##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2006
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the transition period from
 to
 UNITED
COMMUNITY FINANCIAL CORP.
  OHIO
    
    0-024399
    
    34-1856319(State or other jurisdiction of incorporation)
    
    (Commission File No.)
    
    (IRS Employer I.D. No.)
  
  (330) 742-0500
  
   þ o
  o þ o
  o þ




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##### 



TABLE OF CONTENTS
 PAGEPart I. FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Statements of Financial Condition as of March 31, 2006 (Unaudited)
and December 31, 2005
    
    
    1Consolidated Statements of Income for the Three Months Ended
March 31, 2006 and 2005 (Unaudited)
    
    
    2Consolidated Statement of Shareholders Equity for the Three Months ended March 31,
2006 (Unaudited)
    
    
    3Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2006 and 2005 (Unaudited)
    
    
    4Notes to Consolidated Financial Statements
    
    
    5-11Item 2.
    
    Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    12-17Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    18Item 4.
    
    Controls and Procedures
    
    
    19Part II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    20Item 1A.
    
    Risk Factors (None)Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds (None)Item 3.
    
    Defaults Upon Senior Securities (None)Item 4.
    
    Submission of Matters to a Vote of Security Holders (None)Item 5.
    
    Other Information (None)Item 6.
    
    Exhibits
    
    
    20Signatures
    
    
    21Exhibits
    
    
    22-25




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##### 



PART I  FINANCIAL INFORMATION
 ITEM 1. Financial Statements
 UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
 March 31,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Assets:Cash and deposits with banks
    
    $
    29,105
    
    
    $
    36,043Federal funds sold and other
    
    
    1,510
    
    
    
    1,502Total cash and cash equivalents
    
    
    30,615
    
    
    
    37,545Securities:Trading, at fair value
    
    
    9,211
    
    
    
    10,812Available for sale, at fair value
    
    
    217,440
    
    
    
    201,870Loans, net of allowance for loan losses of $15,981 and $15,723, respectively
    
    
    2,151,130
    
    
    
    2,097,433Loans held for sale
    
    
    35,443
    
    
    
    29,109Margin accounts
    
    
    15,431
    
    
    
    15,705Federal Home Loan Bank stock, at cost
    
    
    24,347
    
    
    
    24,006Premises and equipment, net
    
    
    23,844
    
    
    
    23,771Accrued interest receivable
    
    
    12,705
    
    
    
    12,053Real estate owned and other repossessed assets
    
    
    2,165
    
    
    
    2,514Goodwill
    
    
    33,593
    
    
    
    33,593Core deposit intangible
    
    
    1,985
    
    
    
    2,118Cash surrender value of life insurance
    
    
    22,474
    
    
    
    22,260Other assets
    
    
    15,345
    
    
    
    16,061Total assets
    
    $
    2,595,728
    
    
    $
    2,528,850Liabilities and Shareholders Equity
Liabilities:Deposits:Interest bearing
    
    $
    1,646,248
    
    
    $
    1,584,926Non-interest bearing
    
    
    99,431
    
    
    
    96,918Total deposits
    
    
    1,745,679
    
    
    
    1,681,844Federal Home Loan Bank advances
    
    
    447,253
    
    
    
    475,549Repurchase agreements and other
    
    
    105,695
    
    
    
    75,214Advance payments by borrowers for taxes and insurance
    
    
    9,619
    
    
    
    14,322Accrued interest payable
    
    
    3,287
    
    
    
    2,622Accrued expenses and other liabilities
    
    
    15,280
    
    
    
    14,564Total liabilities
    
    
    2,326,813
    
    
    
    2,264,115Shareholders EquityPreferred 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
    
    
    144,351
    
    
    
    143,896Retained earnings
    
    
    210,552
    
    
    
    207,120Accumulated other comprehensive income
    
    
    (2,333
    )
    
    
    (1,845
    )Unearned stock compensation
    
    
    (12,653
    )
    
    
    (13,108
    )Treasury stock, at cost, 6,711,494 and 6,742,345 shares, respectively
    
    
    (71,002
    )
    
    
    (71,328
    )Total shareholders equity
    
    
    268,915
    
    
    
    264,735Total liabilities and shareholders equity
    
    $
    2,595,728
    
    
    $
    2,528,850
 See Notes to Consolidated Financial Statements.
 1




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##### 



UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 For the Three Months EndedMarch 31,2006
    
