-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GBNjV5s+7N0/X49GFhX5uDILo86/n7W9nrQXL14cMflh/XoLcwmTZxKMnR7+H96/ DuuAL5zfHmrTjJ10TVszGw== 0000950152-03-005491.txt : 20030514 0000950152-03-005491.hdr.sgml : 20030514 20030514151138 ACCESSION NUMBER: 0000950152-03-005491 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED COMMUNITY FINANCIAL CORP CENTRAL INDEX KEY: 0000707886 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 341856319 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24399 FILM NUMBER: 03698679 BUSINESS ADDRESS: STREET 1: 275 FEDERAL PLAZA WEST CITY: YOUNGSTOWN STATE: OH ZIP: 44503-1203 BUSINESS PHONE: 3307420500 10-Q 1 l00437ae10vq.txt UNITED COMMUNITY FINANCIAL 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File Number 0-24399 UNITED COMMUNITY FINANCIAL CORP. -------------------------------- (Exact name of registrant as specified in its charter) Ohio 34-1856319 ------------------------------------------------ (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 275 Federal Plaza West Youngstown, Ohio 44503-1203 ---------------- ---------- (Address of principal executive offices) (Zip Code) (330) 742-0500 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------- ------ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No -------- ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 34,420,265 common shares as of April 30, 2003 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Statements of Financial Condition as of March 31, 2003 (Unaudited) and December 31, 2002.................................................................... 1 Consolidated Statements of Income for the Three Months Ended March 31, 2003 and 2002 (Unaudited)...................................................... 2 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002 (Unaudited)...................................................... 3 Notes to Consolidated Financial Statements .............................................. 4 - 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................ 7-10 Item 3. Quantitative and Qualitative Disclosures about Market Risk............................... 11 Item 4. Controls and Procedures.................................................................. 11 PART II. OTHER INFORMATION............................................................................. 12 Signatures............................................................................................. 13 Certifications......................................................................................... 14-15 EXHIBITS............................................................................................... 16-18
UNITED COMMUNITY FINANCIAL CORP. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31, 2003 2002 (unaudited) ----------- ----------- (In thousands) ASSETS: Cash and deposits with banks $ 36,404 $ 33,178 Federal funds sold and other 17,985 77,758 ----------- ----------- Total cash and cash equivalents 54,389 110,936 ----------- ----------- Securities: Trading, at fair value 19,938 5,060 Available for sale, at fair value 290,101 237,268 Loans, net (including allowance for loan losses of $15,584 and $15,099, respectively) 1,478,930 1,478,213 Loans held for sale, net 36,550 45,825 Margin accounts 13,961 14,809 Federal Home Loan Bank stock 21,276 21,069 Premises and equipment 20,537 20,002 Accrued interest receivable 9,472 9,558 Real estate owned 1,236 994 Goodwill 33,593 33,593 Core deposit intangible 4,711 5,101 Other assets 9,139 7,703 ----------- ----------- TOTAL ASSETS $ 1,993,833 $ 1,990,131 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Deposits $ 1,468,929 $ 1,481,901 Other borrowed funds 228,301 210,024 Advance payments by borrowers for taxes and insurance 7,851 5,996 Accrued interest payable 1,290 1,126 Accrued expenses and other liabilities 17,266 16,515 ----------- ----------- TOTAL LIABILITIES 1,723,637 1,715,562 ----------- ----------- SHAREHOLDERS' EQUITY: Preferred stock-no par value; 1,000,000 shares authorized and unissued at March 31, 2003 - - Common stock-no par value; 499,000,000 shares authorized; 37,802,081 and 37,803,269 shares issued, respectively 138,391 138,207 Retained earnings 174,637 172,080 Other comprehensive income 1,879 2,363 Unearned stock compensation (18,834) (19,724) Treasury stock, at cost, 3,387,116 and 2,558,214 shares, respectively (25,877) (18,357) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 270,196 274,569 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,993,833 $ 1,990,131 =========== ===========
