##### 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 June 30, 2007
 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.)
 
  (330) 742-0500
  
  þ o
  Large accelerated filer o                     Accelerated filer þ                    Non-accelerated filer o
  o þ




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##### Table of Contents



TABLE OF CONTENTS
 PAGEPart I. FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated
Statements of Financial Condition as of June 30, 2007 (Unaudited) and
December 31, 2006
    
    
    1Consolidated Statements of Income for the Three and Six Months Ended
June 30, 2007 and 2006 (Unaudited)
    
    
    2Consolidated
Statement of Shareholders Equity for the Six Months ended June
30, 2007 (Unaudited)
    
    
    3Consolidated
Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006 (Unaudited)
    
    
    4Notes to Consolidated Financial Statements
    
    
    5 - 13Item 2.
    
    Managements
Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14-24Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    26Part II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    27Item 1A.
    
    Risk Factors
    
    
    27Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 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
    
    
    27Signatures
    
    
    
    
    28Exhibits
    
    
    
    
    29-32EX-31.1EX-31.2EX-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)
 June 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Assets:Cash and deposits with banks
    
    $
    32,093
    
    
    $
    34,129Federal funds sold and other
    
    
    2,225
    
    
    
    1,508Total cash and cash equivalents
    
    
    34,318
    
    
    
    35,637Securities:Trading, at fair value
    
    
    7,631
    
    
    
    10,786Available for sale, at fair value
    
    
    249,636
    
    
    
    237,531Loans, net of allowance for loan losses of $19,395 and $16,955, respectively
    
    
    2,248,462
    
    
    
    2,253,559Loans held for sale
    
    
    16,509
    
    
    
    26,960Federal Home Loan Bank stock, at cost
    
    
    25,432
    
    
    
    25,432Premises and equipment, net
    
    
    25,970
    
    
    
    25,192Accrued interest receivable
    
    
    13,168
    
    
    
    13,703Real estate owned and other repossessed assets
    
    
    9,841
    
    
    
    3,242Goodwill
    
    
    33,593
    
    
    
    33,593Core deposit intangible
    
    
    1,341
    
    
    
    1,534Cash surrender value of life insurance
    
    
    23,587
    
    
    
    23,137Other assets
    
    
    16,672
    
    
    
    13,239Total assets
    
    $
    2,706,160
    
    
    $
    2,703,545Liabilities and Shareholders EquityLiabilities:Deposits:Interest bearing
    
    $
    1,696,819
    
    
    $
    1,720,426Non-interest bearing
    
    
    104,430
    
    
    
    102,509Total deposits
    
    
    1,801,249
    
    
    
    1,822,935Federal Home Loan Bank advances
    
    
    452,814
    
    
    
    465,253Repurchase agreements and other borrowings
    
    
    142,139
    
    
    
    98,511Advance payments by borrowers for taxes and insurance
    
    
    14,358
    
    
    
    17,471Accrued interest payable
    
    
    6,217
    
    
    
    2,842Accrued expenses and other liabilities
    
    
    14,037
    
    
    
    15,200Total liabilities
    
    
    2,430,814
    
    
    
    2,422,212Shareholders 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
    
    
    146,555
    
    
    
    145,834Retained earnings
    
    
    223,571
    
    
    
    220,527Accumulated other comprehensive loss
    
    
    (3,669
    )
    
    
    (1,296
    )Unearned employee stock ownership plan shares
    
    
    (10,376
    )
    
    
    (11,287
    )Treasury stock, at cost, 7,591,488 and 6,827,143 shares, respectively
    
    
    (80,735
    )
    
    
    (72,445
    )Total shareholders equity
    
    
    275,346
    
    
    
    281,333Total liabilities and shareholders equity
    
    $
    2,706,160
    
    
    $
    2,703,545
 See Notes to Consolidated Financial Statements.
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UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars in thousands, except per share data)Interest incomeLoans
    
    $
    37,915
    
    
    $
    37,961
    
    
    $
    76,918
    
    
    $
    73,071Loans held for sale
    
    
    289
    
    
    
    480
    
    
    
    545
    
    
    
    988Securities:Trading
    
    
    63
    
    
    
    80
    
    
    
    125
    
    
    
    162Available for sale
    
    
    3,099
    
    
    
    2,366
    
    
    
    6,033
    
    
    
    4,580Held to maturityMargin accounts
    
    
    
    
    
    
    367
    
    
    
    
    
    
    
    707Federal Home Loan Bank stock dividends
    
    
    412
    
    
    
    349
    
    
    
    812
    
    
    
    690Other interest earning assets
    
    
    226
    
    
    
    44
    
    
    
    396
    
    
    
    75Total interest income
    
    
    42,004
    
    
    
    41,647
    
    
    
    84,829
    
    
    
    80,273Interest expenseDeposits
    
    
    16,828
    
    
    
    14,153
    
    
    
    33,550
    
    
    
    26,573Federal Home Loan Bank advances
    
    
    5,280
    
    
    
    5,251
    
    
    
    10,627
    
    
    
    9,881Repurchase agreements and other
    
    
    1,744
    
    
    
    1,207
    
    
    
    3,099
    
    
    
    2,094Total interest expense
    
    
    23,852
    
    
    
    20,611
    
    
    
    47,276
    
    
    
    38,548Net interest income
    
    
    18,152
    
    
    
    21,036
    
    
    
    37,553
    
    
    
    41,725Provision for loan losses
    
    
    2,744
    
    
    
    812
    
    
    
    5,069
    
    
    
    1,551Net interest income after provision for
loan losses
    
    
    15,408
    
    
    
    20,224
    
    
    
    32,484
    
    
    
    40,174Non-interest incomeBrokerage commissions
    
    
    7,049
    
    
    
    4,814
    
    
    
    13,289
    
    
    
    9,814Service fees and other charges
    
    
    3,770
    
    
    
    3,209
    
    
    
    7,343
    
    
    
    6,407Underwriting and investment banking
    
    
    212
    
    
    
    (4
    )
    
    
    245
    
    
    
    26Net gains (losses):Trading securities
    
    
    43
    
    
    
    (12
    )
    
    
    48
    
    
    
    32Loans sold
    
    
    524
    
    
    
    466
    
    
    
    1,187
    
    
    
    1,029Other
    
    
    (379
    )
    
    
    (32
    )
    
    
    (403
    )
    
    
    (27
    )Other income
    
    
    998
    
    
    
    1,092
    
    
    
    1,925
    
    
    
    2,064Total non-interest income
    
    
    12,217
    
    
    
    9,533
    
    
    
    23,634
    
    
    
    19,345Non-interest expenseSalaries and employee benefits
    
    
    14,359
    
    
    
