<PAGE> 1
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, 2000
[ ] 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.
37,756,582 common shares as of July 31, 2000
<PAGE> 2
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as of
June 30, 2000 and December 31,1999......................... 1
Consolidated Statements of Income for the Three Months
and Six Months Ended June 30, 2000 and 1999 ............... 2
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 .............................. 3
Notes to Consolidated Financial Statements ................ 4-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 7-13
Item 3. Quantitative and Qualitative Disclosure about Market Risk.. 13
PART II. OTHER INFORMATION............................................... 14
Signatures............................................................... 15
EXHIBITS................................................................. 16-17
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(unaudited)
June 30, December 31,
2000 1999
----------- -----------
(In thousands)
ASSETS:
<S> <C> <C>
Cash and deposits with banks $ 23,654 $ 30,759
Federal funds sold and other 622 80,686
----------- -----------
Total cash and cash equivalents 24,276 111,445
----------- -----------
Investment securities:
Trading (amortized cost of $5,161 and $7,647, respectively) 5,161 7,657
Available for sale (amortized cost of $145,501 and $163,515, respectively) 144,102 161,904
Held to maturity (fair value of $884 and $1,098, respectively) 875 1,091
Mortgage-backed securities:
Available for sale (amortized cost of $106,330 and $116,569, respectively) 102,863 113,559
Held to maturity (fair value of $121,959 and $135,993, respectively) 125,115 138,079
Loans, net (including allowance for loan losses of $6,324 and $6,405, respectively) 781,432 723,087
Margin accounts 42,462 32,751
Federal Home Loan Bank stock 13,287 12,825
Premises and equipment 9,995 9,252
Accrued interest receivable 8,656 8,347
Real estate owned 302 158
Other assets 11,043 7,418
----------- -----------
TOTAL ASSETS $ 1,269,569 $ 1,327,573
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits $ 830,019 $ 834,087
Other borrowed funds 151,410 213,578
Advance payments by borrowers for taxes and insurance 3,960 4,038
Accrued interest payable 1,997 4,168
Accrued expenses and other liabilities 22,625 14,834
----------- -----------
TOTAL LIABILITIES $ 1,010,011 $ 1,070,705
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock-no par value; 1,000,000 shares authorized and unissued
at June 30, 2000 -- --
Common stock-no par value; 499,000,000 shares authorized;
37,756,582 shares issued and outstanding at June 30, 2000 136,616 136,509
Retained earnings 154,546 153,553
Other comprehensive income (3,163) (3,003)
Unearned stock compensation (28,441) (30,191)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 259,558 256,868
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,269,569 $ 1,327,573
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE> 4
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(In thousands) (In thousands)
INTEREST INCOME
<S> <C> <C> <C> <C>
Loans $ 15,050 $ 13,503 $ 29,364 $ 26,757
Mortgage-backed securities:
Available for sale 1,727 1,699 3,540 3,151
Held to maturity 2,236 2,814 4,589 5,863
Investment securities:
Trading 30 22 71 49
Available for sale 2,104 2,231 4,335 3,907
Held to maturity 17 8 34 97
Margin accounts 926 524 1,671 918
FHLB stock dividend 239 212 463 419
Other interest-earning assets 91 1,377 232 3,275
------------ ------------ ------------ ------------
Total interest income 22,420 22,390 44,299 44,436
INTEREST EXPENSE
Interest expense on deposits 8,268 7,488 16,429 14,996
Interest expense on other borrowed funds 2,103 276 4,025 470
------------ ------------ ------------ ------------
Total interest expense 10,371 7,764 20,454 15,466
------------ ------------ ------------ ------------
NET INTEREST INCOME 12,049 14,626 23,845 28,970
PROVISION FOR LOAN LOSS ALLOWANCES -- 25 -- 100
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSS ALLOWANCES 12,049 14,601 23,845 28,870
------------ ------------ ------------ ------------
NONINTEREST INCOME
Commissions 4,238 4,224 9,622 8,328
Service fees and other charges 1,385 1,234 2,640 2,310
Underwriting and investment banking 192 92 214 494
Net gains (losses):
Mortgage-backed securities -- (7) -- 40
Investment securities (14) -- (4) --
Trading securities (144) 40 227 (18)
Other (4) (10) (3) (9)
Other income 204 188 416 365
------------ ------------ ------------ ------------
