FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2009
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
UNITED COMMUNITY FINANCIAL CORP.
(Exact name of the registrant as specified in its charter)
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OHIO
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0-024399
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34-1856319 |
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(State or other jurisdiction of incorporation)
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(Commission File No.)
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(IRS Employer I.D. No.) |
275 West Federal Street, Youngstown, Ohio 44503-1203
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (330) 742-0500
Not Applicable
(Former name or former address, if changed 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o (Do not check if a smaller reporting company)
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Small reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date. 30,897,826 common shares as of April 30, 2009.
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
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March 31, |
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December 31, |
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2009 |
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2008 |
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(Dollars in thousands) |
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Assets: |
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Cash and deposits with banks |
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$ |
20,059 |
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$ |
21,745 |
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Federal funds sold and other |
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26,724 |
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21,672 |
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Total cash and cash equivalents |
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46,783 |
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43,417 |
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Securities: |
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Available for sale, at fair value |
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248,981 |
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215,731 |
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Loans held for sale |
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14,170 |
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16,032 |
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Loans, net of allowance for loan losses of $37,856 and $35,962, respectively |
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2,114,855 |
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2,203,453 |
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Federal Home Loan Bank stock, at cost |
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26,464 |
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26,464 |
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Premises and equipment, net |
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24,649 |
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25,015 |
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Accrued interest receivable |
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9,237 |
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10,082 |
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Real estate owned and other repossessed assets |
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30,430 |
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29,258 |
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Core deposit intangible |
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824 |
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884 |
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Cash surrender value of life insurance |
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25,337 |
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25,090 |
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Assets of discontinued operationsButler Wick Corp. |
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5,562 |
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Other assets |
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20,858 |
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17,085 |
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Total assets |
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$ |
2,562,588 |
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$ |
2,618,073 |
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Liabilities and Shareholders Equity |
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Liabilities: |
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Deposits: |
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Interest bearing |
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$ |
1,722,746 |
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$ |
1,779,676 |
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Non-interest bearing |
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112,769 |
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106,255 |
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Total deposits |
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1,835,515 |
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1,885,931 |
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Borrowed funds: |
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Federal Home Loan Bank advances |
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334,828 |
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337,603 |
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Repurchase agreements and other borrowings |
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119,401 |
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125,269 |
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Total borrowings |
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454,229 |
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462,872 |
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Advance payments by borrowers for taxes and insurance |
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14,067 |
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19,806 |
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Accrued interest payable |
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3,039 |
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3,077 |
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Liabilities of discontinued operationsButler Wick Corp. |
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2,388 |
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Accrued expenses and other liabilities |
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16,441 |
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9,076 |
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Total liabilities |
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2,323,291 |
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2,383,150 |
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Shareholders Equity |
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Preferred stock-no par value; 1,000,000 shares authorized and unissued |
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Common stock-no par value; 499,000,000 shares authorized; 37,804,457
shares issued and 30,897,825 shares outstanding |
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146,178 |
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146,439 |
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Retained earnings |
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168,717 |
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165,447 |
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Accumulated other comprehensive income |
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4,545 |
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3,635 |
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Unearned employee stock ownership plan shares |
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(7,188 |
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(7,643 |
) |
Treasury stock, at cost, 6,906,632 shares |
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(72,955 |
) |
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(72,955 |
) |
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Total shareholders equity |
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239,297 |
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234,923 |
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Total liabilities and shareholders equity |
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$ |
2,562,588 |
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$ |
2,618,073 |
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See Notes to Consolidated Financial Statements.
1
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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For the Three Months Ended |
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March 31, |
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2009 |
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2008 |
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(Dollars in thousands, except per share data) |
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Interest income |
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Loans |
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$ |
31,067 |
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$ |
35,808 |
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Loans held for sale |
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263 |
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188 |
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Securities: |
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Available for sale |
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2,770 |
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3,241 |
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Federal Home Loan Bank stock dividends |
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299 |
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332 |
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Other interest earning assets |
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29 |
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58 |
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Total interest income |
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34,428 |
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39,627 |
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Interest expense |
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Deposits |
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12,651 |
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17,036 |
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Federal Home Loan Bank advances |
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1,858 |
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3,692 |
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Repurchase agreements and other |
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1,190 |
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1,957 |
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Total interest expense |
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15,699 |
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22,685 |
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Net interest income |
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18,729 |
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16,942 |
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Provision for loan losses |
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8,444 |
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2,466 |
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Net interest income after provision for loan losses |
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10,285 |
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14,476 |
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Non-interest income |
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Non-deposit investment income |
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304 |
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477 |
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Service fees and other charges |
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1,512 |
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1,765 |
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Net gains (losses): |
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Securities available for sale |
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931 |
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Other than temporary impairment charges on securities
available for sale |
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(150 |
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Loans sold |
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1,140 |
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2,184 |
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Real estate owned and other repossessed assets sold |
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(1,138 |
) |
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(140 |
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Other income |
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1,075 |
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1,053 |
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Total non-interest income |
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2,743 |
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6,270 |
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Non-interest expense |
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Salaries and employee benefits |
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8,023 |
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9,050 |
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Occupancy |
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984 |
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947 |
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Equipment and data processing |
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1,730 |
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1,721 |
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Franchise tax |
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592 |
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580 |
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Advertising |
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229 |
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265 |
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Amortization of core deposit intangible |
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60 |
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78 |
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Deposit insurance premiums |
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1,783 |
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51 |
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Professional fees |
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716 |
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586 |
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Real estate owned and other repossessed asset expenses |
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951 |
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388 |
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Other expenses |
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1,331 |
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1,298 |
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Total non-interest expenses |
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16,399 |
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14,964 |
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Income (loss) before income taxes and discontinued operations |
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(3,371 |
) |
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5,782 |
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Income taxes expense (benefit) |
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(1,692 |
) |
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2,018 |
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Net income (loss) before discontinued operations |
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(1,679 |
) |
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3,764 |
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Discontinued operations |
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Net income of Butler Wick Corp., net of tax |
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4,949 |
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|
279 |
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Net income |
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$ |
3,270 |
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$ |
4,043 |
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(Continued)
2
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Continued)
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Comprehensive income (loss) |
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$ |
4,180 |
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$ |
6,178 |
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Earnings (loss) per share |
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Basiccontinuing operations |
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$ |
(0.06 |
) |
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$ |
0.13 |
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Basicdiscontinued operations |
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0.17 |
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|
0.01 |
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Basic |
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0.11 |
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0.14 |
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Dilutedcontinuing operations |
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(0.06 |
) |
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0.13 |
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Diluteddiscontinued operations |
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0.17 |
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|
0.01 |
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Diluted |
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0.11 |
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|
0.14 |
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See Notes to Consolidated Financial Statements.
3
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited)
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Unearned |
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Employee |
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Accumulated |
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Stock |
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Other |
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Ownership |
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Shares |
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Common |
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Retained |
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Comprehensive |
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Plan |
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Treasury |
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Outstanding |
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Stock |
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Earnings |
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Income (Loss) |
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Shares |
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Stock |
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Total |
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(Dollars thousands, except per share data) |
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Balance December 31, 2008 |
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|
30,898 |
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|
$ |
146,439 |
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|
$ |
165,447 |
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|
$ |
3,635 |
|
|
$ |
(7,643 |
) |
|
$ |
(72,955 |
) |
|
$ |
234,923 |
|
Comprehensive income: |
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|
|
|
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|
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|
|
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|
|
|
|
|
|
|
|
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|
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Net income |
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|
|
|
|
|
|
|
|
|
3,270 |
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|
|
|
|
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|
|
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|
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|
|
3,270 |
|
Change in net unrealized gain/(loss) on securities, net of taxes of $490 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
910 |
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|
|
|
|
|
|
|
|
|
|
910 |
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|
|
|
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|
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|
|
|
|
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|
|
|
|
|
|
|
|
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|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
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|
|
4,180 |
|
Shares allocated to ESOP participants |
|
|
|
|
|
|
(261 |
) |
|
|
|
|
|
|
|
|
|
|
455 |
|
|
|
|
|
|
|
194 |
|
|
|
|
Balance March 31, 2009 |
|
|
30,898 |
|
|
$ |
146,178 |
|
|
$ |
168,717 |
|
|
$ |
4,545 |
|
|
$ |
(7,188 |
) |
|
$ |
(72,955 |
) |
|
$ |
239,297 |
|
|
|
|
See Notes to Consolidated Financial Statements.
4
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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|
|
|
|
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|
Three Months Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,270 |
|
|
$ |
4,043 |
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
8,444 |
|
|
|
2,466 |
|
Net gains on loans |
|
|
(1,140 |
) |
|
|
(2,184 |
) |
Net losses on real estate owned and other repossessed assets |
|
|
1,138 |
|
|
|
140 |
|
Net gains on other assets |
|
|
(21 |
) |
|
|
(905 |
) |
Other than temporary impairment of securities available for sale |
|
|
150 |
|
|
|
|
|
Amortization of premiums and accretion of discounts |
|
|
1,061 |
|
|
|
583 |
|
Depreciation and amortization |
|
|
586 |
|
|
|
653 |
|
Federal Home Loan Bank stock dividends |
|
|
|
|
|
|
(332 |
) |
Decrease in interest receivable |
|
|
845 |
|
|
|
1,392 |
|
(Decrease) increase in interest payable |
|
|
(38 |
) |
|
|
165 |
|
(Increase) decrease in prepaid and other assets |
|
|
(4,150 |
) |
|
|
9,890 |
|
Increase (decrease) in other liabilities |
|
|
2,436 |
|
|
|
(9,524 |
) |
Decrease in trading securities |
|
|
|
|
|
|
(27 |
) |
Stock based compensation |
|
|
|
|
|
|
306 |
|
Net principal disbursed on loans originated for sale |
|
|
(134,445 |
) |
|
|
(64,005 |
) |
Proceeds from sale of loans originated for sale |
|
|
137,447 |
|
|
|
140,158 |
|
ESOP Compensation |
|
|
194 |
|
|
|
428 |
|
Operating cash flows from discontinued operations |
|
|
(4,949 |
) |
|
|
(279 |
) |
|
|
|
|
|
|
|
Net cash from operating activities |
|
|
10,828 |
|
|
|
82,968 |
|
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|
|
|
|
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Cash Flows from Investing Activities |
|
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|
|
|
|
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|
Proceeds from principal repayments and maturities of: |
|
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|
|
|
|
|
|
Securities available for sale |
|
|
10,011 |
|
|
|
18,268 |
|
Proceeds from sale of: |
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
|
|
|
|
38,299 |
|
Real estate owned and other repossessed assets |
|
|
3,085 |
|
|
|
3,654 |
|
Purchases of: |
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
(42,050 |
) |
|
|
(115,672 |
) |
Net change in loans |
|
|
76,035 |
|
|
|
39,381 |
|
Loans purchased |
|
|
(1,476 |
) |
|
|
(24,066 |
) |
Purchases of premises and equipment |
|
|
(190 |
) |
|
|
(220 |
) |
Investing cash flows from discontinued operations |
|
|
11,921 |
|
|
|
(16 |
) |
|
|
|
|
|
|
|
Net cash from investing activities |
|
|
57,336 |
|
|
|
(40,372 |
) |
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Net increase in checking, savings and money market accounts |
|
|
19,872 |
|
|
|
47,845 |
|
Net decrease in certificates of deposit |
|
|
(70,288 |
) |
|
|
(47,082 |
) |
Net decrease in advance payments by borrowers for taxes and insurance |
|
|
(5,739 |
) |
|
|
(4,962 |
) |
Proceeds from Federal Home Loan Bank advances |
|
|
172,000 |
|
|
|
217,100 |
|
Repayment of Federal Home Loan Bank advances |
|
|
(174,775 |
) |
|
|
(272,971 |
) |
Net change in repurchase agreements and other borrowed funds |
|
|
(5,868 |
) |
|
|
19,324 |
|
Cash dividends paid |
|
|
|
|
|
|
(2,709 |
) |
|
|
|
|
|
|
|
Net cash from financing activities |
|
|
(64,798 |
) |
|
|
(43,455 |
) |
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
3,366 |
|
|
|
(859 |
) |
Cash and cash equivalents, beginning of period |
|
|
43,417 |
|
|
|
33,502 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
46,783 |
|
|
$ |
32,643 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
5
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 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 association (Conversion). Upon consummation of the Conversion on July 8, 1998,
United Community became the unitary thrift holding company for Home Savings. Home Savings, a
state-chartered savings bank, conducts business from its main office located in Youngstown, Ohio,
39 full-service branches and six loan production offices located throughout Ohio and western
Pennsylvania.
