United Community Financial Corp. 10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2007
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OR
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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
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For the transition period
from to
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Commission File
Number: 0-024399
UNITED COMMUNITY FINANCIAL
CORP.
(Exact name of registrant as
specified in its charter)
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Ohio
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34-1856319
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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275 West Federal Street,
Youngstown, Ohio
(Address of principal
executive offices)
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44503
(Zip Code)
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Registrants
telephone number:
(330)
742-0500
Securities registered pursuant to Section 12(b) of the
Act:
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Common shares, no par value per share
(Title of Class)
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Nasdaq
(Name of each exchange on
which registered)
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Securities registered pursuant to Section 12(g) of the
Act:
None
(Title
of Class)
Indicate by checkmark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by checkmark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
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 o No þ
Indicate by checkmark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in a definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
10K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
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Indicate by checkmark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act.). Yes o No þ
The aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the last
reported sale on June 30, 2007 was approximately
$275.4 million. (The exclusion from such amount of the
market value of the shares owned by any person shall not be
deemed an admission by the registrant that such person is an
affiliate of the registrant.)
As of March 10, 2008, there were 30,051,773 of the
Registrants Common Shares outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Part III of
Form 10-K
Portions of the Proxy Statement for the 2008 Annual Meeting of
Shareholders
PART I
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Item 1.
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Description
of Business
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GENERAL
United Community Financial Corp. (United Community) was
incorporated in the State of Ohio in February 1998 for the
purpose of owning all of the outstanding capital stock of The
Home Savings and Loan Company of Youngstown, Ohio (Home Savings)
issued upon the conversion of Home Savings from a mutual savings
association to a permanent capital stock savings association
(Conversion). The Conversion was completed on July 8, 1998.
On August 12, 1999, Butler Wick Corp. (Butler Wick) became
a wholly-owned subsidiary of United Community.
United Communitys Internet site,
http://www.ucfconline.com,
contains a hyperlink to the Securities and Exchange Commission
(SEC) where United Communitys annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
Section 16 Insider Reports and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 are available free of charge
as soon as reasonably practicable after United Community has
filed the report with the SEC.
As a unitary thrift holding company, United Community is subject
to regulation, supervision and examination by the Office of
Thrift Supervision (OTS), the Division of Financial Institutions
of the Ohio Department of Commerce (Division) and the SEC.
United Communitys primary activity is holding the common
shares of Home Savings and Butler Wick. Consequently, the
following discussion focuses primarily on the business of Home
Savings and Butler Wick.
Home Savings was organized as a mutual savings association under
Ohio law in 1889. Currently, Home Savings is a state-chartered
savings bank, subject to supervision and regulation by the
Federal Deposit Insurance Corporation (FDIC) and the Division.
Home Savings is a member of the Federal Home Loan Bank of
Cincinnati (FHLB) and the deposits of Home Savings are insured
up to applicable limits by the FDIC.
Home Savings conducts business from its main office located in
Youngstown, Ohio, 39 full-service branches and six loan
production offices located throughout Ohio and western
Pennsylvania. The principal business of Home Savings is the
origination of mortgage loans, including construction loans on
residential and nonresidential real estate located in Home
Savings primary market area, which consists of Ashland,
Columbiana, Cuyahoga, Erie, Franklin, Geauga, Hancock, Huron,
Lake, Mahoning, Montgomery, Portage, Richland, Sandusky, Seneca,
Stark, Summit and Trumbull Counties in Ohio and Beaver County in
Pennsylvania. In addition to real estate lending, Home Savings
originates commercial loans and various types of consumer loans.
For liquidity and interest rate risk management purposes, Home
Savings invests in various financial instruments as discussed
below under Investment Activities. Funds for lending
and other investment activities are obtained primarily from
savings deposits, which are insured up to applicable limits by
the FDIC, principal repayments of loans, borrowings from the
FHLB, repurchase agreements, and maturities of securities.
Interest on loans and other investments is Home Savings
primary source of income. Home Savings principal expenses
are interest paid on deposit accounts and other borrowings and
salaries and benefits paid to employees. Operating results are
dependent to a significant degree on the net interest income of
Home Savings, which is the difference between interest earned on
loans and other investments and interest paid on deposits and
borrowed funds. Like most financial institutions, Home
Savings interest income and interest expense are affected
significantly by general economic conditions and by the policies
of various regulatory authorities.
Butler Wick is the parent company for two wholly-owned
subsidiaries: Butler Wick & Co., Inc. and Butler Wick
Trust Company. Butler Wick conducts business from its main
office located in Youngstown, Ohio and 22 offices located in
northeastern Ohio, western Pennsylvania, and western New York.
Butler Wick primarily sells common and preferred stocks, but
also offers an array of government, corporate and municipal
bonds, unit trusts, mutual funds, IRAs, money market accounts
and certificates of deposit. Butler Wick also offers a full line
of life insurance and annuity products, personal and corporate
financial planning, estate planning, pension and profit sharing
plan services.
1
Butler Wicks primary source of income is commissions
earned on trades initiated by customers and its primary expense
is commissions paid to brokers, salaries, and employee benefits.
Commissions earned by Butler Wick, which are a component of
non-interest income, may be affected by general economic
conditions in its market area as well as policy changes by
various regulatory agencies.
DISCUSSION
OF FORWARD-LOOKING STATEMENTS
When used in this
Form 10-K
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, demand for investments in Butler
Wicks 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 does not undertake, and specifically disclaims
any obligation, to publicly release the result of any revisions
that may be made to any forward-looking statements to reflect
events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events.
LENDING
ACTIVITIES
General. Home Savings principal lending
activity is the origination of conventional real estate loans
secured by real estate located in Home Savings primary
market area, including single family residences, multifamily
residences and nonresidential real estate, including
construction projects. In addition to real estate lending, Home
Savings originates commercial loans and various types of
consumer loans, including home equity loans, education loans,
loans secured by savings accounts, motor vehicles, boats and
recreational vehicles and unsecured loans.
2
Loan Portfolio Composition. The following
table presents certain information regarding the composition of
Home Savings loan portfolio at the dates indicated:
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At December 31,
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2007
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2006
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2005
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2004
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2003
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Percent of
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Percent of
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Percent of
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Percent of
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Percent of
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Amount
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Total Loans
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Amount
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Total Loans
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Amount
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Total Loans
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Amount
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Total Loans
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Amount
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Total Loans
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(Dollars in thousands)
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Real estate loans:
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Permanent loans:
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One- to four-family residential
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$
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871,019
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38.41
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%
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$
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854,829
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37.65
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%
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$
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749,362
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35.44
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%
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$
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690,413
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37.68
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%
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$
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599,370
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37.62
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%
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Multifamily residential
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179,535
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7.92
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163,541
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7.20
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154,702
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7.32
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153,011
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8.35
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148,362
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9.31
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Non-residential
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359,070
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15.84
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348,528
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15.35
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314,124
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14.86
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289,755
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15.81
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291,588
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18.30
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Land
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22,818
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1.01
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26,684
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1.18
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14,979
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0.71
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14,701
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0.80
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14,147
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0.89
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Total permanent
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1,432,442
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63.18
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1,393,582
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61.38
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1,233,167
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58.33
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1,147,880
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62.64
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1,053,467
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66.12
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Construction loans:
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One- to four-family residential
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357,153
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15.75
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388,926
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17.13
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389,558
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18.43
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301,193
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16.43
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244,837
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15.37
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Multifamily and non-residential
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25,191
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1.11
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25,215
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1.11
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66,788
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3.16
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47,230
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2.58
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27,586
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1.73
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Total construction
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382,344
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16.86
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414,141
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18.24
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456,346
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21.59
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348,423
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19.01
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272,423
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17.10
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Total real estate loans
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1,814,786
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80.04
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1,807,723
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79.62
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1,689,513
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79.92
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1,496,303
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81.65
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1,325,890
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83.22
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Consumer loans:
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Home equity
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234,362
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10.33
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220,679
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9.72
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196,986
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9.32
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133,441
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7.28
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134,053
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8.41
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Auto
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31,206
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1.38
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36,605
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1.61
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42,975
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2.03
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58,148
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3.17
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48,219
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3.03
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Marine
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14,196
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0.63
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19,218
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0.85
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23,434
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1.11
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31,622
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1.73
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22,987
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1.44
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RV
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63,587
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2.80
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59,642
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2.63
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48,108
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2.27
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27,330
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1.49
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15
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0.00
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Other(1)
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6,096
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0.27
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9,463
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0.42
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12,012
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0.57
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17,105
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0.94
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13,488
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0.85
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Total consumer
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349,447
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15.41
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345,607
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15.23
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323,515
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15.30
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267,646
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14.61
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218,762
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13.73
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Commercial loans
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103,208
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4.55
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116,952
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5.15
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100,977
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4.78
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68,523
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3.74
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48,570
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3.05
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Total loans
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2,267,441
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100.00
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%
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2,270,282
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100.00
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%
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2,114,005
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100.00
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%
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1,832,472
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100.00
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%
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1,593,222
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100.00
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%
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Less net items
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30,453
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16,723
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16,572
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|
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16,496
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|
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|
16,728
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Total loans, net
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$
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2,236,988
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$
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2,253,559
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$
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2,097,433
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$
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1,815,976
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$
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1,576,494
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists primarily of overdraft protection loans and loans to
individuals secured by demand accounts, deposits and other
consumer assets. |
Loan Maturity. The following table sets forth
certain information as of December 31, 2007, regarding the
dollar amount of construction and commercial loans maturing in
Home Savings portfolio based on their contractual terms to
maturity. Demand and other loans having no stated schedule of
repayments or no stated maturity are reported as due in one year
or less. Mortgage loans originated by Home Savings generally
include
due-on-sale
clauses that provide Home Savings with the contractual right to
deem the loan immediately due and
3
payable in the event the borrower transfers the ownership of the
property without Home Savings consent. The table does not
include the effects of possible prepayments or scheduled
repayments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Repayments Contractually
|
|
|
|
Due in the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2013 and
|
|
|
|
|
|
|
2008
|
|
|
2009-2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential
|
|
$
|
328,529
|
|
|
$
|
1,604
|
|
|
$
|
27,020
|
|
|
$
|
357,153
|
|
Multifamily and non-residential
|
|
|
1,526
|
|
|
|
20,054
|
|
|
|
3,611
|
|
|
|
25,191
|
|
Commercial loans
|
|
|
80,480
|
|
|
|
18,368
|
|
|
|
4,360
|
|
|
|
103,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
410,535
|
|
|
$
|
40,026
|
|
|
$
|
34,991
|
|
|
$
|
485,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The next table sets forth the dollar amount of all loans
reported above as due after December 31, 2008, which have
fixed or adjustable interest rates:
|
|
|
|
|
|
|
Due After December 31, 2008
|
|
|
|
(Dollars in thousands)
|
|
|
Fixed rate
|
|
$
|
43,787
|
|
Adjustable rate
|
|
|
31,230
|
|
|
|
|
|
|
|
|
$
|
75,017
|
|
|
|
|
|
|
Loans Secured by One- to Four-Family Real
Estate. Home Savings originates conventional
loans secured by first mortgages on one- to four-family
residences primarily located within Home Savings primary
market area. At December 31, 2007, Home Savings one-
to four-family residential real estate loans held for investment
totaled approximately $871.0 million, or 38.4% of total
loans. At December 31, 2007, $12.8 million, or 1.5%,
of Home Savings one- to four-family loans, were
nonperforming.
Home Savings currently offers fixed-rate mortgage loans and
adjustable-rate mortgage loans (ARMs). Although Home
Savings loan portfolio includes a significant amount of
30-year
fixed-rate loans, most fixed rate loans are originated for sale.
The interest rate adjustment periods on ARMs are typically one,
three or five years. The maximum interest rate adjustment on
most of the ARMs is 2.0% on any adjustment date and a total of
6.0% over the life of the loan. The interest rate adjustments on
three-year and five-year ARMs presently offered by Home Savings
are indexed to the weekly average rate on the one-year
U.S. Treasury securities. Rate adjustments are computed by
adding a stated margin to the index.
FDIC regulations and Ohio law limit the amount that Home Savings
may lend in relationship to the appraised value of the real
estate and improvements that secure the loan at the time of loan
origination. In accordance with such regulations, Home Savings
makes loans on one- to four-family residences of up to 100% of
the value of the real estate and improvements (LTV). Home
Savings typically requires private mortgage insurance on the
portion of the principal amount of the loan that exceeds 85% of
the appraised value of the property securing the loan.
Under certain circumstances, Home Savings will offer loans with
LTVs exceeding 85% without private mortgage insurance.
Customers may borrow up to 80% of the homes appraised
value and obtain a second loan or line of credit for up to 15%
of the appraised value without having to purchase mortgage
insurance. Home Savings also offers a first-time homebuyers
product that permits an LTV of 95% without private mortgage
insurance. Such loans involve a higher degree of risk because,
in the event of a borrower default, the value of the underlying
collateral may not satisfy the principal and interest
outstanding on the loan. To reduce this risk, Home Savings
underwrites all loans to Freddie Mac and Fannie Mae underwriting
guidelines. At December 31, 2007, these loans totaled
$103.0 million. There were approximately $1.5 million
loans with LTVs greater than 80%, or 0.07% of total loans,
that were nonperforming at December 31, 2007.
From time-to-time, Home Savings originates interest-only loans,
but these loans are sold immediately after origination.
Currently, no interest-only one- to four-family loans are
contained in Home Savings portfolio.
4
Home Savings issues loan origination commitments to qualified
borrowers primarily for the purchase of single-family
residential real estate. Such commitments have specified terms
and conditions and are made for periods of up to 60 days,
during which time the interest rate is locked in.
Loans Secured by Multifamily Residences. Home
Savings originates loans secured by multifamily properties that
contain more than four units. Multifamily loans are offered with
adjustable rates of interest, which adjust according to a
specified index, and typically have terms ranging from five to
ten years and LTVs of up to 80%.
Multifamily lending generally is considered to involve a higher
degree of risk than one- to four-family residential lending
because the borrower typically depends upon income generated by
the project to cover operating expenses and debt service. The
profitability of a project can be affected by economic
conditions, government policies and other factors beyond the
control of the borrower. Home Savings attempts to reduce the
risk associated with multifamily lending by evaluating the
creditworthiness of the borrower and the projected income from
the project and by obtaining personal guarantees on loans made
to corporations, limited liability companies, and partnerships.
Home Savings requires borrowers to submit financial statements
annually to enable management to monitor the loan and requires
an assignment of rents from borrowers.
At December 31, 2007, loans secured by multifamily
properties totaled approximately $179.5 million, or 7.9% of
total loans. The largest loan had a principal balance of
$11.3 million and was performing according to its terms.
There were approximately $13.6 million, or 0.60% of total
loans included in multifamily loans that were considered
nonperforming at December 31, 2007.
Loans Secured by Nonresidential Real
Estate. Home Savings originates loans secured by
nonresidential real estate including shopping centers, office
buildings, hotels and motels. Home Savings nonresidential
real estate loans have adjustable rates, terms of up to
25 years and, generally, LTVs of up to 75%. The majority of
such properties are located within Home Savings primary
lending area.
Nonresidential real estate lending generally is considered to
involve a higher degree of risk than residential lending due to
the relatively larger loan amounts and the effects of general
economic conditions on the successful operation of
income-producing properties. Home Savings has endeavored to
reduce such risk by evaluating the credit history of the
borrower, the location of the real estate, the financial
condition of the borrower, obtaining personal guarantees by the
borrower, the quality and characteristics of the income stream
generated by the property and the appraisals supporting the
propertys valuation.
At December 31, 2007, Home Savings largest loan
secured by nonresidential real estate had a balance of
$14.6 million and was performing according to its terms. At
December 31, 2007, approximately $359.1 million, or
15.8% of Home Savings total loans, were secured by
mortgages on nonresidential real estate, of which
$13.6 million, or 0.60% of total loans were considered
nonperforming.
Loans Secured by Vacant Land. Home Savings
also originates a limited number of loans secured by vacant land
primarily for the construction of single-family houses. Home
Savings land loans generally are fixed-rate loans for
terms up to five years and require a LTV of 65% or less. At
December 31, 2007, approximately $22.8 million, or
1.0%, of Home Savings total loans were land loans, a
majority of which were loans to individuals intending to
construct and occupy single-family residences on the properties.
Nonperforming land loans totaled $3.7 million, or 0.16% of
total loans, at December 31, 2007.
Construction Loans. Home Savings originates
loans for the construction of one- to four-family residences,
multifamily properties and nonresidential real estate projects.
Residential construction loans are made to both owner-occupants
and to builders on a speculative (unsold) basis. Construction
loans to owner-occupants are structured as permanent loans with
fixed or adjustable rates of interest and terms of up to
30 years. During the first year, while the residence is
being constructed, the borrower is required to pay interest
only. Construction loans for one- to four-family residences have
LTVs at origination of up to 95%, and construction loans for
multifamily and nonresidential properties have LTVs at
origination of up to 80%, based on estimated value at
completion, with the value of the land included as part of the
owners equity.
At December 31, 2007, Home Savings had approximately
$382.3 million, or 16.9% of its total loans, invested in
construction loans, including $357.2 million in one- to
four-family residential construction and approximately
5
$25.2 million in multifamily and nonresidential
construction loans. 72.2% of Home Savings residential
construction loans are made to builders for homes for which the
builder does not have a contract with a buyer. Home Savings,
however, limits the number of outstanding loans to each builder
on unsold homes under construction.
Construction loans generally involve greater underwriting and
default risks than loans secured by mortgages on existing
properties because construction loans are more difficult to
appraise and to monitor. Loan funds are advanced upon the
security of the project under construction. In the event a
default on a construction loan occurs and foreclosure follows,
Home Savings usually will take control of the project and
attempt either to arrange for completion of construction or
dispose of the unfinished project.
Nonperforming construction loans at December 31, 2007,
totaled $45.5 million, or 2.01% of total loans.
Consumer Loans. Home Savings originates
various types of consumer loans, including home equity loans,
vehicle loans, education loans, recreational vehicle loans,
marine loans, overdraft protection loans, loans to individuals
secured by demand accounts, deposits and other consumer assets
and unsecured loans. Consumer loans are made at fixed and
adjustable rates of interest and for varying terms based on the
type of loan. At December 31, 2007, Home Savings had
approximately $349.4 million, or 15.4% of its total loans,
invested in consumer loans.
Home Savings generally makes closed-end home equity loans in an
amount that, when added to the prior indebtedness secured by the
real estate, does not exceed 95% of the estimated value of the
real estate. Home equity loans typically are secured by a second
mortgage on the real estate. Home Savings frequently holds the
first mortgage, although Home Savings will make home equity
loans in cases where another lender holds the first mortgage.
Home Savings also offers home equity loans with a line of credit
feature. Home equity loans are made with adjustable and fixed
rates of interest. Fixed-rate home equity loans have terms of
five years but can be called at any time. Rate adjustments on
adjustable home equity loans are determined by adding a margin
to the current prime interest rate for loans on residences of up
to 80% LTV or by adding a margin to the current prime interest
rate for loans on residences of up to 90% LTV to the one-year
U.S. Treasury index. At December 31, 2007,
approximately $234.4 million, or 67.1%, of Home
Savings consumer loan portfolio consisted of home equity
loans. Consumer loans secured by a deposit or savings account
are made for up to 100% of the principal balance of the account
and generally have adjustable rates, which adjust based on the
weekly average yield on U.S. Treasury securities plus a
margin.
For new automobiles, loans are originated for up to 110% of the
MSRP value of the car with terms of up to 72 months, and,
for used automobiles, loans are made for up to the National
Automobile Dealers Association (N.A.D.A) retail value of the car
model and a term of up to 66 months. Most automobile loans
are originated indirectly by approved auto dealerships. At
December 31, 2007, automobile loans totaled
$31.2 million, or 8.9%, of Home Savings consumer loan
portfolio.
Loans for recreational vehicles may be either originated or
purchased by Home Savings. Recreational vehicle loans are
originated for up to 85% of the selling price on new vehicles
and 90% of the N.A.D.A retail value of used units with terms of
up to 20 years. Loans are generally fixed for the first
seven years and change to an adjustable rate loan for the
remaining term. At December 31, 2007, recreational vehicle
loans totaled $63.6 million, or 18.2%, of Home
Savings consumer loan portfolio.
Nonperforming consumer loans at December 31, 2007, amounted
to $4.8 million, or 0.21% of total loans.
Commercial Loans. Home Savings makes
commercial loans to businesses in its primary market area,
including traditional lines of credit, revolving lines of
credit, term loans and acquisition and development loans. The
LTV ratios for commercial loans depend upon the nature of the
underlying collateral, but generally commercial loans are made
with LTVs of 70% to 80%, up to a maximum of 90%, and have
adjustable interest rates. Lines of credit and revolving credits
generally are priced on a floating rate basis, which is tied to
the prime interest rate or U.S. Treasury bill rate. Term
loans usually have adjustable rates, but can have fixed rates of
interest, and have terms of one to five years.
At December 31, 2007, Home Savings had approximately
$103.2 million, or 4.6% of total loans, invested in
commercial loans. The majority of these loans are secured by
inventory, accounts receivable, machinery, investment property,
vehicles or other assets of the borrower. Home Savings also
originates unsecured commercial loans
6
including lines of credit for periods of less than
12 months, short-term loans and, occasionally, term loans
for periods of up to 36 months. These loans are
underwritten based on the creditworthiness of the borrower and
the guarantors, if any. Home Savings had $59.9 million in
unsecured commercial loans as of December 31, 2007.
Commercial loans generally entail greater risk than real estate
lending. The repayment of commercial loans typically is
dependent on the income stream and successful operation of a
business, which can be affected by economic conditions. The
collateral for commercial loans, if any, often consists of
rapidly depreciating assets.
Nonperforming commercial loans at December 31, 2007,
amounted to $4.7 million, or 0.21% of total loans.
Loan Solicitation and Processing. The lending
activities of Home Savings are subject to the written,
non-discriminatory underwriting standards and loan origination
procedures approved by Home Savings Board of Directors
(Board). Loan originations generally are obtained from existing
customers and members of the local community and from referrals
by real estate brokers, lawyers, accountants and current and
former customers. Home Savings also advertises in the local
print media, radio and on television.
Each of Home Savings 39 offices and six loan production
offices have loan personnel who can accept loan applications,
which are then forwarded to Home Savings Underwriting
Department for processing and approval. In underwriting real
estate loans, Home Savings typically obtains a credit report,
verification of employment and other documentation concerning
the creditworthiness of the borrower. An appraisal of the fair
market value of the real estate that will be given as security
for the loan is prepared by one of Home Savings in-house
licensed appraisers or an approved independent fee appraiser.
For most nonresidential real estate loans the appraisal is
conducted by an outside fee appraiser whose report is reviewed
by Home Savings chief appraiser. Upon the completion of
the appraisal and the receipt of information on the credit
history of the borrower, the loan application is submitted for
review to the appropriate persons. Commercial, residential and
nonresidential real estate loans up to $1.0 million may be
approved by an authorized executive officer. Loan requests of
$1.0 million to $15.0 million require the approval of
the Loan Committee. All loans of $15.0 million or more
require approval by three executive officers and a majority of
the Board.
Borrowers are required to carry satisfactory fire and casualty
insurance and flood insurance, if applicable, and to name Home
Savings as an insured mortgagee. Home Savings generally obtains
a title guarantee or title insurance on real estate loans.
The procedure for approval of construction loans is the same as
for permanent real estate loans, except that an appraiser
evaluates the building plans, construction specifications and
estimates of construction costs. Home Savings also evaluates the
feasibility of the proposed construction project and the
experience and record of the builder. Once approved, the
construction loan is disbursed in installments based upon
periodic inspections of the construction progress.
Consumer loans are underwritten on the basis of the
borrowers credit history and an analysis of the
borrowers income and expenses, ability to repay the loan
and the value of the collateral, if any.
Loan Originations, Purchases and Sales. Home
Savings residential loans generally are made on terms and
conditions and documented to conform to the secondary market
guidelines for sale to the Federal Home Loan Mortgage Company
(FHLMC), the Federal National Mortgage Association (FNMA) and
other institutional investors in the secondary market. Education
loans are sold to the Student Loan Marketing Association. Home
Savings originates first mortgage loans insured by the Federal
Housing Authority with the intention to sell in the secondary
market. Home Savings does not originate loans guaranteed by the
Veterans Administration, but it has purchased such loans as well
as participation interests in such loans.
Home Savings generally retains the servicing rights on the sale
of loans originated in the geographic area surrounding its full
service branches. Home Savings anticipates continued
participation in the secondary mortgage loan market to maintain
its desired risk profile.
At December 31, 2007, Home Savings had $86.1 million
of outstanding commitments to make loans, $173.1 million
available to borrowers under consumer and commercial lines of
credit and $40.1 million available in the
OverdraftPrivledgetm
program. At December 31, 2007, Home Savings had
$239.7 million in undisbursed funds related to construction
loans in process.
7
During 2003, Home Savings entered into an agreement to purchase
one- to four-family construction loans from another institution.
Loans purchased under this agreement earn a floating rate of
interest, are guaranteed as to principal and interest by a third
party and are for the purpose of constructing either pre-sold or
market homes. At December 31, 2007, approximately
$84.4 million was outstanding under this program. This
represents a decrease of $4.5 million over the outstanding
balance of $88.9 million included in net loans as of
December 31, 2006. At December 31, 2007,
$1.2 million of these loans, or 0.05% of total loans were
nonperforming. Home Savings anticipates continuing purchases of
loans under this arrangement in 2008.
Loans to One Borrower Limits. Regulations
generally limit the aggregate amount that Home Savings may lend
to any one borrower to an amount equal to 15.0% of Home
Savings unimpaired capital and unimpaired surplus (Lending
Limit Capital). A savings association may lend to one borrower
an additional amount not to exceed 10.0% of Lending Limit
Capital if the additional amount is fully secured by certain
forms of readily marketable collateral. Real estate
is not considered readily marketable collateral. In
applying this limit, the regulations require that loans to
certain related or affiliated borrowers be aggregated.
Based on such limits, Home Savings could lend approximately
$38.8 million to one borrower at December 31, 2007.
The largest amount Home Savings had committed to one borrower at
December 31, 2007, was $24.0 million, of which
$17.4 million was outstanding at that time. At
December 31, 2007, this unsecured commercial line of credit
was performing in accordance with its terms.
Delinquent Loans, Nonperforming Assets and Classified
Assets. Home Savings attempts to maintain a high
level of asset quality through sound underwriting policies and
aggressive collection practices.
The following table reflects the amount of all loans in a
delinquent status as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
of Net
|
|
|
|
Number
|
|
|
Amount
|
|
|
Loans
|
|
|
Number
|
|
|
Amount
|
|
|
Loans
|
|
|
|
(Dollars in thousands)
|
|
|
Loans delinquent for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 days
|
|
|
341
|
|
|
$
|
41,478
|
|
|
|
1.85
|
%
|
|
|
347
|
|
|
$
|
32,315
|
|
|
|
1.43
|
%
|
60-89 days
|
|
|
120
|
|
|
|
17,331
|
|
|
|
0.78
|
|
|
|
93
|
|
|
|
9,413
|
|
|
|
0.42
|
|
90 days or over
|
|
|
425
|
|
|
|
92,671
|
|
|
|
4.14
|
|
|
|
297
|
|
|
|
52,313
|
|
|
|
2.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total delinquent loans
|
|
|
886
|
|
|
$
|
151,480
|
|
|
|
6.77
|
%
|
|
|
737
|
|
|
$
|
94,041
|
|
|
|
4.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets include loans past due 90 days and on
a nonaccrual status, loans past due 90 days and still
accruing, loans less than 90 days past due and on a
nonaccrual status, restructured loans, real estate acquired by
foreclosure or by
deed-in-lieu
of foreclosure and repossessed assets. Once a loan becomes
90 days delinquent, it generally is placed on non-accrual
status.
Loans are reviewed through monthly reports to the Board and
management and are placed on nonaccrual status when collection
in full is considered doubtful by management. Interest accrued
and unpaid at the time a loan is placed on nonaccrual status is
charged against interest income. Subsequent cash payments
generally are applied to interest income unless, in the opinion
of management, the collection of principal and interest is
doubtful. In those cases, subsequent cash payments are applied
to principal.
8
The following table sets forth information with respect to Home
Savings nonperforming loans and other assets at the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in thousands)
|
|
|
Nonperforming loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential
|
|
$
|
12,708
|
|
|
$
|
8,977
|
|
|
$
|
6,795
|
|
|
$
|
6,511
|
|
|
$
|
7,121
|
|
Multifamily and nonresidential
|
|
|
27,201
|
|
|
|
16,569
|
|
|
|
6,368
|
|
|
|
2,880
|
|
|
|
1,315
|
|
Construction (net of loans in process) and land
|
|
|
48,043
|
|
|
|
20,858
|
|
|
|
4,732
|
|
|
|
1,350
|
|
|
|
1,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
87,952
|
|
|
|
46,404
|
|
|
|
17,895
|
|
|
|
10,741
|
|
|
|
10,160
|
|
Consumer
|
|
|
4,809
|
|
|
|
3,245
|
|
|
|
2,495
|
|
|
|
5,152
|
|
|
|
888
|
|
Commercial
|
|
|
4,738
|
|
|
|
2,997
|
|
|
|
3,889
|
|
|
|
4,960
|
|
|
|
1,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans
|
|
|
97,499
|
|
|
|
52,646
|
|
|
|
24,279
|
|
|
|
20,853
|
|
|
|
12,981
|
|
Restructured loans
|
|
|
2,342
|
|
|
|
1,385
|
|
|
|
825
|
|
|
|
1,329
|
|
|
|
1,853
|
|
Past due 90 days and still accruing
|
|
|
1,215
|
|
|
|
796
|
|
|
|
563
|
|
|
|
377
|
|
|
|
1,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
101,056
|
|
|
|
54,827
|
|
|
|
25,667
|
|
|
|
22,559
|
|
|
|
16,134
|
|
Real estate acquired through foreclosure and other repossessed
assets
|
|
|
10,510
|
|
|
|
3,242
|
|
|
|
2,514
|
|
|
|
1,682
|
|
|
|
1,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
111,566
|
|
|
$
|
58,069
|
|
|
$
|
28,181
|
|
|
$
|
24,241
|
|
|
$
|
17,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as a percent of loans, net
|
|
|
4.52
|
%
|
|
|
2.43
|
%
|
|
|
1.22
|
%
|
|
|
1.24
|
%
|
|
|
1.02
|
%
|
Nonperforming assets as a percent of total assets
|
|
|
4.04
|
|
|
|
2.15
|
|
|
|
1.11
|
|
|
|
1.06
|
|
|
|
0.84
|
|
Allowance for loan losses as a percent of nonperforming loans
|
|
|
31.67
|
|
|
|
30.92
|
|
|
|
61.26
|
|
|
|
70.38
|
|
|
|
93.66
|
|
Allowance for loan losses as a percent of loans, net
|
|
|
1.41
|
|
|
|
0.75
|
|
|
|
0.74
|
|
|
|
0.87
|
|
|
|
0.96
|
|
During 2007, interest collected on nonperforming loans and
included in net income was approximately $2.7 million.
