##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 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
  Large accelerated filer o
    
    Accelerated filer
þ
    
    Non-accelerated filer
o(Do not check if a smaller reporting company)
    
    Smaller 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 March 31, 2008 (Unaudited)
and December 31, 2007
    
    
    1Consolidated Statements of Income for the Three Months Ended
March 31, 2008 and 2007 (Unaudited)
    
    
    2Consolidated Statement of Shareholders Equity for the Three Months ended March 31,
2008 (Unaudited)
    
    
    3Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2008 and 2007 (Unaudited)
    
    
    4Notes to Consolidated Financial Statements
    
    
    5 - 13Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    14-21Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    23Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    24Item 1A. Risk Factors
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3. Defaults Upon Senior Securities (None)Item 4. Submission of Matters to a Vote of Security Holders
    
    
    24Item 5. Other Information (None)Item 6. Exhibits
    
    
24Signatures
    
    
    25Exhibits
    
    
    26-29EX-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)
 March 31,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Assets:Cash and deposits with banks
    
    $
    32,102
    
    
    $
    33,266Federal funds sold and other
    
    
    4,033
    
    
    
    4,097Total cash and cash equivalents
    
    
    36,135
    
    
    
    37,363Securities:Trading, at fair value
    
    
    5,930
    
    
    
    5,064Available for sale, at fair value
    
    
    307,597
    
    
    
    244,753Loans, net of allowance for loan losses of $33,202 and $32,006, respectively
    
    
    2,215,917
    
    
    
    2,236,988Loans held for sale
    
    
    13,268
    
    
    
    87,236Federal Home Loan Bank stock, at cost
    
    
    25,764
    
    
    
    25,432Premises and equipment, net
    
    
    27,140
    
    
    
    27,521Accrued interest receivable
    
    
    11,691
    
    
    
    13,077Real estate owned and other repossessed assets
    
    
    9,989
    
    
    
    10,510Goodwill
    
    
    33,713
    
    
    
    33,713Core deposit intangible
    
    
    1,091
    
    
    
    1,169Cash surrender value of life insurance
    
    
    24,287
    
    
    
    24,053Other assets
    
    
    14,196
    
    
    
    13,160Total assets
    
    $
    2,726,718
    
    
    $
    2,760,039Liabilities and Shareholders EquityLiabilities:Deposits:Interest bearing
    
    $
    1,766,280
    
    
    $
    1,768,757Non-interest bearing
    
    
    109,690
    
    
    
    106,449Total deposits
    
    
    1,875,970
    
    
    
    1,875,206Federal Home Loan Bank advances
    
    
    381,381
    
    
    
    437,253Repurchase agreements and other borrowings
    
    
    168,857
    
    
    
    149,533Advance payments by borrowers for taxes and insurance
    
    
    12,891
    
    
    
    17,853Accrued interest payable
    
    
    8,002
    
    
    
    7,837Accrued expenses and other liabilities
    
    
    5,681
    
    
    
    2,643Total liabilities
    
    
    2,452,782
    
    
    
    2,490,325Shareholders 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
    
    
    146,962
    
    
    
    146,683Retained earnings
    
    
    215,079
    
    
    
    213,727Accumulated other comprehensive income
    
    
    2,796
    
    
    
    661Unearned employee stock ownership plan shares
    
    
    (9,009
    )
    
    
    (9,465
    )Treasury stock, at cost, 7,752,684 shares
    
    
    (81,892
    )
    
    
    (81,892
    )Total shareholders equity
    
    
    273,936
    
    
    
    269,714Total liabilities and shareholders equity
    
    $
    2,726,718
    
    
    $
    2,760,039
 See Notes to Consolidated Financial Statements.
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UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 For the Three Months EndedMarch 31,2008
    
    
    2007(Dollars in thousands, except per share data)Interest incomeLoans
    
    $
    35,808
    
    
    $
    39,003Loans held for sale
    
    
    188
    
    
    
    256Securities:Trading
    
    
    62
    
    
    
    62Available for sale
    
    
    3,298
    
    
    
    2,934Federal Home Loan Bank stock dividends
    
    
    332
    
    
    
    400Other interest earning assets
    
    
    168
    
    
    
    170Total interest income
    
    
    39,856
    
    
    
    42,825Interest expenseDeposits
    
    
    17,036
    
    
    
    16,722Federal Home Loan Bank advances
    
    
    3,692
    
    
    
    5,347Repurchase agreements and other
    
    
    2,026
    
    
    
    1,355Total interest expense
    
    
    22,754
    
    
    
    23,424Net interest income
    
    
    17,102
    
    
    
    19,401Provision for loan losses
    
    
    2,466
    
    
    
    2,325Net interest income after provision for
loan losses
    
    
    14,636
    
    
    
    17,076Non-interest incomeBrokerage commissions
    
    
    6,578
    
    
    
    6,240Service fees and other charges
    
    
    3,455
    
    
    
    3,573Underwriting and investment banking
    
    
    29
    
    
    
    33Net gains (losses):Securities available for sale
    
    
    931
    
    
    
    Trading securities
    
    
    (27
    )
    
    
    5Loans sold
    
    
    2,184
    
    
    
    663Other
    
    
    (140
    )
    
    
    (24
    )Other income
    
    
    1,107
    
    
    