See Notes to Consolidated Financial Statements. 1 UNITED COMMUNITY FINANCIAL CORP. CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the Three Months Ended March 31, March 31, 2003 2002 -------- -------- (Dollars in thousands, except per share data) INTEREST INCOME Loans $ 25,914 $ 26,974 Loans held for sale 496 114 Securities: Trading 72 33 Available for sale 2,694 1,840 Held to maturity - 1,267 Margin accounts 171 220 FHLB stock dividend 208 208 Other interest-earning assets 186 607 -------- -------- Total interest income 29,741 31,263 INTEREST EXPENSE Interest expense on deposits 9,029 12,108 Interest expense on other borrowed funds 2,203 2,785 -------- -------- Total interest expense 11,232 14,893 -------- -------- NET INTEREST INCOME 18,509 16,370 PROVISION FOR LOAN LOSS ALLOWANCES 696 696 -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS ALLOWANCES 17,813 15,674 -------- -------- NONINTEREST INCOME Commissions 3,175 3,382 Service fees and other charges 1,800 1,898 Underwriting and investment banking 118 33 Net gains (losses): Securities 496 582 Trading securities (148) 23 Loans sold 2,010 776 Other (59) (1) Other income 583 1,065 -------- -------- Total noninterest income 7,975 7,758 -------- -------- NONINTEREST EXPENSES Salaries and employee benefits 10,901 9,723 Occupancy 829 673 Equipment and data processing 2,344 1,819 Franchise tax 488 506 Advertising 587 393 Amortization of core deposit intangible 389 638 Other expenses 2,617 3,000 -------- -------- Total noninterest expenses 18,155 16,752 -------- -------- INCOME BEFORE INCOME TAXES 7,633 6,680 INCOME TAXES 2,653 2,425 -------- -------- NET INCOME $ 4,980 $ 4,255 ======== ======== COMPREHENSIVE INCOME $ 4,174 $ 3,549 EARNINGS PER SHARE: Basic and diluted $ 0.16 $ 0.13
See Notes to Consolidated Financial Statements. 2 UNITED COMMUNITY FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ------------------------------- 2003 2002 --------- --------- (Dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,980 $ 4,255 Adjustments to reconcile net income to net cash from operating activities: Provision for loan loss allowances 696 696 Net gains (2,447) (1,358) Amortization of premiums (accretion of discounts) 1,250 (25) Depreciation 948 529 ESOP compensation 647 553 Amortization of restricted stock compensation 427 469 FHLB stock dividends (208) (208) (Increase) decrease in trading securities (14,878) 1,838 Decrease in margin accounts 848 672 Decrease (increase) in interest receivable 86 (846) (Increase) decrease in prepaid and other assets (1,906) 7,285 Increase (decrease) in interest payable 164 (28) Decrease in loans held for sale 9,275 13,382 Proceeds from sale of loans held for sale 115,659 53,278 Increase (decrease) in other liabilities 1,012 (2,572) --------- --------- Net cash from operating activities 116,553 77,920 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from principal repayments and maturities of: Securities held to maturity - 8,661 Securities available for sale 42,720 23,118 Proceeds from sale of: Securities available for sale 8,242 4,571 Real estate owned 18 152 Fixed assets - 18 Purchases of: Securities available for sale (104,859) (54,296) Securities held to maturity - (500) Net principal disbursed on loans (77,509) (88,950) Loans purchased (37,726) (5,450) Purchases of premises and equipment (1,477) (606) --------- --------- Net cash from investing activities (170,591) (113,282) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in NOW, savings and money market accounts 13,488 23,220 Net (decrease) increase in certificates of deposit (26,186) 13,046 Net increase (decrease) in advance payments by borrowers for taxes and insurance 1,855 (2,393) Proceeds from FHLB advances and other long term debt - 1,239 Repayment of FHLB advances and other long term debt (48) (40,001) Net change in other borrowed funds 18,325 (5,808) Dividends paid (2,382) (2,419) Proceeds from the exercise of stock options 335 - Purchase of treasury stock (7,896) (725) --------- --------- Net cash from financing activities (2,509) (13,841) --------- --------- (Decrease) increase in cash and cash equivalents (56,547) (49,203) Cash and cash equivalents, beginning of period 110,936 205,883 --------- --------- Cash and cash equivalents, end of period $ 54,389 $ 156,680 ========= ========= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest on deposits and borrowings $ 11,395 $ 14,921 Income taxes 720 380 Supplemental schedule of noncash activities: Transfers from loans to real estate owned 317 879
See Notes to Consolidated Financial Statements. 3 UNITED COMMUNITY FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. STOCK COMPENSATION Employee compensation expense under stock option plans is reported if options are granted below market price at grant date. Pro forma disclosures of net income and earnings per share are shown using the fair value method of FASB Statement No. 123 to measure expense for options granted after 1994, using an option pricing model to estimate fair value. Employee compensation expense under stock options is reported using the intrinsic value method. No stock-based compensation cost is reflected in net income, as all options granted had an exercise price equal to or greater than the market price of the underlying common stock at date of grant. The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation.
