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UNITED COMMUNITY FINANCIAL CORP
10-Q, 2000-11-14
SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED

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TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. Quantitative And Qualitative Disclosure About Market Risk
PART II. OTHER INFORMATION
Exhibit 11
Exhibit 27

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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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.

Ohio		34-1856319
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)
275 Federal Plaza West
Youngstown, Ohio		44503-1203
(Address of principal executive offices)		(Zip Code)

(330) 742-0500

Not Applicable

      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.

37,751,685 common shares as of October 31, 2000

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Table of Contents

TABLE OF CONTENTS

				PAGE
Part I. FINANCIAL INFORMATION
Item  1.		Financial Statements (Unaudited)
		Consolidated Statements of Financial Condition as of September 30, 2000 and December 31,1999			1
		Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2000 and 1999			2
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999			3
		Notes to Consolidated Financial Statements			4 - 7
Item  2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			8 - 14
Item  3.		Quantitative and Qualitative Disclosure about Market Risk			14
Part II. OTHER INFORMATION					15
Signatures					16
Exhibits					17-18

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Table of Contents

PART I FINANCIAL INFORMATION

UNITED COMMUNITY FINANCIAL CORP.

				September 30,				December 31,
				2000				1999
				(In thousands)
Assets:
Cash and deposits with banks				$	23,013			$	30,759
Federal funds sold and other					16,992				80,686
		Total cash and cash equivalents			40,005				111,445
Investment securities:
	Trading (amortized cost of $5,808 and $7,647, respectively)				5,813				7,657
	Available for sale (amortized cost of $113,594 and $163,515, respectively)				113,010				161,904
	Held to maturity (fair value of $891 and $1,098, respectively)				875				1,091
Mortgage-related securities:
	Available for sale (amortized cost of $101,125 and $116,569, respectively)				99,097				113,559
	Held to maturity (fair value of $116,039 and $135,993, respectively)				117,847				138,079
Loans, net (including allowance for loan losses of $6,461 and $6,405, respectively)					835,867				723,087
Margin accounts					46,515				32,751
Federal Home Loan Bank stock					13,538				12,825
Premises and equipment					11,039				9,252
Accrued interest receivable					7,848				8,347
Real estate owned					307				158
Other assets					8,485				7,418
		Total assets		$	1,300,246			$	1,327,573
Liabilities and Shareholders’ Equity
Liabilities:
Deposits				$	854,390			$	834,087
Other borrowed funds					162,639				213,578
Advance payments by borrowers for taxes and insurance					2,227				4,038
Accrued interest payable					2,356				4,168
Accrued expenses and other liabilities					16,069				14,834
		Total liabilities		$	1,037,681			$	1,070,705
Commitments and Contingencies
Shareholders’ Equity:
Preferred stock-no par value; 1,000,000 shares authorized and unissued at September 30, 2000					—				—
Common stock-no par value; 499,000,000 shares authorized; 37,802,873 shares issued and outstanding at September 30, 2000					136,903				136,509
Retained earnings					155,091				153,553
Other comprehensive income					(1,698	)			(3,003	)
Unearned stock compensation					(27,731	)			(30,191	)
		Total shareholders’ equity			262,565				256,868
		Total liabilities and shareholders’ equity		$	1,300,246			$	1,327,573

See Notes to Consolidated Financial Statements.

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UNITED COMMUNITY FINANCIAL CORP.