    
    2005(Dollars in thousands, except per share data)Interest incomeLoans
    
    $
    35,110
    
    
    $
    27,718Loans held for sale
    
    
    508
    
    
    
    508Securities:Trading
    
    
    82
    
    
    
    246Available for sale
    
    
    2,214
    
    
    
    1,753Margin accounts
    
    
    340
    
    
    
    271Federal Home Loan Bank stock dividends
    
    
    341
    
    
    
    253Other interest earning assets
    
    
    32
    
    
    
    14Total interest income
    
    
    38,627
    
    
    
    30,763Interest expenseDeposits
    
    
    12,420
    
    
    
    8,029Federal Home Loan Bank advances
    
    
    4,630
    
    
    
    3,618Repurchase agreements and other
    
    
    886
    
    
    
    364Total interest expense
    
    
    17,936
    
    
    
    12,011Net interest income
    
    
    20,691
    
    
    
    18,752Provision for loan losses
    
    
    738
    
    
    
    633Net interest income after provision for
loan losses
    
    
    19,953
    
    
    
    18,119Non-interest incomeBrokerage commissions
    
    
    5,000
    
    
    
    4,624Service fees and other charges
    
    
    3,197
    
    
    
    3,118Underwriting and investment banking
    
    
    30
    
    
    
    121Net gains (losses):Available for sale securities
    
    
    (1
    )
    
    
    239Trading securities
    
    
    44
    
    
    
    (218
    )Loans sold
    
    
    563
    
    
    
    248Other
    
    
    4
    
    
    
    5Other income
    
    
    972
    
    
    
    731Total non-interest income
    
    
    9,809
    
    
    
    8,868Non-interest expenseSalaries and employee benefits
    
    
    13,524
    
    
    
    12,612Occupancy
    
    
    1,108
    
    
    
    1,048Equipment and data processing
    
    
    2,259
    
    
    
    2,329Franchise tax
    
    
    541
    
    
    
    526Advertising
    
    
    344
    
    
    
    304Amortization of core deposit intangible
    
    
    133
    
    
    
    186Other expenses
    
    
    2,447
    
    
    
    2,652Total non-interest expenses
    
    
    20,356
    
    
    
    19,657Income before income taxes
    
    
    9,406
    
    
    
    7,330Income taxes
    
    
    3,273
    
    
    
    2,449Net income
    
    $
    6,133
    
    
    $
    4,881Comprehensive income
    
    $
    5,645
    
    
    $
    2,855Earnings per shareBasic
    
    $
    0.21
    
    
    $
    0.17Diluted
    
    $
    0.21
    
    
    $
    0.17
 See Notes to Consolidated Financial Statements.
 2




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##### 



UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited)
 AccumulatedOtherShares
    
    
    Common
    
    
    Retained
    
    
    Comprehensive
    
    
    Unearned Stock
    
    
    TreasuryOutstanding


    Stock

    Earnings

    Income/(Loss)

    Compensation

    Stock

    Total(Dollars in thousands, except share data)Balance December 31, 2005
    
    
    31,062
    
    
    $
    143,896
    
    
    $
    207,120
    
    
    $
    (1,845
    )
    
    $
    (13,108
    )
    
    $
    (71,328
    )
    
    $
    264,735Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    6,133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,133Change in net unrealized gain/(loss) on
securities, net of taxes of $262
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (488
    )
    
    
    
    
    
    
    
    
    
    
    (488
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    6,133
    
    
    
    (488
    )
    
    
    
    
    
    
    
    
    
    
    5,645Shares allocated to ESOP participants
    
    
    
    
    
    
    455
    
    
    
    
    
    
    
    
    
    
    
    455
    
    
    
    
    
    
    
    910Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    31
    
    
    
    
    
    
    
    (94
    )
    
    
    
    
    
    
    
    
    
    
    326
    
    
    
    232Dividends paid, $0.09 per share
    
    
    
    
    
    
    
    
    
    
    (2,607
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,607
    )Balance March 31, 2006
    
    
    31,093
    
    
    $
    144,351
    
    
    $
    210,552
    
    
    $
    (2,333
    )
    
    $
    (12,653
    )
    
    $
    (71,002
    )
    
    $
    268,915
 See Notes to Consolidated Financial Statements.
 3




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##### 



UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three Months Ended March 31,2006
    
    
    2005(Dollars in thousands)Cash Flows from Operating ActivitiesNet income
    
    $
    6,133
    
    
    $
    4,881Adjustments to reconcile net income to net cash provided by
operating activities:Provision for loan losses
    
