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 June 30, 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,
or a non-accelerated filer or a smaller reporting company. See 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
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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 July 31, 2009.
PART I. FINANCIAL INFORMATION
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ITEM 1. |
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Financial Statements |
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
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June 30, |
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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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|
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Cash and deposits with banks |
|
$ |
22,006 |
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$ |
21,745 |
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Federal funds sold and other |
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22,654 |
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21,672 |
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Total cash and cash equivalents |
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44,660 |
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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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255,845 |
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215,731 |
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Loans held for sale |
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14,057 |
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16,032 |
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Loans, net of allowance for loan losses of $39,832 and $35,962, respectively |
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2,032,404 |
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2,203,453 |
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Federal Home Loan Bank stock, at cost |
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26,464 |
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26,464 |
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Premises and equipment, net |
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24,258 |
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25,015 |
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Accrued interest receivable |
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9,042 |
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10,082 |
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Real estate owned and other repossessed assets |
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33,077 |
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29,258 |
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Core deposit intangible |
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766 |
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|
884 |
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Cash surrender value of life insurance |
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25,611 |
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25,090 |
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Assets of discontinued operationsButler Wick Corp. |
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5,562 |
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Other assets |
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20,871 |
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17,085 |
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Total assets |
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$ |
2,487,055 |
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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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$ |
1,711,315 |
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$ |
1,779,676 |
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Non-interest bearing |
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116,899 |
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106,255 |
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Total deposits |
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1,828,214 |
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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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294,152 |
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337,603 |
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Repurchase agreements and other borrowings |
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97,252 |
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125,269 |
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Total borrowings |
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391,404 |
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462,872 |
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Advance payments by borrowers for taxes and insurance |
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14,051 |
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19,806 |
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Accrued interest payable |
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2,698 |
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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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16,075 |
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9,076 |
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Total liabilities |
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2,252,442 |
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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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145,873 |
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146,439 |
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Retained earnings |
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165,803 |
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165,447 |
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Accumulated other comprehensive income |
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2,624 |
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3,635 |
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Unearned employee stock ownership plan shares |
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(6,732 |
) |
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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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234,613 |
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234,923 |
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Total liabilities and shareholders equity |
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$ |
2,487,055 |
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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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For the Six Months Ended |
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June 30, |
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June 30, |
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2009 |
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2008 |
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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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$ |
30,076 |
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$ |
33,935 |
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$ |
61,143 |
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$ |
69,743 |
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Loans held for sale |
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|
216 |
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|
88 |
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|
479 |
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|
276 |
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Securities: |
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Trading |
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2 |
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|
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1 |
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Available for sale |
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2,796 |
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3,803 |
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5,566 |
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7,044 |
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Federal Home Loan Bank stock dividends |
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|
294 |
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|
348 |
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|
593 |
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|
680 |
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Other interest earning assets |
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9 |
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28 |
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38 |
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|
85 |
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Total interest income |
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33,391 |
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|
38,204 |
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|
67,819 |
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|
77,829 |
|
Interest expense |
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|
|
|
|
|
|
|
|
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|
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Deposits |
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12,074 |
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|
14,510 |
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|
24,725 |
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|
31,546 |
|
Federal Home Loan Bank advances |
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|
1,569 |
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|
3,191 |
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3,427 |
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|
6,883 |
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Repurchase agreements and other |
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1,061 |
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|
1,587 |
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|
2,251 |
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3,543 |
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|
|
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|
|
|
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Total interest expense |
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14,704 |
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|
19,288 |
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|
30,403 |
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|
41,972 |
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|
|
|
|
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|
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|
|
|
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Net interest income |
|
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18,687 |
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|
|
18,916 |
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|
37,416 |
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|
35,857 |
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Provision for loan losses |
|
|
12,311 |
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|
|
3,248 |
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|
20,755 |
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|
|
5,714 |
|
|
|
|
|
|
|
|
|
|
|
|
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Net interest income after provision for loan losses |
|
|
6,376 |
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|
|
15,668 |
|
|
|
16,661 |
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|
|
30,143 |
|
|
|
|
|
|
|
|
|
|
|
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Non-interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Non-deposit investment income |
|
|
404 |
|
|
|
432 |
|
|
|
708 |
|
|
|
910 |
|
Service fees and other charges |
|
|
2,721 |
|
|
|
2,523 |
|
|
|
4,233 |
|
|
|
4,288 |
|
Net gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Securities available for sale |
|
|
1,382 |
|
|
|
57 |
|
|
|
1,382 |
|
|
|
988 |
|
Other than temporary impairment charges on
securities available for sale |
|
|
|
|
|
|
|
|
|
|
(150 |
) |
|
|
|
|
Trading securities |
|
|
|
|
|
|
(23 |
) |
|
|
|
|
|
|
(23 |
) |
Loans sold |
|
|
1,788 |
|
|
|
395 |
|
|
|
2,928 |
|
|
|
2,579 |
|
Real estate owned and other repossessed assets sold |
|
|
(1,182 |
) |
|
|
(1,533 |
) |
|
|
(2,320 |
) |
|
|
(1,673 |
) |
Other income |
|
|
1,092 |
|
|
|
1,057 |
|
|
|
2,167 |
|
|
|
2,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
|
6,205 |
|
|
|
2,908 |
|
|
|
8,948 |
|
|
|
9,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
7,764 |
|
|
|
9,011 |
|
|
|
15,787 |
|
|
|
18,061 |
|
Occupancy |
|
|
899 |
|
|
|
900 |
|
|
|
1,883 |
|
|
|
1,847 |
|
Equipment and data processing |
|
|
1,660 |
|
|
|
1,547 |
|
|
|
3,390 |
|
|
|
3,268 |
|
Franchise tax |
|
|
555 |
|
|
|
544 |
|
|
|
1,147 |
|
|
|
1,124 |
|
Advertising |
|
|
187 |
|
|
|
217 |
|
|
|
416 |
|
|
|
482 |
|
Amortization of core deposit intangible |
|
|
58 |
|
|
|
74 |
|
|
|
118 |
|
|
|
151 |
|
Deposit insurance premiums |
|
|
2,940 |
|
|
|
219 |
|
|
|
4,723 |
|
|
|
270 |
|
Professional fees |
|
|
907 |
|
|
|
716 |
|
|
|
1,623 |
|
|
|
1,250 |
|
Real estate owned and other repossessed asset expenses |
|
|
804 |
|
|
|
700 |
|
|
|
1,755 |
|
|
|
1,088 |
|
Other expenses |
|
|
1,428 |
|
|
|
1,233 |
|
|
|
2,759 |
|
|
|
2,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses |
|
|
17,202 |
|
|
|
15,161 |
|
|
|
33,601 |
|
|
|
30,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and discontinued operations |
|
|
(4,621 |
) |
|
|
3,415 |
|
|
|
(7,992 |
) |
|
|
9,198 |
|
Income taxes expense (benefit) |
|
|
(1,707 |
) |
|
|
1,111 |
|
|
|
(3,399 |
) |
|
|
3,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before discontinued operations |
|
|
(2,914 |
) |
|
|
2,304 |
|
|
|
(4,593 |
) |
|
|
6,069 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income of Butler Wick Corp., net of tax |
|
|
|
|
|
|
425 |
|
|
|
4,949 |
|
|
|
703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(2,914 |
) |
|
$ |
2,729 |
|
|
$ |
356 |
|
|
$ |
6,772 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
(Continued)
2
(Continued)
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
(4,835 |
) |
|
$ |
(3,731 |
) |
|
$ |
(655 |
) |
|
$ |
2,448 |
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basiccontinuing operations |
|
$ |
(0.10 |
) |
|
$ |
0.08 |
|
|
$ |
(0.16 |
) |
|
$ |
0.21 |
|
Basicdiscontinued operations |
|
|
|
|
|
|
0.02 |
|
|
|
0.17 |
|
|
|
0.03 |
|
Basic |
|
|
(0.10 |
) |
|
|
0.10 |
|
|
|
0.01 |
|
|
|
0.24 |
|
Dilutedcontinuing operations |
|
|
(0.10 |
) |
|
|
0.08 |
|
|
|
(0.16 |
) |
|
|
0.21 |
|
Diluteddiscontinued operations |
|
|
|
|
|
|
0.02 |
|
|
|
0.17 |
|
|
|
0.03 |
|
Diluted |
|
|
(0.10 |
) |
|
|
0.10 |
|
|
|
0.01 |
|
|
|
0.24 |
|
See notes to Consolidated Financial Statements.
