10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
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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 o
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Non-accelerated filer o
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Small reporting company þ |
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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.
30,897,825 common shares as of April 30, 2010.
TABLE OF CONTENTS
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PAGE |
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1 |
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2 |
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4 |
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5 |
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6-21 |
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22-31 |
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32 |
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33 |
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34 |
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34 |
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34 |
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Item 3. Defaults Upon Senior Securities (None) |
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Item 4. Reserved |
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Item 5. Other Information (None) |
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34 |
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35 |
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Exhibits |
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Exhibit 31.1 |
Exhibit 31.2 |
Exhibit 32 |
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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March 31, |
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December 31, |
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2010 |
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2009 |
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(Dollars in thousands) |
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Assets: |
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Cash and deposits with banks |
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$ |
20,609 |
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$ |
22,330 |
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Federal funds sold and other |
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19,446 |
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22,744 |
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Total cash and cash equivalents |
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40,055 |
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45,074 |
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Securities: |
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Available for sale, at fair value |
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272,239 |
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281,348 |
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Loans held for sale |
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4,318 |
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10,497 |
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Loans, net of allowance for loan losses of $47,768 and $42,287, respectively |
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1,823,899 |
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1,866,018 |
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Federal Home Loan Bank stock, at cost |
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26,464 |
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26,464 |
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Premises and equipment, net |
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22,697 |
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23,139 |
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Accrued interest receivable |
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8,405 |
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9,090 |
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Real estate owned and other repossessed assets |
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35,418 |
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30,962 |
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Core deposit intangible |
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613 |
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661 |
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Cash surrender value of life insurance |
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26,475 |
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26,198 |
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Other assets |
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19,136 |
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18,976 |
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Total assets |
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$ |
2,279,719 |
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$ |
2,338,427 |
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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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$ |
1,602,851 |
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$ |
1,642,722 |
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Non-interest bearing |
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125,741 |
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126,779 |
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Total deposits |
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1,728,592 |
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1,769,501 |
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Borrowed funds: |
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Federal Home Loan Bank advances |
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214,099 |
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221,323 |
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Repurchase agreements and other |
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96,553 |
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96,833 |
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Total borrowed funds |
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310,652 |
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318,156 |
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Advance payments by borrowers for taxes and insurance |
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13,761 |
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19,791 |
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Accrued interest payable |
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1,751 |
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1,421 |
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Accrued expenses and other liabilities |
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10,481 |
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9,775 |
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Total liabilities |
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2,065,237 |
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2,118,644 |
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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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145,586 |
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145,775 |
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Retained earnings |
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143,532 |
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148,674 |
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Accumulated other comprehensive income |
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3,685 |
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4,110 |
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Unearned employee stock ownership plan shares |
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(5,366 |
) |
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(5,821 |
) |
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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214,482 |
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219,783 |
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Total liabilities and shareholders equity |
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$ |
2,279,719 |
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$ |
2,338,427 |
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See Notes to Consolidated Financial Statements.
1
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
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For the Three Months Ended |
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March 31, |
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2010 |
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2009 |
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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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$ |
25,843 |
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$ |
31,067 |
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Loans held for sale |
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70 |
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263 |
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Available for sale securities |
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2,585 |
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2,770 |
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Federal Home Loan Bank stock dividends |
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300 |
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299 |
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Other interest earning assets |
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7 |
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29 |
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Total interest income |
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28,805 |
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34,428 |
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Interest expense |
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Deposits |
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9,318 |
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12,651 |
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Federal Home Loan Bank advances |
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848 |
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1,858 |
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Repurchase agreements and other |
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923 |
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1,190 |
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Total interest expense |
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11,089 |
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15,699 |
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Net interest income |
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17,716 |
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18,729 |
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Provision for loan losses |
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12,450 |
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8,444 |
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Net interest income after provision for loan losses |
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5,266 |
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10,285 |
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Non-interest income |
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Non-deposit investment income |
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428 |
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304 |
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Service fees and other charges |
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1,751 |
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1,512 |
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Net gains (losses): |
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Securities available for sale |
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2,843 |
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Other -than-temporary loss in equity securities |
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Total impairment loss |
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(150 |
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Loss recognized in other comprehensive income |
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Net impairment loss recognized in earnings |
|
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(150 |
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Mortgage banking income |
|
|
386 |
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|
1,140 |
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Real estate owned and other repossessed assets |
|
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(1,484 |
) |
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|
(1,138 |
) |
Gain on sale of retail branch |
|
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1,387 |
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Other income |
|
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1,249 |
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|
1,075 |
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Total non-interest income |
|
|
6,560 |
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|
2,743 |
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Non-interest expense |
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Salaries and employee benefits |
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8,174 |
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|
8,023 |
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Occupancy |
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1,004 |
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|
984 |
|
Equipment and data processing |
|
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1,667 |
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1,730 |
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Franchise tax |
|
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511 |
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592 |
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Advertising |
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222 |
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229 |
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Amortization of core deposit intangible |
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48 |
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|
60 |
|
Deposit insurance premiums |
|
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1,461 |
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|
1,783 |
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Professional fees |
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1,033 |
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|
716 |
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Real estate owned and other repossessed asset expenses |
|
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607 |
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|
951 |
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Other expenses |
|
|
2,241 |
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1,331 |
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Total non-interest expenses |
|
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16,968 |
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16,399 |
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Income (loss) from continuing operations before income taxes |
|
|
(5,142 |
) |
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|
(3,371 |
) |
Income tax expense (benefit) |
|
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(1,692 |
) |
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Net income (loss) from continuing operations |
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(5,142 |
) |
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(1,679 |
) |
Discontinued operations |
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Net income of Butler Wick Corp., net of tax |
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4,949 |
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Net income (loss) |
|
$ |
(5,142 |
) |
|
$ |
3,270 |
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2
(Continued)
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
|
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|
|
|
|
|
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|
For the Three Months Ended |
|
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|
March 31, |
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|
2010 |
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|
2009 |
|
Comprehensive income (loss) |
|
$ |
(5,567 |
) |
|
$ |
4,180 |
|
Earnings (loss) per share |
|
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Basiccontinuing operations |
|
$ |
(0.17 |
) |
|
$ |
(0.06 |
) |
Basicdiscontinued operations |
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|
0.17 |
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Basicnet income (loss) |
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|
(0.17 |
) |
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|
0.11 |
|
Dilutedcontinuing operations |
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(0.17 |
) |
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(0.06 |
) |
Diluteddiscontinued operations |
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|
0.17 |
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Dilutednet income (loss) |
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(0.17 |
) |
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|
0.11 |
|
See Notes to Consolidated Financial Statements.
3
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited)
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Unearned |
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Accumulated |
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Employee |
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Other |
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Stock |
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Shares |
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Common |
|
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Retained |
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Comprehensive |
|
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Ownership |
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Treasury |
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Outstanding |
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|
Stock |
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Earnings |
|
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Income (Loss) |
|
|
Plan Shares |
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|
Stock |
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Total |
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(Dollars in thousands, except share data) |
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|
Balance December 31, 2009 |
|
|
30,898 |
|
|
$ |
145,775 |
|
|
$ |
148,674 |
|
|
$ |
4,110 |
|
|
$ |
(5,821 |
) |
|
$ |
(72,955 |
) |
|
$ |
219,783 |
|
Comprehensive loss: |
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|
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|
|
|
|
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|
|
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Net loss |
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|
|
|
|
|
|
|
|
|
(5,142 |
) |
|
|
|
|
|
|
|
|
|
|
|
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|
|
(5,142 |
) |
Change in net unrealized gain
on securities, net of
tax expense of $230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(425 |
) |
|
|
|
|
|
|
|
|
|
|
(425 |
) |
|
|
|
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
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|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,567 |
) |
Shares allocated to ESOP participants |
|
|
|
|
|
|
(220 |
) |
|
|
|
|
|
|
|
|
|
|
455 |
|
|
|
|
|
|
|
235 |
|
Stock based compensation |
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2010 |
|
|
30,898 |
|
|
$ |
145,586 |
|
|
$ |
143,532 |
|
|
$ |
3,685 |
|
|
$ |
(5,366 |
) |
|
$ |
(72,955 |
) |
|
$ |
214,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
3,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,270 |
|
Change in net unrealized gain
on securities, net of tax expense of $490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
910 |
|
|
|
|
|
|
|
|
|
|
|
910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,180 |
|
Shares allocated to ESOP participants |
|
|
|
|
|
|
(261 |
) |
|
|
|
|
|
|
|
|
|
|
455 |
|
|
|
|
|
|
|
194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2009 |
|
|
30,898 |
|
|
$ |
146,178 |
|
|
$ |
168,717 |
|
|
$ |
4,545 |
|
|
$ |
(7,188 |
) |
|
$ |
(72,955 |
) |
|
$ |
239,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
4
UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(5,142 |
) |
|
$ |
3,270 |
|
Adjustments to reconcile net income to net cash provided by operating
activities |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
12,450 |
|
|
|
8,444 |
|
Mortgage banking income |
|
|
(386 |
) |
|
|
(1,140 |
) |
Net losses on real estate owned and other repossessed assets sold |
|
|
1,484 |
|
|
|
1,138 |
|
Net gain on retail branch sold |
|
|
(1,387 |
) |
|
|
|
|
Net gain on available for sale securities sold |
|
|
(2,843 |
) |
|
|
|
|
Net gains on other assets sold |
|
|
(3 |
) |
|
|
(21 |
) |
Other than temporary impairment of securities available for sale |
|
|
|
|
|
|
150 |
|
Amortization of premiums and accretion of discounts |
|
|
971 |
|
|
|
1,061 |
|
Depreciation and amortization |
|
|
509 |
|
|
|
586 |
|
Decrease in interest receivable |
|
|
685 |
|
|
|
845 |
|
(Decrease) increase in interest payable |
|
|
330 |
|
|
|
(38 |
) |
Increase in prepaid and other assets |
|
|
(1,366 |
) |
|
|
(4,150 |
) |
Increase in other liabilities |
|
|
882 |
|
|
|
2,436 |
|
Stock based compensation |
|
|
31 |
|
|
|
|
|
Net principal disbursed on loans originated for sale |
|
|
(39,870 |
) |
|
|
(134,445 |
) |
Proceeds from sale of loans originated for sale |
|
|
44,650 |
|
|
|
137,447 |
|
ESOP Compensation |
|
|
235 |
|
|
|
194 |
|
Operating cash flows from discontinued operations |
|
|
|
|
|
|
(4,949 |
) |
|
|
|
|
|
|
|
Net cash from operating activities |
|
|
11,230 |
|
|
|
10,828 |
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Proceeds from principal repayments and maturities of: |
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
14,136 |
|
|
|
10,011 |
|
Proceeds from sale of: |
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
118,947 |
|
|
|
|
|
Real estate owned and other repossessed assets |
|
|
3,222 |
|
|
|
3,085 |
|
Fixed assets |
|
|
20 |
|
|
|
|
|
Purchases of: |
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
(122,131 |
) |
|
|
(42,050 |
) |
Net change in loans |
|
|
21,576 |
|
|
|
76,035 |
|
Loans purchased |
|
|
(1,206 |
) |
|
|
(1,476 |
) |
Purchases of premises and equipment |
|
|
(75 |
) |
|
|
(190 |
) |
Sale of retail branch |
|
|
(22,503 |
) |
|
|
|
|
Investing cash flows from discontinued operations |
|
|
|
|
|
|
11,921 |
|
|
|
|
|
|
|
|
Net cash from investing activities |
|
|
11,986 |
|
|
|
57,336 |
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Net increase in checking, savings and money market accounts |
|
|
14,474 |
|
|
|
19,872 |
|
Net decrease in certificates of deposit |
|
|
(29,175 |
) |
|
|
(70,288 |
) |
Net decrease in advance payments by borrowers for taxes and insurance |
|
|
(6,030 |
) |
|
|
(5,739 |
) |
Proceeds from Federal Home Loan Bank advances |
|
|
257,000 |
|
|
|
172,000 |
|
Repayment of Federal Home Loan Bank advances |
|
|
(264,224 |
) |
|
|
(174,775 |
) |
Net change in repurchase agreements and other borrowed funds |
|
|
(280 |
) |
|
|
(5,868 |
) |
|
|
|
|
|
|
|
Net cash from financing activities |
|
|
(28,235 |
) |
|
|
(64,798 |
) |
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
(5,019 |
) |
|
|
3,366 |
|
Cash and cash equivalents, beginning of period |
|
|
45,074 |
|
|
|
43,417 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
40,055 |
|
|
$ |
46,783 |
|
|
|
|
|
|
|
|
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 or the Company) 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, 38 full-service branches and six loan production offices located throughout Ohio
and western Pennsylvania.