    13,005
    
    
    
    28,641
    
    
    
    26,528Occupancy
    
    
    1,208
    
    
    
    1,106
    
    
    
    2,356
    
    
    
    2,214Equipment and data processing
    
    
    2,306
    
    
    
    2,386
    
    
    
    4,621
    
    
    
    4,645Franchise tax
    
    
    550
    
    
    
    530
    
    
    
    1,114
    
    
    
    1,071Advertising
    
    
    390
    
    
    
    447
    
    
    
    707
    
    
    
    792Amortization of core deposit intangible
    
    
    93
    
    
    
    127
    
    
    
    193
    
    
    
    260Other expenses
    
    
    2,594
    
    
    
    2,525
    
    
    
    5,110
    
    
    
    4,973Total non-interest expenses
    
    
    21,500
    
    
    
    20,126
    
    
    
    42,742
    
    
    
    40,483Income before income taxes
    
    
    6,125
    
    
    
    9,631
    
    
    
    13,376
    
    
    
    19,036Income taxes
    
    
    2,195
    
    
    
    3,381
    
    
    
    4,776
    
    
    
    6,654Net income
    
    $
    3,930
    
    
    $
    6,250
    
    
    $
    8,600
    
    
    $
    12,382Comprehensive income
    
    $
    1,119
    
    
    $
    4,695
    
    
    $
    6,227
    
    
    $
    10,339Earnings per shareBasic
    
    $
    0.14
    
    
    $
    0.22
    
    
    $
    0.30
    
    
    $
    0.43Diluted
    
    $
    0.13
    
    
    $
    0.21
    
    
    $
    0.29
    
    
    $
    0.42
 See Notes to Consolidated Financial Statements.
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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 per share data)Balance December 31, 2006
    
    
    30,977
    
    
    $
    145,834
    
    
    $
    220,527
    
    
    $
    (1,296
    )
    
    $
    (11,287
    )
    
    $
    (72,445
    )
    
    $
    281,333Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    8,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,600Change in net unrealized gain/(loss)
on securities, net of taxes of $1,278
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,373
    )
    
    
    
    
    
    
    
    
    
    
    (2,373
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    8,600
    
    
    
    (2,373
    )
    
    
    
    
    
    
    
    
    
    
    6,227Shares allocated to ESOP participants
    
    
    
    
    
    
    721
    
    
    
    
    
    
    
    
    
    
    
    911
    
    
    
    
    
    
    
    1,632Purchase of treasury stock
    
    
    (786
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,518
    )
    
    
    (8,518
    )Exercise of stock options
    
    
    22
    
    
    
    
    
    
    
    (75
    )
    
    
    
    
    
    
    
    
    
    
    228
    
    
    
    153Dividends paid, $0.19 per share
    
    
    
    
    
    
    
    
    
    
    (5,481
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,481
    )Balance June 30, 2007
    
    
    30,213
    
    
    $
    146,555
    
    
    $
    223,571
    
    
    $
    (3,669
    )
    
    $
    (10,376
    )
    
    $
    (80,735
    )
    
    $
    275,346
 See Notes to Consolidated Financial Statements.
 3




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Six Months Ended June 30,2007
    
    
    2006(Dollars in thousands)Cash Flows from Operating ActivitiesNet income
    
    $
    8,600
    
    
    $
    12,382Adjustments to reconcile net income to net cash provided by
operating activities:Provision for loan losses
    
    
    5,069
    
    
    
    1,551Net gains
    
    
    (784
    )
    
    
    (1,010
    )Amortization of premiums and accretion of discounts
    
    
    995
    
    
    
    1,501Depreciation and amortization
    
    
    1,559
    
    
    
    1,364ESOP compensation
    
    
    1,632
    
    
    
    1,777FHLB stock dividends
    
    
    
    
    
    
    (690
    )Decrease in trading securities
    
    
    3,155
    
    
    
    3,781Decrease in margin accounts
    
    
    
    
    
    
    (972
    )Decrease (increase) in interest receivable
    
    
    535
    
    
    
    (1,123
    )(Increase) decrease in prepaid and other assets
    
    
    (4,321
    )
    
    
    (223
    )Increase in interest payable
    
    
    3,375
    
    
    
    320Net principal disbursed on loans held for sale
    
    
    (109,845
    )
    
    
    (92,816
    )Proceeds from sale of loans held for sale
    
    
    121,455
    
    
    
    94,432Increase (decrease) in other liabilities
    
    
    115
    
    
    
    (1,993
    )Net cash from operating activities
    
    
    31,540
    
    
    
    18,281Cash Flows from Investing ActivitiesProceeds from principal repayments and maturities of:Available for sale securities
    
    
    29,990
    
    
    
    14,369Proceeds from sale of:Real estate owned and other repossessed assets
    
    
    1,693
    
    
    
    1,436Nonperforming loans
    
    
    
    
    
    
    210Premises and equipment
    
    
    
    
    
    
    531Purchases of securities available for sale
    
    
    (45,717
    )
    
    
    (30,334
    )Net principal repaid (disbursed) on loans
    
    
    81,854
    
    
    
    (1,735
    )Loans purchased
    
    
    (90,897
    )
    
    
    (109,395
    )Purchases of premises and equipment
    
    
    (2,328
    )
    
    
    (1,865
    )Net cash from investing activities
    
    
    (25,405
    )
    
    
    (126,783
    )Cash Flows from Financing ActivitiesNet increase in NOW, savings and money market accounts
    
    
    27,235
    
    
    
    45,815Net (decrease) increase in certificates of deposit
    
    
    (48,919
    )
    
    
    48,548Net decrease in advance payments by borrowers
for taxes and insurance
    
    
    (3,113
    )
    
    
    (921
    )Proceeds from FHLB advances
    
    
    404,453
    
    
    
    287,096Repayment of FHLB advances
    
    
    (416,892
    )
    
    
    (306,860
    )Net change in other borrowed funds
    
    
    43,628
    
    
    
    35,702Dividends paid
    
    
    (5,481
    )
    
    
    (5,209
    )Proceeds from the exercise of stock options
    
    
    153
    
    
    
    403Purchase of treasury stock
    
    
    (8,518
    )
    
    
    (2,208
    )Net cash from financing activities
    
    
    (7,454
    )
    
    
    102,366Decrease in cash and cash equivalents
    
    
    (1,319
    )
    
    
    (6,136
    )Cash and cash equivalents, beginning of period
    
    
    35,637
    
    
    
