FORM 10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the fiscal year ended
December 31, 2008
|
OR
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the transition period
from to
|
Commission File
Number: 0-024399
UNITED COMMUNITY FINANCIAL
CORP.
(Exact name of registrant as
specified in its charter)
|
|
|
Ohio
(State or other jurisdiction
of
incorporation or organization)
|
|
34-1856319
(I.R.S. Employer
Identification Number)
|
|
|
|
275 West Federal Street,
Youngstown, Ohio
(Address of principal
executive offices)
|
|
44503
(Zip Code)
|
Registrants
telephone number:
(330)
742-0500
Securities registered pursuant to Section 12(b) of the
Act:
|
|
|
Common shares, no par value per share
(Title of Class)
|
|
Nasdaq
(Name of each exchange on
which registered)
|
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 þ No o
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):
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer þ
|
|
Non-accelerated filer o
|
|
Smaller reporting company o
|
|
|
|
|
(Do not check if a smaller reporting company)
|
|
|
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, 2008 was approximately
$104.1 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, 2009, there were 30,897,825 of the
Registrants Common Shares outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Part III of
Form 10-K
Portions of the Proxy Statement for the 2009 Annual Meeting of
Shareholders
PART I
|
|
Item 1.
|
Description
of Business
|
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.
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 (Ohio Division) and the SEC.
United Communitys primary activity is holding the common
shares of Home Savings. Consequently, the following discussion
focuses primarily on the business of Home Savings.
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 Ohio
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.
On August 8, 2008, the board of directors of United
Community approved a Stipulation and Consent to Issuance of
Order to Cease and Desist (OTS Order) with the OTS.
Simultaneously, the board of directors of Home Savings approved
a Stipulation and Consent to the Issuance of an Order to Cease
and Desist (Bank Order) with the FDIC and the Ohio Division.
Although United Community and Home Savings have agreed to the
issuance of the OTS Order and the Bank Order, respectively,
neither has admitted or denied any allegations of unsafe or
unsound banking practices, or any legal or regulatory
violations. No monetary penalties were assessed by the OTS, the
FDIC, or the Ohio Division.
The OTS Order requires United Community to obtain OTS approval
prior to: (i) incurring or increasing its debt position;
(ii) repurchasing any United Community stock; or
(iii) paying any dividends. The OTS Order also requires
United Community to develop a debt reduction plan and submit the
plan to the OTS for approval.
1
The Bank Order requires Home Savings, within specified
timeframes, to take or refrain from certain actions, including:
(i) retaining a bank consultant to assess Home
Savings management needs and submitting a management plan
that identifies officer positions needed, identifies and
establishes board and internal operating committees, evaluates
Home Savings senior officers, and provides for the hiring
of any additional personnel; (ii) seeking regulatory
approval prior to adding any individuals to the board of
directors or employing any individual as a senior executive
officer of Home Savings; (iii) not extending additional
credit to classified borrowers; (iv) establishing a
compliant Allowance for Loan and Lease Loss methodology;
(v) enhancing its risk management policies and procedures;
(vi) adopting and implementing plans to reduce its
classified assets and delinquent loans, and to reduce loan
concentrations in nonowner-occupied commercial real estate and
construction, land development, and land loans;
(vii) establishing board of directors committees to
evaluate and approve certain loans and oversee Home
Savings compliance with the Bank Order;
(viii) revising its loan policy and enhancing its
underwriting and credit administration functions;
(ix) developing a strategic plan and budget and profit
plan; (x) correcting all violations of laws, rules, and
regulations and implementing procedures to ensure future
compliance; (xi) increasing its Tier 1 capital to
8.00% and its total risk-based capital to 12.00% by
December 31, 2008; and (xii) seeking regulatory
approval prior to declaring or paying any cash dividend. At
December 31, 2008, Home Savings Tier 1 capital
was 8.20% and its total risk-based capital was 12.06%. Because
of the consent to the Bank Order, Home Savings is deemed
adequately capitalized for regulatory capital
purposes.
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.
On December 31, 2008, the Company completed the sale of
Butler Wick & Co., Inc., to Stifel Financial Corp. for
$12.0 million. On January 7, 2009, the Company
announced the sale of Butler Wick Trust to Farmers National Banc
Corp. As a result, Butler Wick has been reported as a
discontinued operation and consolidated financial statement
information for all periods presented has been reclassified to
reflect this presentation.
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, 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, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
Amount
|
|
|
total loans
|
|
|
Amount
|
|
|
total loans
|
|
|
Amount
|
|
|
total loans
|
|
|
Amount
|
|
|
total loans
|
|
|
Amount
|
|
|
total loans
|
|
|
|
(Dollars in thousands)
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential
|
|
$
|
909,567
|
|
|
|
40.65
|
%
|
|
$
|
871,019
|
|
|
|
38.41
|
%
|
|
$
|
854,829
|
|
|
|
37.65
|
%
|
|
$
|
749,362
|
|
|
|
35.44
|
%
|
|
$
|
690,413
|
|
|
|
37.68
|
%
|
Multifamily residential
|
|
|
187,711
|
|
|
|
8.39
|
|
|
|
179,535
|
|
|
|
7.92
|
|
|
|
163,541
|
|
|
|
7.20
|
|
|
|
154,702
|
|
|
|
7.32
|
|
|
|
153,011
|
|
|
|
8.35
|
|
Non-residential
|
|
|
375,463
|
|
|
|
16.78
|
|
|
|
359,070
|
|
|
|
15.84
|
|
|
|
348,528
|
|
|
|
15.35
|
|
|
|
314,124
|
|
|
|
14.86
|
|
|
|
289,755
|
|
|
|
15.81
|
|
Land
|
|
|
23,517
|
|
|
|
1.05
|
|
|
|
22,818
|
|
|
|
1.01
|
|
|
|
26,684
|
|
|
|
1.18
|
|
|
|
14,979
|
|
|
|
0.71
|
|
|
|
14,701
|
|
|
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total permanent
|
|
|
1,496,258
|
|
|
|
66.87
|
|
|
|
1,432,442
|
|
|
|
63.18
|
|
|
|
1,393,582
|
|
|
|
61.38
|
|
|
|
1,233,167
|
|
|
|
58.33
|
|
|
|
1,147,880
|
|
|
|
62.64
|
|
Construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential
|
|
|
255,355
|
|
|
|
11.41
|
|
|
|
357,153
|
|
|
|
15.75
|
|
|
|
388,926
|
|
|
|
17.13
|
|
|
|
389,558
|
|
|
|
18.43
|
|
|
|
301,193
|
|
|
|
16.43
|
|
Multifamily and non-residential
|
|
|
35,797
|
|
|
|
1.60
|
|
|
|
25,191
|
|
|
|
1.11
|
|
|
|
25,215
|
|
|
|
1.11
|
|
|
|
66,788
|
|
|
|
3.16
|
|
|
|
47,230
|
|
|
|
2.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total construction
|
|
|
291,152
|
|
|
|
13.01
|
|
|
|
382,344
|
|
|
|
16.86
|
|
|
|
414,141
|
|
|
|
18.24
|
|
|
|
456,346
|
|
|
|
21.59
|
|
|
|
348,423
|
|
|
|
19.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
1,787,410
|
|
|
|
79.88
|
|
|
|
1,814,786
|
|
|
|
80.04
|
|
|
|
1,807,723
|
|
|
|
79.62
|
|
|
|
1,689,513
|
|
|
|
79.92
|
|
|
|
1,496,303
|
|
|
|
81.65
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
253,348
|
|
|
|
11.32
|
|
|
|
234,362
|
|
|
|
10.33
|
|
|
|
220,679
|
|
|
|
9.72
|
|
|
|
196,986
|
|
|
|
9.32
|
|
|
|
133,441
|
|
|
|
7.28
|
|
Auto
|
|
|
24,138
|
|
|
|
1.08
|
|
|
|
31,206
|
|
|
|
1.38
|
|
|
|
36,605
|
|
|
|
1.61
|
|
|
|
42,975
|
|
|
|
2.03
|
|
|
|
58,148
|
|
|
|
3.17
|
|
Marine
|
|
|
11,781
|
|
|
|
0.53
|
|
|
|
14,196
|
|
|
|
0.63
|
|
|
|
19,218
|
|
|
|
0.85
|
|
|
|
23,434
|
|
|
|
1.11
|
|
|
|
31,622
|
|
|
|
1.73
|
|
RV
|
|
|
54,003
|
|
|
|
2.41
|
|
|
|
63,587
|
|
|
|
2.80
|
|
|
|
59,642
|
|
|
|
2.63
|
|
|
|
48,108
|
|
|
|
2.27
|
|
|
|
27,330
|
|
|
|
1.49
|
|
Other(1)
|
|
|
5,564
|
|
|
|
0.25
|
|
|
|
6,096
|
|
|
|
0.27
|
|
|
|
9,463
|
|
|
|
0.42
|
|
|
|
12,012
|
|
|
|
0.57
|
|
|
|
17,105
|
|
|
|
0.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer
|
|
|
348,834
|
|
|
|
15.59
|
|
|
|
349,447
|
|
|
|
15.41
|
|
|
|
345,607
|
|
|
|
15.23
|
|
|
|
323,515
|
|
|
|
15.30
|
|
|
|
267,646
|
|
|
|
14.61
|
|
Commercial loans
|
|
|
101,489
|
|
|
|
4.53
|
|
|
|
103,208
|
|
|
|
4.55
|
|
|
|
116,952
|
|
|
|
5.15
|
|
|
|
100,977
|
|
|
|
4.78
|
|
|
|
68,523
|
|
|
|
3.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
2,237,733
|
|
|
|
100.00
|
%
|
|
|
2,267,441
|
|
|
|
100.00
|
%
|
|
|
2,270,282
|
|
|
|
100.00
|
%
|
|
|
2,114,005
|
|
|
|
100.00
|
%
|
|
|
1,832,472
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less net items
|
|
|
34,280
|
|
|
|
|
|
|
|
30,453
|
|
|
|
|
|
|
|
16,723
|
|
|
|
|
|
|
|
16,572
|
|
|
|
|
|
|
|
16,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net
|
|
$
|
2,203,453
|
|
|
|
|
|
|
$
|
2,236,988
|
|
|
|
|
|
|
$
|
2,253,559
|
|
|
|
|
|
|
$
|
2,097,433
|
|
|
|
|
|
|
$
|
1,815,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2008, 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 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,
|
|
|
|
2009
|
|
|
2010-2013
|
|
|
2014 and thereafter
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential
|
|
$
|
216,298
|
|
|
$
|
17,700
|
|
|
$
|
21,357
|
|
|
$
|
255,355
|
|
Multifamily and non-residential
|
|
|
9,405
|
|
|
|
7,273
|
|
|
|
19,119
|
|
|
|
35,797
|
|
Commercial loans
|
|
|
69,034
|
|
|
|
12,411
|
|
|
|
20,044
|
|
|
|
101,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
294,737
|
|
|
$
|
37,384
|
|
|
$
|
60,520
|
|
|
$
|
392,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
The next table sets forth the dollar amount of all loans
reported above as due after December 31, 2009, which have
fixed or adjustable interest rates:
|
|
|
|
|
|
|
Due after December 31, 2009
|
|
|
|
(Dollars in thousands)
|
|
|
Fixed rate
|
|
$
|
37,554
|
|
Adjustable rate
|
|
|
60,350
|
|
|
|
|
|
|
|
|
$
|
97,904
|
|
|
|
|
|
|
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, 2008, Home Savings one-
to four-family residential real estate loans held for investment
totaled approximately $909.6 million, or 40.7% of total
loans. At December 31, 2008, $21.7 million, or 2.3%,
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, a significant portion of 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
may make 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 portfolio loans to Freddie Mac underwriting
guidelines. At December 31, 2008, these loans totaled
$85.3 million. There were approximately $2.9 million
loans with LTVs greater than 80% that were nonperforming
at December 31, 2008.
Currently, no interest-only one- to four-family loans are
contained in Home Savings portfolio.
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.
4
At December 31, 2008, loans secured by multifamily
properties totaled approximately $187.7 million, or 8.4% of
total loans. The largest loan as of December 31, 2008 had a
principal balance of $14.4 million and was performing
according to its terms. There were approximately
$8.7 million in multifamily loans, or 4.6% of Home Savings
total multifamily portfolio, that were considered nonperforming
at December 31, 2008.
Loans Secured by Nonresidential Real
Estate. Home Savings originates loans secured by
nonresidential real estate, such as 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 appraisal supporting the
propertys valuation.
At December 31, 2008, Home Savings largest loan
secured by nonresidential real estate had a balance of
$17.8 million and was performing according to its terms. At
December 31, 2008, approximately $375.5 million, or
16.8% of Home Savings total loans, were secured by
mortgages on nonresidential real estate, of which
$15.2 million of such loans, or 4.1% of Home Savings
total nonresidential real estate 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 of up to five years and require a LTV of 65% or less. At
December 31, 2008, approximately $23.5 million, or
1.1%, 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 $4.8 million, or 20.4% of
such loans, at December 31, 2008.
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, 2008, Home Savings had approximately
$291.2 million, or 13.0% of its total loans, invested in
construction loans, including $255.4 million in one- to
four-family residential construction and approximately
$35.8 million in multifamily and nonresidential
construction loans. Approximately 58.4% 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, both in dollar
and number depending on the borrower.
Construction loans 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, 2008,
totaled $44.0 million, or 15.1% of such loans.
5
Consumer Loans. Home Savings originates
various types of consumer loans, including home equity loans,
vehicle 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, 2008, Home Savings had approximately
$348.8 million, or 15.6% 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 90% 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 85% LTV in the first lien position and 80% LTV in the second
lien position. At December 31, 2008, approximately
$253.3 million, or 72.6%, of Home Savings consumer
loan portfolio consisted of home equity loans. Home Savings also
makes consumer loans secured by a deposit or savings account for
up to 100% of the principal balance of the account. These loans
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, 2008, automobile loans totaled
$24.1 million of Home Savings consumer loan portfolio.
Nonperforming consumer loans at December 31, 2008, amounted
to $5.9 million, or 1.7% of such 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, 2008, Home Savings had approximately
$101.5 million 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 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 $53.7 million in
unsecured commercial loans as of December 31, 2008.
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, 2008,
amounted to $4.6 million, or 4.5% of total commercial loans.
Reduction in loan concentrations. The Bank
Order requires Home Savings to adopt and implement plans to
reduce loan concentrations in nonowner-occupied commercial real
estate and construction, land development, and land loans. The
plan was developed and adopted by Home Savings and was
implemented in the third quarter of 2008. The plan included
sharply reducing the origination of new construction, land, and
land development loans as well as loans secured by commercial
real estate. The Company has also reduced the level of
construction loans purchased from another financial institution.
The concentration of construction and land development loans
declined from 156.7% of total risk-based capital as of
December 31, 2007, to 129.8% of total risk-based capital as
of December 31, 2008.
6
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 an approved independent fee
appraiser. For all 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 $999,999
may be approved by an authorized executive officer. Loan
requests of $1.0 million up to $5.0 million require
the approval of the Officers Loan Committee. All loans
which would cause the aggregate lending relationship to be
greater than $5.0 million require approval by the
Officers Loan Committee and the Board Loan Committee.
Lending relationships of $15.0 million or greater must be
approved by the full board of directors. In addition, under the
terms of the Bank Order, certain loans require Board Loan
Committee approval.
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. 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, 2008, Home Savings had $75.4 million
of outstanding commitments to make loans, $141.1 million
available to borrowers under consumer and commercial lines of
credit and $41.2 million available in the
OverdraftPrivledgetm
program. At December 31, 2008, Home Savings had
$92.6 million in undisbursed funds related to construction
and commercial loans in process.
In 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, 2008, approximately
$48.5 million was outstanding under this program. This
represents a decrease of $35.9 million over the outstanding
balance of $84.4 million included in net loans as of
December 31, 2007. The effort to reduce the outstanding
balance of this relationship is a direct result of Home
Savings compliance with the Bank Order, as mentioned
above. At December 31, 2008, $6.2 million of these
loans were nonperforming.
7
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, regulations require that loans to certain
related or affiliated borrowers be aggregated.
Based on such limits, Home Savings could lend approximately
$36.4 million to one borrower at December 31, 2008.
The largest amount Home Savings had committed to one borrower at
December 31, 2008, was $23.4 million, of which
$22.5 million was outstanding at that time. At
December 31, 2008, this nonresidential real estate loan was
performing in accordance with its terms.
Delinquent Loans, Nonperforming Assets and Classified
Assets. The following table reflects the amount
of all loans in a delinquent status as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
of Net
|
|
|
|
Number
|
|
|
Amount
|
|
|
Loans
|
|
|
Number
|
|
|
Amount
|
|
|
Loans
|
|
|
|
(Dollars in thousands)
|
|
|
Loans delinquent for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 days
|
|
|
528
|
|
|
$
|
46,365
|
|
|
|
2.10
|
%
|
|
|
341
|
|
|
$
|
41,478
|
|
|
|
1.85
|
%
|
60-89 days
|
|
|
181
|
|
|
|
17,455
|
|
|
|
0.79
|
|
|
|
120
|
|
|
|
17,331
|
|
|
|
0.78
|
|
90 days or over
|
|
|
606
|
|
|
|
99,715
|
|
|
|
4.53
|
|
|
|
425
|
|
|
|
92,671
|
|
|
|
4.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total delinquent loans
|
|
|
1,315
|
|
|
$
|
163,535
|
|
|
|
7.42
|
%
|
|
|
886
|
|
|
$
|
151,480
|
|
|
|
6.77
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the fourth quarter of 2008, Home Savings adopted the more
conservative practice of determining the past due status of
loans based on the number of days the loan is past due.
Previously, Home Savings had determined a loans past due
status based on the number of calendar months the loan is past
due. The effect of this change has caused an increase in
reported past due one-to four-family real estate loans.
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.
In compliance with the Bank Order, Home Savings does not extend
additional credit to classified borrowers. The Bank has also
developed a comprehensive plan to reduce the level of classified
assets in the loan portfolio. A complete database of all
classified borrowers is shared with underwriters and other
authorized personnel. This database is queried prior to making
any credit decisions to ensure the extension of any credit is
not granted to classified borrowers. Home Savings has also
modified its loan policies to address specifically the
prohibition of the extension of credit to classified borrowers.
8
The following table sets forth information with respect to Home
Savings nonperforming loans and other assets at the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands)
|
|
|
Nonperforming loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential
|
|
$
|
21,622
|
|
|
$
|
12,708
|
|
|
$
|
8,977
|
|
|
$
|
6,795
|
|
|
$
|
6,511
|
|
Multifamily and nonresidential
|
|
|
23,969
|
|
|
|
27,201
|
|
|
|
16,569
|
|
|
|
6,368
|
|
|
|
2,880
|
|
Construction (net of loans in process) and land
|
|
|
42,560
|
|
|
|
48,043
|
|
|
|
20,858
|
|
|
|
4,732
|
|
|
|
1,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
88,151
|
|
|
|
87,952
|
|
|
|
46,404
|
|
|
|
17,895
|
|
|
|
10,741
|
|
Consumer
|
|
|
5,549
|
|
|
|
4,809
|
|
|
|
3,245
|
|
|
|
2,495
|
|
|
|
5,152
|
|
Commercial
|
|
|
4,553
|
|
|
|
4,738
|
|
|
|
2,997
|
|
|
|
3,889
|
|
|
|
4,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans
|
|
|
98,253
|
|
|
|
97,499
|
|
|
|
52,646
|
|
|
|
24,279
|
|
|
|
20,853
|
|
Restructured loans
|
|
|
1,797
|
|
|
|
2,342
|
|
|
|
1,385
|
|
|
|
825
|
|
|
|
1,329
|
|
Past due 90 days and still accruing
|
|
|
6,631
|
|
|
|
1,215
|
|
|
|
796
|
|
|
|
563
|
|
|
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
106,681
|
|
|
|
101,056
|
|
|
|
54,827
|
|
|
|
25,667
|
|
|
|
22,559
|
|
Real estate acquired through foreclosure and other repossessed
assets
|
|
|
29,258
|
|
|
|
10,510
|
|
|
|
3,242
|
|
|
|
2,514
|
|
|
|
1,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
135,939
|
|
|
$
|
111,566
|
|
|
$
|
58,069
|
|
|
$
|
28,181
|
|
|
$
|
24,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as a percent of loans, net
|
|
|
4.84
|
%
|
|
|
4.52
|
%
|
|
|
2.43
|
%
|
|
|
1.22
|
%
|
|
|
1.24
|
%
|
Nonperforming assets as a percent of total assets
|
|
|
5.19
|
|
|
|
4.03
|
|
|
|
2.15
|
|
|
|
1.11
|
|
|
|
1.06
|
|
Allowance for loan losses as a percent of nonperforming loans
|
|
|
33.71
|
|
|
|
31.67
|
|
|
|
30.92
|
|
|
|
61.26
|
|
|
|
70.38
|
|
Allowance for loan losses as a percent of loans, net
|
|
|
1.61
|
|
|
|
1.41
|
|
|
|
0.75
|
|
|
|
0.74
|
|
|
|
0.87
|
|
During 2008, interest collected on nonperforming loans and
included in net income was approximately $415,000. During 2008,
approximately $3.1 million in additional interest income
would have been recorded had nonaccrual and restructured loans
been accruing pursuant to contractual terms.
Nonperforming assets increased approximately $24.4 million,
or 21.8%, to $135.9 million at December 31, 2008, from
$111.6 million at December 31, 2007. The increase in
reported nonperforming assets was due in part to the adoption by
Home Savings in the fourth quarter of 2008 of the more
conservative practice of determining the past due status of
loans based on the number of days the loan is past due, rather
than the number of calendar months the loan is past due (as
described above). At December 31, 2008, total nonperforming
loans accounted for 4.84% of net loans receivable, compared to
4.52% at December 31, 2007. Total nonperforming assets were
5.19% of total assets as of December 31, 2008, up from
4.03% as of December 31, 2007.
Real estate acquired in settlement of loans is classified
separately on the balance sheet at the lower of cost or
estimated fair value less costs to sell 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, 2008, the
carrying value of real estate and other repossessed assets
acquired in settlement of loans was $29.3 million and
consisted primarily of $1.8 million in single-family
properties, $14.1 million secured by land and properties
under construction, $1.8 million secured by commercial real
estate, and $1.6 million 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 $42.3 million.
