##### 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, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 UNITED COMMUNITY FINANCIAL CORP.
  OHIO
    
    0-024399
    
    34-1856319(State or other jurisdiction of incorporation)
    
    (Commission File No.)
    
    (IRS Employer I.D. No.)
 275 West Federal Street, Youngstown, Ohio 44503-1203
  (330) 742-0500
  (Former name or former address, if changed since last report)
  þ o
  o þ o
  o þ




---



##### 



TABLE OF CONTENTS
 PAGEPart I. FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Statements of Financial Condition as of March 31, 2007 (Unaudited) and December 31, 2006
    
    
    1Consolidated Statements of Income for the Three Months Ended March 31, 2007 and 2006 (Unaudited)
    
    
    2Consolidated Statement of Shareholders Equity for the Three Months ended March 31, 2007 (Unaudited)
    
    
    3Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006 (Unaudited)
    
    
    4Notes to Consolidated Financial Statements
    
    
    5 - 12Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13-18Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    19Item 4.
    
    Controls and Procedures
    
    
    20Part II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    21Item 1A.
    
    Risk Factors
    
    
    21Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3.
    
    Defaults Upon Senior Securities (None)Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    21Item 5.
    
    Other Information (None)Item 6.
    
    Exhibits
    
    
    22Signatures
    
    
    
    
    23Exhibits
    
    
    
    
    24-27EX-31.1EX-31.2EX-32




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
 March 31,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Assets:Cash and deposits with banks
    
    $
    33,780
    
    
    $
    34,129Federal funds sold and other
    
    
    1,494
    
    
    
    1,508Total cash and cash equivalents
    
    
    35,274
    
    
    
    35,637Securities:Trading, at fair value
    
    
    4,451
    
    
    
    10,786Available for sale, at fair value
    
    
    259,620
    
    
    
    237,531Loans, net of allowance for loan losses of $18,562 and $16,955, respectively
    
    
    2,254,953
    
    
    
    2,253,559Loans held for sale
    
    
    14,017
    
    
    
    26,960Federal Home Loan Bank stock, at cost
    
    
    25,432
    
    
    
    25,432Premises and equipment, net
    
    
    26,201
    
    
    
    25,192Accrued interest receivable
    
    
    13,565
    
    
    
    13,703Real estate owned and other repossessed assets
    
    
    6,370
    
    
    
    3,242Goodwill
    
    
    33,593
    
    
    
    33,593Core deposit intangible
    
    
    1,434
    
    
    
    1,534Cash surrender value of life insurance
    
    
    23,360
    
    
    
    23,137Other assets
    
    
    14,742
    
    
    
    13,239Total assets
    
    $
    2,713,012
    
    
    $
    2,703,545Liabilities and Shareholders EquityLiabilities:Deposits:Interest bearing
    
    $
    1,725,073
    
    
    $
    1,720,426Non-interest bearing
    
    
    106,244
    
    
    
    102,509Total deposits
    
    
    1,831,317
    
    
    
    1,822,935Federal Home Loan Bank advances
    
    
    424,038
    
    
    
    465,253Repurchase agreements and other borrowings
    
    
    138,249
    
    
    
    98,511Advance payments by borrowers for taxes and insurance
    
    
    11,232
    
    
    
    17,471Accrued interest payable
    
    
    4,819
    
    
    
    2,842Accrued expenses and other liabilities
    
    
    22,562
    
    
    
    15,200Total liabilities
    
    
    2,432,217
    
    
    
    2,422,212Shareholders EquityPreferred stock-no par value; 1,000,000 shares authorized and unissued
    
    
    
    
    
    
    Common stock-no par value; 499,000,000 shares authorized; 37,804,457
shares issued
    
    
    146,232
    
    
    
    145,834Retained earnings
    
    
    222,412
    
    
    
    220,527Accumulated other comprehensive loss
    
    
    (858
    )
    
    
    (1,296
    )Unearned stock compensation
    
    
    (10,831
    )
    
    
    (11,287
    )Treasury stock, at cost, 7,158,853 and 6,827,143 shares, respectively
    
    
    (76,160
    )
    
    
    (72,445
    )Total shareholders equity
    
    
    280,795
    
    
    
    281,333Total liabilities and shareholders equity
    
    $
    2,713,012
    
    
    $
    2,703,545
 See Notes to Consolidated Financial Statements.
 1




---



##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 For the Three Months EndedMarch 31,2007
    
    
    2006(Dollars in thousands, except per share data)Interest incomeLoans
    
    $
    39,003
    
    
    $
    35,110Loans held for sale
    
    
    256
    
    
    
