<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-24399
UNITED COMMUNITY FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Ohio 34-1856319
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
275 Federal Plaza West
Youngstown, Ohio 44503-1203
- ---------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
(330) 742-0500
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year,
if change since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 35,323,819 common shares as
of October 31, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as of September 30, 1999 and
December 31,1998......................................................................... 1
Consolidated Statements of Income for the Three Months and Nine Months Ended
September 30, 1999 and 1998.............................................................. 2
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998.............................................................. 3
Notes to Consolidated Financial Statements .............................................. 4 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................ 8 - 15
Item 3. Quantitative and Qualitative Disclosure About Market Risk................................ 15
PART II. OTHER INFORMATION............................................................................. 16
Signatures............................................................................................. 17
EXHIBITS............................................................................................... 18 - 19
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998 (1)
------------------ --------------
(In thousands)
<S> <C> <C>
ASSETS
Cash and deposits with banks $ 16,345 $ 18,634
Federal funds sold and other 43,219 153,775
----------- -----------
Total cash and cash equivalents 59,564 172,409
----------- -----------
Investment securities:
Trading securities 6,746 2,804
Available for sale (amortized cost of $196,653 and $110,294,
respectively) 197,104 112,200
Held to maturity (fair value of $0 and $5,016, respectively) - 4,993
Mortgage-backed securities:
Available for sale (amortized cost of $121,584 and $98,357, respectively) 120,202 98,890
Held to maturity (fair value of $144,265 and $187,010, respectively) 145,128 182,999
Loans, net (including allowance for loan losses of $6,422 and $6,398, respectively) 710,030 657,498
Margin accounts 33,430 32,200
Federal Home Loan Bank stock 12,603 11,958
Premises and equipment 9,193 9,062
Accrued interest receivable 9,227 7,259
Real estate owned 222 78
Other assets 8,208 5,339
----------- -----------
TOTAL ASSETS $ 1,311,657 $ 1,297,689
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits $ 777,541 $ 777,583
Other borrowed funds 28,514 26,727
FHLB Advances 3,500 -
Advance payments by borrowers for taxes and insurance 2,231 3,954
Accrued interest payable 786 672
Accrued expenses and other liabilities 241,604 13,932
----------- -----------
TOTAL LIABILITIES 1,054,176 822,868
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock-no par value; 1,000,000 shares authorized and unissued
at September 30, 1999 - -
Common stock-no par value; 499,000,000 shares authorized; 37,758,166
shares issued; and 35,308,637 outstanding at September 30, 1999 136,016 345,872
Retained earnings 154,281 154,078
Other comprehensive income (1,750) 733
Unearned stock compensation (31,066) (25,862)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 257,481 474,821
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,311,657 $ 1,297,689
=========== ===========
</TABLE>
(1) As restated for the acquisition of Butler Wick. See Note 3 to the
consolidated financial statements.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE>
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------------------------------ -------------------------------
1999 1998 (1) 1999 1998 (1)
----------------- ---------------- ---------------- -----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 13,759 $ 13,470 $ 40,515 $ 39,774
Mortgage-backed securities:
Available for sale 1,957 912 5,108 2,906
Held to maturity 2,615 3,638 8,479 11,997
Investment securities:
Trading 31 37 99 97
Available for sale 2,879 1,028 6,786 2,750
Held to maturity - 81 78 238
Margin accounts 611 411 1,565 1,213
FHLB stock dividend 226 211 645 615
Other interest-earning assets 621 3,873 3,861 5,627
------------ ------------ ------------ ------------
Total interest income 22,699 23,661 67,136 65,217
INTEREST EXPENSE
Interest expense on deposits 7,509 8,462 22,504 27,979
Interest expense on other borrowed funds 324 195 793 551
Interest expense on FHLB advance 17 - 19 -
------------ ------------ ------------ ------------
Total Interest Expense 7,850 8,657 23,316 28,530
------------ ------------ ------------ ------------
NET INTEREST INCOME 14,849 15,004 43,820 36,687
PROVISION FOR LOAN LOSS ALLOWANCES - 100 100 500
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSS ALLOWANCES 14,849 14,904 43,720 36,187
------------ ------------ ------------ ------------
NONINTEREST INCOME
Commissions 3,563 4,104 11,891 11,657
Service fees and other charges 1,085 1,111 3,395 3,037
Underwriting and investment banking 40 255 396 489
Net gains (losses):
Mortgage-backed securities - - 40 253
Other (2) - (11) (58)
Unrealized gain on trading securities 21 136 141 149
Other income 155 498 520 871
------------ ------------ ------------ ------------
Total noninterest income 4,862 6,104 16,372 16,398
------------ ------------ ------------ ------------
NONINTEREST EXPENSES
Salaries and employee benefits 18,110 7,824 33,803 21,123
Occupancy 500 522 1,473 1,458
Equipment and data processing 1,234 1,273 3,792 3,687
Deposit insurance premiums 113 135 343 410
Franchise tax 480 479 1,416 1,438
Advertising 350 263 1,088 872
Acquisition expense 431 - 431 -
Charitable contribution - 11,835 - 11,844
Other expenses 1,351 1,262 4,359 3,922
------------ ------------ ------------ ------------
Total noninterest expenses 22,569 23,593 46,705 44,754
------------ ------------ ------------ ------------
(LOSS) INCOME BEFORE INCOME TAXES (2,858) (2,585) 13,387 7,831
INCOME TAXES (916) (977) 4,902 2,670
------------ ------------ ------------ ------------
NET (LOSS) INCOME $ (1,942) $ (1,608) $ 8,485 $ 5,161
============ ============ ============ ============
EARNINGS (LOSS) PER SHARE (2):
Basic and diluted $ (0.06) $ (0.05) $ 0.25 N/A
Average common shares outstanding 34,045,813 33,768,789 33,934,302 N/A
Average common and common equivalent shares outstanding 34,398,566 33,768,789 34,053,178 N/A
</TABLE>
(1) As restated for the acquisition of Butler Wick. See Note 3 to the
consolidated financial statements.