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. Pursuant to the Bank Order, Home Savings has revised
its Allowance for Loan Losses methodology. The methodology
developed is reviewed regularly by the board of directors and
will be revised as conditions and circumstances within the
Banks loan portfolio dictate. 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 losses,
management reviews and evaluates on a monthly basis the
necessity of a reserve for individual impaired 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, market value 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
(generally single-family residential mortgage loans and all
consumer credit except marine loans) using a loss factor applied
to the outstanding loan balance to determine the level of
reserve required. The loss factor described consists of two
components, a quantitative component, and a qualitative
component. The quantitative component is based on a historical
analysis of all charged-off loans, net of recovery. This
component is combined with the qualitative component to arrive
at the loss factor, which is applied to the outstanding balances
of homogeneous loans. In determining the qualitative factors,
consideration is given to such factors as economic conditions,
changes in the nature and volume of the portfolio, lending
personnel, lending policies, past-due loan trends, and trends in
collateral values. 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 concentrations
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in thousands)
|
|
|
Balance at beginning of period
|
|
$
|
32,006
|
|
|
$
|
16,955
|
|
|
$
|
15,723
|
|
|
$
|
15,877
|
|
|
$
|
15,111
|
|
Provision for loan losses
|
|
|
25,329
|
|
|
|
28,750
|
|
|
|
4,347
|
|
|
|
3,028
|
|
|
|
9,370
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent real estate
|
|
|
(6,827
|
)
|
|
|
(962
|
)
|
|
|
(737
|
)
|
|
|
(961
|
)
|
|
|
(902
|
)
|
Construction real estate
|
|
|
(9,151
|
)
|
|
|
(5,924
|
)
|
|
|
(320
|
)
|
|
|
(35
|
)
|
|
|
(114
|
)
|
Consumer
|
|
|
(3,978
|
)
|
|
|
(3,605
|
)
|
|
|
(2,334
|
)
|
|
|
(2,848
|
)
|
|
|
(6,177
|
)
|
Commercial
|
|
|
(2,132
|
)
|
|
|
(3,729
|
)
|
|
|
(47
|
)
|
|
|
(241
|
)
|
|
|
(1,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
(22,088
|
)
|
|
|
(14,220
|
)
|
|
|
(3,438
|
)
|
|
|
(4,085
|
)
|
|
|
(9,060
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent real estate
|
|
|
29
|
|
|
|
10
|
|
|
|
34
|
|
|
|
51
|
|
|
|
325
|
|
Construction real estate
|
|
|
10
|
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
Consumer
|
|
|
575
|
|
|
|
509
|
|
|
|
283
|
|
|
|
848
|
|
|
|
72
|
|
Commercial
|
|
|
101
|
|
|
|
2
|
|
|
|
5
|
|
|
|
2
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
715
|
|
|
|
521
|
|
|
|
323
|
|
|
|
903
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(21,373
|
)
|
|
|
(13,699
|
)
|
|
|
(3,115
|
)
|
|
|
(3,182
|
)
|
|
|
(8,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
35,962
|
|
|
$
|
32,006
|
|
|
$
|
16,955
|
|
|
$
|
15,723
|
|
|
$
|
15,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs to average net loans
|
|
|
(0.96
|
)%
|
|
|
(0.60
|
)%
|
|
|
(0.14
|
)%
|
|
|
(0.16
|
)%
|
|
|
(0.50
|
)%
|
10
At December 31, 2008, the allowance for loan losses was
1.61% of total loans and 33.7% of total nonperforming loans.
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 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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
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
|
|
|
|
|
|
Category
|
|
|
|
|
|
Category
|
|
|
|
|
|
Category
|
|
|
|
|
|
Category
|
|
|
|
Amount
|
|
|
to Total Loans
|
|
|
Amount
|
|
|
to Total Loans
|
|
|
Amount
|
|
|
to Total Loans
|
|
|
Amount
|
|
|
to Total Loans
|
|
|
Amount
|
|
|
to Total Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent real estate loans
|
|
$
|
12,785
|
|
|
|
66.87
|
%
|
|
$
|
10,285
|
|
|
|
63.18
|
%
|
|
$
|
5,459
|
|
|
|
61.39
|
%
|
|
$
|
7,152
|
|
|
|
58.33
|
%
|
|
$
|
7,956
|
|
|
|
62.64
|
%
|
Construction real estate loans
|
|
|
11,342
|
|
|
|
13.01
|
|
|
|
12,499
|
|
|
|
16.86
|
|
|
|
3,321
|
|
|
|
18.24
|
|
|
|
2,531
|
|
|
|
21.59
|
|
|
|
2,603
|
|
|
|
19.01
|
|
Consumer loans
|
|
|
4,870
|
|
|
|
15.59
|
|
|
|
5,485
|
|
|
|
15.41
|
|
|
|
5,147
|
|
|
|
15.22
|
|
|
|
3,378
|
|
|
|
15.30
|
|
|
|
3,615
|
|
|
|
14.61
|
|
Commercial loans
|
|
|
6,965
|
|
|
|
4.53
|
|
|
|
3,737
|
|
|
|
4.55
|
|
|
|
3,028
|
|
|
|
5.15
|
|
|
|
2,662
|
|
|
|
4.78
|
|
|
|
1,703
|
|
|
|
3.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,962
|
|
|
|
100.00
|
%
|
|
$
|
32,006
|
|
|
|
100.00
|
%
|
|
$
|
16,955
|
|
|
|
100.00
|
%
|
|
$
|
15,723
|
|
|
|
100.00
|
%
|
|
$
|
15,877
|
|
|
|
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 in other comprehensive income and
as a component of shareholders equity. 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 and Home Savings 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. 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.
11
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, 2008
by maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008
|
|
|
|
|
|
|
|
|
|
After One Year
|
|
|
Five Years
|
|
|
|
No Stated
|
|
|
|
|
|
through
|
|
|
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
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
10,957
|
|
|
|
3.37
|
%
|
|
$
|
15,348
|
|
|
|
4.19
|
%
|
Mortgage-related securities
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
7.25
|
|
|
|
3
|
|
|
|
10.36
|
|
|
|
9,000
|
|
|
|
4.30
|
|
Other securities(a)
|
|
|
1,251
|
|
|
|
2.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
1,251
|
|
|
|
2.04
|
%
|
|
$
|
6
|
|
|
|
7.25
|
%
|
|
$
|
10,960
|
|
|
|
3.37
|
%
|
|
$
|
24,348
|
|
|
|
4.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008
|
|
|
|
After Ten Years
|
|
|
Total
|
|
|
|
Amortized
|
|
|
Average
|
|
|
Amortized
|
|
|
Average
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Yield
|
|
|
Cost
|
|
|
Yield
|
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies and corporations
|
|
$
|
|
|
|
|
|
%
|
|
$
|
26,305
|
|
|
|
3.85
|
%
|
|
$
|
27,170
|
|
Mortgage-related securities
|
|
|
174,222
|
|
|
|
5.09
|
|
|
|
183,231
|
|
|
|
5.05
|
|
|
|
187,651
|
|
Other securities(a)
|
|
|
|
|
|
|
|
|
|
|
1,251
|
|
|
|
2.04
|
|
|
|
910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
174,222
|
|
|
|
5.09
|
%
|
|
$
|
210,787
|
|
|
|
4.88
|
%
|
|
$
|
215,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Yield on equity securities only |
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, other suitable lenders as well as use repurchase
agreements as sources 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 significant.
Brokered deposits represent funds which Home Savings obtained,
directly or indirectly, through a deposit broker. A deposit
broker places deposits from third parties with insured
depository institutions or places deposits with an institution
for the purpose of selling interest in those deposits to third
parties. Under the terms of the Bank Order, Home Savings cannot
obtain additional brokered certificates of deposit without prior
consent of the FDIC and Ohio Division. Home Savings had brokered
deposits of $145.0 million with a weighted average yield of
3.85%
12
at December 31, 2008, compared to brokered deposits of
$39.8 million with a weighted average rate of 5.08% at
December 31, 2007.
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, 2008
|
|
|
For the Year Ended December 31, 2008
|
|
|
|
|
|
|
Percent
|
|
|
Weighted
|
|
|
|
|
|
Percent
|
|
|
Weighted
|
|
|
|
|
|
|
of Total
|
|
|
Average
|
|
|
|
|
|
of Average
|
|
|
Average
|
|
|
|
Amount
|
|
|
Deposits
|
|
|
Rate
|
|
|
Average Balance
|
|
|
Deposits
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Noninterest bearing demand
|
|
$
|
106,255
|
|
|
|
5.63
|
%
|
|
|
|
%
|
|
$
|
110,000
|
|
|
|
5.83
|
%
|
|
|
|
%
|
Checking and money market accounts
|
|
|
372,777
|
|
|
|
19.77
|
|
|
|
1.60
|
|
|
|
426,790
|
|
|
|
22.63
|
|
|
|
2.22
|
|
Savings accounts
|
|
|
181,643
|
|
|
|
9.63
|
|
|
|
0.50
|
|
|
|
180,010
|
|
|
|
9.54
|
|
|
|
0.45
|
|
Certificates of deposit
|
|
|
1,225,256
|
|
|
|
64.97
|
|
|
|
3.92
|
|
|
|
1,169,403
|
|
|
|
62.00
|
|
|
|
4.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
1,885,931
|
|
|
|
100.00
|
%
|
|
|
2.91
|
%
|
|
$
|
1,886,203
|
|
|
|
100.00
|
%
|
|
|
3.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2007
|
|
|
For the Year Ended December 31, 2006
|
|
|
|
|
|
|
Percent
|
|
|
Weighted
|
|
|
|
|
|
Percent
|
|
|
Weighted
|
|
|
|
|
|
|
of Average
|
|
|
Average
|
|
|
|
|
|
of Average
|
|
|
Average
|
|
|
|
Average Balance
|
|
|
Deposits
|
|
|
Rate
|
|
|
Average Balance
|
|
|
Deposits
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Noninterest bearing demand
|
|
$
|
103,268
|
|
|
|
5.70
|
%
|
|
|
|
%
|
|
$
|
96,067
|
|
|
|
5.47
|
%
|
|
|
|
%
|
Checking and money market accounts
|
|
|
397,290
|
|
|
|
21.93
|
|
|
|
3.50
|
|
|
|
330,856
|
|
|
|
18.83
|
|
|
|
3.04
|
|
Savings accounts
|
|
|
185,949
|
|
|
|
10.26
|
|
|
|
0.41
|
|
|
|
218,590
|
|
|
|
12.44
|
|
|
|
0.41
|
|
Certificates of deposit
|
|
|
1,125,117
|
|
|
|
62.11
|
|
|
|
4.74
|
|
|
|
1,111,602
|
|
|
|
63.26
|
|
|
|
4.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
1,811,624
|
|
|
|
100.00
|
%
|
|
|
3.75
|
%
|
|
$
|
1,757,115
|
|
|
|
100.00
|
%
|
|
|
3.34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows rate and maturity information for Home
Savings certificates of deposit at December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
4,610
|
|
|
$
|
628
|
|
|
$
|
66
|
|
|
$
|
91
|
|
|
$
|
5,395
|
|
2.01% to 4.00%
|
|
|
441,550
|
|
|
|
112,932
|
|
|
|
4,887
|
|
|
|
168,473
|
|
|
|
727,842
|
|
4.01% to 6.00%
|
|
|
147,939
|
|
|
|
257,807
|
|
|
|
42,460
|
|
|
|
43,813
|
|
|
|
492,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total certificates of deposit
|
|
$
|
594,099
|
|
|
$
|
371,367
|
|
|
$
|
47,413
|
|
|
$
|
212,377
|
|
|
$
|
1,225,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of total certificates of deposit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, approximately $594.1 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 $619.1 million are available from the FHLB as well as
the use of repurchase agreements. Under the terms of the Bank
Order, Home Savings cannot obtain additional brokered
certificates of deposit without prior consent of the FDIC and
Ohio Division.
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, 2008:
|
|
|
|
|
Maturity
|
|
Amount
|
|
|
|
(Dollars in thousands)
|
|
|
Three months or less
|
|
$
|
17,960
|
|
Over 3 months to 6 months
|
|
|
30,503
|
|
Over 6 months to 12 months
|
|
|
41,096
|
|
Over 12 months
|
|
|
119,085
|
|
|
|
|
|
|
Total
|
|
$
|
208,644
|
|
|
|
|
|
|
The following table sets forth Home Savings deposit
account balance activity for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Beginning balance
|
|
$
|
1,875,206
|
|
|
$
|
1,822,935
|
|
Net (decrease) increase in deposits
|
|
|
(50,698
|
)
|
|
|
(11,353
|
)
|
|
|
|
|
|
|
|
|
|
Net deposits before interest credited
|
|
|
1,824,508
|
|
|
|
1,811,582
|
|
Interest credited
|
|
|
61,423
|
|
|
|
63,624
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,885,931
|
|
|
$
|
1,875,206
|
|
|
|
|
|
|
|
|
|
|
Net increase
|
|
$
|
10,725
|
|
|
$
|
52,271
|
|
|
|
|
|
|
|
|
|
|
Percent increase
|
|
|
0.57
|
%
|
|
|
2.87
|
%
|
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,
2008, Home Savings was in compliance with the QTL test. Home
Savings may borrow up to $619.1 million from the FHLB, and
had $337.6 million in outstanding advances at
December 31, 2008. Of the $337.6 million, one advance
totaling $10.0 million is callable quarterly and matures in
February 2009.
United Community has a Credit Agreement with JP Morgan Chase
Bank, N.A. (JP Morgan) dated September 12, 2005, as amended
on July 18, 2007, March 28, 2008, August 29,
2008, and January 31, 2009 (Credit Agreement). The Credit
Agreement provided United Community with a line of credit of up
to $40.0 million. The Credit Agreement sets forth numerous
covenants with which United Community must comply.
On March 28, 2008, United Community and JP Morgan amended
the Credit Agreement to provide, among other things, (1) a
waiver of all existing defaults under the credit agreement,
(2) that no new funds would be advanced to United Community
on the line of credit, and (3) an increase in the allowable
non-performing asset ratio to 6.50% of total loans and other
real estate owned. As of December 31, 2008, that ratio was
5.97%.
On August 29, 2008, United Community and JP Morgan amended
the Credit Agreement in response to the event of default that
occurred when United Community entered into the OTS Order and
the Bank Order, as described below under Regulation.
The Amendment waived the events of default and extended the
maturity date of the borrowings until January 31, 2009.
Over the course of 2008, the Company paid down approximately
$29.4 million on this line of credit, under which
$36.3 million had been outstanding as of December 31,
2007. In January 2009, the Company paid down an additional
$1.8 million on this line of credit, further reducing the
balance to $5.1 million.
14
On January 31, 2009, United Community and JP Morgan amended
the Credit Agreement in response to the proposed sale of Butler
Wick Trust to Farmers National Banc Corp. The amendment includes
provisions to use a portion of the cash proceeds of the sale to
repay the entire principal balance outstanding and any unpaid
interest that has accrued no later than April 30, 2009.
The OTS Order requires United Community to obtain regulatory
approval prior to incurring or increasing its debt position. A
debt reduction plan was developed and submitted to the OTS for
approval within the required time frame. United Community has
implemented the plan and has reduced the principal balance of
the aforementioned line of credit from $36.3 million at
January 1, 2008 to $5.1 million as of
February 28, 2009. United Community does not intend to seek
approval to borrow additional funds in the near term.
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.
EMPLOYEES
At December 31, 2008, Home Savings had 570 full-time
equivalent employees. Home Savings believes that relations with
its employees are good. Home Savings offers health, life, and
disability benefits, a 401(k) plan, and an employee stock
ownership plan for its employees.
The Bank Order requires Home Savings to retain a consulting firm
to assess management needs and to submit a management plan that
identifies officer positions needed, identifies and establishes
board and internal operating committees, evaluates Home
Savings senior officers, and provides for the hiring of
any additional personnel, subject to the requirement for
regulatory approval prior to adding any individuals the board of
directors or employing any individual as a senior executive
officer of the Bank. A consulting firm has been engaged and that
report shared with regulators, as required.
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 Office
of Thrift Supervision (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 of
Financial Institutions of the Ohio Department of Commerce (Ohio
Division) and the Federal Deposit Insurance Corporation (FDIC),
and it also is subject to certain provisions of the Federal
Reserve Act. United Community and Home Savings 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 Ohio Division, and the SEC 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 Ohio Division may
place Home Savings in 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.
15
On August 8, 2008, the board of directors of United
Community approved a Stipulation and Consent to Issuance of the
OTS Order and the board of directors of Home Savings approved a
Stipulation and Consent to the Issuance of the Bank Order, as
discussed above.
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. Under the Bank Order, Home Savings
may not pay a cash dividend to United Community without first
seeking regulatory approval.
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 $46.9 million. At
December 31, 2008, 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 is an affiliate 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 Ohio 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.
Item 1A. Risk
Factors
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
16
carefully consider that the following important factors, among
others, could materially impact our business and future results
of operations.
Pursuant to the Bank Order, Home Savings retained a consultant
to assist in the development of an Enterprise Risk Management
Program. An Officers Risk Management Committee was appointed and
is developing and leading the process of assessing risk and
reviewing policies and procedures to enhance the Banks
controls and risk management practices. The plan was submitted
to the FDIC and the Ohio Division for approval in December 2008.
The Board also adopted the Corporate Risk Management and
Control Policy of Home Savings in December 2008. The
Enterprise Risk Management Program is ongoing and will be fully
implemented throughout 2009.
Cease
and desist orders restrict dividends and certain business
activities.
United Communitys ability to pay regular quarterly
dividends to shareholders and to pay interest on United
Communitys debt depends to a large extent upon the
dividends received from Home Savings. The Bank Order prohibits
Home Savings from paying dividends to United Community without
prior regulatory approval. In addition, the OTS Order prohibits
United Community from paying dividends to shareholders without
prior regulatory approval.
Management believes that United Community, on a stand-alone
basis, currently has adequate resources to meet its current
obligations, which are primarily interest payments on a
$6.9 million line of credit. However, in the longer term,
United Communitys ability to service debt depends on its
ability to receive dividends from Home Savings and, when debt
matures, on its ability to renew, refinance, or pay down the
line of credit. Furthermore, the OTS Order prohibits United
Community to issue or renew debt without prior approval. We
cannot predict whether regulatory approval will be received for
payments of dividends by Home Savings to United Community, or
for the payment of future dividends by United Community to
shareholders or how long these restrictions will remain in
effect.
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, the 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.
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 is subject to certain
regulatory restrictions and restrictions placed upon us by the
Bank Order. United Communitys dividend payments to its
shareholders is restricted by the OTS Order. 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
17
pay periodic cash dividends to our shareholders, there can be no
assurance that dividend payments will continue or increase in
the future.
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 two years, 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.
Economic
Conditions.
There can be no assurance that recent legislation and regulatory
initiatives to address difficult market and economic conditions
will stabilize the United States banking system and the
enactment of these initiatives may significantly affect our
financial condition, results of operation, liquidity, or stock
price.
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.
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
18
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 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, 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.
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 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. The
information contained in Note 9 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 30,897,825 shares outstanding and held by
approximately 10,300 record holders as of February 28,
2009. 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. Prior
period data has been updated to reflect the stock dividend
declared in November 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
6.70
|
|
|
$
|
8.50
|
|
|
$
|
5.84
|
|
|
$5.11
|
Low
|
|
|
4.16
|
|
|
|
3.62
|
|
|
|
2.82
|
|
|
0.75
|
Dividends declared and paid
|
|
|
0.0924
|
|
|
|
0.0462
|
|
|
|
|
|
|
2.8% stock
dividend
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
12.15
|
|
|
$
|
10.78
|
|
|
$
|
9.93
|
|
|
$7.44
|
Low
|
|
|
10.10
|
|
|
|
9.71
|
|
|
|
6.27
|
|
|
5.16
|
Dividends declared and paid
|
|
|
0.0924
|
|
|
|
0.0924
|
|
|
|
0.0924
|
|
|
0.0924
|
Under the terms of the OTS Order, United Community must seek
regulatory approval prior to the declaration and payment of any
cash dividends. The payment of dividends by United Community is
limited also by the ability of Home Savings to pay dividends to
United Community which also requires regulatory approval under
the Bank Order. See the discussion of these limits in
Note 3 and Note 16 to the Consolidated Financial
Statements.
Under the terms of the OTS Order, United Community must seek
regulatory approval prior to the repurchase of any shares.
United Community did not repurchase any shares during the fourth
quarter of 2008.
20
Performance
Graph
The following graph compares the cumulative total return on
United Communitys common shares since December 31,
2003, 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 United
Community shares on December 31, 2003.
United
Community Financial Corp
Total Return Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ending
|
Index
|
|
12/31/03
|
|
12/31/04
|
|
12/31/05
|
|
12/31/06
|
|
12/31/07
|
|
12/31/08
|
United Community Financial Corp.
|
|
|
100.00
|
|
|
|
100.68
|
|
|
|
109.39
|
|
|
|
116.72
|
|
|
|
55.18
|
|
|
|
9.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASDAQ Composite
|
|
|
100.00
|
|
|
|
108.59
|
|
|
|
110.08
|
|
|
|
120.56
|
|
|
|
132.39
|
|
|
|
78.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SNL Thrift
|
|
|
100.00
|
|
|
|
111.42
|
|
|
|
115.35
|
|
|
|
134.46
|
|
|
|
80.67
|
|
|
|
51.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Item 6.
