UNITED COMMUNITY FINANCIAL CORP (Form: 8-K, Received: 01/23/2019 12:09:54)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 22, 2019

UNITED COMMUNITY FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

OHIO

000-024399

34-1856319

(State or other jurisdiction

of incorporation)

(Commission

File No.)

(IRS Employer

I.D. No.)

275 West Federal Street, Youngstown, Ohio 44503-1203

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (330) 742-0500

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Section 2 – Financial Information

Item 2.02

Results of Operation and Financial Condition

(a)

On January 22, 2019, United Community Financial Corp. issued a press release announcing its results of operations for the fourth quarter of 2018. A copy of the press release is attached as Exhibit 99.

Section 9 – Financial Statements and Exhibits

Item 9.01

Financial Statements and Exhibits.

(d)

Exhibits.


Exhibit Number	Description

99	Press Release of United Community dated January 22, 2019.	Included herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


UNITED COMMUNITY FINANCIAL CORP.

	By:	/s/ Jude J. Nohra
		Jude J. Nohra General Counsel & Secretary

Date: January 23, 2019

EXHIBIT 99

LOGO

275 West Federal Street

Youngstown, Ohio 44503-1203

FOR IMMEDIATE RELEASE


Media Contact:		Investor Contact:
Kathy Bushway		Gary M. Small
Senior Vice President, Marketing		President and Chief Executive Officer
Home Savings		United Community Financial Corp.
(330) 742-0638		(330) 742-0472
kbushway@homesavings.com

UCFC ANNOUNCES STRONG EARNINGS FOR THE FOURTH QUARTER AND A DIVIDEND OF $0.07 PER COMMON SHARE

YOUNGSTOWN, Ohio (January 22, 2019) – 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.

UNITED COMMUNITY FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)


	December 31,			December 31,
	2018			2017			F/(U)
	(Dollars in thousands)
Assets:
Cash and deposits with banks	$	34,380		$	34,365			0.0	%
Federal funds sold		26,605			12,515			112.6	%

Total cash and cash equivalents		60,985			46,880			30.1	%
Securities:
Trading, at fair value		364			—			0.0	%
Available for sale, at fair value		241,643			270,561			-10.7	%
Held to maturity (fair value of $75,075 and $82,126, respectively)		77,491			82,911			-6.5	%
Loans held for sale, at lower of cost or market		—			211			-100.0	%
Loans held for sale, at fair value		91,472			83,541			9.5	%
Loans, net of allowance for loan losses of $20,443 and $21,202		2,176,842			1,999,877			8.8	%
Federal Home Loan Bank stock, at cost		19,144			19,324			-0.9	%
Premises and equipment, net		21,930			22,094			-0.7	%
Accrued interest receivable		9,080			8,190			10.9	%
Real estate owned and other repossessed assets		1,088			1,253			-13.2	%
Goodwill		20,221			20,221			0.0	%
Core deposit intangible		1,603			1,934			-17.1	%
Customer list intangible		2,214			2,060			7.5	%
Cash surrender value of life insurance		64,220			62,488			2.8	%
Other assets		23,060			28,360			-18.7	%

Total assets	$	2,811,357		$	2,649,905			6.1	%

Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Interest bearing	$	1,528,057		$	1,445,293			5.7	%
Noninterest bearing		394,208			354,970			11.1	%

Customer deposits		1,922,265			1,800,263			6.8	%
Brokered deposits		290,955			156,476			85.9	%

Total deposits		2,213,220			1,956,739			13.1	%
Borrowed funds:
Federal Home Loan Bank advances
Long-term advances		—			48,536			-100.0	%
Short-term advances		243,000			308,000			-21.1	%

Total Federal Home Loan Bank advances		243,000			356,536			-31.8	%
Repurchase agreements and other		224			197			13.7	%

Total borrowed funds		243,224			356,733			-31.8	%
Advance payments by borrowers for taxes and insurance		27,192			25,038			8.6	%
Accrued interest payable		1,279			1,097			16.6	%
Accrued expenses and other liabilities		17,108			16,033			6.7	%

Total liabilities		2,502,023			2,355,640			6.2	%

Shareholders’ Equity:
Preferred stock-no par value; 1,000,000 shares authorized and no shares outstanding		—			—			0.0	%
Common stock-no par value; 499,000,000 shares authorized; 54,138,910 shares issued and 49,128,875 and 49,800,126 shares, respectively, outstanding		177,492			177,458			0.0	%
Retained earnings		192,062			167,852			14.4	%
Accumulated other comprehensive loss		(21,436	)		(18,685	)		14.7	%
Treasury stock, at cost, 5,010,035 and 4,338,784 shares, respectively		(38,784	)		(32,360	)		19.9	%

