-----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, ULUpCStmutuoXqS5ZEF4/FIGVvnqRtsqhPnpgGazSapZbwADe7R8SobgDkTTVkLG S5ykBu5d50YO/oARvWlNGQ== 0001047469-99-031916.txt : 19990816 0001047469-99-031916.hdr.sgml : 19990816 ACCESSION NUMBER: 0001047469-99-031916 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: SEC FILE NUMBER: 000-24399 FILM NUMBER: 99688814 BUSINESS ADDRESS: STREET 1: 275 FEDERAL PLAZA WEST CITY: YOUNGSTOWN STATE: OH ZIP: 44503-1203 BUSINESS PHONE: 3307420500 10-Q 1 10-Q 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 June 30, 1999 [ ] 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) Not Applicable -------------- (Former name, former address and former fiscal year, if change since last report) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 32,235,733 common shares as of July 31, 1999 TABLE OF CONTENTS
PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Statements of Financial Condition as of June 30, 1999 and December 31,1998................................ 1 Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 1999 and 1998....................... 2 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998............................... 3 Notes to Consolidated Financial Statements ....................... 4 - 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 6 - 12 Item 3. Quantitative and Qualitative Disclosure About Market Risk......... 12 PART II. OTHER INFORMATION...................................................... 13 Signatures...................................................................... 14 EXHIBITS........................................................................ 15 - 16
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS UNITED COMMUNITY FINANCIAL CORP. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
June 30, December 31, 1999 1998 ------------------ --------------- (In thousands) ASSETS Cash and deposits with banks $ 13,952 $ 16,733 Federal funds sold and other 48,542 153,775 ------------------ --------------- Total cash and cash equivalents 62,494 170,508 ------------------ --------------- Investment securities: Available for sale (amortized cost of $206,241 and $110,294, respectively) 205,469 110,888 Held to maturity (fair value of $0 and $5,016, respectively) - 4,993 Mortgage-backed securities: Available for sale (amortized cost of $127,592 and $98,357, respectively) 126,501 98,890 Held to maturity (fair value of $155,838 and $187,010, respectively) 155,112 182,999 Loans, net (including allowance for loan losses of $6,446 and $6,398, respectively) 687,474 657,498 Federal Home Loan Bank stock 12,376 11,958 Premises and equipment 7,517 7,523 Accrued interest receivable 8,784 7,259 Real estate owned 152 78 Other assets 7,515 4,711 ------------------ --------------- TOTAL ASSETS $ 1,273,394 $1,257,305 ================== =============== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Deposits $ 781,927 $ 777,583 FHLB Advances 5,000 - Advance payments by borrowers for taxes and insurance 3,756 3,954 Accrued interest payable 805 672 Accrued expenses and other liabilities 13,353 10,451 ------------------ --------------- TOTAL LIABILITIES 804,841 792,660 ------------------ --------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred stock-no par value; 1,000,000 shares authorized and unissued - - Common stock-no par value; 499,000,000 shares authorized; 34,715,625 shares issued; and 32,220,552 outstanding at June 30, 1999 342,998 342,840 Retained earnings 151,717 146,934 Other comprehensive income (1,211) 733 Unearned compensation (24,951) (25,862) ------------------ --------------- TOTAL SHAREHOLDERS' EQUITY 468,553 464,645 ------------------ --------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,273,394 $1,257,305 ================== ===============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 1 UNITED COMMUNITY FINANCIAL CORP. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended June 30, June 30, ---------------------------------- -------------------------------- 1999 1998 1999 1998 ----------------- -------------- --------------- ------------- (In thousands) (In thousands) INTEREST INCOME Loans $ 13,503 $ 13,232 $ 26,757 $26,305 Mortgage-backed securities: Available for sale 1,699 952 3,151 1,994 Held to maturity 2,813 4,048 5,863 8,359 Investment securities: Available for sale 2,231 974 3,907 1,722 Held to maturity - 79 78 158 FHLB stock dividend 213 205 418 404 Other interest-earning assets 1,357 1,527 3,241 1,753 ----------------- -------------- --------------- ------------- Total interest income 21,816 21,017 43,415 40,695 INTEREST EXPENSE Interest expense on deposits 7,488 9,960 14,995 19,516 Interest expense on FHLB advance 3 - 3 - ----------------- -------------- --------------- ------------- Total interest expense 7,491 9,960 14,998 19,516 ----------------- -------------- --------------- ------------- NET INTEREST INCOME 14,325 11,057 28,417 21,179 PROVISION FOR LOAN LOSS ALLOWANCES 25 150 100 400 ----------------- -------------- --------------- ------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS ALLOWANCES 14,300 10,907 28,317 20,779 ----------------- -------------- --------------- ------------- NONINTEREST INCOME Service fees and other charges 337 300 610 580 Net gains (losses): Mortgage-backed securities 40 240 40 253 Other (10) (6) (9) (58) Other income 137 150 253 287 ----------------- -------------- --------------- ------------- Total noninterest income 504 684 894 1,062 ----------------- -------------- --------------- ------------- NONINTEREST EXPENSES Salaries and employee benefits 4,255 3,564 8,440 7,145 Occupancy 337 328 639 641 Equipment and data processing 662 689 1,308 1,292 Deposit insurance premiums 114 137 231 276 Franchise tax 474 479 936 958 Advertising 328 354 603 609 Other expenses 943 712 2,070 1,437 ----------------- -------------- --------------- ------------- Total noninterest expenses 7,113 6,263 14,227 12,358 ----------------- -------------- --------------- ------------- INCOME BEFORE INCOME TAXES 7,691 5,328 14,984 9,483 INCOME TAXES 2,800 1,866 5,382 3,320 ----------------- -------------- --------------- ------------- NET INCOME $ 4,891 $ 3,462 $ 9,602 $6,163 ================= ============== =============== ============= EARINGS PER SHARE: Basic $ 0.15 N/A $ 0.30 N/A Diluted $ 0.15 N/A $ 0.30 N/A Average common shares outstanding 32,198,030 N/A 32,175,385 N/A
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 2 UNITED COMMUNITY FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, --------------------------------------- 1999 1998 ---------------- ---------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 9,602 $ 6,163 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan loss allowances 100 400 Net (gains) losses (31) (195) Accretion of discounts and amortization of premiums (309) (763) Depreciation 485 530 FHLB stock dividends (418) (404) Increase in interest receivable (1,525) (726) Increase in interest payable 132 706 Increase in postretirement benefit obligation 166 176 Increase in prepaid and other assets (2,804) (1,818) Increase (decrease) in other liabilities 3,783 (139) Change in unearned compensation 1,069 - ---------------- ---------------- Net cash provided by operating activities 10,250 3,930 ---------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from principal repayments and maturities of: Mortgage-backed securities held to maturity 28,018 31,644 Mortgage-backed securities available for sale 16,178 7,303 Investment securities held to maturity 5,000 Investment securities available for sale 5,000 2,787 Proceeds from sale of: Mortgage-backed securities available for sale 4,951 13,145 Mortgage-backed securities held to maturity - 2,764 Purchases of: Investment securities available for sale (99,634) (30,489) Equity securities available for sale (1,559) Mortgage-backed securities available for sale (50,532) (11,959) Mortgage-backed securities held to maturity (8,047) Principal collected on loans 90,671 90,717 Loans originated (120,285) (103,492) Loans acquired - (11) Proceeds from disposal of real estate owned 81 71 Purchases of premises and equipment (480) (361) ---------------- ---------------- Net cash used in investing activities (122,591) (5,928) ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in Now, Savings and Money Market Accounts 15,899 675,538 Net decrease in Certificates of Deposit (11,555) (34,453) Net decrease in advance payments by borrowers for taxes and insurance (198) (252) Net increase in Short-term Borrowings 5,000 - Dividends paid (4,819) - ---------------- ---------------- Net cash provided by financing activities 4,327 640,833 ---------------- ---------------- (Decrease) increase in cash and cash equivalents (108,014) 638,835 Cash and cash equivalents, beginning of year 170,508 34,497 ---------------- ---------------- Cash and cash equivalents, end of period $ 62,494 $ 673,332 ================ ================ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest on deposits and borrowings $ 14,865 $ 18,810 Income taxes 4,572 3,200 Supplemental schedule of noncash activities: Transfers from loans to real estate owned 156 105