|
Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Selected financial condition data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,618,073
|
|
|
$
|
2,771,117
|
|
|
$
|
2,703,545
|
|
|
$
|
2,528,850
|
|
|
$
|
2,287,788
|
|
Cash and cash equivalents
|
|
|
43,417
|
|
|
|
33,502
|
|
|
|
33,711
|
|
|
|
35,195
|
|
|
|
39,057
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading, at fair value
|
|
|
|
|
|
|
312
|
|
|
|
559
|
|
|
|
992
|
|
|
|
1,990
|
|
Available for sale, at fair value
|
|
|
215,731
|
|
|
|
240,035
|
|
|
|
233,936
|
|
|
|
199,047
|
|
|
|
193,754
|
|
Loans held for sale
|
|
|
16,032
|
|
|
|
87,236
|
|
|
|
26,960
|
|
|
|
29,109
|
|
|
|
59,099
|
|
Loans, net
|
|
|
2,203,453
|
|
|
|
2,236,988
|
|
|
|
2,253,559
|
|
|
|
2,097,433
|
|
|
|
1,815,976
|
|
Federal Home Loan Bank stock, at cost
|
|
|
26,464
|
|
|
|
25,432
|
|
|
|
25,432
|
|
|
|
24,006
|
|
|
|
22,842
|
|
Cash surrender value of life insurance
|
|
|
25,090
|
|
|
|
24,053
|
|
|
|
23,137
|
|
|
|
22,260
|
|
|
|
21,406
|
|
Assets of discontinued operations
|
|
|
5,562
|
|
|
|
20,314
|
|
|
|
20,923
|
|
|
|
40,122
|
|
|
|
58,089
|
|
Deposits
|
|
|
1,885,931
|
|
|
|
1,875,206
|
|
|
|
1,822,935
|
|
|
|
1,681,844
|
|
|
|
1,522,952
|
|
Borrowed funds
|
|
|
462,872
|
|
|
|
586,786
|
|
|
|
562,862
|
|
|
|
528,821
|
|
|
|
445,043
|
|
Liabilities of discontinued operations
|
|
|
2,388
|
|
|
|
4,371
|
|
|
|
4,475
|
|
|
|
24,948
|
|
|
|
41,325
|
|
Total shareholders equity
|
|
|
234,923
|
|
|
|
269,714
|
|
|
|
281,333
|
|
|
|
264,735
|
|
|
|
252,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Summary of earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
152,178
|
|
|
$
|
168,815
|
|
|
$
|
163,763
|
|
|
$
|
133,794
|
|
|
$
|
111,822
|
|
Interest expense
|
|
|
78,916
|
|
|
|
96,103
|
|
|
|
83,953
|
|
|
|
56,357
|
|
|
|
39,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
73,262
|
|
|
|
72,712
|
|
|
|
79,810
|
|
|
|
77,437
|
|
|
|
71,851
|
|
Provision for loan losses
|
|
|
25,329
|
|
|
|
28,750
|
|
|
|
4,347
|
|
|
|
3,028
|
|
|
|
9,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
47,933
|
|
|
|
43,962
|
|
|
|
75,463
|
|
|
|
74,409
|
|
|
|
62,481
|
|
Non-interest income
|
|
|
5,784
|
|
|
|
14,302
|
|
|
|
13,203
|
|
|
|
12,184
|
|
|
|
11,629
|
|
Non-interest expenses
|
|
|
94,186
|
|
|
|
55,640
|
|
|
|
53,310
|
|
|
|
53,413
|
|
|
|
48,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes and discontinued operations
|
|
|
(40,469
|
)
|
|
|
2,624
|
|
|
|
35,356
|
|
|
|
33,180
|
|
|
|
25,762
|
|
Income tax expense (benefit)
|
|
|
(3,240
|
)
|
|
|
910
|
|
|
|
12,393
|
|
|
|
11,234
|
|
|
|
8,698
|
|
Net income (loss) before discontinued operations
|
|
|
(37,229
|
)
|
|
|
1,714
|
|
|
|
22,963
|
|
|
|
21,946
|
|
|
|
17,064
|
|
Discontinued operations Net income of Butler Wick Corp., net of
tax
|
|
|
1,950
|
|
|
|
2,419
|
|
|
|
1,148
|
|
|
|
1,251
|
|
|
|
801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(35,279
|
)
|
|
$
|
4,133
|
|
|
$
|
24,111
|
|
|
$
|
23,197
|
|
|
$
|
17,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Selected financial ratios and other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets(1)
|
|
|
(1.30
|
)%
|
|
|
0.15
|
%
|
|
|
0.92
|
%
|
|
|
0.96
|
%
|
|
|
0.83
|
%
|
Return on average shareholders equity(2)
|
|
|
(12.91
|
)
|
|
|
1.44
|
|
|
|
8.72
|
|
|
|
8.89
|
|
|
|
7.01
|
|
Interest rate spread(3)(4)
|
|
|
2.53
|
|
|
|
2.41
|
|
|
|
2.84
|
|
|
|
3.19
|
|
|
|
3.38
|
|
Net interest margin(3)(5)
|
|
|
2.87
|
|
|
|
2.84
|
|
|
|
3.24
|
|
|
|
3.49
|
|
|
|
3.63
|
|
Non-interest expense to average assets(3)
|
|
|
2.22
|
|
|
|
2.04
|
|
|
|
2.03
|
|
|
|
2.22
|
|
|
|
2.24
|
|
Efficiency ratio(3)(6)
|
|
|
68.53
|
|
|
|
62.77
|
|
|
|
56.68
|
|
|
|
58.92
|
|
|
|
56.84
|
|
Average interest earning assets to average interest bearing
liabilities(3)
|
|
|
110.85
|
|
|
|
111.59
|
|
|
|
111.74
|
|
|
|
111.62
|
|
|
|
112.29
|
|
Capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average equity to average assets
|
|
|
10.03
|
|
|
|
10.56
|
|
|
|
10.53
|
|
|
|
10.83
|
|
|
|
11.78
|
|
Shareholders equity to assets at year end
|
|
|
8.97
|
|
|
|
9.73
|
|
|
|
10.41
|
|
|
|
10.47
|
|
|
|
11.03
|
|
Home Savings Tier 1 leverage ratio
|
|
|
8.20
|
|
|
|
7.47
|
|
|
|
7.68
|
|
|
|
8.36
|
|
|
|
8.36
|
|
Home Savings Tier 1 risk-based capital ratio
|
|
|
10.80
|
|
|
|
9.26
|
|
|
|
9.49
|
|
|
|
10.08
|
|
|
|
9.92
|
|
Home Savings Total risk-based capital ratio
|
|
|
12.06
|
|
|
|
11.88
|
|
|
|
11.70
|
|
|
|
10.86
|
|
|
|
10.79
|
|
Asset quality ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans to loans, net(7)
|
|
|
4.84
|
|
|
|
4.52
|
|
|
|
2.43
|
|
|
|
1.22
|
|
|
|
1.24
|
|
Nonperforming assets to total assets at year end(8)
|
|
|
5.19
|
|
|
|
4.03
|
|
|
|
2.15
|
|
|
|
1.11
|
|
|
|
1.06
|
|
Allowance for loan losses as a percent of loans
|
|
|
1.61
|
|
|
|
1.41
|
|
|
|
0.75
|
|
|
|
0.74
|
|
|
|
0.87
|
|
Allowance for loan losses as a percent of nonperforming loans(7)
|
|
|
33.71
|
|
|
|
31.67
|
|
|
|
30.92
|
|
|
|
61.26
|
|
|
|
70.38
|
|
Number of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
44,195
|
|
|
|
44,842
|
|
|
|
46,333
|
|
|
|
43,630
|
|
|
|
41,690
|
|
Deposit accounts
|
|
|
180,531
|
|
|
|
187,132
|
|
|
|
189,588
|
|
|
|
183,565
|
|
|
|
173,997
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) from continuing operations(9)(10)
|
|
$
|
(1.26
|
)
|
|
$
|
0.06
|
|
|
$
|
0.77
|
|
|
$
|
0.75
|
|
|
$
|
0.56
|
|
Basic earnings from discontinued operations(9)(10)
|
|
|
0.06
|
|
|
|
0.08
|
|
|
|
0.04
|
|
|
|
0.04
|
|
|
|
0.03
|
|
Basic earnings (loss)(9)(10)
|
|
|
(1.20
|
)
|
|
|
0.14
|
|
|
|
0.81
|
|
|
|
0.79
|
|
|
|
0.59
|
|
Diluted earnings (loss) from continuing operations(9)(10)
|
|
|
(1.26
|
)
|
|
|
0.06
|
|
|
|
0.76
|
|
|
|
0.74
|
|
|
|
0.55
|
|
Diluted earnings from discontinued operations(9)(10)
|
|
|
0.06
|
|
|
|
0.08
|
|
|
|
0.04
|
|
|
|
0.04
|
|
|
|
0.03
|
|
Diluted earnings (loss)(9)(10)
|
|
|
(1.20
|
)
|
|
|
0.14
|
|
|
|
0.80
|
|
|
|
0.78
|
|
|
|
0.58
|
|
Book value(11)
|
|
|
7.60
|
|
|
|
8.73
|
|
|
|
8.83
|
|
|
|
8.29
|
|
|
|
7.87
|
|
Cash dividend per share
|
|
|
0.1386
|
|
|
|
0.3697
|
|
|
|
0.3502
|
|
|
|
0.3510
|
|
|
|
0.2918
|
|
Dividend payout ratio(12)
|
|
|
(12.61
|
)%
|
|
|
271.43
|
%
|
|
|
43.90
|
%
|
|
|
41.25
|
%
|
|
|
50.00
|
%
|
|
|
|
(1) |
|
Net income (loss) divided by average total assets. |
|
(2) |
|
Net income (loss) divided by average total equity. |
23
|
|
|
(3) |
|
Ratios have been revised to reflect the impact of
discontinued operations. Ratios exclude the effect of goodwill
impairment charges recognized. |
|
(4) |
|
Difference between weighted average yield on interest earning
assets and weighted average cost of interest bearing
liabilities. |
|
(5) |
|
Net interest income as a percentage of average interest
earning assets. |
|
(6) |
|
Non-interest expense, excluding the amortization of core
deposit intangible and the goodwill impairment charge, divided
by the sum of net interest income and non-interest income,
excluding gains and losses on securities, other than temporary
impairment charges and other. |
|
(7) |
|
Nonperforming loans consist of nonaccrual loans, loans past
due ninety days and still accruing, and restructured loans. |
|
(8) |
|
Nonperforming assets consist of nonperforming loans, real
estate acquired in settlement of loans and other repossessed
assets. |
|
(9) |
|
Earnings per share were retroactively adjusted to reflect the
effect of a 2.8% stock dividend declared in November 2008. |
|
(10) |
|
Net income divided by average number of basic or diluted
shares outstanding. |
|
(11) |
|
Shareholders equity divided by number of shares
outstanding. |
|
(12) |
|
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.
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 decreased $153.0 million, or 5.5%, from
$2.8 billion at December 31, 2007 to $2.6 billion
at December 31, 2008. The net change in assets consisted
primarily of decreases of $71.2 million in net loans held
for sale, $33.6 million in goodwill, $33.5 million in
net loans, $24.3 million in available for sale securities,
and assets of discontinued operations of $14.8 million.
These decreases were offset partially by increases of
$18.7 million in real estate owned and other repossessed
assets, and $9.9 million in cash and cash equivalents.
Total liabilities decreased $118.3 million, or 4.7%,
primarily as a result of decreases of $99.7 million in
Federal Home Loan Bank advances, $24.3 million in
repurchase agreements and other borrowings, $4.8 million in
accrued interest payable and
24
$2.0 million in liabilities of discontinued operations,
partially offset by a $10.9 million increase in
interest-bearing deposits.
Funds not currently utilized for general corporate purposes are
invested in overnight funds and securities. Cash and cash
equivalents increased $9.9 million, or 29.6%, to
$43.4 million at December 31, 2008, compared to
$33.5 million at December 31, 2007.
Available for sale securities decreased $24.3 million
during 2008 primarily as a result of the sales of securities of
$138.0 million in addition to paydowns and maturities of
$56.7 million, offset partially by purchases of
$167.1 million. The majority of United Communitys
available for sale portfolio is held by Home Savings.
Net loans decreased $33.5 million, or 1.5%, to
$2.2 billion at December 31, 2008, compared to
December 31, 2007. The change is largely attributable to a
decline in Home Savings construction loan portfolio of
$91.2 million, as Home Savings reduced its origination
efforts in this portfolio and shifted its focus to permanent
real estate lending to reduce the concentration of construction
loans, land loans, land development loans and nonowner-occupied
commercial real estate, in accordance with the Bank Order. Home
Savings also had decreases of $1.7 million in commercial
loans and $613,000 in consumer loans. All of these decreases
were offset by increases in permanent real estate loans of
$63.8 million. The change in permanent real estate loans
was primarily attributable to increases in one- to four-family
residential real estate lending 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 6 to the
consolidated financial statements for additional information
regarding the composition of net loans.
Loans held for sale were $16.0 million at December 31,
2008, compared to $87.2 million at December 31, 2007.
Contributing to the decrease was the designation of
$76.5 million of one-to four-family residential mortgage
loans as held for sale in 2007, which Home Savings sold in
February 2008 with a gain of $1.5 million. Home Savings
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, Home Savings
offers a first-time homebuyers product that permits a 95%
loan-to-value and has no mortgage insurance requirement. At
December 31, 2008, loans to first-time homebuyers with an
original loan-to-value of 95% aggregated $21.9 million.
Home Savings does not offer products where customers may pay a
monthly amount that is less than the interest expense incurred
on the loan. Further, Home Savings 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 $36.0 million at
December 31, 2008, from $32.0 million at
December 31, 2007. 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 allowance for loan losses as a percentage of net loans
(coverage ratio) was 1.61% at December 31, 2008, compared
to 1.41% at
25
December 31, 2007. See Note 6 to the financial
statements for a summary of the allowance for loan losses. The
following table summarizes the trend in the allowance for loan
losses for 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
Provision
|
|
|
Recovery
|
|
|
Chargeoff
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family
|
|
$
|
2,803
|
|
|
$
|
5,530
|
|
|
$
|
23
|
|
|
$
|
(3,370
|
)
|
|
$
|
4,986
|
|
Multifamily residential
|
|
|
2,365
|
|
|
|
2,803
|
|
|
|
3
|
|
|
|
(2,827
|
)
|
|
|
2,344
|
|
Nonresidential
|
|
|
4,488
|
|
|
|
1,009
|
|
|
|
3
|
|
|
|
(630
|
)
|
|
|
4,870
|
|
Land
|
|
|
629
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,285
|
|
|
|
9,298
|
|
|
|
29
|
|
|
|
(6,827
|
)
|
|
|
12,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
11,892
|
|
|
|
7,869
|
|
|
|
10
|
|
|
|
(9,151
|
)
|
|
|
10,620
|
|
Multifamily and nonresidential
|
|
|
607
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,499
|
|
|
|
7,984
|
|
|
|
10
|
|
|
|
(9,151
|
)
|
|
|
11,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
1,260
|
|
|
|
1,717
|
|
|
|
|
|
|
|
(1,591
|
)
|
|
|
1,386
|
|
Auto
|
|
|
447
|
|
|
|
(118
|
)
|
|
|
36
|
|
|
|
(123
|
)
|
|
|
242
|
|
Marine
|
|
|
1,468
|
|
|
|
288
|
|
|
|
64
|
|
|
|
(316
|
)
|
|
|
1,504
|
|
Recreational vehicle
|
|
|
2,050
|
|
|
|
543
|
|
|
|
133
|
|
|
|
(1,301
|
)
|
|
|
1,425
|
|
Other
|
|
|
260
|
|
|
|
358
|
|
|
|
342
|
|
|
|
(647
|
)
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,485
|
|
|
|
2,788
|
|
|
|
575
|
|
|
|
(3,978
|
)
|
|
|
4,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
2,375
|
|
|
|
2,779
|
|
|
|
|
|
|
|
(1,799
|
)
|
|
|
3,355
|
|
Unsecured
|
|
|
1,362
|
|
|
|
2,480
|
|
|
|
101
|
|
|
|
(333
|
)
|
|
|
3,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,737
|
|
|
|
5,259
|
|
|
|
101
|
|
|
|
(2,132
|
)
|
|
|
6,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Allowance
|
|
$
|
32,006
|
|
|
$
|
25,329
|
|
|
$
|
715
|
|
|
$
|
(22,088
|
)
|
|
$
|
35,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Savings has made changes to its methodology for determining
the adeqvacy of the allowance for loan losses as a result of
compliance with the Bank Order. Stricter underwriting standards,
better collection efforts and the overall efforts to reduce
delinquencies will affect the allowance for loan losses in the
future.
A loan is impaired when, based on current information and
events, it is probable that Home Savings 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 Home Savings expects to collect
all amounts due including interest accrued at the contractual
interest rate for the period of delay.
26
The total outstanding balance of all impaired loans was
$87.2 million at December 31, 2008 as compared to
$84.4 million at December 31, 2007. The amount of
allowance for loan losses specifically allocated to impaired
loans at December 31, 2008 and 2007 was $11.0 million
and $13.2 million, respectively. The schedule below
summarizes impaired loans for 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family
|
|
$
|
12,675
|
|
|
$
|
2,681
|
|
|
$
|
9,994
|
|
Multifamily residential
|
|
|
8,724
|
|
|
|
13,604
|
|
|
|
(4,880
|
)
|
Nonresidential
|
|
|
14,855
|
|
|
|
13,597
|
|
|
|
1,258
|
|
Land
|
|
|
4,757
|
|
|
|
3,700
|
|
|
|
1,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
41,011
|
|
|
|
33,582
|
|
|
|
7,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
36,903
|
|
|
|
43,518
|
|
|
|
(6,615
|
)
|
Multifamily and nonresidential
|
|
|
816
|
|
|
|
825
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
37,719
|
|
|
|
44,343
|
|
|
|
(6,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
1,657
|
|
|
|
|
|
|
|
1,657
|
|
Auto
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine
|
|
|
2,614
|
|
|
|
1,714
|
|
|
|
900
|
|
Recreational vehicle
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,271
|
|
|
|
1,714
|
|
|
|
2,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
3,496
|
|
|
|
4,554
|
|
|
|
(1,058
|
)
|
Unsecured
|
|
|
751
|
|
|
|
184
|
|
|
|
567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,247
|
|
|
|
4,738
|
|
|
|
(491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans
|
|
$
|
87,248
|
|
|
$
|
84,377
|
|
|
$
|
2,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $5.6 million from $101.1 million at
December 31, 2007 to $106.7 million at
December 31, 2008. The change occurred primarily in the
permanent real estate segments of the portfolio. The schedule
below summarizes the change in nonperforming loans for 2008.
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming Loans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
2008 Interest
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Foregone
|
|
|
|
(In thousands)
|
|
|
Real Estate Loans
Permanent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family
|
|
$
|
21,669
|
|
|
$
|
12,752
|
|
|
$
|
8,917
|
|
|
$
|
803
|
|
Multifamily residential
|
|
|
8,724
|
|
|
|
13,604
|
|
|
|
(4,880
|
)
|
|
|
288
|
|
Nonresidential
|
|
|
15,246
|
|
|
|
13,597
|
|
|
|
1,649
|
|
|
|
154
|
|
Land
|
|
|
4,840
|
|
|
|
3,700
|
|
|
|
1,140
|
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
50,479
|
|
|
|
43,653
|
|
|
|
6,826
|
|
|
|
1,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family residential
|
|
|
43,167
|
|
|
|
44,680
|
|
|
|
(1,513
|
)
|
|
|
554
|
|
Multifamily and nonresidential
|
|
|
816
|
|
|
|
825
|
|
|
|
(9
|
)
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
43,983
|
|
|
|
45,505
|
|
|
|
(1,522
|
)
|
|
|
651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
2,312
|
|
|
|
2,454
|
|
|
|
(142
|
)
|
|
|
145
|
|
Auto
|
|
|
154
|
|
|
|
211
|
|
|
|
(57
|
)
|
|
|
(5
|
)
|
Marine
|
|
|
2,614
|
|
|
|
1,714
|
|
|
|
900
|
|
|
|
87
|
|
Recreational vehicle
|
|
|
756
|
|
|
|
376
|
|
|
|
380
|
|
|
|
27
|
|
Other
|
|
|
33
|
|
|
|
64
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,869
|
|
|
|
4,819
|
|
|
|
1,050
|
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
|
3,496
|
|
|
|
4,554
|
|
|
|
(1,058
|
)
|
|
|
438
|
|
Unsecured
|
|
|
1,057
|
|
|
|
184
|
|
|
|
873
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,553
|
|
|
|
4,738
|
|
|
|
(185
|
)
|
|
|
510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured Loans
|
|
|
1,797
|
|
|
|
2,341
|
|
|
|
(544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Nonperforming Loans
|
|
$
|
106,681
|
|
|
$
|
101,056
|
|
|
$
|
5,625
|
|
|
$
|
3,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $8.9 million increase in nonperforming loans secured by
one-to four-family properties was primarily a result of the
overall increase in the number of loans reported as 90 or more
days past due. The increase in reported nonperforming loans was
due in part to the adoption by Home Savings in the fourth
quarter of 2008 of the more conservative practice of determining
the past due status of loans based on the number of days the
loan is past due, rather than the number of calendar months the
loan is past due. The decrease in nonperforming construction
loans was primarily the result of Home Savings taking into
possession property collateralizing three lending relationships
totaling $12.5 million in the first quarter of 2008.
The Company continues to monitor changes in nonperforming loans
due to rapidly changing conditions in the current economic
environment. Nonperforming loans at February 28, 2009 were
$102.8 million, compared to $106.7 million at
December 31, 2008. Real estate owned and other repossessed
assets at February 28, 2009 were $30.9 million,
compared to $29.3 million at December 31, 2008. These
changes were expected as a result of the implementation of Home
Savings plan to reduce loan concentrations, loan
delinquencies, and classified assets. These areas are being
monitored on an ongoing basis in compliance with the Bank Order
and Home Savings expects these concentrations, delinquencies and
classified assets to be reduced as a result of that plan.
Federal Home Loan Bank stock increased $1.0 million to
$26.5 million at December 31, 2008, compared to
December 31, 2007. The quarterly dividend payments received
by Home Savings were paid in stock. In the prior year, these
dividends were paid in cash to Home Savings.
28
Premises and equipment decreased $1.6 million from
$26.6 million at December 31, 2007 to
$25.0 million at December 31, 2008. The primary cause
of this change was a full years depreciation expenses
recognized during the year on projects completed in 2007. Those
projects included the completion of two new Home Savings
branches and the remodeling of the lobby in United
Communitys headquarters. Similar projects were not
undertaken in 2008.
Accrued interest receivable decreased $2.9 million, or
22.4%, to $10.1 million at December 31, 2008, compared
to $13.0 million at December 31, 2007. Home Savings
had overall decreases in accrued interest on all loan portfolio
segments. Interest accrued on mortgage loans decreased $715,000
due primarily to an increase of $1.2 million in reserves
for uncollected interest on mortgage loans. Interest accrued on
installment loans decreased $402,000, due primarily to an
increase in reserves for uncollected interest on consumer loans
of $259,000. Interest accrued on commercial loans decreased
$1.3 million, due primarily to an increase in reserves for
uncollected interest on commercial loans of $2.3 million.
The increase in the reserves for uncollected interest is
affected directly by the increase in loans on non-accrual
status. Interest accrued on securities available for sale
decreased $510,000 due primarily to a decrease in the average
balance of securities held in Home Savings portfolio over
the year. As the Banks plan to reduce loan concentrations,
loan delinquencies, and classified assets is carried out in
compliance with the Bank Order, the Company expects these
reserves for uncollected interest to decrease.
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 $943,000 as other non-interest income based on the
cash value of the policies in 2008 and $917,000 in 2007. The
increase in the cash value of the policies is tax exempt as long
as the policies are not cashed in, and any death benefit
proceeds received by Home Savings are tax-free.
Assets of discontinued operations of Butler Wick decreased as a
result of the completion of the sale of Butler Wick &
Co., Inc. on December 31, 2008, to Stifel Financial Corp.
for $12.0 million. Refer to Note 4 for further
discussion on discontinued operations.
Other assets decreased $1.3 million during 2008. The
decrease is a result primarily of a decrease in deferred tax
assets at Home Savings of $1.6 million and a decrease in
mortgage servicing rights of $2.3 million, offset by an
increase in payments due from securities of $1.4 million.
Total deposits increased $10.7 million to $1.9 billion
at December 31, 2008, compared to December 31, 2007.
The change is primarily as a result of an increase in
certificates of deposit of $54.7 million and an increase in
savings accounts of $6.2 million. This increase was offset
by a decrease of $55.0 million in money market demand
accounts. The change in certificates of deposit is attributable
to a decline in retail certificates of deposit of
$50.6 million, offset by an increase in brokered
certificates of deposit of $105.3 million. In the third
quarter of 2008 Home Savings utilized the services of an
investment broker to attract brokered certificates of deposit.
These deposits were utilized to enhance the Companys
liquidity. Pursuant to the Bank Order, Home Savings cannot
obtain additional brokered certificates of deposit without prior
consent of the FDIC and Ohio Division. Management continually
evaluates many variables when pricing deposits, including cash
requirements, liquidity targets, asset growth rates, the
liability mix and interest rate risk.
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
$619.1 million. Of the total borrowing capacity at the
Federal Home Loan Bank, Home Savings had outstanding advances of
$337.6 million at December 31, 2008, which is a
decrease of $99.7 million compared to December 31,
2007. These borrowings are collateralized primarily by one- to
four-family residential mortgage loans.
Repurchase agreements used for general corporate purposes have
decreased $24.3 million to $125.3 million at
December 31, 2008, as a result of Home Savings securing
brokered deposits as a funding source. 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
29
offerings. These funds are not deposit accounts and are not
insured by the FDIC. United Community continually evaluates
funding alternatives and may borrow additional funds in 2009 to
satisfy funding requirements.
United Community has a Credit Agreement with JP Morgan Chase
Bank, N.A., dated September 12, 2005, as amended on
July 18, 2007, March 28, 2008, August 29, 2008,
and January 31, 2009, (Credit Agreement). The Credit
Agreement provided United Community with a line of credit of up
to $40.0 million. The Credit Agreement sets forth numerous
covenants with which United Community must comply.
On March 28, 2008, United Community and JP Morgan amended
the Credit Agreement to provide, among other things, (1) a
waiver of all existing defaults under the credit agreement,
(2) that no new funds would be advanced to United Community
on the line of credit, and (3) an increase in the allowable
non-performing asset ratio to 6.50% of total loans and other
real estate owned. As of December 31, 2008, that ratio was
5.97%.
On August 29, 2008, United Community and JP Morgan amended
the Credit Agreement in response to the event of default that
occurred when United Community entered into the OTS Order and
Home Savings entered into the Bank Order. The Amendment waived
the events of default and extended the maturity date of the
borrowings until January 31, 2009. Over the course of 2008,
the Company paid down approximately $29.4 million on this
line of credit, under which $36.3 million had been
outstanding at December 31, 2007. In January 2009, the
Company paid down an additional $1.8 million on this line
of credit, further reducing the balance to $5.1 million.