					For the Three Months Ended								For the Nine Months Ended
					September 30,								September 30,
					2000				1999				2000				1999
					(In thousands)								(In thousands)
Interest income
	Loans				$	16,159			$	13,759			$	45,523			$	40,515
	Mortgage-related securities:
		Available for sale				1,640				1,957				5,180				5,108
		Held to maturity				2,095				2,615				6,683				8,479
	Investment securities:
		Trading				12				31				84				99
		Available for sale				1,982				2,879				6,316				6,786
		Held to maturity				13				—				48				78
	Margin accounts					967				611				2,638				1,565
	FHLB stock dividend					250				226				713				645
	Other interest-earning assets					118				621				350				3,861
			Total interest income			23,236				22,699				67,535				67,136
Interest expense
	Interest expense on deposits					9,124				7,509				25,554				22,504
	Interest expense on other borrowed funds					2,319				341				6,343				812
			Total interest expense			11,443				7,850				31,897				23,316
Net interest income						11,793				14,849				35,638				43,820
Provision for loan loss allowance						150				—				150				100
Net interest income after provision for loan loss allowances						11,643				14,849				35,488				43,720
Noninterest income
	Commissions					3,910				3,563				13,532				11,891
	Service fees and other charges					1,404				1,085				4,017				3,395
	Underwriting and investment banking					113				40				327				396
	Net gains (losses):
		Mortgage-backed securities				—				—				—				40
		Investment securities				50				—				46				—
		Trading securities				(49	)			21				178				141
		Other				8				(2	)			5				(11	)
	Other income					278				155				694				520
			Total noninterest income			5,714				4,862				18,799				16,372
Noninterest expenses
	Salaries and employee benefits					9,483				18,110				27,554				33,803
	Gain on postretirement curtailment					(2,928	)			—				(2,928	)			—
	Loss on pension termination					1,008				—				1,008				—
	Occupancy					552				500				1,540				1,473
	Equipment and data processing					1,477				1,234				4,222				3,792
	Deposit insurance premiums					42				113				126				343
	Franchise tax					927				480				2,793				1,416
	Advertising					526				350				1,343				1,088
	Acquisition expense					—				431				—				431
	Other expenses					1,653				1,351				4,723				4,359
			Total noninterest expenses			12,740				22,569				40,381				46,705
Income (loss) before income taxes						4,617				(2,858	)			13,906				13,387
Income taxes						1,528				(916	)			4,745				4,902
Net income (loss)					$	3,089			$	(1,942	)		$	9,161			$	8,485
Earnings (loss) per share:
	Basic and diluted				$	0.09			$	(0.06	)		$	0.27			$	0.25
	Average common shares outstanding					33,252,174				34,045,813				33,205,268				33,934,302
	Average common and common equivalent shares outstanding					34,093,040				34,398,566				34,063,800				34,053,178

See Notes to Consolidated Financial Statements.

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UNITED COMMUNITY FINANCIAL CORP.

					Nine Months Ended
					September 30,
					2000				1999
					(In thousands)
Cash Flows from Operating Activities:
	Net income				$	9,161			$	8,485
	Adjustments to reconcile net income to net cash provided by (used in) operating activities:
		Provision for loan loss allowances				150				100
		Net gains				(51	)			(29	)
		Accretion of discounts and amortization of premiums				(286	)			(384	)
		Depreciation				1,103				1,006
		ESOP compensation				1,476				1,615
		Amortization of restricted stock compensation				1,379				9,873
		FHLB stock dividends				(713	)			(645	)
		Decrease (increase) in trading securities				1,845				(2,982	)
		Increase in margin accounts				(13,764	)			(13,162	)
		Decrease (increase) in interest receivable				498				(1,968	)
		Increase in prepaid and other assets				(1,069	)			(2,967	)
		(Decrease) increase in interest payable				(1,812	)			114
		Increase in other liabilities				532				4,046
			Net cash (used in) provided by operating activities			(1,551	)			3,102
Cash Flows from Investing Activities:
	Proceeds from principal repayments and maturities of:
		Mortgage-related securities held to maturity				20,241				37,861
		Mortgage-related securities available for sale				16,645				22,321
		Investment securities held to maturity				693				5,000
		Investment securities available for sale				62,096				15,000
	Proceeds from sale of:
		Investment securities available for sale				17,672				—
		Mortgage-related securities available for sale				—				4,951
	Purchases of:
		Investment securities available for sale				(30,038	)			(103,508	)
		Investment securities held to maturity				(476	)			—
		Mortgage-related securities available for sale				(1,195	)			(50,532	)
	Net principal disbursed on loans					(104,926	)			(52,068	)
	Loans purchased					(7,865	)			—
	Purchases of premises and equipment					(2,891	)			(1,155	)
	Other					225				128
			Net cash used in investing activities			(29,819	)			(122,002	)
Cash Flows from Financing Activities:
		Net (decrease) increase in NOW, savings and money market accounts				(11,298	)			7,884
		Net increase (decrease) in certificates of deposit				31,601				(7,926	)
		Net decrease in advance payments by borrowers for taxes and insurance				(1,811	)			(1,722	)
		Net (decrease) increase in borrowed funds				(50,939	)			15,811
		Dividends paid				(7,623	)			(7,457	)
			Net cash (used in) provided by financing activities			(40,070	)			6,590
Decrease in cash and cash equivalents						(71,440	)			(112,310	)
Cash and cash equivalents, beginning of period						111,445				171,874
Cash and cash equivalents, end of period					$	40,005			$	59,564
Supplemental disclosures of cash flow information:
	Cash paid during the period for:
		Interest on deposits and borrowings			$	33,763			$	23,193
		Income taxes				4,428				5,724
Supplemental schedule of noncash activities:
	Transfers from loans to real estate owned					371				276
	Accrual for special capital distribution					—				226,549