The accompanying consolidated financial statements of United Community have been prepared in
accordance with instructions relating 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) that are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The results of operations for the three months ended March 31, 2009, are not necessarily indicative
of the results to be expected for the year ending December 31, 2009. 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, 2008, contained in United Communitys Form 10-K
for the year ended December 31, 2008.
Some items in the prior year financial statements were reclassified to conform to the current
presentation.
2. REGULATORY ENFORCEMENT ACTION
On August 8, 2008, the board of directors of United Community approved a Stipulation and Consent to
Issuance of Order to Cease and Desist (OTS Order) with the OTS. Simultaneously, the board of
directors of Home Savings approved a Stipulation and Consent to the Issuance of an Order to Cease
and Desist (Bank Order) with the FDIC and the Ohio Division. Although United Community and Home
Savings have agreed to the issuance of the OTS Order and the Bank Order, respectively, neither has
admitted or denied any allegations of unsafe or unsound banking practices, or any legal or
regulatory violations. No monetary penalties were assessed by the OTS, the FDIC, or the Ohio
Division.
The OTS Order requires UCFC to obtain OTS approval prior to: (i) incurring or increasing its debt
position; (ii) repurchasing any UCFC stock; or (iii) paying any dividends. The OTS Order also
requires UCFC to develop a debt reduction plan and submit the plan to the OTS for approval.
The Bank Order requires Home Savings, within specified timeframes, to take or refrain from certain
actions, including: (i) retaining a bank consultant to assess Home Savings management needs and
submitting a management plan that identifies officer positions needed, identifies and establishes
board and internal operating committees, evaluates Home Savings senior officers, and provides for
the hiring of any additional personnel; (ii) seeking regulatory approval prior to adding any
individuals to the board of directors or employing any individual as a senior executive officer of
Home Savings; (iii) not extending additional credit to classified borrowers; (iv) establishing a
compliant Allowance for Loan and Lease Loss methodology; (v) enhancing its risk management policies
and procedures; (vi) adopting and implementing plans to reduce its classified assets and delinquent
loans, and to reduce loan concentrations in nonowner-occupied commercial real estate and
construction, land development, and land loans; (vii) establishing board of directors committees to
evaluate and approve certain loans and oversee Home Savings compliance with the Bank Order; (viii)
revising its loan policy and enhancing its underwriting and credit administration functions; (ix)
developing a strategic plan and budget and profit plan; (x) correcting all violations of laws,
rules, and regulations and implementing procedures to ensure future compliance; (xi) increasing its
Tier 1 capital to 8% and its total risk based capital to 12% by December 31, 2008; and (xii)
seeking regulatory approval prior to declaring or paying any cash dividend. At March 31, 2009,
Home Savings Tier 1 capital was 8.33% and its total risk based capital was 12.48%. Because of the
consent to the Bank Order, Home Savings is deemed adequately capitalized for regulatory capital
purposes.
United Community and Home Savings are moving toward compliance with the OTS Order and Bank Order.
As part of its plan to improve capital, the Company may sell
securities or other assets and restrict
lending activities and invest the capital in Home Savings.
6
3. DISCONTINUED OPERATIONS
On August 12, 1999, United Community acquired Butler Wick Corp. (Butler Wick), the parent company
for two wholly owned subsidiaries: Butler Wick & Co., Inc. and Butler Wick Trust Company. On
December 31, 2008, the Company completed the sale of Butler Wick & Co., Inc., to Stifel Financial
Corp. for $12.0 million. On March 31, 2009, the Company completed the sale of Butler Wick Trust to
Farmers National Banc Corp. for $12.1 million. As a result, Butler Wick has been reported as a
discontinued operation and consolidated financial statement information for all periods presented
has been reclassified to reflect this presentation. Butler Wicks results of operations summarized
are as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Income |
|
|
|
|
|
|
|
|
Interest income |
|
$ |
32 |
|
|
$ |
229 |
|
Brokerage commissions |
|
|
|
|
|
|
6,101 |
|
Service fees and other charges |
|
|
1,287 |
|
|
|
1,690 |
|
Underwriting and investment banking |
|
|
|
|
|
|
29 |
|
Gain on the sale of Butler Wick Trust |
|
|
7,904 |
|
|
|
|
|
Other income |
|
|
|
|
|
|
27 |
|
|
|
|
|
|
|
|
Total income |
|
|
9,223 |
|
|
|
8,076 |
|
Expenses |
|
|
|
|
|
|
|
|
Interest expense on borrowings |
|
|
|
|
|
|
69 |
|
Salaries and employee benefits |
|
|
1,198 |
|
|
|
5,679 |
|
Occupancy expenses |
|
|
68 |
|
|
|
388 |
|
Equipment and data processing |
|
|
84 |
|
|
|
619 |
|
Other expenses |
|
|
258 |
|
|
|
865 |
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,608 |
|
|
|
7,620 |
|
|
|
|
|
|
|
|
Income before taxes |
|
|
7,615 |
|
|
|
456 |
|
Income tax |
|
|
2,666 |
|
|
|
177 |
|
|
|
|
|
|
|
|
Net income |
|
$ |
4,949 |
|
|
$ |
279 |
|
|
|
|
|
|
|
|
4. RECENT ACCOUNTING DEVELOPMENTS
In December 2007, the FASB issued SFAS No. 141(R) (revised version of SFAS No. 141), Business
Combinations. SFAS No. 141(R) requires an acquirer to recognize the assets acquired, the
liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, to
be measured at their fair values as of that date. SFAS No. 141(R) replaces SFAS No. 141s
cost-allocation process, which required the cost of an acquisition to be allocated to the
individual assets acquired and liabilities assumed based on their estimated fair values. SFAS
No. 141(R) applies to business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 31, 2008. The
adoption of this standard had no impact on United Communitys consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial
Statements an amendment of ARB No. 51. SFAS No. 160 amends ARB 51 to establish accounting and
reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of
a subsidiary. SFAS No. 160 clarifies that a non-controlling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity in the consolidated
financial statements. SFAS No. 160 requires consolidated net income to be reported at amounts that
include the amounts attributable to both the parent and the non-controlling interest. The adoption
of this standard had no impact on United Communitys consolidated financial statements.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures
about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133. SFAS
No. 161 requires enhanced disclosures about an entitys derivative and hedging activities and
thereby improves the transparency of financial reporting. SFAS No. 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November 15, 2008. The
adoption of this standard had no impact on United Communitys consolidated financial statements.
7
In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of
Generally Accepted Accounting Principles. This statement identifies the sources of accounting
principles and the framework for selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in conformity with generally
accepted accounting principles (GAAP) in the United States. This statement will be effective 60
days following the SECs approval of the Public Company Accounting Oversight Board amendments to AU
Section 411. The adoption of SFAS No. 162 is not expected to impact United Communitys
consolidated financial statements.
On February 20, 2008, the FASB issued Staff Position FAS 140-3, Accounting for Transfers of
Financial Assets and Repurchase Financing Transactions, to resolve questions about the accounting
for repurchase financings. This FSP is effective for repurchase financings in which the initial
transfer is entered into in fiscal years beginning after November 15, 2008. Management is
currently evaluating the impact, if any, of FSP 140-3 on United Communitys consolidated financial
statements.
On April 25, 2008, the FASB issued Staff Position FAS 142-3, Determination of the Useful Life of
Intangible Assets, which amends the list of factors an entity should consider in developing renewal
or extension assumptions used in determining the useful life of recognized intangible assets under
SFAS No. 142, Goodwill and Other Intangible Assets. FSP FAS 140-3 is effective for financial
statements issued for fiscal years and interim periods beginning after December 15, 2008. The
adoption of FSP FAS 140-3 did not have a material impact to United Communitys consolidated
financial statements.
On May 9, 2008, the FASB issued Staff Position APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). FSP
APB 14-1 is effective for financial statements issued for fiscal years and interim periods
beginning after December 15, 2008. The adoption of FSP APB 14-1 did not materially affect United
Communitys consolidated financial statements.
On June 16, 2008, the FASB issued Staff Position EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities. The FSP addresses
whether instruments granted in share-based payment transactions are participating securities prior
to vesting and, therefore, need to be included in the earnings allocation in computing earnings per
share under the two-class method described in paragraphs 60 and 61 of FASB Statement No. 128,
Earnings Per Share. FSP EITF 03-6-1 is effective for financial statements issued for fiscal years
and interim periods beginning after December 15, 2008. The adoption of FSP EITF 03-6-1 did not
materially affect United Communitys consolidated financial statements.
In October 2008, the FASB issued Staff Position 157-3, Determining the Fair Value of a Financial
Asset When the Market for That Asset is not Active. The provisions of FSP 157-3 are effective on
issuance, or October 10, 2008. FSP 157-3 clarifies the application of SFAS No. 157, in a market
that is not active and provides an example to illustrate key considerations in determining the fair
value of a financial asset when the market for that financial asset is not active. Application
issues addressed by the FSP include (a) how managements internal assumptions should be considered
when measuring fair value when relevant observable data do not exist, (b) how observable market
information in a market that is not active should be considered when measuring fair value and (c)
how the use of market quotes should be considered when assessing the relevance of observable and
unobservable data available to measure fair value. The adoption of FSP 157-3 did not materially
affect United Communitys consolidated financial statements.
Recently issued and not yet effective Accounting Standards:
In April 2009, the FASB issued Staff Position No. 115-2 and No. 124-2, Recognition and Presentation
of Other-Than-Temporary Impairments, which amends existing guidance for determining whether
impairment is other-than-temporary for debt securities. The FSP requires an entity to assess
whether it intends to sell, or it is more likely than not that it will be required to sell a
security in an unrealized loss position before recovery of its amortized cost basis. If either of
these criteria is met, the entire difference between amortized cost and fair value is recognized in
earnings. For securities that do not meet the aforementioned criteria, the amount of impairment
recognized in earnings is limited to the amount related to credit losses, while impairment related
to other factors is recognized in other comprehensive income. Additionally, the FSP expands and
increases the frequency of existing disclosures about other-than-temporary impairments for debt and
equity securities. This FSP is effective for interim periods ending after March 15, 2009. The
Company plans to adopt this FSP in the second quarter, however does not expect the adoption to have
a material effect on the results of operations or financial position.