    927Total non-interest income
    
    
    14,117
    
    
    
    11,417Non-interest expenseSalaries and employee benefits
    
    
    14,729
    
    
    
    14,282Occupancy
    
    
    1,336
    
    
    
    1,148Equipment and data processing
    
    
    2,339
    
    
    
    2,315Franchise tax
    
    
    591
    
    
    
    564Advertising
    
    
    379
    
    
    
    317Amortization of core deposit intangible
    
    
    78
    
    
    
    100Other expenses
    
    
    3,063
    
    
    
    2,516Total non-interest expenses
    
    
    22,515
    
    
    
    21,242Income before income taxes
    
    
    6,238
    
    
    
    7,251Income taxes
    
    
    2,195
    
    
    
    2,581Net income
    
    $
    4,043
    
    
    $
    4,670Comprehensive income
    
    $
    6,178
    
    
    $
    5,108Earnings per shareBasic
    
    $
    0.14
    
    
    $
    0.16Diluted
    
    $
    0.14
    
    
    $
    0.16
 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 share data)Balance December 31, 2007
    
    
    30,052
    
    
    $
    146,683
    
    
    $
    213,727
    
    
    $
    661
    
    
    $
    (9,465
    )
    
    $
    (81,892
    )
    
    $
    269,714Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    4,043
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,043Change in net unrealized gain/(loss) on securities, net of taxes of $1,150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,135
    
    
    
    
    
    
    
    
    
    
    
    2,135Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,178Shares allocated to ESOP participants
    
    
    
    
    
    
    (27
    )
    
    
    
    
    
    
    
    
    
    
    456
    
    
    
    
    
    
    
    429Stock based compensation
    
    
    
    
    
    
    306
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    306Dividends paid, $0.095 per share
    
    
    
    
    
    
    
    
    
    
    (2,691
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,691
    )Balance March 31, 2008
    
    
    30,052
    
    
    $
    146,962
    
    
    $
    215,079
    
    
    $
    2,796
    
    
    $
    (9,009
    )
    
    $
    (81,892
    )
    
    $
    273,936
 See Notes to Consolidated Financial Statements.
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UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three Months Ended March 31,2008
    
    
    2007(Dollars in thousands)Cash Flows from Operating ActivitiesNet income
    
    $
    4,043
    
    
    $
    4,670Adjustments to reconcile net income to net cash provided by
operating activities:Provision for loan losses
    
    
    2,466
    
    
    
    2,325Net gains
    
    
    (2,948
    )
    
    
    (639
    )Amortization of premiums and accretion of discounts
    
    
    578
    
    
    
    739Depreciation and amortization
    
    
    729
    
    
    
    765ESOP compensation
    
    
    429
    
    
    
    854Stock based compensation
    
    
    306
    
    
    
    FHLB stock dividends
    
    
    (332
    )
    
    
    Decrease in trading securities
    
    
    (893
    )
    
    
    6,335Decrease (increase) in interest receivable
    
    
    1,386
    
    
    
    138Increase in prepaid and other assets
    
    
    (1,792
    )
    
    
    (2,046
    )Increase in interest payable
    
    
    165
    
    
    
    1,977Net principal disbursed on loans held for sale
    
    
    (64,006
    )
    
    
    (48,596
    )Proceeds from sale of loans held for sale
    
    
    140,158
    
    
    
    62,168Decrease in other liabilities
    
    
    1,890
    
    
    
    7,126Net cash from operating activities
    
    
    82,179
    
    
    
    35,816Cash Flows from Investing ActivitiesProceeds from principal repayments and maturities of:Available for sale securities
    
    
    18,773
    
    
    
    16,852Proceeds from sale of:Available for sale securities
    
    
    38,299
    
    
    
    Real estate owned and other repossessed assets
    
    
    3,654
    
    
    
    636Purchases of securities available for sale
    
    
    (115,672
    )
    
    
    (38,238
    )Net principal repaid (disbursed) on loans
    
    
    39,381
    
    
    
    33,172Loans purchased
    
    
    (24,066
    )
    
    
    (41,003
    )Purchases of premises and equipment
    
    
    (339
    )
    
    
    (1,766
    )Net cash from investing activities
    
    
    (39,970
    )
    
    
    (30,347
    )Cash Flows from Financing ActivitiesNet increase in NOW, savings and money market accounts
    
    
    47,846
    
    
    
    23,927Net decrease in certificates of deposit
    
    
    (47,082
    )
    
    
    (15,543
    )Net decrease in advance payments by borrowers
for taxes and insurance
    
    
    (4,962
    )
    
    
    (6,239
    )Proceeds from FHLB advances
    
    
    217,100
    
    
    
    196,553Repayment of FHLB advances
    
    
    (272,972
    )
    
    
    (237,768
    )Net change in other borrowed funds
    
    
    19,324
    
    
    
    39,738Dividends paid
    
    
    (2,691
    )
    
    
    (2,766
    )Proceeds from the exercise of stock options
    
    
    
    
    
    
    46Purchase of treasury stock
    
    
    
    
    
    
    (3,780
    )Net cash from financing activities
    
    
    (43,437
    )
    
    
    (5,832
    )Decrease in cash and cash equivalents
    
    
    (1,228
    )
    
