1
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, 2001
[ ] 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)
(Former name, former address and former fiscal year, if changed 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.
37,290,809 common shares as of April 30, 2001
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TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as of March 31, 2001 and
December 31,2000......................................................................... 1
Consolidated Statements of Income for the Three Months Ended
March 31, 2001 and 2000 ................................................................. 2
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2001 and 2000 ................................................................. 3
Notes to Consolidated Financial Statements .............................................. 4 - 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................ 7-11
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................... 11
PART II. OTHER INFORMATION............................................................................. 12
Signatures............................................................................................. 13
EXHIBITS............................................................................................... 14
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UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
March 31, December 31,
2001 2000
----------- ------------
(dollars in thousands)
ASSETS:
Cash and deposits with banks $ 26,656 $ 23,479
Federal funds sold and other 45,321 22,493
----------- -----------
Total cash and cash equivalents 71,977 45,972
----------- -----------
Investment securities:
Trading (amortized cost of $5,963 and $5,927, respectively) 5,968 5,933
Available for sale (amortized cost of $78,593 and $98,267, respectively) 79,415 98,445
Held to maturity (fair value of $891 and $900, respectively) 881 876
Mortgage-related securities:
Available for sale (amortized cost of $97,011 and $92,059, respectively) 97,741 91,731
Held to maturity (fair value of $102,748 and $108,229, respectively) 100,651 107,684
Loans, net (including allowance for loan losses of $6,865 and $6,553, respectively) 927,399 876,653
Margin accounts 29,350 33,361
Federal Home Loan Bank stock 14,039 13,793
Premises and equipment 11,964 11,939
Accrued interest receivable 8,222 7,701
Real estate owned 349 359
Other assets 8,802 5,752
----------- -----------
TOTAL ASSETS $ 1,356,758 $ 1,300,199
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits $ 939,693 $ 900,413
Other borrowed funds 138,516 114,317
Advance payments by borrowers for taxes and insurance 2,564 4,152
Accrued interest payable 3,612 2,933
Accrued expenses and other liabilities 14,822 16,485
----------- -----------
TOTAL LIABILITIES 1,099,207 1,038,300
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock-no par value; 1,000,000 shares authorized and unissued
at March 31, 2001 -- --
Common stock-no par value; 499,000,000 shares authorized; 37,799,309
and 37,800,497 shares issued, respectively 136,989 136,967
Retained earnings 155,706 155,026
Accumulated other comprehensive income 1,009 (98)
Unearned stock compensation (25,795) (26,674)
Treasury stock, at cost; 1,508,500 and 483,500 shares, respectively (10,358) (3,322)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 257,551 261,899
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,356,758 $ 1,300,199
=========== ===========
See Notes to Consolidated Financial Statements.
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UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the Three Months Ended
March 31,
-----------------------------
2001 2000
------------ -----------
(dollars in thousands except share data)
INTEREST INCOME
Loans $ 18,074 $ 14,314
Mortgage-related securities:
Available for sale 1,464 1,814
Held to maturity 1,782 2,353
Investment securities:
Trading 31 41
Available for sale 1,332 2,230
Held to maturity 13 17
Margin accounts 668 746
FHLB stock dividend 246 223
Other interest-earning assets 428 141
------------ -----------
Total interest income 24,038 21,879
INTEREST EXPENSE
Interest expense on Deposits 10,284 8,161
Interest expense on Other borrowed funds 1,397 1,922
------------ -----------
Total interest expense 11,681 10,083
------------ -----------
NET INTEREST INCOME 12,357 11,796
PROVISION FOR LOAN LOSS ALLOWANCES 330 --
------------ -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSS ALLOWANCES 12,027 11,796
------------ -----------
NONINTEREST INCOME
Commissions 3,591 5,384
Service fees and other charges 1,919 1,255
Underwriting and investment banking 63 21
Net gains (losses):
Mortgage-backed securities 92 --
Investment securities 245 10
Trading securities (411) 371
Loans sold 25 --
Other (9) 2
Other income 273 212
------------ -----------
Total noninterest income 5,788 7,255
------------ -----------
NONINTEREST EXPENSES
Salaries and employee benefits 7,864 9,628
Occupancy 573 456
Equipment and data processing 1,619 1,300
Deposit insurance premiums 42 41
Franchise tax 510 934
Advertising 551 501
Other expenses 1,620 1,581
------------ -----------
Total noninterest expenses 12,779 14,441
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INCOME BEFORE INCOME TAXES 5,036 4,610
INCOME TAXES 1,834 1,508
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NET INCOME $ 3,202 $ 3,102
============ ===========
EARNINGS PER SHARE:
Basic and diluted $ 0.10 $ 0.09
Average common shares outstanding 32,671,313 32,923,217
Average common and common equivalent shares outstanding 32,814,872 33,437,697
See Notes to Consolidated Financial Statements.
