<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 June 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. 32,235,733 common shares as
of July 31, 1999
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TABLE OF CONTENTS
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as of
June 30, 1999 and December 31,1998................................ 1
Consolidated Statements of Income for the Three Months
and Six Months Ended June 30, 1999 and 1998....................... 2
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1999 and 1998............................... 3
Notes to Consolidated Financial Statements ....................... 4 - 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................... 6 - 12
Item 3. Quantitative and Qualitative Disclosure About Market Risk......... 12
PART II. OTHER INFORMATION...................................................... 13
Signatures...................................................................... 14
EXHIBITS........................................................................ 15 - 16
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------ ---------------
(In thousands)
<S> <C> <C>
ASSETS
Cash and deposits with banks $ 13,952 $ 16,733
Federal funds sold and other 48,542 153,775
------------------ ---------------
Total cash and cash equivalents 62,494 170,508
------------------ ---------------
Investment securities:
Available for sale (amortized cost of $206,241 and $110,294,
respectively) 205,469 110,888
Held to maturity (fair value of $0 and $5,016, respectively) - 4,993
Mortgage-backed securities:
Available for sale (amortized cost of $127,592 and $98,357, respectively) 126,501 98,890
Held to maturity (fair value of $155,838 and $187,010, respectively) 155,112 182,999
Loans, net (including allowance for loan losses of $6,446 and $6,398, respectively) 687,474 657,498
Federal Home Loan Bank stock 12,376 11,958
Premises and equipment 7,517 7,523
Accrued interest receivable 8,784 7,259
Real estate owned 152 78
Other assets 7,515 4,711
------------------ ---------------
TOTAL ASSETS $ 1,273,394 $1,257,305
================== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits $ 781,927 $ 777,583
FHLB Advances 5,000 -
Advance payments by borrowers for taxes and insurance 3,756 3,954
Accrued interest payable 805 672
Accrued expenses and other liabilities 13,353 10,451
------------------ ---------------
TOTAL LIABILITIES 804,841 792,660
------------------ ---------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock-no par value; 1,000,000 shares authorized and unissued - -
Common stock-no par value; 499,000,000 shares authorized; 34,715,625
shares issued; and 32,220,552 outstanding at June 30, 1999 342,998 342,840
Retained earnings 151,717 146,934
Other comprehensive income (1,211) 733
Unearned compensation (24,951) (25,862)
------------------ ---------------
TOTAL SHAREHOLDERS' EQUITY 468,553 464,645
------------------ ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,273,394 $1,257,305
================== ===============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
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UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
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<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- --------------------------------
1999 1998 1999 1998
----------------- -------------- --------------- -------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 13,503 $ 13,232 $ 26,757 $26,305
Mortgage-backed securities:
Available for sale 1,699 952 3,151 1,994
Held to maturity 2,813 4,048 5,863 8,359
Investment securities:
Available for sale 2,231 974 3,907 1,722
Held to maturity - 79 78 158
FHLB stock dividend 213 205 418 404
Other interest-earning assets 1,357 1,527 3,241 1,753
----------------- -------------- --------------- -------------
Total interest income 21,816 21,017 43,415 40,695
INTEREST EXPENSE
Interest expense on deposits 7,488 9,960 14,995 19,516
Interest expense on FHLB advance 3 - 3 -
----------------- -------------- --------------- -------------
Total interest expense 7,491 9,960 14,998 19,516
----------------- -------------- --------------- -------------
NET INTEREST INCOME 14,325 11,057 28,417 21,179
PROVISION FOR LOAN LOSS ALLOWANCES 25 150 100 400
----------------- -------------- --------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSS ALLOWANCES 14,300 10,907 28,317 20,779
----------------- -------------- --------------- -------------
NONINTEREST INCOME
Service fees and other charges 337 300 610 580
Net gains (losses):
Mortgage-backed securities 40 240 40 253
Other (10) (6) (9) (58)
Other income 137 150 253 287
----------------- -------------- --------------- -------------