During 2007, approximately $6.5 million in additional
interest income would have been recorded had nonaccrual and
restructured loans been accruing pursuant to contractual terms.
Nonperforming assets increased approximately $53.5 million,
or 92.1%, to $111.6 million at December 31, 2007, from
$58.1 million at December 31, 2006. At
December 31, 2007, total nonperforming loans accounted for
4.52% of net loans receivable, compared to 2.43% at
December 31, 2006. Total nonperforming assets were 4.04% of
total assets as of December 31, 2007 up from 2.15% as of
December 31, 2006.
Real estate acquired in settlement of loans is classified
separately on the balance sheet at the lower of cost or net
realizable value as of the date of acquisition. At foreclosure,
the loan is written down to the value of the underlying
collateral by a charge to the allowance for loan losses, if
necessary. Any subsequent write-downs are charged against
operating expenses. Operating expenses of such properties, net
of related income or loss on disposition, are included in other
expenses. At December 31, 2007, the carrying value of real
estate and other repossessed assets acquired in settlement of
loans was $10.5 million and consisted of $1.8 million
in single-family properties, $8.0 million secured by land
and properties under construction, and $700,000 in boats,
recreational vehicles, and automobiles.
In addition to the nonperforming loans identified above, other
loans may be identified as having potential credit problems that
result in those loans being classified by our internal loan
review function. These potential problem loans, which have not
exhibited the more severe weaknesses generally present in
nonperforming loans, amounted to $42.5 million, net of
applicable reserves, at December 31, 2007.
9
Allowance for Loan Losses. Management
establishes the allowance for loan losses at a level it believes
adequate to absorb probable losses incurred in the loan
portfolio. Management bases its determination of the adequacy of
the allowance upon estimates derived from an analysis of
individual credits, prior and current loss experience, loan
portfolio delinquency levels, overall growth in the loan
portfolio, current economic conditions and results of regulatory
examinations. Furthermore, in determining the level of the
allowance for loan loss, management reviews and evaluates on a
monthly basis the necessity of a reserve for individual loans
classified by management. The specifically allocated reserve for
a classified loan is determined based on managements
estimate of the borrowers ability to repay the loan given
the availability of collateral, other sources of cash flow and
legal options available to Home Savings. Once a review is
completed, the need for a specific reserve is determined by the
Home Savings Asset Review Committee and allocated to the loan.
Other loans not reviewed specifically by management are
evaluated as a homogeneous group of loans (single-family
residential mortgage loans and all consumer credit except marine
loans) using the historical charge-off experience ratio
calculated by type of loan. The historical charge-off experience
ratio considers the homogeneous nature of the loans, the
geographical lending areas involved, regulatory examination
findings, specific grading systems applied and any other known
factors that may impact the ratios used. Specific reserves on
individual loans and historical ratios are reviewed periodically
and adjusted as necessary based on subsequent collections, loan
upgrades or downgrades, nonperforming trends or actual principal
charge-offs. When evaluating the adequacy of the allowance for
loan losses, consideration is given to geographic concentration
and the effect changing economic conditions have on Home
Savings. These estimates are particularly susceptible to changes
that could result in a material adjustment to results of
operations. The provision for loan losses represents a charge
against current earnings in order to maintain the allowance for
loan losses at an appropriate level.
The following table sets forth an analysis of Home Savings
allowance for loan losses for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(Dollars in thousands)
|
|
|
Balance at beginning of period
|
|
$
|
16,955
|
|
|
$
|
15,723
|
|
|
$
|
15,877
|
|
|
$
|
15,111
|
|
|
$
|
15,099
|
|
Provision for loan losses
|
|
|
28,750
|
|
|
|
4,347
|
|
|
|
3,028
|
|
|
|
9,370
|
|
|
|
3,179
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent real estate
|
|
|
(962
|
)
|
|
|
(737
|
)
|
|
|
(961
|
)
|
|
|
(902
|
)
|
|
|
(1,008
|
)
|
Construction real estate
|
|
|
(5,924
|
)
|
|
|
(320
|
)
|
|
|
(35
|
)
|
|
|
(114
|
)
|
|
|
(1,103
|
)
|
Consumer
|
|
|
(3,605
|
)
|
|
|
(2,334
|
)
|
|
|
(2,848
|
)
|
|
|
(6,177
|
)
|
|
|
(650
|
)
|
Commercial
|
|
|
(3,729
|
)
|
|
|
(47
|
)
|
|
|
(241
|
)
|
|
|
(1,867
|
)
|
|
|
(579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
(14,220
|
)
|
|
|
(3,438
|
)
|
|
|
(4,085
|
)
|
|
|
(9,060
|
)
|
|
|
(3,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent real estate
|
|
|
10
|
|
|
|
34
|
|
|
|
51
|
|
|
|
325
|
|
|
|
93
|
|
Construction real estate
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
1
|
|
Consumer
|
|
|
509
|
|
|
|
283
|
|
|
|
848
|
|
|
|
72
|
|
|
|
41
|
|
Commercial
|
|
|
2
|
|
|
|
5
|
|
|
|
2
|
|
|
|
59
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
521
|
|
|
|
323
|
|
|
|
903
|
|
|
|
456
|
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(13,699
|
)
|
|
|
(3,115
|
)
|
|
|
(3,182
|
)
|
|
|
(8,604
|
)
|
|
|
(3,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
32,006
|
|
|
$
|
16,955
|
|
|
$
|
15,723
|
|
|
$
|
15,877
|
|
|
$
|
15,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs to average net loans
|
|
|
(0.60
|
)%
|
|
|
(0.14
|
)%
|
|
|
(0.16
|
)%
|
|
|
(0.50
|
)%
|
|
|
(0.21
|
)%
|
The following table sets forth the allocation of the allowance
for loan losses by category. The allocations are based on
managements assessment of the risk characteristics of each
of the components of the total loan portfolio and are subject to
change as and when the risk factors of each component change.
The allocation is not indicative of either the specific amounts
or the loan categories in which future charge-offs may be taken,
nor should it be taken as
10
an indicator of future loss trends. The allocation of the
allowance to each category is not indicative necessarily of
future loss in any particular category and does not restrict the
use of the allowance to absorb losses in any category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
Loans in Each
|
|
|
|
|
|
Loans in Each
|
|
|
|
|
|
Loans in Each
|
|
|
|
|
|
Loans in Each
|
|
|
|
|
|
Loans in Each
|
|
|
|
|
|
|
Category to
|
|
|
|
|
|
Category to
|
|
|
|
|
|
Category to
|
|
|
|
|
|
Category to
|
|
|
|
|
|
Category to
|
|
|
|
Amount
|
|
|
Total Loans
|
|
|
Amount
|
|
|
Total Loans
|
|
|
Amount
|
|
|
Total Loans
|
|
|
Amount
|
|
|
Total Loans
|
|
|
Amount
|
|
|
Total Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent real estate loans
|
|
$
|
10,285
|
|
|
|
63.18
|
%
|
|
$
|
5,459
|
|
|
|
61.39
|
%
|
|
$
|
7,152
|
|
|
|
58.33
|
%
|
|
$
|
7,956
|
|
|
|
62.64
|
%
|
|
$
|
8,607
|
|
|
|
66.12
|
%
|
Construction real estate loans
|
|
|
12,499
|
|
|
|
16.86
|
|
|
|
3,321
|
|
|
|
18.24
|
|
|
|
2,531
|
|
|
|
21.59
|
|
|
|
2,603
|
|
|
|
19.01
|
|
|
|
2,189
|
|
|
|
17.10
|
|
Consumer loans
|
|
|
5,485
|
|
|
|
15.41
|
|
|
|
5,147
|
|
|
|
15.22
|
|
|
|
3,378
|
|
|
|
15.30
|
|
|
|
3,615
|
|
|
|
14.61
|
|
|
|
2,670
|
|
|
|
13.73
|
|
Commercial loans
|
|
|
3,737
|
|
|
|
4.55
|
|
|
|
3,028
|
|
|
|
5.15
|
|
|
|
2,662
|
|
|
|
4.78
|
|
|
|
1,703
|
|
|
|
3.74
|
|
|
|
1,645
|
|
|
|
3.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
32,006
|
|
|
|
100.00
|
%
|
|
$
|
16,955
|
|
|
|
100.00
|
%
|
|
$
|
15,723
|
|
|
|
100.00
|
%
|
|
$
|
15,877
|
|
|
|
100.00
|
%
|
|
$
|
15,111
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT
ACTIVITIES
General. Investment securities are classified
upon acquisition as available for sale, held to maturity or
trading. Securities classified as available for sale are carried
at estimated fair value with the unrealized holding gain or
loss, net of taxes, reflected as a component of retained
earnings. Securities classified as held to maturity are carried
at amortized cost. Securities classified as trading are carried
at estimated fair value with the unrealized holding gain or loss
reflected as a component of income. United Community, Home
Savings and Butler Wick recognize premiums and discounts in
interest income over the period to maturity or call by the level
yield method and realized gains or losses on the sale of debt
securities based on the amortized cost of the specific
securities sold.
Home Savings Investment Activities. Federal
regulations and Ohio law permit Home Savings to invest in
various types of marketable securities, including
interest-bearing deposits in other financial institutions,
federal funds, U.S. Treasury and agency obligations,
mortgage-related securities, and certain other specified
investments. The Board has adopted an investment policy that
authorizes management to make investments in U.S. Treasury
obligations, U.S. Federal agency and federally-sponsored
corporation obligations, mortgage-related securities issued or
sponsored by Federal National Mortgage Association (FNMA),
FHLMC, Government National Mortgage Association (GNMA), as well
as private issuers, investment-grade municipal obligations,
creditworthy, unrated securities issued by municipalities in
which an office of Home Savings is located, investment-grade
corporate debt securities, investment-grade asset-backed
securities, certificates of deposit that are fully-insured by
the FDIC, bankers acceptances, federal funds and money
market funds. Home Savings investment policy is designed
primarily to provide and maintain liquidity within regulatory
guidelines, to maintain a balance of high quality investments to
minimize risk, and to maximize return without sacrificing
liquidity and safety.
Home Savings maintains a significant portfolio of
mortgage-backed securities that are issued by FNMA, GNMA and
FHLMC. These governmental agencies do not permit sub-prime
lending and are, therefore, rated the highest quality by a
nationally recognized rating agency. Mortgage-backed securities
generally entitle Home Savings to receive a portion of the cash
flows from an identified pool of mortgages. Home Savings is
exposed to prepayment risk and reinvestment risk to the extent
that actual prepayments will differ from those estimated in
pricing the security, which may result in adjustments to the net
yield on such securities. Mortgage- related securities enable
Home Savings to generate positive interest rate spreads with
minimal administrative expense and reduce credit risk due to
either guarantees provided by the issuer or the high credit
rating of the issuer. Mortgage-related securities classified as
available for sale also provide Home Savings with an additional
source of liquid funds.
Butler Wick Investment Activities. Butler Wick
holds securities through two subsidiaries, Butler
Wick & Co., Inc. and Butler Wick Trust Company.
Butler Wick & Co., Inc. invests primarily in municipal
securities and government agency securities for sale to clients.
Butler Wick & Co., Inc.s securities are carried
at fair value with gains and losses recognized currently. Butler
Wick & Co., Inc. does not make markets in equity
securities.
11
In order to qualify as a fiduciary in the State of Ohio, Butler
Wick Trust Company deposited United States Government
obligations having a principal value of $100,000 with the
Federal Reserve Bank for the state. In addition to these
deposits, Butler Wick Trust Company owns
U.S. Government obligations.
United Community Investment Activities. Funds
maintained by United Community for general corporate purposes,
including possible acquisitions, primarily are invested in an
account with Home Savings. United Community also owns a small
portfolio of bank equities.
The following table presents the amortized cost, fair value, and
weighted average yield of securities at December 31, 2007
by maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007
|
|
|
|
No Stated
|
|
|
|
|
|
After One Year through
|
|
|
Five Years through
|
|
|
|
Maturity
|
|
|
One Year or Less
|
|
|
Five Years
|
|
|
Ten Years
|
|
|
|
Amortized
|
|
|
Average
|
|
|
Amortized
|
|
|
Average
|
|
|
Amortized
|
|
|
Average
|
|
|
Amortized
|
|
|
Average
|
|
|
|
Cost
|
|
|
Yield
|
|
|
Cost
|
|
|
Yield
|
|
|
Cost
|
|
|
Yield
|
|
|
Cost
|
|
|
Yield
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S Government agencies and corporations
|
|
$
|
|
|
|
|
|
%
|
|
$
|
22,421
|
|
|
|
4.00
|
%
|
|
$
|
19,136
|
|
|
|
4.85
|
%
|
|
$
|
42,619
|
|
|
|
5.21
|
%
|
Mortgage-related securities
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
7.86
|
|
|
|
64
|
|
|
|
7.68
|
|
|
|
987
|
|
|
|
6.18
|
|
Other securities(a)
|
|
|
2,337
|
|
|
|
1.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
2,337
|
|
|
|
1.38
|
%
|
|
$
|
22,468
|
|
|
|
4.01
|
%
|
|
$
|
19,200
|
|
|
|
4.86
|
%
|
|
$
|
43,606
|
|
|
|
5.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007
|
|
|
|
After Ten Years
|
|
|
Total
|
|
|
|
Amortized
|
|
|
Average
|
|
|
Amortized
|
|
|
Average
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Yield
|
|
|
Cost
|
|
|
Yield
|
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and corporations
|
|
$
|
|
|
|
|
|
%
|
|
$
|
84,716
|
|
|
|
4.81
|
%
|
|
$
|
84,388
|
|
Mortgage-related securities
|
|
|
151,669
|
|
|
|
5.13
|
|
|
|
152,767
|
|
|
|
5.14
|
|
|
|
153,301
|
|
Other securities(a)
|
|
|
5,000
|
|
|
|
5.93
|
|
|
|
7,337
|
|
|
|
4.48
|
|
|
|
7,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
156,669
|
|
|
|
5.16
|
%
|
|
$
|
244,820
|
|
|
|
5.00
|
%
|
|
$
|
244,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Yield on equity securities only; mutual funds excluded |
SOURCES
OF FUNDS
General. Deposits traditionally have been the
primary source of Home Savings funds for use in lending
and other investment activities. In addition to deposits, Home
Savings derives funds from interest payments and principal
repayments on loans and income on other earning assets. Loan
payments are a relatively stable source of funds, while deposit
inflows and outflows fluctuate in response to general interest
rates and money market conditions. Home Savings also may borrow
from the FHLB, use repurchase agreements as well as other
suitable lenders, as a source of funds.
Deposits. Deposits are attracted principally
from within Home Savings primary market area through the
offering of a selection of deposit instruments, including
regular passbook savings accounts, demand deposits, individual
retirement accounts (IRAs), checking accounts, money market
accounts, and certificates of deposit. Interest rates paid,
maturity terms, service fees, and withdrawal penalties for the
various types of accounts are monitored weekly by management.
The amount of deposits from outside Home Savings primary
market area is not
12
significant. The following table sets forth the dollar amount of
deposits in the various types of accounts offered by Home
Savings at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007
|
|
|
For the Year Ended December 31, 2007
|
|
|
|
|
|
|
Percent
|
|
|
Weighted
|
|
|
|
|
|
Percent
|
|
|
Weighted
|
|
|
|
|
|
|
of Total
|
|
|
Average
|
|
|
|
|
|
of Average
|
|
|
Average
|
|
|
|
Amount
|
|
|
Deposits
|
|
|
Rate
|
|
|
Average Balance
|
|
|
Deposits
|
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
|
Noninterest bearing demand
|
|
$
|
106,449
|
|
|
|
5.68
|
%
|
|
|
|
%
|
|
$
|
103,268
|
|
|
|
5.70
|
%
|
|
|
|
%
|
Checking and money market accounts
|
|
|
422,731
|
|
|
|
22.54
|
|
|
|
3.47
|
|
|
|
397,290
|
|
|
|
21.93
|
|
|
|
3.50
|
|
Savings accounts
|
|
|
175,464
|
|
|
|
9.36
|
|
|
|
0.41
|
|
|
|
185,949
|
|
|
|
10.26
|
|
|
|
0.41
|
|
Certificates of deposit
|
|
|
1,170,562
|
|
|
|
62.42
|
|
|
|
4.83
|
|
|
|
1,125,117
|
|
|
|
62.11
|
|
|
|
4.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
1,875,206
|
|
|
|
100.00
|
%
|
|
|
3.84
|
%
|
|
$
|
1,811,624
|
|
|
|
100.00
|
%
|
|
|
3.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2006
|
|
|
For the Year Ended December 31, 2005
|
|
|
|
|
|
|
Percent
|
|
|
Weighted
|
|
|
|
|
|
Percent
|
|
|
Weighted
|
|
|
|
|
|
|
of Average
|
|
|
Average
|
|
|
|
|
|
of Average
|
|
|
Average
|
|
|
|
Average Balance
|
|
|
Deposits
|
|
|
Rate
|
|
|
Average Balance
|
|
|
Deposits
|
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
|
Noninterest bearing demand
|
|
$
|
96,067
|
|
|
|
5.47
|
%
|
|
|
|
%
|
|
$
|
89,483
|
|
|
|
5.64
|
%
|
|
|
|
%
|
Checking and money market accounts
|
|
|
330,856
|
|
|
|
18.83
|
|
|
|
3.04
|
|
|
|
269,652
|
|
|
|
17.00
|
|
|
|
1.20
|
|
Savings accounts
|
|
|
218,590
|
|
|
|
12.44
|
|
|
|
0.41
|
|
|
|
287,714
|
|
|
|
18.15
|
|
|
|
0.42
|
|
Certificates of deposit
|
|
|
1,111,602
|
|
|
|
63.26
|
|
|
|
4.29
|
|
|
|
938,957
|
|
|
|
59.21
|
|
|
|
3.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
1,757,115
|
|
|
|
100.00
|
%
|
|
|
3.34
|
%
|
|
$
|
1,585,806
|
|
|
|
100.00
|
%
|
|
|
2.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows rate and maturity information for Home
Savings certificates of deposit at December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over
|
|
|
Over
|
|
|
|
|
|
|
|
|
|
Up to
|
|
|
1 Year to
|
|
|
2 Years to
|
|
|
|
|
|
|
|
Rate
|
|
One Year
|
|
|
2 Years
|
|
|
3 Years
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
2.00% or less
|
|
$
|
3,247
|
|
|
$
|
880
|
|
|
$
|
94
|
|
|
$
|
107
|
|
|
$
|
4,328
|
|
2.01% to 4.00%
|
|
|
57,096
|
|
|
|
14,003
|
|
|
|
5,347
|
|
|
|
100
|
|
|
|
76,546
|
|
4.01% to 6.00%
|
|
|
895,890
|
|
|
|
55,514
|
|
|
|
64,333
|
|
|
|
73,933
|
|
|
|
1,089,670
|
|
Greater than 6.00%
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certificates of deposit
|
|
$
|
956,251
|
|
|
$
|
70,397
|
|
|
$
|
69,774
|
|
|
$
|
74,140
|
|
|
$
|
1,170,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of total certificates of deposit
|
|
|
81.69
|
%
|
|
|
6.02
|
%
|
|
|
5.96
|
%
|
|
|
6.33
|
%
|
|
|
100.00
|
%
|
At December 31, 2007, approximately $956.3 million of
Home Savings certificates of deposit will mature within
one year. Based on past experience and Home Savings
prevailing pricing strategies, management believes that a
substantial percentage of such certificates will be renewed with
Home Savings at maturity. If, however, Home Savings is unable to
renew the maturing certificates for any reason, borrowings of up
to $177.4 million are available from the FHLB as well as
the use repurchase agreements or brokered deposits.
13
The following table presents the amount of Home Savings
certificates of deposit of $100,000 or more by the time
remaining until maturity at December 31, 2007:
|
|
|
|
|
Maturity
|
|
Amount
|
|
|
|
(Dollars in thousands)
|
|
|
Three months or less
|
|
$
|
58,685
|
|
Over 3 months to 6 months
|
|
|
62,268
|
|
Over 6 months to 12 months
|
|
|
97,000
|
|
Over 12 months
|
|
|
52,157
|
|
|
|
|
|
|
Total
|
|
$
|
270,110
|
|
|
|
|
|
|
Based on past experience, management believes that a substantial
percentage of the above certificates will be renewed with Home
Savings at maturity.
The following table sets forth Home Savings deposit
account balance activity for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Beginning balance
|
|
$
|
1,822,935
|
|
|
$
|
1,681,844
|
|
Net (decrease) increase in deposits
|
|
|
(11,353
|
)
|
|
|
81,914
|
|
|
|
|
|
|
|
|
|
|
Net deposits before interest credited
|
|
|
1,811,582
|
|
|
|
1,763,758
|
|
Interest credited
|
|
|
63,624
|
|
|
|
59,177
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,875,206
|
|
|
$
|
1,822,935
|
|
|
|
|
|
|
|
|
|
|
Net increase
|
|
$
|
52,271
|
|
|
$
|
141,091
|
|
|
|
|
|
|
|
|
|
|
Percent increase
|
|
|
2.87
|
%
|
|
|
8.39
|
%
|
Borrowings. The FHLB system functions as a
central reserve bank providing credit for its member
institutions and certain other financial institutions. As a
member in good standing of the FHLB, Home Savings is authorized
to apply for advances, provided certain standards of
creditworthiness have been met. Under current regulations, an
association must meet certain qualifications to be eligible for
FHLB advances. The extent to which an association is eligible
for such advances will depend upon whether it meets the
Qualified Thrift Lender (QTL) test. If an association meets the
QTL test, it will be eligible for 100% of the advances
available. If an association does not meet the QTL test, the
association will be eligible for such advances only to the
extent it holds specified QTL test assets. At December 31,
2007, Home Savings was in compliance with the QTL test. Home
Savings may borrow up to $614.7 million from the FHLB, and
had $437.3 million in outstanding advances at
December 31, 2007. Of the $437.3 million, one advance
totaling $10.0 million is callable quarterly and matures in
February 2009.
Butler Wick has a margin account at United Communitys
clearing firm. The margin account is fully collateralized by
marketable securities owned by Butler Wick, held by the clearing
firm, and can be repaid at any time.
United Community has a Credit Agreement with JP Morgan Chase
Bank, N.A., dated September 12, 2005, as amended on
July 18, 2007 (the Credit Agreement). The
Credit Agreement provided United Community with an approved line
of credit of up to $40.0 million, of which United Community
has borrowed $36.3 million. All borrowings under the Credit
Agreement are due on August 31, 2008.
The Credit Agreement sets forth several covenants with which
United Community must comply, including a covenant that United
Community and its subsidiaries shall maintain at the end of each
fiscal quarter a Consolidated Non-Performing Asset
Ratio of not greater than 4.50%. The term
Consolidated Non-Performing Asset Ratio means the
ratio of the sum of Non-Performing Assets plus
OREO, to the sum of Total Loans plus
OREO. As used in the Credit Agreement,
Non-Performing Assets means the sum of all loans
classified as past due 90 days or more and still accruing
interest, all loans classified as non-accrual and no longer
accruing interest, all loans classified as restructured loans
and leases and all other non-performing loans. As of
December 31, 2007, Home
14
Savings Consolidated Non-Performing Asset Ratio was 4.74%.
United Community sought a waiver of the covenant default, but
was advised by JP Morgan Chase that a waiver would not be
granted.
The covenant violation constitutes an Event of
Default under the Credit Agreement. When an Event of
Default occurs, JP Morgan Chase may do any of the following
(1) cease permitting United Community to borrow further
under the line of credit, (2) terminate any outstanding
commitment, (3) declare the amounts outstanding under the
Credit Agreement immediately due and payable without notice of
acceleration, intention to accelerate, presentment and demand or
protest or notice of any kind, (4) exercise all rights of
setoff, (5) institute a default interest rate, or
(6) exercise any other rights it may have at law, in equity
or otherwise. JP Morgan Chase sent United Community written
notification that United Community could not borrow further
funds and that it was now instituting a default rate of interest
equal to one month LIBOR plus 5.25%.
On March 28, 2008, United Community and JP Morgan
Chase entered into an amendment to the Credit Agreement (the
Amendment). The Amendment provides, among other
things, that JP Morgan Chase waives all existing defaults
under the credit agreement, the line of credit will not exceed
$36.6 million, and United Community and its subsidiaries shall
maintain at the end of each fiscal quarter beginning on
March 31, 2008 a Consolidated Non-Performing Assets Ratio
of not greater than 6.50%.
COMPETITION
Home Savings faces competition for deposits and loans from other
savings and loan associations, credit unions, banks and mortgage
originators in Home Savings primary market area. The
primary factors in competition for deposits are customer
service, convenience of office location and interest rates. Home
Savings competes for loan originations primarily through the
interest rates and loan fees it charges and through the
efficiency and quality of service it provides to borrowers.
Competition is affected by, among other things, the general
availability of lendable funds, general and local economic
conditions, current interest rate levels and other factors,
which are not readily predictable.
Butler Wick offers retail brokerage, asset management, and trust
services to clients primarily in northeastern Ohio and western
Pennsylvania. In each of these businesses, Butler Wick competes
with both regional and national firms. As a fully-disclosed
broker, Butler Wick competes based on personal service rather
than price. Butler Wick Trust Company is the only locally
owned and managed financial services provider.
EMPLOYEES
At December 31, 2007, Home Savings and Butler Wick had 609
and 198 full-time equivalent employees, respectively. Home
Savings and Butler Wick believe that relations with their
employees are good. Home Savings offers health, life, and
disability benefits, a 401(k) plan, and an employee stock
ownership plan for its employees. Butler Wick offers health,
life, and disability benefits, a 401(k) plan, and a profit
sharing plan to its employees.
REGULATION
United Community is a unitary thrift holding company within the
meaning of the Home Owners Loan Act, as amended (HOLA), and is
subject to regulation, examination, and oversight by the OTS,
although there generally are no restrictions on the activities
of United Community unless the OTS determines that there is
reasonable cause to believe that an activity constitutes a
serious risk to the financial safety, soundness, or stability of
Home Savings. Home Savings is subject to regulation,
examination, and oversight by the Division and the FDIC, and it
also is subject to certain provisions of the Federal Reserve
Act. Butler Wick is subject to regulation, examination and
oversight by the SEC and FINRA and the Division. United
Community, Home Savings and Butler Wick are also subject to the
provisions of the Ohio Revised Code applicable to corporations
generally, including laws that restrict takeover bids, tender
offers and control-share acquisitions involving public companies
which have significant ties to Ohio.
The OTS, the FDIC, the Division, the SEC and the FINRA each have
various powers to initiate supervisory measures or formal
enforcement actions if United Community or the subsidiary they
regulate does not comply with applicable regulations. If the
grounds provided by law exist, the FDIC or the Division may
place Home Savings in
15
conservatorship or receivership. Home Savings also is subject to
regulatory oversight under various consumer protection and fair
lending laws that govern, among other things,
truth-in-lending
disclosures, equal credit opportunity, fair credit reporting and
community reinvestment. Failure to abide by federal laws and
regulations governing community reinvestment could limit the
ability of Home Savings to open a new branch or engage in a
merger.
Federal law prohibits Home Savings from making a capital
distribution to anyone or paying management fees to any person
having control of Home Savings if, after such distribution or
payment, Home Savings would be undercapitalized. In addition,
each company controlling an undercapitalized institution will
comply with its capital restoration plan until the institution
has been adequately capitalized on average during each of the
four preceding calendar quarters and must provide adequate
assurances of performance.
Federal Reserve Board regulations currently require savings
associations to maintain reserves of 3% of net transaction
accounts (primarily checking accounts) up to $43.9 million
(subject to an exemption of up to $9.3 million), and of 10%
of net transaction accounts in excess of $43.9 million. At
December 31, 2007, Home Savings was in compliance with its
reserve requirements.
Loans by Home Savings to executive officers, directors, and
principal shareholders and their related interests must conform
to the lending limit on loans to one borrower, and the total of
such loans to executive officers, directors, principal
shareholders, and their related interests cannot exceed
specified limits. Most loans to directors, executive officers,
and principal shareholders must be approved in advance by a
majority of the disinterested members of the Board
with any interested director not participating. All
loans to directors, executive officers, and principal
shareholders must be made on terms substantially the same as
offered in comparable transactions with the general public or as
offered to all employees in a company-wide benefit program, and
loans to executive officers are subject to additional
limitations. All other transactions between Home Savings and its
affiliates must comply with Sections 23A and 23B of the
Federal Reserve Act. United Community and Butler Wick are
affiliates of Home Savings for this purpose.
Under federal law and regulations, no person, directly or
indirectly, or acting in concert with others, may acquire
control of Home Savings or United Community without
60 days prior notice to the OTS. Control
is generally defined as having more than 25% ownership or voting
power; however, ownership or voting power of more than 10% may
be deemed control if certain factors are in place.
If the acquisition of control is by a company, the acquirer must
obtain approval, rather than give notice, of the acquisition as
a savings and loan holding company.
In addition, a statutory limitation on the acquisition of
control of an Ohio savings bank requires the written approval of
the Division prior to the acquisition by any person or entity of
a controlling interest in an Ohio association. Control exists,
for purposes of Ohio law, when any person or entity which,
either directly or indirectly, or acting in concert with one or
more other persons or entities, owns, controls, holds with power
to vote, or holds proxies representing, 15% or more of the
voting shares or rights of an association, or controls in any
manner the election or appointment of a majority of the
directors. Ohio law also requires that certain acquisitions of
voting securities that would result in the acquiring shareholder
owning 20%,
331/3%
or 50% of the outstanding voting securities of United Community
must be approved in advance by the holders of at least a
majority of the outstanding voting shares represented at a
meeting at which a quorum is present and a majority of the
portion of the outstanding voting shares represented at such a
meeting, excluding the voting shares by the acquiring
shareholder.
Federal law generally prohibits a unitary thrift holding
company, such as United Community, from controlling any other
savings association or savings and loan holding company, without
prior approval of the OTS, or from acquiring or retaining more
than 5% of the voting shares of a savings association or holding
company thereof, which is not a subsidiary. Except with the
prior approval of the OTS, no director or officer of a savings
and loan holding company or person owning or controlling by
proxy or otherwise more than 25% of such holding companys
stock also may acquire control of any savings institution, other
than a subsidiary institution, or any other savings and loan
holding company.
16
Like all financial companies, United Communitys business
and results of operations are subject to a number of risks, many
of which are outside of our control. In addition to the other
information in this report, readers should carefully consider
that the following important factors, among others, could
materially impact our business and future results of operations.
Changes
in interest rates could adversely affect our financial condition
and results of operations.
Our results of operations depend substantially on our net
interest income, which is the difference between the interest
earned on loans, securities and other interest-earning assets
and the interest paid on deposits and other borrowings. These
rates are highly sensitive to many factors beyond our control,
including general economic conditions, inflation, recession,
unemployment, money supply and the policies of various
governmental and regulatory authorities. While we have taken
measures intended to manage the risks of operating in a changing
interest rate environment, there can be no assurance that these
measures will be effective in avoiding undue interest rate risk.