    
    (363
    )Cash and cash equivalents, beginning of period
    
    
    37,363
    
    
    
    35,637Cash and cash equivalents, end of period
    
    $
    36,135
    
    
    $
    35,274
 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 Deferred Compensation and Postretirement Benefits Aspects of Endorsement
Split-Dollar Life Insurance Arrangement
 Fair Value Measurements Effective Date of FASB
Statement No. 157
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Written Loan Commitments
Recorded at Fair Value through Earnings Application of
Accounting Principles to Loan Commitments
 5




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3. STOCK COMPENSATION
     For the three months ended March 31, 2008Weighted
    
    
    Aggregateaverage
    
    
    intrinsic valueShares
    
    
    exercise price
    
    
    (in thousands)Outstanding at beginning of year
    
    
    2,043,856
    
    
    $
    9.66Granted
    
    
    237,072
    
    
    
    6.05Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at end of period
    
    
    2,280,928
    
    
    $
    9.28
    
    
    $
    35Options exercisable at end of period
    
    
    2,280,928
    
    
    $
    9.28
    
    
    $
    35
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March 31,2008Intrinsic value of options exercised
    
    $
    Cash received from option exercises
    
    
    Tax benefit realized from option exercises
    
    
    Weighted average fair value of options granted
    
    
    1.29
   Risk-free interest rate
    
    
    3.03
    %Expected term (years)
    
    
    5Expected stock volatility
    
    
    40.1Dividend yield
    
    
    6.28
    %
  4. SECURITIES
  March 31, 2008
    
    
    December 31, 2007(Dollars in thousands)Gross
    
    
    Gross
    
    
    
    
    
    
    Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Gains
    
    
    LossesU.S. Treasury and
government
sponsored entities
securities
    
    $
    47,657
    
    
    $
    893
    
    
    $
    
    
    
    $
    84,388
    
    
    $
    337
    
    
    $
    (126
    )Equity securities
    
    
    7,006
    
    
    
    138
    
    
    
    (469
    )
    
    
    7,064
    
    
    
    221
    
    
    
    (494
    )Mortgage-related securities
    
    
    252,934
    
    
    
    3,259
    
    
    
    (64
    )
    
    
    153,301
    
    
    
    977
    
    
    
    (443
    )Total
    
    $
    307,597
    
    
    $
    4,290
    
    
    $
    (533
    )
    
    $
    244,753
    
    
    $
    1,535
    
    
    $
    (1,063
    )
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March 31,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)US Treasury and government sponsored
entities
    
    $
    1,547
    
    
    $
    1,054State and municipal obligations
    
    
    3,805
    
    
    
    3,636Corporate bonds, debentures and notes
    
    
    266
    
    
    
    62Mutual funds
    
    
    312
    
    
    
    312Total trading securities
    
    $
    5,930
    
    
    $
    5,064
 5. LOANS
  March 31,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Real Estate:One- to four-family residential
    
    $
    865,576
    
    
    $
    871,019Multifamily residential
    
    
    177,994
    
    
    
    179,535Nonresidential
    
    
    358,518
    
    
    
    359,070Land
    
    
    23,307
    
    
    
    22,818Construction:One- to four-family residential
    
    
    349,610
    
    
    
    357,153Multifamily and non-residential
    
    
    29,344
    
    
    
    25,191Total real estate
    
    
    1,804,349
    
    
    
    1,814,786Consumer
    
    
    345,805
    
    
    
    349,447Commercial
    
    
    97,359
    
    
    
    103,208Total loans
    
    
    2,247,513
    
    
    
    2,267,441Less:Allowance for loan losses
    
    
    33,202
    
    
    
    32,006Deferred loan fees, net
    
    
    (1,606
    )
    
    
    (1,553
    )Total
    
    
    31,596
    
    
    
    30,453Loans, net
    
    $
    2,215,917
    
    
    $
    2,236,988
  As of or For theThree Months
    
    
    As of or For theEnded
    
    
    Year EndedMarch 31,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Balance, beginning of year
    
    $
    32,006
    
    
    $
    16,955Provision for loan losses
    
    
    2,466
    
    
    
    28,750Amounts charged off
    
    
    (1,597
    )
    
    
    (14,220
    )Recoveries
    
    
    327
    
    
    
    521Balance, end of period
    
    $
    33,202
    
    
    $
    32,006
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As of or For the
    
    
    As of or ForThree
    
    
    the YearMonths Ended
    
    
    EndedMarch 31,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Impaired loans on which no specific valuation allowance was provided
    
    $
    33,466
    
    
    $
    30,475Impaired loans on which a specific valuation allowance was provided
    
    
    51,785
    
    
    
    53,902Total impaired loans at period-end
    
    $
    85,251
    
    
    $
    84,377Specific valuation allowances on impaired loans at period-end
    
    $
    12,902
    
    
    $
    13,165Average impaired loans during the period
    
    
    84,814
    
    
    
    63,468Interest income recognized on impaired loans during the period
    
    
    83
    
    
    
    348Interest income received on impaired loans during the period
    
    
    83
    
    
    
    348
 6. MORTGAGE BANKING ACTIVITIES
   As of or for theThree Months
    
    
    As of or for theEnded
    
    
    Year EndedMarch 31,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Balance, beginning of year
    