    37,545Cash and cash equivalents, end of period
    
    $
    34,318
    
    
    $
    31,409
 See Notes to Consolidated Financial Statements.
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UNITED COMMUNITY FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. BASIS OF PRESENTATION
     2. RECENT ACCOUNTING DEVELOPMENTS
 Accounting for Uncertainty in Income Taxes
   Accounting for Deferred Compensation and Postretirement Benefits Aspects of Endorsement
Split-Dollar Life Insurance Arrangement
 Accounting for
Purchases of Life Insurance  Determining the Amount That Could Be Realized in Accordance with FASB
Technical Bulletin No. 85-4 (Accounting for Purchases of Life Insurance).
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The Fair Value Option for Financial Assets and
Financial Liabilities
 3. STOCK COMPENSATION
   For the six months ended June 30,2007AggregateWeighted
    
    intrinsicaverage
    
    value (inShares
    
    exercise price
    
    thousands)Outstanding at beginning of year
    
    
    2,068,558
    
    
    $
    9.63Granted
    
    
    
    
    
    
    Exercised
    
    
    (21,447
    )
    
    
    7.17Forfeited
    
    
    
    
    
    
    Outstanding at end of period
    
    
    2,047,111
    
    
    $
    9.65
    
    
    $
    2,636Options exercisable at end of period
    
    
    2,047,111
    
    
    $
    9.65
    
    
    $
    2,636
  June 30,2007Intrinsic value of options exercised
    
    $
    77Cash received from option exercises
    
    
    153Tax benefit realized from option exercises
    
    
    Weighted average fair value of options granted
    
    
    
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4. SECURITIES
  June 30, 2007
    
    
    December 31, 2006(Dollars in thousands)Gross
    
    
    Gross
    
    
    
    
    
    
    Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Gains
    
    
    LossesU.S. Treasury and agency
securities
    
    $
    94,613
    
    
    $
    
    
    
    $
    (1,436
    )
    
    $
    96,847
    
    
    $
    63
    
    
    $
    (722
    )Equity securities
    
    
    7,802
    
    
    
    599
    
    
    
    (135
    )
    
    
    7,866
    
    
    
    641
    
    
    
    (112
    )Mortgage-related securities
    
    
    147,221
    
    
    
    11
    
    
    
    (4,560
    )
    
    
    132,818
    
    
    
    131
    
    
    
    (1,870
    )Total
    
    $
    249,636
    
    
    $
    610
    
    
    $
    (6,131
    )
    
    $
    237,531
    
    
    $
    835
    
    
    $
    (2,704
    )
  June 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Obligations of U.S. Government
    
    $
    833
    
    
    $
    1,296State and municipal obligations
    
    
    5,890
    
    
    
    8,606Corporate bonds, debentures and notes
    
    
    271
    
    
    
    258Mutual funds, stocks and warrants
    
    
    637
    
    
    
    626Total trading securities
    
    $
    7,631
    
    
    $
    10,786
 5. LOANS
  June 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Real Estate:One- to four-family residential
    
    $
    889,007
    
    
    $
    854,829Multifamily residential
    
    
    166,036
    
    
    
    163,541Nonresidential
    
    
    351,130
    
    
    
    348,528Land
    
    
    24,605
    
    
    
    26,684Construction:One- to four-family residential
    
    
    379,655
    
    
    
    388,926Multifamily and non-residential
    
    
    17,324
    
    
    
    25,215Total real estate
    
    
    1,827,757
    
    
    
    1,807,723Consumer
    
    
    350,333
    
    
    
    345,607Commercial
    
    
    88,986
    
    
    
    116,952Total loans
    
    
    2,267,076
    
    
    
    2,270,282Less:Allowance for loan losses
    
    
    19,395
    
    
    
    16,955Deferred loan fees, net
    
    
    (781
    )
    
    
    (232
    )Total
    
    
    18,614
    
    
    
    16,723Loans, net
    
    $
    2,248,462
    
    
    $
    2,253,559
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As of or For theSix Months
    
    
    As of or For theEnded
    
    
    Year EndedJune 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Balance, beginning of year
    
    $
    16,955
    
    
    $
    15,723Provision for loan losses
    
    
    5,069
    
    
    
    4,347Amounts charged off
    
    
    (2,875
    )
    
    
    (3,438
    )Recoveries
    
    
    246
    
    
    
    323Balance, end of period
    
    $
    19,395
    
    
    $
    16,955
   As of or For
    
    
    As of or Forthe Six
    
    
    the YearMonths Ended
    
    
    EndedJune 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Impaired loans on which no specific valuation allowance was provided
    
    $
    38,043
    
    
    $
    28,329Impaired loans on which a specific valuation allowance was provided
    
    
    20,514
    
    
    
    14,217Total impaired loans at period-end
    
    $
    58,557
    
    
    $
    42,546Specific valuation allowances on impaired loans at period-end
    
    $
    4,879
    
    
    $
    2,841Average impaired loans during the period
    
    
    49,695
    
    
    
    23,617Interest income recognized during impairment
    
    
    169
    
    
    
    372Cash basis interest recognized
    
    
    169
    
    
    
    373
 8




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##### Table of Contents



6. MORTGAGE BANKING ACTIVITIES
   As of or for theSix Months
    
    
    As of or for theEnded
    
    
    Year EndedJune 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Balance, beginning of year
    
    $
    6,820
    
    
    $
    6,923Originations
    
    
    585
    
    
    
    1,917Sale of servicing
    
    
    
    
    
    
    (323
    )Amortized to expense
    
    
    (873
    )
    
    
    (1,697
    )Balance, end of period
    
    $
    6,532
    
    
    $
    6,820
  June 30,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Balance, beginning of year
    
    $
    (435
    )
    
    $
    Impairment charges
    
    
    
    
    
    
    (435
    )Recoveries
    
    
    435
    
    
    
    Balance, end of period
    
    $
    
    
    
    $
    (435
    )
   June 30,
    
    December 31,2007
    
    2006Weighted average prepayment rate
    
    197 PSA
    
    261 PSAWeighted average life (in years)
    
    
    4.20
    
    
    
    4.50Weighted average discount rate
    
    
    8%
    
    
    
    8%
 9




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##### Table of Contents



7. OTHER POSTRETIREMENT BENEFIT PLANS
   Three Months Ended June 30,2007
    
    
    2006(Dollars in thousands)Service cost
    
    $
    
    
    
    $
    Interest cost
    
    
    55
    
    
    
    55Expected return on plan assets
    
    
    
    
    
    
    Net amortization of prior service cost
    
    
    
    
    
    
    Recognized net actuarial gain
    
    
    
    
    
    
    Net periodic benefit cost/(gain)
    
    $
    55
    
    
    $
    55Assumptions used in the valuations were as follows:Weighted average discount rate
    
    
    5.50
    %
    
    
    5.50
    %
 Six Months Ended June 30,2007
    
    
    2006(Dollars in thousands)Service cost
    
    $
    
    
    