    
    738
    
    
    
    633Net gains
    
    
    (573
    )
    
    
    (492
    )Amortization of premiums and accretion of discounts
    
    
    659
    
    
    
    992Depreciation and amortization
    
    
    666
    
    
    
    594ESOP compensation
    
    
    910
    
    
    
    793FHLB stock dividends
    
    
    (341
    )
    
    
    (253
    )Decrease (increase) in trading securities
    
    
    1,601
    
    
    
    (5,103
    )Decrease (increase) in margin accounts
    
    
    274
    
    
    
    (87
    )Increase in interest receivable
    
    
    (652
    )
    
    
    (796
    )Decrease in prepaid and other assets
    
    
    93
    
    
    
    935Increase in interest payable
    
    
    665
    
    
    
    186Net principal disbursed on loans held for sale
    
    
    (46,747
    )
    
    
    (37,220
    )Proceeds from sale of loans held for sale
    
    
    40,954
    
    
    
    39,061Increase in other liabilities
    
    
    979
    
    
    
    3,102Net cash from operating activities
    
    
    5,359
    
    
    
    7,226Cash Flows from Investing ActivitiesProceeds from principal repayments and maturities of:Available for sale securities
    
    
    8,473
    
    
    
    18,100Proceeds from sale of:Available for sale securities
    
    
    
    
    
    
    17,328Real estate owned and other repossessed assets
    
    
    581
    
    
    
    633Non-performing loans
    
    
    
    
    
    
    5,953Premises and equipment
    
    
    531
    
    
    
    Purchases of:Securities available for sale
    
    
    (24,834
    )
    
    
    (24,386
    )Net principal repaid (disbursed) on loans
    
    
    4,691
    
    
    
    (18,039
    )Loans purchased
    
    
    (59,445
    )
    
    
    (56,568
    )Purchases of premises and equipment
    
    
    (1,235
    )
    
    
    (1,780
    )Net cash from investing activities
    
    
    (71,238
    )
    
    
    (58,759
    )Cash Flows from Financing ActivitiesNet increase (decrease) in NOW, savings and money market accounts
    
    
    27,743
    
    
    
    (30,425
    )Net increase in certificates of deposit
    
    
    36,099
    
    
    
    54,472Net decrease in advance payments by borrowers
for taxes and insurance
    
    
    (4,703
    )
    
    
    (3,475
    )Proceeds from FHLB advances
    
    
    152,281
    
    
    
    141,986Repayment of FHLB advances
    
    
    (180,577
    )
    
    
    (119,953
    )Net change in other borrowed funds
    
    
    30,481
    
    
    
    12,045Dividends paid
    
    
    (2,607
    )
    
    
    (2,377
    )Proceeds from the exercise of stock options
    
    
    232
    
    
    
    278Purchase of treasury stock
    
    
    
    
    
    
    (989
    )Net cash from financing activities
    
    
    58,949
    
    
    
    51,562Decrease in cash and cash equivalents
    
    
    (6,930
    )
    
    
    29Cash and cash equivalents, beginning of period
    
    
    37,545
    
    
    
    40,281Cash and cash equivalents, end of period
    
    $
    30,615
    
    
    $
    40,310Supplemental disclosures of cash flow informationCash paid during the period for:Interest on deposits and borrowings, net of amounts capitalized
    
    $
    17,271
    
    
    $
    11,824Interest capitalized on borrowings
    
    
    16
    
    
    
    10Income taxes
    
    
    
    
    
    
    10Supplemental schedule of noncash activities:Loans transferred to the loan portfolio from held for sale
    
    
    
    
    
    
    37,075Transfers from loans to real estate owned and other repossessed assets
    
    
    248
    
    
    
    1,927
 See Notes to Consolidated Financial Statements.
 4




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UNITED COMMUNITY FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. BASIS OF PRESENTATION
     2. STOCK COMPENSATION
    5




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Three Months Ended March 31, 2006Total Options Outstanding(Dollars in thousands)Weighted
    
    
    WeightedAverage
    
    
    Average FairShares
    
    
    Exercise Price
    
    
    ValueOptions outstanding,
beginning of period
    
    
    2,217,216
    
    
    $
    9.59
    
    
    $
    4.52Forfeited
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (30,851
    )
    
    
    7.54
    
    
    
    4.97Granted
    
    
    
    
    
    
    
    
    