Total noninterest income 504 684 894 1,062
----------------- -------------- --------------- -------------
NONINTEREST EXPENSES
Salaries and employee benefits 4,255 3,564 8,440 7,145
Occupancy 337 328 639 641
Equipment and data processing 662 689 1,308 1,292
Deposit insurance premiums 114 137 231 276
Franchise tax 474 479 936 958
Advertising 328 354 603 609
Other expenses 943 712 2,070 1,437
----------------- -------------- --------------- -------------
Total noninterest expenses 7,113 6,263 14,227 12,358
----------------- -------------- --------------- -------------
INCOME BEFORE INCOME TAXES 7,691 5,328 14,984 9,483
INCOME TAXES 2,800 1,866 5,382 3,320
----------------- -------------- --------------- -------------
NET INCOME $ 4,891 $ 3,462 $ 9,602 $6,163
================= ============== =============== =============
EARINGS PER SHARE:
Basic $ 0.15 N/A $ 0.30 N/A
Diluted $ 0.15 N/A $ 0.30 N/A
Average common shares outstanding 32,198,030 N/A 32,175,385 N/A
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
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UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
Six Months Ended June 30,
---------------------------------------
1999 1998
---------------- ----------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 9,602 $ 6,163
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan loss allowances 100 400
Net (gains) losses (31) (195)
Accretion of discounts and amortization of premiums (309) (763)
Depreciation 485 530
FHLB stock dividends (418) (404)
Increase in interest receivable (1,525) (726)
Increase in interest payable 132 706
Increase in postretirement benefit obligation 166 176
Increase in prepaid and other assets (2,804) (1,818)
Increase (decrease) in other liabilities 3,783 (139)
Change in unearned compensation 1,069 -
---------------- ----------------
Net cash provided by operating activities 10,250 3,930
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal repayments and maturities of:
Mortgage-backed securities held to maturity 28,018 31,644
Mortgage-backed securities available for sale 16,178 7,303
Investment securities held to maturity 5,000
Investment securities available for sale 5,000 2,787
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) (30,489)
Equity securities available for sale (1,559)
Mortgage-backed securities available for sale (50,532) (11,959)
Mortgage-backed securities held to maturity (8,047)
Principal collected on loans 90,671 90,717
Loans originated (120,285) (103,492)
Loans acquired - (11)
Proceeds from disposal of real estate owned 81 71
Purchases of premises and equipment (480) (361)
---------------- ----------------
Net cash used in investing activities (122,591) (5,928)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in Now, Savings and Money Market Accounts 15,899 675,538
Net decrease in Certificates of Deposit (11,555) (34,453)
Net decrease in advance payments by borrowers
for taxes and insurance (198) (252)
Net increase in Short-term Borrowings 5,000 -
Dividends paid (4,819) -
---------------- ----------------
Net cash provided by financing activities 4,327 640,833
---------------- ----------------
(Decrease) increase in cash and cash equivalents (108,014) 638,835
Cash and cash equivalents, beginning of year 170,508 34,497
---------------- ----------------
Cash and cash equivalents, end of period $ 62,494 $ 673,332
================ ================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 14,865 $ 18,810
Income taxes 4,572 3,200
Supplemental schedule of noncash activities:
Transfers from loans to real estate owned 156 105
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
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UNITED COMMUNITY FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
United Community Financial Corp. was incorporated under Ohio law in February
1998 by The Home Savings & Loan Company of Youngstown, Ohio 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, 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.
The accompanying consolidated financial statements of United Community have been
prepared in accordance with instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. However, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for fair
statement of results for the interim periods.
The results of operations for the six months ended June 30, 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. EARNINGS PER COMMON SHARE
Earnings per share has been computed for the three months and six months ended
June 30, 1999, based upon weighted average common shares outstanding of
32,198,030 and 32,175,385, respectively. Earnings per share for all prior
periods are not presented as there was no common stock issued or outstanding.