    508Securities:Trading
    
    
    62
    
    
    
    82Available for sale
    
    
    2,934
    
    
    
    2,214Margin accounts
    
    
    
    
    
    
    340Federal Home Loan Bank stock dividends
    
    
    400
    
    
    
    341Other interest earning assets
    
    
    170
    
    
    
    32Total interest income
    
    
    42,825
    
    
    
    38,627Interest expenseDeposits
    
    
    16,722
    
    
    
    12,420Federal Home Loan Bank advances
    
    
    5,347
    
    
    
    4,630Repurchase agreements and other
    
    
    1,355
    
    
    
    886Total interest expense
    
    
    23,424
    
    
    
    17,936Net interest income
    
    
    19,401
    
    
    
    20,691Provision for loan losses
    
    
    2,325
    
    
    
    738Net interest income after provision for
loan losses
    
    
    17,076
    
    
    
    19,953Non-interest incomeBrokerage commissions
    
    
    6,240
    
    
    
    5,000Service fees and other charges
    
    
    3,573
    
    
    
    3,197Underwriting and investment banking
    
    
    33
    
    
    
    30Net gains (losses):Trading securities
    
    
    5
    
    
    
    44Loans sold
    
    
    663
    
    
    
    563Other
    
    
    (24
    )
    
    
    4Other income
    
    
    927
    
    
    
    971Total non-interest income
    
    
    11,417
    
    
    
    9,809Non-interest expenseSalaries and employee benefits
    
    
    14,282
    
    
    
    13,524Occupancy
    
    
    1,148
    
    
    
    1,108Equipment and data processing
    
    
    2,315
    
    
    
    2,259Franchise tax
    
    
    564
    
    
    
    541Advertising
    
    
    317
    
    
    
    344Amortization of core deposit intangible
    
    
    100
    
    
    
    133Other expenses
    
    
    2,516
    
    
    
    2,447Total non-interest expenses
    
    
    21,242
    
    
    
    20,356Income before income taxes
    
    
    7,251
    
    
    
    9,406Income taxes
    
    
    2,581
    
    
    
    3,273Net income
    
    $
    4,670
    
    
    $
    6,133Comprehensive income
    
    $
    5,108
    
    
    $
    5,645Earnings per shareBasic
    
    $
    0.16
    
    
    $
    0.21Diluted
    
    $
    0.16
    
    
    $
    0.21
 See Notes to Consolidated Financial Statements.
 2




---



##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited)
 AccumulatedOther
    
    
    UnearnedShares
    
    
    Common
    
    
    Retained
    
    
    Comprehensive
    
    
    Stock
    
    
    TreasuryOutstanding
    
    
    Stock
    
    
    Earnings
    
    
    Income/(Loss)
    
    
    Compensation
    
    
    Stock
    
    
    Total(Dollars in thousands, except share data)Balance December 31, 2006
    
    
    30,977
    
    
    $
    145,834
    
    
    $
    220,527
    
    
    $
    (1,296
    )
    
    $
    (11,287
    )
    
    $
    (72,445
    )
    
    $
    281,333Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    4,670
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,670Change in net unrealized gain/(loss)
on
securities, net of taxes of $236
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    438
    
    
    
    
    
    
    
    
    
    
    
    438Comprehensive income
    
    
    
    
    
    
    
    
    
    
    4,670
    
    
    
    438
    
    
    
    
    
    
    
    
    
    
    
    5,108Shares allocated to ESOP participants
    
    
    
    
    
    
    398
    
    
    
    
    
    
    
    
    
    
    
    456
    
    
    
    
    
    
    
    854Purchase of treasury stock
    
    
    (338
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,780
    )
    
    
    (3,780
    )Exercise of stock options
    
    
    7
    
    
    
    
    
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    46Dividends paid, $0.095 per share
    
    
    
    
    
    
    
    
    
    
    (2,766
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,766
    )Balance March 31, 2007
    
    
    30,646
    
    
    $
    146,232
    
    
    $
    222,412
    
    
    $
    (858
    )
    
    $
    (10,831
    )
    
    $
    (76,160
    )
    
    $
    280,795
 See Notes to Consolidated Financial Statements.
 3




---



##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three Months Ended March 31,2007
    
    
    2006(Dollars in thousands)Cash Flows from Operating ActivitiesNet income
    
    $
    4,670
    
    
    $
    6,133Adjustments to reconcile net income to net cash provided by
operating activities:Provision for loan losses
    
    
    2,325
    
    
    
    738Net gains
    
    
    (639
    )
    
    
    (573
    )Amortization of premiums and accretion of discounts
    
    
    739
    
    
    
