UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2005
OR
[ ] 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: 0-024399
UNITED COMMUNITY FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
Ohio 34-1856319
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
275 Federal Plaza West, Youngstown, Ohio 44503
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (330) 742-0500
Securities registered pursuant to Section 12(b) of the Act:
None None
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(Title of Class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common shares, no par value per share
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(Title of Class)
Indicate by checkmark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes [X] No [ ]
Indicate by checkmark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in a definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this 10K. [ ]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer.
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by checkmark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act.). Yes [ ] No [X]
The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the last reported sale on June 30,
2005 was $333.0 million. (The exclusion from such amount of the market value of
the shares owned by any person shall not be deemed an admission by the
registrant that such person is an affiliate of the registrant.)
As of March 13, 2006, there were 31,092,963 of the Registrant's Common
Shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part II of Form 10-K - Portions of 2005 Annual Report to Shareholders
Part III of Form 10-K - Portions of Proxy Statement for the 2006
Annual Meeting of Shareholders
TABLE OF CONTENTS
Item
Number Page
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PART I
1. Description of Business
General...................................................................................... 1
Discussion of Forward-Looking Statements..................................................... 2
Lending Activities........................................................................... 2
Investment Activities........................................................................ 11
Sources of Funds............................................................................. 13
Competition.................................................................................. 15
Employees.................................................................................... 16
Regulation................................................................................... 16
1A. Risk Factors.................................................................................... 17
1B. Unresolved Staff Comments....................................................................... 19
2. Properties...................................................................................... 19
3. Legal Proceedings............................................................................... 19
4. Submission of Matters to a Vote of Security Holders............................................. 19
PART II
5. Market for Registrant's Common Equity and Related Shareholder Matters........................... 19
6. Selected Financial Data......................................................................... 19
7. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 19
7A. Quantitative and Qualitative Disclosures About Market Risk...................................... 19
8. Financial Statements and Supplemental Data...................................................... 19
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............ 20
9A. Controls and Procedures......................................................................... 20
9B. Other Information............................................................................... 20
PART III
10. Directors and Executive Officers of the Registrant.............................................. 20
11. Executive Compensation.......................................................................... 20
12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.. 20
13. Certain Relationships and Related Transactions.................................................. 21
14. Principal Accountant Fees and Services.......................................................... 21
PART IV
15. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................. 21
Signatures........................................................................................... 23
Exhibit Index........................................................................................ 24
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
United Community Financial Corp. (United Community) was incorporated in
the State of Ohio in February 1998 for the purpose of owning all of the
outstanding capital stock of The Home Savings and Loan Company of Youngstown,
Ohio (Home Savings) issued upon the conversion of Home Savings from a mutual
savings association to a permanent capital stock savings association
(Conversion). The Conversion was completed on July 8, 1998. On August 12, 1999,
Butler Wick Corp. (Butler Wick) became a wholly-owned subsidiary of United
Community.
United Community's Internet site, http://www.ucfconline.com, contains a
hyperlink to the Securities and Exchange Commission (SEC) where United
Community's annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, Section 16 Insider Reports and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 are available free of charge as soon as reasonably practicable after
United Community has filed the report with the SEC.
As a savings and loan holding company, United Community is subject to
regulation, supervision and examination by the Office of Thrift Supervision
(OTS), the Division of Financial Institutions of the Ohio Department of Commerce
(Division) and the SEC. United Community's primary activity is holding the
common shares of Home Savings and Butler Wick. Consequently, the following
discussion focuses primarily on the business of Home Savings and Butler Wick.
Home Savings was organized as a mutual savings association under Ohio law
in 1889. During 2003, Home Savings changed its charter from a state-chartered
savings and loan association to a state-chartered savings bank. Home Savings is
subject to supervision and regulation by the Federal Deposit Insurance
Corporation (FDIC) and the Division. Home Savings is a member of the Federal
Home Loan Bank of Cincinnati (FHLB) and the deposits of Home Savings are insured
up to applicable limits by the FDIC in the Savings Association Insurance Fund
(SAIF).
Home Savings conducts business from its main office located in Youngstown,
Ohio, 37 full-service branches and six loan production offices located
throughout northern Ohio and western Pennsylvania. The principal business of
Home Savings is the origination of mortgage loans, including construction loans
on residential and nonresidential real estate located in Home Savings' primary
market area, which consists of Ashland, Columbiana, Cuyahoga, Erie, Geauga,
Hancock, Huron, Lake, Mahoning, Montgomery, Richland, Sandusky, Seneca, Summit
and Trumbull Counties in Ohio and Beaver County in Pennsylvania. In addition to
real estate lending, Home Savings originates commercial loans and various types
of consumer loans. For liquidity and interest rate risk management purposes,
Home Savings invests in various financial instruments as discussed below under
"Investment Activities." Funds for lending and other investment activities are
obtained primarily from savings deposits, which are insured up to applicable
limits by the FDIC, principal repayments of loans, borrowings from the FHLB and
maturities of securities.
Interest on loans and other investments is Home Savings' primary source of
income. Home Savings' principal expense is interest paid on deposit accounts and
other borrowings and salaries and benefits paid to employees. Operating results
are dependent to a significant degree on the net interest income of Home
Savings, which is the difference between interest earned on loans and other
investments and interest paid on deposits and borrowed funds. Like most
financial institutions, Home Savings' interest income and interest expense are
affected significantly by general economic conditions and by the policies of
various regulatory authorities.
Butler Wick is the parent company for two wholly-owned subsidiaries:
Butler Wick & Co., Inc. and Butler Wick Trust Company. Butler Wick conducts
business from its main office located in Youngstown, Ohio and 20 offices located
in northeastern Ohio, western Pennsylvania and Illinois. The principal business
of Butler Wick is to sell common and preferred stocks, an array of government,
corporate and municipal bonds, unit trusts, mutual funds, IRAs, money market
accounts and certificates of deposit. Butler Wick also offers investments in a
full line of life insurance and annuity products, personal and corporate
financial planning, fiduciary services, estate planning, pension and profit
sharing and precious metals.
Butler Wick's primary source of income is commissions earned on trades
initiated by customers and its primary expense is salaries and employee
benefits. Commissions earned by Butler Wick, which are a component of
non-interest income, may be affected by general economic conditions in its
market area as well as policy changes by various regulatory agencies.
1
DISCUSSION OF FORWARD-LOOKING STATEMENTS
When used in this Form 10-K the words or phrases "will likely result,"
"are expected to," "will continue," "is anticipated," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in United Community's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in Home
Savings' market area, demand for investments in Butler Wick's market area and
competition, that could cause actual results to differ materially from results
presently anticipated or projected. United Community cautions readers not to
place undue reliance on any such forward-looking statements, which speak only as
of the date made. United Community advises readers that the factors listed above
could affect United Community's financial performance and could cause United
Community's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
United Community does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions that may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.
LENDING ACTIVITIES
GENERAL. Home Savings' principal lending activity is the origination of
conventional real estate loans secured by real estate located in Home Savings'
primary market area, including single family residences. Home Savings also
originates loans secured by multifamily residences and nonresidential real
estate, including construction projects. In addition to real estate lending,
Home Savings originates commercial loans and various types of consumer loans,
including home equity loans, education loans, loans secured by savings accounts,
motor vehicles, boats and recreational vehicles and unsecured loans.