For the Three Months Ended March 31, 2003 2002 - ----------------------------------------------------------------------------------------- (In thousands) Net income as reported $ 4,980 $4,255 Deduct: Stock-based compensation expense determined under fair value method 2,201 1,411 - ----------------------------------------------------------------------------------------- Pro Forma net income $ 2,779 $2,844 - ----------------------------------------------------------------------------------------- Basic earnings per share as reported $ 0.16 $ 0.13 Pro Forma basic earnings per share $ 0.09 $ 0.09 Diluted earnings per share as reported $ 0.16 $ 0.13 Pro forma diluted earnings per share $ 0.09 $ 0.09 - -----------------------------------------------------------------------------------------
The pro forma effects are computed using option pricing models, using the following weighted-average assumptions as of grant date.
2003 2002 - ----------------------------------------------------------------------------------------- Dividend yield 3.34% 4.00% Expected stock price volatility 48.31% 38.31% Risk-free interest rate 3.98% 5.01% Expected option life (In years) 10 10 - -----------------------------------------------------------------------------------------
2. BASIS OF PRESENTATION United Community Financial Corp. (United Community) was incorporated under Ohio law in February 1998 by The Home Savings & Loan Company of Youngstown, Ohio (Home Savings) in connection with the conversion of Home Savings from an Ohio mutual savings and loan association to an Ohio capital stock savings and loan association (Conversion). Upon consummation of the Conversion on July 8, 1998, United Community became the unitary savings and loan holding company for Home Savings. Home Savings has 34 full service offices and four loan production offices throughout northern Ohio and western Pennsylvania. Butler Wick Corp. (Butler Wick) became a wholly owned subsidiary of United Community on August 12, 1999. Butler Wick is the parent company for three wholly owned subsidiaries: Butler Wick & Co., Inc., Butler Wick Asset Management Company and Butler Wick Trust Company. Through these subsidiaries, Butler Wick's business includes investment brokerage services, which it has conducted for over 70 years, and a network of integrated financial services, including asset management, trust and estate services, public finance and insurance. Butler Wick and its subsidiaries have eleven full service offices and two trust offices throughout northern Ohio and western Pennsylvania. The accompanying consolidated financial statements of United Community have been prepared in accordance with instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for fair statement of results for the interim periods. 4 The results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results to be expected for the year ending December 31, 2003. The consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2002, contained in United Community's Form 10-K for the year ended December 31, 2002. 3. SEGMENT INFORMATION United Community has two principal segments, retail banking and investment advisory services. Retail banking provides consumer and corporate banking services. Investment advisory services provide investment brokerage and a network of integrated financial services. Condensed statements of income by operating segment for the three months ended March 31, 2003 and 2002 are as follows: THREE MONTHS ENDED MARCH 31, 2003
Retail Investment Banking Advisory Services Eliminations Total - ---------------------------------------------------------------------------------------------------------------------------------- (In thousands) Interest income $ 29,906 $ 258 $(423) $ 29,741 Interest expense 11,611 44 (423) 11,232 Provision for loan loss 696 - 696 ------------ ------------ ------------ ------------ Net interest income after provision for loan loss 17,599 214 17,813 Non-interest income 3,318 4,657 7,975 Non-interest expense 13,221 4,934 18,155 ------------ ------------ ------------ ------------ Income before tax 7,696 (63) 7,633 Income tax expense 2,675 (22) 2,653 ------------ ------------ ------------ ------------ Net income $ 5,021 $ (41) $ - $ 4,980 ============ ============ ============ ============
THREE MONTHS ENDED MARCH 31, 2002