See Notes to Consolidated Financial Statements.

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UNITED COMMUNITY FINANCIAL CORP.

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 15 full service 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 10 full service 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 nine months ended September 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.

3.  SUBSEQUENT EVENT

      On October 23, 2000, United Community announced that the Board of Directors had authorized United Community to repurchase up to 10%, or approximately 3.7 million, of its outstanding shares. The shares will be repurchased from time-to-time in open market transactions. Repurchased shares will be held as treasury shares and will be available for general corporate purposes, including issuance in connection with stock option exercises.

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4.  COMPREHENSIVE INCOME

      United Community’s comprehensive income for the three and nine months ended September 30, 2000 and 1999 are as follows:

		Three Months Ended
		September 30,
		2000				1999
		(In thousands)
Net income		$	3,089			$	(1,942	)
Unrealized holding gains (losses) arising during the period, net of tax effect of $789 and ($290), respectively			1,440				(539	)
Reclassification adjustment for gains included in net income, net of tax effect of $13			25				—
Comprehensive income		$	4,554			$	(2,481	)

		Nine Months Ended
		September 30,
		2000				1999
		(In thousands)
Net income		$	9,161			$	8,485
Unrealized holding gains (losses) arising during the period, net of tax effect of $703 and ($1,337), respectively			1,283				(2,457	)
Reclassification adjustment for gains (losses) included in net income, net of tax effect of $12 and ($14), respectively			22				(26	)
Comprehensive income		$	10,466			$	6,002

5.  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 nine months ended September 30, 2000 and 1999 are as follows:

		Three months ended September 30, 2000
						Investment
		Retail Banking				Advisory Services				Eliminations				Total
		(In thousands)
Interest income		$	22,718			$	1,017			$	499			$	23,236
Interest expense			11,382				560				499				11,443
Provision for loan loss			150				—				—				150
Net interest income after provision for loan loss			11,186				457				—				11,643
Non-interest income			617				5,097				—				5,714
Non-interest expense			7,399				5,341				—				12,740
Income before tax			4,404				213				—				4,617
Income tax			1,452				76				—				1,528
Net income		$	2,952			$	137			$	—			$	3,089

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		Three months ended September 30, 1999
						Investment
		Retail Banking				Advisory Services				Eliminations				Total
		(In thousands)
Interest income		$	22,539			$	653			$	493			$	22,699
Interest expense			8,018				325				493				7,850
Provision for loan loss			—				—				—				—
Net interest income after provision for loan loss			14,521				328				—				14,849
Non-interest income			454				4,408				—				4,862
Non-interest expense			17,930				4,639				—				22,569
Income before tax			(2,955	)			97				—				(2,858	)
Income tax			(952	)			36				—				(916	)
Net income		$	(2,003	)		$	61			$	—			$	(1,942	)

		Nine months ended September 30, 2000
						Investment
		Retail Banking				Advisory Services				Eliminations				Total
		(In thousands)
Interest income		$	66,226			$	2,807			$	1,498			$	67,535
Interest expense			31,840				1,555				1,498				31,897
Provision for loan loss			150				—				—				150
Net interest income after provision for loan loss			34,236				1,252				—				35,488
Non-interest income			1,826				16,973				—				18,799
Non-interest expense			23,200				17,181				—				40,381
Income before tax			12,862				1,044				—				13,906
Income tax			4,370				375				—				4,745
Net income		$	8,492			$	669			$	—			$	9,161