(2) For the purpose of displaying earnings per share, it is assumed the
Conversion took place as of July 1, 1998. Earnings per share for all
periods are not presented as there was no common stock issued or
outstanding.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------------
1999 1998 (1)
--------------- ----------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 8,485 $ 5,161
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan loss allowances 100 500
Net (gains) losses (29) (195)
Accretion of discounts and amortization of premiums (384) (1,096)
Depreciation 1,006 1,046
FHLB stock dividends (645) (615)
Increase in trading securities (2,982) (126)
Increase in margin accounts (13,162) (5,223)
Increase in accrued interest receivable (1,968) (102)
Increase in prepaid and other assets (2,967) (4,597)
Increase (decrease) in accrued interest payable 114 (109)
Increase in post retirement benefit obligation 247 239
Increase in other liabilities 3,799 1,462
Change in unearned stock compensation 11,488 562
Charitable contribution - 11,834
--------- ---------
Net cash provided by operating activities 3,102 8,741
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal repayments and maturities of:
Mortgage-backed securities held to maturity 37,861 48,396
Mortgage-backed securities available for sale 22,321 13,108
Investment securities held to maturity 5,000 -
Investment securities available for sale 15,000 3,215
Proceeds from sale of:
Mortgage-backed securities available for sale 4,951 13,145
Mortgage-backed securities held to maturity - 2,764
Purchases of:
Investment securities available for sale (99,634) (43,889)
Equity securities available for sale (3,874) -
Mortgage-backed securities available for sale (50,532) (32,960)
Mortgage-backed securities held to maturity - (8,047)
Principal collected on loans 137,937 151,021
Loans originated (190,005) (161,766)
Loans acquired - (11)
Proceeds from disposal of real estate owned 128 71
Purchases of premises and equipment (1,155) (1,017)
--------- ---------
Net cash used by investing activities (122,002) (15,970)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in now, savings and money market accounts 7,884 (30,503)
Net decrease in certificates of deposit (7,926) (86,677)
Net decrease in advance payments by borrowers
for taxes and insurance (1,722) (1,494)
Net increase in short-term borrowings 3,500 -
Net increase in other borrowings 12,311 4,298
Net proceeds from the sale or issuance of common shares - 303,995
Dividends paid (7,457) -
--------- ---------
Net cash provided by financing activities 6,590 189,619
--------- ---------
(Decrease) increase in cash and cash equivalents (112,310) 182,390
Cash and cash equivalents, beginning of year 171,874 36,404
--------- ---------
Cash and cash equivalents, end of period $ 59,564 $ 218,794
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 23,193 $ 28,638
Income taxes 5,724 4,747
Supplemental schedule of noncash activities:
Transfers from loans to real estate owned 276 105
Accrual for special capital distribution 226,549 -
</TABLE>
(1) As restated for the acquisition of Butler Wick. See Note 3 to the
consolidated financial statements.
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. (United Community) was incorporated under
Ohio law in February 1998 by The Home Savings & Loan Company of Youngstown,
Ohio (Home Savings) in connection with the conversion of Home Savings from an
Ohio mutual savings and loan association to an Ohio capital stock savings and
loan association (Conversion), the issuance of Home Savings' stock to United
Community and the offer and sale of United Community's common stock. Upon
consummation of the Conversion on July 8, 1998, United Community became the
unitary savings and loan holding company for Home Savings. See Note 2 for a
more detailed description of the Conversion. Home Savings has 14 offices
located throughout Mahoning, Columbiana and Trumbull Counties in Northeastern
Ohio. Butler Wick Corp. (Butler Wick) became a wholly owned subsidiary of
United Community on August 12, 1999. See Note 3 for a more detailed
description of the acquisition of Butler Wick.
The accompanying consolidated financial statements of United Community have
been prepared in accordance with instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. However,
such information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary for
fair statement of results for the interim periods. Financial data for all
prior periods have been restated to reflect the third quarter 1999
acquisition of Butler Wick, which was accounted for as a pooling of interests.
The restatement of the three and nine months ended September 30, 1998 on the
Consolidated Statements of Income and the Consolidated Statements of Cash
Flows, due to the Butler Wick acquisition, was accomplished by combining
Butler Wick's three and nine months ended March 31, 1999 financial data with
United Community's financial data for the three and nine months ended
September 30, 1998, respectively. Butler Wick's June 30, 1999 fiscal year
financial information was combined with United Community's calendar year
ended December 31, 1998 data to restate the Consolidated Statement of
Financial Condition as of December 31, 1998. In 1999, Butler Wick's fiscal
year was conformed to United Community's calendar year, resulting in United
Community's Consolidated Statements of Income for the nine months ended
September 30, 1999 and 1998 to include Butler Wick's operating results for
the three months ended March 31, 1999. Butler Wick's summarized operating
results for the three months ended March 31, 1999 were as follows:
<TABLE>
<S> <C>
Net interest income $ 253,000
Non-interest income $ 5,360,000
Net income $ 414,000
</TABLE>
An adjustment to shareholders' equity removes the effect of including Butler
Wick's financial results in both periods.
The results of operations for the nine months ended September 30, 1999 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1999. The consolidated financial statements and notes thereto
should be read in conjunction with the audited financial statements and notes
thereto for the year ended December 31, 1998, contained in United Community's
Form 10-K for the year ended December 31, 1998.
2. CONVERSION TO CAPITAL STOCK FORM OF OWNERSHIP
On December 9, 1997, the Board of Directors of Home Savings adopted a Plan of
Conversion to convert from an Ohio mutual savings and loan association to an
Ohio capital stock savings and loan association. The Conversion was
accomplished through the formation of United Community in February 1998, the
adoption of an Ohio stock charter, the sale of all of Home Savings' stock to
United Community on July 8, 1998 and the issuance of United Community's stock
on July 8, 1998.
United Community issued 34,715,625 shares in connection with the Conversion.
Gross proceeds from the offering were $347,156,250, which includes the $10
value of the 2,677,250 shares issued to the United Community Financial Corp.
Employee Stock Ownership Plan and 1,183,438 shares sold to Home Savings for
transfer to the Home Savings Charitable Foundation. Conversion costs amounted
to $4.6 million.
Home Savings issued all its outstanding capital stock to United Community in
exchange for approximately one-half of the net proceeds from the Conversion.
United Community accounted for the purchase in a manner similar to a pooling
of interests whereby assets and liabilities of Home Savings maintain their
historical cost basis in the consolidated company.
