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

October 16, 2018

YOUNGSTOWN, Ohio--(BUSINESS WIRE)--Oct 16, 2018--United Community Financial Corp. (Company) (NASDAQ: UCFC), parent company of Home Savings Bank (Home Savings), announced today net income of $9.5 million and diluted earnings per share (“EPS”) of $0.190, a 25.8% improvement over the $0.151 per common share reported for the quarter ended September 30, 2017.

Third quarter 2018 highlights:

Gary M. Small, President and Chief Executive Officer of the Company commented, “Home Savings’ strong quarterly performance reflected the continued favorable economic and business environment experienced in each of the markets we serve. We delivered excellent loan and solid revenue growth creating positive operating leverage for the organization…a winning formula. While the interest rate environment and trade/tariff issues create uncertainty, I believe our balanced business approach and the strength of our client base will serve us very well in the future.”

Strong Loan and Deposit Growth

Total loans, net grew $201.2 million, or 10.3%, during the previous twelve months ended September 30, 2018, and $49.2 million, or 2.3% compared to the previous quarter. At September 30, 2018, total net loans aggregated $2.15 billion.

Home Savings has produced excellent results within all lending categories. The increase in total loans for the period was driven by an increase in commercial loans, which grew $140.7 million, or 17.8%, over the last twelve months and $31.0 million, or 3.4%, versus June 30, 2018. Mortgage loans increased $40.1 million, or 4.4%, over the previous twelve months and increased $19.8 million, or 2.1%, during the past three months. Consumer loans increased $19.4 million, or 7.4%, since September 30, 2017 and remained consistent with the prior quarter.

Monthly average customer deposits (which exclude brokered certificates of deposit) increased 9.6% from September 30, 2017 and remained consistent on a linked quarter basis. Average customer deposit growth in the third quarter was muted by seasonality associated with one large, public fund deposit. This relationship historically experiences a high point in the deposit level during the second quarter with decreasing balances through the end of the calendar year. The growth in average customer deposits was driven by increases in non-interest bearing accounts of 13.6% over the past twelve months and an increase of 2.4% over the past three months. Average business deposits continue to rise, increasing 21.9% over the past twelve months and 6.2% over the past three months.

Net Interest Margin

The net interest margin was 3.33% for the three months ended September 30, 2018 compared to 3.36% for the previous quarter. This change is the result of several factors. First, the slowing of the recognition of loan and deposit marks from the 2017 acquisition accounted for one basis point of the decline. Also, the continued flattening of the yield curve during the third quarter put pressure on spreads. Finally, short-term LIBOR rates did not move in advance of the Federal Reserve Bank increasing rates at the end of September, as has occurred previously, resulting in lower loan yields than expected. The Company expects the delayed increase seen in LIBOR to favorably impact net interest margin during the fourth quarter. Adjustments made during the quarter resulted in a positive margin trend within the period.

Excluding the impact of purchase accounting yield adjustments, the net interest margin would have been 3.27%, or six basis points lower than the 3.33% reported, for the quarter ended September 30, 2018.

Nonperforming Loans to Total Loans Ratio Continued to Decrease during the Third Quarter

Asset quality remained very strong during the third quarter. The Company’s level of nonperforming loans and classified assets all improved during the quarter. Net chargeoffs for the quarter were 6.1 basis points of average loans. Additionally, over the past three months, the ratio of the allowance for loan losses as a percent of nonperforming loans has increased from 198.4% to 235.43% at September 30, 2018. Nonperforming loans to total loans, net at September 30, 2018 declined to 0.42%. Nonperforming assets declined $5.7 million to 0.36% of total assets.

The Company recognized a provision for loan losses of $251,000 for the third quarter of 2018, which was up $389,000 in comparison to the previous quarter. Loan growth offset by continued asset quality improvements and an improved credit environment has impacted the provision level. As of September 30, 2018, the Company’s allowance for loan losses to total loans was 0.98%, versus 1.01% at June 30, 2018.

Loans acquired through the acquisition during the first quarter of 2017 were recorded at fair value. When combining the remaining fair value adjustment of $2.6 million and the Company’s allowance, the combined coverage as a percentage of total loans is 1.10%.

Non-Interest Income

Non-interest income increased 5.0% or $294,000 to $6.1 million on a linked quarter basis. During this same time period, the Company did see an increase of 16.9% in mortgage banking income. Additionally a 6.2% increase in agency income, a 13.0% increase in brokerage income, a 7.3% increase in deposit related fees and finally, a 2.1% increase in trust fees offset a 15% seasonal decrease in card fees. As experienced industry-wide, market conditions continue to impact the margin on salable loans. Also impacting the comparison negatively was the fact no security gains were recognized in the third quarter 2018.

At the end of the third quarter, trust assets under management and advisory totaled $775 million.

Non-Interest Expense

Non-interest expense was $15.8 million for the third quarter of 2018 compared to $15.5 million for the same quarter last year, an increase of $308,000, or 2.0%. This increase is reflective of digital banking expansion and additional incentive compensation resulting from increased loan production. The Company’s efficiency ratio remains consistent at 57.3%, compared to the prior quarter.

Effective Tax Rate

The Company’s effective tax rate on an FTE basis for the three months ended September 30, 2018 was 19.5% compared to 30.3% for the three months ended September 30, 2017. The decline was due to the enactment of tax legislation at the end of the year.

Dividend to be Paid

On October 16, 2018, the Board of Directors declared a quarterly cash dividend of $0.07 per common share payable November 9, 2018 to shareholders of record October 26, 2018.

Conference Call

United Community Financial Corp. will host an earnings conference call on Wednesday, October 17, 2018, at 10:00 a.m. ET, to provide an overview of the Company’s third quarter 2018 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 3rd Quarter 2018 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, western Pennsylvania and West Virginia. Additional information on the Company, Home Savings and James & Sons Insurance may be found on the Company’s web site: 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.

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