    659Depreciation and amortization
    
    
    765
    
    
    
    666ESOP compensation
    
    
    854
    
    
    
    910FHLB stock dividends
    
    
    
    
    
    
    (341
    )Decrease in trading securities
    
    
    6,335
    
    
    
    1,601Decrease in margin accounts
    
    
    
    
    
    
    274Decrease (increase) in interest receivable
    
    
    138
    
    
    
    (652
    )(Increase) decrease in prepaid and other assets
    
    
    (2,046
    )
    
    
    93Increase in interest payable
    
    
    1,977
    
    
    
    665Net principal disbursed on loans held for sale
    
    
    (48,596
    )
    
    
    (46,747
    )Proceeds from sale of loans held for sale
    
    
    62,168
    
    
    
    40,954Increase in other liabilities
    
    
    7,126
    
    
    
    979Net cash from operating activities
    
    
    35,816
    
    
    
    5,359Cash Flows from Investing ActivitiesProceeds from principal repayments and maturities of:Available for sale securities
    
    
    16,852
    
    
    
    8,473Proceeds from sale of:Available for sale securities
    
    
    
    
    
    
    Real estate owned and other repossessed assets
    
    
    636
    
    
    
    581Premises and equipment
    
    
    
    
    
    
    531Purchases of:Securities available for sale
    
    
    (38,238
    )
    
    
    (24,834
    )Net principal disbursed on loans
    
    
    33,172
    
    
    
    4,691Loans purchased
    
    
    (41,003
    )
    
    
    (59,445
    )Purchases of premises and equipment
    
    
    (1,766
    )
    
    
    (1,235
    )Net cash from investing activities
    
    
    (30,347
    )
    
    
    (71,238
    )Cash Flows from Financing ActivitiesNet increase in NOW, savings and money market accounts
    
    
    23,927
    
    
    
    27,743Net (decrease) increase in certificates of deposit
    
    
    (15,543
    )
    
    
    36,099Net decrease in advance payments by borrowers
for taxes and insurance
    
    
    (6,239
    )
    
    
    (4,703
    )Proceeds from FHLB advances
    
    
    196,553
    
    
    
    152,281Repayment of FHLB advances
    
    
    (237,768
    )
    
    
    (180,577
    )Net change in other borrowed funds
    
    
    39,738
    
    
    
    30,481Dividends paid
    
    
    (2,766
    )
    
    
    (2,607
    )Proceeds from the exercise of stock options
    
    
    46
    
    
    
    232Purchase of treasury stock
    
    
    (3,780
    )
    
    
    Net cash from financing activities
    
    
    (5,832
    )
    
    
    58,949Decrease in cash and cash equivalents
    
    
    (363
    )
    
    
    (6,930
    )Cash and cash equivalents, beginning of period
    
    
    35,637
    
    
    
    37,545Cash and cash equivalents, end of period
    
    $
    35,274
    
    
    $
    30,615Supplemental disclosures of cash flow informationCash paid during the period for:Interest on deposits and borrowings, net of amounts capitalized
    
    $
    21,447
    
    
    $
    17,271Interest capitalized on borrowings
    
    
    10
    
    
    
    16Income taxes
    
    
    
    
    
    
    Supplemental schedule of noncash activities:Loans transferred to the loan portfolio from held for sale
    
    
    
    
    
    
    Transfers from loans to loans held for sale
    
    
    
    
    
    
    Transfers from loans to real estate owned and other repossessed assets
    
    
    3,787
    
    
    
    248
 See Notes to Consolidated Financial Statements.
 4




---



##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. BASIS OF PRESENTATION
     2. RECENT ACCOUNTING DEVELOPMENTS
 Accounting for Uncertainty in Income Taxes
   Accounting for Deferred Compensation and Postretirement Benefits Aspects of Endorsement
Split-Dollar Life Insurance Arrangement
 Accounting for
Purchases of Life Insurance  Determining the Amount That Could Be Realized in Accordance with FASB
Technical Bulletin No. 85-4 (Accounting for Purchases of Life Insurance).
 5




---



##### Table of Contents



The Fair Value Option for Financial Assets and
Financial Liabilities
 3. STOCK COMPENSATION
   For the three months ended March 31,2007Weighted
    
    Aggregateaverage
    
    intrinsic valueShares
    
    exercise price
    
    (in thousands)Outstanding at beginning of year
    
    
    2,068,558
    
    
    $
    9.63Granted
    
    
    
    
    
    
    Exercised
    
    
    (6,150
    )
    
    
    7.61Forfeited
    
    
    
    
    