The accompanying consolidated financial statements of United Community have been prepared in
accordance with instructions relating to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles for complete
financial statements. However, such information reflects all adjustments (consisting solely of
normal recurring adjustments) that are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The results of operations for the three months ended March 31, 2010, are not necessarily indicative
of the results to be expected for the year ending December 31, 2010. 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, 2009, contained in United Communitys Form 10-K
for the year ended December 31, 2009.
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
discussed in Notes 3 and 17 of the December 31, 2009 Consolidated Financial Statements.
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:
|
|
|
|
|
|
|
Three |
|
|
|
Months |
|
|
|
Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
|
|
|
|
Income |
|
|
|
|
Interest income |
|
$ |
32 |
|
Brokerage commissions |
|
|
|
|
Service fees and other charges |
|
|
1,287 |
|
Underwriting and investment banking |
|
|
|
|
Gain on the sale of Butler Wick Trust |
|
|
7,904 |
|
Other income |
|
|
|
|
|
|
|
|
Total income |
|
|
9,223 |
|
Expenses |
|
|
|
|
Interest expense on borrowings |
|
|
|
|
Salaries and employee benefits |
|
|
1,198 |
|
Occupancy expenses |
|
|
68 |
|
Equipment and data processing |
|
|
84 |
|
Other expenses |
|
|
258 |
|
|
|
|
|
Total expenses |
|
|
1,608 |
|
|
|
|
|
Income before taxes |
|
|
7,615 |
|
Income tax |
|
|
2,666 |
|
|
|
|
|
Net income |
|
$ |
4,949 |
|
|
|
|
|
4. RECENT ACCOUNTING DEVELOPMENTS
Accounting for Transfers of Financial Assets: In June 2009, the FASB amended previous
guidance relating to transfers of financial assets. This removes the concept of a qualifying
special-purpose entity from existing GAAP and removes the exception from applying FASB ASC 810-10,
Consolidation (FASB Interpretation No. 46 (revised December 2003) Consolidation of Variable
Interest Entities) to qualifying special purpose entities. The objective of this new guidance 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 (which
includes loan participations); the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferors continuing involvement in transferred financial
assets. The Companys adoption of this new guidance on January 1, 2010, did not have a material
impact on United Communitys consolidated financial statements.
Amendments to FASB Interpretation No. 46(R) (ASC 810-10): In June 2009, FASB issued
guidance with the objective 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. The Companys adoption of this new guidance
on January 1, 2010 had no impact on United Communitys consolidated financial statements.
7
Improving Disclosures About Fair Value Measurements: In January 2010, the FASB issued an amendment
to, Fair Value Measurements and Disclosures, Topic 820, Improving Disclosures About Fair Value
Measurements. This amendment requires new disclosures regarding significant transfers in and out
of Level 1 and 2 fair value measurements
and the reasons for the transfers. This amendment also requires that a reporting entity should
present separately information about purchases, sales, issuances and settlements, on a gross basis
rather than a net basis for activity in Level 3 fair value measurements using significant
unobservable inputs. This amendment also clarifies existing disclosures on the level of
disaggregation, in that the reporting entity needs to use judgment in determining the appropriate
classes of assets and liabilities, and that a reporting entity should provide disclosures about the
valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair
value measurements for Level 2 and 3. The new disclosures and clarifications of existing
disclosures for ASC 820 are effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in
the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective
for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal
years. The adoption of ASC 820 did not have a material effect on the Companys consolidated
financial statements.
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.
The 1999 Plan provides for the grant of options, which may qualify as either incentive or
nonqualified stock options. The incentive plan provided 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 312,000 stock options granted in 2009 under the
1999 plan, however, 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 became exercisable on December 31, 2009, with the remaining
two-thirds vesting equally on December 31, 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, stock options, performance awards, stock appreciation rights (SARs), or other
forms of stock-based incentive awards. There were 32,000 stock options granted in 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. For the options granted in 2009, one third of the total
options granted became exercisable on December 31, 2009, with the remaining two-thirds vesting
equally on December 31, 2010 and 2011. The option period for each grant expires 10 years from the
date of grant.
Expenses related to stock option grants is included with salaries and employee benefits. The
Company recognized $31,000 in stock option expenses for the three months ended March 31, 2010. The
Company will recognize additional expenses of $92,000 for the remainder of 2010 and $122,000 in
2011.
A summary of activity in the plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2010 |
|
|
|
|
|
|
|
Weighted |
|
|
Aggregate |
|
|
|
|
|
|
|
average |
|
|
intrinsic value |
|
|
|
Shares |
|
|
exercise price |
|
|
(in thousands) |
|
Outstanding at beginning of year |
|
|
2,200,672 |
|
|
$ |
7.95 |
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(337,147 |
) |
|
|
8.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
1,863,525 |
|
|
$ |
7.76 |
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period |
|
|
1,647,540 |
|
|
$ |
8.64 |
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
8
Information related to the stock option plans during the year follows (dollars in thousands, except
per share amount):
|
|
|
|
|
|
|
March 31, 2010 |
|
Intrinsic value of options exercised |
|
|
n/a |
|
Cash received from option exercises |
|
|
n/a |
|
Tax benefit realized from option exercises |
|
|
n/a |
|
Weighted average fair value of options granted, per
share |
|
|
n/a |
|
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes
valuation model that uses assumptions including the risk-free interest rate, expected term,
expected stock volatility, and dividend yield. 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 U.S. Treasury yield
curve in effect at the time of the grant.
Outstanding stock options have a weighted average remaining life of 4.55 years and may be exercised
in the range of $1.30 to $12.38.
6. SECURITIES
Components of the available for sale portfolio are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
U.S. Treasury and government
sponsored entities securities |
|
$ |
48,534 |
|
|
$ |
95 |
|
|
$ |
|
|
|
$ |
48,629 |
|
Equity securities |
|
|
293 |
|
|
|
157 |
|
|
|
|
|
|
|
450 |
|
Mortgage-backed securities GSE
issued:
residential |
|
|
218,090 |
|
|
|
5,138 |
|
|
|
(68 |
) |
|
|
223,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
266,917 |
|
|
$ |
5,390 |
|
|
$ |
(68 |
) |
|
$ |
272,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
U.S. Treasury and government
sponsored entities securities |
|
$ |
48,717 |
|
|
$ |
313 |
|
|
$ |
(108 |
) |
|
$ |
48,922 |
|
Equity securities |
|
|
472 |
|
|
|
236 |
|
|
|
|
|
|
|
708 |
|
Mortgage-backed securities GSE
issued:
residential |
|
|
226,182 |
|
|
|
5,536 |
|
|
|
|
|
|
|
231,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
275,371 |
|
|
$ |
6,085 |
|
|
$ |
(108 |
) |
|
$ |
281,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
Debt securities available for sale by contractual maturity, repricing or expected call date are
shown below:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
(Dollars in thousands) |
|
|
|
Amortized |
|
|
Fair |
|
|
|
Cost |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
499 |
|
|
$ |
509 |
|
Due after one year through five years |
|
|
40,034 |
|
|
|
40,034 |
|
Due after five years through ten years |
|
|
8,001 |
|
|
|
8,086 |
|
Mortgage-backed securities: residential |
|
|
218,090 |
|
|
|
223,160 |
|
|
|
|
|
|
|
|
Total |
|
$ |
266,624 |
|
|
$ |
271,789 |
|
|
|
|
|
|
|
|
Securities pledged for the Companys investment in VISA stock were approximately $1.1 million at
March 31, 2010 and $1.2 million at December 31, 2009. Securities pledged for public funds deposits
were approximately $1.9 million at March 31, 2010, and $1.8 million at December 31, 2009.
Securities sold under an agreement to repurchase are secured primarily by mortgage-backed
securities with a fair value of approximately $115.3 million at March 31, 2010, and $125.7 million
at December 31, 2009.
United Community had no securities classified as trading as of March 31, 2010 or December 31, 2009.