Total shareholders’ equity		309,334			294,265			5.1	%

Total liabilities and shareholders’ equity	$	2,811,357		$	2,649,905			6.1	%

UNITED COMMUNITY FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	For the Three Months Ended												For the Twelve Months Ended
	December 31,			December 31,									December 31,			December 31,
	2018			2017			Variance			F/(U)			2018			2017			Variance			F/(U)
	(Dollars in thousands, except per share data)
Interest income
Loans	$	26,587		$	21,529		$	5,058			23.5	%	$	96,653		$	79,795		$	16,858			21.1	%
Loans held for sale		1,184			886			298			33.6	%		4,318			3,301			1,017			30.8	%
Securities:
Available for sale, nontaxable		334			416			(82	)		-19.7	%		1,412			1,668			(256	)		-15.3	%
Available for sale, taxable		1,148			1,222			(74	)		-6.1	%		4,732			5,579			(847	)		-15.2	%
Held to maturity, nontaxable		69			51			18			35.3	%		250			214			36			16.8	%
Held to maturity, taxable		380			421			(41	)		-9.7	%		1,574			1,764			(190	)		-10.8	%
Federal Home Loan Bank stock dividends		290			267			23			8.6	%		1,133			961			172			17.9	%
Other interest earning assets		178			57			121			212.3	%		500			228			272			119.3	%

Total interest income		30,170			24,849			5,321			21.4	%		110,572			93,510			17,062			18.2	%
Interest expense
Deposits		5,866			2,603			(3,263	)		-125.4	%		17,796			8,437			(9,359	)		-110.9	%
Federal Home Loan Bank advances		810			1,365			555			40.7	%		4,830			4,699			(131	)		-2.8	%
Repurchase agreements and other		—			1			1			100.0	%		1			21			20			95.2	%

Total interest expense		6,676			3,969			(2,707	)		-68.2	%		22,627			13,157			(9,470	)		-72.0	%

Net interest income		23,494			20,880			2,614			12.5	%		87,945			80,353			7,592			9.4	%
Taxable equivalent adjustment		111			221			(110	)		-49.8	%		382			911			(529	)		-58.1	%

Net interest income (FTE) ⁽¹⁾		23,605			21,101			2,504			11.9	%		88,327			81,264			7,063			8.7	%
Provision for loan losses		178			1,215			1,037			85.3	%		699			4,253			3,554			83.6	%

Net interest income after provision for loan losses (FTE)		23,427			19,886			3,541			17.8	%		87,628			77,011			10,617			13.8	%

Non-interest income
Insurance agency income		562			552			10			1.8	%		2,197			2,006			191			9.5	%
Brokerage income		305			264			41			15.5	%		1,216			1,158			58			5.0	%
Service fees and other charges:
Deposit related fees		1,521			1,436			85			5.9	%		5,706			5,636			70			1.2	%
Mortgage servicing fees		858			780			78			10.0	%		3,304			3,005			299			10.0	%
Mortgage servicing rights valuation		(44	)		6			(50	)		-833.3	%		(61	)		(9	)		52			-577.8	%
Mortgage servicing rights amortization		(430	)		(518	)		88			-17.0	%		(1,949	)		(1,944	)		5			-0.3	%
Other service fees		36			42			(6	)		-14.3	%		161			125			36			28.8	%
Net gains (losses):
Trading Securities		669			—			669			100.0	%		669			—			669			100.0	%
Securities available for sale		(861	)		—			(861	)		100.0	%		(627	)		566			(1,193	)		-210.8	%
Mortgage banking income		1,118			1,375			(257	)		-18.7	%		5,090			6,503			(1,413	)		-21.7	%
Real estate owned and other repossessed assets charges, net		(24	)		(46	)		22			-47.8	%		(260	)		(189	)		71			-37.6	%
Debit/credit card fees		1,033			995			38			3.8	%		4,158			4,215			(57	)		-1.4	%
Trust fee income		480			467			13			2.8	%		1,905			1,618			287			17.7	%
Bank owned life insurance		431			438			(7	)		-1.6	%		1,732			1,627			105			6.5	%
Other income		(69	)		669			(738	)		-110.3	%		161			922			(761	)		-82.5	%