In April 2009, the FASB issued Staff Position No. 157-4, Determining Fair Value When the Volume and
Level of Activity for the Asset and Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly. This FSP emphasizes that even if there has been a significant
decrease in the volume and level of activity, the objective of a fair value measurement remains the
same. Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between
market participants. The FSP provides a number of factors to consider when evaluating whether there
has been a significant decrease in the volume and level of activity for an asset or liability in
relation to normal market activity. In addition, when transactions or quoted prices are not
considered orderly, adjustments to those prices based on the weight of available information may be
needed to determine the appropriate fair value. The FSP also requires increased disclosures. This
FSP is effective for interim and annual reporting periods ending after June 15, 2009, and shall be
applied prospectively. Early adoption is
8
permitted for
periods ending after March 15, 2009. The Company plans to adopt this FSP in the second quarter,
however, does not expect the adoption to have a material effect on the results of operations or
financial position.
In April 2009, the FASB issued Staff Position No. 107-1 and APB 28-1, Interim Disclosures about
Fair Value of Financial Instruments. This FSP amends FASB Statement No. 107, Disclosures about Fair
Value of Financial Instruments, to require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies that were previously only required in
annual financial statements. This FSP is effective for interim reporting periods ending after June
15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company plans
to adopt this FSP in the second quarter.
5. STOCK COMPENSATION
On July 12, 1999, shareholders approved the United Community Financial Corp. 1999 Long-Term
Incentive Plan (1999 Plan). The purpose of the 1999 Plan is to promote and advance the interests
of United Community and its shareholders by enabling United Community to attract, retain and reward
directors, directors emeritus, managerial and other key employees of United Community, including
Home Savings, by facilitating their purchase of an ownership interest in United Community.
The 1999 Plan provides for the grant of options, which may qualify as either incentive or
nonqualified stock options. The incentive plan provides that option prices will not be less than
the fair market value of the share at the grant date. The maximum number of common shares that may
be issued under the plan is 3,569,766. There are currently 451,793 shares remaining in the plan
that could be granted. All of the options awarded became exercisable on the date of grant. The
option period expires 10 years from the date of grant.
On April 26, 2007, shareholders approved the United Community Financial Corp. 2007 Long-Term
Incentive Plan (2007 Plan). The purpose of the 2007 Plan is the same as that of the 1999 Plan.
The 2007 Plan provides for the issuance of up to 2,000,000 shares that are to be used for awards of
restricted stock shares, stock options, performance awards, stock appreciation rights (SARs), or
other forms of stock-based incentive awards. There were no stock-based incentive awards granted in
the first quarter of 2009 and there were 243,721 stock options granted in 2008 under the 2007 Plan.
All of the options awarded became exercisable on the date of grant. The option period expires 10
years from the date of grant.
A summary of activity in the plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
|
|
|
Weighted |
|
intrinsic |
|
|
|
|
|
|
average |
|
value (in |
|
|
Shares |
|
exercise price |
|
thousands) |
|
|
|
Outstanding at beginning of year |
|
|
2,092,128 |
|
|
$ |
9.08 |
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(178,113 |
) |
|
|
9.10 |
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
1,914,015 |
|
|
$ |
9.08 |
|
|
$ |
|
|
|
|
|
Options exercisable at end of period |
|
|
1,914,015 |
|
|
$ |
9.08 |
|
|
$ |
|
|
|
|
|
Information related to the stock option plan during the year follows (dollars in thousands, except
per share amount):
|
|
|
|
|
|
|
March 31, |
|
|
2009 |
|
Intrinsic value of options exercised |
|
$ |
|
|
Cash received from option exercises |
|
|
|
|
Tax benefit realized from option exercises |
|
|
|
|
Weighted average fair value of options granted, per share |
|
|
|
|
|
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes
valuation model that uses assumptions noted in the table below. Expected volatilities are based on
historical volatilities of United Communitys common shares. United Community uses historical data
to estimate option exercises and post-vesting termination behavior. The expected term
9
of options granted is based on historical data and represents the period of time that options granted
are expected to be outstanding, which takes into account that the options are not transferable.
The risk-free interest rate for the expected term of the option is based on the US Treasury yield
curve in effect at the time of the grant.
Outstanding stock options have a weighted average remaining life of 4.47 years and may be exercised
in the range of $5.89 to $12.38.
6. SECURITIES
United Community categorizes securities as available for sale and trading. Components of the
available for sale portfolio are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
December 31, 2008 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
Fair |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
Value |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
Gains |
|
|
Losses |
|
U.S. Treasury and
government
sponsored entities
securities |
|
$ |
37,295 |
|
|
$ |
897 |
|
|
$ |
(15 |
) |
|
$ |
27,170 |
|
|
$ |
865 |
|
|
$ |
|
|
Equity securities |
|
|
719 |
|
|
|
73 |
|
|
|
(455 |
) |
|
|
910 |
|
|
|
70 |
|
|
|
(411 |
) |
Mortgage-related securities |
|
|
210,967 |
|
|
|
6,091 |
|
|
|
(119 |
) |
|
|
187,651 |
|
|
|
4,527 |
|
|
|
(107 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
248,981 |
|
|
$ |
7,061 |
|
|
$ |
(589 |
) |
|
$ |
215,731 |
|
|
$ |
5,462 |
|
|
$ |
(518 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Savings holds in its available-for-sale securities portfolio a Fannie Mae auction rate pass
through trust security with an original cost basis of $5.0 million. This security represents an
interest in a trust that is collateralized with Fannie Mae non-cumulative preferred stock. The
market value of the security held by the Company declined following the September 7, 2008
announcement of the appointment of a conservator for Fannie Mae. Because the effects of the
conservatorship may trigger the redemption provisions of the trust, UCFC management determined it
was necessary for the Company to recognize a write-down of $4.9 million in 2008 and an additional
write-down of $26,000 in the first quarter of 2009. Also, a write-down of the Companys equity
investment in the common shares of three financial institutions of $1.2 million was recognized in
2008. The Company determined that in the first quarter of 2009, further deterioration of the
investment in one of those financial institutions caused the need to recognize an additional loss
of $124,000. The cause of the deterioration was a result of recent regulatory enforcement actions
imposed on that institution by its regulatory authorities.
Securities pledged for public funds deposits were approximately $2.1 million at March 31, 2009, and
$2.1 million at December 31, 2008. Securities sold under an agreement to repurchase are secured
primarily by mortgage-backed securities with a fair value of approximately $136.3 million at March
31, 2009, and $131.5 million at December 31, 2008.
United Community had no securities classified as trading as of March 31, 2009 and December 31,
2008.
10
7. LOANS
Portfolio loans consist of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Real Estate: |
|
|
|
|
|
|
|
|
One- to four-family residential |
|
$ |
888,948 |
|
|
$ |
909,567 |
|
Multifamily residential |
|
|
168,432 |
|
|
|
187,711 |
|
Nonresidential |
|
|
381,263 |
|
|
|
375,463 |
|
Land |
|
|
22,968 |
|
|
|
23,517 |
|
Construction: |
|
|
|
|
|
|
|
|
One- to four-family residential |
|
|
233,708 |
|
|
|
255,355 |
|
Multifamily and non-residential |
|
|
33,992 |
|
|
|
35,797 |
|
|
|
|
|
|
|
|
Total real estate |
|
|
1,729,311 |
|
|
|
1,787,410 |
|
Consumer |
|
|
331,853 |
|
|
|
348,834 |
|
Commercial |
|
|
90,089 |
|
|
|
101,489 |
|
|
|
|
|
|
|
|
Total loans |
|
|
2,151,253 |
|
|
|
2,237,733 |
|
Less: |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
37,856 |
|
|
|
35,962 |
|
Deferred loan fees, net |
|
|
(1,458 |
) |
|
|
(1,682 |
) |
|
|
|
|
|
|
|
Total |
|
|
36,398 |
|
|
|
34,280 |
|
|
|
|
|
|
|
|
Loans, net |
|
$ |
2,114,855 |
|
|
$ |
2,203,453 |
|
|
|
|
|
|
|
|
Changes in the allowance for loan loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of or for the |
|
|
|
|
|
|
Three Months |
|
|
As of or for the |
|
|
|
Ended |
|
|
Year Ended |
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Balance, beginning of year |
|
$ |
35,962 |
|
|
$ |
32,006 |
|
Provision for loan losses |
|
|
8,444 |
|
|
|
25,329 |
|
Amounts charged off |
|
|
(6,691 |
) |
|
|
(22,088 |
) |
Recoveries |
|
|
141 |
|
|
|
715 |
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
37,856 |
|
|
$ |
35,962 |
|
|
|
|
|
|
|
|
Non-accrual loans were $101.6 million and $98.3 million at March 31, 2009, and December 31, 2008,
respectively. Restructured loans were $2.7 million at March 31, 2009 and $1.8 million at December
31, 2008. Loans greater than 90 days past due and still accruing interest were $607,000 and $6.6
million at March 31, 2009 and December 31, 2008, respectively.
11
Impaired loans consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of or for the |
|
|
As of or for |
|
|
|
Three |
|
|
the Year |
|
|
|
Months Ended |
|
|
Ended |
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Impaired loans on which no specific valuation allowance was provided |
|
$ |
48,407 |
|
|
$ |
43,256 |
|
Impaired loans on which a specific valuation allowance was provided |
|
|
46,433 |
|
|
|
43,992 |
|
|
|
|
|
|
|
|
Total impaired loans at period-end |
|
$ |
94,840 |
|
|
$ |
87,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific valuation allowances on impaired loans at period-end |
|
$ |
10,999 |
|
|
$ |
10,968 |
|
Average impaired loans during the period |
|
|
90,326 |
|
|
|
85,812 |
|
Interest income recognized on impaired loans during the period |
|
|
135 |
|
|
|
513 |
|
Interest income received on impaired loans during the period |
|
|
135 |
|
|
|
513 |
|
8. MORTGAGE BANKING ACTIVITIES
Mortgage loans serviced for others, which are not reported in United Communitys assets, totaled
$942.4 million at March 31, 2009, and $921.0 million at December 31, 2008.
Activity for capitalized mortgage servicing rights, included in other assets, was as follows:
|
|
|
|
|
|
|
|
|
|
|
As of or for the |
|
|
|
|
|
|
Three Months |
|
|
As of or for the |
|
|
|
Ended |
|
|
Year Ended |
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Balance, beginning of year |
|
$ |
5,562 |
|
|
$ |
6,184 |
|
Originations |
|
|
831 |
|
|
|
1,337 |
|
Amortized to expense |
|
|
(710 |
) |
|
|
(1,959 |
) |
|
|
|
|
|
|
|
Balance, end of period |
|
|
5,683 |
|
|
|
5,562 |
|
Less valuation allowance |
|
|
(2,165 |
) |
|
|
(2,233 |
) |
|
|
|
|
|
|
|
Net balance |
|
$ |
3,518 |
|
|
$ |
3,329 |
|
|
|
|
|
|
|
|
Activity in the valuation allowance for mortgage servicing rights was as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Balance, beginning of year |
|
$ |
(2,233 |
) |
|
$ |
(562 |
) |
Impairment charges |
|
|
|
|
|
|
(2,233 |
) |
Recoveries |
|
|
68 |
|
|
|
562 |
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
(2,165 |
) |
|
$ |
(2,233 |
) |
|
|
|
|
|
|
|
Fair value of mortgage servicing rights as of March 31, 2009 was approximately $4.4 million and at
December 31, 2008 was $3.9 million.
