<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number 0-24399
--------
UNITED COMMUNITY FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Ohio 34-1856319
--------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
275 Federal Plaza West
Youngstown, Ohio 44503-1203
---------------------- -----------
(Address of principal executive offices) (Zip Code)
(330) 742-0500
--------------
(Registrant's telephone number, including area code)
Not Applicable
---------------
(Former name, former address and former fiscal year, if change
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for 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 No X (Not subject to filing
---- ---- requirements past 90 days)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
100 Common Shares
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
as of June 30, 1998 and December 31, 1997. . . . . . . . . 1
Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1998 and 1997. . . . . . . . . . . . 2
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1998 and 1997. . . . . . . . . . 3
Notes to Consolidated Financial Statements . . . . . . . . 4-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . 7-14
Item 3. Quantitative and Qualitative Disclosure About Market
Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(Unaudited) 1997
----------- ------------
(In thousands)
<S> <C> <C>
ASSETS:
Cash and deposits with banks $ 13,301 $ 14,618
Federal funds sold and other 660,031 19,879
----------- -----------
Total cash and cash equivalents 673,332 34,497
----------- -----------
Investment securities:
Available for sale (amortized cost of
$66,748 and $39,091, respectively) 67,110 39,402
Held to maturity (fair value of $5,014
and $5,013, respectively) 4,980 4,968
Mortgage-backed securities:
Available for sale (amortized cost of
$53,273 and $61,633, respectively) 53,987 62,423
Held to maturity (fair value of $221,717
and $247,986, respectively) 217,737 243,848
Loans, net (including allowance for loan losses
of $6,172 and $5,982, respectively) 646,188 633,236
Federal Home Loan Bank stock 11,540 11,136
Premises and equipment 7,755 7,930
Accrued interest receivable 7,140 6,414
Real estate owned 36 55
Other assets 2,902 1,084
----------- -----------
TOTAL ASSETS $ 1,692,707 $ 1,044,993
----------- -----------
----------- -----------
LIABILITIES AND EQUITY:
LIABILITIES:
Deposits $ 1,527,893 $ 886,808
Advance payments by borrowers for taxes
and insurance 3,463 3,715
Accrued interest payable 1,550 845
Post-retirement benefit obligation 7,823 7,647
Accrued expenses and other liabilities 4,478 4,625
----------- -----------
Total liabilities 1,545,207 903,640
----------- -----------
COMMITMENTS AND CONTINGENCIES
EQUITY:
Retained earnings (substantially restricted) 146,801 140,636
Net unrealized gain on available for sale
securities, net of taxes of $377 and
$385, respectively 699 717
----------- -----------
TOTAL EQUITY 147,500 141,353
----------- -----------
TOTAL LIABILITIES AND EQUITY $ 1,692,707 $ 1,044,993
----------- -----------
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE>
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $ 13,232 $ 15,790 $ 26,305 $ 28,298
Mortgage-backed securities:
Available for sale 952 1,311 1,994 2,713
Held to maturity 4,048 4,867 8,359 9,919
Investment securities:
Available for sale 974 517 1,722 905
Held to maturity 79 283 158 596
FHLB stock dividend 205 191 404 370
Other interest-earning assets 1,527 123 1,753 282
--------- --------- --------- ---------
Total interest income 21,017 23,082 40,695 43,083
INTEREST EXPENSE:
Interest expense on deposits 9,960 10,165 19,516 20,376
--------- --------- --------- ---------
NET INTEREST INCOME 11,057 12,917 21,179 22,707
PROVISION FOR (RECOVERY OF) LOAN LOSSES 150 (2,246) 400 (2,246)
--------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 10,907 15,163 20,779 24,953
--------- --------- --------- ---------
NONINTEREST INCOME:
Service fees and other charges 300 280 580 459
Net gains (losses):
Mortgage-backed securities 240 253
Other gains (losses) (6) (16) (58) (7)
Other income 150 112 287 222
--------- --------- --------- ---------
Total noninterest income 684 376 1,062 674
--------- --------- --------- ---------
NONINTEREST EXPENSES:
Salaries and employee benefits 3,564 3,647 7,145 7,129
Occupancy 328 311 641 614
Equipment and data processing 689 589 1,292 1,186
Deposit insurance premiums 137 151 276 302
Franchise tax 479 438 958 876
Advertising 354 278 609 527