2
LOAN PORTFOLIO COMPOSITION. The following table presents certain
information regarding the composition of United Community's loan portfolio at
the dates indicated:
At December 31,
2005 2004 2003 2002 2001
------------------- ------------------- ------------------- ------------------- -------------------
Percent Percent Percent Percent Percent
of total of total of total of total of total
Amount loans Amount loans Amount loans Amount loans Amount loans
---------- -------- ---------- -------- ---------- -------- ---------- -------- ---------- --------
(Dollars in thousands)
Real estate loans:
Permanent loans:
One- to four-family
residential $ 749,362 35.44% $ 690,413 37.68% $ 599,370 37.62% $ 884,950 59.13% $1,011,701 69.97%
Multifamily residential 154,702 7.32 153,011 8.35 148,362 9.31 78,298 5.23 54,321 3.76
Non-residential 314,124 14.86 289,755 15.81 291,588 18.30 226,399 15.13 132,936 9.19
Land 14,979 0.71 14,701 0.80 14,147 0.89 5,812 0.39 10,368 0.72
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total permanent 1,233,167 58.33 1,147,880 62.64 1,053,467 66.12 1,195,459 79.88 1,209,326 83.64
Construction loans:
One- to four-family
residential 389,558 18.43 301,193 16.44 244,837 15.37 73,047 4.88 71,221 4.93
Multifamily and
non-residential 66,788 3.16 47,230 2.58 27,586 1.73 27,625 1.85 23,344 1.61
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total construction 456,346 21.59 348,423 19.01 272,423 17.10 100,672 6.73 94,565 6.54
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total real estate loans 1,689,513 79.92 1,496,303 81.65 1,325,890 83.22 1,296,131 86.61 1,303,891 90.18
Consumer loans:
Home equity 196,986 9.32 133,441 7.28 134,053 8.41 109,671 7.33 48,671 3.37
Auto 42,975 2.03 58,148 3.17 48,219 3.03 36,052 2.41 21,703 1.50
Marine 23,434 1.11 31,622 1.73 22,987 1.44 63 0.00 0 0.00
RV 48,108 2.27 27,330 1.49 15 0.00 25 0.00 0 0.00
Other (1) 12,012 .57 17,105 .94 13,488 .85 10,085 0.68 40,638 2.81
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total consumer 323,515 15.30 267,646 14.61 218,762 13.73 155,896 10.42 111,012 7.68
Commercial loans 100,977 4.78 68,523 3.74 48,570 3.05 44,470 2.97 30,906 2.14
---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
Total loans 2,114,005 100.00% 1,832,472 100.00% 1,593,222 100.00% 1,496,497 100.00% 1,445,809 100.00%
====== ====== ====== ====== ======
Less net items 16,572 16,496 16,728 18,284 19,138
---------- ---------- ---------- ---------- ----------
Total loans, net $2,097,433 $1,815,976 $1,576,494 $1,478,213 $1,426,671
========== ========== ========== ========== ==========
- ---------------
(1) Consists primarily of overdraft protection loans and loans to individuals
secured by demand accounts, deposits and other consumer assets.
3
LOAN MATURITY. The following table sets forth certain information as of
December 31, 2005, regarding the dollar amount of construction loans and
commercial loans maturing in Home Savings' portfolio based on their contractual
terms to maturity. Demand loans and other loans having no stated schedule of
repayments or no stated maturity are reported as due in one year or less.
Mortgage loans originated by Home Savings generally include due-on-sale clauses
that provide Home Savings with the contractual right to deem the loan
immediately due and payable in the event the borrower transfers the ownership of
the property without Home Savings' consent. The table does not include the
effects of possible prepayments or scheduled repayments.
Principal repayments contractually due in the years ended
December 31,
---------------------------------------------------------
2011 and
2006 2007-2010 thereafter Total
--------- --------- ---------- ---------
(Dollars in thousands)
Construction loans:
One- to four-family residential $ 304,165 $ 837 $ 84,556 $ 389,558
Multifamily and non-residential 12,988 13,823 39,977 66,788
--------- -------- -------- ---------
317,153 14,660 124,533 456,346
Commercial loans 53,237 41,836 5,904 100,977
--------- -------- -------- ---------
Total $ 370,390 $ 56,496 $130,437 $ 557,323
========= ======== ======== =========
The next table sets forth the dollar amount of all loans reported above
as due after December 31, 2006, which have fixed or adjustable interest rates:
Due after December 31, 2006
---------------------------
(Dollars in thousands)
Fixed rate $ 29,024
Adjustable rate 157,909
----------
$ 186,933
==========
LOANS SECURED BY ONE- TO FOUR-FAMILY REAL ESTATE. Home Savings originates
conventional loans secured by first mortgages on one- to four-family residences
located within Home Savings' primary market area. At December 31, 2005, Home
Savings' one- to four-family residential real estate loans totaled approximately
$749.4 million, or 35.4% of total loans. At December 31, 2005, $6.9 million, or
0.9%, of Home Savings' one- to four-family loans, were nonperforming.
Home Savings currently offers fixed-rate mortgage loans and
adjustable-rate mortgage loans (ARMs) for terms of up to 40 years. Although Home
Savings' loan portfolio includes a significant amount of 30-year fixed-rate
loans, since 200_ most fixed rate loans are originated for sale. The interest
rate adjustment periods on ARMs are typically one, three or five years. The
maximum interest rate adjustment on most of the ARMs is 2.0% on any adjustment
date and a total of 6.0% over the life of the loan. The interest rate
adjustments on three-year and five-year ARMs presently offered by Home Savings
are indexed to the weekly average rate on the one-year U.S. Treasury securities.
Rate adjustments are computed by adding a stated margin to the index.
FDIC regulations and Ohio law limit the amount that Home Savings may lend
in relationship to the appraised value of the real estate and improvements that
secure the loan at the time of loan origination. In accordance with such
regulations, Home Savings makes loans on one- to four-family residences of up to
97% of the value of the real estate and improvements (LTV). Home Savings
typically requires private mortgage insurance on the portion of the principal
amount of the loan that exceeds 85% of the appraised value of the property
securing the loan.
Under certain circumstances, Home Savings will offer 85% LTV loans without
private mortgage insurance. Such loans involve a higher degree of risk because
in the event of a borrower default, the value of the underlying collateral may
not satisfy the principal and interest outstanding on the loan. To reduce this
risk, Home Savings underwrites all such loans to Freddie Mac and Fannie Mae
underwriting guidelines. At December 31, 2005, these loans totaled $113.2
million, $705,000 of which was nonperforming.
4
From time-to-time, Home Savings originates interest-only loans, but these
loans are sold immediately after origination. Currently, no interest-only loans
are contained in Home Savings portfolio.
Home Savings issues loan origination commitments to qualified borrowers
primarily for the purchase of single-family residential real estate. Such
commitments have specified terms and conditions and are made for periods of up
to 60 days, during which time the interest rate is locked in.
LOANS SECURED BY MULTIFAMILY RESIDENCES. Home Savings originates loans
secured by multifamily properties that contain more than four units. Multifamily
loans are offered with adjustable rates of interest, which adjust according to a
specified index, and typically have terms ranging from five to ten years and
LTVs of up to 80%.
Multifamily lending generally is considered to involve a higher degree of
risk than one- to four-family residential lending because the borrower typically
depends upon income generated by the project to cover operating expenses and
debt service. The profitability of a project can be affected by economic
conditions, government policies and other factors beyond the control of the
borrower. Home Savings attempts to reduce the risk associated with multifamily
lending by evaluating the creditworthiness of the borrower and the projected
income from the project and by obtaining personal guaranties on loans made to
corporations and partnerships. Home Savings requires borrowers to submit
financial statements annually to enable management to monitor the loan and
requires an assignment of rents from borrowers.
At December 31, 2005, loans secured by multifamily properties totaled
approximately $154.7 million, or 7.3% of total loans. The largest loan had a
principal balance of $12.1 million and was performing according to its terms.
There were approximately $725,000 in multifamily loans that were considered
nonperforming at December 31, 2005.
LOANS SECURED BY NONRESIDENTIAL REAL ESTATE. Home Savings originates loans
secured by nonresidential real estate including shopping centers, office
buildings, hotels and motels. Home Savings' nonresidential real estate loans
have adjustable rates, terms of up to 25 years and, generally, LTVs of up to
75%. The majority of such properties are located within Home Savings' primary
lending area.
Nonresidential real estate lending generally is considered to involve a
higher degree of risk than residential lending due to the relatively larger loan
amounts and the effects of general economic conditions on the successful
operation of income-producing properties. Home Savings has endeavored to reduce
such risk by evaluating the credit history of the borrower, the location of the
real estate, the financial condition of the borrower, the quality and
characteristics of the income stream generated by the property and the
appraisals supporting the property's valuation.
At December 31, 2005, Home Savings' largest loan secured by nonresidential
real estate had a balance of $11.2 million and was performing according to its
terms. At December 31, 2005, approximately $314.1 million, or 14.9%, of Home
Savings' total loans were secured by mortgages on nonresidential real estate, of
which $5.6 million were considered nonperforming at December 31, 2005.
LOANS SECURED BY VACANT LAND. Home Savings also originates a limited
number of loans secured by vacant land for the construction of single-family
houses. Home Savings' land loans generally are fixed-rate loans for terms up to
five years and require a LTV of 75% or less. At December 31, 2005, approximately
$15.0 million, or 0.71%, of Home Savings' total loans were land loans, a
majority of which were loans to individuals intending to construct and occupy
single-family residences on the properties. Nonperforming land loans totaled
$3.7 million at December 31, 2005.
CONSTRUCTION LOANS. Home Savings originates loans for the construction of
one- to four-family residences, multifamily properties and nonresidential real
estate projects. Residential construction loans are made to both owner-occupants
and to builders on a speculative (unsold) basis. Construction loans to
owner-occupants are structured as permanent loans with fixed or adjustable rates
of interest and terms of up to 30 years. During the first year, while the
residence is being constructed, the borrower is required to pay interest only.
