##### 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, 2009
 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
  o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Small reporting company o
  o þ




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##### 



TABLE OF CONTENTS
 PAGEPart I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Statements of Financial Condition as of June 30, 2009 (Unaudited) and December 31, 2008
    
    
    1Consolidated Statements of Income for the Three and Six Months Ended June 30, 2009 and 2008 (Unaudited)
    
    
    2Consolidated Statement of Shareholders Equity for the Six Months ended June 30, 2009 (Unaudited)
    
    
    4Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008 (Unaudited)
    
    
    5Notes to Consolidated Financial Statements
    
    
    6-24Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25-36Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    37Item 4. Controls and Procedures
    
    
    38Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    39Item 1A. Risk Factors
    
    
    39Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 3. Defaults Upon Senior Securities (None)Item 4. Submission of Matters to a Vote of Security Holders
    
    
    39Item 5. Other Information (None)Item 6. Exhibits
    
    
    39Signatures
    
    
    40Exhibits
    
    
    41Exhibit 10.1Exhibit 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)
 June 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)Assets:Cash and deposits with banks
    
    $
    22,006
    
    
    $
    21,745Federal funds sold and other
    
    
    22,654
    
    
    
    21,672Total cash and cash equivalents
    
    
    44,660
    
    
    
    43,417Securities:Available for sale, at fair value
    
    
    255,845
    
    
    
    215,731Loans held for sale
    
    
    14,057
    
    
    
    16,032Loans, net of allowance for loan losses of $39,832 and $35,962, respectively
    
    
    2,032,404
    
    
    
    2,203,453Federal Home Loan Bank stock, at cost
    
    
    26,464
    
    
    
    26,464Premises and equipment, net
    
    
    24,258
    
    
    
    25,015Accrued interest receivable
    
    
    9,042
    
    
    
    10,082Real estate owned and other repossessed assets
    
    
    33,077
    
    
    
    29,258Core deposit intangible
    
    
    766
    
    
    
    884Cash surrender value of life insurance
    
    
    25,611
    
    
    
    25,090Assets of discontinued operationsButler Wick Corp.
    
    
    
    
    
    
    5,562Other assets
    
    
    20,871
    
    
    
    17,085Total assets
    
    $
    2,487,055
    
    
    $
    2,618,073Liabilities and Shareholders EquityLiabilities:Deposits:Interest bearing
    
    $
    1,711,315
    
    
    $
    1,779,676Non-interest bearing
    
    
    116,899
    
    
    
    106,255Total deposits
    
    
    1,828,214
    
    
    
    1,885,931Borrowed funds:Federal Home Loan Bank advances
    
    
    294,152
    
    
    
    337,603Repurchase agreements and other borrowings
    
    
    97,252
    
    
    
    125,269Total borrowings
    
    
    391,404
    
    
    
    462,872Advance payments by borrowers for taxes and insurance
    
    
    14,051
    
    
    
    19,806Accrued interest payable
    
    
    2,698
    
    
    
    3,077Liabilities of discontinued operationsButler Wick Corp.
    
    
    
    
    
    
    2,388Accrued expenses and other liabilities
    
    
    16,075
    
    
    
    9,076Total liabilities
    
    
    2,252,442
    
    
    
    2,383,150Shareholders 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
    
    
    145,873
    
    
    
    146,439Retained earnings
    
    
    165,803
    
    
    
    165,447Accumulated other comprehensive income
    
    
    2,624
    
    
    
    3,635Unearned employee stock ownership plan shares
    
    
    (6,732
    )
    
    
    (7,643
    )Treasury stock, at cost, 6,906,632 shares
    
    
    (72,955
    )
    
    
    (72,955
    )Total shareholders equity
    
    
    234,613
    
    
    
    234,923Total liabilities and shareholders equity
    
    $
    2,487,055
    
    
    $
    2,618,073
 See Notes to Consolidated Financial Statements.
  1




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands, except per share data)Interest incomeLoans
    
    $
    30,076
    
    
    $
    33,935
    
    
    $
    61,143
    
    
    $
    69,743Loans held for sale
    
    
    216
    
    
    
    88
    
    
    
    479
    
    
    
    276Securities:Trading
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    1Available for sale
    
    
    2,796
    
    
    
    3,803
    
    
    
    5,566
    
    
    
    7,044Federal Home Loan Bank stock dividends
    
    
    294
    
    
    
    348
    
    
    
    593
    
    
    
    680Other interest earning assets
    
    
    9
    
    
    
    28
    
    
    
    38
    
    
    
    85Total interest income
    
    
    33,391
    
    
    
    38,204
    
    
    
    67,819
    
    
    
    77,829Interest expenseDeposits
    
    
    12,074
    
    
    
    14,510
    
    
    
    24,725
    
    
    
    31,546Federal Home Loan Bank advances
    
    
    1,569
    
    
    
    3,191
    
    
    
    3,427
    
    
    
    6,883Repurchase agreements and other
    
    
    1,061
    
    
    
    1,587
    
    
    
    2,251
    
    
    
    3,543Total interest expense
    
    
    14,704
    
    
    
    19,288
    
    
    
    30,403
    
    
    
    41,972Net interest income
    
    
    18,687
    
    
    
    18,916
    
    
    
    37,416
    
    
    
    35,857Provision for loan losses
    
    
    12,311
    
    
    
    3,248
    
    
    
    20,755
    
    
    
    5,714Net interest income after provision for loan losses
    
    
    6,376
    
    
    
    15,668
    
    
    
    16,661
    
    
    
    30,143Non-interest incomeNon-deposit investment income
    
    
    404
    
    
    
    432
    
    
    
    708
    
    
    
    910Service fees and other charges
    
    
    2,721
    
    
    
    2,523
    
    
    
    4,233
    
    
    
    4,288Net gains (losses):Securities available for sale
    
    
    1,382
    
    
    
    57
    
    
    
    1,382
    
    
    
    988Other than temporary impairment charges on
securities available for sale
    
    
    
    
    
    
    
    
    
    
    (150
    )
    
    
    Trading securities
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    (23
    )Loans sold
    
    
    1,788
    
    
    
    395
    
    
    
    2,928
    
    
    
    2,579Real estate owned and other repossessed assets sold
    
    
    (1,182
    )
    
    
    (1,533
    )
    
    
    (2,320
    )
    
    
    (1,673
    )Other income
    
    
    1,092
    
    
    
    1,057
    
    
    
    2,167
    
    
    
    2,110Total non-interest income
    
    
    6,205
    
    
    
    2,908
    
    
    
    8,948
    
    
    
    9,179Non-interest expenseSalaries and employee benefits
    
    
    7,764
    
    
    
    9,011
    
    
    
    15,787
    
    
    
    18,061Occupancy
    
    
    899
    
    
    
    900
    
    
    
    1,883
    
    
    
    1,847Equipment and data processing
    
    
    1,660
    
    
    
    1,547
    
    
    
    3,390
    
    
    
    3,268Franchise tax
    
    
    555
    
    
    
    544
    
    
    
    1,147
    
    
    
    1,124Advertising
    
    
    187
    
    
    
    217
    
    
    
    416
    
    
    
    482Amortization of core deposit intangible
    
    
    58
    
    
    
    74
    
    
    
    118
    
    
    
    151Deposit insurance premiums
    
    
    2,940
    
    
    
    219
    
    
    
    4,723
    
    
    
    270Professional fees
    
    
    907
    
    
    
    716
    
    
    
    1,623
    
    
    
    1,250Real estate owned and other repossessed asset expenses
    
    
    804
    
    
    
    700
    
    
    
    1,755
    
    
    
    1,088Other expenses
    
    
    1,428
    
    
    
    1,233
    
    
    
    2,759
    
    
    
    2,583Total non-interest expenses
    
    
    17,202
    
    
    
    15,161
    
    
    
    33,601
    
    
    
    30,124Income (loss) before income taxes and discontinued operations
    
    
    (4,621
    )
    
    
    3,415
    
    
    
    (7,992
    )
    
    
    9,198Income taxes expense (benefit)
    
    
    (1,707
    )
    
    
    1,111
    
    
    
    (3,399
    )
    