Other expenses 712 814 1,437 1,599
--------- --------- --------- ---------
Total noninterest expenses 6,263 6,228 12,358 12,233
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 5,328 9,311 9,483 13,394
INCOME TAXES 1,866 3,187 3,320 4,547
--------- --------- --------- ---------
NET INCOME $ 3,462 $ 6,124 $ 6,163 $ 8,847
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1998 1997
----------- ------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,163 $ 8,847
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for (recovery of) loan losses 400 (2,246)
Net (gains) losses (195) 7
Accretion of discounts and amortization
of premiums (763) (492)
Depreciation 530 537
FHLB stock dividends (404) (370)
Increase in interest receivable (726) (168)
Increase (decrease) in interest payable 706 (32)
Increase in post retirement benefit obligation 176 208
Increase in prepaid and other assets (1,818) (896)
(Decrease) increase in other liabilities (139) 4,866
---------- ---------
Net cash provided by operating activities 3,930 10,261
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal repayments and
maturities of:
Mortgage-backed securities held to maturity 31,644 20,185
Mortgage-backed securities available for sale 7,303 11,516
Investment securities held to maturity 20,000
Investment securities available for sale 2,787 3,252
Proceeds from sale of:
Mortgage-backed securities available for sale 13,145
Mortgage-backed securities held to maturity 2,764
Purchases of:
Investment securities available for sale (30,489) (18,435)
Mortgage-backed securities available for sale (11,959)
Mortgage-backed securities held to maturity (8,047)
Principal collected on loans 90,717 60,104
Loans originated and acquired (103,503) (62,247)
Proceeds from disposal of real estate owned 71 11
Purchases of premises and equipment (361) (2,068)
---------- ---------
Net cash (used in) provided by investing
activities (5,928) 32,318
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in NOW, Savings and
Money Market Accounts 675,538 (12,685)
Net decrease in Certificates of Deposit (34,453) (12,925)
Net decrease in advance payments by borrowers
for taxes and insurance (252) (334)
---------- ---------
Net cash provided by (used in) financing
activities 640,833 (25,944)
---------- ---------
Increase in cash and cash equivalents 638,835 16,635
Cash and cash equivalents, beginning of period 34,497 19,668
---------- ---------
Cash and cash equivalents, end of period $ 673,332 $ 36,303
---------- ---------
---------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 18,810 $ 20,408
Income taxes 3,200 600
Supplemental schedule of noncash activities:
Transfers from loans to real estate owned 105 266
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
UNITED COMMUNITY FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
United Community Financial Corp. (the "Holding Company") was incorporated under
Ohio law in February 1998 by The Home Savings & Loan Company of Youngstown, Ohio
(the "Company") in connection with the conversion of the Company from an Ohio
mutual savings and loan association to an Ohio capital stock savings and loan
association, the issuance of the Company's stock to the Holding Company and the
offer and sale of the Holding Company's common stock by the Holding Company (the
"Conversion"). Upon consummation of the Conversion on July 8, 1998, the Holding
Company became the unitary savings and loan holding company for the Company.
See Note 2 for a more detailed description of the mutual to stock conversion.
No pro forma effect has been given to the sale of the Holding Company's common
stock in the Conversion.
The accompanying consolidated financial statements of the Holding Company 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, 1998 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1998. 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, 1997, contained in the Holding Company's
prospectus dated May 15, 1998.
2. CONVERSION TO CAPITAL STOCK FORM OF OWNERSHIP
On December 9, 1997, the Board of Directors of the Company adopted a Plan of
Conversion to convert from an Ohio mutual savings and loan association to an
Ohio capital stock savings and loan association. The conversion was
accomplished through the formation of the Holding Company in February, 1998, the
adoption of an Ohio stock charter, the sale of all of the Company's stock to the
Holding Company on July 8, 1998 and the sale of the Holding Company's stock to
the public on July 8, 1998.