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UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
----------------------------
2001 2000
-------- ---------
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,202 $ 3,102
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan loss allowances 330 --
Net gains (353) (11)
Accretion of discounts and amortization of premiums (241) (69)
Depreciation 513 347
ESOP compensation 486 564
Amortization of restricted stock compensation 416 420
FHLB stock dividends (246) (223)
(Increase) decrease in trading securities (35) 1,067
Decrease (increase) in margin accounts 4,011 (8,283)
Increase in interest receivable (521) (200)
Increase in prepaid and other assets (3,645) (3,386)
Increase (decrease) in interest payable 679 (1,264)
(Decrease) increase in other liabilities (1,663) 6,542
-------- ---------
Net cash provided by (used in) operating activities 2,933 (1,394)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal repayments and maturities of:
Mortgage-related securities held to maturity 5,584 6,392
Mortgage-related securities available for sale 6,833 4,205
Investment securities held to maturity 400 293
Investment securities available for sale 18,503 14,224
Proceeds from sale of:
Mortgage-related securities held to maturity 1,454 --
Mortgage-related securities available for sale 7,784 --
Investment securities available for sale 6,438 2,579
Loans 1,330 --
Purchases of:
Investment securities available for sale (5,023) (5,864)
Investment securities held to maturity (382) (377)
Mortgage-related securities available for sale (19,505) --
Net principal disbursed on loans (51,326) (12,425)
Loans purchased (900) (322)
Purchases of premises and equipment (538) (496)
Other 87 2
-------- ---------
Net cash (used in) provided by investing activities (29,261) 8,211
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in NOW, savings and money market accounts 5,738 (388)
Net increase (decrease) in certificates of deposit 33,542 (8,861)
Net decrease in advance payments by borrowers
for taxes and insurance (1,588) (1,751)
Net increase (decrease) in borrowed funds 24,199 (84,304)
Dividends paid (2,522) (2,540)
Purchase of treasury stock (7,036) --
-------- ---------
Net cash provided by (used in) financing activities 52,333 (97,844)
-------- ---------
Increase (decrease) in cash and cash equivalents 26,005 (91,027)
Cash and cash equivalents, beginning of period 45,972 111,445
-------- ---------
Cash and cash equivalents, end of period $ 71,977 $ 20,418
======== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 11,159 $ 11,396
Income taxes 1,010 445
Supplemental schedule of noncash activities:
Transfers from loans to real estate owned 87 48
See Notes to Consolidated Financial Statements.
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UNITED COMMUNITY FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. 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 17 full service offices located throughout Mahoning,
Columbiana and Trumbull Counties and 4 loan production offices in the Cleveland,
Canton, Stow and Mentor areas in northeastern Ohio. 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 11
full service offices and one trust office throughout northeastern 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.
The results of operations for the three months ended March 31, 2001 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2001. 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, 2000, contained in United Community's
Form 10-K for the year ended December 31, 2000.
