<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 March 31, 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.
32,190,189 common shares as of April 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as of March 31, 1999...................... 1
and December 31, 1998
Consolidated Statements of Income for the Three Months Ended
March 31, 1999 and 1998.................................................................. 2
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 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 - 11
Item 3. Quantitative and Qualitative Disclosure About Market Risk................................ 11
PART II. OTHER INFORMATION............................................................................. 12
Signatures............................................................................................. 13
Exhibits............................................................................................... 14 - 15
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
(In thousands)
<S> <C> <C>
ASSETS
Cash and deposits with banks $ 13,357 $ 16,733
Federal funds sold and other 152,137 153,775
----------- -----------
Total cash and cash equivalents 165,494 170,508
----------- -----------
Investment securities:
Available for sale (amortized cost of $129,023 and $110,294, respectively) 129,221 110,888
Held to maturity (fair value of $0 and $5,016, respectively) -- 4,993
Mortgage-backed securities:
Available for sale (amortized cost of $96,880 and $98,357, respectively) 97,127 98,890
Held to maturity (fair value of $170,127 and $187,010, respectively) 166,996 182,999
Loans, net (including allowance for loan losses of $6,461 and $6,398, respectively) 670,865 657,498
Federal Home Loan Bank stock 12,164 11,958
Premises and equipment 7,416 7,523
Accrued interest receivable 7,132 7,259
Real estate owned 196 78
Other assets 6,544 4,711
----------- -----------
TOTAL ASSETS $ 1,263,155 $ 1,257,305
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits $ 781,301 $ 777,583
Advance payments by borrowers for taxes and insurance 2,321 3,954
Accrued interest payable 683 672
Accrued expenses and other liabilities 11,811 10,451
----------- -----------
TOTAL LIABILITIES 796,116 792,660
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock-no par value; 1,000,000 shares authorized and unissued
at March 31, 1999 -- --
Common stock-no par value; 499,000,000 shares authorized; 34,715,625
shares issued-and 32,175,008 outstanding at March 31, 1999 342,921 342,840
Retained earnings 149,235 146,934
Other comprehensive income 289 733
Unearned compensation (25,406) (25,862)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 467,039 464,645
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,263,155 $ 1,257,305
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE>
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------------------
1999 1998
----------------- -----------------
(In thousands, except per share data)
<S> <C> <C>
INTEREST INCOME
Loans $ 13,254 $ 13,072
Mortgage-backed securities:
Available for sale 1,452 1,043
Held to maturity 3,050 4,311
Investment securities:
Available for sale 1,675 748
Held to maturity 78 79
FHLB stock dividend 206 199
Other interest-earning assets 1,883 226
----------------- -----------------
Total interest income 21,598 19,678
INTEREST EXPENSE
Interest expense on deposits 7,507 9,556
----------------- -----------------
NET INTEREST INCOME 14,091 10,122
PROVISION FOR LOAN LOSS ALLOWANCES 75 250
----------------- -----------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSS ALLOWANCES 14,016 9,872
----------------- -----------------
NONINTEREST INCOME
Service fees and other charges 273 280
Net gains (losses):
Mortgage-backed securities - 13
Other 1 (52)
Other income 116 137
----------------- -----------------
Total noninterest income 390 378
----------------- -----------------
NONINTEREST EXPENSES
Salaries and employee benefits 4,183 3,581
Occupancy 301 313
Equipment and data processing 646 603
Deposit insurance premiums 117 139
Franchise tax 462 479
Advertising 275 255
Other expenses 1,129 725
----------------- -----------------
Total noninterest expenses 7,113 6,095
----------------- -----------------
INCOME BEFORE INCOME TAXES 7,293 4,155
INCOME TAXES 2,582 1,454
----------------- -----------------
NET INCOME $ 4,711 $ 2,701
----------------- -----------------
----------------- -----------------
Earnings per share:
Basic $ 0.15 N/A
Diluted $ 0.15 N/A
Average common shares outstanding 32,152,489 N/A
</TABLE>
SEE NOTE TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------
1999 1998
---------------- ----------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,711 $ 2,701
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan loss allowances 75 250
Net (gains) losses (1) 39
Accretion of discounts and amortization of premiums (178) (333)
Depreciation 250 274
FHLB stock dividends (206) (199)
Decrease (increase) in interest receivable 127 (28)
Increase in interest payable 11 79
Increase in post retirement benefit obligation 83 93
Increase in prepaid and other assets (1,832) (1,051)
Increase in other liabilities 1,516 1,332
Change in unearned compensation 537 -
---------------- ----------------
Net cash provided by operating activities 5,093 3,157
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal repayments and maturities of:
