UCFC Announces Strong Earnings for the Fourth Quarter and a Dividend of $0.07 Per Common Share

United Community Financial Corp. (Company) (NASDAQ: UCFC), parent company of Home Savings Bank (Home Savings), today announced net income of $9.6 million, or $0.191 per diluted common share (“EPS”) for the three months ended December 31, 2018, compared to $0.090 EPS or $4.5 million for the three months ended December 31, 2017. For the year ended December 31, 2018, net income was $37.2 million, or $0.742 per diluted common share compared to $0.437 EPS or $21.8 million in the previous year.

Fourth quarter 2018 highlights:

• Linked quarter net loan growth of 5.2% annualized
• Net interest margin of 3.58%, or 3.42% normalized
• ROA of 1.36%, ROE of 12.15% and ROTE of 13.16%
• Efficiency ratio was 54.79%
• Repurchase of 801,000 shares

Full year 2018 highlights:

• Year over year net loan growth of 8.9%
• Year over year average customer deposit growth of 8.3%
• Net interest income up 9.4%
• Net interest margin of 3.43%, or 3.39% normalized
• ROA of 1.35%, ROE of 12.10% and ROTE of 13.13%
• Efficiency ratio was 56.85%

Gary M. Small, President and Chief Executive Officer of the Company commented, “Full year 2018 performance reflects strengths on many fronts. Loan growth up 8.9%, average customer deposit growth up 8.3%, net interest income up 9.4%, and net interest margin was managed well throughout a very challenging year. Generally, our fee businesses performed well. While the residential mortgage business continues to be very competitive, our origination activity improved 10% year over year. Loan portfolios are strong with very favorable non-performing loan and delinquency metrics.”

Small further commented, “Strong fourth quarter core performance, combined with a significant impaired asset recovery and VISA stock related income recognition, provided the opportunity to undertake balance sheet restructuring during the quarter. The charges incurred to execute the restructuring of $26 million in available for sale securities and to terminate a FHLB advance were substantially offset by the income generated from the impaired asset recovery and VISA gain. The restructuring positions the Company for improved earnings in 2019. The cumulative net effect of these actions had no material impact on net income for the quarter. We enter 2019 well capitalized, with a strong balance sheet and well positioned to address new opportunities.”

Solid Loan Growth

At year-end, total net loans aggregated $2.2 billion, an increase of 8.9% over the prior year. Total net loan growth for the fourth quarter was $27.9 million, or 5.2% annualized on a linked quarter basis. As anticipated, growth slowed in the fourth quarter of 2018 as the Company experienced a lower level of commercial loan originations than it had experienced earlier in the year.

Commercial loan growth was $11.2 million for the quarter ended December 31, 2018, or 4.8% annualized on a linked quarter basis. Commercial loan growth was $120.3 million, or 14.6% for the full year of 2018. Residential mortgage loans, including loans held for sale, increased $17.9 million on a linked quarter basis, or 6.9% annualized. On a full year basis residential loans, including loans held for sale, increased $58.4 million or 5.8%. Consumer loans increased $3.5 million year over year, but declining $6.1 million on a linked quarter basis.

Strong Business Deposit and Noninterest Bearing Deposit Growth

Average customer deposit growth totaled 8.3%, or $148.4 million for the full year ended 2018, remaining flat in the fourth quarter of 2018 compared to the prior quarter. Total average business deposits increased 31.7% when compared to the linked quarter on an annualized basis. Average business deposits increased 19.5% when comparing the fourth quarter of 2018 to the four quarter last year. The Company also saw a 14.2% annualized increase in average noninterest bearing deposits on a linked quarter basis. Average noninterest bearing deposits increased 11.4% or $40.4 million when comparing the full year of 2018 to the full year of 2017. The Company continues to make progress in the generation of these key funding sources.

Net Interest Margin Sees Boost

Net interest income on a fully-taxable equivalent basis increased to $23.6 million for the quarter ended December 31, 2018, compared to $21.7 million for the quarter ended September 30, 2018 and $21.1 million for the quarter ended December 31, 2017. The increase in net interest income included the impact of the favorable resolution of an acquired impaired loan that added approximately $1.1 million to loan income during the quarter.

The net interest margin was 3.58% for the three months ended December 31, 2018 due primarily to the favorable resolution of the acquired loan mentioned above. This resolution added approximately 16 basis points to the margin for the quarter. The normalized net interest margin was 3.42% compared to the 3.33% reported in the prior quarter and 3.43 for the quarter ending December 31, 2017.