Retail Investment Banking Advisory Services Eliminations Total - ---------------------------------------------------------------------------------------------------------------------------------- (In thousands) Interest income $ 31,448 $ 266 $(451) $31,263 Interest expense 15,283 61 (451) 14,893 Provision for loan loss 696 - - 696 ------------ ------------ ------------ ------------ Net interest income after provision for loan loss 15,469 205 - 15,674 Non-interest income 3,011 4,747 - 7,758 Non-interest expense 11,631 5,121 - 16,752 ------------ ------------ ------------ ------------ Income before tax 6,849 (169) - 6,680 Income tax expense 2,483 (58) - 2,425 ------------ ------------ ------------ ------------ Net income before extraordinary items $ 4,366 $(111) $ - $ 4,255 ============ ============ ============ ============
4. LONG-TERM INCENTIVE On July 12, 1999, shareholders approved the United Community Financial Corp. Long-Term Incentive Plan (Incentive Plan). The purpose of the Incentive Plan is to promote and advance the interests of United Community and its shareholders by enabling United Community to attract, retain and reward directors, directors emeritus, managerial and other key employees of United Community, including Home Savings and Butler Wick, by facilitating their purchase of an ownership interest in United Community. The Incentive Plan provides for the grant of options, which may qualify as either incentive or nonqualified stock options. The incentive plan provides that option prices will not be less than the fair market value of the stock at the grant date. The maximum number of common shares that may be issued under the plan is 3,471,562. All of the options awarded become exercisable on the date of grant. The option period expires 10 years from the date of grant. A summary of activity in the plan is as follows: 5
For the three months ended March 31, ---------------------------------------------------------- 2003 2002 --------------------------- --------------------------- Weighted Weighted average average exercise exercise Shares price Shares price - -------------------------------------------------------------------------------------------------------- Outstanding at beginning of year 1,909,615 $ 7.01 1,307,496 $ 6.79 Granted 742,654 8.97 715,710 7.40 Exercised 72,760 6.91 - - Forfeited - - - - - -------------------------------------------------------------------------------------------------------- Outstanding at end of period 2,579,509 7.58 2,023,198 7.01 - -------------------------------------------------------------------------------------------------------- Options exercisable at end of period 2,579,509 $ 7.58 2,023,198 $ 7.01 - -------------------------------------------------------------------------------------------------------- Weighted-average fair value of options granted during year $ 3.65 $ 2.44 - --------------------------------------------------------------------------------------------------------
5. EARNINGS PER SHARE Earnings per share is computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of shares determined for the basic computation plus the dilutive effect of potential common shares that could be issued under outstanding stock options and restricted stock awards. For the period ending March 31, 2003, there were 742,654 anti-dilutive shares that were not taken into consideration for the dilutive earnings per share calculation. There were no anti-dilutive shares for the period ended March 31, 2002. - ------------------------------------------------------------------------------- Three Months Ended March 31, 2003 2002 (In thousands, except per share data) ------------- ------------ Net income applicable to common stock $4,980 $4,255 ============= ============ Weighted average common shares outstanding 31,669 31,951 Dilutive effect of restricted stock 25 141 Dilutive effect of stock options 317 120 ------------- ------------ Weighted average common shares outstanding for diluted computation 32,011 32,212 ============= ============ Earnings per share Basic $ 0.16 $ 0.13 Diluted $ 0.16 $ 0.13 - ------------------------------------------------------------------------------- 6. SUBSEQUENT EVENT On April 21, 2003, United Community announced that its Board of Directors approved a plan to repurchase an additional 1,000,000 shares of United Community's common stock. The shares will be purchased through open market transactions. As of March 31, 2003, there are 276,247 shares remaining to be purchased from the repurchase program previously announced on October 23, 2000. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS UNITED COMMUNITY FINANCIAL CORP.