Increases in interest rates can affect the value of loans and
other assets, including our ability to realize gains on the sale
of assets. We originate loans for sale and for our portfolio.
Increasing interest rates may reduce the origination of loans
for sale and consequently the fee income we earn on such sales.
Further, increasing interest rates may adversely affect the
ability of borrowers to pay the principal or interest on loans
and leases, resulting in an increase in nonperforming assets and
a reduction of income recognized.
In contrast, decreasing interest rates have the effect of
causing clients to refinance mortgage loans faster than
anticipated. This causes the value of assets related to the
servicing rights on loans sold to be lower than originally
anticipated. If this happens, we may need to write down our
servicing assets faster, which would accelerate our expense and
lower our earnings.
We
operate in an extremely competitive market, and our business
will suffer if we are unable to compete
effectively.
In our market area, we encounter significant competition from
savings and loan associations, banks, credit unions, mortgage
banking firms, securities brokerage firms, asset management
firms and insurance companies. Many of our competitors have
substantially greater resources and lending limits than we do
and may offer services that we do not or cannot provide.
Legislative
or regulatory changes or actions could adversely impact the
financial services industry.
The financial services industry is extensively regulated.
Federal and state banking laws and regulations are primarily
intended for the protection of consumers, depositors and the
deposit insurance funds, and are not necessarily intended to
benefit our shareholders. Changes to laws and regulations or
other actions by regulatory agencies may negatively impact us.
Regulatory authorities have extensive discretion in connection
with their supervisory and enforcement activities, including the
imposition of restrictions on the operation of an institution,
the classification of assets by the institution and the adequacy
of an institutions allowance for loan losses. The
significant federal and state banking regulations that affect us
are described in this
10-K under
the heading Regulation.
Our
ability to pay cash dividends is limited.
We are dependent primarily upon the earnings of our operating
subsidiaries for funds to pay dividends on our common shares.
The payment of dividends by Home Savings and Butler Wick is
subject to certain regulatory restrictions. As a result, any
payment of dividends in the future will be dependent, in large
part, on our ability to satisfy these regulatory restrictions
and Home Savings earnings, capital requirements, financial
condition and other factors. Although our financial earnings and
financial condition have allowed us to declare and pay periodic
cash dividends to our shareholders, there can be no assurance
that dividend payments will continue or increase in the future.
17
The
preparation of financial statements requires management to make
estimates about matters that are inherently
uncertain.
Managements accounting policies and methods are
fundamental to how we record and report our financial condition
and results of operations. Our management must exercise judgment
in selecting and applying many of these accounting policies and
methods in order to ensure that they comply with generally
accepted accounting principles and reflect managements
judgment as to the most appropriate manner in which to record
and report our financial condition and results of operations.
Two of the most critical estimates are the level of the
allowance of loan losses and the valuation of mortgage servicing
rights. Due to the inherent nature of these estimates, we cannot
provide absolute assurance that we will not significantly
increase the allowance for loan losses, sustain loan losses that
are significantly higher than the provided allowance, or
recognize a significant provision for the impairment of mortgage
servicing rights.
We
face risks with respect to future expansion.
We have entered into an agreement to acquire PVF Capital Corp.
and we may acquire other financial institutions in the future.
Also, we may engage in de novo branch expansion or consider and
enter into new lines of business or offer new products or
services. We may incur substantial costs to expand, and we can
give no assurance such expansion will result in the levels of
profits we seek. Also, we may issue equity securities in
connection with future acquisitions, including the acquisition
of PVF Capital Corp., which would dilute current
shareholders ownership interests.
If we acquire other businesses, we may not be able to achieve
fully the cost savings and synergies that we expect to result
from any acquisition. In addition, because the markets in which
we operate are highly competitive, we may lose customers or the
customers of acquired entities as a result of an acquisition. We
also may lose key personnel, either from the acquired entity or
from United Community, as a result of an acquisition.
Increasing
credit risks could continue to adversely affect our results of
operations.
There are inherent risks associated with our lending activities,
including credit risk, which is the risk that borrowers may not
repay outstanding loans or the value of the collateral securing
loans will decrease. We attempt to manage credit risk through a
program of underwriting standards, the review of certain credit
decisions and an on-going process of assessment of the quality
of the credit already extended. However, conditions such as
inflation, recession, unemployment, changes in interest rates,
money supply and other factors beyond our control may increase
our credit risk. Such changes in the economy may have a negative
impact on the ability of borrowers to repay their loans. Because
we have a significant amount of real estate loans, decreases in
real estate values could adversely affect the value of our
collateral. In addition, substantial portions of our loans are
to individuals and businesses in Ohio where foreclosure rates
are among the highest in the nation. Consequently, any further
decline in the states economy could have a materially
adverse effect on our financial condition and results of
operations.
Over the last year, United Community has experienced a
significant increase in the amount of impaired loans in its
construction loan portfolio. A loan is impaired when, based on
current information and events, it is probable that the Company
will be unable to collect both the contractual interest payments
and the contractual principal payments, as scheduled in the loan
agreement. Construction loans generally involve greater
underwriting and default risks than loans secured by mortgages
on existing properties because construction loans are more
difficult to appraise and to monitor. In the event a default on
a construction loan occurs and foreclosure follows, we may need
to take control of the project and attempt either to arrange for
completion of construction or dispose of the unfinished project.
Material
breaches in security of our systems may have a significant
effect on our business.
United Community collects, processes and stores sensitive
customer data by using computer systems and telecommunication
networks operated by the Company and its service providers. The
Company has security, backup and recovery systems in place and a
comprehensive business continuity plan to ensure the systems
will not be inoperable. United Community also has security in
place to prevent unauthorized access to the system. Third party
service providers are required to maintain similar controls.
United Community cannot be certain the measures
18
will be successful to prevent a security breach. If such a
breach occurs, the Company may lose customers confidence
and, therefore, lose their business.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Home Savings owns its corporate headquarters building located in
Youngstown, Ohio. Of Home Savings 39 branch offices, 32
are owned and the remaining offices are leased. Loan origination
offices are leased under long-term lease agreements. Butler Wick
leases its corporate headquarters located in Youngstown, Ohio
under a long-term lease agreement. Its branch office locations
are also leased under long-term lease agreements. The
information contained in Note 6 Premises and
Equipment to the consolidated financial statements is
incorporated herein by reference.
|
|
Item 3.
|
Legal
Proceedings
|
United Community and its subsidiaries are parties to litigation
arising in the normal course of business. While it is impossible
to determine the ultimate resolution of these contingent
matters, management believes any resulting liability would not
have a material effect upon United Communitys financial
statements.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
Not applicable.
19
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Shareholder Matters
and Issuer Purchases of Equity Securities
|
There were 37,804,457 common shares of United Community stock
issued and 30,051,773 shares outstanding and held by
approximately 10,539 record holders as of February 29,
2008. United Communitys common shares are traded on The
Nasdaq Stock
Market®
under the symbol UCFC. Quarterly stock prices and
dividends declared are shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
12.49
|
|
|
$
|
11.08
|
|
|
$
|
10.21
|
|
|
$
|
7.65
|
|
Low
|
|
|
10.39
|
|
|
|
9.98
|
|
|
|
6.44
|
|
|
|
5.30
|
|
Dividends declared and paid
|
|
|
.095
|
|
|
|
.095
|
|
|
|
.095
|
|
|
|
.095
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
13.13
|
|
|
$
|
12.48
|
|
|
$
|
13.22
|
|
|
$
|
13.30
|
|
Low
|
|
|
11.38
|
|
|
|
11.06
|
|
|
|
11.25
|
|
|
|
12.00
|
|
Dividends declared and paid
|
|
|
.09
|
|
|
|
.09
|
|
|
|
.09
|
|
|
|
.09
|
|
The payment of dividends by United Community is limited by the
ability of Home Savings and Butler Wick to pay dividends to
United Community. See the discussion of these limits in
Note 13 to the consolidated financial statements.
United Community did not repurchase any shares during the fourth
quarter of 2007.
20
Performance
Graph
The following graph compares the cumulative total return on
UCFCs common shares since December 31, 2002, with the
total return of an index of companies whose shares are traded on
The Nasdaq Stock Market and an index of publicly traded thrift
institutions and thrift holding companies. The graph assumes
that $100 was invested in UCFC shares on December 31, 2002.
United
Community Financial Corp
Total Return Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ending
|
Index
|
|
12/31/02
|
|
12/31/03
|
|
12/31/04
|
|
12/31/05
|
|
12/31/06
|
|
12/31/07
|
United Community Financial Corp.
|
|
|
100.00
|
|
|
|
136.09
|
|
|
|
137.01
|
|
|
|
148.86
|
|
|
|
158.84
|
|
|
|
75.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASDAQ Composite
|
|
|
100.00
|
|
|
|
150.01
|
|
|
|
162.89
|
|
|
|
165.13
|
|
|
|
180.85
|
|
|
|
198.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNL Thrift
|
|
|
100.00
|
|
|
|
141.57
|
|
|
|
157.73
|
|
|
|
163.29
|
|
|
|
190.35
|
|
|
|
114.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Item 6.
|
Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Selected financial condition data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,760,039
|
|
|
$
|
2,703,545
|
|
|
$
|
2,528,850
|
|
|
$
|
2,287,788
|
|
|
$
|
2,073,833
|
|
Cash and cash equivalents
|
|
|
37,363
|
|
|
|
35,637
|
|
|
|
37,545
|
|
|
|
40,281
|
|
|
|
81,155
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading, at fair value
|
|
|
5,064
|
|
|
|
10,786
|
|
|
|
10,812
|
|
|
|
32,316
|
|
|
|
15,600
|
|
Available for sale, at fair value
|
|
|
244,753
|
|
|
|
237,531
|
|
|
|
201,870
|
|
|
|
198,404
|
|
|
|
227,525
|
|
Loans held for sale
|
|
|
87,236
|
|
|
|
26,960
|
|
|
|
29,109
|
|
|
|
59,099
|
|
|
|
37,715
|
|
Loans, net
|
|
|
2,236,988
|
|
|
|
2,253,559
|
|
|
|
2,097,433
|
|
|
|
1,815,976
|
|
|
|
1,576,494
|
|
Federal Home Loan Bank stock, at cost
|
|
|
25,432
|
|
|
|
25,432
|
|
|
|
24,006
|
|
|
|
22,842
|
|
|
|
21,924
|
|
Cash surrender value of life insurance
|
|
|
24,053
|
|
|
|
23,137
|
|
|
|
22,260
|
|
|
|
21,406
|
|
|
|
20,496
|
|
Deposits
|
|
|
1,875,206
|
|
|
|
1,822,935
|
|
|
|
1,681,844
|
|
|
|
1,522,952
|
|
|
|
1,423,698
|
|
Borrowed funds
|
|
|
586,786
|
|
|
|
563,764
|
|
|
|
550,763
|
|
|
|
483,503
|
|
|
|
338,463
|
|
Total shareholders equity
|
|
|
269,714
|
|
|
|
281,333
|
|
|
|
264,735
|
|
|
|
252,352
|
|
|
|
279,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Summary of earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
169,950
|
|
|
$
|
165,430
|
|
|
$
|
136,052
|
|
|
$
|
113,441
|
|
|
$
|
111,663
|
|
Interest expense
|
|
|
96,448
|
|
|
|
84,428
|
|
|
|
57,296
|
|
|
|
40,378
|
|
|
|
40,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
73,502
|
|
|
|
81,002
|
|
|
|
78,756
|
|
|
|
73,063
|
|
|
|
71,411
|
|
Provision for loan losses
|
|
|
28,750
|
|
|
|
4,347
|
|
|
|
3,028
|
|
|
|
9,370
|
|
|
|
3,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
44,752
|
|
|
|
76,655
|
|
|
|
75,728
|
|
|
|
63,693
|
|
|
|
68,232
|
|
Non-interest income
|
|
|
46,900
|
|
|
|
40,274
|
|
|
|
38,260
|
|
|
|
36,109
|
|
|
|
40,845
|
|
Non-interest expenses
|
|
|
85,328
|
|
|
|
79,818
|
|
|
|
78,881
|
|
|
|
72,834
|
|
|
|
73,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
6,324
|
|
|
|
37,111
|
|
|
|
35,107
|
|
|
|
26,968
|
|
|
|
35,505
|
|
Income taxes
|
|
|
2,191
|
|
|
|
13,000
|
|
|
|
11,910
|
|
|
|
9,103
|
|
|
|
12,565
|
|
Net income
|
|
$
|
4,133
|
|
|
$
|
24,111
|
|
|
$
|
23,197
|
|
|
$
|
17,865
|
|
|
$
|
22,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Selected financial ratios and other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets(1)
|
|
|
0.15
|
%
|
|
|
0.92
|
%
|
|
|
0.96
|
%
|
|
|
0.83
|
%
|
|
|
1.15
|
%
|
Return on average shareholders equity(2)
|
|
|
1.44
|
|
|
|
8.72
|
|
|
|
8.89
|
|
|
|
7.01
|
|
|
|
8.27
|
|
Interest rate spread(3)
|
|
|
2.39
|
|
|
|
2.83
|
|
|
|
3.15
|
|
|
|
3.34
|
|
|
|
3.51
|
|
Net interest margin(4)
|
|
|
2.85
|
|
|
|
3.26
|
|
|
|
3.47
|
|
|
|
3.60
|
|
|
|
3.81
|
|
Non-interest expense to average assets
|
|
|
3.13
|
|
|
|
3.04
|
|
|
|
3.27
|
|
|
|
3.37
|
|
|
|
3.70
|
|
Efficiency ratio(5)
|
|
|
69.96
|
|
|
|
65.33
|
|
|
|
67.00
|
|
|
|
65.87
|
|
|
|
65.29
|
|
Average interest earning assets to average interest bearing
liabilities
|
|
|
112.28
|
|
|
|
112.41
|
|
|
|
112.41
|
|
|
|
113.16
|
|
|
|
114.24
|
|
Capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average equity to average assets
|
|
|
10.56
|
|
|
|
10.53
|
|
|
|
10.83
|
|
|
|
11.78
|
|
|
|
13.95
|
|
Shareholders equity to assets at year end
|
|
|
9.77
|
|
|
|
10.41
|
|
|
|
10.47
|
|
|
|
11.03
|
|
|
|
13.49
|
|
Tier 1 leverage ratio
|
|
|
7.47
|
|
|
|
7.68
|
|
|
|
8.36
|
|
|
|
8.36
|
|
|
|
8.22
|
|
Tier 1 risk-based capital ratio
|
|
|
9.26
|
|
|
|
9.49
|
|
|
|
10.08
|
|
|
|
9.92
|
|
|
|
9.64
|
|
Total risk-based capital ratio
|
|
|
11.88
|
|
|
|
11.70
|
|
|
|
10.86
|
|
|
|
10.79
|
|
|
|
10.56
|
|
Asset quality ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans to loans, net(6)
|
|
|
4.52
|
|
|
|
2.43
|
|
|
|
1.22
|
|
|
|
1.24
|
|
|
|
1.02
|
|
Nonperforming assets to total assets at year end(7)
|
|
|
4.04
|
|
|
|
2.15
|
|
|
|
1.11
|
|
|
|
1.06
|
|
|
|
0.84
|
|
Allowance for loan losses as a percent of loans
|
|
|
1.41
|
|
|
|
0.75
|
|
|
|
0.74
|
|
|
|
0.87
|
|
|
|
0.96
|
|
Allowance for loan losses as a percent of nonperforming loans(6)
|
|
|
31.67
|
|
|
|
30.92
|
|
|
|
61.26
|
|
|
|
70.38
|
|
|
|
93.66
|
|
Number of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
44,842
|
|
|
|
46,333
|
|
|
|
43,630
|
|
|
|
41,690
|
|
|
|
37,668
|
|
Deposits
|
|
|
187,132
|
|
|
|
189,588
|
|
|
|
183,565
|
|
|
|
173,997
|
|
|
|
169,920
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings(8)
|
|
$
|
0.14
|
|
|
$
|
0.83
|
|
|
$
|
0.81
|
|
|
$
|
0.61
|
|
|
$
|
0.73
|
|
Diluted earnings(8)
|
|
|
0.14
|
|
|
|
0.82
|
|
|
|
0.80
|
|
|
|
0.60
|
|
|
|
0.72
|
|
Book value(9)
|
|
|
8.97
|
|
|
|
9.08
|
|
|
|
8.52
|
|
|
|
8.09
|
|
|
|
8.21
|
|
Dividend per share
|
|
|
0.38
|
|
|
|
0.36
|
|
|
|
0.33
|
|
|
|
0.30
|
|
|
|
0.30
|
|
Dividend payout ratio(10)
|
|
|
271.43
|
%
|
|
|
43.90
|
%
|
|
|
41.25
|
%
|
|
|
50.00
|
%
|
|
|
41.67
|
%
|
|
|
|
(1) |
|
Net income divided by average total assets. |
|
(2) |
|
Net income divided by average total equity. |
|
(3) |
|
Difference between weighted average yield on interest earning
assets and weighted average cost of interest bearing
liabilities. |
|
(4) |
|
Net interest income as a percentage of average interest
earning assets. |
|
(5) |
|
Non-interest expense, excluding the amortization of core
deposit intangible, divided by the sum of net interest income
and non-interest income, excluding gains and losses on
securities and other. |
|
(6) |
|
Nonperforming loans consist of loans ninety days past due,
loans less then ninety days past due and not accruing and
restructured loans. |
|
(7) |
|
Nonperforming assets consist of nonperforming loans and real
estate acquired in settlement of loans and other repossessed
assets. |
23
|
|
|
(8) |
|
Net income divided by average number of basic or diluted
shares outstanding. |
|
(9) |
|
Shareholders equity divided by number of shares
outstanding. |
|
(10) |
|
Historical per share dividends declared and paid for the year
divided by the diluted earnings per share for the year. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
General
United Community Financial Corp. (United Community) was
incorporated in the State of Ohio in February 1998 for the
purpose of owning all of the outstanding capital stock of The
Home Savings and Loan Company of Youngstown, Ohio (Home Savings)
issued upon the conversion of Home Savings from a mutual savings
association to a permanent capital stock savings association
(Conversion). The Conversion was completed on July 8, 1998.
On August 12, 1999, United Community acquired Butler Wick
Corp. (Butler Wick).
The following discussion and analysis of the financial condition
and results of operations of United Community and its
subsidiaries should be read in conjunction with the consolidated
financial statements, and the notes thereto, included in this
Annual Report.
Forward-Looking
Statements
Certain statements contained in this report that are not
historical facts are forward looking statements that are subject
to certain risks and uncertainties. When used herein, the terms
anticipate, plan, expect,
believe, and similar expressions as they relate to
United Community or its management are intended to identify such
forward looking statements. United Communitys actual
results, performance or achievements may differ materially from
those expressed or implied in the forward-looking statements.
Risks and uncertainties that could cause or contribute to such
material differences include, but are not limited to, general
economic conditions, the interest rate environment, competitive
conditions in the financial services industry, changes in law,
governmental policies and regulations and rapidly changing
technology affecting financial services.
Changes
in Financial Condition
Total assets increased $56.5 million, or 2.1%, from
$2.7 billion at December 31, 2006 to $2.8 billion
at December 31, 2007. The net change in assets consisted of
increases of $60.3 million in net loans held for sale,
$7.2 million in available for sale securities,
$2.3 million in premises and equipment and
$7.3 million in real estate owned and other repossessed
assets. These increases were offset partially by decreases of
$16.6 million in net loans and $5.7 million in trading
securities. Total liabilities increased $68.1 million, or
2.8%, primarily as a result of increases of $48.3 million
in interest bearing deposits, $51.0 million in repurchase
agreements and other borrowings, $5.0 million in accrued
interest payable and $3.9 million in non-interest bearing
deposits partially offset by a $28.0 million reduction in
FHLB advances.
Funds not currently utilized for general corporate purposes are
invested in overnight funds and securities. Cash and cash
equivalents increased $1.7 million, or 4.8%, to
$37.4 million at December 31, 2007, compared to
$35.6 million at December 31, 2006.
Trading securities decreased $5.7 million from
December 31, 2006 to December 31, 2007 resulting from
a change in investments in Butler Wicks trading portfolio.
Additionally, trading securities held by United Community for
the Butler Wick Retention Plan decreased as the fourth annual
payout of retention plan assets in the amount of $304,000
occurred in August 2007. One final installment remains in this
plan. Refer to note 15 of the consolidated financial
statements for further discussion of the retention plan.
Available for sale securities increased $7.2 million during
2007 as a result of purchases of $80.5 million offset by
paydowns and maturities of $63.7 million and sales of
$11.9 million. The majority of United Communitys
available for sale portfolio is held by Home Savings.
Net loans decreased $16.6 million, or 0.7%, to
$2.2 billion at December 31, 2007, compared to
$2.3 billion at December 31, 2006. Home Savings had
decreases of $31.8 million in construction loans and
$13.7 million in
24
commercial loans. Also affecting the decline was
managements decision to prepare for sale certain one-to
four-family residential mortgage loans aggregating
$76.5 million which were moved to loans held for sale at
December 31, 2007. The proposed sale was considered for
several reasons. First, the loans identified for sale in this
transaction were
30-year
fixed rate loans that had a weighted average coupon of 6.36%.
United Communitys outlook for interest rates in 2008 was
for continued falling rates which would create prepayment risk
in this pool of loans. The sale would alleviate this interest
rate risk while also freeing capital and liquidity. These
decreases were offset by increases in permanent real estate
loans of $38.8 million and consumer loans of
$3.8 million. The change in permanent real estate loans was
primarily attributable to increases in multifamily and
non-residential real estate lending. Non-residential real estate
lending generally is considered to involve a higher degree of
risk than residential real estate lending due to the relatively
larger loan amounts and the effects of general economic
conditions on the successful operation of income-producing
properties. Consumer lending also can involve a higher degree of
risk than residential real estate lending as collateral for
consumer loans can decline in value more quickly than real
estate collateral. See Note 4 to the consolidated financial
statements for additional information regarding the composition
of net loans.
Loans held for sale were $87.2 million at December 31,
2007, compared to $27.0 million at December 31, 2006.
Contributing to the increase was the designation of
$76.5 million of one-to four-family residential mortgage
loans as held for sale, as mentioned above. Home Savings sold
these loans in February, 2008 with a gain of $1.5 million.
The Company sells other loans as part of its risk management
strategy and anticipates doing so in the future. Home Savings
purchases other loans, both for its portfolio and to be sold in
the secondary market.
For residential real estate lending, customers may borrow up to
80% of the homes appraised value and obtain a second loan
or line of credit for up to 15% of the appraised value without
having to purchase mortgage insurance. In addition, the Company
offers a first-time homebuyers product that permits a 95%
loan-to-value and has no mortgage insurance requirement. At
December 31, 2007, loans to first-time homebuyers with an
original loan-to-value of 95% aggregated $24.6 million. The
Company does not offer products where customers may pay a
monthly amount that is less than the interest expense incurred
on the loan. Further, the Company does not offer loan products
where customers may qualify for the loan based on their ability
to pay a minimum payment, even though the customers will be
required to pay a significantly higher monthly payment in future
periods unless the mortgage is prepaid. Interest only loans are
originated for sale only.
The allowance for loan losses increased to $32.0 million at
December 31, 2007, from $17.0 million at
December 31, 2006. The allowance for loan losses is
monitored closely and may increase or decrease depending on a
variety of factors such as levels and trends of delinquencies,
chargeoffs and recoveries, non-performing loans, and potential
risk in the portfolios. Management has developed and maintains
an appropriate, systematic and consistently applied process to
determine the amount of allowance and provision for loan losses.
The principal reasons for the increase in the allowance are the
84% increase in nonperforming loans during 2007, and the level
of performing loans that were classified at December 31,
2007. The allowance for loan losses as a percentage of net loans
(coverage ratio) was 1.41% at December 31, 2007, compared
to 0.75% at December 31, 2006. See Note 4 to the
25
financial statements for a summary of the allowance for loan
losses. The following table summarizes the trend in the
allowance for loan losses for 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Real Estate Loans
|
|
2006
|
|
|
Provision
|
|
|
Recovery
|
|
|
Chargeoff
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Permanent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family
|
|
$
|
2,234
|
|
|
$
|
1,385
|
|
|
$
|
10
|
|
|
$
|
(826
|
)
|
|
$
|
2,803
|
|
Multifamily residential
|
|
|
818
|
|
|
|
1,617
|
|
|
|
|
|
|
|
(70
|
)
|
|
|
2,365
|
|
Nonresidential
|
|
|
2,256
|
|
|
|
2,299
|
|
|
|
|
|
|
|
(67
|
)
|
|
|
4,488
|
|
Land
|
|
|
151
|
|
|
|
478
|
|
|
|
|
|
|
|
|
|
|
|
629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,459
|
|
|
|
5,779
|
|
|
|
10
|
|
|
|
(963
|
)
|
|
|
10,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
3,092
|
|
|
|
14,723
|
|
|
|
|
|
|
|
(5,923
|
)
|
|
|
11,892
|
|
Multifamily and nonresidential
|
|
|
229
|
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,321
|
|
|
|
15,101
|
|
|
|
|
|
|
|
(5,923
|
)
|
|
|
12,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
1,046
|
|
|
|
441
|
|
|
|
18
|
|
|
|
(245
|
)
|
|
|
1,260
|
|
Auto
|
|
|
510
|
|
|
|
16
|
|
|
|
24
|
|
|
|
(103
|
)
|
|
|
447
|
|
Marine
|
|
|
991
|
|
|
|
1,832
|
|
|
|
57
|
|
|
|
(1,412
|
)
|
|
|
1,468
|
|
Recreational vehicle
|
|
|
1,888
|
|
|
|
1,175
|
|
|
|
7
|
|
|
|
(1,020
|
)
|
|
|
2,050
|
|
Other
|
|
|
712
|
|
|
|
(30
|
)
|
|
|
403
|
|
|
|
(825
|
)
|
|
|
260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,147
|
|
|
|
3,434
|
|
|
|
509
|
|
|
|
(3,605
|
)
|
|
|
5,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
1,936
|
|
|
|
3,122
|
|
|
|
|
|
|
|
(2,683
|
)
|
|
|
2,375
|
|
Unsecured
|
|
|
1,092
|
|
|
|
1,314
|
|
|
|
2
|
|
|
|
(1,046
|
)
|
|
|
1,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,028
|
|
|
|
4,436
|
|
|
|
2
|
|
|
|
(3,729
|
)
|
|
|
3,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Allowance
|
|
$
|
16,955
|
|
|
$
|
28,750
|
|
|
$
|
521
|
|
|
$
|
(14,220
|
)
|
|
$
|
32,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A loan is impaired when, based on current information and
events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of
the loan agreement. All amounts due according to the contractual
terms means that both the contractual interest payments and the
contractual principal payments of a loan will be collected as
scheduled in the loan agreement. An insignificant delay or
insignificant shortfall in amount of payments does not require
application of this definition. A loan is not impaired during a
period of delay in payment if the Company expects to collect all
amounts due including interest accrued at the contractual
interest rate for the period of delay.
The total outstanding balance of all impaired loans was
$84.4 million at December 31, 2007 as compared to
$42.5 million at December 31, 2006. The change in
impaired loans during the period consisted of increases in
commercial real estate loans totaling $13.9 million, and
construction loans aggregating $37.6 million. Also included
in the increase are commercial non-real estate loans totaling
$2.7 million and four boat loans approximating $861,000.
The total of these additional impaired loans was partially
offset by a decrease in formerly impaired commercial loans
totaling $13.2 million. The schedule below summarizes
impaired loans for 2007.
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
Real Estate Loans Permanent
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family
|
|
$
|
2,681
|
|
|
$
|
794
|
|
|
$
|
1,887
|
|
Multifamily residential
|
|
|
13,604
|
|
|
|
2,642
|
|
|
|
10,962
|
|
Nonresidential
|
|
|
13,597
|
|
|
|
13,927
|
|
|
|
(303
|
)
|
Land
|
|
|
3,700
|
|
|
|
6,699
|
|
|
|
(2,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
33,582
|
|
|
|
24,062
|
|
|
|
9,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
43,518
|
|
|
|
11,698
|
|
|
|
31,820
|
|
Multifamily and nonresidential
|
|
|
825
|
|
|
|
2,533
|
|
|
|
(1,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
44,343
|
|
|
|
14,231
|
|
|
|
30,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine
|
|
|
1,714
|
|
|
|
1,377
|
|
|
|
337
|
|
Recreational vehicle
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,714
|
|
|
|
1,377
|
|
|
|
337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
4,554
|
|
|
|
2,282
|
|
|
|
2,272
|
|
Unsecured
|
|
|
184
|
|
|
|
594
|
|
|
|
(410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,738
|
|
|
|
2,876
|
|
|
|
1,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans
|
|
$
|
84,377
|
|
|
$
|
42,546
|
|
|
$
|
41,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans consist of loans past due 90 days or
more and on a non-accrual status, past due 90 days or more
and still accruing, past due less than 90 days and on a
non-accrual status and restructured loans. Non-performing loans
increased $46.3 million from $54.8 million at
December 31, 2006 to $101.1 million at
December 31, 2007. The change occurred primarily in the
construction loan and commercial real estate segments of the
portfolio. The schedule below summarizes the change in
nonperforming loans for 2007.
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming Loans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
2007 Interest
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Foregone
|
|
|
|
(In thousands)
|
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family
|
|
$
|
12,752
|
|
|
$
|
8,976
|
|
|
$
|
3,776
|
|
|
$
|
342
|
|
Multifamily residential
|
|
|
13,604
|
|
|
|
2,642
|
|
|
|
10,962
|
|
|
|
565
|
|
Nonresidential
|
|
|
13,597
|
|
|
|
13,941
|
|
|
|
(344
|
)
|
|
|
1,166
|
|
Land
|
|
|
3,700
|
|
|
|
6,699
|
|
|
|
(2,999
|
)
|
|
|
527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
43,653
|
|
|
|
32,258
|
|
|
|
11,395
|
|
|
|
2,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
44,680
|
|
|
|
11,853
|
|
|
|
32,827
|
|
|
|
3,269
|
|
Multifamily and nonresidential
|
|
|
825
|
|
|
|
2,533
|
|
|
|
(1,708
|
)
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
45,505
|
|
|
|
14,386
|
|
|
|
31,119
|
|
|
|
3,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
2,454
|
|
|
|
1,374
|
|
|
|
1,080
|
|
|
|
76
|
|
Auto
|
|
|
211
|
|
|
|
252
|
|
|
|
(41
|
)
|
|
|
2
|
|
Marine
|
|
|
1,714
|
|
|
|
1,383
|
|
|
|
331
|
|
|
|
60
|
|
Recreational vehicle
|
|
|
376
|
|
|
|
540
|
|
|
|
(164
|
)
|
|
|
5
|
|
Other
|
|
|
64
|
|
|
|
252
|
|
|
|
(188
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,819
|
|
|
|
3,801
|
|
|
|
1,018
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
4,554
|
|
|
|
2,380
|
|
|
|
2,174
|
|
|
|
511
|
|
Unsecured
|
|
|
184
|
|
|
|
617
|
|
|
|
(433
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,738
|
|
|
|
2,997
|
|
|
|
1,741
|
|
|
|
488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured Loans
|
|
|
2,341
|
|
|
|
1,385
|
|
|
|
956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Nonperforming Loans
|
|
$
|
101,056
|
|
|
$
|
54,827
|
|
|
$
|
46,229
|
|
|
$
|
6,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $32.8 million increase in nonperforming one-to
four-family residential construction loans is primarily made up
of the following three relationships that total
$28.0 million:
|
|
|
|
|
A $10.0 million relationship with two related companies to
acquire, develop, and build out a
30-acre
tract plus scattered site lots in the Columbus, Ohio area. The
Companys cash flow ceased following successive deaths in
executive management. The Company holds judgments against the
borrowers and is pursuing guarantors. A receiver has been
appointed. One-third of the assets pledged to the Company are in
contract for sale and the Company expects third-party sales or
for the Company to take ownership of the remaining assets in the
second quarter 2008.
|
|
|
|
A second relationship totaling $9.8 million is located in
the Pittsburgh, Pennsylvania area. The two loans comprising the
relationship were to acquire and develop a
169-acre
tract. The borrower and guarantors claim insolvency at this
time. Currently the Company seeks a deed in lieu of foreclosure.