Construction loans for one- to four-family residences have LTVs of up to 95%,
and construction loans for multifamily and nonresidential properties have LTVs
of up to 80%, with the value of the land included as part of the owner's equity.
At December 31, 2005, Home Savings had approximately $456.3 million, or
21.6% of its total loans, invested in construction loans, including $389.6
million in one- to four-family residential construction and approximately $66.8
million in multifamily and nonresidential construction loans. Approximately
87.5% of Home Savings' construction loans are made to
5
builders for homes for which the builder does not have a contract with a buyer.
Home Savings, however, limits the number of outstanding loans to each builder on
unsold homes under construction.
Construction loans generally involve greater underwriting and default
risks than loans secured by mortgages on existing properties because
construction loans are more difficult to appraise and to monitor. Loan funds are
advanced upon the security of the project under construction. In the event a
default on a construction loan occurs and foreclosure follows, Home Savings must
take control of the project and attempt either to arrange for completion of
construction or dispose of the unfinished project.
Nonperforming construction loans at December 31, 2005, totaled $1.2
million.
CONSUMER LOANS. Home Savings originates various types of consumer loans,
including home equity loans, vehicle loans, education loans, recreational
vehicle loans, marine loans, overdraft protection loans, loans to individuals
secured by demand accounts, deposits and other consumer assets and unsecured
loans. Consumer loans are made at fixed and adjustable rates of interest and for
varying terms based on the type of loan. At December 31, 2005, Home Savings had
approximately $323.5 million, or 15.3% of its total loans, invested in consumer
loans.
Home Savings generally makes closed-end home equity loans in an amount
which, when added to the prior indebtedness secured by the real estate, does not
exceed 95% of the estimated value of the real estate. Home equity loans
typically are secured by a second mortgage on the real estate. Home Savings
frequently holds the first mortgage, although Home Savings will make home equity
loans in cases where another lender holds the first mortgage. Home Savings also
offers home equity loans with a line of credit feature. Home equity loans are
made with adjustable and fixed rates of interest. Fixed-rate home equity loans
have terms of ten years but can be called after five years. Rate adjustments on
adjustable home equity loans are determined by adding a 1.25% margin to the
current prime interest rate for loans on residences of up to 80% LTV or by
adding a 1.50% margin to the current prime interest rate for loans on residences
of up to 90% LTV to the one-year U.S. Treasury index. At December 31, 2005,
approximately $197.0 million, or 60.9%, of Home Savings' consumer loan portfolio
consisted of home equity loans. Consumer loans secured by a deposit or savings
account are made for up to 100% of the principal balance of the account and
generally have adjustable rates, which adjust based on the weekly average yield
on U.S. Treasury securities plus a margin.
For new automobiles, loans are originated for up to 110% of the MSRP value
of the car with terms of up to 72 months, and, for used automobiles, loans are
made for up to the National Automobile Dealers Association (N.A.D.A) retail
value of the car model and a term of up to 66 months. Most automobile loans are
originated indirectly by approved auto dealerships. At December 31, 2005,
automobile loans totaled $43.0 million, or 13.3%, of Home Savings' consumer loan
portfolio.
Loans for recreational vehicles may be either originated or purchased by
Home Savings. Recreational vehicle loans are originated for up to 85% of the
selling price on new vehicles and 90% of the N.A.D.A retail value of used units
with terms of up to 20 years. Loans are generally fixed for the first seven
years and change to an adjustable rate loan for the remaining term. During 2005,
Home Savings purchased a pool of recreational vehicle loans totaling $19.9
million. At December 31, 2005, recreational vehicle loans totaled $48.1 million,
or 14.9%, of Home Savings' consumer loan portfolio.
Nonperforming consumer loans at December 31, 2005, amounted to $2.7
million.
COMMERCIAL LOANS. Home Savings makes commercial loans to businesses in its
primary market area, including traditional lines of credit, revolving lines of
credit, term loans and acquisition and development loans. The LTV ratios for
commercial loans depend upon the nature of the underlying collateral, but
generally commercial loans are made with LTVs of 50% to 90% and have adjustable
interest rates. Lines of credit and revolving credits generally are priced on a
floating rate basis, which is tied to the prime interest rate or U.S. Treasury
bill rate. Term loans usually have adjustable rates, but can have fixed rates of
interest, and have terms of one to five years.
At December 31, 2005, Home Savings had approximately $101.0 million, or
4.8% of total loans, invested in commercial loans. The majority of these loans
are secured by inventory, accounts receivable, machinery, investment property,
vehicles or other assets of the borrower. Home Savings also originates unsecured
commercial loans including lines of credit for periods of less than 12 months,
short-term loans and, occasionally, term loans for periods of up to 36 months.
These loans are underwritten based on the creditworthiness of the borrower and
the guarantors, if any. Home Savings had $33.5 million in unsecured commercial
loans as of December 31, 2005.
6
Commercial loans generally entail greater risk than real estate lending.
The repayment of commercial loans typically is dependent on the income stream
and successful operation of a business, which can be affected by economic
conditions. The collateral for commercial loans, if any, often consists of
rapidly depreciating assets.
Nonperforming commercial loans at December 31, 2005, amounted to $3.6
million.
LOAN SOLICITATION AND PROCESSING. The lending activities of Home Savings
are subject to the written, non-discriminatory underwriting standards and loan
origination procedures approved by Home Savings' Board of Directors (Board).
Loan originations generally are obtained from existing customers and members of
the local community and from referrals by real estate brokers, lawyers,
accountants and current and former customers. Home Savings also advertises in
the local print media, radio and television.
Each of Home Savings' 37 offices and six loan production offices have loan
personnel who can accept loan applications, which are then forwarded to Home
Savings' Underwriting Department for processing and approval. In underwriting
real estate loans, Home Savings typically obtains a credit report, verification
of employment and other documentation concerning the creditworthiness of the
borrower. An appraisal of the fair market value of the real estate that will be
given as security for the loan is prepared by one of Home Savings' in-house
licensed appraisers or an approved independent fee appraiser. For certain large
nonresidential real estate loans, the appraisal is conducted by an outside fee
appraiser whose report is reviewed by Home Savings' chief appraiser. Upon the
completion of the appraisal and the receipt of information on the credit history
of the borrower, the loan application is submitted for review to the appropriate
persons. Commercial, residential and nonresidential real estate loans up to $1.0
million may be approved by an authorized executive officer. Loan requests of
$1.0 million to $15.0 million require the approval of the Loan Committee. All
loans of $15.0 million or more require approval by three executive officers and
a majority of the Board.
Borrowers are required to carry satisfactory fire and casualty insurance
and flood insurance, if applicable, and to name Home Savings as an insured
mortgagee. Home Savings generally obtains a title guarantee or title insurance
on real estate loans.
The procedure for approval of construction loans is the same as for
permanent real estate loans, except that an appraiser evaluates the building
plans, construction specifications and estimates of construction costs. Home
Savings also evaluates the feasibility of the proposed construction project and
the experience and record of the builder. Once approved, the construction loan
is disbursed in installments based upon periodic inspections of construction
progress.
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan and the value of the collateral, if any.
LOAN ORIGINATIONS, PURCHASES AND SALES. Home Savings' residential loans
generally are made on terms and conditions and documented to conform to the
secondary market guidelines for sale to the Federal Home Loan Mortgage Company
(FHLMC) and other institutional investors in the secondary market. Education
loans are sold, once the borrower leaves school, to the Student Loan Marketing
Association. Home Savings does not originate first mortgage loans insured by the
Federal Housing Authority or guaranteed by the Veterans Administration, but it
has purchased such loans as well as participation interests in such loans.
Home Savings generally retains the servicing rights on the sale of loans
originated in the geographic area surrounding its full service branches. Home
Savings anticipates continued participation in the secondary mortgage loan
market to maintain its desired risk profile.
At December 31, 2005, Home Savings had $96.6 million of outstanding
commitments to make loans and $142.5 million available to borrowers under
consumer and commercial lines of credit. At December 31, 2005, Home Savings had
$264.1 million in undisbursed funds related to construction loans in process.
During 2003, Home Savings entered into an agreement to purchase one- to
four-family construction loans from another institution. Loans purchased under
this agreement earn a floating rate of interest, are guaranteed as to principal
and interest by a third party and are for the purpose of constructing either
pre-sold or market homes. At December 31, 2005, approximately $101.7 million was
outstanding under this program. Home Savings anticipates continuing purchases of
loans under this program in 2006.