Total noninterest income 5,857 5,761 13,112 11,510
------------ ------------ ------------ ------------
NONINTEREST EXPENSES
Salaries and employee benefits 8,470 7,864 18,098 15,693
Occupancy 532 515 988 973
Equipment and data processing 1,446 1,308 2,746 2,557
Deposit insurance premiums 43 114 84 230
Franchise tax 932 474 1,865 936
Advertising 316 394 817 738
Other expenses 1,488 1,374 3,070 3,007
------------ ------------ ------------ ------------
Total noninterest expenses 13,227 12,043 27,668 24,134
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 4,679 8,319 9,289 16,246
INCOME TAXES 1,709 3,017 3,217 5,818
------------ ------------ ------------ ------------
NET INCOME $ 2,970 $ 5,302 $ 6,072 $ 10,428
============ ============ ============ ============
EARNINGS PER SHARE:
Basic and diluted $ 0.09 $ 0.16 $ 0.18 $ 0.31
Average common shares outstanding 32,903,672 33,898,237 32,913,530 33,877,622
Average common and common equivalent shares outstanding 33,442,391 33,898,237 33,438,734 33,877,622
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE> 5
<TABLE>
<CAPTION>
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
----------------------------
2000 1999
--------- ---------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 6,072 $ 10,427
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan loss allowances -- 100
Net losses (gains) 7 (31)
Accretion of discounts and amortization of premiums (186) (309)
Depreciation 713 676
ESOP compensation 1,019 1,069
Amortization of restricted stock compensation 839 --
FHLB stock dividends (462) (418)
Decrease in trading securities 2,496 961
Increase in margin accounts (9,711) (11,933)
Increase in interest receivable (310) (1,525)
Increase in prepaid and other assets (3,626) (2,883)
Decrease in accounts receivable -- 63
(Decrease) increase in interest payable (2,171) 132
Increase in other liabilities 7,877 5,455
--------- ---------
Net cash provided by operating activities 2,557 1,784
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from principal repayments and maturities of:
Mortgage-backed securities held to maturity 13,015 28,018
Mortgage-backed securities available for sale 10,198 16,178
Investment securities held to maturity 693 5,000
Investment securities available for sale 24,066 5,000
Proceeds from sale of:
Investment securities available for sale 8,502 --
Mortgage-backed securities available for sale -- 4,951
Purchases of:
Investment securities available for sale (14,729) (102,505)
Investment securities held to maturity (476) --
Mortgage-backed securities available for sale -- (50,532)
Net principal disbursed on loans (53,572) (29,614)
Loans purchased (4,603) --
Purchases of premises and equipment (1,456) (690)
Other 30 81
--------- ---------
Net cash used in investing activities (18,332) (124,113)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in NOW, savings and money market accounts (3,481) 15,899
Net decrease in certificates of deposit (587) (11,555)
Net decrease in advance payments by borrowers
for taxes and insurance (78) (198)
Net (decrease) increase in borrowed funds (62,168) 15,523
Dividends paid (5,080) (4,819)
--------- ---------
Net cash (used in) provided by financing activities (71,394) 14,850
--------- ---------
Decrease in cash and cash equivalents (87,169) (107,479)
Cash and cash equivalents, beginning of period 111,445 171,874
--------- ---------
Cash and cash equivalents, end of period $ 24,276 $ 64,395
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings $ 22,696 $ 15,331
Income taxes 885 5,017
Supplemental schedule of noncash activities:
Transfers from loans to real estate owned 178 156
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 6
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). Upon consummation of the Conversion on July 8, 1998,
United Community became the unitary savings and loan holding company for Home
Savings. 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. 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. See Note 2 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 results of operations for the six months ended June 30, 2000 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2000. 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, 1999, contained in United Community's
Form 10-K for the year ended December 31, 1999.
2. ACQUISITION OF BUTLER WICK CORP.
On August 12, 1999, United Community acquired Butler Wick, which 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 restatement of prior periods as if the companies had
been combined for all periods presented.