In the event such is not received, foreclosure proceedings will
commence. In addition, the Company has obtained judgments
against the debtor companies and guarantors of those debts. In
addition the Company is working with an engineering company, an
energy company and developers to determine the feasibility and
cost of development, and the cost/benefit of mining certain
natural resources present on the property.
|
|
|
|
A third project is located in the Springboro, Ohio area. This
relationship, totaling $8.3 million, contemplated the
acquisition and development of 195 acres of raw land and
construction of single-family residences and condominiums. The
borrowers and guarantors claim to be insolvent. The Company
obtained a judgment against the borrowers and guarantors, and
secured judgment liens against the borrowers, and the
guarantors, collateral and other assets.
|
28
The $11.0 million increase in nonperforming multifamily
real estate loans is primarily a result of the following lending
relationships that total $10.1 million:
|
|
|
|
|
A $4.7 million relationship consists of two loans secured
by a 98-unit
apartment complex and a
22-unit
apartment complex in Wooster, Ohio. The cause of the
nonperforming status is due to increased vacancy and the death
of the owners. The borrower has initiated bankruptcy
proceedings, which has caused a delay in the sale of the larger
complex. The sale of the larger complex is expected in the
second quarter of 2008. The Company anticipates minimal loss
with the sale transaction, which has been reserved. The smaller
complex remains for sale, but there are interested parties at
this time.
|
|
|
|
A $5.4 million relationship consists of three loans all
secured by a newly constructed
50-unit
senior living complex in Mentor, Ohio. The cause of the
nonperforming status is fewer leases were obtained than
expected. This was further compounded by the downturn in the
housing market as tenants have had difficulty in selling primary
residences prior to moving into the complex.
|
The Company continues to experience increases in nonperforming
loans due primarily to rapidly changing conditions in the
current environment. Nonperforming loans at February 29,
2008 were $109.1 million, compared to $101.1 million
at December 31, 2007. Real estate owned and other
repossessed assets at February 29, 2008 were
$8.3 million, compared to $10.5 million at
December 31, 2007.
Federal Home Loan Bank stock remained unchanged at
$25.4 million at December 31, 2007, compared to
December 31, 2006. The quarterly dividend payments received
by Home Savings were paid in cash. In prior years, these
dividends were usually paid in the form of shares of the FHLB.
Premises and equipment increased $2.3 million from
$25.2 million at December 31, 2006 to
$27.5 million at December 31, 2007. The primary cause
of this change was the completion of two new Home Savings
branches and other remodeling projects undertaken in 2007 to
update the lobby and entrance-way to the corporate headquarters
to better serve customers needs.
Accrued interest receivable decreased $626,000, or 4.6%, to
$13.1 million at December 31, 2007, compared to
$13.7 million at December 31, 2006. Home Savings had
increases of accrued interest due from mortgage loans of
$3.6 million and commercial loans of $2.4 million,
which were more than offset by reserves for uncollected interest
on mortgage loans of $3.9 million and commercial loans of
$2.5 million. The increase in the reserves for uncollected
interest is affected directly by the increase in loans on
non-accrual status.
Home Savings has an investment in bank-owned life insurance,
which is insurance on the lives of certain employees where Home
Savings is the beneficiary. Bank-owned life insurance provides a
long-term asset to offset long-term benefit obligations, while
generating competitive investment yields. Home Savings
recognized $917,000 as other non-interest income based on the
cash value of the policies in 2007 and $877,000 in 2006. The
increase in the cash value of the policies is tax exempt and any
death benefit proceeds received by Home Savings are tax-free.
Other assets decreased $79,000 during 2007. The decrease is a
result primarily of a decrease in deferred tax assets at Home
Savings of $1.2 million and a decrease in deferred mortgage
servicing rights of $763,000 offset by an increase in
receivables due from brokers/dealers at Butler Wick of
$1.6 million and in prepaid service contracts at Home
Savings of $317,000.
Total deposits increased $52.3 million, or 2.9%, from
$1.8 billion at December 31, 2006 to $1.9 billion
at December 31, 2007, primarily as a result of an increase
in certificates of deposit of $16.4 million and an increase
in money market demand accounts of $51.9 million. This
increase was offset by a decrease of $19.9 million in
savings accounts. The change in certificates of deposit is
attributable to a decline in retail certificates of deposit of
$23.4 million, offset by an increase in brokered
certificates of deposit of $39.8 million. In the fourth
quarter of 2007 Home Savings utilized the services of an
investment broker to attract brokered certificates of deposit.
These deposits were utilized as a less expensive funding source.
In addition, core deposit rates were kept at historically low
levels which led to some migration into certificates of deposit.
Management continually evaluates many variables when pricing
deposits, including cash requirements, liquidity targets, asset
acquisition, liability mix and interest rate risk.
29
Funds needed in excess of deposit growth are borrowed in the
normal course of business. Home Savings has an established
credit relationship with the Federal Home Loan Bank of
Cincinnati under which Home Savings can borrow up to
$614.7 million. Of the total borrowing capacity at the
Federal Home Loan Bank, Home Savings has outstanding advances of
$437.3 million at December 31, 2007, which is a
decrease of $28.0 million compared to December 31,
2006. These borrowings are collateralized primarily by one- to
four-family residential mortgage loans.
Repurchase agreements and other borrowings also are utilized by
United Community. Repurchase agreements used for general
corporate purposes have increased $30.0 million, to
$90.0 million at December 31, 2007, as a result of
Home Savings taking advantage of lower interest rates on this
type of borrowing compared to Federal Home Loan Bank advances.
Home Savings also offers a sweep product to certain customers
that are collateralized by investment securities. This type of
borrowing offers customers of Home Savings a higher rate of
return than what would be offered within deposit product
offerings. These funds are not deposit accounts and are not
insured by the FDIC. Growth in those accounts of
$3.9 million also contributed to the increase. United
Community continually evaluates funding alternatives and may
borrow additional funds in 2008 to satisfy funding requirements.
Included in repurchase agreements and other borrowings is a
Credit Agreement between JP Morgan Chase Bank, N.A., and United
Community, dated September 12, 2005, as amended on
July 18, 2007 (the Credit Agreement). The
Credit Agreement provided United Community with a line of credit
of up to $40.0 million, of which United Community has
borrowed $36.3 million. All borrowings under the Credit
Agreement are due on August 31, 2008.
The Credit Agreement sets forth several covenants with which
United Community must comply, including a covenant that United
Community and its subsidiaries shall maintain at the end of each
fiscal quarter a Consolidated Non-Performing Asset
Ratio of not greater than 4.50%. The term
Consolidated Non-Performing Asset Ratio means the
ratio of the sum of Non-Performing Assets plus
OREO, to the sum of Total Loans plus
OREO. As used in the Credit Agreement,
Non-Performing Assets means the sum of all loans
classified as past due 90 days or more and still accruing
interest, all loans classified as non-accrual and no longer
accruing interest, all loans classified as restructured loans
and leases and all other non-performing loans. As of
December 31, 2007, Home Savings Consolidated
Non-Performing Asset Ratio was 4.74%. United Community sought a
waiver of the covenant default, but was advised by JP Morgan
Chase that a waiver would not be granted.
The covenant violation constitutes an Event of
Default under the Credit Agreement. When an Event of
Default occurs, JP Morgan Chase may do any of the following
(1) cease permitting United Community to borrow further
under the line of credit, (2) terminate any outstanding
commitment, (3) declare the amounts outstanding under the
Credit Agreement immediately due and payable without notice of
acceleration, intention to accelerate, presentment and demand or
protest or notice of any kind, (4) exercise all rights of
setoff, (5) institute a default interest rate, or
(6) exercise any other rights it may have at law, in equity
or otherwise. JP Morgan Chase sent United Community written
notification that United Community could not borrow further
funds and that it was now instituting a default rate of interest
equal to one month LIBOR plus 5.25%.
On March 28, 2008, United Community and JP Morgan
Chase entered into an amendment to the Credit Agreement (the
Amendment). The Amendment provides, among other
things, that JP Morgan Chase waives all existing defaults
under the credit agreement, the line of credit will not exceed
$36.6 million, and United Community and its subsidiaries shall
maintain at the end of each fiscal quarter beginning on
March 31, 2008 a Consolidated Non-Performing Assets Ratio
of not greater than 6.50%.
Accrued interest payable increased during 2007 as a result of a
net increase in the borrowings mentioned above.
Total shareholders equity decreased $11.6 million, or
4.1%, from December 31, 2006 to December 31, 2007. The
decrease was primarily due to net income of $4.1 million
and a change in accumulated other comprehensive income of
$2.0 million, which was more than offset by dividends of
$10.8 million paid to shareholders during the year and
treasury stock purchases of $9.7 million. Accumulated other
comprehensive income changed as a result of the change in market
value of available for sale securities at December 31, 2007
compared to December 31, 2006 and the effect of the
recognition of SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other
30
Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106 and 132(R) . Refer to
note 16 for a further discussion of the effect this
pronouncement had on the Companys financial statements.
Book value per share and tangible book value per share were
$8.97 and $7.81, respectively, as of December 31, 2007.
Book value per share and tangible book value per share were
$9.08 and $7.95, respectively, as of December 31, 2006.
Comparison
of Operating Results for the Years Ended December 31, 2007
and December 31, 2006
Net Income Net income for the year ended
December 31, 2007 was $4.1 million, compared to
$24.1 million for the year ended December 31, 2006.
This change was due primarily to increases in the provision for
loan losses of $24.4 million, interest expense of
$12.0 million, and non-interest expense of
$5.5 million. These increases were only partially offset by
an increase in interest income of $4.5 million and an
increase in non-interest income of $6.6 million.
Net Interest Income Net interest income for
the twelve months ended December 31, 2007, was
$73.5 million compared to $81.0 million for the same
period last year. Interest income increased $4.5 million
for the year 2007 compared to the year 2006, despite the
increase in nonperforming loans, as mentioned above. The change
in interest income was primarily due to an increase in income on
net loans of $3.2 million as a result of an increase of
$82.4 million in the average balance of outstanding loans.
Interest earned on available for sale securities increased
$2.6 million as the average balance of those assets grew by
$32.7 million and the yield earned on those securities
increased 48 basis points. Partially offsetting these
increases was a decrease in interest earned on margin accounts
of $1.1 million. In the third quarter of 2006, management
of Butler Wick decided to outsource the clearing function in an
effort to increase efficiency in the investment services
business segment. The decrease in margin account interest is a
direct result of the outsourcing of this function.
Total interest expense increased $12.0 million for the year
ended December 31, 2007, as compared to 2006. The increase
was due primarily to increases in interest expense on deposits
of $9.4 million, repurchase agreements and other borrowings
of $2.4 million and Federal Home Loan Bank advances of
$247,000.
The primary reason for the rise in interest expense on deposits
was an increase in interest paid on certificates of deposit,
which was $5.7 million greater in the year 2007 compared to
2006. Additionally, interest expense on NOW and money market
accounts was $3.8 million higher in 2007 compared to 2006.
Home Savings had an increase in the average balance of
certificates of deposit of $13.5 million as well as an
increase of 45 basis points paid on those deposits. The
average balance of NOW and money market accounts increased
$66.4 million and the rate paid on those deposits increased
46 basis points. The increase in interest expense on
Federal Home Loan Bank advances was due to an increase in the
cost of those funds of nine basis points. Interest expense on
repurchase agreements and other borrowed funds increased as a
result of an increase in the average balance and an increase of
46 basis points paid for those funds.
Provision for Loan Losses A provision for
loan losses is charged to operations to bring the total
allowance for loan losses to a level considered by management to
be adequate, 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,
prior loan loss experience and results of regulatory
examinations. The provision for loan losses was
$28.8 million, an increase of $24.4 million, for the
year ended December 31, 2007, compared to the year ended
December 31, 2006. Managements analysis of the loan
portfolio led to an increased allocation of $5.8 million to
the permanent real estate portfolio, $15.1 million to the
construction loan portfolio, $3.4 million to the consumer
loan portfolio and $4.4 million to the commercial
portfolio. Net loan chargeoffs for the year ended
December 31, 2007 were $13.7 million compared to
$3.1 million for the year ended December 31, 2006. The
allowance for loan losses totaled $32.0 million at
December 31, 2007, which was 1.41% of net loans and 31.7%
of nonperforming loans, compared to $17.0 million at
December 31, 2006, which was 0.75% of net loans and 30.9%
of nonperforming loans.
Non-interest Income Non-interest income
increased $6.6 million, or 16.5%, to $46.9 million for
the year ended December 31, 2007, from $40.3 million
for the year ended December 31, 2006. The change was due
primarily to increases in brokerage commissions of
$6.5 million due to greater brokerage activity at Butler
Wick, and an increase in service fees and other charges at Home
Savings and Butler Wick of $1.5 million. These changes were
offset partially by declines in gains recognized on the sale of
loans, available for sale securities and trading
31
securities. Increased losses incurred in disposal of real estate
owned and other repossessed assets also contributed to the
offset.
Non-interest Expense Non-interest expenses
rose $5.5 million during the year ended December 31,
2007, compared to 2006, primarily as a result of employee
compensation and benefits increasing $3.7 million,
occupancy expenses increasing $396,000 and other expenses
increasing $1.5 million. The 7.1% increase in employee
compensation and benefits is attributable to increased
commissions paid and associated employment taxes to Butler Wick
employees due to greater brokerage activity. Occupancy expenses
increased primarily as a result of increased costs related to
the construction of two new Home Savings branches and other
remodeling projects completed during the year. Increases in
other expenses are attributable to increased consulting fees
recognized as a result of the pending merger with PVF Capital
Corp. as well as fees incurred for outside consultants for their
recommendation of operating efficiencies within our deposit
products and services. Additionally, fees incurred within our
real estate owned and other repossessed assets portfolio have
increased $412,000 as Home Savings incurred additional expenses
related to the payment of real estate taxes, repairs and general
maintenance on property in northern and central Ohio acquired in
the settlement of construction and commercial loans.
Federal Income Taxes During the year ended
December 31, 2007, United Community recorded a
$2.2 million provision for income taxes. This is a decrease
of $10.8 million over the year ended December 31, 2006
as a result of lower pretax income earned in 2007 compared to
2006. The effective tax rate at December 31, 2007 was 34.6%
compared to 35.0% at December 31, 2006. Refer to
note 12 for a further discussion on these expenses.
Comparison
of Operating Results for the Years Ended December 31, 2006
and December 31, 2005
Net Income Net income for the year ended
December 31, 2006 was $24.1 million, compared to
$23.2 million for the year ended December 31, 2005.
This change was due primarily to increases in interest income of
$29.4 million and non-interest income of $2.0 million.
These changes were offset partially by increases in interest
expense of $27.1 million, provision for loan losses of
$1.3 million, non-interest expense of $937,000, and
provision for income taxes of $1.1 million.
Net Interest Income Net interest income for
the year ended December 31, 2006, grew by
$2.2 million, or 2.9%, over the year ended
December 31, 2005. The change is due largely to increases
of $27.3 million in interest earned on net loans and
$2.2 million in interest earned on available for sale
securities, offset by increases in interest expense on deposits
of $20.7 million, interest expense on Federal Home Loan
Bank advances of $3.9 million, and interest on repurchase
agreements and other borrowings of $2.5 million. The
increase of $27.3 million in interest earned on loans is
due equally to growth in the average balance of net loans and
earning higher yields on these loans.
United Communitys net interest margin for 2006 was 3.26%,
a decrease of 21 basis points compared to 2005. This change
was a result of the continued flat yield curve, the continued
migration of checking and savings accounts to higher costing
money market accounts and certificates of deposit and the
increase in non-accrual loans. Efforts to change the composition
of the loan portfolio and deposit pricing throughout the year
played an important role in managements efforts to
counteract the effects of the flatter yield curve.
Provision for Loan Losses The provision for
loan losses was $4.3 million, an increase of
$1.3 million, for the year ended December 31, 2006,
compared to the year ended December 31, 2005.
Managements analysis of the loan portfolio led to an
increased allocation of $2.1 million to the consumer loan
portfolio and $1.1 million to the construction loan
portfolio and reduced allocations of $1.0 million in the
real estate portfolio and $790,000 in the commercial portfolio.
Net loan chargeoffs for the year ended December 31, 2006
were $3.1 million compared to $3.2 million for the
year ended December 31, 2005. The allowance for loan losses
totaled $17.0 million at December 31, 2006, which was
0.75% of net loans and 30.9% of nonperforming loans, compared to
$15.7 million at December 31, 2005, which was 0.74% of
net loans and 61.3% of nonperforming loans.
The decline in the allowance coverage ratio of nonperforming
loans in 2006 is primarily a function of the strong loan growth
of $156.1 million and a change in the mix of impaired
loans. Of the loan growth, $105.5 million occurred on one-
to four-family real estate loans. As a result of United
Communitys underwriting standards and stable real estate
values in its market area, historical losses on this segment of
the loan portfolio had been low,
32
mitigating the need for additional provisions for loan losses.
At December 31, 2006, impaired loans totaled
$42.5 million of which $14.2 million had specific
valuation allowances of $2.8 million allocated to them. In
comparison, at December 31, 2005, impaired loans totaled
$17.7 million of which $4.6 million had specific
valuation allowances of $667,000 allocated to them. At
December 31, 2006, most of the loans classified as impaired
were secured by real estate collateral with sufficient value to
cover the outstanding loan balance.
Non-interest Income Non-interest income
increased $2.0 million, or 5.3%, to $40.3 million for
the year ended December 31, 2006, from $38.3 million
for the year ended December 31, 2005. The change was due
primarily to increases in brokerage commissions of
$1.4 million due to greater brokerage activity at Butler
Wick, and in gains on loans sold of $693,000 at Home Savings.
These changes were offset partially by declines in gains
recognized on the sale of available for sale securities and
trading securities.
There were no gains on available for sale securities in 2006
because none of the securities were sold. In comparison, there
were $195,000 in gains recognized on securities sales of
$20.9 million in 2005.
The change in income from trading securities was a result of
fewer gains recognized in Butler Wicks trading portfolio
in 2006 versus 2005. Butler Wick sustained losses aggregating
$4,000 on a portfolio of $10.2 million compared to gains
aggregating $165,000 on a portfolio of $9.8 million in
2005. Gains recognized on the retention plan at Butler Wick in
2006 were $60,000 compared to $103,000 in 2005. Gains recognized
on those assets will continue to decline as the final two annual
distributions of the plan assets are paid to plan participants
in August 2007 and 2008.
Underwriting and investment banking fee income is derived from
tax-advantaged bond offerings for school districts, health care
facilities, municipalities, and public agencies. Butler Wick
brought fewer of these offerings to the market in 2006 compared
to 2005, resulting in a decrease in revenues of $62,000, from
$876,000 to $814,000.
Non-interest Expense Non-interest expenses
rose $937,000 during the year ended December 31, 2006,
compared to 2005, primarily as a result of employee compensation
and benefits increasing $971,000 and occupancy expenses
increasing $335,000. The increase in employee compensation and
benefits is attributable to increased performance incentives and
associated employment taxes. Occupancy expenses increased
primarily as a result of increased costs related to the
construction of a new Home Savings branch and other remodeling
projects completed during the year. Partially offsetting these
increases was a decrease of $309,000 in other expenses
consisting in part of decreased legal and audit fees.
Federal Income Taxes During the year ended
December 31, 2006; United Community recorded a
$13.0 million provision for income taxes. This is an
increase of $1.1 million over the year ended
December 31, 2005 as a result of higher pretax income
earned in 2006 compared to 2005. The effective tax rate at
December 31, 2006 was 35.0% compared to 33.9% at
December 31, 2005. Refer to note 12 for a further
discussion on these expenses.
Critical
Accounting Policies and Estimates
The accounting and reporting policies of United Community comply
with accounting principles generally accepted within the United
States of America and conform to general practices within the
financial services industry. Application of these principles
requires management to make estimates, assumptions and judgments
that affect the amounts reported in the financial statements and
accompanying notes. These estimates, assumptions and judgments
are based on information available as of the date of the
financial statements. Accordingly, as this information changes,
the financial statements could reflect different estimates,
assumptions and judgments.
The most significant accounting policies followed by United
Community are presented in Note 1 to the consolidated
financial statements. Accounting and reporting policies for the
allowance for loan losses, mortgage servicing rights and
other-than-temporary impairment are deemed critical since they
involve the use of estimates and require significant management
judgments. Application of assumptions different than those used
by management could result in material changes in United
Communitys financial position or results of operations.
Allowance for loan losses. The allowance for
loan losses is an amount that management believes will be
adequate to absorb probable incurred losses in existing loans
taking into consideration such factors as past loss
33
experience, changes in the nature and volume of the portfolio,
overall portfolio quality, loan concentrations, specific problem
loans, collateral values securing loans, and current economic
conditions that affect the borrowers ability to pay.
Determination of the allowance inherently is subjective due to
the aforementioned reasons. Loan losses are charged off against
the allowance when management believes that the full
collectability of the loan is unlikely. Recoveries of amounts
previously charged off are credited to the allowance.
The allowance is based on managements evaluation of
homogeneous groups of loans (single-family residential mortgage
loans and all consumer credit except marine loans) to which loss
factors have been applied, as well as an evaluation of
individual credits (multi-family, non-residential mortgage
loans, marine loans and commercial loans) that are based on
internal risk ratings, collateral and other unique
characteristics of each loan.
Management believes that it uses the best information available
to determine the adequacy of the allowance for loan losses.
However, future adjustments to the allowance may be necessary
and the results of operations could be significantly and
adversely affected if circumstances differ substantially from
the assumptions used in making the determinations.
Mortgage servicing rights. The cost of
mortgage loans sold or securitized is allocated between the
mortgage servicing rights and the mortgage loans based on the
relative fair values of each. The fair value of the mortgage
servicing rights is determined by using a discounted cash flow
model, which estimates the present value of the future net cash
flows of the servicing portfolio, about which management must
make assumptions considering future expectations based on
various factors, such as servicing costs, expected prepayment
speeds and discount rates.
Mortgage servicing rights are amortized in proportion to, and
over the period of, estimated net servicing income. Management
periodically evaluates mortgage servicing rights for impairment
by stratifying the loans by original maturity, interest rate and
loan type. Impairment is measured by estimating the fair value
of each pool, taking into consideration the estimated level of
prepayments based upon current industry expectations. An
impairment allowance is recorded for a pool when, and in an
amount which, its fair value is less than its carrying value.
The value of mortgage servicing rights is subject to prepayment
risk. Future expected net cash flows from servicing a loan will
not be realized if the loan pays off earlier than anticipated.
Since most of these loans do not contain prepayment penalties,
United Community receives no economic benefit if the loan pays
off earlier than anticipated.
Other-than-temporary impairment. Securities
are written down to fair value when a decline in fair value is
other-than-temporary. Declines in the fair value of securities
below their cost that are other-than-temporary are reflected as
realized losses. In estimating other-than-temporary losses,
management considers: (1) the length of time and extent
that fair value has been less than cost, (2) the financial
condition and near term prospects of the issuer, and
(3) United Communitys intent and ability to hold the
security for a period sufficient to allow for any anticipated
recovery in fair value. Management must use its judgment based
on information available in assessing the likelihood of recovery
in value.
34
Yields
Earned and Rates Paid
The following table sets forth certain information relating to
United Communitys average balance sheet and reflects the
average yield on interest earning assets and the average cost of
interest bearing liabilities for the periods indicated. Such
yields and costs are derived by dividing income or expense by
the average balances of interest earning assets or interest
bearing liabilities, respectively, for the periods presented.
Average balances are derived from daily balances. Nonaccruing
loans have been included in the table as loans carrying a zero
yield. Loan fees are included in interest income. The average
balance for securities available for sale is computed using the
carrying value and the average yield on securities available for
sale has been computed using the historical amortized average
balance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
|
|
|
Outstanding
|
|
|
Earned/
|
|
|
Yield/
|
|
|
Outstanding
|
|
|
Earned/
|
|
|
Yield/
|
|
|
Outstanding
|
|
|
Earned/
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Paid
|
|
|
Rate
|
|
|
Balance
|
|
|
Paid
|
|
|
Rate
|
|
|
Balance
|
|
|
Paid
|
|
|
rate
|
|
|
|
(Dollars in thousands)
|
|
|
Interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans(1)
|
|
$
|
2,268,914
|
|
|
$
|
154,252
|
|
|
|
6.80
|
%
|
|
$
|
2,186,559
|
|
|
$
|
151,029
|
|
|
|
6.91
|
%
|
|
$
|
1,979,294
|
|
|
$
|
123,749
|
|
|
|
6.25
|
%
|
Loans held for sale
|
|
|
18,781
|
|
|
|
914
|
|
|
|
4.87
|
|
|
|
37,549
|
|
|
|
1,894
|
|
|
|
5.04
|
|
|
|
33,845
|
|
|
|
1,651
|
|
|
|
4.88
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
|
|
|
6,176
|
|
|
|
263
|
|
|
|
4.26
|
|
|
|
6,494
|
|
|
|
300
|
|
|
|
4.62
|
|
|
|
29,777
|
|
|
|
943
|
|
|
|
3.17
|
|
Available for sale
|
|
|
247,331
|
|
|
|
12,031
|
|
|
|
4.86
|
|
|
|
214,679
|
|
|
|
9,408
|
|
|
|
4.38
|
|
|
|
186,404
|
|
|
|
7,227
|
|
|
|
3.88
|
|
Margin accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,443
|
|
|
|
1,069
|
|
|
|
9.34
|
|
|
|
15,659
|
|
|
|
1,219
|
|
|
|
7.78
|
|
Federal Home Loan Bank stock
|
|
|
25,432
|
|
|
|
1,677
|
|
|
|
6.59
|
|
|
|
24,533
|
|
|
|
1,426
|
|
|
|
5.81
|
|
|
|
23,250
|
|
|
|
1,164
|
|
|
|
5.01
|
|
Other interest earning assets
|
|
|
8,275
|
|
|
|
813
|
|
|
|
9.82
|
|
|
|
4,816
|
|
|
|
304
|
|
|
|
6.31
|
|
|
|
3,867
|
|
|
|
99
|
|
|
|
2.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets
|
|
$
|
2,574,909
|
|
|
$
|
169,950
|
|
|
|
6.60
|
%
|
|
$
|
2,486,073
|
|
|
$
|
165,430
|
|
|
|
6.65
|
%
|
|
$
|
2,272,096
|
|
|
$
|
136,052
|
|
|
|
5.98
|
%
|
Non-interest earning assets
|
|
|
147,355
|
|
|
|
|
|
|
|
|
|
|
|
138,218
|
|
|
|
|
|
|
|
|
|
|
|
136,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,722,264
|
|
|
|
|
|
|
|
|
|
|
$
|
2,624,291
|
|
|
|
|
|
|
|
|
|
|
$
|
2,408,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts
|
|
$
|
397,290
|
|
|
$
|
13,907
|
|
|
|
3.50
|
%
|
|
$
|
330,856
|
|
|
$
|
10,060
|
|
|
|
3.04
|
%
|
|
$
|
269,652
|
|
|
$
|
3,231
|
|
|
|
1.20
|
%
|
Savings accounts
|
|
|
185,949
|
|
|
|
769
|
|
|
|
0.41
|
|
|
|
218,590
|
|
|
|
899
|
|
|
|
0.41
|
|
|
|
287,714
|
|
|
|
1,201
|
|
|
|
0.42
|
|
Certificates of deposit
|
|
|
1,125,117
|
|
|
|
53,376
|
|
|
|
4.74
|
|
|
|
1,111,602
|
|
|
|
47,681
|
|
|
|
4.29
|
|
|
|
938,957
|
|
|
|
33,488
|
|
|
|
3.57
|
|
Federal Home Loan Bank advances
|
|
|
448,714
|
|
|
|
21,493
|
|
|
|
4.79
|
|
|
|
452,023
|
|
|
|
21,246
|
|
|
|
4.70
|
|
|
|
460,205
|
|
|
|
17,364
|
|
|
|
3.77
|
|
Repurchase agreements and other
|
|
|
136,173
|
|
|
|
6,903
|
|
|
|
5.07
|
|
|
|
98,457
|
|
|
|
4,542
|
|
|
|
4.61
|
|
|
|
64,776
|
|
|
|
2,012
|
|
|
|
3.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
$
|
2,293,243
|
|
|
$
|
96,448
|
|
|
|
4.21
|
%
|
|
$
|
2,211,528
|
|
|
$
|
84,428
|
|
|
|
3.82
|
%
|
|
$
|
2,021,304
|
|
|
$
|
57,296
|
|
|
|
2.83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing liabilities
|
|
|
141,500
|
|
|
|
|
|
|
|
|
|
|
|
136,349
|
|
|
|
|
|
|
|
|
|
|
|
126,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
2,434,743
|
|
|
|
|
|
|
|
|
|
|
$
|
2,347,877
|
|
|
|
|
|
|
|
|
|
|
$
|
2,147,977
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
287,521
|
|
|
|
|
|
|
|
|
|
|
|
276,414
|
|
|
|
|
|
|
|
|
|
|
|
260,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
2,722,264
|
|
|
|
|
|
|
|
|
|
|
$
|
2,624,291
|
|
|
|
|
|
|
|
|
|
|
$
|
2,408,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and interest rate spread
|
|
|
|
|
|
$
|
73,502
|
|
|
|
2.39
|
%
|
|
|
|
|
|
$
|
81,002
|
|
|
|
2.83
|
%
|
|
|
|
|
|
$
|
78,756
|
|
|
|
3.15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
2.85
|
%
|
|
|
|
|
|
|
|
|
|
|
3.26
|
%
|
|
|
|
|
|
|
|
|
|
|
3.47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest earning assets to average interest bearing
liabilities
|
|
|
|
|
|
|
|
|
|
|
112.28
|
%
|
|
|
|
|
|
|
|
|
|
|
112.41
|
%
|
|
|
|
|
|
|
|
|
|
|
112.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Nonaccrual loans are included in the average balance. |
35
The table below describes the extent to which changes in
interest rates and changes in volume of interest earning assets
and interest bearing liabilities have affected United
Communitys interest income and interest expense during the
periods indicated. For each category of interest earning assets
and interest bearing liabilities, information is provided on
changes attributable to (i) changes in volume (change in
volume multiplied by prior period rate), (ii) changes in
rate (change in rate multiplied by prior period volume) and
(iii) total changes in rate and volume. The combined
effects of changes in both volume and rate, which cannot be
separately identified, have been allocated in proportion to the
changes due to volume and rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007 vs. 2006
|
|
|
2006 vs. 2005
|
|
|
|
Increase
|
|
|
Total
|
|
|
Increase
|
|
|
Total
|
|
|
|
(Decrease) Due to
|
|
|
Increase
|
|
|
(Decrease) Due to
|
|
|
Increase
|
|
|
|
Rate
|
|
|
Volume
|
|
|
(Decrease)
|
|
|
Rate
|
|
|
Volume
|
|
|
(Decrease)
|
|
|
|
(Dollars in thousands)
|
|
|
Interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
(2,312
|
)
|
|
$
|
5,535
|
|
|
$
|
3,223
|
|
|
$
|
13,643
|
|
|
$
|
13,637
|
|
|
$
|
27,280
|
|
Loans held for sale
|
|
|
(64
|
)
|
|
|
(916
|
)
|
|
|
(980
|
)
|
|
|
58
|
|
|
|
185
|
|
|
|
243
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
|
|
|
(23
|
)
|
|
|
(14
|
)
|
|
|
(37
|
)
|
|
|
913
|
|
|
|
(1,556
|
)
|
|
|
(643
|
)
|
Available for sale
|
|
|
1,101
|
|
|
|
1,522
|
|
|
|
2,623
|
|
|
|
1,008
|
|
|
|
1,173
|
|
|
|
2,181
|
|
Margin accounts
|
|
|
(534
|
)
|
|
|
(535
|
)
|
|
|
(1,069
|
)
|
|
|
434
|
|
|
|
(584
|
)
|
|
|
(150
|
)
|
Federal Home Loan Bank stock
|
|
|
197
|
|
|
|
54
|
|
|
|
251
|
|
|
|
195
|
|
|
|
67
|
|
|
|
262
|
|
Other interest earning assets
|
|
|
222
|
|
|
|
287
|
|
|
|
509
|
|
|
|
176
|
|
|
|
29
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets
|
|
$
|
(1,413
|
)
|
|
$
|
5,933
|
|
|
$
|
4,520
|
|
|
$
|
16,427
|
|
|
$
|
12,951
|
|
|
$
|
29,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts
|
|
$
|
1,653
|
|
|
$
|
2,194
|
|
|
$
|
3,847
|
|
|
$
|
5,951
|
|
|
$
|
878
|
|
|
$
|
6,829
|
|
Savings accounts
|
|
|
5
|
|
|
|
(135
|
)
|
|
|
(130
|
)
|
|
|
(17
|
)
|
|
|
(285
|
)
|
|
|
(302
|
)
|
Certificates of deposit
|
|
|
5,109
|
|
|
|
586
|
|
|
|
5,695
|
|
|
|
7,442
|
|
|
|
6,751
|
|
|
|
14,193
|
|
Federal Home Loan Bank advances
|
|
|
401
|
|
|
|
(154
|
)
|
|
|
247
|
|
|
|
4,185
|
|
|
|
(303
|
)
|
|
|
3,882
|
|
Repurchase agreements and other
|
|
|
484
|
|
|
|
1,877
|
|
|
|
2,361
|
|
|
|
1,220
|
|
|
|
1,309
|
|
|
|
2,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
$
|
7,652
|
|
|
$
|
4,368
|
|
|
$
|
12,020
|
|
|
$
|
18,781
|
|
|
$
|
8,350
|
|
|
$
|
27,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income
|
|
|
|
|
|
|
|
|
|
$
|
(7,500
|
)
|
|
|
|
|
|
|
|
|
|
$
|
2,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
Obligations, Commitments, Contingent Liabilities and Off-balance
Sheet Arrangements
The following table presents, as of December 31, 2007,
United Communitys significant fixed and determinable
contractual obligations by payment date. The payment amounts
represent those amounts contractually due to the recipient and
do not include any unamortized premiums or discounts or other
similar carrying value adjustments. Further detail of the nature
of each obligation is included in the referenced note to the
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due In
|
|
|
|
Note
|
|
|
One Year
|
|
|
One to
|
|
|
Three to
|
|
|
Over
|
|
|
|
|
|
|
Reference
|
|
|
or Less
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Five Years
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Operating leases
|
|
|
6
|
|
|
$
|
1,558
|
|
|
$
|
2,712
|
|
|
$
|
2,192
|
|
|
$
|
767
|
|
|
$
|
7,229
|
|
Deposits without a stated maturity
|
|
|
8
|
|
|
|
704,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
704,644
|
|
Certificates of deposit
|
|
|
8
|
|
|
|
956,251
|
|
|
|
140,171
|
|
|
|
72,148
|
|
|
|
1,992
|
|
|
|
1,170,562
|
|
Federal Home Loan Bank advances
|
|
|
9
|
|
|
|
286,408
|
|
|
|
83,300
|
|
|
|
7,734
|
|
|
|
59,811
|
|
|
|
437,253
|
|
Repurchase agreements and other borrowings
|
|
|
10
|
|
|
|
59,533
|
|
|
|
|
|
|
|
|
|
|
|
90,000
|
|
|
|
149,533
|
|
36
Discussion of loan commitments is included in Note 4 to the
consolidated financial statements. In addition, United Community
has commitments under benefit plans as described in Note 15
to the consolidated financial statements.
