##### 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 September 30, 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.)
 (Address of principal executive offices) (Zip Code)
 (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 September 30, 2008 (Unaudited)
and December 31, 2007
    
    
    1Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 2008 and 2007 (Unaudited)
    
    
    2Consolidated Statement of Shareholders Equity for the Nine Months ended September 30,
2008 (Unaudited)
    
    
    3Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2008 and 2007 (Unaudited)
    
    
    4Notes to Consolidated Financial Statements
    
    
    5-17Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    18-29Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    31Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults Upon Senior Securities (None)Item 4. Submission of Matters to a Vote of Security Holders (None)Item 5. Other Information (None)Item 6. Exhibits
    
    
    32Signatures
    
    
    33Exhibits
    
    
    34-37EX-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)
 September 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Assets:Cash and deposits with banks
    
    $
    29,096
    
    
    $
    33,266Federal funds sold and other
    
    
    4,050
    
    
    
    4,097Total cash and cash equivalents
    
    
    33,146
    
    
    
    37,363Securities:Trading, at fair value
    
    
    10,364
    
    
    
    5,064Available for sale, at fair value
    
    
    300,726
    
    
    
    244,753Loans, net of allowance for loan losses of $33,186 and $32,006, respectively
    
    
    2,248,382
    
    
    
    2,236,988Loans held for sale
    
    
    7,525
    
    
    
    87,236Federal Home Loan Bank stock, at cost
    
    
    26,464
    
    
    
    25,432Premises and equipment, net
    
    
    26,282
    
    
    
    27,521Accrued interest receivable
    
    
    11,040
    
    
    
    13,077Real estate owned and other repossessed assets
    
    
    20,549
    
    
    
    10,510Goodwill
    
    
    
    
    
    
    33,593Core deposit intangible
    
    
    949
    
    
    
    1,169Cash surrender value of life insurance
    
    
    24,764
    
    
    
    24,053Other assets
    
    
    16,514
    
    
    
    13,280Total assets
    
    $
    2,726,705
    
    
    $
    2,760,039Liabilities and Shareholders EquityLiabilities:Deposits:Interest bearing
    
    $
    1,811,585
    
    
    $
    1,768,757Non-interest bearing
    
    
    105,489
    
    
    
    106,449Total deposits
    
    
    1,917,074
    
    
    
    1,875,206Federal Home Loan Bank advances
    
    
    418,434
    
    
    
    437,253Repurchase agreements and other borrowings
    
    
    135,096
    
    
    
    149,533Advance payments by borrowers for taxes and insurance
    
    
    11,766
    
    
    
    17,853Accrued interest payable
    
    
    5,174
    
    
    
    7,837Accrued expenses and other liabilities
    
    
    4,805
    
    
    
    2,643Total liabilities
    
    
    2,492,349
    
    
    
    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 and 30,051,773 shares outstanding
    
    
    146,710
    
    
    
    146,683Retained earnings
    
    
    177,881
    
    
    
    213,727Accumulated other comprehensive income (loss)
    
    
    (245
    )
    
    
    661Unearned employee stock ownership plan shares
    
    
    (8,098
    )
    
    
    (9,465
    )Treasury stock, at cost, 7,752,684 shares
    
    
    (81,892
    )
    
    
    (81,892
    )Total shareholders equity
    
    
    234,356
    
    
    
    269,714Total liabilities and shareholders equity
    
    $
    2,726,705
    
    
    $
    2,760,039
 See Notes to Consolidated Financial Statements.
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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands, except per share data)Interest incomeLoans
    
    $
    33,503
    
    
    $
    38,463
    
    
    $
    103,246
    
    
    $
    115,381Loans held for sale
    
    
    76
    
    
    
    223
    
    
    
    352
    
    
    
    768Securities:Trading
    
    
    81
    
    
    
    54
    
    
    
    211
    
    
    
    179Available for sale
    
    
    3,823
    
    
    
    3,029
    
    
    
    10,978
    
    
    
    9,062Federal Home Loan Bank stock dividends
    
    
    352
    
    
    
    417
    
    
    
    1,032
    
    
    
    1,229Other interest earning assets
    
    
    87
    
    
    
    204
    
    
    
    348
    
    
    
    600Total interest income
    
    
    37,922
    
    
    
    42,390
    
    
    
    116,167
    
    
    
    127,219Interest expenseDeposits
    
    
    14,461
    
    
    
    16,886
    
    
    
    46,007
    
    
    
    50,436Federal Home Loan Bank advances
    
    
    3,069
    
    
    
    5,757
    
    
    
    9,952
    
    
    
    16,384Repurchase agreements and other
    
    
    1,477
    
    
    
    1,869
    
    
    
    5,141
    
    
    
    4,968Total interest expense
    
    
    19,007
    
    
    
    24,512
    
    
    
    61,100
    
    
    
    71,788Net interest income
    
    
    18,915
    
    
    
    17,878
    
    
    
    55,067
    
    
    
    55,431Provision for loan losses
    
    
    8,995
    
    
    
    5,363
    
    
    
    14,709
    
    
    
    10,432Net interest income after provision for
loan losses
    
    
    9,920
    
    
    
    12,515
    
    
    
    40,358
    
    
    
    44,999Non-interest incomeBrokerage commissions
    
    
    6,820
    
    
    
    6,475
    
    
    
    20,460
    
    
    
    19,764Service fees and other charges
    
    
    3,513
    
    
    
    3,705
    
    
    
    10,973
    
    
    
    11,048Underwriting and investment banking
    
    
    483
    
    
    
    113
    
    
    
    718
    
    
    
    358Net gains (losses):Securities available for sale
    
    
    