Total non-interest income		5,585			6,460			(875	)		-13.5	%		23,402			25,239			(1,837	)		-7.3	%

Non-interest expense
Salaries and employee benefits		9,029			8,347			(682	)		-8.2	%		37,071			34,807			(2,264	)		-6.5	%
Occupancy		1,023			1,023			—			0.0	%		4,167			3,943			(224	)		-5.7	%
Equipment and data processing		2,122			2,256			134			5.9	%		8,679			8,944			265			3.0	%
Financial institutions tax		464			300			(164	)		-54.7	%		1,950			1,648			(302	)		-18.3	%
Advertising		414			317			(97	)		-30.6	%		1,278			991			(287	)		-29.0	%
Amortization of intangible assets		128			114			(14	)		-12.3	%		501			422			(79	)		-18.7	%
FDIC insurance premiums		398			249			(149	)		-59.8	%		1,270			1,078			(192	)		-17.8	%
Other insurance premiums		70			114			44			38.6	%		373			450			77			17.1	%
Professional fees:
Legal fees		292			155			(137	)		-88.4	%		1,094			724			(370	)		-51.1	%
Other professional fees		721			461			(260	)		-56.4	%		2,262			2,067			(195	)		-9.4	%
Supervisory fees		34			84			50			0.0	%		152			84			(68	)		-100.0	%
Real estate owned and other repossessed asset expenses		34			17			(17	)		-100.0	%		129			135			6			4.4	%
Acquisition related expenses		—			39			39			0.0	%		—			5,001			5,001			100.0	%
Other expenses		2,449			3,853			1,404			36.4	%		6,153			7,965			1,812			22.7	%

Total non-interest expenses		17,178			17,329			151			0.9	%		65,079			68,259			3,180			4.7	%

Income before income taxes		11,834			9,017			2,817			31.2	%		45,951			33,991			11,960			35.2	%
Taxable equivalent adjustment		111			221			110			49.8	%		382			911			529			58.1	%
Income tax expense		2,172			4,294			2,122			49.4	%		8,391			11,295			2,904			25.7	%

Net income	$	9,551		$	4,502		$	5,049			112.2	%	$	37,178		$	21,785		$	15,393			70.7	%

Earnings per common share:
Basic	$	0.192		$	0.090		$	0.102			113.3	%	$	0.746		$	0.440		$	0.306			69.5	%
Diluted		0.191			0.090			0.101			112.2	%		0.742			0.437			0.305			69.8	%

⁽¹⁾

Net interest income is also presented on a fully taxable equivalent (FTE) basis, the Company believes this non-GAAP measure is the preferred industry measurement for this item.

UNITED COMMUNITY FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	For the Three Months Ended
	December 31,			September 30,
	2018			2018			Variance			F/(U)
	(Dollars in thousands, except per share data)
Interest income
Loans	$	26,587		$	24,031		$	2,556			10.6	%
Loans held for sale		1,184			1,264			(80	)		-6.3	%
Securities:
Available for sale, nontaxable		334			333			1			0.3	%
Available for sale, taxable		1,148			1,176			(28	)		-2.4	%
Held to maturity, nontaxable		69			69			—			0.0	%
Held to maturity, taxable		380			374			6			1.6	%
Federal Home Loan Bank stock dividends		290			289			1			0.3	%
Other interest earning assets		178			154			24			15.6	%

Total interest income		30,170			27,690			2,480			9.0	%
Interest expense
Deposits		5,866			5,044			(822	)		-16.3	%
Federal Home Loan Bank advances		810			1,023			213			20.8	%

Total interest expense		6,676			6,067			(609	)		-10.0	%

Net interest income		23,494			21,623			1,871			8.7	%
Taxable equivalent adjustment		111			84			27			32.1	%

Net interest income (FTE) ⁽¹⁾		23,605			21,707			1,898			8.7	%
Provision for loan losses		178			251			73			29.1	%

Net interest income after provision for loan losses (FTE)		23,427			21,456			1,971			9.2	%