On January 31, 2009, United Community and JP Morgan amended
the Credit Agreement in response to the proposed sale of Butler
Wick Trust to Farmers National Banc Corp. The amendment includes
provisions to use a portion of the cash proceeds of the sale to
repay the entire principal balance outstanding and any unpaid
interest that has accrued no later than April 30, 2009.
Accrued interest payable decreased during 2008 as a result of a
net decrease in the borrowings mentioned above.
Total shareholders equity decreased $34.8 million, or
12.9%, from December 31, 2007 to December 31, 2008.
The decrease was primarily due to net loss of
$35.3 million, and cash dividends paid to shareholders
totaling $4.1 million. Accumulated other comprehensive
income changed as a result of the change in market value of
available for sale securities at December 31, 2008 compared
to December 31, 2007 and the effect of the recognition of
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement
Plans an amendment of FASB Statements No. 87,
88, 106 and 132(R) . Refer to Note 18 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 $7.60 and $7.57,
respectively, as of December 31, 2008. Book value per share
and tangible book value per share were $8.73 and $7.60,
respectively, as of December 31, 2007.
Comparison
of Operating Results for the Years Ended December 31, 2008
and December 31, 2007
Net Income Net loss for the year ended
December 31, 2008 was $35.3 million, compared to net
income of $4.1 million for the year ended December 31,
2007. This change was due primarily to impairment charges
recognized on goodwill of $33.6 million and
other-than-temporary impairment charges recognized on securities
available for sale of $6.1 million. Similar impairment
charges were not required in 2007.
Net Interest Income Net interest income
for the year ended December 31, 2008, was
$73.3 million compared to $72.7 million for 2007. The
decline in interest expenses more than offset the decline in
interest income during 2008, compared to 2007. Interest expenses
decreased in 2008 compared to 2007, due mainly to declines in
interest paid on FHLB advances of $9.1 million and interest
paid on deposits of $7.8 million. In keeping with the
reduction in total assets in 2008, the Company was able to
reduce its debt and utilize lower cost funds.
Interest income decreased $16.6 million in 2008 primarily
due to decreases in interest earned on net loans of
$17.7 million, loans held for sale of $448,000, and
dividends received on shares of FHLB stock of $317,000. The
change in interest earned on loans was a result of a decrease of
$37.2 million in the average balance of outstanding loans,
due in part to the sale of $76.5 million of mortgage loans
in February 2008, as well as a decrease of 68 basis points
in the yield earned on these assets. Interest earned on
available for sale securities increased and offset
30
partially the decline in interest earned on loans. The average
balance of available for sale securities increased
$33.3 million and the yield on these assets increased eight
basis points.
Provision for Loan Losses The provision for
loan losses was $25.3 million for the year ended
December 31, 2008, compared to $28.8 million for the
year ended December 31, 2007, a decrease of
$3.4 million. Managements analysis of the loan
portfolio led to increased provisions of $9.3 million
related to the permanent real estate portfolio,
$8.0 million related to the construction loan portfolio,
$2.8 million related to the consumer loan portfolio and
$5.3 million related to the commercial portfolio. Net loan
chargeoffs for the year ended December 31, 2008 were
$21.4 million, compared to $13.7 million for the year
ended December 31, 2007. The allowance for loan losses
totaled $36.0 million at December 31, 2008, which was
1.61% of net loans and 33.7% of nonperforming loans, compared to
$32.0 million at December 31, 2007, which was 1.41% of
net loans and 31.7% of nonperforming loans.
Non-interest Income Non-interest income
decreased $8.5 million, or 59.6%, to $5.8 million for
the year ended December 31, 2008, from $14.3 million
for the year ended December 31, 2007. Other-than-temporary
impairment charges to the Companys Fannie Mae auction rate
pass through trust security and a write-down of the
Companys equity investments in the common shares of three
financial institutions of $6.1 million were recognized in
2008. Similar charges were not required in 2007. Also
contributing to the decrease was Home Savings recognition
of increased losses on real estate owned and other assets
acquired in the settlement of loans, the write-down of mortgage
servicing rights and the valuation of the loans held for sale
portfolio.
Non-interest Expense Non-interest expenses
rose $38.5 million during the year ended December 31,
2008, compared to 2007, primarily as a result of goodwill
impairment charges of $33.6 million recognized in 2008.
Refer to Note 10 for a discussion of goodwill. Also,
increased consulting fees and FDIC insurance premiums related to
the enforcement actions of the OTS, FDIC and the Ohio Division
have cause non-interest expenses to rise. FDIC insurance
premiums are expected to approximate $10.9 million in 2009,
due in part to the enforcement actions mentioned above and the
special assessment passed for the second quarter of 2009. Refer
to Note 3 for a further discussion of the regulatory
enforcement actions. Additionally, fees incurred within our real
estate owned and other repossessed assets portfolio have
increased 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, 2008, United Community recorded a
$3.2 million benefit for income taxes as a result of lower
pretax income earned in 2008 compared to 2007. Refer to
Note 15 for a further discussion on these expenses.
Discontinued Operations Net income recognized
on the discontinued operations of Butler Wick decreased $469,000
from $2.4 million for the year ended December 31, 2007
to $2.0 million for the year ended December 31, 2008.
The primary cause of the change is an increase in salary
expenses related to compensation expense to employees of Butler
Wick resulting from the completion of the sale of a Butler
Wick & Co., a securities broker/dealer subsidiary, to
Stifel Financial Corp., on December 31, 2008. Butler Wick
also earned lower net interest income and lower service fees
during the year ended December 31, 2008 as compared to the
year ended December 31, 2007. Partially offsetting these
increases was the gain recognized on the sale of Butler Wick and
Co., Inc. of $3.3 million. Refer to Note 4 for a
further discussion of discontinued operations.
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
$12.2 million, and non-interest expense of
$2.3 million. These increases were only partially offset by
an increase in interest income of $5.1 million, an increase
in non-interest income of $1.1 million, and an increase in
income from discontinued operations of $1.3 million.
Net Interest Income Net interest income
for the twelve months ended December 31, 2007, was
$72.7 million compared to $79.8 million for the same
period the previous year. Interest income increased
$5.1 million for the year 2007 compared to the year 2006,
despite an increase in nonperforming loans. 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
31
average balance of outstanding loans. Interest earned on
available for sale securities increased $2.5 million, as
the average balance of those assets grew by $31.5 million
and the yield earned on those securities increased 47 basis
points.
Total interest expense increased $12.2 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 $2.5 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 $3.7 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
35 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 provisions of $5.8 million related to the
permanent real estate portfolio, $15.1 million related to
the construction loan portfolio, $3.4 million related to
the consumer loan portfolio and $4.4 million related 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 $1.1 million, or 8.3%, to $14.3 million for
the year ended December 31, 2007, from $13.2 million
for the year ended December 31, 2006. The change was due
primarily to increases in non-deposit investment income of
$864,000 due to greater sales activity, and an increase in
service fees and other charges of $1.3 million. These
changes were offset partially by declines in gains recognized on
the sale of loans, available for sale securities and trading
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 $2.3 million during the year ended December 31,
2007, compared to 2006, primarily as a result of equipment and
data processing expenses increasing $836,000, occupancy expenses
increasing $316,000 and other expenses increasing
$1.6 million. The 14.8% increase in equipment and data
processing expense is attributable to increased depreciation due
to the new branches constructed in 2007, and increased core
system processing fees paid. 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 2007. Increases in other
expenses are attributable to increased consulting fees
recognized as a result of merger costs associated with the
abandoned 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 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 $910,000
provision for income taxes. This is a decrease of
$11.5 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 34.7%
compared to 35.0% at December 31, 2006. Refer to
Note 15 for a further discussion of these expenses.
32
Discontinued Operations Net income recognized
on the discontinued operations of Butler Wick increased
$1.3 million from $1.1 million at December 31,
2006 to $2.4 million at December 31, 2007. The primary
cause of the change is an increase in brokerage commissions
earned in 2007 compared to 2006 due to greater brokerage
activity and increased service fees charged to customers.
Partially offsetting these increases were higher expenses
related to increased commissions paid to Butler Wick employees
and associated employment taxes recognized as a result of the
increased brokerage activity. Refer to Note 4 for a further
discussion of discontinued operations.
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 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.
In compliance with the Bank Order, Home Savings maintains a well
documented methodology for maintaining an allowance for loan
losses that is compliant with all interagency guidance. The
documentation of the adequacy of the allowance for loan losses
is reviewed by the board of directors on a regular basis. The
methodology is revised when appropriate for changes in risk
factors within the loan portfolio.
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
33
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.
Goodwill. For acquisitions, we are required to
record the assets acquired, including identified intangible
assets, and the liabilities assumed at their fair value. These
often involve estimates based on third-party valuations, such as
appraisals, or internal valuations based on discounted cash flow
analyses or other valuation techniques that may include
estimates of attrition, inflation, asset growth rates, or other
relevant factors. In addition, the determination of the useful
lives over which an intangible asset will be amortized is
subjective. Under SFAS No. 142, Goodwill and Other
Intangible Assets, goodwill and indefinite-lived assets
recorded must be reviewed for impairment on an annual basis, as
well as on an interim basis if events or changes indicate that
the asset might be impaired. An impairment loss must be
recognized for any excess of carrying value over fair value of
the goodwill or the indefinite-lived intangible asset. The
determination of fair values is based on internal valuations
using managements assumptions of future growth rates,
future attrition, discount rates, multiples of earnings or other
relevant factors.
Changes in these factors, as well as downturns in economic or
business conditions, could have a significant adverse impact on
the carrying values of goodwill or intangible assets and could
result in impairment losses affecting the financials of United
Community as a whole and the individual lines of business in
which the goodwill or intangibles reside.
Income taxes. We are subject to the income tax
laws of the United States, its states and the municipalities in
which we operate. These tax laws are complex and subject to
different interpretations by the taxpayer and the relevant
government taxing authorities. We review income tax expense and
the carrying value of deferred tax assets quarterly; and as new
information becomes available, the balances are adjusted as
appropriate. On January 1, 2007, we adopted FIN 48 to
account for uncertain tax positions. FIN 48 prescribes a
recognition threshold of more-likely-than-not, and a measurement
attribute for all tax positions taken or expected to be taken on
a tax return, in order for those tax positions to be recognized
in the financial statements. See Note 15 to the
Consolidated Financial Statements for a further description of
our provision and related income tax assets and liabilities.
In establishing a provision for income tax expense, we must make
judgments and interpretations about the application of these
inherently complex tax laws. We must also make estimates about
when in the future certain items will affect taxable income in
the various tax jurisdictions. Disputes over interpretations of
the tax laws may be subject to review/adjudication by the court
systems of the various tax jurisdictions or may be settled with
the taxing authority upon examination or audit.
Although management believes that the judgments and estimates
used are reasonable, actual results could differ and we may be
exposed to losses or gains that could be material. To the extent
we prevail in matters for which reserves have been established,
or are required to pay amounts in excess of our reserves, our
effective income tax rate in a given financial statement period
could be materially affected. An unfavorable tax settlement
would result in an increase in our effective income tax rate in
the period of resolution. A favorable tax settlement would
result in a reduction in our effective income tax rate in the
period of resolution.
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 cost
average balance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
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)
|
|
$
|
2,231,692
|
|
|
$
|
136,556
|
|
|
|
6.12
|
%
|
|
$
|
2,268,914
|
|
|
$
|
154,252
|
|
|
|
6.80
|
%
|
|
$
|
2,186,559
|
|
|
$
|
151,029
|
|
|
|
6.91
|
%
|
Loans held for sale
|
|
|
9,674
|
|
|
|
466
|
|
|
|
4.82
|
|
|
|
18,781
|
|
|
|
914
|
|
|
|
4.87
|
|
|
|
37,549
|
|
|
|
1,894
|
|
|
|
5.04
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
|
|
|
184
|
|
|
|
3
|
|
|
|
1.63
|
|
|
|
482
|
|
|
|
26
|
|
|
|
5.39
|
|
|
|
817
|
|
|
|
38
|
|
|
|
4.65
|
|
Available for sale
|
|
|
276,396
|
|
|
|
13,652
|
|
|
|
4.94
|
|
|
|
243,059
|
|
|
|
11,818
|
|
|
|
4.86
|
|
|
|
211,562
|
|
|
|
9,281
|
|
|
|
4.39
|
|
Federal Home Loan Bank stock
|
|
|
25,878
|
|
|
|
1,360
|
|
|
|
5.26
|
|
|
|
25,432
|
|
|
|
1,677
|
|
|
|
6.59
|
|
|
|
24,533
|
|
|
|
1,426
|
|
|
|
5.81
|
|
Other interest earning assets
|
|
|
13,135
|
|
|
|
141
|
|
|
|
1.07
|
|
|
|
2,247
|
|
|
|
128
|
|
|
|
5.70
|
|
|
|
1,783
|
|
|
|
95
|
|
|
|
5.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets
|
|
$
|
2,556,959
|
|
|
$
|
152,178
|
|
|
|
5.95
|
%
|
|
$
|
2,558,915
|
|
|
$
|
168,815
|
|
|
|
6.60
|
%
|
|
$
|
2,462,803
|
|
|
$
|
163,763
|
|
|
|
6.65
|
%
|
Assets of discontinued operations
|
|
|
22,965
|
|
|
|
|
|
|
|
|
|
|
|
22,225
|
|
|
|
|
|
|
|
|
|
|
|
29,997
|
|
|
|
|
|
|
|
|
|
Non-interest earning assets
|
|
|
144,096
|
|
|
|
|
|
|
|
|
|
|
|
141,154
|
|
|
|
|
|
|
|
|
|
|
|
131,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,724,020
|
|
|
|
|
|
|
|
|
|
|
$
|
2,722,294
|
|
|
|
|
|
|
|
|
|
|
$
|
2,624,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts
|
|
$
|
426,790
|
|
|
$
|
9,475
|
|
|
|
2.22
|
%
|
|
$
|
397,290
|
|
|
$
|
13,907
|
|
|
|
3.50
|
%
|
|
$
|
330,856
|
|
|
$
|
10,060
|
|
|
|
3.04
|
%
|
Savings accounts
|
|
|
180,010
|
|
|
|
811
|
|
|
|
0.45
|
|
|
|
185,949
|
|
|
|
769
|
|
|
|
0.41
|
|
|
|
218,590
|
|
|
|
899
|
|
|
|
0.41
|
|
Certificates of deposit
|
|
|
1,169,403
|
|
|
|
49,953
|
|
|
|
4.27
|
|
|
|
1,125,117
|
|
|
|
53,376
|
|
|
|
4.74
|
|
|
|
1,111,602
|
|
|
|
47,681
|
|
|
|
4.29
|
|
Federal Home Loan Bank advances
|
|
|
384,260
|
|
|
|
12,358
|
|
|
|
3.22
|
|
|
|
448,714
|
|
|
|
21,493
|
|
|
|
4.79
|
|
|
|
452,023
|
|
|
|
21,246
|
|
|
|
4.70
|
|
Repurchase agreements and other
|
|
|
146,233
|
|
|
|
6,319
|
|
|
|
4.32
|
|
|
|
136,135
|
|
|
|
6,558
|
|
|
|
4.82
|
|
|
|
91,027
|
|
|
|
4,067
|
|
|
|
4.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
$
|
2,306,696
|
|
|
$
|
78,916
|
|
|
|
3.42
|
%
|
|
$
|
2,293,205
|
|
|
$
|
96,103
|
|
|
|
4.19
|
%
|
|
$
|
2,204,098
|
|
|
$
|
83,953
|
|
|
|
3.81
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations
|
|
|
8,290
|
|
|
|
|
|
|
|
|
|
|
|
4,710
|
|
|
|
|
|
|
|
|
|
|
|
14,234
|
|
|
|
|
|
|
|
|
|
Non-interest bearing liabilities
|
|
|
135,861
|
|
|
|
|
|
|
|
|
|
|
|
136,858
|
|
|
|
|
|
|
|
|
|
|
|
129,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
2,450,847
|
|
|
|
|
|
|
|
|
|
|
$
|
2,434,773
|
|
|
|
|
|
|
|
|
|
|
$
|
2,347,877
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
273,173
|
|
|
|
|
|
|
|
|
|
|
|
287,521
|
|
|
|
|
|
|
|
|
|
|
|
276,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
2,724,020
|
|
|
|
|
|
|
|
|
|
|
$
|
2,722,294
|
|
|
|
|
|
|
|
|
|
|
$
|
2,624,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income and interest rate spread
|
|
|
|
|
|
$
|
73,262
|
|
|
|
2.53
|
%
|
|
|
|
|
|
$
|
72,712
|
|
|
|
2.41
|
%
|
|
|
|
|
|
$
|
79,810
|
|
|
|
2.84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
2.87
|
%
|
|
|
|
|
|
|
|
|
|
|
2.84
|
%
|
|
|
|
|
|
|
|
|
|
|
3.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest earning assets to average interest bearing
liabilities
|
|
|
|
|
|
|
|
|
|
|
110.85
|
%
|
|
|
|
|
|
|
|
|
|
|
111.59
|
%
|
|
|
|
|
|
|
|
|
|
|
111.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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,
|
|
|
|
2008 vs. 2007
|
|
|
2007 vs. 2006
|
|
|
|
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
|
|
$
|
(15,201
|
)
|
|
$
|
(2,495
|
)
|
|
$
|
(17,696
|
)
|
|
$
|
(2,312
|
)
|
|
$
|
5,535
|
|
|
$
|
3,223
|
|
Loans held for sale
|
|
|
(9
|
)
|
|
|
(439
|
)
|
|
|
(448
|
)
|
|
|
(64
|
)
|
|
|
(916
|
)
|
|
|
(980
|
)
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
|
|
|
(12
|
)
|
|
|
(11
|
)
|
|
|
(23
|
)
|
|
|
8
|
|
|
|
(20
|
)
|
|
|
(12
|
)
|
Available for sale
|
|
|
191
|
|
|
|
1,643
|
|
|
|
1,834
|
|
|
|
1,068
|
|
|
|
1,469
|
|
|
|
2,537
|
|
Federal Home Loan Bank stock
|
|
|
(347
|
)
|
|
|
30
|
|
|
|
(317
|
)
|
|
|
197
|
|
|
|
54
|
|
|
|
251
|
|
Other interest earning assets
|
|
|
(3
|
)
|
|
|
16
|
|
|
|
13
|
|
|
|
7
|
|
|
|
26
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets
|
|
$
|
(15,381
|
)
|
|
$
|
(1,256
|
)
|
|
$
|
(16,637
|
)
|
|
$
|
(1,096
|
)
|
|
$
|
6,148
|
|
|
$
|
5,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts
|
|
$
|
(5,561
|
)
|
|
$
|
1,129
|
|
|
$
|
(4,432
|
)
|
|
$
|
1,653
|
|
|
$
|
2,194
|
|
|
$
|
3,847
|
|
Savings accounts
|
|
|
65
|
|
|
|
(23
|
)
|
|
|
42
|
|
|
|
5
|
|
|
|
(135
|
)
|
|
|
(130
|
)
|
Certificates of deposit
|
|
|
(5,661
|
)
|
|
|
2,238
|
|
|
|
(3,423
|
)
|
|
|
5,109
|
|
|
|
586
|
|
|
|
5,695
|
|
Federal Home Loan Bank advances
|
|
|
(6,356
|
)
|
|
|
(2,779
|
)
|
|
|
(9,135
|
)
|
|
|
401
|
|
|
|
(154
|
)
|
|
|
247
|
|
Repurchase agreements and other
|
|
|
(854
|
)
|
|
|
615
|
|
|
|
(239
|
)
|
|
|
340
|
|
|
|
2,151
|
|
|
|
2,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
$
|
(18,367
|
)
|
|
$
|
1,180
|
|
|
$
|
(17,187
|
)
|
|
$
|
7,508
|
|
|
$
|
4,642
|
|
|
$
|
12,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income
|
|
|
|
|
|
|
|
|
|
$
|
550
|
|
|
|
|
|
|
|
|
|
|
$
|
(7,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
Obligations, Commitments, Contingent Liabilities and Off-balance
Sheet Arrangements
The following table presents, as of December 31, 2008,
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
|
|
|
9
|
|
|
$
|
574
|
|
|
$
|
1,164
|
|
|
$
|
830
|
|
|
$
|
687
|
|
|
$
|
3,255
|
|
Deposits without a stated maturity
|
|
|
11
|
|
|
|
660,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
660,675
|
|
Certificates of deposit
|
|
|
11
|
|
|
|
594,099
|
|
|
|
418,780
|
|
|
|
212,377
|
|
|
|
|
|
|
|
1,225,256
|
|
Federal Home Loan Bank advances
|
|
|
12
|
|
|
|
247,650
|
|
|
|
23,281
|
|
|
|
16,226
|
|
|
|
50,446
|
|
|
|
337,603
|
|
Repurchase agreements and other borrowings
|
|
|
13
|
|
|
|
15,269
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
90,000
|
|
|
|
125,269
|
|
Discussion of loan commitments is included in Note 6 to the
consolidated financial statements. In addition, United Community
has commitments under benefit plans as described in Note 18
to the consolidated financial statements.
36
|
|
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, 2008, 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, 2008
|
|
|
|
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
|
|
|
7.37
|
%
|
|
|
5.00
|
%
|
|
|
(1.38
|
)%
|
|
$
|
(1,879
|
)
|
|
|
(15.00
|
)%
|
|
|
(2.48
|
)%
|
+200
|
|
|
8.35
|
|
|
|
6.00
|
|
|
|
(0.40
|
)
|
|
|
(734
|
)
|
|
|
(10.00
|
)
|
|
|
(0.97
|
)
|
+100
|
|
|
8.99
|
|
|
|
6.00
|
|
|
|
0.24
|
|
|
|
60
|
|
|
|
(5.00
|
)
|
|
|
0.08
|
|
Static
|
|
|
8.75
|
|
|
|
7.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to a low interest rate environment, it was not possible to
calculate results for a drop in interest rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
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, 2008, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Net income (loss)
|
|
$
|
(35,279
|
)
|
|
$
|
4,133
|
|
|
$
|
24,111
|
|
Adjustments to reconcile net income to net cash from operating
activities
|
|
|
141,538
|
|
|
|
46,074
|
|
|
|
7,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
106,259
|
|
|
|
50,207
|
|
|
|
31,932
|
|
Net cash from investing activities
|
|
|
18,956
|
|
|
|
(106,616
|
)
|
|
|
(199,891
|
)
|
Net cash from financing activities
|
|
|
(115,300
|
)
|
|
|
56,200
|
|
|
|
166,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
9,915
|
|
|
|
(209
|
)
|
|
|
(1,485
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
33,502
|
|
|
|
33,711
|
|
|
|
35,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
43,717
|
|
|
$
|
33,502
|
|
|
$
|
33,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 and
Home Savings are based upon managements assessment of
(1) the 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, 2008, approximately
$594.1 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.
On April 30, 2007, United Community announced that its
Board of Directors had approved the purchase of up to 2,000,000
treasury shares to be made in the open market or in negotiated
transactions from time to time, depending on market conditions.
United Community acquired no shares in 2008 under this program.
United Community acquired 950,243 common shares for
$9.7 million and 196,300 common shares for
$2.3 million, during the years ended December 31, 2007
and 2006. As of December 31, 2008, United Community had
remaining authorization to repurchase 1,477,804 shares
under the current repurchase program but the OTS Order prohibits
38
United Community from repurchasing shares without prior
approval. Refer to Note 3 of the Consolidated Financial
Statements for a complete discussion of the limitations of the
regulatory enforcement actions.
