.07 per common share for the year ended December 31, 20131. For the fourth quarter 2014, UCFC earned $2.8 million, or $0.06 per diluted common share compared to $2.2 million or $0.04 per diluted common share for the fourth quarter of 2013.

Gary M. Small, President and Chief Executive Officer of United Community and Home Savings, commented that, “We are very pleased with continued quarterly improvement of pretax core earnings. The Company is delivering loan growth, reducing the core expense run rate and improving margins. We feel well positioned heading into 2015.”

Total Loans

Total loans increased $115.7 million to $1.2 billion at December 31, 2014 from $1.1 billion at December 31, 2013. The increase was driven by a 13.2% increase, or $29.2 million, in commercial loans year over year. Unfunded commercial loan commitments continue to show strong growth with an increase of $43.6 million, or 298% year over year. Residential real estate loans increased 14.9% or $94.9 million in the same time period.

Fourth Quarter Results

Net Interest Income and Margin

Net interest income was $13.4 million in the fourth quarter of 2014 up from the $13.1 million recorded in the fourth quarter of 2013. Net interest margin was 3.16% at the end of the fourth quarter of 2014 compared to 3.17% in the fourth quarter of 2013, and increased from the 3.06% net interest margin recorded in the third quarter of 2014. The net interest margin was positively impacted in the fourth quarter of 2014 by the modification of a $50.0 million FHLB advance in mid-November, which resulted in the borrowing rate declining from 4.20% to 2.05%. In addition, a $30.0 million repurchase agreement was prepaid at the end of December that resulted in the borrowing rate declining from 4.28% to 0.14%.

“The prepayment and modification of $110.0 million of high cost debt during the third and fourth quarters was a key initiative in 2014, and positions the Company for meaningful interest margin improvement going forward,” said Small.

Non-Interest Income

Non-interest income was $2.9 million in the fourth quarter of 2014 compared to $4.1 million in the fourth quarter of 2013. This change of $1.2 million is primarily attributable to a decrease in mortgage banking income as a result of timing differences associated with hedging activity in addition to lower origination volumes.

Non-Interest Expense

Total non-interest expense was $13.9 million in the fourth quarter of 2014 ($11.9 million after adjusting for the prepayment penalty of $2.0 million), a decrease of $1.0 million from the $15.0 million reported in the fourth quarter of 2013. All expense categories declined, with the exception of equipment and data processing expense, which experienced a minimal increase. Significantly offsetting these savings was the recognition of a $2.0 million prepayment penalty in the fourth quarter of 2014 associated with the prepayment of a $30.0 million repurchase agreement borrowing discussed previously.

2014 Results

Net Interest Income and Margin

For the year ended December 31, 2014, net interest income totaled $51.4 million, compared with $51.3 million for 2013. The net interest margin increased to 3.10% in 2014 from 3.04% in the prior year. As in the fourth quarter of 2014, the net interest margin was positively impacted by the modification of a $50.0 million FHLB advance in mid-November. In addition, two $30.0 million repurchase agreements were prepaid during the year, one at the end of September and one at the end of December.

Provision for Loan Losses

The Company recognized a negative provision for loan losses of $1.3 million in fiscal year 2014 compared to $4.1 million of provision expense in 2013. This improvement was primarily due to a lower level of net charge-offs and disposition of nonperforming loans.

Non-Interest Income

Non-interest income for fiscal year 2014 totaled $13.7 million compared to $19.7 million for 2013. The difference in noninterest income year over year is due to security gains of approximately $2.6 million that were recognized in 2013. Also, during 2013, Home Savings recognized a $680,000 recovery on mortgage servicing rights. A similar recovery was not experienced in 2014. Mortgage banking income has declined $3.2 million, which is being driven by lower mortgage production due to lower mortgage refinance activity and timing differences with hedging activity in connection with the construction loan portfolio. 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 $1.4 million.

Non-Interest Expense

Non-interest expense was $52.6 million2 for 2014; down 7.9% from the $56.7 million recognized during the same period of 2013. FDIC insurance premiums decreased $1.1 million, and reserves established for potential buy-back and make whole provisions on loans sold to government agencies in the secondary market decreased $2.5 million. Additionally, The Company incurred lower expenses on real estate owned and other repossessed assets of $819,000, and lower financial institutions tax expenses of $772,000. Salaries and employee benefits expense of $29.5 million for 2014, compared to $29.1 million during the same period of 2013, partially offset these declines.