Non-interest income
Insurance agency income		562			545			17			3.1	%
Brokerage income		305			339			(34	)		-10.0	%
Service fees and other charges:
Deposit related fees		1,521			1,494			27			1.8	%
Mortgage servicing fees		858			821			37			4.5	%
Mortgage servicing rights valuation		(44	)		(6	)		(38	)		633.3	%
Mortgage servicing rights amortization		(430	)		(477	)		47			-9.9	%
Other service fees		36			26			10			38.5	%
Net gains (losses):
Trading		669			—			669			100.0	%
Securities available for sale		(861	)		—			(861	)		100.0	%
Mortgage banking income		1,118			1,409			(291	)		-20.7	%
Real estate owned and other repossessed assets charges, net		(24	)		(45	)		21			-46.7	%
Debit/credit card fees		1,033			1,000			33			3.3	%
Trust fee income		480			483			(3	)		-0.6	%
Bank owned life insurance		431			367			64			17.4	%
Other income		(69	)		190			(259	)		-136.3	%

Total non-interest income		5,585			6,146			(561	)		-9.1	%

Non-interest expense
Salaries and employee benefits		9,029			9,107			78			0.9	%
Occupancy		1,023			1,094			71			6.5	%
Equipment and data processing		2,122			2,032			(90	)		-4.4	%
Financial institutions tax		464			495			31			6.3	%
Advertising		414			340			(74	)		-21.8	%
Amortization of intangible assets		128			128			—			0.0	%
FDIC insurance premiums		398			294			(104	)		-35.4	%
Other insurance premiums		70			85			15			17.6	%
Professional fees:		—
Legal fees		292			356			64			18.0	%
Other professional fees		721			651			(70	)		-10.8	%
Supervisory fees		34			34			—			0.0	%
Real estate owned and other repossessed asset expenses		34			25			(9	)		-36.0	%
Acquisition related expenses		—			—			—			0.0	%
Other expenses		2,449			1,131			(1,318	)		-116.5	%

Total non-interest expenses		17,178			15,772			(1,406	)		-8.9	%

Income before income taxes		11,834			11,830			4			0.0	%
Taxable equivalent adjustment		111			84			(27	)		-32.1	%
Income tax expense		2,172			2,217			45			2.0	%

Net income	$	9,551		$	9,529		$	22			0.2	%

Earnings per common share:
Basic	$	0.192		$	0.191		$	0.001			0.5	%
Diluted		0.191			0.190			0.001			0.5	%

⁽¹⁾

Net interest income is also presented on a fully taxable equivalent (FTE) basis, the Company believes this non-GAAP measure is the preferred industry measurement for this item.

UNITED COMMUNITY FINANCIAL CORP.

CONSOLIDATED AVERAGE BALANCES

(Unaudited)


	For the three months ended
	December 31, 2018							September 30, 2018							December 31, 2017
	Average		Interest					Average		Interest					Average		Interest
	outstanding		earned/		Yield/			outstanding		earned/		Yield/			outstanding		earned/		Yield/
	balance		paid		rate			balance		paid		rate			balance		paid		rate
	(Dollars in thousands)
Interest earning assets:
Net loans ⁽¹⁾	$	2,161,414	$	26,616		4.93	%	$	2,115,227	$	24,031		4.54	%	$	1,975,847	$	21,531		4.36	%
Loans held for sale		100,348		1,184		4.68	%		111,295		1,264		4.51	%		88,247		886		4.02	%

Total loans, net		2,261,762		27,800		4.91	%		2,226,522		25,295		4.54	%		2,064,094		22,417		4.34	%
Securities:
Trading		4		—		0.00	%		—		—		0.00	%		—		—		0.00	%
Available for sale-taxable		196,910		1,148		2.33	%		204,924		1,176		2.30	%		214,631		1,222		2.28	%
Available for sale-nontaxable ⁽²⁾		48,370		399		3.30	%		48,370		400		3.31	%		58,903		609		4.14	%
Held to maturity-taxable		65,605		380		2.32	%		67,979		374		2.20	%		75,136		421		2.24	%
Held to maturity-nontaxable ⁽²⁾		12,215		86		2.82	%		12,215		86		2.82	%		9,233		77		3.34	%

Total securities		323,104		2,013		2.49	%		333,488		2,036		2.44	%		357,903		2,329		2.60	%
Federal Home Loan Bank stock		19,144		290		6.06	%		19,160		289		6.03	%		19,324		267		5.53	%
Other interest earning assets		34,779		178		2.03	%		30,140		154		2.03	%		22,656		57		1.01	%

Total interest earning assets		2,638,789		30,281		4.59	%		2,609,310		27,774		4.26	%		2,463,977		25,070		4.07	%
Non-interest earning assets		176,579							177,553							179,023

