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 June 30, 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)
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.
35,913,842 common shares as of July 31, 2001
2
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as of June 30, 2001 and
December 31, 2000........................................................................ 1
Consolidated Statements of Income for the Three Months and Six Months Ended
June 30, 2001 and 2000 .................................................................. 2
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2001 and 2000 .................................................................. 3
Notes to Consolidated Financial Statements .............................................. 4 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................ 8-14
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................... 14
PART II. OTHER INFORMATION............................................................................. 15
Signatures............................................................................................. 16
EXHIBITS............................................................................................... 17
3
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(unaudited)
June 30, December 31,
2001 2000
----------- ------------
(dollars in thousands)
ASSETS:
Cash and deposits with banks $ 113,194 $ 23,479
Federal funds sold and other 16,322 22,493
----------- -----------
Total cash and cash equivalents 129,516 45,972
----------- -----------
Investment securities:
Trading (amortized cost of $6,759 and $5,927, respectively) 6,763 5,933
Available for sale (amortized cost of $48,936 and $98,267, respectively) 49,883 98,445
Held to maturity (fair value of $996 and $900, respectively) 985 876
Mortgage-related securities:
Available for sale (amortized cost of $87,737 and $92,059, respectively) 88,443 91,731
Held to maturity (fair value of $95,795 and $108,229, respectively) 93,712 107,684
Loans, net (including allowance for loan losses of $7,063 and $6,553, respectively) 1,047,698 876,653
Margin accounts 26,572 33,361
Federal Home Loan Bank stock 14,293 13,793
Premises and equipment 12,042 11,939
Accrued interest receivable 7,900 7,701
Real estate owned 337 359
Other assets 7,082 5,752
----------- -----------
TOTAL ASSETS $ 1,485,226 $ 1,300,199
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits $ 967,468 $ 900,413
Other borrowed funds 237,463 114,317
Advance payments by borrowers for taxes and insurance 4,035 4,152
Accrued interest payable 4,316 2,933
Accrued expenses and other liabilities 15,324 16,485
----------- -----------
TOTAL LIABILITIES 1,228,606 1,038,300
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock-no par value; 1,000,000 shares authorized and unissued
at June 30, 2001 -- --
Common stock-no par value; 499,000,000 shares authorized; 37,799,309
and 37,800,497 shares issued, respectively 137,020 136,967
Retained earnings 156,207 155,026
Accumulated other comprehensive income (loss) 1,074 (98)
Unearned stock compensation (24,922) (26,674)
Treasury stock, at cost; 1,858,500 and 483,500 shares, respectively (12,759) (3,322)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 256,620 261,899
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,485,226 $ 1,300,199
=========== ===========
See Notes to Consolidated Financial Statements
1
4
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------- ---------------------------------
2001 2000 2001 2000
------------ ------------ ----------- -------------
(dollars in thousands (dollars in thousands
except per share data) except per share data)
INTEREST INCOME
Loans $ 19,399 $ 15,050 $ 37,472 $ 29,364
Mortgage-related securities:
Available for sale 1,412 1,727 2,876 3,540
Held to maturity 1,652 2,236 3,434 4,589
Investment securities:
Trading 34 30 65 71
Available for sale 1,022 2,104 2,355 4,335
Held to maturity 13 17 26 34
Margin accounts 455 926 1,123 1,671
FHLB stock dividend 254 239 500 463
Other interest-earning assets 404 91 832 232
------------ ------------ ------------ ------------
Total interest income 24,645 22,420 48,683 44,299
INTEREST EXPENSE
Deposits 10,717 8,268 21,001 16,429
Other borrowed funds 1,527 2,103 2,923 4,025
------------ ------------ ------------ ------------
Total interest expense 12,244 10,371 23,924 20,454
------------ ------------ ------------ ------------
NET INTEREST INCOME 12,401 12,049 24,759 23,845
PROVISION FOR LOAN LOSS ALLOWANCES 250 -- 580 --
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSS ALLOWANCES 12,151 12,049 24,179 23,845
