##### Table of Contents



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 1934
 For the quarterly period ended March 31, 2010
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 UNITED COMMUNITY FINANCIAL CORP.
  OHIO
    
    0-024399
    
    34-1856319(State or other jurisdiction of incorporation)
    
    (Commission File No.)
    
    (IRS Employer I.D. No.)
 275 West Federal Street, Youngstown, Ohio 44503-1203
 (330) 742-0500
 (Former name or former address, if changed since last report)
 þ o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Small reporting company þ
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ




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##### 



TABLE OF CONTENTS
 PAGEPart I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Statements of Financial Condition as of March 31, 2010 (Unaudited)
and December 31, 2009
    
    
    1Consolidated Statements of Income and Comprehensive Income for the Three Months
Ended March 31, 2010 and 2009 (Unaudited)
    
    
    2Consolidated Statement of Shareholders Equity for the Three Months ended March 31,
2010 (Unaudited)
    
    
    4Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2010 and 2009 (Unaudited)
    
    
    5Notes to Consolidated Financial Statements (Unaudited)
    
    
    6-21Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    22-31Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    32Item 4T. Controls and Procedures
    
    
    33Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    34Item 1A. Risk Factors
    
    
    34Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 3. Defaults Upon Senior Securities (None)Item 4. ReservedItem 5. Other Information (None)Item 6. Exhibits
    
    
    34Signatures
    
    
    35ExhibitsExhibit 31.1Exhibit 31.2Exhibit 32




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1.
    
    Financial Statements
 UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 (Unaudited)
 March 31,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Assets:Cash and deposits with banks
    
    $
    20,609
    
    
    $
    22,330Federal funds sold and other
    
    
    19,446
    
    
    
    22,744Total cash and cash equivalents
    
    
    40,055
    
    
    
    45,074Securities:Available for sale, at fair value
    
    
    272,239
    
    
    
    281,348Loans held for sale
    
    
    4,318
    
    
    
    10,497Loans, net of allowance for loan losses of $47,768 and $42,287, respectively
    
    
    1,823,899
    
    
    
    1,866,018Federal Home Loan Bank stock, at cost
    
    
    26,464
    
    
    
    26,464Premises and equipment, net
    
    
    22,697
    
    
    
    23,139Accrued interest receivable
    
    
    8,405
    
    
    
    9,090Real estate owned and other repossessed assets
    
    
    35,418
    
    
    
    30,962Core deposit intangible
    
    
    613
    
    
    
    661Cash surrender value of life insurance
    
    
    26,475
    
    
    
    26,198Other assets
    
    
    19,136
    
    
    
    18,976Total assets
    
    $
    2,279,719
    
    
    $
    2,338,427Liabilities and Shareholders EquityLiabilities:Deposits:Interest bearing
    
    $
    1,602,851
    
    
    $
    1,642,722Non-interest bearing
    
    
    125,741
    
    
    
    126,779Total deposits
    
    
    1,728,592
    
    
    
    1,769,501Borrowed funds:Federal Home Loan Bank advances
    
    
    214,099
    
    
    
    221,323Repurchase agreements and other
    
    
    96,553
    
    
    
    96,833Total borrowed funds
    
    
    310,652
    
    
    
    318,156Advance payments by borrowers for taxes and insurance
    
    
    13,761
    
    
    
    19,791Accrued interest payable
    
    
    1,751
    
    
    
    1,421Accrued expenses and other liabilities
    
    
    10,481
    
    
    
    9,775Total liabilities
    
    
    2,065,237
    
    
    
    2,118,644Shareholders 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 and 30,897,825 shares outstanding
    
    
    145,586
    
    
    
    145,775Retained earnings
    
    
    143,532
    
    
    
    148,674Accumulated other comprehensive income
    
    
    3,685
    
    
    
    4,110Unearned employee stock ownership plan shares
    
    
    (5,366
    )
    
    
    (5,821
    )Treasury stock, at cost, 6,906,632 shares
    
    
    (72,955
    )
    
    
    (72,955
    )Total shareholders equity
    
    
    214,482
    
    
    
    219,783Total liabilities and shareholders equity
    
    $
    2,279,719
    
    
    $
    2,338,427
 See Notes to Consolidated Financial Statements.
  1




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UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 (Unaudited)
 For the Three Months EndedMarch 31,2010
    
    
    2009(Dollars in thousands, except per share data)Interest incomeLoans
    
    $
    25,843
    
    
    $
    31,067Loans held for sale
    
    
    70
    
    
    
    263Available for sale securities
    
    
    2,585
    
    
    
    2,770Federal Home Loan Bank stock dividends
    
    
    300
    
    
    
    299Other interest earning assets
    
    
    7
    
    
    
    29Total interest income
    
    
    28,805
    
    
    
    34,428Interest expenseDeposits
    
    
    9,318
    
    
    
    12,651Federal Home Loan Bank advances
    
    
    848
    
    
    
    1,858Repurchase agreements and other
    
    
    923
    
    
    
    1,190Total interest expense
    
    
    11,089
    
    
    
    15,699Net interest income
    
    
    17,716
    
    
    
    18,729Provision for loan losses
    
    
    12,450
    
    
    
    8,444Net interest income after provision for loan losses
    
    
    5,266
    
    
    
    10,285Non-interest incomeNon-deposit investment income
    
    
    428
    
    
    
    304Service fees and other charges
    
    
    1,751
    
    
    
    1,512Net gains (losses):Securities available for sale
    
    
    2,843
    
    
    
    Other -than-temporary loss in equity securitiesTotal impairment loss
    
    
    
    
    
    
    (150
    )Loss recognized in other comprehensive income
    
    
    
    
    
    
    Net impairment loss recognized in earnings
    
    
    
    
    
    
    (150
    )Mortgage banking income
    
    
    386
    
    
    
    1,140Real estate owned and other repossessed assets
    
    
    (1,484
    )
    
    
    (1,138
    )Gain on sale of retail branch
    
    
    1,387
    
    
    
    Other income
    
    
    1,249
    
    
    
    1,075Total non-interest income
    
    
    6,560
    
    
    
    2,743Non-interest expenseSalaries and employee benefits
    
    
    8,174
    
    
    
    8,023Occupancy
    
    
    1,004
    
    
    
    984Equipment and data processing
    
    
    1,667
    
    
    
    1,730Franchise tax
    
    
    511
    
    
    
    592Advertising
    
    
    222
    
    
    
    229Amortization of core deposit intangible
    
    
    48
    
    
    
    60Deposit insurance premiums
    
    
    1,461
    
    
    
    1,783Professional fees
    
    
    1,033
    
    
    
    716Real estate owned and other repossessed asset expenses
    
    
    607
    
    
    
    951Other expenses
    
    
    2,241
    
    
    
    1,331Total non-interest expenses
    
    
    16,968
    
    
    
    16,399Income (loss) from continuing operations before income taxes
    
    
    (5,142
    )
    
    
    (3,371
    )Income tax expense (benefit)
    
    
    
    
    
    
    (1,692
    )Net income (loss) from continuing operations
    
    
    (5,142
    )
    
    
    (1,679
    )Discontinued operationsNet income of Butler Wick Corp., net of tax
    
    
    
    
    
    
    4,949Net income (loss)
    
    $
    (5,142
    )
    