Total assets	$	2,815,368						$	2,786,863						$	2,643,000

Interest bearing liabilities:
Deposits:
Checking accounts	$	620,306		1,114		0.71	%	$	635,705		1,026		0.64	%	$	600,249		589		0.39	%
Savings accounts		303,247		28		0.04	%		303,247		27		0.04	%		304,229		27		0.04	%
Certificates of deposit
Customer certificates of deposit		619,208		2,652		1.70	%		618,545		2,457		1.58	%		530,297		1,458		1.10	%
Brokered certificates of deposit		393,778		2,072		2.09	%		327,120		1,534		1.86	%		164,147		529		1.29	%

Total certificates of deposit		1,012,986		4,724		1.85	%		945,665		3,991		1.67	%		694,444		1,987		1.14	%

Total interest bearing deposits		1,936,539		5,866		1.20	%		1,884,617		5,044		1.06	%		1,598,922		2,603		0.65	%
Federal Home Loan Bank advances
Long-term advances		46,879		357		3.02	%		48,976		413		3.35	%		48,409		404		3.34	%
Short-term advances		75,033		453		2.40	%		120,880		610		2.00	%		301,424		961		1.28	%

Total Federal Home Loan Bank advances		121,912		810		2.64	%		169,856		1,023		2.39	%		349,833		1,365		1.56	%
Repurchase agreements and other		245		—		0.00	%		213		—		0.00	%		2,114		1		0.19	%

Total borrowed funds		122,157		810		2.63	%		170,069		1,023		2.39	%		351,947		1,366		1.55	%

Total interest bearing liabilities	$	2,058,696		6,676		1.29	%	$	2,054,686		6,067		1.17	%	$	1,950,869		3,969		0.81	%

Non-interest bearing liabilities
Total noninterest bearing deposits		395,649							382,044							355,225
Other noninterest bearing liabilities		46,559							39,075							41,400

Total noninterest bearing liabilities		442,208							421,119							396,625

Total liabilities	$	2,500,904						$	2,475,805						$	2,347,494
Shareholders’ equity		314,464							311,058							295,506

Total liabilities and equity	$	2,815,368						$	2,786,863						$	2,643,000

Net interest income and interest rate spread			$	23,605		3.30	%			$	21,707		3.09	%			$	21,101		3.26	%

Net interest margin						3.58	%						3.33	%						3.43	%
Average interest earning assets to average interest bearing liabilities						128.18	%						126.99	%						126.30	%

Interest bearing deposits
Checking accounts	$	620,306	$	1,114		0.71	%	$	635,705	$	1,026		0.64	%	$	600,249	$	589		0.39	%
Savings accounts		303,247		28		0.04	%		303,247		27		0.04	%		304,229		27		0.04	%
Customer certificates of deposit		619,208		2,652		1.70	%		618,545		2,457		1.58	%		530,297		1,458		1.10	%

Total interest bearing customer deposits		1,542,761		3,794		0.98	%		1,557,497		3,510		0.90	%		1,434,775		2,074		0.58	%
Brokered certificates of deposit		393,778		2,072		2.09	%		327,120		1,534		1.86	%		164,147		529		1.29	%

Total interest bearing deposits		1,936,539		5,866		1.20	%		1,884,617		5,044		1.06	%		1,598,922		2,603		0.65	%
Noninterest bearing deposits		395,649		—		0.00	%		382,044		—		0.00	%		355,225		—		0.00	%

Total average deposits and cost of deposits	$	2,332,188	$	5,866		1.01	%	$	2,266,661	$	5,044		0.89	%	$	1,954,147	$	2,603		0.53	%
Other interest bearing liabilities
Federal Home Loan Bank advances
Long term advances	$	46,879	$	357		3.02	%	$	48,976	$	413		3.35	%	$	48,409	$	404		3.34	%
Short term advances		75,033		453		2.40	%		120,880		610		2.00	%		301,424		961		1.28	%

Total Federal Home Loan Bank advances		121,912		810		2.64	%		169,856		1,023		2.39	%		349,833		1,365		1.56	%
Repurchase agreements and other		245		—		0.00	%		213		—		0.00	%		2,114		1		0.19	%

Total borrowed funds		122,157		810		2.63	%		170,069		1,023		2.39	%		351,947		1,366		1.55	%

Total average deposits and other interest bearing liabilities and total cost of funds	$	2,454,345	$	6,676		1.09	%	$	2,436,730	$	6,067		1.00	%	$	2,306,094	$	3,969		0.69	%

Customer deposits interest bearing and noninterest bearing	$	1,938,410	$	3,794		0.78	%	$	1,939,541	$	3,510		0.72	%	$	1,790,000	$	2,074		0.46	%
Brokered deposits		393,778		2,072		2.09	%		327,120		1,534		1.86	%		164,147		529		1.29	%
Total borrowings		122,157		810		2.63	%		170,069		1,023		2.39	%		351,947		1,366		1.55	%
Cost of funds		2,454,345		6,676		1.09	%		2,436,730		6,067		1.00	%		2,306,094		3,969		0.69	%

⁽¹⁾	Nonaccrual loans are included in the average balance at a yield of 0%.