    
    Options outstanding and
exercisable, end of
period
    
    
    2,186,365
    
    
    $
    9.62
    
    
    $
    4.68
  3. SECURITIES
  March 31, 2006
    
    
    December 31, 2005(Dollars in thousands)Gross
    
    
    Gross
    
    
    
    
    
    
    Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Gains
    
    
    LossesU.S. Treasury and agency
securities
    
    $
    89,686
    
    
    $
    
    
    
    $
    (1,571
    )
    
    $
    88,799
    
    
    $
    
    
    
    $
    (1,493
    )Tax exempt municipal obligation
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    Equity securities
    
    
    3,029
    
    
    
    728
    
    
    
    (1
    )
    
    
    2,962
    
    
    
    661
    
    
    
    Mortgage-related securities
    
    
    124,722
    
    
    
    48
    
    
    
    (2,874
    )
    
    
    110,106
    
    
    
    73
    
    
    
    (2,159
    )Total
    
    $
    217,440
    
    
    $
    776
    
    
    $
    (4,446
    )
    
    $
    201,870
    
    
    $
    734
    
    
    $
    (3,652
    )
  March 31,

    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Obligations of U.S. Government
    
    $
    1,593
    
    
    $
    2,531State and municipal obligations
    
    
    6,340
    
    
    
    7,061Corporate bonds, debentures and notes
    
    
    162
    
    
    
    224Mutual funds, stocks and warrants
    
    
    1,116
    
    
    
    996Total trading securities
    
    $
    9,211
    
    
    $
    10,812
 6




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4. LOANS
  March 31,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Real Estate:One- to four-family residential
    
    $
    777,588
    
    
    $
    749,362Multifamily residential
    
    
    157,332
    
    
    
    154,702Nonresidential
    
    
    322,574
    
    
    
    314,124Land
    
    
    15,379
    
    
    
    14,979Construction:One- to four-family residential
    
    
    410,378
    
    
    
    389,558Multifamily and non-residential
    
    
    57,663
    
    
    
    66,788Total real estate
    
    
    1,740,914
    
    
    
    1,689,513Consumer
    
    
    327,407
    
    
    
    323,515Commercial
    
    
    99,614
    
    
    
    100,977Total loans
    
    
    2,167,935
    
    
    
    2,114,005Less:Allowance for loan losses
    
    
    15,981
    
    
    
    15,723Deferred loan fees, net
    
    
    824
    
    
    
    849Total
    
    
    16,805
    
    
    
    16,572Loans, net
    
    $
    2,151,130
    
    
    $
    2,097,433
  As of or For the
    
    
    As of or For theThree Months
    
    
    Year Endedending March 31,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Balance, beginning of year
    
    $
    15,723
    
    
    $
    15,877Provision for loan losses
    
    
    738
    
    
    
    3,028Amounts charged off
    
    
    (569
    )
    
    
    (4,085
    )Recoveries
    
    
    89
    
    
    
    903Balance, end of period
    
    $
    15,981
    
    
    $
    15,723
  7




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##### 



As of or Forthe Three

    
    As of or ForMonths Ended

    
    the Year EndedMarch 31,

    
    December 31,2006

    
    2005(Dollars in thousands)Impaired loans on which no specific valuation allowance was provided
    
    $
    14,693

    
    $
    13,119Impaired loans on which a specific valuation allowance was provided
    
    
    5,041
    

    
    4,573Total impaired loans at period-end
    
    $
    19,734

    
    $
    17,692Specific valuation allowances on impaired loans at period-end
    
    $
    725

    
    $
    667Average impaired loans during the period
    
    
    19,910
    
    

    15,209Interest income recognized on impaired loans during the period
    
    
    111
    
    

    386Interest income received on impaired loans during the period
    
    
    111
    

    
    403Interest income foregone based on original contract terms of
impaired loans
    
    
    507

    
    
    1,503
 5. MORTGAGE BANKING ACTIVITIES
   As of or For theThree Months
    
    
    As of or for theEnded
    
    
    Year EndedMarch 31,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Balance, beginning of year
    
    $
    6,923
    
    
    $
    5,533Originations
    
    
    399
    
    
    
    2,961Amortized to expense
    
    
    (408
    )
    
    
    (1,571
    )Balance, end of period
    
    $
    6,914
    
    
    $
    6,923
   March 31,

    
    December 31,2006

    
    2005Weighted average prepayment rate
    
    203
    PSA
    
    278
    PSAWeighted average life (in years)
    
    