At or For the Three Months Ended March 31, March 31, SELECTED FINANCIAL RATIOS AND OTHER DATA: (1) 2003 2002 ------ ------ Performance ratios: Return on average assets (2) 1.00% 0.87% Return on average equity (3) 7.25% 6.42% Interest rate spread (4) 3.59% 3.01% Net interest margin (5) 3.92% 3.50% Noninterest expense to average assets 3.63% 3.17% Efficiency ratio (6) 67.82% 63.12% Average interest-earning assets to average interest- bearing liabilities 113.80% 115.55% Capital ratios: Average equity to average assets 13.75% 13.58% Equity to assets, end of period 13.55% 13.60% Tangible capital 8.23% 9.28% Core capital 8.23% 9.28% Risk-based capital 12.62% 14.84% Asset quality ratio: Nonperforming loans to total loans at end of period (7) 0.97% 0.76% Nonperforming assets to average assets (8) 0.80% 0.62% Nonperforming assets to total assets at end of period 0.80% 0.63% Allowance for loan losses as a percent of loans 1.04% 0.82% Allowance for loan losses as a percent of nonperforming loans (7) 105.78% 109.91% Office data: Number of full service banking offices 34 29 Number of loan production offices 4 4 Number of full service brokerage offices 11 10 Number of trust offices 2 2 Per share data: Basic earnings per share (9) 0.16 0.13 Diluted earnings per share (9) 0.16 0.13 Tangible book value (10) 6.74 6.63 Book value (11) 7.86 7.40 Market value as a multiple of book value (12) 1.11 1.00
(1) Ratios for the three month period are annualized where appropriate. (2) Net income divided by average total assets. (3) Net income divided by average total equity. (4) Difference between weighted average yield on interest-earning assets and weighted average cost of interest-bearing liabilities. (5) Net interest income as a percentage of average interest-earning assets. (6) Noninterest expense, excluding the amortization of core deposit intangible, divided by the sum of net interest income and noninterest income, excluding gains and losses on securities and other. (7) Nonperforming loans consist of nonaccrual loans and restructured loans. (8) Nonperforming assets consist of nonperforming loans and real estate acquired in settlement of loans. (9) Net income divided by average number of shares outstanding. (10) Equity minus goodwill and core deposit intangible, divided by number of shares outstanding. (11) Equity divided by number of shares outstanding. (12) Market value divided by book value. 7 FORWARD LOOKING STATEMENTS Certain statements contained in this report that are not historical facts are forward looking statements that are subject to certain risks and uncertainties. When used herein, the terms "anticipates," "plans," "expects," "believes," and similar expressions as they relate to United Community or its management are intended to identify such forward looking statements. United Community's actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, and rapidly changing technology affecting financial services. COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2003 AND DECEMBER 31, 2002 Total assets increased $3.7 million, or 0.2%, to $2.0 billion at March 31, 2003 compared to December 31, 2002. United Community had increases of $67.7 million in securities, $717,000 in net loans, and $1.4 million in other assets, which were partially offset by a $56.5 million decrease in cash and cash equivalents and a $9.3 million decline in loans held for sale. The asset growth was funded by an $18.3 million increase in borrowed funds, which was partially offset by a $13.0 million decrease in deposits. Net loans increased $717,000, or 0.05%, to $1.5 billion at March 31, 2003, compared to December 31, 2002. Construction loans increased $55.9 million, nonresidential and multifamily real estate loans increased $10.0 million, consumer loans increased $5.7 million, and commercial loans increased $348,000. These increases were substantially offset by a $79.7 million decline in one- to - -four-family real estate loans. The decline in one- to -four-family loans is due primarily to the repayment of loans as consumers take advantage of the current interest rate environment. Loans held for sale decreased $9.3 million, or 20.2%, to $36.6 million at March 31, 2003 compared to $45.8 million at December 31, 2002. During the first quarter of 2003, Home savings sold approximately $112.7 million in newly originated fixed-rate loans to help reduce interest rate risk. Home Savings will continue to sell loans as a part of its strategic plan to reduce interest rate risk. The allowance for loan losses increased to $15.6 million at March 31, 2003 from $15.1 million at December 31, 2002. Home Savings is expecting continued growth in the nonresidential real estate and commercial loan categories, which could increase the risk of loan losses. Nonresidential real estate lending and commercial lending are generally considered to involve a higher degree of risk than residential real estate lending due to the relatively larger loan amounts and the effects of general