|
|
Item 7A.
|
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 United Communitys earnings
and net asset values to changes in interest rates. As part of
its efforts to monitor and manage the interest rate risk, the
Board of Directors of Home Savings has adopted an interest rate
risk policy that requires the Home Savings Board to review
quarterly reports related to interest rate risk and annually 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. As noted, for the
year ended December 31, 2007, the percentage changes fall
within the policy limits set by the Board of Directors of Home
Savings as the minimum NPV ratio and the maximum change in
interest income the Home Savings Board deems advisable in the
event of various changes in interest rates. See the table below
for Board adopted policy limits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
NPV as% of Portfolio Value of Assets
|
|
|
Next 12 Months Net Interest Income
|
|
|
|
|
|
|
Internal Policy
|
|
|
|
|
|
|
|
|
Internal Policy
|
|
|
|
|
Change in Rates (Basis Points)
|
|
NPV Ratio
|
|
|
Limitations
|
|
|
Change in%
|
|
|
$ Change
|
|
|
Limitations
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
+300
|
|
|
7.99
|
%
|
|
|
5.00
|
%
|
|
|
(1.48
|
)%
|
|
$
|
(7,009
|
)
|
|
|
(15.00
|
)%
|
|
|
(9.93
|
)%
|
+200
|
|
|
8.73
|
|
|
|
6.00
|
|
|
|
(0.75
|
)
|
|
|
(4,353
|
)
|
|
|
(10.00
|
)
|
|
|
(6.17
|
)
|
+100
|
|
|
9.29
|
|
|
|
6.00
|
|
|
|
(0.18
|
)
|
|
|
(2,139
|
)
|
|
|
(5.00
|
)
|
|
|
(3.03
|
)
|
Static
|
|
|
9.47
|
|
|
|
7.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100)
|
|
|
9.53
|
|
|
|
6.00
|
|
|
|
0.05
|
|
|
|
2,723
|
|
|
|
(5.00
|
)
|
|
|
3.86
|
|
(200)
|
|
|
8.82
|
|
|
|
6.00
|
|
|
|
(0.66
|
)
|
|
|
3,467
|
|
|
|
(15.00
|
)
|
|
|
4.91
|
|
(300)
|
|
|
7.90
|
|
|
|
5.00
|
|
|
|
(1.57
|
)
|
|
|
3,397
|
|
|
|
(20.00
|
)
|
|
|
4.81
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
NPV as% of Portfolio Value of Assets
|
|
|
Next 12 Months Net Interest Income
|
|
|
|
|
|
|
Internal Policy
|
|
|
|
|
|
|
|
|
Internal Policy
|
|
|
|
|
Change in Rates (Basis Points)
|
|
NPV Ratio
|
|
|
Limitations
|
|
|
Change in %
|
|
|
$ Change
|
|
|
Limitations
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
+300
|
|
|
8.92
|
%
|
|
|
5.00
|
%
|
|
|
(2.27
|
)%
|
|
$
|
(10,078
|
)
|
|
|
(15.00
|
)%
|
|
|
(13.95
|
)%
|
+200
|
|
|
9.81
|
|
|
|
6.00
|
|
|
|
(1.38
|
)
|
|
|
(6,455
|
)
|
|
|
(10.00
|
)
|
|
|
(8.94
|
)
|
+100
|
|
|
10.60
|
|
|
|
6.00
|
|
|
|
(0.59
|
)
|
|
|
(2,972
|
)
|
|
|
(5.00
|
)
|
|
|
(4.12
|
)
|
Static
|
|
|
11.19
|
|
|
|
7.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100)
|
|
|
11.19
|
|
|
|
6.00
|
|
|
|
|
|
|
|
2,651
|
|
|
|
(5.00
|
)
|
|
|
3.67
|
|
(200)
|
|
|
10.62
|
|
|
|
6.00
|
|
|
|
(0.57
|
)
|
|
|
3,548
|
|
|
|
(15.00
|
)
|
|
|
4.91
|
|
(300)
|
|
|
9.69
|
|
|
|
5.00
|
|
|
|
(1.50
|
)
|
|
|
2,254
|
|
|
|
(20.00
|
)
|
|
|
3.12
|
|
N/A Due to a low interest environment, it was not
possible to calculate results for these scenarios.
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. Also, 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 significantly affected by changes in market interest
rates and other economic factors beyond its control.
Accordingly, Home Savings earnings could be adversely
affected during a continued period of rising interest rates.
Liquidity
and Capital
United Communitys liquidity, primarily represented by cash
and cash equivalents, is a result of its operating, investing
and financing activities. These activities are summarized below
for the years ended December 31, 2007, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Net income
|
|
$
|
4,133
|
|
|
$
|
24,111
|
|
|
$
|
23,197
|
|
Adjustments to reconcile net income to net cash from operating
activities
|
|
|
50,452
|
|
|
|
29,513
|
|
|
|
92,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
54,585
|
|
|
|
53,624
|
|
|
|
115,419
|
|
Net cash from investing activities
|
|
|
(108,157
|
)
|
|
|
(200,966
|
)
|
|
|
(335,345
|
)
|
Net cash from financing activities
|
|
|
55,298
|
|
|
|
145,434
|
|
|
|
217,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
1,726
|
|
|
|
(1,908
|
)
|
|
|
(2,736
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
35,637
|
|
|
|
37,545
|
|
|
|
40,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
37,363
|
|
|
$
|
35,637
|
|
|
$
|
37,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The principal sources of funds for United Community are
deposits, loan repayments, maturities of securities, borrowings
from financial institutions, repurchase agreements, and other
funds provided by operations. Home Savings also has the ability
to borrow from the Federal Home Loan Bank. While scheduled loan
repayments and
38
maturing investments are relatively predictable, deposit flows
and early loan prepayments are more influenced by interest
rates, general economic conditions and competition. Investments
in liquid assets maintained by United Community, Home Savings
and Butler Wick are based upon managements assessment of
(1) need for funds, (2) expected deposit flows,
(3) yields available on short-term liquid assets, and
(4) objectives of the asset and liability management
program. At December 31, 2007, approximately
$956.3 million of Home Savings certificates of
deposit are expected to mature within one year. Based on past
experience and Home Savings prevailing pricing strategies,
management believes that a substantial percentage of such
certificates will be renewed with Home Savings at maturity,
although there can be no assurance that this will occur.
The Board of Directors has authorized an ongoing program to
purchase United Communitys common shares to be used for
corporate purposes. These purchases can be made in the open
market or in negotiated transactions from time to time,
depending on market conditions. On April 30, 2007, United
Community announced its Board of Directors approved the purchase
of up to 2,000,000 additional shares. United Community acquired
950,243 common shares for $9.7 million, 196,300 common
shares for $2.3 million and 232,400 common shares for
$2.5 million, during the years ended December 31,
2007, 2006 and 2005. United Community has remaining
authorization to repurchase 1,477,804 shares as of
December 31, 2007, under the current repurchase program.
Home Savings is required by federal regulations to meet certain
minimum capital requirements. Current capital requirements call
for tangible capital of 1.5% of adjusted tangible assets,
leverage, also known as core capital (which for Home Savings
consists solely of tangible capital), of 4.0% of adjusted total
assets and risk-based capital (which for Home Savings consists
of leverage capital and the allowance for loan losses) of 8% of
risk-weighted assets (assets are weighted at percentage levels
ranging from 0% to 100% depending on their relative risk).
The following table summarizes Home Savings regulatory
capital requirements and actual capital at December 31,
2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess of Actual
|
|
|
Applicable
|
|
|
|
Actual Capital
|
|
|
Current Minimum Requirement
|
|
|
Capital Over Current Requirement
|
|
|
Asset Base
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Tangible capital
|
|
$
|
201,779
|
|
|
|
7.47
|
%
|
|
$
|
40,525
|
|
|
|
1.50
|
%
|
|
$
|
161,254
|
|
|
|
5.98
|
%
|
|
$
|
2,701,644
|
|
Core capital
|
|
|
201,779
|
|
|
|
7.47
|
|
|
|
108,066
|
|
|
|
4.00
|
|
|
|
93,713
|
|
|
|
3.48
|
|
|
|
2,701,644
|
|
Risk-based capital
|
|
|
259,087
|
|
|
|
11.88
|
|
|
|
174,635
|
|
|
|
8.00
|
|
|
|
84,452
|
|
|
|
3.88
|
|
|
|
2,182,941
|
|
39
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Cash and deposits with banks
|
|
$
|
33,266
|
|
|
$
|
34,129
|
|
Federal funds sold
|
|
|
4,097
|
|
|
|
1,508
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
37,363
|
|
|
|
35,637
|
|
|
|
|
|
|
|
|
|
|
Securities:
|
|
|
|
|
|
|
|
|
Trading, at fair value
|
|
|
5,064
|
|
|
|
10,786
|
|
Available for sale, at fair value
|
|
|
244,753
|
|
|
|
237,531
|
|
Loans held for sale
|
|
|
87,236
|
|
|
|
26,960
|
|
Loans, net of allowance for loan losses of $32,006 and $16,955
|
|
|
2,236,988
|
|
|
|
2,253,559
|
|
Federal Home Loan Bank stock, at cost
|
|
|
25,432
|
|
|
|
25,432
|
|
Premises and equipment, net
|
|
|
27,521
|
|
|
|
25,192
|
|
Accrued interest receivable
|
|
|
13,077
|
|
|
|
13,703
|
|
Real estate owned and other repossessed assets
|
|
|
10,510
|
|
|
|
3,242
|
|
Goodwill
|
|
|
33,713
|
|
|
|
33,593
|
|
Core deposit intangible
|
|
|
1,169
|
|
|
|
1,534
|
|
Cash surrender value of life insurance
|
|
|
24,053
|
|
|
|
23,137
|
|
Other assets
|
|
|
13,160
|
|
|
|
13,239
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,760,039
|
|
|
$
|
2,703,545
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Liabilities
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
106,449
|
|
|
$
|
102,509
|
|
Interest bearing
|
|
|
1,768,757
|
|
|
|
1,720,426
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
1,875,206
|
|
|
|
1,822,935
|
|
Borrowed funds:
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances
|
|
|
437,253
|
|
|
|
465,253
|
|
Repurchase agreements and other
|
|
|
149,533
|
|
|
|
98,511
|
|
|
|
|
|
|
|
|
|
|
Total borrowed funds
|
|
|
586,786
|
|
|
|
563,764
|
|
Advance payments by borrowers for taxes and insurance
|
|
|
17,853
|
|
|
|
17,471
|
|
Accrued interest payable
|
|
|
7,837
|
|
|
|
2,842
|
|
Accrued expenses and other liabilities
|
|
|
2,643
|
|
|
|
15,200
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,490,325
|
|
|
|
2,422,212
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities (Note 4 and
Note 11)
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
Preferred stock-no par value; 1,000,000 shares authorized
and unissued
|
|
|
|
|
|
|
|
|
Common stock no par value; 499,000,000 shares
authorized; 37,804,457 shares issued
|
|
|
146,683
|
|
|
|
145,834
|
|
Retained earnings
|
|
|
213,727
|
|
|
|
220,527
|
|
Accumulated other comprehensive income (loss)
|
|
|
661
|
|
|
|
(1,296
|
)
|
Unearned employee stock ownership plan shares
|
|
|
(9,465
|
)
|
|
|
(11,287
|
)
|
Treasury stock, at cost, 2007 7,752,684 shares
and 2006 6,827,143 shares
|
|
|
(81,892
|
)
|
|
|
(72,445
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
269,714
|
|
|
|
281,333
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
2,760,039
|
|
|
$
|
2,703,545
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
40
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
154,252
|
|
|
$
|
151,029
|
|
|
$
|
123,749
|
|
Loans held for sale
|
|
|
914
|
|
|
|
1,894
|
|
|
|
1,651
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
|
|
|
263
|
|
|
|
300
|
|
|
|
943
|
|
Available for sale
|
|
|
12,031
|
|
|
|
9,408
|
|
|
|
7,227
|
|
Margin accounts
|
|
|
|
|
|
|
1,069
|
|
|
|
1,219
|
|
Federal Home Loan Bank stock dividends
|
|
|
1,677
|
|
|
|
1,426
|
|
|
|
1,164
|
|
Other interest earning assets
|
|
|
813
|
|
|
|
304
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
169,950
|
|
|
|
165,430
|
|
|
|
136,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
68,052
|
|
|
|
58,640
|
|
|
|
37,920
|
|
Federal Home Loan Bank advances
|
|
|
21,493
|
|
|
|
21,246
|
|
|
|
17,364
|
|
Repurchase agreements and other
|
|
|
6,903
|
|
|
|
4,542
|
|
|
|
2,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
96,448
|
|
|
|
84,428
|
|
|
|
57,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
73,502
|
|
|
|
81,002
|
|
|
|
78,756
|
|
Provision for loan losses
|
|
|
28,750
|
|
|
|
4,347
|
|
|
|
3,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
44,752
|
|
|
|
76,655
|
|
|
|
75,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage commissions
|
|
|
26,392
|
|
|
|
19,882
|
|
|
|
18,508
|
|
Service fees and other charges
|
|
|
14,057
|
|
|
|
12,546
|
|
|
|
12,471
|
|
Underwriting and investment banking
|
|
|
764
|
|
|
|
814
|
|
|
|
876
|
|
Net gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
(21
|
)
|
|
|
|
|
|
|
195
|
|
Trading securities
|
|
|
43
|
|
|
|
56
|
|
|
|
268
|
|
Loans sold
|
|
|
2,624
|
|
|
|
2,943
|
|
|
|
2,250
|
|
Other
|
|
|
(1,061
|
)
|
|
|
(63
|
)
|
|
|
(22
|
)
|
Other income
|
|
|
4,102
|
|
|
|
4,096
|
|
|
|
3,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
46,900
|
|
|
|
40,274
|
|
|
|
38,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
55,969
|
|
|
|
52,272
|
|
|
|
51,301
|
|
Occupancy
|
|
|
4,846
|
|
|
|
4,450
|
|
|
|
4,115
|
|
Equipment and data processing
|
|
|
9,017
|
|
|
|
8,998
|
|
|
|
9,067
|
|
Franchise tax
|
|
|
2,102
|
|
|
|
2,091
|
|
|
|
1,894
|
|
Advertising
|
|
|
1,662
|
|
|
|
1,567
|
|
|
|
1,570
|
|
Amortization of core deposit intangible
|
|
|
365
|
|
|
|
584
|
|
|
|
769
|
|
Other expenses
|
|
|
11,367
|
|
|
|
9,856
|
|
|
|
10,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
85,328
|
|
|
|
79,818
|
|
|
|
78,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
6,324
|
|
|
|
37,111
|
|
|
|
35,107
|
|
Income taxes
|
|
|
2,191
|
|
|
|
13,000
|
|
|
|
11,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,133
|
|
|
$
|
24,111
|
|
|
$
|
23,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.14
|
|
|
$
|
0.83
|
|
|
$
|
0.81
|
|
Diluted
|
|
$
|
0.14
|
|
|
$
|
0.82
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
41
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Employee Stock
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Common
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Ownership
|
|
|
Treasury
|
|
|
|
|
|
|
Outstanding
|
|
|
Stock
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Plan Shares
|
|
|
Stock
|
|
|
Total
|
|
|
|
(In thousands, except per share data)
|
|
|
Balance December 31, 2004
|
|
|
31,202
|
|
|
$
|
142,337
|
|
|
$
|
193,690
|
|
|
$
|
1,063
|
|
|
$
|
(14,930
|
)
|
|
$
|
(69,808
|
)
|
|
$
|
252,352
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
23,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,197
|
|
Change in net unrealized gain (loss) on securities, net of taxes
of $1,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,908
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,908
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,289
|
|
Shares allocated to ESOP participants
|
|
|
|
|
|
|
1,432
|
|
|
|
|
|
|
|
|
|
|
|
1,822
|
|
|
|
|
|
|
|
3,254
|
|
Purchase of treasury stock
|
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,499
|
)
|
|
|
(2,499
|
)
|
Exercise of stock options
|
|
|
93
|
|
|
|
127
|
|
|
|
(305
|
)
|
|
|
|
|
|
|
|
|
|
|
979
|
|
|
|
801
|
|
Dividends paid, $0.33 per share
|
|
|
|
|
|
|
|
|
|
|
(9,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2005
|
|
|
31,062
|
|
|
|
143,896
|
|
|
|
207,120
|
|
|
|
(1,845
|
)
|
|
|
(13,108
|
)
|
|
|
(71,328
|
)
|
|
|
264,735
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
24,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,111
|
|
Change in net unrealized gain (loss) on securities, net of taxes
of $367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
681
|
|
|
|
|
|
|
|
|
|
|
|
681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,792
|
|
Adjustment to initially apply SFAS 158, net of taxes of $72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
(132
|
)
|
Shares allocated to ESOP participants
|
|
|
|
|
|
|
1,797
|
|
|
|
|
|
|
|
|
|
|
|
1,821
|
|
|
|
|
|
|
|
3,618
|
|
Purchase of treasury stock
|
|
|
(196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,298
|
)
|
|
|
(2,298
|
)
|
Exercise of stock options
|
|
|
111
|
|
|
|
141
|
|
|
|
(303
|
)
|
|
|
|
|
|
|
|
|
|
|
1,181
|
|
|
|
1,019
|
|
Dividends paid, $0.36 per share
|
|
|
|
|
|
|
|
|
|
|
(10,401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006
|
|
|
30,977
|
|
|
|
145,834
|
|
|
|
220,527
|
|
|
|
(1,296
|
)
|
|
|
(11,287
|
)
|
|
|
(72,445
|
)
|
|
|
281,333
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
4,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,133
|
|
Change in net unrealized gain (loss) on securities and post
retirement liabilities, net of reclassification and tax effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,957
|
|
|
|
|
|
|
|
|
|
|
|
1,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,090
|
|
Shares allocated to ESOP participants
|
|
|
|
|
|
|
837
|
|
|
|
|
|
|
|
|
|
|
|
1,822
|
|
|
|
|
|
|
|
2,659
|
|
Purchase of treasury stock
|
|
|
(950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,709
|
)
|
|
|
(9,709
|
)
|
Exercise of stock options
|
|
|
25
|
|
|
|
12
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
262
|
|
|
|
188
|
|
Dividends paid, $0.38 per share
|
|
|
|
|
|
|
|
|
|
|
(10,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
|
30,052
|
|
|
$
|
146,683
|
|
|
$
|
213,727
|
|
|
$
|
661
|
|
|
$
|
(9,465
|
)
|
|
$
|
(81,892
|
)
|
|
$
|
269,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
42
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,133
|
|
|
$
|
24,111
|
|
|
$
|
23,197
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
28,750
|
|
|
|
4,347
|
|
|
|
3,028
|
|
Net gains on loans
|
|
|
(2,624
|
)
|
|
|
(2,943
|
)
|
|
|
(2,250
|
)
|
Net losses (gains) on other assets
|
|
|
1,039
|
|
|
|
|
|
|
|
(173
|
)
|
Amortization of premiums and accretion of discounts
|
|
|
3,337
|
|
|
|
3,105
|
|
|
|
2,139
|
|
Depreciation and amortization
|
|
|
3,060
|
|
|
|
2,784
|
|
|
|
2,347
|
|
Federal Home Loan Bank stock dividends
|
|
|
|
|
|
|
(1,426
|
)
|
|
|
(1,164
|
)
|
Decrease (increase) in interest receivable
|
|
|
626
|
|
|
|
(1,650
|
)
|
|
|
(2,608
|
)
|
Increase in interest payable
|
|
|
4,995
|
|
|
|
220
|
|
|
|
1,533
|
|
(Increase) decrease in prepaid and other assets
|
|
|
(2,862
|
)
|
|
|
316
|
|
|
|
(4,273
|
)
|
(Decrease) increase in other liabilities
|
|
|
(12,931
|
)
|
|
|
209
|
|
|
|
412
|
|
Decrease in trading securities
|
|
|
5,765
|
|
|
|
26
|
|
|
|
21,504
|
|
Decrease (increase) in margin accounts
|
|
|
|
|
|
|
15,705
|
|
|
|
(854
|
)
|
Net principal disbursed on loans held for sale
|
|
|
(205,994
|
)
|
|
|
(219,924
|
)
|
|
|
(154,873
|
)
|
Proceeds from sale of loans held for sale
|
|
|
224,632
|
|
|
|
225,126
|
|
|
|
224,200
|
|
ESOP compensation
|
|
|
2,659
|
|
|
|
3,618
|
|
|
|
3,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
54,585
|
|
|
|
53,624
|
|
|
|
115,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from principal repayments and maturities of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
58,734
|
|
|
|
44,766
|
|
|
|
51,100
|
|
Proceeds from sale of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
16,899
|
|
|
|
|
|
|
|
20,883
|
|
Commercial loan participations
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
Nonperforming loans
|
|
|
|
|
|
|
210
|
|
|
|
6,173
|
|
Premises and equipment
|
|
|
|
|
|
|
531
|
|
|
|
169
|
|
Real estate owned and other repossessed assets
|
|
|
6,035
|
|
|
|
4,059
|
|
|
|
3,999
|
|
Purchases of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
(80,491
|
)
|
|
|
(79,445
|
)
|
|
|
(80,301
|
)
|
Principal disbursed on loans, net of repayments
|
|
|
80,922
|
|
|
|
31,818
|
|
|
|
(46,836
|
)
|
Loans purchased
|
|
|
(184,892
|
)
|
|
|
(198,229
|
)
|
|
|
(286,653
|
)
|
Purchases of premises and equipment
|
|
|
(5,364
|
)
|
|
|
(4,676
|
)
|
|
|
(5,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from investing activities
|
|
|
(108,157
|
)
|
|
|
(200,966
|
)
|
|
|
(335,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in checking, savings and money market
accounts
|
|
|
35,824
|
|
|
|
53,093
|
|
|
|
(82,940
|
)
|
Net increase in certificates of deposit
|
|
|
16,450
|
|
|
|
88,012
|
|
|
|
241,883
|
|
Net increase in advance payments by borrowers for taxes and
insurance
|
|
|
382
|
|
|
|
3,149
|
|
|
|
2,274
|
|
Proceeds from Federal Home Loan Bank advances
|
|
|
737,953
|
|
|
|
671,326
|
|
|
|
702,570
|
|
Repayment of Federal Home Loan Bank advances
|
|
|
(765,953
|
)
|
|
|
(681,622
|
)
|
|
|
(650,376
|
)
|
Net change in repurchase agreements and other
|
|
|
51,022
|
|
|
|
23,297
|
|
|
|
15,066
|
|
Dividends paid
|
|
|
(10,847
|
)
|
|
|
(10,401
|
)
|
|
|
(9,462
|
)
|
Proceeds from exercise of stock options
|
|
|
176
|
|
|
|
878
|
|
|
|
674
|
|
Purchase of treasury stock
|
|
|
(9,709
|
)
|
|
|
(2,298
|
)
|
|
|
(2,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
55,298
|
|
|
|
145,434
|
|
|
|
217,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
1,726
|
|
|
|
(1,908
|
)
|
|
|
(2,736
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
35,637
|
|
|
|
37,545
|
|
|
|
40,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
37,363
|
|
|
$
|
35,637
|
|
|
$
|
37,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
43
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
The accounting policies of United Community Financial Corp.
(United Community), a unitary savings and loan holding company,
The Home Savings and Loan Company of Youngstown, Ohio (Home
Savings), an Ohio chartered savings bank, and Butler Wick Corp.
(Butler Wick), a holding company for (i) an investment
brokerage firm registered with the Securities and Exchange
Commission (SEC) as well as a member of the Financial Industry
Regulatory Authority, Inc. (FINRA) and the Chicago Stock
Exchange and (ii) a state chartered trust company, conform
to accounting principles generally accepted in the United States
of America and prevailing practices within the banking, thrift
and brokerage industries. A summary of the more significant
accounting policies follows.
Nature
of Operations
United Community was incorporated under Ohio law in February
1998 by Home Savings in connection with the conversion of Home
Savings from an Ohio mutual savings and loan association to an
Ohio capital stock savings and loan association (Conversion).
Upon consummation of the Conversion on July 8, 1998, United
Community became the unitary savings and loan holding company
for Home Savings. The business of Home Savings is providing
consumer and business banking service to its market area in Ohio
and western Pennsylvania. At the end of 2007, Home Savings was
doing business through 39 full-service banking branches and 6
loan production offices. Loans and deposits are primarily
generated from the areas where banking branches are located.
Substantially all loans are secured by specific items of
collateral including business assets, consumer assets, and
commercial and residential real estate. Commercial loans are
expected to be repaid from cash flow from operations of
businesses. There are no significant concentrations of loans to
any one industry or customer. However, the customers
ability to repay their loans is dependent on the real estate and
general economic conditions in the market area. Home Savings
derives its income predominantly from interest on loans,
securities, and to a lesser extent, non-interest income. Home
Savings principal expenses are interest paid on deposits,
Federal Home Loan Bank advances, and normal operating costs.