4.96
    
    
    
    5.11Weighted average discount rate
    
    
    8
    %
    
    
    8
    %
 8




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##### 



6. OTHER POSTRETIREMENT BENEFIT PLANS
   Three Months Ended March 31,2006


    2005(Dollars in thousands)Service cost
    
    $
    
    
    
    $
    1Interest cost
    
    
    55
    
    
    
    50Expected return on plan assets
    
    
    
    
    
    
    Net amortization of prior service cost
    
    
    
    
    
    
    Recognized net actuarial gain
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    55
    
    
    $
    51Assumptions used to determine the
period benefit cost and
liability are as follows:Weighted average discount rate
    
    
    5.50
    %
    
    
    5.75
    %
 9




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##### 



7. SEGMENT INFORMATION
  For the Three Months Ended March 31, 2006Banking
    
    
    InvestmentServices


    Services

    Total(Dollars in thousands)Interest income
    
    $
    38,173
    
    
    $
    453
    
    
    $
    38,626Interest expense
    
    
    17,812
    
    
    
    124
    
    
    
    17,936Provision for loan loss
    
    
    738
    
    
    
    
    
    
    
    738Net interest income after
provision for loan loss
    
    
    19,623
    
    
    
    329
    
    
    
    19,952Non-interest income
    
    
    2,937
    
    
    
    6,873
    
    
    
    9,810Non-interest expense
    
    
    13,617
    
    
    
    6,739
    
    
    
    20,356Income before tax
    
    
    8,943
    
    
    
    463
    
    
    
    9,406Income tax expense
    
    
    3,111
    
    
    
    162
    
    
    
    3,273Net income
    
    $
    5,832
    
    
    $
    301
    
    
    $
    6,133
 For the Three Months Ended March 31, 2005Banking
    
    
    InvestmentServices
    
    Services


Total(Dollars in thousands)Interest income
    
    $
    30,221
    
    
    $
    542
    
    
    $
    30,763Interest expense
    
    
    11,767
    
    
    
    244
    
    
    
    12,011Provision for loan loss
    
    
    633
    
    
    
    
    
    
    
    633Net interest income after
provision for loan loss
    
    
    17,821
    
    
    
    298
    
    
    
    18,119Non-interest income
    
    
    2,557
    
    
    
    6,311
    
    
    
    8,868Non-interest expense
    
    
    13,305
    
    
    
    6,352
    
    
    
    19,657Income before tax
    
    
    7,073
    
    
    
    257
    
    
    
    7,330Income tax expense
    
    
    2,357
    
    
    
    92
    
    
    
    2,449Net income
    
    $
    4,716
    
    
    $
    165
    
    
    $
    4,881
 10




---



##### 



8. EARNINGS PER SHARE
  Three Months EndedMarch 31,2006
    
    
    2005(In thousands,except per share data)Net income applicable to common stock
    
    $
    6,133
    
    
    $
    4,881Weighted average common shares outstanding
    
    
    28,989
    
    
    
    28,815Dilutive effect of stock options
    
    
    407
    
    
    
    325Weighted
average common shares outstanding for dilutive computation
    
    
    29,396
    
    
    
    29,140Earnings per share:Basic
    
    $
    0.21
    
    
    $
    0.17Diluted
    
    $
    0.21
    
    
    $
    0.17
 11




---



##### 



ITEM
2. MANAGEMENTS DISCUSSION AND ANALYSIS 
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 UNITED COMMUNITY FINANCIAL CORP.
 At or For the ThreeMonths EndedMarch 31,Selected financial ratios and other data: (1)
    
    2006
    
    
    2005Performance ratios:Return on average assets (2)
    
    
    0.97
    %
    
    
    0.85
    %Return on average equity (3)
    
    
    9.06
    %
    
    
    7.62
    %Interest rate spread (4)
    
    
    3.05
    %
    
    
    3.19
    %Net interest margin (5)
    
    
    3.44
    %
    
    
    3.46
    %Non-interest expense to average assets
    
    
    3.20
    %
    
    
    3.41
    %Efficiency ratio (6)
    
    
    66.41
    %
    
    
    70.56
    %Average interest-earning assets to average interest-bearing liabilities
    