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 3 UNITED COMMUNITY FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION United Community Financial Corp. was incorporated under Ohio law in February 1998 by The Home Savings & Loan Company of Youngstown, Ohio 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, the issuance of Home Savings' stock to United Community and the offer and sale of United Community's common stock. Upon consummation of the conversion on July 8, 1998, United Community became the unitary savings and loan holding company for Home Savings. See Note 2 for a more detailed description of the Conversion. 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. The results of operations for the six months ended June 30, 1999 are not necessarily indicative of the results to be expected for the year ending December 31, 1999. 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, 1998, contained in United Community's Form 10-K for the year ended December 31, 1998. 2. CONVERSION TO CAPITAL STOCK FORM OF OWNERSHIP On December 9, 1997, the Board of Directors of Home Savings adopted a Plan of Conversion to convert from an Ohio mutual savings and loan association to an Ohio capital stock savings and loan association. The Conversion was accomplished through the formation of United Community in February, 1998, the adoption of an Ohio stock charter, the sale of all of Home Savings' stock to United Community on July 8, 1998 and the issuance of United Community's stock on July 8, 1998. United Community issued 34,715,625 shares in connection with the Conversion. Gross proceeds from the offering were $347,156,250, which includes the $10 value of the 2,677,250 shares issued to the United Community Financial Corp. Employee Stock Ownership Plan and 1,183,438 shares sold to Home Savings for transfer to the Home Savings Charitable Foundation. Conversion costs amounted to $4.6 million. Home Savings issued all its outstanding capital stock to United Community in exchange for approximately one-half of the net proceeds from the Conversion. United Community accounted for the purchase in a manner similar to a pooling of interests whereby assets and liabilities of Home Savings maintain their historical cost basis in the consolidated company. 3. EARNINGS PER COMMON SHARE Earnings per share has been computed for the three months and six months ended June 30, 1999, based upon weighted average common shares outstanding of 32,198,030 and 32,175,385, respectively. Earnings per share for all prior periods are not presented as there was no common stock issued or outstanding. 4 4. COMPREHENSIVE INCOME United Community's comprehensive income for the three and six months ended June 30, 1999 and 1998 are as follows:
Three Months Ended June 30, ------------------------------------------------- 1999 1998 -------------------- --------------------- (In thousands) Net income $4,891 $3,462 Unrealized holding (losses) gains arising during the period, net of tax effect of ($808) and ($44), respectively (1,474) (82) Reclassification adjustment for gains included in net income, net of tax effect of ($14) and ($23), respectively (26) (42) -------------------- --------------------- Comprehensive income $3,391 $3,338 ==================== =====================
Six Months Ended June 30, ------------------------------------------------- 1999 1998 -------------------- --------------------- (In thousands) Net income $9,602 $6,163 Unrealized holding (losses) gains arising during the period, net of tax effect of ($1,047) and ($10), respectively (1,918) (18) Reclassification adjustment for gains included in net income, net of tax effect of ($14) and ($23), respectively (26) (42) -------------------- --------------------- Comprehensive income $7,658 $6,103 ==================== =====================
5. SALE OF HELD TO MATURITY MORTGAGE-BACKED SECURITIES There were no sales of mortgage-backed securities held to maturity during the six month period ended June 30, 1999. In January 1998, Home Savings sold approximately $114,000 of mortgage-backed securities held to maturity with outstanding balances less than 15% of the principal outstanding since acquisition. A gain of approximately $6,000 was recorded on the sale. In April 1998, Home Savings sold approximately $2.6 million of mortgage-backed securities held to maturity with outstanding balances less than 15% of the principal outstanding at acquisition. A gain of approximately $100,000 was recorded on the sale. 6. SUBSEQUENT EVENT As previously announced, United Community has entered into a merger agreement with Butler Wick Corp., whereby Butler Wick will become a wholly-owned subsidiary of United Community. The shareholders of Butler Wick approved the merger at a special meeting of shareholders held on July 14, 1999. The parties anticipate that the merger, which is structured as a pooling of interests, will be completed on or about August 13, 1999. In connection with the merger, United Community will issue up to 1.7 million common shares in exchange for all of the outstanding Butler Wick shares. Butler Wick Corp., an Ohio corporation, 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, 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 ten offices throughout northeastern Ohio and western Pennsylvania. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS UNITED COMMUNITY FINANCIAL CORP.