3
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Employee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Stock |
|
|
|
|
|
|
|
|
|
Shares |
|
|
Common |
|
|
Retained |
|
|
Comprehensive |
|
|
Ownership |
|
|
Treasury |
|
|
|
|
|
|
Outstanding |
|
|
Stock |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Plan Shares |
|
|
Stock |
|
|
Total |
|
|
|
(Dollars in thousands, except share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008 |
|
|
30,898 |
|
|
$ |
146,439 |
|
|
$ |
165,447 |
|
|
$ |
3,635 |
|
|
$ |
(7,643 |
) |
|
$ |
(72,955 |
) |
|
$ |
234,923 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
356 |
|
Change in net unrealized gain/(loss)
on securities, net of tax benefit of $544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,011 |
) |
|
|
|
|
|
|
|
|
|
|
(1,011 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(655 |
) |
Shares allocated to ESOP participants |
|
|
|
|
|
|
(595 |
) |
|
|
|
|
|
|
|
|
|
|
911 |
|
|
|
|
|
|
|
316 |
|
Stock based compensation |
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2009 |
|
|
30,898 |
|
|
$ |
145,873 |
|
|
$ |
165,803 |
|
|
$ |
2,624 |
|
|
$ |
(6,732 |
) |
|
$ |
(72,955 |
) |
|
$ |
234,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
4
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
356 |
|
|
$ |
6,772 |
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
20,755 |
|
|
|
5,714 |
|
Net gains on loans sold |
|
|
(2,928 |
) |
|
|
(2,579 |
) |
Net losses on real estate owned and other repossessed assets sold |
|
|
2,337 |
|
|
|
1,674 |
|
Net losses on other assets sold |
|
|
(17 |
) |
|
|
(1 |
) |
Other than temporary impairment of securities available for sale |
|
|
150 |
|
|
|
|
|
Amortization of premiums and accretion of discounts |
|
|
1,156 |
|
|
|
612 |
|
Depreciation and amortization |
|
|
1,124 |
|
|
|
1,299 |
|
Federal Home Loan Bank stock dividends |
|
|
|
|
|
|
(680 |
) |
Decrease in interest receivable |
|
|
1,040 |
|
|
|
1,581 |
|
Decrease in interest payable |
|
|
(379 |
) |
|
|
(2,986 |
) |
Increase in prepaid and other assets |
|
|
(4,042 |
) |
|
|
(5,392 |
) |
Increase in other liabilities |
|
|
3,104 |
|
|
|
5,366 |
|
Decrease in trading securities |
|
|
|
|
|
|
22 |
|
Stock based compensation |
|
|
29 |
|
|
|
161 |
|
Net principal disbursed on loans originated for sale |
|
|
(262,788 |
) |
|
|
(106,334 |
) |
Proceeds from sale of loans originated for sale |
|
|
267,691 |
|
|
|
184,912 |
|
ESOP Compensation |
|
|
316 |
|
|
|
922 |
|
Operating cash flows from discontinued operations |
|
|
(4,949 |
) |
|
|
(315 |
) |
|
|
|
|
|
|
|
Net cash from operating activities |
|
|
22,955 |
|
|
|
90,748 |
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Proceeds from principal repayments and maturities of: |
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
25,923 |
|
|
|
36,942 |
|
Proceeds from sale of: |
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
46,051 |
|
|
|
48,411 |
|
Real estate owned and other repossessed assets |
|
|
6,797 |
|
|
|
5,863 |
|
Purchases of: |
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
(114,047 |
) |
|
|
(157,065 |
) |
Net change in loans |
|
|
138,926 |
|
|
|
57,006 |
|
Loans purchased |
|
|
(2,009 |
) |
|
|
(54,207 |
) |
Purchases of premises and equipment |
|
|
(334 |
) |
|
|
(522 |
) |
Investing cash flows from discontinued operations |
|
|
11,921 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from investing activities |
|
|
113,228 |
|
|
|
(63,572 |
) |
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Net increase in checking, savings and money market accounts |
|
|
30,279 |
|
|
|
68,463 |
|
Net decrease in certificates of deposit |
|
|
(87,996 |
) |
|
|
(89,277 |
) |
Net decrease in advance payments by borrowers for taxes and insurance |
|
|
(5,755 |
) |
|
|
(5,063 |
) |
Proceeds from Federal Home Loan Bank advances |
|
|
423,400 |
|
|
|
405,700 |
|
Repayment of Federal Home Loan Bank advances |
|
|
(466,851 |
) |
|
|
(398,744 |
) |
Net change in repurchase agreements and other borrowed funds |
|
|
(28,017 |
) |
|
|
2,677 |
|
Cash dividends paid |
|
|
|
|
|
|
(4,064 |
) |
Financing cash flows from discontinued operations |
|
|
|
|
|
|
2,334 |
|
|
|
|
|
|
|
|
Net cash from financing activities |
|
|
(134,940 |
) |
|
|
(17,974 |
) |
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
1,243 |
|
|
|
9,202 |
|
Cash and cash equivalents, beginning of period |
|
|
43,417 |
|
|
|
33,502 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
44,660 |
|
|
$ |
42,704 |
|
|
|
|
|
|
|
|
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 six months ended June 30, 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.
Management has evaluated events occurring subsequent to the balance sheet date through August 7,
2009, determining no events require adjustment to or additional disclosure in the consolidated
financial statements.
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. Because of the consent to the Bank
Order, Home Savings is deemed adequately capitalized for regulatory capital purposes, as
previously disclosed.
United
Community and Home Savings are moving toward compliance with the OTS Order and Bank Order.
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 |
|
|
For the Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
|
(Dollars in thousands) |
|
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
|
|
|
$ |
187 |
|
|
$ |
32 |
|
|
$ |
416 |
|
Brokerage commissions |
|
|
|
|
|
|
6,629 |
|
|
|
|
|
|
|
12,730 |
|
Service fees and other charges |
|
|
|
|
|
|
1,483 |
|
|
|
1,287 |
|
|
|
3,172 |
|
Underwriting and investment banking |
|
|
|
|
|
|
206 |
|
|
|
|
|
|
|
235 |
|
Gain on the sale of Butler Wick Trust |
|
|
|
|
|
|
|
|
|
|
7,904 |
|
|
|
|
|
Other income |
|
|
|
|
|
|
138 |
|
|
|
|
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income |
|
|
|
|
|
|
8,643 |
|
|
|
9,223 |
|
|
|
16,717 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on borrowings |
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
121 |
|
Salaries and employee benefits |
|
|
|
|
|
|
5,891 |
|
|
|
1,198 |
|
|
|
11,570 |
|
Occupancy expenses |
|
|
|
|
|
|
385 |
|
|
|
68 |
|
|
|
773 |
|
Equipment and data processing |
|
|
|
|
|
|
588 |
|
|
|
84 |
|
|
|
1,206 |
|
Other expenses |
|
|
|
|
|
|
1,073 |
|
|
|
258 |
|
|
|
1,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
|
|
|
|
7,989 |
|
|
|
1,608 |
|
|
|
15,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes |
|
|
|
|
|
|
654 |
|
|
|
7,615 |
|
|
|
1,108 |
|
Income tax |
|
|
|
|
|
|
229 |
|
|
|
2,666 |
|
|
|
405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
425 |
|
|
$ |
4,949 |
|
|
$ |
703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. The adoption of this
standard had no impact 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.
In April 2009, the FASB issued Staff Position (FSP) 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 (OTTI) 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 and annual reporting
periods ending after June 15, 2009, with early adoption permitted for periods ending after March
15, 2009. The Company adopted the FSP effective April 1, 2009. The adoption of FSP FAS 115-2 and
FAS
124-2 for the period ended June 30, 2009, did not have a material impact on the Companys
consolidated financial statements as the Company has not experienced other-than-temporary
impairment within its debt securities portfolio.
8
In April 2009, the FASB issued Staff Position (FSP) 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 permitted for periods ending after
March 15, 2009. The adoption of this FSP at June 30, 2009 did not have a material impact on the
results of operations or financial position.
In April 2009, the FASB issued FSP 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. The adoption of this FSP at June 30, 2009 did not have a material impact on the results of
operations or financial position as it only required disclosures which are included in Note 11.
In May 2009, FASB issued SFAS No. 165, Subsequent Events, with the objective to establish general
standards of accounting for and disclosure of events that occur after the balance sheet date but
before financial statements are issued or are available to be issued. SFAS No. 165 sets forth:
(i) the period after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition or disclosure
in the financial statements; (ii) the circumstances under which an entity should recognize events
or transactions occurring after the balance sheet date in its financial statements; and
(iii) the disclosures that an entity should make about events or transactions that occurred
after the balance sheet date. SFAS No. 165 is effective for interim and annual financial periods
ending after June 15, 2009. The adoption of SFAS No. 165 on June 30, 2009, did not have a material
impact on the Companys consolidated financial statements.
Recently Issued but not yet Effective Accounting Pronouncements:
In June 2009, FASB issued SFAS No. 166, Accounting for Transfers of Financial Assetsan amendment
of FASB Statement No. 140. The objective of SFAS No. 166 is to improve the relevance,
representational faithfulness, and comparability of the information that a reporting entity
provides in its financial statements about a transfer of financial assets; the effects of a
transfer on its financial position, financial performance, and cash flows; and a transferors
continuing involvement in transferred financial assets. SFAS No. 166 shall be effective as of the
beginning of each reporting entitys first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period, and for interim and annual
reporting periods thereafter. Management is still evaluating the impact of this accounting
standard.
In June 2009, FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R). The objective
of SFAS No. 167 is to amend certain requirements of FASB Interpretation No. 46 (revised December
2003), Consolidation of Variable Interest Entities, to improve financial reporting by enterprises
involved with variable interest entities and to provide more relevant and reliable information to
users of financial statements. SFAS No. 167 shall be effective as of the beginning of each
reporting entitys first annual reporting period that begins after November 15, 2009, for interim
periods within that first annual reporting period, and for interim and annual reporting periods
thereafter. Earlier application is prohibited. Management is still evaluating the impact of this
accounting standard.
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 terminated on May 20, 2009.
9
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 were 336,000 stock options granted in the first six
months of 2009 under the 1999 plan. As of June 30, 2009, there were 115,793 shares remaining in
the 1999 Plan that could be granted. However, as of July 12,
2009, no additional options may be issued
under the 1999 Plan. All of the previous options awarded became exercisable on the date of grant.
For the options granted in 2009, one third of the total options granted become exercisable on
December 31, 2009, 2010 and 2011. The option period for each grant 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 six months of 2009 and there were 243,721 stock options granted in 2008 under the 2007
Plan. All of the options awarded in 2008 became exercisable on the date of grant. The option
period for each grant expires 10 years from the date of grant.
A summary of activity in the plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
|
|
|
|
Weighted |
|
|
intrinsic |
|
|
|
|
|
|
|
average |
|
|
value (in |
|
|
|
Shares |
|
|
exercise price |
|
|
thousands) |
|
Outstanding at beginning of year |
|
|
2,092,128 |
|
|
$ |
9.08 |
|
|
|
|
|
Granted |
|
|
336,000 |
|
|
|
1.86 |
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(209,925 |
) |
|
|
9.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
2,218,203 |
|
|
$ |
7.98 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period |
|
|
1,882,203 |
|
|
$ |
9.40 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Information related to the stock option plan during the year follows (dollars in thousands, except
per share amount):
|
|
|
|
|
|
|
June 30, |
|
|
|
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 |
|
|
1.07 |
|
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 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.
10
The fair value of options granted was determined using the following weighted-average assumptions
as of grant date.
|
|
|
|
|
|
|
|
|
|
|
May 8, 2009 |
|
|
June 25, 2009 |
|
Risk-free interest rate |
|
|
2.15 |
% |
|
|
2.58 |
% |
Expected term (years) |
|
|
5 |
|
|
|
5 |
|
Expected stock volatility |
|
|
67.4 |
|
|
|
67.8 |
|
Dividend yield |
|
|
|
% |
|
|
|
% |
Outstanding stock options have a weighted average remaining life of 5.06 years and may be exercised
in the range of $1.30 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Fair |
|
|
Unrealized |
|
|
Unrealized |
|
|
Amortized |
|
|
|
Value |
|
|
Gains |
|
|
Losses |
|
|
Cost |
|
U.S. Treasury and government
sponsored entities securities |
|
$ |
43,974 |
|
|
$ |
698 |
|
|
$ |
(41 |
) |
|
$ |
43,317 |
|
Equity securities |
|
|
976 |
|
|
|
334 |
|
|
|
(459 |
) |
|
|
1,101 |
|
Mortgage-related securities |
|
|
210,895 |
|
|
|
3,151 |
|
|
|
(167 |
) |
|
|
207,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
255,845 |
|
|
$ |
4,183 |
|
|
$ |
(667 |
) |
|
$ |
252,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
Fair |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
Value |
|
|
Gains |
|
|
Losses |
|
U.S. Treasury and government
sponsored entities securities |
|
$ |
27,170 |
|
|
$ |
865 |
|
|
$ |
|
|
Equity securities |
|
|
910 |
|
|
|
70 |
|
|
|
(411 |
) |
Mortgage-related securities |
|
|
187,651 |
|
|
|
4,527 |
|
|
|
(107 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
215,731 |
|
|
$ |
5,462 |
|
|
$ |
(518 |
) |
|
|
|
|
|
|
|
|
|
|
11
The amortized cost and fair value of the investment securities portfolio are shown by expected
maturity. Expected maturities may differ from contractual maturities if borrowers have the right
to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
|
(Dollars in thousands) |
|
|
|
Fair |
|
|
Amortized |
|
|
|
Value |
|
|
Cost |
|
|
Due in one year or less |
|
$ |
|
|
|
$ |
|
|
Due after one year through five
years |
|
|
28,397 |
|
|
|
28,062 |
|
Due after five years through
ten years |
|
|
15,577 |
|
|
|
15,255 |
|
Mortgage-related securities |
|
|
210,895 |
|
|
|
207,911 |
|
|
|
|
|
|
|
|
Total |
|
$ |
254,869 |
|
|
$ |
251,228 |
|
|
|
|
|
|
|
|
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 $1.0 million at June 30, 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 $120.4 million at June
30, 2009, and $131.5 million at December 31, 2008.