3. ACQUISITION OF BUTLER WICK CORP.
4
<PAGE>
On August 12, 1999, United Community acquired Butler Wick whereby Butler Wick
became a wholly-owned subsidiary of United Community. In connection with the
acquisition, United Community issued approximately 1.7 million common shares
in exchange for all of Butler Wick's outstanding shares. The acquisition was
accounted for by the pooling of interests method. Accordingly, the assets,
liabilities and shareholders' equity of Butler Wick were recorded on the
books of United Community at their values as reported on the books of Butler
Wick immediately prior to the consummation of the acquisition by United
Community. This presentation required the restatements of prior periods as if
the companies had been combined for all years presented. The contributions of
Butler Wick to consolidated net interest income, non-interest income and net
income for the periods prior to the acquisition were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 (1) September 30, 1998 (1)
(in thousands) (in thousands)
------------------------ --------------------------
<S> <C> <C>
Net Interest Income
United Community $ 14,751 $ 35,929
Butler Wick 253 758
--------------- -------------
Combined $ 15,004 $ 36,687
=============== =============
Total Noninterest Income
United Community $ 744 $ 1,807
Butler Wick 5,360 14,591
--------------- -------------
Combined $ 6,104 $ 16,398
=============== =============
Net (Loss) Income
United Community $ (2,022) $ 4,142
Butler Wick 414 1,019
--------------- -------------
Combined $ (1,608) $ 5,161
=============== =============
</TABLE>
(1) Includes Butler Wick financial data for the three and nine months ended
March 31, 1999, respectively.
Butler Wick is the parent company for three wholly-owned subsidiaries: Butler
Wick & Co., Inc., Butler Wick Asset Management Company and Butler Wick Trust
Company. Through these subsidiaries, Butler Wick's business includes
investment brokerage services, which it has conducted for over 70 years, and
a network of integrated financial services, including asset management, trust
and estate services, public finance and insurance. Butler Wick and its
subsidiaries have ten offices throughout northeastern Ohio and western
Pennsylvania.
5
<PAGE>
4. COMPREHENSIVE (LOSS) INCOME
United Community's comprehensive (loss) income for the three and nine months
ended September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------------------
1999 1998
-------------------- ---------------------
(In thousands)
<S> <C> <C>
Net loss $(1,942) $(1,608)
Unrealized holding (losses) gains arising
During the period, net of tax effect of
($290) and $321, respectively (539) 595
-------------------- ---------------------
Comprehensive loss $(2,481) $(1,013)
==================== =====================
<CAPTION>
Nine Months Ended September 30,
-------------------------------------------------
1999 1998
-------------------- ---------------------
(In thousands)
<S> <C> <C>
Net income $8,485 $5,161
Unrealized holding (losses) gains arising
During the period, net of tax effect of
($1,337) and $312, respectively (2,457) 578
Reclassification adjustment for gains included in
net income, net of tax effect of ($14) and ($23),
respectively (26) (42)
-------------------- ---------------------
Comprehensive income $6,002 $5,697
==================== =====================
</TABLE>
5. SALE OF HELD TO MATURITY MORTGAGE-BACKED SECURITIES
There were no sales of mortgage-backed securities held to maturity during the
nine month period ended September 30, 1999. In January 1998, Home Savings
sold approximately $114,000 of mortgage-backed securities held to maturity
with outstanding balances less than 15% of the principal outstanding since
acquisition. A gain of approximately $6,000 was recorded on the sale. In
April 1998, Home Savings sold approximately $2.6 million of mortgage-backed
securities held to maturity with outstanding balances equal to less than 15%
of the principal outstanding at acquisition. A gain of approximately $100,000
was recorded on the sale. There were no sales of mortgaged-backed securities
held to maturity during the three month period ended September 30, 1998.
6. SEGMENT INFORMATION
Statement of Financial Accounting Standard (SFAS) No. 131, "Disclosures about
Segments of an Enterprise and Related Information" requires financial
disclosure and descriptive information about reportable operating segments,
based on how chief decision makers manage the business. With the acquisition
of Butler Wick, United Community now has two principal segments, retail
banking and investment advisory services. Retail banking provides consumer
and business banking services. Investment advisory services provide an
investment brokerage and a network of integrated financial services.
Condensed statements of income and selected financial information by
operating segment for the three and nine months ended September 30, 1999 and
1998 are as follows:
6
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Retail Banking Investment Advisory Services Eliminations Total
-------------- ---------------------------- -------------- --------
<S> <C> <C> <C> <C>
Total interest income $ 22,539 $ 653 $ 493 $ 22,699
Total interest expense 8,019 324 493 7,850
Net interest income after
provision for loan loss 14,521 328 - 14,849
Non-interest income 454 4,408 - 4,862
Non-interest expense 17,930 4,639 - 22,569
Income (loss) before tax (2,955) 97 - (2,858)
Income tax (952) 36 - (916)
Net income (loss) (2,003) 61 - (1,942)
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Retail Banking Investment Advisory Services Eliminations Total
-------------- ---------------------------- -------------- --------
<S> <C> <C> <C> <C>
Total interest income $ 24,399 $ 448 $1,186 $ 23,661
Total interest expense 9,648 195 1,186 8,657
Net interest income after
provision for loan loss 14,651 253 - 14,904
Non-interest income 744 5,360 - 6,104
Non-interest expense 18,613 4,980 - 23,593
Income (loss) before tax (3,218) 633 - (2,585)
Income tax (1,196) 219 - (977)
Net income (loss) (2,022) 414 - (1,608)
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Retail Banking Investment Advisory Services Eliminations Total
-------------- ---------------------------- -------------- --------
<S> <C> <C> <C> <C>
Total interest income $ 67,047 $ 1,674 $1,585 $ 67,136
Total interest expense 24,109 792 1,585 23,316
Net interest income after
provision for loan loss 42,838 882 - 43,720
Non-interest income 1,347 15,025 - 16,372
Non-interest expense 32,156 14,549 - 46,705
Income before tax 12,029 1,358 - 13,387
Income tax 4,430 472 - 4,902
Net income 7,599 886 - 8,485
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Retail Banking Investment Advisory Services Eliminations Total
-------------- ---------------------------- -------------- --------
<S> <C> <C> <C> <C>
Total interest income $ 65,093 $ 1,310 $1,186 $ 65,217