    
    3,129Net income (loss) before discontinued operations
    
    
    (2,914
    )
    
    
    2,304
    
    
    
    (4,593
    )
    
    
    6,069Discontinued operationsNet income of Butler Wick Corp., net of tax
    
    
    
    
    
    
    425
    
    
    
    4,949
    
    
    
    703Net income (loss)
    
    $
    (2,914
    )
    
    $
    2,729
    
    
    $
    356
    
    
    $
    6,772
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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 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands, except per share data)Comprehensive income (loss)
    
    $
    (4,835
    )
    
    $
    (3,731
    )
    
    $
    (655
    )
    
    $
    2,448Earnings (loss) per shareBasiccontinuing operations
    
    $
    (0.10
    )
    
    $
    0.08
    
    
    $
    (0.16
    )
    
    $
    0.21Basicdiscontinued operations
    
    
    
    
    
    
    0.02
    
    
    
    0.17
    
    
    
    0.03Basic
    
    
    (0.10
    )
    
    
    0.10
    
    
    
    0.01
    
    
    
    0.24Dilutedcontinuing operations
    
    
    (0.10
    )
    
    
    0.08
    
    
    
    (0.16
    )
    
    
    0.21Diluteddiscontinued operations
    
    
    
    
    
    
    0.02
    
    
    
    0.17
    
    
    
    0.03Diluted
    
    
    (0.10
    )
    
    
    0.10
    
    
    
    0.01
    
    
    
    0.24
 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, 2008
    
    
    30,898
    
    
    $
    146,439
    
    
    $
    165,447
    
    
    $
    3,635
    
    
    $
    (7,643
    )
    
    $
    (72,955
    )
    
    $
    234,923Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    356
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    356Change in net unrealized gain/(loss)
on securities, net of tax benefit of $544
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,011
    )
    
    
    
    
    
    
    
    
    
    
    (1,011
    )Comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (655
    )Shares allocated to ESOP participants
    
    
    
    
    
    
    (595
    )
    
    
    
    
    
    
    
    
    
    
    911
    
    
    
    
    
    
    
    316Stock based compensation
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29Balance June 30, 2009
    
    
    30,898
    
    
    $
    145,873
    
    
    $
    165,803
    
    
    $
    2,624
    
    
    $
    (6,732
    )
    
    $
    (72,955
    )
    
    $
    234,613
 See Notes to Consolidated Financial Statements.
  4




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UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six Months Ended June 30,2009
    
    
    2008(Dollars in thousands)Cash Flows from Operating ActivitiesNet income
    
    $
    356
    
    
    $
    6,772Adjustments to reconcile net income to net cash provided by operating activitiesProvision for loan losses
    
    
    20,755
    
    
    
    5,714Net gains on loans sold
    
    
    (2,928
    )
    
    
    (2,579
    )Net losses on real estate owned and other repossessed assets sold
    
    
    2,337
    
    
    
    1,674Net losses on other assets sold
    
    
    (17
    )
    
    
    (1
    )Other than temporary impairment of securities available for sale
    
    
    150
    
    
    
    Amortization of premiums and accretion of discounts
    
    
    1,156
    
    
    
    612Depreciation and amortization
    
    
    1,124
    
    
    
    1,299Federal Home Loan Bank stock dividends
    
    
    
    
    
    
    (680
    )Decrease in interest receivable
    
    
    1,040
    
    
    
    1,581Decrease in interest payable
    
    
    (379
    )
    
    
    (2,986
    )Increase in prepaid and other assets
    
    
    (4,042
    )
    
    
    (5,392
    )Increase in other liabilities
    
    
    3,104
    
    
    
    5,366Decrease in trading securities
    
    
    
    
    
    
    22Stock based compensation
    
    
    29
    
    
    
    161Net principal disbursed on loans originated for sale
    
    
    (262,788
    )
    
    
    (106,334
    )Proceeds from sale of loans originated for sale
    
    
    267,691
    
    
    
    184,912ESOP Compensation
    
    
    316
    
    
    
    922Operating cash flows from discontinued operations
    
    
    (4,949
    )
    
    
    (315
    )Net cash from operating activities
    
    
    22,955
    
    
    
    90,748Cash Flows from Investing ActivitiesProceeds from principal repayments and maturities of:Securities available for sale
    
    
    25,923
    
    
    
    36,942Proceeds from sale of:Securities available for sale
    
    
    46,051
    
    
    
    48,411Real estate owned and other repossessed assets
    
    
    6,797
    
    
    
    5,863Purchases of:Securities available for sale
    
    
    (114,047
    )
    
    
    (157,065
    )Net change in loans
    
    
    138,926
    
    
    
    57,006Loans purchased
    
    
    (2,009
    )
    
    
    (54,207
    )Purchases of premises and equipment
    
    
    (334
    )
    
    
    (522
    )Investing cash flows from discontinued operations
    
    
    11,921
    
    
    
    Net cash from investing activities
    
    
    113,228
    
    
    
    (63,572
    )Cash Flows from Financing ActivitiesNet increase in checking, savings and money market accounts
    
    
    30,279
    
    
    
    68,463Net decrease in certificates of deposit
    
    
    (87,996
    )
    
    
    (89,277
    )Net decrease in advance payments by borrowers for taxes and insurance
    
    
    (5,755
    )
    
    
    (5,063
    )Proceeds from Federal Home Loan Bank advances
    
    
    423,400
    
    
    
    405,700Repayment of Federal Home Loan Bank advances
    
    
    (466,851
    )
    
    
    (398,744
    )Net change in repurchase agreements and other borrowed funds
    
    
    (28,017
    )
    
    
    2,677Cash dividends paid
    
    
    
    
    
    
    (4,064
    )Financing cash flows from discontinued operations
    
    
    
    
    
    
    2,334Net cash from financing activities
    
    
    (134,940
    )
    
    
    (17,974
    )Change in cash and cash equivalents
    
    
    1,243
    
    
    
    9,202Cash and cash equivalents, beginning of period
    
    
    43,417
    
    
    
    33,502Cash and cash equivalents, end of period
    
    $
    44,660
    
    
    $
    42,704
 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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##### Table of Contents



3. DISCONTINUED OPERATIONS
  For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)
    
    
    (Dollars in thousands)IncomeInterest income
    
    $
    
    
    
    $
    187
    
    
    $
    32
    
    
    $
    416Brokerage commissions
    
    
    
    
    
    
    6,629
    
    
    
    
    
    
    
    12,730Service fees and other charges
    
    
    
    
    
    
    1,483
    
    
    
    1,287
    
    
    
    3,172Underwriting and investment banking
    
    
    
    
    
    
    206
    
    
    
    
    
    
    
    235Gain on the sale of Butler Wick Trust
    
    
    
    
    
    
    
    
    
    
    7,904
    
    
    
    Other income
    
    
    
    
    
    
    138
    
    
    
    
    
    
    
    164Total income
    
    
    
    
    
    
    8,643
    
    
    
    9,223
    
    
    
    16,717ExpensesInterest expense on borrowings
    
    
    
    
    
    
    52
    
    
    
    
    
    
    
    121Salaries and employee benefits
    
    
    
    
    
    
    5,891
    
    
    
    1,198
    
    
    
    11,570Occupancy expenses
    
    
    
    
    
    
    385
    
    
    
    68
    
    
    
    773Equipment and data processing
    
    
    
    
    
    
    588
    
    
    
    84
    
    
    
    1,206Other expenses
    
    
    
    
    
    
    1,073
    
    
    
    258
    
    
    
    1,939Total expenses
    
    
    
    
    
    
    7,989
    
    
    
    1,608
    
    
    
    15,609Income before taxes
    
    
    
    
    
    
    654
    
    
    
    7,615
    
    
    
    1,108Income tax
    
    
    
    
    
    
    229
    
    
    
    2,666
    
    
    
    405Net income
    
    $
    
    
    
    $
    425
    
    
    $
    4,949
    
    
    $
    703
 4. RECENT ACCOUNTING DEVELOPMENTS
 Business
Combinations
 Non-controlling Interests in Consolidated Financial
Statements  an amendment of ARB No. 51
 Disclosures
about Derivative Instruments and Hedging Activities  an amendment of FASB Statement No. 133
  7