------------ ------------ ------------ ------------
NONINTEREST INCOME
Commissions 3,421 4,238 7,012 9,622
Service fees and other charges 1,848 1,385 3,767 2,640
Underwriting and investment banking fees 321 192 383 214
Net gains (losses):
Mortgage-related securities 48 -- 140 --
Investment securities -- (14) 246 (4)
Trading securities 216 (144) (195) 227
Loans sold 55 -- 81 --
Other 14 (4) 5 (3)
Other income 195 204 468 416
------------ ------------ ------------ ------------
Total noninterest income 6,118 5,857 11,907 13,112
------------ ------------ ------------ ------------
NONINTEREST EXPENSES
Salaries and employee benefits 8,534 8,470 16,399 18,098
Occupancy 621 532 1,194 988
Equipment and data processing 1,775 1,446 3,394 2,746
Deposit insurance premiums 43 43 84 84
Franchise tax 504 932 1,014 1,865
Advertising 436 316 987 817
Other expenses 1,639 1,488 3,259 3,070
------------ ------------ ------------ ------------
Total noninterest expenses 13,552 13,227 26,331 27,668
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 4,717 4,679 9,755 9,289
INCOME TAXES 1,779 1,709 3,614 3,217
------------ ------------ ------------ ------------
NET INCOME $ 2,938 $ 2,970 $ 6,141 $ 6,072
============ ============ ============ ============
EARNINGS PER SHARE:
Basic and diluted $ 0.09 $ 0.09 $ 0.19 $ 0.18
Average basic shares outstanding 31,824,605 32,903,672 32,245,620 32,913,530
Average diluted shares outstanding 32,048,424 33,442,391 32,429,561 33,438,734
</Table>
See Notes to Consolidated Financial Statements.
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5
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
-----------------------------
2001 2000
--------- ---------
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,141 $ 6,072
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan loss allowances 580 --
Net (gains) losses (472) 7
Accretion of discounts and amortization of premiums (492) (186)
Depreciation 1,070 713
ESOP compensation 972 1,019
Amortization of restricted stock compensation 834 839
FHLB stock dividends (500) (462)
(Increase) decrease in trading securities (830) 2,496
Decrease (increase) in margin accounts 6,789 (9,711)
Increase in interest receivable (199) (310)
Increase in prepaid and other assets (1,959) (3,626)
Increase (decrease) in interest payable 1,383 (2,171)
(Decrease) increase in other liabilities (1,161) 7,877
--------- ---------
Net cash provided by operating activities 12,156 2,557
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal repayments and maturities of:
Mortgage-related securities held to maturity 12,488 13,015
Mortgage-related securities available for sale 16,106 10,198
Investment securities held to maturity 500 693
Investment securities available for sale 51,744 24,066
Proceeds from sale of:
Mortgage-related securities held to maturity 1,454 --
Mortgage-related securities available for sale 15,839 --
Investment securities available for sale 6,438 8,502
Loans 6,370 --
Purchases of:
Investment securities available for sale (8,581) (14,729)
Investment securities held to maturity (585) (476)
Mortgage-related securities available for sale (27,555) --
Net principal disbursed on loans (176,354) (53,572)
Loans purchased (1,350) (4,603)
Purchases of premises and equipment (1,173) (1,456)
Other 360 30
--------- ---------
Net cash used in investing activities (104,299) (18,332)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in NOW, savings and money market accounts 17,726 (3,481)
Net increase (decrease) in certificates of deposit 49,329 (587)
Net decrease in advance payments by borrowers
for taxes and insurance (117) (78)
Proceeds from FHLB advances 100,000 --
Net increase (decrease) in other borrowed funds 23,146 (62,168)
Dividends paid (4,960) (5,080)
Purchase of treasury stock (9,437) --
--------- ---------
Net cash provided by (used in) financing activities 175,687 (71,394)
--------- ---------
Increase (decrease) in cash and cash equivalents 83,544 (87,169)
Cash and cash equivalents, beginning of period 45,972 111,445
--------- ---------
Cash and cash equivalents, end of period $ 129,516 $ 24,276
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 22,541 $ 22,625
Income taxes 3,105 885
Supplemental schedule of noncash activities:
Transfers from loans to real estate owned 336 178
See Notes to Consolidated Financial Statements
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6
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 four 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 six months ended June 30, 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 and six months ended June