4
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4. COMPREHENSIVE INCOME
United Community's comprehensive income for the three and six months ended June
30, 1999 and 1998 are as follows:
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Three Months Ended June 30,
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1999 1998
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(In thousands)
<S> <C> <C>
Net income $4,891 $3,462
Unrealized holding (losses) gains arising
during the period, net of tax effect of
($808) and ($44), respectively (1,474) (82)
Reclassification adjustment for gains included
in net income, net of tax effect of ($14) and
($23), respectively (26) (42)
-------------------- ---------------------
Comprehensive income $3,391 $3,338
==================== =====================
</TABLE>
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<CAPTION>
Six Months Ended June 30,
-------------------------------------------------
1999 1998
-------------------- ---------------------
(In thousands)
<S> <C> <C>
Net income $9,602 $6,163
Unrealized holding (losses) gains arising
during the period, net of tax effect of
($1,047) and ($10), respectively (1,918) (18)
Reclassification adjustment for gains included in
net income, net of tax effect of ($14) and ($23),
respectively (26) (42)
-------------------- ---------------------
Comprehensive income $7,658 $6,103
==================== =====================
</TABLE>
5. SALE OF HELD TO MATURITY MORTGAGE-BACKED SECURITIES
There were no sales of mortgage-backed securities held to maturity during the
six month period ended June 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 less than 15% of the principal
outstanding at acquisition. A gain of approximately $100,000 was recorded on the
sale.
6. SUBSEQUENT EVENT
As previously announced, United Community has entered into a merger agreement
with Butler Wick Corp., whereby Butler Wick will become a wholly-owned
subsidiary of United Community. The shareholders of Butler Wick approved the
merger at a special meeting of shareholders held on July 14, 1999. The parties
anticipate that the merger, which is structured as a pooling of interests, will
be completed on or about August 13, 1999. In connection with the merger, United
Community will issue up to 1.7 million common shares in exchange for all of the
outstanding Butler Wick shares. Butler Wick Corp., an Ohio corporation, 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, 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
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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) 1999 1998 1999 1998
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Performance ratios:
Return on average assets (2) 1.54% 1.20% 1.52% 1.12%
Return on average equity (3) 4.17% 9.55% 4.11% 8.57%
Interest rate spread (4) 3.19% 3.53% 3.16% 3.46%
Net interest margin (5) 4.63% 3.98% 4.61% 3.97%
Noninterest expense to average assets 2.24% 2.17% 2.25% 2.25%
Efficiency ratio (6) 47.97% 53.34% 48.54% 55.56%
Average interest-earning assets to average interest-
bearing liabilities 159.67% 112.59% 159.72% 113.96%
Capital ratios:
Average equity to average assets 36.93% 12.59% 36.94% 13.07%
Equity to assets, end of period 36.80% 8.71% 36.80% 8.71%
Tangible capital 27.00% 8.67% 27.00% 8.67%
Core capital 27.00% 8.67% 27.00% 8.67%
Risk-based capital 50.42% 21.91% 50.42% 21.91%
Asset quality ratio:
Nonperforming loans to total loans at end of period (7) 0.80% 1.32% 0.80% 1.32%
Nonperforming assets to average assets (8) 0.45% 0.74% 0.45% 0.75%
Nonperforming assets to total assets at end of period 0.45% 0.51% 0.45% 0.51%
Allowance for loan losses as a percent of loans 0.93% 0.95% 0.93% 0.95%
Allowance for loan losses as a percent of
nonperforming loans (7) 116.84% 72.31% 116.84% 72.31%
Number of full service offices 14 14 14 14
Per share data:
Basic earnings per share (9) 0.15 N/A 0.30 N/A
Diluted earnings per share (9) 0.15 N/A 0.30 N/A
Book value (10) 14.54 N/A 14.54 N/A
</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 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.
6
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COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1999 AND DECEMBER 31, 1998
Total assets increased $16.1 million from $1.26 billion at December 31, 1998 to
$1.27 billion at June 30, 1999. The primary reason for the increase in total
assets was a result of an increase in net loans of $30.0 million and an increase
in investment securities of $89.6 million. These increases were partially offset
by a decrease in cash and cash equivalents of $108.0 million. Funds from cash
and cash equivalents were invested in short-term securities that were designated
as available for sale. This enables 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 $30.0 million, or 4.6%, to $687.5 million at June 30, 1999
compared to $657.5 million at December 31, 1998. The most significant increases
were commercial loans, which increased $24.2 million, and loans secured by
one-to four-family residences, which increased $12.7 million.
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 $105.3 million, or 68.4%, to $48.5 million
at June 30, 1999 from $153.8 million at December 31, 1998. Securities available
for sale, which include investment securities and mortgage-backed securities,
increased $122.2 million, or 58.2%, since December 31, 1998. Securities held to
maturity, which consist of mortgage backed securities, decreased $32.9 million,
or 17.5%, since December 31, 1998. Securities available for sale, 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 $1.9 million to $3.8
million at June 30, 1999 from $5.7 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
combined with fewer new loans being categorized as nonaccrual or restructured.