Home Savings is required by federal regulations to meet certain
minimum capital requirements. Minimum regulatory capital
requirements call for tangible capital of 1.5% of average
tangible assets; Tier 1 capital of 4.0% of average total
assets (the Tier 1 Leverage Ratio) and total risk-based
capital (which for Home Savings consists of Tier 1 capital
and a portion of the allowance for loan losses) of 8.0% of
risk-weighted assets (assets are weighted at percentage levels
ranging from 0% to 100% as defined by law and regulation
depending on their relative risk). The Bank Order requires Home
Savings to maintain a Tier 1 Leverage Ratio at a minimum of
8.0% and a total risk-based capital ratio of no less than 12.0%.
At December 31, 2008, Home Savings Tier 1
capital was 8.20% and its total risk-based capital was 12.06%.
Because of the consent to the Bank Order, Home Savings is deemed
adequately capitalized for regulatory capital
purposes. Refer to Note 3 of the Consolidated Financial
Statements for a complete discussion of the limitations of the
regulatory enforcement actions.
The following table summarizes Home Savings regulatory
capital requirements and actual capital at December 31,
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess of Actual
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Capital Over Current
|
|
|
Applicable
|
|
|
|
Actual Capital
|
|
|
Minimum Requirement
|
|
|
Requirement
|
|
|
Asset Base
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Tangible capital
|
|
$
|
217,630
|
|
|
|
8.20
|
%
|
|
$
|
39,817
|
|
|
|
1.50
|
%
|
|
$
|
177,813
|
|
|
|
6.70
|
%
|
|
$
|
2,654,488
|
|
Tier 1 capital
|
|
|
217,630
|
|
|
|
8.20
|
|
|
|
106,180
|
|
|
|
4.00
|
|
|
|
111,450
|
|
|
|
4.20
|
|
|
|
2,654,488
|
|
Risk-based capital
|
|
|
242,944
|
|
|
|
12.06
|
|
|
|
161,163
|
|
|
|
8.00
|
|
|
|
81,781
|
|
|
|
4.06
|
|
|
|
2,014,534
|
|
39
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Cash and deposits with banks
|
|
$
|
21,745
|
|
|
$
|
29,405
|
|
Federal funds sold
|
|
|
21,672
|
|
|
|
4,097
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
43,417
|
|
|
|
33,502
|
|
|
|
|
|
|
|
|
|
|
Securities:
|
|
|
|
|
|
|
|
|
Trading, at fair value
|
|
|
|
|
|
|
312
|
|
Available for sale, at fair value
|
|
|
215,731
|
|
|
|
240,035
|
|
Loans held for sale
|
|
|
16,032
|
|
|
|
87,236
|
|
Loans, net of allowance for loan losses of $35,962 and $32,006
|
|
|
2,203,453
|
|
|
|
2,236,988
|
|
Federal Home Loan Bank stock, at cost
|
|
|
26,464
|
|
|
|
25,432
|
|
Premises and equipment, net
|
|
|
25,015
|
|
|
|
26,596
|
|
Accrued interest receivable
|
|
|
10,082
|
|
|
|
12,987
|
|
Real estate owned and other repossessed assets
|
|
|
29,258
|
|
|
|
10,510
|
|
Goodwill
|
|
|
|
|
|
|
33,593
|
|
Core deposit intangible
|
|
|
884
|
|
|
|
1,169
|
|
Cash surrender value of life insurance
|
|
|
25,090
|
|
|
|
24,053
|
|
Assets of discontinued operations Butler Wick
Corp.
|
|
|
5,562
|
|
|
|
20,314
|
|
Other assets
|
|
|
17,085
|
|
|
|
18,390
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,618,073
|
|
|
$
|
2,771,117
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Liabilities
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
106,255
|
|
|
$
|
106,449
|
|
Interest bearing
|
|
|
1,779,676
|
|
|
|
1,768,757
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
1,885,931
|
|
|
|
1,875,206
|
|
Borrowed funds:
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances
|
|
|
337,603
|
|
|
|
437,253
|
|
Repurchase agreements and other
|
|
|
125,269
|
|
|
|
149,533
|
|
|
|
|
|
|
|
|
|
|
Total borrowed funds
|
|
|
462,872
|
|
|
|
586,786
|
|
Advance payments by borrowers for taxes and insurance
|
|
|
19,806
|
|
|
|
17,853
|
|
Accrued interest payable
|
|
|
3,077
|
|
|
|
7,837
|
|
Liabilities of discontinued operations Butler Wick
Corp.
|
|
|
2,388
|
|
|
|
4,371
|
|
Accrued expenses and other liabilities
|
|
|
9,076
|
|
|
|
9,350
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,383,150
|
|
|
|
2,501,403
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities (Note 6 and
Note 14)
|
|
|
|
|
|
|
|
|
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
|
|
|
146,439
|
|
|
|
146,683
|
|
Retained earnings
|
|
|
165,447
|
|
|
|
213,727
|
|
Accumulated other comprehensive income
|
|
|
3,635
|
|
|
|
661
|
|
Unearned employee stock ownership plan shares
|
|
|
(7,643
|
)
|
|
|
(9,465
|
)
|
Treasury stock, at cost, 2008 6,906,632 shares
and 2007 7,752,684 shares
|
|
|
(72,955
|
)
|
|
|
(81,892
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
234,923
|
|
|
|
269,714
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
2,618,073
|
|
|
$
|
2,771,117
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
40
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
136,556
|
|
|
$
|
154,252
|
|
|
$
|
151,029
|
|
Loans held for sale
|
|
|
466
|
|
|
|
914
|
|
|
|
1,894
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
|
|
|
3
|
|
|
|
26
|
|
|
|
38
|
|
Available for sale
|
|
|
13,652
|
|
|
|
11,818
|
|
|
|
9,281
|
|
Federal Home Loan Bank stock dividends
|
|
|
1,360
|
|
|
|
1,677
|
|
|
|
1,426
|
|
Other interest earning assets
|
|
|
141
|
|
|
|
128
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
152,178
|
|
|
|
168,815
|
|
|
|
163,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
60,239
|
|
|
|
68,052
|
|
|
|
58,640
|
|
Federal Home Loan Bank advances
|
|
|
12,358
|
|
|
|
21,493
|
|
|
|
21,246
|
|
Repurchase agreements and other
|
|
|
6,319
|
|
|
|
6,558
|
|
|
|
4,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
78,916
|
|
|
|
96,103
|
|
|
|
83,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
73,262
|
|
|
|
72,712
|
|
|
|
79,810
|
|
Provision for loan losses
|
|
|
25,329
|
|
|
|
28,750
|
|
|
|
4,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
47,933
|
|
|
|
43,962
|
|
|
|
75,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-deposit investment income
|
|
|
1,624
|
|
|
|
1,429
|
|
|
|
565
|
|
Service fees and other charges
|
|
|
6,177
|
|
|
|
7,707
|
|
|
|
6,443
|
|
Net gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
1,936
|
|
|
|
(21
|
)
|
|
|
|
|
Other than temporary impairment charges on securities available
for sale
|
|
|
(6,087
|
)
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
(38
|
)
|
|
|
31
|
|
|
|
60
|
|
Loans sold
|
|
|
2,809
|
|
|
|
2,624
|
|
|
|
2,943
|
|
Real estate owned and other repossessed assets sold
|
|
|
(4,770
|
)
|
|
|
(1,061
|
)
|
|
|
(63
|
)
|
Other income
|
|
|
4,133
|
|
|
|
3,593
|
|
|
|
3,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
5,784
|
|
|
|
14,302
|
|
|
|
13,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
32,570
|
|
|
|
33,128
|
|
|
|
33,340
|
|
Goodwill impairment charge
|
|
|
33,593
|
|
|
|
|
|
|
|
|
|
Occupancy
|
|
|
3,731
|
|
|
|
3,443
|
|
|
|
3,127
|
|
Equipment and data processing
|
|
|
6,814
|
|
|
|
6,502
|
|
|
|
5,666
|
|
Franchise tax
|
|
|
2,122
|
|
|
|
2,102
|
|
|
|
2,091
|
|
Advertising
|
|
|
964
|
|
|
|
1,206
|
|
|
|
1,162
|
|
Amortization of core deposit intangible
|
|
|
285
|
|
|
|
365
|
|
|
|
584
|
|
Deposit insurance premiums
|
|
|
3,233
|
|
|
|
215
|
|
|
|
216
|
|
Professional fees
|
|
|
3,400
|
|
|
|
2,505
|
|
|
|
1,979
|
|
Real estate owned and other repossessed asset expenses
|
|
|
2,061
|
|
|
|
720
|
|
|
|
308
|
|
Other expenses
|
|
|
5,413
|
|
|
|
5,454
|
|
|
|
4,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
94,186
|
|
|
|
55,640
|
|
|
|
53,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes and discontinued
operations
|
|
|
(40,469
|
)
|
|
|
2,624
|
|
|
|
35,356
|
|
Income tax expense (benefit)
|
|
|
(3,240
|
)
|
|
|
910
|
|
|
|
12,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before discontinued operations
|
|
|
(37,229
|
)
|
|
|
1,714
|
|
|
|
22,963
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income of Butler Wick Corp., net of tax
|
|
|
1,950
|
|
|
|
2,419
|
|
|
|
1,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(35,279
|
)
|
|
$
|
4,133
|
|
|
$
|
24,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic-continuing operations
|
|
$
|
(1.26
|
)
|
|
$
|
0.06
|
|
|
$
|
0.77
|
|
Basic-discontinued operations
|
|
|
0.06
|
|
|
|
0.08
|
|
|
|
0.04
|
|
Basic
|
|
|
(1.20
|
)
|
|
|
0.14
|
|
|
|
0.81
|
|
Diluted-continuing operations
|
|
|
(1.26
|
)
|
|
|
0.06
|
|
|
|
0.76
|
|
Diluted-discontinued operations
|
|
|
0.06
|
|
|
|
0.08
|
|
|
|
0.04
|
|
Diluted
|
|
|
(1.20
|
)
|
|
|
0.14
|
|
|
|
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, 2005
|
|
|
31,062
|
|
|
$
|
143,896
|
|
|
$
|
207,120
|
|
|
$
|
(1,845
|
)
|
|
$
|
(13,108
|
)
|
|
$
|
(71,328
|
)
|
|
$
|
264,735
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
24,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,111
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, $0.3502 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
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, $0.3697 per share
|
|
|
|
|
|
|
|
|
|
|
(10,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
|
30,052
|
|
|
|
146,683
|
|
|
|
213,727
|
|
|
|
661
|
|
|
|
(9,465
|
)
|
|
|
(81,892
|
)
|
|
|
269,714
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(35,279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,279
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,974
|
|
|
|
|
|
|
|
|
|
|
|
2,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,305
|
)
|
Shares allocated to ESOP participants
|
|
|
|
|
|
|
(394
|
)
|
|
|
|
|
|
|
|
|
|
|
1,822
|
|
|
|
|
|
|
|
1,428
|
|
Stock based compensation
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
Stock dividends paid
|
|
|
846
|
|
|
|
|
|
|
|
(8,937
|
)
|
|
|
|
|
|
|
|
|
|
|
8,937
|
|
|
|
|
|
Cash dividends paid, $0.1386 per share
|
|
|
|
|
|
|
|
|
|
|
(4,064
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,064
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
|
30,898
|
|
|
$
|
146,439
|
|
|
$
|
165,447
|
|
|
$
|
3,635
|
|
|
$
|
(7,643
|
)
|
|
$
|
(72,955
|
)
|
|
$
|
234,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
42
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(35,279
|
)
|
|
$
|
4,133
|
|
|
$
|
24,111
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
25,329
|
|
|
|
28,750
|
|
|
|
4,347
|
|
Net gains on loans
|
|
|
(2,809
|
)
|
|
|
(2,624
|
)
|
|
|
(2,943
|
)
|
Net losses on real estate owned and other repossessed assets
|
|
|
4,763
|
|
|
|
1,053
|
|
|
|
95
|
|
Net losses on other assets
|
|
|
(1,891
|
)
|
|
|
(14
|
)
|
|
|
(95
|
)
|
Other than temporary impairment of securities available for sale
|
|
|
6,087
|
|
|
|
|
|
|
|
|
|
Amortization of premiums and accretion of discounts
|
|
|
5,312
|
|
|
|
3,334
|
|
|
|
3,095
|
|
Depreciation and amortization
|
|
|
2,532
|
|
|
|
2,778
|
|
|
|
2,503
|
|
Federal Home Loan Bank stock dividends
|
|
|
(1,032
|
)
|
|
|
|
|
|
|
(1,426
|
)
|
Decrease (increase) in interest receivable
|
|
|
2,905
|
|
|
|
689
|
|
|
|
(1,692
|
)
|
(Decrease) increase in interest payable
|
|
|
(4,760
|
)
|
|
|
4,996
|
|
|
|
230
|
|
Increase in prepaid and other assets
|
|
|
(3,343
|
)
|
|
|
(1,296
|
)
|
|
|
(3,947
|
)
|
(Decrease) increase in other liabilities
|
|
|
(1,797
|
)
|
|
|
(13,700
|
)
|
|
|
(342
|
)
|
Decrease in trading securities
|
|
|
274
|
|
|
|
289
|
|
|
|
433
|
|
Stock based compensation
|
|
|
150
|
|
|
|
|
|
|
|
|
|
Goodwill impairment charges
|
|
|
33,593
|
|
|
|
|
|
|
|
|
|
Net principal disbursed on loans originated for sale
|
|
|
(160,276
|
)
|
|
|
(205,994
|
)
|
|
|
(219,924
|
)
|
Proceeds from sale of loans originated for sale
|
|
|
234,289
|
|
|
|
224,632
|
|
|
|
225,126
|
|
ESOP compensation
|
|
|
1,428
|
|
|
|
2,659
|
|
|
|
3,618
|
|
Operating cash flows from discontinued operations
|
|
|
784
|
|
|
|
522
|
|
|
|
(1,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
106,259
|
|
|
|
50,207
|
|
|
|
31,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from principal repayments and maturities of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
50,569
|
|
|
|
56,982
|
|
|
|
42,666
|
|
Proceeds from sale of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
139,938
|
|
|
|
16,899
|
|
|
|
|
|
Nonperforming loans
|
|
|
|
|
|
|
|
|
|
|
210
|
|
Premises and equipment
|
|
|
|
|
|
|
|
|
|
|
531
|
|
Real estate owned and other repossessed assets
|
|
|
12,917
|
|
|
|
6,035
|
|
|
|
4,059
|
|
Purchases of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
(167,141
|
)
|
|
|
(77,641
|
)
|
|
|
(76,588
|
)
|
Principal disbursed on loans, net of repayments
|
|
|
58,371
|
|
|
|
80,922
|
|
|
|
31,818
|
|
Loans purchased
|
|
|
(86,758
|
)
|
|
|
(184,892
|
)
|
|
|
(198,229
|
)
|
Purchases of premises and equipment
|
|
|
(925
|
)
|
|
|
(4,903
|
)
|
|
|
(4,341
|
)
|
Investing cash flows from discontinued operations
|
|
|
11,985
|
|
|
|
(18
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from investing activities
|
|
|
18,956
|
|
|
|
(106,616
|
)
|
|
|
(199,891
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in checking, savings and money market
accounts
|
|
|
(43,969
|
)
|
|
|
35,824
|
|
|
|
53,093
|
|
Net increase in certificates of deposit
|
|
|
54,694
|
|
|
|
16,450
|
|
|
|
88,012
|
|
Net increase in advance payments by borrowers for taxes and
insurance
|
|
|
1,953
|
|
|
|
381
|
|
|
|
3,149
|
|
Proceeds from Federal Home Loan Bank advances
|
|
|
718,900
|
|
|
|
737,953
|
|
|
|
671,326
|
|
Repayment of Federal Home Loan Bank advances
|
|
|
(818,550
|
)
|
|
|
(765,953
|
)
|
|
|
(681,622
|
)
|
Net change in repurchase agreements and other borrowings
|
|
|
(24,264
|
)
|
|
|
51,925
|
|
|
|
44,337
|
|
Cash dividends paid
|
|
|
(4,064
|
)
|
|
|
(10,847
|
)
|
|
|
(10,401
|
)
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
176
|
|
|
|
878
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
(9,709
|
)
|
|
|
(2,298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from financing activities
|
|
|
(115,300
|
)
|
|
|
56,200
|
|
|
|
166,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
9,915
|
|
|
|
(209
|
)
|
|
|
(1,485
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
33,502
|
|
|
|
33,711
|
|
|
|
35,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
43,417
|
|
|
$
|
33,502
|
|
|
$
|
33,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2008, Home Savings was
doing business through 39 full-service banking branches and six
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.
On December 31, 2008, the Company completed the sale of
Butler Wick & Co., Inc., to Stifel Financial Corp. for
$12.0 million. On January 7, 2009, the Company
announced the sale of Butler Wick Trust, to Farmers National
Banc Corp. As a result, Butler Wick has been reported as a
discontinued operation and consolidated financial statement
information for all periods presented has been reclassified to
reflect this presentation.
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, realizability of deferred
tax 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 primarily consist of residential mortgage
loans originated for sale and other loans which have been
identified for sale. These loans are carried at the lower of
cost or fair value, determined in the aggregate. Net unrealized
losses, if any, are recorded as a valuation allowance and
charged to earnings.
Mortgage loans held for sale are sold with either servicing
rights retained or servicing released. The carrying value of
mortgage loans sold is reduced by the amount allocated to the
servicing right. Gains and losses on sales of mortgage loans are
based on the difference between the selling price and the
carrying value of the related loan sold.
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 purchase premiums or
discounts, 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 a loan 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.
Concentration
of Credit Risk
Most of the Companys business activity is with customers
located within Home Savings market area. Therefore, the
Companys exposure to credit risk is significantly affected
by changes in the economy in Northeast Ohio.
Certain
Purchased Loans
The Company purchases individual loans and groups of loans, some
of which have shown evidence of credit deterioration since
origination. These purchased loans are recorded at the amount
paid, such that there is no
45
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
carryover of the sellers allowance for loan losses. After
acquisition, losses are recognized by an increase in the
allowance for loan losses.
Such purchased loans are accounted for individually or
aggregated into pools of loans based on common risk
characteristics (e.g., credit score, loan type, and date of
origination). The Company estimates the amount and timing of
expected cash flows for each purchased loan or pool, and the
expected cash flows in excess of amount paid is recorded as
interest income over the remaining life of the loan or pool
(accretable yield). The excess of the loans or pools
contractual principal and interest over expected cash flows is
not recorded (nonaccretable difference).
Over the life of the loan or pool, expected cash flows continue
to be estimated. If the present value of expected cash flows is
less than the carrying amount, a loss is recorded. If the
present value of expected cash flows is greater than the
carrying amount, it is recognized as part of future interest
income.
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 uncollectibility 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.
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 and
the loan is non-homogeneous in nature and includes one-to
four-family loans with partial chargeoffs and select consumer
loans, the loan will be considered impaired. 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.
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.
46
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
Transfers
of Financial Assets
Transfers of financial assets are accounted for as sales, when
control over the assets has been relinquished. Control over
transferred assets is deemed to be surrendered when the assets
have been isolated from the Company, the transferee obtains the
right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred
assets, and the Company does not maintain effective control over
the transferred assets through an agreement to repurchase them
before their maturity.
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 three to five years.
Federal
Home Loan Bank (FHLB) stock
The Bank is a member of the FHLB system. Members are required to
own a certain amount of stock based on the level of borrowings
and other factors, and may invest in additional amounts. FHLB
stock is carried at cost, classified as a restricted security,
and periodically evaluated for impairment based on ultimate
recovery of par value. Both cash and stock dividends are
reported as income.
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 properties 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.
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 has been 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. In accordance with
EITF 06-05,
life insurance is recorded at its cash surrender value, or the
amount currently
47
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
401(k)
Savings Plan
Employee 401(k) and profit sharing plan expense is the amount of
matching contributions and administrative costs to administer
the plan.
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 monthly, with no pre-funding. The benefit obligation is
measured annually by a third-party actuary.
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
Brokerage 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
Compensation cost is recognized for stock options and restricted
stock awards issued to employees, based on the fair value of
these awards at the date of grant. A Black-Scholes model is
utilized to estimate the fair value of stock options, while the
market price of the Corporations common stock at the date
of grant is used for restricted stock awards. Compensation cost
is recognized over the required service period, generally
defined as the vesting period. For awards with graded vesting,
compensation cost is recognized on a straight-line basis over
the requisite service period for the entire award.
48
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income
Taxes
Income tax expense is the total of current year income tax due
or refundable and change in deferred tax assets and liabilities.
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, 2008 or
December 31, 2008.
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.
Stock
Dividends
Stock dividends paid using treasury shares are reported by
reducing retained earnings and treasury shares by the fair value
of the shares issued. The difference between fair value and cost
of treasury shares issued is also reflected as a transfer to or
from retained earnings and treasury shares. There are no
dividends paid on fractional shares. Earnings per share is
affected by the change in the number of shares outstanding. All
prior period share and per share disclosures have been adjusted
to reflect the payment of a stock dividend declared in November
2008.
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 23.
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.
49
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 14.
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 19. 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.
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 September 2006, the FASB issued Statement No. 157,
Fair Value Measurements (FAS 157). 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 was effective for fiscal years beginning
after November 15, 2007. In February 2008, the FASB issued
Staff Position (FSP)
157-2,
Effective Date of FASB Statement No. 157. This FSP
delays the effective date of FAS 157 for all nonfinancial
assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at
least annually) to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal
years. The impact of adoption was not material. In October 2008,
the FASB issued Staff Position (FSP)
157-3,
Determining the Fair Value of a Financial Asset when the
Market for That Asset Is Not Active. This FSP clarifies the
application of FAS 157 in a market that is not active. The
impact of adoption was not 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 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 was 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 or any subsequent date.
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 was effective for fiscal years beginning after
December 15, 2007. The impact of adoption was not material.
50
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 was
effective for derivative loan commitments issued or modified in
fiscal quarters beginning after December 15, 2007. The
impact of adoption was not material.
In December 2007, the SEC issued SAB No. 110, which
expresses the views of the SEC regarding the use of a
simplified method, as discussed in
SAB No. 107, in developing an estimate of expected
term of plain vanilla share options in accordance
with SFAS No. 123(R), Share-Based Payment. The SEC
concluded that a company could, under certain circumstances,
continue to use the simplified method for share option grants
after December 31, 2007. The Company does not use the
simplified method for share options and therefore
SAB No. 110 has no impact on the Companys
consolidated financial statements.
Newly
Issued But Not Yet Effective Accounting Standards
In December 2007, the FASB issued FAS No. 141 (revised
2007), Business Combinations (FAS 141(R)), which
establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in an acquiree, including the
recognition and measurement of goodwill acquired in a business
combination. FAS No. 141(R) is effective for fiscal
years beginning on or after December 15, 2008. Earlier
adoption is prohibited. The adoption of this standard is not
expected to have a material effect on the Companys results
of operations or financial position.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interest in Consolidated Financial Statements,
an amendment of ARB No. 51 (SFAS No. 160),
which will change the accounting and reporting for minority
interests, which will be recharacterized as noncontrolling
interests and classified as a component of equity within the
consolidated balance sheets. FAS No. 160 is effective
as of the beginning of the first fiscal year beginning on or
after December 15, 2008. Earlier adoption is prohibited and
the Company does not expect the adoption of
FAS No. 160 to have a significant impact on its
results of operations or financial position.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of SFAS No. 133.
FAS No. 161 amends and expands the disclosure
requirements of SFAS No. 133 for derivative
instruments and hedging activities. FAS No. 161
requires qualitative disclosure about objectives and strategies
for using derivative and hedging instruments, quantitative
disclosures about fair value amounts of the instruments and
gains and losses on such instruments, as well as disclosures
about credit-risk features in derivative agreements.