The following table summarizes the investment securities with unrealized losses at March 31, 2010
and December 31, 2009 by aggregated major security type and length of time in a continuous
unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
(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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
GSE issued: residential |
|
|
27,141 |
|
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
|
27,141 |
|
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
27,141 |
|
|
$ |
(68 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
27,141 |
|
|
$ |
(68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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 |
|
$ |
27,898 |
|
|
$ |
(108 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
27,898 |
|
|
$ |
(108 |
) |
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
GSE issued: residential |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
27,905 |
|
|
$ |
(108 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
27,905 |
|
|
$ |
(108 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
All of the mortgage-related securities that are temporarily impaired at March 31, 2010, are
impaired due to the current level of interest rates. All of these securities continue to pay on
schedule and management expects to receive all principal and interest owed on the securities.
Proceeds from sales of securities available for sale were $118.9 million and $0 for the three
months ended March 31, 2010 and 2009, respectively. Gross gains of $2.9 million and $0 and gross
losses of $25,000 and $0 were realized on these sales during 2010 and 2009, respectively.
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.
The first segment represents securities classified as available for sale or held to maturity. In
evaluating this segment, 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 represents securities purchased that, on the purchase date, were rated below AA.
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.
The Company evaluates its equity securities for impairment on a quarterly basis. In general, if a
security has been in an unrealized loss position for more than twelve months, the Company will
realize an OTTI charge on the security. If the security has been in an unrealized loss position
for less that twelve months, the Company examines the capital levels, nonperforming asset ratios,
and liquidity position of the institution to determine whether or not an OTTI charge is
appropriate.
As of March 31, 2010, the Companys security portfolio consisted of 45 securities, three of which
were in an unrealized loss position totaling $68,100.
Mortgage-backed Securities
At March 31, 2010, 100% of the mortgage-backed 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-backed 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 March 31, 2010.
11
7. LOANS
Portfolio loans consist of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Real Estate: |
|
|
|
|
|
|
|
|
One- to four-family residential |
|
$ |
777,380 |
|
|
$ |
773,831 |
|
Multifamily residential |
|
|
143,992 |
|
|
|
150,480 |
|
Nonresidential |
|
|
389,407 |
|
|
|
397,895 |
|
Land |
|
|
25,122 |
|
|
|
23,502 |
|
Construction: |
|
|
|
|
|
|
|
|
One- to four-family residential |
|
|
161,625 |
|
|
|
178,095 |
|
Multifamily and non-residential |
|
|
14,682 |
|
|
|
13,741 |
|
|
|
|
|
|
|
|
Total real estate |
|
|
1,512,208 |
|
|
|
1,537,544 |
|
Consumer |
|
|
301,457 |
|
|
|
309,202 |
|
Commercial |
|
|
56,726 |
|
|
|
60,217 |
|
|
|
|
|
|
|
|
Total loans |
|
|
1,870,391 |
|
|
|
1,906,963 |
|
Less: |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
47,768 |
|
|
|
42,287 |
|
Deferred loan fees, net |
|
|
(1,276 |
) |
|
|
(1,342 |
) |
|
|
|
|
|
|
|
Total |
|
|
46,492 |
|
|
|
40,945 |
|
|
|
|
|
|
|
|
Loans, net |
|
$ |
1,823,899 |
|
|
$ |
1,866,018 |
|
|
|
|
|
|
|
|
Changes in the allowance for loan loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
|
Three months |
|
|
|
ended |
|
|
ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Balance, beginning of period |
|
$ |
42,287 |
|
|
$ |
35,962 |
|
Provision for loan losses |
|
|
12,450 |
|
|
|
8,444 |
|
Amounts charged off |
|
|
(7,140 |
) |
|
|
(6,691 |
) |
Recoveries |
|
|
171 |
|
|
|
141 |
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
47,768 |
|
|
$ |
37,856 |
|
|
|
|
|
|
|
|
Non-accrual loans were $138.0 million and $112.2 million at March 31, 2010, and December 31,
2009, respectively. Restructured loans were $31.9 million at March 31, 2010 and $22.6 million at
December 31, 2009. Loans greater than 90 days past due and still accruing interest were $536,000
and $3.7 million at March 31, 2010 and December 31, 2009, respectively.
12
Impaired loans consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of or for the |
|
|
As of or for |
|
|
|
Three |
|
|
the Year |
|
|
|
Months Ended |
|
|
Ended |
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
|
Impaired loans on which no specific valuation allowance was provided |
|
$ |
97,340 |
|
|
$ |
83,443 |
|
Impaired loans on which a specific valuation allowance was provided |
|
|
51,617 |
|
|
|
36,362 |
|
|
|
|
|
|
|
|
Total impaired loans at period-end |
|
$ |
148,957 |
|
|
$ |
119,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific valuation allowances on impaired loans at period-end |
|
$ |
9,040 |
|
|
$ |
4,064 |
|
Average impaired loans during the period |
|
|
133,881 |
|
|
|
103,026 |
|
Interest income recognized on impaired loans during the period |
|
|
294 |
|
|
|
2,056 |
|
Interest income received on impaired loans during the period |
|
|
294 |
|
|
|
2,056 |
|
|
|
|
|
|
8. |
|
MORTGAGE BANKING ACTIVITIES |
Mortgage loans serviced for others, which are not reported in United Communitys assets, totaled
$1.1 billion at March 31, 2010, and December 31, 2009.
Activity for capitalized mortgage servicing rights, included in other assets, was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Ended |
|
|
Year Ended |
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Balance, beginning of year |
|
$ |
6,228 |
|
|
$ |
5,562 |
|
Originations |
|
|
446 |
|
|
|
3,220 |
|
Amortized to expense |
|
|
(551 |
) |
|
|
(2,554 |
) |
|
|
|
|
|
|
|
Balance, end of period |
|
|
6,123 |
|
|
|
6,228 |
|
Less valuation allowance |
|
|
(319 |
) |
|
|
(423 |
) |
|
|
|
|
|
|
|
Net balance |
|
$ |
5,804 |
|
|
$ |
5,805 |
|
|
|
|
|
|
|
|
Activity in the valuation allowance for mortgage servicing rights was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Ended |
|
|
Year Ended |
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Balance, beginning of year |
|
$ |
(423 |
) |
|
$ |
(2,233 |
) |
Impairment charges |
|
|
|
|
|
|
|
|
Recoveries |
|
|
104 |
|
|
|
1,810 |
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
(319 |
) |
|
$ |
(423 |
) |
|
|
|
|
|
|
|
Fair value of mortgage servicing rights as of March 31, 2010 was approximately $8.0 million and at
December 31, 2009 was approximately $8.0 million.
13
Key economic assumptions in measuring the value of mortgage servicing rights at March 31, 2010 and
December 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Weighted average prepayment rate |
|
322 PSA |
|
325 PSA |
Weighted average life (in years) |
|
|
3.55 |
|
|
|
3.65 |
|
Weighted average discount rate |
|
|
8% |
|
|
|
8% |
|
9. OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS
Real estate owned and other repossessed assets at March 31, 2010 and December 31,
2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
|
Real estate owned and other repossessed assets |
|
$ |
44,369 |
|
|
$ |
38,829 |
|
Valuation allowance |
|
|
(8,951 |
) |
|
|
(7,867 |
) |
|
|
|
|
|
|
|
End of period |
|
$ |
35,418 |
|
|
$ |
30,962 |
|
|
|
|
|
|
|
|
Activity in the valuation allowance was as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Beginning of year |
|
$ |
7,867 |
|
|
$ |
2,754 |
|
Additions charged to expense |
|
|
1,646 |
|
|
|
7,925 |
|
Direct write-downs |
|
|
(562 |
) |
|
|
(2,812 |
) |
|
|
|
|
|
|
|
End of period |
|
$ |
8,951 |
|
|
$ |
7,867 |
|
|
|
|
|
|
|
|
Expenses related to foreclosed and repossessed assets include:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Net loss on sales |
|
$ |
100 |
|
|
$ |
425 |
|
Provision for unrealized losses |
|
|
1,384 |
|
|
|
713 |
|
Operating expenses, net of rental income |
|
|
607 |
|
|
|
951 |
|
|
|
|
|
|
|
|
Total expenses |
|
$ |
2,091 |
|
|
$ |
2,089 |
|
|
|
|
|
|
|
|
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.
14
Components of net periodic benefit cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
|
|
|
$ |
|
|
Interest cost |
|
|
47 |
|
|
|
47 |
|
Expected return on plan assets |
|
|
|
|
|
|
|
|
Net amortization of prior service cost |
|
|
|
|
|
|
|
|
Net amortization of actuarial gain |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
47 |
|
|
$ |
43 |
|
|
|
|
|
|
|
|
|
Assumptions used in
the valuations were as follows: |
|
|
|
|
|
|
|
|
|
Weighted average discount rate |
|
|
5.75 |
% |
|
|
6.00 |
% |
11. FAIR VALUE MEASUREMENT
Fair value is defined 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. Furthermore, a fair
value hierarchy is established which requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs that
are 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.
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.
15
Assets and liabilities measured at fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2010 Using: |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
Significant Other |
|
|
Significant |
|
|
|
|
|
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
March 31, |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
2010 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
(Dollars in thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury and government
sponsored entities
securities |
|
$ |
48,629 |
|
|
$ |
|
|
|
$ |
48,629 |
|
|
$ |
|
|
Equity securities |
|
|
450 |
|
|
|
450 |
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities: residential |
|
|
223,160 |
|
|
|
|
|
|
|
223,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009 Using: |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
Significant Other |
|
|
Significant |
|
|
|
|
|
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
December 31, |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
(Dollars in thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury and government
sponsored entities
securities |
|
$ |
48,922 |
|
|
$ |
|
|
|
$ |
48,922 |
|
|
$ |
|
|
Equity securities |
|
|
708 |
|
|
|
708 |
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities: residential |
|
|
231,718 |
|
|
|
|
|
|
|
231,718 |
|
|
|
|
|
Assets and liabilities measured at fair value on a nonrecurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2010 Using: |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
Significant Other |
|
|
Significant |
|
|
|
|
|
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
March 31, |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
2010 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
(Dollars in thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
42,577 |
|
|
|
|
|
|
|
|
|
|
$ |
42,577 |
|
Mortgage servicing assets |
|
|
1,753 |
|
|
|
|
|
|
|
1,753 |
|
|
|
|
|
Foreclosed assets |
|
|
19,924 |
|
|
|
|
|
|
|
|
|
|
|
19,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2009 Using: |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
Significant Other |
|
|
Significant |
|
|
|
|
|
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
December 31, |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
32,298 |
|
|
|
|
|
|
|
|
|
|
$ |
32,298 |
|
Mortgage servicing rights |
|
|
1,865 |
|
|
|
|
|
|
|
1,865 |
|
|
|
|
|
Foreclosed assets |
|
|
19,534 |
|
|
|
|
|
|
|
|
|
|
|
19,534 |
|
16
Impaired loans with specific allocations of the allowance for loan losses, 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 $51.6 million at March 31, 2010, with a specific valuation
allowance of $9.0 million, resulting in additional provision for loan losses of $5.8 million during
the period.