At or For the Three At or For the Six Months Ended Months Ended June 30, June 30, ----------------------------- ----------------------------- SELECTED FINANCIAL RATIOS AND OTHER DATA: (1) 1999 1998 1999 1998 -------------- ------------ -------------- ------------ Performance ratios: Return on average assets (2) 1.54% 1.20% 1.52% 1.12% Return on average equity (3) 4.17% 9.55% 4.11% 8.57% Interest rate spread (4) 3.19% 3.53% 3.16% 3.46% Net interest margin (5) 4.63% 3.98% 4.61% 3.97% Noninterest expense to average assets 2.24% 2.17% 2.25% 2.25% Efficiency ratio (6) 47.97% 53.34% 48.54% 55.56% Average interest-earning assets to average interest- bearing liabilities 159.67% 112.59% 159.72% 113.96% Capital ratios: Average equity to average assets 36.93% 12.59% 36.94% 13.07% Equity to assets, end of period 36.80% 8.71% 36.80% 8.71% Tangible capital 27.00% 8.67% 27.00% 8.67% Core capital 27.00% 8.67% 27.00% 8.67% Risk-based capital 50.42% 21.91% 50.42% 21.91% Asset quality ratio: Nonperforming loans to total loans at end of period (7) 0.80% 1.32% 0.80% 1.32% Nonperforming assets to average assets (8) 0.45% 0.74% 0.45% 0.75% Nonperforming assets to total assets at end of period 0.45% 0.51% 0.45% 0.51% Allowance for loan losses as a percent of loans 0.93% 0.95% 0.93% 0.95% Allowance for loan losses as a percent of nonperforming loans (7) 116.84% 72.31% 116.84% 72.31% Number of full service offices 14 14 14 14 Per share data: Basic earnings per share (9) 0.15 N/A 0.30 N/A Diluted earnings per share (9) 0.15 N/A 0.30 N/A Book value (10) 14.54 N/A 14.54 N/A
- ------------------------------------------------------ (1) Ratios for the three and six month periods 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 divided by the sum of net interest income and noninterest income. (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 divided by number of shares outstanding. 6 COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1999 AND DECEMBER 31, 1998 Total assets increased $16.1 million from $1.26 billion at December 31, 1998 to $1.27 billion at June 30, 1999. The primary reason for the increase in total assets was a result of an increase in net loans of $30.0 million and an increase in investment securities of $89.6 million. These increases were partially offset by a decrease in cash and cash equivalents of $108.0 million. Funds from cash and cash equivalents were invested in short-term securities that were designated as available for sale. This enables United Community to take advantage of the current interest rate environment by investing in higher yielding securities while providing a great deal of liquidity and flexibility. Net loans increased $30.0 million, or 4.6%, to $687.5 million at June 30, 1999 compared to $657.5 million at December 31, 1998. The most significant increases were commercial loans, which increased $24.2 million, and loans secured by one-to four-family residences, which increased $12.7 million. Funds that are not currently needed for general corporate purposes, such as loan originations, enhanced customer services and possible acquisitions are invested at this time in overnight funds, investment securities and mortgage backed securities. Overnight funds decreased $105.3 million, or 68.4%, to $48.5 million at June 30, 1999 from $153.8 million at December 31, 1998. Securities available for sale, which include investment securities and mortgage-backed securities, increased $122.2 million, or 58.2%, since December 31, 1998. Securities held to maturity, which consist of mortgage backed securities, decreased $32.9 million, or 17.5%, since December 31, 1998. Securities available for sale, in conjunction with overnight funds, enable United Community to fully employ excess funds while providing a great deal of liquidity and flexibility as United Community pursues other investment opportunities. Nonaccrual and restructured loans decreased approximately $1.9 million to $3.8 million at June 30, 1999 from $5.7 million at December 31, 1998. The decrease in nonaccrual and restructured loans is primarily due to decreases in the one-to-four family and the commercial loan categories of nonaccrual or restructured loans. These decreases are due to customers paying loans off combined with fewer new loans being categorized as nonaccrual or restructured. At June 30, 1999, total nonaccrual and restructured loans accounted for 0.80% of net loans receivable, compared to 1.15% at December 31, 1998. Total nonperforming assets were 0.45% of total assets as of June 30, 1999, a decrease of 0.16% from 0.61% as of December 31, 1998. Total deposits increased $4.3 million from December 31, 1998. Checking accounts increased by $16.1 million to $137.1 million at June 30, 1999 compared to $121.0 million at December 31, 1998, due to a new market rate account that provides for the interest rate to be tiered to the dollar amount maintained in the account. This increase was partially offset by a $11.6 million decrease in certificates of deposits from $431.8 million at December 31, 1998 to $420.2 million at June 30, 1999. Shareholders' equity increased $4.0 million to $468.6 million at June 30, 1999 from $464.6 million at December 31, 1998, primarily due to year to date earnings which were partially offset by the quarterly dividends of $0.075 per share paid in March and June 1999. Book value per share was $14.54 as of June 30, 1999. COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998 NET INCOME. Net Income for the three months ended June 30, 1999 was $4.9 million, or $0.15 per common share. Net income for the comparable period in 1998 was $3.5 million. The increase of $1.4 million, or 41.3%, for the three months ended June 30, 1999, compared to the same period in 1998, was primarily due to an increase in net interest income. United Community's annualized return on average assets and return on average equity were 1.54% and 4.17%, respectively, for the three months ended June 30, 1999. The annualized return on average assets and return on average equity for the comparable period in 1998 were 1.20% and 9.55%, respectively. NET INTEREST INCOME. Net interest income increased $3.3 million, or 29.6%, for the second quarter of 1999 compared to the second quarter of 1998. Two factors contributed to this increase in net interest income. The first was an increase in interest-earning assets for the three months ended June 30, 1999, compared to the three months ended June 30 1998, due to the stock conversion. The second was a decrease in interest-bearing liabilities, which resulted from the withdrawal of deposits to purchase United Community shares, combined with a reduction in interest rates of the interest-bearing liabilities as a result of the interest rate environment for the second quarter of 1999 compared to the second quarter of 1998. These increases were partially offset by a reduction in interest rates of interest-earning assets. PROVISION FOR LOAN LOSSES. Provisions for loan losses are charged to operations to bring the total allowance for loan losses to a level considered by management to be adequate to provide for estimated losses based on management's evaluation of such factors as the delinquency status of loans, current economic conditions, the net realizable value of the underlying collateral, changes in the 7 composition of the loan portfolio and prior loan loss experience. The provision for loan loss allowances was $25,000 for the second quarter of 1999 as a result of continuing growth of the loan portfolio, compared to the second quarter of 1998 provision of $150,000. The decrease in the provision is attributable to a decrease in nonperforming loans and delinquency rates and an improvement in the local economy. Home Savings' allowance for loan losses totaled $6.4 million at June 30, 1999, which was 0.93% of total loans. NONINTEREST INCOME. Noninterest income decreased $180,000, or 26.3%, to $504,000 at June 30, 1999 compared to $684,000 at June 30, 1998, primarily due to a $200,000 decrease in the gain on sale of mortgage-backed securities. NONINTEREST EXPENSE. Total noninterest expense increased $850,000, or 13.6%, to $7.1 million for the three months ended June 30, 1999 from $6.3 million for the three months ended June 30, 1998. The primary reason for the increase is employee compensation expense for the ESOP of approximately $574,000. FEDERAL INCOME TAXES. The provision for federal income taxes increased $934,000, or 50.1% for the three months ended June 30, 1999, compared to the three months ended June 30, 1998, primarily due to the higher pre-tax income for the second quarter of 1999 compared to the second quarter of 1998. COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998 NET INCOME. Net Income for the six months ended June 30, 1999, was $9.6 million, compared to $6.2 million for the six months ended June 30, 1998. The increase of 55.8%, or $3.4 million, was primarily due to an increase in interest-earning assets and a decrease in interest-bearing liabilities which were offset by an increase in noninterest expense. United Community's annualized return on average assets and return on average equity were 1.52% and 4.11%, respectively, for the six months ended June 30, 1999. The annualized return on average assets and return on average equity for the comparable period in 1998 were 1.12% and 8.57%, respectively. NET INTEREST INCOME. Net interest income increased $7.2 million, or 34.2%, to $28.4 million for the six months ended June 30, 1999 from $21.2 million for the comparable period in 1998. The increase is attributable to a $2.7 million increase in total interest income and a $4.5 million decline in interest expense. The increase in interest income was due to an increase in interest-earning assets as the average balance of interest-earning assets was $166.5 million higher for the six months ended June 30, 1999 compared to 1998, due to the stock conversion. The decrease in interest expense was due to a decrease in interest-bearing liabilities combined with a reduction in interest rates on the interest-bearing liabilities as a result of the interest rate environment for the first half of 1999 compared to the same period in 1998. The average balance of interest-bearing liabilities was $163.9 million lower for the six months ended June 30, 1999 compared to the first six months of 1998. This decrease was due to the withdrawal of deposits to purchase United Community shares of stock. These increases were partially offset by a reduction in interest rates of interest-earning assets. PROVISION FOR LOAN LOSSES. The provision for loan losses was $100,000 for the six months ended June 30, 1999, as a result of continuing growth of the loan portfolio, compared to a provision of $400,000 for the six months ended June 30, 1998. The decrease in the provision was due to the same factors previously mentioned. NONINTEREST INCOME. Noninterest income decreased $168,000, or 15.8%, to $894,000 for the six months ended June 30, 1999, from $1.1 million for the six months ended June 30, 1999. The decrease was primarily due to a decrease in the gains from the sale of mortgage-backed securities from $253,000 for the six months ended June 30, 1998 to $40,000 for the six months ended June 30, 1999. This decrease was partially offset by a decrease in other losses for the six months ended June 30, 1999 compared to the same period in 1998 due to a $52,000 loss recognized in 1998 on the sale of real estate owned. NONINTEREST EXPENSE. Total noninterest expense increased $1.9 million, or 15.1%, to $14.2 million for the six months ended June 30, 1999 from $12.4 million for the six months ended June 30, 1998. The primary reason for the increase was employee compensation expense for the ESOP of approximately $1.15 million. FEDERAL INCOME TAXES. The provision for federal income taxes increased $2.1 million, or 62.1%, for the six months ended June 30, 1999 compared to the six months ended June 30, 1998, primarily due to the higher pre-tax income for the six months ended June 30, 1999 compared to the same period in 1998. 8 UNITED COMMUNITY FINANCIAL CORP. AVERAGE BALANCE SHEETS 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 month periods ended June 30, 1999 and 1998. Average balance calculations were based on daily balances.