		Nine months ended September 30, 1999
						Investment
		Retail Banking				Advisory Services				Eliminations				Total
		(In thousands)
Interest income		$	67,047			$	1,674			$	1,585			$	67,136
Interest expense			24,109				792				1,585				23,316
Provision for loan loss			100				—				—				100
Net interest income after provision for loan loss			42,838				882				—				43,720
Non-interest income			1,347				15,025				—				16,372
Non-interest expense			32,156				14,549				—				46,705
Income before tax			12,029				1,358				—				13,387
Income tax			4,430				472				—				4,902
Net income		$	7,599			$	886			$	—			$	8,485

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6.  NEW ACCOUNTING STANDARDS

      In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. The FASB delayed the effective date of SFAS No. 133 for one year, to fiscal years beginning after June 15, 2000. The delay was published as SFAS No. 137, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133.” SFAS No. 138 amends the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and certain hedging activities. It also amends SFAS No. 133 for decisions made by the FASB relating to the Derivative Implementation Group process. Early application is still permitted. Management has evaluated SFAS No. 133 and SFAS No. 138 and does not expect them to have an impact on United Community’s financial position and results of operations.

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UNITED COMMUNITY FINANCIAL CORP.

			At or For the Three								At or For the Nine
			Months Ended								Months Ended
			September 30,								September 30,
			2000				1999				2000				1999
Selected financial ratios and other data: (1)
Performance ratios:
	Return on average assets (2)			0.97	%			(0.59	%)			0.98	%			0.87	%
	Return on average equity (3)			4.74	%			(1.62	%)			4.71	%			2.37	%
	Interest rate spread (4)			2.82	%			3.20	%			2.97	%			3.15	%
	Net interest margin (5)			3.83	%			4.65	%			3.93	%			4.60	%
	Noninterest expense to average assets			4.00	%			6.86	%			4.30	%			4.77	%
	Efficiency ratio (6)			72.77	%			114.50	%			74.18	%			77.59	%
	Average interest-earning assets to average interest-bearing liabilities			127.14	%			159.10	%			127.25	%			159.35	%
Capital ratios:
	Average equity to average assets			20.42	%			36.38	%			20.71	%			36.59	%
	Equity to assets, end of period			20.19	%			19.63	%			20.19	%			19.63	%
	Tangible capital			13.50	%			27.71	%			13.50	%			27.71	%
	Core capital			13.50	%			27.71	%			13.50	%			27.71	%
	Risk-based capital			23.36	%			49.77	%			23.36	%			49.77	%
Asset quality ratios:
	Nonperforming loans to total loans at end of period (7)			0.43	%			0.75	%			0.43	%			0.75	%
	Nonperforming assets to average assets (8)			0.31	%			0.42	%			0.31	%			0.43	%
	Nonperforming assets to total assets at end of period (8)			0.30	%			0.42	%			0.30	%			0.42	%
	Allowance for loan losses as a percent of loans			0.77	%			0.90	%			0.77	%			0.90	%
	Allowance for loan losses as a percent of nonperforming loans (7)			178.43	%			120.31	%			178.43	%			120.31	%
	Number of full service banking offices			15				14				15				14
	Number of full service brokerage offices			10				10				10				10
Per share data:
	Basic earnings per share (9)		$	0.09			$	(0.06	)		$	0.27			$	0.25
	Diluted earnings per share (10)			0.09				(0.06	)			0.27				0.25
	Book value per share (11)			7.69				7.29				7.69				7.29

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	(1)	Ratios for the three and nine month periods are annualized where appropriate.
	(2)	Net income divided by average total assets.
	(3)	Net income divided by average total equity.
	(4)	Difference between weighted average yield on interest-earning assets and weighted average cost of interest-bearing liabilities.
	(5)	Net interest income as a percentage of average interest-earning assets.
	(6)	Noninterest expense divided by the sum of net interest income and noninterest income.
	(7)	Nonperforming loans consist of nonaccrual loans and restructured loans.
	(8)	Nonperforming assets consist of nonperforming loans and real estate acquired in settlement of loans.
	(9)	Net income divided by average number of shares outstanding.
	(10)	Net income divided by average number of shares outstanding, adjusted for the dilutive effect of restricted stock.
	(11)	Equity divided by number of shares outstanding less unallocated ESOP shares.