Mortgage-backed securities held to maturity 15,911 12,004
Mortgage-backed securities available for sale 8,419 3,552
Investment securities held to maturity 5,000 -
Investment securities available for sale 2,500 153
Proceeds from sale of:
Mortgage-backed securities available for sale - 114
Mortgage-backed securities held to maturity - 119
Purchases of:
Investment securities available for sale (20,057) (17,949)
Equity securities available for sale (1,274) -
Mortgage-backed securities available for sale (6,894) -
Mortgage-backed securities held to maturity - (8,047)
Principal collected on loans 43,288 37,672
Loans originated (56,542) (39,709)
Purchases of premises and equipment (143) (132)
Other 10 21
---------------- ----------------
Net cash used in investing activities (9,782) (12,202)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in NOW, savings and money market accounts 5,341 3,551
Net decrease in certificates of deposit (1,623) (1,860)
Net decrease in advance payments by borrowers
for taxes and insurance (1,633) (1,532)
Dividends paid (2,410) -
---------------- ----------------
Net cash (used in) provided by financing activities (325) 159
---------------- ----------------
Decrease in cash and cash equivalents (5,014) (8,886)
Cash and cash equivalents, beginning of year 170,508 34,497
---------------- ----------------
Cash and cash equivalents, end of period $ 165,494 $ 25,611
---------------- ----------------
---------------- ----------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 7,496 $ 9,477
Income taxes 2,021 -
Supplemental schedule of noncash activities:
Transfers from loans to real estate owned 128 29
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
UNITED COMMUNITY FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
United Community Financial Corp. (UCFC) was incorporated under Ohio law in
February 1998 by The Home Savings and 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, the issuance of Home Savings' stock to UCFC and the offer and
sale of UCFC's common stock (Conversion). Upon consummation of the Conversion
on July 8, 1998, UCFC 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 UCFC 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 three months ended March 31, 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 UCFC'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 UCFC in February 1998, the adoption of
an Ohio stock charter by Home Savings, the sale of all of Home Savings' stock
to UCFC on July 8, 1998 and the issuance of UCFC's stock to the public on
July 8, 1998.
UCFC 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 (ESOP) and the 1,183,438 shares sold to Home Savings for
contribution to the Home Savings Charitable Foundation. Conversion costs
amounted to $4.6 million.
Home Savings issued all of its outstanding capital stock to UCFC in exchange
for approximately one-half of the net proceeds from the Conversion. UCFC
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 quarter ended March 31, 1999,
based upon weighted average common shares outstanding of 32,152,489. Earnings
per share for all prior periods are not presented as there was no common
stock issued or outstanding.
4
<PAGE>
4. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" was issued in June 1997 and became effective on January
1, 1998. SFAS No. 130 requires companies to report all items that are
recognized as components of comprehensive income under accounting standards.
UCFC's comprehensive income for the three months ended March 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------------
1999 1998
-------------------- ---------------------
(In thousands)
<S> <C> <C>
Net income $4,711 $2,701
Unrealized holding gains (losses) arising
during the period, net of tax effect of
($239) and $39, respectively (444) 71
Reclassification adjustment for gains (losses)
included in net income, net of tax effect of ($3),
for 1998 - (5)
-------------------- ---------------------
Comprehensive income $4,267 $2,767
-------------------- ---------------------
-------------------- ---------------------
</TABLE>
5. SALE OF HELD TO MATURITY MORTGAGE-BACKED SECURITIES
There were no sales of mortgage-backed securities held to maturity during the
three month period ended March 31, 1999. In January 1998, Home Savings sold
approximately $114 thousand of mortgage-backed securities held to maturity
with outstanding balances less than 15% of the principal outstanding since
acquisition. A gain of approximately $6 thousand was recorded on the sale.
6. SUBSEQUENT EVENT
In April 1999, the board of directors of UCFC entered into a definitive
agreement to acquire Butler Wick Corp., a full service investment and
financial service provider headquartered in Youngstown, Ohio. Under the terms
of the agreement, UCFC will issue, in a tax-free exchange, 1,700,000 shares
of UCFC common stock for all the issued and outstanding common shares of
Butler Wick Corp., subject to possible adjustments based upon the market
price of UCFC shares. In addition, UCFC will establish a $3.7 million
retention program for certain investment brokers and senior managers, subject
to a five-year vesting schedule. The transaction will be accounted for as a
pooling of interests and is expected to close during the third quarter of
1999, subject to shareholder approval and regulatory filings.