Asset Quality

Non-performing loans totaled $20.5 million at December 31, 2014, a decrease of 13.3% from $23.6 million at December 31, 2013. In addition, Home Savings had reduced real estate owned and other repossessed assets by 45% to $3.5 million at December 31, 2014 compared to $6.3 million at December 31, 2013. For the fourth quarter of 2014, the allowance for loan loss as a percentage of total loans was 1.52% at December 31, 2014 compared with 2.01% at December 31, 2013.

Total Assets

Total assets at December 31, 2014 were $1.8 billion compared to $1.7 billion at December 31, 2013. Net loans were $1.1 billion at December 31, 2014 compared to $1.0 billion at December 31, 2013. Total cash and cash equivalents were $33.0 million at December 31, 2014 compared with $77.3 million at December 31, 2013.

Total deposits at December 31, 2014 were $1.3 billion compared with $1.4 billion at December 31, 2013. Non-interest bearing deposits at December 31, 2014 were $188.0 million compared to $170.6 million at December 31, 2013. Total shareholders’ equity was $240.1 million at December 31, 2014 compared to $175.1 million at December 31, 2013.

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.

Dividend to be Paid

The Board of Directors declared a quarterly cash dividend of $0.01 per common share payable February 17, 2015 to shareholders of record at the close of business February 6, 2015.

Conference Call

United Community Financial Corp. will host an earnings conference call on Wednesday, January 28, 2015, at 10:00 a.m. EST., to provide an overview of the Company’s fourth quarter 2014 results and highlights. The conference call may be accessed by calling 1-888-317-6016 ten minutes prior to the start time. Please ask to be joined into the United Community Financial Corporation (UCFC) call. Additionally, a live webcast may be accessed from the Company’s website www.ucfconline.com. Click on 4th Quarter 2014 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 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.

_____________

(1) As part of the capital raise that was completed in the second quarter of 2013, the Company issued preferred stock that was later converted to common stock. Management is presenting 2013 net income before amortization of the discount on preferred stock as it provides useful information to investors about the Company’s financial condition and results of operation because the preferred stock was later converted to common stock and no dividend was declared or paid on the preferred stock. However, because the preferred stock was issued at a price below the then market price of our common stock, the difference is deemed a non-cash dividend under U.S. Generally Accepted Accounting Principles and is deducted in the calculation of net income available to common shareholders. Please refer to Note 23 of the Consolidated Financial Statements found in the Company’s Form 10-K for the period ended December 31, 2013 for further detail.

(2) We use certain non-GAAP financial measures, such as adjusted non-interest expense, to provide information for investors to effectively analyze financial trends of ongoing business activities, and to enhance comparability with peers across the financial sector. We believe adjusting non-interest expense is useful because it is a measure utilized by regulators, market analysts and investors in evaluating a Company’s financial condition and capital strength. Adjusted non-interest expense, as defined by us, represents non-interest expense minus prepayment penalties. A reconciliation form our GAAP non-interest expense to adjusted non-interest expense is presented below:

December 31,

2014

Non-interest expense

$ 55,960
Prepayment penalty 3,409
Adjusted non-interest expense (Non-GAAP) $ 52,551
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

December 31, December 31,
2014 2013

(Dollars in thousands)

Assets:

Cash and deposits with banks $ 21,152 $ 20,937
Federal funds sold 11,828 56,394
Total cash and cash equivalents 32,980 77,331
Securities:
Available for sale, at fair value 499,790 511,006
Loans held for sale 20,730 4,838
Loans, net of allowance for loan losses of $17,687 and $21,116 1,148,093 1,029,192
Federal Home Loan Bank stock, at cost 18,068 26,464
Premises and equipment, net 21,002 20,924
Accrued interest receivable 5,763 5,694
Real estate owned and other repossessed assets 3,467 6,341
Core deposit intangible 84 152
Cash surrender value of life insurance 46,401 44,972
Other assets 37,172 10,936