    $
    Interest cost
    
    
    111
    
    
    
    112Expected return on plan assets
    
    
    
    
    
    
    Net amortization of prior service cost
    
    
    
    
    
    
    Recognized net actuarial gain
    
    
    
    
    
    
    Net periodic benefit cost/(gain)
    
    $
    111
    
    
    $
    112Assumptions used in the valuations were as follows:Weighted average discount rate
    
    
    5.50
    %
    
    
    5.50
    %
 10




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##### Table of Contents



8. STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURE
  June 30, 2007
    
    June 30, 2006(Dollars in thousands)Supplemental disclosures of cash flow informationCash paid during the period for:Interest on deposits and borrowings, net of amounts capitalized
    
    $
    43,901
    
    
    $
    38,868Interest capitalized on borrowings
    
    
    13
    
    
    
    16Income taxes
    
    
    6,881
    
    
    
    6,550Supplemental schedule of noncash activities:Transfers from loans to real estate owned and other repossessed assets
    
    
    8,687
    
    
    
    1,895
 9. SEGMENT INFORMATION
  For the Three Months Ended June 30, 2007Banking
    
    
    InvestmentServices
    
    
    Services
    
    
    Total(Dollars in thousands)Interest income
    
    $
    41,696
    
    
    $
    308
    
    
    $
    42,004Interest expense
    
    
    23,761
    
    
    
    91
    
    
    
    23,852Provision for loan loss
    
    
    2,744
    
    
    
    
    
    
    
    2,744Net interest income after
provision for loan loss
    
    
    15,191
    
    
    
    217
    
    
    
    15,408Non-interest income
    
    
    3,698
    
    
    
    8,519
    
    
    
    12,217Non-interest expense
    
    
    13,760
    
    
    
    7,740
    
    
    
    21,500Income before tax
    
    
    5,129
    
    
    
    996
    
    
    
    6,125Income tax expense
    
    
    1,864
    
    
    
    331
    
    
    
    2,195Net income
    
    $
    3,265
    
    
    $
    665
    
    
    $
    3,930
 For the Three Months Ended June 30, 2006Banking
    
    
    InvestmentServices
    
    
    Services
    
    
    Total(Dollars in thousands)Interest income
    
    $
    41,156
    
    
    $
    491
    
    
    $
    41,647Interest expense
    
    
    20,470
    
    
    
    141
    
    
    
    20,611Provision for loan loss
    
    
    812
    
    
    
    
    
    
    
    812Net interest income after
provision for loan loss
    
    
    19,874
    
    
    
    350
    
    
    
    20,224Non-interest income
    
    
    3,022
    
    
    
    6,511
    
    
    
    9,533Non-interest expense
    
    
    13,630
    
    
    
    6,496
    
    
    
    20,126Income before tax
    
    
    9,266
    
    
    
    365
    
    
    
    9,631Income tax expense
    
    
    3,253
    
    
    
    128
    
    
    
    3,381Net income
    
    $
    6,013
    
    
    $
    237
    
    
    $
    6,250
 11




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##### Table of Contents



For the Six Months Ended June 30, 2007Banking
    
    
    InvestmentServices
    
    
    Services
    
    
    Total(Dollars in thousands)Interest income
    
    $
    84,265
    
    
    $
    564
    
    
    $
    84,829Interest expense
    
    
    47,092
    
    
    
    184
    
    
    
    47,276Provision for loan loss
    
    
    5,069
    
    
    
    
    
    
    
    5,069Net interest income after
provision for loan loss
    
    
    32,104
    
    
    
    380
    
    
    
    32,484Non-interest income
    
    
    7,315
    
    
    
    16,319
    
    
    
    23,634Non-interest expense
    
    
    27,848
    
    
    
    14,894
    
    
    
    42,742Income before tax
    
    
    11,571
    
    
    
    1,805
    
    
    
    13,376Income tax expense
    
    
    4,162
    
    
    
    614
    
    
    
    4,776Net income
    
    $
    7,409
    
    
    $
    1,191
    
    
    $
    8,600
 For the Six Months Ended June 30, 2006Banking
    
    
    InvestmentServices
    
    
    Services
    
    
    Total(Dollars in thousands)Interest income
    
    $
    79,329
    
    
    $
    944
    
    
    $
    80,273Interest expense
    
    
    38,283
    
    
    
    265
    
    
    
    38,548Provision for loan loss
    
    
    1,551
    
    
    
    
    
    
    
    1,551Net interest income after
provision for loan loss
    
    
    39,495
    
    
    
    679
    
    
    
    40,174Non-interest income
    
    
    5,962
    
    
    
    13,383
    
    
    
    19,345Non-interest expense
    
    
    27,248
    
    
    
    13,235
    
    
    
    40,483Income before tax
    
    
    18,209
    
    
    
    827
    
    
    
    19,036Income tax expense
    
    
    6,365
    
    
    
    289
    
    
    
    6,654Net income
    
    $
    11,844
    
    
    $
    538
    
    
    $
    12,382
 12




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##### Table of Contents



10. EARNINGS PER SHARE
  For the Three MonthsEnded June 30,2007
    
    
    2006(Dollars in thousands,except per share data)Net income applicable to common stock
    
    $
    3,930
    
    
    $
    6,250Weighted average common shares outstanding
    
    
    28,769
    
    
    
    29,029Dilutive effect of stock options
    
    
    255
    
    
    
    361Weighted average common shares outstanding
for dilutive computation
    
    
    29,024
    
    
    
    29,390Basic earnings per share as reported
    
    $
    0.14
    
    
    $
    0.22Diluted earnings per share as reported
    
    $
    0.13
    
    
    $
    0.21
 For the Six MonthsEnded June 30,2007
    
    
    2006(Dollars in thousands,except per share data)Net income applicable to common stock
    
    $
    8,600
    
    
    $
    12,382Weighted average common shares outstanding
    
    
    28,946
    
    
    
    29,009Dilutive effect of stock options
    
    
    291
    
    
    
    379Weighted average common shares outstanding
for dilutive computation
    
    
    29,237
    
    
    
    29,388Basic earnings per share as reported
    
    $
    0.30
    
    
    $
    0.43Diluted earnings per share as reported
    
    $
    0.29
    
    
    $
    0.42
 11. SUBSEQUENT EVENT
  13




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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
 Selected financial ratios and other data: (1)
 At or For the Three
    
    At or For the SixMonths Ended
    
    Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Performance ratios:Return on average assets (2)
    
    
    0.58
    %
    
    
    0.95
    %
    
    
    0.64
    %
    
    
    0.96
    %Return on average equity (3)
    
