UCFC United Community Financial Corporation

• Quarterly pretax core earnings of $4.1 million (adjusted for debt prepayment charge of $2.0 million)
• Annualized loan growth was 13% for the fourth quarter and 12% for the year
• Prepayment of a $30 million repurchase agreement and the modification of a $50 million FHLB advance during the quarter
• Net interest margin increasing to 3.16% for the fourth quarter of 2014 from 3.06% for the previous quarter
• Tangible book value per share increased to $4.88 at December 31, 2014 from $3.47 at the same time last year
• UCFC declares a dividend of $0.01 per common share

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  

Media Contact:Home SavingsColleen Scott, Vice President of Marketing, 330-742-0638cscott@homesavings.comorInvestor Contact:United Community Financial Corp.Gary M. Small, President and Chief Executive Officer, 330-742-0472