Mortgage servicing rights had a carrying amount of $2.1 million with a valuation allowance of
$319,000, at March 31, 2010, resulting in no additional expenses during the period. Mortgage
servicing rights 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 are measured for impairment using the fair value of
the property less estimated selling costs, had a carrying amount of $28.9 million, with a valuation
allowance of $9.0 million at March 31, 2010, resulting in additional expenses of $1.4 million
during the period.
In accordance with generally accepted accounting principles, the carrying amounts and estimated
fair values of financial instruments, at March 31, 2010 and December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
December 31, 2009 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
Value |
|
|
Value |
|
|
Value |
|
|
Value |
|
|
|
(Dollars in thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
40,055 |
|
|
$ |
40,055 |
|
|
$ |
45,074 |
|
|
$ |
45,074 |
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale |
|
|
272,239 |
|
|
|
272,239 |
|
|
|
281,348 |
|
|
|
281,348 |
|
Loans held for sale |
|
|
4,318 |
|
|
|
4,351 |
|
|
|
10,497 |
|
|
|
10,551 |
|
Loans, net |
|
|
1,823,899 |
|
|
|
1,835,045 |
|
|
|
1,866,018 |
|
|
|
1,873,776 |
|
Federal Home Loan Bank stock |
|
|
26,464 |
|
|
|
n/a |
|
|
|
26,464 |
|
|
|
n/a |
|
Accrued interest receivable |
|
|
8,405 |
|
|
|
8,405 |
|
|
|
9,090 |
|
|
|
9,090 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking, savings and money
market accounts |
|
|
(737,510 |
) |
|
|
(737,510 |
) |
|
|
(729,512 |
) |
|
|
(729,512 |
) |
Certificates of deposit |
|
|
(991,082 |
) |
|
|
(1,000,982 |
) |
|
|
(1,039,989 |
) |
|
|
(1,051,133 |
) |
Federal Home Loan Bank advances |
|
|
(214,099 |
) |
|
|
(220,160 |
) |
|
|
(221,323 |
) |
|
|
(227,350 |
) |
Repurchase agreements and other |
|
|
(96,553 |
) |
|
|
(103,242 |
) |
|
|
(96,833 |
) |
|
|
(105,546 |
) |
Advance payments by borrowers for taxes
and insurance |
|
|
(13,761 |
) |
|
|
(13,761 |
) |
|
|
(19,791 |
) |
|
|
(19,791 |
) |
Accrued interest payable |
|
|
(1,751 |
) |
|
|
(1,751 |
) |
|
|
(1,421 |
) |
|
|
(1,421 |
) |
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.
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.
17
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.
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
March 31, 2009 |
|
|
|
(Dollars in thousands) |
|
Supplemental disclosures of cash flow information |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest on deposits and borrowings |
|
$ |
10,759 |
|
|
$ |
15,738 |
|
Income taxes |
|
|
|
|
|
|
|
|
Supplemental schedule of noncash activities: |
|
|
|
|
|
|
|
|
Transfers from loans to real estate owned and
other repossessed assets |
|
|
8,119 |
|
|
|
5,395 |
|
13. SEGMENT INFORMATION
United Community monitors the revenue streams of the various Company products and services. The
identifiable segments and operations are managed, and financial performance is evaluated on a
Company-wide basis. Accordingly, all of the Companys financial service operations are considered
by management to be aggregated in one reportable operating segment, which is banking services.
Discontinued operations are essentially the results of operations from Butler Wick Corp. which were
previously reported as a separate segment, investment services. Refer to Note 3 for a discussion
on discontinued operations and its impact on segment reporting.
18
14. EARNINGS PER SHARE
Earnings per share are computed by dividing net income by the weighted average number of shares
outstanding during the period. Diluted earnings per share is computed using the weighted average
number of common shares determined for the basic computation plus the dilutive effect of potential
common shares that could be issued under outstanding stock options. Stock options for 1,863,525
shares were anti-dilutive for the three months ended March 31, 2010. There were 1,687,388 stock
options for shares that were anti-dilutive for the three months ended March 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands, |
|
|
|
except per share data) |
|
Numerator: |
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
(5,142 |
) |
|
$ |
(1,679 |
) |
Income from discontinued operations |
|
|
|
|
|
|
4,949 |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(5,142 |
) |
|
$ |
3,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average common shares outstandingbasic |
|
|
29,955 |
|
|
|
29,632 |
|
Dilutive effect of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstandingdilutive |
|
|
29,955 |
|
|
|
29,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
Basic loss per common sharecontinuing operations |
|
$ |
(0.17 |
) |
|
$ |
(0.06 |
) |
Basic earnings per common sharediscontinued operations |
|
|
|
|
|
|
0.17 |
|
Basic loss per common share |
|
|
(0.17 |
) |
|
|
0.11 |
|
|
|
|
|
|
|
|
|
|
Dilutive earnings (loss) per share: |
|
|
|
|
|
|
|
|
Dilutive loss per common sharecontinuing operations |
|
|
(0.17 |
) |
|
|
(0.06 |
) |
Dilutive earnings per common sharediscontinued operations |
|
|
|
|
|
|
0.17 |
|
Dilutive loss per common share |
|
|
(0.17 |
) |
|
|
0.11 |
|
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 $2.3 million with a weighted average rate of 4.20% at March 31, 2010, maturing
in July 2010. Home Savings had brokered deposits of $15.0 million with a weighted average rate of
4.35% at December 31, 2009.
19
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 of $2.8 million at March 31, 2010, and impairment charges of $150,000
at March 31, 2009.
Other comprehensive income (loss) components and related tax effects for the three month periods
are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Unrealized holding gain (loss) on securities available for sale |
|
$ |
2,188 |
|
|
$ |
1,250 |
|
Unrealized holding gain (loss) on postretirement benefits |
|
|
|
|
|
|
|
|
Reclassification adjustment for (gains) losses realized in income |
|
|
(2,843 |
) |
|
|
150 |
|
|
|
|
|
|
|
|
Net unrealized gains (losses) |
|
|
(655 |
) |
|
|
1,400 |
|
Tax effect (35%) |
|
|
230 |
|
|
|
(490 |
) |
|
|
|
|
|
|
|
Net of tax amount |
|
$ |
(425 |
) |
|
$ |
910 |
|
|
|
|
|
|
|
|
The following is a summary of accumulated other comprehensive income balances, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Current |
|
|
Balance at |
|
|
|
December 31, |
|
|
Period |
|
|
March 31, |
|
|
|
2009 |
|
|
Change |
|
|
2010 |
|
|
Unrealized gains (losses) on securities available for sale |
|
$ |
3,885 |
|
|
$ |
(425 |
) |
|
$ |
3,460 |
|
Unrealized gains (losses) on post-retirement benefits |
|
|
225 |
|
|
|
|
|
|
|
225 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,110 |
|
|
$ |
(425 |
) |
|
$ |
3,685 |
|
|
|
|
|
|
|
|
|
|
|
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 March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
$ |
215,407 |
|
|
|
12.73 |
% |
|
$ |
135,320 |
|
|
|
8.00 |
% |
|
$ |
169,151 |
|
|
|
10.00 |
% |
Tier 1 capital to risk-weighted assets |
|
|
193,934 |
|
|
|
11.47 |
% |
|
|
* |
|
|
|
* |
|
|
|
101,490 |
|
|
|
6.00 |
% |
Tier 1 capital to average total assets (leverage ratio) |
|
|
193,934 |
|
|
|
8.47 |
% |
|
|
91,539 |
|
|
|
4.00 |
% |
|
|
114,423 |
|
|
|
5.00 |
% |
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 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 |
|
$ |
220,395 |
|
|
|
12.08 |
% |
|
$ |
137,783 |
|
|
|
8.00 |
% |
|
$ |
172,229 |
|
|
|
10.00 |
% |
Tier 1 capital to risk-weighted assets |
|
|
198,610 |
|
|
|
11.53 |
% |
|
|
* |
|
|
|
* |
|
|
|
103,337 |
|
|
|
6.00 |
% |
Tier 1 capital to average total assets (leverage ratio) |
|
|
198,610 |
|
|
|
8.22 |
% |
|
|
96,658 |
|
|
|
4.00 |
% |
|
|
120,822 |
|
|
|
5.00 |
% |
|
|
|
* |
|
Ratio is not required under regulations. |
As of March 31, 2010 and December 31, 2009, 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%. As depicted in the previous tables, Home Savings
continues to exceed this requirement.
Management believes, as of March 31, 2010, 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.
18. OTHER EVENTS
On November 30, 2009, Home Savings entered into an agreement with The Union Bank Company, a
wholly-owned subsidiary of United Bancshares, Inc. for the sale of Home Savings Findlay, Ohio
branch. The transaction closed in the first quarter of 2010. In the transaction, Union Bank
assumed deposit liabilities, including accrued interest, aggregating $26.5 million and acquired
approximately $1.8 million in loans and $709,000 in related fixed assets of the branch.