30, 2001 and 2000 are as follows:
Three months ended June 30,
---------------------------
2001 2000
------- -------
(In thousands)
Net income $ 2,938 $ 2,970
Unrealized holding gains arising
during the period, net of tax effect of
$34 and $169, respectively 96 324
Reclassification adjustment for gains
included in net income, net of tax effect
of ($17) and ($5), respectively (31) (9)
------- -------
Comprehensive income $ 3,003 $ 3,285
======= =======
4
7
Six months ended June 30,
-------------------------
2001 2000
--------- -------
(In thousands)
Net income $ 6,141 $ 6,072
Unrealized holding gains (losses) arising
during the period, net of tax effect of
$631 and ($86), respectively 1,383 (162)
Reclassification adjustment for gains (losses)
included in net income, net of tax effect
of ($114) and $1, respectively (211) 2
------- -------
Comprehensive income $ 7,313 $ 5,912
======= =======
3. SALE OF MORTGAGE-RELATED SECURITIES
During the six months ended June 30, 2001, Home Savings sold approximately $1.5
million of mortgage-related securities held to maturity with outstanding
balances of 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 six months ended June
30, 2000.
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 and six months ended June 30, 2001 and 2000 are as
follows:
THREE MONTHS ENDED JUNE 30, 2001
Investment
Retail Banking Advisory Services Eliminations Total
- ----------------------------------------------------------------------------------------------------------------------------
(In thousands)
Interest income $ 24,741 $ 510 $606 $ 24,645
Interest expense 12,645 205 606 12,244
Provision for loan loss 250 - - 250
------------- ------------- ----------- ------------
Net interest income after
provision for loan loss 11,846 305 - 12,151
Non-interest income 1,137 4,981 - 6,118
Non-interest expense 8,023 5,529 - 13,552
------------- ------------- ----------- ------------
Income before tax 4,960 (243) - 4,717
Income tax expense (benefit) 1,858 (79) - 1,779
------------- ------------- ----------- ------------
Net income (loss) $ 3,102 $ (164) $ - $ 2,938
============= ============= =========== ============
5
8
THREE MONTHS ENDED JUNE 30, 2000
Investment
Retail Banking Advisory Services Eliminations Total
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands)
Interest income $ 21,936 $ 983 $499 $ 22,420
Interest expense 10,315 555 499 10,371
Provision for loan loss - - - -
--------------- ------------- ----------- -------------
Net interest income after
provision for loan loss 11,621 428 - 12,049
Non-interest income 374 5,483 - 5,857
Non-interest expense 7,815 5,412 - 13,227
--------------- ------------- ----------- -------------
Income before tax 4,180 499 - 4,679
Income tax expense 1,529 180 - 1,709
--------------- ------------- ----------- -------------
Net income $ 2,651 $ 319 $ - $ 2,970
=============== ============= =========== =============
SIX MONTHS ENDED JUNE 30, 2001
Investment
Retail Banking Advisory Services Eliminations Total
- ------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Interest income $ 48,789 $ 1,231 $1,337 $ 48,683
Interest expense 24,707 554 1,337 23,924
Provision for loan loss 580 - - 580
------------- ------------- ----------- ------------
Net interest income after
provision for loan loss 23,502 677 - 24,179
Non-interest income 1,901 10,006 - 11,907
Non-interest expense 15,928 10,403 - 26,331
------------- ------------- ----------- ------------
Income before tax 9,475 280 - 9,755
Income tax expense 3,507 107 - 3,614
------------- ------------- ----------- ------------
Net income $ 5,968 $ 173 $ - $ 6,141
============= ============= =========== ============
</Table>
SIX MONTHS ENDED JUNE 30, 2000
Investment
Retail Banking Advisory Services Eliminations Total
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands)
Interest income $ 43,507 $ 1,791 $999 $ 44,299
Interest expense 20,457 996 999 20,454
Provision for loan loss - - - -
------------- ------------- ----------- ------------
Net interest income after
provision for loan loss 23,050 795 - 23,845
Non-interest income 1,210 11,902 - 13,112
Non-interest expense 15,802 11,866 - 27,668
------------- ------------- ----------- ------------
Income before tax 8,458 831 - 9,289
Income tax expense 2,918 299 - 3,217
------------- ------------- ----------- ------------
Net income $ 5,540 $ 532 $ - $ 6,072
============= ============= =========== ============
6
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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 a material impact on United Community's financial
position or results of operations.