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The Hierarchy of
Generally Accepted Accounting Principles
 Accounting for Transfers of
Financial Assets and Repurchase Financing Transactions
 Determination of the Useful Life of
Intangible Assets Goodwill and Other Intangible Assets
 Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
 Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
 Determining the Fair Value of a Financial
Asset When the Market for That Asset is not Active
 Recognition and
Presentation of Other-Than-Temporary Impairments,
  8




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Determining Fair Value When the
Volume and Level of Activity for the Asset and Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly
 Interim Disclosures about Fair Value of
Financial Instruments Disclosures about Fair Value of
Financial Instruments
 Subsequent Events
 Recently Issued but not yet Effective Accounting Pronouncements:
 Accounting for Transfers of Financial Assetsan amendment
of FASB Statement No. 140
 Amendments to FASB Interpretation No. 46(R) Consolidation of Variable Interest Entities
 5. STOCK COMPENSATION
   9




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##### Table of Contents



For the Six Months Ended June 30, 2009AggregateWeighted
    
    
    intrinsicaverage
    
    
    value (inShares
    
    
    exercise price
    
    
    thousands)Outstanding at beginning of year
    
    
    2,092,128
    
    
    $
    9.08Granted
    
    
    336,000
    
    
    
    1.86Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (209,925
    )
    
    
    9.16Outstanding at end of period
    
    
    2,218,203
    
    
    $
    7.98
    
    
    $
    Options exercisable at end of period
    
    
    1,882,203
    
    
    $
    9.40
    
    
    $
    
  June 30,2009Intrinsic value of options exercised
    
    $
    Cash received from option exercises
    
    
    Tax benefit realized from option exercises
    
    
    Weighted average fair value of options granted, per
share
    
    
    1.07
   10




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##### Table of Contents



May 8, 2009
    
    
    June 25, 2009Risk-free interest rate
    
    
    2.15
    %
    
    
    2.58
    %Expected term (years)
    
    
    5
    
    
    
    5Expected stock volatility
    
    
    67.4
    
    
    
    67.8Dividend yield
    
    
    
    %
    
    
    
    %
  6. SECURITIES
  June 30, 2009(Dollars in thousands)Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    AmortizedValue
    
    
    Gains
    
    
    Losses
    
    
    CostU.S. Treasury and government
sponsored entities securities
    
    $
    43,974
    
    
    $
    698
    
    
    $
    (41
    )
    
    $
    43,317Equity securities
    
    
    976
    
    
    
    334
    
    
    
    (459
    )
    
    
    1,101Mortgage-related securities
    
    
    210,895
    
    
    
    3,151
    
    
    
    (167
    )
    
    
    207,911Total
    
    $
    255,845
    
    
    $
    4,183
    
    
    $
    (667
    )
    
    $
    252,329
 December 31, 2008(Dollars in thousands)Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Gains
    
    
    LossesU.S. Treasury and government
sponsored entities securities
    
    $
    27,170
    
    
    $
    865
    
    
    $
    Equity securities
    
    
    910
    
    
    
    70
    
    
    
    (411
    )Mortgage-related securities
    
    
    187,651
    
    
    
    4,527
    
    
    
    (107
    )Total
    
    $
    215,731
    
    
    $
    5,462
    
    
    $
    (518
    )
  11




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##### Table of Contents



June 30, 2009(Dollars in thousands)Fair
    
    
    AmortizedValue
    
    
    CostDue in one year or less
    
    $
    
    
    
    $
    Due after one year through five
years
    
    
    28,397
    
    
    
    28,062Due after five years through
ten years
    
    
    15,577
    
    
    
    15,255Mortgage-related securities
    
    
    210,895
    
    
    
    207,911Total
    
    $
    254,869
    
    
    $
    251,228
     June 30, 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
    
    $
    7,157
    
    
    $
    (41
    )
    
    $
    
    
    
    $
    
    
    
    $
    7,157
    
    
    $
    (41
    )Equity securities
    
    
    213
    
    
    
    (311
    )
    
    
    87
    
    
    
    (148
    )
    
    
    300
    
    
    
    (459
    )Mortgage-related securities
    
    
    17,558
    
    
    
    (151
    )
    
    
    856
    
    
    
    (16
    )
    
    
    18,414
    
    
    
    (167
    )Total
    
    $
    24,928
    
    
    $
    (503
    )
    
    $
    943
    
    
    $
    (164
    )
    
    $
    25,871
    
    
    $
    (667
    )
    12




---



##### Table of Contents



Other-Than-Temporary-Impairment
 Accounting for Certain Investments in Debt and
Equity Securities
     Mortgage-related Securities
  Equity Securities
   13




---



##### Table of Contents



7. LOANS
  June 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)Real Estate:One- to four-family residential
    
    $
    852,833
    
    
    $
    909,567Multifamily residential
    
    
    164,376
    
    
    
    187,711Nonresidential
    
    
    396,688
    
    
    
    375,463Land
    
    
    23,221
    
    
    
    23,517Construction:One- to four-family residential
    
    
    209,610
    
    
    
    255,355Multifamily and non-residential
    
    
    15,007
    
    
    
    35,797Total real estate
    
    
    1,661,735
    
    
    
    1,787,410Consumer
    
    
    322,874
    
    
    
    348,834Commercial
    
    
    86,286
    
    
    
    101,489Total loans
    
    
    2,070,895
    
    
    
    2,237,733Less:Allowance for loan losses
    
    
    39,832
    
    
    
    35,962Deferred loan fees, net
    
    
    (1,341
    )
    
    
    (1,682
    )Total
    
    
    38,491
    
    
    
    34,280Loans, net
    
    $
    2,032,404
    
    
    $
    2,203,453
  Six MonthsEnded
    
    
    Year EndedJune 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)Balance, beginning of year
    
    $
    35,962
    
    
    $
    32,006Provision for loan losses
    
    
    20,755
    
    
    
    25,329Amounts charged off
    
    
    (17,506
    )
    
    
    (22,088
    )Recoveries
    
    
    621
    
    
    
    715Balance, end of period
    
    $
    39,832
    
    
    $
    35,962
   14




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##### Table of Contents



As of or for the
    
    
    As of or forSix Months
    
    
    the YearEnded
    
    
    EndedJune 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)Impaired loans on which no specific valuation allowance was provided
    
    $
    46,252
    
    
    $
    43,256Impaired loans on which a specific valuation allowance was provided
    
    
    43,338
    
    
    
    43,992Total impaired loans at period-end
    
    $
    89,590
    
    
    $
    87,248Specific valuation allowances on impaired loans at period-end
    
    $
    6,591
    
    
    $
    10,968Average impaired loans during the period
    
    
    88,419
    
    
    
    85,812Interest income recognized on impaired loans during the period
    
    
    269
    
    
    
    513Interest income received on impaired loans during the period
    
    
    269
    
    
    
    513
 8. MORTGAGE BANKING ACTIVITIES
   Six MonthsEnded
    
    
    Year EndedJune 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)Balance, beginning of year
    
    $
    5,562
    
    
    $
    6,184Originations
    
    
    2,028
    
    
    
    1,337Amortized to expense
    
    
    (1,463
    )
    
    
    (1,959
    )Balance, end of period
    
    
    6,127
    
    
    
    5,562Less valuation allowance
    
    
    (1,020
    )
    
    
    (2,233
    )Net balance
    
    $
    5,107
    
    
    $
    3,329
  Six MonthsEnded
    
    
    Year EndedJune 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)Balance, beginning of year
    
    $
    (2,233
    )
    
    $
    (562
    )Impairment charges
    
    
    
    
    
    
    (2,233
    )Recoveries
    
    
    1,213
    
    
    
    562Balance, end of period
    
    $
    (1,020
    )
    
    $
    (2,233
    )
   15




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##### Table of Contents



June 30,
    
    December 31,2009
    
    2008Weighted average prepayment rate
    
    415 PSA
    
    644 PSAWeighted average life (in years)
    
    3.59
    
    3.34Weighted average discount rate
    
    8%
    
    8%
 9. OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS
  June 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)Real estate owned and other repossessed assets
    