2. COMPREHENSIVE INCOME
United Community's comprehensive income for the three months ended March 31,
2001 and 2000 are as follows:
Three Months Ended March 31,
----------------------------
2001 2000
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(In thousands)
Net income $ 3,202 $ 3,102
Unrealized holding gains (losses) arising
during the period, net of tax effect of
$596 and ($256), respectively 1,286 (481)
Reclassification adjustment for (gains) losses
included in net income, net of tax effect
of ($97) and $4, respectively (180) 7
------- -------
Comprehensive income $ 4,308 $ 2,628
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3. SALE OF HELD TO MATURITY MORTGAGE-RELATED SECURITIES
During the three months ended March 31, 2001, Home Savings sold approximately
$1.5 million of mortgage-related securities held to maturity with outstanding
balances less than 15% of the principal outstanding at acquisition. A gain of
approximately $61,000 was recorded on the sale. There were no sales of
mortgage-related securities held to maturity during the three months ended March
31, 2000.
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4. SEGMENT INFORMATION
Statement of Financial Accounting Standard (SFAS) No. 131, "Disclosures about
Segments of an Enterprise and Related Information" requires financial disclosure
and descriptive information about reportable operating segments, based on how
chief decision-makers manage the business. United Community has two principal
segments, retail banking and investment advisory services. Retail banking
provides consumer and corporate banking services. Investment advisory services
provide an investment brokerage and a network of integrated financial services.
Condensed statements of income and selected financial information by operating
segment for the three months ended March 31, 2001 and 2000 are as follows:
THREE MONTHS ENDED MARCH 31, 2001
Investment
Retail Banking Advisory Services Eliminations Total
- ---------------------------------------------------------------------------------------------------------
(In thousands)
Interest income $24,048 $ 721 ($ 731) $24,038
Interest expense 12,062 350 (731) 11,681
Provision for loan loss 330 -- -- 330
------- ------- ------- -------
Net interest income after
provision for loan loss 11,656 371 -- 12,027
Non-interest income 763 5,025 -- 5,788
Non-interest expense 7,906 4,873 -- 12,779
------- ------- ------- -------
Income before tax 4,513 523 -- 5,036
Income tax 1,648 186 -- 1,834
------- ------- ------- -------
Net income $ 2,865 $ 337 $ -- $ 3,202
======= ======= ======= =======
THREE MONTHS ENDED MARCH 31, 2000
Investment
Retail Banking Advisory Services Eliminations Total
- -------------------------------------------------------------------------------------------------------
(In thousands)
Interest income $21,571 $ 807 ($ 499) $21,879
Interest expense 10,142 440 (499) 10,083
Provision for loan loss -- -- -- --
------- ------- ------- -------
Net interest income after
provision for loan loss 11,429 367 -- 11,796
Non-interest income 836 6,419 -- 7,255
Non-interest expense 7,987 6,454 -- 14,441
------- ------- ------- -------
Income before tax 4,278 332 -- 4,610
Income tax 1,389 119 -- 1,508
------- ------- ------- -------
Net income $ 2,889 $ 213 $ -- $ 3,102
======= ======= ======= =======
5. NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
condition and measure those instruments at fair value. The FASB delayed the
effective date of SFAS No. 133 for one year, to fiscal years beginning after
June 15, 2000. SFAS No. 138 amends the accounting and reporting standards of
SFAS No. 133 for certain derivative instruments and certain hedging activities.
United Community adopted SFAS No. 133 and SFAS No. 138 as of January 1, 2001,
which adoption did not have an impact on United Community's financial position
or results of operations.
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In September 2000, FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement replaces SFAS No. 125 and revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but it carries over most of SFAS 125's provisions
without reconsideration. This statement is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after March 31,
2001, and is effective for recognition and reclassification of collateral and
for disclosures relating to securitization transactions and collateral for
fiscal years ending after December 15, 2000. Adoption of this statement did not
have, and is not anticipated to have, a material impact on United Community's
financial position or results of operations.