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.
In June 2001, FASB issued SFAS No. 141, "Business Combinations." SFAS No. 141
requires all business combinations within its scope to be accounted for using
the purchase method, rather than the pooling-of-interests method. The provisions
of this Statement apply to all business combinations initiated after June 30,
2001. The adoption of this statement will only impact United Community's
financial statements if it enters into a business combination.
Also in June 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which addresses the accounting for such assets arising from prior and
future business combinations. Upon the adoption of this Statement, goodwill
arising from business combinations will no longer be amortized, but rather will
be assessed regularly for impairment, with any such impairment recognized as a
reduction to earnings in the period identified. Other intangible assets, such as
core deposit intangible assets, will continue to be amortized over their
estimated useful lives. United Community is required to adopt this Statement on
January 1, 2002 and early adoption is not permitted. United Community had no
intangible assets as of June 30, 2001, however, as a result of this Statement,
goodwill resulting from the acquisition of Industrial Bancorp, Inc. on July 1,
2001 (see Note 6) will not be amortized.
6. SUBSEQUENT EVENT
On July 1, 2001, United Community acquired all of the capital stock of
Industrial Bancorp, Inc., the holding company for The Industrial Savings and
Loan Association (Industrial Savings), an Ohio-chartered savings and loan
association, through the merger of Home Savings' subsidiary, UCFC Acquisition
Subsidiary, Inc. into Industrial Bancorp, Inc. Industrial Savings was then
merged into Home Savings. 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 June 30,
2001, Industrial Bancorp had total assets of $424.1 million and total deposits
of $313.6 million. Based on Industrial Bancorp's 4,284,751 outstanding shares,
the acquisition was valued at $87.3 million, which was paid in cash.
7
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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 At or For the
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
SELECTED FINANCIAL RATIOS AND OTHER DATA: (1) 2001 2000 2001 2000
------------- ------------ ----------- ----------
Performance ratios:
Return on average assets (2) 0.86% 0.96% 0.92% 0.98%
Return on average equity (3) 4.55% 4.59% 4.72% 4.70%
Interest rate spread (4) 2.83% 3.07% 2.87% 3.05%
Net interest margin (5) 3.73% 4.02% 3.81% 3.98%
Noninterest expense to average assets 3.95% 4.26% 3.93% 4.47%
Efficiency ratio (6) 73.18% 73.87% 72.36% 74.87%
Average interest-earning assets to average interest-
bearing liabilities 124.55% 127.41% 125.48% 127.31%
Capital ratios:
Average equity to average assets 18.79% 20.88% 19.39% 20.86%
Equity to assets, end of period 17.28% 20.44% 17.28% 20.44%
Tangible capital (7) 12.89% 13.53% 12.89% 13.53%
Core capital (7) 12.89% 13.53% 12.89% 13.53%
Risk-based capital (7) 21.46% 23.86% 21.46% 23.86%
Asset quality ratios:
Nonperforming loans to total loans at end of period (8) 0.62% 0.51% 0.62% 0.51%
Nonperforming assets to average assets (9) 0.50% 0.34% 0.51% 0.34%
Nonperforming assets to total assets at end of period 0.46% 0.34% 0.46% 0.34%
Allowance for loan losses as a percent of loans 0.67% 0.80% 0.67% 0.80%
Allowance for loan losses as a percent of
nonperforming loans (8) 108.38% 159.25% 108.38% 159.25%
Per share data:
Basic earnings per share (10) $ 0.09 $ 0.09 $ 0.19 $ 0.18
Diluted earnings per share (10) $ 0.09 $ 0.09 $ 0.19 $ 0.18
Dividends per share $ 0.075 $ 0.075 $ 0.15 $ 0.15
Book value per share (11) $ 7.90 $ 7.63 $ 7.90 $ 7.63
Number of full service banking offices 17 14 17 14
Number of loan production offices 4 -- 4 --
Number of full service brokerage offices 11 10 11 10
Number of trust offices 1 -- 1 --
(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, 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.