    
    5.49
    %
    
    
    9.13
    %
    
    
    5.99
    %
    
    
    9.09
    %Interest rate spread (4)
    
    
    2.37
    %
    
    
    2.97
    %
    
    
    2.47
    %
    
    
    3.01
    %Net interest margin (5)
    
    
    2.83
    %
    
    
    3.38
    %
    
    
    2.93
    %
    
    
    3.41
    %Noninterest expense to average assets
    
    
    3.18
    %
    
    
    3.07
    %
    
    
    3.16
    %
    
    
    3.14
    %Efficiency ratio (6)
    
    
    69.72
    %
    
    
    65.33
    %
    
    
    69.14
    %
    
    
    65.87
    %Average interest-earning assets to average interest-bearing
liabilities
    
    
    112.49
    %
    
    
    112.42
    %
    
    
    112.60
    %
    
    
    112.64
    %Capital ratios:Average equity to average assets
    
    
    10.58
    %
    
    
    10.44
    %
    
    
    10.61
    %
    
    
    10.55
    %Equity to assets, end of period
    
    
    10.17
    %
    
    
    10.22
    %
    
    
    10.17
    %
    
    
    10.22
    %Tier 1 leverage ratio
    
    
    7.95
    %
    
    
    8.49
    %
    
    
    7.95
    %
    
    
    8.49
    %Tier 1 risk-based capital ratio
    
    
    9.96
    %
    
    
    10.34
    %
    
    
    9.96
    %
    
    
    10.34
    %Total risk-based capital ratio
    
    
    12.29
    %
    
    
    11.10
    %
    
    
    12.29
    %
    
    
    11.10
    %Asset quality ratios:Nonperforming loans to net loans at end of period (7)
    
    
    3.30
    %
    
    
    1.33
    %
    
    
    3.30
    %
    
    
    1.33
    %Nonperforming assets to average assets (8)
    
    
    3.10
    %
    
    
    1.23
    %
    
    
    3.10
    %
    
    
    1.25
    %Nonperforming assets to total assets at end of period
    
    
    3.10
    %
    
    
    1.22
    %
    
    
    3.10
    %
    
    
    1.22
    %Allowance for loan losses as a percent of loans
    
    
    0.86
    %
    
    
    0.72
    %
    
    
    0.86
    %
    
    
    0.72
    %Allowance for loan losses as a percent of non-performing loans (7)
    
    
    26.17
    %
    
    
    54.42
    %
    
    
    26.17
    %
    
    
    54.42
    %Office data:Number of full service banking offices
    
    
    38
    
    
    
    37
    
    
    
    38
    
    
    
    37Number of loan production offices
    
    
    5
    
    
    
    6
    
    
    
    5
    
    
    
    6Number of brokerage offices
    
    
    20
    
    
    
    20
    
    
    
    20
    
    
    
    20Number of trust offices
    
    
    2
    
    
    
    2
    
    
    
    2
    
    
    
    2Per share data:Basic earnings per share (9)
    
    $
    0.14
    
    
    $
    0.22
    
    
    $
    0.30
    
    
    $
    0.43Diluted earnings per share (9)
    
    $
    0.13
    
    
    $
    0.21
    
    
    $
    0.29
    
    
    $
    0.42Book value (10)
    
    $
    9.11
    
    
    $
    8.72
    
    
    $
    9.11
    
    
    $
    8.72Tangible book value (11)
    
    $
    7.95
    
    
    $
    7.58
    
    
    $
    7.95
    
    
    $
    7.58Market value as a percent of book value (12)
    
    
    110
    %
    
    
    138
    %
    
    
    110
    %
    
    
    138
    %
 
 (1)
    
    Ratios for the three and six month periods 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. 14




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##### Table of Contents



Forward Looking Statements
  Comparison of Financial Condition at June 30, 2007 and December 31, 2006
       15




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Allowance For
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Allowance ForLoan Losses at
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loan Losses atDecember 31, 2006
    
    
    Provision
    
    
    Recovery
    
    
    Chargeoff
    
    
    June 30, 2007Real Estate LoansPermanentOne-to four-family
    
    $
    2,234
    
    
    $
    610
    
    
    $
    6
    
    
    $
    (357
    )
    
    $
    2,493Multifamily residential
    
    
    818
    
    
    
    359
    
    
    
    
    
    
    
    (21
    )
    
    
    1,156Nonresidential
    
    
    2,256
    
    
    
    (84
    )
    
    
    
    
    
    
    
    
    
    
    2,172Land
    
    
    151
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    156Total
    
    
    5,459
    
    
    
    890
    
    
    
    6
    
    
    
    (378
    )
    
    
    5,977Construction LoansOne-to four-family residential
    
    
    3,092
    
    
    
    1,462
    
    
    
    
    
    
    
    (76
    )
    
    
    4,478Multifamily and nonresidential
    
    
    229
    
    
    
    (67
    )
    
    
    
    
    
    
    
    
    
    
    162Total
    
    
    3,321
    
    
    
    1,395
    
    
    
    
    
    
    
    (76
    )
    
    
    4,640Consumer LoansHome Equity
    
    
    1,046
    
    
    
    (121
    )
    
    
    
    
    
    
    (100
    )
    
    
    825Auto
    
    
    510
    
    
    
    13
    
    
    
    14
    
    
    
    (59
    )
    
    
    478Marine
    
    
    991
    
    
    
    1,076
    
    
    
    6
    
    
    
    (400
    )
    
    
    1,673Recreational vehicle
    
    
    1,888
    
    
    
    531
    
    
    
    1
    
    
    
    (375
    )
    
    
    2,045Other
    
    
    712
    
    
    
    (82
    )
    
    
    218
    
    
    
    (246
    )
    
    
    602Total
    
    
    5,147
    
    
    
    1,417
    
    
    
    239
    
    
    
    (1,180
    )
    
    
    5,623Commercial LoansSecured
    
    
    1,936
    
    
    
    1,345
    
    
    
    
    
    
    
    (1,241
    )
    
    
    2,040Unsecured
    
    
    1,092
    
    
    
    22
    
    
    
    1
    
    
    
    
    
    
    
    1,115Total
    
    
    3,028
    
    
    
    1,367
    
    
    
    1
    
    
    
    (1,241
    )
    
    
    3,155Total Allowance
    
    $
    16,955
    
    
    $
    5,069
    
    
    $
    246
    
    
    $
    (2,875
    )
    
    $
    19,395
  16




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##### Table of Contents



Nonperforming LoansDecember 31,
    
    
    
    
    