A subscription offering ("offering") of the shares of common stock of the
Holding Company was conducted whereby the shares were offered initially to
eligible account holders, the Company's Employee Stock Ownership Plan ("ESOP"),
supplemental eligible account holders and other members of the Company
(collectively "subscribers"). During the offering, subscribers submitted orders
for common stock along with full payment for the order in either cash, by an
authorization to withdraw funds for payment from an existing deposit account at
the Company upon issuance of stock, or a combination of cash and account
withdrawal. Subscription funds received in connection with the offering were
placed in segregated savings accounts in the Company. For those orders that
were to be funded through account withdrawals, the Company placed "holds" on
those accounts, restricting withdrawal of any amount which would reduce the
account balance below the amount of the order. At June 30, 1998, the Company
held $542.4 million in subscription segregated savings accounts and had
restricted withdrawals from deposit accounts in the amount of $225.4 million.
4
<PAGE>
The Holding Company issued 34,715,626 shares in connection with the
Conversion. Gross proceeds from the offering were $347,156,260, which includes
the $10 value of the 2,677,250 shares issued to the United Community
Financial Corp. Employee Stock Ownership Plan and approximately 1,185,000
shares sold to the Company for transfer to the Home Savings Charitable
Foundation.
As of June 30, 1998, prepaid conversion costs were approximately $758,000 and
were included in the balance sheet caption Other Assets. Conversion costs are
estimated to be $4.5 million.
The Company issued all its outstanding capital stock to the Holding Company in
exchange for approximately one-half of the net proceeds. The Holding Company
accounted for the purchase in a manner similar to a pooling of interests whereby
assets and liabilities of the Company maintain their historical cost basis in
the consolidated company.
3. EARNINGS PER COMMON SHARE
Earnings per common share have not been presented in the Consolidated Statements
of Income as United Community Financial Corp. was currently in the process of
completing the Conversion as of June 30, 1998 (as noted in footnote 1. above.)
Earnings per common share will be presented from the effective date of the
Conversion.
4. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", was issued in June 1997 and became effective on January 1, 1998. This
statement requires companies to report all items that are recognized as
components of comprehensive income under accounting standards. The Company's
comprehensive income for the three and six months ended June 30, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1998 1997
------------ ------------
(In thousands)
<S> <C> <C>
Net income $ 3,462 $ 6,124
Unrealized holding gains (losses) arising
during the period, net of tax effect of
($44) and $331, respectively (82) 614
Reclassification adjustment for gains included in net
income, net of tax effect of ($23) (42)
-------- --------
Comprehensive income $ 3,338 $ 6,738
-------- --------
-------- --------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1998 1997
------------ ----------
(In thousands)
<S> <C> <C>
Net income $ 6,163 $ 8,847
Unrealized holding gains (losses) arising
during the period, net of tax effect of
($10) and ($94), respectively (18) (175)
Reclassification adjustment for gains included in net
income, net of tax effect of ($23) (42)
-------- -------
Comprehensive income $ 6,103 $ 8,672
-------- -------
-------- -------
</TABLE>
5. NEW ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information", on
January 1, 1998. This statement provides accounting and reporting standards for
the way public enterprises are to report information about operating segments in
annual financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Management has
determined that adoption of SFAS No. 131 will not result in increased reporting
and disclosure requirements.
6. SALE OF HELD TO MATURITY MORTGAGE-BACKED SECURITIES
In January 1998, the Company sold approximately $114,000 of mortgage-backed
securities held to maturity with outstanding balances less than 15% of the
principal outstanding at acquisition. A gain of approximately $5,500 was
recorded on the sale. In April 1998, the Company sold approximately $2.6
million of mortgage-backed securities held to maturity with outstanding balances
less than 15% of the principal outstanding at acquisition. A gain of
approximately $100,000 was recorded on the sale.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNITED COMMUNITY FINANCIAL CORP.