United Community had no securities classified as trading as of June 30, 2009 and December 31, 2008.
The following table summarizes the investment securities with unrealized losses at June 30, 2009 by
aggregated major security type and length of time in a continuous unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
|
(Dollars in thousands) |
|
|
|
Less Than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
U.S. Treasury and
government
sponsored entities
securities |
|
$ |
7,157 |
|
|
$ |
(41 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
7,157 |
|
|
$ |
(41 |
) |
Equity securities |
|
|
213 |
|
|
|
(311 |
) |
|
|
87 |
|
|
|
(148 |
) |
|
|
300 |
|
|
|
(459 |
) |
Mortgage-related securities |
|
|
17,558 |
|
|
|
(151 |
) |
|
|
856 |
|
|
|
(16 |
) |
|
|
18,414 |
|
|
|
(167 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
24,928 |
|
|
$ |
(503 |
) |
|
$ |
943 |
|
|
$ |
(164 |
) |
|
$ |
25,871 |
|
|
$ |
(667 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales and calls of securities available for sale were $46.1 and $10.1 million
for the three months ended June 30, 2009 and 2008, respectively. Gross gains of $1.4 million and
$100,000 and gross losses of $0 and $0 were realized on these sales during 2009 and 2008,
respectively.
Proceeds from sales and calls of securities available for sale were $46.1 million and $48.4 million
for the six months ended June 30, 2009 and 2008, respectively. Gross gains of $1.4 million and
$1.0 million and gross losses of $0 and $0 were realized on these sales during 2009 and 2008,
respectively.
12
Other-Than-Temporary-Impairment
Management evaluates securities for other-than-temporary impairment (OTTI) at least on a
quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.
The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two
general segments and applying the appropriate OTTI model. Investment securities classified as
available for sale or held-to-maturity are generally evaluated for OTTI under Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and
Equity Securities.
In determining OTTI under the SFAS No. 115 model, management considers many factors, including:
(1) the length of time and the extent to which the fair value has been less than cost, (2) the
financial condition and near-term prospects of the issuer, (3) whether the market decline was
affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the debt
security or more likely than not will be required to sell the debt security before its anticipated
recovery. The assessment of whether an other-than-temporary decline exists involves a high degree
of subjectivity and judgment and is based on the information available to management at a point in
time.
The second segment of the portfolio uses the OTTI guidance provided by EITF 99-20 that is specific
to purchased beneficial interests that, on the purchase date, were rated below AA. Under the EITF
99-20 model, the Company compares the present value of the remaining cash flows as estimated at the
preceding evaluation date to the current expected remaining cash flows. An OTTI is deemed to have
occurred if there has been an adverse change in the remaining expected future cash flows.
When OTTI occurs under either model, the amount of the OTTI recognized in earnings depends on
whether an entity intends to sell the security or it is more likely than not it will be required to
sell the security before recovery of its amortized cost basis, less any current-period credit loss.
If an entity intends to sell or it is more likely than not it will be required to sell the
security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI
shall be recognized in earnings equal to the entire difference between the investments amortized
cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the
security and it is not more likely than not that the entity will be required to sell the security
before recovery of its amortized cost basis less any current-period loss, the OTTI shall be
separated into the amount representing the credit loss and the amount related to all other factors.
The amount of the total OTTI related to the credit loss is determined based on the present value
of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI
related to other factors is recognized in other comprehensive income, net of applicable taxes. The
previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost
basis of the investment.
As of June 30, 2009, the Companys security portfolio consisted of 56 securities, 13 of which were
in an unrealized loss position. The majority of unrealized losses are related to the Companys
mortgage-related and equity securities, as discussed below:
Mortgage-related Securities
At June 30, 2009, 100% of the mortgage-related securities held by the Company were issued by U.S.
government-sponsored entities and agencies, primarily Fannie Mae and Freddie Mac, institutions
which the government has affirmed its commitment to support. Because the decline in fair value is
attributable to changes in interest rates and illiquidity, and not credit quality, and because the
Company does not have the intent to sell these mortgage-related securities and it is likely that it
will not be required to sell the securities before their anticipated recovery, the Company does not
consider these securities to be other-than-temporarily impaired at June 30, 2009.
Equity Securities
The
issuers of the equity securities that are temporarily impaired at June 30, 2009, are all well
capitalized financial institutions and each exhibit a low to moderate level of nonperforming
assets.
13
7. LOANS
Portfolio loans consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Real Estate: |
|
|
|
|
|
|
|
|
One- to four-family residential |
|
$ |
852,833 |
|
|
$ |
909,567 |
|
Multifamily residential |
|
|
164,376 |
|
|
|
187,711 |
|
Nonresidential |
|
|
396,688 |
|
|
|
375,463 |
|
Land |
|
|
23,221 |
|
|
|
23,517 |
|
Construction: |
|
|
|
|
|
|
|
|
One- to four-family residential |
|
|
209,610 |
|
|
|
255,355 |
|
Multifamily and non-residential |
|
|
15,007 |
|
|
|
35,797 |
|
|
|
|
|
|
|
|
Total real estate |
|
|
1,661,735 |
|
|
|
1,787,410 |
|
Consumer |
|
|
322,874 |
|
|
|
348,834 |
|
Commercial |
|
|
86,286 |
|
|
|
101,489 |
|
|
|
|
|
|
|
|
Total loans |
|
|
2,070,895 |
|
|
|
2,237,733 |
|
Less: |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
39,832 |
|
|
|
35,962 |
|
Deferred loan fees, net |
|
|
(1,341 |
) |
|
|
(1,682 |
) |
|
|
|
|
|
|
|
Total |
|
|
38,491 |
|
|
|
34,280 |
|
|
|
|
|
|
|
|
Loans, net |
|
$ |
2,032,404 |
|
|
$ |
2,203,453 |
|
|
|
|
|
|
|
|
Changes in the allowance for loan loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
|
|
|
Ended |
|
|
Year Ended |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Balance, beginning of year |
|
$ |
35,962 |
|
|
$ |
32,006 |
|
Provision for loan losses |
|
|
20,755 |
|
|
|
25,329 |
|
Amounts charged off |
|
|
(17,506 |
) |
|
|
(22,088 |
) |
Recoveries |
|
|
621 |
|
|
|
715 |
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
39,832 |
|
|
$ |
35,962 |
|
|
|
|
|
|
|
|
Non-accrual loans were $96.5 million and $98.3 million at June 30, 2009, and December 31, 2008,
respectively. Restructured loans were $2.5 million at June 30, 2009 and $1.8 million at December
31, 2008. Loans greater than 90 days past due and still accruing interest were $3.0 million and
$6.6 million at June 30, 2009 and December 31, 2008, respectively.
14
Impaired loans consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of or for the |
|
|
As of or for |
|
|
|
Six Months |
|
|
the Year |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
|
Impaired loans on which no specific valuation allowance was provided |
|
$ |
46,252 |
|
|
$ |
43,256 |
|
Impaired loans on which a specific valuation allowance was provided |
|
|
43,338 |
|
|
|
43,992 |
|
|
|
|
|
|
|
|
Total impaired loans at period-end |
|
$ |
89,590 |
|
|
$ |
87,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific valuation allowances on impaired loans at period-end |
|
$ |
6,591 |
|
|
$ |
10,968 |
|
Average impaired loans during the period |
|
|
88,419 |
|
|
|
85,812 |
|
Interest income recognized on impaired loans during the period |
|
|
269 |
|
|
|
513 |
|
Interest income received on impaired loans during the period |
|
|
269 |
|
|
|
513 |
|
8. MORTGAGE BANKING ACTIVITIES
Mortgage loans serviced for others, which are not reported in United Communitys assets, totaled
$992.2 million at June 30, 2009, and $921.0 million at December 31, 2008.
Activity for capitalized mortgage servicing rights, included in other assets, was as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
|
|
|
Ended |
|
|
Year Ended |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Balance, beginning of year |
|
$ |
5,562 |
|
|
$ |
6,184 |
|
Originations |
|
|
2,028 |
|
|
|
1,337 |
|
Amortized to expense |
|
|
(1,463 |
) |
|
|
(1,959 |
) |
|
|
|
|
|
|
|
Balance, end of period |
|
|
6,127 |
|
|
|
5,562 |
|
Less valuation allowance |
|
|
(1,020 |
) |
|
|
(2,233 |
) |
|
|
|
|
|
|
|
Net balance |
|
$ |
5,107 |
|
|
$ |
3,329 |
|
|
|
|
|
|
|
|
Activity in the valuation allowance for mortgage servicing rights was as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
|
|
|
Ended |
|
|
Year Ended |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Balance, beginning of year |
|
$ |
(2,233 |
) |
|
$ |
(562 |
) |
Impairment charges |
|
|
|
|
|
|
(2,233 |
) |
Recoveries |
|
|
1,213 |
|
|
|
562 |
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
(1,020 |
) |
|
$ |
(2,233 |
) |
|
|
|
|
|
|
|
Fair value of mortgage servicing rights as of June 30, 2009 was approximately $6.5 million and at
December 31, 2008 was $3.9 million.