At June 30, 1999, total nonaccrual and restructured loans accounted for 0.80% of
net loans receivable, compared to 1.15% at December 31, 1998. Total
nonperforming assets were 0.45% of total assets as of June 30, 1999, a decrease
of 0.16% from 0.61% as of December 31, 1998.
Total deposits increased $4.3 million from December 31, 1998. Checking accounts
increased by $16.1 million to $137.1 million at June 30, 1999 compared to $121.0
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 $11.6 million decrease in certificates
of deposits from $431.8 million at December 31, 1998 to $420.2 million at June
30, 1999.
Shareholders' equity increased $4.0 million to $468.6 million at June 30, 1999
from $464.6 million at December 31, 1998, primarily due to year to date earnings
which were partially offset by the quarterly dividends of $0.075 per share paid
in March and June 1999. Book value per share was $14.54 as of June 30, 1999.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
JUNE 30, 1999 AND JUNE 30, 1998
NET INCOME. Net Income for the three months ended June 30, 1999 was $4.9
million, or $0.15 per common share. Net income for the comparable period in 1998
was $3.5 million. The increase of $1.4 million, or 41.3%, for the three months
ended June 30, 1999, compared to the same period in 1998, was primarily due to
an increase in net interest income. United Community's annualized return on
average assets and return on average equity were 1.54% and 4.17%, respectively,
for the three months ended June 30, 1999. The annualized return on average
assets and return on average equity for the comparable period in 1998 were 1.20%
and 9.55%, respectively.
NET INTEREST INCOME. Net interest income increased $3.3 million, or 29.6%, for
the second quarter of 1999 compared to the second quarter of 1998. Two factors
contributed to this increase in net interest income. The first was an increase
in interest-earning assets for the three months ended June 30, 1999, compared to
the three months ended June 30 1998, due to the stock conversion. The second was
a decrease in interest-bearing liabilities, which resulted from the withdrawal
of deposits to purchase United Community shares, combined with a reduction in
interest rates of the interest-bearing liabilities as a result of the interest
rate environment for the second quarter of 1999 compared to the second quarter
of 1998. These increases were partially offset by a reduction in interest rates
of interest-earning assets.
PROVISION FOR LOAN LOSSES. Provisions for loan losses are 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
7
<PAGE>
composition of the loan portfolio and prior loan loss experience. The provision
for loan loss allowances was $25,000 for the second quarter of 1999 as a result
of continuing growth of the loan portfolio, compared to the second quarter of
1998 provision of $150,000. 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
June 30, 1999, which was 0.93% of total loans.
NONINTEREST INCOME. Noninterest income decreased $180,000, or 26.3%, to $504,000
at June 30, 1999 compared to $684,000 at June 30, 1998, primarily due to a
$200,000 decrease in the gain on sale of mortgage-backed securities.
NONINTEREST EXPENSE. Total noninterest expense increased $850,000, or 13.6%, to
$7.1 million for the three months ended June 30, 1999 from $6.3 million for the
three months ended June 30, 1998. The primary reason for the increase is
employee compensation expense for the ESOP of approximately $574,000.
FEDERAL INCOME TAXES. The provision for federal income taxes increased $934,000,
or 50.1% for the three months ended June 30, 1999, compared to the three months
ended June 30, 1998, primarily due to the higher pre-tax income for the second
quarter of 1999 compared to the second quarter of 1998.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND JUNE 30, 1998
NET INCOME. Net Income for the six months ended June 30, 1999, was $9.6 million,
compared to $6.2 million for the six months ended June 30, 1998. The increase of
55.8%, or $3.4 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 return on average
assets and return on average equity were 1.52% and 4.11%, respectively, for the
six months ended June 30, 1999. The annualized return on average assets and
return on average equity for the comparable period in 1998 were 1.12% and 8.57%,
respectively.