8
11
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 JUNE 30, 2001 AND DECEMBER 31, 2000
Total assets were $1.5 billion at June 30, 2001, a $185.0 million, or 14.2%,
increase compared to December 31, 2000. The primary reasons for the increase in
total assets were increases in cash and cash equivalents and loans of $83.5
million and $171.0 million, respectively. Increases in deposits of $67.1 million
and other borrowed funds of $123.1 million and a reduction of $48.6 million in
investment securities available for sale funded these increases.
Cash and cash equivalents increased primarily as a result of funds borrowed from
the Federal Home Loan Bank in anticipation of the Industrial Bancorp
acquisition.
Net loans increased $171.0 million, or 19.5%, to $1.0 billion at June 30, 2001,
compared to $876.7 million at December 31, 2000. The most significant increase
was in one-to-four family residential loans, which increased $83.1 million, or
13.6%. Commercial loans increased $58.1 million, or 41.8%, and consumer loans
increased $16.3 million, or 28.0%. Home Savings is expecting continual 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. Federal funds sold and other overnight funds decreased $6.2 million, or
27.4%, to $16.3 million at June 30, 2001 from $22.5 million at December 31,
2000. Securities available for sale, which include both investment and
mortgage-related securities, decreased $51.9 million, or 27.3%, since December
31, 2000. Securities held to maturity, which also consist of both investment
securities and mortgage-related securities, decreased $13.9 million, or 12.8%,
since December 31, 2000. Trading securities, which consist of investment
securities, increased $830,000, or 14.0%, to $6.8 million at June 30, 2001. The
net decrease in overnight funds and securities, along with increases in deposits
and other borrowed funds, was primarily used to fund increases in net loans of
$171.0 million. 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 $3.3 million to $6.5
million at June 30, 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 June 30,
2001, total nonaccrual and restructured loans accounted for 0.62% 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
0.46% of total assets as of June 30, 2001 and 0.77% as of December 31, 2000.
Total deposits increased $67.1 million from $900.4 million at December 31, 2000
to $967.5 million at June 30, 2001. The increase was due to a $49.3 million
increase in certificates of deposit and a $16.4 million increase in checking
accounts. The increases in certificates of deposit and checking accounts were
primarily due to Home Savings competitively pricing these products.
Other borrowed funds increased $123.1 million to $237.5 million at June 30, 2001
compared to $114.3 million at December 31, 2000. This increase was due to $87.0
million borrowed from the Federal Home Loan Bank in anticipation of the
Industrial Bancorp acquisition and other borrowings to fund loan growth. As of
June 30, 2001, $101.5 million and $105.0 million of the other borrowed funds
consisted of short-term and long-term Federal Home Loan Bank advances,
respectively. The remaining funds consist of a revolving line of credit and
other short-term borrowings.
9
12
Shareholders' equity decreased $5.3 million, or 2.0%, to $256.6 million at June
30, 2001 from $261.9 million at December 31, 2000. The decrease was primarily
due to the quarterly dividends of $0.075 per share paid in March and June 2001
and treasury stock purchases, offset by earnings for the six months and an
increase in other comprehensive income. Book value per share was $7.90 as of
June 30, 2001.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
JUNE 30, 2001 AND JUNE 30, 2000
NET INCOME. Net income for the three months ended June 30, 2001 was $2.9
million, or $0.09 per diluted share, compared to net income of $3.0 million, or
$0.09 per diluted share, for the three months ended June 30, 2000. Net interest
income increased $352,000 and noninterest income increased $261,000, which
increases were substantially offset by a $250,000 increase in provision for loan
losses and a $325,000 increase in noninterest expense. United Community's
annualized return on average assets and return on average equity were 0.86% and
4.55%, respectively, for the three months ended June 30, 2001. The annualized
return on average assets and return on average equity for the comparable period
in 2000 were 0.96% and 4.59%, respectively.