5
<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 Months Ended
March 31, March 31,
SELECTED FINANCIAL RATIOS AND OTHER DATA: (1) 1999 1998
------------------ -----------------
<S> <C> <C>
Performance ratios:
Return on average assets (2) 1.49% 1.03%
Return on average equity (3) 4.04% 7.59%
Interest rate spread (4) 3.12% 3.38%
Net interest margin (5) 4.58% 3.96%
Noninterest expense to average assets 2.26% 2.33%
Efficiency ratio (6) 49.12% 58.05%
Average interest-earning assets to average interest-
bearing liabilities 159.79% 115.50%
Capital ratios:
Average equity to average assets 36.95% 13.60%
Equity to assets, end of period 36.97% 13.73%
Tangible capital 26.97% 13.67%
Core capital 26.97% 13.67%
Risk-based capital 51.19% 28.24%
Asset quality ratio:
Nonperforming loans to total loans at end of period (7) 1.00% 1.39%
Nonperforming assets to average assets (8) 0.54% 0.84%
Nonperforming assets to total assets at end of period 0.54% 0.84%
Allowance for loan losses as a percent of loans 0.95% 0.96%
Allowance for loan losses as a percent of
nonperforming loans (7) 96.75% 70.14%
Number of full service offices 14 14
Per share data:
Basic earnings per share (9) 0.15 N/A
Diluted earnings per share (9) 0.15 N/A
Book value (10) 14.52 N/A
</TABLE>
- ----------------------------------------------------------------------------
(1) Ratios for the three 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
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1999 AND DECEMBER 31, 1998
Total assets increased $5.9 million from December 31, 1998 to March 31, 1999.
The primary reason for the increase in total assets was a result of an
increase in net loans of $13.4 million which was partially offset by
decreases of $4.4 million in the investment portfolio and $5.0 million in
cash and cash equivalents.
Net loans increased $13.4 million, or 2.03%, to $670.9 million at March 31,
1999 compared to $657.5 million at December 31, 1998. The most significant
increases were in loans secured by one-to four-family residences, which
increased $7.7 million, and commercial loans, which increased $8.9 million,
compared to December 31, 1998. These increases were offset by decreases of
$1.0 million in nonresidential real estate loans and $0.9 million in consumer
loans.
Funds that are not currently needed for general corporate purposes, including
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 $1.7 million to $152.1
million at March 31, 1999 from $153.8 million at December 31, 1998.
Securities available for sale, which include investment securities and
mortgage-backed securities increased $16.6 million since December 31, 1998.
Securities held to maturity, which include investment securities and mortgage
backed securities, decreased $21.0 million since December 31, 1998.
Securities available for sale and overnight funds enable UCFC to fully employ
excess funds while providing a great deal of liquidity and flexibility as
UCFC pursues other investment opportunities.
Nonaccrual and restructured loans decreased approximately $873 thousand to
$4.9 million at March 31, 1999 from $5.7 million at December 31, 1998. The
decrease in nonaccrual and restructured loans is primarily due to a decrease
in nonaccrual commercial loans of $740 thousand attributable to one loan
becoming current. At March 31, 1999, total nonaccrual and restructured loans
accounted for 1.00% of net loans receivable, compared to 1.15% at December
31, 1998. Total nonperforming assets were 0.54% of total assets as of March
31, 1999, a decrease of 0.07% from 0.61% as of December 31, 1998.
Total deposits increased $3.7 million from December 31, 1998. The primary
reason for this increase was the introduction of a new market rate account
that provides for the interest rate to be tiered to the dollar amount
maintained in the account.
Shareholders' equity increased $2.4 million to $467.0 million at March 31,
1999 from $464.6 million at December 31, 1998, primarily due to first quarter
earnings which were partially offset by the first quarter dividend of $0.075
per share paid on March 31, 1999. Book value per share was $14.52 as of March
31, 1999.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND MARCH 31, 1998
NET INCOME. Net income for the three months ended March 31, 1999 was $4.7
million, or $0.15 per common share. Net income for the comparable period in
1998 was $2.7 million. The increase of $2.0 million, or 74.42%, for the three
months ended March 31, 1999 compared to the same period in 1998 was primarily
due to an increase in net interest income. UCFC's annualized return on
average assets and return on average equity were 1.49% and 4.04%,
respectively, for the three months ended March 31, 1999. The annualized
return on average assets and return on average equity for the comparable
period in 1998 were 1.03% and 7.59%, respectively.
NET INTEREST INCOME. Net interest income increased $4.0 million, or 39.21%,
for the first quarter of 1999 compared to the first 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 March 31, 1999
compared to the three months ended March 31, 1998, due to the stock
conversion. The second was a decrease in interest-bearing deposits, which
resulted from the withdrawal of deposits to purchase UCFC shares, combined
with a reduction in interest rates on the interest bearing liabilities as a
result of the interest rate environment for the first quarter of 1999 versus
the first quarter of 1998.