Total interest expense 29,165 551 1,186 28,530
Net interest income after
provision for loan loss 35,428 759 - 36,187
Non-interest income 1,807 14,591 - 16,398
Non-interest expense 30,970 13,784 - 44,754
Income before tax 6,265 1,566 - 7,831
Income tax 2,123 547 - 2,670
Net income 4,142 1,019 - 5,161
</TABLE>
7
<PAGE>
ITEM 2. 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 Nine
Months Ended Months Ended
September 30, September 30,
------------------------------- -------------------------------
SELECTED FINANCIAL RATIOS AND OTHER DATA: (1) 1999 1998 (11) 1999 1998 (11)
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Performance ratios:
Return on average assets (2) -0.59% -0.48% 0.87% 0.57%
Return on average equity (3) -1.62% -1.45% 2.37% 2.76%
Interest rate spread (4) 3.20% 3.09% 3.15% 3.31%
Net interest margin (5) 4.65% 4.60% 4.60% 4.21%
Noninterest expense to average assets 6.86% 7.05% 4.77% 4.98%
Efficiency ratio (6) 114.50% 111.77% 77.59% 84.31%
Average interest-earning assets to average interest-
bearing liabilities 159.10% 157.16% 159.35% 127.56%
Capital ratios:
Average equity to average assets 36.38% 33.04% 36.59% 20.82%
Equity to assets, end of period 19.63% 36.81% 19.63% 36.81%
Tangible capital 27.71% 12.85% 27.71% 12.85%
Core capital 27.71% 12.85% 27.71% 12.85%
Risk-based capital 49.77% 27.98% 49.77% 27.98%
Asset quality ratio:
Nonperforming loans to total loans at end of period (7) 0.75% 1.17% 0.75% 1.17%
Nonperforming assets to average assets (8) 0.42% 0.71% 0.43% 0.79%
Nonperforming assets to total assets at end of period 0.42% 0.74% 0.42% 0.74%
Allowance for loan losses as a percent of loans 0.90% 0.96% 0.90% 0.96%
Allowance for loan losses as a percent of
nonperforming loans (7) 120.31% 82.85% 120.31% 82.85%
Per share data:
Basic earnings per share (9) (0.06) (0.05) 0.25 N/A
Diluted earnings per share (9) (0.06) (0.05) 0.25 N/A
Book value (10) 7.29 13.98 7.29 N/A
</TABLE>
- -------------------------------------------------------------------------
(1) Ratios for the three and nine month periods are annualized
where appropriate.
(2) Net income divided by average total assets.
(3) Net income divided by average total equity.
(4) Difference between weighted average yield on interest-earning
assets and weighted average cost of interest-bearing
liabilities.
(5) Net interest income as a percentage of average
interest-earning assets.
(6) Noninterest expense divided by the sum of net interest income
and noninterest income.
(7) Nonperforming loans consist of nonaccrual loans and
restructured loans.
(8) Nonperforming assets consist of nonperforming loans and real
estate acquired in settlement of loans.
(9) Net income divided by average number of shares outstanding.
(10) Equity divided by number of shares outstanding.
(11) As restated for the acquisition of Butler Wick. See Note 3 to
the consolidated financial statements.
8
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1999 AND DECEMBER 31,
1998
Total assets were $1.3 billion at September 30, 1999, a $14.0 million, or
1.08%, increase compared to December 31, 1998. The primary reason for the
increase in total assets was a result of an increase in net loans of $52.5
million and an increase in securities of $67.3 million. These increases were
partially offset by a decrease in cash and cash equivalents of $112.8
million. Funds from cash and cash equivalents were invested in short-term
securities that were designated as available for sale to enable United
Community to take advantage of the current interest rate environment by
investing in higher yielding securities while providing a great deal of
liquidity and flexibility.
Net loans increased $52.5 million, or 8.0%, to $710.0 million at September
30, 1999 compared to $657.5 million at December 31, 1998. The most
significant increases were commercial loans, which increased $36.2 million,
or 48.2%, and loans secured by one-to four-family residences, which increased
$23.4 million, or 4.5%.
Funds that are not currently needed for general corporate purposes, such as
loan originations, enhanced customer services and possible acquisitions, are
invested at this time in overnight funds, investment securities and
mortgage-backed securities. Overnight funds decreased $110.6 million, or
71.9%, to $43.2 million at September 30, 1999 from $153.8 million at December
31, 1998. Securities available for sale, which include investment securities
and mortgage-backed securities, increased $106.2 million, or 50.3%, since
December 31, 1998. Securities held to maturity, which also consist of
investment securities and mortgage backed securities, decreased $42.9
million, or 22.8%, since December 31, 1998. Trading securities, which consist
of investment securities increased $3.9 million, or 140.6%, to $6.7 million
at September 30, 1999. Securities available for sale and trading securities,
in conjunction with overnight funds, enable United Community to fully employ
excess funds while providing a great deal of liquidity and flexibility as
United Community pursues other investment opportunities.
Nonaccrual and restructured loans decreased approximately $2.3 million to
$5.3 million at September 30, 1999 from $7.6 million at December 31, 1998.
The decrease in nonaccrual and restructured loans is primarily due to
decreases in the one-to-four family and the commercial loan categories of
nonaccrual or restructured loans. These decreases are due to customers paying
loans off, existing loans being reclassified as current and fewer new loans
being categorized as nonaccrual or restructured. At September 30, 1999, total
nonaccrual and restructured loans accounted for 0.75% of net loans
receivable, compared to 1.15% at December 31, 1998. Total nonperforming
assets were 0.42% of total assets as of September 30, 1999, a decrease of
0.19% from 0.61% as of December 31, 1998.
Total deposits decreased $42,000 from $777.6 million at December 31, 1998 to
$777.5 million at September 30, 1999. Checking accounts increased by $15.3
million to $136.4 million at September 30, 1999 compared to $121.1 million at
December 31, 1998, due to a new market rate account that provides for the
interest rate to be tiered to the dollar amount maintained in the account.
This increase was partially offset by a $7.9 million decrease in certificates
of deposits from $431.8 million at December 31, 1998 to $423.9 million at
September 30, 1999 and a $7.5 million decrease in savings accounts from
$224.7 million at December 31, 1998 to $217.2 million at September 30, 1999.
Accrued expenses and other liabilities increased $227.7 million to $241.6
million at September 30, 1999 compared to $13.9 million at December 31, 1998.
This increase is primarily due to a $226.5 million liability related to the
$6 per share special capital distribution approved on September 30, 1999. The
special distribution, which was charged to common stock, was paid on October
26, 1999.