21
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UNITED COMMUNITY FINANCIAL CORP.
|
|
|
|
|
|
|
|
|
|
|
At or For the Three |
|
|
|
Months Ended |
|
|
|
March 31, |
|
|
|
2010 |
|
|
2009 |
|
Selected financial ratios and other data: (1) |
|
|
|
|
|
|
|
|
Performance ratios: |
|
|
|
|
|
|
|
|
Return on average assets (2) |
|
|
-0.90 |
% |
|
|
0.50 |
% |
Return on average equity (3) |
|
|
-9.18 |
% |
|
|
5.30 |
% |
Interest rate spread (4) |
|
|
3.00 |
% |
|
|
2.74 |
% |
Net interest margin (5) |
|
|
3.28 |
% |
|
|
3.04 |
% |
Noninterest expense to average assets |
|
|
2.96 |
% |
|
|
2.51 |
% |
Efficiency ratio (6) |
|
|
78.59 |
% |
|
|
71.85 |
% |
Average interest-earning assets to average
interest-bearing liabilities |
|
|
113.36 |
% |
|
|
111.51 |
% |
Capital ratios: |
|
|
|
|
|
|
|
|
Average equity to average assets |
|
|
9.77 |
% |
|
|
9.45 |
% |
Equity to assets, end of period |
|
|
9.41 |
% |
|
|
9.34 |
% |
Tier 1 leverage ratio |
|
|
8.47 |
% |
|
|
8.33 |
% |
Tier 1 risk-based capital ratio |
|
|
11.47 |
% |
|
|
11.22 |
% |
Total risk-based capital ratio |
|
|
12.73 |
% |
|
|
12.48 |
% |
Asset quality ratio: |
|
|
|
|
|
|
|
|
Nonperforming loans to total loans at end of period (7) |
|
|
7.60 |
% |
|
|
4.83 |
% |
Nonperforming assets to average assets (8) |
|
|
7.59 |
% |
|
|
5.08 |
% |
Nonperforming assets to total assets at end of period |
|
|
7.63 |
% |
|
|
5.17 |
% |
Allowance for loan losses as a percent of loans |
|
|
2.55 |
% |
|
|
1.76 |
% |
Allowance for loan losses as a percent of
nonperforming loans (7) |
|
|
34.47 |
% |
|
|
37.05 |
% |
Texas ratio (9) |
|
|
66.50 |
% |
|
|
47.99 |
% |
Total classified assets as a percent of Tier 1 Capital |
|
|
119.22 |
% |
|
|
59.95 |
% |
Net chargeoffs as a percent of average loans |
|
|
1.51 |
% |
|
|
1.21 |
% |
Total 90+ days past due as a percent of total loans |
|
|
7.26 |
% |
|
|
4.31 |
% |
Office data: |
|
|
|
|
|
|
|
|
Number of full service banking offices |
|
|
38 |
|
|
|
39 |
|
Number of loan production offices |
|
|
6 |
|
|
|
6 |
|
Per share data: |
|
|
|
|
|
|
|
|
Basic loss from continuing operations (10) |
|
$ |
(0.17 |
) |
|
$ |
(0.06 |
) |
Basic earnings from discontinued operations (10) |
|
|
|
|
|
|
0.17 |
|
Basic earnings (loss) (10) |
|
|
(0.17 |
) |
|
|
0.11 |
|
Diluted loss from continuing operations (10) |
|
|
(0.17 |
) |
|
|
(0.06 |
) |
Diluted earnings from discontinued operations (10) |
|
|
|
|
|
|
0.17 |
|
Diluted earnings (loss) (10) |
|
|
(0.17 |
) |
|
|
0.11 |
|
Book value (11) |
|
|
6.94 |
|
|
|
7.74 |
|
Tangible book value (12) |
|
|
6.92 |
|
|
|
7.72 |
|
Notes:
|
|
|
1. |
|
Ratios for the three month periods are annualized where appropriate |
|
2. |
|
Net income (loss) divided by average total assets |
|
3. |
|
Net income (loss) 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, gains and losses on foreclosed assets, and
gain on the sale of a retail branch |
|
7. |
|
Nonperforming loans consist of nonaccrual loans and loans past due ninety days and still accruing |
|
8. |
|
Nonperforming assets consist of nonperforming loans and real estate owned and other repossessed assets |
|
9. |
|
Nonperforming assets divided by the sum of tangible common equity and the allowance for loan losses |
|
10. |
|
Net income (loss) divided by the number of basic or diluted shares outstanding |
|
11. |
|
Shareholders equity divided by number of shares outstanding |
|
12. |
|
Shareholders equity minus core deposit intangible divided by number of shares outstanding |
22
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.
On April 21, 2010, United Community issued an earnings release regarding the quarter ending March
31, 2010, in which it reported a net loss of $3.0 million for the quarter. In the process of
finalizing the Form 10-Q, management determined that an additional $2.1 million provision for loan
loss should be made in the first quarter of 2010. This provision expense was the result of a
decline in the value of collateral supporting an impaired construction loan. Because the appraisal
establishing this value utilized a valuation date as of March 29, 2010, management determined that
the most prudent course of action would be to establish an additional valuation reserve and to
realize the associated provision expense in the first quarter. As a result of this $2.1 million
provision expense, the financial statements previously released have been revised to reflect a net
loss of $5.1 million in the first quarter, as reflected in this Form 10-Q.
Comparison of Financial Condition at March 31, 2010 and December 31, 2009
Total assets decreased $58.7 million, or 2.5%, to $2.3 billion at March 31, 2010, compared to
December 31, 2009. Contributing to the change were decreases in net loans of $42.1 million,
securities available for sale of $9.1 million, and cash and cash equivalents of $5.0 million.
These decreases were partially offset by increases in real estate owned and other repossessed
assets of $4.5 million.
Cash and cash equivalents decreased $5.0 million to $40.1 million at March 31, 2010, compared to
$45.1 million at December 31, 2009. This change is primarily the result of a decrease in checks
awaiting deposit at the Federal Reserve Bank, along with a decline in required cash to fund ATM
card transactions on behalf of customers.
Available for sale securities decreased $9.1 million during the first three months of 2010 as a
result of various security transactions initiated in the first quarter. During the first quarter
of 2010, the Company sold approximately $116.1 million in securities, realizing $2.8 million in
gains on the sales. These sales were undertaken to monetize a portion of the gains in the
portfolio due to continued spread tightening on mortgage-backed and agency securities. The Company
offset these sales with $122.1 million in purchases of additional securities. The additional
purchases were primarily made in higher coupon mortgage-backed securities which will afford the
Company some yield protection should longer term rates begin to rise and/or prepayment speeds begin
to slow. Maturities and paydowns of $14.1 million accounted for the remainder of the change.
Net loans decreased $42.1 million during the first three months of 2010. The primary source of the
decrease was the overall decline in originations of construction loans and commercial real estate
loans. Home Savings has made a conscious effort to decrease its construction and commercial real
estate portfolios.
23
The allowance for loan losses increased to $47.8 million, or 2.55% of the net loan portfolio and
34.47% of nonperforming loans as of March 31, 2010, up from $42.3 million or 2.22% of the net loan
portfolio and 36.49% of nonperforming loans as of December 31, 2009. Loan loss provisions totaling
$12.5 million during the three months ended March 31, 2010 were partially offset by net charge-offs
totaling $7.0 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 required allowance balance 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 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. The entire allowance
is available for any loan or portion thereof that, in managements judgment, should be charged-off.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance For Loan Losses |
|
|
|
(Dollars in thousands) |
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2009 |
|
|
Provision |
|
|
Recovery |
|
|
Chargeoff |
|
|
2010 |
|
Real Estate Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
$ |
6,546 |
|
|
$ |
1,729 |
|
|
$ |
15 |
|
|
$ |
(1,013 |
) |
|
$ |
7,277 |
|
Multifamily residential |
|
|
2,182 |
|
|
|
1,703 |
|
|
|
|
|
|
|
(1,585 |
) |
|
|
2,300 |
|
Nonresidential |
|
|
5,894 |
|
|
|
3,061 |
|
|
|
11 |
|
|
|
(1,962 |
) |
|
|
7,004 |
|
Land |
|
|
666 |
|
|
|
430 |
|
|
|
|
|
|
|
(318 |
) |
|
|
778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
15,288 |
|
|
|
6,923 |
|
|
|
26 |
|
|
|
(4,878 |
) |
|
|
17,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
|
18,787 |
|
|
|
3,389 |
|
|
|
|
|
|
|
(1,018 |
) |
|
|
21,158 |
|
Multifamily and nonresidential |
|
|
233 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
19,020 |
|
|
|
3,411 |
|
|
|
|
|
|
|
(1,018 |
) |
|
|
21,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity |
|
|
2,390 |
|
|
|
266 |
|
|
|
26 |
|
|
|
(362 |
) |
|
|
2,320 |
|
Auto |
|
|
162 |
|
|
|
(18 |
) |
|
|
2 |
|
|
|
(3 |
) |
|
|
143 |
|
Marine |
|
|
701 |
|
|
|
46 |
|
|
|
|
|
|
|
(165 |
) |
|
|
582 |
|
Recreational vehicle |
|
|
1,392 |
|
|
|
269 |
|
|
|
18 |
|
|
|
(338 |
) |
|
|
1,341 |
|
Other |
|
|
314 |
|
|
|
56 |
|
|
|
99 |
|
|
|
(181 |
) |
|
|
288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,959 |
|
|
|
619 |
|
|
|
145 |
|
|
|
(1,049 |
) |
|
|
4,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
|
1,084 |
|
|
|
325 |
|
|
|
|
|
|
|
(140 |
) |
|
|
1,269 |
|
Unsecured |
|
|
1,936 |
|
|
|
1,172 |
|
|
|
|
|
|
|
(55 |
) |
|
|
3,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,020 |
|
|
|
1,497 |
|
|
|
|
|
|
|
(195 |
) |
|
|
4,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
42,287 |
|
|
$ |
12,450 |
|
|
$ |
171 |
|
|
$ |
(7,140 |
) |
|
$ |
47,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A loan is considered impaired when, based on current information and events, it is probable
that Home Savings will be unable to collect the scheduled payments of principal or interest when
due according to the contractual terms of the loan agreement and the loan is non-homogeneous in
nature. Factors considered by management in determining impairment include payment status,
collateral value, and the strength of guarantors (if any). 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. The following table summarizes
the change in impaired loans during the first three months of 2010.