    $
    3,270
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UNITED COMMUNITY FINANCIAL CORP.  CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
 For the Three Months EndedMarch 31,2010
    
    
    2009Comprehensive income (loss)
    
    $
    (5,567
    )
    
    $
    4,180Earnings (loss) per shareBasiccontinuing operations
    
    $
    (0.17
    )
    
    $
    (0.06
    )Basicdiscontinued operations
    
    
    
    
    
    
    0.17Basicnet income (loss)
    
    
    (0.17
    )
    
    
    0.11Dilutedcontinuing operations
    
    
    (0.17
    )
    
    
    (0.06
    )Diluteddiscontinued operations
    
    
    
    
    
    
    0.17Dilutednet income (loss)
    
    
    (0.17
    )
    
    
    0.11
 See Notes to Consolidated Financial Statements.
  3




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UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
 (Unaudited)
 UnearnedAccumulated
    
    
    EmployeeOther
    
    
    StockShares
    
    
    Common
    
    
    Retained
    
    
    Comprehensive
    
    
    Ownership
    
    
    TreasuryOutstanding
    
    
    Stock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Plan Shares
    
    
    Stock
    
    
    Total(Dollars in thousands, except share data)Balance December 31, 2009
    
    
    30,898
    
    
    $
    145,775
    
    
    $
    148,674
    
    
    $
    4,110
    
    
    $
    (5,821
    )
    
    $
    (72,955
    )
    
    $
    219,783Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (5,142
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,142
    )Change in net unrealized gain
on securities, net of
tax expense of $230
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (425
    )
    
    
    
    
    
    
    
    
    
    
    (425
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,567
    )Shares allocated to ESOP participants
    
    
    
    
    
    
    (220
    )
    
    
    
    
    
    
    
    
    
    
    455
    
    
    
    
    
    
    
    235Stock based compensation
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31Balance March 31, 2010
    
    
    30,898
    
    
    $
    145,586
    
    
    $
    143,532
    
    
    $
    3,685
    
    
    $
    (5,366
    )
    
    $
    (72,955
    )
    
    $
    214,482
 UnearnedAccumulated
    
    
    EmployeeOther
    
    
    StockShares
    
    
    Common
    
    
    Retained
    
    
    Comprehensive
    
    
    Ownership
    
    
    TreasuryOutstanding
    
    
    Stock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Plan Shares
    
    
    Stock
    
    
    Total(Dollars in thousands, except share data)Balance December 31, 2008
    
    
    30,898
    
    
    $
    146,439
    
    
    $
    165,447
    
    
    $
    3,635
    
    
    $
    (7,643
    )
    
    $
    (72,955
    )
    
    $
    234,923Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    3,270
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,270Change in net unrealized gain
on securities, net of tax expense of $490
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    910
    
    
    
    
    
    
    
    
    
    
    
    910Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,180Shares allocated to ESOP participants
    
    
    
    
    
    
    (261
    )
    
    
    
    
    
    
    
    
    
    
    455
    
    
    
    
    
    
    
    194Balance March 31, 2009
    
    
    30,898
    
    
    $
    146,178
    
    
    $
    168,717
    
    
    $
    4,545
    
    
    $
    (7,188
    )
    
    $
    (72,955
    )
    
    $
    239,297
 See Notes to Consolidated Financial Statements
  4




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UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three Months Ended March 31,2010
    
    
    2009(Dollars in thousands)Cash Flows from Operating ActivitiesNet income (loss)
    
    $
    (5,142
    )
    
    $
    3,270Adjustments to reconcile net income to net cash provided by operating
activitiesProvision for loan losses
    
    
    12,450
    
    
    
    8,444Mortgage banking income
    
    
    (386
    )
    
    
    (1,140
    )Net losses on real estate owned and other repossessed assets sold
    
    
    1,484
    
    
    
    1,138Net gain on retail branch sold
    
    
    (1,387
    )
    
    
    Net gain on available for sale securities sold
    
    
    (2,843
    )
    
    
    Net gains on other assets sold
    
    
    (3
    )
    
    
    (21
    )Other than temporary impairment of securities available for sale
    
    
    
    
    
    
    150Amortization of premiums and accretion of discounts
    
    
    971
    
    
    
    1,061Depreciation and amortization
    
    
    509
    
    
    
    586Decrease in interest receivable
    
    
    685
    
    
    
    845(Decrease) increase in interest payable
    
    
    330
    
    
    
    (38
    )Increase in prepaid and other assets
    
    
    (1,366
    )
    
    
    (4,150
    )Increase in other liabilities
    
    
    882
    
    
    
    2,436Stock based compensation
    
    
    31
    
    
    
    Net principal disbursed on loans originated for sale
    
    
    (39,870
    )
    
    
    (134,445
    )Proceeds from sale of loans originated for sale
    
    
    44,650
    
    
    
    137,447ESOP Compensation
    
    
    235
    
    
    
    194Operating cash flows from discontinued operations
    
    
    
    
    
    
    (4,949
    )Net cash from operating activities
    
    
    11,230
    
    
    
    10,828Cash Flows from Investing ActivitiesProceeds from principal repayments and maturities of:Securities available for sale
    
    
    14,136
    
    
    
    10,011Proceeds from sale of:Securities available for sale
    
    
    118,947
    
    
    
    Real estate owned and other repossessed assets
    
    
    3,222
    
    
    
    3,085Fixed assets
    
    
    20
    
    
    
    Purchases of:Securities available for sale
    
    
    (122,131
    )
    
    
    (42,050
    )Net change in loans
    
    
    21,576
    
    
    
    76,035Loans purchased
    
    
    (1,206
    )
    
    
    (1,476
    )Purchases of premises and equipment
    
    
    (75
    )
    
    
    (190
    )Sale of retail branch
    
    
    (22,503
    )
    
    
    Investing cash flows from discontinued operations
    
    
    
    
    
    
    11,921Net cash from investing activities
    
    
    11,986
    
    
    
    57,336Cash Flows from Financing ActivitiesNet increase in checking, savings and money market accounts
    
    
    14,474
    
    
    
    19,872Net decrease in certificates of deposit
    
    
    (29,175
    )
    
    
    (70,288
    )Net decrease in advance payments by borrowers for taxes and insurance
    
    
    (6,030
    )
    
    
    (5,739
    )Proceeds from Federal Home Loan Bank advances
    
    
    257,000
    
    
    
    172,000Repayment of Federal Home Loan Bank advances
    
    
    (264,224
    )
    
    
    (174,775
    )Net change in repurchase agreements and other borrowed funds
    
    
    (280
    )
    
    
    (5,868
    )Net cash from financing activities
    
    
    (28,235
    )
    
    
    (64,798
    )Change in cash and cash equivalents
    
    
    (5,019
    )
    
    
    3,366Cash and cash equivalents, beginning of period
    
    
    45,074
    
    
    
    43,417Cash and cash equivalents, end of period
    
    $
    40,055
    
    
    $
    46,783
 See Notes to Consolidated Financial Statements
  5




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UNITED COMMUNITY FINANCIAL CORP.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1. BASIS OF PRESENTATION
     2. REGULATORY ENFORCEMENT ACTION
   6




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3. DISCONTINUED OPERATIONS
  ThreeMonthsEndedMarch 31,2009IncomeInterest income
    
