UCFC Ready to Fly Again, CEO Tells Shareholders
BOARDMAN, Ohio – United Community Financial Corp. is nearly ready to take off and fly again.
At its annual meeting Tuesday, the president and CEO of UCFC, holding company of Home Savings and Loan Co., compared his bank to an airplane that had suffered damage from a rough landing. Rather than scrap the plane, it made more sense to repair it and prepare to fly again, Patrick W. Bevack told shareholders.
The craft is nearly repaired. “We’re almost there, the CEO said. “We’ve added safety features. We’re almost ready. We’re looking to the tower – the regulators – for permission to take off. We’re going to fly again and fly high. I’ve never been more confident about our future.”
The chief financial officer and treasurer, James R. Reske, provided more detail on why Bevack -- and the board of directors -- have such a sense of confidence.
“Our bank is nearly turned around,” Reske began. “No doubt, the worst is behind us.”
The reason why is the sale of bulk loans last Sept. 21, a total book balance of $114.8 million, $92 million of which were classified or troubled loans, which caused the company to record a loss of $29.4 million and report a third-quarter loss of $26.9 million. (In its earnings release, UCFC charged a $33 million loss to the bulk sale.)
A troubled loan is not necessarily delinquent (past due up to 89 days) or nonperforming (more than 90 days past due). Such a designation simply means the bank isn’t as certain of repayment even though to date the borrower has made full payments on his loan and on schedule.
“It reduced our classified assets to $57 million at the end of the third quarter,” the CFO explained. They had stood at $291.5 million, their peak, at May 31, 2011.
“It was an unbelievably good event for the company,” Reske told the shareholders. “But it resulted in loss for our income statement.”
In late 2011, UCFC had to chance to sell its nonperforming assets at anywhere from a nickel to 30 cents on the dollar, Reske related. Instead, senior management “hired a professional adviser to help us sell those loans. More than 100 investors looked at those loans,” and with the approval of bank regulators -- the Office of the Controller of the Currency and Ohio Department of Financial Institutions -- sold the loans, surpassing the classified assets goals the regulators set of $219.2 million by Sept. 30 and $146 million by next March 31.
As it was, the sale of bulk loans allowed Home Savings to recover 72.5 cents on the dollar and, more important, maintain its Tier 1 capital leverage ratio. “Had we taken the bait and sold at 5, 10, 20 cents on the dollar, our capital ratio would have suffered,” Reske said.
The Tier 1 capital ratio remains above 8%, which meets the regulatory minimum. However, the OCC has raised the bar to 9% for next year. Bevack and Reske expressed confidence that Home Savings will meet that threshold by March 31.
One measure Home Savings is taking to put itself on a sounder footing is “trying to be more granular,” as Bevack put it. That is, make more but smaller commercial loans so Home Savings has fewer larger exposures.
It is working at “ ‘de-risking’ the balance sheet,” as Reske put it, which means Home Savings is working to reduce its concentration of loans to construction, land development, land loans and to real estate where the owner does not occupy the building. Since 2008, Home Savings has reduced its lending in these markets to $53.3 million from $315.4 million.
Construction loans at Dec. 31, 2008, stood at $291.2 million. Today they’re at $37 million. Commercial loans at Dec. 31, 2008, stood at $101.5 million, or 5% of the loan portfolio. Today it’s $22.2 million, or 2% of the loan portfolio.
Home Savings very much remains in the business of residential mortgages, Bevack stressed.
The sale of the bulk loans allowed Home Savings to reduce its workforce because the number of staff fell needed to oversee and manager the loans.
In the aftermath of the sale of bulk loans, shares of UCFC have risen appreciably, up 182.4%, a chart from UCFC shows. From the third quarter of 2010 until the end of 2011, shares traded at just under $1.50 on average. Since then they have climbed and closed yesterday at $3.03 up 6 cents, on a volume of 23,143. The 52-week range is $1.11 to $3.93.
By comparison, bank and thrift stocks as a whole have remained on an even keel, rising 8.28% since November 2010.
Only four shareholders raised concerns or questions that ranged from skepticism that the directors were worth the $20,000 a year they’re each paid to “Are we ever going to see dividends again?”
The board and its committees met 114 times in the past year, Chairman Rick Schiraldi noted. Earlier Bevack praised the board for its efforts. “I cannot tell you how hard they’ve worked and the hours they’ve put in,” he said.
The board has received only one pay raise since Home Savings went public in 1999, Schiraldi noted, and that was to catch up to its peers at similar financial institutions. In addition, the board is paid half in cash, half in stock that members must hold at least three years.
In the business portion, directors Lee Burdman and Mahoning County Judge Scott Hunter were re-elected, receiving 91.8% and 92.1% respectively of the shares voted.
Outside auditor Crowe Howarth LLP was retained with 95.8% of the votes cast. Of the 32.9 million shares, 24.9 million were voted.
Copyright 2012 The Business Journal, Youngstown, Ohio.
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