Consistent with internal reporting, Home Savings
operations are reported in one operating segment, which is
banking services. On August 12, 1999, United Community
acquired Butler Wick, the parent company for two wholly owned
subsidiaries: Butler Wick & Co., Inc. and Butler Wick
Trust Company. Butler Wick has 23 office locations
providing a full range of investment alternatives for
individuals, companies and not-for-profit organizations
throughout Ohio, western Pennsylvania and western New York.
Butler Wicks operations are reported in a separate
operating segment, which is investment services. On
December 3, 2007, Home Savings acquired a 51% ownership of
Century Mortgage Funding, LLC, a mortgage brokerage business
located in Florida. The operations of this business are included
in the banking services operating segment.
Basis
of Presentation
The consolidated financial statements include the accounts of
United Community and its subsidiaries. All material
inter-company transactions have been eliminated. Certain prior
period data has been reclassified to conform to current period
presentation.
Use of
Estimates in the Preparation of Financial
Statements
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
based on available information. These estimates and assumptions
affect the amounts reported in the financial statements and the
disclosures provided, and future results could differ. The
allowance for loan losses, fair value of financial instruments,
fair value of servicing rights, fair value of other real estate
owned and other repossessed assets, carrying value of goodwill
and core deposit intangible assets, and status of contingencies
are particularly subject to change.
Securities
Securities are classified as available for sale or trading upon
their acquisition. Securities are classified as available for
sale when they might be sold before maturity. Securities
available for sale are carried at estimated fair
44
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
value with the unrealized holding gain or loss reported in other
comprehensive income. Securities classified as trading are held
principally for resale in the near term and are recorded at fair
market value with any changes in fair value included in income.
Quoted market prices are used to determine the fair value of
trading securities. Restricted securities such as Federal Home
Loan Bank stock are carried at cost. Interest income includes
amortization of purchase premium or discount on debt securities.
Premiums or discounts are amortized on the level-yield method
without anticipating prepayments. Gains and losses on sales are
recorded on the trade date and are based on the amortized cost
of the individual security sold.
Securities are written down to fair value when a decline in fair
value is other-than-temporary. Declines in the fair value of
securities below their cost that are other-than-temporary are
reflected as realized losses. In estimating other-than-temporary
losses, management considers: (1) the length of time and
extent that fair value has been less than cost, (2) the
financial condition and near term prospects of the issuer, and
(3) the ability and intent to hold the security for a
period sufficient to allow for any anticipated recovery in fair
value.
Loans
Held for Sale
Loans held for sale consist of residential mortgage loans
originated for sale and other loans which have been identified
for sale. These loans are carried on the books at the lower of
cost or fair market value, determined in the aggregate.
Loans
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at
the outstanding principal balance, net of deferred loan fees and
costs, and an allowance for loan losses. Interest income is
accrued on the unpaid principal balance. Loan origination fees,
net of certain direct origination costs, are deferred and
recognized in interest income using the level-yield method
without anticipating prepayments.
Interest income includes amortization of net deferred loan fees
and costs over the loan term. Interest income on mortgage and
commercial loans is discontinued at the time the loan is
90 days delinquent unless the loan is well secured and in
process of collection. Consumer loans are typically charged off
no later than 180 days past due. Past due status is based
on the contractual terms of the loan. In all cases, loans are
placed on nonaccrual or charged-off at an earlier date if
collection of principal or interest is considered doubtful.
All interest accrued but not received for loans placed on
nonaccrual is reversed against interest income. Nonaccrual loans
are comprised principally of loans 90 days past due as well
as certain loans which are less than 90 days past due, but
where serious doubt exists as to the ability of the borrowers to
comply with the repayment terms. Interest received on such loans
is accounted for on the cash-basis or cost-recovery method,
until qualifying for return to accrual. Loans are returned to
accrual status when future payments are reasonably assured.
Allowance
for Loan Losses
The allowance for loan losses is a valuation allowance for
probable incurred credit losses. Loan losses are charged against
the allowance when management believes the uncollectablilty of a
loan balance is confirmed. Subsequent recoveries, if any, are
credited to the allowance. Management estimates the allowance
balance required based on an analysis using past loan loss
experience, the nature and volume of the portfolio, information
about specific borrower situations, estimated collateral values,
general economic conditions in the market area and other
factors. Allocations of the allowance may be made for specific
loans, but the entire allowance is available for any loan that,
in managements judgment, should be charged-off.
The allowance consists of specific and general components. The
specific component relates to loans that are individually
classified as impaired. The general component covers pools of
other loans and is based on historical loss experience adjusted
for current factors.
45
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
A loan is considered impaired when, based on current information
and events, it is probable that United Community will be unable
to collect the scheduled payments of principal or interest when
due according to the contractual terms of the loan agreement.
Factors considered by management in determining impairment
include payment status, collateral value, and the probability of
collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment
shortfalls on a
case-by-case
basis, taking into consideration all of the facts and
circumstances surrounding the loan 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 for commercial and construction loans by either the
present value of expected future cash flows discounted at the
loans effective interest rate or the fair value of the
collateral if the loan is collateral dependent. Large groups of
smaller balance homogeneous loans are collectively evaluated for
impairment.
Servicing
Assets
Servicing assets are recognized as separate assets when rights
are acquired through purchase or sale of financial assets. For
sales of mortgage loans prior to January 1, 2007, a portion
of the cost of the loan was allocated to the servicing right
based on relative fair values. The Company adopted
SFAS No. 156 on January 1, 2007, and for sales of
mortgage loans beginning in 2007, servicing rights are initially
recorded at fair value with the income statement effect recorded
in gains on sales of loans. Fair value is based on market prices
for comparable mortgage servicing contracts, when available, or
alternatively, is based on a valuation model that calculates the
present value of estimated future net servicing income. The
valuation model incorporates assumptions that market
participants would use in estimating future net servicing
income, such as the cost to service, discount rate, the
custodial earnings rate, an inflation rate, ancillary income,
prepayment speeds and default rates and losses. Capitalized
servicing rights are reported in other assets and are amortized
into non-interest income in proportion to, and over the period
of, the estimated future net servicing income of the underlying
assets.
Servicing assets are evaluated for impairment based upon the
fair value of the rights as compared to amortized cost.
Impairment is determined by stratifying rights into tranches
based on predominant risk characteristics, such as original
maturity, interest rate and loan type. Impairment is recognized
through a valuation allowance for an individual tranche. If
United Community later determines that all or a portion of the
impairment no longer exists for a particular tranche, a
reduction of the allowance may be recorded as an increase to
income.
Servicing fee income is recorded for fees earned for servicing
loans. The fees are based on a contractual percentage of the
outstanding principal, or a fixed amount per loan, and are
recorded as income when earned. The amortization of mortgage
servicing rights is netted against loan servicing fee income.
Premises
and Equipment
Land is carried at cost. Premises and equipment are stated at
cost less accumulated depreciation and amortization. Buildings
and related components are depreciated and amortized using the
straight-line method over the useful lives, generally ranging
from 20 years to 40 years, (or term of the lease, if
shorter) of the related assets. Furniture and fixtures are
depreciated using the straight-line method with useful lives
ranging from 3 to 5 years.
Real
Estate Owned and Other Repossessed Assets
Real estate owned, including property acquired in settlement of
foreclosed loans, is carried at fair value less estimated cost
to sell after foreclosure, establishing a new cost basis. If
fair value declines after acquisition, a valuation allowance is
recorded through expense. Costs relating to the development and
improvement of real estate owned are capitalized, whereas costs
relating to holding and maintaining the property are charged to
expense. Other repossessed assets are carried at the lower of
cost or estimated fair value less estimated cost to sell after
acquisition.
46
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
Goodwill
and Core Deposit Intangible
Goodwill results from business acquisitions and represents the
excess of the purchase price over the fair value of acquired
tangible assets and liabilities and identifiable intangible
assets. Goodwill is assessed at least annually for impairment
and any such impairment will be recognized in the period
identified.
Core deposit intangible assets arose from whole bank
acquisitions. They are initially measured at fair value and then
are amortized on an accelerated method over their estimated
useful lives.
Cash
Surrender Value of Life Insurance
Life insurance is carried on the lives of certain employees
where Home Savings is the beneficiary. The life insurance is
recorded at its cash surrender value, or the amount currently
realizable. Increases in the Home Savings policy cash
surrender value are tax exempt and death benefit proceeds
received by Home Savings are tax-free. Income from these
policies and changes in the cash surrender value are recorded in
other income.
Long-term
Assets
Premises and equipment and other long term assets
are reviewed for impairment when events indicate their carrying
amounts may not be recoverable from future undiscounted cash
flows. If impaired, the assets are recorded at fair value.
Loan
Fees
Loan origination fees received for loans, net of direct
origination costs, are deferred and amortized to interest income
over the contractual lives of the loans using the level yield
method. Fees received for loan commitments that are expected to
be drawn, based on Home Savings experience with similar
commitments, are deferred and amortized over the lives of the
loans using the level-yield method. Fees for other loan
commitments are deferred and amortized over the loan commitment
period on a straight-line basis. Unamortized deferred loan fees
or costs related to loans paid off are included in income.
Unamortized net fees or costs on loans sold are included in the
basis of the loans in calculating gains and losses. Amortization
of net deferred fees is discontinued for loans that are deemed
to be nonperforming.
Commissions
and Service Fees
Commissions are recognized when earned which is generally the
settlement date of the security. Service fees are assessed to
customer accounts on a regular basis. Trust fees are recognized
in income on the accrual basis. Fees are assessed to customer
accounts on a regularly scheduled basis and are generally based
on the value of the assets under management.
Stock
Compensation
On January 1, 2006, the Company adopted Statements of
Financial Accounting Standards (SFAS) No. 123(R) (revised
version of SFAS No. 123) which requires
measurement of compensation cost for all stock-based awards
based on the fair value on the grant-date and recognition of
compensation cost over the requisite service period of
stock-based awards, which is usually the same as the period over
which the award vests. As a result, the fair value of any future
stock options will be determined using the Black-Scholes
valuation model. The Company has adopted SFAS 123(R) using
the modified prospective method, which provides for no
retroactive application to prior periods and no cumulative
adjustment to equity accounts. It also provides for expense
recognition for new stock-based awards, as the required services
are rendered. SFAS No. 123(R) also amends
SFAS No. 95, Statement of Cash Flows, and
requires tax benefits relating to excess stock-based
compensation deductions to be presented in the statement of cash
flows as financing cash inflows.
The adoption of SFAS 123(R) had no effect on reported
amounts for the years ended December 31, 2006 or 2007,
because there were no options granted and all previous awards
were vested at the date of adoption.
47
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
Income
Taxes
Deferred income taxes, which result from temporary differences
in the recognition of income and expense for financial statement
and tax return purposes, are included in the calculation of
income tax expense. The effect on deferred tax assets and
liabilities of a change in income tax rates is recognized in
income in the period that includes the enactment date.
Deferred income tax assets and liabilities are recorded for
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to periods in which the differences are expected to
affect taxable income. Valuation allowances are established,
based on the weight of available evidence, when it is more
likely than not that some portion or all of the deferred tax
asset will not be realized. Income tax expense is the tax
payable or refundable for the period adjusted for the change
during the period in deferred tax assets and liabilities.
The Company adopted FASB Interpretation 48, Accounting for
Uncertainty in Income Taxes (FIN 48), as of
January 1, 2007. A tax position is recognized as a benefit
only if it is more likely than not that the tax
position would be sustained in a tax examination, with a tax
examination being presumed to occur. The amount recognized is
the largest amount of tax benefit that is greater than 50%
likely of being realized on examination. For tax positions not
meeting the more likely than not test, no tax
benefit is recorded. The adoption had no affect on the
Companys financial statements.
The Company recognizes interest related to income tax matters as
interest expense and penalties related to income tax matters as
other expense. The Company did not have any amounts accrued for
interest and penalties at January 1, 2007 or
December 31, 2007.
Employee
Stock Ownership Plan
The cost of shares issued to the Employee Stock Ownership Plan
(ESOP), but not yet allocated to participants, is shown as a
reduction of shareholders equity. Compensation expense is
based on the market price of shares as they are committed to be
released to participant accounts. Dividends on allocated ESOP
shares reduce retained earnings; dividends on unearned ESOP
shares reduce debt and accrued interest.
Earnings
Per Share
Basic earnings per share (EPS) are based on the weighted average
number of common shares outstanding during the year. Diluted EPS
are based on the weighted average number of common shares and
common share equivalents outstanding during the year. Unearned
ESOP shares are not considered outstanding for this calculation.
See further discussion at Note 20.
Statements
of Cash Flows
For purposes of the statement of cash flows, United Community
considers all highly liquid investments with a term of three
months or less to be cash equivalents. Net cash flows are
reported for loan and deposit transactions, trading securities,
margin accounts, short-term borrowings and advance payments by
borrowers for taxes and insurance.
Loss
Contingencies
Loss contingencies, including claims and legal actions arising
in the ordinary course of business, are recorded as liabilities
when the likelihood of loss is probable and an amount or range
of loss can be reasonably estimated. See further discussion at
Note 11.
48
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
Fair
Value of Financial Instruments
Fair values of financial instruments are estimated using
relevant market information and other assumptions, as more fully
disclosed in Note 16. Fair value estimates involve
uncertainties and matters of significant judgment regarding
interest rates, credit risk, prepayments, and other factors,
especially in the absence of broad markets for particular items.
Changes in assumptions or in market conditions could
significantly affect the estimates.
Comprehensive
Income
Comprehensive income consists of net income and unrealized gains
and losses on securities available for sale and changes in
unrealized gains and losses on postretirement liabilities, which
are also recognized as separate components of equity.
Commission
Revenue and Expense
Securities transactions and related commission revenue and
expense are recorded on trade date.
Off
Balance Sheet Financial Instruments
Financial instruments include off-balance sheet credit
instruments, such as commitments to make loans and commercial
letters of credit, issued to meet customer financing needs. The
face amount for these items represents the exposure to loss,
before considering customer collateral or ability to repay. Such
financial instruments are recorded when they are funded.
New
Accounting Standards
In March 2006, the FASB issued SFAS No. 156,
Accounting for Servicing of Financial Assets
An Amendment of SFAS No. 140, which changes the
accounting for all loan servicing rights which are recorded as
the result of selling a loan where the seller undertakes an
obligation to service the loan, usually in exchange for
compensation. SFAS No. 156 amends current accounting
guidance by permitting the servicing right to be recorded
initially at fair value and also permits the subsequent
reporting of these assets at fair value. SFAS No. 156
is effective beginning January 1, 2007. The adoption of
this standard did not have a material impact on the
Companys financial statements.
In September 2006, the FASB Emerging Issues Task Force finalized
Issue
No. 06-5,
Accounting for Purchases of Life Insurance
Determining the Amount That Could Be Realized in Accordance with
FASB Technical
Bulletin No. 85-4
(Accounting for Purchases of Life Insurance). This issue
requires that a policyholder consider contractual terms of a
life insurance policy in determining the amount that could be
realized under the insurance contract. It also requires that if
the contract provides for a greater surrender value if all
individual policies in a group are surrendered at the same time,
that the surrender value be determined based on the assumption
that policies will be surrendered on an individual basis.
Lastly, the issue discusses whether the cash surrender value
should be discounted when the policyholder is contractually
limited in its ability to surrender a policy. This issue is
effective for fiscal years beginning after December 15,
2006. The adoption of this issue did not have a material impact
on United Communitys financial statements.
Newly
Issued But Not Yet Effective Accounting Standards
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements. This Statement defines fair
value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. This
Statement establishes a fair value hierarchy about the
assumptions used to measure fair value and clarifies assumptions
about risk and the effect of a restriction on the sale or use of
an asset. The standard is effective for fiscal years beginning
after November 15, 2007. The Company does not expect the
impact of this statement to be material.
In February 2007, the FASB issued Statement No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities. The standard provides companies with an option
to report selected financial assets and
49
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
liabilities at fair value and establishes presentation and
disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes
for similar types of assets and liabilities. The new standard is
effective for the Company on January 1, 2008. The Company
did not elect the fair value option for any financial assets or
financial liabilities as of January 1, 2008.
In September 2006, the FASB Emerging Issues Task Force finalized
Issue
No. 06-4,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements. This issue requires that a liability be
recorded during the service period when a split-dollar life
insurance agreement continues after participants
employment or retirement. The required accrued liability will be
based on either the post-employment benefit cost for the
continuing life insurance or based on the future death benefit
depending on the contractual terms of the underlying agreement.
This issue is effective for fiscal years beginning after
December 15, 2007. The Company does not expect the impact
of this issue to be material. At December 31, 2007, United
Community and its subsidiaries owned $24.1 million of bank
owned life insurance.
On November 5, 2007, the SEC issued Staff Accounting
Bulletin No. 109, Written Loan Commitments Recorded
at Fair Value through Earnings (SAB 109).
Previously, SAB 105, Application of Accounting
Principles to Loan Commitments, stated that in measuring the
fair value of a derivative loan commitment, a company should not
incorporate the expected net future cash flows related to the
associated servicing of the loan. SAB 109 supersedes
SAB 105 and indicates that the expected net future cash
flows related to the associated servicing of the loan should be
included in measuring fair value for all written loan
commitments that are accounted for at fair value through
earnings. SAB 105 also indicated that internally-developed
intangible assets should not be recorded as part of the fair
value of a derivative loan commitment, and SAB 109 retains
that view. SAB 109 is effective for derivative loan
commitments issued or modified in fiscal quarters beginning
after December 15, 2007. The Company does not expect the
impact of this bulletin to be material.
Operating
Segments
Internal financial information is primarily reported and
aggregated in two lines of business, banking services and
investment services.
Dividend
Restriction
Banking and broker/dealer regulations require maintaining
certain capital levels and may limit the dividends paid by Home
Savings and Butler Wick to the holding company or by the holding
company to shareholders. See Note 14 for further discussion.
Reclassifications
Some items in the prior year financial statements were
reclassified to conform to the current presentation.
|
|
2.
|
CASH AND
CASH EQUIVALENTS
|
Federal Reserve Board regulations require depository
institutions to maintain certain non-interest bearing reserve
balances. These reserves, which consisted of vault cash at Home
Savings, totaled approximately $11.2 million and
$10.5 million at December 31, 2007 and 2006,
respectively. At year end 2007 and 2006, cash of $60,000 and
$40,000, respectively, has been segregated in a special reserve
bank account for the benefit of customers of Butler Wick under
Rule 15c3-3
of the Securities and Exchange Commission.
50
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
The components of securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government sponsored entities securities
|
|
$
|
84,388
|
|
|
$
|
337
|
|
|
$
|
(126
|
)
|
|
$
|
96,847
|
|
|
$
|
63
|
|
|
$
|
(722
|
)
|
Equity securities
|
|
|
7,064
|
|
|
|
221
|
|
|
|
(494
|
)
|
|
|
7,866
|
|
|
|
641
|
|
|
|
(112
|
)
|
Mortgage-related securities
|
|
|
153,301
|
|
|
|
977
|
|
|
|
(443
|
)
|
|
|
132,818
|
|
|
|
131
|
|
|
|
(1,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
244,753
|
|
|
$
|
1,535
|
|
|
$
|
(1,063
|
)
|
|
$
|
237,531
|
|
|
$
|
835
|
|
|
$
|
(2,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities available for sale by contractual maturity,
repricing or expected call date are shown below:
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Due in one year or less
|
|
$
|
22,342
|
|
Due after one year through five years
|
|
|
19,262
|
|
Due after five years through ten years
|
|
|
42,784
|
|
Mortgage-related securities
|
|
|
153,301
|
|
|
|
|
|
|
Total
|
|
$
|
237,689
|
|
|
|
|
|
|
Since equity securities do not have a contractual maturity, they
are excluded from the table above.
Proceeds, gross realized gains, losses and impairment charges of
available for sale securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Proceeds
|
|
$
|
16,899
|
|
|
$
|
|
|
|
$
|
20,883
|
|
Gross gains
|
|
|
96
|
|
|
|
|
|
|
|
239
|
|
Gross losses
|
|
|
117
|
|
|
|
|
|
|
|
44
|
|
Securities pledged for public funds deposits were approximately
$19.0 million and $17.9 million at December 31,
2007 and 2006, respectively. See further discussion regarding
pledged securities in Note 10.
United Communitys trading securities are carried at fair
value and consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Debt Securities:
|
|
|
|
|
|
|
|
|
US Treasury and government sponsored entities
|
|
$
|
1,054
|
|
|
$
|
1,296
|
|
State and municipal obligations
|
|
|
3,636
|
|
|
|
8,606
|
|
Corporate bonds, debentures and notes
|
|
|
62
|
|
|
|
258
|
|
Mutual funds
|
|
|
312
|
|
|
|
626
|
|
|
|
|
|
|
|
|
|
|
Total trading securities
|
|
$
|
5,064
|
|
|
$
|
10,786
|
|
|
|
|
|
|
|
|
|
|
51
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
Securities available for sale in a continuous unrealized loss
position are as follows at December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
(In thousands)
|
|
|
Description of securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government sponsored entities
|
|
$
|
7,734
|
|
|
$
|
(12
|
)
|
|
$
|
22,844
|
|
|
$
|
(114
|
)
|
|
$
|
30,578
|
|
|
$
|
(126
|
)
|
Equity securities
|
|
|
1,228
|
|
|
|
(473
|
)
|
|
|
92
|
|
|
|
(21
|
)
|
|
|
1,320
|
|
|
|
(494
|
)
|
Mortgage-related securities
|
|
|
12
|
|
|
|
|
|
|
|
36,569
|
|
|
|
(443
|
)
|
|
|
36,581
|
|
|
|
(443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
8,974
|
|
|
$
|
(485
|
)
|
|
$
|
59,505
|
|
|
$
|
(578
|
)
|
|
$
|
68,479
|
|
|
$
|
(1,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale in an unrealized loss position are
as follows at December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or More
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
(In thousands)
|
|
|
Description of securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government sponsored entities
|
|
$
|
7,461
|
|
|
$
|
(44
|
)
|
|
$
|
65,621
|
|
|
$
|
(678
|
)
|
|
$
|
73,082
|
|
|
$
|
(722
|
)
|
Equity securities
|
|
|
1,342
|
|
|
|
(112
|
)
|
|
|
|
|
|
|
|
|
|
|
1,342
|
|
|
|
(112
|
)
|
Mortgage-related
|
|
|
15,205
|
|
|
|
(72
|
)
|
|
|
83,504
|
|
|
|
(1,798
|
)
|
|
|
98,709
|
|
|
|
(1,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
24,008
|
|
|
$
|
(228
|
)
|
|
$
|
149,125
|
|
|
$
|
(2,476
|
)
|
|
$
|
173,133
|
|
|
$
|
(2,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of the government sponsored entities and mortgage related
securities that are temporarily impaired at December 31,
2007, 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. The two equity securities that have been
impaired longer than a year are investments in common stock of
regional financial institutions. These institutions continue to
report strong capital ratios and a reasonable level of
nonperforming loans. Management believes that the two have been
temporarily impaired as a result of the downturn in the
financial sector and that this will be a temporary situation.
Management has the intent and ability to hold these investments
for the foreseeable future.
52
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
Portfolio loans consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
One- to four-family residential
|
|
$
|
871,019
|
|
|
$
|
854,829
|
|
Multi-family residential
|
|
|
179,535
|
|
|
|
163,541
|
|
Non-residential
|
|
|
359,070
|
|
|
|
348,528
|
|
Land
|
|
|
22,818
|
|
|
|
26,684
|
|
Construction:
|
|
|
|
|
|
|
|
|
One- to four-family residential
|
|
|
357,153
|
|
|
|
388,926
|
|
Multi-family and non-residential
|
|
|
25,191
|
|
|
|
25,215
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
1,814,786
|
|
|
|
1,807,723
|
|
Consumer
|
|
|
349,447
|
|
|
|
345,607
|
|
Commercial
|
|
|
103,208
|
|
|
|
116,952
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
2,267,441
|
|
|
|
2,270,282
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
32,006
|
|
|
|
16,955
|
|
Deferred loan fees, net
|
|
|
(1,553
|
)
|
|
|
(232
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
30,453
|
|
|
|
16,723
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
2,236,988
|
|
|
$
|
2,253,559
|
|
|
|
|
|
|
|
|
|
|
Loan commitments are agreements to lend to a customer as long as
there is no violation of any condition established in the
contract. Commitments extend over various periods of time with
the majority of such commitments disbursed within a
sixty-day
period. Commitments generally have fixed expiration dates or
other termination clauses, may require payment of a fee and may
expire unused. Commitments to extend credit at fixed rates
expose Home Savings to some degree of interest rate risk. Home
Savings evaluates each customers creditworthiness on a
case-by-case
basis. The type or amount of collateral obtained varies and is
based on managements credit evaluation of the potential
borrower. Home Savings normally has a number of outstanding
commitments to extend credit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
|
|
(In thousands)
|
|
|
Commitments to make loans
|
|
$
|
47,324
|
|
|
$
|
38,822
|
|
|
$
|
49,317
|
|
|
$
|
47,412
|
|
Undisbursed loans in process
|
|
|
5,377
|
|
|
|
234,281
|
|
|
|
18,729
|
|
|
|
204,981
|
|
Unused lines of credit
|
|
|
86,261
|
|
|
|
86,807
|
|
|
|
59,740
|
|
|
|
102,727
|
|
Terms of the commitments in both years extend up to six months,
but are generally less than two months. The fixed rate loan
commitments have interest rates ranging from 5.875% to 18% and
maturities ranging from six months to 30 years.
At December 31, 2007 and 2006, there were $7.2 million
and $18.1 million, respectively, of outstanding standby
letters of credit. These are issued to guarantee the performance
of a customer to a third party. Standby letters of credit are
generally contingent upon the failure of the customer to perform
according to the terms of an underlying contract with the third
party.
53
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
At December 31, 2007, there were $40.1 million
outstanding commitments to fund the
OverdraftPrivledgetm
Program at Home Savings.
Home Savings business activity is principally with
customers located in Ohio. Except for residential loans in Home
Savings market area, Home Savings has no other significant
concentrations of credit risk.
Changes in the allowance for loan losses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Balance, beginning of year
|
|
$
|
16,955
|
|
|
$
|
15,723
|
|
|
$
|
15,877
|
|
Provision for loan losses
|
|
|
28,750
|
|
|
|
4,347
|
|
|
|
3,028
|
|
Amounts charged off
|
|
|
(14,220
|
)
|
|
|
(3,438
|
)
|
|
|
(4,085
|
)
|
Recoveries
|
|
|
521
|
|
|
|
323
|
|
|
|
903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
32,006
|
|
|
$
|
16,955
|
|
|
$
|
15,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans were $97.5 million, $52.6 million and
$24.3 million at December 31, 2007, 2006 and 2005,
respectively. Restructured loans were $2.3 million,
$1.4 million and $825,000 at December 31, 2007, 2006
and 2005. Loans that are greater than ninety days past due and
still accruing were $1.2 million at December 31, 2007,
$796,000 at December 31, 2006, and $563,000 at
December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or For the Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Impaired loans on which no specific valuation allowance was
provided
|
|
$
|
30,475
|
|
|
$
|
28,329
|
|
|
$
|
13,119
|
|
Impaired loans on which specific valuation allowance was provided
|
|
|
53,902
|
|
|
|
14,217
|
|
|
|
4,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans at year-end
|
|
$
|
84,377
|
|
|
$
|
42,546
|
|
|
$
|
17,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific valuation allowances on impaired loans at year-end
|
|
|
13,165
|
|
|
|
2,841
|
|
|
|
667
|
|
Average impaired loans during year
|
|
|
63,468
|
|
|
|
23,617
|
|
|
|
15,209
|
|
Interest income recognized on impaired loans during the year
|
|
|
348
|
|
|
|
372
|
|
|
|
386
|
|
Interest income received on impaired loans during the year
|
|
|
348
|
|
|
|
373
|
|
|
|
403
|
|
Directors and officers of United Community, Home Savings and
Butler Wick are customers of Home Savings in the ordinary course
of business. The following describes loans to officers
and/or
directors of United Community, Home Savings and Butler Wick:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Balance as of December 31, 2006
|
|
$
|
1,980
|
|
New loans to officers and/or directors
|
|
|
42
|
|
Loan payments during 2007
|
|
|
(552
|
)
|
Reductions due to changes in officers and/or directors
|
|
|
(191
|
)
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
1,279
|
|
|
|
|
|
|
54
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
|
|
5.
|
MORTGAGE
BANKING ACTIVITIES
|
Mortgage loans serviced for others, which are not reported in
United Communitys assets, totaled $876.1 million and
$861.5 million at December 31, 2007 and 2006.
Activity for capitalized mortgage servicing rights, included in
other assets, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Balance, beginning of year
|
|
$
|
6,820
|
|
|
$
|
6,923
|
|
|
$
|
5,533
|
|
Originations
|
|
|
1,268
|
|
|
|
1,917
|
|
|
|
2,961
|
|
Sale of servicing
|
|
|
|
|
|
|
(323
|
)
|
|
|
|
|
Amortized to expense
|
|
|
(1,904
|
)
|
|
|
(1,697
|
)
|
|
|
(1,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
6,184
|
|
|
$
|
6,820
|
|
|
$
|
6,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of mortgage servicing rights was $8.7 million,
$9.3 million and $10.5 million at December 31,
2007, 2006, and 2005, respectively.
Activity in the valuation allowance for mortgage servicing
rights was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Balance, beginning of year
|
|
$
|
(435
|
)
|
|
$
|
|
|
|
$
|
|
|
Impairment charges
|
|
|
(562
|
)
|
|
|
(435
|
)
|
|
|
|
|
Recoveries
|
|
|
435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
(562
|
)
|
|
$
|
(435
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key economic assumptions used in measuring the value of mortgage
servicing rights at December 31, 2007 and 2006 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Weighted average prepayment rate
|
|
|
272 PSA
|
|
|
|
261 PSA
|
|
Weighted average life (in years)
|
|
|
3.87
|
|
|
|
4.50
|
|
Weighted average discount rate
|
|
|
8
|
%
|
|
|
8
|
%
|
Estimated amortization expense for each of the next five years
is as follows:
|
|
|
|
|
2008
|
|
$
|
1,628
|
|
2009
|
|
|
1,545
|
|
2010
|
|
|
1,204
|
|
2011
|
|
|
761
|
|
2012
|
|
|
394
|
|
Amounts held in custodial accounts for investors amounted to
$9.2 million and $10.0 million at December 31,
2007 and 2006, respectively.