6. SUBSEQUENT EVENT
As previously announced on December 9, 2000, United Community executed a
definitive agreement for Home Savings to acquire Industrial Bancorp, Inc.
(Industrial Bancorp), the holding company of Industrial Savings and Loan
Association in Bellevue, Ohio. The shareholders of Industrial Bancorp approved
the acquisition at a special meeting of shareholders held on April 17, 2001.
Pending regulatory approval, Home Savings will pay $20.375 in cash for each
Industrial Bancorp common share. Home Savings will account for the acquisition
as a purchase and will include Industrial Bancorp's results of operations from
the effective date of the acquisition in its 2001 financial statements. At March
31, 2001, Industrial Bancorp had total assets of $429.6 million and total
deposits of $315.7 million. Based on Industrial Bancorp's 4,337,883 outstanding
shares, the acquisition is valued at $88.4 million.
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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) 2001 2000
------------------ ------------------
Performance ratios:
Return on average assets (2) 0.98% 1.00%
Return on average equity (3) 4.89% 4.81%
Interest rate spread (4) 2.92% 3.02%
Net interest margin (5) 3.90% 3.94%
Noninterest expense to average assets 3.91% 4.67%
Efficiency ratio (6) 70.20% 75.80%
Average interest-earning assets to average interest-
bearing liabilities 126.48% 127.21%
Capital ratios:
Average equity to average assets 20.03% 20.84%
Equity to assets, end of period 18.98% 20.83%
Tangible capital (7) 14.05% 13.66%
Core capital (7) 14.05% 13.66%
Risk-based capital (7) 23.60% 24.69%
Asset quality ratio:
Nonperforming loans to total loans at end of period (8) 0.66% 0.57%
Nonperforming assets to average assets (9) 0.50% 0.35%
Nonperforming assets to total assets at end of period 0.48% 0.35%
Allowance for loan losses as a percent of loans 0.73% 0.86%
Allowance for loan losses as a percent of
nonperforming loans (8) 111.59% 153.31%
Per share data:
Basic earnings per share (10) 0.10 0.09
Diluted earnings per share (10) 0.10 0.09
Dividends per share 0.075 0.075
Book value per share (11) 7.86 7.60
Number of full service banking offices 17 14
Number of loan production offices 4 -
Number of full service brokerage offices 11 10
Number of trust offices 1 -
(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 divided by the sum of net interest income and
noninterest income, excluding gains and losses.
(7) Home Savings only.
(8) Nonperforming loans consist of nonaccrual loans and restructured
loans.
(9) Nonperforming assets consist of nonperforming loans and real estate
acquired in settlement of loans.
(10) Net income divided by average number of shares outstanding.
(11) Equity divided by number of shares outstanding.
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COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2001 AND DECEMBER 31, 2000
Total assets were $1.4 billion at March 31, 2001 a $56.6 million, or 4.4%,
increase compared to December 31, 2000. The primary reasons for the increase in
total assets were an increase in cash and cash equivalents of $26.0 million and
an increase in net loans of $50.7 million, which were partially offset by a
$20.0 million decline in securities.
Net loans increased $50.7 million, or 5.8%, to $927.4 million at March 31, 2001,
compared to $876.7 million at December 31, 2000. The most significant increase
was in permanent one- to-four family residential loans, which increased $25.3
million, or 4.1%. Commercial loans increased $12.9 million, or 9.3%, and
consumer loans increased $6.0 million, or 10.2%. Home Savings is expecting
continued growth in all loan categories which will increase the risk of loan
losses. Non-residential real estate lending is 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 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 investment and mortgage-related securities available for
sale. Overnight funds increased $22.8 million, or 101.5%, to $45.3 million at
March 31, 2001 from $22.5 million at December 31, 2000. Securities available for
sale, which include both investment and mortgage-related securities, decreased
$13.0 million, or 6.9%, since December 31, 2000. Securities held to maturity,
which also consist of both investment securities and mortgage-related
securities, decreased $7.0 million, or 6.5%, since December 31, 2000. Trading
securities, which consist of investment securities, increased $35,000, or 0.6%,
to $6.0 million at March 31, 2001. The net increase in overnight funds and
securities, along with a $3.2 million increase in cash and deposits with banks,
was primarily the result of increases in deposits and other borrowed funds as
discussed below. Securities available for sale, in conjunction with overnight
funds, enable United Community to utilize excess funds while providing a great
deal of liquidity and flexibility as United Community pursues other investment
opportunities.