⁽²⁾	Yields are on a fully taxable equivalent basis.

UNITED COMMUNITY FINANCIAL CORP.

SELECTED FINANCIAL HIGHLIGHTS

(Unaudited)


	At or for the quarters ended
	December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017
	(Dollars in thousands, except per share data)
Financial Data
Total assets	$	2,811,357		$	2,789,183		$	2,770,558		$	2,690,707		$	2,649,905
Total loans, net		2,176,842			2,148,942			2,099,781			2,061,443			1,999,877
Total securities		319,498			320,806			328,924			338,593			353,472
Total deposits		2,213,220			2,352,476			2,135,345			2,066,978			1,956,739
Average interest-bearing deposits		1,936,539			1,884,617			1,718,639			1,644,165			1,598,922
Average noninterest-bearing deposits		395,649			382,044			376,905			375,142			355,225
Total shareholders’ equity		309,334			306,043			301,484			296,195			294,265
Net interest income		23,494			21,623			21,295			21,533			20,880
Net interest income (FTE) ⁽¹⁾		23,605			21,707			21,385			21,630			21,101
Provision (recovery) for loan losses		178			251			(138	)		407			1,215
Noninterest income		5,585			6,146			5,852			5,819			6,460
Noninterest expense		17,178			15,772			15,530			16,600			17,329
Income tax expense		2,172			2,217			2,214			1,789			4,294
Net income		9,551			9,529			9,541			8,556			4,502

Share Data
Basic earnings per common share	$	0.192		$	0.191		$	0.191		$	0.172		$	0.090
Diluted earnings per common share		0.191			0.190			0.190			0.171			0.090
Book value per common share		6.30			6.13			6.04			5.94			5.90
Tangible book value per common share		5.81			5.65			5.56			5.45			5.41
Market value per common share		8.85			9.67			10.99			9.86			9.13

Common shares outstanding at end of period		49,129			49,923			49,904			49,882			49,800
Weighted average shares outstanding—basic		49,445			49,683			49,694			49,611			49,497
Weighted average shares outstanding—diluted		49,695			49,947			49,944			49,885			49,827

Key Ratios
Return on average assets (ROA) ⁽²⁾		1.36	%		1.37	%		1.40	%		1.28	%		0.68	%
Return on average equity (ROE) ⁽³⁾		12.15	%		12.25	%		12.56	%		11.44	%		6.09	%
Return on tangible equity (ROTE) ⁽⁴⁾		13.16	%		13.28	%		13.65	%		12.44	%		6.62	%
Net interest margin		3.58	%		3.33	%		3.36	%		3.47	%		3.43	%
Efficiency ratio		54.79	%		57.30	%		57.75	%		60.20	%		63.73	%
Nonperforming loans to net loans, end of period		0.30	%		0.42	%		0.51	%		0.59	%		0.59	%
Nonperforming assets to total assets, end of period		0.27	%		0.36	%		0.57	%		0.65	%		0.64	%
Allowance for loan loss as a percent of loans, end of period		0.93	%		0.98	%		1.01	%		1.04	%		1.05	%
Delinquent loans to total net loans, end of period		0.50	%		0.69	%		0.67	%		0.81	%		0.86	%

⁽¹⁾	Net interest income is presented on a fully taxable equivalent (FTE) basis, the Company believes this non-GAAP measure is the preferred industry measurement for this item

⁽²⁾	Net income divided by average total assets

⁽³⁾	Net income divided by average total equity

⁽⁴⁾	Net income divided by average total equity, minus average intangible assets

UNITED COMMUNITY FINANCIAL CORP.