Total assets

$ 1,833,550 $ 1,737,850
Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Interest bearing $ 1,159,871 $ 1,221,162
Non-interest bearing 187,965 170,590
Total deposits 1,347,836 1,391,752
Borrowed funds:
Federal Home Loan Bank advances 186,194 50,000
Repurchase agreements and other 30,558 90,578
Total borrowed funds 216,752 140,578
Advance payments by borrowers for taxes and insurance 19,904 20,060
Accrued interest payable 185 550
Accrued expenses and other liabilities 8,738 9,836
Total liabilities 1,593,415 1,562,776
Shareholders’ Equity:
Preferred stock-no par value; 1,000,000 shares authorized and no shares outstanding
Common stock-no par value; 499,000,000 shares authorized; 54,138,910 shares
issued and 49,239,004 and 50,339,089 shares, respectively, outstanding 174,385 174,719
Retained earnings 128,512 81,515
Accumulated other comprehensive loss (19,998 ) (41,665 )
Treasury stock, at cost, 4,899,906 and 3,799,821 shares, respectively (42,764 ) (39,495 )
Total shareholders’ equity 240,135 175,074

Total liabilities and shareholders’ equity

$ 1,833,550 $ 1,737,850
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

For the Three Months Ended For the Twelve Months Ended
December 31, September 30, December 31, December 31, December 31,
2014 2014 2013 2014 2013

(Dollars in thousands, except per share data)

Interest income
Loans $ 12,640 $ 12,436 $ 12,657 $ 49,559 $ 49,724
Loans held for sale 217 114 63 454 310
Securities:
Available for sale 2,946 3,002 3,278 12,314 13,454
Federal Home Loan Bank stock dividends 182 180 267 859 1,107
Other interest earning assets 7 4 47 58 149
Total interest income 15,992 15,736 16,312 63,244 64,744
Interest expense
Deposits 1,583 1,548 1,780 6,435 7,623
Federal Home Loan Bank advances 443 537 530 2,022 2,106
Repurchase agreements and other 615 926 928 3,368 3,684
Total interest expense 2,641 3,011 3,238 11,825 13,413
Net interest income 13,351 12,725 13,074 51,419 51,331
Provision for loan losses 194 116 282 (1,271 ) 4,116
Net interest income after provision for loan losses 13,157 12,609 12,792 52,690 47,215
Non-interest income
Non-deposit investment income 259 408 373 1,415 1,562
Service fees and other charges
Mortgage servicing fees 684 678 704 2,737 2,808
Deposit related fees 1,051 1,321 1,499 4,901 5,564
Mortgage servicing rights valuation (54 ) 2 4 (58 ) 680
Mortgage servicing rights amortization (428 ) (435 ) (431 ) (1,687 ) (2,143 )
Other service fees 17 3 20 74
Net gains (losses):
Securities available for sale 82 328 (1 ) 444 2,577
Mortgage banking income (30 ) 676 850 1,570 4,777
Real estate owned and other repossessed assets charges, net (172 ) (203 ) (215 ) (800 ) (2,181 )
Card fees 893 837 850 3,354 3,584
Other income 603 559 491 1,845 2,447
Total non-interest income 2,905 4,174 4,124 13,741 19,749
Non-interest expense
Salaries and employee benefits 6,683 7,001 7,176 29,546 29,142
Occupancy 847 874 906 3,469 3,390
Equipment and data processing 1,918 1,791 1,863 7,470 7,103
Financial institutions tax 201 198 351 795 1,567
Advertising 221 181 247 838 893
Amortization of core deposit intangible 16 17 20 68 86
Prepayment penalty 2,013 1,396 3,409
FDIC assessment 341 295 592 1,216 2,347
Other insurance premiums 85 138 137 495 662
Professional fees
Legal and consulting fees 85 184 264 607 781
Other professional fees 381 555 609 1,945 2,135
Real estate owned and other repossessed asset expenses 92 189 310 631 1,450
Other expenses 1,056 1,433 2,502 5,471 7,181
Total non-interest expenses 13,939 14,252 14,977 55,960 56,737
Income before income taxes 2,123 2,531 1,939 10,471 10,227

Income tax expense (benefit)

(685 ) (369 ) (300 ) (39,735 ) 200
Net income 2,808 2,900 2,239 50,206 10,027
Amortization of discount on preferred stock 6,751
Earnings available to common shareholders $ 2,808 $ 2,900 $ 2,239 $ 50,206 $ 3,276

Earnings per common share

Basic $ 0.06 $ 0.06 $ 0.04 $ 1.00 $ 0.07
Diluted 0.06 0.06 0.04 1.00 0.07
UNITED COMMUNITY FINANCIAL CORP.