4
<PAGE> 7
3. COMPREHENSIVE INCOME
United Community's comprehensive income for the three and six
months ended June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------
2000 1999
------ -------
(In thousands)
<S> <C> <C>
Net income $2,970 $ 5,302
Unrealized holding gains (losses) arising
during the period, net of tax effect of
$169 and ($808), respectively 306 (1,474)
Reclassification adjustment for losses
included in net income, net of tax effect of $5
and ($14), respectively 9 (26)
------ -------
Comprehensive income $3,285 $ 3,802
====== =======
<CAPTION>
Six Months Ended June 30,
--------------------------
2000 1999
------ -------
(In thousands)
<S> <C> <C>
Net income $ 6,072 $ 10,427
Unrealized holding losses arising
during the period, net of tax effect of
($86) and ($1,047), respectively (162) (1,918)
Reclassification adjustment for losses
included in net income, net of tax effect of $1
and ($14), respectively 2 (26)
------- --------
Comprehensive income $ 5,912 $ 8,483
======= ========
</TABLE>
4. 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. United Community has two principal
segments, retail banking and investment advisory services. Retail banking
provides consumer and corporate 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 six months ended June 30, 2000 and 1999 are as
follows:
THREE MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Investment
Advisory
Retail Banking Services Eliminations Total
--------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Interest income $21,936 $ 983 $ 499 $22,420
Interest expense 10,315 555 499 10,371
------- ------- ------- -------
Net interest income after
provision for loan loss 11,621 428 -- 12,049
Non-interest income 374 5,483 -- 5,857
Non-interest expense 7,815 5,412 -- 13,227
------- ------- ------- -------
Income before tax 4,180 499 -- 4,679
Income tax 1,529 180 -- 1,709
------- ------- ------- -------
Net income $ 2,651 $ 319 $ -- $ 2,970
======= ======= ======= =======
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
Investment
Advisory
Retail Banking Services Eliminations Total
---------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Interest income $22,362 $ 574 $ 546 $22,390
Interest expense 8,037 273 546 7,764
Provision for loan loss 25 -- -- 25
------- ------- ------- -------
Net interest income after
provision for loan loss 14,300 301 -- 14,601
Non-interest income 504 5,257 -- 5,761
Non-interest expense 7,113 4,930 -- 12,043
------- ------- ------- -------
Income before tax 7,691 628 -- 8,319
Income tax 2,800 217 -- 3,017
------- ------- ------- -------
Net income $ 4,891 $ 411 $ -- $ 5,302
======= ======= ======= =======
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
Investment
Advisory
Retail Banking Services Eliminations Total
--------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Interest income $43,507 $ 1,791 $ 999 $44,299
Interest expense 20,457 996 999 20,454
------- ------- ------- -------
Net interest income after
provision for loan loss 23,050 795 -- 23,845
Non-interest income 1,210 11,902 -- 13,112
Non-interest expense 15,802 11,866 -- 27,668
------- ------- ------- -------
Income before tax 8,458 831 -- 9,289
Income tax 2,918 299 -- 3,217
------- ------- ------- -------
Net income $ 5,540 $ 532 $ -- $ 6,072
======= ======= ======= =======
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
Investment
Advisory
Retail Banking Services Eliminations Total
---------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Interest income $44,508 $ 1,021 $ 1,093 $44,436
Interest expense 16,091 468 1,093 15,466
Provision for loan loss 100 -- -- 100
------- ------- ------- -------
Net interest income after
provision for loan loss 28,317 553 -- 28,870
Non-interest income 894 10,616 -- 11,510
Non-interest expense 14,227 9,907 -- 24,134
------- ------- ------- -------
Income before tax 14,984 1,262 -- 16,246
Income tax 5,382 436 -- 5,818
------- ------- ------- -------
Net income $ 9,602 $ 826 $ -- $10,428
======= ======= ======= =======
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNITED COMMUNITY FINANCIAL CORP.