    
    112.88
    %
    
    
    112.26
    %Capital ratios:Average equity to average assets
    
    
    10.65
    %
    
    
    11.11
    %Equity to assets, end of period
    
    
    10.36
    %
    
    
    10.78
    %Tier 1 leverage ratio
    
    
    8.50
    %
    
    
    8.43
    %Tier 1 risk-based capital ratio
    
    
    10.20
    %
    
    
    10.02
    %Total risk-based capital ratio
    
    
    10.97
    %
    
    
    10.87
    %Asset quality ratios:Non-performing loans to total loans at end of period (7)
    
    
    1.49
    %
    
    
    1.52
    %Non-performing assets to average assets (8)
    
    
    1.34
    %
    
    
    1.39
    %Non-performing assets to total assets at end of period
    
    
    1.32
    %
    
    
    1.37
    %Allowance for loan losses as a percent of loans
    
    
    0.74
    %
    
    
    0.82
    %Allowance for loan losses as a percent of
non-performing loans (7)
    
    
    49.94
    %
    
    
    54.10
    %Office data:Number of full service banking offices
    
    
    37
    
    
    
    36Number of loan production offices
    
    
    6
    
    
    
    5Number of brokerage offices
    
    
    20
    
    
    
    11Number of trust offices
    
    
    2
    
    
    
    2Per share data:Basic earnings per share (9)
    
    $
    0.21
    
    
    $
    0.17Diluted earnings per share (9)
    
    $
    0.21
    
    
    $
    0.17Book value (10)
    
    $
    8.65
    
    
    $
    8.12Tangible book value (11)
    
    $
    7.50
    
    
    $
    6.95Market value as a percent of book value (12)
    
    
    140
    %
    
    
    137
    %
 
 (1)
    
    Ratios for the three month period are annualized where appropriate.(2)
    
    Net income divided by average total assets.(3)
    
    Net income divided by average total equity.(4)
    
    Difference between weighted average yield on interest-earning assets and weighted average
cost of interest-bearing liabilities.(5)
    
    Net interest income as a percentage of average interest-earning assets.(6)
    
    Noninterest expense, excluding the amortization of core deposit intangible, divided by the
sum
of net interest income and
noninterest income, excluding gains and losses on securities and other.(7)
    
    Nonperforming loans consist of loans ninety days past due, loans less than ninety days
past due
and not accruing interest
and restructured loans.(8)
    
    Nonperforming assets consist of nonperforming loans and real estate owned and other
repossessed assets.(9)
    
    Earnings per share are computed by dividing net income by the weighted average number of
shares
outstanding during the
period. Diluted earnings per share are 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.(10)
    
    Equity divided by number of shares outstanding.(11)
    
    Equity minus goodwill and core deposit intangible divided by
number of shares outstanding.(12)
    
    Market value divided by book value.
 12




---



##### 



Forward Looking Statements
  Comparison of Financial Condition at March 31, 2006 and December 31, 2005
          13




---



##### 



Comparison of Operating Results for the Three Months Ended
March 31, 2006 and March 31, 2005
 Net Income.
 Net Interest Income.
  14




---



##### 



For the Three Months Ended March 31,2006 vs. 2005Increase
    
    
    Total(decrease) due to
    
    
    increaseRate
    
    
    Volume
    
    
    (decrease)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    3,411
    
    
    $
    3,981
    
    
    $
    7,392Loans held for sale
    
    
    
    
    
    
    
    
    
    
    Investment securities:Trading
    
    
    225
    
    
    
    (389
    )
    
    
    (164
    )Available for sale
    
    
    260
    
    
    
    201
    
    
    
    461Margin accounts
    
    
    64
    
    
    
    5
    
    
    
    69FHLB stock
    
    
    74
    
    
    
    13
    
    
    
    87Other interest-earning assets
    
    
    18
    
    
    
    
    
    
    
    18Total interest-earning assets
    
    $
    4,052
    
    
    $
    3,811
    
    
    $
    7,863Interest-bearing liabilities:Savings accounts
    
    
    (2
    )
    
    
    (60
    )
    
    
    (62
    )NOW and money market accounts
    
    
    951
    
    
    
    (30
    )
    
    
    921Certificates of deposit
    
    
    1,324
    
    
    
    2,208
    
    
    
    3,532Federal Home Loan Bank advances
    
    
    939
    
    
    
    73
    
    
    
    1,012Repurchase agreements and other
    
    
    314
    
    
    
    208
    
    
    
    522Total interest-bearing liabilities
    
    $
    3,526
    
    
    $
    2,399
    
    
    
    5,925Change in net interest income
    
    
    
    
    
    
    
    
    