    
    2007 InterestJune 30, 2007
    
    
    2006
    
    
    Change
    
    
    ForegoneReal Estate LoansPermanentOne-to four-family
    
    $
    10,787
    
    
    $
    8,976
    
    
    $
    1,811
    
    
    $
    60Multifamily residential
    
    
    8,648
    
    
    
    2,642
    
    
    
    6,006
    
    
    
    278Nonresidential
    
    
    14,522
    
    
    
    13,941
    
    
    
    581
    
    
    
    525Land
    
    
    3,700
    
    
    
    6,699
    
    
    
    (2,999
    )
    
    
    265Total
    
    
    37,657
    
    
    
    32,258
    
    
    
    5,399
    
    
    
    1,128Construction LoansOne-to four-family residential
    
    
    22,375
    
    
    
    11,853
    
    
    
    10,522
    
    
    
    1,173Multifamily and nonresidential
    
    
    825
    
    
    
    2,533
    
    
    
    (1,708
    )
    
    
    (100
    )Total
    
    
    23,200
    
    
    
    14,386
    
    
    
    8,814
    
    
    
    1,073Consumer LoansHome Equity
    
    
    1,429
    
    
    
    1,374
    
    
    
    55
    
    
    
    17Auto
    
    
    206
    
    
    
    252
    
    
    
    (46
    )
    
    
    Boat
    
    
    1,678
    
    
    
    1,383
    
    
    
    295
    
    
    
    8Recreational vehicle
    
    
    300
    
    
    
    540
    
    
    
    (240
    )
    
    
    (1
    )Other
    
    
    334
    
    
    
    252
    
    
    
    82
    
    
    
    25Total
    
    
    3,947
    
    
    
    3,801
    
    
    
    146
    
    
    
    49Commercial LoansSecured
    
    
    5,604
    
    
    
    2,380
    
    
    
    3,224
    
    
    
    219Unsecured
    
    
    1,201
    
    
    
    617
    
    
    
    584
    
    
    
    30Total
    
    
    6,805
    
    
    
    2,997
    
    
    
    3,808
    
    
    
    249Restructured Loans
    
    
    2,515
    
    
    
    1,385
    
    
    
    1,130
    
    
    
    Total Nonperforming Loans
    
    $
    74,124
    
    
    $
    54,827
    
    
    $
    19,297
    
    
    $
    2,499
   17




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##### Table of Contents



Impaired LoansDecember 31,June 30, 2007
    
    
    2006
    
    
    ChangeReal Estate LoansPermanentOne-to four-family
    
    $
    1,515
    
    
    $
    794
    
    
    $
    721Multifamily residential
    
    
    8,648
    
    
    
    2,642
    
    
    
    6,006Nonresidential
    
    
    14,522
    
    
    
    13,927
    
    
    
    595Land
    
    
    3,700
    
    
    
    6,699
    
    
    
    (2,999
    )Total
    
    
    28,385
    
    
    
    24,062
    
    
    
    4,323Construction LoansOne-to four-family residential
    
    
    20,864
    
    
    
    11,698
    
    
    
    9,166Multifamily and nonresidential
    
    
    825
    
    
    
    2,533
    
    
    
    (1,708
    )Total
    
    
    21,689
    
    
    
    14,231
    
    
    
    7,458Consumer LoansHome Equity
    
    
    
    
    
    
    
    
    
    
    Auto
    
    
    
    
    
    
    
    
    
    
    Boat
    
    
    1,678
    
    
    
    1,377
    
    
    
    301Recreational vehicle
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,678
    
    
    
    1,377
    
    
    
    301Commercial LoansSecured
    
    
    5,604
    
    
    
    2,282
    
    
    
    3,322Unsecured
    
    
    1,201
    
    
    
    594
    
    
    
    607Total
    
    
    6,805
    
    
    
    2,876
    
    
    
    3,929Total Impaired Loans
    
    $
    58,557
    
    
    $
    42,546
    
    
    $
    16,011
      18




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##### Table of Contents



Comparison of Operating Results for the Three Months Ended
June 30, 2007 and June 30, 2006
 Net Income.
 Net Interest Income.
   19




---



##### Table of Contents



For the Three Months Ended June 30,2007 vs. 2006Increase
    
    
    Total(decrease) due to
    
    
    increaseRate
    
    
    Volume
    
    
    (decrease)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    (22,163
    )
    
    $
    22,117
    
    
    $
    (46
    )Loans held for sale
    
    
    1,026
    
    
    
    (1,217
    )
    
    
    (191
    )Investment securities:Trading
    
    
    (11
    )
    
    
    (6
    )
    
    
    (17
    )Available for sale
    
    
    270
    
    
    
    463
    
    
    
    733Margin accounts
    
    
    (183
    )
    
    
    (184
    )
    
    
    (367
    )FHLB stock
    
    
    47
    
    
    
    16
    
    
    
    63Other interest-earning assets
    
    
    137
    
    
    
    45
    
    
    
    182Total interest-earning assets
    
    $
    (20,877
    )
    
    $
    21,234
    
    
    $
    357Interest-bearing liabilities:Savings accounts
    
    
    
    
    
    
    (33
    )
    
    
    (33
    )NOW and money market accounts
    
    
    450
    
    
    
    561
    
    
    
    1,011Certificates of deposit
    
    
    1,576
    
    
    
    121
    
    
    
    1,697Federal Home Loan Bank advances
    
    
    190
    
    
    
    (161
    )
    
    
    29Repurchase agreements and other
    
    
    103
    
    
    
    434
    
    
    
    537Total interest-bearing liabilities
    
    $
    2,319
    
    
    $
    922
    
    
    
    3,241Change in net interest income
    
    
    
    
    
    
    
    
    
    $
    (2,884
    )
 Provision for Loan Losses.
 Non-interest Income.
 Non-interest Expense.
 20




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##### Table of Contents



Comparison of Operating Results for the Six Months Ended
June 30, 2007 and June 30, 2006
 Net Income.
 Net Interest Income.
    21




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##### Table of Contents



For the Six Months Ended June 30,2007 vs. 2006Increase
    
    
    Total(decrease) due to
    
    
    increaseRate
    
    
    Volume
    
    
    (decrease)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    29
    
    
    $
    3,818
    
    
    $
    3,847Loans held for sale
    
    
    183
    
    
    
    (626
    )
    
    
    (443
    )Investment securities:Trading
    
    
    (22
    )
    
    
    (15
    )
    
    
    (37
    )Available for sale
    
    
    564
    
    
    
    889
    
    
    
    1,453Margin accounts
    
    
    (353
    )
    
    
    (354
    )
    
    
    (707
    )FHLB stock
    
    
    86
    
    
    
    37
    
    
    
    123Other interest-earning assets
    
    
    236
    
    
    
    84
    
    
    