Nonaccrual and restructured loans decreased approximately $3.6 million to $6.2
million at March 31, 2001 from $9.8 million at December 31, 2000, primarily due
to a $2.8 million nonresidential real estate loan that was paid off. At March
31, 2001, total nonaccrual and restructured loans accounted for 0.66% of net
loans receivable, compared to 1.10% at December 31, 2000. Total nonperforming
assets, which include nonaccrual and restructured loans and real estate owned,
were 0.48% of total assets as of March 31, 2001 and 0.77% as of December 31,
2000.
Total deposits increased $39.3 million from $900.4 million at December 31, 2000
to $939.7 million at March 31, 2001. The increase was primarily due to a $33.5
million increase in certificates of deposit, resulting from competitive interest
rates offered by Home Savings.
Other borrowed funds increased $24.2 million to $138.5 million at March 31, 2001
compared to $114.3 million at December 31, 2000. This increase is due to
additional borrowings from the Federal Home Loan Bank (FHLB) which will be used
to fund asset growth. As of March 31, 2001, $105.0 million of the other borrowed
funds consisted of FHLB advances. The remaining funds consist of a revolving
line of credit utilized by Butler Wick and other short-term borrowings.
Shareholders' equity decreased $4.3 million, or 1.7%, to $257.6 million at March
31, 2001 from $261.9 million at December 31, 2000. The decrease was primarily
due to quarterly dividends of $0.075 per share paid in March 2001 and treasury
stock purchases, partially offset by earnings for the three months. Book value
per share was $7.86 as of March 31, 2001.
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11
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND MARCH 31, 2000
NET INCOME. Net income for the three months ended March 31, 2001 was
$3.2 million, or $0.10 per diluted share. Net income for the comparable period
in 2000 was $3.1 million, or $0.09 per diluted share. The primary reason for the
increase in net income of $100,000 for the three months ended March 31, 2001,
compared to the same period in 2000, was a decrease of $1.7 million in
noninterest expense and an increase of $561,000 in net interest income, which
were substantially offset by a $1.5 million decrease in noninterest income, a
$330,000 increase in the provision for loan loss allowances and a $326,000
increase in income taxes. United Community's annualized return on average assets
and return on average equity were 0.98% and 4.89%, respectively, for the three
months ended March 31, 2001. The annualized return on average assets and return
on average equity for the comparable period in 2000 were 1.00% and 4.81%,
respectively.
NET INTEREST INCOME. Net interest income increased $561,000, or 4.8%,
for the three months ended March 31, 2001, compared to the first quarter of
2000, primarily due to an increase in interest income of $2.2 million, partially
offset by an increase in interest expense of $1.6 million. The increase in
interest income, which was primarily due to an increase in interest on loans of
$3.8 million as a result of higher volume, was partially offset by a decrease in
interest earned on securities of $1.8 million. The increase in interest expense
was primarily due to an increase in the average balance of interest-bearing
liabilities along with an increase in rates for the three months ended March 31,
2001 compared to the same period in 2000. Due to the decline in market interest
rates beginning in January 2001, Home Savings should see a declining cost of
funds as certificates of deposit issued during the higher rate environment of
2000 begin to reprice. Please refer to the rate/volume analysis on page 11 for a
more in depth analysis of the change in net interest income.