    $
    1,938
 Provision for Loan Losses.
 Noninterest Income.
 Noninterest Expense.
 15




---



##### 



Federal Income Taxes.
 16




---



##### 



UNITED COMMUNITY FINANCIAL CORP.
AVERAGE BALANCE SHEETS
 
 Three Months Ended March 31,2006
     
   2005Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    Interestoutstanding
    
    
    earned/
    
    
    Yield/
    
    
    outstanding
    
    
    earned/
    
    
    Yield/balance
    
    
    paid
    
    
    rate
    
    
    balance
    
    
    paid
    
    
    rate(Dollars in thousands)Interest-earning assets:Net loans (1)
    
    $
    2,104,342
    
    
    $
    35,110
    
    
    
    6.67
    %
    
    $
    1,853,715
    
    
    $
    27,718
    
    
    
    5.98
    %Net loans held for sale
    
    
    41,288
    
    
    
    508
    
    
    
    4.92
    %
    
    
    47,709
    
    
    
    508
    
    
    
    4.26
    %Investment securities:Trading
    
    
    7,992
    
    
    
    82
    
    
    
    4.10
    %
    
    
    34,638
    
    
    
    246
    
    
    
    2.84
    %Available for sale
    
    
    209,396
    
    
    
    2,214
    
    
    
    4.23
    %
    
    
    188,985
    
    
    
    1,753
    
    
    
    3.71
    %Margin accounts
    
    
    15,626
    
    
    
    340
    
    
    
    8.70
    %
    
    
    15,324
    
    
    
    271
    
    
    
    7.07
    %FHLB stock
    
    
    24,010
    
    
    
    341
    
    
    
    5.68
    %
    
    
    22,845
    
    
    
    253
    
    
    
    4.43
    %Other interest-earning assets
    
    
    3,751
    
    
    
    32
    
    
    
    3.41
    %
    
    
    3,681
    
    
    
    14
    
    
    
    1.52
    %Total interest-earning assets
    
    
    2,406,405
    
    
    
    38,627
    
    
    
    6.42
    %
    
    
    2,166,897
    
    
    
    30,763
    
    
    
    5.68
    %Noninterest-earning assets
    
    
    134,126
    
    
    
    
    
    
    
    
    
    
    
    138,110Total assets
    
    $
    2,540,531
    
    
    
    
    
    
    
    
    
    
    $
    2,305,007Interest-bearing liabilities:NOW and money market accounts
    
    $
    279,473
    
    
    $
    1,594
    
    
    
    2.28
    %
    
    $
    293,277
    
    
    $
    673
    
    
    
    0.92
    %Savings accounts
    
    
    246,492
    
    
    
    249
    
    
    
    0.40
    %
    
    
    305,731
    
    
    
    311
    
    
    
    0.41
    %Certificates of deposit
    
    
    1,085,200
    
    
    
    10,577
    
    
    
    3.90
    %
    
    
    845,650
    
    
    
    7,045
    
    
    
    3.33
    %Federal Home Loan Bank advances
    
    
    434,703
    
    
    
    4,630
    
    
    
    4.26
    %
    
    
    426,245
    
    
    
    3,618
    
    
    
    3.40
    %Repurchase agreements and other
    
    
    85,995
    
    
    
    886
    
    
    
    4.12
    %
    
    
    59,313
    
    
    
    364
    
    
    
    2.45
    %Total interest-bearing liabilities
    
    
    2,131,863
    
    
    
    17,936
    
    
    
    3.37
    %
    
    
    1,930,216
    
    
    
    12,011
    
    
    
    2.49
    %Noninterest-bearing liabilities
    
    
    138,003
    
    
    
    
    
    
    
    
    
    
    
    118,594Total liabilities
    
    
    2,269,866
    
    
    
    
    
    
    
    
    
    
    
    2,048,810Equity
    
    
    270,665
    
    
    
    
    
    
    
    
    
    
    
    256,197Total liabilities and equity
    
    $
    2,540,531
    
    
    
    
    
    
    
    
    
    
    $
    2,305,007Net interest income and
Interest rate spread
    
    
    
    
    
    $
    20,691
    
    
    
    3.05
    %
    
    
    
    
    
    $
    18,752
    
    
    
    3.19
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.44
    %
    
    
    
    
    
    
    
    
    
    
    3.46
    %Average interest-earning assets to average
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    112.88
    %
    
    
    
    
    
    
    
    
    
    
    112.26
    %
 
 (1)
    