    320Total interest-earning assets
    
    $
    723
    
    
    $
    3,833
    
    
    $
    4,556Interest-bearing liabilities:Savings accounts
    
    
    2
    
    
    
    (86
    )
    
    
    (84
    )NOW and money market accounts
    
    
    1,392
    
    
    
    1,271
    
    
    
    2,663Certificates of deposit
    
    
    3,604
    
    
    
    794
    
    
    
    4,398Federal Home Loan Bank advances
    
    
    892
    
    
    
    (146
    )
    
    
    746Repurchase agreements and other
    
    
    279
    
    
    
    726
    
    
    
    1,005Total interest-bearing liabilities
    
    $
    6,169
    
    
    $
    2,559
    
    
    
    8,728Change in net interest income
    
    
    
    
    
    
    
    
    
    $
    (4,172
    )
 Provision for Loan Losses.
 Non-interest Income.
 Non-interest Expense.
 22




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 AVERAGE BALANCE SHEETS
  Three Months Ended June 30,2007
    
    
    2006Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Cost
    
    
    Balance
    
    
    Paid
    
    
    Cost(Dollars In thousands)Interest-earning assets:Net loans (1)
    
    $
    2,248,849
    
    
    $
    37,915
    
    
    
    6.74
    %
    
    $
    2,175,424
    
    
    $
    37,961
    
    
    
    6.98
    %Net loans held for sale
    
    
    17,163
    
    
    
    289
    
    
    
    6.74
    %
    
    
    42,931
    
    
    
    480
    
    
    
    4.47
    %Investment securities:Trading
    
    
    6,748
    
    
    
    63
    
    
    
    3.73
    %
    
    
    7,359
    
    
    
    80
    
    
    
    4.35
    %Available for sale
    
    
    256,214
    
    
    
    3,099
    
    
    
    4.84
    %
    
    
    216,544
    
    
    
    2,366
    
    
    
    4.37
    %Margin accounts
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    16,366
    
    
    
    367
    
    
    
    8.97
    %FHLB stock
    
    
    25,432
    
    
    
    412
    
    
    
    6.48
    %
    
    
    24,350
    
    
    
    349
    
    
    
    5.73
    %Other interest-earning assets
    
    
    7,683
    
    
    
    226
    
    
    
    11.77
    %
    
    
    4,596
    
    
    
    44
    
    
    
    3.83
    %Total interest-earning assets
    
    
    2,562,089
    
    
    
    42,004
    
    
    
    6.56
    %
    
    
    2,487,570
    
    
    
    41,647
    
    
    
    6.70
    %Noninterest-earning assets
    
    
    144,534
    
    
    
    
    
    
    
    
    
    
    
    135,647Total assets
    
    $
    2,706,623
    
    
    
    
    
    
    
    
    
    
    $
    2,623,217Interest-bearing liabilities:NOW and money market accounts
    
    $
    399,187
    
    
    $
    3,477
    
    
    
    3.48
    %
    
    $
    330,408
    
    
    $
    2,466
    
    
    
    2.99
    %Savings accounts
    
    
    191,455
    
    
    
    196
    
    
    
    0.41
    %
    
    
    223,236
    
    
    
    229
    
    
    
    0.41
    %Certificates of deposit
    
    
    1,111,291
    
    
    
    13,155
    
    
    
    4.74
    %
    
    
    1,099,823
    
    
    
    11,458
    
    
    
    4.17
    %Federal Home Loan Bank advances
    
    
    434,387
    
    
    
    5,280
    
    
    
    4.86
    %
    
    
    453,654
    
    
    
    5,251
    
    
    
    4.63
    %Repurchase agreements and other
    
    
    141,343
    
    
    
    1,744
    
    
    
    4.94
    %
    
    
    105,633
    
    
    
    1,207
    
    
    
    4.57
    %Total interest-bearing liabilities
    
    
    2,277,663
    
    
    
    23,852
    
    
    
    4.19
    %
    
    
    2,212,754
    
    
    
    20,611
    
    
    
    3.73
    %Noninterest-bearing liabilities
    
    
    142,647
    
    
    
    
    
    
    
    
    
    
    
    136,572Total liabilities
    
    
    2,420,310
    
    
    
    
    
    
    
    
    
    
    
    2,349,326Equity
    
    
    286,313
    
    
    
    
    
    
    
    
    
    
    
    273,891Total liabilities and equity
    
    $
    2,706,623
    
    
    
    
    
    
    
    
    
    
    $
    2,623,217Net interest income and interest
rate spread
    
    
    
    
    
    $
    18,152
    
    
    
    2.37
    %
    
    
    
    
    
    $
    21,036
    
    
    
    2.97
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.83
    %
    
    
    
    
    
    
    
    
    
    
    3.38
    %Average interest-earning assets
to average interest-bearing
liabilities
    
    
    
    
    
    
    
    
    
    
    112.49
    %
    
    
    
    
    
    
    
    
    
    
    112.42
    %
 
 (1)
    
    Nonaccrual loans are included in the average balance. 23




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 AVERAGE BALANCE SHEETS
  Six Months Ended June 30,2007
    
    
    2006Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Cost
    
    
    Balance
    
    
    Paid
    
    
    Cost(Dollars In thousands)Interest-earning assets:Net loans (1)
    
    $
    2,251,840
    
    
    $
    76,918
    
    
    
    6.83
    %
    
    $
    2,140,079
    
    
    $
    73,071
    
    
    
    6.83
    %Net loans held for sale
    
    
    20,156
    
    
    
    545
    
    
    
    5.41
    %
    
    
    42,114
    
    
    
    988
    
    
    
    4.69
    %Investment securities:Trading
    
    
    6,905
    
    
    
    125
    
    
    
    3.62
    %
    
    
    7,676
    
    
    
    162
    
    
    
    4.22
    %Available for sale
    
    
    251,615
    
    
    
    6,033
    
    
    
    4.80
    %
    
    
    212,989
    
    
    
    4,580
    
    
    
    4.30
    %Margin accounts
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    15,996
    
    
    
    707
    
    
    
    8.84
    %FHLB stock
    
    
    25,432
    
    
    
    812
    
    
    
    6.39
    %
    
    
    24,181
    
    
    
    689
    
    
    
    5.70
    %Other interest-earning assets
    
    
    7,175
    
    
    
    396
    
    
    
    11.04
    %
    
    
    4,174
    
    
    
    76
    
    
    
    3.64
    %Total interest-earning assets
    
    
    2,563,123
    
    
    
    84,829
    
    
    
    6.62
    %
    
    
    2,447,209
    
    
    
    80,273
    
    
    
    6.56
    %Noninterest-earning assets
    
    
    141,914
    
    
    
    
    
    
    