24
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans |
|
(Dollars in thousands) |
|
|
|
March 31, |
|
|
December 31, |
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
Real Estate Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Permanent |
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
$ |
21,658 |
|
|
$ |
18,764 |
|
|
$ |
2,894 |
|
Multifamily residential |
|
|
10,696 |
|
|
|
7,863 |
|
|
|
2,833 |
|
Nonresidential |
|
|
38,255 |
|
|
|
25,686 |
|
|
|
12,569 |
|
Land |
|
|
13,045 |
|
|
|
5,160 |
|
|
|
7,885 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
83,654 |
|
|
|
57,473 |
|
|
|
26,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans |
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
|
56,556 |
|
|
|
53,666 |
|
|
|
2,890 |
|
Multifamily and nonresidential |
|
|
382 |
|
|
|
392 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
56,938 |
|
|
|
54,058 |
|
|
|
2,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity |
|
|
1,711 |
|
|
|
2,088 |
|
|
|
(377 |
) |
Auto |
|
|
36 |
|
|
|
30 |
|
|
|
6 |
|
Boat |
|
|
632 |
|
|
|
1,103 |
|
|
|
(471 |
) |
Recreational vehicle |
|
|
283 |
|
|
|
353 |
|
|
|
(70 |
) |
Other |
|
|
50 |
|
|
|
8 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,712 |
|
|
|
3,582 |
|
|
|
(870 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
|
2,663 |
|
|
|
3,365 |
|
|
|
(702 |
) |
Unsecured |
|
|
2,990 |
|
|
|
327 |
|
|
|
2,663 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5,653 |
|
|
|
3,692 |
|
|
|
1,961 |
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans |
|
$ |
148,957 |
|
|
$ |
118,805 |
|
|
$ |
30,152 |
|
|
|
|
|
|
|
|
|
|
|
Included in impaired loans above are certain loans Home Savings considers troubled debt
restructurings. A loan is considered a troubled debt restructuring if Home Savings grants a
concession to a borrower that would otherwise not be considered based on economic or legal reasons
related to the borrowers financial difficulties. The objective of a troubled debt restructuring is
to make the best of a bad situation. A troubled debt restructuring may include, but is not
necessarily limited to, one or a combination of the following:
|
|
|
Transfer from the borrower to Home Savings of receivables from third parties, real
estate, or other assets to fully or partially satisfy a debt (including a transfer
resulting from foreclosure or repossession). |
|
|
|
Issuance or other granting of an equity interest to Home Savings by the borrower to
satisfy fully or partially a debt unless the equity interest is granted pursuant to
existing terms for converting the debt into an equity interest. |
|
|
|
Modification of terms of a debt, such as one or a combination of: |
|
|
|
Reduction of the stated interest rate for the remaining original life of the debt. |
|
|
|
|
Extension of the maturity date or dates at a stated interest rate lower
than the current market rate for new debt with similar risk. |
|
|
|
|
Reduction of the face amount or maturity amount of the debt as stated
in the instrument or other agreement. |
|
|
|
|
Reduction of accrued interest. |
25
A debt restructuring is not necessarily a troubled debt restructuring for purposes of this
definition even if the borrower is experiencing some financial difficulties. In general, a
borrower that can obtain funds from other sources at market interest rates at or near those for
non-troubled debt is not involved in a troubled debt restructuring. A troubled debt restructuring
is not involved if:
|
|
|
the fair value of cash, other assets, or an equity interest accepted by Home Savings
from a borrower in full satisfaction of its receivable at least equals the recorded
investment in the loan; |
|
|
|
|
the fair value of cash, other assets, or an equity interest transferred by a borrower to
Home Savings in full settlement of its loan at least equals the carrying amount of the
loan; |
|
|
|
Home Savings reduces the effective interest rate on the loan primarily to reflect a
decrease in market interest rates in general or a decrease in the risk so as to maintain a
relationship with a borrower that can readily obtain funds from other sources at the
current market interest rate; or |
|
|
|
Home Savings issues, in exchange for the original loan, a new marketable loan having an
effective interest rate based on its market price that is at or near the current market
interest rates of loans with similar maturity dates and stated interest rates issued by
other banks. |
The change in troubled debt restructurings for the three months ended March 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled Debt Restructurings |
|
|
|
March 31, |
|
|
December 31, |
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
|
|
(In thousands) |
|
Real Estate Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Permanent |
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family |
|
$ |
4,941 |
|
|
$ |
2,167 |
|
|
$ |
2,774 |
|
Multifamily residential |
|
|
2,411 |
|
|
|
|
|
|
|
2,411 |
|
Nonresidential |
|
|
7,756 |
|
|
|
3,595 |
|
|
|
4,161 |
|
Land |
|
|
2,152 |
|
|
|
1,050 |
|
|
|
1,102 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
17,260 |
|
|
|
6,812 |
|
|
|
10,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans |
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
|
13,867 |
|
|
|
15,213 |
|
|
|
(1,346 |
) |
Multifamily and nonresidential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
13,867 |
|
|
|
15,213 |
|
|
|
(1,346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity |
|
|
270 |
|
|
|
240 |
|
|
|
30 |
|
Auto |
|
|
15 |
|
|
|
18 |
|
|
|
(3 |
) |
Marine |
|
|
|
|
|
|
|
|
|
|
|
|
Recreational vehicle |
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
50 |
|
|
|
8 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
335 |
|
|
|
266 |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
|
355 |
|
|
|
357 |
|
|
|
(2 |
) |
Unsecured |
|
|
100 |
|
|
|
|
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
455 |
|
|
|
357 |
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
Total Restructured Loans |
|
$ |
31,917 |
|
|
$ |
22,648 |
|
|
$ |
9,269 |
|
|
|
|
|
|
|
|
|
|
|
Once a restructured loan has fallen into nonaccrual status, the restructured loan will remain on
nonaccrual status for a period of at least six months until the borrower has demonstrated a
willingness and ability to make the restructured loan payments. Troubled debt restructured loans
that were on nonaccrual status aggregated $8.7 million and $5.0 million at March 31, 2010 and
December 31, 2009, respectively. Such loans are considered nonperforming loans. Troubled debt
restructured loans that were accruing according to their terms aggregated $23.2 million and $17.6
million at March 31, 2010 and December 31, 2009, respectively.
26
Nonperforming loans consist of loans past due 90 days or more and loans past due less than 90 days
that are on nonaccrual status. Nonperforming loans were $138.6 million, or 7.59% of net loans, at
March 31, 2010, compared to $115.9 million, or 6.21% of net loans, at December 31, 2009. The
schedule below summarizes the change in nonperforming loans for the first three months of 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming Loans |
|
(Dollars in thousands) |
|
|
|
March 31, |
|
|
December 31, |
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
Change |
|
Real Estate Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Permanent |
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
$ |
30,054 |
|
|
$ |
26,766 |
|
|
$ |
3,288 |
|
Multifamily residential |
|
|
7,885 |
|
|
|
7,863 |
|
|
|
22 |
|
Nonresidential |
|
|
36,083 |
|
|
|
24,091 |
|
|
|
11,992 |
|
Land |
|
|
11,627 |
|
|
|
5,160 |
|
|
|
6,467 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
85,649 |
|
|
|
63,880 |
|
|
|
21,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans |
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential |
|
|
42,963 |
|
|
|
42,819 |
|
|
|
144 |
|
Multifamily and nonresidential |
|
|
382 |
|
|
|
392 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
43,345 |
|
|
|
43,211 |
|
|
|
134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity |
|
|
2,478 |
|
|
|
3,168 |
|
|
|
(690 |
) |
Auto |
|
|
133 |
|
|
|
148 |
|
|
|
(15 |
) |
Marine |
|
|
632 |
|
|
|
1,103 |
|
|
|
(471 |
) |
Recreational vehicle |
|
|
622 |
|
|
|
900 |
|
|
|
(278 |
) |
Other |
|
|
33 |
|
|
|
64 |
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,898 |
|
|
|
5,383 |
|
|
|
(1,485 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
|
2,424 |
|
|
|
3,061 |
|
|
|
(637 |
) |
Unsecured |
|
|
3,248 |
|
|
|
352 |
|
|
|
2,896 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5,672 |
|
|
|
3,413 |
|
|
|
2,259 |
|
|
|
|
|
|
|
|
|
|
|
Total Nonperforming Loans |
|
$ |
138,564 |
|
|
$ |
115,887 |
|
|
$ |
22,677 |
|
|
|
|
|
|
|
|
|
|
|
During the first three months of 2010, eight loans in excess of $1.0 million each, aggregating
$20.5 million, became nonperforming. Commercial real estate had the most significant increase in
nonperforming loans, with four loans aggregating $16.0 million becoming nonperforming.
Loans held for sale decreased $6.2 million, or 58.9%, to $4.3 million at March 31, 2010, compared
to $10.5 million at December 31, 2009. The decrease was primarily attributable to the timing of
sales during the period. 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.
Home Savings no longer purchases other loans to be sold in the secondary market.
Federal Home Loan Bank stock remained at $26.5 million for March 31, 2010, and December 31, 2009.
During the first three months of 2010, the Federal Home Loan Bank paid a cash dividend in lieu of a
stock dividend to its member banks.
Accrued interest receivable decreased $685,000, or 7.5%, to $8.4 million at March 31, 2010,
compared to $9.1 million at December 31, 2009. Interest accrued on mortgage loans decreased $1.3
million due to an increase in reserves for uncollected interest. Interest accrued on installment
loans decreased $21,000, due primarily to a decrease in the average balance of that portfolio.
Interest accrued on commercial loans decreased $385,000, due primarily to an increase in reserves
for uncollected interest on commercial loans of $1.4 million. The increase in the reserves for
uncollected interest is affected directly by the increase in loans on nonaccrual status. Interest accrued on
securities available for sale decreased $348,000, due primarily to the timing of interest
payments on these securities.