    $
    36,145
    
    
    $
    32,012Valuation allowance
    
    
    (3,068
    )
    
    
    (2,754
    )End of period
    
    $
    33,077
    
    
    $
    29,258
  June 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)Beginning of year
    
    $
    2,754
    
    
    $
    Additions charged to expense
    
    
    1,398
    
    
    
    3,753Direct write-downs
    
    
    (1,084
    )
    
    
    (999
    )End of period
    
    $
    3,068
    
    
    $
    2,754
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)
    
    
    (Dollars in thousands)Net loss on sales
    
    $
    497
    
    
    $
    143
    
    
    $
    922
    
    
    $
    238Provision for unrealized losses
    
    
    685
    
    
    
    1,390
    
    
    
    1,398
    
    
    
    1,435Operating expenses, net of rental income
    
    
    804
    
    
    
    700
    
    
    
    1,755
    
    
    
    1,088Total expenses
    
    $
    1,986
    
    
    $
    2,233
    
    
    $
    4,075
    
    
    $
    2,761
  16




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10. OTHER POSTRETIREMENT BENEFIT PLANS
   Three Months Ended June 30,2009
    
    
    2008(Dollars in thousands)Service cost
    
    $
    
    
    
    $
    Interest cost
    
    
    47
    
    
    
    48Expected return on plan assets
    
    
    
    
    
    
    Net amortization of prior service cost
    
    
    
    
    
    
    Net amortization of actuarial gain
    
    
    (4
    )
    
    
    (3
    )Net periodic benefit cost
    
    $
    43
    
    
    $
    45
 Six Months Ended June 30,2009
    
    
    2008(Dollars in thousands)Service cost
    
    $
    
    
    
    $
    Interest cost
    
    
    94
    
    
    
    96Expected return on plan assets
    
    
    
    
    
    
    Net amortization of prior service cost
    
    
    
    
    
    
    Net amortization of actuarial gain
    
    
    (8
    )
    
    
    (6
    )Net periodic benefit cost
    
    $
    86
    
    
    $
    90
 11. FAIR VALUE MEASUREMENT
      17




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Fair Value Measurements at June 30, 2009 Using:Quoted Prices inActive Markets
    
    
    
    
    
    
    Significantfor Identical
    
    
    Significant Other
    
    
    UnobservableJune 30,
    
    
    Assets
    
    
    Observable
    
    
    Inputs2009
    
    
    (Level 1)
    
    
    Inputs (Level 2)
    
    
    (Level 3)(Dollars in thousands)Assets:Available for sale securitiesUS Treasury and government
sponsored entities
securities
    
    $
    43,974
    
    
    $
    
    
    
    $
    43,974
    
    
    $
    Equity securities
    
    
    976
    
    
    
    976
    
    
    
    
    
    
    
    Mortgage-related securities
    
    
    210,895
    
    
    
    
    
    
    
    210,895
    
    
    
    
 Fair Value Measurements at December 31, 2008 Using:Quoted Prices inActive Markets
    
    
    
    
    
    
    Significantfor Identical
    
    
    Significant Other
    
    
    UnobservableDecember 31,
    
    
    Assets
    
    
    Observable
    
    
    Inputs2008
    
    
    (Level 1)
    
    
    Inputs (Level 2)
    
    
    (Level 3)(Dollars in thousands)Assets:Available for sale securities
    
    $
    215,731
    
    
    $
    809
    
    
    $
    214,922
    
    
    $
    
  Fair Value Measurements at June 30, 2009 Using:Quoted Prices inActive Markets
    
    
    
    
    
    
    Significantfor Identical
    
    
    Significant Other
    
    
    UnobservableJune 30,
    
    
    Assets
    
    
    Observable
    
    
    Inputs2009
    
    
    (Level 1)
    
    
    Inputs (Level 2)
    
    
    (Level 3)(Dollars in thousands)Assets:Impaired loans
    
    $
    36,747
    
    
    
    
    
    
    
    
    
    
    $
    36,747Mortgage servicing assets
    
    
    2,220
    
    
    
    
    
    
    
    2,220
    
    
    
    Foreclosed assets
    
    
    10,562
    
    
    
    
    
    
    
    
    
    
    
    10,562
  18




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Fair Value Measurements at December 31, 2008 Using:Quoted Prices inActive Markets
    
    
    
    
    
    
    Significantfor Identical
    
    
    Significant Other
    
    
    UnobservableDecember 31,
    
    
    Assets
    
    
    Observable
    
    
    Inputs2008
    
    
    (Level 1)
    
    
    Inputs (Level 2)
    
    
    (Level 3)(Dollars in thousands)Assets:Impaired loans
    
    $
    33,024
    
    
    
    
    
    
    
    
    
    
    $
    33,024Mortgage servicing rights
    
    
    2,421
    
    
    
    
    
    
    
    2,421
    
    
    
    
     June 30, 2009
    
    
    December 31, 2008Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    Value(Dollars in thousands)Assets:Cash and cash equivalents
    
    $
    44,660
    
    
    $
    44,660
    
    
    $
    43,417
    
    
    $
    43,417Securities:Available for sale
    
    
    255,845
    
    
    
    255,845
    
    
    
    215,731
    
    
    
    215,731Loans held for sale
    
    
    14,057
    
    
    
    14,096
    
    
    
    16,032
    
    
    
    16,358Loans, net
    
    
    2,032,404
    
    
    
    2,028,432
    
    
    
    2,203,453
    
    
    
    2,203,606Federal Home Loan Bank stock
    
    
    26,464
    
    
    
    n/a
    
    
    
    26,464
    
    
    
    n/aAccrued interest receivable
    
    
    9,042
    
    
    
    9,042
    
    
    
    10,082
    
    
    
    10,082Liabilities:Deposits:Checking, savings and money market accounts
    
    
    (690,954
    )
    
    
    (690,955
    )
    
    
    (660,675
    )
    
    
    (660,675
    )Certificates of deposit
    
    
    (1,137,260
    )
    
    
    (1,150,774
    )
    
    
    (1,225,256
    )
    
    
    (1,237,262
    )Federal Home Loan Bank advances
    
    
    (294,152
    )
    
    
    (348,185
    )
    
    
    (337,603
    )
    
    
    (348,185
    )Repurchase agreements and other
    
    
    (97,252
    )
    
    
    (106,934
    )
    
    
    (125,269
    )
    
    
    (138,862
    )Advance payments by borrowers for taxes
and insurance
    
    
    (14,051
    )
    
    
    (14,051
    )
    
    
    (19,806
    )
    
    
    (19,806
    )Accrued interest payable
    
    
    (2,698
    )
    
    
    (2,698
    )
    
    
    (3,077
    )
    
    
    (3,077
    )
 Fair value of financial instruments:
   19




---



##### Table of Contents



Cash and cash equivalents, accrued interest receivable and payable and advance payments by
borrowers for taxes and insurance
 Securities
 Loans held for sale
 Loans
 Federal Home Loan Bank stock
 Deposits
 Borrowed funds
 Limitations
  12. STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURE
  June 30, 2009
    
    
    June 30, 2008(Dollars in thousands)Supplemental disclosures of cash flow informationCash paid during the period for:Interest on deposits and borrowings
    
    $
    30,782
    
    
    $
    43,337Income taxes
    
    
    600
    
    
    
    3,825Supplemental schedule of noncash activities:Transfers from loans to real estate owned and
other repossessed assets
    
    
    12,953
    
    
    
    18,545
 13. SEGMENT INFORMATION
   20




---



##### Table of Contents



14. EARNINGS PER SHARE
  Three Months EndedJune 30,2009
    
    
    2008(Dollars in thousands,except per share data)Numerator:Income (loss) from continuing operations
    
    $
    (2,914
    )
    
    $
    2,304Income from discontinued operations
    
    
    
    
    
    
    425Net income
    
    $
    (2,914
    )
    
    $
    2,729Denominator:Weighted average common shares outstandingbasic
    
    
    29,727
    
    
    
    29,424Dilutive effect of stock options
    
    
    
    
    
    
    21Weighted average common shares outstandingdilutive
    
    
    29,727
    
    
    
    29,445Basic earnings (loss) per share:Basic earnings (loss) per common sharecontinuing operations
    