Three Months Ended June 30, ------------------------------------------------------------------------------- 1999 1998 --------------------------------------- ----------------------------------- Average Interest Average Interest outstanding earned/ Yield/ Outstanding earned/ Yield/ balance Paid rate balance paid rate ------------- ----------- ----------- ------------ ---------- -------- (In thousands) Interest-earning assets: Net loans (1) $ 677,037 $ 13,503 7.98 % $ 638,739 $ 13,232 8.29 % Mortgage-backed securities: Available for sale 111,347 1,699 6.10 56,799 952 6.70 Held to maturity 161,476 2,813 6.97 228,603 4,048 7.08 Investment securities: Available for sale 159,358 2,231 5.60 64,135 974 6.07 Held to maturity - - - 4,977 79 6.35 Other interest-earning assets 127,127 1,570 4.94 117,868 1,732 5.88 ------------- ----------- -------- ------------ ---------- -------- Total interest-earning assets 1,236,345 21,816 7.06 1,111,121 21,017 7.57 Noninterest-earning assets 32,671 41,085 ------------- ------------ Total assets $1,269,016 $1,152,206 ============= ============ Interest-bearing liabilities: Checking and demand accounts $ 126,194 764 2.42 $138,314 747 2.16 Savings accounts 224,277 1,384 2.47 342,801 2,240 2.61 Certificates of deposit 423,562 5,340 5.04 505,789 6,973 5.51 FHLB Advances 275 3 4.36 - - - ------------- ----------- -------- ------------ ---------- -------- Total interest-bearing liabilities 774,308 7,491 3.87 986,904 9,960 4.04 ----------- -------- ---------- -------- Noninterest-bearing liabilities 26,091 20,249 ------------- ------------ Total liabilities 800,399 1,007,153 Equity 468,617 145,053 ------------- ------------ Total liabilities and equity $1,269,016 $1,152,206 ============= ============ Net interest income and interest rate spread $ 14,325 3.19 % $11,057 3.53 % =========== ========= ========== ========= Net interest margin 4.63 % 3.98 % ========= ========= Average interest-earning assets to Average interest-bearing liabilities 159.67 % 112.59 % ========= =========
- ---------------------------------- (1) Nonaccrual loans are included in the average balance. 9 UNITED COMMUNITY FINANCIAL CORP. AVERAGE BALANCE SHEETS 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 six month periods ended June 30, 1999 and 1998. Average balance calculations were based on daily balances.