<TABLE>
<CAPTION>
At or For the Three At or For the Six
Months Ended Months Ended
June 30, June 30,
------------------- --------------------
SELECTED FINANCIAL RATIOS AND OTHER DATA: (1) 1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Performance ratios:
Return on average assets (2) 1.20% 2.31% 1.12% 1.66%
Return on average equity (3) 9.55 18.68 8.57 13.63
Interest rate spread (4) 3.53 4.45 3.46 3.84
Net Interest margin (5) 3.98 4.99 3.97 4.36
Noninterest expense to average assets 2.17 2.35 2.25 2.30
Efficiency ratio (6) 53.34 46.85 55.56 52.32
Average interest-earning assets to average interest-
bearing liabilities 112.59 113.66 113.96 113.49
Capital ratios:
Average equity to average assets 12.59 12.36 13.07 12.18
Equity to assets, end of period 8.71 12.88 8.71 12.88
Tangible capital 8.67 12.85 8.67 12.85
Core capital 8.67 12.85 8.67 12.85
Risk-based capital 21.91 27.98 21.91 27.98
Asset quality ratios:
Nonperforming loans to total loans at end of period (7) 1.32 1.49 1.32 1.49
Nonperforming assets to average assets (8) 0.74 0.90 0.78 0.90
Nonperforming assets to total assets at end of period (8) 0.51 0.90 0.51 0.90
Allowance for loan losses as a percent of loans 0.95 0.85 0.95 0.85
Allowance for loan losses as a percent of
nonperforming loans (7) 72.31 57.20 72.31 57.20
Number of:
Loans 19,448 18,936 19,448 18,936
Deposits 107,813 109,066 107,813 109,066
Full service offices 14 15 14 15
</TABLE>
- -----------------------------------------
(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 as a percentage of average interest-earning assets.
(6) Noninterest expense divided by the sum of net interest income and
noninterest income.
(7) Nonperforming loans consist of nonaccrual loans and restructured loans.
(8) Nonperforming assets consist of nonperforming loans and real estate
acquired in settlement of loans.
7
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1998 AND DECEMBER 31, 1997
Total assets increased from $647.7 million or 61.9% from December 31, 1997 to
June 30, 1998. Total liabilities increased $641.6 million or 71% from
December 31, 1997 to June 30, 1998. The Company had no borrowings at June
30, 1998. The increase in assets and liabilities at June 30, 1998, compared
to December 31, 1997 is primarily attributable to funds held in special
subscription savings accounts in connection with the Conversion discussed
below.
The Board of Directors of the Company adopted a Plan of Conversion to convert
from an Ohio mutual savings and loan association to an Ohio capital stock
savings and loan association, and to form a Holding Company to own the savings
and loan association. The Holding Company was formed in February, 1998. The
Conversion was completed on July 8, 1998.
Total equity increased $6.1 million or 4.3% to $147.5 million at June 30, 1998,
from $141.4 million at December 31, 1997, due to net income of $6.2 million.
Nonaccrual and restructured loans decreased approximately $1.7 million to $8.5
million at June 30, 1998, from $10.2 million at December 31, 1997. Nonaccrual
one- to four-family mortgage loans and commercial loans decreased $1.0 million
and $141,000 respectively. The reduction of the one- to four-family loans was
due to a number of loans becoming current on their payments and not any one
particular loan. Nonaccrual construction loans increased $115,000 at June 30,
1998 compared to December 31, 1997. At March 31, 1998, total nonaccrual and
restructured loans accounted for 1.32% of net loans receivable, compared to
1.60% at December 31, 1997. Total non-performing assets were .50% of total
assets, a decrease of .48% from .98% at December 31, 1997.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
JUNE 30, 1998 AND JUNE 30, 1997
NET INCOME. Net income for the three months ended June 30, 1998, was $3.5
million. Net income for the comparable period in 1997 was $6.1 million. The
change in the current period when compared to the prior period was due to a
significant recovery in June, 1997, of two previously delinquent loans that
had previously been charged off resulting in a recovery of $3.1 million of
interest and a loan loss recovery of $2.8 million.
Core earnings, defined as pretax earnings adjusted for securities sales
transactions and unusual or non-recurring expense or income items, were $5.1
million for the three months ended June 30, 1998, compared to $3.4 million in
the prior year period.