    $
    6,184
    
    
    $
    6,820Originations
    
    
    852
    
    
    
    1,268Sale of servicing
    
    
    
    
    
    
    Amortized to expense
    
    
    (541
    )
    
    
    (1,904
    )Balance, end of period
    
    $
    6,495
    
    
    $
    6,184
  March 31,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Balance, beginning of year
    
    $
    (562
    )
    
    $
    (435
    )Impairment charges
    
    
    
    
    
    
    (562
    )Recoveries
    
    
    19
    
    
    
    435Balance, end of period
    
    $
    (543
    )
    
    $
    (562
    )
  9




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March 31,
    
    December 31,2008
    
    2007Weighted average prepayment rate
    
    267 PSA
    
    272 PSAWeighted average life (in years)
    
    
    4.57
    
    
    
    3.87Weighted average discount rate
    
    
    8%
    
    
    
    8%
 7. OTHER POSTRETIREMENT BENEFIT PLANS
   Three Months Ended March 31,2008
    
    
    2007(Dollars in thousands)Service cost
    
    $
    
    
    
    $
    Interest cost
    
    
    48
    
    
    
    56Expected return on plan assets
    
    
    
    
    
    
    Net amortization of prior service cost
    
    
    
    
    
    
    Net amortization of actuarial gain
    
    
    (3
    )
    
    
    Net periodic benefit cost
    
    $
    45
    
    
    $
    56Assumptions used in the
valuations were as follows:Weighted average discount rate
    
    
    6.00
    %
    
    
    5.75
    %
 8. FAIR VALUE MEASUREMENT
      10




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Fair Value Measurements at March 31, 2008 Using:Quoted Prices inActive Markets
    
    
    
    
    
    Significantfor Identical
    
    Significant Other
    
    UnobservableAssets
    
    Observable
    
    InputsMarch 31, 2008
    
    (Level 1)
    
    Inputs (Level 2)
    
    (Level 3)Assets:Trading securities
    
    $
    5,930
    
    
    $
    5,930
    
    
    $
    
    
    
    $
    Available for sale securities
    
    
    307,597
    
    
    
    2,006
    
    
    
    305,591
    
    
    
    Loans held for sale
    
    
    13,268
    
    
    
    13,268
    
    
    
    
    
    
    
    Mortgage servicing rights
    
    
    6,495
    
    
    
    
    
    
    
    9,697
    
    
    
    Impaired loans
    
    
    85,251
    
    
    
    
    
    
    
    
    
    
    
    72,349
  9. STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURE
  March 31, 2008
    
    March 31, 2007(Dollars in thousands)Supplemental disclosures of cash flow informationCash paid during the period for:Interest on deposits and borrowings, net of amounts capitalized
    
    $
    22,589
    
    
    $
    21,447Interest capitalized on borrowings
    
    
    
    
    
    
    10Income taxes
    
    
    
    
    
    
    Supplemental schedule of noncash activities:Transfers from loans to real estate owned and other repossessed assets
    
    
    3,274
    
    
    
    3,787
 11




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##### Table of Contents



10. SEGMENT INFORMATION
  For the Three Months Ended March 31, 2008Banking
    
    
    InvestmentServices
    
    
    Services
    
    
    Total(Dollars in thousands)Interest income
    
    $
    39,627
    
    
    $
    229
    
    
    $
    39,856Interest expense
    
    
    22,685
    
    
    
    69
    
    
    
    22,754Provision for loan loss
    
    
    2,466
    
    
    
    
    
    
    
    2,466Net interest income after
provision for loan loss
    
    
    14,476
    
    
    
    160
    
    
    
    14,636Non-interest income
    
    
    6,270
    
    
    
    7,847
    
    
    
    14,117Non-interest expense
    
    
    14,964
    
    
    
    7,551
    
    
    
    22,515Income before tax
    
    
    5,782
    
    
    
    456
    
    
    
    6,238Income tax expense
    
    
    2,018
    
    
    
    177
    
    
    
    2,195Net income
    
    $
    3,764
    
    
    $
    279
    
    
    $
    4,043
 For the Three Months Ended March 31, 2007Banking
    
    
    InvestmentServices
    
    
    Services
    
    
    Total(Dollars in thousands)Interest income
    
    $
    42,570
    
    
    $
    255
    
    
    $
    42,825Interest expense
    
    
    23,331
    
    
    
    93
    
    
    
    23,424Provision for loan loss
    
    
    2,325
    
    
    
    
    
    
    
    2,325Net interest income after
provision for loan loss
    
    
    16,914
    
    
    
    162
    
    
    
    17,076Non-interest income
    
    
    3,617
    
    
    
    7,800
    
    
    
    11,417Non-interest expense
    
    
    14,089
    
    
    
    7,153
    
    
    
    21,242Income before tax
    
    
    6,442
    
    
    
    809
    
    
    
    7,251Income tax expense
    
    
    2,298
    
    
    
    283
    
    
    
    2,581Net income
    
    $
    4,144
    
    
    $
    526
    
    
    $
    4,670
 
 12




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##### Table of Contents



11. EARNINGS PER SHARE
  For the Three MonthsEnded March 31,2008
    
    
    2007(Dollars in thousands,except per share data)Net income applicable to common stock
    