FAS No. 161 is effective for financial statements
issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. The
adoption of this standard is not expected to have a material
effect on the Corporations results of operations or
financial position.
Operating
Segments
Internal financial information is primarily reported and
aggregated in one line of business, which is banking services.
As a result of the sale of Butler Wick & Co., Inc.,
and the pending sale of Butler Wick Trust, Butler Wick has been
reported as a discontinued operation and consolidated financial
statement information for all periods presented has been
reclassified to reflect this presentation.
Dividend
Restriction
Banking regulations require maintaining certain capital levels
and may limit the dividends paid by Home Savings to the holding
company or by the holding company to shareholders. The OTS Order
prohibits United
51
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Community from paying a cash dividend to shareholders without
prior approval. See Notes 3 and 16 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 $12.7 million and
$11.2 million at December 31, 2008 and 2007,
respectively.
|
|
3.
|
REGULATORY
ENFORCEMENT ACTION
|
On August 8, 2008, the board of directors of United
Community approved a Stipulation and Consent to Issuance of
Order to Cease and Desist (OTS Order) with the Office of Thrift
Supervision (OTS). Simultaneously, the board of directors of
Home Savings approved a Stipulation and Consent to the Issuance
of an Order to Cease and Desist (Bank Order) with the Federal
Deposit Insurance Corporation (FDIC) and the Division of
Financial Institutions of the Ohio Department of Commerce (Ohio
Division). Although United Community and Home Savings have
agreed to the issuance of the OTS Order and the Bank Order,
respectively, neither has admitted or denied any allegations of
unsafe or unsound banking practices, or any legal or regulatory
violations. No monetary penalties were assessed by the OTS, the
FDIC, or the Ohio Division.
The OTS Order requires United Community to obtain OTS approval
prior to: (i) incurring or increasing its debt position;
(ii) repurchasing any United Community stock; or
(iii) paying any dividends. The OTS Order also requires
United Community to develop a debt reduction plan and submit the
plan to the OTS for approval.
The Bank Order requires Home Savings, within specified
timeframes, to take or refrain from certain actions, including:
(i) retaining a bank consultant to assess Home Savings
management needs and submitting a management plan that
identifies officer positions needed, identifies and establishes
board and internal operating committees, evaluates Home
Savings senior officers, and provides for the hiring of
any additional personnel; (ii) seeking regulatory approval
prior to adding any individuals to the board of directors or
employing any individual as a senior executive officer of Home
Savings; (iii) not extending additional credit to
classified borrowers; (iv) establishing a compliant
Allowance for Loan and Lease Loss methodology;
(v) enhancing its risk management policies and procedures;
(vi) adopting and implementing plans to reduce its
classified assets and delinquent loans, and to reduce loan
concentrations in nonowner-occupied commercial real estate and
construction, land development, and land loans;
(vii) establishing board of directors committees to
evaluate and approve certain loans and oversee Home
Savings compliance with the Bank Order;
(viii) revising its loan policy and enhancing its
underwriting and credit administration functions;
(ix) developing a strategic plan and budget and profit
plan; (x) correcting all violations of laws, rules, and
regulations and implementing procedures to ensure future
compliance; (xi) increasing its Tier 1 leverage ratio
to 8.0% and its total risk-based capital ratio to 12.0% by
December 31, 2008; and (xii) seeking regulatory
approval prior to declaring or paying any cash dividend. At
December 31, 2008, Home Savings Tier 1 leverage
ratio was 8.20% and its total risk-based capital ratio was
12.06%. Because of the consent to the Bank Order, Home Savings
is deemed adequately capitalized for regulatory
capital purposes.
|
|
4.
|
DISCONTINUED
OPERATIONS
|
On December 31, 2008, the Company completed the sale of
Butler Wick & Co., Inc., a wholly-owned subsidiary of
Butler Wick, to Stifel Financial Corp. for $12.0 million.
Butler Wick recognized a gain on this sale of $3.3 million.
United Community used $9.8 million of these proceeds to
reduce outstanding debt. On January 7, 2009, the Company
announced the sale of Butler Wick Trust, a wholly-owned
subsidiary of Butler Wick, to Farmers National Banc Corp. As a
result, Butler Wick has been reported as a discontinued
operation and consolidated
52
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
financial statement information for all periods presented has
been reclassified to reflect this presentation. Major classes of
assets and liabilities included in the consolidated balance
sheet are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and deposits with banks
|
|
$
|
1,126
|
|
|
$
|
3,861
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
1,126
|
|
|
|
3,861
|
|
Securities:
|
|
|
|
|
|
|
|
|
Trading
|
|
|
|
|
|
|
4,752
|
|
Available for sale
|
|
|
3,337
|
|
|
|
4,718
|
|
Premises and equipment, net
|
|
|
86
|
|
|
|
926
|
|
Accrued interest receivable
|
|
|
29
|
|
|
|
89
|
|
Other assets
|
|
|
984
|
|
|
|
5,968
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,562
|
|
|
$
|
20,314
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
2,388
|
|
|
$
|
4,371
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,388
|
|
|
|
4,371
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
3,174
|
|
|
|
15,943
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
5,562
|
|
|
$
|
20,314
|
|
|
|
|
|
|
|
|
|
|
Butler Wicks results of operations for the years ended
December 31, 2008, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
813
|
|
|
$
|
1,135
|
|
|
$
|
1,667
|
|
Brokerage commissions
|
|
|
25,667
|
|
|
|
24,963
|
|
|
|
19,317
|
|
Service fees and other charges
|
|
|
5,876
|
|
|
|
6,349
|
|
|
|
6,103
|
|
Underwriting and investment banking
|
|
|
1,151
|
|
|
|
764
|
|
|
|
814
|
|
Gain on the sale of Butler Wick & Co., Inc.
|
|
|
3,317
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
117
|
|
|
|
521
|
|
|
|
837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income
|
|
|
36,941
|
|
|
|
33,732
|
|
|
|
28,738
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on borrowings
|
|
|
243
|
|
|
|
345
|
|
|
|
475
|
|
Salaries and employee benefits
|
|
|
25,772
|
|
|
|
22,841
|
|
|
|
18,932
|
|
Occupancy expenses
|
|
|
1,553
|
|
|
|
1,403
|
|
|
|
1,324
|
|
Equipment and data processing
|
|
|
2,508
|
|
|
|
2,515
|
|
|
|
3,331
|
|
Other expenses
|
|
|
3,798
|
|
|
|
2,929
|
|
|
|
2,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
33,874
|
|
|
|
30,033
|
|
|
|
26,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
3,067
|
|
|
|
3,699
|
|
|
|
1,755
|
|
Income tax
|
|
|
1,117
|
|
|
|
1,280
|
|
|
|
607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,950
|
|
|
$
|
2,419
|
|
|
$
|
1,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
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
|
|
$
|
27,170
|
|
|
$
|
865
|
|
|
$
|
|
|
|
$
|
79,670
|
|
|
$
|
311
|
|
|
$
|
(126
|
)
|
Equity securities
|
|
|
910
|
|
|
|
70
|
|
|
|
(411
|
)
|
|
|
7,064
|
|
|
|
221
|
|
|
|
(494
|
)
|
Mortgage-related securities
|
|
|
187,651
|
|
|
|
4,527
|
|
|
|
(107
|
)
|
|
|
153,301
|
|
|
|
977
|
|
|
|
(443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
215,731
|
|
|
$
|
5,462
|
|
|
$
|
(518
|
)
|
|
$
|
240,035
|
|
|
$
|
1,509
|
|
|
$
|
(1,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities available for sale by contractual maturity,
repricing or expected call date are shown below:
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Due in one year or less
|
|
$
|
|
|
Due after one year through five years
|
|
|
11,366
|
|
Due after five years through ten years
|
|
|
15,804
|
|
Mortgage-related securities
|
|
|
187,651
|
|
|
|
|
|
|
Total
|
|
$
|
214,821
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Proceeds
|
|
$
|
139,938
|
|
|
$
|
16,899
|
|
|
$
|
|
|
Gross gains
|
|
|
1,936
|
|
|
|
96
|
|
|
|
|
|
Gross losses
|
|
|
|
|
|
|
(117
|
)
|
|
|
|
|
Impairment charges
|
|
|
(6,087
|
)
|
|
|
|
|
|
|
|
|
Home Savings holds in its available-for-sale securities
portfolio a Fannie Mae auction rate pass through trust security
with a cost basis of $5.0 million. This security represents
an interest in a trust that is collateralized with Fannie Mae
non-cumulative preferred stock. The market value of the security
held by the Company declined following the September 7,
2008 announcement of the appointment of a conservator for Fannie
Mae. Because the effects of the conservatorship may trigger the
redemption provisions of the trust, UCFC management determined
it was necessary for the Company to recognize a write-down of
$4.9 million in 2008. In addition, a write-down of the
Companys equity investment in the common shares of three
financial institutions of $1.1 million was recognized in
2008. These shares have traded below the Companys cost
basis for an extended period and a forecasted recovery was
unable to be determined.
Securities pledged for public funds deposits were approximately
$2.1 million and $19.0 million at December 31,
2008 and 2007, respectively. See further discussion regarding
pledged securities in Note 13.
54
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
United Communitys trading securities are carried at fair
value and consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Debt Securities:
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
$
|
|
|
|
$
|
312
|
|
|
|
|
|
|
|
|
|
|
Total trading securities
|
|
$
|
|
|
|
$
|
312
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale in a continuous unrealized loss
position are as follows at December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Equity securities
|
|
|
282
|
|
|
|
(411
|
)
|
|
|
|
|
|
|
|
|
|
|
282
|
|
|
|
(411
|
)
|
Mortgage-related securities
|
|
|
2,765
|
|
|
|
(69
|
)
|
|
|
1,026
|
|
|
|
(38
|
)
|
|
|
3,791
|
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
3,047
|
|
|
$
|
(480
|
)
|
|
$
|
1,026
|
|
|
$
|
(38
|
)
|
|
$
|
4,073
|
|
|
$
|
(518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale in an 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
|
|
|
12
|
|
|
|
|
|
|
|
36,569
|
|
|
|
(443
|
)
|
|
|
36,581
|
|
|
|
(443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
8,974
|
|
|
$
|
(485
|
)
|
|
$
|
59,505
|
|
|
$
|
(578
|
)
|
|
$
|
68,479
|
|
|
$
|
(1,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of the government sponsored entities and mortgage related
securities that are temporarily impaired at December 31,
2008, 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 three equity securities that are temporarily
impaired at December 31, 2008, are all well capitalized
financial institutions and each exhibit a low to moderate level
of nonperforming assets.
55
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Portfolio loans consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
One- to four-family residential
|
|
$
|
909,567
|
|
|
$
|
871,019
|
|
Multi-family residential
|
|
|
187,711
|
|
|
|
179,535
|
|
Non-residential
|
|
|
375,463
|
|
|
|
359,070
|
|
Land
|
|
|
23,517
|
|
|
|
22,818
|
|
Construction:
|
|
|
|
|
|
|
|
|
One- to four-family residential
|
|
|
255,355
|
|
|
|
357,153
|
|
Multi-family and non-residential
|
|
|
35,797
|
|
|
|
25,191
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
1,787,410
|
|
|
|
1,814,786
|
|
Consumer
|
|
|
348,834
|
|
|
|
349,447
|
|
Commercial
|
|
|
101,489
|
|
|
|
103,208
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
2,237,733
|
|
|
|
2,267,441
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
35,962
|
|
|
|
32,006
|
|
Deferred loan costs, net
|
|
|
(1,682
|
)
|
|
|
(1,553
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
34,280
|
|
|
|
30,453
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
2,203,453
|
|
|
$
|
2,236,988
|
|
|
|
|
|
|
|
|
|
|
The Bank Order requires Home Savings to adopt and implement
plans to reduce loan concentrations in nonowner-occupied
commercial real estate and construction, land development, and
land loans. The plan was developed and adopted by Home Savings
and was implemented in the third quarter of 2008. The plan
included sharply reducing the origination of new construction,
land, and land development loans as well as loans secured by
commercial real estate. The Company has also reduced the level
of construction loans purchased from another financial
institution.
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
|
Fixed Rate
|
|
|
Variable Rate
|
|
|
|
(In thousands)
|
|
|
Commitments to make loans
|
|
$
|
63,362
|
|
|
$
|
11,999
|
|
|
$
|
47,324
|
|
|
$
|
38,822
|
|
Undisbursed loans in process
|
|
|
7,746
|
|
|
|
129,828
|
|
|
|
5,377
|
|
|
|
234,281
|
|
Unused lines of credit
|
|
|
80,101
|
|
|
|
61,196
|
|
|
|
86,261
|
|
|
|
86,807
|
|
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. Commitments
to fund certain mortgage loans (interest rate locks) to be sold
into the secondary market and forward commitments for the future
delivery of mortgage loans to third party investors are
considered
56
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
derivatives. It is the Companys practice to enter into
forward commitments for the future delivery of residential
mortgage loans when interest rate lock commitments are entered
into in order to economically hedge the effect of changes in
interest rates resulting from its commitments to fund the loans.
These mortgage banking derivatives are not designated in hedge
relationships pursuant to SFAS 133. At year-end 2008, the
Company had approximately $40.8 million of interest rate
lock commitments and $66.9 million of forward commitments
for the future delivery of residential mortgage loans. At
year-end 2007, the Company had approximately $11.1 million
of interest rate lock commitments and $17.2 million of
forward commitments for the future delivery of residential
mortgage loans. The fair value of these mortgage banking
derivatives was not material at year end 2008 or 2007.
At December 31, 2008 and 2007, there were $2.9 million
and $7.2 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.
At December 31, 2008 and 2007, there was $41.2 million
and $40.1 million in outstanding commitments to fund the
OverdraftPrivledgetm
Program at Home Savings. With
OverdraftPrivledgetm,
Home Savings pays non-sufficient funds (NSF) checks and fees on
checking accounts up to a preapproved limit.
Changes in the allowance for loan losses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Balance, beginning of year
|
|
$
|
32,006
|
|
|
$
|
16,955
|
|
|
$
|
15,723
|
|
Provision for loan losses
|
|
|
25,329
|
|
|
|
28,750
|
|
|
|
4,347
|
|
Amounts charged off
|
|
|
(22,088
|
)
|
|
|
(14,220
|
)
|
|
|
(3,438
|
)
|
Recoveries
|
|
|
715
|
|
|
|
521
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
35,962
|
|
|
$
|
32,006
|
|
|
$
|
16,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans were $98.3 million, $97.5 million,
and $52.6 million at December 31, 2008, 2007 and 2006,
respectively. Restructured loans were $1.8 million,
$2.3 million and $1.4 million at December 31,
2008, 2007 and 2006. Loans that are greater than ninety days
past due and still accruing were $6.6 million at
December 31, 2008, $1.2 million at December 31,
2007, and $796,000 at December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the Year Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Impaired loans on which no specific valuation allowance was
provided
|
|
$
|
43,256
|
|
|
$
|
30,475
|
|
|
$
|
28,329
|
|
Impaired loans on which specific valuation allowance was provided
|
|
|
43,992
|
|
|
|
53,902
|
|
|
|
14,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans at year-end
|
|
$
|
87,248
|
|
|
$
|
84,377
|
|
|
$
|
42,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific valuation allowances on impaired loans at year-end
|
|
|
10,968
|
|
|
|
13,165
|
|
|
|
2,841
|
|
Average impaired loans during year
|
|
|
85,812
|
|
|
|
63,468
|
|
|
|
23,617
|
|
Interest income recognized on impaired loans during the year
|
|
|
513
|
|
|
|
348
|
|
|
|
372
|
|
Interest income received on impaired loans during the year
|
|
|
513
|
|
|
|
348
|
|
|
|
373
|
|
57
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Directors and officers of United Community and Home Savings are
customers of Home Savings in the ordinary course of business.
The following describes loans to officers
and/or
directors of United Community and Home Savings:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Balance as of December 31, 2007
|
|
$
|
1,279
|
|
New loans to officers and/or directors
|
|
|
|
|
Loan payments during 2008
|
|
|
(43
|
)
|
Reductions due to changes in officers and/or directors
|
|
|
(513
|
)
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
723
|
|
|
|
|
|
|
|
|
7.
|
MORTGAGE
BANKING ACTIVITIES
|
Mortgage loans serviced for others, which are not reported in
United Communitys assets, totaled $921.0 million and
$876.1 million at December 31, 2008 and 2007.
Activity for capitalized mortgage servicing rights, included in
other assets, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Balance, beginning of year
|
|
$
|
6,184
|
|
|
$
|
6,820
|
|
|
$
|
6,923
|
|
Originations
|
|
|
1,337
|
|
|
|
1,268
|
|
|
|
1,917
|
|
Sale of servicing
|
|
|
|
|
|
|
|
|
|
|
(323
|
)
|
Amortized to expense
|
|
|
(1,959
|
)
|
|
|
(1,904
|
)
|
|
|
(1,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
5,562
|
|
|
|
6,184
|
|
|
|
6,820
|
|
Less valuation allowance
|
|
|
(2,233
|
)
|
|
|
(562
|
)
|
|
|
(435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance
|
|
$
|
3,329
|
|
|
$
|
5,622
|
|
|
$
|
6,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of mortgage servicing rights was $3.9 million,
$8.7 million and $9.3 million at December 31,
2008, 2007, and 2006, respectively.
Activity in the valuation allowance for mortgage servicing
rights was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Balance, beginning of year
|
|
$
|
(562
|
)
|
|
$
|
(435
|
)
|
|
$
|
|
|
Impairment charges
|
|
|
(2,233
|
)
|
|
|
(562
|
)
|
|
|
(435
|
)
|
Recoveries
|
|
|
562
|
|
|
|
435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
(2,233
|
)
|
|
$
|
(562
|
)
|
|
$
|
(435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key economic assumptions used in measuring the value of mortgage
servicing rights at December 31, 2008 and 2007 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Weighted average prepayment rate
|
|
|
644 PSA
|
|
|
|
272 PSA
|
|
Weighted average life (in years)
|
|
|
3.34
|
|
|
|
3.87
|
|
Weighted average discount rate
|
|
|
8
|
%
|
|
|
8
|
%
|
58
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Estimated amortization expense for each of the next five years
is as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
2009
|
|
$
|
1,716
|
|
2010
|
|
|
1,326
|
|
2011
|
|
|
1,012
|
|
2012
|
|
|
768
|
|
2013
|
|
|
441
|
|
Amounts held in custodial accounts for investors amounted to
$11.2 million and $9.2 million at December 31,
2008 and 2007, respectively.
|
|
8.
|
OTHER
REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS
|
Real estate owned and other repossessed assets at
December 31, 2008, 2007 and 2006 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Other real estate owned and other repossessed assets
|
|
$
|
32,012
|
|
|
$
|
10,510
|
|
|
$
|
3,296
|
|
Valuation allowance
|
|
|
(2,754
|
)
|
|
|
|
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
29,258
|
|
|
$
|
10,510
|
|
|
$
|
3,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in the valuation allowance was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Beginning of year
|
|
$
|
|
|
|
$
|
54
|
|
|
$
|
|
|
Additions charged to expense
|
|
|
3,753
|
|
|
|
|
|
|
|
54
|
|
Direct write-downs
|
|
|
(999
|
)
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
2,754
|
|
|
$
|
|
|
|
$
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses related to foreclosed and repossessed assets include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Net loss (gain) on sales
|
|
$
|
2,016
|
|
|
$
|
1,061
|
|
|
$
|
9
|
|
Provision for unrealized losses
|
|
|
2,754
|
|
|
|
|
|
|
|
54
|
|
Operating expenses, net of rental income
|
|
|
2,061
|
|
|
|
720
|
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
6,831
|
|
|
$
|
1,781
|
|
|
$
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
PREMISES
AND EQUIPMENT
|
Premises and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Land
|
|
$
|
7,691
|
|
|
$
|
7,691
|
|
Buildings
|
|
|
23,919
|
|
|
|
24,170
|
|
Leasehold improvements
|
|
|
728
|
|
|
|
728
|
|
Furniture and equipment
|
|
|
18,069
|
|
|
|
17,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,407
|
|
|
|
50,057
|
|
Less: Accumulated depreciation and amortization
|
|
|
25,392
|
|
|
|
23,461
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,015
|
|
|
$
|
26,596
|
|
|
|
|
|
|
|
|
|
|
59
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Rent expense was $710,000 for 2008, $627,000 for 2007, and
$544,000 for 2006. Rent commitments under noncancelable
operating leases for offices were as follows, before considering
renewal options that generally are present:
|
|
|
|
|
|
|
(In thousands)
|
|
|
2009
|
|
$
|
574
|
|
2010
|
|
|
577
|
|
2011
|
|
|
587
|
|
2012
|
|
|
512
|
|
2013
|
|
|
318
|
|
Thereafter
|
|
|
687
|
|
|
|
|
|
|
Total
|
|
$
|
3,255
|
|
|
|
|
|
|
|
|
10.
|
GOODWILL
AND INTANGIBLE ASSETS
|
Goodwill
United Community had no goodwill recorded at December 31,
2008, and $33.6 million at December 31, 2007, and
2006. All of the goodwill previously recorded is associated with
the Banking Services segment. Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets (as amended), requires goodwill to be tested for
impairment on an annual basis, or more frequently if
circumstances indicate that an asset might be impaired, by
comparing the fair value of such goodwill to its recorded or
carrying amount. If the carrying amount of the goodwill exceeds
the fair value, an impairment charge must be recorded in an
amount equal to the excess. Based on the level that United
Community shares had been trading and other factors, management
determined that it would be appropriate under the guidance of
SFAS No. 142, to test the value of the goodwill
previously recorded as a result of the mergers with Industrial
Bancorp, Inc. in 2001 and Potters Financial Corporation in 2002
for goodwill impairment during the third quarter of 2008. As a
result of impairment testing performed, the Company recorded an
impairment charge of $33.6 million in 2008.
The fair value of goodwill was estimated using a number of
measurement methods. These included the application of various
metrics from bank sale transactions for institutions comparable
to Home Savings, including the application of market-derived
multiples of tangible book value and earnings, as well as
estimations of the present value of future cash flows. Home
Savings management reviewed the valuation of the fair
value of Home Savings with the Audit Committee and concluded
that Home Savings should recognize an impairment charge and
write down its goodwill to a balance of zero.
Acquired
Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
|
(In thousands)
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangibles
|
|
$
|
8,952
|
|
|
$
|
8,068
|
|
|
$
|
8,952
|
|
|
$
|
7,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,952
|
|
|
$
|
8,068
|
|
|
$
|
8,952
|
|
|
$
|
7,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
$
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Aggregate amortization expense for the years ended
December 31, 2008, 2007 and 2006, was $285,000, $365,000
and $584,000, respectively.
