2 shareholders of Home Savings group challenge stock options for executives

By Don Shilling

A shareholder asks if stock options were granted to make up for a cut in bonuses.

BOARDMAN — Two shareholders attacked the compensation of executives after hearing about the down year for the holding company of Home Savings and Loan and Butler Wick.

United Community Financial Corp. officials blamed a weak economy for the company’s troubles at an annual meeting Thursday at Mr. Anthony’s in Boardman.

A good portion of the 150 in attendance applauded after shareholder Jerry Walsh of Columbiana challenged the company’s granting of stock options to top executives last year. Although executive bonuses were cut in 2007, the stock options could be seen as an attempt to make up the lost money, Walsh said.

For example, Douglas McKay, UCFC chairman and chief executive, saw his total compensation drop $184,000 to $526,000. David Lodge, UCFC president and chief operating officer, had his total compensation drop $133,000 to $365,000.

In February, McKay was granted 71,100 stock options and Lodge was granted 30,700. Two other executives also received awards.

The option price was set at $6.05. Stock options allow executives to buy shares at a certain price and then sell the stock at market rates, pocketing the difference. UCFC stock is trading at about $8 a share now.

In response to Walsh, McKay said federal regulations require executives to wait a year before profiting from stock options. He said the board of directors approved the stock options as a long-term incentive for executives to increase company earnings.

Options often take a number of years before they can be exercised, but McKay said no such provision was put into these options because they were the first awards made in four years. He said he expected the board would handle future option awards differently.

Walsh also challenged UCFC’s policy of paying director’s fees of $15,000 to each of the company employees on the board of directors. Many companies only pay fees to directors who are not company employees, he said.

McKay said the board studied the issue a few years ago and found companies were evenly split on whether they paid the fee.

Walsh asked that the board reconsider the payments, and McKay said that it would.

Another shareholder, Ron Lysowski of Youngstown, questioned why compensation for Thomas Cavalier, chairman and chief executive of Butler Wick, increased last year. His total compensation jumped by $259,000 to $765,000 last year.

McKay said Cavalier’s compensation is set by the same formula that has been used since UCFC acquired the Youngstown-based stock brokerage eight years ago. It is based on profits and revenue growth, he said.

In 2007, Butler Wick had its best year for earnings since it became part of UCFC, McKay said. The company doesn’t break out the earnings for Home Saving or Butler Wick, however.

Overall, UCFC earned $4.1 million last year, compared with $24.1 million in 2006. The company’s stock price has fallen about $3 a share in the past year.

McKay said earnings fell so much because $28 million was set aside last year to cover loans that weren’t being repaid. In a normal year, that figure would be $3 million to $4 million, he said.

After tax considerations, the large amount of money set aside last year reduced company earnings by $18 million, he said.

He noted that Home Savings’ loan problems were not related to subprime lending, which has hurt other financial institutions.

Home Savings’ problem has been a weak economy, he said. More commercial borrowers and home builders haven’t been able to repay loans, he said.

Home Savings devoted a lot of staff time to analyze its credit quality and set aside the $28 million in order to get the problem behind it, he said.

“That was the remedy for getting the stock price where you folks and I want it to be,” he said.

McKay added that he was encouraged that UCFC posted profits of $4 million in the first quarter of this year.

shilling@vindy.com