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 composition of the loan portfolio and prior loan
loss experience. The provision for loan losses was $75 thousand for the first
quarter of 1999, as a result of continuing growth of the loan portfolio,
compared to the first quarter of 1998 provision of $250 thousand. The
decrease in the provision is attributed to a decrease in nonperforming loans,
delinquency rates and an improvement in the local economy. Home Savings'
allowance for loan losses totaled $6.5 million at March 31, 1999, which was
0.95% of total loans.
7
<PAGE>
NONINTEREST INCOME. Noninterest income increased $12 thousand, or 3.2%, to
$390 thousand at March 31, 1999 compared to $378 thousand at December 31,
1998, primarily due to a $52 thousand loss recognized in 1998 due to the sale
of real estate owned.
NONINTEREST EXPENSE. Total noninterest expense increased $1.0 million, or
16.70%, to $7.1 million for the first quarter of 1999 from $6.1 million for
the first quarter of 1998. The primary reason for the increase was employee
compensation expense for the ESOP of approximately $581 thousand.
FEDERAL INCOME TAXES. The provision for federal income taxes increased $1.1
million, or 77.6%, for the first quarter of 1999, compared to the first
quarter of 1998, primarily due to the higher pre-tax income for the first
quarter of 1999 compared to the first quarter of 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 March 31, 1999 and 1998. Average
balance calculations are based on daily balances.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------------------------------
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) $ 664,260 $ 13,254 7.98 % $ 633,096 $ 13,072 8.26 %
Mortgage-backed securities:
Available for sale 95,528 1,452 6.08 60,966 1,043 6.84
Held to maturity 175,140 3,050 6.97 245,353 4,311 7.03
Investment securities:
Available for sale 118,200 1,675 5.67 49,510 748 6.04
Held to maturity 4,940 78 6.32 5,163 79 6.12
Other interest-earning assets 171,948 2,089 4.86 27,667 425 6.14
------------- ----------- -------- ------------ ---------- --------
Total interest-earning assets 1,230,016 21,598 7.02 1,021,755 19,678 7.70
Noninterest-earning assets 31,437 25,440
------------- ------------
Total assets $1,261,453 $1,047,195
------------- ------------
------------- ------------
Interest-bearing liabilities:
Checking and demand accounts $ 115,024 649 2.26 $119,711 666 2.23
Savings accounts 225,430 1,376 2.44 244,776 1,639 2.68
Certificates of deposit 429,325 5,482 5.11 520,119 7,251 5.58
------------- ----------- -------- ------------ ---------- --------
Total interest-bearing liabilities 769,779 7,507 3.90 884,606 9,556 4.32
----------- -------- ---------- --------
Noninterest-bearing liabilities 25,588 20,152
------------- ------------
Total liabilities 795,367 904,758
Shareholders' equity 466,086 142,437
------------- ------------
Total liabilities and
shareholders' equity $1,261,453 $1,047,195
------------- ------------
------------- ------------
Net interest income and
interest rate spread $ 14,091 3.12 % $10,122 3.38 %
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
Net interest margin 4.58 % 3.96 %
----------- -----------
----------- -----------
Average interest-earning assets to
average interest-bearing liabilities 159.79 % 115.50 %
----------- -----------
----------- -----------
</TABLE>
- ----------------------------------
(1) Nonaccrual loans are included in the average balance.
9
<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 UCFC'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
March 31,
1999 vs. 1998
-----------------------------------------------------------
Increase
(decrease) due to Total
-------------------------------------- increase
Rate Volume (decrease)
----------------- ----------------- -----------------
(In thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans $ (393) $ 575 $ 182
Mortgage-backed securities:
Available for sale (100) 509 409
Held to maturity (38) (1,223) (1,261)
Investment securities:
Available for sale (13) 940 927
Held to maturity 3 (4) (1)
Other interest-earning assets (75) 1,739 1,664
----------------- ----------------- -----------------
Total interest-earning assets $ (616) $ 2,536 1,920
----------------- ----------------- -----------------
----------------- ----------------- -----------------
Interest-bearing liabilities:
Savings accounts $ (139) $ (124) (263)
Checking and demand accounts (29) 12 (17)
Certificates of deposit (575) (1,194) (1,769)
----------------- ----------------- -----------------
Total interest-bearing liabilities $ (743) $ (1,306) (2,049)
----------------- ----------------- -----------------
----------------- -----------------
Change in net interest income $ 3,969
-----------------
-----------------
</TABLE>
10
<PAGE>
YEAR 2000
UCFC and Home Savings are aware of the potential year 2000 related problems
that may affect the computers which control or operate Home Savings'
operating systems, facilities and infrastructure. To prepare for the change,
Home Savings formed a year 2000 compliance initiative committee to oversee
all necessary corrective activities. A year 2000 Project Plan was initiated
to identify potential operational and business risks, assess systems and
equipment, perform and test all renovations, and implement renovated systems.