7
LOANS TO ONE BORROWER LIMITS. Regulations generally limit the aggregate
amount that Home Savings may lend to any one borrower to an amount equal to
15.0% of Home Savings' unimpaired capital and unimpaired surplus (Lending Limit
Capital). A savings association may lend to one borrower an additional amount
not to exceed 10.0% of Lending Limit Capital if the additional amount is fully
secured by certain forms of "readily marketable collateral." Real estate is not
considered "readily marketable collateral." In applying this limit, the
regulations require that loans to certain related or affiliated borrowers be
aggregated.
Based on such limits, Home Savings could lend approximately $32.8 million
to one borrower at December 31, 2005. The largest amount Home Savings had
outstanding to one borrower at December 31, 2005, was $20.1 million, which
consisted of nine loans secured primarily by mortgages on non-residential
property. At December 31, 2005, these loans were performing in accordance with
their terms.
DELINQUENT LOANS, NONPERFORMING ASSETS AND CLASSIFIED ASSETS. Home Savings
attempts to maintain a high level of asset quality through sound underwriting
policies and aggressive collection practices.
The following table reflects the amount of all loans in a delinquent
status as of the dates indicated:
At December 31,
-----------------------------------------------------------------------------
2005 2004
------------------------------------ -------------------------------------
Percent of Percent of
net net
Number Amount loans Number Amount loans
------ -------- ---------- ------ -------- ----------
(Dollars in thousands)
Loans delinquent for:
30-59 days 295 $ 19,098 0.90% 258 $ 9,634 0.53%
60-89 days 81 14,193 0.67 73 4,464 0.24
90 days or over 220 24,391 1.15 221 19,225 1.05
--- -------- ---- --- -------- ----
Total delinquent loans 596 $ 57,682 2.72% 552 $ 33,323 1.82%
=== ======== ---- === ======== ====
Nonperforming assets include loans past due 90 days and on a nonaccrual
status, loans past due 90 days and still accruing, loans less than 90 days past
due and on a nonaccrual status, restructured loans, real estate acquired by
foreclosure or by deed-in-lieu of foreclosure and repossessed assets. Once a
loan becomes 90 days delinquent, it generally is placed on non-accrual status.
Loans are reviewed through monthly reports to the Board and management and
are placed on nonaccrual status when collection in full is considered doubtful
by management. Interest accrued and unpaid at the time a loan is placed on
nonaccrual status is charged against interest income. Subsequent cash payments
generally are applied to interest income unless, in the opinion of management,
the collection of principal and interest is doubtful. In those cases, subsequent
cash payments are applied to principal.
8
The following table sets forth information with respect to Home Savings'
nonperforming loans and other assets at the dates indicated:
At December 31,
--------------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
(Dollars in thousands)
Nonperforming loans:
Nonaccrual loans
Real estate loans:
One- to four-family residential $ 6,795 $ 6,511 $ 7,121 $ 7,567 $ 5,813
Multifamily and nonresidential 6,368 2,880 1,315 2,049 775
Construction (net of loans in process) and land 4,732 1,350 1,724 3,141 3,398
-------- -------- -------- -------- --------
Total real estate loans 17,895 10,741 10,160 12,757 9,986
Consumer 2,495 5,152 888 715 434
Commercial 3,889 4,960 1,933 952 469
-------- -------- -------- -------- --------
Total nonaccrual loans 24,279 20,853 12,981 14,424 10,889
Restructured loans 825 1,329 1,853 1,271 1,572
Past due 90 days and still accruing 563 377 1,300 - -
-------- -------- -------- -------- --------
Total nonperforming loans 25,667 22,559 16,134 15,695 12,461
Real estate acquired through foreclosure and other
repossessed assets 2,514 1,682 1,299 1,150 477
-------- -------- -------- -------- --------
Total nonperforming assets $ 28,181 $ 24,241 $ 17,433 $ 16,845 $ 12,938
======== ======== ======== ======== ========
Nonperforming loans as a percent of loans, net 1.22% 1.24% 1.02% 1.06% 0.89%
Nonperforming assets as a percent of total assets 1.11 1.06 0.84 0.85 0.67
Allowance for loan losses as a percent of
nonperforming loans 61.26 70.38 93.66 96.20 92.13
Allowance for loan losses as a percent of loans, net 0.74 0.87 0.96 1.02 0.82
For 2005, approximately $2.6 million in additional interest income would
have been recorded had nonaccrual and restructured loans been accruing pursuant
to contractual terms. During 2005, interest collected on such loans and included
in net income was approximately $561,000.
Nonperforming assets increased approximately $3.9 million, or 16.3%, to
$28.2 million at December 31, 2005, from $24.2 million at December 31, 2004. At
December 31, 2005, total nonperforming loans accounted for 1.22% of net loans
receivable, compared to 1.24% at December 31, 2004. Total nonperforming assets
were 1.11% of total assets as of December 31, 2005 from 1.06% as of December 31,
2004.
Real estate acquired in settlement of loans is classified separately on
the balance sheet at the lower of cost or net realizable value as of the date of
acquisition. At foreclosure, the loan is written down to the value of the
underlying collateral by a charge to the allowance for loan losses, if
necessary. Any subsequent write-downs are charged against operating expenses.
Operating expenses of such properties, net of related income or loss on
disposition, are included in other expenses. At December 31, 2005, the carrying
value of real estate and other repossessed assets acquired in settlement of
loans was $2.5 million and consisted of $1.7 million in single-family properties
and $807,000 in boats and automobiles.
In addition to the nonperforming loans identified above, other loans may
be identified as having potential credit problems that result in those loans
being classified by our internal loan review function. These potential problem
loans, which have not exhibited the more severe weaknesses generally present in
nonperforming loans, amounted to $15.5 million, net of applicable reserves, at
December 31, 2005.
ALLOWANCE FOR LOAN LOSSES. Management establishes the allowance for loan
losses at a level it believes adequate to absorb probable losses incurred in the
loan portfolio. Management bases its determination of the adequacy of the
allowance upon estimates derived from an analysis of individual credits, prior
and current loss experience, loan portfolio delinquency levels, overall growth
in the loan portfolio and current economic conditions. Furthermore, in
determining the level of the
9
allowance for loan loss, management reviews and evaluates on a monthly basis
the necessity of a reserve for individual loans classified by management. The
specifically allocated reserve for a classified loan is determined based on
management's estimate of the borrower's ability to repay the loan given the
availability of collateral, other sources of cash flow and legal options
available to Home Savings. Once a review is completed, the need for a specific
reserve is determined by the Home Savings Asset Review Committee and allocated
to the loan. Other loans not reviewed specifically by management are evaluated
as a homogeneous group of loans (single-family residential mortgage loans and
all consumer credit except marine loans) using the historical charge-off
experience ratio calculated by type of loan. The historical charge-off
experience ratio factors into account the homogeneous nature of the loans, the
geographical lending areas involved, regulatory examination findings, specific
grading systems applied and any other known factors that may impact the ratios
used. Specific reserves on individual loans and historical ratios are reviewed
periodically and adjusted as necessary based on subsequent collections, loan
upgrades or downgrades, nonperforming trends or actual principal charge-offs.
When evaluating the adequacy of the allowance for loan losses, consideration is
given to geographic concentration and the effect changing economic conditions
have on Home Savings. These estimates are particularly susceptible to changes
that could result in a material adjustment to results of operations. The
provision for loan losses represents a charge against current earnings in order
to maintain the allowance for loan losses at an appropriate level.
The following table sets forth an analysis of Home Savings' allowance for
loan losses for the periods indicated:
Year ended December 31,
------------------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
(Dollars in thousands)
Balance at beginning of period $ 15,877 $ 15,111 $ 15,099 $ 11,480 $ 6,553
Provision for loan losses 3,028 9,370 3,179 3,578 2,495
Charge-offs:
Real estate (996) (1,016) (2,111) (347) (89)
Consumer (2,848) (6,177) (650) (410) (283)
Commercial (241) (1,867) (579) (1,210) (55)
-------- -------- -------- -------- --------
Total charge-offs (4,085) (9,060) (3,340) (1,967) (427)
-------- -------- -------- -------- --------
Recoveries:
Real estate 53 325 94 71 13
Consumer 848 72 41 65 10
Commercial 2 59 38 3 9
-------- -------- -------- -------- --------
Total recoveries 903 456 173 139 32
-------- -------- -------- -------- --------
Net charge-offs (3,182) (8,604) (3,167) (1,828) (395)
Acquisition of Industrial Savings - - - - 2,795
Acquisition of Potters Bank - - - 1,869 -
-------- -------- -------- -------- --------
Balance at end of year $ 15,723 $ 15,877 $ 15,111 $ 15,099 $ 11,480
======== ======== ======== ======== ========
Ratio of net charge-offs
to average net loans (0.16)% (0.50)% (0.21)% (0.12)% (0.03)%
10
The following table sets forth the allocation of the allowance for loan
losses by category. The allocations are based on management's assessment of the
risk characteristics of each of the components of the total loan portfolio and
are subject to change as and when the risk factors of each component change. The
allocation is not indicative of either the specific amounts or the loan
categories in which future charge-offs may be taken, nor should it be taken as
an indicator of future loss trends. The allocation of the allowance to each
category is not indicative necessarily of future loss in any particular category
and does not restrict the use of the allowance to absorb losses in any category.