    
    
    
    
    134,890Total assets
    
    $
    2,705,037
    
    
    
    
    
    
    
    
    
    
    $
    2,582,099Interest-bearing liabilities:NOW and money market accounts
    
    $
    388,609
    
    
    $
    6,723
    
    
    
    3.46
    %
    
    $
    305,081
    
    
    $
    4,060
    
    
    
    2.66
    %Savings accounts
    
    
    192,829
    
    
    
    394
    
    
    
    0.41
    %
    
    
    234,800
    
    
    
    478
    
    
    
    0.41
    %Certificates of deposit
    
    
    1,130,838
    
    
    
    26,433
    
    
    
    4.67
    %
    
    
    1,092,551
    
    
    
    22,035
    
    
    
    4.03
    %Federal Home Loan Bank advances
    
    
    437,536
    
    
    
    10,627
    
    
    
    4.86
    %
    
    
    444,231
    
    
    
    9,881
    
    
    
    4.45
    %Repurchase agreements and other
    
    
    126,426
    
    
    
    3,099
    
    
    
    4.90
    %
    
    
    95,869
    
    
    
    2,094
    
    
    
    4.37
    %Total interest-bearing liabilities
    
    
    2,276,238
    
    
    
    47,276
    
    
    
    4.15
    %
    
    
    2,172,532
    
    
    
    38,548
    
    
    
    3.55
    %Noninterest-bearing liabilities
    
    
    141,687
    
    
    
    
    
    
    
    
    
    
    
    137,281Total liabilities
    
    
    2,417,925
    
    
    
    
    
    
    
    
    
    
    
    2,309,813Equity
    
    
    287,112
    
    
    
    
    
    
    
    
    
    
    
    272,286Total liabilities and equity
    
    $
    2,705,037
    
    
    
    
    
    
    
    
    
    
    $
    2,582,099Net interest income and interest
rate spread
    
    
    
    
    
    $
    37,553
    
    
    
    2.47
    %
    
    
    
    
    
    $
    41,725
    
    
    
    3.01
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.93
    %
    
    
    
    
    
    
    
    
    
    
    3.41
    %Average interest-earning assets
to average interest-bearing
liabilities
    
    
    
    
    
    
    
    
    
    
    112.60
    %
    
    
    
    
    
    
    
    
    
    
    112.64
    %
 
 (1)
    
    Nonaccrual loans are included in the average balance. 24




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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 June 30, 2007NPV as % of portfolio value of assets
    
    Next 12 months net interest incomeChange in rates
    
    
    
    Internal policy
    
    
    
    
    
    Internal policy(Basis points)
    
    NPV Ratio
    
    limitations
    
    Change in %
    
    $ Change
    
    limitations
    
    % Change+300
    
    8.86%
    
    5.00%
    
    (1.88)%
    
    $(8,845)
    
    (15.00)%
    
    (12.01)%+200
    
    9.55
    
    6.00
    
    (1.19)
    
    (5,765)
    
    (10.00)
    
    (7.83)+100
    
    10.16
    
    6.00
    
    (0.58)
    
    (2,742)
    
    (5.00)
    
    (3.72)Static
    
    10.74
    
    7.00
    
    
    
    
    
    
    
    (100)
    
    10.53
    
    6.00
    
    (0.21)
    
    2,740
    
    (5.00)
    
    3.72(200)
    
    9.89
    
    6.00
    
    (0.85)
    
    3,350
    
    (15.00)
    
    4.55(300)
    
    8.61
    
    5.00
    
    (2.13)
    
    4.841
    
    (20.00)
    
    6.58
 25




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##### Table of Contents



Year Ended December 31, 2006NPV as % of portfolio value of assets
    
    Next 12 months net interest income(Dollars in thousands)Change in rates
    
    
    
    
    
    Internal policy
    
    
    
    
    
    
    
    
    
    Internal policy(Basis points)
    
    NPV Ratio
    
    limitations
    
    Change in %
    
    $ Change
    
    limitations
    
    % Change+300
    
    
    8.92
    %
    
    
    5.00
    %
    
    
    (2.27
    )%
    
    $
    (10,078
    )
    
    
    (15.00
    )%
    
    
    (13.95
    )%+200
    
    
    9.81
    
    
    
    6.00
    
    
    
    (1.38
    )
    
    
    (6,455
    )
    
    
    (10.00
    )
    
    
    (8.94
    )+100
    
    
    10.60
    
    
    
    6.00
    
    
    
    (0.59
    )
    
    
    (2,972
    )
    
    
    (5.00
    )
    
    
    (4.12
    )Static
    
    
    11.19
    
    
    
    7.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100)
    
    
    11.19
    
    
    
    6.00
    
    
    
    
    
    
    
    2,651
    
    
    
    (5.00
    )
    
    
    3.67(200)
    
    
    10.62
    
    
    
    6.00
    
    
    
    (0.57
    )
    
    
    3,548
    
    
    
    (15.00
    )
    
    
    4.91(300)
    
    
    9.69
    
    
    
    5.00
    
    
    
    (1.50
    )
    
    
    2,254
    
    
    
    (20.00
    )
    
    
    3.12
   Potential Impact of Changes in Interest Rates.
  
 ITEM 4. Controls and Procedures
  26




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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
 Issuer Purchases of Equity SecuritiesTotal Number of
    
    
    Maximum Number ofShares Purchased as
    
    
    Shares that May YetPart of Publicly
    
    
    Be Purchased UnderTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    the Plans orPeriod
    
    Shares Purchased
    
    
    per Share
    
    
    Programs
    
    
    Programs4/1 to 4/30/2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    2,090,187
    (1)5/1 to 5/31/2007
    
    
    250,523
    
    
    
    10.54
    
    
    
    250,523
    
    
    
    1,839,6646/1 to 6/30/2007
    
    
    197,409
    
    
    
    10.63
    
    
    
    197,409
    
    
    
    1,642,255Total
    
    
    447,932
    
    
    $
    10.58
    
    
    
    447,932
    
    
    
    1,642,255
 
 (1)
    
    On April 21, 2003, United Community announced that its Board of Directors had approved
a plan to repurchase 1,000,000 shares of stock. On April 30, 2007, United Community
announced that its Board of Directors had approved a plan to repurchase an additional
2,000,000 shares of stock. 
 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
 27




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 SIGNATURES
  UNITED COMMUNITY FINANCIAL CORP.Date: August 8, 2007
    /S/ Douglas M. McKayDouglas M. McKay, Chief Executive OfficerDate: August 8, 2007
    /S/ Patrick A. KellyPatrick A. Kelly, Chief Financial Officer 28




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 Exhibit 3.1
  Exhibit 3.2
  29