NET INTEREST INCOME. Net interest income increased $7.2 million, or 34.2%, to
$28.4 million for the six months ended June 30, 1999 from $21.2 million for the
comparable period in 1998. The increase is attributable to a $2.7 million
increase in total interest income and a $4.5 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
$166.5 million higher for the six months ended June 30, 1999 compared to 1998,
due to the stock 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 half of 1999 compared to the same period in 1998. The
average balance of interest-bearing liabilities was $163.9 million lower for the
six months ended June 30, 1999 compared to the first six months of 1998. This
decrease was 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
six months ended June 30, 1999, as a result of continuing growth of the loan
portfolio, compared to a provision of $400,000 for the six months ended June 30,
1998. The decrease in the provision was due to the same factors previously
mentioned.
NONINTEREST INCOME. Noninterest income decreased $168,000, or 15.8%, to $894,000
for the six months ended June 30, 1999, from $1.1 million for the six months
ended June 30, 1999. The decrease was primarily due to a decrease in the gains
from the sale of mortgage-backed securities from $253,000 for the six months
ended June 30, 1998 to $40,000 for the six months ended June 30, 1999. This
decrease was partially offset by a decrease in other losses for the six months
ended June 30, 1999 compared to the same period in 1998 due to a $52,000 loss
recognized in 1998 on the sale of real estate owned.
NONINTEREST EXPENSE. Total noninterest expense increased $1.9 million, or 15.1%,
to $14.2 million for the six months ended June 30, 1999 from $12.4 million for
the six months ended June 30, 1998. The primary reason for the increase was
employee compensation expense for the ESOP of approximately $1.15 million.
FEDERAL INCOME TAXES. The provision for federal income taxes increased $2.1
million, or 62.1%, for the six months ended June 30, 1999 compared to the six
months ended June 30, 1998, primarily due to the higher pre-tax income for the
six months ended June 30, 1999 compared to the same period in 1998.
8
<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, 1999 and 1998. Average balance
calculations were based on daily balances.
<TABLE>
<CAPTION>
Three Months Ended June 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) $ 677,037 $ 13,503 7.98 % $ 638,739 $ 13,232 8.29 %
Mortgage-backed securities:
Available for sale 111,347 1,699 6.10 56,799 952 6.70
Held to maturity 161,476 2,813 6.97 228,603 4,048 7.08
Investment securities:
Available for sale 159,358 2,231 5.60 64,135 974 6.07
Held to maturity - - - 4,977 79 6.35
Other interest-earning assets 127,127 1,570 4.94 117,868 1,732 5.88
------------- ----------- -------- ------------ ---------- --------
Total interest-earning assets 1,236,345 21,816 7.06 1,111,121 21,017 7.57
Noninterest-earning assets 32,671 41,085
------------- ------------
Total assets $1,269,016 $1,152,206
============= ============
Interest-bearing liabilities:
Checking and demand accounts $ 126,194 764 2.42 $138,314 747 2.16
Savings accounts 224,277 1,384 2.47 342,801 2,240 2.61
Certificates of deposit 423,562 5,340 5.04 505,789 6,973 5.51
FHLB Advances 275 3 4.36 - - -
------------- ----------- -------- ------------ ---------- --------
Total interest-bearing liabilities 774,308 7,491 3.87 986,904 9,960 4.04
----------- -------- ---------- --------
Noninterest-bearing liabilities 26,091 20,249
------------- ------------
Total liabilities 800,399 1,007,153
Equity 468,617 145,053
------------- ------------
Total liabilities and equity $1,269,016 $1,152,206
============= ============
Net interest income and
interest rate spread $ 14,325 3.19 % $11,057 3.53 %
=========== ========= ========== =========
Net interest margin 4.63 % 3.98 %
========= =========
Average interest-earning assets to
Average interest-bearing liabilities 159.67 % 112.59 %
========= =========
</TABLE>
- ----------------------------------
(1) Nonaccrual loans are included in the average balance.
9
<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, 1999 and 1998. Average balance
calculations were based on daily balances.