    $
    (0.10
    )
    
    $
    0.08Basic earnings per common sharediscontinued operations
    
    
    
    
    
    
    0.02Basic earnings (loss) per common share
    
    
    (0.10
    )
    
    
    0.10Dilutive earnings (loss) per share:Dilutive earnings (loss) per common sharecontinuing operations
    
    
    (0.10
    )
    
    
    0.08Dilutive earnings per common sharediscontinued operations
    
    
    
    
    
    
    0.02Dilutive earnings (loss) per common share
    
    
    (0.10
    )
    
    
    0.10
  21




---



##### Table of Contents



Six Months EndedJune 30,2009
    
    
    2008(Dollars in thousands,except per share data)Numerator:Income (loss) from continuing operations
    
    $
    (4,593
    )
    
    $
    6,069Income from discontinued operations
    
    
    4,949
    
    
    
    703Net income
    
    $
    356
    
    
    $
    6,772Denominator:Weighted average common shares outstandingbasic
    
    
    29,645
    
    
    
    29,361Dilutive effect of stock options
    
    
    
    
    
    
    5Weighted average common shares outstandingdilutive
    
    
    29,645
    
    
    
    29,366Basic earnings (loss) per share:Basic earnings (loss) per common sharecontinuing operations
    
    $
    (0.16
    )
    
    $
    0.21Basic earnings per common sharediscontinued operations
    
    
    0.17
    
    
    
    0.03Basic earnings (loss) per common share
    
    
    0.01
    
    
    
    0.24Dilutive earnings (loss) per share:Dilutive earnings (loss) per common sharecontinuing operations
    
    
    (0.16
    )
    
    
    0.21Dilutive earnings per common sharediscontinued operations
    
    
    0.17
    
    
    
    0.03Dilutive earnings (loss) per common share
    
    
    0.01
    
    
    
    0.24
 15. BROKERED CERTIFICATES OF DEPOSIT
  16. OTHER COMPREHENSIVE INCOME (LOSS)
   Three Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008(Dollars in thousands)Unrealized holding gains (losses) on securities available for sale
    
    $
    (4,337
    )
    
    $
    (9,995
    )Reclassification adjustment for gains (losses) realized in income
    
    
    1,382
    
    
    
    57Net unrealized losses
    
    
    (2,955
    )
    
    
    (9,938
    )Tax effect (35%)
    
    
    1,034
    
    
    
    3,478Net of tax amount
    
    $
    (1,921
    )
    
    $
    (6,460
    )
  22




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##### Table of Contents



Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008(Dollars in thousands)Unrealized holding gains (losses) on securities available for sale
    
    $
    (2,787
    )
    
    $
    (7,640
    )Reclassification adjustment for gains (losses) realized in income
    
    
    1,232
    
    
    
    988Net unrealized losses
    
    
    (1,555
    )
    
    
    (6,652
    )Tax effect (35%)
    
    
    544
    
    
    
    2,328Net of tax amount
    
    $
    (1,011
    )
    
    $
    (4,324
    )
  Balance at
    
    
    Current
    
    
    Balance atDecember 31,
    
    
    Period
    
    
    June 30,2008
    
    
    Change
    
    
    2009Unrealized gains on securities available for sale
    
    $
    3,297
    
    
    $
    (1,011
    )
    
    $
    2,286Unrealized gains on post-retirement benefits
    
    
    338
    
    
    
    
    
    
    
    338Total
    
    $
    3,635
    
    
    $
    (1,011
    )
    
    $
    2,624
 17. REGULATORY CAPITAL REQUIREMENTS
   As of June 30, 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
    
    $
    237,586
    
    
    
    12.76
    %
    
    $
    148,907
    
    
    
    8.00
    %
    
    $
    186,134
    
    
    
    10.00
    %Tier 1 capital to risk-weighted assets
    
    
    214,115
    
    
    
    11.50
    %
    
    
    *
    
    
    
    *
    
    
    
    111,680
    
    
    
    6.00
    %Tier 1 capital to average total assets
    
    
    214,115
    
    
    
    8.50
    %
    
    
    100,816
    
    
    
    4.00
    %
    
    
    126,020
    
    
    
    5.00
    %Tangible capital to adjusted total assets
    
    
    214,115
    
    
    
    8.50
    %
    
    
    37,806
    
    
    
    1.50
    %
    
    
    *
    
    
    
    *
  23




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##### Table of Contents



As of December 31, 2008To Be Well CapitalizedUnder PromptMinimum Capital
    
    
    Corrective ActionActual
    
    
    Requirements
    
    
    ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(In thousands)Total risk-based capital to
risk-weighted assets
    
    $
    242,944
    
    
    
    12.06
    %
    
    $
    161,163
    
    
    
    8.00
    %
    
    $
    201,454
    
    
    
    10.00
    %Tier 1 capital to risk-weighted assets
    
    
    217,630
    
    
    
    10.80
    %
    
    
    *
    
    
    
    *
    
    
    
    120,872
    
    
    
    6.00
    %Tier 1 capital to average total assets
    
    
    217,630
    
    
    
    8.20
    %
    
    
    106,180
    
    
    
    4.00
    %
    
    
    132,724
    
    
    
    5.00
    %Tangible capital to adjusted total assets
    
    
    217,630
    
    
    
    8.20
    %
    
    
    39,817
    
    
    
    1.50
    %
    
    
    *
    
    
    
    *
 *
    
    Ratio is not required under regulations.    24




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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 Three
    
    
    At or For the SixMonths Ended
    
    
    Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Selected financial ratios and other data: (1)Performance ratios:Return on average assets (2)
    
    
    -0.46
    %
    
    
    0.40
    %
    
    
    0.03
    %
    
    
    0.49
    %Return on average equity (3)
    
    
    -4.74
    %
    
    
    3.82
    %
    
    
    0.29
    %
    
    
    4.77
    %Interest rate spread (4)
    
    
    2.81
    %
    
    
    2.60
    %
    
    
    2.78
    %
    
    
    2.40
    %Net interest margin (5)
    
    
    3.12
    %
    
    
    2.94
    %
    
    
    3.08
    %
    
    
    2.77
    %Non-interest expense to average assets
    
    
    2.72
    %
    
    
    2.20
    %
    
    
    2.62
    %
    
    
    2.19
    %Efficiency ratio (6)
    
    
    69.38
    %
    
    
    64.69
    %
    
    
    70.56
    %
    
    
    65.52
    %Average interest-earning assets to
average interest-bearing liabilities
    
    
    112.66
    %
    
    
    111.38
    %
    
    
    112.08
    %
    
    
    111.47
    %Capital ratios:Average equity to average assets
    
    
    9.74
    %
    
    
    10.38
    %
    
    
    9.58
    %
    
    
    10.31
    %Equity to assets, end of period
    
    
    9.43
    %
    
    
    9.76
    %
    
    
    9.43
    %
    
    
    9.76
    %Tier 1 leverage ratio
    
    
    8.50
    %
    
    
    7.77
    %
    
    
    8.50
    %
    
    
    7.77
    %Tier 1 risk-based capital ratio
    
    
    11.50
    %
    
    
    9.86
    %
    
    
    11.50
    %
    
    
    9.86
    %Total risk-based capital ratio
    
    
    12.76
    %
    
    
    11.77
    %
    
    
    12.76
    %
    
    
    11.77
    %Asset quality ratios:Non-performing loans to total loans at end of period (7)
    
    
    5.02
    %
    
    
    4.44
    %
    
    
    5.02
    %
    
    
    4.44
    %Non-performing assets to average assets (8)
    
    
    5.35
    %
    
    
    4.35
    %
    
    
    5.26
    %
    
    
    4.34
    %Non-performing assets to total assets at end of period
    
    
    5.43
    %
    
    
    4.34
    %
    
    
    5.43
    %
    
    
    4.34
    %Allowance for loan losses as a percent of loans
    
    
    1.92
    %
    
    
    1.29
    %
    
    
    1.92
    %
    
    
    1.29
    %Allowance for loan losses as a percent of nonperforming loans (7)
    