Six Months Ended June 30, ---------------------------------------------------------------------------------- 1999 1998 --------------------------------------- -------------------------------------- Average Interest Average Interest outstanding earned/ Yield/ Outstanding earned/ Yield/ balance Paid rate balance paid rate ------------- ----------- ----------- ------------ ---------- ----------- (In thousands) Interest-earning assets: Net loans (1) $ 670,683 $ 26,757 7.98 % $ 635,932 $ 26,305 8.27 % Mortgage-backed securities: Available for sale 103,481 3,151 6.09 59,037 1,994 6.76 Held to maturity 168,270 5,863 6.97 236,766 8,359 7.06 Investment securities: Available for sale 138,893 3,907 5.63 56,998 1,722 6.04 Held to maturity 2,456 78 6.35 4,935 158 6.40 Other interest-earning assets 149,413 3,659 4.90 73,017 2,157 5.91 ------------- ----------- -------- ------------ ---------- -------- Total interest-earning assets 1,233,196 43,415 7.04 1,066,685 40,695 7.63 Noninterest-earning assets 32,101 33,306 ------------- ------------ Total assets $1,265,297 $1,099,991 ============= ============ Interest-bearing liabilities: Checking and demand accounts $ 120,686 1,413 2.34 $129,064 1,413 2.19 Savings accounts 224,850 2,760 2.45 294,059 3,879 2.64 Certificates of deposit 426,428 10,822 5.08 512,914 14,224 5.55 FHLB Advances 138 3 4.35 - - - ------------- ----------- -------- ------------ ---------- -------- Total interest-bearing liabilities 772,102 14,998 3.88 936,037 19,516 4.17 ----------- -------- ---------- -------- Noninterest-bearing liabilities 25,837 20,201 ------------- ------------ Total liabilities 797,939 956,238 Equity 467,358 143,753 ------------- ------------ Total liabilities and equity $1,265,297 $1,099,991 ============= ============ Net interest income and interest rate spread $ 28,417 3.16 % $21,179 3.46 % =========== =========== ========== =========== Net interest margin 4.61 % 3.97 % =========== =========== Average interest-earning assets to Average interest-bearing liabilities 159.72 % 113.96 % =========== ===========
- ---------------------------------- (1) Nonaccrual loans are included in the average balance. 10 UNITED COMMUNITY FINANCIAL CORP. RATE/VOLUME ANALYSIS The table below describes the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected United Community's interest income and interest expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (change in volume multiplied by prior rate), (ii) changes in rate (change in rate multiplied by prior period volume) and (iii) total changes in rate and volume. The combined effects of changes in both volume and rate, which cannot be separately identified, have been allocated in proportion to the changes due to volume and rate:
For the Three Months Ended For the Six Months Ended June 30, June 30, 1999 vs. 1998 1999 vs. 1998 ---------------------------------------- ---------------------------------------- Increase Increase (decrease) due to Total (decrease) due to Total -------------------------- increase ------------------------- increase Rate Volume (decrease) Rate Volume (decrease) ------------- ----------- ------------ ------------ ----------- ------------ (In thousands) (In thousands) Interest-earning assets: Loans $ (444) $ 715 $ 271 $ (840) $1,292 $ 452 Mortgage-backed securities: Available for sale (77) 824 747 (174) 1,331 1,157 Held to maturity (65) (1,170) (1,235) (108) (2,388) (2,496) Investment securities: Available for sale (70) 1,327 1,257 (110) 2,295 2,185 Held to maturity (40) (39) (79) (1) (79) (80) Other interest-earning assets (319) 157 (162) (293) 1,795 1,502 ------------ ------------ ------------ ----------- ------------ ------------ Total interest-earning assets $(1,015) $1,814 799 $(1,526) $4,246 2,720 ============ ============ ------------ =========== ============ ------------ Interest-bearing liabilities: Savings accounts (119) (737) (856) (255) (864) (1,119) Checking accounts 62 (45) 17 - - - Certificates of deposit (563) (1,070) (1,633) (1,139) (2,263) (3,402) FHLB Advances 3 3 3 3 ------------ ------------ ------------ ----------- ------------ ------------ Total interest-bearing liabilities $ (620) $ (1,849) (2,469) $(1,394) $ (3,124) (4,518) ============ ============ ------------ =========== ============ ------------ Change in net interest income $3,268 $7,238 ============ ============
11 YEAR 2000 The approach of the year 2000 (Y2K) has raised concerns about transition into the new century. These concerns center on the capability of computers, computer software programs or computer chips to recognize the century date change. Without remediation, the possibility exists that some computer systems may misinterpret the year "00," expressed in two digits, as 1900 instead of 2000. Such a scenario could expose United Community to business risks resulting from the interruption or shutdown of normal business operations. To prepare for this transition, United Community initiated a Y2K project plan. In completing this plan, United Community identified potential operational and business risks, assessed systems and equipment, performed and tested all renovations, and implemented Y2K-ready systems. Systems essential to interaction and service with our customers were identified as "mission critical." Most important among those, United Community's core transaction processing system, was made Y2K ready in September 1998. During