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) 2000 1999 2000 1999
----------- --------- -------- ----------
<S> <C> <C> <C> <C>
Performance ratios:
Return on average assets (2) 0.96% 1.62% 0.98% 1.60%
Return on average equity (3) 4.59% 4.43% 4.70% 4.37%
Interest rate spread (4) 3.07% 3.14% 3.05% 3.11%
Net interest margin (5) 4.02% 4.61% 3.98% 4.58%
Noninterest expense to average assets 4.26% 3.69% 4.47% 3.71%
Efficiency ratio (6) 73.87% 59.07% 74.87% 59.62%
Average interest-earning assets to average interest-
bearing liabilities 127.41% 159.83% 127.31% 160.12%
Capital ratios:
Average equity to average assets 20.88% 36.64% 20.86% 36.69%
Equity to assets, end of period 20.44% 36.44% 20.44% 36.44%
Tangible capital 13.53% 27.00% 13.53% 27.00%
Core capital 13.53% 27.00% 13.53% 27.00%
Risk-based capital 23.86% 50.42% 23.86% 50.42%
Asset quality ratio:
Nonperforming loans to total loans at end of period (7) 0.51% 0.80% 0.51% 0.80%
Nonperforming assets to average assets (8) 0.34% 0.43% 0.34% 0.44%
Nonperforming assets to total assets at end of period (8) 0.34% 0.43% 0.34% 0.43%
Allowance for loan losses as a percent of loans 0.80% 0.93% 0.80% 0.93%
Allowance for loan losses as a percent of
nonperforming loans (7) 159.25% 116.84% 159.25% 116.84%
Number of full service offices 14 14 14 14
Number of full service brokerage offices 10 10 10 10
Per share data:
Basic earnings per share (9) $ 0.09 $ 0.16 $ 0.18 $ 0.31
Diluted earnings per share (9) 0.09 0.16 0.18 0.31
Book value (10) 7.63 14.11 7.63 14.11
_________________________________________________________
<CAPTION>
<S> <C>
(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, adjusted for the dilutive effect of
restrictive stock, as necessary.
(10) Equity divided by number of shares outstanding less unallocated ESOP shares.
</TABLE>
7
<PAGE> 10
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2000 AND DECEMBER 31, 1999
Total assets were $1.3 billion at June 30, 2000, a $58.0 million, or 4.4%,
decrease compared to December 31, 1999. The primary reasons for the decrease in
total assets were a decrease in cash and cash equivalents of $87.2 million and a
decrease in securities of $44.2 million. These decreases were partially offset
by increases of $58.3 million in net loans, $9.7 million in margin accounts and
a $3.6 million increase in other assets primarily due to a $1.9 million increase
in prepaid Ohio franchise taxes, a $642,000 increase in deferred tax assets and
a $584,000 increase in receivables.
Net loans increased $58.3 million, or 8.1%, to $781.4 million at June 30, 2000,
compared to $723.1 million at December 31, 1999. The most significant increase
was in commercial loans, which increased $33.9 million, or 38.3%. Mortgage loans
increased $17.9 million, or 3.02%, and consumer loans increased $6.5 million, or
15.4%. In accordance with strategic goals, Home Savings hired several
individuals to manage and develop existing and new loan products to continue
loan growth. In July 2000, Home Savings has also announced plans to open loan
origination offices in the Cleveland, Akron, Canton and Stow markets to expand
its geographic market. Home Savings is aware that there can be risks associated
with this type of expansion.
Funds that are available for general corporate purposes, such as loan
originations, enhanced customer services and possible acquisitions, are invested
in overnight funds, investment securities and mortgage-related securities.
Overnight funds decreased $80.1 million, or 99.2%, to $622,000 at June 30, 2000
from $80.7 million at December 31, 1999. Securities available for sale, which
include both investment and mortgage-related securities, decreased $28.5
million, or 10.3%, since December 31, 1999. Securities held to maturity, which
also consist of both investment securities and mortgage-related securities,
decreased $13.2 million, or 9.5%, since December 31, 1999. The net decrease in
overnight funds and securities, along with a $7.1 million decrease in cash and
deposits with banks, were primarily used to reduce other borrowed funds by $62.2
million, reduce deposits $4.1 million, fund an increase in net loans of $58.3
million and fund an increase in margin accounts of $9.7 million. Trading
securities, which consist of investment securities, decreased $2.5 million, or
32.6%, to $5.2 million at June 30, 2000. Securities available for sale, in
conjunction with overnight funds, enable United Community to utilize excess
funds while providing a great deal of liquidity and flexibility as United
Community pursues other investment opportunities.