    
    39.05
    %
    
    
    29.45
    %
    
    
    39.05
    %
    
    
    29.45
    %Office data:Number of full service banking offices
    
    
    39
    
    
    
    39
    
    
    
    39
    
    
    
    39Number of loan production offices
    
    
    6
    
    
    
    6
    
    
    
    6
    
    
    
    6Per share data:Basic earnings (loss) from continuing operations (9)
    
    $
    (0.10
    )
    
    $
    0.08
    
    
    $
    (0.16
    )
    
    $
    0.21Basic earnings from discontinued operations (9)
    
    
    
    
    
    
    0.02
    
    
    
    0.17
    
    
    
    0.03Basic earnings (loss) (9)
    
    
    (0.10
    )
    
    
    0.10
    
    
    
    0.01
    
    
    
    0.24Diluted earnings (loss) from continuing operations (9)
    
    
    (0.10
    )
    
    
    0.08
    
    
    
    (0.16
    )
    
    
    0.21Diluted earnings from discontinued operations (9)
    
    
    
    
    
    
    0.02
    
    
    
    0.17
    
    
    
    0.03Diluted earnings (loss) (9)
    
    
    (0.10
    )
    
    
    0.10
    
    
    
    0.01
    
    
    
    0.24Book value (10)
    
    
    7.59
    
    
    
    8.96
    
    
    
    7.59
    
    
    
    8.96Tangible book value (11)
    
    
    7.57
    
    
    
    7.81
    
    
    
    7.57
    
    
    
    7.81
 (1)
    
    Ratios for the three and six month periods are annualized where appropriate. Ratios for the period ending June 30, 2008 have been revised to reflect the impact of discontinued operations.(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, other
than temporary impairment charges and other.(7)
    
    Nonperforming loans consist of nonaccrual loans, loans past due ninety days and still accruing, and restructured loans.(8)
    
    Nonperforming assets consist of nonperforming loans, real estate acquired in the settlement of loans and other repossessed assets.(9)
    
    Net income divided by average number of basic or diluted shares outstanding.(10)
    
    Shareholders equity divided by number of shares outstanding.(11)
    
    Historical per share dividends declared and paid for the period divided by the diluted earnings per share for the period.  25




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##### Table of Contents



Forward Looking Statements
  Comparison of Financial Condition at June 30, 2009 and December 31, 2008
       26




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##### Table of Contents



Allowance For Loan Losses(Dollars in thousands)December 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    June 30,Real Estate Loans
    
    2008
    
    
    Provision
    
    
    Recovery
    
    
    Chargeoff
    
    
    2009PermanentOne-to four-family residential
    
    $
    4,986
    
    
    $
    2,487
    
    
    $
    10
    
    
    $
    (2,364
    )
    
    $
    5,119Multifamily residential
    
    
    2,344
    
    
    
    1,158
    
    
    
    3
    
    
    
    (2,036
    )
    
    
    1,469Nonresidential
    
    
    4,870
    
    
    
    1,548
    
    
    
    3
    
    
    
    (2,348
    )
    
    
    4,073Land
    
    
    585
    
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    650Total
    
    
    12,785
    
    
    
    5,258
    
    
    
    16
    
    
    
    (6,748
    )
    
    
    11,311Construction LoansOne-to four-family residential
    
    
    10,620
    
    
    
    12,173
    
    
    
    9
    
    
    
    (6,091
    )
    
    
    16,711Multifamily and nonresidential
    
    
    722
    
    
    
    (435
    )
    
    
    
    
    
    
    
    
    
    
    287Total
    
    
    11,342
    
    
    
    11,738
    
    
    
    9
    
    
    
    (6,091
    )
    
    
    16,998Consumer LoansHome Equity
    
    
    1,386
    
    
    
    1,473
    
    
    
    1
    
    
    
    (906
    )
    
    
    1,954Auto
    
    
    242
    
    
    
    14
    
    
    
    10
    
    
    
    (72
    )
    
    
    194Marine
    
    
    1,504
    
    
    
    216
    
    
    
    331
    
    
    
    (806
    )
    
    
    1,245Recreational vehicle
    
    
    1,425
    
    
    
    948
    
    
    
    82
    
    
    
    (1,015
    )
    
    
    1,440Other
    
    
    313
    
    
    
    139
    
    
    
    172
    
    
    
    (341
    )
    
    
    283Total
    
    
    4,870
    
    
    
    2,790
    
    
    
    596
    
    
    
    (3,140
    )
    
    
    5,116Commercial LoansSecured
    
    
    3,355
    
    
    
    938
    
    
    
    
    
    
    
    (946
    )
    
    
    3,347Unsecured
    
    
    3,610
    
    
    
    31
    
    
    
    
    
    
    
    (581
    )
    
    
    3,060Total
    
    
    6,965
    
    
    
    969
    
    
    
    
    
    
    
    (1,527
    )
    
    
    6,407Total
    
    $
    35,962
    
    
    $
    20,755
    
    
    $
    621
    
    
    $
    (17,506
    )
    
    $
    39,832
  27




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##### Table of Contents



Nonperforming Loans(Dollars in thousands)June 30,
    
    
    December 31,Real Estate Loans
    
    2009
    
    
    2008
    
    
    ChangePermanentOne-to four-family residential
    
    $
    23,081
    
    
    $
    21,669
    
    
    $
    1,412Multifamily residential
    
    
    5,349
    
    
    
    8,724
    
    
    
    (3,375
    )Nonresidential
    
    
    15,046
    
    
    
    15,246
    
    
    
    (200
    )Land
    
    
    5,169
    
    
    
    4,840
    
    
    
    329Total
    
    
    48,645
    
    
    
    50,479
    
    
    
    (1,834
    )Construction LoansOne-to four-family residential
    
    
    36,806
    
    
    
    43,167
    
    
    
    (6,361
    )Multifamily and nonresidential
    
    
    555
    
    
    
    816
    
    
    
    (261
    )Total
    
    
    37,361
    
    
    
    43,983
    
    
    
    (6,622
    )Consumer LoansHome Equity
    
    
    2,931
    
    
    
    2,312
    
    
    
    619Auto
    
    
    119
    
    
    
    154
    
    
    
    (35
    )Marine
    
    
    1,736
    
    
    
    2,614
    
    
    
    (878
    )Recreational vehicle
    
    
    1,068
    
    
    
    756
    
    
    
    312Other
    
    
    35
    
    
    
    33
    
    
    
    2Total
    
    
    5,889
    
    
    
    5,869
    
    
    
    20Commercial LoansSecured
    
    
    6,488
    
    
    
    3,496
    
    
    
    2,992Unsecured
    
    
    1,126
    
    
    
    1,057
    
    
    
    69Total
    
    
    7,614
    
    
    
    4,553
    
    
    
    3,061Restructured Loans
    
    
    2,494
    
    
    
    1,797
    
    
    
    697Total Nonperforming Loans
    
    $
    102,003
    
    
    $
    106,681
    
    
    $
    (4,678
    )
    28




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##### Table of Contents



Impaired Loans(Dollars in thousands)June 30,
    
    
    December 31,Real Estate Loans
    
    2009
    
    
    2008
    
    
    ChangePermanentOne-to four-family residential
    
    $
    18,709
    
    
    $
    12,675
    
    
    $
    6,034Multifamily residential
    
    
    5,349
    
    
    
    8,724
    
    
    
    (3,375
    )Nonresidential
    
    
    14,903
    
    
    
    14,855
    
    
    
    48Land
    
    
    5,168
    
    
    
    4,757
    
    
    
    411Total
    
    
    44,129
    
    
    
    41,011
    
    
    
    3,118Construction LoansOne-to four-family residential
    
    
    34,570
    
    
    
    36,903
    
    
    
    (2,333
    )Multifamily and nonresidential
    
    
    555
    
    
    
    816
    
    
    
    (261
    )Total
    
    
    35,125
    
    
    
    37,719
    
    
    
    (2,594
    )Consumer LoansHome Equity
    
    
    1,895
    
    
    
    1,657
    
    
    
    238Auto
    
    
    
    
    
    
    
    
    
    
    Boat
    
    
    1,736
    
    
    
    2,614
    
    
    
    (878
    )Recreational vehicle
    
    
    327
    
    
    