12
Key economic assumptions in measuring the value of mortgage servicing rights at March 31, 2009 and
December 31, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2009 |
|
2008 |
Weighted average prepayment rate |
|
621 |
PSA |
|
644 |
PSA |
Weighted average life (in years) |
|
|
3.40 |
|
|
|
3.34 |
|
Weighted average discount rate |
|
|
8 |
% |
|
|
8 |
% |
9. OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS
Real estate owned and other repossessed assets at March 31, 2009 and December 31, 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Real estate owned and other repossessed assets |
|
$ |
33,319 |
|
|
$ |
32,012 |
|
Valuation allowance |
|
|
(2,889 |
) |
|
|
(2,754 |
) |
|
|
|
|
|
|
|
End of year |
|
$ |
30,430 |
|
|
$ |
29,258 |
|
|
|
|
|
|
|
|
Activity in the valuation allowance was as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Beginning of year |
|
$ |
2,754 |
|
|
$ |
|
|
Additions charged to expense |
|
|
713 |
|
|
|
3,753 |
|
Direct write-downs |
|
|
(578 |
) |
|
|
(999 |
) |
|
|
|
|
|
|
|
End of year |
|
$ |
2,889 |
|
|
$ |
2,754 |
|
|
|
|
|
|
|
|
Expenses related to foreclosed and repossessed assets include:
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Net loss on sales |
|
$ |
425 |
|
|
$ |
95 |
|
Provision for unrealized losses |
|
|
713 |
|
|
|
45 |
|
Operating expenses, net of rental income |
|
|
951 |
|
|
|
388 |
|
|
|
|
|
|
|
|
Total expenses |
|
$ |
2,089 |
|
|
$ |
528 |
|
|
|
|
|
|
|
|
13
10. OTHER POSTRETIREMENT BENEFIT PLANS
Home Savings sponsors a defined benefit health care plan. The plan was curtailed in 2000, but
continues to provide postretirement medical benefits for employees who had worked 20 years and
attained a minimum age of 60 by September 1, 2000, while in service with Home Savings. The plan is
contributory and contains minor cost-sharing features such as deductibles and coinsurance. In
addition, postretirement life insurance coverage is provided for employees who were participants
prior to December 10, 1976. The life insurance plan is non-contributory. Home Savings policy is
to pay premiums monthly, with no pre-funding.
Components of net periodic benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Service cost |
|
$ |
|
|
|
$ |
|
|
Interest cost |
|
|
47 |
|
|
|
48 |
|
Expected return on plan assets |
|
|
|
|
|
|
|
|
Net amortization of prior service cost |
|
|
|
|
|
|
|
|
Net amortization of actuarial gain |
|
|
(4 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
43 |
|
|
$ |
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used in the valuations
were as follows: |
|
|
|
|
|
|
|
|
Weighted average discount rate |
|
|
6.00 |
% |
|
|
6.00 |
% |
11. FAIR VALUE MEASUREMENT
Statement 157 establishes a fair value hierarchy that requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. The
standard describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) or identical assets or liabilities in active markets that
the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices
for similar assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entitys own assumptions
about the assumptions that market participants would use in pricing an asset or liability.
The fair values of securities available for sale are determined by obtaining quoted prices on
nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a
mathematical technique widely used in the industry to value debt securities without relying
exclusively on quoted prices for the specific securities but rather by relying on the securities
relationship to other benchmark quoted securities (Level 2 inputs).
The fair value of impaired loans with specific allocations of the allowance for loan losses is
generally based on recent real estate appraisals. These appraisals may utilize a single valuation
approach or a combination of approaches including comparable sales and the income approach.
Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences
between the comparable sales and income data available. Such adjustments are typically significant
and result in a Level 3 classification of the inputs for determining fair value.
14
Assets and liabilities measured at fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2009 Using: |
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
|
|
|
Significant |
|
|
|
|
|
|
for Identical |
|
Significant Other |
|
Unobservable |
|
|
March 31, |
|
Assets |
|
Observable |
|
Inputs |
|
|
2009 |
|
(Level 1) |
|
Inputs (Level 2) |
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities |
|
$ |
248,981 |
|
|
$ |
644 |
|
|
$ |
248,337 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2008 Using: |
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
|
|
|
Significant |
|
|
|
|
|
|
for Identical |
|
Significant Other |
|
Unobservable |
|
|
December 31, |
|
Assets |
|
Observable |
|
Inputs |
|
|
2008 |
|
(Level 1) |
|
Inputs (Level 2) |
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities |
|
$ |
215,731 |
|
|
$ |
809 |
|
|
$ |
214,922 |
|
|
$ |
|
|
Assets and liabilities measured at fair value on a nonrecurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2009 Using: |
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
|
|
|
Significant |
|
|
|
|
|
|
for Identical |
|
Significant Other |
|
Unobservable |
|
|
March 31, |
|
Assets |
|
Observable |
|
Inputs |
|
|
2009 |
|
(Level 1) |
|
Inputs (Level 2) |
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
35,434 |
|
|
|
|
|
|
|
|
|
|
$ |
35,434 |
|
Mortgage servicing assets |
|
|
3,518 |
|
|
|
|
|
|
|
3,518 |
|
|
|
|
|
Foreclosed assets |
|
|
11,353 |
|
|
|
|
|
|
|
|
|
|
|
11,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2008 Using: |
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
|
|
|
Significant |
|
|
|
|
|
|
for Identical |
|
Significant Other |
|
Unobservable |
|
|
December 31, |
|
Assets |
|
Observable |
|
Inputs |
|
|
2008 |
|
(Level 1) |
|
Inputs (Level 2) |
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
33,024 |
|
|
|
|
|
|
|
|
|
|
$ |
33,024 |
|
Mortgage servicing rights |
|
|
2,421 |
|
|
|
|
|
|
|
2,421 |
|
|
|
|
|
Impaired loans, carried at fair value, which are measured for impairment using the fair value of
the collateral for collateral dependent loans, had a carrying amount of $46.4 million at March 31,
2009, with a valuation allowance of $11.0 million, resulting in additional provision for loan
losses of $31,000 during the period.
Mortgage servicing rights had a carrying amount of $4.6 million with a valuation allowance of $2.2
million, and are valued by an independent third party that is active in purchasing and selling these
instruments. The value reflects the characteristics of the underlying loans discounted at a market
multiple.
Foreclosed assets, carried at fair value, which is measured for impairment using the fair value of
the property less estimated selling costs, had a carrying amount of $14.8 million, with a valuation
allowance of $2.9 million.
15
12. STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURE
Supplemental disclosures of cash flow information are summarized below.
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
March 31, 2008 |
|
|
(Dollars in thousands) |
Supplemental disclosures of cash flow information |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest on deposits and borrowings |
|
$ |
15,738 |
|
|
$ |
22,589 |
|
Interest capitalized on borrowings |
|
|
|
|
|
|
|
|
Income taxes |
|
|
|
|
|
|
|
|
Supplemental schedule of noncash activities: |
|
|
|
|
|
|
|
|
Transfers from loans to real estate owned and other repossessed assets |
|
|
5,395 |
|
|
|
3,274 |
|
13. SEGMENT INFORMATION
United Communitys chief decision-makers monitor the revenue streams of the various Company
products and services. The identifiable segments are not material, operations are managed, and
financial performance is evaluated on a Company-wide basis. Accordingly, all of the Companys
financial service operations are considered by management to be aggregated in one reportable
operating segment, which is banking services.
Discontinued operations are essentially the results of operations from Butler Wick Corp which were
previously reported as a separate segment, investment services. Refer to Note 3 for a discussion
on discontinued operations and its impact on segment reporting.
14. EARNINGS PER SHARE
Earnings per share are computed by dividing net income by the weighted average number of shares
outstanding during the period. Diluted earnings per share is computed using the weighted average
number of common shares determined for the basic computation plus the dilutive effect of potential
common shares that could be issued under outstanding stock options. Stock options for 1,687,388
shares were anti-dilutive for the three months ended March 31,
2009. Stock options for 2,344,914
shares were anti-dilutive for the three months ended March 31, 2008. Earnings per share for 2008 have
been adjusted to reflect a stock dividend declared in November 2008.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Numerator: |
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(1,679 |
) |
|
$ |
3,764 |
|
Income from discontinued operations |
|
|
4,949 |
|
|
|
279 |
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,270 |
|
|
$ |
4,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average common shares outstandingbasic |
|
|
29,632 |
|
|
|
29,349 |
|
Dilutive effect of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstandingdilutive |
|
|
29,632 |
|
|
|
29,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
Basic earnings (loss) per common sharecontinuing operations |
|
$ |
(0.06 |
) |
|
$ |
0.13 |
|
Basic earnings per common sharediscontinued operations |
|
|
0.17 |
|
|
|
0.01 |
|
Basic earnings (loss) per common share |
|
|
0.11 |
|
|
|
0.14 |
|
|
|
|
|
|
|
|
|
|
Dilutive earnings (loss) per share: |
|
|
|
|
|
|
|
|
Dilutive earnings (loss) per common sharecontinuing operations |
|
|
(0.06 |
) |
|
|
0.13 |
|
Dilutive earnings per common sharediscontinued operations |
|
|
0.17 |
|
|
|
0.01 |
|
Dilutive earnings (loss) per common share |
|
|
0.11 |
|
|
|
0.14 |
|
16
15. BROKERED CERTIFICATES OF DEPOSIT
Brokered deposits represent funds which Home Savings obtained, directly or indirectly, through a
deposit broker. A deposit broker places deposits from third parties with insured depository
institutions or places deposits with an institution for the purpose of selling interest in those
deposits to third parties. Under the terms of the Bank Order, Home Savings cannot obtain
additional brokered certificates of deposit without prior consent of the FDIC and Ohio Division.
Home Savings had brokered deposits of $92.1 million with a weighted average rate of 4.07% at March
31, 2009. Home Savings had brokered deposits of $145.2 million with a weighted average rate of
3.77% at December 31, 2008.
16. OTHER COMPREHENSIVE INCOME
Other comprehensive income (loss) included in the Consolidated Statements of Shareholders Equity
consists of unrealized gains and losses on available for sale securities and changes in unrealized
gains and losses on postretirement liability. The change includes reclassification of losses on
sales of securities and impairment charges $150,000 at March 31, 2009, and $4.2 million at December
31, 2008.