The following table summarizes the components of adjusted pretax core earnings:
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Net interest income $ 11,057 $ 9,809
Provision for loan losses 150 600
Noninterest income excluding gains and losses 450 392
Noninterest expense 6,263 6,228
-------- --------
Adjusted pretax core earnings $ 5,094 $ 3,373
-------- --------
-------- --------
</TABLE>
8
<PAGE>
NET INTEREST INCOME. Net interest income decreased $1.9 million or 14.4%
for the second quarter of 1998 compared to the second quarter of 1997. The
major factor concerning the decrease was the non-recurring recovery of $3.1
million of interest in the second quarter of 1997 as discussed above.
Exclusive of this non-recurring recovery in the prior year, net interest
income increased $1.2 million as a result of a higher volume of earning
assets.
PROVISION FOR LOAN LOSSES. The provision for loan loss allowances increased
$150,000 in the second quarter of 1998, as a result of an increase in the total
loan portfolio. During the three months ended June 30, 1998, the Company had
charge-offs of $164,000 and recoveries of $10,000. At June 30, 1998, the
Company's allowance for loan losses totaled $6.2 million, which was .95% of
total loans.
NONINTEREST INCOME. Noninterest income increased $308,000 or 81.9% to $684,000
for the three months ended June 30, 1998, from $376,000 for the three months
ended June 30, 1997. The increase was primarily due to a gain of approximately
$240,000 on the sale of mortgage-backed securities. Also contributing to the
increase was an increase in automated teller machine service charges, NOW
non-sufficient funds fees and a rebate from the Ohio Bureau of Workers'
Compensation.
NONINTEREST EXPENSE. Total noninterest expense has not changed significantly
for the second quarter of 1998 to the second quarter of 1997. In the future,
noninterest expense will include employee compensation expense for the ESOP.
FEDERAL INCOME TAXES. The provision for federal income taxes decreased $1.3
million or 41.5% for the second quarter of 1998, compared to the second quarter
of 1997. This was primarily due to the lower pre-tax income for the second
quarter of 1998 as a result of the significant recovery of the delinquent loans
in June, 1997, as stated above.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND JUNE 30, 1997
NET INCOME. Net income for the six months ended June 30, 1998, was $6.2
million. Net income for the comparable period in 1997 was $8.8 million. The
change in the current period is primarily due to the significant recovery
discussed earlier.
Core earnings as defined above for the six months ended June 30, 1998, were $9.2
million compared to $7.4 million in 1997.
The following table summarizes the components of adjusted pretax core earnings:
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1998 1997
------------------------------
(in thousands)
<S> <C> <C>
Net interest income $ 21,179 $ 19,599
Provision for loan losses 400 600
Noninterest income excluding gains and losses 867 681
Noninterest expense 12,358 12,233
----------- -----------
Adjusted pretax core earnings $ 9,288 $ 7,447
----------- -----------
----------- -----------
</TABLE>
NET INTEREST INCOME. Net interest income decreased $1.5 million or 6.7% for
the six month period ended June 30, 1998, compared to the six month period
ended June 30, 1997. The decrease in the six month period ended June 30,
1998 was mainly due to the non-recurring recovery of $3.1 million of interest
discussed above. Exclusive of this non-recurring recovery in the prior year
net interest income increased $1.6 million as a result of a higher volume of
earning assets.
9
<PAGE>
PROVISION FOR LOAN LOSSES. The provision for loan loss allowances increased
$400,000 for the six month period of 1998, as a result of an increase in the
total loan portfolio. During the six months ended June 30, 1998, the Company
had charge-offs of $224,000 and recoveries of $14,000.
NONINTEREST INCOME. Noninterest income increased $388,000 or 57.6% to $1.1
million for the six months ended June 30, 1998, from $674,000 for the six months
ended June 30, 1997. The increase was primarily due to a gain of approximately
$253,000 on the sale of mortgage-backed securities along with an increase in
automated teller machine service charges and NOW non-sufficient funds fees of
approximately $43,000. Also contributing to the increase was a rebate of
approximately $29,000 from the Ohio Bureau of Workers' Compensation.