Shareholders' equity decreased $217.3 million, or 45.8%, to $257.5 million at
September 30, 1999 from $474.8 million at December 31, 1998. The primary
reason for the decrease was the result of the $6.00 per share special capital
distribution previously mentioned. This decrease was partially offset by
earnings for the nine months, which were partially offset by quarterly
dividends of $0.075 per share paid quarterly in 1999. Book value per share
was $7.29 as of September 30, 1999.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
NET LOSS. The net loss for the three months ended September 30, 1999 was $1.9
million, or $(0.06) per diluted share. The loss was primarily due to a $6.4
million one-time compensation expense due to the effect of the $6.00 per
share special capital distribution in The United Community Financial Corp.
Recognition and Retention Plan (RRP) and a $3.3 million compensation expense
for the first year of the RRP. Diluted earnings per share for the same
quarter would have been $0.07 excluding the compensation expense for the RRP
related to the $6.00 per share special capital distribution and the Butler
Wick acquisition expense. Net loss for the three months ended September 30,
1998 was $1.6 million, or $(0.05) per diluted share, primarily due to an
$11.8 million contribution to The Home Savings and Loan Company Charitable
Foundation. United Community's annualized return on average assets and return
on average equity were (0.59)% and (1.62)%, respectively, for the three
months ended September 30, 1999. The annualized return on average assets and
return on average equity for the comparable period in 1998 were (0.48)% and
(1.45)%, respectively.
9
<PAGE>
A more direct comparison of operating results is to compare pre-tax core
earnings for the two periods. Core earnings are defined as pre-tax earnings
adjusted for securities sales transactions, unrealized gains or losses in the
trading portfolio and unusual or nonrecurring expense or income items. Core
earnings for the three months ended September 30, 1999 were $4.0 million, or
$0.07 per diluted share, compared to $9.1 million for the three months ended
September 30, 1998. The primary reason for the decrease in core earnings is a
$3.8 million increase in salaries and employee benefits primarily due to a
$3.3 million expense for the shares awarded in the first year of the RRP
program, and a $541,000, or 13.2%, decrease in commission income. The
following table summarizes the components of adjusted pre-tax core earnings:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------------------------------
1999 1998
--------------------- ---------------------
(In thousands)
<S> <C> <C>
Net interest income $14,849 $15,004
Provision for loan losses - 100
Noninterest income excluding gains and losses 4,843 5,968
Noninterest expense 15,697 11,758
-------------------- ---------------------
Adjusted pretax core earnings $3,995 $9,114
==================== =====================
</TABLE>
NET INTEREST INCOME. Net interest income decreased $155,000, or 1.03%, for
the third quarter of 1999 to $14.8 million compared to $15.0 million in the
third quarter of 1998 as the result of a decrease in the yield on
interest-earning assets which was partially offset by the reduction in
interest rates of interest-bearing liabilities in conjunction with the
decrease in interest-earning liabilities.
PROVISION FOR LOAN LOSSES. A provision for loan losses is charged to
operations to bring the total allowance for loan losses to a level considered
by management to be adequate to provide for estimated losses based on
management's evaluation of such factors as the delinquency status of loans,
current economic conditions, the net realizable value of the underlying
collateral, changes in the composition of the loan portfolio and prior loan
loss experience. No provision for loan loss allowance was recorded for the
third quarter of 1999, compared to a provision of $100,000 for the third
quarter of 1998. The decrease in the provision is attributable to a decrease
in nonperforming loans and delinquency rates and an improvement in the local
economy. Home Savings' allowance for loan losses totaled $6.4 million at
September 30, 1999, which was 0.90% of total loans.
NONINTEREST INCOME. Noninterest income decreased $1.2 million, or 20.4%, to
$4.9 million at September 30, 1999 compared to $6.1 million at September 30,
1998, primarily due to a decrease in commissions of $541,000, a decrease in
other income of $343,000 and a decrease in underwriting and investment
banking of $215,000.
NONINTEREST EXPENSE. Total noninterest expense decreased $1.0 million, or
4.3%, to $22.6 million for the three months ended September 30, 1999 from
$23.6 million for the three months ended September 30, 1998. The $11.8
million in charitable contributions for the three months ended September 30,
1998 was a one-time donation to The Home Savings and Loan Charitable
Foundation. The $10.2 million increase in salaries and employee benefits for
the third quarter of 1999 compared to the third quarter of 1998, was
primarily due to the $6.4 million expense for the $6.00 per share special
capital distribution paid on the RRP shares and a $3.3 million compensation
expense for the first year of the RRP. As of September 30, 1999 United
Community has awarded approximately 20% of the 1,342,334 shares granted to
eligible individuals. The remaining 80% of the shares granted will be awarded
over the next four years. Expenses for the year 2000 issue are included in
equipment and data processing. The expenses were approximately $412,000 for
the year ended December 31, 1998 and $278,000 for the nine months ended
September 30, 1999.
FEDERAL INCOME TAXES. The provision for federal income taxes decreased
$61,000, or 6.2% for the three months ended September 30, 1999, compared to
the three months ended September 30, 1998, primarily due to the lower pre-tax
income for the third quarter of 1999 compared to the third quarter of 1998.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
NET INCOME. Net income for the nine months ended September 30, 1999, was $8.5
million, compared to $5.2 million for the nine months ended September 30,
1998. The increase of 64.4%, or $3.3 million, was primarily due to an
increase in interest-earning assets and a decrease in interest-bearing
liabilities which were offset by an increase in noninterest expense. United
Community's annualized
10
<PAGE>
return on average assets and return on average equity were 0.87% and 2.37%,
respectively, for the nine months ended September 30, 1999 compared to 0.57%
and 2.76%, respectively, for the nine months ended September 30, 1998.