    
    Outstanding at end of period
    
    
    2,062,408
    
    
    $
    9.63
    
    
    $
    2,925Options exercisable at end of period
    
    
    2,062,408
    
    
    $
    9.63
    
    
    
    2,925
  March 31,2007Intrinsic value of options exercised
    
    $
    21Cash received from option exercises
    
    
    47Tax benefit realized from option exercises
    
    
    Weighted average fair value of options granted
    
    
    
  6




---



##### Table of Contents



4. SECURITIES
  March 31, 2007
    
    
    December 31, 2006(Dollars in thousands)Gross
    
    
    Gross
    
    
    
    
    
    
    Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Gains
    
    
    LossesU.S. Treasury and agency
securities
    
    $
    99,466
    
    
    $
    75
    
    
    $
    (628
    )
    
    $
    96,847
    
    
    $
    63
    
    
    $
    (722
    )Equity securities
    
    
    7,904
    
    
    
    645
    
    
    
    (78
    )
    
    
    7,866
    
    
    
    641
    
    
    
    (112
    )Mortgage-related securities
    
    
    152,250
    
    
    
    275
    
    
    
    (1,485
    )
    
    
    132,818
    
    
    
    131
    
    
    
    (1,870
    )Total
    
    $
    259,620
    
    
    $
    995
    
    
    $
    (2,191
    )
    
    $
    237,531
    
    
    $
    835
    
    
    $
    (2,704
    )
  March 31,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Obligations of U.S. Government
    
    $
    645
    
    
    $
    1,296State and municipal obligations
    
    
    2,768
    
    
    
    8,606Corporate bonds, debentures and notes
    
    
    35
    
    
    
    258Mutual funds, stocks and warrants
    
    
    1,003
    
    
    
    626Total trading securities
    
    $
    4,451
    
    
    $
    10,786
 5. LOANS
  March 31,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Real Estate:One- to four-family residential
    
    $
    874,601
    
    
    $
    854,829Multifamily residential
    
    
    168,937
    
    
    
    163,541Nonresidential
    
    
    354,051
    
    
    
    348,528Land
    
    
    24,055
    
    
    
    26,684Construction:One- to four-family residential
    
    
    377,944
    
    
    
    388,926Multifamily and non-residential
    
    
    21,900
    
    
    
    25,215Total real estate
    
    
    1,821,488
    
    
    
    1,807,723Consumer
    
    
    349,171
    
    
    
    345,607Commercial
    
    
    102,286
    
    
    
    116,952Total loans
    
    
    2,272,945
    
    
    
    2,270,282Less:Allowance for loan losses
    
    
    18,562
    
    
    
    16,955Deferred loan fees, net
    
    
    (570
    )
    
    
    (232
    )Total
    
    
    17,992
    
    
    
    16,723Loans, net
    
    $
    2,254,953
    
    
    $
    2,253,559
 7




---



##### Table of Contents



As of or For theThree Months
    
    
    As of or For theEnded
    
    
    Year EndedMarch 31,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Balance, beginning of year
    
    $
    16,955
    
    
    $
    15,723Provision for loan losses
    
    
    2,325
    
    
    
    4,347Amounts charged off
    
    
    (854
    )
    
    
    (3,438
    )Recoveries
    
    
    136
    
    
    
    323Balance, end of period
    
    $
    18,562
    
    
    $
    16,955
   As of or For the
    
    
    As of or For theThree
    
    
    YearMonths Ended
    
    
    EndedMarch 31,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Impaired loans on which no specific valuation allowance was provided
    
    $
    32,540
    
    
    $
    28,329Impaired loans on which a specific valuation allowance was provided
    
    
    15,441
    
    
    
    14,217Total impaired loans at period-end
    
    $
    47,981
    
    
    $
    42,546Specific valuation allowances on impaired loans at period-end
    
    $
    4,558
    
    
    $
    2,841Average impaired loans during the period
    
    
    45,264
    
    
    
    23,617Interest income recognized during impairment
    
    
    121
    
    
    
    372Cash basis interest recognized
    
    
    121
    
    
    
    373
 8




---



##### Table of Contents



6. MORTGAGE BANKING ACTIVITIES
   As of or for theThree Months
    
    
    As of or for theEnded
    
    
    Year EndedMarch 31,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Balance, beginning of year
    
    $
    6,820
    
    
    $
    6,923Originations
    
    
    310
    
    
    
    1,917Sale of servicing
    
    
    
    
    
    
    (323
    )Amortized to expense
    
    
    (416
    )
    