economic conditions on the successful operation of businesses and income-producing properties. Funds that are available for general corporate purposes, such as loan originations, enhanced customer services and possible acquisitions, are invested in overnight funds and marketable and mortgage-related securities available for sale. Cash and deposits with banks increased $3.2 million, or 9.7%, to $36.4 million at March 31, 2003 compared to $33.2 million at December 31, 2002. Federal funds sold and other overnight funds decreased $59.8 million, or 76.9%, to $18.0 million at March 31, 2003 from $77.8 million at December 31, 2002. Securities available for sale, which include both marketable and mortgage-related securities, increased $52.8 million, or 22.3%, since December 31, 2002. Trading securities, which consist of marketable securities, increased $14.9 million to $19.9 million at March 31, 2003. The net decrease in cash and deposits and overnight funds, along with the decrease in loans held for sale and an increase in other borrowed funds, was primarily used to fund increases in securities and the decrease in deposits. Nonperforming assets, which include nonaccrual and restructured loans and real estate owned, increased approximately $1.4 million, or 8.4%, to $17.8 million at March 31, 2003 from $16.5 million at December 31, 2002, primarily due to an increase in nonperforming consumer loans. Total nonaccrual and restructured loans accounted for 0.97% of net loans receivable at March 31, 2003 and 1.01% of net loans receivable at December 31, 2002. Total nonperforming assets were 0.80% of total assets as of March 31, 2003 and 0.83% as of December 31, 2002. Total deposits decreased $13.0 million from $1.48 billion at December 31, 2002 to $1.47 billion at March 31, 2003. The decrease consisted of a $28.1 million decline in checking accounts and a $26.5 million decrease in certificates of deposits, which was partially offset by a $41.6 million increase in savings accounts. Assuming the interest rate environment remains the same, United Community anticipates the deposit runoff to begin stabilizing as core deposit pricing reaches its low. Other borrowed funds increased $18.3 million to $228.3 million at March 31, 2003 compared to $210.0 million at December 31, 2002, primarily due to a $15.1 million repurchase agreement entered into by Butler Wick. As of March 31, 2003, $182.9 million of the other borrowed funds consisted of FHLB advances. The remaining funds consist of a revolving line of credit and other short-term borrowings. 8 Shareholders' equity decreased $4.4 million, or 1.6%, to $270.2 million at March 31, 2003 from $274.6 million at December 31, 2002. The decrease was primarily due to treasury stock purchases and quarterly dividends of $0.075 per share which were partially offset by earnings for the year. During the first quarter of 2003, United Community repurchased 882,585 shares of its stock. As United Community completes its first buy back program, it anticipates continued share repurchases through the newly approved buy back program. Tangible book value and book value per share were $6.74 and $7.85 as of March 31, 2003. COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND MARCH 31, 2002 NET INCOME. Net income for the three months ended March 31, 2003 was $5.0 million, or $0.16 per diluted share, compared to net income of $4.3 million, or $0.13 per diluted share, for the three months ended March 31, 2002. Net interest income increased $2.1 million and noninterest income increased $217,000, and were partially offset by a $1.4 million increase in noninterest expense. United Community's annualized return on average assets and return on average equity were 1.00% and 7.25%, respectively, for the three months ended March 31, 2003. The annualized return on average assets and return on average equity for the comparable period in 2002 were 0.87% and 6.42%, respectively. NET INTEREST INCOME. Net interest income increased $2.1 million, or 13.1%, for the three months ended March 31, 2003, compared to the first quarter of 2002. The increase is primarily due to a $3.1 million decrease in interest expense on deposits and a $582,000 decrease in interest expense on other borrowed funds as a result of the current interest rate environment and an $854,000 increase in interest earned on available for sale securities. These decreases were partially offset by decreases in interest income of $1.1 million on loans and $1.3 million on mortgage-related securities held to maturity. The interest rate spread for the three months ended March 31, 2003 was 3.59% compared to 3.01% for the quarter ended March 31, 2002. Assuming the interest rate environment remains steady, United Community anticipates some compression of the interest rate margin as core deposit pricing reaches its low and loans continue to prepay. PROVISION FOR LOAN LOSSES. A provision for loan losses is charged to operations to bring the total allowance for loan