PROVISION FOR LOAN LOSS ALLOWANCES. 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 net realizable value of the underlying collateral, changes in
the composition of the loan portfolio and prior loan loss experience. Due to
growth in the loan portfolio and increases in nonperforming loans and
delinquency rates, the provision for loan loss allowance was $330,000 for the
first quarter of 2001 compared to no additional provision being booked in the
first quarter of 2000. Home Savings anticipates further 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 $6.9 million at March
31, 2001, which was 0.73% of total loans, compared to 0.86% at March 31, 2000.
NONINTEREST INCOME. Noninterest income declined $1.5 million, or
20.2%, from $7.3 million for the three months ended March 31, 2000, to $5.8
million for the three months ended March 31, 2001. The primary reason for the
decline was a $1.8 million decrease in commissions earned by Butler Wick due to
a decrease in volume of brokerage transactions and a $782,000 decline in trading
account gains, partially offset by increases of $664,000 in service charges and
other fees and $327,000 of gains on the sale of investments and mortgage-backed
securities.
NONINTEREST EXPENSE. Total noninterest expense decreased $1.6 million,
or 11.5%, to $12.8 million for the three months ended March 31, 2001, from $14.4
million for the three months ended March 31, 2000. The decrease was due to a
decrease in salaries and employee benefits of $1.8 million, primarily due to the
lower commissions at Butler Wick, and a decrease in franchise tax expense of
$424,000, partially offset by an increase of $319,000 in equipment and data
processing expenses.
FEDERAL INCOME TAXES. The provision for federal income taxes increased
$326,000 for the three months ended March 31, 2001, compared to the three months
ended March 31, 2000, primarily due to the higher pre-tax income for the first
quarter of 2001 compared to the first quarter of 2000. The effective tax rates
were 36.4% and 32.7% for the three months ended March 31, 2001 and 2000,
respectively.
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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 March 31, 2001 and 2000. Average balance
calculations were based on daily balances.
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------
2001
--------------------------------------------------
AVERAGE INTEREST
OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE
------------------ -------------- ------------
(IN THOUSANDS)
Interest-earning assets:
Net loans (1) $ 895,727 $ 18,074 8.07%
Mortgage-backed securities:
Available for sale 93,259 1,464 6.28%
Held to maturity 104,674 1,782 6.81%
Investment securities:
Trading 6,160 31 2.01%
Available for sale 89,048 1,332 5.98%
Held to maturity 880 13 5.91%
Margin accounts 32,874 668 8.13%
Other interest-earning assets 45,586 674 5.91%
----------------- ------------- -----------
Total interest-earning assets 1,268,208 24,038 7.58%
Noninterest-earning assets 40,544
-----------------
Total assets $1,308,752
=================
Interest-bearing liabilities:
Checking and demand accounts $ 146,197 $ 1,077 2.95%
Savings accounts 198,712 1,111 2.24%
Certificates of deposit 553,389 8,096 5.85%
Other borrowed funds 104,430 1,397 5.35%
----------------- ------------- -----------
Total interest-bearing liabilities 1,002,728 11,681 4.66%
------------- -----------
Noninterest-bearing liabilities 43,920
-----------------
Total liabilities 1,046,648
Equity 262,104
-----------------
Total liabilities and equity $1,308,752
=================
Net interest income and
interest rate spread $ 12,357 2.92%
============= ===========
Net interest margin 3.90%
===========
Average interest-earning assets to average
interest-bearing liabilities 126.48%
============
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------
2000
--------------------------------------------------
AVERAGE INTEREST
OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE
------------------ ------------- ------------
(IN THOUSANDS)
Interest-earning assets:
Net loans (1) $ 728,755 $ 14,314 7.86%
Mortgage-backed securities:
Available for sale 111,576 1,814 6.50%
Held to maturity 135,137 2,353 6.96%
Investment securities:
Trading 6,715 41 2.44%
Available for sale 154,488 2,230 5.77%
Held to maturity 1,161 17 5.86%
Margin accounts 36,295 746 8.22%
Other interest-earning assets 23,203 364 6.28%
----------------- ------------ -----------
Total interest-earning assets 1,197,330 21,879 7.31%
Noninterest-earning assets 39,586
-----------------
Total assets $1,236,916
=================
Interest-bearing liabilities:
Checking and demand accounts $ 143,528 $ 941 2.62%
Savings accounts 221,884 1,369 2.47%
Certificates of deposit 448,488 5,851 5.22%
Other borrowed funds 127,320 1,922 6.04%
------------------ ------------ -----------
Total interest-bearing liabilities 941,220 10,083 4.29%
------------ ------------
Noninterest-bearing liabilities 37,925
------------------
Total liabilities 979,145
Equity 257,771
------------------
Total liabilities and equity $1,236,916
==================
Net interest income and
interest rate spread $ 11,796 3.02%
============= ===========
Net interest margin 3.94%
===========
Average interest-earning assets to average
interest-bearing liabilities 127.21%
============
- ----------------------
(1) Nonaccrual loans are included in the average balance.