Nonaccrual and restructured loans have been relatively stable since December 31,
1999. At June 30, 2000, total nonaccrual and restructured loans accounted for
0.51% of net loans receivable, compared to 0.54% at December 31, 1999. Total
nonperforming assets were 0.34% of total assets as of June 30, 2000 compared to
0.30% as of December 31, 1999.
Total deposits decreased $4.1 million from $834.1 million at December 31, 1999
to $830.0 million at June 30, 2000. The decrease was due to a decrease in
savings accounts of $7.2 million and certificates of deposits of $671,000, which
were partially offset by an increase in checking accounts of $3.6 million.
Other borrowed funds decreased $62.2 million to $151.4 million at June 30, 2000
compared to $213.6 million at December 31, 1999. This decrease was funded by
decreases in cash and cash equivalents and investments. As of June 30, 2000,
$110.5 million of the other borrowed funds consisted of short term Federal Home
Loan Bank advances. The remaining funds consist of a revolving line of credit
and other short-term borrowings.
Accrued expenses and other liabilities increased $7.8 million to $22.6 million
at June 30, 2000 compared to $14.8 million at December 31, 1999. This increase
is primarily due to an increase of $3.1 million in accrued federal income taxes,
an increase in outstanding office checks of $2.6 million and an increase in
deferred compensation related to the Butler Wick retention plan of $625,000.
Shareholders' equity increased $2.7 million, or 1.0%, to $259.6 million at June
30, 2000 from $256.9 million at December 31, 1999. The increase was primarily
due to earnings for the six months, which were partially offset by quarterly
dividends of $0.075 per share paid in March and June of 2000. Book value per
share was $7.63 as of June 30, 2000.
8
<PAGE> 11
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
JUNE 30, 2000 AND JUNE 30, 1999
NET INCOME. Net income for the three months ended June 30, 2000 was $3.0
million, or $0.09 per diluted share. Net income for the comparable period in
1999 was $5.3 million, or $0.16 per diluted share. The primary reason for the
decrease in net income of $2.3 million for the three months ended June 30, 2000,
compared to the same period in 1999, was a decrease of $2.6 million in net
interest income and an increase in noninterest expense of $1.2 million. United
Community's annualized return on average assets and return on average equity
were 0.96% and 4.59%, respectively, for the three months ended June 30, 2000.
The annualized return on average assets and return on average equity for the
comparable period in 1999 were 1.62% and 4.43%, respectively.
NET INTEREST INCOME. Net interest income declined $2.6 million for the three
months ended June 30, 2000, compared to the second quarter of 1999, primarily
due to an increase in interest expense of $2.6 million. The increase in interest
expense was due to two factors. First, interest on other borrowed funds
increased $1.8 million due to an increase in borrowed funds in connection with
the $6.00 per share special capital distribution paid in October 1999. The
second factor was an increase in expense on deposits of $780,000, which was due
to an increase in average deposits and interest rates for the three months ended
June 30, 2000 compared to the same period in 1999.
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 second quarter of 2000, compared to
a provision of $25,000 for the second quarter of 1999. Home Savings' allowance
for loan losses totaled $6.3 million at June 30, 2000, which was 0.80% of total
loans.
NONINTEREST INCOME. Noninterest income increased $96,000, or 1.7%, from $5.8
million for the three months ended June 30, 1999, to $5.9 million for the three
months ended June 30, 2000. The primary reason for the increase was a $151,000
increase in service fees and other charges and a $100,000 increase in
underwriting and investment banking. These increases were partially offset by a
$184,000 loss on trading securities.
NONINTEREST EXPENSE. Total noninterest expense increased $1.2 million, or 9.8%,
to $13.2 million for the three months ended June 30, 2000, from $12.0 million
for the three months ended June 30, 1999. The increase was primarily due to an
increase in salaries and employee benefits of $606,000 and an increase in
franchise tax expense of $458,000. The increase in salaries and employee
benefits for the second quarter of 2000 was primarily due to recognition of
expenses related to the United Community Recognition and Retention Plan and the
Butler Wick Retention Plan and expenses related to new hires and merit increases
between the periods. Home Savings' franchise tax is based on its level of equity
at year-end. Franchise tax expense has increased due to Home Savings having
higher equity for its 2000 tax return compared to its 1999 tax return.