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Comparison of Financial Condition at September 30, 2000 and December 31, 1999

      Total assets were $1.3 billion at September 30, 2000, a $27.3 million, or 2.1%, decrease compared to December 31, 1999. The primary reasons for the decrease in total assets were a decrease in cash and cash equivalents of $71.4 million and a decrease in securities of $85.6 million. These decreases were partially offset by increases of $112.8 million in net loans and $13.8 million in margin accounts.

      Net loans increased $112.8 million, or 15.6%, to $835.9 million at September 30, 2000, compared to $723.1 million at December 31, 1999. The most significant increase was in one- to-four family residential loans, which increased $51.9 million, or 8.8%. Commercial loans increased $48.1 million, or 54.4%, and consumer loans increased $12.8 million, or 29.9%. Home Savings is expecting continual growth in all loan categories, including commercial loans. Growth of the loan portfolio, especially in commercial loans, can lead to risk of loan losses. Non-residential real estate lending is generally considered to involve a higher degree of risk than residential real estate lending due to the relatively larger loan amounts and the effects of general economic conditions on the successful operation of income-producing properties. Home Savings has been appropriately increasing the allowances for loan loss. In accordance with strategic goals, Home Savings opened loan production offices in Canton and Stow in the third quarter and a third loan production office is scheduled to open in Cleveland in the fourth quarter. Though, Home Savings expects these new loan production offices to become profitable, it will experience increased operational expense as a result of additional staffing and office space. Home Savings also opened a new full service office in Howland, Ohio and plans to open offices at Youngstown State University and in the Lincoln Knolls Plaza in Youngstown, Ohio.

      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 $63.7 million, or 78.9%, to $17.0 million at September 30, 2000 from $80.7 million at December 31, 1999. Securities available for sale, which include both investment and mortgage-related securities, decreased $63.4 million, or 23.0%, since December 31, 1999. Securities held to maturity, which also consist of both investment securities and mortgage-related securities, decreased $20.4 million, or 14.7%, since December 31, 1999. Trading securities, which consist of investment securities, decreased $1.8 million, or 24.1%, to $5.8 million at September 30, 2000. The net decrease in overnight funds and securities, along with a $7.7 million decrease in cash and deposits with banks, was primarily used to reduce other borrowed funds by $50.9 million and to fund increases in net loans of $112.8 million and margin accounts of $13.8 million. 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 decreased approximately $311,000 to $3.6 million at September 30, 2000 from $3.9 million at December 31, 1999, primarily due to several one- to four-family loans becoming current. At September 30, 2000, total nonaccrual and restructured loans accounted for 0.43% of net loans receivable, compared to 0.54% at December 31, 1999. Total nonperforming assets were 0.30% of total assets as of September 30, 2000 and December 31, 1999.

      Total deposits increased $20.3 million from $834.1 million at December 31, 1999 to $854.4 million at September 30, 2000. The increase was due to a $31.6 million increase in certificates of deposit and a $4.6 million increase in checking accounts, which were offset by a decrease in savings accounts of $16.2 million. The increases in certificates of deposit and checking accounts were primarily due to competitive interest rates and savings accounts decreased as money is being invested in higher yielding products.

      Other borrowed funds decreased $50.9 million to $162.6 million at September 30, 2000 compared to $213.5 million at December 31, 1999. This decrease was funded by decreases in cash equivalents and investments and an increase in deposits. As of September 30, 2000, $117.5 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.

      Shareholders’ equity increased $5.7 million, or 2.2%, to $262.6 million at September 30, 2000 from $256.9 million at December 31, 1999. The increase was primarily due to earnings for the nine months, which were partially offset by quarterly dividends of $0.075 per share paid in March, June and September of 2000. Book value per share was $7.69 as of September 30, 2000.