27
Real estate owned and other repossessed assets increased $4.5 million, or 14.4%, during the three
months ended March 31, 2010, as compared to the year ended December 31, 2009. The following table
summarizes the activity in real estate owned and other repossessed assets during the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate |
|
|
Repossessed |
|
|
|
|
|
|
Owned |
|
|
Assets |
|
|
Total |
|
|
|
(In thousands) |
|
Balance at December 31, 2009 |
|
$ |
30,340 |
|
|
$ |
622 |
|
|
$ |
30,962 |
|
Acquisitions |
|
|
8,632 |
|
|
|
637 |
|
|
|
9,269 |
|
Sales |
|
|
(2,983 |
) |
|
|
(446 |
) |
|
|
(3,429 |
) |
Change in valuation allowance |
|
|
(1,384 |
) |
|
|
|
|
|
|
(1,384 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010 |
|
$ |
34,605 |
|
|
$ |
813 |
|
|
$ |
35,418 |
|
|
|
|
|
|
|
|
|
|
|
The following table depicts the type of property secured in the satisfaction of loans and the
valuation allowance associated with each type as of March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation |
|
|
Net |
|
|
|
Balance |
|
|
Allowance |
|
|
Balance |
|
|
|
(In thousands) |
|
Real estate owned |
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family |
|
$ |
3,574 |
|
|
$ |
(171 |
) |
|
$ |
3,403 |
|
Multifamily residential |
|
|
10,206 |
|
|
|
(2,579 |
) |
|
|
7,627 |
|
Nonresidential |
|
|
8,022 |
|
|
|
(1,246 |
) |
|
|
6,776 |
|
One-to four-family residential construction |
|
|
21,498 |
|
|
|
(4,955 |
) |
|
|
16,543 |
|
Land |
|
|
256 |
|
|
|
|
|
|
|
256 |
|
|
|
|
|
|
|
|
|
|
|
Total real estate owned |
|
|
43,556 |
|
|
|
(8,951 |
) |
|
|
34,605 |
|
Repossessed assets |
|
|
|
|
|
|
|
|
|
|
|
|
Auto |
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Marine |
|
|
414 |
|
|
|
|
|
|
|
414 |
|
Recreational vehicle |
|
|
398 |
|
|
|
|
|
|
|
398 |
|
|
|
|
|
|
|
|
|
|
|
Total repossessed assets |
|
|
813 |
|
|
|
|
|
|
|
813 |
|
|
|
|
|
|
|
|
|
|
|
Total real estate owned and other
repossessed assets |
|
$ |
44,369 |
|
|
$ |
(8,951 |
) |
|
$ |
35,418 |
|
|
|
|
|
|
|
|
|
|
|
Property acquired in the settlement of loans is recorded at the lower of (a) the loans acquisition
balance less cost to sell or (b) the fair market value of the property secured less costs to sell.
Appraisals are obtained at least annually when the Company believes there is sufficient evidence to
suggest deterioration in an assets value. Based on current appraisals, a valuation allowance may
be established to properly reflect the asset at fair market value. The increase in the valuation
allowance on property acquired in relation to one-to four-family residential construction loans was
due to the decline in market value of those properties. Home Savings engages experienced
professionals to sell real estate owned and other repossessed assets in a timely manner.
Total deposits decreased $40.9 million to $1.7 billion at March 31, 2010, compared to $1.8 billion
at December 31, 2009. The primary cause for the decline in deposits is the sale of Home Savings
Findlay, Ohio branch, discussed below. Also affecting the change was the maturity and paydown of
$12.7 million in brokered certificates of deposit during the first three months of 2010.
Federal Home Loan Bank advances decreased $7.2 million during the first three months of 2010, due
primarily to the paydown of approximately $15.2 million in term advances due to maturity. A
portion of these term advances were replaced with overnight advances of approximately $8.0 million.
Home Savings had approximately $192.0 million in unused borrowing capacity at the FHLB at March
31, 2010.
Advance payments by borrowers for taxes and insurance decreased $6.0 million during the first three
months of 2010. Remittance of real estate taxes and property insurance made on behalf of customers
of Home Savings account for $2.9
million of the decrease. In addition, funds held for payments received on loans sold where
servicing was retained by Home Savings decreased $3.2 million.
28
Accrued expenses and other liabilities increased $706,000 to $10.5 million at March 31, 2010, from
$9.8 million at December 31, 2009. Home Savings had an increase in liabilities of $467,000 due to
issuing official checks for customers and accounts payable remittances.
Shareholders equity decreased $5.3 million to $214.5 million at March 31, 2010, from $219.8
million at December 31, 2009. The change occurred primarily due to the net loss recognized by the
Company in the period.
Comparison of Operating Results for the Three Months Ended
March 31, 2010 and March 31, 2009
Net Income. United Community recognized a net loss for the three months ended March 31, 2010,
of $5.1 million, or $(0.17) per diluted share, compared to a net income of $3.3 million, or $0.11
per diluted share, for the three months ended March 31, 2009. The primary cause of the change is
the recognition of a higher provision for loan losses along with lower net interest income
recognized during the first quarter of 2010. Compared with the first quarter of 2009, net interest
income decreased $1.0 million, the provision for loan losses increased $4.0 million, non-interest
income increased $3.8 million, and non-interest expense increased $569,000. United Communitys
annualized return on average assets and return on average equity were (0.90)% and (9.18)%,
respectively, for the three months ended March 31, 2010. The annualized return on average assets
and return on average equity for the comparable period in 2009 were 0.50% and 5.30%, respectively.
Net Interest Income. Net interest income for the three months ended March 31, 2010, was $17.7
million, compared to $18.7 million for the same period last year. Both interest income and
interest expense decreased, with a larger decline in interest income. Total interest income
decreased $5.6 million in the first quarter of 2010 compared to the first quarter of 2009.
The change in interest income was primarily the result of a decline of $5.2 million in
interest earned on loans, which was a result of a decrease of $311.5 million in the average balance
of outstanding loans. United Community also experienced a decrease in the yield on net loans of 16
basis points. The Companys construction and commercial loan portfolios declined due to the
strategic objective of reducing specific concentrations in these portfolios.
Total interest expense decreased $4.6 million for the quarter ended March 31, 2010, as
compared to the same quarter last year. The change was due primarily to reductions of $3.3 million
in interest paid on deposits, $1.0 million in interest paid on Federal Home Loan Bank advances and
$267,000 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 certificates
of deposit of $154.2 million, as well as a reduction of 59 basis points in the cost of those
liabilities. Also contributing to the change was a decrease in the cost of interest bearing
checking accounts of 40 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 $168.8 million, as well as a rate decrease on
those borrowings of 25 basis points in the first quarter of 2010 compared to the same quarter in
2009. 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. The decrease in interest expense on
repurchase agreements and other borrowings was due primarily to a decrease in the average balances
of $27.3 million.
29
The following table shows the impact of interest rate and outstanding balance (volume) changes
compared to the first quarter of last year. The interest rate spread for the three months ended
March 31, 2010, grew to 3.00% compared to 2.74% for the quarter ended March 31, 2009. The net
interest margin increased 24 basis points to 3.28% for the three months ended March 31, 2010
compared to 3.04% for the same quarter in 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|
|
2010 vs. 2009 |
|
|
|
Increase |
|
|
Total |
|
|
|
(decrease) due to |
|
|
Increase |
|
|
|
Rate |
|
|
Volume |
|
|
(decrease) |
|
|
|
(Dollars in thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
(846 |
) |
|
$ |
(4,378 |
) |
|
$ |
(5,224 |
) |
Loans held for sale |
|
|
(32 |
) |
|
|
(161 |
) |
|
|
(193 |
) |
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale |
|
|
(414 |
) |
|
|
229 |
|
|
|
(185 |
) |
Federal Home Loan Bank stock |
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Other interest earning assets |
|
|
(34 |
) |
|
|
12 |
|
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
Total interest earning assets |
|
$ |
(1,325 |
) |
|
$ |
(4,298 |
) |
|
$ |
(5,623 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts |
|
|
(68 |
) |
|
|
31 |
|
|
|
(37 |
) |
Checking accounts |
|
|
(411 |
) |
|
|
85 |
|
|
|
(326 |
) |
Certificates of deposit |
|
|
(1,605 |
) |
|
|
(1,365 |
) |
|
|
(2,970 |
) |
Federal Home Loan Bank advances |
|
|
(201 |
) |
|
|
(809 |
) |
|
|
(1,010 |
) |
Repurchase agreements and other |
|
|
(7 |
) |
|
|
(260 |
) |
|
|
(267 |
) |
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities |
|
$ |
(2,292 |
) |
|
$ |
(2,318 |
) |
|
|
(4,610 |
) |
|
|
|
|
|
|
|
|
|
|
Change in net interest income |
|
|
|
|
|
|
|
|
|
$ |
(1,013 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
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 to $12.5 million in the first
quarter of 2010, compared to $8.4 million in the first quarter of 2009. The increase in the
provision for loan losses in the first quarter of 2010 is primarily the result of credit downgrades
within the commercial real estate portfolio and specific reserves assigned to a number of
commercial real estate properties. Also contributing to the increase is the effect of charge-offs
to record foreclosed and repossessed assets at fair market value before the Company takes
possession of the properties in satisfaction of loans. The remaining increase in the provision for
loan losses taken in the first quarter related primarily to the application of the Companys
elevated historical charge-off experience to the various pools of loans in the Companys portfolio.
Non-interest Income. Noninterest income increased in the first quarter of 2010 to $6.6 million, as
compared to the first quarter of 2009 of $2.7 million. Driving the increase in noninterest income
was the recognition of gains on the sale of available for sale securities of $2.8 million along
with a gain recognized on the sale of Home Savings Findlay, Ohio branch of $1.4 million.
On November 30, 2009, Home Savings entered into an agreement for the sale of Home Savings Findlay,
Ohio branch. The sale was completed on March 26, 2010, at which time Home Savings recognized a
$1.4 million gain on the transaction. In the transaction, the buyer assumed deposit liabilities,
including accrued interest, of $26.5 million and acquired approximately $1.8 million in loans and
$709,000 in related fixed assets of the branch.
Non-interest Expense. Noninterest expense was $17.0 million in the first quarter of 2010, compared
to $16.4 million in the first quarter of 2009. The increase in noninterest expense was driven by
higher professional fees associated with legal expenses paid by the Company during the first
quarter of 2010 as compared to the first quarter of 2009. Professional fees include legal, audit,
tax consulting and other professional services obtained by the Company. Legal fees were elevated
during the first quarter of 2010 primarily because of the continued resolution of asset quality
issues.
30
UNITED COMMUNITY FINANCIAL CORP.