NONINTEREST EXPENSE. Total noninterest expense has not changed
significantly for the six month period ended 1998 compared to the six month
period ended June 30, 1997. In the future noninterest expense will include
employee compensation expense for the ESOP.
FEDERAL INCOME TAXES. The provision for federal income taxes decreased $1.2
million or 27.0% for the six month period ended June 30, 1998, compared to the
six month period ended June 30, 1997. This was primarily due to the lower
pre-tax income for the 1998 period as a result of the significant recovery of
the delinquent loans in June, 1997, as stated above.
10
<PAGE>
UNITED COMMUNITY FINANCIAL CORP.
AVERAGE BALANCE SHEETS
The following table presents the total dollar amounts of interest income and
interest expense on the indicated amounts of average interest-earning assets or
interest-bearing liabilities together with the weighted average interest rates
for the three month periods ended June 30, 1998 and 1997. Average balance
calculations were based on daily balances.
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------------------------------------------------------------
1998 1997
------------------------------------ ------------------------------------
Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Yield/
balance paid rates balance paid rate
----------- ----------- ------- ----------- ----------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Net loans (1) $ 638,739 $ 13,232 8.29% $ 620,289 $ 15,790 10.18%
Mortgage-backed securities:
Available for sale 56,799 952 6.70 73,710 1,311 7.11
Held to maturity 228,603 4,048 7.80 272,845 4,867 7.14
Investment securities:
Available for sale 64,135 974 6.07 31,732 517 6.52
Held to maturity 4,977 79 6.35 18,240 283 6.21
Other interest-earning assets 117,868 1,732 5.88 19,068 314 6.59
----------- ----------- ------- ----------- ----------- -------
Total interest-earning assets 1,111,121 21,017 7.57 1,035,884 23,082 8.91
Noninterest-earning assets 41,085 25,158
----------- -----------
Total assets $ 1,152,206 $ 1,061,042
----------- -----------
----------- -----------
Interest-bearing liabilities:
Checking and demand accounts $ 138,314 747 2.16 $ 120,971 719 2.38
Savings accounts 342,801 2,240 2.61 250,958 1,852 2.95
Certificates of deposit 505,789 6,973 5.51 539,498 7,594 5.63
----------- ----------- ------- ----------- ----------- -------
Total interest-bearing liabilities 986,904 9,960 4.04 911,427 10,165 4.46
----------- ------- ----------- -------
Noninterest-bearing liabilities 20,249 18,493
----------- -----------
Total liabilities 1,007,153 929,920
Equity 145,053 131,122
----------- -----------
Total liabilities and equity $ 1,152,206 $ 1,061,042
----------- -----------
----------- -----------
Net interest income and
interest rate spread $ 11,057 3.53% $ 12,917 4.45%
----------- ------- ----------- -------
----------- ------- ----------- -------
Net Interest Margin 3.98% 4.99%
------- -------
------- -------
Average interest-earning assets to
average interest-bearing liabilities 112.59% 113.66%
------- -------
------- -------
</TABLE>
- -------------------
(1) Nonaccrual loans are included in the average balance.
11
<PAGE>
UNITED COMMUNITY FINANCIAL CORP.
AVERAGE BALANCE SHEETS
The following table presents the total dollar amounts of interest income and
interest expense on the indicated amounts of average interest-earning assets or
interest-bearing liabilities together with the weighted average interest rates
for the six month periods ended June 30, 1998 and 1997. Average balance
calculations were based on daily balances.