The year 2000 compliance committee has determined that the greatest potential
impact upon Home Savings and UCFC is the effect of the year 2000 problem on
Home Savings' core transaction processing system which is managed by an
outside data processing service bureau. The outside service bureau, working
in conjunction with Home Savings, has installed and successfully tested a
year 2000 compliant processing system.
All remaining third-party applications and internally developed applications
will be tested for year 2000 performance during the first and second quarters
of 1999. This testing will determine the extent to which all such
applications integrate compatibly and function reliably in Home Savings'
existing system environment. Home Savings anticipates that testing will be
completed by June 30, 1999, and that any identified application and/or system
incompatibilities will be remediated by June 30, 1999.
In addition to comprehensive internal preparations, Home Savings is
developing contingency plans for all "mission critical" systems which could
be disrupted by year 2000 failures outside of its control. The impact of
various external failures is being analyzed, including disruption of
utilities and essential services. Alternative procedures are being developed,
documented and tested which would enable Home Savings to maintain delivery of
products and services to customers. Such contingency plans include automated
and manual procedures for controlling cash reserves, recording customer
account transactions, providing back-up voice and data communications,
reacting to utility interruptions, engaging external check processing
services, ensuring adequate or increased security levels, and maintaining
other necessary daily operations.
As of March 31, 1999, Home Savings had incurred costs of approximately $257
thousand in connection with its year 2000 preparedness. Additional costs to
complete this project are currently estimated to be $103 thousand.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
A comprehensive qualitative and quantitative analysis regarding Home Savings'
market risk was disclosed in UCFC's 1999 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 analysis have
occurred.
11
<PAGE>
PART II. OTHER INFORMATION
UNITED COMMUNITY FINANCIAL CORP.
ITEMS 1, 2, 3, 4 AND 5 - NOT APPLICABLE
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 January 26, 1999 Home Savings filed a Form 8-K disclosing operating
results for the quarter ended December 31, 1998.
12
<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: May 10, 1999 /s/ Douglas M. McKay
-------------------------------------------------
Douglas M. McKay, President
Date: May 10, 1999 /s/ Patrick A. Kelly
-------------------------------------------------
Patrick A. Kelly, Treasurer
13
<PAGE>
UNITED COMMUNITY FINANCIAL CORP.
EXHIBIT 11
COMPUTATIONS OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1999 1998
----------- -------------
(Dollars in thousands,
except per share data)
<S> <C> <C>
EARNINGS PER SHARE:
Weighted average number of common
shares outstanding 32,152,489 N/A
----------- -------------
----------- -------------
Net income (loss) $ 4,711 N/A
----------- -------------
----------- -------------
Basic earnings per share $ 0.15 N/A
----------- -------------
----------- -------------
Diluted earnings per share $ 0.15 N/A
----------- -------------
----------- -------------
</TABLE>
14
<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 THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 13,357
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 152,137
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 226,348
<INVESTMENTS-CARRYING> 166,996
<INVESTMENTS-MARKET> 170,127
<LOANS> 670,865
<ALLOWANCE> 6,461
<TOTAL-ASSETS> 1,263,155
<DEPOSITS> 781,301
<SHORT-TERM> 0
<LIABILITIES-OTHER> 14,815
<LONG-TERM> 0
0
0
<COMMON> 342,921
<OTHER-SE> 124,118
<TOTAL-LIABILITIES-AND-EQUITY> 1,263,155
<INTEREST-LOAN> 13,254
<INTEREST-INVEST> 6,255
<INTEREST-OTHER> 2,089
<INTEREST-TOTAL> 21,598
<INTEREST-DEPOSIT> 7,507
<INTEREST-EXPENSE> 7,507
<INTEREST-INCOME-NET> 14,091
<LOAN-LOSSES> 75
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,113
<INCOME-PRETAX> 7,293
<INCOME-PRE-EXTRAORDINARY> 7,293
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,711
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
<YIELD-ACTUAL> 4.58
<LOANS-NON> 4,856
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,822
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,398
<CHARGE-OFFS> 22
<RECOVERIES> 9
<ALLOWANCE-CLOSE> 6,461
<ALLOWANCE-DOMESTIC> 6,461
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