15
Key economic assumptions in measuring the value of mortgage servicing rights at June 30, 2009 and
December 31, 2008 were as follows:
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2009 |
|
2008 |
Weighted average prepayment rate |
|
415 PSA |
|
644 PSA |
Weighted average life (in years) |
|
3.59 |
|
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 June 30, 2009 and December 31, 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
Real estate owned and other repossessed assets |
|
$ |
36,145 |
|
|
$ |
32,012 |
|
Valuation allowance |
|
|
(3,068 |
) |
|
|
(2,754 |
) |
|
|
|
|
|
|
|
End of period |
|
$ |
33,077 |
|
|
$ |
29,258 |
|
|
|
|
|
|
|
|
Activity in the valuation allowance was as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Beginning of year |
|
$ |
2,754 |
|
|
$ |
|
|
Additions charged to expense |
|
|
1,398 |
|
|
|
3,753 |
|
Direct write-downs |
|
|
(1,084 |
) |
|
|
(999 |
) |
|
|
|
|
|
|
|
End of period |
|
$ |
3,068 |
|
|
$ |
2,754 |
|
|
|
|
|
|
|
|
Expenses related to foreclosed and repossessed assets include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
|
(Dollars in thousands) |
|
Net loss on sales |
|
$ |
497 |
|
|
$ |
143 |
|
|
$ |
922 |
|
|
$ |
238 |
|
Provision for unrealized losses |
|
|
685 |
|
|
|
1,390 |
|
|
|
1,398 |
|
|
|
1,435 |
|
Operating expenses, net of rental income |
|
|
804 |
|
|
|
700 |
|
|
|
1,755 |
|
|
|
1,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
$ |
1,986 |
|
|
$ |
2,233 |
|
|
$ |
4,075 |
|
|
$ |
2,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
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 June 30, |
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
|
|
|
$ |
|
|
Interest cost |
|
|
94 |
|
|
|
96 |
|
Expected return on plan assets |
|
|
|
|
|
|
|
|
Net amortization of prior service cost |
|
|
|
|
|
|
|
|
Net amortization of actuarial gain |
|
|
(8 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
86 |
|
|
$ |
90 |
|
|
|
|
|
|
|
|
11. FAIR VALUE MEASUREMENT
SFAS No. 157 defines fair value as the exchange price that would be received for an asset or paid
to transfer a liability (exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement date. SFAS No.
157 also establishes a fair value hierarchy which 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 values:
Level 1: Quoted prices (unadjusted) for 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.
17
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.
Assets and liabilities measured at fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30, 2009 Using: |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
for Identical |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
June 30, |
|
|
Assets |
|
|
Observable |
|
|
Inputs |
|
|
|
2009 |
|
|
(Level 1) |
|
|
Inputs (Level 2) |
|
|
(Level 3) |
|
|
|
(Dollars in thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury and government
sponsored entities
securities |
|
$ |
43,974 |
|
|
$ |
|
|
|
$ |
43,974 |
|
|
$ |
|
|
Equity securities |
|
|
976 |
|
|
|
976 |
|
|
|
|
|
|
|
|
|
Mortgage-related securities |
|
|
210,895 |
|
|
|
|
|
|
|
210,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
|
|
(Dollars in thousands) |
|
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 June 30, 2009 Using: |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
for Identical |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
June 30, |
|
|
Assets |
|
|
Observable |
|
|
Inputs |
|
|
|
2009 |
|
|
(Level 1) |
|
|
Inputs (Level 2) |
|
|
(Level 3) |
|
|
|
(Dollars in thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
36,747 |
|
|
|
|
|
|
|
|
|
|
$ |
36,747 |
|
Mortgage servicing assets |
|
|
2,220 |
|
|
|
|
|
|
|
2,220 |
|
|
|
|
|
Foreclosed assets |
|
|
10,562 |
|
|
|
|
|
|
|
|
|
|
|
10,562 |
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
|
|
(Dollars in thousands) |
|
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 $43.3 million at June 30,
2009, with a valuation allowance of $6.6 million, resulting in additional provision for loan losses
of $1.6 million during the period.
Mortgage servicing rights had a carrying amount of $6.1 million with a valuation allowance of $1.0
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 $13.7 million, with a valuation
allowance of $3.1 million.
In accordance with FSP FAS 107-1, the carrying amounts and estimated fair values of financial
instruments, at June 30, 2009 and December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Value |
|
|
Value |
|
|
Value |
|
|
Value |
|
|
|
(Dollars in thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
44,660 |
|
|
$ |
44,660 |
|
|
$ |
43,417 |
|
|
$ |
43,417 |
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale |
|
|
255,845 |
|
|
|
255,845 |
|
|
|
215,731 |
|
|
|
215,731 |
|
Loans held for sale |
|
|
14,057 |
|
|
|
14,096 |
|
|
|
16,032 |
|
|
|
16,358 |
|
Loans, net |
|
|
2,032,404 |
|
|
|
2,028,432 |
|
|
|
2,203,453 |
|
|
|
2,203,606 |
|
Federal Home Loan Bank stock |
|
|
26,464 |
|
|
|
n/a |
|
|
|
26,464 |
|
|
|
n/a |
|
Accrued interest receivable |
|
|
9,042 |
|
|
|
9,042 |
|
|
|
10,082 |
|
|
|
10,082 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking, savings and money market accounts |
|
|
(690,954 |
) |
|
|
(690,955 |
) |
|
|
(660,675 |
) |
|
|
(660,675 |
) |
Certificates of deposit |
|
|
(1,137,260 |
) |
|
|
(1,150,774 |
) |
|
|
(1,225,256 |
) |
|
|
(1,237,262 |
) |
Federal Home Loan Bank advances |
|
|
(294,152 |
) |
|
|
(348,185 |
) |
|
|
(337,603 |
) |
|
|
(348,185 |
) |
Repurchase agreements and other |
|
|
(97,252 |
) |
|
|
(106,934 |
) |
|
|
(125,269 |
) |
|
|
(138,862 |
) |
Advance payments by borrowers for taxes
and insurance |
|
|
(14,051 |
) |
|
|
(14,051 |
) |
|
|
(19,806 |
) |
|
|
(19,806 |
) |
Accrued interest payable |
|
|
(2,698 |
) |
|
|
(2,698 |
) |
|
|
(3,077 |
) |
|
|
(3,077 |
) |
Fair value of financial instruments:
The estimated fair values of financial instruments have been determined by United Community using
available market information and appropriate valuation methodologies. Considerable judgment is
required in interpreting market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily
indicative of the amounts that United Community could realize in a current market exchange. The
use of different market assumptions and/or estimation methodologies
may have a material affect on
the estimated fair value amounts.
19
Cash and cash equivalents, accrued interest receivable and payable and advance payments by
borrowers for taxes and insuranceThe carrying amounts as reported in the Statements of Financial
Condition are a reasonable estimate of fair value due to their short-term nature.
SecuritiesFair values are based on quoted market prices, dealer quotes, and prices obtained from
independent pricing services.
Loans held for saleThe fair value of loans held for sale is based on market quotes.
LoansThe fair value is estimated by discounting the future cash flows using the current market
rates for loans of similar maturities with adjustments for market and credit risks.
Federal Home Loan Bank stockIt is not practical to determine the fair value of Federal Home Loan
Bank stock due to restrictions placed on its transferability.
DepositsThe fair value of demand deposits, savings accounts and money market deposit accounts is
the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates
of deposit is estimated using rates currently offered for deposits of similar remaining maturities.
Borrowed fundsFor short-term borrowings, fair value is estimated to be carrying value. The fair
value of other borrowings is based on current rates for similar financing.
LimitationsFair value estimates are made at a specific point in time, based on relevant market
information and information about the financial instrument. These estimates do not reflect any
premium or discount that could result from offering for sale at one time United Communitys entire
holdings of a particular financial instrument. Because no market exists for a significant portion
of United Communitys financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates are subjective in nature, involve
uncertainties and matters of significant judgment, and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off balance sheet financial instruments without
attempting to estimate the value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. For example, a significant asset not
considered a financial asset is premises and equipment. In addition, tax ramifications related to
the realization of the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in any of the estimates.
12. STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURE
Supplemental disclosures of cash flow information are summarized below.
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
(Dollars in thousands) |
|
Supplemental disclosures of cash flow information |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest on deposits and borrowings |
|
$ |
30,782 |
|
|
$ |
43,337 |
|
Income taxes |
|
|
600 |
|
|
|
3,825 |
|
Supplemental schedule of noncash activities: |
|
|
|
|
|
|
|
|
Transfers from loans to real estate owned and
other repossessed assets |
|
|
12,953 |
|
|
|
18,545 |
|
13. SEGMENT INFORMATION
United Community monitors 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.
20
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 2,218,203
shares were anti-dilutive for the six months ended June 30, 2009. There were 2,344,306 stock
options for shares that were anti-dilutive for the six months ended June 30, 2008. Earnings per
share for 2008 have been adjusted to reflect a stock dividend declared in November 2008.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands, |
|
|
|
except per share data) |
|
Numerator: |
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(2,914 |
) |
|
$ |
2,304 |
|
Income from discontinued operations |
|
|
|
|
|
|
425 |
|
|
|
|
|
|
|
|
Net income |
|
$ |
(2,914 |
) |
|
$ |
2,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average common shares outstandingbasic |
|
|
29,727 |
|
|
|
29,424 |
|
Dilutive effect of stock options |
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
|
Weighted average common shares outstandingdilutive |
|
|
29,727 |
|
|
|
29,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
Basic earnings (loss) per common sharecontinuing operations |
|
$ |
(0.10 |
) |
|
$ |
0.08 |
|
Basic earnings per common sharediscontinued operations |
|
|
|
|
|
|
0.02 |
|
Basic earnings (loss) per common share |
|
|
(0.10 |
) |
|
|
0.10 |
|
|
|
|
|
|
|
|
|
|
Dilutive earnings (loss) per share: |
|
|
|
|
|
|
|
|
Dilutive earnings (loss) per common sharecontinuing operations |
|
|
(0.10 |
) |
|
|
0.08 |
|
Dilutive earnings per common sharediscontinued operations |
|
|
|
|
|
|
0.02 |
|
Dilutive earnings (loss) per common share |
|
|
(0.10 |
) |
|
|
0.10 |
|
21
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands, |
|
|
|
except per share data) |
|
Numerator: |
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(4,593 |
) |
|
$ |
6,069 |
|
Income from discontinued operations |
|
|
4,949 |
|
|
|
703 |
|
|
|
|
|
|
|
|
Net income |
|
$ |
356 |
|
|
$ |
6,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average common shares outstandingbasic |
|
|
29,645 |
|
|
|
29,361 |
|
Dilutive effect of stock options |
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
Weighted average common shares outstandingdilutive |
|
|
29,645 |
|
|
|
29,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
Basic earnings (loss) per common sharecontinuing operations |
|
$ |
(0.16 |
) |
|
$ |
0.21 |
|
Basic earnings per common sharediscontinued operations |
|
|
0.17 |
|
|
|
0.03 |
|
Basic earnings (loss) per common share |
|
|
0.01 |
|
|
|
0.24 |
|
|
|
|
|
|
|
|
|
|
Dilutive earnings (loss) per share: |
|
|
|
|
|
|
|
|
Dilutive earnings (loss) per common sharecontinuing operations |
|
|
(0.16 |
) |
|
|
0.21 |
|
Dilutive earnings per common sharediscontinued operations |
|
|
0.17 |
|
|
|
0.03 |
|
Dilutive earnings (loss) per common share |
|
|
0.01 |
|
|
|
0.24 |
|
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 deposits without prior consent of the FDIC and Ohio Division. Home Savings had
brokered deposits of $92.2 million with a weighted average rate of 4.07% at June 30, 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 (LOSS)
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
gains on sales of securities and impairment charges $150,000 at June 30, 2009, and $4.2 million at
December 31, 2008.