NET INTEREST INCOME. Net interest income increased $352,000, or 2.9%, for the
three months ended June 30, 2001, compared to the second quarter of 2000,
primarily due to an increase in interest income on loans as a result of a higher
loan volume, and a decrease in interest expense on borrowed funds, partially
offset by lower interest income on mortgage-related and investment securities
and margin accounts and an increase in interest expense on deposits.
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, the provision for loan loss allowances was
$250,000 for the second quarter of 2001 compared to no additional provision
being booked in the second quarter of 2000. 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 $7.1
million at June 30, 2001, which was 0.67% of total loans, compared to 0.80% at
June 30, 2000.
NONINTEREST INCOME. Noninterest income increased $261,000, or 4.5%, from $5.9
million for the three months ended June 30, 2000, to $6.1 million for the three
months ended June 30, 2001. Increases in service fees and other charges,
underwriting and investment banking fees and gains on trading securities, offset
by a decline in commission income, resulted in the increase.
NONINTEREST EXPENSE. Total noninterest expense increased $325,000, or 2.5%, to
$13.6 million for the three months ended June 30, 2001, from $13.2 million for
the three months ended June 30, 2000. The increase was primarily due to an
increase in equipment and data processing expenses, as lower franchise taxes
offset increases in advertising and other expenses.
FEDERAL INCOME TAXES. The provision for federal income taxes increased $70,000
for the three months ended June 30, 2001, compared to the three months ended
June 30, 2000. The effective tax rates were 37.7% and 36.5% for the three months
ended June 30, 2001 and 2000, respectively.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED
JUNE 30, 2001 AND JUNE 30, 2000
NET INCOME. Net income for the six months ended June 30, 2001 was $6.1 million,
or $0.19 per diluted share. Net income for the comparable period in 2000 was
$6.1 million, or $0.18 per diluted share. Net interest income for the six months
ended June 30, 2001 increased $914,000 and noninterest expenses declined $1.3
million, while the provision for loan losses and income taxes increased $580,000
and $397,000, respectively, and noninterest income declined $1.2 million. United
Community's annualized return on average assets and return on average equity
were 0.92% and 4.72%, respectively, for the six months ended June 30, 2001. The
annualized return on average assets and return on average equity for the
comparable period in 2000 were 0.98% and 4.70%, respectively.
10
13
NET INTEREST INCOME. Net interest income increased $914,000 for the six months
ended June 30, 2001, compared to the same period of 2000, primarily due to an
increase in loan interest income of $8.1 million and a decrease of $1.1 million
in interest expense on other borrowed funds, substantially offset by an increase
of $4.6 million in interest expense on deposits and decreases of $1.8 million in
interest income on mortgage-related securities and $2.0 million in interest
income on investment securities available for sale.
PROVISION FOR LOAN LOSS ALLOWANCES. Due to growth in the loan portfolio, the
provision for loan loss allowances was $580,000 for the first six months of 2001
compared to no additional provision being booked in the comparable period 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 $7.1 million at June 30, 2001, which was 0.67%
of total loans, compared to 0.80% at June 30, 2000.
NONINTEREST INCOME. Noninterest income declined $1.2 million, or 9.2%, from
$13.1 million for the six months ended June 30, 2000, to $11.9 million for the
six months ended June 30, 2001. Declines of $2.6 million in commission income at
Butler Wick and $422,000 in trading securities gains were partially offset by
increases of $1.1 million in service fees and other charges and higher gains on
the sale of mortgage-related and investment securities and loans. The lower
commission income is attributable to the overall volatility of the stock market,
which has led to fewer transactions throughout the brokerage industry.
NONINTEREST EXPENSE. Total noninterest expense declined $1.3 million, or 4.8%,
to $26.3 million for the six months ended June 30, 2001, from $27.7 million for
the six months ended June 30, 2000. The decrease was primarily due to decreases
of $1.7 million in salaries and employee benefits and $851,000 in franchise
taxes. These decreases were partially offset by increases in equipment and data
processing, occupancy, advertising and other expenses. The decline in salaries
and employee benefits for the six months ended June 30, 2001 was primarily due
to the decline in commission income and lower expenses related to the Butler
Wick Retention Plan.