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Comparison of Operating Results for the Three Months Ended

      Net Income. Net income for the three months ended September 30, 2000 was $3.1 million, or $0.09, per diluted share. Net loss for the comparable period in 1999 was $1.9 million, or $0.06, per diluted share. The primary reason for the increase in net income of $5.0 million for the three months ended September 30, 2000, compared to the same period in 1999, was a decrease of $9.8 million in noninterest expense and an increase of $852,000 in noninterest income, which were partially offset by a $3.1 million decrease in net interest income and a $2.4 million increase in income taxes. United Community’s annualized return on average assets and return on average equity were 0.97% and 4.74%, respectively, for the three months ended September 30, 2000. The annualized return on average assets and return on average equity for the comparable period in 1999 were (0.59)% and (1.62)%, respectively.

      Net Interest Income. Net interest income declined $3.1 million, or 20.6%, for the three months ended September 30, 2000, compared to the third quarter of 1999, primarily due to an increase in interest expense of $3.6 million, which was due to two factors. First, interest expense increased $2.5 million due to an increase in interest bearing liabilities in connection with funding of loans. Secondly, interest expense increased $1.1 million due to an increase in interest rates for the three months ended September 30, 2000 compared to the same period in 1999.

      Provision for Loan Loss Allowances. 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. Due to growth in the loan portfolio, particularly in commercial loans, the provision for loan loss allowance was $150,000 for the third quarter of 2000 compared to no additional provision being booked in the third quarter of the 1999. Home Savings anticipates further growth in the loan portfolio, including commercial loans, which may have further impact on the loan loss provision in the future. Home Savings’ allowance for loan losses totaled $6.5 million at September 30, 2000, which was 0.77% of total loans.

      Noninterest Income. Noninterest income increased $852,000, or 17.5%, from $4.9 million for the three months ended September 30, 1999, to $5.7 million for the three months ended September 30, 2000. The primary reason for the increase was a $347,000 increase in commissions earned by Butler Wick due to an increase in volume of brokerage transactions and a $319,000 increase in service fees and other charges at both Home Savings and Butler Wick.

      Noninterest Expense. Total noninterest expense decreased $9.8 million, or 43.6%, to $12.7 million for the three months ended September 30, 2000, from $22.5 million for the three months ended September 30, 1999. The decrease was primarily due to a decrease in salaries and employee benefits of $8.6 million and a gain on the curtailment of postretirement benefits of $2.9 million, which were partially offset by a loss on the termination of the Home Savings pension plan of $1.0 million and an increase in franchise tax expense of $447,000. The decrease in salaries and employee benefits for the third quarter of 2000 resulted primarily from recognition of increased expense upon implementation of the United Community Recognition and Retention Plan (RRP) in August 1999 and additional RRP expenses in connection with the $6.00 per share special capital distribution in the third quarter of 1999. This decrease was partially offset by recognition of expense related to the Butler Wick Retention Plan, expenses related to new hires and merit increases between the periods.

      Federal Income Taxes. The provision for federal income taxes increased $2.4 million for the three months ended September 30, 2000, compared to the three months ended September 30, 1999, primarily due to the higher pre-tax income for the third quarter of 2000 compared to the third quarter of 1999. The effective tax rates were 33.1% and 32.1% for the three months ended September 30, 2000 and 1999, respectively.

Comparison of Operating Results for the Nine Months Ended

      Net Income. Net income for the nine months ended September 30, 2000 was $9.2 million, or $0.27 per diluted share. Net income for the comparable period in 1999 was $8.5 million, or $0.25 per diluted share. The primary reason for the increase in net income of

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      Net Interest Income. Net interest income declined $8.2 million for the nine months ended September 30, 2000, compared to the same period of 1999, primarily due to an increase in interest expense of $8.6 million, which was due to two factors. First, interest expense increased $6.6 million due to an increase in interest bearing liabilities in connection with the funding of loans. Secondly, interest expense increased $2.0 million due to an increase in interest rates from September 30, 1999 to September 30, 2000.

      Provision for Loan Loss Allowances. Due to growth in the loan portfolio, particularly in commercial loans, the provision for loan loss allowance was $150,000 for the nine months ended September 30, 2000, compared to a provision of $100,000 for the nine months ended September 30, 1999.

      Noninterest Income. Noninterest income increased $2.4 million, or 14.8%, from $16.4 million for the nine months ended September 30, 1999, to $18.8 million for the nine months ended September 30, 2000. The primary reasons for the increase was a $1.6 million increase in commissions earned by Butler Wick due to an increase in the volume of brokerage transactions and a $622,000 increase in service fees and other charges at both Home Savings and Butler Wick.