Core earnings, as defined above, for the nine months ended September 30, 1999
were $20.1 million, or $0.38 per diluted share, compared to $19.3 million in
the prior year period. The following table summarizes the components of
adjusted pre-tax core earnings:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------------------------
1999 1998
--------------------- ---------------------
(In thousands)
<S> <C> <C>
Net interest income $43,820 $36,687
Provision for loan losses 100 500
Noninterest income excluding gains and losses 16,202 16,054
Noninterest expense 39,831 32,910
-------------------- ---------------------
Adjusted pretax core earnings $20,091 $19,331
==================== =====================
</TABLE>
NET INTEREST INCOME. Net interest income increased $7.1 million, or 19.4%, to
$43.8 million for the nine months ended September 30, 1999 from $36.7 million
for the comparable period in 1998. The increase is attributable to a $1.9
million increase in total interest income and a $5.2 million decline in
interest expense. The increase in interest income was due to an increase in
interest-earning assets as the average balance of interest-earning assets was
$107.8 million higher for the nine months ended September 30, 1999 compared
to 1998, due to the Conversion. The decrease in interest expense was due to a
decrease in interest-bearing liabilities combined with a reduction in
interest rates on the interest-bearing liabilities as a result of the
interest rate environment for the first three quarters of 1999 compared to
the same period in 1998. The average balance of interest-bearing liabilities
was $114.1 million lower for the nine months ended September 30, 1999
compared to the first nine months of 1998 due to the withdrawal of deposits
to purchase United Community shares of stock. These increases were partially
offset by a reduction in interest rates of interest-earning assets.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $100,000 for the
nine months ended September 30, 1999, as a result of continuing growth of the
loan portfolio, compared to a provision of $500,000 for the nine months ended
September 30, 1998. The decrease in the provision was due to the same factors
previously mentioned.
NONINTEREST INCOME. Noninterest income decreased $26,000, or 0.2%, to $16.37
million for the nine months ended September 30, 1999, from $16.40 million for
the nine months ended September 30, 1998. The decrease was primarily due to a
$213,000 decrease in the gains from the sale of mortgage-backed securities
and a $351,000 decrease in other income. These decreases were partially
offset by a $234,000 increase in commissions and service fees and other
charges.
NONINTEREST EXPENSE. Total noninterest expense increased $1.9 million, or
4.4%, to $46.7 million for the nine months ended September 30, 1999 from
$44.8 million for the nine months ended September 30, 1998. The primary
reasons for the increase were employee compensation expense of $6.4 million
for the $6.00 per share special capital distribution, $3.3 million for the
first years' RRP expense, and an increase in ESOP expense of approximately
$1.1 million due to the ESOP being in effect for the entire nine months as of
September 30, 1999 versus the three months for the comparable period in 1998.
These increases were partially offset by an $11.8 million decrease in
charitable contributions due to the one-time contribution to The Home Savings
and Loan Charitable Foundation in 1998.
FEDERAL INCOME TAXES. The provision for federal income taxes increased $2.2
million, or 83.6%, for the nine months ended September 30, 1999 compared to
the nine months ended September 30, 1998, primarily due to the higher pre-tax
income for the nine months ended September 30, 1999 compared to the same
period in 1998.
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 three month periods ended September 30, 1999 and 1998. Average
balance calculations were based on daily balances.
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------------------------------------------------------
1999 1998
--------------------------------------- ---------------------------------------
Average Interest Average Interest
outstanding earned/ Yield/ Outstanding earned/ Yield/
balance Paid rate balance paid rate
------------- ----------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
Interest-earning assets:
Net loans (1) $ 698,462 $ 13,759 7.88 % $ 645,962 $ 13,470 8.34 %
Mortgage-backed securities:
Available for sale 123,957 1,957 6.32 54,691 912 6.67
Held to maturity 150,369 2,615 6.96 208,908 3,638 6.97
Investment securities:
Trading 4,702 31 2.64 5,338 37 2.02
Available for sale 203,852 2,879 5.65 68,440 1,028 6.01
Held to maturity - - - 4,983 81 6.42
Margin accounts 33,063 611 7.39 24,156 411 6.97
Other interest-earning assets 63,075 847 5.37 290,938 4,084 5.62
------------- ----------- -------- ------------ ---------- --------
Total interest-earning assets 1,277,480 22,699 7.11 1,303,416 23,661 7.26
Noninterest-earning assets 37,806 35,577
------------- ------------
Total assets $1,315,286 $1,338,993
============= ============
Interest-bearing liabilities:
Checking and demand accounts $ 134,129 837 2.50 $122,463 645 2.11
Savings accounts 221,934 1,386 2.50 245,154 1,811 2.95
Certificates of deposit 418,177 5,286 5.06 442,321 6,007 5.43
Other borrowed funds 27,515 324 4.71 19,425 195 4.02
FHLB Advances 1,179 17 5.43 - - -
------------- ----------- -------- ------------ ---------- --------
Total interest-bearing liabilities 802,934 7,850 3.91 829,363 8,658 4.18
----------- -------- ---------- --------
Noninterest-bearing liabilities 33,883 67,269
------------- ------------
Total liabilities 836,817 896,632
Equity 478,469 442,361
------------- ------------
Total liabilities and equity $1,315,286 $1,338,993
============= ============
Net interest income and
interest rate spread $ 14,849 3.20 % $15,003 3.09 %
=========== =========== ========== ===========
Net interest margin 4.65 % 4.60 %
=========== ===========
Average interest-earning assets to
Average interest-bearing liabilities 159.10 % 157.16 %
=========== ===========
</TABLE>
- ----------------------------------
(1) Nonaccrual loans are included in the average balance.
12
<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 nine month periods ended September 30, 1999 and 1998. Average
balance calculations were based on daily balances.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------------------------------------------
1999 1998
--------------------------------------- ---------------------------------------
Average Interest Average Interest
outstanding earned/ Yield/ Outstanding earned/ Yield/
balance Paid rate balance paid rate
-------------- ----------- ----------- ------------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Net loans (1) $ 680,045 $ 40,515 7.94 % $ 639,312 $ 39,774 8.30 %
Mortgage-backed securities:
Available for sale 110,381 5,108 6.17 57,682 2,906 6.72
Held to maturity 162,238 8,479 6.97 227,268 11,997 7.04
Investment securities:
Trading 4,083 99 3.23 3,648 97 2.41
Available for sale 160,920 6,786 5.62 60,950 2,750 6.02
Held to maturity 1,629 78 6.38 4,861 238 6.53
Margin accounts 29,157 1,565 7.16 20,968 1,213 7.91
Other interest-earning assets 121,327 4,506 4.95 147,272 6,242 5.65
------------- ----------- -------- ------------ ---------- --------
Total interest-earning assets 1,269,780 67,136 7.05 1,161,961 65,217 7.48
Noninterest-earning assets 35,713 35,583
------------- ------------
Total assets $1,305,493 $1,197,544
============= ============
Interest-bearing liabilities:
Checking and demand accounts $ 125,216 2,250 2.40 $126,847 2,058 2.16
Savings accounts 223,867 4,147 2.47 278,674 5,690 2.72
Certificates of deposit 423,647 16,107 5.07 489,132 20,231 5.51
Other borrowed funds 23,635 793 4.47 16,286 551 4.51
FHLB Advances 489 19 5.18 - - -
------------- ----------- -------- ------------ ---------- --------
Total interest-bearing liabilities 796,854 23,316 3.90 910,939 28,530 4.18
----------- -------- ---------- --------
Noninterest-bearing liabilities 31,024 37,240
------------- ------------
Total liabilities 827,878 948,179
Equity 477,615 249,365
------------- ------------
Total liabilities and equity $1,305,493 $1,197,544
============= ============
Net interest income and
interest rate spread $ 43,820 3.15 % $ 36,687 3.31 %
=========== =========== ========== ===========
Net interest margin 4.60 % 4.21 %
=========== ===========
Average interest-earning assets to
Average interest-bearing liabilities 159.35 % 127.56 %
=========== ===========
</TABLE>
- ----------------------------------
(1) Nonaccrual loans are included in the average balance.