Deposits consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Checking accounts:
|
|
|
|
|
|
|
|
|
Interest bearing
|
|
$
|
99,418
|
|
|
$
|
94,459
|
|
Non-interest bearing
|
|
|
106,255
|
|
|
|
106,449
|
|
Savings accounts
|
|
|
181,643
|
|
|
|
175,464
|
|
Money market accounts
|
|
|
273,359
|
|
|
|
328,272
|
|
Certificates of deposit
|
|
|
1,225,256
|
|
|
|
1,170,562
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
1,885,931
|
|
|
$
|
1,875,206
|
|
|
|
|
|
|
|
|
|
|
Interest expense on deposits is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Interest bearing demand deposits and money market accounts
|
|
$
|
9,475
|
|
|
$
|
13,907
|
|
|
$
|
10,060
|
|
Savings accounts
|
|
|
811
|
|
|
|
769
|
|
|
|
900
|
|
Certificates of deposit
|
|
|
49,953
|
|
|
|
53,376
|
|
|
|
47,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
60,239
|
|
|
$
|
68,052
|
|
|
$
|
58,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of certificates of deposit by maturity follows:
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
(In thousands)
|
|
|
Within 12 months
|
|
$
|
594,099
|
|
12 months to 24 months
|
|
|
371,367
|
|
Over 24 months to 36 months
|
|
|
47,413
|
|
Over 36 months to 48 months
|
|
|
190,058
|
|
Over 48 months
|
|
|
22,319
|
|
|
|
|
|
|
Total
|
|
$
|
1,225,256
|
|
|
|
|
|
|
A summary of certificates of deposit with balances of $100,000
or more by maturity is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Three months or less
|
|
$
|
17,960
|
|
|
$
|
58,685
|
|
Over three months to six months
|
|
|
30,503
|
|
|
|
62,268
|
|
Over six months to twelve months
|
|
|
41,096
|
|
|
|
97,000
|
|
Over twelve months
|
|
|
119,085
|
|
|
|
52,157
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
208,644
|
|
|
$
|
270,110
|
|
|
|
|
|
|
|
|
|
|
Deposits in excess of $250,000 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
61
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
with insured depository institutions or places deposits with an
institution for the purpose of selling interest in those
deposits to third parties. Under the terms of the Bank Order,
Home Savings cannot obtain additional brokered certificates of
deposit without prior consent of the FDIC and Ohio Division.
Home Savings had brokered deposits of $145.2 million with a
weighted average rate of 3.77% at December 31, 2008. Home
Savings had brokered deposits of $39.8 million with a
weighted average rate of 5.08% at December 31, 2007. A
summary of brokered deposits by maturity is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Balance maturing
|
|
$
|
130,166
|
|
|
$
|
15,053
|
|
|
|
|
|
|
|
|
|
|
Rate
|
|
|
3.70
|
%
|
|
|
4.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
FEDERAL
HOME LOAN BANK ADVANCES
|
The following is a summary of Federal Home Loan Bank advances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Year of Maturity
|
|
Amount
|
|
|
Average Rate
|
|
|
Amount
|
|
|
Average Rate
|
|
|
|
(In thousands)
|
|
|
2008
|
|
|
n/a
|
|
|
|
n/a
|
|
|
$
|
286,350
|
|
|
|
2.59
|
%
|
2009
|
|
$
|
247,650
|
|
|
|
1.51
|
%
|
|
|
65,950
|
|
|
|
4.74
|
|
2010
|
|
|
17,412
|
|
|
|
4.95
|
|
|
|
17,412
|
|
|
|
4.95
|
|
2011
|
|
|
5,869
|
|
|
|
4.93
|
|
|
|
5,869
|
|
|
|
4.93
|
|
2012
|
|
|
1,861
|
|
|
|
3.92
|
|
|
|
1,861
|
|
|
|
3.92
|
|
2013
|
|
|
14,365
|
|
|
|
3.86
|
|
|
|
9,365
|
|
|
|
3.88
|
|
Thereafter
|
|
|
50,446
|
|
|
|
4.14
|
|
|
|
50,446
|
|
|
|
4.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Federal Home Loan Bank advances
|
|
$
|
337,603
|
|
|
|
|
|
|
$
|
437,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Savings has available credit, subject to collateral
requirements, with the Federal Home Loan Bank of approximately
$619.1 million, of which $337.6 million is
outstanding. 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, 2008. The required minimum
ratio of collateral to advances is 125% for one- to four-family
loans and 250% for multi-family loans. Additional changes in
value can be applied to one-to four-family mortgage collateral
based upon characteristics such as
loan-to-value
ratios and FICO scores.
|
|
13.
|
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Amount
|
|
|
Average Rate
|
|
|
Amount
|
|
|
Average Rate
|
|
|
|
(In thousands)
|
|
|
Securities sold under agreement to repurchase-term
|
|
$
|
117,600
|
|
|
|
3.84
|
%
|
|
$
|
112,035
|
|
|
|
4.10
|
%
|
Other borrowings
|
|
|
7,669
|
|
|
|
4.24
|
|
|
|
37,498
|
|
|
|
7.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total repurchase agreements and other
|
|
$
|
125,269
|
|
|
|
3.86
|
%
|
|
$
|
149,533
|
|
|
|
5.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Securities sold under agreements to repurchase are secured
primarily by mortgage-backed securities with a fair value of
approximately $131.5 million at December 31, 2008 and
$121.4 million at December 31, 2007. 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 of a line of credit with JP
Morgan Chase Bank, NA (JP Morgan) with a balance of
$6.9 million at December 31, 2008, compared to
$36.3 million at December 31, 2007 and a match-funding
advance related to a commercial participation loan aggregating
$769,000 at December 31, 2008 compared to $1.2 million
at December 31, 2007.
Included in other borrowings is $6.9 million outstanding at
December 31, 2008 under a Credit Agreement between JP
Morgan and United Community, dated September 12, 2005, as
amended on July 18, 2007, and March 28, 2008, (the
Credit Agreement). The Credit Agreement provided United
Community with a line of credit of up to $40.0 million. The
Credit Agreement sets forth numerous covenants with which United
Community must comply.
On March 28, 2008, United Community and JP Morgan amended
the Credit Agreement to provide, among other things, (1) a
waiver of all existing defaults under the credit agreement,
(2) that no new funds would be advanced to United Community
on the line of credit, and (3) an increase in the allowable
non-performing asset ratio to 6.50% of total loans and other
real estate owned. As of December 31, 2008, that ratio was
5.97%.
On August 29, 2008, United Community and JP Morgan amended
the Credit Agreement in response to the event of default that
occurred when United Community entered into the OTS Order and
Home Savings entered into the Bank Order. The Amendment waived
the events of default and extended the maturity date of the
borrowings until January 31, 2009. Over the course of 2008,
the Company paid down approximately $29.4 million on this
line of credit under which $36.3 million had been
outstanding as of December 31, 2007. In January 2009, the
Company paid down an additional $1.8 million on this line
of credit, further reducing the balance to $5.1 million.
On January 31, 2009, United Community and JP Morgan amended
the Credit Agreement in response to the proposed sale of Butler
Wick Trust to Farmers National Banc Corp. The amendment includes
provisions to use a portion of the cash proceeds of the sale to
repay the entire principal balance outstanding and any unpaid
interest that has accrued no later than April 30, 2009.
The OTS Order requires United Community to obtain regulatory
approval prior to incurring or increasing its debt position. A
debt reduction plan was developed and submitted to the OTS for
approval. United Community has implemented the plan and has
reduced the principal balance of the aforementioned line of
credit to $5.1 million as of February 28, 2009.
The remaining segment of other borrowings is associated with a
match-funded commercial participation.
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Current
|
|
$
|
(2,048
|
)
|
|
$
|
8,213
|
|
|
$
|
12,252
|
|
Deferred
|
|
|
(1,192
|
)
|
|
|
(7,303
|
)
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,240
|
)
|
|
$
|
910
|
|
|
$
|
12,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
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,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Dollars
|
|
|
Rate
|
|
|
Dollars
|
|
|
Rate
|
|
|
Dollars
|
|
|
Rate
|
|
|
|
(In thousands)
|
|
|
Tax at statutory rate
|
|
$
|
(14,164
|
)
|
|
|
35.0
|
%
|
|
$
|
919
|
|
|
|
35.0
|
%
|
|
$
|
12,375
|
|
|
|
35.0
|
%
|
Increase (decrease) due to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment charge
|
|
|
11,800
|
|
|
|
(29.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt income
|
|
|
(15
|
)
|
|
|
0.0
|
|
|
|
(25
|
)
|
|
|
(1.0
|
)
|
|
|
(30
|
)
|
|
|
(0.1
|
)
|
Life insurance
|
|
|
(321
|
)
|
|
|
0.8
|
|
|
|
(311
|
)
|
|
|
(11.9
|
)
|
|
|
(297
|
)
|
|
|
(0.8
|
)
|
State taxes
|
|
|
(14
|
)
|
|
|
0.0
|
|
|
|
(30
|
)
|
|
|
(1.1
|
)
|
|
|
(143
|
)
|
|
|
(0.4
|
)
|
Acquisition/sale adjustments
|
|
|
(649
|
)
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
123
|
|
|
|
(0.3
|
)
|
|
|
357
|
|
|
|
13.6
|
|
|
|
488
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
(3,240
|
)
|
|
|
7.9
|
%
|
|
$
|
910
|
|
|
|
34.6
|
%
|
|
$
|
12,393
|
|
|
|
35.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of the deferred tax assets and
liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Loan loss reserves
|
|
$
|
12,587
|
|
|
$
|
11,202
|
|
Postretirement benefits
|
|
|
1,328
|
|
|
|
1,342
|
|
ESOP shares released
|
|
|
1,158
|
|
|
|
1,262
|
|
Other real estate owned valuation
|
|
|
964
|
|
|
|
|
|
Security impairment charges
|
|
|
2,130
|
|
|
|
|
|
Compensation accruals
|
|
|
|
|
|
|
109
|
|
Interest on non-accrual loans
|
|
|
318
|
|
|
|
4,041
|
|
Other
|
|
|
36
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
18,521
|
|
|
|
17,875
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Purchase accounting adjustments
|
|
|
129
|
|
|
|
238
|
|
Deferred loan fees
|
|
|
659
|
|
|
|
572
|
|
Federal Home Loan Bank stock dividends
|
|
|
6,715
|
|
|
|
6,354
|
|
Mortgage servicing rights
|
|
|
1,165
|
|
|
|
1,968
|
|
Unrealized gain on securities available for sale
|
|
|
1,746
|
|
|
|
172
|
|
SFAS 158 pension accrual
|
|
|
182
|
|
|
|
163
|
|
Prepaid expenses
|
|
|
406
|
|
|
|
333
|
|
Other
|
|
|
74
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
11,076
|
|
|
|
10,029
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
7,445
|
|
|
$
|
7,846
|
|
|
|
|
|
|
|
|
|
|
Retained earnings at December 31, 2008 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, 2008 was approximately
$7.3 million.
64
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The adoption of FIN 48 had no impact on United
Communitys financial statements. As of January 1,
2007 and December 31, 2008, 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. United Community and its subsidiaries 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 2005.
Dividends
United Communitys source of funds for dividends to its
shareholders is earnings on its investments and dividends from
Home Savings. During the year ended December 31, 2008,
United Community paid cash dividends in the amount of
$4.1 million and a stock dividend having a fair market
value of $998,000. 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. Home Savings paid no
dividends to United Community during 2008. Under the Bank Order,
Home Savings is not permitted to pay cash dividends to United
Community without obtaining prior regulatory approval, and under
the OTS Order, United Community is not permitted to pay cash
dividends to its shareholders without obtaining prior regulatory
approval. As of December 31, 2008, Home Savings had no
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) and
impairment charges on sales of securities of
$(4.2 million), $(21,000) and $0 for the years ended
December 31, 2008, 2007 and 2006.
Other comprehensive income (loss) components and related tax
effects are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Unrealized holding gain (loss) on securities available for sale
|
|
$
|
8,671
|
|
|
$
|
2,364
|
|
|
$
|
1,048
|
|
Changes in net gains (losses) on postretirement benefit plan
|
|
|
55
|
|
|
|
668
|
|
|
|
|
|
Reclassification adjustment for losses (gains) realized in income
|
|
|
(4,151
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains
|
|
|
4,575
|
|
|
|
3,011
|
|
|
|
1,048
|
|
Tax effect (35)%
|
|
|
1,601
|
|
|
|
1,054
|
|
|
|
367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of tax amount
|
|
$
|
2,974
|
|
|
$
|
1,957
|
|
|
$
|
681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
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,
|
|
|
|
2007
|
|
|
Change
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Unrealized gains (losses) on securities available for sale
|
|
$
|
359
|
|
|
$
|
2,938
|
|
|
$
|
3,297
|
|
Unrealized gains (losses) on postretirement benefits
|
|
|
302
|
|
|
|
36
|
|
|
|
338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
661
|
|
|
$
|
2,974
|
|
|
$
|
3,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
17.
|
REGULATORY
CAPITAL REQUIREMENTS
|
Home Savings is subject to various regulatory capital
requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate
certain mandatory, and possibly additional discretionary actions
by regulators that, if undertaken, could have a direct material
effect on Home Savings and United Community. The regulations
require Home Savings to meet specific capital adequacy
guidelines and the regulatory framework for prompt corrective
action that involve quantitative measures of Home Savings
assets, liabilities, and certain off balance sheet items as
calculated under regulatory accounting practices. Home
Savings capital classification is also subject to
qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation for capital
adequacy require Home Savings to maintain minimum amounts and
ratios of Tier 1 (or Core) and Tangible capital (as defined
in the regulations) to average total assets (as defined) and of
total risk-based capital (as defined) to risk-weighted assets
(as defined). Actual and statutory required capital amounts and
ratios for Home Savings are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
|
|
|
|
Minimum
|
|
|
To Be Well Capitalized
|
|
|
|
|
|
|
Capital
|
|
|
Under Prompt Corrective
|
|
|
|
Actual
|
|
|
Requirements
|
|
|
Action Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(In thousands)
|
|
|
Total risk-based capital to risk-weighted assets
|
|
$
|
242,944
|
|
|
|
12.06
|
%
|
|
$
|
161,163
|
|
|
|
8.00
|
%
|
|
$
|
201,454
|
|
|
|
10.00
|
%
|
Tier 1 capital to risk-weighted assets
|
|
|
217,630
|
|
|
|
10.80
|
|
|
|
*
|
|
|
|
*
|
|
|
|
120,872
|
|
|
|
6.00
|
|
Tier 1 capital to average total assets
|
|
|
217,630
|
|
|
|
8.20
|
|
|
|
106,180
|
|
|
|
4.00
|
|
|
|
132,724
|
|
|
|
5.00
|
|
Tangible capital to adjusted total assets
|
|
|
217,630
|
|
|
|
8.20
|
|
|
|
39,817
|
|
|
|
1.50
|
|
|
|
*
|
|
|
|
*
|
|
66
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
|
|
|
|
Minimum
|
|
|
To Be Well Capitalized
|
|
|
|
|
|
|
Capital
|
|
|
Under Prompt Corrective
|
|
|
|
Actual
|
|
|
Requirements
|
|
|
Action Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(In thousands)
|
|
|
Total risk-based 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
|
|
Tier 1 capital to average 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
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
* |
|
Ratio is not required under regulations. |
As of December 31, 2008, the FDIC and OTS, respectively,
categorized Home Savings as adequately capitalized pursuant to
the Bank Order and OTS Order discussed in Note 3. Home
Savings was deemed well capitalized under the regulatory
framework for Prompt Corrective Action as of December 31,
2007. The Bank Order provided for Home Savings to increase its
Tier 1 leverage ratio to 8.0% and total risk-based capital
ratio to 12.0% by December 31, 2008. As depicted in the
table above, Home Savings exceeded this requirement.
Management believes, as of December 31, 2008, that Home
Savings meets all capital requirements to which it is subject,
inclusive of the Bank Order. Events beyond managements
control, such as fluctuations in interest rates or a downturn in
the economy in areas in which Home Savings loans and
securities are concentrated, could adversely affect future
earnings, and consequently Home Savings ability to meet
its future capital requirements. Refer to Note 3 of the
Consolidated Financial Statements for a complete discussion of
the limitations of the regulatory enforcement actions.
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 monthly, with no pre-funding. The benefit obligation
was measured on December 31, 2008 and 2007. Information
about changes in obligations of the benefit plan follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Change in Benefit Obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
3,370
|
|
|
$
|
4,015
|
|
Service cost
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
180
|
|
|
|
221
|
|
Actuarial (gain)/loss
|
|
|
(55
|
)
|
|
|
(668
|
)
|
Benefits paid
|
|
|
(222
|
)
|
|
|
(198
|
)
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of the year
|
|
$
|
3,273
|
|
|
$
|
3,370
|
|
|
|
|
|
|
|
|
|
|
Funded status of the plan
|
|
$
|
(3,273
|
)
|
|
$
|
(3,370
|
)
|
|
|
|
|
|
|
|
|
|
67
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amounts recognized in accumulated other comprehensive income,
net of tax at December 31, 2008 and 2007 consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
The Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net gains (losses)
|
|
$
|
336
|
|
|
$
|
302
|
|
Prior service credit (cost)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
338
|
|
|
$
|
302
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost/(gain) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
Interest cost
|
|
|
193
|
|
|
|
222
|
|
|
|
221
|
|
Expected return on plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amortization of prior service cost
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Recognized net actuarial gain
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost/(gain)
|
|
|
180
|
|
|
|
221
|
|
|
|
222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (gain)
|
|
|
52
|
|
|
|
665
|
|
|
|
|
|
Prior service cost (credit)
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive income
|
|
|
55
|
|
|
|
668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and other
comprehensive income
|
|
$
|
235
|
|
|
$
|
889
|
|
|
$
|
222
|
|
Assumptions used in the valuations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
6.00
|
%
|
|
|
5.75
|
%
|
|
|
5.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 10.0% and was assumed to
decrease to 5.0% for the year 2013 and remain at that level
thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. A one-percentage
point change in assumed health care cost trend rates would have
the following effects as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
1 Percentage
|
|
|
1 Percentage
|
|
|
|
Point Increase
|
|
|
Point Decrease
|
|
|
|
(In thousands)
|
|
|
Effect on total of service and interest cost components
|
|
$
|
13
|
|
|
$
|
12
|
|
Effect on the postretirement benefit obligation
|
|
|
212
|
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
68
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
United Community anticipates benefits payable over the next ten
years as follows:
|
|
|
|
|
|
|
In thousands
|
|
|
2009
|
|
$
|
299
|
|
2010
|
|
|
306
|
|
2011
|
|
|
309
|
|
2012
|
|
|
308
|
|
2013
|
|
|
304
|
|
2014-2018
|
|
|
1,391
|
|
|
|
|
|
|
Total
|
|
$
|
2,917
|
|
|
|
|
|
|
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 2008,
2007 and 2006, 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 2008, 2007 and 2006, the expense related to this
plan was approximately $521,000, $531,000 and $532,000,
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 2,752,615 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,
1,643,817 shares were purchased with the return of capital
distribution in 1999. During the year, 42,890 shares were
added to the plan from the stock dividend paid in the fourth
quarter of that year.
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 $1.4 million, $2.7 million
and $3.6 million in compensation expense for the years
ended December 31, 2008, 2007 and 2006, respectively,
related to the ESOP. Unallocated shares are considered neither
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 year ended
December 31, 2008, 303,057 shares were released or
committed to be released for allocation and equivalent share
amounts were released or committed to be released in 2007 and
2006. Shares remaining not released or committed to be released
for allocation at December 31, 2008 totaled 1,271,588 and
had a fair value of approximately $1.1 million.
Long-Term
Incentive Plan
On July 12, 1999, shareholders approved the United
Community Financial Corp. 1999 Long-Term Incentive Plan (1999
Plan). The purpose of the 1999 Plan is to promote and advance
the interests of United Community and its shareholders by
enabling United Community to attract, retain and reward
directors, directors emeritus, managerial and other key
employees of United Community, including Home Savings and Butler
Wick, by facilitating their purchase of an ownership interest in
United Community.
69
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The 1999 Plan provides for the grant of options, which may
qualify as either incentive or nonqualified stock options. The
incentive plan provides that option prices will not be less than
the fair market value of the share at the grant date. The
maximum number of common shares that may be issued under the
plan is 3,569,766. There are currently 273,680 shares
remaining in the plan that could be granted. All of the options
awarded became exercisable on the date of grant. The option
period expires 10 years from the date of grant.
On April 26, 2007, shareholders approved the United
Community Financial Corp. 2007 Long-Term Incentive Plan (2007
Plan). The purpose of the 2007 Plan is the same as that of the
1999 Plan. The 2007 Plan provides for the issuance of up to
2,000,000 shares that are to be used for awards of
restricted stock shares, stock options, performance awards,
stock appreciation rights (SARs), or other forms of stock-based
incentive awards. There were 243,721 stock options granted in
the first quarter of 2008 under the 2007 Plan. All of the
options awarded became exercisable on the date of grant. The
option period expires 10 years from the date of grant.
United Community recognized $150,000 in expenses related to this
grant.
A summary of activity in the plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregate Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding at beginning of year
|
|
|
2,101,193
|
|
|
$
|
9.39
|
|
|
|
|
|
Granted
|
|
|
243,721
|
|
|
|
5.89
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(252,786
|
)
|
|
|
8.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
2,092,128
|
|
|
$
|
9.08
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period
|
|
|
2,092,128
|
|
|
$
|
9.08
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information related to the stock option plan during each year
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Intrinsic value of options exercised
|
|
$
|
|
|
|
$
|
99
|
|
|
$
|
512
|
|
Cash received from option exercises
|
|
|
|
|
|
|
176
|
|
|
|
878
|
|
Tax benefit realized from option exercises
|
|
|
|
|
|
|
12
|
|
|
|
141
|
|
Weighted average fair value of options granted
|
|
|
0.68
|
|
|
|
|
|
|
|
|
|
The fair value of options granted in 2008 was determined using
the following weighted-average assumptions as of the grant date:
|
|
|
|
|
Risk-free interest rate
|
|
|
3.03
|
%
|
Expected term (years)
|
|
|
5
|
|
Expected stock volatility
|
|
|
23.8
|
|
Dividend yield
|
|
|
6.28
|
%
|
Outstanding stock options have a weighted average remaining life
of 4.64 years and may be exercised in the range of $5.89 to
$12.38.
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 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.
70
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Statement 157 establishes a fair value hierarchy which requires
an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The
standard describes three levels of inputs that may be used to
measure fair value:
Level 1: Quoted prices (unadjusted) for
identical assets or liabilities in active markets that the
entity has the ability to access as of the measurement date.
Level 2: Significant other observable
inputs other than Level 1 prices such as quoted prices for
similar assets or liabilities; quoted prices in markets that are
not active; or other inputs that are observable or can be
corroborated by observable market data.
Level 3: Significant unobservable inputs
that reflect a reporting entitys own assumptions about the
assumptions that market participants would use in pricing an
asset or liability.
The fair values of securities available for sale are determined
by obtaining quoted prices on nationally recognized securities
exchanges (Level 1 inputs) or matrix pricing, which is a
mathematical technique widely used to in the industry to value
debt securities without relying exclusively on quoted prices for
the specific securities but rather by relying on the
securities relationship to other benchmark quoted
securities (Level 2 inputs).
The fair value of impaired loans with specific allocations of
the allowance for loan losses is generally based on recent real
estate appraisals. These appraisals may utilize a single
valuation approach or a combination of approaches including
comparable sales and the income approach. Adjustments are
routinely made in the appraisal process by the appraisers to
adjust for differences between the comparable sales and income
data available. Such adjustments are typically significant and
result in a Level 3 classification of the inputs for
determining fair value.
Assets
and Liabilities Measured on a Recurring Basis
Assets and liabilities measured at fair value on a recurring
basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2008 Using:
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities
|
|
$
|
215,731
|
|
|
$
|
809
|
|
|
$
|
214,922
|
|
|
$
|
|
|
Assets
and Liabilities Measured on a Non-Recurring Basis
Assets and liabilities measured at fair value on a non-recurring
basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2008 Using:
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
33,024
|
|
|
|
|
|
|
|
|
|
|
$
|
33,024
|
|
Mortgage servicing rights
|
|
|
2,421
|
|
|
|
|
|
|
|
2,421
|
|
|
|
|
|
Impaired loans, carried at fair value, which are measured for
impairment using the fair value of the collateral for collateral
dependent loans, had a carrying amount of $69.6 million,
with a valuation allowance of $11.0, resulting in an additional
provision for loan losses of $1.0 million, during the
period.