    Nonaccrual loans are included in
the average balance. 17




---



##### 



ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
 Qualitative Aspects of Market Risk.
 Quantitative Aspects of Market Risk.
   Quarter ended March 31, 2006NPV as % of portfolio value of assets
    
    
    Next 12 months net interest incomeInternal policy
    
    
    
    
    
    
    
    
    
    
    Internal policyChange
in rates (Basis points)
    
    NPV Ratio
    
    
    limitations
    
    
    Change in %
    
    
    $ Change
    
    
    limitations
    
    
    % Change+300
    
    
    10.76
    %
    
    
    5.00
    %
    
    
    (1.94
    )%
    
    $
    (1,515
    )
    
    
    (15.00
    )%
    
    
    (1.99
    )%+200
    
    
    11.46
    
    
    
    6.00
    
    
    
    (1.24
    )
    
    
    (895
    )
    
    
    (10.00
    )
    
    
    (1.18
    )+100
    
    
    12.08
    
    
    
    6.00
    
    
    
    (0.62
    )
    
    
    (342
    )
    
    
    (5.00
    )
    
    
    (0.45
    )Static
    
    
    12.70
    
    
    
    7.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100)
    
    
    12.67
    
    
    
    6.00
    
    
    
    (0.03
    )
    
    
    (141
    )
    
    
    (5.00
    )
    
    
    (0.19
    )(200)
    
    
    12.11
    
    
    
    6.00
    
    
    
    (0.59
    )
    
    
    (1,962
    )
    
    
    (15.00
    )
    
    
    (2.58
    )(300)
    
    
    10.85
    
    
    
    5.00
    
    
    
    (1.85
    )
    
    
    (9,273
    )
    
    
    (20.00
    )
    
    
    (12.19
    )
 18




---



##### 



Year ended December 31, 2005NPV as % of portfolio value of assets
    
    
    Next 12 months net interest incomeInternal policy
    
    
    
    
    
    
    
    
    
    
    Internal policyChange in rates (Basis points)
    
    NPV Ratio
    
    
    limitations
    
    
    Change in %
    
    
    $ Change
    
    
    limitations
    
    
    % Change+300
    
    
    11.90
    %
    
    
    5.00
    %
    
    
    (1.35
    )%
    
    $
    322
    
    
    
    (15.00
    )%
    
    
    0.43
    %+200
    
    
    12.45
    
    
    
    6.00
    
    
    
    (0.80
    )
    
    
    390
    
    
    
    (10.00
    )
    
    
    0.52+100
    
    
    12.88
    
    
    
    6.00
    
    
    
    (0.36
    )
    
    
    (276
    )
    
    
    (5.00
    )
    
    
    (0.37
    )Static
    
    
    13.24
    
    
    
    7.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100)
    
    
    13.08
    
    
    
    6.00
    
    
    
    (0.16
    )
    
    
    (649
    )
    
    
    (5.00
    )
    
    
    (0.87
    )(200)
    
    
    12.38
    
    
    
    6.00
    
    
    
    (0.86
    )
    
    
    (3,638
    )
    
    
    (15.00
    )
    
    
    (4.89
    )(300)
    
    
    10.98
    
    
    
    5.00
    
    
    
    (2.26
    )
    
    
    (10,678
    )
    
    
    (20.00
    )
    
    
    (14.37
    )
   Potential Impact of Changes in Interest Rates.
 ITEM 4. Controls and Procedures
  19




---



##### 



PART II. OTHER INFORMATION
 UNITED COMMUNITY FINANCIAL CORP.
 ITEM 1   Legal Proceedings
  ITEM 6  Exhibits
  ExhibitNumber
    
    Description3.1
    
    Articles of Incorporation3.2
    
    Amended Code of Regulations31.1
    
    Section 302 Certification by Chief Executive Officer31.2
    
    Section 302 Certification by Chief Financial Officer32
    
    Certification of Statements by Chief Executive Officer and Chief Financial Officer
 20




---



##### 



UNITED COMMUNITY FINANCIAL CORP.
 SIGNATURES
   Date: May 9, 2006
    
    /s/ Douglas M. McKayDouglas M. McKay, Chief Executive OfficerDate: May 9, 2006
    
    /s/ Patrick A. KellyPatrick A. Kelly, Chief Financial Officer
 21




---



##### 



UNITED COMMUNITY FINANCIAL CORP.
 Exhibit 3.1
  Exhibit 3.2
  22