FEDERAL INCOME TAXES. The provision for federal income taxes decreased $1.3
million, or 43.4%, for the three months ended June 30, 2000, compared to the
three months ended June 30, 1999, primarily due to the lower pre-tax income for
the second quarter of 2000 compared to the second quarter of 1999. The effective
tax rates were 36.5% and 36.3% for the three months ended June 30, 2000 and
1999, respectively.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED
JUNE 30, 2000 AND JUNE 30, 1999
NET INCOME. Net income for the six months ended June 30, 2000 was $6.1 million,
or $0.18 per diluted share. Net income for the comparable period in 1999 was
$10.4 million, or $0.31 per diluted share. The primary reason for the decrease
in net income of $4.3 million for the six months ended June 30, 2000, compared
to the same period in 1999, was a decrease of $5.1 million in net interest
income and an increase in noninterest expense of $3.5 million. These increases
were partially offset by a $1.6 million increase in noninterest income. United
Community's annualized return on average assets and return on average equity
were 0.98% and 4.70%,
9
<PAGE> 12
respectively, for the six months ended June 30, 2000. The annualized return on
average assets and return on average equity for the comparable period in 1999
were 1.60% and 4.37%, respectively.
NET INTEREST INCOME. Net interest income declined $5.1 million for the six
months ended June 30, 2000, compared to the same period of 1999, primarily due
to an increase in interest expense of $5.0 million. The increase in interest
expense was due to two factors. First, interest on other borrowed funds
increased $3.6 million due to an increase in borrowed funds in connection with
the $6.00 per share special capital distribution paid in October 1999. The
second factor was an increase in expense on deposits of $1.4 million, which was
due to an increase in average deposits of $39.8 million and an increase in
interest rates from June 30, 1999 to June 30, 2000.
PROVISION FOR LOAN LOSSES. No provision for loan losses was recorded for the six
months ended June 30, 2000, compared to a provision of $100,000 for the six
months ended June 30, 1999. The decrease in the provision resulted from
management's consideration of the same factors previously mentioned.
NONINTEREST INCOME. Noninterest income increased $1.6 million, or 13.9%, from
$11.5 million for the six months ended June 30, 1999, to $13.1 million for the
six months ended June 30, 2000. The primary reason for the increase was a $1.3
million increase in commissions earned by Butler Wick due to an increase in the
volume of brokerage transactions.
NONINTEREST EXPENSE. Total noninterest expense increased $3.5 million, or 14.6%,
to $27.7 million for the six months ended June 30, 2000, from $24.1 million for
the six months ended June 30, 1999. The increase was primarily due to an
increase in salaries and employee benefits of $2.4 million and an increase in
franchise tax expense of $929,000. The increase in salaries and employee
benefits for the six months ended June 30, 2000 was primarily due to expenses
related to the Butler Wick Retention Plan and the United Community Recognition
and Retention Plan. The remainder of the increase is primarily due to increases
in commissions paid due to an increase in the volume of brokerage transactions
at Butler Wick, new hires and merit increases between the periods. Home Savings'
franchise tax is based on its level of equity at year-end. Franchise tax expense
has increased due to Home Savings having higher equity for its 2000 tax return
compared to its 1999 tax return.
FEDERAL INCOME TAXES. The provision for federal income taxes decreased $2.6
million, or 44.7%, for the six months ended June 30, 2000, compared to the six
months ended June 30, 1999, primarily due to the lower pre-tax income for the
first six months of 2000 compared to the first six months of 1999. The effective
tax rates were 34.6% and 35.8% for the six months ended June 30, 2000 and 1999,
respectively.