At December 31,
------------------------------------------------------------------------------------------------------------------
2005 2004 2003 2002 2001
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Percent of Percent of Percent of Percent of Percent of
loans in each loans in each loans in each loans in each loans in each
category category category category category
Amount to total loans Amount to total loans Amount to total loans Amount to total loans Amount to total loans
------- -------------- ------- -------------- ------- -------------- ------- -------------- ------- --------------
(Dollars in thousands)
Real estate loans $ 9,683 79.92% $10,559 81.65% $10,796 83.22% $11,017 86.61% $ 8,339 90.18%
Consumer loans 3,378 15.30 3,615 14.61 2,670 13.73 1,947 10.42 975 7.68
Commercial loans 2,662 4.78 1,703 3.74 1,645 3.05 2,135 2.97 2,166 2.14
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total $15,723 100.00% $15,877 100.00% $15,111 100.00% $15,099 100.00% $11,480 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
INVESTMENT ACTIVITIES
GENERAL. Investment securities are classified upon acquisition as
available for sale, held to maturity or trading. Securities classified as
available for sale are carried at estimated fair value with the unrealized
holding gain or loss, net of taxes, reflected as a component of retained
earnings. Securities classified as held to maturity are carried at amortized
cost. Securities classified as trading are carried at estimated fair value with
the unrealized holding gain or loss reflected as a component of income. United
Community, Home Savings and Butler Wick recognize premiums and discounts in
interest income over the period to maturity or call by the level yield method
and realized gains or losses on the sale of debt securities based on the
amortized cost of the specific securities sold.
HOME SAVINGS INVESTMENT ACTIVITIES. Federal regulations and Ohio law
permit Home Savings to invest in various types of marketable securities,
including interest-bearing deposits in other financial institutions, federal
funds, U.S. Treasury and agency obligations, mortgage-related securities, and
certain other specified investments. The Board has adopted an investment policy
that authorizes management to make investments in U.S. Treasury obligations,
U.S. Federal agency and federally-sponsored corporation obligations,
mortgage-related securities issued or sponsored by Federal National Mortgage
Association (FNMA), FHLMC, Government National Mortgage Association (GNMA), as
well as private issuers, investment-grade municipal obligations, creditworthy,
unrated securities issued by municipalities in which an office of Home Savings
is located, investment-grade corporate debt securities, investment-grade
asset-backed securities, certificates of deposit that are fully-insured by the
FDIC, bankers' acceptances, federal funds and money market funds. Home Savings'
investment policy is designed primarily to provide and maintain liquidity within
regulatory guidelines, to maintain a balance of high quality investments to
minimize risk, and to maximize return without sacrificing liquidity and safety.
Home Savings maintains a significant portfolio of mortgage-backed
securities and collateralized mortgage obligations (CMOs) that are rated the
highest credit quality by a nationally recognized rating agency. Both types of
securities are issued by FNMA, GNMA and FHLMC. Mortgage-backed securities
generally entitle Home Savings to receive a portion of the cash flows from an
identified pool of mortgages. CMOs are a type of debt security issued by a
special-purpose entity that aggregates pools of mortgages and mortgage-backed
securities and creates different classes of securities with varying maturities
and amortization schedules, as well as a residual interest, with each class
possessing different risk characteristics. The cash flows from the underlying
collateral generally are divided into tranches or classes that have descending
priorities with respect to the distribution of principal and interest repayment
of the underlying mortgages, as opposed to pass through mortgage-backed
securities where cash flows are distributed pro rata to all security holders. In
contrast to mortgage-backed securities from which cash flow is received (and
hence, prepayment risk is shared) pro rata by all securities holders, the cash
flow from the mortgages or mortgage-related securities underlying CMOs is paid
in accordance with predetermined priority to investors holding various tranches
of such securities or obligations. A particular tranche of CMOs may, therefore,
carry prepayment risk that differs from that of both the underlying collateral
and other tranches. Accordingly, CMOs attempt to moderate risks associated with
conventional mortgage-backed securities resulting from unexpected prepayment
activity.
Home Savings is exposed to prepayment risk and reinvestment risk to the
extent that actual prepayments will differ from those estimated in pricing the
security, which may result in adjustments to the net yield on such securities.
Mortgage-related securities enable Home Savings to generate positive interest
rate spreads with minimal administrative expense and
11
reduce credit risk due to either guarantees provided by the issuer or the high
credit rating of the issuer. Mortgage-related securities classified as available
for sale also provide Home Savings with an additional source of liquid funds.
BUTLER WICK INVESTMENT ACTIVITIES. Butler Wick holds securities through
two subsidiaries, Butler Wick & Co., Inc. and Butler Wick Trust Company. Butler
Wick & Co., Inc. invests in municipal securities and government agency
securities for sale to clients. Butler Wick & Co., Inc.'s securities are carried
at fair value with gains and losses recognized currently. Butler Wick & Co.,
Inc. does not make markets in equity securities.
In order to qualify as a fiduciary in the State of Ohio, Butler Wick Trust
Company deposited United States Government obligations having a principal value
of $100,000 with the Federal Reserve Bank for the state. In addition to these
deposits, Butler Wick Trust Company owns U.S. Government obligations.
UNITED COMMUNITY INVESTMENT ACTIVITIES. Funds maintained by United
Community for general corporate purposes, including possible acquisitions,
primarily are invested in an account with Home Savings. United Community also
owns a small portfolio of bank equities.
12
The following table presents the amortized cost, fair value and weighted
average yield of securities at December 31, 2005 by maturity:
At December 31, 2005
--------------------------------------------------------------------------------
No stated After one year Five years through
maturity One year or less through five years ten years
------------------ ------------------ ------------------ ------------------
Amortized Average Amortized Average Amortized Average Amortized Average
cost yield cost yield cost yield cost yield
--------- ------- --------- ------- --------- ------- --------- -------
(Dollars in thousands)
Securities:
U.S Government agencies and corporations $ - -% $ 24,147 2.71% $ 56,254 3.73% $ 9,891 5.23%
States and political subdivisions - - 3 12.74 - - - -
Mortgage-related securities - - 18 7.60 1,482 8.63 1,664 6.17
Other securities (a) 2,301 1.24 - - - - - -
--------- --------- --------- ---------
Total securities $ 2,301 1.24% $ 24.168 2.71% $ 57,736 3.86% $ 11,555 5.37%
========= ========= ========= =========
At December 31, 2005
--------------------------------------------------
After ten years Total
------------------- -----------------------------
Amortized Average Amortized Average Fair
cost yield cost yield value
--------- ------- --------- ------- --------
(Dollars in thousands)
Securities:
U.S. Government agencies and corporations $ - -% $ 90,292 3.62% $ 88,799
States and political subdivisions - - 3 12.87 3
Mortgage-related securities 109,028 4.52 112,192 4.60 110,106
Other securities (a) - - 2,301 1.24 2,962
--------- --------- --------
Total securities $ 109,028 4.52% $ 204,788 4.13% $201,870
========= ========= ========
(a) Yield on equity securities only; mutual funds excluded
SOURCES OF FUNDS
GENERAL. Deposits traditionally have been the primary source of Home
Savings' funds for use in lending and other investment activities. In addition
to deposits, Home Savings derives funds from interest payments and principal
repayments on loans and income on other earning assets. Loan payments are a
relatively stable source of funds, while deposit inflows and outflows fluctuate
in response to general interest rates and money market conditions. Home Savings
also may borrow from the FHLB, as well as other suitable lenders, as a source of
funds.
DEPOSITS. Deposits are attracted principally from within Home Savings'
primary market area through the offering of a selection of deposit instruments,
including regular passbook savings accounts, demand deposits, individual
retirement accounts (IRAs), checking accounts, money market accounts, and
certificates of deposit. Interest rates paid, maturity terms, service fees, and
withdrawal penalties for the various types of accounts are monitored weekly by
management. Home Savings does not use brokers to attract deposits. The amount of
deposits from outside Home Savings' primary market area is not significant.