Non-Interest Income

Non-interest income decreased to $5.6 million in the fourth quarter of 2018, compared to $6.5 million in the fourth quarter of 2017. During the fourth quarter of 2018, the Company restructured approximately $26 million of available for sale investment securities, incurred a loss on the sale of $861,000, and subsequently invested the sale proceeds into securities with increased yields. Offsetting this loss, was the sale of 50% of the Company’s VISA Class B shares and the movement of the remaining shares to a trading account which resulted in a gain of $669,000. The net of these two transactions was a loss of $192,000. Additionally, the fourth quarter of 2017 is reflective of a one-time gain of $595,000 from the sale of a bank-owned building. Adjusting for these one-time items occurring in the fourth quarter of both years, noninterest income would be flat.

Mortgage banking income declined $257,000 in the fourth quarter of 2018 compared to the fourth quarter of 2017 as competition in the marketplace pressured margins. The Company continues to actively manage pricing and the saleable mix of originations to limit the margin compression. In addition, the Company has seen increases to mortgage servicing fees in 2018 which helps to offset the decline in the gain on mortgage sales.

Non-Interest Expense

Non-interest expense was $17.2 million for the quarter ended December 31, 2018 compared to $17.3 million for the quarter ended December 31, 2017. Adjusting the fourth quarter of 2018 for the termination cost of $937,000 of a previously restructured FHLB advance, non-interest expense would be $16.2 million compared to $15.0 million for the quarter ended December 31, 2017, which excludes a $2.3 million one-time asset write down in the fourth quarter of 2017. The termination of the FHLB advance will permit the Company to recognize a lower level of interest expense going forward. At December 31, 2018, total non-interest expense aggregated $65.1 million compared to $68.2 million the prior year. Adjusting total non-interest expense for the aforementioned items in addition to acquisition related expenses in 2017, total 2018 non-interest expense would aggregate $64.1 million in 2018 compared to $61.0 million the prior year, or an increase of 5.2%

The Company’s efficiency ratio remained on target at a level of 54.79% for the quarter ended December 31, 2018 adjusted for the FHLB termination cost of $937,000. Inclusive of the termination cost, the ratio would be 57.98% for the quarter. Year-to-date the efficiency ratio was 56.85% and 57.69% with and without the consideration of the termination cost.

Credit Quality

Credit quality metrics have shown improvement throughout the year, and the fourth quarter of 2018 continued the trend. The ratio of nonperforming loans to net loans was 0.30% at December 31, 2018, which is down from 0.59% reported at December 31, 2017. Total nonperforming commercial loans have now declined to only $715,000 as of December 31, 2018, or 0.08% of total commercial loans. Total nonperforming assets to assets was 0.27% at December 31, 2018 while total delinquent loans to net loans was 0.50% for the same period. These ratios were 0.64% and 0.86%, respectively, at December 31, 2017.

During the quarter ended December 31, 2018, the Company recognized total net charge offs of $1.1 million, or 20 basis points as a percentage of average loans. Included in the $1.1 million was a charge off of $676,000 for an acquired impaired loan relationship. Full-year net charge offs were $1.5 million, or 7 basis points as a percentage of average loans.

The Company’s provision for loan losses totaled $178,000 for the fourth quarter of 2018, which was down from the $1.2 million reported in the fourth quarter of 2017. As of December 31, 2018, the Company’s allowance for loan losses to total loans was 0.93%, versus 1.05% at December 31, 2017. Also at December 31, 2018 the allowance for loan loss as a percent of nonperforming loans totaled 311.8%.

Capital Management and Tangible Book Value per Share

During the fourth quarter of 2018, the Company repurchased 801,000. Tangible book value per common share at December 31, 2018 was $5.81 compared to $5.41 at December 31, 2017.

Dividend Declaration and Increase to Share Repurchase Program

On January 22, 2019, the Board of Directors declared a quarterly cash dividend of $0.07 per common share. The dividend is payable February 15, 2019 to shareholders of record at the close of business February 4, 2019. Furthermore, the Board has authorized an increase to the Company’s existing share repurchase program for an additional one million shares. The Company had remaining 873,000 shares authorized for repurchase as of December 31, 2018.

Conference Call

United Community Financial Corp. will host an earnings conference call on Wednesday, January 23, 2019, at 10:00 a.m. ET., to provide an overview of the Company's fourth quarter 2019 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 ir.ucfconline.com. Click on 4th Quarter 2018 Conference Call on the corporate profile page to join the webcast.

United Community Financial Corp.

Home Savings is a wholly owned subsidiary of the Company, offering a full line of commercial, wealth management and consumer banking products and services with 35 retail banking offices (34 in Ohio and one in Pennsylvania). Home Savings also has residential mortgage loan centers servicing Ohio, West Virginia, western Pennsylvania, northern Kentucky, and eastern Indiana. Additional information on the Company, Home Savings and James & Sons Insurance is available at ir.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.