      Noninterest Expense. Total noninterest expense declined $6.3 million, or 13.5%, to $40.4 million for the nine months ended September 30, 2000, from $46.7 million for the nine months ended September 30, 1999. The decrease was primarily due to a decrease in salaries and employee benefits of $6.2 million and a gain on the curtailment of postretirement benefits of $2.9 million. These decreases were partially offset by an increase in franchise tax expense of $1.4 million and a loss on pension termination of $1.0 million. The decrease in salaries and employee benefits for the nine months ended September 30, 2000 was primarily due to a decline in expense related to the United Community Recognition and Retention Plan due to the $6.00 per share special capital distribution paid in 1999. This decrease was partially offset by an increase 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 as Home Saving’s equity is higher on its 2000 tax return compared to its 1999 tax return.

      Federal Income Taxes. The provision for federal income taxes decreased $157,000, or 3.2%, for the nine months ended September 30, 2000, compared to the nine months ended September 30, 1999, primarily due to tax treatment related to merger expense and dividends to the employee stock ownership plan. The effective tax rates were 34.1% and 36.6% for the nine months ended September 30, 2000 and 1999, respectively.

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UNITED COMMUNITY FINANCIAL CORP.

      The following table presents the total dollar amounts of interest income and interest expense on the indicated amounts of average interest-earning assets or interest-bearing liabilities together with the weighted average interest rates for the three month periods ended September 30, 2000 and 1999. Average balance calculations were based on daily balances.

				Three Months Ended September 30,
				2000												1999
				Average				Interest								Average				Interest
				outstanding				earned/				Yield/				outstanding				earned/				Yield/
				balance				paid				rate				balance				paid				rate
				(In thousands)
Interest-earning assets:
Net loans (1)				$	804,693			$	16,159				8.03	%		$	698,462			$	13,759				7.88	%
Mortgage-backed securities:
	Available for sale				100,504				1,640				6.53	%			123,957				1,957				6.32	%
	Held to maturity				121,604				2,095				6.89	%			150,369				2,615				6.96	%
Investment securities:
		Trading			5,550				12				0.86	%			4,702				31				2.64	%
		Available for sale			135,057				1,982				5.87	%			203,852				2,879				5.65	%
		Held to maturity			875				13				5.94	%			—				—
Margin accounts					43,702				967				8.85	%			33,063				611				7.39	%
Other interest-earning assets					20,630				368				7.14	%			63,075				847				5.37	%
Total interest-earning assets					1,232,615				23,236				7.54	%			1,277,480				22,699				7.11	%
Noninterest-earning assets					42,739												37,806
Total assets				$	1,275,354											$	1,315,286
Interest-bearing liabilities:
Checking and demand accounts				$	147,054			$	1,111				3.02	%		$	134,129			$	837				2.50	%
Savings accounts					211,244				1,323				2.51	%			221,934				1,386				2.50	%
Certificates of deposit					471,751				6,690				5.67	%			418,177				5,286				5.06	%
Other borrowed funds					139,447				2,319				6.65	%			28,694				341				4.75	%
Total interest-bearing liabilities					969,496				11,443				4.72	%			802,934				7,850				3.91	%
Noninterest-bearing liabilities					45,401												33,883
Total liabilities					1,014,897												836,817
Equity					260,457												478,469
Total liabilities and equity				$	1,275,354											$	1,315,286
Net interest income and
Interest rate spread								$	11,793				2.82	%						$	14,849				3.20	%
Net interest margin													3.83	%											4.65	%
Average interest-earning assets to average interest-bearing liabilities													127.14	%											159.10	%

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(1)	Nonaccrual loans are included in the average balance.

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UNITED COMMUNITY FINANCIAL CORP.

      The following table presents the total dollar amounts of interest income and interest expense on the indicated amounts of average interest-earning assets or interest-bearing liabilities together with the weighted average interest rates for the nine month periods ended September 30, 2000 and September 30, 1999. Average balance calculations were based on daily balances.