13
The following table sets forth the dollar amount of deposits in the various
types of accounts offered by Home Savings at the dates indicated:
At December 31, 2005 For the Year Ended December 31, 2005
------------------------------------ ------------------------------------
Percent Weighted Percent Weighted
of total average Average of average average
Amount deposits rate balance deposits rate
---------- -------- -------- ---------- ---------- --------
(Dollars in thousands)
Noninterest bearing demand $ 96,918 5.76% -% $ 89,483 5.64% -%
Checking and money market accounts 258,998 15.40 1.76 269,652 17.00 1.20
Savings accounts 259,811 15.45 0.41 287,714 18.15 0.42
Certificates of deposit 1,066,117 63.39 3.88 938,957 59.21 3.57
---------- ------ ---------- ------
Total deposits $1,681,844 100.00% 2.79% $1,585,806 100.00% 2.39
========== ====== ========== ======
For the Year Ended December 31, 2004 For the Year Ended December 31, 2003
------------------------------------ ------------------------------------
Percent Weighted Percent Weighted
Average of average average Average of average average
balance deposits rate balance deposits rate
----------- ---------- -------- --------- ---------- --------
(Dollars in thousands)
Noninterest bearing demand $ 75,157 5.13% -% 61,273 4.17% -%
Checking and money market accounts 302,936 20.67 0.79 308,816 21.01 1.01
Savings accounts 314,588 21.46 0.43 335,843 22.85 0.70
Certificates of deposit 773,019 52.74 3.18 763,704 51.97 3.33
----------- ------ --------- ------
Total deposits $ 1,465,700 100.00% 1.93% 1,469,636 100.00% 2.10
=========== ====== ========= =======
The following table shows rate and maturity information for Home Savings'
certificates of deposit at December 31, 2005:
Over Over
Up to 1 year to 2 years to
Rate one year 2 years 3 years Thereafter Total
- ---------------------------------------- -------- --------- ---------- ---------- ----------
(Dollars in thousands)
2.00% or less $ 41,255 $ 3,486 $ 1,351 $ 2,757 $ 48,849
2.01% to 4.00% 285,693 92,718 58,424 15,475 452,310
4.01% to 6.00% 213,013 172,200 37,756 140,289 563,258
Greater than 6.00% 1,653 31 16 - 1,700
-------- --------- ---------- ---------- ----------
Total certificates of deposit $541,614 $ 268,435 $ 97,547 $ 158,521 $1,066,117
======== ========= ========== ========== ==========
Percent of total certificates of deposit 50.80% 25.18% 9.15% 14.87% 100.00%
At December 31, 2005, approximately $541.6 million of Home Savings'
certificates of deposit mature within one year. Based on past experience and
Home Savings' prevailing pricing strategies, management believes that a
substantial percentage of such certificates will be renewed with Home Savings at
maturity. If, however, Home Savings is unable to renew the maturing certificates
for any reason, borrowings of up to $132.5 million are available from the FHLB.
14
The following table presents the amount of Home Savings' certificates of
deposit of $100,000 or more by the time remaining until maturity at December 31,
2005:
Maturity Amount
- -------------------------- ----------------------
(Dollars in thousands)
Three months or less $ 35,900
Over 3 months to 6 months 34,033
Over 6 months to 12 months 40,200
Over 12 months 102,550
----------
Total $ 212,683
==========
Based on past experience, management believes that a substantial percentage of
the above certificates will be renewed with Home Savings at maturity.
The following table sets forth Home Savings' deposit account balance
activity for the periods indicated:
Year ended December 31,
---------------------------------
2005 2004
----------- -----------
(Dollars in thousands)
Beginning balance $ 1,522,952 $ 1,423,698
Net increase (decrease) in deposits 122,020 71,060
----------- -----------
Net deposits before interest credited 1,644,972 1,494,758
Interest credited 36,872 28,194
----------- -----------
Ending balance $ 1,681,844 $ 1,522,952
=========== ===========
Net increase (decrease) $ 158,892 $ 99,254
=========== ===========
Percent increase (decrease) 10.43% 6.97%
BORROWINGS. The FHLB system functions as a central reserve bank providing
credit for its member institutions and certain other financial institutions. As
a member in good standing of the FHLB, Home Savings is authorized to apply for
advances, provided certain standards of creditworthiness have been met. Under
current regulations, an association must meet certain qualifications to be
eligible for FHLB advances. The extent to which an association is eligible for
such advances will depend upon whether it meets the Qualified Thrift Lender
(QTL) test. If an association meets the QTL test, the association will be
eligible for 100% of the advances it would otherwise be eligible to receive. If
an association does not meet the QTL test, the association will be eligible for
such advances only to the extent it holds specified QTL test assets. At December
31, 2005, Home Savings was in compliance with the QTL test. Home Savings may
borrow up to $608.6 million from the FHLB, and had $475.5 million in outstanding
advances at December 31, 2005. Of the $475.5 million, a total of $35.0 million
is callable, $25.0 million matured in February 2006 and $10.0 is callable
quarterly and matures in February 2009.
Butler Wick borrows on a secured basis to fund client receivables.
Short-term bank loans bear interest at the federal funds rate plus 1% and are
payable on demand. The loans are collateralized fully by marketable securities
from both customers' margin accounts and securities owned by Butler Wick.
Short-term borrowings also take the form of securities loaned to other
broker/dealers. Short-term borrowings are available to Butler Wick to the extent
of the loan value of the marketable securities.
COMPETITION
Home Savings faces competition for deposits and loans from other savings
and loan associations, credit unions, banks and mortgage originators in Home
Savings' primary market area. The primary factors in competition for deposits
are customer service, convenience of office location and interest rates. Home
Savings competes for loan originations primarily through the interest rates and
loan fees it charges and through the efficiency and quality of service it
provides to borrowers.
15
Competition is affected by, among other things, the general availability of
lendable funds, general and local economic conditions, current interest rate
levels and other factors, which are not readily predictable.
Butler Wick offers retail brokerage, asset management, and trust services
to clients primarily in northeastern Ohio and western Pennsylvania. In each of
these businesses, Butler Wick competes with both regional and national firms. As
a full service broker, Butler Wick competes based on personal service rather
than price. Butler Wick Trust Company is the only such locally owned and managed
financial services provider.
EMPLOYEES
At December 31, 2005, Home Savings and Butler Wick had 631 and 193
full-time equivalent employees, respectively. Home Savings and Butler Wick
believe that relations with their employees are good. Home Savings offers
health, life and disability benefits to all employees, a 401(k) plan and an
employee stock ownership plan for its eligible employees. Butler Wick offers
health, life and disability benefits to all employees, a 401(k) plan, a profit
sharing plan and a retention plan for its eligible employees.
REGULATION
United Community is a unitary savings and loan holding company within the
meaning of the Home Owners Loan Act, as amended (HOLA), and is subject to
regulation, examination, and oversight by the OTS, although there generally are
no restrictions on the activities of United Community unless the OTS determines
that there is reasonable cause to believe that an activity constitutes a serious
risk to the financial safety, soundness, or stability of Home Savings. Home
Savings is subject to regulation, examination, and oversight by the Division and
the FDIC, and it also is subject to certain provisions of the Federal Reserve
Act. Butler Wick is subject to regulation, examination and oversight by the SEC
and NASD and the Division. United Community, Home Savings and Butler Wick are
also subject to the provisions of the Ohio Revised Code applicable to
corporations generally, including laws that restrict takeover bids, tender
offers and control-share acquisitions involving public companies which have
significant ties to Ohio.
The OTS, the FDIC, the Division, the SEC and the NASD each have various
powers to initiate supervisory measures or formal enforcement actions if United
Community or the subsidiary they regulate does not comply with applicable
regulations. If the grounds provided by law exist, the FDIC or the Division may
place Home Savings in conservatorship or receivership. Home Savings is also
subject to regulatory oversight under various consumer protection and fair
lending laws which govern, among other things, truth-in-lending disclosures,
equal credit opportunity, fair credit reporting and community reinvestment.
Failure to abide by federal laws and regulations governing community
reinvestment could limit the ability of Home Savings to open a new branch or
engage in a merger.
Federal law prohibits Home Savings from making a capital distribution to
anyone or paying management fees to any person having control of Home Savings
if, after such distribution or payment, Home Savings would be undercapitalized.
In addition, each company controlling an undercapitalized institution will
comply with its capital restoration plan until the institution has been
adequately capitalized on average during each of the four preceding calendar
quarters and must provide adequate assurances of performance.
Federal Reserve Board regulations currently require savings associations
to maintain reserves of 3% of net transaction accounts (primarily checking
accounts) up to $48.3 million (subject to an exemption of up to $7.8 million),
and of 10% of net transaction accounts in excess of $48.3 million. At December
31, 2005, Home Savings was in compliance with its reserve requirements.