    $
    32Brokerage commissions
    
    
    Service fees and other charges
    
    
    1,287Underwriting and investment banking
    
    
    Gain on the sale of Butler Wick Trust
    
    
    7,904Other income
    
    
    Total income
    
    
    9,223ExpensesInterest expense on borrowings
    
    
    Salaries and employee benefits
    
    
    1,198Occupancy expenses
    
    
    68Equipment and data processing
    
    
    84Other expenses
    
    
    258Total expenses
    
    
    1,608Income before taxes
    
    
    7,615Income tax
    
    
    2,666Net income
    
    $
    4,949
 4. RECENT ACCOUNTING DEVELOPMENTS
 Accounting for Transfers of Financial Assets: Consolidation
 Amendments to FASB Interpretation No. 46(R) (ASC 810-10): Consolidation of Variable Interest Entities,
  7




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Improving Disclosures About Fair Value Measurements: Improving Disclosures About Fair Value
Measurements
 5. STOCK COMPENSATION
      For the three months ended March 31, 2010Weighted
    
    
    Aggregateaverage
    
    
    intrinsic valueShares
    
    
    exercise price
    
    
    (in thousands)Outstanding at beginning of year
    
    
    2,200,672
    
    
    $
    7.95Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (337,147
    )
    
    
    8.45Outstanding at end of period
    
    
    1,863,525
    
    
    $
    7.76
    
    
    $
    5Options exercisable at end of period
    
    
    1,647,540
    
    
    $
    8.64
    
    
    $
    2
  8




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March 31, 2010Intrinsic value of options exercised
    
    
    n/aCash received from option exercises
    
    
    n/aTax benefit realized from option exercises
    
    
    n/aWeighted average fair value of options granted, per
share
    
    
    n/a
   6. SECURITIES
  March 31, 2010(Dollars in thousands)Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury and government
sponsored entities securities
    
    $
    48,534
    
    
    $
    95
    
    
    $
    
    
    
    $
    48,629Equity securities
    
    
    293
    
    
    
    157
    
    
    
    
    
    
    
    450Mortgage-backed securities GSE
issued:
residential
    
    
    218,090
    
    
    
    5,138
    
    
    
    (68
    )
    
    
    223,160Total
    
    $
    266,917
    
    
    $
    5,390
    
    
    $
    (68
    )
    
    $
    272,239
 December 31, 2009(Dollars in thousands)Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury and government
sponsored entities securities
    
    $
    48,717
    
    
    $
    313
    
    
    $
    (108
    )
    
    $
    48,922Equity securities
    
    
    472
    
    
    
    236
    
    
    
    
    
    
    
    708Mortgage-backed securities GSE
issued: 
residential
    
    
    226,182
    
    
    
    5,536
    
    
    
    
    
    
    
    231,718Total
    
    $
    275,371
    
    
    $
    6,085
    
    
    $
    (108
    )
    
    $
    281,348
  9




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March 31, 2010(Dollars in thousands)Amortized
    
    
    FairCost
    
    
    ValueDue in one year or less
    
    $
    499
    
    
    $
    509Due after one year through five years
    
    
    40,034
    
    
    
    40,034Due after five years through ten years
    
    
    8,001
    
    
    
    8,086Mortgage-backed securities: residential
    
    
    218,090
    
    
    
    223,160Total
    
    $
    266,624
    
    
    $
    271,789
    March 31, 2010(Dollars in thousands)Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossU.S. Treasury and government
sponsored entities securities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed securities
GSE issued: residential
    
    
    27,141
    
    
    
    (68
    )
    
    
    
    
    
    
    
    
    
    
    27,141
    
    
    
    (68
    )Total
    
    $
    27,141
    
    
    $
    (68
    )
    
    $
    
    
    
    $
    
    
    
    $
    27,141
    
    
    $
    (68
    )
 December 31, 2009(Dollars in thousands)Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossU.S. Treasury and government
sponsored entities securities
    
    $
    27,898
    
    
    $
    (108
    )
    
    $
    
    
    
    $
    
    
    
    $
    27,898
    
    
    $
    (108
    )Equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed securities
GSE issued: residential
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    Total
    
    $
    27,905
    
    
    $
    (108
    )
    
    $
    
    
    
    $
    
    
    
    $
    27,905
    
    
    $
    (108
    )
  10




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##### Table of Contents



Other-Than-Temporary-Impairment
       Mortgage-backed Securities
   11




---



##### Table of Contents



7. LOANS
  March 31,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Real Estate:One- to four-family residential
    
    $
    777,380
    
    
    $
    773,831Multifamily residential
    
    
    143,992
    
    
    
    150,480Nonresidential
    
    
    389,407
    
    
    
    397,895Land
    
    
    25,122
    
    
    
    23,502Construction:One- to four-family residential
    
    
    161,625
    
    
    
    178,095Multifamily and non-residential
    
    
    14,682
    
    
    
    13,741Total real estate
    
    
    1,512,208
    
    
    
    1,537,544Consumer
    
    
    301,457
    
    
    
    309,202Commercial
    
    
    56,726
    
    
    
    60,217Total loans
    
    
    1,870,391
    
    
    
    1,906,963Less:Allowance for loan losses
    
    
    47,768
    
    
    
    42,287Deferred loan fees, net
    
    
    (1,276
    )
    
    
    (1,342
    )Total
    
    
    46,492
    
    
    
    40,945Loans, net
    
    $
    1,823,899
    
    
    $
    1,866,018
  Three months
    
    
    Three monthsended
    
    
    endedMarch 31,
    
    
    March 31,2010
    
    
    2009(Dollars in thousands)Balance, beginning of period
    
    $
    42,287
    
    
    $
    35,962Provision for loan losses
    
    
    12,450
    
    
    
    8,444Amounts charged off
    
    
    (7,140
    )
    
    
    (6,691
    )Recoveries
    
    
    171
    
    
    
    141Balance, end of period
    
    $
    47,768
    
    
    $
    37,856
   12




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##### Table of Contents



As of or for the
    
    
    As of or forThree
    
    
    the YearMonths Ended
    
    
    EndedMarch 31,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Impaired loans on which no specific valuation allowance was provided
    
    $
    97,340
    
    
    $
    83,443Impaired loans on which a specific valuation allowance was provided
    
    
    51,617
    
    
    
    36,362Total impaired loans at period-end
    
    $
    148,957
    
    
    $
    119,805Specific valuation allowances on impaired loans at period-end
    
    $
    9,040
    
    
    $
    4,064Average impaired loans during the period
    
    
    133,881
    
    
    
    103,026Interest income recognized on impaired loans during the period
    
    
    294
    
    
    
    2,056Interest income received on impaired loans during the period
    
    
    294
    
    
    
    2,056
 8.
    