    
    
    
    
    327Other
    
    
    8
    
    
    
    
    
    
    
    8Total
    
    
    3,966
    
    
    
    4,271
    
    
    
    (305
    )Commercial LoansSecured
    
    
    5,330
    
    
    
    3,496
    
    
    
    1,834Unsecured
    
    
    1,040
    
    
    
    751
    
    
    
    289Total
    
    
    6,370
    
    
    
    4,247
    
    
    
    2,123Total Impaired Loans
    
    $
    89,590
    
    
    $
    87,248
    
    
    $
    2,342
   29




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##### Table of Contents



30




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##### Table of Contents



Comparison of Operating Results for the Three Months Ended
June 30, 2009 and June 30, 2008
 Net Income.
 Net Interest Income.
    31




---



##### Table of Contents



For the Three Months Ended June 30,2009 vs. 2008Increase
    
    
    Total(decrease) due to
    
    
    increaseRate
    
    
    Volume
    
    
    (decrease)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    (1,832
    )
    
    $
    (2,027
    )
    
    $
    (3,859
    )Loans held for sale
    
    
    41
    
    
    
    87
    
    
    
    128Investment securities:Trading
    
    
    (1
    )
    
    
    (1
    )
    
    
    (2
    )Available for sale
    
    
    (313
    )
    
    
    (694
    )
    
    
    (1,007
    )Federal Home Loan Bank stock
    
    
    (64
    )
    
    
    10
    
    
    
    (54
    )Other interest earning assets
    
    
    (67
    )
    
    
    48
    
    
    
    (19
    )Total interest earning assets
    
    $
    (2,236
    )
    
    $
    (2,577
    )
    
    $
    (4,813
    )Interest bearing liabilities:Savings accounts
    
    
    14
    
    
    
    14
    
    
    
    28Checking accounts
    
    
    (1,114
    )
    
    
    (467
    )
    
    
    (1,581
    )Certificates of deposit
    
    
    (1,676
    )
    
    
    793
    
    
    
    (883
    )Federal Home Loan Bank advances
    
    
    (854
    )
    
    
    (768
    )
    
    
    (1,622
    )Repurchase agreements and other
    
    
    (79
    )
    
    
    (447
    )
    
    
    (526
    )Total interest bearing liabilities
    
    $
    (3,709
    )
    
    $
    (875
    )
    
    
    (4,584
    )Change in net interest income
    
    
    
    
    
    
    
    
    
    $
    (229
    )
 Provision for Loan Losses.
 Non-interest Income.
 Non-interest Expense.
  32




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##### Table of Contents



Comparison of Operating Results for the Six Months Ended
June 30, 2009 and June 30, 2008
 Net Income.
 Net Interest Income.
    33




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##### Table of Contents



For the Six Months Ended June 30,2009 vs. 2008Increase
    
    
    Total(decrease) due to
    
    
    increaseRate
    
    
    Volume
    
    
    (decrease)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    (4,799
    )
    
    $
    (3,801
    )
    
    $
    (8,600
    )Loans held for sale
    
    
    10
    
    
    
    193
    
    
    
    203Investment securities:Trading
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Available for sale
    
    
    (493
    )
    
    
    (985
    )
    
    
    (1,478
    )Federal Home Loan Bank stock
    
    
    (111
    )
    
    
    24
    
    
    
    (87
    )Other interest earning assets
    
    
    (92
    )
    
    
    45
    
    
    
    (47
    )Total interest earning assets
    
    $
    (5,485
    )
    
    $
    (4,525
    )
    
    $
    (10,010
    )Interest bearing liabilities:Savings accounts
    
    
    64
    
    
    
    26
    
    
    
    90Checking accounts
    
    
    (2,579
    )
    
    
    (858
    )
    
    
    (3,437
    )Certificates of deposit
    
    
    (4,331
    )
    
    
    857
    
    
    
    (3,474
    )Federal Home Loan Bank advances
    
    
    (2,286
    )
    
    
    (1,170
    )
    
    
    (3,456
    )Repurchase agreements and other
    
    
    (467
    )
    
    
    (825
    )
    
    
    (1,292
    )Total interest bearing liabilities
    
    $
    (9,599
    )
    
    $
    (1,970
    )
    
    
    (11,569
    )Change in net interest income
    
    
    
    
    
    
    
    
    
    $
    1,559
 Provision for Loan Losses.
 Non-interest Income.
 Non-interest Expense.
  34




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 AVERAGE BALANCE SHEETS
  Three Months Ended June 30,2009
    
    
    2008Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Cost
    
    
    Balance
    
    
    Paid
    
    
    Cost(Dollars in thousands)Interest-earning assets:Net loans (1)
    
    $
    2,075,751
    
    
    $
    30,076
    
    
    
    5.80
    %
    
    $
    2,211,825
    
    
    $
    33,935
    
    
    
    6.14
    %Net loans held for sale
    
    
    17,658
    
    
    
    216
    
    
    
    4.89
    %
    
    
    9,867
    
    
    
    88
    
    
    
    3.57
    %Investment securities:Trading
    
    
    
    
    
    
    
    
    
    
    
    %
    
    
    297
    
    
    
    2
    
    
    
    2.69
    %Available for sale
    
    
    250,655
    
    
    
    2,796
    
    
    
    4.46
    %
    
    
    311,102
    
    
    
    3,803
    
    
    
    4.89
    %Federal Home Loan Bank stock
    
    
    26,464
    
    
    
    294
    
    
    
    4.44
    %
    
    
    25,768
    
    
    
    348
    
    
    
    5.40
    %Other interest-earning assets
    
    
    21,696
    
    
    
    9
    
    
    
    0.17
    %
    
    
    13,828
    
    
    
    28
    
    
    
    0.81
    %Total interest-earning assets
    
    
    2,392,224
    
    
    
    33,391
    
    
    
    5.58
    %
    
    
    2,572,687
    
    
    
    38,204
    
    
    
    5.94
    %Noninterest-earning assets
    
    
    133,688
    
    
    
    
    
    
    
    
    
    
    
    156,459Assets of discontinued operations
    
    
    512
    
    
    
    
    
    
    
    
    
    
    
    22,068Total assets
    
    $
    2,526,424
    
    
    
    
    
    
    
    
    
    
    $
    2,751,214Interest-bearing liabilities:Checking accounts
    
    $
    376,696
    
    
    $
    1,012
    
    
    
    1.07
    %
    
    $
    477,881
    
    
    $
    2,593
    
    
    
    2.17
    %Savings accounts
    
    
    194,703
    
    
    
    223
    
    
    
    0.46
    %
    
    
    182,425
    
    
    
    195
    
    
    
    0.43
    %Certificates of deposit
    
    
    1,144,895
    
    
    
    10,839
    
    
    
    3.79
    %
    
    
    1,079,399
    
    
    
    11,722
    
    
    
    4.34
    %Federal Home Loan Bank advances
    
    
    298,538
    
    
    
    1,569
    
    
    
    2.10
    %
    
    
    416,205
    
    
    
    3,191
    
    
    
    3.07
    %Repurchase agreements and other
    
    
    108,563
    
    
    
    1,061
    
    
    
    3.91
    %
    
    
    153,893
    
    
    
    1,587
    
    
    
    4.12
    %Total interest-bearing liabilities
    
    
    2,123,395
    
    
    
    14,704
    
    
    
    2.77
    %
    
    
    2,309,803
    
    
    
    19,288
    
    
    
    3.34
    %Noninterest-bearing liabilities
    
    
    152,622
    
    
    
    
    
    
    
    
    
    
    
    149,638Liabilities of discontinued
operations
    
    
    4,311
    
    
    
    
    
    
    
    
    
    
    
    6,130Total liabilities
    
    
    2,280,328
    
    
    
    
    
    
    
    
    
    
    
    2,465,571Equity
    
    
    246,096
    
    
    
    
    
    
    
    
    
    
    
    285,643Total liabilities and equity
    
    $
    2,526,424
    
    
    
    
    
    
    
    
    
    
    $
    2,751,214Net interest income and interest
rate spread
    
    
    
    
    
    $
    18,687
    
    
    
    2.81
    %
    
    
    