Loans by Home Savings to executive officers, directors, and principal
shareholders and their related interests must conform to the lending limit on
loans to one borrower, and the total of such loans to executive officers,
directors, principal shareholders, and their related interests cannot exceed
specified limits. Most loans to directors, executive officers, and principal
shareholders must be approved in advance by a majority of the "disinterested"
members of the Board with any "interested" director not participating. All loans
to directors, executive officers, and principal shareholders must be made on
terms substantially the same as offered in comparable transactions with the
general public or as offered to all employees in a company-wide benefit program,
and loans to executive officers are subject to additional limitations. All other
transactions between Home Savings and its affiliates must comply with Sections
23A and 23B of the Federal Reserve Act. United Community and Butler Wick are
affiliates of Home Savings for this purpose.
16
Under federal law and regulations, no person, directly or indirectly, or
acting in concert with others, may acquire control of Home Savings or United
Community without 60 days' prior notice to the OTS. "Control" is generally
defined as having more than 25% ownership or voting power; however, ownership or
voting power of more than 10% may be deemed "control" if certain factors are in
place. If the acquisition of control is by a company, the acquirer must obtain
approval, rather than give notice, of the acquisition as a savings and loan
holding company.
In addition, a statutory limitation on the acquisition of control of an
Ohio savings bank requires the written approval of the Division prior to the
acquisition by any person or entity of a controlling interest in an Ohio
association. Control exists, for purposes of Ohio law, when any person or entity
which, either directly or indirectly, or acting in concert with one or more
other persons or entities, owns, controls, holds with power to vote, or holds
proxies representing, 15% or more of the voting shares or rights of an
association, or controls in any manner the election or appointment of a majority
of the directors. Ohio law also requires that certain acquisitions of voting
securities that would result in the acquiring shareholder owning 20%, 33 1/3% or
50% of the outstanding voting securities of United Community must be approved in
advance by the holders of at least a majority of the outstanding voting shares
represented at a meeting at which a quorum is present and a majority of the
portion of the outstanding voting shares represented at such a meeting,
excluding the voting shares by the acquiring shareholder.
Federal law generally prohibits a savings and loan holding company, such
as United Community, from controlling any other savings association or savings
and loan holding company, without prior approval of the OTS, or from acquiring
or retaining more than 5% of the voting shares of a savings association or
holding company thereof, which is not a subsidiary. Except with the prior
approval of the OTS, no director or officer of a savings and loan holding
company or person owning or controlling by proxy or otherwise more than 25% of
such holding company's stock also may acquire control of any savings
institution, other than a subsidiary institution, or any other savings and loan
holding company.
ITEM 1A. RISK FACTORS
Like all financial companies, United Community's business and results of
operations are subject to a number of risks, many of which are outside of our
control. In addition to the other information in this report, readers should
carefully consider that the following important factors, among others, could
materially impact our business and future results of operations.
Changes in interest rates could adversely affect our financial condition and
results of operations.
Our results of operations depend substantially on our net interest income,
which is the difference between the interest earned on loans, securities and
other interest-earning assets and the interest paid on deposits and other
borrowings. These rates are highly sensitive to many factors beyond our control,
including general economic conditions, inflation, recession, unemployment, money
supply and the policies of various governmental and regulatory authorities.
While we have taken measures intended to manage the risks of operating in a
changing interest rate environment, there can be no assurance that these
measures will be effective in avoiding undue interest rate risk.
Increases in interest rates can affect the value of loans and other
assets, including our ability to realize gains on the sale of assets. We
originate loans for sale and for our portfolio. Increasing interest rates may
reduce the origination of loans for sale and consequently the fee income we earn
on such sales. Further, increasing interest rates may adversely affect the
ability of borrowers to pay the principal or interest on loans and leases,
resulting in an increase in nonperforming assets and a reduction of income
recognized.
In contrast, decreasing interest rates have the effect of causing clients
to refinance mortgage loans faster than anticipated. This causes the value of
assets related to the servicing rights on loans sold to be lower than originally
anticipated. If this happens, we may need to write down our servicing assets
faster, which would accelerate our expense and lower our earnings.
Credit risks could adversely affect our results of operations.
There are inherent risks associated with our lending activities, including
credit risk, which is the risk that borrowers may not repay outstanding loans or
the value of the collateral securing loans will decrease. We attempt to manage
credit risk through a program of underwriting standards, the review of certain
credit decisions and an on-going process of assessment of the quality of the
credit already extended. However, conditions such as inflation, recession,
unemployment, changes in
17
interest rates, money supply and other factors beyond our control may increase
our credit risk. Such changes in the economy may have a negative impact on the
ability of borrowers to repay their loans. Because we have a significant amount
of real estate loans, decreases in real estate values could adversely affect the
value of our collateral. In addition, a substantial portion of our loans are to
individuals and businesses in Ohio. Consequently, any decline in the state's
economy could have a materially adverse effect on our financial condition and
results of operations.
We operate in an extremely competitive market, and our business will suffer if
we are unable to compete effectively.
In our market area, we encounter significant competition from savings and
loan associations, banks, credit unions, mortgage banking firms, securities
brokerage firms, asset management firms and insurance companies. Many of our
competitors have substantially greater resources and lending limits than we do
and may offer services that we do not or cannot provide.
Legislative or regulatory changes or actions could adversely impact the
financial services industry.
The financial services industry is extensively regulated. Federal and
state banking laws and regulations are primarily intended for the protection of
consumers, depositors and the deposit insurance funds, and are not necessarily
intended to benefit our shareholders. Changes to laws and regulations or other
actions by regulatory agencies may negatively impact us. Regulatory authorities
have extensive discretion in connection with their supervisory and enforcement
activities, including the imposition of restrictions on the operation of an
institution, the classification of assets by the institution and the adequacy of
an institution's allowance for loan losses. The significant federal and state
banking regulations that affect us are described in this 10-K under the heading
"Regulation."
Our ability to pay cash dividends is limited.
We are dependent primarily upon the earnings of our operating subsidiaries
for funds to pay dividends on our common shares. The payment of dividends by
Home Savings is subject to certain regulatory restrictions. As a result, any
payment of dividends in the future will be dependent, in large part, on our
ability to satisfy these regulatory restrictions and Home Savings' earnings,
capital requirements, financial condition and other factors. Although our
financial earnings and financial condition have allowed us to declare and pay
periodic cash dividends to our shareholders, there can be no assurance that
dividend payments will continue or increase in the future.
The preparation of financial statements requires management to make estimates
about matters that are inherently uncertain.
Management's accounting policies and methods are fundamental to how we
record and report our financial condition and results of operations. Our
management must exercise judgment in selecting and applying many of these
accounting policies and methods in order to ensure that they comply with
generally accepted accounting principles and reflect management's judgment as to
the most appropriate manner in which to record and report our financial
condition and results of operations. Two of the most critical estimates are the
level of the allowance of loan losses and the valuation of mortgage servicing
rights. Due to the inherent nature of these estimates, we cannot provide
absolute assurance that we will not significantly increase the allowance for
loan losses, sustain loan losses that are significantly higher than the provided
allowance, or recognize a significant provision for the impairment of mortgage
servicing rights.
We face risks with respect to future expansion.
We may acquire other financial institutions in the future and we may
engage in de novo branch expansion. We may also consider and enter into new
lines of business or offer new products or services. We may incur substantial
costs to expand, and we can give no assurance such expansion will result in the
levels of profits we seek. Also, we may issue equity securities in connection
with future acquisitions, which would dilute current shareholders' ownership
interests.
If we acquire other businesses, we may not be able to achieve fully the
cost savings and synergies that we expect to result from any acquisition. In
addition, because the markets in which we operate are highly competitive, we may
lose customers or the customers of acquired entities as a result of an
acquisition. We also may lose key personnel, either from the acquired entity or
from United Community, as a result of an acquisition.
18
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Home Savings owns it corporate headquarters building located in
Youngstown, Ohio. Of Home Savings' 37 branch offices thirty are owned and the
remaining offices are leased. Loan origination offices are leased under
long-term lease agreements. Butler Wick leases its corporate headquarters
located in Youngstown, Ohio under a long-term lease agreement. Its branch office
locations and operations centers are also leased under long-term lease
agreements. The information contained in Note 7 "Premises and Equipment" is
incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
United Community and its subsidiaries are not parties to any other
material litigation other than those arising in the normal course of business.