    MORTGAGE BANKING ACTIVITIES   Three MonthsEnded
    
    
    Year EndedMarch 31,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Balance, beginning of year
    
    $
    6,228
    
    
    $
    5,562Originations
    
    
    446
    
    
    
    3,220Amortized to expense
    
    
    (551
    )
    
    
    (2,554
    )Balance, end of period
    
    
    6,123
    
    
    
    6,228Less valuation allowance
    
    
    (319
    )
    
    
    (423
    )Net balance
    
    $
    5,804
    
    
    $
    5,805
  Three MonthsEnded
    
    
    Year EndedMarch 31,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Balance, beginning of year
    
    $
    (423
    )
    
    $
    (2,233
    )Impairment charges
    
    
    
    
    
    
    Recoveries
    
    
    104
    
    
    
    1,810Balance, end of period
    
    $
    (319
    )
    
    $
    (423
    )
   13




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##### Table of Contents



March 31,
    
    
    December 31,2010
    
    
    2009Weighted average prepayment rate
    
    322 PSA
    
    325 PSAWeighted average life (in years)
    
    
    3.55
    
    
    
    3.65Weighted average discount rate
    
    
    8%
    
    
    
    8%
 9. OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS
  March 31,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Real estate owned and other repossessed assets
    
    $
    44,369
    
    
    $
    38,829Valuation allowance
    
    
    (8,951
    )
    
    
    (7,867
    )End of period
    
    $
    35,418
    
    
    $
    30,962
  March 31,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Beginning of year
    
    $
    7,867
    
    
    $
    2,754Additions charged to expense
    
    
    1,646
    
    
    
    7,925Direct write-downs
    
    
    (562
    )
    
    
    (2,812
    )End of period
    
    $
    8,951
    
    
    $
    7,867
  Three months endedMarch 31,2010
    
    
    2009(Dollars in thousands)Net loss on sales
    
    $
    100
    
    
    $
    425Provision for unrealized losses
    
    
    1,384
    
    
    
    713Operating expenses, net of rental income
    
    
    607
    
    
    
    951Total expenses
    
    $
    2,091
    
    
    $
    2,089
 10. OTHER POSTRETIREMENT BENEFIT PLANS
   14




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##### Table of Contents



Three Months Ended March 31,2010
    
    
    2009(Dollars in thousands)Service cost
    
    $
    
    
    
    $
    Interest cost
    
    
    47
    
    
    
    47Expected return on plan assets
    
    
    
    
    
    
    Net amortization of prior service cost
    
    
    
    
    
    
    Net amortization of actuarial gain
    
    
    
    
    
    
    (4
    )Net periodic benefit cost
    
    $
    47
    
    
    $
    43Assumptions used in
the valuations were as follows:Weighted average discount rate
    
    
    5.75
    %
    
    
    6.00
    %
 11. FAIR VALUE MEASUREMENT
        15




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##### Table of Contents



Fair Value Measurements at March 31, 2010 Using:Quoted Prices inActive Markets
    
    
    Significant Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    UnobservableMarch 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(Dollars in thousands)Assets:Available for sale securitiesUS Treasury and government
sponsored entities
securities
    
    $
    48,629
    
    
    $
    
    
    
    $
    48,629
    
    
    $
    Equity securities
    
    
    450
    
    
    
    450
    
    
    
    
    
    
    
    Mortgage-backed
securities: residential
    
    
    223,160
    
    
    
    
    
    
    
    223,160
    
    
    
    
 Fair Value Measurements at December 31, 2009 Using:Quoted Prices inActive Markets
    
    
    Significant Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(Dollars in thousands)Assets:Available for sale securitiesUS Treasury and government
sponsored entities
securities
    
    $
    48,922
    
    
    $
    
    
    
    $
    48,922
    
    
    $
    Equity securities
    
    
    708
    
    
    
    708
    
    
    
    
    
    
    
    Mortgage-backed
securities: residential
    
    
    231,718
    
    
    
    
    
    
    
    231,718
    
    
    
    
  Fair Value Measurements at March 31, 2010 Using:Quoted Prices inActive Markets
    
    
    Significant Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    UnobservableMarch 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(Dollars in thousands)Assets:Impaired loans
    
    $
    42,577
    
    
    
    
    
    
    
    
    
    
    $
    42,577Mortgage servicing assets
    
    
    1,753
    
    
    
    
    
    
    
    1,753
    
    
    
    Foreclosed assets
    
    
    19,924
    
    
    
    
    
    
    
    
    
    
    
    19,924
 Fair Value Measurements at December 31, 2009 Using:Quoted Prices inActive Markets
    
    
    Significant Other
    
    
    Significantfor Identical
    
    
    Observable
    
    
    UnobservableDecember 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(Dollars in thousands)Assets:Impaired loans
    
    $
    32,298
    
    
    
    
    
    
    
    
    
    
    $
    32,298Mortgage servicing rights
    
    
    1,865
    
    
    
    
    
    
    
    1,865
    
    
    
    Foreclosed assets
    
    
    19,534
    
    
    
    
    
    
    
    
    
    
    
    19,534
  16




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##### Table of Contents



March 31, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    Value(Dollars in thousands)Assets:Cash and cash equivalents
    
    $
    40,055
    
    
    $
    40,055
    
    
    $
    45,074
    
    
    $
    45,074Securities:Available for sale
    
    
    272,239
    
    
    
    272,239
    
    
    
    281,348
    
    
    
    281,348Loans held for sale
    
    
    4,318
    
    
    
    4,351
    
    
    
    10,497
    
    
    
    10,551Loans, net
    
    
    1,823,899
    
    
    
    1,835,045
    
    
    
    1,866,018
    
    
    
    1,873,776Federal Home Loan Bank stock
    
    
    26,464
    
    
    
    n/a
    
    
    
    26,464
    
    
    
    n/aAccrued interest receivable
    
    
    8,405
    
    
    
    8,405
    
    
    
    9,090
    
    
    
    9,090Liabilities:Deposits:Checking, savings and money
market accounts
    
    
    (737,510
    )
    
    
    (737,510
    )
    
    
    (729,512
    )
    
    
    (729,512
    )Certificates of deposit
    
    
    (991,082
    )
    
    
    (1,000,982
    )
    
    
    (1,039,989
    )
    
    
    (1,051,133
    )Federal Home Loan Bank advances
    
    
    (214,099
    )
    
    
    (220,160
    )
    
    
    (221,323
    )
    
    
    (227,350
    )Repurchase agreements and other
    
    
    (96,553
    )
    
    
    (103,242
    )
    
    
    (96,833
    )
    
    
    (105,546
    )Advance payments by borrowers for taxes
and insurance
    
    
    (13,761
    )
    
    
    (13,761
    )
    
    
    (19,791
    )
    
    
    (19,791
    )Accrued interest payable
    
    
    (1,751
    )
    
    
    (1,751
    )
    
    
    (1,421
    )
    
    
    (1,421
    )
 Fair value of financial instruments:
  Cash and cash equivalents, accrued interest receivable and payable and advance payments by
borrowers for taxes and insurance
 Securities
 Loans held for sale
 Loans
  17




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##### Table of Contents



Federal Home Loan Bank stock
 Deposits
 Borrowed funds
 Limitations
  12. STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURE
  March 31, 2010
    
    
    March 31, 2009(Dollars in thousands)Supplemental disclosures of cash flow informationCash paid during the period for:Interest on deposits and borrowings
    
    $
    10,759
    
    
    $
    15,738Income taxes
    
    
    
    
    
    
    Supplemental schedule of noncash activities:Transfers from loans to real estate owned and
other repossessed assets
    
    
    8,119
    
    
    
    5,395
 13. SEGMENT INFORMATION
    18




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##### Table of Contents



14. EARNINGS PER SHARE
  Three Months EndedMarch 31,2010
    
    
    2009(Dollars in thousands,except per share data)Numerator:Loss from continuing operations
    