    
    
    $
    18,916
    
    
    
    2.60
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.12
    %
    
    
    
    
    
    
    
    
    
    
    2.94
    %Average interest-earning assets
to average interest-bearing
liabilities
    
    
    
    
    
    
    
    
    
    
    112.66
    %
    
    
    
    
    
    
    
    
    
    
    111.38
    %
 (1)
    
    Nonaccrual loans are included in the average balance at a yield of 0%.  35




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 AVERAGE BALANCE SHEETS
  Six Months Ended June 30,2009
    
    
    2008Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Cost
    
    
    Balance
    
    
    Paid
    
    
    Cost(Dollars in thousands)Interest-earning assets:Net loans (1)
    
    $
    2,117,111
    
    
    $
    61,143
    
    
    
    5.78
    %
    
    $
    2,243,330
    
    
    $
    69,743
    
    
    
    6.22
    %Net loans held for sale
    
    
    20,897
    
    
    
    479
    
    
    
    4.58
    %
    
    
    12,443
    
    
    
    276
    
    
    
    4.44
    %Investment securities:Trading
    
    
    
    
    
    
    
    
    
    
    
    %
    
    
    305
    
    
    
    1
    
    
    
    0.66
    %Available for sale
    
    
    245,185
    
    
    
    5,566
    
    
    
    4.54
    %
    
    
    287,433
    
    
    
    7,044
    
    
    
    4.90
    %Federal Home Loan Bank stock
    
    
    26,464
    
    
    
    593
    
    
    
    4.48
    %
    
    
    25,603
    
    
    
    680
    
    
    
    5.31
    %Other interest-earning assets
    
    
    20,320
    
    
    
    38
    
    
    
    0.37
    %
    
    
    15,334
    
    
    
    85
    
    
    
    1.11
    %Total interest-earning assets
    
    
    2,429,977
    
    
    
    67,819
    
    
    
    5.58
    %
    
    
    2,584,448
    
    
    
    77,829
    
    
    
    6.02
    %Noninterest-earning assets
    
    
    135,426
    
    
    
    
    
    
    
    
    
    
    
    150,473Assets of discontinued operations
    
    
    2,069
    
    
    
    
    
    
    
    
    
    
    
    21,304Total assets
    
    $
    2,567,472
    
    
    
    
    
    
    
    
    
    
    $
    2,756,225Interest-bearing liabilities:Checking accounts
    
    $
    375,909
    
    
    $
    2,214
    
    
    
    1.18
    %
    
    $
    455,511
    
    
    $
    5,651
    
    
    
    2.48
    %Savings accounts
    
    
    191,154
    
    
    
    468
    
    
    
    0.49
    %
    
    
    179,441
    
    
    
    378
    
    
    
    0.42
    %Certificates of deposit
    
    
    1,160,376
    
    
    
    22,043
    
    
    
    3.80
    %
    
    
    1,124,077
    
    
    
    25,517
    
    
    
    4.54
    %Federal Home Loan Bank advances
    
    
    324,339
    
    
    
    3,427
    
    
    
    2.11
    %
    
    
    402,967
    
    
    
    6,883
    
    
    
    3.42
    %Repurchase agreements and other
    
    
    116,391
    
    
    
    2,251
    
    
    
    3.87
    %
    
    
    156,561
    
    
    
    3,543
    
    
    
    4.53
    %Total interest-bearing liabilities
    
    
    2,168,169
    
    
    
    30,403
    
    
    
    2.80
    %
    
    
    2,318,557
    
    
    
    41,972
    
    
    
    3.62
    %Noninterest-bearing liabilities
    
    
    149,911
    
    
    
    
    
    
    
    
    
    
    
    148,146Liabilities of discontinued
operations
    
    
    3,541
    
    
    
    
    
    
    
    
    
    
    
    5,312Total liabilities
    
    
    2,321,621
    
    
    
    
    
    
    
    
    
    
    
    2,472,015Equity
    
    
    245,851
    
    
    
    
    
    
    
    
    
    
    
    284,210Total liabilities and equity
    
    $
    2,567,472
    
    
    
    
    
    
    
    
    
    
    $
    2,756,225Net interest income and interest
rate spread
    
    
    
    
    
    $
    37,416
    
    
    
    2.78
    %
    
    
    
    
    
    $
    35,857
    
    
    
    2.40
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.08
    %
    
    
    
    
    
    
    
    
    
    
    2.77
    %Average interest-earning assets
to average
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    112.08
    %
    
    
    
    
    
    
    
    
    
    
    111.47
    %
 (1)
    
    Nonaccrual loans are included in the average balance at a yield of 0%.  36




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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, 2009NPV as % of portfolio value of assets
    
    
    Next 12 months net interest income(Dollars in thousands)Change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Internal policyin rates
    
    
    
    
    
    Internal policy
    
    
    
    
    
    
    
    
    
    
    limitations on(Basis
    
    
    
    
    
    limitations as
    
    
    Change in
    
    
    
    
    
    
    maximum
    
    
    %points)
    
    NPV Ratio
    
    
    to minimum %
    
    
    %
    
    
    $ Change
    
    
    change
    
    
    Change+300
    
    
    6.83
    %
    
    
    6.00
    %
    
    
    (2.48
    )%
    
    $
    (4,553
    )
    
    
    (15.00
    )%
    
    
    (5.80
    )%+200
    
    
    8.18
    
    
    
    7.00
    
    
    
    (1.13
    )
    
    
    (2,510
    )
    
    
    (10.00
    )
    
    
    (3.20
    )+100
    
    
    9.05
    
    
    
    7.00
    
    
    
    (0.26
    )
    
    
    (830
    )
    
    
    (5.00
    )
    
    
    (1.06
    )Static
    
    
    9.31
    
    
    
    8.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  37




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##### Table of Contents



Year Ended December 31, 2008NPV as % of portfolio value of assets
    
    
    Next 12 months net interest incomeChange
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Dollars in thousands)in rates
    
    
    
    
    
    Internal policy
    
    
    Change in
    
    
    
    
    
    
    Internal policy
    
    
    %(Basis points)
    
    NPV Ratio
    
    
    limitations
    
    
    %
    
    
    $ Change
    
    
    limitations
    
    
    Change+300
    
    
    7.37
    %
    
    
    5.00
    %
    
    
    (1.38
    )%
    
    $
    (1,879
    )
    
    
    (15.00
    )%
    
    
    (2.48
    )%+200
    
    
    8.35
    
    
    
    6.00
    
    
    
    (0.40
    )
    
    
    (734
    )
    
    
    (10.00
    )
    
    
    (0.97
    )+100
    
    
    8.99
    
    
    
    6.00
    
    
    
    0.24
    
    
    
    60
    
    
    
    (5.00
    )
    
    
    0.08Static
    
    
    8.75
    
    
    
    7.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   Potential Impact of Changes in Interest Rates.
  
 ITEM 4.
    
    Controls and Procedures
   38




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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 4.
    
    Submission of Matters to a Vote of Security Holders
  Director
    
    For
    
    
    WithheldDouglas M. McKay
    
    
    21,053,777
    
    
    
    2,146,632Donald J. Varner
    
    
    18,894,268
    
    
    
    4,306,141
   For
    
    Against
    
    
    Abstain21,860,718
    
    844,897
    
    
    
    494,794
 
 ITEM 6.
    
    Exhibits
  Exhibit Number
    
    Description3.1
    
    
    Articles of Incorporation3.2
    
    
    Amended Code of Regulations10
    
    
    Material Contracts31.1
    
    
    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
  39




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 
 SIGNATURES
  UNITED COMMUNITY FINANCIAL CORP.Date: August 7, 2009
    /S/ Douglas M. McKayDouglas M. McKayChairman, President and Chief Executive OfficerDate: August 7, 2009
    /S/ James R. ReskeJames R. Reske, CFATreasurer and Chief Financial Officer  40




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 Exhibit 3.1
  Exhibit 3.2
  EXHIBIT INDEX
 Exhibit Number
    
    Description3.1
    
    
    Articles of Incorporation3.2
    
    
    Amended Code of Regulations10
    
    
    Material Contracts31.1
    
    
    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
  41