55
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
|
|
6.
|
PREMISES
AND EQUIPMENT
|
Premises and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Land
|
|
$
|
7,691
|
|
|
$
|
7,691
|
|
Buildings
|
|
|
24,170
|
|
|
|
21,068
|
|
Leasehold improvements
|
|
|
1,644
|
|
|
|
1,511
|
|
Furniture and equipment
|
|
|
22,018
|
|
|
|
20,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,523
|
|
|
|
50,348
|
|
Less: Accumulated depreciation and amortization
|
|
|
28,002
|
|
|
|
25,156
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27,521
|
|
|
$
|
25,192
|
|
|
|
|
|
|
|
|
|
|
Rent expense was $1.8 million for 2007, $1.6 million
for 2006 and $1.4 million for 2005. Rent commitments under
noncancelable operating leases for offices were as follows,
before considering renewal options that generally are present:
|
|
|
|
|
|
|
(In thousands)
|
|
|
2008
|
|
$
|
1,558
|
|
2009
|
|
|
1,384
|
|
2010
|
|
|
1,328
|
|
2011
|
|
|
1,281
|
|
2012
|
|
|
911
|
|
Thereafter
|
|
|
767
|
|
|
|
|
|
|
Total
|
|
$
|
7,229
|
|
|
|
|
|
|
|
|
7.
|
GOODWILL
AND INTANGIBLE ASSETS
|
Goodwill
Goodwill was $33.7 million at December 31, 2007, and
$33.6 million at December 31, 2006, and 2005.
$33.6 million relates to acquisitions of The Industrial
Savings and Loan Association in 2001 and Potters Bank in
2002. $121,000 relates to the acquisition of a 51% ownership in
Century Mortgage Funding, LLC, a mortgage brokerage business in
2007.
Acquired
Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
|
(In thousands)
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangibles
|
|
$
|
8,952
|
|
|
$
|
7,783
|
|
|
$
|
8,952
|
|
|
$
|
7,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,952
|
|
|
$
|
7,783
|
|
|
$
|
8,952
|
|
|
$
|
7,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
$
|
285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
Aggregate amortization expense for the years ended
December 31, 2007, 2006 and 2005, was $365,000, $584,000
and $769,000, respectively.
Deposits consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Checking accounts:
|
|
|
|
|
|
|
|
|
Interest bearing
|
|
$
|
94,459
|
|
|
$
|
94,577
|
|
Non-interest bearing
|
|
|
106,449
|
|
|
|
102,509
|
|
Savings accounts
|
|
|
175,464
|
|
|
|
195,331
|
|
Money market accounts
|
|
|
328,272
|
|
|
|
276,403
|
|
Certificates of deposit
|
|
|
1,170,562
|
|
|
|
1,154,115
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
1,875,206
|
|
|
$
|
1,822,935
|
|
|
|
|
|
|
|
|
|
|
Interest expense on deposits is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Interest bearing demand deposits and money market accounts
|
|
$
|
13,907
|
|
|
$
|
10,060
|
|
|
$
|
3,231
|
|
Savings accounts
|
|
|
769
|
|
|
|
900
|
|
|
|
1,201
|
|
Certificates of deposit
|
|
|
53,376
|
|
|
|
47,680
|
|
|
|
33,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
68,052
|
|
|
$
|
58,640
|
|
|
$
|
37,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of certificates of deposit by maturity follows:
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
(In thousands)
|
|
|
Within 12 months
|
|
$
|
956,251
|
|
12 months to 24 months
|
|
|
70,397
|
|
Over 24 months to 36 months
|
|
|
69,774
|
|
Over 36 months to 48 months
|
|
|
37,320
|
|
Over 48 months
|
|
|
36,820
|
|
|
|
|
|
|
Total
|
|
$
|
1,170,562
|
|
|
|
|
|
|
A summary of certificates of deposit with balances of $100,000
or more by maturity is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
(In thousands)
|
|
|
Three months or less
|
|
$
|
58,685
|
|
|
$
|
50,510
|
|
Over three months to six months
|
|
|
62,268
|
|
|
|
67,618
|
|
Over six months to twelve months
|
|
|
97,000
|
|
|
|
90,141
|
|
Over twelve months
|
|
|
52,157
|
|
|
|
67,600
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
270,110
|
|
|
$
|
275,869
|
|
|
|
|
|
|
|
|
|
|
Deposits in excess of $100,000 are not federally insured.
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
57
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
deposits to third parties. Home Savings had brokered deposits of
$39.8 million with a weighted average rate of 5.08% at
December 31, 2007. All brokered deposits mature in 2008.
Home Savings did not have brokered deposits during the year
ended December 31, 2006.
|
|
9.
|
FEDERAL
HOME LOAN BANK ADVANCES
|
The following is a summary of Federal Home Loan Bank advances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Year of Maturity
|
|
Amount
|
|
|
Average Rate
|
|
|
Amount
|
|
|
Average Rate
|
|
|
|
(In thousands)
|
|
|
2007
|
|
|
n/a
|
|
|
|
n/a
|
|
|
$
|
391,957
|
|
|
|
4.98
|
%
|
2008
|
|
$
|
286,408
|
|
|
|
2.59
|
%
|
|
|
22,451
|
|
|
|
3.69
|
|
2009
|
|
|
65,913
|
|
|
|
4.74
|
|
|
|
30,913
|
|
|
|
4.66
|
|
2010
|
|
|
17,387
|
|
|
|
4.95
|
|
|
|
2,387
|
|
|
|
3.54
|
|
2011
|
|
|
5,871
|
|
|
|
4.93
|
|
|
|
5,871
|
|
|
|
4.93
|
|
2012
|
|
|
1,863
|
|
|
|
3.92
|
|
|
|
1,863
|
|
|
|
3.92
|
|
Thereafter
|
|
|
59,811
|
|
|
|
4.14
|
|
|
|
9,811
|
|
|
|
3.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Federal Home Loan Bank advances
|
|
$
|
437,253
|
|
|
|
|
|
|
$
|
465,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Savings has available credit, subject to collateral
requirements, with the Federal Home Loan Bank of approximately
$600 million, of which $437.3 million is outstanding.
Of the $437.3 million, a total of $10.0 million is
callable quarterly and matures in February 2009. All advances
must be secured by eligible collateral as specified by the
Federal Home Loan Bank. Accordingly, United Community has a
blanket pledge of its one- to four-family mortgages and
multi-family loans as collateral for the advances outstanding at
December 31, 2007. The required minimum ratio of collateral
to advances is 167% for one- to four-family loans and 200% for
multi-family loans.
|
|
10.
|
SECURITIES
SOLD UNDER AGREEMENT TO REPURCHASE AND OTHER
BORROWINGS
|
The following is a summary of securities sold under an agreement
to repurchase and other borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Amount
|
|
|
Average Rate
|
|
|
Amount
|
|
|
Average Rate
|
|
|
|
(In thousands)
|
|
|
Securities sold under agreement to repurchase-term
|
|
$
|
112,035
|
|
|
|
4.10
|
%
|
|
$
|
78,182
|
|
|
|
4.00
|
%
|
Other borrowings
|
|
|
37,498
|
|
|
|
7.71
|
|
|
|
20,329
|
|
|
|
6.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total repurchase agreements and other
|
|
$
|
149,533
|
|
|
|
5.01
|
%
|
|
$
|
98,511
|
|
|
|
4.52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase are secured
primarily by mortgage-backed securities with a fair value of
approximately $121.4 million at December 31, 2007 and
$94.1 million at December 31, 2006. Securities sold
under agreements to repurchase are typically held by the
brokerage firm in a wholesale transaction and by an independent
third party when they are for retail customers. At maturity, the
securities underlying the agreements are returned to United
Community. Other borrowings consist primarily of lines of
credit, payables to customers and payables to broker/dealers.
These borrowings, with the exception of a line of credit
mentioned below, have no stated maturity.
Included in other borrowings is a Credit Agreement between JP
Morgan Chase Bank, N.A., and United Community, dated
September 12, 2005, as amended on July 18, 2007 (the
Credit Agreement). The Credit
58
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
Agreement provided United Community with an approved line of
credit of up to $40.0 million, of which United Community
has borrowed $36.3 million. All borrowings under the Credit
Agreement are due on August 31, 2008.
The Credit Agreement sets forth several covenants with which
United Community must comply, including a covenant that United
Community and its subsidiaries shall maintain at the end of each
fiscal quarter a Consolidated Non-Performing Asset
Ratio of not greater than 4.50%. The term
Consolidated Non-Performing Asset Ratio means the
ratio of the sum of Non-Performing Assets plus
OREO, to the sum of Total Loans plus
OREO. As used in the Credit Agreement,
Non-Performing Assets means the sum of all loans
classified as past due 90 days or more and still accruing
interest, all loans classified as non-accrual and no longer
accruing interest, all loans classified as restructured loans
and leases and all other non-performing loans. As of
December 31, 2007, Home Savings Consolidated
Non-Performing Asset Ratio was 4.74%. United Community sought a
waiver of the covenant default, but was advised by JP Morgan
Chase that a waiver would not be granted.
The covenant violation constitutes an Event of
Default under the Credit Agreement. When an Event of
Default occurs, JP Morgan Chase may do any of the following
(1) cease permitting United Community to borrow further
under the line of credit, (2) terminate any outstanding
commitment, (3) declare the amounts outstanding under the
Credit Agreement immediately due and payable without notice of
acceleration, intention to accelerate, presentment and demand or
protest or notice of any kind, (4) exercise all rights of
setoff, (5) institute a default interest rate; or
(6) exercise any other rights it may have at law, in equity
or otherwise. JP Morgan Chase sent United Community written
notification that United Community could not borrow further
funds and that it was now instituting a default rate of interest
equal to one month LIBOR plus 5.25%
On March 28, 2008, United Community and JP Morgan
Chase entered into an amendment to the Credit Agreement (the
Amendment). The Amendment provides, among other
things, that JP Morgan Chase waives all existing defaults
under the credit agreement, the line of credit will not exceed
$36.6 million, and United Community and its subsidiaries shall
maintain at the end of each fiscal quarter beginning on
March 31, 2008 a Consolidated Non-Performing Assets Ratio
of not greater than 6.50%.
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 matters,
management believes any resulting liability would not have a
material effect upon United Communitys financial
statements.
The provision for income taxes consists of the following
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Current
|
|
$
|
9,504
|
|
|
$
|
13,132
|
|
|
$
|
12,396
|
|
Deferred
|
|
|
(7,313
|
)
|
|
|
(132
|
)
|
|
|
(486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,191
|
|
|
$
|
13,000
|
|
|
$
|
11,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
Effective tax rates differ from the statutory federal income tax
rate of 35% due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Dollars
|
|
|
Rate
|
|
|
Dollars
|
|
|
Rate
|
|
|
Dollars
|
|
|
Rate
|
|
|
|
(In thousands)
|
|
|
Tax at statutory rate
|
|
$
|
2,214
|
|
|
|
35.0
|
%
|
|
$
|
12,989
|
|
|
|
35.0
|
%
|
|
$
|
12,287
|
|
|
|
35.0
|
%
|
Increase (decrease) due to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt income
|
|
|
(86
|
)
|
|
|
(1.4
|
)
|
|
|
(88
|
)
|
|
|
(0.2
|
)
|
|
|
(78
|
)
|
|
|
(0.2
|
)
|
Life insurance
|
|
|
(322
|
)
|
|
|
(5.1
|
)
|
|
|
(298
|
)
|
|
|
(0.8
|
)
|
|
|
(288
|
)
|
|
|
(0.8
|
)
|
State taxes
|
|
|
(30
|
)
|
|
|
(0.5
|
)
|
|
|
(143
|
)
|
|
|
(0.4
|
)
|
|
|
(4
|
)
|
|
|
(0.0
|
)
|
Other
|
|
|
415
|
|
|
|
6.6
|
|
|
|
540
|
|
|
|
1.4
|
|
|
|
(7
|
)
|
|
|
(0.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
2,191
|
|
|
|
34.6
|
%
|
|
$
|
13,000
|
|
|
|
35.0
|
%
|
|
$
|
11,910
|
|
|
|
34.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of the deferred tax assets and
liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Loan loss reserves
|
|
$
|
11,202
|
|
|
$
|
5,934
|
|
Postretirement benefits
|
|
|
1,342
|
|
|
|
1,334
|
|
ESOP shares released
|
|
|
1,262
|
|
|
|
1,311
|
|
Compensation accruals
|
|
|
109
|
|
|
|
196
|
|
Unrealized loss on securities available for sale
|
|
|
|
|
|
|
626
|
|
SFAS 158 pension accrual
|
|
|
|
|
|
|
71
|
|
Interest on non-accrual loans
|
|
|
4,041
|
|
|
|
1,795
|
|
Other
|
|
|
174
|
|
|
|
225
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
18,130
|
|
|
|
11,492
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Purchase accounting adjustments
|
|
|
238
|
|
|
|
385
|
|
Deferred loan fees
|
|
|
572
|
|
|
|
113
|
|
Federal Home Loan Bank stock dividends
|
|
|
6,354
|
|
|
|
6,354
|
|
Mortgage servicing rights
|
|
|
1,968
|
|
|
|
2,235
|
|
Unrealized gain on securities available for sale
|
|
|
180
|
|
|
|
|
|
SFAS 158 pension accrual
|
|
|
163
|
|
|
|
|
|
Prepaid expenses
|
|
|
448
|
|
|
|
327
|
|
Other
|
|
|
218
|
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
10,141
|
|
|
|
9,776
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
7,989
|
|
|
$
|
1,716
|
|
|
|
|
|
|
|
|
|
|
Retained earnings at December 31, 2007 include
approximately $21.1 million for which no provision for
federal income taxes has been made. This amount represents the
tax bad debt reserve at December 31, 1987, which is the end
of United Communitys base year for purposes of calculating
the bad debt deduction for tax purposes. If this portion of
retained earnings is used in the future for any purpose other
than to absorb bad debts, the amount used will be added to
future taxable income. The unrecorded deferred tax liability on
the above amount at December 31, 2007 was approximately
$7.3 million.
60
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
The adoption of FIN 48 at January 1, 2007 had no impact on
United Communitys financial statements. As of
January 1, 2007 and December 31, 2007, United
Community had no unrecognized tax benefits or accrued interest
penalties recorded. United Community does not expect the total
amount of unrecognized tax benefits to increase significantly
within the next twelve months. United Community will record
interest and penalties as a component of income tax expense.
United Community and its subsidiaries are subject to US federal
income tax as well as income tax in the state of Ohio for United
Community and Butler Wick Corp. Home Savings, Butler
Wick & Co., and Butler Wick Trust are subject to tax
in Ohio based upon their net worth. United Community and its
subsidiaries also file state income tax returns in Pennsylvania,
Indiana, and Florida. United Community is no longer subject to
examination by taxing authorities for years prior to 2004.
Dividends
United Communitys source of funds for dividends to its
shareholders is earnings on its investments and dividends from
Home Savings and Butler Wick. During the year ended
December 31, 2007, United Community paid regular dividends
in the amount of $10.8 million. While Home Savings
primary regulator is the FDIC, the OTS has regulations that
impose certain restrictions on payments of dividends to United
Community.
Home Savings must file an application with, and obtain approval
from, the OTS (i) if the proposed distribution would cause
total distributions for the calendar year to exceed net income
for that year to date plus retained net income (as defined) for
the preceding two years; (ii) if Home Savings would not be
at least adequately capitalized following the capital
distribution; (iii) if the proposed distribution would
violate a prohibition contained in any applicable statute,
regulation or agreement between Home Savings and the OTS or the
FDIC, or any condition imposed on Home Savings in an
OTS-approved application or notice. If Home Savings is not
required to file an application, it must file a notice of the
proposed capital distribution with the OTS. On December 28,
2007, Home Savings paid a $6.0 million dividend to United
Community. As of December 31, 2007, Home Savings had
$7.8 million of retained earnings that could be distributed
without requiring the prior approval of the OTS.
Other
Comprehensive Income
Other comprehensive income 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 or (losses) on sales
of securities net of tax of $(21,000), $0 and $122,000 for the
years ended December 31, 2007, 2006 and 2005.
Other comprehensive income (loss) components and related tax
effects are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Unrealized holding gain (loss) on securities available for sale
and postretirement benefits
|
|
$
|
3,016
|
|
|
$
|
1,048
|
|
|
$
|
(4,596
|
)
|
Reclassification adjustment for losses (gains) realized in income
|
|
|
5
|
|
|
|
|
|
|
|
(122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains
|
|
|
3,011
|
|
|
|
1,048
|
|
|
|
(4,474
|
)
|
Tax effect (35%)
|
|
|
1,054
|
|
|
|
367
|
|
|
|
(1,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of tax amount
|
|
$
|
1,957
|
|
|
$
|
681
|
|
|
$
|
(2,908
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
The following is a summary of accumulated other comprehensive
income (loss) balances, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Current
|
|
|
Balance at
|
|
|
|
December 31,
|
|
|
Period
|
|
|
December 31,
|
|
|
|
2006
|
|
|
Change
|
|
|
2007
|
|
|
Unrealized gains (losses) on securities available for sale
|
|
$
|
(1,164
|
)
|
|
$
|
1,523
|
|
|
$
|
359
|
|
Unrealized gains (losses) on post-retirement benefits
|
|
|
(132
|
)
|
|
|
434
|
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,296
|
)
|
|
$
|
1,957
|
|
|
$
|
661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidation
Account
At the time of the Conversion, Home Savings established a
liquidation account, totaling $141.4 million, which was
equal to its regulatory capital as of the latest practicable
date prior to the Conversion. In the event of a complete
liquidation, each eligible depositor will be entitled to receive
a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for
the accounts then held.
|
|
14.
|
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 Leverage (or Core) and Tangible capital (as defined in
the regulations) to adjusted total assets (as defined) and of
total capital (as defined) to risk-weighted assets (as defined).
Actual and required capital amounts and ratios for Home Savings
are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
Minimum
|
|
|
Capitalized Under
|
|
|
|
|
|
|
Capital
|
|
|
Prompt Corrective
|
|
|
|
Actual
|
|
|
Requirements
|
|
|
Action Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(In thousands)
|
|
|
Total capital (to risk-weighted assets)
|
|
$
|
259,087
|
|
|
|
11.88
|
%
|
|
$
|
174,635
|
|
|
|
8.00
|
%
|
|
$
|
218,294
|
|
|
|
10.00
|
%
|
Tier 1 capital (to risk-weighted assets)
|
|
|
201,779
|
|
|
|
9.26
|
|
|
|
*
|
|
|
|
*
|
|
|
|
130,976
|
|
|
|
6.00
|
|
Leverage (Tier 1) capital (to adjusted total assets)
|
|
|
201,779
|
|
|
|
7.47
|
|
|
|
108,066
|
|
|
|
4.00
|
|
|
|
135,082
|
|
|
|
5.00
|
|
Tangible capital (to adjusted total assets)
|
|
|
201,779
|
|
|
|
7.47
|
|
|
|
40,525
|
|
|
|
1.50
|
|
|
|
*
|
|
|
|
*
|
|
62
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
|
|
|
Capitalized Under
|
|
|
|
|
|
|
Minimum Capital
|
|
|
Prompt Corrective
|
|
|
|
Actual
|
|
|
Requirements
|
|
|
Action Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(In thousands)
|
|
|
Total capital (to risk-weighted assets)
|
|
$
|
248,445
|
|
|
|
11.70
|
%
|
|
$
|
169,879
|
|
|
|
8.00
|
%
|
|
$
|
212,349
|
|
|
|
10.00
|
%
|
Tier 1 capital (to risk-weighted assets)
|
|
|
201,490
|
|
|
|
9.49
|
|
|
|
*
|
|
|
|
*
|
|
|
|
127,409
|
|
|
|
6.00
|
|
Leverage (Tier 1) capital (to adjusted total assets)
|
|
|
201,490
|
|
|
|
7.68
|
|
|
|
104,196
|
|
|
|
4.00
|
|
|
|
131,207
|
|
|
|
5.00
|
|
Tangible capital (to adjusted total assets)
|
|
|
201,490
|
|
|
|
7.68
|
|
|
|
39,362
|
|
|
|
1.50
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
* |
|
Ratio is not required under regulations. |
As of December 31, 2007 and 2006, the FDIC and OTS,
respectively categorized Home Savings as well capitalized under
the regulatory framework for Prompt Corrective Action. There are
no conditions or events since that notification that management
believes have changed Home Savings categorization. To be
categorized as well capitalized, Home Savings must maintain
minimum Leverage, Tier 1 and total capital ratios as set
forth in the table above.
Management believes, as of December 31, 2007, that Home
Savings meets all capital requirements to which it is subject.
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.
Butler, Wick & Co., Inc. is subject to regulatory
capital requirements set forth by the Securities and Exchange
Commissions Uniform Net Capital Rule. Butler,
Wick & Co., Inc. has elected to use the alternative
method, permitted by rule, which requires Butler,
Wick & Co., Inc. to maintain minimum net capital, as
defined, equal to the greater of $250,000 or 2% of aggregate
debit balances arising from customer transactions, as defined.
The Net Capital Rule also provides that equity capital may not
be withdrawn or cash dividends paid if resulting net capital
would be less than 5% of aggregate debits. At December 31,
2007, Butler Wick had net capital of $6.1 million, and
$5.9 million in excess of required minimum net capital.
Postretirement
Benefit Plans
In addition to Home Savings retirement plans, Home
Savings sponsors a defined benefit health care plan that was
curtailed in 2000 to provide postretirement medical benefits for
employees who worked 20 years and attained a minimum age of
60 by September 1, 2000, while in service with Home
Savings. The plan is unfunded and, as such, has no assets.
Furthermore, 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
63
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
monthly, with no pre-funding. The benefit obligation was
measured on December 31, 2007 and 2006. Information about
changes in obligations of the benefit plan follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Change in Benefit Obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
4,015
|
|
|
$
|
4,158
|
|
Service cost
|
|
|
|
|
|
|
2
|
|
Interest cost
|
|
|
221
|
|
|
|
221
|
|
Actuarial (gain)/loss
|
|
|
(668
|
)
|
|
|
(89
|
)
|
Benefits paid
|
|
|
(198
|
)
|
|
|
(277
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of the year
|
|
$
|
3,370
|
|
|
$
|
4,015
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plan
|
|
$
|
(3,370
|
)
|
|
$
|
(4,015
|
)
|
Amounts recognized in accumulated other comprehensive income at
December 31, 2007 and 2006 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
The Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net gains (losses)
|
|
$
|
302
|
|
|
$
|
(135
|
)
|
Prior service credit (cost)
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
302
|
|
|
$
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost/(gain) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
1
|
|
Interest cost
|
|
|
222
|
|
|
|
221
|
|
|
|
215
|
|
Expected return on plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amortization of prior service cost
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
Recognized net actuarial gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost/(gain)
|
|
|
221
|
|
|
|
222
|
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (gain)
|
|
|
665
|
|
|
|
|
|
|
|
|
|
Prior service cost (credit)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive income
|
|
|
668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and other
comprehensive income
|
|
$
|
889
|
|
|
$
|
222
|
|
|
$
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used in the valuations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
5.75
|
%
|
|
|
5.75
|
%
|
|
|
5.50
|
%
|
The weighted-average annual assumed rate of increase in the per
capita cost of coverage benefits (i.e., health care cost trend
rate) used in the 2007 valuation was 10% and was assumed to
decrease to 5.0% for the year 2014 and remain at that level
thereafter. The health care cost trend rate assumption has a
significant effect on the amounts
64
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
reported. A one-percentage point change in assumed health care
cost trend rates would have the following effects as of
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
1 Percentage
|
|
1 Percentage
|
|
|
Point Increase
|
|
Point Decrease
|
|
|
(In thousands)
|
|
Effect on total of service and interest cost components
|
|
$
|
14
|
|
|
$
|
(14
|
)
|
Effect on the postretirement benefit obligation
|
|
|
221
|
|
|
|
(215
|
)
|
United Community anticipates benefits payable over the next ten
years as follows:
|
|
|
|
|
|
|
In thousands
|
|
|
2008
|
|
$
|
290
|
|
2009
|
|
|
299
|
|
2010
|
|
|
306
|
|
2011
|
|
|
309
|
|
2012
|
|
|
308
|
|
2013-2017
|
|
|
1,428
|
|
|
|
|
|
|
Total
|
|
$
|
2,940
|
|
|
|
|
|
|
401(k)
Savings Plan
Home Savings sponsors a defined contribution 401(k) savings
plan, which covers substantially all employees. Under the
provisions of the plan, Home Savings matching contribution
is discretionary and may be changed from year to year. For 2007,
2006 and 2005, Home Savings match was 50% of pre-tax
contributions, up to a maximum of 6% of the employees base
pay. Participants become 100% vested in Home Savings
contributions upon completion of three years of service. For the
years ended 2007, 2006 and 2005, the expense related to this
plan was approximately $531,000, $532,000 and $481,000,
respectively.
Butler Wick also sponsors a defined contribution 401(k) savings
plan and a profit sharing plan, which covers substantially all
employees. Under the provisions of the plan, Butler Wicks
matching contribution is discretionary and may be changed from
year to year. For 2007, 2006 and 2005, Butler Wicks match
was 25% of pre-tax contributions, up to a maximum of 6% of the
employees base pay. Participants become 100% vested in
Butler Wick contributions upon completion of six years of
service. For the years ended 2007, 2006 and 2005, the expense
related to this plan was approximately $200,000, $174,000 and
$168,000, respectively.
Employee
Stock Ownership Plan
In conjunction with the Conversion, United Community established
an Employee Stock Ownership Plan (ESOP) for the benefit of the
employees of United Community and Home Savings. All full-time
employees who meet certain age and years of service criteria are
eligible to participate in the ESOP. The ESOP is a tax-qualified
retirement plan designed to invest primarily in the stock of
United Community. The ESOP borrowed $26.8 million from
United Community to purchase 2,677,250 shares in
conjunction with the conversion. The term of the loan is
15 years and is being repaid primarily with contributions
from Home Savings to the ESOP. Additionally,
1,598,810 shares were purchased with the return of capital
distribution in 1999.
The loan is collateralized by the shares of common stock held by
the ESOP. As the note is repaid, shares are released from
collateral based on the proportion of the payment in relation to
total payments required to be made on the loan. The shares
released from collateral are then allocated to participants on
the basis of compensation as described in the plan. Compensation
expense is determined by multiplying the average per share
market price of United Communitys stock during the period
by the number of shares to be released. United Community
recognized approximately $2.7 million, $3.6 million
and $3.3 million in compensation expense for the years
ended December 31, 2007, 2006 and 2005, respectively,
related to the ESOP. Unallocated shares are considered neither
65
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
outstanding shares for computation of basic earnings per share
nor potentially dilutive securities for computation of diluted
earnings per share. Dividends on unallocated ESOP shares are
reflected as a reduction in the loan (and Home Savings
contribution is reduced accordingly). During the years ended
December 31, 2007, 2006 and 2005, 294,802 shares were
released or committed to be released for allocation for each of
these years. Shares remaining not released or committed to be
released for allocation at December 31, 2007 totaled
1,531,753 and had a market value of approximately
$8.5 million.
Retention
Plan
In connection with the Butler Wick acquisition in 1999, United
Community established and funded a $3.7 million retention
plan into a Rabbi Trust. Participants in the retention plan
became vested in their benefits after five years of service.
Retention plan expense, including fair value adjustments related
to the assets in the Rabbi Trust, was $57,000, $98,000, and
$145,000 for 2007, 2006, and 2005.
Participants in the plan were permitted to select various mutual
funds into which participants could direct their investments.
Each participant was able to select up to four of these mutual
funds in order to diversify his or her allocations, and was
permitted to make changes in fund selections periodically.
Participants were permitted to elect a lump sum distribution at
vesting, or a distribution in equal annual installments over a
period of time not to exceed five years. To the extent that the
participant elected to be paid in installments, his or her
account will continue to be credited with investment gains and
debited with investment losses until his or her full investment
is distributed from the plan. United Community accrued the
deferred compensation obligation prorata over the vesting period
through a charge to compensation expense. Plan assets are
included in trading securities in United Communitys
financial statements and are recorded at fair value. Until the
final distribution is made, United Community will continue to
record income or expense as the market value of the remaining
plan assets and corresponding liability to participants
fluctuates. Plan assets amounted to $312,000 and $559,000 at
December 31, 2007 and 2006, respectively.
Long-Term
Incentive Plan
On July 12, 1999, shareholders approved the United
Community Financial Corp. 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 and Butler Wick, by
facilitating their purchase of an ownership interest in United
Community.
The 1999 Plan provides for the grant of options, which may
qualify as either incentive or nonqualified stock options. The
plan provides that option prices will not be less than the fair
market value of the stock at the grant date. The maximum number
of common shares that may be issued under the plan is 3,471,562,
all of which were granted prior to December 31, 2004. All
of the options awarded became exercisable on the date of grant.
The option period expires 10 years from the date of grant.
A summary of activity in the plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2007
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregate Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Value
|
|
|
Outstanding at beginning of year
|
|
|
2,068,558
|
|
|
$
|
9.63
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(24,702
|
)
|
|
|
7.12
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
2,043,856
|
|
|
$
|
9.66
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period
|
|
|
2,043,856
|
|
|
$
|
9.66
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
Information related to the stock option plan during each year
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Intrinsic value of options exercised
|
|
$
|
99
|
|
|
$
|
512
|
|
|
$
|
381
|
|
Cash received from option exercises
|
|
|
176
|
|
|
|
878
|
|
|
|
674
|
|
Tax benefit realized from option exercises
|
|
|
12
|
|
|
|
141
|
|
|
|
127
|
|
Weighted average fair value of options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding stock options have a weighted average remaining life
of 5.03 years and may be exercised in the range of $6.66 to
$12.73.
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 and is to be used for awards of restricted
stock shares, stock options, performance awards, stock
appreciation rights (SARs), or other forms of stock-based
incentive awards. No awards have been granted under the 2007
Plan in 2007.
Employee
Stock Purchase Plan
During 2005, United Community established an employee stock
purchase plan (ESPP). Under this plan, United Community provides
employees of Home Savings and Butler Wick the opportunity to
purchase United Community Financial Corporations common
shares through payroll deduction. Participation in the plan is
voluntary and payroll deductions are made on an after-tax basis.
The maximum amount an employee can have deducted is nine hundred
dollars per biweekly pay. Shares are purchased on the open
market and administrative fees are paid by United Community.
Expense related to this plan is a component of the Shareholder
Dividend Reinvestment Plan and the expense recognized is
considered immaterial.
Deferred
Compensation Plan
Butler Wick Corp. sponsors a non-qualified deferred compensation
plan for certain employees of Butler, Wick & Co., Inc.
and Butler Wick Trust Company. Under the terms of the plan,
employees can defer a portion of their compensation on a pre-tax
basis. Butler Wick Corp. has established a Rabbi Trust in which
to fund employee deferrals. Deferred amounts accumulate on a
tax-free basis until paid to employees participating, at which
time they become fully taxable. The plan was established in 2006
and employees deferred $252,000 in 2007 and $281,000 in 2006.
Butler Wick Corp. did not make any matching or other
contributions to plan participants.
|
|
16.
|
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 effect on the
estimated fair value amounts.
Cash and cash equivalents, accrued interest receivable and
payable and advance payments by borrowers for taxes and
insurance The carrying amounts as reported in
the Statements of Financial Condition are a reasonable estimate
of fair value due to their short-term nature.
Securities Fair values are based on quoted
market prices, dealer quotes and prices obtained from
independent pricing services.
Loans held for sale The fair value of loans
held for sale is based on market quotes.
67
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
Loans The fair value is estimated by
discounting the future cash flows using the current market rates
for loans of similar maturities with adjustments for market and
credit risks.