Other comprehensive income (loss) components and related tax effects are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Unrealized holding gain on securities available for sale |
|
$ |
1,250 |
|
|
$ |
4,216 |
|
Changes in net gains on postretirement benefit plan |
|
|
|
|
|
|
|
|
Reclassification adjustment for losses (gains) realized in income |
|
|
150 |
|
|
|
(931 |
) |
|
|
|
|
|
|
|
Net unrealized gains |
|
|
1,400 |
|
|
|
3,285 |
|
Tax effect (35%) |
|
|
490 |
|
|
|
1,150 |
|
|
|
|
|
|
|
|
Net of tax amount |
|
$ |
910 |
|
|
$ |
2,135 |
|
|
|
|
|
|
|
|
The following is a summary of accumulated other comprehensive income (loss) balances, net of
tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
Current |
|
Balance at |
|
|
December 31, |
|
Period |
|
March 31, |
|
|
2008 |
|
Change |
|
2009 |
|
|
|
Unrealized gains on securities available for sale |
|
$ |
3,297 |
|
|
$ |
910 |
|
|
$ |
4,207 |
|
Unrealized gains on post-retirement benefits |
|
|
338 |
|
|
|
|
|
|
|
338 |
|
|
|
|
Total |
|
$ |
3,635 |
|
|
$ |
910 |
|
|
$ |
4,545 |
|
|
|
|
17. REGULATORY CAPITAL REQUIREMENTS
Home Savings is subject to various regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary actions by regulators that, if undertaken, could have a direct
material effect on Home Savings and United Community. The regulations require Home Savings to meet
specific capital adequacy guidelines and the regulatory framework for prompt corrective action that
involve quantitative measures of Home Savings assets, liabilities, and certain off balance sheet
items as calculated under regulatory accounting practices. Home Savings capital classification is
also subject to qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation for capital adequacy require Home Savings to
maintain minimum amounts and ratios of Tier 1 (or Core) and Tangible capital (as defined in the
regulations) to average total assets (as defined) and of total risk-based capital (as defined) to
risk-weighted assets (as defined). Actual and statutory required capital amounts and ratios for
Home Savings are presented below.
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Minimum |
|
To Be Well Capitalized |
|
|
|
|
|
|
|
|
|
|
Capital |
|
Under Prompt Corrective |
|
|
Actual |
|
Requirements |
|
Action Provisions |
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
|
(Dollars in thousands) |
Total risk-based capital to
risk-weighted assets |
|
$ |
240,930 |
|
|
|
12.48 |
% |
|
$ |
154,498 |
|
|
|
8.00 |
% |
|
$ |
193,122 |
|
|
|
10.00 |
% |
Tier 1 capital to risk-weighted assets |
|
|
216,620 |
|
|
|
11.22 |
|
|
|
* |
|
|
|
* |
|
|
|
115,873 |
|
|
|
6.00 |
|
Tier 1 capital to average total assets |
|
|
216,620 |
|
|
|
8.33 |
|
|
|
104,030 |
|
|
|
4.00 |
|
|
|
130,038 |
|
|
|
5.00 |
|
Tangible capital to adjusted total assets |
|
|
216,620 |
|
|
|
8.33 |
|
|
|
39,011 |
|
|
|
1.50 |
|
|
|
* |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
Minimum |
|
To Be Well Capitalized |
|
|
|
|
|
|
|
|
|
|
Capital |
|
Under Prompt Corrective |
|
|
Actual |
|
Requirements |
|
Action Provisions |
|
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
Amount |
|
Ratio |
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
Total risk-based capital to
risk-weighted assets |
|
$ |
242,944 |
|
|
|
12.06 |
% |
|
$ |
161,163 |
|
|
|
8.00 |
% |
|
$ |
201,454 |
|
|
|
10.00 |
% |
Tier 1 capital to risk-weighted assets |
|
|
217,630 |
|
|
|
10.80 |
|
|
|
* |
|
|
|
* |
|
|
|
120,872 |
|
|
|
6.00 |
|
Tier 1 capital to average total assets |
|
|
217,630 |
|
|
|
8.20 |
|
|
|
106,180 |
|
|
|
4.00 |
|
|
|
132,724 |
|
|
|
5.00 |
|
Tangible capital to adjusted total assets |
|
|
217,630 |
|
|
|
8.20 |
|
|
|
39,817 |
|
|
|
1.50 |
|
|
|
* |
|
|
|
* |
|
|
|
|
*Ratio is not required under regulations. |
As of March 31, 2009 and December 31, 2008, the FDIC and OTS, respectively, categorized Home
Savings as adequately capitalized pursuant to the Bank Order and OTS Order discussed in Note 2.
The Bank Order provided for Home Savings to increase its Tier 1 leverage ratio to 8.0% and total
risk-based capital ratio to 12.0% by December 31, 2008 and to maintain those minimums going
forward. As depicted in the table above, Home Savings continues to exceed this requirement.
Management believes, as of March 31, 2009, that Home Savings meets all capital requirements to
which it is subject, inclusive of the Bank Order. Events beyond managements control, such as
fluctuations in interest rates or a downturn in the economy in areas in which Home Savings loans
and securities are concentrated, could adversely affect future earnings, and consequently Home
Savings ability to meet its future capital requirements. Refer to Note 2 of the Consolidated
Financial Statements for a complete discussion of the limitations of the regulatory enforcement
actions.
18
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNITED COMMUNITY FINANCIAL CORP.
|
|
|
|
|
|
|
|
|
|
|
At or For the Three |
|
|
Months Ended |
|
|
March 31, |
|
|
2009 |
|
2008 |
Selected financial ratios and other data: (1) |
|
|
|
|
|
|
|
|
Performance ratios: |
|
|
|
|
|
|
|
|
Return on average assets (2) |
|
|
0.50 |
% |
|
|
0.59 |
% |
Return on average equity (3) |
|
|
5.30 |
% |
|
|
5.72 |
% |
Interest rate spread (4) |
|
|
2.74 |
% |
|
|
2.21 |
% |
Net interest margin (5) |
|
|
3.04 |
% |
|
|
2.61 |
% |
Non-interest expense to average assets |
|
|
2.51 |
% |
|
|
2.17 |
% |
Efficiency ratio (6) |
|
|
71.85 |
% |
|
|
66.39 |
% |
Average interest-earning assets to average interest-bearing liabilities |
|
|
111.51 |
% |
|
|
111.59 |
% |
Capital ratios: |
|
|
|
|
|
|
|
|
Average equity to average assets |
|
|
9.45 |
% |
|
|
10.25 |
% |
Equity to assets, end of period |
|
|
9.34 |
% |
|
|
10.01 |
% |
Tier 1 leverage ratio |
|
|
8.33 |
% |
|
|
7.67 |
% |
Tier 1 risk-based capital ratio |
|
|
11.22 |
% |
|
|
9.83 |
% |
Total risk-based capital ratio |
|
|
12.48 |
% |
|
|
12.51 |
% |
Asset quality ratios: |
|
|
|
|
|
|
|
|
Non-performing loans to total loans at end of period (7) |
|
|
4.96 |
% |
|
|
4.71 |
% |
Non-performing assets to average assets (8) |
|
|
5.19 |
% |
|
|
4.15 |
% |
Allowance for loan losses as a percent of loans |
|
|
1.76 |
% |
|
|
1.48 |
% |
Allowance for loan losses as a percent of nonperforming loans (7) |
|
|
36.09 |
% |
|
|
31.79 |
% |
Office data: |
|
|
|
|
|
|
|
|
Number of full service banking offices |
|
|
39 |
|
|
|
39 |
|
Number of loan production offices |
|
|
6 |
|
|
|
6 |
|
Per share data: |
|
|
|
|
|
|
|
|
Basic earnings (loss) from continuing operations (9) |
|
$ |
(0.06 |
) |
|
$ |
0.13 |
|
Basic earnings from discontinued operations (9) |
|
|
0.17 |
|
|
|
0.01 |
|
Basic earnings (loss) (9) |
|
|
0.11 |
|
|
|
0.14 |
|
Diluted earnings (loss) from continuing operations (9) |
|
|
(0.06 |
) |
|
|
0.13 |
|
Diluted earnings from discontinued operations (9) |
|
|
0.17 |
|
|
|
0.01 |
|
Diluted earnings (loss) (9) |
|
|
0.11 |
|
|
|
0.14 |
|
Book value (10) |
|
|
7.74 |
|
|
|
7.96 |
|
Tangible book value (11) |
|
|
7.72 |
|
|
|
9.12 |
|
|
|
|
(1) |
|
Ratios for the three month periods are annualized where appropriate. Ratios for the period ending March 31, 2008 have been revised
to reflect the impact of discontinued operations. |
|
(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, excluding the amortization of core deposit intangible, divided by the sum of net interest income and noninterest
income, excluding gains and losses on securities, other than temporary impairment charges and other. |
|
(7) |
|
Nonperforming loans consist of nonaccrual loans, loans past due ninety days and still accruing, and restructured loans. |
|
(8) |
|
Nonperforming assets consist of nonperforming loans, real estate acquired in the settlement of loans and other repossessed assets. |
|
(9) |
|
Net income divided by average number of basic or diluted shares outstanding. |
|
(10) |
|
Shareholders equity divided by number of shares outstanding. |
|
(11) |
|
Historical per share dividends declared and paid for the period divided by the diluted earnings per share for the period |
|
(12) |
|
Market value divided by book value. |
19
Forward Looking Statements
When used in this Form 10-Q the words or phrases will likely result, are expected to, will
continue, is anticipated, estimate, project or similar expressions are intended to identify
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are subject to certain risks and uncertainties including changes in economic
conditions in United Communitys market area, changes in policies by regulatory agencies,
fluctuations in interest rates, demand for loans in Home Savings market area, and competition,
that could cause actual results to differ materially from results presently anticipated or
projected. United Community cautions readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. United Community advises readers
that the factors listed above could affect United Communitys financial performance and could cause
United Communitys actual results for future periods to differ materially from any opinions or
statements expressed with respect to future periods in any current statements.
Comparison of Financial Condition at March 31, 2009 and December 31, 2008
Total assets decreased $55.5 million to $2.6 billion at March 31, 2009, compared to December 31,
2008. Contributing to the change were decreases in net loans of $88.6 million, loans held for sale
of $1.9 million, and assets of discontinued operations of $5.1 million. These decreases were
offset partially by increases in cash and cash equivalents of $3.4 million, securities available
for sale of $33.3 million, real estate owned and other repossessed assets of $1.2 million and other
assets of $3.3 million.
Cash and cash equivalents increased $3.4 million to $46.8 million at March 31, 2009, compared to
$43.4 million at December 31, 2008. This change is primarily the result of an increase in checks
awaiting deposit at the Federal Reserve and cash maintained in Home Savings account at the Federal
Reserve due to the sale of Butler Wick Trust. These increases were partially offset by a decrease
in cash maintained by Home Savings branch locations.
Available for sale securities increased $33.3 million, or 15.4%, from December 31, 2008, to March
31, 2009. Home Savings purchased $42.0 million in securities during the first three months of
2009. These purchases were made primarily to replace the paydowns and maturities that occurred
within the portfolio. These purchases were partially offset by paydowns and maturities of $10.0
million at Home Savings and other than temporary impairment charges of $150,000 at United
Community. The remaining difference is a result of changes in the market valuation of the
portfolio, net of any amortization or accretion.
Net loans decreased $88.6 million from December 31, 2008, to March 31, 2009. Real estate loans
decreased $58.1 million, consumer loans decreased $17.0 million, and commercial loans decreased
$11.4 million. The overall decrease in loans is attributable primarily to the strategic objective
of reducing exposure to commercial real estate and construction lending. Furthermore, due to a
much lower interest rate environment, refinance activity has accelerated. The result of this
acceleration was a decline in the portfolio of one-to four-family loans as existing loans in the
portfolio are refinanced and a majority of the newly originated loans are sold into the secondary
market.