Other comprehensive income (loss) components and related tax effects for the three and six month
periods are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Unrealized holding gains (losses) on securities available for sale |
|
$ |
(4,337 |
) |
|
$ |
(9,995 |
) |
Reclassification adjustment for gains (losses) realized in income |
|
|
1,382 |
|
|
|
57 |
|
|
|
|
|
|
|
|
Net unrealized losses |
|
|
(2,955 |
) |
|
|
(9,938 |
) |
Tax effect (35%) |
|
|
1,034 |
|
|
|
3,478 |
|
|
|
|
|
|
|
|
Net of tax amount |
|
$ |
(1,921 |
) |
|
$ |
(6,460 |
) |
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Unrealized holding gains (losses) on securities available for sale |
|
$ |
(2,787 |
) |
|
$ |
(7,640 |
) |
Reclassification adjustment for gains (losses) realized in income |
|
|
1,232 |
|
|
|
988 |
|
|
|
|
|
|
|
|
Net unrealized losses |
|
|
(1,555 |
) |
|
|
(6,652 |
) |
Tax effect (35%) |
|
|
544 |
|
|
|
2,328 |
|
|
|
|
|
|
|
|
Net of tax amount |
|
$ |
(1,011 |
) |
|
$ |
(4,324 |
) |
|
|
|
|
|
|
|
The following is a summary of accumulated other comprehensive income (loss) balances, net of
tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Current |
|
|
Balance at |
|
|
|
December 31, |
|
|
Period |
|
|
June 30, |
|
|
|
2008 |
|
|
Change |
|
|
2009 |
|
|
Unrealized gains on securities available for sale |
|
$ |
3,297 |
|
|
$ |
(1,011 |
) |
|
$ |
2,286 |
|
Unrealized gains on post-retirement benefits |
|
|
338 |
|
|
|
|
|
|
|
338 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,635 |
|
|
$ |
(1,011 |
) |
|
$ |
2,624 |
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well Capitalized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Prompt |
|
|
|
|
|
|
|
|
|
|
|
Minimum Capital |
|
|
Corrective Action |
|
|
|
Actual |
|
|
Requirements |
|
|
Provisions |
|
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
|
(In thousands) |
|
Total risk-based capital to
risk-weighted assets |
|
$ |
237,586 |
|
|
|
12.76 |
% |
|
$ |
148,907 |
|
|
|
8.00 |
% |
|
$ |
186,134 |
|
|
|
10.00 |
% |
Tier 1 capital to risk-weighted assets |
|
|
214,115 |
|
|
|
11.50 |
% |
|
|
* |
|
|
|
* |
|
|
|
111,680 |
|
|
|
6.00 |
% |
Tier 1 capital to average total assets |
|
|
214,115 |
|
|
|
8.50 |
% |
|
|
100,816 |
|
|
|
4.00 |
% |
|
|
126,020 |
|
|
|
5.00 |
% |
Tangible capital to adjusted total assets |
|
|
214,115 |
|
|
|
8.50 |
% |
|
|
37,806 |
|
|
|
1.50 |
% |
|
|
* |
|
|
|
* |
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well Capitalized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Prompt |
|
|
|
|
|
|
|
|
|
|
|
Minimum Capital |
|
|
Corrective Action |
|
|
|
Actual |
|
|
Requirements |
|
|
Provisions |
|
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
|
(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 June 30, 2009 and December 31, 2008, the FDIC and OTS, respectively, categorized Home Savings
as adequately capitalized pursuant to the Bank Order and OTS Order, as previously disclosed. 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 on the previous page, Home Savings continues to exceed this
requirement.
Management believes, as of June 30, 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.
24
|
|
ITEM 2. |
Managements Discussion and Analysis
of Financial Condition and Results of Operations |
UNITED COMMUNITY FINANCIAL CORP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the Three |
|
|
At or For the Six |
|
|
|
Months Ended |
|
|
Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Selected financial ratios and other data: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets (2) |
|
|
-0.46 |
% |
|
|
0.40 |
% |
|
|
0.03 |
% |
|
|
0.49 |
% |
Return on average equity (3) |
|
|
-4.74 |
% |
|
|
3.82 |
% |
|
|
0.29 |
% |
|
|
4.77 |
% |
Interest rate spread (4) |
|
|
2.81 |
% |
|
|
2.60 |
% |
|
|
2.78 |
% |
|
|
2.40 |
% |
Net interest margin (5) |
|
|
3.12 |
% |
|
|
2.94 |
% |
|
|
3.08 |
% |
|
|
2.77 |
% |
Non-interest expense to average assets |
|
|
2.72 |
% |
|
|
2.20 |
% |
|
|
2.62 |
% |
|
|
2.19 |
% |
Efficiency ratio (6) |
|
|
69.38 |
% |
|
|
64.69 |
% |
|
|
70.56 |
% |
|
|
65.52 |
% |
Average interest-earning assets to
average interest-bearing liabilities |
|
|
112.66 |
% |
|
|
111.38 |
% |
|
|
112.08 |
% |
|
|
111.47 |
% |
Capital ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average equity to average assets |
|
|
9.74 |
% |
|
|
10.38 |
% |
|
|
9.58 |
% |
|
|
10.31 |
% |
Equity to assets, end of period |
|
|
9.43 |
% |
|
|
9.76 |
% |
|
|
9.43 |
% |
|
|
9.76 |
% |
Tier 1 leverage ratio |
|
|
8.50 |
% |
|
|
7.77 |
% |
|
|
8.50 |
% |
|
|
7.77 |
% |
Tier 1 risk-based capital ratio |
|
|
11.50 |
% |
|
|
9.86 |
% |
|
|
11.50 |
% |
|
|
9.86 |
% |
Total risk-based capital ratio |
|
|
12.76 |
% |
|
|
11.77 |
% |
|
|
12.76 |
% |
|
|
11.77 |
% |
Asset quality ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans to total loans at end of period (7) |
|
|
5.02 |
% |
|
|
4.44 |
% |
|
|
5.02 |
% |
|
|
4.44 |
% |
Non-performing assets to average assets (8) |
|
|
5.35 |
% |
|
|
4.35 |
% |
|
|
5.26 |
% |
|
|
4.34 |
% |
Non-performing assets to total assets at end of period |
|
|
5.43 |
% |
|
|
4.34 |
% |
|
|
5.43 |
% |
|
|
4.34 |
% |
Allowance for loan losses as a percent of loans |
|
|
1.92 |
% |
|
|
1.29 |
% |
|
|
1.92 |
% |
|
|
1.29 |
% |
Allowance for loan losses as a percent of nonperforming loans (7) |
|
|
39.05 |
% |
|
|
29.45 |
% |
|
|
39.05 |
% |
|
|
29.45 |
% |
Office data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of full service banking offices |
|
|
39 |
|
|
|
39 |
|
|
|
39 |
|
|
|
39 |
|
Number of loan production offices |
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
Per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) from continuing operations (9) |
|
$ |
(0.10 |
) |
|
$ |
0.08 |
|
|
$ |
(0.16 |
) |
|
$ |
0.21 |
|
Basic earnings from discontinued operations (9) |
|
|
|
|
|
|
0.02 |
|
|
|
0.17 |
|
|
|
0.03 |
|
Basic earnings (loss) (9) |
|
|
(0.10 |
) |
|
|
0.10 |
|
|
|
0.01 |
|
|
|
0.24 |
|
Diluted earnings (loss) from continuing operations (9) |
|
|
(0.10 |
) |
|
|
0.08 |
|
|
|
(0.16 |
) |
|
|
0.21 |
|
Diluted earnings from discontinued operations (9) |
|
|
|
|
|
|
0.02 |
|
|
|
0.17 |
|
|
|
0.03 |
|
Diluted earnings (loss) (9) |
|
|
(0.10 |
) |
|
|
0.10 |
|
|
|
0.01 |
|
|
|
0.24 |
|
Book value (10) |
|
|
7.59 |
|
|
|
8.96 |
|
|
|
7.59 |
|
|
|
8.96 |
|
Tangible book value (11) |
|
|
7.57 |
|
|
|
7.81 |
|
|
|
7.57 |
|
|
|
7.81 |
|
|
|
|
(1) |
|
Ratios for the three and six month periods are annualized where appropriate. Ratios for the period ending June 30, 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. |
25
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. United
Community undertakes no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement is made.
Comparison of Financial Condition at June 30, 2009 and December 31, 2008
Total assets decreased $131.0 million, or 5.0%, to $2.5 billion at June 30, 2009, compared to
December 31, 2008. Contributing to the change were decreases in net loans of $171.0 million, loans
held for sale of $2.0 million, accrued interest receivable of $1.0 million and assets of
discontinued operations of $5.6 million. These decreases were partially offset by increases in
cash and cash equivalents of $1.2 million, securities available for sale of $40.1 million, real
estate owned and other repossessed assets of $3.8 million and other assets of $3.8 million.
Cash and cash equivalents increased $1.2 million to $44.7 million at June 30, 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. These increases were partially offset by a decrease in cash prepared for delivery to Home
Savings branch locations.
Available for sale securities increased $40.1 million, or 18.6%, from December 31, 2008, to June
30, 2009. Home Savings purchased $114.0 million in mortgage-backed and agency securities during
the first six months of 2009 as part of a planned investment strategy to offset partial decreases
in loan balances, described below. The investment strategy also included the sale of approximately
$46.1 million of mortgage-backed securities, which generated a gain of $1.4 million. Paydowns and
maturities of $25.9 million at Home Savings and other than temporary impairment charges of $150,000
at United Community also contributed to the change in available for sale securities. The remaining
difference is a result of changes in the market valuation of the portfolio, net of any amortization
or accretion.
Net loans decreased $171.0 million from December 31, 2008, to June 30, 2009. Real estate loans
decreased $125.7 million, consumer loans decreased $26.0 million, and commercial loans decreased
$15.2 million. The overall decrease in loans is attributable primarily to the strategic objective
of reducing exposure to commercial and residential construction lending. Furthermore, due to a
much lower interest rate environment, refinance activity accelerated, further contributing to the
decline in one-to four-family loans.
The allowance for loan losses increased to $39.8 million, or 1.92% of the net loan portfolio and
39.1% of nonperforming loans as of June 30, 2009, up from $36.0 million or 1.29% of the net loan
portfolio and 33.71% of nonperforming loans as of December 31, 2008. Loan loss provisions totaling
$20.8 million during the six months ended June 30, 2009 were partially offset by charge-offs
totaling $17.5 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 for loan losses. 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, or portion thereof that, in
managements judgment, should be charged-off.
