Local banks preparing for defaults

The lender increased funds set aside for bad loans by tenfold.

By DON SHILLING

VINDICATOR BUSINESS EDITOR

YOUNGSTOWN — A struggling economy is hurting another lender.

The parent company of Home Savings and Loan Co. said Wednesday that it set aside $13.3 million in the fourth quarter to cover bad loans. That is an increase from $1.3 million that was set aside in the fourth quarter of 2006.

Called a provision for loan losses, the accounting move was announced by United Community Financial Corp. in advance of its quarterly earnings that will be posted Jan. 30. The provision provides funds for delinquent loans — those that are at least 90 days past due — and loans that the company doesn’t expect to be collected.

Douglas McKay, United Community chairman and chief executive, said a slowdown in the economy has caused a decline in loans that are paid back on time.

He said the increase in the loan loss provision primarily is tied to the company’s construction loan portfolio. Some home builders have accepted financing to build homes or developments but haven’t been able to find buyers.

The loan loss provision also covers commercial loans and mortgages.

Last week, Warren-based First Place Financial Corp. also said a weak economy was hurting its credit quality. The company said more homeowners were unable to pay back their mortgages because they had lost jobs or seen their wages cut.

First Place Financial, the parent company of First Place Bank, set aside $5.2 million in the last quarter to cover loan losses, which was an increase of $3.2 million. That was one of the factors contributing to a $3.1 million loss for First Place in the quarter that ended Dec. 31.

Both First Place and United Community said their problems aren’t caused by subprime lending, which has shaken national financial markets. Subprime lenders offered low introductory rates to people with weak credit.

McKay said shoring up United Community’s credit quality is management’s top issue.

During the past quarter, United Community officials met with all large construction and commercial customers, said Patrick Kelly, company chief financial officer.

“We wouldn’t do that in good times,” he said.

Through the meetings, United Community gained an understanding of the business conditions faced by the borrowers and learned how much repayment it could expect on loans.

United Community also has tightened its lending standards and will closely monitor its portfolio of loans, he said.

UCFC stock gained 39 cents Wednesday to close at $5.75. In the past year, it has traded at between $4.28 and $12.50.

Home Savings operates 39 branches and six loan production offices in Ohio and western Pennsylvania. United Community also is the parent company of Butler Wick & Co., a Youngstown-based stock brokerage.

shilling@vindy.com