    $
    4,043
    
    
    $
    4,670Weighted average common shares outstanding
    
    
    28,545
    
    
    
    29,126Dilutive effect of stock options
    
    
    
    
    
    
    331Weighted average common shares outstanding
for dilutive computation
    
    
    28,545
    
    
    
    29,457Basic earnings per share as reported
    
    $
    0.14
    
    
    $
    0.16Diluted earnings per share as reported
    
    $
    0.14
    
    
    $
    0.16
 12. BUSINESS COMBINATION
  13. OTHER BORROWINGS
     13




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##### Table of Contents



ITEM 2. Managements discussion and analysis of financial condition and results of operations
 Selected financial ratios and other data: (1)
    
    At or For the Three Months EndedMarch 31,2008
    
    
    2007Performance ratios:Return on average assets (2)
    
    
    0.59
    %
    
    
    0.69
    %Return on average equity (3)
    
    
    5.72
    %
    
    
    6.49
    %Interest rate spread (4)
    
    
    2.23
    %
    
    
    2.56
    %Net interest margin (5)
    
    
    2.63
    %
    
    
    3.03
    %Non-interest expense to average assets
    
    
    3.28
    %
    
    
    3.14
    %Efficiency ratio (6)
    
    
    73.67
    %
    
    
    68.56
    %Average interest-earning assets to average interest-bearing liabilities
    
    
    111.70
    %
    
    
    112.72
    %Capital ratios:Average equity to average assets
    
    
    10.28
    %
    
    
    10.65
    %Equity to assets, end of period
    
    
    10.05
    %
    
    
    10.35
    %Tier 1 leverage ratio
    
    
    7.67
    %
    
    
    7.80
    %Tier 1 risk-based capital ratio
    
    
    9.83
    %
    
    
    9.67
    %Total risk-based capital ratio
    
    
    12.51
    %
    
    
    11.95
    %Asset quality ratios:Non-performing loans to total loans at end of period (7)
    
    
    4.71
    %
    
    
    2.51
    %Non-performing assets to average assets (8)
    
    
    4.16
    %
    
    
    2.33
    %Non-performing assets to total assets at end of period
    
    
    4.20
    %
    
    
    2.32
    %Allowance for loan losses as a percent of loans
    
    
    1.48
    %
    
    
    0.82
    %Allowance for loan losses as a percent of non-performing loans (7)
    
    
    31.79
    %
    
    
    32.83
    %Office data:Number of full service banking offices
    
    
    39
    
    
    
    38Number of loan production offices
    
    
    6
    
    
    
    5Number of brokerage offices
    
    
    21
    
    
    
    20Number of trust offices
    
    
    2
    
    
    
    2Per share data:Basic earnings per share (9)
    
    $
    0.14
    
    
    $
    0.16Diluted earnings per share (9)
    
    $
    0.14
    
    
    $
    0.16Book value (10)
    
    $
    9.12
    
    
    $
    9.16Tangible book value (11)
    
    $
    7.96
    
    
    $
    8.02Market value as a percent of book value (12)
    
    
    68
    %
    
    
    121
    %
 
 (1)
    
    Ratios for the three month period are annualized where appropriate.(2)
    
    Net income divided by average total assets.(3)
    
    Net income divided by average total equity.(4)
    
    Difference between weighted average yield on interest-earning assets and weighted average cost of interest-bearing liabilities.(5)
    
    Net interest income as a percentage of average interest-earning assets.(6)
    
    Noninterest expense, excluding the amortization of core deposit intangible, divided by the sum of net interest income and
noninterest income, excluding gains and losses on securities and other.(7)
    
    Nonperforming loans consist of loans ninety days past due, loans less than ninety days past due and not accruing interest and
restructured loans.(8)
    
    Nonperforming assets consist of nonperforming loans and real estate owned and other repossessed assets.(9)
    
    Earnings per share are computed by dividing net income by the weighted average number of shares outstanding during the period.
Diluted earnings per share are computed using the weighted average number of common shares determined for the basic
computation plus the dilutive effect of potential common shares that could be issued under outstanding stock options.(10)
    
    Equity divided by number of shares outstanding.(11)
    
    Equity minus goodwill and core deposit intangible divided by number of shares outstanding.(12)
    
    Closing price of UCFC shares on March 31, 2008, divided by book value. 14




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Forward Looking Statements
  Comparison of Financial Condition at March 31, 2008 and December 31, 2007
       15




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##### Table of Contents



Allowance For Loan LossesDecember 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    March 31,2007
    
    
    Provision
    
    
    Recovery
    
    
    Chargeoff
    
    
    2008Real Estate LoansPermanentOne-to four-family
    
    $
    2,803
    
    
    $
    (150
    )
    
    $
    
    
    
    $
    (146
    )
    
    $
    2,507Multifamily residential
    
    
    2,365
    
    
    
    1,044
    
    
    
    3
    
    
    
    (243
    )
    
    
    3,169Nonresidential
    
    
    4,488
    
    
    
    251
    
    
    
    2
    
    
    
    
    
    
    
    4,741Land
    
    
    629
    
    
    
    (100
    )
    
    
    
    
    
    
    
    
    
    
    529Total
    
    
    10,285
    
    
    
    1,045
    
    
    
    5
    
    
    
    (389
    )
    