Federal Home Loan Bank stock The fair value
is estimated to be the carrying value, which is par. All
transactions in the capital stock of the Federal Home Loan Bank
are executed at par.
Deposits The 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 funds For 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.
Limitations Fair 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 and 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.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 2007
and 2006, respectively. Although management is not aware of any
factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for
purposes of these financial statements since that date and,
therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
68
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
37,363
|
|
|
$
|
37,363
|
|
|
$
|
35,637
|
|
|
$
|
35,637
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
|
|
|
5,064
|
|
|
|
5,064
|
|
|
|
10,786
|
|
|
|
10,786
|
|
Available for sale
|
|
|
244,753
|
|
|
|
244,753
|
|
|
|
237,531
|
|
|
|
237,531
|
|
Loans held for sale
|
|
|
87,236
|
|
|
|
87,269
|
|
|
|
26,960
|
|
|
|
27,288
|
|
Loans, net
|
|
|
2,236,988
|
|
|
|
2,246,948
|
|
|
|
2,253,559
|
|
|
|
2,256,796
|
|
Federal Home Loan Bank stock
|
|
|
25,432
|
|
|
|
25,432
|
|
|
|
25,432
|
|
|
|
25,432
|
|
Accrued interest receivable
|
|
|
13,077
|
|
|
|
13,077
|
|
|
|
13,703
|
|
|
|
13,703
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking, savings and money market accounts
|
|
|
(704,644
|
)
|
|
|
(704,644
|
)
|
|
|
(668,820
|
)
|
|
|
(668,820
|
)
|
Certificates of deposit
|
|
|
(1,170,562
|
)
|
|
|
(1,170,790
|
)
|
|
|
(1,154,115
|
)
|
|
|
(1,151,666
|
)
|
Federal Home Loan Bank advances
|
|
|
(437,253
|
)
|
|
|
(440,910
|
)
|
|
|
(465,253
|
)
|
|
|
(462,302
|
)
|
Repurchase agreements and other
|
|
|
(149,533
|
)
|
|
|
(152,827
|
)
|
|
|
(98,511
|
)
|
|
|
(98,550
|
)
|
Advance payments by borrowers for taxes and insurance
|
|
|
(17,853
|
)
|
|
|
(17,853
|
)
|
|
|
(17,471
|
)
|
|
|
(17,471
|
)
|
Accrued interest payable
|
|
|
(7,837
|
)
|
|
|
(7,837
|
)
|
|
|
(2,842
|
)
|
|
|
(2,842
|
)
|
|
|
17.
|
STATEMENT
OF CASH FLOWS SUPPLEMENTAL DISCLOSURE
|
Supplemental disclosures of cash flow information are summarized
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits and borrowings, net of amounts capitalized
|
|
$
|
91,452
|
|
|
$
|
84,208
|
|
|
$
|
55,764
|
|
Interest capitalized on borrowings
|
|
|
30
|
|
|
|
19
|
|
|
|
42
|
|
Income taxes
|
|
|
13,146
|
|
|
|
13,050
|
|
|
|
9,615
|
|
Supplemental schedule of noncash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans transferred to held for sale
|
|
|
76,493
|
|
|
|
|
|
|
|
74,144
|
|
Loans transferred from held for sale
|
|
|
|
|
|
|
|
|
|
|
37,075
|
|
Transfers from loans to real estate owned
|
|
|
14,356
|
|
|
|
4,814
|
|
|
|
4,935
|
|
69
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
|
|
18.
|
PARENT
COMPANY FINANCIAL STATEMENTS
|
Condensed
Statements of Financial Condition
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and deposits with banks
|
|
$
|
8,234
|
|
|
$
|
811
|
|
Federal funds sold and other
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
8,234
|
|
|
|
838
|
|
Securities:
|
|
|
|
|
|
|
|
|
Trading
|
|
|
312
|
|
|
|
559
|
|
Available for sale
|
|
|
2,064
|
|
|
|
2,866
|
|
Note receivable from ESOP
|
|
|
13,071
|
|
|
|
15,033
|
|
Subordinated note receivable from Home Savings
|
|
|
30,000
|
|
|
|
30,000
|
|
Investment in subsidiary-Home Savings
|
|
|
237,430
|
|
|
|
235,058
|
|
Investment in subsidiary-Butler Wick
|
|
|
15,944
|
|
|
|
16,448
|
|
Other assets
|
|
|
131
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
307,186
|
|
|
$
|
300,951
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
Repurchase agreements and other
|
|
$
|
36,300
|
|
|
$
|
18,300
|
|
Accrued interest payable
|
|
|
243
|
|
|
|
101
|
|
Accrued expenses and other liabilities
|
|
|
929
|
|
|
|
1,217
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
37,472
|
|
|
|
19,618
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
269,714
|
|
|
|
281,333
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
307,186
|
|
|
$
|
300,951
|
|
|
|
|
|
|
|
|
|
|
Condensed
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends from subsidiaries
|
|
$
|
9,000
|
|
|
$
|
30,000
|
|
|
$
|
7,000
|
|
Interest income
|
|
|
3,380
|
|
|
|
1,411
|
|
|
|
1,530
|
|
Non-interest income
|
|
|
31
|
|
|
|
60
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income
|
|
|
12,411
|
|
|
|
31,471
|
|
|
|
8,696
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
2,092
|
|
|
|
820
|
|
|
|
406
|
|
Non-interest expenses
|
|
|
2,419
|
|
|
|
1,405
|
|
|
|
1,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
4,511
|
|
|
|
2,225
|
|
|
|
1,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
7,900
|
|
|
|
29,246
|
|
|
|
6,895
|
|
Income tax (benefit) expense
|
|
|
(270
|
)
|
|
|
(425
|
)
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in undistributed net earnings of
subsidiaries
|
|
|
8,170
|
|
|
|
29,671
|
|
|
|
6,944
|
|
Equity in undistributed net earnings of subsidiaries
|
|
|
(4,037
|
)
|
|
|
(5,560
|
)
|
|
|
16,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,133
|
|
|
$
|
24,111
|
|
|
$
|
23,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
Condensed
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
4,133
|
|
|
$
|
24,111
|
|
|
$
|
23,197
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed earnings of the subsidiaries
|
|
|
4,037
|
|
|
|
5,560
|
|
|
|
(16,253
|
)
|
Security gains
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
Decrease in trading securities
|
|
|
247
|
|
|
|
433
|
|
|
|
998
|
|
Decrease (increase) in interest receivable
|
|
|
18
|
|
|
|
(18
|
)
|
|
|
|
|
Decrease in other assets
|
|
|
|
|
|
|
27
|
|
|
|
1,128
|
|
Increase in accrued interest payable
|
|
|
142
|
|
|
|
50
|
|
|
|
47
|
|
Decrease in other liabilities
|
|
|
(64
|
)
|
|
|
(712
|
)
|
|
|
(1,948
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
8,513
|
|
|
|
29,451
|
|
|
|
7,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
|
|
99
|
|
Purchases of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
|
|
|
|
(36
|
)
|
|
|
(227
|
)
|
Investment in subordinated debt issued by Home Savings
|
|
|
|
|
|
|
(30,000
|
)
|
|
|
|
|
ESOP loan repayment
|
|
|
1,263
|
|
|
|
1,044
|
|
|
|
875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from investing activities
|
|
|
1,263
|
|
|
|
(28,992
|
)
|
|
|
747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(10,847
|
)
|
|
|
(10,401
|
)
|
|
|
(9,462
|
)
|
Net increase in borrowed funds
|
|
|
18,000
|
|
|
|
11,700
|
|
|
|
3,100
|
|
Purchase of treasury stock
|
|
|
(9,709
|
)
|
|
|
(2,298
|
)
|
|
|
(2,499
|
)
|
Exercise of stock options
|
|
|
176
|
|
|
|
878
|
|
|
|
674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
(2,380
|
)
|
|
|
(121
|
)
|
|
|
(8,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
7,396
|
|
|
|
338
|
|
|
|
(333
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
838
|
|
|
|
500
|
|
|
|
833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
8,234
|
|
|
$
|
838
|
|
|
$
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
United Community has two principal segments, banking and
investment services. Banking provides consumer and corporate
banking services. Investment services provide investment
brokerage and a network of integrated financial services. The
accounting policies of the segments are the same as those
described in Note 1. Condensed statements of income and
selected financial information by operating segment for the
years ended December 31, 2007, 2006 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Services
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
168,815
|
|
|
$
|
1,135
|
|
|
|
|
|
|
$
|
169,950
|
|
Total interest expense
|
|
|
96,103
|
|
|
|
345
|
|
|
|
|
|
|
|
96,448
|
|
Provision for loan losses
|
|
|
28,750
|
|
|
|
|
|
|
|
|
|
|
|
28,750
|
|
Net interest income after provision for loan losses
|
|
|
43,962
|
|
|
|
790
|
|
|
|
|
|
|
|
44,752
|
|
Non-interest income
|
|
|
14,303
|
|
|
|
32,597
|
|
|
|
|
|
|
|
46,900
|
|
Non-interest expense
|
|
|
55,640
|
|
|
|
29,688
|
|
|
|
|
|
|
|
85,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2,625
|
|
|
|
3,699
|
|
|
|
|
|
|
|
6,324
|
|
Income taxes
|
|
|
911
|
|
|
|
1,280
|
|
|
|
|
|
|
|
2,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,714
|
|
|
$
|
2,419
|
|
|
|
|
|
|
$
|
4,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,739,729
|
|
|
$
|
20,314
|
|
|
$
|
(4
|
)
|
|
$
|
2,760,039
|
|
Capital expenditures
|
|
|
5,766
|
|
|
|
462
|
|
|
|
|
|
|
|
6,228
|
|
Depreciation and amortization
|
|
|
2,779
|
|
|
|
281
|
|
|
|
|
|
|
|
3,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
163,763
|
|
|
$
|
1,667
|
|
|
|
|
|
|
$
|
165,430
|
|
Total interest expense
|
|
|
83,953
|
|
|
|
475
|
|
|
|
|
|
|
|
84,428
|
|
Provision for loan losses
|
|
|
4,347
|
|
|
|
|
|
|
|
|
|
|
|
4,347
|
|
Net interest income after provision for loan losses
|
|
|
75,463
|
|
|
|
1,192
|
|
|
|
|
|
|
|
76,655
|
|
Non-interest income
|
|
|
13,203
|
|
|
|
27,071
|
|
|
|
|
|
|
|
40,274
|
|
Non-interest expense
|
|
|
53,310
|
|
|
|
26,508
|
|
|
|
|
|
|
|
79,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
35,356
|
|
|
|
1,755
|
|
|
|
|
|
|
|
37,111
|
|
Income taxes
|
|
|
12,393
|
|
|
|
607
|
|
|
|
|
|
|
|
13,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
22,963
|
|
|
$
|
1,148
|
|
|
|
|
|
|
$
|
24,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,682,641
|
|
|
$
|
20,923
|
|
|
$
|
(19
|
)
|
|
$
|
2,703,545
|
|
Capital expenditures
|
|
|
4,086
|
|
|
|
335
|
|
|
|
|
|
|
|
4,421
|
|
Depreciation and amortization
|
|
|
2,503
|
|
|
|
281
|
|
|
|
|
|
|
|
2,784
|
|
72
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Services
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
133,794
|
|
|
$
|
2,258
|
|
|
|
|
|
|
$
|
136,052
|
|
Total interest expense
|
|
|
56,357
|
|
|
|
939
|
|
|
|
|
|
|
|
57,296
|
|
Provision for loan losses
|
|
|
3,028
|
|
|
|
|
|
|
|
|
|
|
|
3,028
|
|
Net interest income after provision for loan losses
|
|
|
74,409
|
|
|
|
1,319
|
|
|
|
|
|
|
|
75,728
|
|
Non-interest income
|
|
|
12,184
|
|
|
|
26,076
|
|
|
|
|
|
|
|
38,260
|
|
Non-interest expense
|
|
|
53,413
|
|
|
|
25,468
|
|
|
|
|
|
|
|
78,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
33,180
|
|
|
|
1,927
|
|
|
|
|
|
|
|
35,107
|
|
Income taxes
|
|
|
11,234
|
|
|
|
676
|
|
|
|
|
|
|
|
11,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
21,946
|
|
|
$
|
1,251
|
|
|
|
|
|
|
$
|
23,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,488,771
|
|
|
$
|
40,122
|
|
|
$
|
(43
|
)
|
|
$
|
2,528,850
|
|
Capital expenditures
|
|
|
5,029
|
|
|
|
320
|
|
|
|
|
|
|
|
5,349
|
|
Depreciation and amortization
|
|
|
2,026
|
|
|
|
321
|
|
|
|
|
|
|
|
2,347
|
|
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 714,247 shares were anti-dilutive for the years
ended December 31, 2007 and 2006. Stock options for
754,403 shares were anti-dilutive for the year ended
December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
Basic Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock
|
|
$
|
4,133
|
|
|
$
|
24,111
|
|
|
$
|
23,197
|
|
Weighted average common shares outstanding
|
|
|
28,711
|
|
|
|
29,029
|
|
|
|
28,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.14
|
|
|
$
|
0.83
|
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock
|
|
$
|
4,133
|
|
|
$
|
24,111
|
|
|
$
|
23,197
|
|
Weighted average common shares outstanding
|
|
|
28,711
|
|
|
|
29,029
|
|
|
|
28,809
|
|
Dilutive effect of stock options
|
|
|
115
|
|
|
|
375
|
|
|
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding for dilutive
computation
|
|
|
28,826
|
|
|
|
29,404
|
|
|
|
29,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.14
|
|
|
$
|
0.82
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
|
|
21.
|
QUARTERLY
FINANCIAL INFORMATION (UNAUDITED)
|
The following table presents summarized quarterly data for each
of the years indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share data)
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
42,825
|
|
|
$
|
42,004
|
|
|
$
|
42,390
|
|
|
$
|
42,731
|
|
|
$
|
169,950
|
|
Total interest expense
|
|
|
23,424
|
|
|
|
23,852
|
|
|
|
24,512
|
|
|
|
24,660
|
|
|
|
96,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
19,401
|
|
|
|
18,152
|
|
|
|
17,878
|
|
|
|
18,071
|
|
|
|
73,502
|
|
Provision for loan losses
|
|
|
2,325
|
|
|
|
2,744
|
|
|
|
5,363
|
|
|
|
18,318
|
|
|
|
28,750
|
|
Non-interest income
|
|
|
11,417
|
|
|
|
12,217
|
|
|
|
12,109
|
|
|
|
11,157
|
|
|
|
46,900
|
|
Non-interest expense
|
|
|
21,242
|
|
|
|
21,500
|
|
|
|
20,732
|
|
|
|
21,854
|
|
|
|
85,328
|
|
Income tax expense (benefit)
|
|
|
2,581
|
|
|
|
2,195
|
|
|
|
1,309
|
|
|
|
(3,894
|
)
|
|
|
2,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,670
|
|
|
$
|
3,930
|
|
|
$
|
2,583
|
|
|
$
|
(7,050
|
)
|
|
$
|
4,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.16
|
|
|
$
|
0.14
|
|
|
$
|
0.09
|
|
|
$
|
(0.25
|
)
|
|
$
|
0.14
|
|
Diluted
|
|
|
0.16
|
|
|
|
0.13
|
|
|
|
0.09
|
|
|
|
(0.25
|
)
|
|
|
0.14
|
|
Beginning in the third quarter of 2007 and extending through the
fourth quarter of 2007, increased loan delinquencies,
charge-offs and foreclosures occurred, particularly within the
construction portfolio. Because of these trends, the Company
re-evaluated its estimate of probable losses and determined that
a larger provision for loan losses were required in the third
and fourth quarters of 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
|
|
(In thousands, except per share data)
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
$
|
38,627
|
|
|
$
|
41,647
|
|
|
$
|
42,464
|
|
|
$
|
42,692
|
|
|
$
|
165,430
|
|
Total interest expense
|
|
|
17,936
|
|
|
|
20,611
|
|
|
|
22,492
|
|
|
|
23,389
|
|
|
|
84,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
20,691
|
|
|
|
21,036
|
|
|
|
19,972
|
|
|
|
19,303
|
|
|
|
81,002
|
|
Provision for loan losses
|
|
|
738
|
|
|
|
812
|
|
|
|
1,475
|
|
|
|
1,322
|
|
|
|
4,347
|
|
Non-interest income
|
|
|
9,809
|
|
|
|
9,533
|
|
|
|
10,199
|
|
|
|
10,733
|
|
|
|
40,274
|
|
Non-interest expense
|
|
|
20,356
|
|
|
|
20,126
|
|
|
|
19,365
|
|
|
|
19,971
|
|
|
|
79,818
|
|
Income tax expense
|
|
|
3,273
|
|
|
|
3,381
|
|
|
|
3,272
|
|
|
|
3,074
|
|
|
|
13,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,133
|
|
|
$
|
6,250
|
|
|
$
|
6,059
|
|
|
$
|
5,669
|
|
|
$
|
24,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.21
|
|
|
$
|
0.22
|
|
|
$
|
0.21
|
|
|
$
|
0.19
|
|
|
$
|
0.83
|
|
Diluted
|
|
|
0.21
|
|
|
|
0.21
|
|
|
|
0.21
|
|
|
|
0.19
|
|
|
|
0.82
|
|
The provision for loan losses increased between the second and
third quarter 2006, as a result of an increase in the valuation
allowance on impaired loans at the end of the third quarter.
Refer to Note 4 regarding impaired loans.
74
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS
(Continued)
On July 24, 2007 United Community Financial Corp. (United
Community) executed a definitive agreement for United Community
to acquire PVF Capital Corp., the holding company for Park View
Federal Savings Bank located in Solon, Ohio. Subject to approval
of regulatory authorities, PVF Capital Corp. shareholders and
United Community shareholders, each share of PVF Capital Corp.
common stock will be exchanged for, at the election of each
shareholder, $18.50 in cash, or 1.852 shares of United
Community common stock, or a combination of $9.25 in cash and
0.926 shares of United Community common stock. United
Community will account for the acquisition as a purchase and
will include PVF Capital Corp.s results of operations from
the effective date of the acquisition in the appropriate
financial statements. At the time of the announcement, PVF
Capital Corp. had total assets of $908 million. Based on
the closing price of United Community common stock as quoted on
the Nasdaq Global Market of $7.52 on July 24, 2007, the
parties value the consideration at $16.21 per share of PVF
Capital Corp. common stock, for a total transaction
consideration of $130.8 million. The complete copy of the
press release announcing the acquisition can be found as an
exhibit to
Form 8-K
filed with the Securities and Exchange Commission on
July 26, 2007. On December 17, 2007, United Community
announced a revision to the timetable for the completion of the
pending merger. The complete copy of the press release
announcing the timetable revision can be found as an exhibit to
Form 8-K
filed with the Securities and Exchange Commission on
December 21, 2007.
75
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
United Community Financial Corp.
Youngstown, Ohio
We have audited the accompanying consolidated statements of
financial condition of United Community Financial Corp. as of
December 31, 2007 and 2006, and the related consolidated
statements of income, shareholders equity, and cash flows
for each of the three years in the period ended
December 31, 2007. These financial statements are the
responsibility of United Community Financial Corp.s
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of United Community Financial Corp. as of
December 31, 2007 and 2006, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2007, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of United Community Financial Corp.s
internal control over financial reporting as of
December 31, 2007, based on criteria established in
Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission and our
report dated March 28, 2008 expressed an unqualified opinion
thereon.
Crowe Chizek and Company LLC
Cleveland, Ohio
March 28, 2008
76
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of United Community Financial Corp. (United
Community) is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined
in
Rules 13a-15(f)
or 15d-15(f)
under the Securities Exchange Act of 1934). United
Communitys internal control over financial reporting is
designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. United
Communitys internal control over financial reporting
includes those policies and procedures that: (i) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of United Community; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of United Community are being made only in
accordance with authorizations of management and directors of
United Community; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use or disposition of United Communitys
assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of United Communitys
internal control over financial reporting as of
December 31, 2007. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on our assessment and those
criteria, management concluded that United Community maintained
effective internal control over financial reporting as of
December 31, 2007.
United Communitys independent registered public accounting
firm has issued its report on the effectiveness of United
Communitys internal control over financial reporting. That
report follows under the heading, Report of Independent
Registered Public Accounting Firm on Internal Control Over
Financial Reporting.
|
|
|
|
|
|
Douglas M. McKay, Chief Executive Officer
|
|
Patrick A. Kelly, Chief Financial Officer
|
March 28, 2008
|
|
March 28, 2008
|
77
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Shareholders and Board of Directors
United Community Financial Corp.
Youngstown, Ohio
We have audited United Community Financial Corp.s internal
control over financial reporting as of December 31, 2007
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. United Community
Financial Corp. management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion
on the effectiveness of the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, United Community Financial Corp. maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2007, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
78
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated statements of financial condition of United
Community Financial Corp. as of December 31, 2007 and 2006,
and the related consolidated statements of income,
shareholders equity, and cash flows for each of the three
years in the period ended December 31, 2007 and our report
dated March 28, 2008 expressed an unqualified opinion on
those consolidated financial statements.
Crowe Chizek and Company LLC
Cleveland, Ohio
March 28, 2008
79
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
Not applicable.
|
|
Item 9A.
|
Controls
and Procedures
|
United Communitys management is responsible for
establishing and maintaining effective disclosure controls and
procedures, as defined under
Rules 13a-15(e)
or 15d-15(e)
of the Securities Exchange Act of 1934. As of December 31,
2007, an evaluation was performed under the supervision and with
the participation of management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of United Communitys disclosure
controls and procedures. Based on that evaluation, management
concluded that disclosure controls and procedures as of
December 31, 2007 were effective in ensuring material
information required to be disclosed in this Annual Report on
Form 10-K
was recorded, processed, summarized and reported on a timely
basis. Additionally, there were no changes in United
Communitys internal control over financial reporting that
occurred during the quarter ended December 31, 2007, that
have materially affected, or are reasonably likely to affect,
United Communitys internal control over financial
reporting. See Managements Report on Internal
Control Over Financial Reporting contained in Item 8
of this Form 10 K.
|
|
Item 9B.
|
Other
Information
|
None
PART III
|
|
Item 10.
|
Directors
and Executive Officers and Corporate Governance
|
The information contained in the Proxy Statement for the 2008
Annual Meeting of Shareholders of United Community (Proxy
Statement), to be filed with the Securities and Exchange
Commission (Commission) on or about March 21, 2008, under
the captions Election of Directors, Incumbent
Directors, Board Meetings, Committees and
Compensation, Executive Officers, and
Section 16(a) Beneficial Ownership Reporting
Compliance is incorporated herein by reference.
United Community has adopted a code of ethics applicable to all
officers, directors and employees that complies with SEC
requirements. A copy of the code may be obtained free of charge
upon written request to Patrick A. Kelly, Chief Financial
Officer, United Community Financial Corp., 275 West Federal
Street, Youngstown, Ohio 44503.
|
|
Item 11.
|
Executive
Compensation
|
The information contained in the Proxy Statement under the
captions Compensation Committee Report and
Compensation Discussion and Analysis, is
incorporated herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters
|
The information contained in the Proxy Statement under the
caption Ownership of UCFC Shares is incorporated
herein by reference.
United Community maintains the United Community Financial Corp.
1999 Long-Term Incentive Plan (1999 Plan) and the United
Community Financial Corp. Recognition and Retention Plan and
Trust Agreement (RRP) under which it issued equity
securities to its directors, officers and employees in exchange
for goods or services. The 1999 Plan and the RRP were approved
by United Communitys shareholders at the 1999 Special
Meeting of Shareholders.
80
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 and is to be used for awards of restricted
stock shares, stock options, performance awards, stock
appreciation rights (SARs), or other forms of stock-based
incentive awards. No awards have been granted under the 2007
Plan in 2007.
The following table shows, as of December 31, 2007, the
number of common shares issuable upon the exercise of
outstanding stock options, the weighted average exercise price
of those stock options, and the number of common shares
remaining for future issuance under the 1999 Plan and the RRP,
excluding shares issuable upon exercise of outstanding stock
options.
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
|
|
|
Future Issuance Under
|
|
|
Number of Securities
|
|
|
|
Equity Compensation
|
|
|
to be Issued Upon
|
|
Weighted-Average
|
|
Plans (Excluding
|
|
|
Exercise of
|
|
Exercise Price of
|
|
Securities
|
Plan Category
|
|
Outstanding Options
|
|
Outstanding Options
|
|
Reflected in Column (a))
|
|
Equity compensation plans approved by security holders
|
|
|
2,043,856
|
|
|
$
|
9.66
|
|
|
|
2,037,156
|
|
|
|
Item 13.
|
Certain
Relationships and Related Transactions and Director
Independence
|
The information contained in the Proxy Statement under the
captions Board Meetings, Committees and
Compensation, and Compensation of Executive
Officers Certain Transactions is incorporated
herein by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information contained in the Proxy Statement under the
caption Audit Fees is incorporated herein by
reference.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
|
|
|
3.1
|
|
Articles of Incorporation
|
3.2
|
|
Amended Code of Regulations
|
10
|
|
Material Contracts
|
11
|
|
Statement Regarding Computation of Per Share Earnings
|
20
|
|
Proxy Statement for 2008 Annual Meeting of Shareholders
|
21
|
|
Subsidiaries of Registrant
|
23
|
|
Crowe Chizek and Company LLC Consent
|
31.1
|
|
Section 302 Certification by Chief Executive Officer
|
31.2
|
|
Section 302 Certification by Chief Financial Officer
|
32
|
|
Certification of Financial Statements by Chief Executive Officer
and Chief Financial Officer
|
(a) Financial Statement Schedules. All
schedules are omitted because they are not applicable or the
required information is shown in the financial statements or
notes thereto.
81
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNITED COMMUNITY FINANCIAL CORP.
Douglas M. McKay, Chairman of the Board and
Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
/s/ Patrick
A.
Kelly
|
Douglas M. McKay, Chairman of the Board, Chief Executive Officer
and Director
|
|
Patrick A. Kelly, Treasurer (Principal Financial Officer)
Date: March 28, 2008
|
Date: March 28, 2008
|
|
|
|
|
|
|
|
/s/ Richard
J.
Buoncore
|
Eugenia C. Atkinson, Director
|
|
Richard J. Buoncore, Director
|
Date: March 28, 2008
|
|
Date: March 28, 2008
|
|
|
|
|
|
/s/ David
G.
Lodge
|
Thomas J. Cavalier, Director
Date: March 28, 2008
|
|
David G. Lodge, President, Chief Operating Officer and Director
|
|
|
Date: March 28, 2008
|
|
|
|
|
|
/s/ Clarence
R.
Smith
|
Richard J. Schiraldi, Director
|
|
Clarence R. Smith, Director
|
Date: March 28, 2008
|
|
Date: March 28, 2008
|
|
|
|
|
|
/s/ Donald
J.
Varner
|
David C. Sweet, Director
|
|
Donald J. Varner, Director
|
Date: March 28, 2008
|
|
Date: March 28, 2008
|
82
INDEX TO
EXHIBITS
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
|
|
3.1
|
|
Articles of Incorporation
|
|
Incorporated by reference to the Registration Statement on Form
S-1 filed by United Community on March 13, 1998 (S-1) with the
Securities and Exchange Commission (SEC), Exhibit 3.1
|
3.2
|
|
Amended Code of Regulations
|
|
Incorporated by reference to the 1998 10-K filed by United
Community on March 31, 1999 via Edgar, film number 99582343,
Exhibit 3.2
|
4
|
|
Agreement to furnish instruments and agreements defining rights
of holders of long-term debt
|
|
|
10.1
|
|
The Home Savings and Loan Company of Youngstown, Ohio Employee
Stock Ownership Plan
|
|
Incorporated by reference to the 2001 10-K filed by United
Community on March 29, 2002 via Edgar, film number 02593161,
Exhibit 10.1
|
10.2
|
|
Employment Agreement between The Home Savings and Loan Company
of Youngstown, Ohio and Douglas M. McKay, dated
December 31, 2004.
|
|
Incorporated by reference to the 2004 10-K/A filed by United
Community on May 2, 2005 via Edgar, film number 04666159 (2004
10K/A), Exhibit 10.2
|
10.3
|
|
Employment Agreement between The Home Savings and Loan Company
of Youngstown, Ohio and Patrick W. Bevack, dated
December 31, 2004.
|
|
Incorporated by reference to the 2004 10-K/A, Exhibit 10.3
|
10.4
|
|
Employment Agreement between The Home Savings and Loan Company
of Youngstown, Ohio and Patrick A. Kelly, dated
December 31, 2004.
|
|
Incorporated by reference to the 2004 10-K/A, Exhibit 10.4
|
10.5
|
|
Employment Agreement between Butler Wick Corp. and Thomas J.
Cavalier, dated August 12, 1999.
|
|
Incorporated by reference to the 1999 10-K filed by United
Community on March 29, 2000 via Edgar, film number 582478,
Exhibit 10.5
|
10.6
|
|
Employment Agreement between The Home Savings and Loan Company
of Youngstown, Ohio and David G. Lodge, dated December 31,
2004.
|
|
Incorporated by reference to the 2004 10-K/A, Exhibit 10.6
|
10.7
|
|
United Community 1999 Long -Term Incentive Plan
|
|
Incorporated by reference to the Proxy Statement filed by United
Community via Edgar on June 7, 1999, file number 9964170 (1999
Proxy), Exhibit A
|
10.8
|
|
United Community Recognition and Retention Plan and
Trust Agreement
|
|
Incorporated by reference to the 1999 Proxy, Exhibit B
|
10.9
|
|
United Community 2007 Long-Term Incentive Plan
|
|
Incorporated by reference to the Proxy Statement filed by United
Community via Edgar on March 21, 2007, film number 07715040,
Exhibit A
|
10.10
|
|
Agreement and Plan of Merger
|
|
Incorporated by reference to the Form 8-K filed by United
Community via Edgar on July 26, 2007, film number 071001103,
Exhibit 2
|
10.11
|
|
Amendment to Agreement and Plan of Merger
|
|
Incorporated by reference to the Form 8-K filed by United
Community via Edgar on October 1, 2007, film number 071145585,
Exhibit 2
|
11
|
|
Statement Regarding Computation of Per Share Earnings
|
|
Incorporated by reference to Note 20 to the Financial Statements
included in the Annual Report, Item 8.
|
83
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
|
|
20
|
|
Proxy Statement for 2008 Annual Meeting of Shareholders
|
|
Incorporated by reference to the Proxy Statement, to be filed
with the Securities and Exchange Commission on or about
April 1, 2008.
|
21
|
|
Subsidiaries of Registrant
|
|
|
23
|
|
Crowe Chizek and Company LLC Consent
|
|
|
31.1
|
|
Section 302 Certification by Chief Executive Officer
|
|
|
31.2
|
|
Section 302 Certification by Chief Financial Officer
|
|
|
32
|
|
Certification of Financial Statements by Chief Executive Officer
and Chief Financial Officer
|
|
|
84