SELECTED FINANCIAL HIGHLIGHTS

(Unaudited)


	At or for the quarters ended
	December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017
	(Dollars in thousands)
Loan Portfolio Composition
Commercial loans
Multi-family	$	134,143		$	139,938		$	141,004		$	137,836		$	120,480
Owner/nonowner occupied commercial real estate		409,979			408,938			396,624			384,533			381,611
Land		16,831			16,129			16,887			15,452			15,162
Construction		141,685			132,961			127,691			134,181			116,863
Commercial and industrial		240,293			233,801			218,611			201,132			188,500

Total		942,931			931,767			900,817			873,134			822,616
Residential mortgage loans
Real estate		927,255			909,626			888,583			882,873			870,939
Construction		43,435			39,396			40,623			42,453			49,092

Total		970,690			949,022			929,206			925,326			920,031
Consumer loans
Consumer		277,041			283,108			284,909			279,110			273,494

Total		277,041			283,108			284,909			279,110			273,494

Total loans		2,190,662			2,163,897			2,114,932			2,077,570			2,016,141
Less:
Allowance for loan losses		20,443			21,332			21,405			21,610			21,202
Deferred loan costs, net		(6,623	)		(6,377	)		(6,254	)		(5,483	)		(4,938	)

Total		13,820			14,955			15,151			16,127			16,264

Total loans, net		2,176,842			2,148,942			2,099,781			2,061,443			1,999,877
Loans held for sale, net		91,472			95,235			107,701			79,292			83,752

Total loans	$	2,268,314		$	2,244,177		$	2,207,482		$	2,140,735		$	2,083,629


	At or for the quarters ended
	December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017
	(Dollars in thousands)
Deposit Portfolio Composition
Checking accounts
Interest bearing checking accounts	$	146,977		$	140,722		$	138,812		$	140,740		$	170,478
Non-interest bearing checking accounts		394,208			383,535			383,082			376,904			354,970

Total checking accounts		541,185			524,257			521,894			517,644			525,448
Savings accounts		298,087			300,007			306,283			308,025			301,716
Money market accounts		466,167			489,668			502,560			483,840			424,234

Total non-time deposits		1,305,439			1,313,932			1,330,737			1,309,509			1,251,398
Certificates of deposit		616,826			622,807			615,388			595,657			548,865

Total customer deposits		1,922,265			1,936,739			1,946,125			1,905,166			1,800,263
Brokered deposits		290,955			415,737			189,220			161,812			156,476

Total certificates of deposit		907,781			1,038,544			804,608			757,469			705,341

Total deposits	$	2,213,220		$	2,352,476		$	2,135,345		$	2,066,978		$	1,956,739

UNITED COMMUNITY FINANCIAL CORP.

SELECTED FINANCIAL HIGHLIGHTS

(Unaudited)


	At or for the quarters ended
	December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017
	(Dollars in thousands)
Allowance For Loan Losses
Beginning balance	$	21,332		$	21,405		$	21,610		$	21,202		$	20,555
Provision		178			251			(138	)		407			1,215
Net (chargeoffs) recoveries		(1,067	)		(324	)		(67	)		1			(568	)

Ending balance	$	20,443		$	21,332		$	21,405		$	21,610		$	21,202


	At or for the quarters ended
	December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017
	(Dollars in thousands)
Net (Charge-offs) Recoveries
Commercial loans
Multi-family	$	(99	)	$	4		$	9		$	6		$	(126	)
Owner/nonowner occupied commercial real estate		38			12			29			40			23
Land		—			150			—			—			—
Construction		—			11			10			7			—
Commercial and industrial		(765	)		(275	)		(72	)		104			(90	)

Total		(826	)		(98	)		(24	)		157			(193	)
Residential mortgage loans
Real estate		(131	)		(141	)		(14	)		(66	)		(257	)
Construction		—			—			—			—			—

Total		(131	)		(141	)		(14	)		(66	)		(257	)
Consumer loans
Consumer		(110	)		(85	)		(29	)		(90	)		(118	)

Total		(110	)		(85	)		(29	)		(90	)		(118	)

Total net chargeoffs	$	(1,067	)	$	(324	)	$	(67	)	$	1		$	(568	)


	At or for the quarters ended
	December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017
	(Dollars in thousands)
Nonperforming Loans
Commercial loans
Multi-family	$	171		$	275		$	275		$	275		$	275
Owner/nonowner occupied commercial real estate		13			1,101			1,111			1,206			1,218
Land		—			—			—			9			9
Construction		—			—			—			—			—
Commercial and industrial		531			1,489			1,475			1,459			1,505

Total		715			2,865			2,861			2,949			3,007
Residential mortgage loans
Real estate		4,170			4,426			6,146			7,045			6,076
Construction		—			—			—			—			—