    
    10,946Construction LoansOne-to four-family residential
    
    
    11,892
    
    
    
    1,278
    
    
    
    
    
    
    
    (777
    )
    
    
    12,393Multifamily and nonresidential
    
    
    607
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    648Total
    
    
    12,499
    
    
    
    1,319
    
    
    
    
    
    
    
    (777
    )
    
    
    13,041Consumer LoansHome Equity
    
    
    1,260
    
    
    
    (32
    )
    
    
    
    
    
    
    (14
    )
    
    
    1,214Auto
    
    
    447
    
    
    
    59
    
    
    
    8
    
    
    
    (30
    )
    
    
    484Marine
    
    
    1,468
    
    
    
    (160
    )
    
    
    53
    
    
    
    (4
    )
    
    
    1,357Recreational vehicle
    
    
    2,050
    
    
    
    (445
    )
    
    
    60
    
    
    
    (194
    )
    
    
    1,471Other
    
    
    260
    
    
    
    167
    
    
    
    100
    
    
    
    (156
    )
    
    
    371Total
    
    
    5,485
    
    
    
    (411
    )
    
    
    221
    
    
    
    (398
    )
    
    
    4,897Commercial LoansSecured
    
    
    2,375
    
    
    
    422
    
    
    
    
    
    
    
    (33
    )
    
    
    2,764Unsecured
    
    
    1,362
    
    
    
    91
    
    
    
    101
    
    
    
    
    
    
    
    1,554Total
    
    
    3,737
    
    
    
    513
    
    
    
    101
    
    
    
    (33
    )
    
    
    4,318Total Allowance
    
    $
    32,006
    
    
    $
    2,466
    
    
    $
    327
    
    
    $
    (1,597
    )
    
    $
    33,202
  16




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##### Table of Contents



Nonperforming LoansMarch 31,
    
    
    December 31,
    
    
    
    
    
    
    2008 Interest2008
    
    
    2007
    
    
    Change
    
    
    ForegoneReal Estate LoansPermanentOne-to four-family
    
    $
    14,242
    
    
    $
    12,752
    
    
    $
    1,490
    
    
    $
    198Multifamily residential
    
    
    15,857
    
    
    
    13,604
    
    
    
    2,253
    
    
    
    246Nonresidential
    
    
    13,762
    
    
    
    13,597
    
    
    
    165
    
    
    
    476Land
    
    
    3,700
    
    
    
    3,700
    
    
    
    
    
    
    
    114Total
    
    
    47,561
    
    
    
    43,653
    
    
    
    3,908
    
    
    
    1,034Construction LoansOne-to four-family residential
    
    
    43,349
    
    
    
    44,680
    
    
    
    (1,331
    )
    
    
    1,036Multifamily and nonresidential
    
    
    825
    
    
    
    825
    
    
    
    
    
    
    
    27Total
    
    
    44,174
    
    
    
    45,505
    
    
    
    (1,331
    )
    
    
    1,063Consumer LoansHome Equity
    
    
    2,747
    
    
    
    2,454
    
    
    
    293
    
    
    
    49Auto
    
    
    212
    
    
    
    211
    
    
    
    1
    
    
    
    (2
    )Marine
    
    
    1,752
    
    
    
    1,714
    
    
    
    38
    
    
    
    27Recreational vehicle
    
    
    519
    
    
    
    376
    
    
    
    143
    
    
    
    3Other
    
    
    72
    
    
    
    64
    
    
    
    8
    
    
    
    Total
    
    
    5,302
    
    
    
    4,819
    
    
    
    483
    
    
    
    77Commercial LoansSecured
    
    
    4,344
    
    
    
    4,554
    
    
    
    (210
    )
    
    
    77Unsecured
    
    
    184
    
    
    
    184
    
    
    
    
    
    
    
    3Total
    
    
    4,528
    
    
    
    4,738
    
    
    
    (210
    )
    
    
    80Restructured Loans
    
    
    2,869
    
    
    
    2,341
    
    
    
    528
    
    
    
    Total Nonperforming Loans
    
    $
    104,434
    
    
    $
    101,056
    
    
    $
    3,378
    
    
    $
    2,254
   17




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##### Table of Contents



Impaired LoansMarch 31,
    
    
    December 31,2008
    
    
    2007
    
    
    ChangeReal Estate LoansPermanentOne-to four-family
    
    $
    2,679
    
    
    $
    2,681
    
    
    $
    (2
    )Multifamily residential
    
    
    16,138
    
    
    
    13,604
    
    
    
    2,534Nonresidential
    
    
    13,901
    
    
    
    13,597
    
    
    
    304Land
    
    
    3,700
    
    
    
    3,700
    
    
    
    Total
    
    
    36,418
    
    
    
    33,582
    
    
    
    2,836Construction LoansOne-to four-family residential
    
    
    41,729
    
    
    
    43,518
    
    
    
    (1,789
    )Multifamily and nonresidential
    
    
    825
    
    
    
    825
    
    
    
    Total
    
    
    42,554
    
    
    
    44,343
    
    
    
    (1,789
    )Consumer LoansHome Equity
    
    
    
    
    
    
    
    
    
    
    Auto
    
    
    
    
    
    
    
    
    
    
    Boat
    
    
    1,751
    
    
    