71
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Mortgage servicing rights are valued by an independent third
party that is active in purchasing and selling these
instruments. The value reflects the characteristics of the
underlying loans discounted at a market multiple.
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.
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 It is not
practical to determine the fair value of Federal Home Loan Bank
stock due to restrictions placed on its transferability.
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.
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.
72
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 2008
and 2007, 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. Carrying amount
and estimated fair values of financial instruments, not
previously presented, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
43,417
|
|
|
$
|
43,417
|
|
|
$
|
33,502
|
|
|
$
|
33,502
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
|
|
|
|
|
|
|
|
|
|
|
312
|
|
|
|
312
|
|
Available for sale
|
|
|
215,731
|
|
|
|
215,731
|
|
|
|
240,035
|
|
|
|
240,035
|
|
Loans held for sale
|
|
|
16,032
|
|
|
|
16,358
|
|
|
|
87,236
|
|
|
|
87,236
|
|
Loans, net
|
|
|
2,203,453
|
|
|
|
2,203,606
|
|
|
|
2,236,988
|
|
|
|
2,246,948
|
|
Federal Home Loan Bank stock
|
|
|
26,464
|
|
|
|
n/a
|
|
|
|
25,432
|
|
|
|
n/a
|
|
Accrued interest receivable
|
|
|
10,082
|
|
|
|
10,082
|
|
|
|
12,987
|
|
|
|
12,987
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checking, savings and money market accounts
|
|
|
(660,675
|
)
|
|
|
(660,675
|
)
|
|
|
(704,644
|
)
|
|
|
(704,644
|
)
|
Certificates of deposit
|
|
|
(1,225,256
|
)
|
|
|
(1,237,262
|
)
|
|
|
(1,170,562
|
)
|
|
|
(1,170,790
|
)
|
Federal Home Loan Bank advances
|
|
|
(337,603
|
)
|
|
|
(348,185
|
)
|
|
|
(437,253
|
)
|
|
|
(440,910
|
)
|
Repurchase agreements and other
|
|
|
(125,269
|
)
|
|
|
(138,862
|
)
|
|
|
(149,533
|
)
|
|
|
(152,827
|
)
|
Advance payments by borrowers for taxes and insurance
|
|
|
(19,806
|
)
|
|
|
(19,806
|
)
|
|
|
(17,853
|
)
|
|
|
(17,853
|
)
|
Accrued interest payable
|
|
|
(3,077
|
)
|
|
|
(3,077
|
)
|
|
|
(7,837
|
)
|
|
|
(7,837
|
)
|
The Company has not considered market illiquidity in estimating
the fair value of loans due to uncertain and inconsistent market
pricing being experienced at December 31, 2008. It was not
practical to determine the fair value of FHLB stock due to
restrictions placed in its transferability.
|
|
20.
|
STATEMENT
OF CASH FLOWS SUPPLEMENTAL DISCLOSURE
|
Supplemental disclosures of cash flow information are summarized
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits and borrowings
|
|
$
|
83,676
|
|
|
$
|
91,107
|
|
|
$
|
83,724
|
|
Interest capitalized on borrowings
|
|
|
|
|
|
|
30
|
|
|
|
19
|
|
Income taxes
|
|
|
3,859
|
|
|
|
13,146
|
|
|
|
13,050
|
|
Supplemental schedule of noncash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans transferred to held for sale
|
|
|
|
|
|
|
76,493
|
|
|
|
|
|
Transfers from loans to real estate owned
|
|
|
36,429
|
|
|
|
14,356
|
|
|
|
4,814
|
|
73
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
21.
|
PARENT
COMPANY FINANCIAL STATEMENTS
|
Condensed
Statements of Financial Condition
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and deposits with banks
|
|
$
|
3,060
|
|
|
$
|
8,234
|
|
Federal funds sold and other
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
3,093
|
|
|
|
8,234
|
|
Securities:
|
|
|
|
|
|
|
|
|
Trading
|
|
|
|
|
|
|
312
|
|
Available for sale
|
|
|
809
|
|
|
|
2,064
|
|
Note receivable from ESOP
|
|
|
10,951
|
|
|
|
13,071
|
|
Subordinated note receivable from Home Savings
|
|
|
|
|
|
|
30,000
|
|
Investment in subsidiary-Home Savings
|
|
|
222,287
|
|
|
|
237,430
|
|
Investment in subsidiary-Butler Wick
|
|
|
3,174
|
|
|
|
15,944
|
|
Other assets
|
|
|
1,662
|
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
241,976
|
|
|
$
|
307,186
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
Repurchase agreements and other
|
|
$
|
6,900
|
|
|
$
|
36,300
|
|
Accrued interest payable
|
|
|
46
|
|
|
|
243
|
|
Accrued expenses and other liabilities
|
|
|
107
|
|
|
|
929
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,053
|
|
|
|
37,472
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
234,923
|
|
|
|
269,714
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
241,976
|
|
|
$
|
307,186
|
|
|
|
|
|
|
|
|
|
|
Condensed
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends from Home Savings
|
|
$
|
|
|
|
$
|
6,000
|
|
|
$
|
30,000
|
|
Cash dividends from Butler Wick
|
|
|
14,700
|
|
|
|
3,000
|
|
|
|
|
|
Interest income
|
|
|
2,208
|
|
|
|
3,380
|
|
|
|
1,411
|
|
Non-interest income
|
|
|
(1,226
|
)
|
|
|
31
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income
|
|
|
15,682
|
|
|
|
12,411
|
|
|
|
31,471
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1,341
|
|
|
|
2,092
|
|
|
|
820
|
|
Non-interest expenses
|
|
|
1,980
|
|
|
|
2,419
|
|
|
|
1,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,321
|
|
|
|
4,511
|
|
|
|
2,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
12,361
|
|
|
|
7,900
|
|
|
|
29,246
|
|
Income tax benefit
|
|
|
(1,304
|
)
|
|
|
(270
|
)
|
|
|
(425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in undistributed net earnings of
subsidiaries
|
|
|
13,665
|
|
|
|
8,170
|
|
|
|
29,671
|
|
Dividends in excess of earnings of subsidiary
|
|
|
(48,944
|
)
|
|
|
(4,037
|
)
|
|
|
(5,560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(35,279
|
)
|
|
$
|
4,133
|
|
|
$
|
24,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
$
|
(35,279
|
)
|
|
$
|
4,133
|
|
|
$
|
24,111
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends in excess of earnings of the subsidiaries
|
|
|
48,944
|
|
|
|
4,037
|
|
|
|
5,560
|
|
Security impairment charges
|
|
|
1,188
|
|
|
|
|
|
|
|
|
|
Decrease in trading securities
|
|
|
312
|
|
|
|
247
|
|
|
|
433
|
|
Decrease (increase) in interest receivable
|
|
|
|
|
|
|
18
|
|
|
|
(18
|
)
|
(Increase) decrease in other assets
|
|
|
(1,752
|
)
|
|
|
|
|
|
|
27
|
|
(Decrease) increase in accrued interest payable
|
|
|
(197
|
)
|
|
|
142
|
|
|
|
50
|
|
Decrease in other liabilities
|
|
|
(763
|
)
|
|
|
(64
|
)
|
|
|
(712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
12,453
|
|
|
|
8,513
|
|
|
|
29,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
Repayment of (investment in) subordinated debt issued by Home
Savings
|
|
|
30,000
|
|
|
|
|
|
|
|
(30,000
|
)
|
Equity investment in Home Savings
|
|
|
(16,250
|
)
|
|
|
|
|
|
|
|
|
ESOP loan repayment
|
|
|
2,120
|
|
|
|
1,263
|
|
|
|
1,044
|
|
Net cash from investing activities
|
|
|
15,870
|
|
|
|
1,263
|
|
|
|
(28,992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid
|
|
|
(4,064
|
)
|
|
|
(10,847
|
)
|
|
|
(10,401
|
)
|
Net (decrease) increase in borrowed funds
|
|
|
(29,400
|
)
|
|
|
18,000
|
|
|
|
11,700
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
(9,709
|
)
|
|
|
(2,298
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
176
|
|
|
|
878
|
|
Net cash from financing activities
|
|
|
(33,464
|
)
|
|
|
(2,380
|
)
|
|
|
(121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(5,141
|
)
|
|
|
7,396
|
|
|
|
338
|
|
Cash and cash equivalents, beginning of year
|
|
|
8,234
|
|
|
|
838
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
3,093
|
|
|
$
|
8,234
|
|
|
$
|
838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
United Communitys chief decision-makers monitor the
revenue streams of the various Company products and services.
The identifiable segments are not material, operations are
managed, and financial performance is evaluated on a
Company-wide basis. Accordingly, all of the Companys
financial service operations are considered by management to be
aggregated in one reportable operating segment, which is banking
services.
Discontinued operations are essentially the results of
operations from Butler Wick Corp which were previously reported
as a separate segment, investment services. Refer to Note 4
for a discussion on discontinued operations and its impact on
segment reporting.
Earnings per share are computed by dividing net income by the
weighted average number of shares outstanding during the period.
Diluted earnings per share is computed using the weighted
average number of common shares determined for the basic
computation plus the dilutive effect of potential common shares
that could be issued under outstanding stock options. Stock
options for 2,092,128 shares were anti-dilutive for the
year ended December 31, 2008. Stock options for
734,353 shares were anti-dilutive for the years ended
December 31, 2007 and 2006. Earnings per share for 2007 and
2006 have been adjusted to reflect a stock dividend declared in
November 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(37,229
|
)
|
|
$
|
1,714
|
|
|
$
|
22,963
|
|
Income from discontinued operations
|
|
|
1,950
|
|
|
|
2,419
|
|
|
|
1,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(35,279
|
)
|
|
$
|
4,133
|
|
|
$
|
24,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
29,463
|
|
|
|
29,519
|
|
|
|
29,846
|
|
Dilutive effect of stock options
|
|
|
|
|
|
|
118
|
|
|
|
386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding dilutive
|
|
|
29,463
|
|
|
|
29,637
|
|
|
|
30,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common
share continuing operations
|
|
$
|
(1.26
|
)
|
|
$
|
0.06
|
|
|
$
|
0.77
|
|
Basic earnings per common share discontinued
operations
|
|
|
0.06
|
|
|
|
0.08
|
|
|
|
0.04
|
|
Basic earnings (loss) per common share
|
|
|
(1.20
|
)
|
|
|
0.14
|
|
|
|
0.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive earnings (loss) per common
share continuing operations
|
|
$
|
(1.26
|
)
|
|
$
|
0.06
|
|
|
$
|
0.76
|
|
Dilutive earnings per common share discontinued
operations
|
|
|
0.06
|
|
|
|
0.08
|
|
|
|
0.04
|
|
Dilutive earnings (loss) per common share
|
|
|
(1.20
|
)
|
|
|
0.14
|
|
|
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
24.
|
QUARTERLY
FINANCIAL INFORMATION (UNAUDITED)
|
The following table presents summarized quarterly data for each
of the years indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
|
|
(In thousands, except per share data)
|
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
39,627
|
|
|
$
|
38,202
|
|
|
$
|
37,748
|
|
|
$
|
36,601
|
|
|
$
|
152,178
|
|
Interest expense
|
|
|
22,685
|
|
|
|
19,287
|
|
|
|
18,951
|
|
|
|
17,993
|
|
|
|
78,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
16,942
|
|
|
|
18,915
|
|
|
|
18,797
|
|
|
|
18,608
|
|
|
|
73,262
|
|
Provision for loan losses
|
|
|
2,466
|
|
|
|
3,248
|
|
|
|
8,995
|
|
|
|
10,620
|
|
|
|
25,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
14,476
|
|
|
|
15,667
|
|
|
|
9,802
|
|
|
|
7,988
|
|
|
|
47,933
|
|
Non-interest income
|
|
|
6,270
|
|
|
|
2,908
|
|
|
|
(2,375
|
)
|
|
|
(1,019
|
)
|
|
|
5,784
|
|
Non-interest expenses
|
|
|
14,964
|
|
|
|
15,161
|
|
|
|
49,516
|
|
|
|
14,545
|
|
|
|
94,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes and discontinued operations
|
|
|
5,782
|
|
|
|
3,414
|
|
|
|
(42,089
|
)
|
|
|
(7,576
|
)
|
|
|
(40,469
|
)
|
Income tax expense (benefit)
|
|
|
2,018
|
|
|
|
1,110
|
|
|
|
(3,132
|
)
|
|
|
(3,236
|
)
|
|
|
(3,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before discontinued operations
|
|
|
3,764
|
|
|
|
2,304
|
|
|
|
(38,957
|
)
|
|
|
(4,340
|
)
|
|
|
(37,229
|
)
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income of Butler Wick Corp., net of tax
|
|
|
279
|
|
|
|
425
|
|
|
|
403
|
|
|
|
843
|
|
|
|
1,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,043
|
|
|
$
|
2,729
|
|
|
$
|
(38,554
|
)
|
|
$
|
(3,497
|
)
|
|
$
|
(35,279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) from continuing operations
|
|
$
|
0.13
|
|
|
$
|
0.08
|
|
|
$
|
(1.32
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(1.26
|
)
|
Basic earnings from discontinued operations
|
|
|
0.01
|
|
|
|
0.02
|
|
|
|
0.01
|
|
|
|
0.03
|
|
|
|
0.06
|
|
Basic earnings (loss)
|
|
|
0.14
|
|
|
|
0.10
|
|
|
|
(1.31
|
)
|
|
|
(0.12
|
)
|
|
|
(1.20
|
)
|
Diluted earnings (loss) from continuing operations
|
|
|
0.13
|
|
|
|
0.08
|
|
|
|
(1.32
|
)
|
|
|
(0.15
|
)
|
|
|
(1.26
|
)
|
Diluted earnings from discontinued operations
|
|
|
0.01
|
|
|
|
0.02
|
|
|
|
0.01
|
|
|
|
0.03
|
|
|
|
0.06
|
|
Diluted earnings (loss)
|
|
|
0.14
|
|
|
|
0.10
|
|
|
|
(1.31
|
)
|
|
|
(0.12
|
)
|
|
|
(1.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the third quarter of 2008 the Company recognized an
impairment charge related to goodwill that increased noninterest
expense. Also in the third quarter, other-than-temporary
impairment charges related to securities were taken that reduced
noninterest income.
77
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
|
|
(In thousands, except per share data)
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
42,569
|
|
|
$
|
41,696
|
|
|
$
|
42,105
|
|
|
$
|
42,445
|
|
|
$
|
168,815
|
|
Interest expense
|
|
|
23,331
|
|
|
|
23,761
|
|
|
|
24,433
|
|
|
|
24,578
|
|
|
|
96,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
19,238
|
|
|
|
17,935
|
|
|
|
17,672
|
|
|
|
17,867
|
|
|
|
72,712
|
|
Provision for loan losses
|
|
|
2,325
|
|
|
|
2,744
|
|
|
|
5,363
|
|
|
|
18,318
|
|
|
|
28,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
16,913
|
|
|
|
15,191
|
|
|
|
12,309
|
|
|
|
(451
|
)
|
|
|
43,962
|
|
Non-interest income
|
|
|
3,617
|
|
|
|
3,698
|
|
|
|
4,121
|
|
|
|
2,867
|
|
|
|
14,302
|
|
Non-interest expenses
|
|
|
14,088
|
|
|
|
13,760
|
|
|
|
13,462
|
|
|
|
14,330
|
|
|
|
55,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes and discontinued operations
|
|
|
6,442
|
|
|
|
5,129
|
|
|
|
2,968
|
|
|
|
(11,914
|
)
|
|
|
2,625
|
|
Income tax expense (benefit)
|
|
|
2,298
|
|
|
|
1,864
|
|
|
|
983
|
|
|
|
(4,234
|
)
|
|
|
910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before discontinued operations
|
|
|
4,144
|
|
|
|
3,265
|
|
|
|
1,985
|
|
|
|
(7,680
|
)
|
|
|
1,714
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income of Butler Wick Corp., net of tax
|
|
|
525
|
|
|
|
665
|
|
|
|
598
|
|
|
|
631
|
|
|
|
2,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,669
|
|
|
$
|
3,930
|
|
|
$
|
2,583
|
|
|
$
|
(7,049
|
)
|
|
$
|
4,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) from continuing operations
|
|
$
|
0.13
|
|
|
$
|
0.12
|
|
|
$
|
0.07
|
|
|
$
|
(0.26
|
)
|
|
$
|
0.06
|
|
Basic earnings from discontinued operations
|
|
|
0.03
|
|
|
|
0.02
|
|
|
|
0.02
|
|
|
|
0.01
|
|
|
|
0.08
|
|
Basic earnings (loss)
|
|
|
0.16
|
|
|
|
0.14
|
|
|
|
0.09
|
|
|
|
(0.25
|
)
|
|
|
0.14
|
|
Diluted earnings (loss) from continuing operations
|
|
|
0.13
|
|
|
|
0.12
|
|
|
|
0.07
|
|
|
|
(0.26
|
)
|
|
|
0.06
|
|
Diluted earnings from discontinued operations
|
|
|
0.03
|
|
|
|
0.02
|
|
|
|
0.02
|
|
|
|
0.01
|
|
|
|
0.08
|
|
Diluted earnings (loss)
|
|
|
0.16
|
|
|
|
0.14
|
|
|
|
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.
|
|
25.
|
PARTICIPATION
IN THE U.S. TREASURY CAPITAL PURCHASE PROGRAM
|
On October 3, 2008, Congress passed the Emergency
Stabilization Act of 2008 (EESA), which provides the
U.S. Secretary of the Treasury with broad authority to
implement certain actions to help restore stability and
liquidity to U.S. markets. One of the provisions resulting
from the Act is the Treasury Capital Purchase Program
(CPP) , which provides direct equity investment of
perpetual preferred stock by the Treasury in qualified financial
institutions. The Company applied for participation in the CPP
in November 2008. In February 2009, the Company evaluated the
decision to participate in the CPP and determined that it would
be in the best interest of the Company to withdraw the
application.
78
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
FINANCIAL STATEMENTS
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, 2008 and 2007, and the related consolidated
statements of income, shareholders equity, and cash flows
for each of the three years in the period ended
December 31, 2008. 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, 2008 and 2007, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2008, in conformity with
accounting principles generally accepted in the United States of
America.
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, 2008, 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 16, 2009 expressed an unqualified
opinion thereon.
/S/ Crowe Horwath LLP
Crowe Horwath LLP
Cleveland, Ohio
March 16, 2009
79
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, 2008. 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, 2008.
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.
|
|
|
|
|
/S/ James R.
Reske
|
Douglas M. McKay, Chief Executive Officer
|
|
James R. Reske, Chief Financial Officer
|
March 16, 2009
|
|
March 16, 2009
|
80
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, 2008
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). United
Community Financial Corp.s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying
managements report on internal controls 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, and 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, 2008, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
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, 2008 and 2007,
and the related consolidated statements of income,
shareholders equity, and cash flows for each of the three
years in the period ended December 31, 2008 and our report
dated March 16, 2009 expressed an unqualified opinion on
those consolidated financial statements.
/S/ Crowe Horwath LLP
Crowe Horwath LLP
Cleveland, Ohio
March 16, 2009
81
|
|
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,
2008, 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, 2008 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, 2008, that
have materially affected, or are reasonably likely to materially
affect, United Communitys internal control over financial
reporting. See Managements Report on Internal
Control Over Financial Reporting and the Report of
Independent Registered Public Accounting Firm on Internal
Control Over Financial Reporting, both of which are
contained in Item 8 of this
Form 10-K
and incorporated herein by reference.
|
|
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 2009
Annual Meeting of Shareholders of United Community (Proxy
Statement), to be filed with the Securities and Exchange
Commission (Commission) on or about March 26, 2009, 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 James R. Reske, 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 of Executive Officers,
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.
82
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. Further description of the 1999 Plan, RRP and
2007 Plan is included in Note 18 to the financial
statements and incorporated herein by reference.
The following table shows, as of December 31, 2008, 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 2007 Plan, 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
|
|
|
2,092,128
|
|
|
$
|
9.08
|
|
|
|
2,103,053
|
|
|
|
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 Related Person 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.
83
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) Exhibits
(1) The Financial Statements are included in Item 8 to
this
Form 10-K.
|
|
|
|
(2)
|
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.
|
(3)
|
|
|
3.1
|
|
Articles of Incorporation
|
3.2
|
|
Amended Code of Regulations
|
4
|
|
Agreement to Furnish Instruments
|
10
|
|
Material Contracts
|
11
|
|
Statement Regarding Computation of Per Share Earnings
|
20
|
|
Proxy Statement for 2009 Annual Meeting of Shareholders
|
21
|
|
Subsidiaries of Registrant
|
23
|
|
Crowe Horwath LLP 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
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/ James
R.
Reske
|
Douglas M. McKay Chairman of the Board, Chief
Executive Officer and Director
|
|
James R. Reske Treasurer and Chief Financial Officer
Date: March 16, 2009
|
Date: March 16, 2009
|
|
|
|
|
|
|
|
/s/ Richard
J.
Buoncore
|
Eugenia C. Atkinson
|
|
Richard J. Buoncore
|
Director
|
|
Director
|
Date: March 16, 2009
|
|
Date: March 16, 2009
|
|
|
|
|
|
/s/ Clarence
R.
Smith
|
Richard J. Schiraldi
|
|
Clarence R. Smith
|
Director
|
|
Director
|
Date: March 16, 2009
|
|
Date: March 16, 2009
|
|
|
|
|
|
/s/ Donald
J.
Varner
|
David C. Sweet
|
|
Donald J. Varner
|
Director
|
|
Director
|
Date: March 16, 2009
|
|
Date: March 16, 2009
|
85
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 James R. Reske dated May 19, 2008
|
|
|
10.5
|
|
Amendment to Employment Agreement between The Home Savings and
Loan Company of Youngstown, Ohio and Douglas M. McKay dated
January 1, 2009
|
|
|
10.6
|
|
Amendment to Employment Agreement between The Home Savings and
Loan Company of Youngstown, Ohio and Patrick W. Bevack dated
January 1, 2009
|
|
|
10.7
|
|
Amendment to Employment Agreement between The Home Savings and
Loan Company of Youngstown, Ohio and James R. Reske dated
January 1, 2009
|
|
|
10.8
|
|
Amended and Restated United Community 1999 Long -Term Incentive
Plan
|
|
|
10.9
|
|
Amended and Restated United Community 2007 Long-Term Incentive
Plan
|
|
|
10.10
|
|
Separation Agreement between The Home Savings and Loan Company
of Youngstown, Ohio and Patrick A. Kelly dated January 27, 2009
|
|
|
10.11
|
|
Amendment to the United Community Financial Corp. Employee Stock
Ownership Plan for the Pension Protection Act of 2006 and other
guidance
|
|
|
10.12
|
|
Stock Purchase Agreement
|
|
|
10.13
|
|
OTS Orders
|
|
Incorporated by reference to the 8-K filed by United Community
on August 3, 2008 via Edgar, film number 081011722
Exhibit 10.1
|
86
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
|
|
10.14
|
|
Bank Orders
|
|
Incorporated by reference to the 8-K filed by United Community
on August 3, 2008 via Edgar, film number 081011722
Exhibit 10.2
|
11
|
|
Statement Regarding Computation of Per Share Earnings
|
|
Incorporated by reference to Note 23 to the Financial
Statements included in the Annual Report, Item 8
|
20
|
|
Proxy Statement for 2009 Annual Meeting of Shareholders
|
|
Incorporated by reference to the Proxy Statement, to be filed
with the Securities and Exchange Commission on or about
March 26, 2009
|
21
|
|
Subsidiaries of Registrant
|
|
|
23
|
|
Crowe Horwath LLP 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
|
|
|
87