FEDERAL INCOME TAXES. The provision for federal income taxes increased $397,000,
or 12.3%, for the six months ended June 30, 2001, compared to the six months
ended June 30, 2000. The effective tax rates were 37.0% and 34.6% for the six
months ended June 30, 2001 and 2000, respectively.
11
14
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 month periods ended June 30, 2001 and 2000. Average balance
calculations were based on daily balances.
THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------------------------
2001 2000
----------------------------------------------------------------------------
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) $ 984,995 $ 19,399 7.88% $ 750,572 $ 15,050 8.02%
Mortgage-related securities:
Available for sale 94,068 1,412 6.00% 106,130 1,727 6.51%
Held to maturity 97,512 1,652 6.78% 128,597 2,236 6.96%
Investment securities:
Trading 6,366 34 2.14% 6,517 30 1.84%
Available for sale 66,400 1,022 6.16% 144,228 2,104 5.84%
Held to maturity 901 13 5.77% 1,125 17 6.04%
Margin accounts 26,902 455 6.77% 42,881 926 8.64%
Other interest-earning assets 51,287 658 5.13% 19,107 330 6.91%
---------- ---------- ------ ---------- ---------- ------
Total interest-earning assets 1,328,431 24,645 7.42% 1,199,157 22,420 7.48%
Noninterest-earning assets 45,083 41,680
---------- ----------
Total assets $1,373,514 $1,240,837
========== ==========
Interest-bearing liabilities:
Checking and demand accounts $ 151,829 $ 1,113 2.93% $ 147,288 $ 1,022 2.78%
Savings accounts 199,758 1,136 2.27% 218,833 1,353 2.47%
Certificates of deposit 579,160 8,468 5.85% 443,474 5,893 5.32%
Other borrowed funds 135,841 1,527 4.50% 131,566 2,103 6.39%
---------- ---------- ------ ---------- ---------- ------
Total interest-bearing liabilities 1,066,588 12,244 4.59% 941,161 10,371 4.41%
---------- ------ ---------- ------
Noninterest-bearing liabilities 48,787 40,595
---------- ----------
Total liabilities 1,115,375 981,756
Equity 258,139 259,081
---------- ----------
Total liabilities and equity $1,373,514 $1,240,837
========== ===========
Net interest income and
interest rate spread $ 12,401 2.83% $ 12,049 3.07%
========== ======= ========== ======
Net interest margin 3.73% 4.02%
======= ======
Average interest-earning assets to average
interest-bearing liabilities 124.55% 127.41%
======= =======
</Table>
- ---------------------------------
(1) Nonaccrual loans are included in the average balance.
12
15
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 six month periods ended June 30, 2001 and 2000. Average balance
calculations were based on daily balances.
Six Months Ended June 30,
------------------------------------------------------------------------
2001 2000
------------------------------------------------------------------------
Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Annualized Yield/
balance paid rate balance paid interest rate
---------- ------- ------ ---------- ------- ------- ------
(Dollars in thousands)
Interest-earning assets:
Net loans (1) $ 940,607 $37,472 7.97% $739,663 $29,364 $57,256 7.94%
Mortgage-related securities:
Available for sale 93,665 2,876 6.14% 108,853 3,540 7,256 6.50%
Held to maturity 101,073 3,434 6.80% 131,867 4,589 9,412 6.96%
Investment securities:
Trading 6,262 65 2.08% 6,616 71 164 2.15%
Available for sale 77,662 2,355 6.06% 149,357 4,335 8,920 5.80%
Held to maturity 890 26 5.84% 1,143 35 68 6.12%
Margin accounts 29,888 1,123 7.51% 39,588 1,671 2,984 8.44%
Other interest-earning assets 48,451 1,332 5.50% 21,155 694 1,456 6.56%
---------- ------- ------ ---------- ------- ------- ------
Total interest-earning assets 1,298,498 48,683 7.50% 1,198,242 44,299 87,516 7.39%
Noninterest-earning assets 42,825 40,631
---------- ----------
Total assets $1,341,323 $1,238,873
========== ==========
Interest-bearing liabilities:
Checking and demand accounts $ 149,031 $ 2,191 2.94% $ 145,406 $ 1,963 $ 3,764 2.70%