10
<PAGE> 13
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, 2000 and June 30, 1999. Average
balance calculations were based on daily balances.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------------------
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) $ 750,572 $ 15,050 8.02% $ 677,037 $ 13,503 7.98%
Mortgage-backed securities:
Available for sale 106,130 1,727 6.51% 111,347 1,699 6.10%
Held to maturity 128,597 2,236 6.96% 161,476 2,814 6.97%
Investment securities:
Trading 6,517 30 1.84% 1,777 22 4.95%
Available for sale 144,228 2,104 5.84% 159,575 2,231 5.59%
Held to maturity 1,125 17 6.04% 654 8 4.89%
Margin accounts 42,881 926 8.64% 29,725 524 7.05%
Other interest-earning assets 19,107 330 6.91% 128,664 1,589 4.94%
---------- ---------- --------- ---------- ---------- ---------
Total interest-earning assets 1,199,157 22,420 7.48% 1,270,255 22,390 7.05%
Noninterest-earning assets 41,680 35,910
---------- ----------
Total assets $1,240,837 $1,306,165
========== ==========
Interest-bearing liabilities:
Checking and demand accounts $ 147,288 $ 1,022 2.78% $ 126,194 $ 764 2.42%
Savings accounts 218,833 1,353 2.47% 224,277 1,384 2.47%
Certificates of deposit 443,474 5,893 5.32% 423,562 5,340 5.04%
Other borrowed funds 131,566 2,103 6.39% 20,744 276 5.32%
---------- ---------- --------- ---------- ---------- ---------
Total interest-bearing liabilities 941,161 10,371 4.41% 794,777 7,764 3.91%
---------- --------- ---------- ---------
Noninterest-bearing liabilities 40,595 32,755
---------- ----------
Total liabilities 981,756 827,532
Equity 259,081 478,633
---------- ----------
Total liabilities and equity $1,240,837 $1,306,165
========== ==========
Net interest income and
Interest rate spread $ 12,049 3.07% $ 14,626 3.14%
========== ========== ========== =========
Net interest margin 4.02% 4.61%
========== =========
Average interest-earning assets to average
interest-bearing liabilities 127.41% 159.83%
========= =========
<FN>
____________________
(1) Nonaccrual loans are included in the average balance.
</TABLE>
11
<PAGE> 14
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, 2000 and June 30, 1999. Average balance
calculations were based on daily balances.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------
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) $ 739,663 $ 29,364 7.94% $ 670,683 $ 26,757 7.98%
Mortgage-backed securities:
Available for sale 108,853 3,540 6.50% 103,481 3,151 6.09%
Held to maturity 131,867 4,589 6.96% 168,270 5,863 6.97%
Investment securities:
Trading 6,616 71 2.15% 3,148 49 3.11%
Available for sale 149,357 4,335 5.80% 139,001 3,907 5.62%
Held to maturity 1,143 35 6.12% 3,175 97 6.11%
Margin accounts 39,588 1,671 8.44% 26,500 918 6.93%
Other interest-earning assets 21,155 694 6.56% 150,527 3,694 4.91%
---------- ---------- ---------- ---------- ---------- ----------
Total interest-earning assets 1,198,242 44,299 7.39% 1,264,785 44,436 7.03%
Noninterest-earning assets 40,631 35,763
---------- ----------
Total assets $1,238,873 $1,300,548
========== ==========
Interest-bearing liabilities:
Checking and demand accounts $ 145,406 $ 1,963 2.70% $ 120,686 $ 1,413 2.34%
Savings accounts 220,358 2,722 2.47% 224,850 2,760 2.45%
Certificates of deposit 445,982 11,744 5.27% 426,428 10,823 5.08%
Other borrowed funds 129,443 4,025 6.22% 17,914 470 5.25%
---------- ---------- ---------- ---------- ---------- ---------
Total interest-bearing liabilities 941,189 20,454 4.35% 789,878 15,466 3.92%
---------- ---------- ---------- ---------
Noninterest-bearing liabilities 39,257 33,488
---------- ----------
Total liabilities 980,446 823,366
Equity 258,427 477,182
---------- ----------
Total liabilities and equity $1,238,873 $1,300,548
========== ==========
Net interest income and
Interest rate spread $ 23,845 3.05% $ 28,970 3.11%
========== ========= ========== ==========
Net interest margin 3.98% 4.58%
========= ==========
Average interest-earning assets to average
interest-bearing liabilities 127.31% 160.12%
=========== =========
------------------------------
(1) Nonaccrual loans are included in the average balance.
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
UNITED COMMUNITY FINANCIAL CORP.