    
    (1,697
    )Balance, end of period
    
    $
    6,714
    
    
    $
    6,820
  March 31,
    
    
    December 31,2007
    
    
    2006(Dollars in thousands)Balance, beginning of year
    
    $
    (435
    )
    
    $
    Impairment charges
    
    
    
    
    
    
    (435
    )Recoveries
    
    
    96
    
    
    
    Balance, end of period
    
    $
    (339
    )
    
    $
    (435
    )
   March 31,
    
    December 31,2007
    
    2006Weighted average prepayment rate
    
    242 PSA
    
    261 PSAWeighted average life (in years)
    
    
    4.38
    
    
    
    4.50Weighted average discount rate
    
    
    8
    %
    
    
    8
    %
 9




---



##### Table of Contents



7. OTHER POSTRETIREMENT BENEFIT PLANS
   Three Months Ended March 31,2007
    
    
    2006(Dollars in thousands)Service cost
    
    $
    
    
    
    $
    Interest cost
    
    
    56
    
    
    
    55Expected return on plan assets
    
    
    
    
    
    
    Net amortization of prior service cost
    
    
    
    
    
    
    Recognized net actuarial gain
    
    
    
    
    
    
    Net periodic benefit cost/(gain)
    
    $
    56
    
    
    $
    55Assumptions used in the valuations were as follows:Weighted average discount rate
    
    
    5.75
    %
    
    
    5.50
    %
 10




---



##### Table of Contents



8. SEGMENT INFORMATION
  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
 For the Three Months Ended March 31, 2006Banking
    
    
    InvestmentServices
    
    
    Services
    
    
    Total(Dollars in thousands)Interest income
    
    $
    38,173
    
    
    $
    453
    
    
    $
    38,626Interest expense
    
    
    17,812
    
    
    
    124
    
    
    
    17,936Provision for loan loss
    
    
    738
    
    
    
    
    
    
    
    738Net interest income after
provision for loan loss
    
    
    19,623
    
    
    
    329
    
    
    
    19,952Non-interest income
    
    
    2,937
    
    
    
    6,873
    
    
    
    9,810Non-interest expense
    
    
    13,617
    
    
    
    6,739
    
    
    
    20,356Income before tax
    
    
    8,943
    
    
    
    463
    
    
    
    9,406Income tax expense
    
    
    3,111
    
    
    
    162
    
    
    
    3,273Net income
    
    $
    5,832
    
    
    $
    301
    
    
    $
    6,133
 11




---



##### Table of Contents



9. EARNINGS PER SHARE
  For the Three MonthsEnded March 31,2007
    
    
    2006(Dollars in thousands,except per share data)Net income applicable to common stock
    
    $
    4,670
    
    
    $
    6,133Weighted average common shares outstanding
    
    
    29,126
    
    
    
    28,989Dilutive effect of stock options
    
    
    331
    
    
    
    407Weighted average common shares outstanding
for dilutive computation
    
    
    29,457
    
    
    
    29,396Basic earnings per share as reported
    
    $
    0.16
    
    
    $
    0.21Diluted earnings per share as reported
    
    $
    0.16
    
    
    $
    0.21
 12




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 UNITED COMMUNITY FINANCIAL CORP.
 At or For the ThreeMonths EndedMarch 31,Selected financial ratios and other data: (1)
    
    2007
    
    2006Performance ratios:Return on average assets (2)
    
    
    0.69
    %
    
    
    0.97
    %Return on average equity (3)
    
    
    6.49
    %
    
    
    9.06
    %Interest rate spread (4)
    
    
    2.56
    %
    
    
    3.05
    %Net interest margin (5)
    
    
    3.03
    %
    
    
    3.44
    %Non-interest expense to average assets
    
    
    3.14
    %
    
    
    3.20
    %Efficiency ratio (6)
    
    
    68.56
    %
    
    
    66.41
    %Average interest-earning assets to average interest-bearing liabilities
    
    
    112.72
    %
    
    
    112.88
    %Capital ratios:Average equity to average assets
    
    
    10.65
    %
    
    
    10.65
    %Equity to assets, end of period
    
    
    10.35
    %
    
    
    10.36
    %Tier 1 leverage ratio
    
    
    7.80
    %
    
    
    8.50
    %Tier 1 risk-based capital ratio
    
    
    9.67
    %
    
    
    10.20
    %Total risk-based capital ratio
    
    
    11.95
    %
    
    
    10.97
    %Asset quality ratios:Non-performing loans to total loans at end of period (7)
    
    
    2.51
    %
    
    
    1.49
    %Non-performing assets to average assets (8)
    