13
<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 United Community's interest income and interest
expense during the periods indicated. For each category of interest-earning
assets and interest-bearing liabilities, information is provided on changes
attributable to (i) changes in volume (change in volume multiplied by prior
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 For the Nine Months Ended
September 30, September 30,
1999 vs. 1998 1999 vs. 1998
--------------------------------------- ----------------------------------------
Increase Increase
(decrease) due to Total (decrease) due to Total
-------------------------- increase ------------------------- increase
Rate Volume (decrease) Rate Volume (decrease)
------------ ------------ ------------ ----------- ------------ ------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ (616) $ 905 $289 $(1,472) $2,213 $ 741
Mortgage-backed securities:
Available for sale (46) 1,091 1,045 (216) 2,418 2,202
Held to maturity (5) (1,018) (1,023) (118) (3,400) (3,518)
Investment securities:
Trading (2) (4) (6) (6) 8 2
Available for sale (58) 1,909 1,851 (168) 4,204 4,036
Held to maturity (41) (40) (81) (5) (155) (160)
Margin accounts 38 162 200 (80) 432 352
Other interest-earning assets (155) (3,082) (3,237) (716) (1,020) (1,736)
------------ ------------ ------------ ----------- ------------ ------------
Total interest-earning assets $ (885) $ (77) (962) $(2,781) $4,700 1,919
============ ============ ============ =========== ============ ============
Interest-bearing liabilities:
Savings accounts $ (264) $ (161) $(425) $ (494) $ (1,049) $ (1,543)
Checking accounts 127 65 192 218 (26) 192
Certificates of deposit (402) (318) (720) (1,552) (2,572) (4,124)
Other borrowed funds 38 91 129 (5) 247 242
FHLB advances 17 - 17 19 - 19
------------ ------------ ------------ ----------- ------------ ------------
Total interest-bearing liabilities $ (484) $ (323) (807) $(1,814) $ (3,400) (5,214)
============ ============ ============ =========== ============ ============
Change in net interest income $(155) $7,133
============ ============
</TABLE>
14
<PAGE>
YEAR 2000
The approach of the year 2000 (Y2K) has raised concerns about transition into
the new century. These concerns center on the capabilities of computers,
computer software programs or computer chips to recognize the century date
change. Without remediation, the possibility exists that some computer
systems may misinterpret the year "00," expressed in two digits, as 1900
instead of 2000. Under such a scenario, the potential for interruption or
shutdown of normal business operations could result in exposure to business
risk for United Community and its subsidiaries, Home Savings and Butler Wick.
To prepare for this transition, each operating subsidiary of United Community
initiated a Y2K project plan. During the third quarter acquisition of Butler
Wick, a review of its Y2K readiness ascertained that appropriate technical
and industry standards were adopted in its Y2K project plan. In completing
its plans, each subsidiary identified potential operational and business
risks, assessed systems and equipment, performed and tested all renovations,
and implemented Y2K-ready systems. Risks associated with Y2K preparedness
have been identified and analyzed for major customers and vendors. At this
time, there appears to be no significant risks with these groups, however,
these will continue to be monitored throughout 1999.
All systems essential to interaction and service with customers have been
identified as "mission critical." Both Home Savings and Butler Wick use
third-party providers to support their mission critical systems. Most
important among those are the core transaction processing systems. These
systems have been completely renovated and tested for Y2K performance, and
have been fully integrated into daily live operations since September 1998.
Software applications developed internally and by third parties were
completely renovated and successfully tested by June 30, 1999. All mission
critical equipment was evaluated for Y2K performance, upgraded or replaced as
needed, and successfully tested by September 30, 1999. Together, all of these
components form a Y2K-ready information environment currently operating in
both subsidiaries.
In the event that Y2K failures outside of our control disrupt mission
critical systems, contingency plans have been developed and validated. A
range of such failure scenarios, from isolated or intermittent to wide spread
or prolonged, has been modeled and the resulting impacts predicted. For each
scenario, contingency plans have been documented with appropriate alternative
operating procedures such as manual systems, partnership arrangements with
other companies or providers, or emergency off-site operations. Testing of
these contingency plans and employee training in their implementation will
continue throughout 1999.
In preparation for year 2000, Home Savings has incurred costs of
approximately $204,000 during 1998, and $251,000 during 1999. In addition,
Butler Wick has invested $374,000 over the same two-year period to upgrade
its internal data processing systems in order to enhance client service as
well as to prepare for Y2K. These figures reflect the costs of hardware and
software purchases, third party development and testing, internal compliance
testing and training, employee and customer communications, and security
enhancements. They do not necessarily include the allocation of all internal
resources and employee salaries utilized for this project. United Community
and its subsidiaries do not expect to incur further significant external
costs in order to complete Y2K preparations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
A comprehensive qualitative and quantitative analysis regarding Home Savings'
market risk was disclosed in United Community's 1998 Annual report under the
caption "Asset and Liability Management and Market Risk". No material changes
in the methodology or results in the interest rate sensitivity have occurred.
15
<PAGE>
PART II. OTHER INFORMATION
UNITED COMMUNITY FINANCIAL CORP.
ITEMS 1, 3 AND 5 - NOT APPLICABLE
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
United Community issued 1,700,207 shares to acquire all of the outstanding
shares of Butler Wick. United Community issued 19.11 shares for each of
Butler Wick's outstanding shares per the acquisition agreement. During the
quarter, United Community also issued and granted 1,342,334 shares to
eligible individuals for The United Community Recognition and Retention Plan.