RATE/VOLUME ANALYSIS
For the Three Months Ended June 30, For the Six Months Ended June 30,
-------------------------------------- --------------------------------------
2000 vs. 1999 2000 vs. 1999
-------------------------------------- --------------------------------------
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 $ 73 $ 1,474 $ 1,547 $ (131) $ 2,738 $ 2,607
Mortgage-backed securities:
Available for sale 95 (67) 28 221 168 389
Held to maturity (6) (572) (578) (7) (1,267) (1,274)
Investment securities:
Trading securities (2) 10 8 (9) 31 22
Available for sale 105 (232) (127) 130 298 428
Held to maturity 2 7 9 -- (63) (63)
Margin accounts 135 267 402 232 521 753
Other interest-earning assets 1,107 (2,366) (1,259) 1,933 (4,932) (2,999)
------- ------- ------- ------- ------- -------
Total interest-earning assets $ 1,509 $(1,479) 30 $ 2,369 $(2,506) (137)
======= ======= ======= ======= ======= =======
Interest-bearing liabilities:
Savings accounts 3 (34) (31) 18 (56) (38)
Checking accounts 120 138 258 235 315 550
Certificates of deposit 296 257 553 415 506 921
Other borrowed funds 66 1,761 1,827 104 3,451 3,555
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities $ 485 $ 2,122 2,607 $ 772 $ 4,216 4,988
======= ======= ------- ======= ======= -------
Change in net interest income $(2,577) $(5,125)
======= =======
</TABLE>
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 1999 Annual Report under the
caption "Asset and Liability Management and Market Risk." No material change in
the methodology has occurred. Home Savings continues to fall under the criteria
of being well capitalized under all interest rate shock scenarios required by
the Office of Thrift Supervision's Thrift Bulletin 13a.
13
<PAGE> 16
PART II. OTHER INFORMATION
UNITED COMMUNITY FINANCIAL CORP.
ITEMS 1, 3 AND 5 - NOT APPLICABLE
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 30, 2000, United Community registered 3,471,562 shares for the Long-Term
Incentive Plan approved by shareholders on July 12, 1999. On March 23, 2000,
stock options to purchase 638,483 shares were granted to key individuals of Home
Savings and Butler Wick at an exercise price of $6.97. As of June 30, 2000 none
of the options have been exercised.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 27, 2000, United Community held its Annual Meeting of Shareholders. In
connection therewith, two matters were submitted to shareholders for a vote.
First, shareholders elected six directors to the terms indicated by the
following votes:
<TABLE>
<CAPTION>
Director Term expiring in For Withhold
---------------------------- ---------------- -----------------
<S> <C> <C> <C>
Herbert F. Schuler, Sr. 2001 28,041,314 1,381,849
Donald J. Varner 2001 27,988,122 1,435,041
John F. Zimmerman, Jr. 2001 28,013,412 1,409,751
Richard M. Barrett 2002 27,946,768 1,476,395
Thomas J. Cavalier 2002 27,974,480 1,448,683
Douglas M. McKay 2002 27,812,530 1,610,633
</TABLE>
The shareholders also ratified the selection of Deloitte & Touche LLP, certified
public accountants, as auditors for the 2000 fiscal year by the following vote:
<TABLE>
<CAPTION>
For Against Abstain
--------------------- ----------------- ----------------
<C> <C> <C>
28,246,865 804,061 372,237
</TABLE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit
Number Description
............... ...........................................................
10.1 Employment Agreement between The Home Savings and Loan
Company of Youngstown, Ohio and David G. Lodge, dated
June 9, 2000.
10.1 Employment Agreement between The Home Savings and Loan
Company of Youngstown, Ohio and Patrick W. Bevack, dated
June 19, 2000.
11 Statement regarding computation of earnings per share
27 Financial Data Schedule - EDGAR only
b. Reports on Form 8-K
On April 19, 2000 United Community filed a Form 8-K disclosing operating results
for the quarter ended March 31, 2000.
14
<PAGE> 17
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 11, 2000 /s/ Douglas M. McKay
------------------------------------------
Douglas M. McKay, President
Date: August 11, 2000 /s/ Patrick A. Kelly
------------------------------------------
Patrick A. Kelly, Treasurer
15