SELECTED FINANCIAL HIGHLIGHTS

(Unaudited)
At or for the quarters ended

December 31,

September 30,

June 30,

March 31, December 31,

2014

2014

2014

2014 2013

(Dollars in thousands, except per share data)

Financial Data

Total assets $ 1,833,550 $ 1,801,540 $ 1,789,939 $ 1,749,144 $ 1,737,850
Total loans, net 1,148,093 1,119,955 1,086,771 1,060,901 1,029,192
Total securities 499,790 507,125 516,637 517,388 511,006
Total deposits 1,347,836 1,346,377 1,375,474 1,398,067 1,391,752
Total shareholders’ equity 240,135 233,706 235,049 189,829 175,074
Net interest income 13,351 12,725 12,741 12,602 13,074
Provision for loan losses 194 116 (1,614 ) 33 282
Noninterest income 2,905 4,174 3,438 3,224 4,124
Noninterest expense 13,939 14,252 14,226 13,543 14,977
Income tax expense (benefit) (685 ) (369 ) (38,837 ) 156 (300 )
Net income 2,808 2,900 42,404 2,094 2,239
Share Data
Basic earnings per common share $ 0.06 $ 0.06 $ 0.84 $ 0.04 $ 0.04
Diluted earnings per common share 0.06 0.06 0.84 0.04 0.04
Book value per common share 4.88 4.70 4.66 3.76 3.48
Tangible book value per common share 4.88 4.70 4.66 3.76 3.47
Market value per common share 5.37 4.68 4.13 3.92 3.57
Common shares outstanding at end of period 49,239 49,682 50,452 50,422 50,339
Weighted average shares outstanding–basic 49,244 49,698 50,274 50,196 50,114
Weighted average shares outstanding–diluted 49,531 49,958 50,495 50,451 50,360
Key Ratios
Return on average assets (1) 0.62 % 0.66 % 9.67 % 0.48 % 0.51 %
Return on average equity (2) 4.70 % 4.99 % 84.84 % 4.52 % 4.82 %
Net interest margin 3.16 % 3.06 % 3.09 % 3.07 % 3.17 %
Efficiency ratio 72.85 %

(3)

76.55 %

(3)

87.77 % 83.45 % 85.89 %
Nonperforming loans to total loans, end of period 1.78 % 1.85 % 1.87 % 2.17 % 2.29 %
Nonperforming assets to total assets, end of period 1.30 % 1.40 % 1.39 % 1.58 % 1.72 %
Allowance for loan loss as a percent of loans, end of period 1.52 % 1.59 % 1.65 % 1.90 % 2.01 %
Delinquent loans to total loans, end of period 1.82 % 2.10 % 1.86 % 2.07 % 2.32 %

(1) Net income divided by average total assets

(2) Net income divided by average total equity

(3) Excludes penalty on the prepayment of repurchase agreements

UNITED COMMUNITY FINANCIAL CORP.
SELECTED FINANCIAL HIGHLIGHTS
(Unaudited)
At or for the quarters ended

December 31,

September 30,

June 30, March 31, December 31,

2014

2014

2014 2014 2013
(Dollars in thousands)
Loan Portfolio Composition
Commercial loans
Multi-family $ 60,546 $ 56,445 $ 52,938 $ 54,233 $ 54,485
Owner/nonowner occupied commercial real estate 121,595 123,260 122,066 125,796 131,251
Land 9,484 9,487 9,635 9,829 9,683
Construction 13,959 4,667 1,010 207
Commercial and industrial 45,222 39,853 39,127 40,013 26,141
Total 250,806 233,712 224,776 230,078 221,560
Residential mortgage loans
Real estate 694,105 669,270 645,211 610,879 585,025
Construction 39,218 52,735 51,974 55,082 53,349
Total 733,323 722,005 697,185 665,961 638,374
Consumer loans
Consumer 180,754 181,474 182,027 184,409 189,231
Total 180,754 181,474 182,027 184,409 189,231
Total loans 1,164,883 1,137,191 1,103,988 1,080,448 1,049,165
Less:
Allowance for loan losses 17,687 18,132 18,264 20,554 21,116
Deferred loan costs, net (897 ) (896 ) (1,047 ) (1,007 ) (1,143 )
Total 16,790 17,236 17,217 19,547 19,973
Total loans, net $ 1,148,093 $ 1,119,955 $ 1,086,771 $ 1,060,901 $ 1,029,192
At or for the quarters ended
December 31, September 30, June 30, March 31, December 31,
2014 2014 2014 2014 2013