    $
    (5,142
    )
    
    $
    (1,679
    )Income from discontinued operations
    
    
    
    
    
    
    4,949Net loss
    
    $
    (5,142
    )
    
    $
    3,270Denominator:Weighted average common shares outstandingbasic
    
    
    29,955
    
    
    
    29,632Dilutive effect of stock options
    
    
    
    
    
    
    Weighted average common shares outstandingdilutive
    
    
    29,955
    
    
    
    29,632Basic earnings (loss) per share:Basic loss per common sharecontinuing operations
    
    $
    (0.17
    )
    
    $
    (0.06
    )Basic earnings per common sharediscontinued operations
    
    
    
    
    
    
    0.17Basic loss per common share
    
    
    (0.17
    )
    
    
    0.11Dilutive earnings (loss) per share:Dilutive loss per common sharecontinuing operations
    
    
    (0.17
    )
    
    
    (0.06
    )Dilutive earnings per common sharediscontinued operations
    
    
    
    
    
    
    0.17Dilutive loss per common share
    
    
    (0.17
    )
    
    
    0.11
 15. BROKERED CERTIFICATES OF DEPOSIT
   19




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##### Table of Contents



16. OTHER COMPREHENSIVE INCOME (LOSS)
   Three months endedMarch 31,
    
    
    March 31,2010
    
    
    2009(Dollars in thousands)Unrealized holding gain (loss) on securities available for sale
    
    $
    2,188
    
    
    $
    1,250Unrealized holding gain (loss) on postretirement benefits
    
    
    
    
    
    
    Reclassification adjustment for (gains) losses realized in income
    
    
    (2,843
    )
    
    
    150Net unrealized gains (losses)
    
    
    (655
    )
    
    
    1,400Tax effect (35%)
    
    
    230
    
    
    
    (490
    )Net of tax amount
    
    $
    (425
    )
    
    $
    910
  Balance at
    
    
    Current
    
    
    Balance atDecember 31,
    
    
    Period
    
    
    March 31,2009
    
    
    Change
    
    
    2010Unrealized gains (losses) on securities available for sale
    
    $
    3,885
    
    
    $
    (425
    )
    
    $
    3,460Unrealized gains (losses) on post-retirement benefits
    
    
    225
    
    
    
    
    
    
    
    225Total
    
    $
    4,110
    
    
    $
    (425
    )
    
    $
    3,685
 17. REGULATORY CAPITAL REQUIREMENTS
   As of March 31, 2010To Be Well CapitalizedUnder PromptMinimum Capital
    
    
    Corrective ActionActual
    
    
    Requirements
    
    
    ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(In thousands)Total risk-based capital to risk-weighted assets
    
    $
    215,407
    
    
    
    12.73
    %
    
    $
    135,320
    
    
    
    8.00
    %
    
    $
    169,151
    
    
    
    10.00
    %Tier 1 capital to risk-weighted assets
    
    
    193,934
    
    
    
    11.47
    %
    
    
    *
    
    
    
    *
    
    
    
    101,490
    
    
    
    6.00
    %Tier 1 capital to average total assets (leverage ratio)
    
    
    193,934
    
    
    
    8.47
    %
    
    
    91,539
    
    
    
    4.00
    %
    
    
    114,423
    
    
    
    5.00
    %
  20




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##### Table of Contents



As of December 31, 2009To Be Well CapitalizedUnder PromptMinimum Capital
    
    
    Corrective ActionActual
    
    
    Requirements
    
    
    ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(In thousands)Total risk-based capital to risk-weighted assets
    
    $
    220,395
    
    
    
    12.08
    %
    
    $
    137,783
    
    
    
    8.00
    %
    
    $
    172,229
    
    
    
    10.00
    %Tier 1 capital to risk-weighted assets
    
    
    198,610
    
    
    
    11.53
    %
    
    
    *
    
    
    
    *
    
    
    
    103,337
    
    
    
    6.00
    %Tier 1 capital to average total assets (leverage ratio)
    
    
    198,610
    
    
    
    8.22
    %
    
    
    96,658
    
    
    
    4.00
    %
    
    
    120,822
    
    
    
    5.00
    %
 *
    
    Ratio is not required under regulations.   18. OTHER EVENTS
   21




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 UNITED COMMUNITY FINANCIAL CORP.
 At or For the ThreeMonths EndedMarch 31,2010
    
    
    2009Selected financial ratios and other data: (1)Performance ratios:Return on average assets (2)
    
    
    -0.90
    %
    
    
    0.50
    %Return on average equity (3)
    
    
    -9.18
    %
    
    
    5.30
    %Interest rate spread (4)
    
    
    3.00
    %
    
    
    2.74
    %Net interest margin (5)
    
    
    3.28
    %
    
    
    3.04
    %Noninterest expense to average assets
    
    
    2.96
    %
    
    
    2.51
    %Efficiency ratio (6)
    
    
    78.59
    %
    
    
    71.85
    %Average interest-earning assets to average
interest-bearing liabilities
    
    
    113.36
    %
    
    
    111.51
    %Capital ratios:Average equity to average assets
    
    
    9.77
    %
    
    
    9.45
    %Equity to assets, end of period
    
    
    9.41
    %
    
    
    9.34
    %Tier 1 leverage ratio
    
    
    8.47
    %
    
    
    8.33
    %Tier 1 risk-based capital ratio
    
    
    11.47
    %
    
    
    11.22
    %Total risk-based capital ratio
    
    
    12.73
    %
    
    
    12.48
    %Asset quality ratio:Nonperforming loans to total loans at end of period (7)
    
    
    7.60
    %
    
    
    4.83
    %Nonperforming assets to average assets (8)
    
    
    7.59
    %
    
    
    5.08
    %Nonperforming assets to total assets at end of period
    
    
    7.63
    %
    
    
    5.17
    %Allowance for loan losses as a percent of loans
    
    
    2.55
    %
    
    
    1.76
    %Allowance for loan losses as a percent of
nonperforming loans (7)
    
    
    34.47
    %
    
    
    37.05
    %Texas ratio (9)
    
    
    66.50
    %
    
    
    47.99
    %Total classified assets as a percent of Tier 1 Capital
    
    
    119.22
    %
    
    
    59.95
    %Net chargeoffs as a percent of average loans
    
    
    1.51
    %
    
    
    1.21
    %Total 90+ days past due as a percent of total loans
    
    
    7.26
    %
    
    
    4.31
    %Office data:Number of full service banking offices
    
    
    38
    
    
    
    39Number of loan production offices
    
    
    6
    
    
    
    6Per share data:Basic loss from continuing operations (10)
    
    $
    (0.17
    )
    
    $
    (0.06
    )Basic earnings from discontinued operations (10)
    
    
    
    
    
    
    0.17Basic earnings (loss) (10)
    
    
    (0.17
    )
    
    
    0.11Diluted loss from continuing operations (10)
    
    
    (0.17
    )
    
    
    (0.06
    )Diluted earnings from discontinued operations (10)
    
    
    
    
    
    
    0.17Diluted earnings (loss) (10)
    
    
    (0.17
    )
    
    
    0.11Book value (11)
    
    
    6.94
    
    
    
    7.74Tangible book value (12)
    
    
    6.92
    
    
    
    7.72
  1.
    