26
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) 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance For Loan Losses |
|
|
|
(Dollars in thousands) |
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
Real Estate Loans |
|
2008 |
|
|
Provision |
|
|
Recovery |
|
|
Chargeoff |
|
|
2009 |
|
Permanent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
$ |
4,986 |
|
|
$ |
2,487 |
|
|
$ |
10 |
|
|
$ |
(2,364 |
) |
|
$ |
5,119 |
|
Multifamily residential |
|
|
2,344 |
|
|
|
1,158 |
|
|
|
3 |
|
|
|
(2,036 |
) |
|
|
1,469 |
|
Nonresidential |
|
|
4,870 |
|
|
|
1,548 |
|
|
|
3 |
|
|
|
(2,348 |
) |
|
|
4,073 |
|
Land |
|
|
585 |
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
12,785 |
|
|
|
5,258 |
|
|
|
16 |
|
|
|
(6,748 |
) |
|
|
11,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
|
10,620 |
|
|
|
12,173 |
|
|
|
9 |
|
|
|
(6,091 |
) |
|
|
16,711 |
|
Multifamily and nonresidential |
|
|
722 |
|
|
|
(435 |
) |
|
|
|
|
|
|
|
|
|
|
287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
11,342 |
|
|
|
11,738 |
|
|
|
9 |
|
|
|
(6,091 |
) |
|
|
16,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity |
|
|
1,386 |
|
|
|
1,473 |
|
|
|
1 |
|
|
|
(906 |
) |
|
|
1,954 |
|
Auto |
|
|
242 |
|
|
|
14 |
|
|
|
10 |
|
|
|
(72 |
) |
|
|
194 |
|
Marine |
|
|
1,504 |
|
|
|
216 |
|
|
|
331 |
|
|
|
(806 |
) |
|
|
1,245 |
|
Recreational vehicle |
|
|
1,425 |
|
|
|
948 |
|
|
|
82 |
|
|
|
(1,015 |
) |
|
|
1,440 |
|
Other |
|
|
313 |
|
|
|
139 |
|
|
|
172 |
|
|
|
(341 |
) |
|
|
283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,870 |
|
|
|
2,790 |
|
|
|
596 |
|
|
|
(3,140 |
) |
|
|
5,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
|
3,355 |
|
|
|
938 |
|
|
|
|
|
|
|
(946 |
) |
|
|
3,347 |
|
Unsecured |
|
|
3,610 |
|
|
|
31 |
|
|
|
|
|
|
|
(581 |
) |
|
|
3,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,965 |
|
|
|
969 |
|
|
|
|
|
|
|
(1,527 |
) |
|
|
6,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
35,962 |
|
|
$ |
20,755 |
|
|
$ |
621 |
|
|
$ |
(17,506 |
) |
|
$ |
39,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
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 $102.0
million, or 5.02% of net loans, at June 30, 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 six months of 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming Loans |
|
|
|
(Dollars in thousands) |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
|
Real Estate Loans |
|
2009 |
|
|
2008 |
|
|
Change |
|
Permanent |
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
$ |
23,081 |
|
|
$ |
21,669 |
|
|
$ |
1,412 |
|
Multifamily residential |
|
|
5,349 |
|
|
|
8,724 |
|
|
|
(3,375 |
) |
Nonresidential |
|
|
15,046 |
|
|
|
15,246 |
|
|
|
(200 |
) |
Land |
|
|
5,169 |
|
|
|
4,840 |
|
|
|
329 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
48,645 |
|
|
|
50,479 |
|
|
|
(1,834 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans |
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
|
36,806 |
|
|
|
43,167 |
|
|
|
(6,361 |
) |
Multifamily and nonresidential |
|
|
555 |
|
|
|
816 |
|
|
|
(261 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
37,361 |
|
|
|
43,983 |
|
|
|
(6,622 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity |
|
|
2,931 |
|
|
|
2,312 |
|
|
|
619 |
|
Auto |
|
|
119 |
|
|
|
154 |
|
|
|
(35 |
) |
Marine |
|
|
1,736 |
|
|
|
2,614 |
|
|
|
(878 |
) |
Recreational vehicle |
|
|
1,068 |
|
|
|
756 |
|
|
|
312 |
|
Other |
|
|
35 |
|
|
|
33 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5,889 |
|
|
|
5,869 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
|
6,488 |
|
|
|
3,496 |
|
|
|
2,992 |
|
Unsecured |
|
|
1,126 |
|
|
|
1,057 |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
7,614 |
|
|
|
4,553 |
|
|
|
3,061 |
|
|
|
|
|
|
|
|
|
|
|
|
Restructured Loans |
|
|
2,494 |
|
|
|
1,797 |
|
|
|
697 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Nonperforming Loans |
|
$ |
102,003 |
|
|
$ |
106,681 |
|
|
$ |
(4,678 |
) |
|
|
|
|
|
|
|
|
|
|
The $1.4 million increase in
nonperforming loans secured by one-to four-family properties was primarily a result of an increase
in the number of loans that have become 90 days or more past due. During the first half of
the year, Home Savings has experienced an increase in the number of one-to four-family mortgage loans that
became delinquent and subsequently went into nonaccrual status. The $6.4 million decrease in
nonperforming construction loans was substantially the result of Home Savings taking into
possession two properties located in western Pennsylvania in the second quarter of 2009. A large
portion of the decrease in nonperforming multifamily residential loans can also be attributable to
Home Savings taking into possession one property located in Michigan. The increase in
nonperforming commercial secured loans was primarily a result of the Company placing a loan on
nonaccrual status that was not yet ninety or more days past due.
In the fourth quarter of 2008, Home
Savings adopted the practice of determining the past due status of loans based on the number of
days the loan is past due, rather than the number of calendar months the loan is past due. In the
second quarter of 2009, this practice was changed back to the number of calendar months, which is
more consistent with industry practice.
28
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, the strength of guarantors (if any), 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 fair value of the
collateral if the loan is collateral dependent, the present value of expected future cash flows
discounted at the loans effective interest rate, or the market value of the loan. As shown in the
following table, impaired loans increased to $89.6 million, or 2.7% at the end of June 2009, from
December 2008. The largest increase was $6.0 million in one-to four-family mortgage loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans |
|
|
|
(Dollars in thousands) |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
|
Real Estate Loans |
|
2009 |
|
|
2008 |
|
|
Change |
|
Permanent |
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
$ |
18,709 |
|
|
$ |
12,675 |
|
|
$ |
6,034 |
|
Multifamily residential |
|
|
5,349 |
|
|
|
8,724 |
|
|
|
(3,375 |
) |
Nonresidential |
|
|
14,903 |
|
|
|
14,855 |
|
|
|
48 |
|
Land |
|
|
5,168 |
|
|
|
4,757 |
|
|
|
411 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
44,129 |
|
|
|
41,011 |
|
|
|
3,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans |
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
|
34,570 |
|
|
|
36,903 |
|
|
|
(2,333 |
) |
Multifamily and nonresidential |
|
|
555 |
|
|
|
816 |
|
|
|
(261 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
35,125 |
|
|
|
37,719 |
|
|
|
(2,594 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity |
|
|
1,895 |
|
|
|
1,657 |
|
|
|
238 |
|
Auto |
|
|
|
|
|
|
|
|
|
|
|
|
Boat |
|
|
1,736 |
|
|
|
2,614 |
|
|
|
(878 |
) |
Recreational vehicle |
|
|
327 |
|
|
|
|
|
|
|
327 |
|
Other |
|
|
8 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,966 |
|
|
|
4,271 |
|
|
|
(305 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
|
5,330 |
|
|
|
3,496 |
|
|
|
1,834 |
|
Unsecured |
|
|
1,040 |
|
|
|
751 |
|
|
|
289 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,370 |
|
|
|
4,247 |
|
|
|
2,123 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans |
|
$ |
89,590 |
|
|
$ |
87,248 |
|
|
$ |
2,342 |
|
|
|
|
|
|
|
|
|
|
|
Other nonperforming assets, consisting of real estate and other consumer property acquired in
the settlement of loans, totaled $33.1 million at June 30, 2009, compared to $29.3 million at
December 31, 2008. The $3.8 million increase is primarily attributable to the acquisition of two
properties having an estimated market value of $4.0 million that collateralized commercial
construction loans primarily in southwestern Pennsylvania, ten properties having an estimated
market value of $2.5 million in northern Ohio, 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 $1.5 million that secured ten commercial real estate loans in northern Ohio.
Home Savings disposed of property with a value of $6.3 million in the first six months 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.
29
Loans held for sale decreased $2.0 million, or 12.3%, to $14.1 million at June 30, 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 and sales during the period because of the lower interest rate environment. Home
Savings sells a portion of 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 $26.5 million for June 30, 2009, and December 31,
2008. During the first six months 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.
This account represents the reduction in interest income from the time the borrower stopped making
payments until the loan is either 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 $15.8
million at June 30, 2009, and the impact of the reduction in loan balances mentioned above, were
the primary reasons that accrued interest receivable decreased $1.0 million to $9.0 million at June
30, 2009, compared to $10.1 million at December 31, 2008.
Other assets increased $3.8 million to $20.9 million at June 30, 2009, compared to $17.1 million at
December 31, 2008. Home Savings had increases in mortgage servicing rights of $1.8 million,
prepaid Ohio franchise tax of $1.1 million, and a current federal income tax benefit of $364,000.
These increases were offset by cash due on payments of mortgage-backed securities of $1.4 million
and $767,000 in other prepaid assets.
Total deposits decreased $57.7 million to $1.8 billion at June 30, 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 $35.1 million decrease in retail certificates of deposit offset by a
$16.8 million increase in savings accounts and a $13.5 million increase in money market accounts
and other demand deposit accounts. To supplement its funding needs, United Community obtained
brokered certificates of deposit in 2007 and 2008. Such deposits have maturities ranging from six
months to two years from the date they were issued. The total balance of brokered certificates of
deposit was $92.2 million at June 30, 2009 and $145.0 million at December 31, 2008. At this time,
regulatory approval would be required to replace these brokered deposits with additional brokered
deposits as they mature. The Company does not anticipate on seeking approval to replace brokered
deposits at this time.
Federal Home Loan Bank advances decreased $43.5 million during the first six months of 2009,
reflecting a decrease in overnight advances of $13.1 million and a decrease in term advances of
$30.4 million. Home Savings had approximately $247.2 million in unused borrowing capacity at the
FHLB at June 30, 2009. Repurchase agreements and other borrowed funds, including United
Communitys line of credit with JP Morgan Chase Bank, N.A. (JP Morgan Chase), decreased $28.0
million to $97.3 million at June 30, 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 $5.8 million during the first six
months of 2009. Remittance of real estate taxes and property insurance made on behalf of customers
of Home Savings account for $3.6 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 $7.0 million, to $16.1 million at June 30, 2009
from $9.1 million at December 31, 2008. United Community had an increase in accrued liabilities
for taxes related to the net income from Butler Wick and sale of Butler Wick Trust in the first
quarter of 2009. Home Savings had an increase in liabilities of $2.9 million due to issuing
official checks for customers and accounts payable remittances. Home Savings also experienced
increases in deferred income taxes related to the valuation of the securities available for sale
portfolio of $575,000, along with accrued payroll and related expenses of $514,000.
Shareholders equity decreased $310,000 to $234.6 million at June 30, 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 from Butler Wick for the first six months of 2009 were partially
offset by a $4.0 million net loss recognized by Home Savings in the period. A decrease in other
comprehensive income resulting from changes in available for sale securities, net of tax, of $1.0
million also contributed to the decrease.