The allowance for loan losses increased to $37.9 million, or 1.76% of the net loan portfolio and
36.1% of nonperforming loans as of March 31, 2009, from $36.0 million or 1.61% of the net loan
portfolio and 33.71% of nonperforming loans as of December 31, 2008. Provision totaling $8.4
million during the three months ended March 31, 2009 were partially offset by charge-offs totaling
$6.7 million. The allowance for loan losses is a valuation allowance for probable credit losses.
Loan losses are charged against the allowance when management believes the uncollectability of a
loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
Management estimates the allowance balance required based on an analysis using past loan loss
experience, the nature and volume of the portfolio, information about specific borrower situations,
estimated collateral values, general economic conditions in the market area and other factors. The
allowance consists of specific and general components. The specific component relates to loans
that are individually classified as impaired. The general component covers pools of loans and is
based on historical loss experience adjusted for current factors, but the entire allowance is
available for any loan that, in managements judgment, should be charged-off.
The general component of the allowance covers pools of loans not reviewed specifically by
management that are evaluated as a homogeneous group of loans (e.g., performing single-family
residential mortgage loans and all consumer credit except marine loans) using a historical
charge-off experience ratio applied to each pool of loans. The historical charge-off experience
ratio considers historical loss rates adjusted for certain environmental factors.
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance For Loan Losses |
|
|
|
(Dollars in thousands) |
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2008 |
|
|
Provision |
|
|
Recovery |
|
|
Chargeoff |
|
|
2009 |
|
Real Estate Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
$ |
4,986 |
|
|
$ |
957 |
|
|
$ |
2 |
|
|
$ |
(1,098 |
) |
|
$ |
4,847 |
|
Multifamily residential |
|
|
2,344 |
|
|
|
578 |
|
|
|
3 |
|
|
|
(1,384 |
) |
|
|
1,541 |
|
Nonresidential |
|
|
4,870 |
|
|
|
1,333 |
|
|
|
1 |
|
|
|
(653 |
) |
|
|
5,551 |
|
Land |
|
|
585 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
12,785 |
|
|
|
2,918 |
|
|
|
6 |
|
|
|
(3,135 |
) |
|
|
12,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
|
10,620 |
|
|
|
3,814 |
|
|
|
4 |
|
|
|
(1,554 |
) |
|
|
12,884 |
|
Multifamily and nonresidential |
|
|
722 |
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
11,342 |
|
|
|
3,799 |
|
|
|
4 |
|
|
|
(1,554 |
) |
|
|
13,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity |
|
|
1,386 |
|
|
|
503 |
|
|
|
|
|
|
|
(362 |
) |
|
|
1,527 |
|
Auto |
|
|
242 |
|
|
|
30 |
|
|
|
5 |
|
|
|
(64 |
) |
|
|
213 |
|
Marine |
|
|
1,504 |
|
|
|
125 |
|
|
|
4 |
|
|
|
(6 |
) |
|
|
1,627 |
|
Recreational vehicle |
|
|
1,425 |
|
|
|
548 |
|
|
|
22 |
|
|
|
(559 |
) |
|
|
1,436 |
|
Other |
|
|
313 |
|
|
|
88 |
|
|
|
100 |
|
|
|
(218 |
) |
|
|
283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,870 |
|
|
|
1,294 |
|
|
|
131 |
|
|
|
(1,209 |
) |
|
|
5,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
|
3,355 |
|
|
|
(340 |
) |
|
|
|
|
|
|
(212 |
) |
|
|
2,803 |
|
Unsecured |
|
|
3,610 |
|
|
|
773 |
|
|
|
|
|
|
|
(581 |
) |
|
|
3,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,965 |
|
|
|
433 |
|
|
|
|
|
|
|
(793 |
) |
|
|
6,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
35,962 |
|
|
$ |
8,444 |
|
|
$ |
141 |
|
|
$ |
(6,691 |
) |
|
$ |
37,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Nonperforming loans consist of loans past due 90 days or more, loans past due less than 90 days
that are on nonaccrual status, and restructured loans. Nonperforming loans were $104.9 million, or
4.96% of net loans, at March 31, 2009, compared to $106.7 million, or 4.84% of net loans, at
December 31, 2008. The schedule below summarizes the change in nonperforming loans for the first
three months of 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming Loans |
(Dollars in thousands) |
|
|
March 31, |
|
|
December 31, |
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
Real Estate Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Permanent |
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
$ |
24,409 |
|
|
$ |
21,669 |
|
|
$ |
2,740 |
|
Multifamily residential |
|
|
5,747 |
|
|
|
8,724 |
|
|
|
(2,977 |
) |
Nonresidential |
|
|
13,191 |
|
|
|
15,246 |
|
|
|
(2,055 |
) |
Land |
|
|
5,179 |
|
|
|
4,840 |
|
|
|
339 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
48,526 |
|
|
|
50,479 |
|
|
|
(1,953 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans |
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
|
42,232 |
|
|
|
43,167 |
|
|
|
(935 |
) |
Multifamily and nonresidential |
|
|
789 |
|
|
|
816 |
|
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
43,021 |
|
|
|
43,983 |
|
|
|
(962 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity |
|
|
2,654 |
|
|
|
2,312 |
|
|
|
342 |
|
Auto |
|
|
138 |
|
|
|
154 |
|
|
|
(16 |
) |
Marine |
|
|
2,612 |
|
|
|
2,614 |
|
|
|
(2 |
) |
Recreational vehicle |
|
|
939 |
|
|
|
756 |
|
|
|
183 |
|
Other |
|
|
32 |
|
|
|
33 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,375 |
|
|
|
5,869 |
|
|
|
506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
|
3,331 |
|
|
|
3,496 |
|
|
|
(165 |
) |
Unsecured |
|
|
924 |
|
|
|
1,057 |
|
|
|
(133 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,255 |
|
|
|
4,553 |
|
|
|
(298 |
) |
|
|
|
|
|
|
|
|
|
|
|
Restructured Loans |
|
|
2,726 |
|
|
|
1,797 |
|
|
|
929 |
|
|
|
|
|
|
|
|
|
|
|
Total Nonperforming Loans |
|
$ |
104,903 |
|
|
$ |
106,681 |
|
|
$ |
(1,778 |
) |
|
|
|
|
|
|
|
|
|
|
The $2.7 million increase in nonperforming loans secured by one-to four-family properties was
primarily a result of the overall increase in the number of loans becoming 90 or more days past
due. The decrease in nonperforming multifamily residential, nonresidential real estate and
construction loans was primarily the result of Home Savings taking into possession property in
Michigan and Northeast Ohio in the first quarter of 2009.
A loan is considered impaired when, based on current information and events, it is probable that
Home Savings will be unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement and the loan is non-homogeneous in nature.
Factors considered by management in determining impairment include payment status, collateral
value, and the probability of collecting scheduled principal and interest payments when due. Loans
that experience insignificant payment delays and payment shortfalls generally are not classified as
impaired. Management determines the significance of payment delays and payment shortfalls on a
case-by-case basis, taking into consideration all of the facts and circumstances surrounding the
loans and the borrower, including the length of the delay, the reasons for the delay, the
borrowers prior payment record, and the amount of shortfall in relation to the principal and
interest owed. Impairment is measured on a loan-by-loan basis by either the present value of
expected future cash flows discounted at the loans effective interest rate or the fair value of
the collateral if the loan
22
is collateral dependent. As
shown in the following table, the largest component of $7.6 million increase in impaired loans is a
result of one-to four-family loans increasing $6.1 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans |
(Dollars in thousands |
|
|
March 31, |
|
|
December 31, |
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
Real Estate Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Permanent |
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
$ |
18,784 |
|
|
$ |
12,675 |
|
|
$ |
6,109 |
|
Multifamily residential |
|
|
5,747 |
|
|
|
8,724 |
|
|
|
(2,977 |
) |
Nonresidential |
|
|
13,047 |
|
|
|
14,855 |
|
|
|
(1,808 |
) |
Land |
|
|
5,180 |
|
|
|
4,757 |
|
|
|
423 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
42,758 |
|
|
|
41,011 |
|
|
|
1,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans |
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
|
42,232 |
|
|
|
36,903 |
|
|
|
5,329 |
|
Multifamily and nonresidential |
|
|
789 |
|
|
|
816 |
|
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
43,021 |
|
|
|
37,719 |
|
|
|
5,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity |
|
|
1,819 |
|
|
|
1,657 |
|
|
|
162 |
|
Auto |
|
|
14 |
|
|
|
|
|
|
|
14 |
|
Boat |
|
|
2,612 |
|
|
|
2,614 |
|
|
|
(2 |
) |
Recreational vehicle |
|
|
361 |
|
|
|
|
|
|
|
361 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,806 |
|
|
|
4,271 |
|
|
|
535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
|
3,416 |
|
|
|
3,496 |
|
|
|
(80 |
) |
Unsecured |
|
|
839 |
|
|
|
751 |
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,255 |
|
|
|
4,247 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans |
|
$ |
94,840 |
|
|
$ |
87,248 |
|
|
$ |
7,592 |
|
|
|
|
|
|
|
|
|
|
|
Other nonperforming assets, consisting of real estate and other consumer property acquired in the
settlement of loans, totaled $30.4 million at March 31, 2009, compared to $29.3 million at December
31, 2008. The $1.2 million increase is primarily attributable to the acquisition of properties
having an estimated market value of $1.8 million that collateralized commercial construction loans
primarily in the central Ohio market area, one property with an estimated market value of $1.7
million that secured a commercial real estate loan in Michigan and four properties with an
estimated value of $386,000 that secured four commercial real estate loans in northern Ohio. Home
Savings disposed of property with a value of $2.8 million in the first quarter of 2009, partially
offsetting the increase. Other consumer property, such as boats, recreational vehicles, and
automobiles that were received by Home Savings in the satisfaction of loans, makes up the remainder
of the change.
Loans held for sale decreased $1.9 million, or 11.6%, to $14.2 million at March 31, 2009, compared
to $16.0 million at December 31, 2008. The change in loans held for sale was due largely to the
increase in volume of loan originations during the period because of the lower interest rate
environment. Home Savings sells newly originated loans into the secondary market as part of its
risk management strategy and anticipates continuing to do so in the future.
Federal Home Loan Bank stock remained at $26.4 million at March 31, 2009, compared to December 31,
2008. During the first quarter of 2009, the Federal Home Loan Bank paid a cash dividend in lieu of
a stock dividend to its member banks.
Home Savings maintains a contra account for uncollected interest for loans on non-accrual status
that represents the reduction in interest income from the time the borrower stopped making payments
until the loan is repaid, charged off or the default is cured and performance resumes. The
increases in these reserves, from $14.8 million at December 31, 2008, to $15.6 million at March 31,
2009,
23
and the impact of the reduction in loan balances mentioned above, were the primary reasons that
accrued interest receivable decreased $845,000 to $9.2 million at March 31, 2009, compared to $10.1
million at December 31, 2008.
Other assets increased $3.8 million to $20.9 million at March 31, 2009, compared to $17.1 million
at December 31, 2008. Home Savings had increases in deferred federal income taxes of $296,000
related to the market valuation of available for sale securities, prepaid Ohio franchise tax of
$959,000, and current federal income tax benefit of $1.7 million. These increases were offset by
cash due on payments of mortgage-backed securities of $1.4 million and $190,000 in deferred
mortgage servicing rights.