    
    2.33
    %
    
    
    1.34
    %Non-performing assets to total assets at end of period
    
    
    2.32
    %
    
    
    1.32
    %Allowance for loan losses as a percent of loans
    
    
    0.82
    %
    
    
    0.74
    %Allowance for loan losses as a percent of
non-performing loans (7)
    
    
    32.83
    %
    
    
    49.94
    %Office data:Number of full service banking offices
    
    
    38
    
    
    
    36Number of loan production offices
    
    
    5
    
    
    
    6Number of brokerage offices
    
    
    20
    
    
    
    20Number of trust offices
    
    
    2
    
    
    
    2Per share data:Basic earnings per share (9)
    
    $
    0.16
    
    
    $
    0.21Diluted earnings per share (9)
    
    $
    0.16
    
    
    $
    0.21Book value (10)
    
    $
    9.16
    
    
    $
    8.65Tangible book value (11)
    
    $
    8.02
    
    
    $
    7.50Market value as a percent of book value (12)
    
    
    121
    %
    
    
    140
    %
 
 (1)
    
    Ratios for the three month periods are annualized where appropriate.(2)
    
    Net income divided by average total assets.(3)
    
    Net income divided by average total equity.(4)
    
    Difference between weighted average yield on interest-earning assets and weighted average cost
of interest-bearing liabilities.(5)
    
    Net interest income as a percentage of average interest-earning assets.(6)
    
    Noninterest expense, excluding the amortization of core deposit intangible, divided by the sum
of net interest income and
noninterest income, excluding gains and losses on securities and other.(7)
    
    Nonperforming loans consist of loans ninety days past due, loans less than ninety days past due
and not accruing interest
and restructured loans.(8)
    
    Nonperforming assets consist of nonperforming loans and real estate owned and other repossessed
assets.(9)
    
    Earnings per share are computed by dividing net income by the weighted average number of shares
outstanding during the
period. Diluted earnings per share are computed using the weighted average number of common
shares determined for the
basic computation plus the dilutive effect of potential common shares that could be issued
under outstanding stock options.(10)
    
    Equity divided by number of shares outstanding.(11)
    
    Equity minus goodwill and core deposit intangible divided by number of shares outstanding.(12)
    
    Market value divided by book value. 13




---



##### Table of Contents



Forward Looking Statements
  Comparison of Financial Condition at March 31, 2007 and December 31, 2006
        14




---



##### Table of Contents



15




---



##### Table of Contents



Comparison of Operating Results for the Three Months Ended
March 31, 2007 and March 31, 2006
 Net Income.
 Net Interest Income.
    16




---



##### Table of Contents



For the Three Months Ended March 31,2007 vs. 2006Increase
    
    
    Total(decrease) due to
    
    
    increaseRate
    
    
    Volume
    
    
    (decrease)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    1,322
    
    
    $
    2,571
    
    
    $
    3,893Loans held for sale
    
    
    (48
    )
    
    
    (204
    )
    
    
    (252
    )Investment securities:Trading
    
    
    (11
    )
    
    
    (9
    )
    
    
    (20
    )Available for sale
    
    
    293
    
    
    
    427
    
    
    
    720Margin accounts
    
    
    (170
    )
    
    
    (170
    )
    
    
    (340
    )FHLB stock
    
    
    39
    
    
    
    21
    
    
    
    60Other interest-earning assets
    
    
    99
    
    
    
    39
    
    
    
    138Total interest-earning assets
    
    $
    1,524
    
    
    $
    2,675
    
    
    $
    4,199Interest-bearing liabilities:Savings accounts
    
    
    1
    
    
    
    (53
    )
    
    
    (52
    )NOW and money market accounts
    
    
    974
    
    
    
    678
    
    
    
    1,652Certificates of deposit
    
    
    2,036
    
    
    
    666
    
    
    
    2,702Federal Home Loan Bank advances
    
    
    652
    
    
    
    65
    
    
    
    717Repurchase agreements and other
    
    
    179
    
    
    
    290
    
    
    
    469Total interest-bearing liabilities
    
    $
    3,842
    
    
    $
    1,646
    
    
    
    5,488Change in net interest income
    
    
    
    
    
    
    
    
    
    $
    (1,289
    )
 Provision for Loan Losses.
 Non-interest Income.
 Non-interest Expense.
 17




---



##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
AVERAGE BALANCE SHEETS
  Three Months Ended March 31,2007
    
    
    2006Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    Interestoutstanding
    
    
    earned/
    
    
    Yield/
    
    
    outstanding
    
    
    earned/
    
    
    Yield/balance
    
    
    paid
    
    
    rate
    
    
    balance
    
    
    paid
    
    
    rate(Dollars in thousands)Interest-earning assets:Net loans (1)
    