30
Comparison of Operating Results for the Three Months Ended
June 30, 2009 and June 30, 2008
Net Income. United Community recognized a net loss for the three months ended June 30, 2009,
of $2.9 million, or $(0.10) per diluted share, compared to net income of $2.7 million, or $0.10 per
share, for the three months ended June 30, 2008. Compared with the second quarter of 2008, net
interest income decreased $229,000, the provision for loan losses increased $9.1 million,
non-interest income increased $3.3 million, and non-interest expense increased $2.0 million.
United Communitys annualized return on average assets and return on average equity were (0.46)%
and (4.74)%, respectively, for the three months ended June 30, 2009. The annualized return on
average assets and return on average equity for the comparable period in 2008 were 0.40% and 3.82%,
respectively.
Net Interest Income. Net interest income for the three months ended June 30, 2009, was $18.7
million, compared to $18.9 million for the same period last year. Both interest income and
interest expense decreased, with a smaller decline in interest expense. Interest income decreased
$4.8 million in the second quarter of 2009 compared to the second 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 $13.6 million and a reduction of 34 basis points in
the rate earned on those loans during the second 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 $60.4 million and
the yield earned on those securities decreased by 43 basis points.
Total interest expense decreased $4.6 million for the quarter ended June 30, 2009, as compared to
the same quarter last year. The change was due primarily to reductions of $2.4 million in interest
paid on deposits, $1.6 million in interest paid on Federal Home Loan Bank advances and $526,000 in
interest paid on repurchase agreements and other borrowings. The overall decrease in interest
expense is attributable to a decline in the average outstanding balances of interest bearing
checking accounts of $101.2 million, as well as a reduction of 110 basis points in the cost of
those liabilities. Furthermore, Home Savings experienced a decline in the cost of certificates of
deposit of 55 basis points despite an increase in the average balance of those deposits of $65.5
million. These declines were partially offset by an increase in the average balance of savings
accounts of $12.3 million, along with an increase in the cost of those deposits of 3 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 $117.7 million, as well as a rate decrease on
those borrowings of 97 basis points in the second quarter of 2009 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 keep the Federal Funds rate low 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 $45.3 million and a decline in the rate paid on these alternative
borrowings of 21 basis points.
31
The following table shows the impact of interest rate and outstanding balance (volume) changes
compared to the second quarter of last year. The interest rate spread for the three months ended
June 30, 2009, grew to 2.81% compared to 2.60% for the quarter ended June 30, 2008. The net
interest margin increased 18 basis points to 3.12% for the three months ended June 30, 2009
compared to 2.94% for the same quarter in 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
|
2009 vs. 2008 |
|
|
|
Increase |
|
|
Total |
|
|
|
(decrease) due to |
|
|
increase |
|
|
|
Rate |
|
|
Volume |
|
|
(decrease) |
|
|
|
(Dollars in thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
(1,832 |
) |
|
$ |
(2,027 |
) |
|
$ |
(3,859 |
) |
Loans held for sale |
|
|
41 |
|
|
|
87 |
|
|
|
128 |
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Trading |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(2 |
) |
Available for sale |
|
|
(313 |
) |
|
|
(694 |
) |
|
|
(1,007 |
) |
Federal Home Loan Bank stock |
|
|
(64 |
) |
|
|
10 |
|
|
|
(54 |
) |
Other interest earning assets |
|
|
(67 |
) |
|
|
48 |
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
Total interest earning assets |
|
$ |
(2,236 |
) |
|
$ |
(2,577 |
) |
|
$ |
(4,813 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts |
|
|
14 |
|
|
|
14 |
|
|
|
28 |
|
Checking accounts |
|
|
(1,114 |
) |
|
|
(467 |
) |
|
|
(1,581 |
) |
Certificates of deposit |
|
|
(1,676 |
) |
|
|
793 |
|
|
|
(883 |
) |
Federal Home Loan Bank advances |
|
|
(854 |
) |
|
|
(768 |
) |
|
|
(1,622 |
) |
Repurchase agreements and other |
|
|
(79 |
) |
|
|
(447 |
) |
|
|
(526 |
) |
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
$ |
(3,709 |
) |
|
$ |
(875 |
) |
|
|
(4,584 |
) |
|
|
|
|
|
|
|
|
|
|
Change in net interest income |
|
|
|
|
|
|
|
|
|
$ |
(229 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
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 $9.1 million, to
$12.3 million for the three months ended June 30, 2009, compared to $3.2 million for the same
period in 2008. The $12.3 million provision was primarily the result of the recurring assessments
of the portfolio.
Non-interest Income. Non-interest income increased $3.3 million to $6.2 million for the three
months ended June 30, 2009, from $2.9 million for the three months ended June 30, 2008, primarily
as a result of higher gains recognized on the sale of securities available for sale, and higher
gains recognized on the sale of loans. The gains recognized on the sale of available for sale
securities were the result of the sale of approximately $46.1 million in mortgage-backed securities
for a gain of $1.4 million. The Company used the proceeds of the sale to partially fund the
purchase of $72.0 million of mortgage-backed securities and agency securities. The $1.4 million
increase in gains on loans sold is primarily a result of the volume of originations during the
period, as customers continued to take advantage of low interest rates.
Non-interest Expense. Total non-interest expense increased $2.0 million for the three months ended
June 30, 2009, compared to the three months ended June 30, 2008. The increase is due primarily to
increased Federal deposit insurance premiums of $2.7 million, due largely to a one-time special
assessment, which amounted to $1.2 million for Home Savings, passed along to member banks by the
FDIC and 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 second quarter of 2009 as compared to the second quarter of 2008.
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.
32
Comparison of Operating Results for the Six Months Ended
June 30, 2009 and June 30, 2008
Net Income. United Community recognized net income for the six months ended June 30, 2009, of
$356,000 million, or $0.01 per diluted share, compared to net income of $6.8 million, or $0.24 per
share, for the six months ended June 30, 2008. Compared with the first half of 2008, net interest
income increased $1.6 million, the provision for loan losses increased $15.0 million, non-interest
income decreased $231,000, and non-interest expense increased $3.5 million. United Communitys
annualized return on average assets and return on average equity were 0.03% and 0.29%,
respectively, for the six months ended June 30, 2009. The annualized return on average assets and
return on average equity for the comparable period in 2008 were 0.49% and 4.77%, respectively.
Net Interest Income. Net interest income for the six months ended June 30, 2009, was $37.4 million
compared to $35.9 million for the same period last year. Both interest income and interest expense
decreased with a smaller decline in interest income. Interest income decreased $10.0 million in
the first six months of 2009 compared to the first six months of 2008. The change in interest
income was due primarily to a decrease in interest earned on net loans. Home Savings had a
decrease in the average balance of net loans of $126.2 million and a reduction of 44 basis points
in the rate earned on those loans during the first half of 2009 as compared to the same period 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 $42.2 million and
the yield earned on those securities decreased 36 basis points.
Total interest expense decreased $11.6 million for the six months ended June 30, 2009, as compared
to the same period last year. The change was primarily due to reductions of $6.8 million in
interest paid on deposits, $3.5 million in interest paid on Federal Home Loan Bank advances and
$1.3 million in interest paid on repurchase agreements and other borrowings. The overall decrease
in interest expense is attributable to a decline in the average balances of interest bearing
checking accounts of $79.6 million as well as a reduction of 130 basis points in the cost of those
liabilities. Furthermore, Home Savings experienced a decline in the cost of certificates of
deposit of 74 basis points despite an increase in the average balance of those deposits of $36.3
million. These declines were offset partially by an increase in the average balance of savings
accounts of $11.7 million along with an increase in the cost of those deposits of seven 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 $78.6 million, as well as a rate decrease on
those borrowings of 131 basis points in the first six months of 2009 compared to the first six
months of 2008. The rate on short term advances from the Federal Home Loan Bank has decreased due
to the Federal Reserves action to keep the Federal Funds rate low 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 $40.2 million and a decline in the rate paid on these
alternative borrowings of 66 basis points.
33
The following table shows the impact of interest rate and outstanding balance (volume) changes
compared to the first six months of last year. The interest rate spread for the six months ended
June 30, 2009, grew to 2.78% compared to 2.40% for the six months ended June 30, 2008. The net
interest margin increased 31 basis points to 3.08% for the six months ended June 30, 2009, compared
to 2.77% for the same period in 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, |
|
|
|
2009 vs. 2008 |
|
|
|
Increase |
|
|
Total |
|
|
|
(decrease) due to |
|
|
increase |
|
|
|
Rate |
|
|
Volume |
|
|
(decrease) |
|
|
|
(Dollars in thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
(4,799 |
) |
|
$ |
(3,801 |
) |
|
$ |
(8,600 |
) |
Loans held for sale |
|
|
10 |
|
|
|
193 |
|
|
|
203 |
|
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Trading |
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
Available for sale |
|
|
(493 |
) |
|
|
(985 |
) |
|
|
(1,478 |
) |
Federal Home Loan Bank stock |
|
|
(111 |
) |
|
|
24 |
|
|
|
(87 |
) |
Other interest earning assets |
|
|
(92 |
) |
|
|
45 |
|
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
Total interest earning assets |
|
$ |
(5,485 |
) |
|
$ |
(4,525 |
) |
|
$ |
(10,010 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts |
|
|
64 |
|
|
|
26 |
|
|
|
90 |
|
Checking accounts |
|
|
(2,579 |
) |
|
|
(858 |
) |
|
|
(3,437 |
) |
Certificates of deposit |
|
|
(4,331 |
) |
|
|
857 |
|
|
|
(3,474 |
) |
Federal Home Loan Bank advances |
|
|
(2,286 |
) |
|
|
(1,170 |
) |
|
|
(3,456 |
) |
Repurchase agreements and other |
|
|
(467 |
) |
|
|
(825 |
) |
|
|
(1,292 |
) |
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
$ |
(9,599 |
) |
|
$ |
(1,970 |
) |
|
|
(11,569 |
) |
|
|
|
|
|
|
|
|
|
|
Change in net interest income |
|
|
|
|
|
|
|
|
|
$ |
1,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $15.0 million to
$20.8 million for the six months ended June 30, 2009, compared to $5.7 million for the same period
in 2008. The $20.8 million provision was primarily the result of managements recurring assessment
of the portfolio.
Non-interest Income. Non-interest income decreased $231,000 to $8.9 million for the six months
ended June 30, 2009, from $9.2 million for the six months ended June 30, 2008, primarily as a
result of higher losses attributable to real estate owned and other repossessed assets acquired in
the settlement of loans, lower fees earned in Home Savings non-deposit investment income program,
the additional write down of $26,000 for the Fannie Mae auction rate pass through trust security
held by Home Savings and the write down of $124,000 on equity securities owned by United
Community.
Non-interest Expense. Total non-interest expense increased $3.5 million for the six months ended
June 30, 2009, compared to the six months ended June 30, 2008. The increase is primarily due to
increased Federal deposit insurance premiums of $4.5 million, due largely to a special assessment
of $1.2 million for Home Savings, imposed by the FDIC on member banks in the second quarter of 2009
as well as 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 six months of 2009 as compared to the first six months of
2008. Federal deposit insurance premiums are expected to aggregate $8.3 million for all of 2009,
based in part on 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.