losses to a level considered by management to be adequate to provide for probable losses based on management's evaluation of such factors as the delinquency status of loans, current economic conditions, the fair value of the underlying collateral, changes in the composition of the loan portfolio and prior loan loss experience. Due to growth in the construction and consumer loan portfolios, an increase in nonperforming assets and current economic conditions, a $696,000 provision for loan losses was recorded for the first quarter of 2003. Home Savings anticipates additional growth in the loan portfolio which may have further impact on the loan loss provision in the future. Home Savings' allowance for loan losses totaled $15.6 million at March 31, 2003, which was 1.04% of total loans, compared to 0.82% at March 31, 2002. NONINTEREST INCOME. Noninterest income increased $217,000, or 2.8%, from $7.8 million for the three months ended March 31, 2002, to $8.0 million for the three months ended March 31, 2003. The primary reason for the increase is a $1.2 million increase in gains recognized on the sale of loans, which was partially offset by a $482,000 decrease in other income and a $207,000 decline in commission income. The decrease in other income was primarily due to the acquisition of stock through the demutualization of Anthem, Inc. in 2002, which Home Savings received since Anthem is the health care provider for its employees. NONINTEREST EXPENSE. Total noninterest expense increased $1.4 million, or 8.4%, to $18.2 million for the three months ended March 31, 2003, from $16.8 million for the three months ended March 31 2002. The increase is primarily due to a $1.2 million increase in salaries and employee benefits, a $525,000 increase in equipment and data processing, a $194,000 increase in advertising and a $156,000 increase in occupancy. The increase in salaries and employee benefits is primarily related to a $500,000 charge for postretirement benefits, as a result of increased health care costs, and salaries from the acquisition of Potters Financial Corp. (Potters). These increases were partially offset by decreases of $383,000 in other expenses and $249,000 in the amortization of the core deposit intangible related to the acquisitions of Potters and Industrial Bancorp. The decline in other expenses is primarily due to charges recognized in the first quarter of 2002 as a result of the early extinguishment of debt that did not reoccur in 2003. FEDERAL INCOME TAXES. The provision for federal income taxes increased $228,000 for the three months ended March 31, 2003, compared to the three months ended March 31, 2002 due to higher pre-tax income in 2003. The effective tax rates were 34.8% and 36.3% for the three months ended March 31, 2003 and 2002, respectively. 9 UNITED COMMUNITY FINANCIAL CORP. AVERAGE BALANCE SHEET The following table presents the total dollar amounts of interest income and interest expense on the indicated amounts of average interest-earning assets or interest-bearing liabilities together with the weighted average interest rates for the three months ended March 31, 2003 and March 31, 2002. Average balance calculations were based on daily balances.
THREE MONTHS ENDED MARCH 31, ----------------------------------------------------------------------------------- 2003 2002 ----------------------------------------------------------------------------------- AVERAGE INTEREST AVERAGE INTEREST OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/ BALANCE PAID RATE BALANCE PAID RATE ------------- ------------ ---------- ------------- ---------- --------- (DOLLARS IN THOUSANDS) Interest-earning assets: Net loans (1) $1,459,191 $ 25,914 7.10% $1,428,867 $ 26,974 7.55% Net loans held for sale 41,142 496 4.82% 15,852 114 2.88% Investment securities: Trading 11,848 72 2.43% 7,726 33 1.71% Available for sale 283,134 2,694 3.81% 153,825 1,840 4.78% Held to maturity 0 0 0.00% 76,342 1,267 6.64% Margin accounts 14,382 171 4.76% 20,440 220 4.31% FHLB stock 21,071 208 3.95% 18,767 208 4.43% Other interest-earning assets 58,427 186 1.27% 146,902 607 1.65% ------------- ------------ ---------- ------------- ---------- --------- Total interest-earning assets 1,889,195 29,741 6.30% 1,868,721 31,263 6.69% Noninterest-earning assets 108,699 83,909 ------------- ------------- Total assets $1,997,894 $1,952,630 ============= ============= Interest-bearing liabilities: NOW and money market accounts $ 309,972 $ 1,047 1.35% $ 262,795 $ 1,633 2.49% Savings accounts 334,298 865 1.04% 260,936 1,345 2.06% Certificates of deposit 805,590 7,117 3.53% 839,288 9,130 4.35% Other borrowed funds 210,250 2,203 4.19% 254,272 2,785 4.38% ------------- ------------ ---------- ------------- ---------- --------- Total interest-bearing liabilities 1,660,110 11,232 2.71% 1,617,291 14,893 3.68% ------------ ---------- ---------- --------- Noninterest-bearing liabilities 63,073 70,254 ------------- ------------- Total liabilities 1,723,183 1,687,545 Equity 274,711 265,085 ------------- ------------- Total liabilities and equity $1,997,894 $1,952,630 ============= ============= Net interest income and Interest rate spread $ 18,509 3.59% $ 16,370 3.01% ============ ========== ========== ========= Net interest margin 3.92% 3.50% ========== ========= Average interest-earning assets to average interest-bearing liabilities 113.80% 115.55% ========== =========