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------------------------------------------------------
1998 1997
------------------------------------ ------------------------------------
Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Yield/
balance paid rates balance paid rate
----------- ----------- ------- ----------- ----------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Net loans (1) $ 635,932 $ 26,305 8.27% $ 618,087 $ 28,298 9.16%
Mortgage-backed securities:
Available for sale 59,037 1,994 6.76 77,069 2,713 7.04
Held to maturity 236,766 8,359 7.06 277,901 9,919 7.14
Investment securities:
Available for sale 56,998 1,722 6.04 28,224 905 6.41
Held to maturity 4,935 158 6.40 18,915 596 6.30
Other interest-earning assets 73,017 2,157 5.91 20,754 652 6.28
----------- ----------- ------- ----------- ----------- -------
Total interest-earning assets 1,066,685 40,695 7.63 1,040,950 43,083 8.28
Noninterest-earning assets 33,306 24,431
----------- -----------
Total assets $ 1,099,991 $ 1,065,381
----------- -----------
----------- -----------
Interest-bearing liabilities:
Checking and demand accounts $ 129,064 1,413 2.19 $ 121,863 1,472 2.42
Savings accounts 294,059 3,879 2.64 252,608 3,728 2.95
Certificates of deposit 512,914 14,224 5.55 542,774 15,176 5.59
----------- ----------- ------- ----------- ----------- -------
Total interest-bearing liabilities 936,037 19,516 4.17 917,245 20,376 4.44
----------- ------- ----------- -------
Noninterest-bearing liabilities 20,201 18,326
----------- -----------
Total liabilities 956,238 935,571
Equity 143,753 129,810
----------- -----------
Total liabilities and equity $ 1,099,991 $ 1,065,381
----------- -----------
----------- -----------
Net interest income and
interest rate spread $ 21,179 3.46% $ 22,707 3.83%
----------- ------- ----------- -------
----------- ------- ----------- -------
Net Interest Margin 3.97% 4.36%
------- -------
------- -------
Average interest-earning assets to
average interest-bearing liabilities 113.96% 113.49%
------- -------
------- -------
</TABLE>
- -------------------
(1) Nonaccrual loans are included in the average balance.
12
<PAGE>
UNITED COMMUNITY FINANCIAL CORP.
RATE/VOLUME ANALYSIS
The table below describes the extent to which changes in interest rates
and changes in volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. For each category of interest-earning assets
and interest-bearing liabilities, information is provided on changes
attributable to (i) changes in volume (change in volume multiplied by prior
period rate), (ii) changes in rate (change in rate multiplied by prior period
volume) and (iii) total changes in rate and volume. The combined effects of
changes in both volume and rate, which cannot be separately identified, have
been allocated in proportion to the changes due to volume and rate:
<TABLE>
<CAPTION>
For the Three Months Ended June 30, For the Six Months Ended June 30,
----------------------------------- -----------------------------------
1998 vs. 1997 1998 vs. 1997
----------------------------------- -------------------------------------
Increase Total Increase Total
(decrease) due to increase (decrease) due to increase
-------------------- --------------------
Rate Volume (decrease) Rate Volume (decrease)
----- ------ ---------- ----- ------ ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) $ (3,044) $ 486 $ (2,558) $ (2,844) $ 851 $ (1,993)
Mortgage-backed securities:
Available for sale (72) (287) (359) (106) (613) (719)
Held to maturity (35) (784) (819) (107) (1,453) (1,560)
Investment securities:
Available for sale (33) 490 457 (49) 866 817
Held to maturity 7 (211) (204) 10 (448) (438)
Other interest-earning assets (30) 1,448 1,418 (37) 1,542 1,505
-------- -------- -------- -------- -------- --------
Total interest-earning assets $ (3,207) $ 1,142 (2,065) $ (3,133) $ 745 (2,388)
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Interest-bearing liabilities:
Savings accounts (177) 565 388 (277) 428 151
Checking accounts (49) 77 28 (160) 101 (59)
Certificates of deposit (154) (467) (621) (123) (829) (952)
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities $ (380) $ 175 (205) $ (560) $ (300) (860)
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Change in net interest income $ (1,860) $ (1,528)
-------- --------
-------- --------
</TABLE>
(1) The change due to rate reflects a recovery of past due interest due
to loan loss recovery.
13
<PAGE>
YEAR 2000
The Company's year 2000 implementation, as discussed in the Company's
Conversion Prospectus is proceeding as planned.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
A comprehensive qualitative and quantitative analysis regarding market risk
was disclosed in the Company's Conversion Prospectus. No material changes in
the assumptions used or results obtained from the model have occurred.
14
<PAGE>
PART II. OTHER INFORMATION
UNITED COMMUNITY FINANCIAL CORP.