the second quarter of 1999, software applications developed internally and by third parties underwent renovation and successful Y2K performance testing. Computer hardware was evaluated for Y2K performance, and installation of targeted replacements were completed. Together, these components form a compatible, Y2K ready information environment throughout United Community. A contingency plan has been developed in the event that "mission critical" systems are affected by Y2K failures outside of United Community's control. Various "worst case" scenarios have been analyzed; for example, wide spread or prolonged utility and communication outages could result in local disaster officials declaring an emergency and imposing business closures. A more likely scenario would be the occurrence of isolated or intermittent disruptions. For such scenarios, the contingency plan prescribes alternative methods for continued delivery of products and services to our customers. These provisions include controlling cash reserves, manually recording customer account transactions, implementing back-up voice and data communications, reacting to utility interruptions, processing checks externally, ensuring adequate or increased security levels, and maintaining other necessary daily operations. United Community plans to complete development and testing of contingency plans by September 30, 1999. As of December 31, 1998, United Community incurred costs of approximately $204,000 in preparation for Y2K. For 1999, additional costs are currently estimated to be $214,000, exclusive of internal employee salaries which are not allocated or separately tracked for this project. External costs include upgrading software and hardware, communicating with customers and increasing security. United Community does not expect to incur significant external costs for temporary employees or consulting services to accomplish its Y2K transition. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK A comprehensive qualitative and quantitative analysis regarding Home Savings' market risk was disclosed in United Community's 1998 Annual report under the caption "Asset and Liability Management and Market Risk". No material changes in the methodology or results in the interest rate sensitivity have occurred. 12 PART II. OTHER INFORMATION UNITED COMMUNITY FINANCIAL CORP. ITEMS 1, 2, 3 AND 5 - NOT APPLICABLE ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On April 29,1999, United Community held its Annual Meeting of Shareholders. In connection therewith, two matters were submitted to shareholders for a vote. First, shareholders elected five directors by the following votes:
Director For Withhold -------- --- -------- Richard M. Barrett 24,804,580 974,826 Donald J. Varner 24,359,975 1,419,431 Douglas M. McKay 24,830,970 948,436 Herbert F. Schuler, Sr. 24,927,817 851,589 John F. Zimmerman, Jr 24,906,718 872,688
The shareholders also ratified the selection of Deloitte & Touche LLP, certified public accountants, auditors for the 1999 fiscal year by the following vote:
For Against Abstain --- ------- ------- 25,215,100 304,193 260,113
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits
Exhibit Number Description ------- ----------------------------------------------------- 11 Statement regarding computation of earnings per share 27 Financial Data Schedule - EDGAR only
b. Reports on Form 8-K On April 14, 1999 United Community filed a Form 8-K disclosing operating results for the quarter ended March 30, 1999. A Form 8-K was also filed on April 15, 1999 under item 5, other events, to announce an Agreement and Plan of Merger with Butler Wick Corp. 13 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: August 10, 1999 /s/ Douglas M. McKay ---------------------------------------------- Douglas M. McKay, President Date: August 10, 1999 /s/ Patrick A. Kelly ---------------------------------------------- Patrick A. Kelly, Treasurer 14 EX-11 2 EXHIBIT 11 UNITED COMMUNITY FINANCIAL CORP. EXHIBIT 11 COMPUTATIONS OF EARNINGS PER COMMON SHARE
Three Months Ended June 30, --------------------------------- 1999 1998 ------------- ------------- (Dollars in thousands, except per share data) EARNINGS PER SHARE : Weighted average number of common shares outstanding 32,198,030 N/A ============= ============= Net income $ 4,891 N/A ============= ============= Basic earnings per share $ 0.15 N/A ============= ============= Diluted earnings per share $ 0.15 N/A ============= =============
Six Months Ended June 30, --------------------------------- 1999 1998 ----------- ------------- (Dollars in thousands, except per share data) EARNINGS PER SHARE : Weighted average number of common shares outstanding 32,175,385 N/A ============= ============= Net income $ 9,602 N/A ============= ============= Basic earnings per share $ 0.30 N/A ============= ============= Diluted earnings per share $ 0.30 N/A ============= =============
15 EX-27 3 EXHIBIT 27
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF UNITED COMMUNITY FINANCIAL CORP. AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 13,952 0 48,542 0 331,970 155,112 155,838 687,474 6,446 1,273,394 781,927 0 22,914 0 0 0 342,998 125,555 1,273,394 26,757 12,999 3,659 43,415 14,995 14,998 28,417 100 0 14,227 14,984 14,984 0 0 9,602 0.30 0.30 4.61 3,805 0 1,712 0 6,461 29 4 6,446 6,446 0 0
-----END PRIVACY-ENHANCED MESSAGE-----