<TABLE>
<CAPTION>
Six Months Ended June 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) $ 670,683 $ 26,757 7.98 % $ 635,932 $ 26,305 8.27 %
Mortgage-backed securities:
Available for sale 103,481 3,151 6.09 59,037 1,994 6.76
Held to maturity 168,270 5,863 6.97 236,766 8,359 7.06
Investment securities:
Available for sale 138,893 3,907 5.63 56,998 1,722 6.04
Held to maturity 2,456 78 6.35 4,935 158 6.40
Other interest-earning assets 149,413 3,659 4.90 73,017 2,157 5.91
------------- ----------- -------- ------------ ---------- --------
Total interest-earning assets 1,233,196 43,415 7.04 1,066,685 40,695 7.63
Noninterest-earning assets 32,101 33,306
------------- ------------
Total assets $1,265,297 $1,099,991
============= ============
Interest-bearing liabilities:
Checking and demand accounts $ 120,686 1,413 2.34 $129,064 1,413 2.19
Savings accounts 224,850 2,760 2.45 294,059 3,879 2.64
Certificates of deposit 426,428 10,822 5.08 512,914 14,224 5.55
FHLB Advances 138 3 4.35 - - -
------------- ----------- -------- ------------ ---------- --------
Total interest-bearing liabilities 772,102 14,998 3.88 936,037 19,516 4.17
----------- -------- ---------- --------
Noninterest-bearing liabilities 25,837 20,201
------------- ------------
Total liabilities 797,939 956,238
Equity 467,358 143,753
------------- ------------
Total liabilities and equity $1,265,297 $1,099,991
============= ============
Net interest income and
interest rate spread $ 28,417 3.16 % $21,179 3.46 %
=========== =========== ========== ===========
Net interest margin 4.61 % 3.97 %
=========== ===========
Average interest-earning assets to
Average interest-bearing liabilities 159.72 % 113.96 %
=========== ===========
</TABLE>
- ----------------------------------
(1) Nonaccrual loans are included in the average balance.
10
<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
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 Six Months Ended
June 30, June 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 $ (444) $ 715 $ 271 $ (840) $1,292 $ 452
Mortgage-backed securities:
Available for sale (77) 824 747 (174) 1,331 1,157
Held to maturity (65) (1,170) (1,235) (108) (2,388) (2,496)
Investment securities:
Available for sale (70) 1,327 1,257 (110) 2,295 2,185
Held to maturity (40) (39) (79) (1) (79) (80)
Other interest-earning assets (319) 157 (162) (293) 1,795 1,502
------------ ------------ ------------ ----------- ------------ ------------
Total interest-earning assets $(1,015) $1,814 799 $(1,526) $4,246 2,720
============ ============ ------------ =========== ============ ------------
Interest-bearing liabilities:
Savings accounts (119) (737) (856) (255) (864) (1,119)
Checking accounts 62 (45) 17 - - -
Certificates of deposit (563) (1,070) (1,633) (1,139) (2,263) (3,402)
FHLB Advances 3 3 3 3
------------ ------------ ------------ ----------- ------------ ------------
Total interest-bearing liabilities $ (620) $ (1,849) (2,469) $(1,394) $ (3,124) (4,518)
============ ============ ------------ =========== ============ ------------
Change in net interest income $3,268 $7,238
============ ============
</TABLE>
11
<PAGE>
YEAR 2000
The approach of the year 2000 (Y2K) has raised concerns about transition into
the new century. These concerns center on the capability 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.
Such a scenario could expose United Community to business risks resulting from
the interruption or shutdown of normal business operations.
To prepare for this transition, United Community initiated a Y2K project plan.
In completing this plan, United Community identified potential operational and
business risks, assessed systems and equipment, performed and tested all
renovations, and implemented Y2K-ready systems. Systems essential to interaction
and service with our customers were identified as "mission critical." Most
important among those, United Community's core transaction processing system,
was made Y2K ready in September 1998.
During the second quarter of 1999, software applications developed internally
and by third parties underwent renovation and successful Y2K performance
testing. Computer hardware was evaluated for Y2K performance, and installation
of targeted replacements were completed. Together, these components form a
compatible, Y2K ready information environment throughout United Community.
A contingency plan has been developed in the event that "mission critical"
systems are affected by Y2K failures outside of United Community's control.
Various "worst case" scenarios have been analyzed; for example, wide spread or
prolonged utility and communication outages could result in local disaster
officials declaring an emergency and imposing business closures. A more likely
scenario would be the occurrence of isolated or intermittent disruptions. For
such scenarios, the contingency plan prescribes alternative methods for
continued delivery of products and services to our customers. These provisions
include controlling cash reserves, manually recording customer account
transactions, implementing back-up voice and data communications, reacting to
utility interruptions, processing checks externally, ensuring adequate or
increased security levels, and maintaining other necessary daily operations.