10
13
UNITED COMMUNITY FINANCIAL CORP.
RATE/VOLUME ANALYSIS
For the Three Months Ended March 31
-----------------------------------------------
2001 vs. 2000
-----------------------------------------------
Increase
(decrease) due to Total
--------------------------- increase
Rate Volume (decrease)
---- ------ ----------
(In thousands)
Interest-earning assets:
Loans $ 400 $ 3,360 $ 3,760
Mortgage-backed securities:
Available for sale (61) (289) (350)
Held to maturity (51) (520) (571)
Investment securities:
Trading securities (7) (3) (10)
Available for sale 84 (982) (898)
Held to maturity - (4) (4)
Margin accounts (8) (70) (78)
Other interest-earning assets (20) 330 310
----- ------- -----
Total interest-earning assets $ 337 $ 1,822 2,159
===== ======= -----
Interest-bearing liabilities:
Savings accounts (122) (136) (258)
Checking accounts 118 18 136
Certificates of deposit 768 1,477 2,245
Other borrowed funds (205) (320) (525)
----- ------- -----
Total interest-bearing liabilities $ 559 $ 1,039 1,598
===== ======= -----
Change in net interest income $ 561
=====
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 2000 Annual Report under the
caption "Asset and Liability Management and Market Risk." No material change in
the methodology or results has occurred. Home Savings continues to fall under
the criteria of being well capitalized under all interest rate shock scenarios
required by the Office of Thrift Supervision's Thrift Bulletin 13a.
11
14
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
11 Statement regarding computation
of earnings per share
b. Reports on Form 8-K
On January 24, 2001, United Community filed a Form 8-K disclosing
operating results for the quarter and year ended December 31,
2000.
On February 27, 2001 and March 30, 2001, United Community filed
Forms 8-K for Item 4 regarding a change in registrant's certifying
accountant.
12
15
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 11, 2001 /s/ Douglas M. McKay
---------------------------------
Douglas M. McKay, President
Date: May 11, 2001 /s/ Patrick A. Kelly
---------------------------------
Patrick A. Kelly, Treasurer
13
16
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.
EXHIBIT 11
----------
COMPUTATIONS OF EARNINGS PER COMMON SHARE
Three Months Ended
March 31,
-------------------------
2001 2000
------- -------
(In thousands,
except per share data)
BASIC EARNINGS PER SHARE:
Net income applicable to common stock $ 3,202 $ 3,102
Weighted average common shares outstanding 32,671 32,923
Basic earnings per share $ 0.10 $ 0.09
DILUTED EARNINGS PER SHARE:
Net income applicable to common stock $ 3,202 $ 3,102
Weighted average common shares outstanding 32,671 32,923
Dilutive effect of restricted stock 143 515
Dilutive effect of stock options 1 --
------- -------
Weighted average common shares outstanding
for dilutive computation 32,815 33,438
======= =======
Diluted earnings per share $ 0.10 $ 0.09
14