Total deposits decreased $50.4 million to $1.8 billion at March 31, 2009, compared to $1.9 billion
at December 31, 2008. This change was due primarily to a decrease of $52.9 million in brokered
certificates of deposit and a $17.4 million decrease in retail certificates of deposit offset by a
$17.0 million increase in savings accounts and a $2.8 million increase in money market accounts and
other demand deposit accounts. To supplement its funding needs, United Community began obtaining
brokered certificates of deposit in 2007. Such deposits have maturities ranging from six months to
two years. The total balance of brokered certificates of deposit was $92.1 million at March 31,
2009 and $145.0 million at December 31, 2008. Home Savings cannot obtain additional brokered
certificates of deposit without the approval of the FDIC.
Federal Home Loan Bank advances decreased $2.8 million during the first three months of 2009,
reflecting an increase in overnight advances of $17.4 million and a decrease in term advances of
$20.2 million. Home Savings had approximately $230.8 million in unused borrowing capacity at the
FHLB at March 31, 2009. Repurchase agreements and other borrowed funds, including United
Communitys line of credit with JP Morgan Chase Bank, N.A. (JP Morgan Chase), decreased $5.9
million to $119.4 million at March 31, 2009 from $125.3 million at December 31, 2008. United
Communitys line of credit with JP Morgan Chase was paid in full with proceeds from the sale of
Butler Wick Trust on March 31, 2009.
Advance payments by borrowers for taxes and insurance decreased $5.7 million during the first three
months of 2009. Payments for real estate taxes and property insurance made on behalf of customers
of Home Savings account for $3.5 million of the decrease. In addition, funds held for payments
received on loans sold where servicing was retained by Home Savings decreased $2.2 million.
Accrued expenses and other liabilities increased $7.3 million, to $16.4 million at March 31, 2009
from $9.1 million at December 31, 2008. United Community had an increase in accrued liabilities
for taxes related to the net income and sale of Butler Wick Trust in the first quarter of 2009
aggregating $4.3 million. Home Savings had an increase in deferred income taxes related to the
valuation of the securities available for sale portfolio of $550,000 along with an increase in
accrued payroll and related expenses of $731,000.
Shareholders equity increased $4.4 million to $239.3 million at March 31, 2009, from $234.9
million at December 31, 2008. An after-tax gain of $4.7 million from the sale of Butler Wick Trust
and net operating income of $238,000 for the first three months of 2008 from Butler Wick were
partially offset by a $1.2 million net loss recognized by Home Savings. An increase in other
comprehensive income resulting from changes in available for sale securities, net of tax, of
$910,000 also contributed to the increase.
Comparison of Operating Results for the Three Months Ended
March 31, 2009 and March 31, 2008
Net Income. United Community recognized net income for the three months ended March 31, 2009, of
$3.3 million, or $0.11 per diluted share, compared to net income of $4.0 million, or $0.14 per
share, for the three months ended March 31, 2008. Compared with the first quarter of 2008, net
interest income increased $1.8 million, the provision for loan losses increased $6.0 million,
non-interest income decreased $3.5 million, and non-interest expense increased $1.4 million.
United Communitys annualized return on average assets and return on average equity were 0.50% and
5.30%, respectively, for the three months ended March 31, 2009. The annualized return on average
assets and return on average equity for the comparable period in 2008 were 0.59% and 5.72%,
respectively.
Net Interest Income. Net interest income for the three months ended March 31, 2009, was $18.7
million compared to $16.9 million for the same period last year. Both interest income and interest
expense decreased with a smaller decline in interest income. Interest income decreased $5.2 million
in the first quarter of 2009 compared to the first quarter of 2008. The change in interest income
was due primarily to decreases in interest earned on net loans. Home Savings had a decrease in the
average balance of net loans of $116.2 million and a reduction of 54 basis points in the rate
earned on those loans during the first quarter of 2009 as compared to the same quarter in 2008.
Also contributing to the change in interest income was a decrease in interest earned on available
for sale securities, as the average balance of those assets declined by $23.8 million and the yield
earned on those securities decreased 30 basis points.
Total interest expense decreased $7.0 million for the quarter ended March 31, 2009, as compared to
the same quarter last year. The change was due primarily to a reduction of $4.4 million in
interest paid on deposits, $1.8 million in interest paid on Federal Home
24
Loan Bank advances and
interest paid on repurchase agreements and other borrowings of $767,000. The overall decrease in
interest expense is attributable to a decline in the average balances of interest bearing checking accounts
of $57.8 million as well as a reduction of 155 basis points on those liabilities. Furthermore,
Home Savings experienced a decline in the cost of certificates of deposit of 91 basis points
despite an increase in the average balance of those deposits of $6.8 million. These declines were
offset partially by an increase in the average balance of savings accounts of $12.1 million along
with an increase in the cost of those deposits of 10 basis points.
The primary cause of the decrease in interest expense on Federal Home Loan Bank advances was a
decrease in the average balance of those funds of $39.2 million, as well as a rate decrease on
those borrowings of 167 basis points in the first quarter compared to the same quarter in 2008.
The rate on short term advances from the Federal Home Loan Bank has decreased due to the Federal
Reserves action to drop the Federal Funds rate over the past year. The decrease in interest
expense on repurchase agreements and other borrowings was due primarily to a decrease in the
average balances of $34.9 million and a decline in the rate paid on these alternative borrowings of
109 basis points.
The following table shows the impact of interest rate and outstanding balance (volume) changes
compared to the first quarter of last year. The interest rate spread for the three months ended
March 31, 2009, grew to 2.74% compared to 2.21% for the quarter ended March 31, 2008. The net
interest margin increased 43 basis points to 3.04% for the three months ended March 31, 2009
compared to 2.61% for the same quarter in 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2009 vs. 2008 |
|
|
|
Increase |
|
|
Total |
|
|
|
(decrease) due to |
|
|
increase |
|
|
|
Rate |
|
|
Volume |
|
|
(decrease) |
|
|
|
(Dollars in thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
(2,971 |
) |
|
$ |
(1,770 |
) |
|
$ |
(4,741 |
) |
Loans held for sale |
|
|
(21 |
) |
|
|
96 |
|
|
|
75 |
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale |
|
|
(188 |
) |
|
|
(283 |
) |
|
|
(471 |
) |
Federal Home Loan Bank stock |
|
|
(47 |
) |
|
|
14 |
|
|
|
(33 |
) |
Other interest earning assets |
|
|
(38 |
) |
|
|
9 |
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
Total interest earning assets |
|
$ |
(3,265 |
) |
|
$ |
(1,934 |
) |
|
$ |
(5,199 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts |
|
|
49 |
|
|
|
13 |
|
|
|
62 |
|
Checking accounts |
|
|
(1,492 |
) |
|
|
(364 |
) |
|
|
(1,856 |
) |
Certificates of deposit |
|
|
(2,671 |
) |
|
|
80 |
|
|
|
(2,591 |
) |
Federal Home Loan Bank advances |
|
|
(1,493 |
) |
|
|
(341 |
) |
|
|
(1,834 |
) |
Repurchase agreements and other |
|
|
(386 |
) |
|
|
(381 |
) |
|
|
(767 |
) |
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
$ |
(5,993 |
) |
|
$ |
(993 |
) |
|
|
(6,986 |
) |
|
|
|
|
|
|
|
|
|
|
Change in net interest income |
|
|
|
|
|
|
|
|
|
$ |
1,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses. A provision for loan losses is charged to income to bring the total
allowance for loan losses to a level considered by management to be adequate, based on managements
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 increased by $6.0 million, to $8.4
million for the three months ended March 31, 2009, compared to $2.5 million for the same period in
2008. The $8.4 million provision was primarily the result of the recurring assessments of the
portfolio.
Non-interest Income. Non-interest income decreased $3.5 million to $2.7 million for the three
months ended March 31, 2009, from $6.3 million for the three months ended March 31, 2008, primarily
as a result of fewer gains recognized on the sale of loans, no sales or gains recognized on
available for sale securities, higher losses attributable to real estate owned and other
repossessed assets acquired in the settlement of loans and the additional write down of $26,000 for
the Companys Fannie Mae auction rate pass through trust security and the write down of $124,000 on
equity securities owned by United Community.
25
Non-interest Expense. Total non-interest expense increased $1.4 million for the three months ended
March 31, 2009, compared to the three months ended March 31, 2008. The increase is due primarily
to increased Federal Deposit Insurance premiums of $1.8 million, due largely to the enforcement
actions of the OTS, the FDIC, and the Ohio Division. Contributing to the increase in non-interest
expenses were expenses required to maintain real estate owned and other repossessed assets during
the first quarter of 2009 as compared to the first quarter of 2008. Federal Deposit Insurance
premiums are expected to aggregate $9.3 million throughout the remainder of 2009, based in part of
the enforcement actions and recent legislation. Expenses to maintain other real estate owned are
expected to remain high through the rest of 2009 due to the increase in the number of properties
acquired by Home Savings in resolving nonperforming loans, as well as legal expenses and other
collection expenses associated with Home Savings nonperforming loans.
Discontinued Operations. Net income recognized on the discontinued operations of Butler Wick
increased $4.7 million from $279,000 at March 31, 2008 to $4.9 million at March 31, 2009. The
primary cause of the change is the gain recognized on the sale of Butler Wick Trust in the first
quarter of 2009. Butler Wick also earned fewer commissions and service fees and incurred lower
salary and employee benefit expenses due to the sale of Butler Wick and Co., Inc. Refer to Note 3
for a further discussion of discontinued operations.