Savings accounts 199,238 2,247 2.26% 220,358 2,722 5,476 2.47%
Certificates of deposit 566,345 16,564 5.85% 445,982 11,744 23,404 5.27%
Other borrowed funds 120,236 2,923 4.86% 129,443 4,025 7,688 6.22%
---------- ------- ------ ---------- ------- ------- ------
Total interest-bearing liabilities 1,034,850 23,925 4.62% 941,189 20,454 40,332 4.35%
------- ------ ------- ------- ------
Noninterest-bearing liabilities 46,364 39,257
---------- ----------
Total liabilities 1,081,214 980,446
Equity 260,109 258,427
---------- ----------
Total liabilities and equity $1,341,323 $1,238,873
========== ==========
Net interest income and
interest rate spread $24,758 2.87% $28,845 $47,184 3.05%
======= ====== ======= ======= ======
Net interest margin 3.81% 3.98%
====== =====
Average interest-earning assets to average
interest-bearing liabilities 125.48% 127.31%
====== ======
- -----------------------------------------
(1) Nonaccrual loans are included in the average balance.
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UNITED COMMUNITY FINANCIAL CORP.
RATE/VOLUME ANALYSIS
For the three months ended June 30, For the six months ended June 30,
----------------------------------------- ---------------------------------------
2001 vs. 2000 2001 vs. 2000
----------------------------------------- ---------------------------------------
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 $(263) $ 4,612 $ 4,349 $ 103 $ 8,005 $ 8,108
Mortgage-related securities:
Available for sale (128) (187) (315) (190) (474) (664)
Held to maturity (56) (528) (584) (106) (1,049) (1,155)
Investment securities:
Trading securities 5 (1) 4 (2) (4) (6)
Available for sale 123 (1,205) (1,082) 204 (2,184) (1,980)
Held to maturity (1) (3) (4) (2) (6) (8)
Margin accounts (173) (298) (471) (170) (378) (548)
Other interest-earning assets (59) 387 328 (92) 729 637
----- ------- ------- ------- ------- -------
Total interest-earning assets $(552) $ 2,777 2,225 $ (255) $ 4,639 4,384
===== ======= ------- ======= ======= -------
Interest-bearing liabilities:
Savings accounts (104) (113) (217) (226) (249) (475)
Checking accounts 59 32 91 178 50 228
Certificates of deposit 636 1,939 2,575 1,402 3,418 4,820
Other borrowed funds (647) 71 (576) (831) (271) (1,102)
----- ------- ------- ------- ------- -------
Total interest-bearing liabilities $ (56) $ 1,929 1,873 $ 523 $ 2,948 3,471
===== ======= ------- ======= ======= -------
Change in net interest income $ 352 $ 913
======= =======
</Table>
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.
14
17
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 26, 2001, United Community held its Annual Meeting of Shareholders. In
connection therewith, two matters were submitted to shareholders for a vote.
First, shareholders elected three directors to terms expiring in 2003 by the
following votes:
Director For Withheld
-------- --- --------
Herbert F. Schuler, Sr. 32,272,930 1,173,762
Donald J. Varner 31,252,993 2,193,699
John F. Zimmerman, Jr. 32,262,221 1,184,471
Directors continuing in office with terms expiring after 2001 are Richard M.
Barrett, Thomas J. Cavalier and Douglas M. McKay.
The shareholders also ratified the selection of Crowe, Chizek and Company LLP as
auditors for the 2001 fiscal year by the following vote:
For Against Abstain
--- ------- -------
32,462,956 569,777 413,959
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 April 18, 2001, United Community filed a Form 8-K disclosing operating
results for the quarter ended March 31, 2001.
15
18
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 13, 2001 /s/ Douglas M. McKay
-------------------------------------------
Douglas M. McKay, President
Date: August 13, 2001 /s/ Patrick A. Kelly
-------------------------------------------
Patrick A. Kelly, Treasurer
16
19
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.
17