ITEM 1 - NOT APPLICABLE
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
Use of proceeds - As discussed in Note 1 to Notes to Consolidated Financial
Statements under Item 1 of the Quarterly Report, the Conversion was completed on
July 8, 1998. In connection therewith:
1. The effective date of the Registration Statement on Form S-1, as amended
(File No. 333-47957) ("Registration Statement"), was May 14, 1998.
2. The offering closed on July 8, 1998 with the sale of all securities
registered pursuant to the Registration Statement. Trident Securities,
Inc. acted as the marketing agent for the Offering.
3. The Holding Company issued 34,715,626 shares in connection with the
Conversion. Gross proceeds from the offering were $347,156,260, which
includes the $10 value of the 2,677,250 shares issued to the United
Community Financial Corp. Employee Stock Ownership Plan and
approximately 1,185,000 shares sold to the Company for transfer to the
Home Savings Charitable Foundation.
4. Conversion costs are estimated to be $4.5 million.
ITEMS 3 AND 4 - NOT APPLICABLE
ITEM 5 -
Any qualified shareholder of the Company who intends to submit a
proposal to the Company at the 1999 Annual Meeting of Shareholders (the "1999
Annual Meeting") must submit such proposal to the Company not later than
November 15, 1998, to be considered for inclusion in the Company's Proxy
Statement and form of Proxy (the "Proxy Materials") relating to that meeting.
If a shareholder intends to present a proposal at the 1999 Annual Meeting of
Shareholders, but has not sought the inclusion of such proposal in the
Company's Proxy Materials, such proposal must be received by the Company
prior to January 29, 1999, the Company's management proxies for the 1999
Annual Meeting will be entitled to use their discretionary voting authority
should such proposal then be raised, without any discussion of the matter in
the Company's Proxy Materials.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
--------- ----------------------------------
<S> <C>
11 Statement regarding computation of per share earnings
27 Financial Data Schedule - EDGAR only
</TABLE>
b. Reports on Form 8-K
On July 8, 1998 the Company filed an 8-K disclosing operating results for the
quarter ended June 30, 1998.
15
<PAGE>
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 14, 1998 /s/ Douglas M. McKay
--------------------------------
Douglas M. McKay, President
Date: August 14, 1998 /s/ Patrick A. Kelly
--------------------------------
Patrick A. Kelly, Treasurer
16
<PAGE>
UNITED COMMUNITY FINANCIAL CORP.
EXHIBIT 11
COMPUTATIONS OF EARNINGS PER COMMON SHARE
Earnings per common share have not been presented in the Consolidated
Statements of Income as United Community Financial Corp. was in the process
of completing the Conversion. Earnings per common share will be presented
from the effective date of the Conversion.
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements of United Community Financial Corp. as of and
for the six months ended June 30, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 13,301
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 660,031
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 121,097
<INVESTMENTS-CARRYING> 222,717
<INVESTMENTS-MARKET> 226,731
<LOANS> 646,188
<ALLOWANCE> 6,172
<TOTAL-ASSETS> 1,692,707
<DEPOSITS> 1,527,893
<SHORT-TERM> 0
<LIABILITIES-OTHER> 17,314
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 147,500
<TOTAL-LIABILITIES-AND-EQUITY> 1,692,707
<INTEREST-LOAN> 26,305
<INTEREST-INVEST> 12,233
<INTEREST-OTHER> 2,157
<INTEREST-TOTAL> 40,695
<INTEREST-DEPOSIT> 19,516
<INTEREST-EXPENSE> 19,516
<INTEREST-INCOME-NET> 21,179
<LOAN-LOSSES> 400
<SECURITIES-GAINS> 253
<EXPENSE-OTHER> 12,358
<INCOME-PRETAX> 9,483
<INCOME-PRE-EXTRAORDINARY> 9,483
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,163
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.97
<LOANS-NON> 7,942
<LOANS-PAST> 0
<LOANS-TROUBLED> 594
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,982
<CHARGE-OFFS> (224)
<RECOVERIES> 14
<ALLOWANCE-CLOSE> 6,172
<ALLOWANCE-DOMESTIC> 6,172
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