26
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, 2009 and 2008. Average balance calculations were based on daily balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Average |
|
|
Interest |
|
|
|
|
|
|
Average |
|
|
Interest |
|
|
|
|
|
|
Outstanding |
|
|
Earned/ |
|
|
Yield/ |
|
|
Outstanding |
|
|
Earned/ |
|
|
Yield/ |
|
|
|
Balance |
|
|
Paid |
|
|
Cost |
|
|
Balance |
|
|
Paid |
|
|
Cost |
|
|
|
(Dollars In thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans (1) |
|
$ |
2,158,931 |
|
|
$ |
31,067 |
|
|
|
5.76 |
% |
|
$ |
2,275,133 |
|
|
$ |
35,808 |
|
|
|
6.30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans held for sale |
|
|
24,172 |
|
|
|
263 |
|
|
|
4.35 |
% |
|
|
15,014 |
|
|
|
188 |
|
|
|
5.01 |
% |
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
312 |
|
|
|
|
|
|
|
|
% |
Available for sale |
|
|
239,656 |
|
|
|
2,770 |
|
|
|
4.62 |
% |
|
|
263,500 |
|
|
|
3,241 |
|
|
|
4.92 |
% |
Federal Home Loan Bank stock |
|
|
26,464 |
|
|
|
299 |
|
|
|
4.52 |
% |
|
|
25,436 |
|
|
|
332 |
|
|
|
5.22 |
% |
Other interest-earning assets |
|
|
18,927 |
|
|
|
29 |
|
|
|
0.61 |
% |
|
|
16,659 |
|
|
|
58 |
|
|
|
1.37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
2,468,150 |
|
|
|
34,428 |
|
|
|
5.58 |
% |
|
|
2,596,054 |
|
|
|
39,627 |
|
|
|
6.11 |
% |
Noninterest-earning assets |
|
|
137,183 |
|
|
|
|
|
|
|
|
|
|
|
143,220 |
|
|
|
|
|
|
|
|
|
Assets of discontinued operations |
|
|
4,468 |
|
|
|
|
|
|
|
|
|
|
|
20,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,609,801 |
|
|
|
|
|
|
|
|
|
|
$ |
2,759,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts |
|
$ |
375,113 |
|
|
$ |
1,202 |
|
|
|
1.28 |
% |
|
$ |
432,893 |
|
|
$ |
3,058 |
|
|
|
2.83 |
% |
Savings accounts |
|
|
187,566 |
|
|
|
245 |
|
|
|
0.52 |
% |
|
|
175,442 |
|
|
|
183 |
|
|
|
0.42 |
% |
Certificates of deposit |
|
|
1,176,028 |
|
|
|
11,204 |
|
|
|
3.81 |
% |
|
|
1,169,251 |
|
|
|
13,795 |
|
|
|
4.72 |
% |
Federal Home Loan Bank advances |
|
|
350,427 |
|
|
|
1,858 |
|
|
|
2.12 |
% |
|
|
389,582 |
|
|
|
3,692 |
|
|
|
3.79 |
% |
Repurchase agreements and other |
|
|
124,306 |
|
|
|
1,190 |
|
|
|
3.83 |
% |
|
|
159,159 |
|
|
|
1,957 |
|
|
|
4.92 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
2,213,440 |
|
|
|
15,699 |
|
|
|
2.84 |
% |
|
|
2,326,327 |
|
|
|
22,685 |
|
|
|
3.90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities |
|
|
147,172 |
|
|
|
|
|
|
|
|
|
|
|
146,241 |
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations |
|
|
2,449 |
|
|
|
|
|
|
|
|
|
|
|
4,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,363,061 |
|
|
|
|
|
|
|
|
|
|
|
2,477,062 |
|
|
|
|
|
|
|
|
|
Equity |
|
|
246,740 |
|
|
|
|
|
|
|
|
|
|
|
282,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
2,609,801 |
|
|
|
|
|
|
|
|
|
|
$ |
2,759,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and interest
rate spread |
|
|
|
|
|
$ |
18,729 |
|
|
|
2.74 |
% |
|
|
|
|
|
$ |
16,942 |
|
|
|
2.21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
3.04 |
% |
|
|
|
|
|
|
|
|
|
|
2.61 |
% |
Average interest-earning assets to
average interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
111.51 |
% |
|
|
|
|
|
|
|
|
|
|
111.59 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonaccrual loans are included in the average balance at a yield of 0%. |
27
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Qualitative Aspects of Market Risk. The principal market risk affecting United Community is
interest rate risk. United Community is subject to interest rate risk to the extent that its
interest-earning assets reprice differently than its interest-bearing liabilities. Interest rate
risk is defined as the sensitivity of a companys earnings and net asset values to changes in
interest rates. As part of its efforts to monitor and manage the interest rate risk, Home Savings,
which accounts for most of the assets and liabilities of United Community, has adopted an interest
rate risk policy that requires the Home Savings Board to review quarterly reports related to
interest rate risk and to set exposure limits for Home Savings as a guide to management in setting
and implementing day-to-day operating strategies.
Quantitative Aspects of Market Risk. As part of its interest rate risk analysis, Home Savings uses
the net portfolio value (NPV) methodology. Generally, NPV is the discounted present value of the
difference between incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing and other liabilities. The application of the methodology attempts to quantify
interest rate risk as the change in the NPV and net interest income that would result from various
levels of theoretical basis point changes in market interest rates.
Home Savings uses a NPV and earnings simulation model prepared internally as its primary method to
identify and manage its interest rate risk profile. The model is based on actual cash flows and
repricing characteristics for all financial instruments and incorporates market-based assumptions
regarding the impact of changing interest rates on future volumes and the prepayment rate of
applicable financial instruments. Assumptions based on the historical behavior of deposit rates
and balances in relation to changes in interest rates also are incorporated into the model. These
assumptions inherently are uncertain and, as a result, the model cannot measure precisely NPV or
net interest income or precisely predict the impact of fluctuations in interest rates on net
interest rate changes as well as changes in market conditions and management strategies.
Presented below are analyses of Home Savings interest rate risk as measured by changes in NPV and
net interest income for instantaneous and sustained parallel shifts of 100 basis point increments
in market interest rates. Due to the current low level of treasury rates, values for a decline in
rates of 100, 200 and 300 basis points are not calculated for the quarter ended March 31, 2009. As
noted, for the quarter ended March 31, 2009, the percentage changes fall within the policy limits
set by the Board of Directors of Home Savings as the minimum NPV ratio and the maximum change in
interest income the Home Savings Board deems advisable in the event of various changes in interest
rates. See the table below for Board adopted policy limits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, 2009 |
NPV as % of portfolio value of assets |
|
Next 12 months net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal policy |
|
|
in rates |
|
|
|
|
|
Internal policy |
|
|
|
|
|
|
|
|
|
limitations on |
|
|
(Basis |
|
|
|
|
|
limitations as to |
|
|
|
|
|
|
|
|
|
maximum |
|
|
points) |
|
NPV Ratio |
|
minimum % |
|
Change in % |
|
$ Change |
|
change |
|
% Change |
|
|
|
+300 |
|
|
7.59 |
% |
|
|
5.00 |
% |
|
|
(1.48 |
)% |
|
$ |
(2,366 |
) |
|
|
(15.00 |
)% |
|
|
(2.98 |
)% |
+200 |
|
|
8.65 |
|
|
|
6.00 |
|
|
|
(0.42 |
) |
|
|
(953 |
) |
|
|
(10.00 |
) |
|
|
(1.20 |
) |
+100 |
|
|
9.30 |
|
|
|
6.00 |
|
|
|
023 |
|
|
|
65 |
|
|
|
(5.00 |
) |
|
|
0.08 |
|
Static |
|
|
9.07 |
|
|
|
7.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
NPV as % of portfolio value of assets |
Next 12 months net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Basis |
|
|
|
|
|
Internal policy |
|
|
|
|
|
|
|
|
|
Internal policy |
|
|
points) |
|
NPV Ratio |
|
limitations |
|
Change in % |
|
$ Change |
|
limitations |
|
% Change |
|
+300 |
|
|
7.37 |
% |
|
|
5.00 |
% |
|
|
(1.38 |
)% |
|
$ |
(1,879 |
) |
|
|
(15.00 |
)% |
|
|
(2.48 |
)% |
+200 |
|
|
8.35 |
|
|
|
6.00 |
|
|
|
(0.40 |
) |
|
|
(734 |
) |
|
|
(10.00 |
) |
|
|
(0.97 |
) |
+100 |
|
|
8.99 |
|
|
|
6.00 |
|
|
|
0.24 |
|
|
|
60 |
|
|
|
(5.00 |
) |
|
|
0.08 |
|
Static |
|
|
8.75 |
|
|
|
7.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to a low interest rate environment, it was not possible to calculate results for a drop in
interest rates.
As with any method of measuring interest rate risk, certain shortcomings are inherent in the NPV
approach. For example, although certain assets and liabilities may have similar maturities or
periods of repricing, they may react in different degrees to changes in market interest rates. In
addition, the interest rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag behind changes in
market rates. Further, in the event of a change in interest rates, expected rates of prepayment on
loans and early withdrawal levels from certificates of deposit may deviate significantly from those
assumed in making risk calculations.
Potential Impact of Changes in Interest Rates. Home Savings profitability depends to a large
extent on its net interest income, which is the difference between interest income from loans and
securities and interest expense on deposits and borrowings. Like most financial institutions, Home
Savings short-term interest income and interest expense are affected significantly by changes in
market interest rates and other economic factors beyond its control.
In the last nine months, Home Savings has begun to see the positive impact of a steeper yield
curve. The net interest margin continues to improve, despite a high level of nonperforming assets,
as certificates of deposit reprice at much lower levels supported by loan yields that have
stabilized.
ITEM 4. Controls and Procedures
An evaluation was carried out by United Communitys management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of United Communitys disclosure controls
and procedures (as defined in Rules 13a-15(e)/15d-15(e) of the Securities Exchange Act of 1934) as
of March 31, 2009. Based on their evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that United Communitys disclosure controls and procedures are effective.
During the quarter ended March 31, 2009, there were no changes in United Communitys internal
controls over financial reporting that have materially affected or are reasonably likely to affect
materially United Communitys internal controls over financial reporting.
29
PART II. OTHER INFORMATION
UNITED COMMUNITY FINANCIAL CORP.
ITEM 1 Legal Proceedings
United Community and its subsidiaries are parties to litigation arising in the normal course of
business. While it is impossible to determine the ultimate resolution of these contingent matters,
management believes any resulting liability would not have a material effect upon United
Communitys financial statements.
ITEM 1A Risk Factors
There have been no significant changes in United Communitys risk factors as outlined in United
Communitys Form 10-K for the period ended December 31, 2008.
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
There have been no purchases of treasury shares during the quarter ended March 31, 2009.
ITEM 4 Submission of Matters to a Vote of Security Holders
On April 23, 2009, United Community held its Annual Meeting of Shareholders. At the Annual
Meeting, two matters were submitted to shareholders for a vote. First, shareholders elected two
directors with terms expiring in 2012 by the following votes:
|
|
|
|
|
|
|
|
|
Director |
|
For |
|
Withheld |
Douglas M. McKay |
|
|
21,053,777 |
|
|
|
2,146,632 |
|
|
|
|
|
|
|
|
|
|
Donald J. Varner |
|
|
18,894,268 |
|
|
|
4,306,141 |
|
The following directors terms continued after the Annual Meeting: Eugenia C. Atkinson, Richard J.
Buoncore, Richard J. Schiraldi, Clarence R. Smith, Jr., and David C. Sweet.
The shareholders also ratified the selection of Crowe Horwath LLP as auditors for the 2009 fiscal
year by the following vote:
|
|
|
|
|
|
|
|
|
For |
|
Against |
|
Abstain |
21,860,718
|
|
|
844,897 |
|
|
|
494,794 |
|
ITEM 6 Exhibits
Exhibits
|
|
|
|
Exhibit Number |
|
Description |
|
|
|
|
3.1
|
|
|
Articles of Incorporation |
|
|
|
|
3.2
|
|
|
Amended Code of Regulations |
|
|
|
|
10
|
|
|
Material Contracts |
|
|
|
|
31.1
|
|
|
Section 302 Certification by Chief Executive Officer |
|
|
|
|
31.2
|
|
|
Section 302 Certification by Chief Financial Officer |
|
|
|
|
32
|
|
|
Certification of Statements by Chief Executive Officer and
Chief Financial Officer |
30
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 11, 2009
|
|
/S/ Douglas M. McKay
Douglas M. McKay
|
|
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
|
Date: May 11, 2009
|
|
/S/ James R. Reske |
|
|
|
|
|
|
|
|
|
James R. Reske, CFA |
|
|
|
|
Chief Financial Officer |
|
|
31
UNITED COMMUNITY FINANCIAL CORP.
Exhibit 3.1
Incorporated by reference to the Registration Statement on Form S-1 filed by United Community on
March 13, 1998 with the Securities and Exchange Commission (SEC), Exhibit 3.1.
Exhibit 3.2
Incorporated by reference to the 1998 Form 10-K filed by United Community on March 31, 1999 with
the SEC, film number 99582343, Exhibit 3.2.
32