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Home Savings and Loan co. Bank says sale shows rebound
YOUNGSTOWN
Little more than a week after The Home Savings and Loan Co. announced a major asset sale to clear a bulk of troubled loans off its books, the bank’s chief executive says the move demonstrates a rebound nearly four years in the making and shored up by three consecutive quarters of profit.
On Sept. 21, Home Savings completed a transaction with an undisclosed party to sell off $115 million in assets, erasing nearly $93 million in troubled loans from the bank’s balance sheet and reducing impaired or under-performing loans to $85 million. At its peak in 2011, troubled loans stood at $292 million.
“One of the things we continue to do is reduce risk,” said Patrick W. Bevack, president and chief executive of both Home Savings and its parent company, United Community Financial Corp. “It’s helped things considerably. This represents an enormous leap forward for our company. We’ve reduced a considerable amount of risk in our portfolio, and I believe the market will respond favorably to that.”
Turmoil for the bank began in 2008 when the Federal Deposit Insurance Corp., a federal regulator, issued a cease-and-desist order primarily related to the bank’s strong concentration of acquisition and development loans, such as construction loans, which were hit hard during the financial crisis.
Though neither state nor federal regulators could comment on their dealings with the bank, the order, issued in August 2008, censured the bank’s management for not providing adequate policies and practices to protect the bank’s deposits. Its board of directors also came under fire for providing inadequate supervision.
Home Savings also was cited for engaging in “hazardous lending and lax collection practices” and violating Ohio ratio laws relating to its high concentration of acquisition and development loans, according to the order.
In recent years, the bank has posted a series of quarterly consolidated losses stemming from troubled assets, but Bevack says Home Savings has gone above and beyond benchmarks set by regulators.
“We had goals set by regulators that called for classified assets to be at $219 million by September 2012 and $146 million by March 2013. Today we’re way below that at $85 million, and that is a tremendous accomplishment,” Bevack said, referring to regulator’s reduction targets for Home Savings’ troubled loans.
The bank eventually demonstrated enough progress for regulators to lift the cease-and-desist order and instead have the bank sign a lesser consent order which was met with the sale of the troubled loans.
Since the transaction was announced Sept. 21, when UCFC’s stock closed at $3.13 on the NASDAQ, it has steadily ticked upward in the last week, trading at about $3.45 on Monday afternoon.
In the last three quarters combined, the bank has posted $11.8 million in profits, compared more recently with a series of consolidated losses in the millions during 2010 and most of 2011.
Going forward, Bevack said the bank will take a $29.4 million loss on its recent sale, which he said likely will lead the bank to report no profit in the third quarter.
The bank returned to profitability by shifting staff and making changes in management, which regulators required in 2008. It also sold a number of retail branches, a trust company and a brokerage company. In 2011, the bank received $2.2 million worth of capital infusion from an unidentified investor.
Home Savings continues to make strong gains in residential lending, and its capital position is strong, Bevack said.
“We’ve become more granular in nature, and we acknowledge some loans are too big for us,” Bevack said. “But we still have significant lending power, and we’re attracting new customers with some of the staff changes we’ve made.”