    1,714
    
    
    
    37Recreational vehicle
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,751
    
    
    
    1,714
    
    
    
    37Commercial LoansSecured
    
    
    4,344
    
    
    
    4,554
    
    
    
    (210
    )Unsecured
    
    
    184
    
    
    
    184
    
    
    
    Total
    
    
    4,528
    
    
    
    4,738
    
    
    
    (210
    )Total Impaired Loans
    
    $
    85,251
    
    
    $
    84,377
    
    
    $
    874
     18




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##### Table of Contents



Comparison of Operating Results for the Three Months Ended
March 31, 2008 and March 31, 2007
 Net Income.
 Net Interest Income.
    19




---



##### Table of Contents



For the Three Months Ended March 31,2008 vs. 2007Increase
    
    
    Total(decrease) due to
    
    
    increaseRate
    
    
    Volume
    
    
    (decrease)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    (3,551
    )
    
    $
    356
    
    
    $
    (3,195
    )Loans held for sale
    
    
    42
    
    
    
    (110
    )
    
    
    (68
    )Investment securities:Trading
    
    
    
    
    
    
    
    
    
    
    Available for sale
    
    
    106
    
    
    
    258
    
    
    
    364FHLB stock
    
    
    (68
    )
    
    
    
    
    
    
    (68
    )Other interest-earning assets
    
    
    14
    
    
    
    (16
    )
    
    
    (2
    )Total interest-earning assets
    
    $
    (3,457
    )
    
    $
    488
    
    
    $
    (2,969
    )Interest-bearing liabilities:Savings accounts
    
    
    6
    
    
    
    (20
    )
    
    
    (14
    )NOW and money market accounts
    
    
    (1,040
    )
    
    
    852
    
    
    
    (188
    )Certificates of deposit
    
    
    299
    
    
    
    217
    
    
    
    516Federal Home Loan Bank advances
    
    
    (1,082
    )
    
    
    (573
    )
    
    
    (1,655
    )Repurchase agreements and other
    
    
    65
    
    
    
    606
    
    
    
    671Total interest-bearing liabilities
    
    $
    (1,752
    )
    
    $
    1,082
    
    
    
    (670
    )Change in net interest income
    
    
    
    
    
    
    
    
    
    $
    (2,299
    )
 Provision for Loan Losses.
 Non-interest Income.
 Non-interest Expense.
 20




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
AVERAGE BALANCE SHEETS
  Three Months Ended March 31,2008
    
    
    2007Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Cost
    
    
    Balance
    
    
    Paid
    
    
    Cost(Dollars In thousands)Interest-earning assets:Net loans (1)
    
    $
    2,275,133
    
    
    $
    35,808
    
    
    
    6.30
    %
    
    $
    2,254,767
    
    
    $
    39,003
    
    
    
    6.92
    %Net loans held for sale
    
    
    15,014
    
    
    
    188
    
    
    
    5.01
    %
    
    
    23,182
    
    
    
    256
    
    
    
    4.42
    %Investment securities:Trading
    
    
    6,733
    
    
    
    62
    
    
    
    3.68
    %
    
    
    7,062
    
    
    
    62
    
    
    
    3.51
    %Available for sale
    
    
    268,162
    
    
    
    3,298
    
    
    
    4.92
    %
    
    
    246,986
    
    
    
    2,934
    
    
    
    4.75
    %FHLB stock
    
    
    25,436
    
    
    
    332
    
    
    
    5.22
    %
    
    
    25,432
    
    
    
    400
    
    
    
    6.29
    %Other interest-earning assets
    
    
    8,039
    
    
    
    168
    
    
    
    8.36
    %
    
    
    6,667
    
    
    
    170
    
    
    
    10.20
    %Total interest-earning assets
    
    
    2,598,517
    
    
    
    39,856
    
    
    
    6.14
    %
    
    
    2,564,096
    
    
    
    42,825
    
    
    
    6.68
    %Noninterest-earning assets
    
    
    150,754
    
    
    
    
    
    
    
    
    
    
    
    139,343Total assets
    
    $
    2,749,271
    
    
    
    
    
    
    
    
    
    
    $
    2,703,439Interest-bearing liabilities:NOW and money market accounts
    
    $
    432,893
    
    
    $
    3,058
    
    
    
    2.83
    %
    
    $
    377,914
    
    
    $
    3,246
    
    
    
    3.44
    %Savings accounts
    
    
    175,442
    
    
    
    183
    
    
    
    0.42
    %
    
    
    194,219
    
    
    
    197
    
    
    
    0.41
    %Certificates of deposit
    
    
    1,169,251
    
    
    
    13,795
    
    
    
    4.72
    %
    
    
    1,150,602
    
    
    
    13,279
    
    
    
    4.62
    %Federal Home Loan Bank advances
    
    
    389,582
    
    
    
    3,692
    
    
    
    3.79
    %
    
    
    440,719
    
    
    
    5,347
    
    
    
    4.85
    %Repurchase agreements and other
    
    
    159,159
    
    
    
    2,026
    
    
    
    5.09
    %
    
    
    111,343
    
    
    
    1,355
    
    
    
    4.87
    %Total interest-bearing liabilities
    
    
    2,326,327
    
    
    
    22,754
    
    
    