United Community plans to complete development and testing of contingency plans
by September 30, 1999.
As of December 31, 1998, United Community incurred costs of approximately
$204,000 in preparation for Y2K. For 1999, additional costs are currently
estimated to be $214,000, exclusive of internal employee salaries which are not
allocated or separately tracked for this project. External costs include
upgrading software and hardware, communicating with customers and increasing
security. United Community does not expect to incur significant external costs
for temporary employees or consulting services to accomplish its Y2K transition.
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.
12
<PAGE>
PART II. OTHER INFORMATION
UNITED COMMUNITY FINANCIAL CORP.
ITEMS 1, 2, 3 AND 5 - NOT APPLICABLE
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 29,1999, United Community held its Annual Meeting of
Shareholders. In connection therewith, two matters were submitted
to shareholders for a vote. First, shareholders elected five
directors by the following votes:
<TABLE>
<CAPTION>
Director For Withhold
-------- --- --------
<S> <C> <C>
Richard M. Barrett 24,804,580 974,826
Donald J. Varner 24,359,975 1,419,431
Douglas M. McKay 24,830,970 948,436
Herbert F. Schuler, Sr. 24,927,817 851,589
John F. Zimmerman, Jr 24,906,718 872,688
</TABLE>
The shareholders also ratified the selection of Deloitte & Touche LLP, certified
public accountants, auditors for the 1999 fiscal year by the following vote:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
25,215,100 304,193 260,113
</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
</TABLE>
b. Reports on Form 8-K
On April 14, 1999 United Community filed a Form 8-K disclosing operating results
for the quarter ended March 30, 1999. A Form 8-K was also filed on April 15,
1999 under item 5, other events, to announce an Agreement and Plan of Merger
with Butler Wick Corp.
13
<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 10, 1999 /s/ Douglas M. McKay
----------------------------------------------
Douglas M. McKay, President
Date: August 10, 1999 /s/ Patrick A. Kelly
----------------------------------------------
Patrick A. Kelly, Treasurer
14
<PAGE>
UNITED COMMUNITY FINANCIAL CORP.
EXHIBIT 11
COMPUTATIONS OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------------------
1999 1998
------------- -------------
(Dollars in thousands,
except per share data)
<S> <C> <C>
EARNINGS PER SHARE :
Weighted average number of common
shares outstanding 32,198,030 N/A
============= =============
Net income $ 4,891 N/A
============= =============
Basic earnings per share $ 0.15 N/A
============= =============
Diluted earnings per share $ 0.15 N/A
============= =============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
1999 1998
----------- -------------
(Dollars in thousands,
except per share data)
<S> <C> <C>
EARNINGS PER SHARE :
Weighted average number of common
shares outstanding 32,175,385 N/A
============= =============
Net income $ 9,602 N/A
============= =============
Basic earnings per share $ 0.30 N/A
============= =============
Diluted earnings per share $ 0.30 N/A
============= =============
</TABLE>
15
<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, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 13,952
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 48,542
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 331,970
<INVESTMENTS-CARRYING> 155,112
<INVESTMENTS-MARKET> 155,838
<LOANS> 687,474
<ALLOWANCE> 6,446
<TOTAL-ASSETS> 1,273,394
<DEPOSITS> 781,927
<SHORT-TERM> 0
<LIABILITIES-OTHER> 22,914
<LONG-TERM> 0
0
0
<COMMON> 342,998
<OTHER-SE> 125,555
<TOTAL-LIABILITIES-AND-EQUITY> 1,273,394
<INTEREST-LOAN> 26,757
<INTEREST-INVEST> 12,999
<INTEREST-OTHER> 3,659
<INTEREST-TOTAL> 43,415
<INTEREST-DEPOSIT> 14,995
<INTEREST-EXPENSE> 14,998
<INTEREST-INCOME-NET> 28,417
<LOAN-LOSSES> 100
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 14,227
<INCOME-PRETAX> 14,984
<INCOME-PRE-EXTRAORDINARY> 14,984
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,602
<EPS-BASIC> 0.30
<EPS-DILUTED> 0.30
<YIELD-ACTUAL> 4.61
<LOANS-NON> 3,805
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,712
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,461
<CHARGE-OFFS> 29
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 6,446
<ALLOWANCE-DOMESTIC> 6,446
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