(Dollars in thousands)

Deposit Portfolio Composition
Checking accounts
Interest bearing checking accounts $ 137,511 $ 131,266 $ 133,999 $ 136,031 $ 132,751
Non-interest bearing checking accounts 187,965 181,631 185,411 185,620 170,590
Total checking accounts 325,476 312,897 319,410 321,651 303,341
Savings accounts 274,149 273,192 277,404 278,906 267,515
Money market accounts 312,911 313,513 326,738 329,163 328,625
Total non-time deposits 912,536 899,602 923,552 929,720 899,481
Retail certificates of deposit 435,300 446,774 451,922 468,347 492,271
Total certificates of deposit 435,300 446,774 451,922 468,347 492,271
Total deposits $ 1,347,836 $ 1,346,376 $ 1,375,474 $ 1,398,067 $ 1,391,752
Certificates of deposit as a percent of total deposits 32.30 % 33.18 % 32.86 % 33.50 % 35.37 %
UNITED COMMUNITY FINANCIAL CORP.
SELECTED FINANCIAL HIGHLIGHTS
(Unaudited)
At or for the quarters ended
December 31, September 30,

June 30,

March 31,

December 31,

2014 2014

2014

2014

2013

(Dollars in thousands)

Allowance For Loan Losses

Beginning balance $ 18,132 $ 18,264 $ 20,554 $ 21,116 $ 21,032
Provision 194 116 (1,614 ) 33 282
Net (chargeoffs) recoveries (639 ) (248 ) (676 ) (595 ) (198 )
Ending balance $ 17,687 $ 18,132 $ 18,264 $ 20,554 $ 21,116
At or for the quarters ended
December 31, September 30,

June 30,

March 31, December 31,
2014 2014

2014

2014 2013
(Dollars in thousands)
Net (Charge-offs) Recoveries
Commercial loans
Multi-family $ $ $ (135 ) $ (5 ) $
Owner/nonowner occupied commercial real estate (25 ) (9 ) 56 (252 ) (29 )
Land 12
Construction (620 )
Commercial and industrial 199 158 218 137 139
Total 174 149 139 (120 ) (498 )
Residential mortgage loans
Real estate (141 ) (278 ) (181 ) (163 ) 42
Construction (488 ) (90 ) (330 ) (79 ) 451
Total (629 ) (368 ) (511 ) (242 ) 493
Consumer loans
Consumer (184 ) (29 ) (304 ) (233 ) (193 )
Total (184 ) (29 ) (304 ) (233 ) (193 )
Total net (chargeoffs) recoveries $ (639 ) $ (248 ) $ (676 ) $ (595 ) $ (198 )
At or for the quarters ended
December 31, September 30,

June 30,

March 31, December 31,
2014 2014

2014

2014 2013
(Dollars in thousands)
Nonperforming Loans
Commercial loans
Multi-family $ 93 $ 114 $ 133 $ 1,158 $ 641
Owner/nonowner occupied commercial real estate 5,781 6,804 4,902 5,033 5,560
Land 531 531 532 532 496
Construction
Commercial and industrial 4,016 4,144 4,151 4,155 4,158
Total 10,421 11,593 9,718 10,878 10,855
Residential mortgage loans
Real estate 6,816 4,700 5,380 6,133 6,356
Construction 1,051 2,453 2,553 2,884 3,084
Total 7,867 7,153 7,933 9,017 9,440
Consumer loans
Consumer 2,163 1,960 2,663 3,089 3,293
Total 2,163 1,960 2,663 3,089 3,293
Total nonperforming loans $ 20,451 $ 20,706 $ 20,314 $ 22,984 $ 23,588
Total Nonperforming Loans and Nonperforming Assets
Past due 90 days and on nonaccrual status $ 16,017 $ 18,114 $ 16,636 $ 18,708 $ 20,188
Past due 90 days and still accruing 45
Past due 90 days 16,017 18,114 16,636 18,708 20,233
Past due less than 90 days and on nonaccrual 4,434 2,592 3,678 4,276 3,355
Total nonperforming loans 20,451 20,706 20,314 22,984 23,588
Other real estate owned 3,345 4,445 4,546 4,700 6,318
Repossessed assets 122 42 2 23
Total nonperforming assets $ 23,918 $ 25,193 $ 24,862 $ 27,684 $ 29,929

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