Total		4,170			4,426			6,146			7,045			6,076
Consumer loans
Consumer		1,654			1,770			1,783			2,180			2,620

Total		1,654			1,770			1,783			2,180			2,620

Total nonperforming loans	$	6,539		$	9,061		$	10,790		$	12,174		$	11,703

Total Nonperforming Loans and Nonperforming Assets
Past due 90 days and on nonaccrual status	$	5,732		$	8,200		$	8,395		$	8,326		$	8,620
Past due 90 days and still accruing		18			—			—			—			—

Past due 90 days		5,750			8,200			8,395			8,326			8,620
Past due less than 90 days and on nonaccrual		789			861			2,395			3,848			3,083

Total nonperforming loans		6,539			9,061			10,790			12,174			11,703
Other real estate owned		1,049			907			802			1,030			1,047
Other classified assets		—			—			4,050			4,050			4,050
Repossessed assets		39			—			75			263			206

Total nonperforming assets	$	7,627		$	9,968		$	15,717		$	17,517		$	17,006

UNITED COMMUNITY FINANCIAL CORP.

NON-GAAP DISCLOSURE RECONCILIATION

(Unaudited)


Reconciliation of Average Shareholders’ Equity to Average Tangible Equity:

	At or for the quarters ended
	December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017
	(Dollars in thousands, except per share data)
Average shareholders equity	$	314,464		$	311,058		$	303,733		$	299,284		$	295,506
Average intangible assets		24,123			24,144			24,063			24,175			23,563

Average tangible equity	$	290,341		$	286,914		$	279,670		$	275,109		$	271,943

Net income	$	9,551		$	9,529		$	9,541		$	8,556		$	4,502

Return on tangible equity		13.16	%		13.28	%		13.65	%		12.44	%		6.62	%

Reconciliation of Fully Taxable Equivalent Net Interest Income to Net Interest Income:

	For the quarters ended
	December 31, 2018			September 30, 2018			June 30, 2018			March 31, 2018			December 31, 2017
	(Dollars in thousands)
Interest income	$	30,170		$	27,690		$	26,661		$	26,050		$	24,849
Fully taxable equivalent adjustment		111			84			90			97			221

Fully taxable equivalent interest income		30,281			27,774			26,751			26,147			25,070
Interest expense		6,676			6,067			5,366			4,517			3,969

Fully taxable net interest income	$	23,605		$	21,707		$	21,385		$	21,630		$	21,101

Reconciliation of Net Interest Margin without Resolution of Acquired Loan:


	For the three months ended			For the twelve months ended
	December 31, 2018			December 31, 2018
	(Dollars in thousands)
Fully taxable net interest income	$	23,605		$	88,327
Resolution of acquired loan		1,050			1,050

Fully taxable net interest income, without purchase accounting adjustments	$	22,555		$	87,277

Average interest earning assets	$	2,638,789		$	2,574,321
Net interest margin excluding accretion amortization of purchase accounting adjustments		3.42	%		3.39	%

Reconciliation of Efficiency Ratio to Efficiency Ratio Inclusive of Termination Costs:


	For the three months ended			For the twelve months ended
	December 31, 2018			December 31, 2018
	(Dollars in thousands)
Noninterest Expense	$	17,178		$	65,079
Intangible asset amortization		(128	)		(501	)

		17,050			64,578

Net interest income	$	23,605		$	88,327
Noninterest income		5,585			23,402
G/L Securities		192			(42	)
Loss on REO		24			260

		29,406			111,947

Efficiency ratio including termination cost		57.98	%		57.69	%

Tangible Book Value Per Share:

Tangible book value, per share is defined at shareholders equity minus intangible assets divided by the number of shares outstanding.



	At the quarters ended
	December 31, 2018		September 30, 2018		June 30, 2018		March 31, 2018		December 31, 2017
	(Dollars in thousands, except per share data)
Total shareholders’ equity	$	309,334	$	306,043	$	301,484	$	296,195	$	294,265
Goodwill		20,221		20,221		20,221		20,221		20,221
Customer list intangible		2,214		2,259		1,980		2,030		2,060
Core deposit intangible		1,603		1,686		1,769		1,851		1,934
Total common shares outstanding		49,128,875		49,922,514		49,904,074		49,882,491		49,800,126
Tangible book value, as reported	$	5.81	$	5.65	$	5.56	$	5.45	$	5.41