    Ratios for the three month periods are annualized where appropriate2.
    
    Net income (loss) divided by average total assets3.
    
    Net income (loss) divided by average total equity4.
    
    Difference between weighted average yield on interest-earning assets and weighted average cost of interest-bearing liabilities5.
    
    Net interest income as a percentage of average interest-earning assets6.
    
    Noninterest expense, excluding the amortization of core deposit intangible, divided by the sum of net interest income and noninterest
income, excluding gains and losses on securities, other than temporary impairment charges, gains and losses on foreclosed assets, and
gain on the sale of a retail branch7.
    
    Nonperforming loans consist of nonaccrual loans and loans past due ninety days and still accruing8.
    
    Nonperforming assets consist of nonperforming loans and real estate owned and other repossessed assets9.
    
    Nonperforming assets divided by the sum of tangible common equity and the allowance for loan losses10.
    
    Net income (loss) divided by the number of basic or diluted shares outstanding11.
    
    Shareholders equity divided by number of shares outstanding12.
    
    Shareholders equity minus core deposit intangible divided by number of shares outstanding  22




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##### Table of Contents



Forward Looking Statements
   Comparison of Financial Condition at March 31, 2010 and December 31, 2009
      23




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##### Table of Contents



Allowance For Loan Losses(Dollars in thousands)December 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    March 31,2009
    
    
    Provision
    
    
    Recovery
    
    
    Chargeoff
    
    
    2010Real Estate LoansPermanentOne-to four-family residential
    
    $
    6,546
    
    
    $
    1,729
    
    
    $
    15
    
    
    $
    (1,013
    )
    
    $
    7,277Multifamily residential
    
    
    2,182
    
    
    
    1,703
    
    
    
    
    
    
    
    (1,585
    )
    
    
    2,300Nonresidential
    
    
    5,894
    
    
    
    3,061
    
    
    
    11
    
    
    
    (1,962
    )
    
    
    7,004Land
    
    
    666
    
    
    
    430
    
    
    
    
    
    
    
    (318
    )
    
    
    778Total
    
    
    15,288
    
    
    
    6,923
    
    
    
    26
    
    
    
    (4,878
    )
    
    
    17,359Construction LoansOne-to four-family residential
    
    
    18,787
    
    
    
    3,389
    
    
    
    
    
    
    
    (1,018
    )
    
    
    21,158Multifamily and nonresidential
    
    
    233
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    255Total
    
    
    19,020
    
    
    
    3,411
    
    
    
    
    
    
    
    (1,018
    )
    
    
    21,413Consumer LoansHome Equity
    
    
    2,390
    
    
    
    266
    
    
    
    26
    
    
    
    (362
    )
    
    
    2,320Auto
    
    
    162
    
    
    
    (18
    )
    
    
    2
    
    
    
    (3
    )
    
    
    143Marine
    
    
    701
    
    
    
    46
    
    
    
    
    
    
    
    (165
    )
    
    
    582Recreational vehicle
    
    
    1,392
    
    
    
    269
    
    
    
    18
    
    
    
    (338
    )
    
    
    1,341Other
    
    
    314
    
    
    
    56
    
    
    
    99
    
    
    
    (181
    )
    
    
    288Total
    
    
    4,959
    
    
    
    619
    
    
    
    145
    
    
    
    (1,049
    )
    
    
    4,674Commercial LoansSecured
    
    
    1,084
    
    
    
    325
    
    
    
    
    
    
    
    (140
    )
    
    
    1,269Unsecured
    
    
    1,936
    
    
    
    1,172
    
    
    
    
    
    
    
    (55
    )
    
    
    3,053Total
    
    
    3,020
    
    
    
    1,497
    
    
    
    
    
    
    
    (195
    )
    
    
    4,322Total
    
    $
    42,287
    
    
    $
    12,450
    
    
    $
    171
    
    
    $
    (7,140
    )
    
    $
    47,768
   24




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##### Table of Contents



Impaired Loans(Dollars in thousands)March 31,
    
    
    December 31,2010
    
    
    2009
    
    
    ChangeReal Estate LoansPermanentOne-to four-family residential
    
    $
    21,658
    
    
    $
    18,764
    
    
    $
    2,894Multifamily residential
    
    
    10,696
    
    
    
    7,863
    
    
    
    2,833Nonresidential
    
    
    38,255
    
    
    
    25,686
    
    
    
    12,569Land
    
    
    13,045
    
    
    
    5,160
    
    
    
    7,885Total
    
    
    83,654
    
    
    
    57,473
    
    
    
    26,181Construction LoansOne-to four-family residential
    
    
    56,556
    
    
    
    53,666
    
    
    
    2,890Multifamily and nonresidential
    
    
    382
    
    
    
    392
    
    
    
    (10
    )Total
    
    
    56,938
    
    
    
    54,058
    
    
    
    2,880Consumer LoansHome Equity
    
    
    1,711
    
    
    
    2,088
    
    
    
    (377
    )Auto
    
    
    36
    
    
    
    30
    
    
    
    6Boat
    
    
    632
    
    
    
    1,103
    
    
    
    (471
    )Recreational vehicle
    
    
    283
    
    
    
    353
    
    
    
    (70
    )Other
    
    
    50
    
    
    
    8
    
    
    
    42Total
    
    
    2,712
    
    
    
    3,582
    
    
    
    (870
    )Commercial LoansSecured
    
    
    2,663
    
    
    
    3,365
    
    
    
    (702
    )Unsecured
    
    
    2,990
    
    
    
    327
    
    
    
    2,663Total
    
    
    5,653
    
    
    
    3,692
    
    
    
    1,961Total Impaired Loans
    
    $
    148,957
    
    
    $
    118,805
    
    
    $
    30,152
  
    
    Transfer from the borrower to Home Savings of receivables from third parties, real
estate, or other assets to fully or partially satisfy a debt (including a transfer
resulting from foreclosure or repossession).
 
    
    Issuance or other granting of an equity interest to Home Savings by the borrower to
satisfy fully or partially a debt unless the equity interest is granted pursuant to
existing terms for converting the debt into an equity interest.
 
    
    Modification of terms of a debt, such as one or a combination of:
 
    
    Reduction of the stated interest rate for the remaining original life of the debt.
    
    Extension of the maturity date or dates at a stated interest rate lower
than the current market rate for new debt with similar risk.
    
    Reduction of the face amount or maturity amount of the debt as stated
in the instrument or other agreement.
    