    $
    2,254,767
    
    
    $
    39,003
    
    
    
    6.92
    %
    
    $
    2,104,342
    
    
    $
    35,110
    
    
    
    6.67
    %Net loans held for sale
    
    
    23,182
    
    
    
    256
    
    
    
    4.42
    %
    
    
    41,288
    
    
    
    508
    
    
    
    4.92
    %Investment securities:Trading
    
    
    7,062
    
    
    
    62
    
    
    
    3.51
    %
    
    
    7,992
    
    
    
    82
    
    
    
    4.10
    %Available for sale
    
    
    246,986
    
    
    
    2,934
    
    
    
    4.75
    %
    
    
    209,396
    
    
    
    2,214
    
    
    
    4.23
    %Margin accounts
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %
    
    
    15,626
    
    
    
    340
    
    
    
    8.70
    %FHLB stock
    
    
    25,432
    
    
    
    400
    
    
    
    6.29
    %
    
    
    24,010
    
    
    
    340
    
    
    
    5.66
    %Other interest-earning assets
    
    
    6,667
    
    
    
    170
    
    
    
    10.20
    %
    
    
    3,751
    
    
    
    32
    
    
    
    3.41
    %Total interest-earning assets
    
    
    2,564,096
    
    
    
    42,825
    
    
    
    6.68
    %
    
    
    2,406,405
    
    
    
    38,626
    
    
    
    6.42
    %Noninterest-earning assets
    
    
    139,343
    
    
    
    
    
    
    
    
    
    
    
    134,126Total assets
    
    $
    2,703,439
    
    
    
    
    
    
    
    
    
    
    $
    2,540,531Interest-bearing liabilities:NOW and money market accounts
    
    $
    377,914
    
    
    $
    3,246
    
    
    
    3.44
    %
    
    $
    279,473
    
    
    $
    1,594
    
    
    
    2.28
    %Savings accounts
    
    
    194,219
    
    
    
    197
    
    
    
    0.41
    %
    
    
    246,492
    
    
    
    249
    
    
    
    0.40
    %Certificates of deposit
    
    
    1,150,602
    
    
    
    13,279
    
    
    
    4.62
    %
    
    
    1,085,200
    
    
    
    10,577
    
    
    
    3.90
    %Federal Home Loan Bank advances
    
    
    440,719
    
    
    
    5,347
    
    
    
    4.85
    %
    
    
    434,703
    
    
    
    4,630
    
    
    
    4.26
    %Repurchase agreements and other
    
    
    111,343
    
    
    
    1,355
    
    
    
    4.87
    %
    
    
    85,995
    
    
    
    886
    
    
    
    4.12
    %Total interest-bearing liabilities
    
    
    2,274,797
    
    
    
    23,424
    
    
    
    4.12
    %
    
    
    2,131,863
    
    
    
    17,936
    
    
    
    3.37
    %Noninterest-bearing liabilities
    
    
    140,720
    
    
    
    
    
    
    
    
    
    
    
    138,003Total liabilities
    
    
    2,415,517
    
    
    
    
    
    
    
    
    
    
    
    2,269,866Equity
    
    
    287,922
    
    
    
    
    
    
    
    
    
    
    
    270,665Total liabilities and equity
    
    $
    2,703,439
    
    
    
    
    
    
    
    
    
    
    $
    2,540,531Net interest income and
Interest rate spread
    
    
    
    
    
    $
    19,401
    
    
    
    2.56
    %
    
    
    
    
    
    $
    20,690
    
    
    
    3.05
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.03
    %
    
    
    
    
    
    
    
    
    
    
    3.44
    %Average interest-earning assets to average
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    112.72
    %
    
    
    
    
    
    
    
    
    
    
    112.88
    %
 
 (1)
    
    Nonaccrual loans are included in the average balance. 18




---



##### 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, 2007NPV as % of portfolio value of assets
    
    Next 12 months net interest incomeChangein rates(Basis
    
    
    
    
    
    Internal policy
    
    
    
    
    
    
    
    
    
    Internal policypoints)
    
    NPV Ratio
    
    limitations
    
    Change in %
    
    $ Change
    
    limitations
    
    % Change+300
    
    
    
    9.69
    %
    
    
    5.00
    %
    
    
    (1.75
    )%
    
    $
    (7,667
    )
    
    
    (15.00
    )%
    
    
    (10.64
    )%+200
    
    
    
    10.46
    
    
    
    6.00
    
    
    
    (0.98
    )
    
    
    (4,811
    )
    