34
UNITED COMMUNITY FINANCIAL CORP.
AVERAGE BALANCE SHEETS
The following table presents the total dollar amounts of interest income and interest expense on the indicated amounts of average
interest-earning assets or interest-bearing liabilities together with the weighted average interest rates for the three month periods
ended June 30, 2009 and 2008. Average balance calculations were based on daily balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
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) |
|
$ |
2,075,751 |
|
|
$ |
30,076 |
|
|
|
5.80 |
% |
|
$ |
2,211,825 |
|
|
$ |
33,935 |
|
|
|
6.14 |
% |
Net loans held for sale |
|
|
17,658 |
|
|
|
216 |
|
|
|
4.89 |
% |
|
|
9,867 |
|
|
|
88 |
|
|
|
3.57 |
% |
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
297 |
|
|
|
2 |
|
|
|
2.69 |
% |
Available for sale |
|
|
250,655 |
|
|
|
2,796 |
|
|
|
4.46 |
% |
|
|
311,102 |
|
|
|
3,803 |
|
|
|
4.89 |
% |
Federal Home Loan Bank stock |
|
|
26,464 |
|
|
|
294 |
|
|
|
4.44 |
% |
|
|
25,768 |
|
|
|
348 |
|
|
|
5.40 |
% |
Other interest-earning assets |
|
|
21,696 |
|
|
|
9 |
|
|
|
0.17 |
% |
|
|
13,828 |
|
|
|
28 |
|
|
|
0.81 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
2,392,224 |
|
|
|
33,391 |
|
|
|
5.58 |
% |
|
|
2,572,687 |
|
|
|
38,204 |
|
|
|
5.94 |
% |
Noninterest-earning assets |
|
|
133,688 |
|
|
|
|
|
|
|
|
|
|
|
156,459 |
|
|
|
|
|
|
|
|
|
Assets of discontinued operations |
|
|
512 |
|
|
|
|
|
|
|
|
|
|
|
22,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,526,424 |
|
|
|
|
|
|
|
|
|
|
$ |
2,751,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts |
|
$ |
376,696 |
|
|
$ |
1,012 |
|
|
|
1.07 |
% |
|
$ |
477,881 |
|
|
$ |
2,593 |
|
|
|
2.17 |
% |
Savings accounts |
|
|
194,703 |
|
|
|
223 |
|
|
|
0.46 |
% |
|
|
182,425 |
|
|
|
195 |
|
|
|
0.43 |
% |
Certificates of deposit |
|
|
1,144,895 |
|
|
|
10,839 |
|
|
|
3.79 |
% |
|
|
1,079,399 |
|
|
|
11,722 |
|
|
|
4.34 |
% |
Federal Home Loan Bank advances |
|
|
298,538 |
|
|
|
1,569 |
|
|
|
2.10 |
% |
|
|
416,205 |
|
|
|
3,191 |
|
|
|
3.07 |
% |
Repurchase agreements and other |
|
|
108,563 |
|
|
|
1,061 |
|
|
|
3.91 |
% |
|
|
153,893 |
|
|
|
1,587 |
|
|
|
4.12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
2,123,395 |
|
|
|
14,704 |
|
|
|
2.77 |
% |
|
|
2,309,803 |
|
|
|
19,288 |
|
|
|
3.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities |
|
|
152,622 |
|
|
|
|
|
|
|
|
|
|
|
149,638 |
|
|
|
|
|
|
|
|
|
Liabilities of discontinued
operations |
|
|
4,311 |
|
|
|
|
|
|
|
|
|
|
|
6,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,280,328 |
|
|
|
|
|
|
|
|
|
|
|
2,465,571 |
|
|
|
|
|
|
|
|
|
Equity |
|
|
246,096 |
|
|
|
|
|
|
|
|
|
|
|
285,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
2,526,424 |
|
|
|
|
|
|
|
|
|
|
$ |
2,751,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and interest
rate spread |
|
|
|
|
|
$ |
18,687 |
|
|
|
2.81 |
% |
|
|
|
|
|
$ |
18,916 |
|
|
|
2.60 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
3.12 |
% |
|
|
|
|
|
|
|
|
|
|
2.94 |
% |
Average interest-earning assets
to average interest-bearing
liabilities |
|
|
|
|
|
|
|
|
|
|
112.66 |
% |
|
|
|
|
|
|
|
|
|
|
111.38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonaccrual loans are included in the average balance at a yield of 0%. |
35
UNITED COMMUNITY FINANCIAL CORP.
AVERAGE BALANCE SHEETS
The following table presents the total dollar amounts of interest income and interest expense on the indicated amounts of average
interest-earning assets or interest-bearing liabilities together with the weighted average interest rates for the six month periods
ended June 30, 2009 and 2008. Average balance calculations were based on daily balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
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) |
|
$ |
2,117,111 |
|
|
$ |
61,143 |
|
|
|
5.78 |
% |
|
$ |
2,243,330 |
|
|
$ |
69,743 |
|
|
|
6.22 |
% |
Net loans held for sale |
|
|
20,897 |
|
|
|
479 |
|
|
|
4.58 |
% |
|
|
12,443 |
|
|
|
276 |
|
|
|
4.44 |
% |
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
305 |
|
|
|
1 |
|
|
|
0.66 |
% |
Available for sale |
|
|
245,185 |
|
|
|
5,566 |
|
|
|
4.54 |
% |
|
|
287,433 |
|
|
|
7,044 |
|
|
|
4.90 |
% |
Federal Home Loan Bank stock |
|
|
26,464 |
|
|
|
593 |
|
|
|
4.48 |
% |
|
|
25,603 |
|
|
|
680 |
|
|
|
5.31 |
% |
Other interest-earning assets |
|
|
20,320 |
|
|
|
38 |
|
|
|
0.37 |
% |
|
|
15,334 |
|
|
|
85 |
|
|
|
1.11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
2,429,977 |
|
|
|
67,819 |
|
|
|
5.58 |
% |
|
|
2,584,448 |
|
|
|
77,829 |
|
|
|
6.02 |
% |
Noninterest-earning assets |
|
|
135,426 |
|
|
|
|
|
|
|
|
|
|
|
150,473 |
|
|
|
|
|
|
|
|
|
Assets of discontinued operations |
|
|
2,069 |
|
|
|
|
|
|
|
|
|
|
|
21,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,567,472 |
|
|
|
|
|
|
|
|
|
|
$ |
2,756,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts |
|
$ |
375,909 |
|
|
$ |
2,214 |
|
|
|
1.18 |
% |
|
$ |
455,511 |
|
|
$ |
5,651 |
|
|
|
2.48 |
% |
Savings accounts |
|
|
191,154 |
|
|
|
468 |
|
|
|
0.49 |
% |
|
|
179,441 |
|
|
|
378 |
|
|
|
0.42 |
% |
Certificates of deposit |
|
|
1,160,376 |
|
|
|
22,043 |
|
|
|
3.80 |
% |
|
|
1,124,077 |
|
|
|
25,517 |
|
|
|
4.54 |
% |
Federal Home Loan Bank advances |
|
|
324,339 |
|
|
|
3,427 |
|
|
|
2.11 |
% |
|
|
402,967 |
|
|
|
6,883 |
|
|
|
3.42 |
% |
Repurchase agreements and other |
|
|
116,391 |
|
|
|
2,251 |
|
|
|
3.87 |
% |
|
|
156,561 |
|
|
|
3,543 |
|
|
|
4.53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
2,168,169 |
|
|
|
30,403 |
|
|
|
2.80 |
% |
|
|
2,318,557 |
|
|
|
41,972 |
|
|
|
3.62 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities |
|
|
149,911 |
|
|
|
|
|
|
|
|
|
|
|
148,146 |
|
|
|
|
|
|
|
|
|
Liabilities of discontinued
operations |
|
|
3,541 |
|
|
|
|
|
|
|
|
|
|
|
5,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,321,621 |
|
|
|
|
|
|
|
|
|
|
|
2,472,015 |
|
|
|
|
|
|
|
|
|
Equity |
|
|
245,851 |
|
|
|
|
|
|
|
|
|
|
|
284,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
2,567,472 |
|
|
|
|
|
|
|
|
|
|
$ |
2,756,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and interest
rate spread |
|
|
|
|
|
$ |
37,416 |
|
|
|
2.78 |
% |
|
|
|
|
|
$ |
35,857 |
|
|
|
2.40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
3.08 |
% |
|
|
|
|
|
|
|
|
|
|
2.77 |
% |
Average interest-earning assets
to average
interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
112.08 |
% |
|
|
|
|
|
|
|
|
|
|
111.47 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonaccrual loans are included in the average balance at a yield of 0%. |
36
|
|
|
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 June 30, 2009. As
noted, for the quarter ended June 30, 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 June 30, 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 |
|
|
Change in |
|
|
|
|
|
|
maximum |
|
|
% |
|
points) |
|
NPV Ratio |
|
|
to minimum % |
|
|
% |
|
|
$ Change |
|
|
change |
|
|
Change |
|
+300 |
|
|
6.83 |
% |
|
|
6.00 |
% |
|
|
(2.48 |
)% |
|
$ |
(4,553 |
) |
|
|
(15.00 |
)% |
|
|
(5.80 |
)% |
+200 |
|
|
8.18 |
|
|
|
7.00 |
|
|
|
(1.13 |
) |
|
|
(2,510 |
) |
|
|
(10.00 |
) |
|
|
(3.20 |
) |
+100 |
|
|
9.05 |
|
|
|
7.00 |
|
|
|
(0.26 |
) |
|
|
(830 |
) |
|
|
(5.00 |
) |
|
|
(1.06 |
) |
Static |
|
|
9.31 |
|
|
|
8.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
NPV as % of portfolio value of assets |
|
|
Next 12 months net interest income |
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
in rates |
|
|
|
|
|
Internal policy |
|
|
Change in |
|
|
|
|
|
|
Internal policy |
|
|
% |
|
(Basis points) |
|
NPV Ratio |
|
|
limitations |
|
|
% |
|
|
$ 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 twelve months, Home Savings has experienced the positive impact of a steeper yield
curve. The net interest margin continues to improve as certificates of deposit reprice at 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 June 30, 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 June 30, 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.
38
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.
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 June 30, 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 |
|
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 |
39
UNITED COMMUNITY FINANCIAL CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
|
|
|
|
UNITED COMMUNITY FINANCIAL CORP. |
|
|
|
|
Date: August 7, 2009 |
/S/ Douglas M. McKay
|
|
|
Douglas M. McKay |
|
|
Chairman, President and Chief Executive Officer |
|
|
Date: August 7, 2009 |
/S/ James R. Reske
|
|
|
James R. Reske, CFA |
|
|
Treasurer and Chief Financial Officer |
|
40
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.
EXHIBIT INDEX
|
|
|
|
|
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 |
41