- ------------- (1) Nonaccrual loans are included in the average balance. 10 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK A comprehensive qualitative and quantitative analysis regarding Home Savings' market risk was disclosed in United Community's 2002 Annual Report under the caption "Asset and Liability Management and Market Risk." No material change in the methodology or results has occurred. ITEM 4. CONTROLS AND PROCEDURES Within the 90-day period prior to the filing of this report, an evaluation was carried out by United Community's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-14(c)/15d-14(c) of the Securities Exchange Act of 1934). Based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that United Community's disclosure controls and procedures are effective. Subsequent to the date of their evaluation, there were no significant changes in United Community's internal controls or in other factors that could significantly affect these controls. 11 PART II. OTHER INFORMATION UNITED COMMUNITY FINANCIAL CORP. ITEMS 1, 2, 3, 4 AND 5 - NOT APPLICABLE ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits Exhibit Number Description ------- ----------------------------- 3.1 Articles of Incorporation 3.2 Amended Code of Regulations 99.1 Certification of Financial Statements by Chief Executive Officer 99.2 Certification of Financial Statements by Chief Financial Officer b. Reports on Form 8-K On January 29, 2003, United Community filed an 8-K under Item 5, Other Events, disclosing operating results for the quarter ended December 31, 2002. 12 UNITED COMMUNITY FINANCIAL CORP. 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. Date: May 14, 2003 /s/ Douglas M. McKay --------------------------------------------- Douglas M. McKay, Chief Executive Officer Date: May 14, 2003 /s/ Patrick A. Kelly --------------------------------------------- Patrick A. Kelly, Chief Financial Officer 13 UNITED COMMUNITY FINANCIAL CORP. CERTIFICATION I, Douglas M. McKay, certify that: 1) I have reviewed this quarterly report on Form 10-Q of United Community Financial Corp. 2) Based on my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period by this quarterly report; 3) Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the quarterly report; 4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6) The registrant's other certifying officers and I have indicated in the quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Douglas M. McKay - -------------------- Douglas M. McKay Chief Executive Officer May 14, 2003 14 UNITED COMMUNITY FINANCIAL CORP. CERTIFICATION I, Patrick A. Kelly, certify that: 1) I have reviewed this quarterly report on Form 10-Q of United Community Financial Corp. 2) Based on my knowledge, this quarterly report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period by this quarterly report; 3) Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the quarterly report; 4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6) The registrant's other certifying officers and I have indicated in the quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Patrick A. Kelly - --------------------------- Patrick A. Kelly Chief Financial Officer May 14, 2003 15 UNITED COMMUNITY FINANCIAL CORP. EXHIBIT 3.1 Incorporated by reference to the Registration Statement on Form S-1 filed by United Community on March 13, 1998 with the Securities and Exchange Commission (SEC), Exhibit 3.1. EXHIBIT 3.2 Incorporated by reference to the 1998 Form 10-K filed by United Community on March 31, 1999 with the SEC, Exhibit 3.2. 16 EX-99.1 3 l00437aexv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 UNITED COMMUNITY FINANCIAL CORP. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of United Community Financial Corp. (the "Company") on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Douglas M. McKay, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Douglas M. McKay - -------------------- Douglas M. McKay Chief Executive Officer May 14, 2003 A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. 17 EX-99.2 4 l00437aexv99w2.txt EXHIBIT 99.2 EXHIBIT 99.2 UNITED COMMUNITY FINANCIAL CORP. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of United Community Financial Corp. (the "Company") on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Patrick A. Kelly, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Patrick A. Kelly - --------------------------- Patrick A. Kelly Chief Financial Officer May 14, 2003 A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. 18 -----END PRIVACY-ENHANCED MESSAGE-----