			Nine Months Ended September 30,
			2000												1999
			Average				Interest								Average				Interest
			outstanding				earned/				Yield/				outstanding				earned/				Yield/
			balance				paid				rate				balance				paid				rate
			(In thousands)
Interest-earning assets:
Net loans (1)			$	761,498			$	45,523				7.97	%		$	680,045			$	40,515				7.94	%
Mortgage-backed securities:
	Available for sale			106,049				5,180				6.51	%			110,381				5,108				6.17	%
	Held to maturity			128,421				6,683				6.94	%			162,238				8,479				6.97	%
Investment securities:
	Trading			6,261				84				1.79	%			4,083				99				3.23	%
	Available for sale			144,556				6,316				5.83	%			160,920				6,786				5.62	%
	Held to maturity			1,053				48				6.08	%			1,629				78				6.38	%
Margin accounts				40,959				2,638				8.59	%			29,157				1,565				7.16	%
Other interest-earning assets				20,923				1,063				6.77	%			121,327				4,506				4.95	%
Total interest-earning assets				1,209,720				67,535				7.44	%			1,269,780				67,136				7.05	%
Noninterest-earning assets				41,397												35,713
Total assets			$	1,251,117											$	1,305,493
Interest-bearing liabilities:
Checking and demand accounts			$	145,959			$	3,074				2.81	%		$	125,216			$	2,250				2.40	%
Savings accounts				217,298				4,045				2.48	%			223,867				4,147				2.47	%
Certificates of deposit				454,634				18,435				5.41	%			423,647				16,107				5.07	%
Other borrowed funds				132,797				6,343				6.37	%			24,124				812				4.49	%
Total interest-bearing liabilities				950,688				31,897				4.47	%			796,854				23,316				3.90	%
Noninterest-bearing liabilities				41,323												31,024
Total liabilities				992,011												827,878
Equity				259,106												477,615
Total liabilities and equity			$	1,251,117											$	1,305,493
Net interest income and
Interest rate spread							$	35,638				2.97	%						$	43,820				3.15	%
Net interest margin												3.93	%											4.60	%
Average interest-earning assets to average interest-bearing liabilities												127.25	%											159.35	%

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(1)	Nonaccrual loans are included in the average balance.

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UNITED COMMUNITY FINANCIAL CORP.

				For the Three Months Ended												For the Nine Months Ended
				September 30,												September 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)
Interest-earning assets:
	Loans			$	271			$	2,129			$	2,400			$	139			$	4,869			$	5,008
	Mortgage-backed securities:
		Available for sale			68				(385	)			(317	)			246				(174	)			72
		Held to maturity			(24	)			(496	)			(520	)			(36	)			(1,760	)			(1,796	)
	Investment securities:
		Trading			(26	)			7				(19	)			77				(92	)			(15	)
		Available for sale			118				(1,015	)			(897	)			259				(729	)			(470	)
		Held to maturity			13				—				13				(4	)			(26	)			(30	)
	Margin accounts				135				221				356				355				718				1,073
	Other interest-earning assets				456				(935	)			(479	)			2,757				(6,200	)			(3,443	)
		Total interest-earning assets		$	1,011			$	(474	)			537			$	3,793			$	(3,394	)			399
Interest-bearing liabilities:
	Savings accounts				4				(67	)			(63	)			20				(122	)			(102	)
	Checking accounts				188				86				274				420				404				824
	Certificates of deposit				684				720				1,404				1,109				1,219				2,328
	Other borrowed funds				185				1,793				1,978				471				5,060				5,531
		Total interest-bearing liabilities		$	1,061			$	2,532				3,593			$	2,020			$	6,561				8,581
Change in net interest income												$	(3,056	)										$	(8,182	)

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.

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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

Exhibit
Number				Description
	11			Statement regarding computation of earnings per share
	27			Financial Data Schedule — EDGAR only

b.  Reports on Form 8-K

On July 19, 2000 United Community filed a Form 8-K disclosing operating results for the quarter ended June 30, 2000.

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UNITED COMMUNITY FINANCIAL CORP.

SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		UNITED COMMUNITY FINANCIAL CORP.
Date: November 13, 2000		/s/ Douglas M. McKay
		Douglas M. McKay, President
Date: November 13, 2000		/s/ Patrick A. Kelly
		Patrick A. Kelly, Treasurer

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