    
    (10.00
    )
    
    
    (6.68
    )+100
    
    
    
    11.07
    
    
    
    6.00
    
    
    
    (0.36
    )
    
    
    (2,143
    )
    
    
    (5.00
    )
    
    
    (2.98
    )Static
    
    
    11.44
    
    
    
    7.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100
    )
    
    
    11.04
    
    
    
    6.00
    
    
    
    (0.40
    )
    
    
    2,087
    
    
    
    (5.00
    )
    
    
    2.90(200
    )
    
    
    10.04
    
    
    
    6.00
    
    
    
    (1.40
    )
    
    
    2,545
    
    
    
    (15.00
    )
    
    
    3.54(300
    )
    
    
    8.61
    
    
    
    5.00
    
    
    
    (2.83
    )
    
    
    845
    
    
    
    (20.00
    )
    
    
    1.17
 19




---



##### Table of Contents



Year Ended December 31, 2006NPV 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
    
    
    
    8.92
    %
    
    
    5.00
    %
    
    
    (2.27
    )%
    
    $
    (10,078
    )
    
    
    (15.00
    )%
    
    
    (13.95
    )%+200
    
    
    
    9.81
    
    
    
    6.00
    
    
    
    (1.38
    )
    
    
    (6,455
    )
    
    
    (10.00
    )
    
    
    (8.94
    )+100
    
    
    
    10.60
    
    
    
    6.00
    
    
    
    (0.59
    )
    
    
    (2,972
    )
    
    
    (5.00
    )
    
    
    (4.12
    )Static
    
    
    11.19
    
    
    
    7.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100
    )
    
    
    11.19
    
    
    
    6.00
    
    
    
    
    
    
    
    2,651
    
    
    
    (5.00
    )
    
    
    3.67(200
    )
    
    
    10.62
    
    
    
    6.00
    
    
    
    (0.57
    )
    
    
    3,548
    
    
    
    (15.00
    )
    
    
    4.91(300
    )
    
    
    9.69
    
    
    
    5.00
    
    
    
    (1.50
    )
    
    
    2,254
    
    
    
    (20.00
    )
    
    
    3.12
   Potential Impact of Changes in Interest Rates.
  
 ITEM 4. Controls and Procedures
  20




---



##### Table of Contents



PART II. OTHER INFORMATION
 UNITED COMMUNITY FINANCIAL CORP.
 
 ITEM 1   Legal Proceedings
  
 ITEM 1A   Risk Factors
  
 ITEM 2  Unregistered Sales of Equity Securities and Use of Proceeds
 Issuer Purchases of Equity SecuritiesTotal Number ofShares Purchased as
    
    Maximum Number ofPart of Publicly
    
    Shares that May Yet BeTotal Number of Shares
    
    Average Price
    
    Announced Plans
    
    Purchased Under the PlansPeriod
    
    Purchased
    
    Paid per Share
    
    or Programs
    
    or Programs1/1 to 1/31/2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    428,047
    (1)2/1 to 2/28/2007
    
    
    41,700
    
    
    
    11.98
    
    
    
    41,700
    
    
    
    386,3473/1 to 3/31/2007
    
    
    296,160
    
    
    
    11.08
    
    
    
    296,160
    
    
    
    90,187Total
    
    
    337,860
    
    
    $
    11.19
    
    
    
    337,860
    
    
    
    90,187
 
 (1)
    
    On April 21, 2003, United Community announced that its Board of Directors had approved
a plan to repurchase 1,000,000 shares of stock. 
 ITEM 4  Submission of Matters to a Vote of Security Holders
  Director
    
    For
    
    WithheldEugenia C. Atkinson
    
    
    24,441,762
    
    
    
    763,133David G. Lodge
    
    
    24,193,235
    
    
    
    1,011,661Clarence R. Smith, Jr.
    
    
    24,524,569
    
    
    
    680,326
  21




---



##### Table of Contents



For
    
    Against
    
    Abstain
    
    Broker Non-vote16,998,996
    
    
  2,882,180
    
    
    
    348,519
    
    
      
4,975,201
  For
    
    Against
    
    Abstain24,824,806
    
    
    192,157
    
    
    
    187,932
 
 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
 22




---



##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 
 SIGNATURES
  UNITED COMMUNITY FINANCIAL CORP.Date:     May 9, 2007
    
    /S/ Douglas M. McKayDouglas M. McKay, Chief Executive OfficerDate:     May 9, 2007
    
    /S/ Patrick A. KellyPatrick A. Kelly, Chief Financial Officer 23




---



##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 Exhibit 3.1
  Exhibit 3.2
  24