    3.91
    %
    
    
    2,274,797
    
    
    
    23,424
    
    
    
    4.12
    %Noninterest-bearing liabilities
    
    
    140,192
    
    
    
    
    
    
    
    
    
    
    
    140,720Total liabilities
    
    
    2,466,519
    
    
    
    
    
    
    
    
    
    
    
    2,415,517Equity
    
    
    282,752
    
    
    
    
    
    
    
    
    
    
    
    287,922Total liabilities and equity
    
    $
    2,749,271
    
    
    
    
    
    
    
    
    
    
    $
    2,703,439Net interest income and interest
rate spread
    
    
    
    
    
    $
    17,102
    
    
    
    2.23
    %
    
    
    
    
    
    $
    19,401
    
    
    
    2.56
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.63
    %
    
    
    
    
    
    
    
    
    
    
    3.03
    %Average interest-earning assets
to average interest-bearing
liabilities
    
    
    
    
    
    
    
    
    
    
    111.70
    %
    
    
    
    
    
    
    
    
    
    
    112.72
    %
 
 (1)
    
    Nonaccrual loans are included in the average balance at a yield of 0%. 21




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##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
 Qualitative Aspects of Market Risk.
 Quantitative Aspects of Market Risk.
   Quarter ended March 31, 2008NPV as % of portfolio value of assets
    
    Next 12 months net interest income(Dollars in thousands)Changein rates(Basis
    
    
    
    
    
    Internal policy
    
    
    
    
    
    
    
    
    
    Internal policypoints)
    
    NPV Ratio
    
    limitations
    
    Change in %
    
    $ Change
    
    limitations
    
    % Change+300
    
    
    7.62
    %
    
    
    5.00
    %
    
    
    (1.28
    )%
    
    $
    (5,719
    )
    
    
    (15.00
    )%
    
    
    (7.05
    )%+200
    
    
    8.38
    
    
    
    6.00
    
    
    
    (0.52
    )
    
    
    (3,786
    )
    
    
    (10.00
    )
    
    
    (4.66
    )+100
    
    
    8.85
    
    
    
    6.00
    
    
    
    (0.05
    )
    
    
    (2,179
    )
    
    
    (5.00
    )
    
    
    (2.68
    )Static
    
    
    8.90
    
    
    
    7.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100)
    
    
    8.61
    
    
    
    6.00
    
    
    
    (0.29
    )
    
    
    (1,486
    )
    
    
    (5.00
    )
    
    
    (1.83
    )(200)
    
    
    
    
    
    
    6.00
    
    
    
    
    
    
    
    
    
    
    
    (15.00
    )
    
    (300)
    
    
    
    
    
    
    5.00
    
    
    
    
    
    
    
    
    
    
    
    (20.00
    )
    
    
 22




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##### Table of Contents



Year Ended December 31, 2007NPV as % of portfolio value of assets
    
    Next 12 months net interest incomeChange
    
    
    
    
    
    
    
    
    
    
    
    (Dollars in thousands)in rates(Basis
    
    
    
    
    
    Internal policy
    
    
    
    
    
    
    
    
    
    Internal policypoints)
    
    NPV Ratio
    
    limitations
    
    Change in %
    
    $ Change
    
    limitations
    
    % Change+300
    
    
    7.99
    %
    
    
    5.00
    %
    
    
    (1.48
    )%
    
    $
    (7,009
    )
    
    
    (15.00
    )%
    
    
    (9.93
    )%+200
    
    
    8.73
    
    
    
    6.00
    
    
    
    (0.75
    )
    
    
    (4,353
    )
    
    
    (10.00
    )
    
    
    (6.17
    )+100
    
    
    9.29
    
    
    
    6.00
    
    
    
    (0.18
    )
    
    
    (2,139
    )
    
    
    (5.00
    )
    
    
    (3.03
    )Static
    
    
    9.47
    
    
    
    7.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100)
    
    
    9.53
    
    
    
    6.00
    
    
    
    0.05
    
    
    
    2,723
    
    
    
    (5.00
    )
    
    
    3.86(200)
    
    
    8.82
    
    
    
    6.00
    
    
    
    (0.66
    )
    
    
    3,467
    
    
    
    (15.00
    )
    
    
    4.91(300)
    
    
    7.90
    
    
    
    5.00
    
    
    
    (1.57
    )
    
    
    3,397
    
    
    
    (20.00
    )
    
    
    4.81
   Potential Impact of Changes in Interest Rates.
  
 ITEM 4. Controls and Procedures
  23




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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
    
    
    WithheldRichard J. Buoncore
    
     20,944,798
    
    
     1,259,706Richard J. Schiraldi
    
     21,013,206
    
    
     1,191,298David C. Sweet
    
     20,663,788
    
    
     1,540,716
   For
    
    Against
    
    Abstain21,793,914
    
    173,085
    
    237,505
 
 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
 24




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 
 SIGNATURES
  UNITED COMMUNITY FINANCIAL CORP.Date: May 12, 2008
    
    /S/ Douglas M. McKayDouglas M. McKay, Chief Executive OfficerDate: May 12, 2008
    
    /S/ Patrick A. KellyPatrick A. Kelly, Chief Financial Officer
 25




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 Exhibit 3.1
  Exhibit 3.2
  26