    Reduction of accrued interest.
  25




---



##### Table of Contents




    
    the fair value of cash, other assets, or an equity interest accepted by Home Savings
from a borrower in full satisfaction of its receivable at least equals the recorded
investment in the loan;
    
    the fair value of cash, other assets, or an equity interest transferred by a borrower to
Home Savings in full settlement of its loan at least equals the carrying amount of the
loan;
 
    
    Home Savings reduces the effective interest rate on the loan primarily to reflect a
decrease in market interest rates in general or a decrease in the risk so as to maintain a
relationship with a borrower that can readily obtain funds from other sources at the
current market interest rate; or
 
    
    Home Savings issues, in exchange for the original loan, a new marketable loan having an
effective interest rate based on its market price that is at or near the current market
interest rates of loans with similar maturity dates and stated interest rates issued by
other banks.
  Troubled Debt RestructuringsMarch 31,
    
    
    December 31,2010
    
    
    2009
    
    
    Change(In thousands)Real Estate LoansPermanentOne-to four-family
    
    $
    4,941
    
    
    $
    2,167
    
    
    $
    2,774Multifamily residential
    
    
    2,411
    
    
    
    
    
    
    
    2,411Nonresidential
    
    
    7,756
    
    
    
    3,595
    
    
    
    4,161Land
    
    
    2,152
    
    
    
    1,050
    
    
    
    1,102Total
    
    
    17,260
    
    
    
    6,812
    
    
    
    10,448Construction LoansOne-to four-family residential
    
    
    13,867
    
    
    
    15,213
    
    
    
    (1,346
    )Multifamily and nonresidential
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    13,867
    
    
    
    15,213
    
    
    
    (1,346
    )Consumer LoansHome Equity
    
    
    270
    
    
    
    240
    
    
    
    30Auto
    
    
    15
    
    
    
    18
    
    
    
    (3
    )Marine
    
    
    
    
    
    
    
    
    
    
    Recreational vehicle
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    50
    
    
    
    8
    
    
    
    42Total
    
    
    335
    
    
    
    266
    
    
    
    69Commercial LoansSecured
    
    
    355
    
    
    
    357
    
    
    
    (2
    )Unsecured
    
    
    100
    
    
    
    
    
    
    
    100Total
    
    
    455
    
    
    
    357
    
    
    
    98Total Restructured Loans
    
    $
    31,917
    
    
    $
    22,648
    
    
    $
    9,269
   26




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##### Table of Contents



Nonperforming Loans(Dollars in thousands)March 31,
    
    
    December 31,2010
    
    
    2009
    
    
    ChangeReal Estate LoansPermanentOne-to four-family residential
    
    $
    30,054
    
    
    $
    26,766
    
    
    $
    3,288Multifamily residential
    
    
    7,885
    
    
    
    7,863
    
    
    
    22Nonresidential
    
    
    36,083
    
    
    
    24,091
    
    
    
    11,992Land
    
    
    11,627
    
    
    
    5,160
    
    
    
    6,467Total
    
    
    85,649
    
    
    
    63,880
    
    
    
    21,769Construction LoansOne-to four-family residential
    
    
    42,963
    
    
    
    42,819
    
    
    
    144Multifamily and nonresidential
    
    
    382
    
    
    
    392
    
    
    
    (10
    )Total
    
    
    43,345
    
    
    
    43,211
    
    
    
    134Consumer LoansHome Equity
    
    
    2,478
    
    
    
    3,168
    
    
    
    (690
    )Auto
    
    
    133
    
    
    
    148
    
    
    
    (15
    )Marine
    
    
    632
    
    
    
    1,103
    
    
    
    (471
    )Recreational vehicle
    
    
    622
    
    
    
    900
    
    
    
    (278
    )Other
    
    
    33
    
    
    
    64
    
    
    
    (31
    )Total
    
    
    3,898
    
    
    
    5,383
    
    
    
    (1,485
    )Commercial LoansSecured
    
    
    2,424
    
    
    
    3,061
    
    
    
    (637
    )Unsecured
    
    
    3,248
    
    
    
    352
    
    
    
    2,896Total
    
    
    5,672
    
    
    
    3,413
    
    
    
    2,259Total Nonperforming Loans
    
    $
    138,564
    
    
    $
    115,887
    
    
    $
    22,677
      27




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##### Table of Contents



Real Estate
    
    
    RepossessedOwned
    
    
    Assets
    
    
    Total(In thousands)Balance at December 31, 2009
    
    $
    30,340
    
    
    $
    622
    
    
    $
    30,962Acquisitions
    
    
    8,632
    
    
    
    637
    
    
    
    9,269Sales
    
    
    (2,983
    )
    
    
    (446
    )
    
    
    (3,429
    )Change in valuation allowance
    
    
    (1,384
    )
    
    
    
    
    
    
    (1,384
    )Balance at March 31, 2010
    
    $
    34,605
    
    
    $
    813
    
    
    $
    35,418
  Valuation
    
    
    NetBalance
    
    
    Allowance
    
    
    Balance(In thousands)Real estate ownedOne-to four-family
    
    $
    3,574
    
    
    $
    (171
    )
    
    $
    3,403Multifamily residential
    
    
    10,206
    
    
    
    (2,579
    )
    
    
    7,627Nonresidential
    
    
    8,022
    
    
    
    (1,246
    )
    
    
    6,776One-to four-family residential construction
    
    
    21,498
    
    
    
    (4,955
    )
    
    
    16,543Land
    
    
    256
    
    
    
    
    
    
    
    256Total real estate owned
    
    
    43,556
    
    
    
    (8,951
    )
    
    
    34,605Repossessed assetsAuto
    
    
    1
    
    
    
    
    
    
    
    1Marine
    
    
    414
    
    
    
    
    
    
    
    414Recreational vehicle
    
    
    398
    
    
    
    
    
    
    
    398Total repossessed assets
    
    
    813
    
    
    
    
    
    
    
    813Total real estate owned and other
repossessed assets
    
    $
    44,369
    
    
    $
    (8,951
    )
    
    $
    35,418
      28




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##### Table of Contents



Comparison of Operating Results for the Three Months Ended
March 31, 2010 and March 31, 2009
 Net Income.
 Net Interest Income.
    29




---



##### Table of Contents



For the Three Months Ended March 31,2010 vs. 2009Increase
    
    
    Total(decrease) due to
    
    
    IncreaseRate
    
    
    Volume
    
    
    (decrease)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    (846
    )
    
    $
    (4,378
    )
    
    $
    (5,224
    )Loans held for sale
    
    
    (32
    )
    
    
    (161
    )
    
    
    (193
    )Investment securities:Available for sale
    
    
    (414
    )
    
    
    229
    
    
    
    (185
    )Federal Home Loan Bank stock
    
    
    1
    
    
    
    
    
    
    
    1Other interest earning assets
    
    
    (34
    )
    
    
    12
    
    
    
    (22
    )Total interest earning assets
    
    $
    (1,325
    )
    
    $
    (4,298
    )
    
    $
    (5,623
    )Interest bearing liabilities:Savings accounts
    
    
    (68
    )
    
    
    31
    
    
    
    (37
    )Checking accounts
    
    
    (411
    )
    
    
    85
    
    
    
    (326
    )Certificates of deposit
    
    
    (1,605
    )
    
    
    (1,365
    )
    
    
    (2,970
    )Federal Home Loan Bank advances
    
    
    (201
    )
    
    
    (809
    )
    
    
    (1,010
    )Repurchase agreements and other
    
    
    (7
    )
    
    
    (260
    )
    
    
    (267
    )Total interest bearing liabilities
    
    $
    (2,292
    )
    
    $
    (2,318
    )
    
    
    (4,610
    )Change in net interest income
    
    
    
    
    
    
    
    
    
    $
    (1,013
    )
 Provision for Loan Losses.
 Non-interest Income.
  Non-interest Expense.
  30




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.  AVERAGE BALANCE SHEETS
  Three Months Ended March 31,2010
    
    
    2009Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Cost
    
    
    Balance
    
    
    Paid
    
    
    Cost(Dollars in thousands)Interest-earning assets:Net loans (1)
    