AVERAGE BALANCE SHEETS
The following table presents the total dollar amounts of interest income and interest expense on the indicated amounts of average
interest-earning assets or interest-bearing liabilities together with the weighted average interest rates for the three month periods
ended March 31, 2010 and 2009. Average balance calculations were based on daily balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
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) |
|
$ |
1,847,443 |
|
|
$ |
25,843 |
|
|
|
5.60 |
% |
|
$ |
2,158,931 |
|
|
$ |
31,067 |
|
|
|
5.76 |
% |
Net loans held for sale |
|
|
7,459 |
|
|
|
70 |
|
|
|
3.75 |
% |
|
|
24,172 |
|
|
|
263 |
|
|
|
4.35 |
% |
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale |
|
|
256,748 |
|
|
|
2,585 |
|
|
|
4.03 |
% |
|
|
239,656 |
|
|
|
2,770 |
|
|
|
4.62 |
% |
Federal Home Loan Bank stock |
|
|
26,464 |
|
|
|
300 |
|
|
|
4.53 |
% |
|
|
26,464 |
|
|
|
299 |
|
|
|
4.52 |
% |
Other interest-earning assets |
|
|
24,246 |
|
|
|
7 |
|
|
|
0.12 |
% |
|
|
18,927 |
|
|
|
29 |
|
|
|
0.61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
2,162,360 |
|
|
|
28,805 |
|
|
|
5.33 |
% |
|
|
2,468,150 |
|
|
|
34,428 |
|
|
|
5.58 |
% |
Noninterest-earning assets |
|
|
129,270 |
|
|
|
|
|
|
|
|
|
|
|
137,183 |
|
|
|
|
|
|
|
|
|
Assets of discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,291,630 |
|
|
|
|
|
|
|
|
|
|
$ |
2,609,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW and money market accounts |
|
$ |
399,624 |
|
|
$ |
876 |
|
|
|
0.88 |
% |
|
$ |
375,113 |
|
|
$ |
1,202 |
|
|
|
1.28 |
% |
Savings accounts |
|
|
207,438 |
|
|
|
208 |
|
|
|
0.40 |
% |
|
|
187,566 |
|
|
|
245 |
|
|
|
0.52 |
% |
Certificates of deposit |
|
|
1,021,843 |
|
|
|
8,234 |
|
|
|
3.22 |
% |
|
|
1,176,028 |
|
|
|
11,204 |
|
|
|
3.81 |
% |
Federal Home Loan Bank advances |
|
|
181,637 |
|
|
|
848 |
|
|
|
1.87 |
% |
|
|
350,427 |
|
|
|
1,858 |
|
|
|
2.12 |
% |
Repurchase agreements and other |
|
|
96,987 |
|
|
|
923 |
|
|
|
3.81 |
% |
|
|
124,306 |
|
|
|
1,190 |
|
|
|
3.83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,907,529 |
|
|
|
11,089 |
|
|
|
2.33 |
% |
|
|
2,213,440 |
|
|
|
15,699 |
|
|
|
2.84 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities |
|
|
160,162 |
|
|
|
|
|
|
|
|
|
|
|
147,172 |
|
|
|
|
|
|
|
|
|
Liabilities of discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,067,691 |
|
|
|
|
|
|
|
|
|
|
|
2,363,061 |
|
|
|
|
|
|
|
|
|
Equity |
|
|
223,939 |
|
|
|
|
|
|
|
|
|
|
|
246,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
2,291,630 |
|
|
|
|
|
|
|
|
|
|
$ |
2,609,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and interest
rate spread |
|
|
|
|
|
$ |
17,716 |
|
|
|
3.00 |
% |
|
|
|
|
|
$ |
18,729 |
|
|
|
2.74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
|
|
|
3.28 |
% |
|
|
|
|
|
|
|
|
|
|
3.04 |
% |
Average interest-earning assets
to average interest-bearing
liabilities |
|
|
|
|
|
|
|
|
|
|
113.36 |
% |
|
|
|
|
|
|
|
|
|
|
111.51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonaccrual loans are included in the average balance at a yield of 0%. |
31
|
|
|
ITEM 3. |
|
Quantitative and Qualitative Disclosures about Market Risk |
Qualitative Aspects of Market Risk. The principal market risk affecting United Community is
interest rate risk. United Community is subject to interest rate risk to the extent that its
interest-earning assets reprice differently than its interest-bearing liabilities. Interest rate
risk is defined as the sensitivity of a companys earnings and net asset values to changes in
interest rates. As part of its efforts to monitor and manage the interest rate risk, Home Savings,
which accounts for most of the assets and liabilities of United Community, has adopted an interest
rate risk policy that requires the Home Savings Board to review quarterly reports related to
interest rate risk and to set exposure limits for Home Savings as a guide to management in setting
and implementing day-to-day operating strategies.
Quantitative Aspects of Market Risk. As part of its interest rate risk analysis, Home Savings uses
the net portfolio value (NPV) methodology. Generally, NPV is the discounted present value of the
difference between incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing and other liabilities. The application of the methodology attempts to quantify
interest rate risk as the change in the NPV and net interest income that would result from various
levels of theoretical basis point changes in market interest rates.
Home Savings uses a NPV and earnings simulation model prepared internally as its primary method to
identify and manage its interest rate risk profile. The model is based on actual cash flows and
repricing characteristics for all financial instruments and incorporates market-based assumptions
regarding the impact of changing interest rates on future volumes and the prepayment rate of
applicable financial instruments. Assumptions based on the historical behavior of deposit rates
and balances in relation to changes in interest rates also are incorporated into the model. These
assumptions inherently are uncertain and, as a result, the model cannot measure precisely NPV or
net interest income or precisely predict the impact of fluctuations in interest rates on net
interest rate changes as well as changes in market conditions and management strategies.
Presented below are analyses of Home Savings interest rate risk as measured by changes in NPV and
net interest income for instantaneous and sustained parallel shifts of 100 basis point increments
in market interest rates. Due to the current low level of treasury rates, values for a decline in
rates of 100, 200 and 300 basis points are not calculated for the quarter ended March 31, 2010. As
noted, for the quarter ended March 31, 2010, the percentage changes fall within the policy limits
set by the Board of Directors of Home Savings as the minimum NPV ratio, the maximum change in the
NPV ratio, and the maximum change in interest income the Home Savings Board deems advisable in the
event of various changes in interest rates. See the table below for Board adopted policy limits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, 2010 |
|
NPV as % of portfolio value of assets |
|
|
Next 12 months net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal |
|
|
|
|
|
|
|
|
|
|
|
policy |
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
limitations |
|
|
|
|
in rates |
|
|
|
|
|
Internal policy limitations |
|
|
|
|
|
|
|
|
|
|
on |
|
|
|
|
(Basis |
|
NPV |
|
|
Minimum |
|
|
Maximum |
|
|
Change |
|
|
$ |
|
|
maximum |
|
|
% |
|
points) |
|
Ratio |
|
|
level |
|
|
change |
|
|
in % |
|
|
Change |
|
|
change |
|
|
Change |
|
300 |
|
|
9.11 |
% |
|
|
6.00 |
% |
|
|
-35.00 |
% |
|
|
-1.19 |
% |
|
$ |
(3,046 |
) |
|
|
-15.00 |
% |
|
|
-3.84 |
% |
200 |
|
|
9.83 |
% |
|
|
7.00 |
% |
|
|
|
|
|
|
-0.47 |
% |
|
|
(1,275 |
) |
|
|
-10.00 |
% |
|
|
-1.61 |
% |
100 |
|
|
10.46 |
% |
|
|
7.00 |
% |
|
|
|
|
|
|
0.16 |
% |
|
|
(210 |
) |
|
|
-5.00 |
% |
|
|
-0.26 |
% |
Static |
|
|
10.30 |
% |
|
|
8.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
NPV as % of portfolio value of assets |
|
|
Next 12 months net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal |
|
|
|
|
|
|
|
|
|
|
|
policy |
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
limitations |
|
|
|
|
in rates |
|
|
|
|
|
Internal policy limitations |
|
|
|
|
|
|
|
|
|
|
on |
|
|
|
|
(Basis |
|
NPV |
|
|
Minimum |
|
|
Maximum |
|
|
Change |
|
|
$ |
|
|
maximum |
|
|
% |
|
points) |
|
Ratio |
|
|
level |
|
|
change |
|
|
in % |
|
|
Change |
|
|
change |
|
|
Change |
|
300 |
|
|
8.19 |
% |
|
|
6.00 |
% |
|
|
-35.00 |
% |
|
|
-1.76 |
% |
|
$ |
(4,414 |
) |
|
|
-15.00 |
% |
|
|
-5.67 |
% |
200 |
|
|
9.31 |
% |
|
|
7.00 |
% |
|
|
|
|
|
|
-0.64 |
% |
|
|
(2,125 |
) |
|
|
-10.00 |
% |
|
|
-2.73 |
% |
100 |
|
|
10.03 |
% |
|
|
7.00 |
% |
|
|
|
|
|
|
0.80 |
% |
|
|
(640 |
) |
|
|
-5.00 |
% |
|
|
-0.82 |
% |
Static |
|
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9.95 |
% |
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|
8.00 |
% |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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 has benefited from the repricing of certificates of deposit at
lower levels as loan yields have stabilized.
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ITEM 4. |
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Controls and Procedures |
An evaluation was carried out by United Communitys management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of United Communitys disclosure controls
and procedures (as defined in Rules 13a-15(e)/15d-15(e) of the Securities Exchange Act of 1934) as
of March 31, 2010. Based on their evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that United Communitys disclosure controls and procedures were effective as
of March 31, 2010. During the quarter ended March 31, 2010, there were no changes in United
Communitys internal controls over financial reporting that have materially affected or are
reasonably likely to materially affect United Communitys internal controls over financial
reporting.
33
PART II. OTHER INFORMATION
UNITED COMMUNITY FINANCIAL CORP.
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ITEM 1 |
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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, 2009. The risk factors described in the
Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and
uncertainties not currently known to the Company or that management currently deems to be
immaterial also may materially adversely affect the Companys business, financial condition and/or
operating results. Moreover, the Company undertakes no obligation and disclaims any intention to
publish revised information or updates to forward looking statements contained in such risk factors
or in any other statement made at any time by the Company or any of its directors, officers,
employees or other representatives, unless and until any such revisions or updates are expressly
required to be disclosed by securities laws or regulations.
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ITEM 2 |
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Unregistered Sales of Equity Securities and Use of Proceeds |
There were no purchases of UCFC shares during the quarter ended March 31, 2010.
Exhibits
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Exhibit Number |
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Description |
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3.1 |
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Articles of Incorporation |
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3.2 |
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Amended Code of Regulations |
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31.1 |
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Section 302 Certification by Chief Executive Officer |
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31.2 |
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Section 302 Certification by Chief Financial Officer |
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32 |
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Certification of Statements by Chief Executive Officer and
Chief Financial Officer |
34
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.
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UNITED COMMUNITY FINANCIAL CORP.
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Date: May 17, 2010 |
/s/ Douglas M. McKay
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Douglas M. McKay |
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Chairman, President and Chief Executive Officer
(Principal Executive Officer) |
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Date: May 17, 2010 |
/s/ James R. Reske
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James R. Reske, CFA |
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Treasurer and Chief Financial Officer
(Principal Financial Officer) |
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35
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.
36