These individuals received approximately 20% of these shares in the first
year. The remaining 80% of the shares granted will be awarded over the next
four years.
On September 30, 1999, United Community's Board of Directors approved a
special capital distribution of $6.00 per share, which was paid on October
26, 1999.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 12, 1999, United Community held a Special Meeting of Shareholders. In
connection therewith, two matters were submitted to shareholders for a vote.
The United Community Financial Corp. Long-Term Incentive Plan and the United
Community Financial Corp. Recognition and Retention Plan were approved by the
following votes:
<TABLE>
<CAPTION>
Plan For Against Abstain
---- --- ------- -------
<S> <C> <C> <C>
Long-Term Incentive Plan 14,404,058 5,062,477 521,665
Retention and Recognition Plan 14,947,002 4,484,752 556,447
</TABLE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
11 Statement regarding computation of earnings per share
27 Financial Data Schedule - EDGAR only
27.1 Restated Financial Data Schedule - EDGAR only
</TABLE>
b. Reports on Form 8-K
On July 14, 1999 United Community filed a Form 8-K disclosing operating
results for the quarter ended June 30, 1999.
16
<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: November 10, 1999 /s/ Douglas M. McKay
----------------------------------
Douglas M. McKay, President
Date: November 10, 1999 /s/ Patrick A. Kelly
----------------------------------
Patrick A. Kelly, Treasurer
17
<PAGE>
UNITED COMMUNITY FINANCIAL CORP.
EXHIBIT 11
COMPUTATIONS OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ ----------------------------------
1999 1998 (2) 1999 1998
--------------- ----------------- ------------- -----------------
(Dollars in thousands, (Dollars in thousands,
except per share data) except per share data)
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE(1):
Net (loss) income $ (1,942) $ (1,608) $ 8,485 N/A
=============== ================= ============ ===========
Basic earnings per share $ (0.06) $ (0.05) $0.25 N/A
=============== ================= ============ ===========
Weighted average number of common shares
outstanding 34,045,813 33,768,789 33,934,302 N/A
=============== ================= ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ ----------------------------------
1999 1998 (2) 1999 1998
--------------- ----------------- ---------- -----------------
(Dollars in thousands, (Dollars in thousands,
except per share data) except per share data)
<S> <C> <C> <C> <C>
DILUTED EARNINGS PER SHARE (1):
Net (loss) income $ (1,942) $ (1,608) $ 8,485 N/A
=============== ================= ============ ===========
Diluted earnings per share $ (0.06) $ (0.05) $ 0.25 N/A
=============== ================= ============ ===========
Weighted average number of common shares
outstanding - basic 34,045,813 33,768,789 33,934,302 N/A
Dilutive effect 352,753 0 118,876 N/A
Weighted average number of common shares
outstanding - dilutive 34,398,566 33,768,789 34,053,178 N/A
=============== ================= ============ ===========
</TABLE>
(1) For the purpose of displaying earnings per share, it is assumed the
Conversion took place as of July 1, 1998. Earnings per share for all
periods are not presented as there was no common stock issued or
outstanding.
(2) As restated for the acquisition of Butler Wick. See Note 3 to the
consolidated financial statements.
18
<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 NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 16,345
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 43,219
<TRADING-ASSETS> 6,746
<INVESTMENTS-HELD-FOR-SALE> 317,306
<INVESTMENTS-CARRYING> 145,128
<INVESTMENTS-MARKET> 144,265
<LOANS> 710,030
<ALLOWANCE> 6,422
<TOTAL-ASSETS> 1,311,657
<DEPOSITS> 777,541
<SHORT-TERM> 0
<LIABILITIES-OTHER> 276,635
<LONG-TERM> 0
0
0
<COMMON> 136,016
<OTHER-SE> 121,465
<TOTAL-LIABILITIES-AND-EQUITY> 1,311,657
<INTEREST-LOAN> 40,515
<INTEREST-INVEST> 22,115
<INTEREST-OTHER> 4,506
<INTEREST-TOTAL> 67,136
<INTEREST-DEPOSIT> 22,504
<INTEREST-EXPENSE> 23,316
<INTEREST-INCOME-NET> 43,820
<LOAN-LOSSES> 100
<SECURITIES-GAINS> 40
<EXPENSE-OTHER> 46,705
<INCOME-PRETAX> 13,387
<INCOME-PRE-EXTRAORDINARY> 13,387
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,485
<EPS-BASIC> .25
<EPS-DILUTED> .25
<YIELD-ACTUAL> 4.60
<LOANS-NON> 3,687
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,651
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,446
<CHARGE-OFFS> 29
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 6,422
<ALLOWANCE-DOMESTIC> 6,422
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE RESTATED
CONSOLIDATED FINANCIAL STATEMENTS OF UNITED COMMUNITY FINANCIAL CORP AS OF AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 21,495
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 197,299
<TRADING-ASSETS> 2,943
<INVESTMENTS-HELD-FOR-SALE> 150,316
<INVESTMENTS-CARRYING> 205,853
<INVESTMENTS-MARKET> 211,335
<LOANS> 644,369
<ALLOWANCE> 6,261
<TOTAL-ASSETS> 1,283,021
<DEPOSITS> 769,628
<SHORT-TERM> 0
<LIABILITIES-OTHER> 41,161
<LONG-TERM> 0
0
0
<COMMON> 345,750
<OTHER-SE> 126,482
<TOTAL-LIABILITIES-AND-EQUITY> 1,283,021
<INTEREST-LOAN> 39,774
<INTEREST-INVEST> 19,201
<INTEREST-OTHER> 6,242
<INTEREST-TOTAL> 65,217
<INTEREST-DEPOSIT> 27,096
<INTEREST-EXPENSE> 28,530
<INTEREST-INCOME-NET> 36,687
<LOAN-LOSSES> 500
<SECURITIES-GAINS> 253
<EXPENSE-OTHER> 44,754
<INCOME-PRETAX> 7,831
<INCOME-PRE-EXTRAORDINARY> 7,831
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,161
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.21
<LOANS-NON> 5,633
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,924
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,982
<CHARGE-OFFS> 241
<RECOVERIES> 20
<ALLOWANCE-CLOSE> 6,261
<ALLOWANCE-DOMESTIC> 6,261
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