    $
    1,847,443
    
    
    $
    25,843
    
    
    
    5.60
    %
    
    $
    2,158,931
    
    
    $
    31,067
    
    
    
    5.76
    %Net loans held for sale
    
    
    7,459
    
    
    
    70
    
    
    
    3.75
    %
    
    
    24,172
    
    
    
    263
    
    
    
    4.35
    %Investment securities:Available for sale
    
    
    256,748
    
    
    
    2,585
    
    
    
    4.03
    %
    
    
    239,656
    
    
    
    2,770
    
    
    
    4.62
    %Federal Home Loan Bank stock
    
    
    26,464
    
    
    
    300
    
    
    
    4.53
    %
    
    
    26,464
    
    
    
    299
    
    
    
    4.52
    %Other interest-earning assets
    
    
    24,246
    
    
    
    7
    
    
    
    0.12
    %
    
    
    18,927
    
    
    
    29
    
    
    
    0.61
    %Total interest-earning assets
    
    
    2,162,360
    
    
    
    28,805
    
    
    
    5.33
    %
    
    
    2,468,150
    
    
    
    34,428
    
    
    
    5.58
    %Noninterest-earning assets
    
    
    129,270
    
    
    
    
    
    
    
    
    
    
    
    137,183Assets of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,468Total assets
    
    $
    2,291,630
    
    
    
    
    
    
    
    
    
    
    $
    2,609,801Interest-bearing liabilities:NOW and money market accounts
    
    $
    399,624
    
    
    $
    876
    
    
    
    0.88
    %
    
    $
    375,113
    
    
    $
    1,202
    
    
    
    1.28
    %Savings accounts
    
    
    207,438
    
    
    
    208
    
    
    
    0.40
    %
    
    
    187,566
    
    
    
    245
    
    
    
    0.52
    %Certificates of deposit
    
    
    1,021,843
    
    
    
    8,234
    
    
    
    3.22
    %
    
    
    1,176,028
    
    
    
    11,204
    
    
    
    3.81
    %Federal Home Loan Bank advances
    
    
    181,637
    
    
    
    848
    
    
    
    1.87
    %
    
    
    350,427
    
    
    
    1,858
    
    
    
    2.12
    %Repurchase agreements and other
    
    
    96,987
    
    
    
    923
    
    
    
    3.81
    %
    
    
    124,306
    
    
    
    1,190
    
    
    
    3.83
    %Total interest-bearing liabilities
    
    
    1,907,529
    
    
    
    11,089
    
    
    
    2.33
    %
    
    
    2,213,440
    
    
    
    15,699
    
    
    
    2.84
    %Noninterest-bearing liabilities
    
    
    160,162
    
    
    
    
    
    
    
    
    
    
    
    147,172Liabilities of discontinued
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,449Total liabilities
    
    
    2,067,691
    
    
    
    
    
    
    
    
    
    
    
    2,363,061Equity
    
    
    223,939
    
    
    
    
    
    
    
    
    
    
    
    246,740Total liabilities and equity
    
    $
    2,291,630
    
    
    
    
    
    
    
    
    
    
    $
    2,609,801Net interest income and interest
rate spread
    
    
    
    
    
    $
    17,716
    
    
    
    3.00
    %
    
    
    
    
    
    $
    18,729
    
    
    
    2.74
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.28
    %
    
    
    
    
    
    
    
    
    
    
    3.04
    %Average interest-earning assets
to average interest-bearing
liabilities
    
    
    
    
    
    
    
    
    
    
    113.36
    %
    
    
    
    
    
    
    
    
    
    
    111.51
    %
 (1)
    
    Nonaccrual loans are included in the average balance at a yield of 0%.  31




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##### Table of Contents



ITEM 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
 Qualitative Aspects of Market Risk.
 Quantitative Aspects of Market Risk.
   Quarter ended March 31, 2010NPV as % of portfolio value of assets
    
    
    Next 12 months net interest income(Dollars in thousands)InternalpolicyChange
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    limitationsin rates
    
    
    
    
    
    Internal policy limitations
    
    
    
    
    
    
    
    
    
    
    on(Basis
    
    NPV
    
    
    Minimum
    
    
    Maximum
    
    
    Change
    
    
    $

    
    
    maximum
    
    
    %points)
    
    Ratio
    
    
    level
    
    
    change
    
    
    in %
    
    
    Change
    
    
    change
    
    
    Change300
    
    
    9.11
    %
    
    
    6.00
    %
    
    
    -35.00
    %
    
    
    -1.19
    %
    
    $
    (3,046
    )
    
    
    -15.00
    %
    
    
    -3.84
    %200
    
    
    9.83
    %
    
    
    7.00
    %
    
    
    
    
    
    
    -0.47
    %
    
    
    (1,275
    )
    
    
    -10.00
    %
    
    
    -1.61
    %100
    
    
    10.46
    %
    
    
    7.00
    %
    
    
    
    
    
    
    0.16
    %
    
    
    (210
    )
    
    
    -5.00
    %
    
    
    -0.26
    %Static
    
    
    10.30
    %
    
    
    8.00
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  32




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##### Table of Contents



Year Ended December 31, 2009NPV as % of portfolio value of assets
    
    
    Next 12 months net interest income(Dollars in thousands)InternalpolicyChange
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    limitationsin rates
    
    
    
    
    
    Internal policy limitations
    
    
    
    
    
    
    
    
    
    
    on(Basis
    
    NPV
    
    
    Minimum
    
    
    Maximum
    
    
    Change
    
    
    $
    
    
    maximum
    
    
    %points)
    
    Ratio
    
    
    level
    
    
    change
    
    
    in %
    
    
    Change
    
    
    change
    
    
    Change300
    
    
    8.19
    %
    
    
    6.00
    %
    
    
    -35.00
    %
    
    
    -1.76
    %
    
    $
    (4,414
    )
    
    
    -15.00
    %
    
    
    -5.67
    %200
    
    
    9.31
    %
    
    
    7.00
    %
    
    
    
    
    
    
    -0.64
    %
    
    
    (2,125
    )
    
    
    -10.00
    %
    
    
    -2.73
    %100
    
    
    10.03
    %
    
    
    7.00
    %
    
    
    
    
    
    
    0.80
    %
    
    
    (640
    )
    
    
    -5.00
    %
    
    
    -0.82
    %Static
    
    
    9.95
    %
    
    
    8.00
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   Potential Impact of Changes in Interest Rates.
  
 ITEM 4.
    
    Controls and Procedures
   33




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##### Table of Contents



PART II. OTHER INFORMATION
 UNITED COMMUNITY FINANCIAL CORP.
 
 ITEM 1 
    
    Legal Proceedings
  
 ITEM 1A 
    
    Risk Factors
  
 ITEM 2 
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  
 ITEM 6 
    
    Exhibits
  Exhibit Number
    
    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
  34




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 
 SIGNATURES
  UNITED COMMUNITY FINANCIAL CORP.Date:  May 17, 2010
    /s/ Douglas M. McKayDouglas M. McKayChairman, President and Chief Executive Officer

(Principal Executive Officer)Date:  May 17, 2010
    /s/ James R. ReskeJames R. Reske, CFATreasurer and Chief Financial Officer

(Principal Financial Officer)  35




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 Exhibit 3.1
  Exhibit 3.2
   36