While it is impossible to determine the ultimate resolution of these contingent
matters, management believes any resulting liability would not have a material
effect upon United Community's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
The information contained in the 2005 Annual Report to Shareholders of
United Community (Annual Report) under the caption "Market Price and Dividends"
is incorporated herein by reference and attached hereto as part of Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA
The information contained in the Annual Report under the caption "Selected
Financial and Other Data" is incorporated herein by reference and attached
hereto as part of Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained in the Annual Report under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" is incorporated herein by reference and attached hereto as part of
Exhibit 13.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained in the Annual Report under the caption "Asset
and Liability Management and Market Risk" is incorporated herein by reference
and attached hereto as part of Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements appearing in the Annual Report and
the report of Crowe Chizek and Company LLC dated February 1, 2006, are
incorporated herein by reference and attached hereto as part of Exhibit 13.
19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
United Community's management is responsible for establishing and
maintaining effective disclosure controls and procedures, as defined under Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. As of December
31, 2005, an evaluation was performed under the supervision and with the
participation of management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on that evaluation,
management concluded that disclosure controls and procedures as of December 31,
2005 were effective in ensuring material information required to be disclosed in
this Annual Report on Form 10-K was recorded, processed, summarized and reported
on a timely basis. Additionally, there were no changes in the Company's internal
control over financial reporting that occurred during the quarter ended December
31, 2005, that have materially affected, or are reasonably likely to affect, the
Company's internal control over financial reporting. See "Management's Report on
Internal Control Over Financial Reporting" contained in the 2005 Annual Report
attached hereto as part of Exhibit 13.
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained in the Proxy Statement for the 2006 Annual
Meeting of Shareholders of United Community (Proxy Statement), to be filed with
the Securities and Exchange Commission (Commission) on or about March 29, 2006,
under the captions "Election of Directors," "Incumbent Directors," "Board
Meeting and Compensation," "Executive Officers," "Section 16(a) Beneficial
Ownership Reporting Compliance" and "Audit Committee Report" is incorporated
herein by reference.
United Community has adopted a code of ethics applicable to all officers,
directors and employees that complies with SEC requirements. A copy of the code
may be obtained upon written request to Patrick A. Kelly, Chief Financial
Officer, United Community Financial Corp., 275 Federal Plaza West, Youngstown,
Ohio 44503.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the Proxy Statement under the captions "Board
Meetings, Committees and Compensation" and "Compensation of Executive Officers,"
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
The information contained in the Proxy Statement under the caption
"Ownership of UCFC Shares" is incorporated herein by reference.
United Community maintains the United Community Financial Corp. 1999
Long-Term Incentive Plan ("Incentive Plan") and the United Community Financial
Corp. Recognition and Retention Plan and Trust Agreement ("RRP") under which it
may issue equity securities to its directors, officers and employees in exchange
for goods or services. The Incentive Plan and the RRP were approved by United
Community's shareholders at the 1999 Special Meeting of Shareholders.
20
The following table shows, as of December 31, 2005, the number of common
shares issuable upon the exercise of outstanding stock options, the weighted
average exercise price of those stock options, and the number of common shares
remaining for future issuance under the Incentive Plan and the RRP, excluding
shares issuable upon exercise of outstanding stock options.
EQUITY COMPENSATION PLAN INFORMATION
(a) (b) (c)
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES FUTURE ISSUANCE UNDER
TO BE ISSUED UPON WEIGHTED-AVERAGE EQUITY COMPENSATION PLANS
EXERCISE OF EXERCISE PRICE OF (EXCLUDING SECURITIES
PLAN CATEGORY OUTSTANDING OPTIONS OUTSTANDING OPTIONS REFLECTED IN COLUMN (a))
- ------------------------------ -------------------- ------------------- -------------------------
Equity compensation plans
approved by security holders 2,217,216 $9.59 None
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the Proxy Statement under the caption
"Compensation of Executive Officers --Certain Transactions" is incorporated
herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information contained in the Proxy Statement under the caption "Audit
Fees" is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(C) EXHIBITS
3.1 Articles of Incorporation
3.2 Amended Code of Regulations
10 Material Contracts
11 Statement Regarding Computation of Per Share Earnings
13 Portions of the 2005 Annual Report to Shareholders
20 Proxy Statement for 2006 Annual Meeting of Shareholders
21 Subsidiaries of Registrant
23 Crowe Chizek and Company LLC Consent
31.1 Section 302 Certification by Chief Executive Officer
21
31.2 Section 302 Certification by Chief Financial Officer
32 Certification of Financial Statements by Chief Executive Officer and
Chief Financial Officer
(a) FINANCIAL STATEMENT SCHEDULES. All schedules are omitted because they are
not applicable or the required information is shown in the financial
statements or notes thereto.
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
/s/ Douglas M. McKay
--------------------------------
Douglas M. McKay, President
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
/s/ Douglas M. McKay /s/ Richard M. Barrett
- ---------------------------------------- --------------------------------
Douglas M. McKay, President and Director Richard M. Barrett, Director
Date: March 15, 2006 Date: March 15, 2006
/s/ Richard J. Schiraldi /s/ David C. Sweet
- ---------------------------------------- --------------------------------
Richard J. Schiraldi, Director David C. Sweet, Director
Date: March 15, 2006 Date: March 15, 2006
/s/ Herbert F. Schuler, Sr. /s/ Patrick A. Kelly
- ---------------------------------------- --------------------------------
Herbert F. Schuler, Sr., Director Patrick A. Kelly, Treasurer
Date: March 15, 2006 (Principal Financial Officer)
Date: March 15, 2006
/s/ Thomas J. Cavalier /s/ David G. Lodge
- ---------------------------------------- --------------------------------
Thomas J. Cavalier, Director David G. Lodge, Director
Date: March 15, 2006 Date: March 15, 2006
/s/ Eugenia C. Atkinson /s/ Clarence R. Smith, Jr
- ---------------------------------------- --------------------------------
Eugenia C. Atkinson, Director Clarence R. Smith, Director
Date: March 15, 2006 Date: March 15, 2006
23
INDEX TO EXHIBITS
Exhibit Number
- --------------
3.1 Articles of Incorporation Incorporated by reference to the Registration Statement
on Form S-1 filed by United Community on March 13, 1998
(S-1) with the Securities and Exchange Commission
(SEC), Exhibit 3.1
3.2 Amended Code of Regulations Incorporated by reference to the 1998 10-K filed by
United Community on March 31, 1999 via Edgar, film
number 99582343, Exhibit 3.2
10.1 The Home Savings and Loan Company of Youngstown, Ohio Incorporated by reference to the 2001 10-K filed by
Employee Stock Ownership Plan United Community on March 29, 2002 via Edgar, film
number 02593161, Exhibit 10.1
10.2 Employment Agreement between The Home Savings and Loan Incorporated by reference to the 2004 10-K/A filed by
Company of Youngstown, Ohio and Douglas M. McKay, dated United Community on May 2, 2005 via Edgar, film number
December 31, 2004. 04666159 (2004 10K/A), Exhibit 10.2
10.3 Employment Agreement between The Home Savings and Loan Incorporated by reference to the 2004 10-K/A, Exhibit
Company of Youngstown, Ohio and Patrick W. Bevack, dated 10.3
December 31, 2004.
10.4 Employment Agreement between The Home Savings and Loan Incorporated by reference to the 2004 10-K/A, Exhibit
Company of Youngstown, Ohio and Patrick A. Kelly, dated 10.4
December 31, 2004.
10.5 Employment Agreement between Butler Wick Corp. and Thomas Incorporated by reference to the 1999 10-K filed by
J. Cavalier, dated August 12, 1999. United Community on March 29, 2000 via Edgar, film
number 582478, Exhibit 10.5
10.6 Employment Agreement between The Home Savings and Loan Incorporated by reference to the 2004 10-K/A, Exhibit
Company of Youngstown, Ohio and David G. Lodge, dated 10.6
December 31, 2004.
10.7 United Community 1999 Long -Term Incentive Plan Incorporated by reference to the Proxy Statement filed
by United Community via Edgar on June 7, 1999, file
number 9964170 (1999 Proxy), Exhibit
10.8 United Community Recognition and Retention Plan and Trust Incorporated by reference to the 1999 Proxy, Exhibit B
Agreement
11 Statement Regarding Computation of Per Share Earnings Incorporated by reference to Note 21 to the Financial
Statements included in the Annual Report in Exhibit 13.
13 Portions of the 2005 Annual Report to Shareholders
20 Proxy Statement for 2006 Annual Meeting of Shareholders Incorporated by reference to the Proxy Statement, to be
filed with the Securities and Exchange Commission on or
about March 29, 2006.
21 Subsidiaries of Registrant
23 Crowe Chizek and Company LLC Consent
31.1 Section 302 Certification by Chief Executive Officer
31.2 Section 302 Certification by Chief Financial Officer
32 Certification of Financial Statements by Chief Executive
Officer and Chief Financial Officer
24