    
    
    
    
    
    
    
    988
    
    
    
    Other than temporary impairment of securities
    
    
    (5,029
    )
    
    
    
    
    
    
    (5,029
    )
    
    
    Trading securities
    
    
    (4
    )
    
    
    3
    
    
    
    (53
    )
    
    
    51Loans sold
    
    
    292
    
    
    
    892
    
    
    
    2,871
    
    
    
    2,079Other
    
    
    (1,164
    )
    
    
    (143
    )
    
    
    (2,837
    )
    
    
    (546
    )Other income
    
    
    1,052
    
    
    
    1,064
    
    
    
    3,353
    
    
    
    2,989Total non-interest income
    
    
    5,963
    
    
    
    12,109
    
    
    
    31,444
    
    
    
    35,743Non-interest expenseSalaries and employee benefits
    
    
    14,136
    
    
    
    13,733
    
    
    
    43,767
    
    
    
    42,374Goodwill impairment charge
    
    
    33,593
    
    
    
    
    
    
    
    33,593
    
    
    
    Occupancy
    
    
    1,281
    
    
    
    1,232
    
    
    
    3,902
    
    
    
    3,588Equipment and data processing
    
    
    2,473
    
    
    
    2,156
    
    
    
    6,947
    
    
    
    6,777Franchise tax
    
    
    495
    
    
    
    543
    
    
    
    1,642
    
    
    
    1,657Advertising
    
    
    395
    
    
    
    325
    
    
    
    1,134
    
    
    
    1,032Amortization of core deposit intangible
    
    
    69
    
    
    
    88
    
    
    
    220
    
    
    
    281Other expenses
    
    
    4,910
    
    
    
    2,655
    
    
    
    11,760
    
    
    
    7,765Total non-interest expenses
    
    
    57,352
    
    
    
    20,732
    
    
    
    102,965
    
    
    
    63,474Income (loss) before income tax expense (benefit)
    
    
    (41,469
    )
    
    
    3,892
    
    
    
    (31,163
    )
    
    
    17,268Income tax expense (benefit)
    
    
    (2,915
    )
    
    
    1,309
    
    
    
    619
    
    
    
    6,085Net income (loss)
    
    $
    (38,554
    )
    
    $
    2,583
    
    
    $
    (31,782
    )
    
    $
    11,183Comprehensive income (loss)
    
    $
    (35,135
    )
    
    $
    4,771
    
    
    $
    (32,688
    )
    
    $
    10,998Earnings (loss) per shareBasic
    
    $
    (1.34
    )
    
    $
    0.09
    
    
    $
    (1.11
    )
    
    $
    0.39Diluted
    
    $
    (1.34
    )
    
    $
    0.09
    
    
    $
    (1.11
    )
    
    $
    0.38
 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(Amounts in thousands, except share data)Balance December 31, 2007
    
    
    30,052
    
    
    $
    146,683
    
    
    $
    213,727
    
    
    $
    661
    
    
    $
    (9,465
    )
    
    $
    (81,892
    )
    
    $
    269,714Comprehensive income (loss):Net income (loss)
    
    
    
    
    
    
    
    
    
    
    (31,782
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,782
    )Change in net unrealized
gain/(loss) on securities
and postretirement liabilities,
net of reclassification
and taxes of $488
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (906
    )
    
    
    
    
    
    
    
    
    
    
    (906
    )Comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,688
    )Shares allocated to ESOP participants
    
    
    
    
    
    
    (123
    )
    
    
    
    
    
    
    
    
    
    
    1,367
    
    
    
    
    
    
    
    1,244Stock based compensation
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150Dividends paid, $0.1425 per share
    
    
    
    
    
    
    
    
    
    
    (4,064
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,064
    )Balance September 30, 2008
    
    
    30,052
    
    
    $
    146,710
    
    
    $
    177,881
    
    
    $
    (245
    )
    
    $
    (8,098
    )
    
    $
    (81,892
    )
    
    $
    234,356
 See Notes to Consolidated Financial Statements.
 3




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UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Nine Months Ended September 30,2008
    
    
    2007(Dollars in thousands)Cash Flows from Operating ActivitiesNet (loss) income
    
    $
    (31,782
    )
    
    $
    11,183Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan losses
    
    
    14,709
    
    
    
    10,432Net losses on impaired securities
    
    
    5,029
    
    
    
    Net gains on loans held for sale and other assets
    
    
    (1,322
    )
    
    
    (1,584
    )Amortization of premiums and accretion of discounts
    
    
    1,304
    
    
    
    1,803Depreciation and amortization
    
    
    2,169
    
    
    
    2,327ESOP compensation
    
    
    1,244
    
    
    
    2,205Stock based compensation
    
    
    150
    
    
    
    FHLB stock dividends
    
    
    (1,032
    )
    
    
    (Increase) decrease in trading securities
    
    
    (5,353
    )
    
    
    5,873Decrease in interest receivable
    
    
    2,037
    
    
    
    261Goodwill impairment charge
    
    
    33,593
    
    
    
    Increase in prepaid and other assets
    
    
    (4,882
    )
    
    
    (4,126
    )(Decrease) increase in interest payable
    
    
    (2,663
    )
    
    
    2,511Net principal disbursed on loans held for sale
    
    
    (127,407
    )
    
    
    (161,119
    )Proceeds from sale of loans held for sale
    
    
    209,989
    
    
    
    175,084Increase (decrease) in other liabilities
    
    
    2,649
    
    
    
    (3,410
    )Net cash from operating activities
    
    
    98,432
    
    
    
    41,440Cash Flows from Investing ActivitiesProceeds from principal repayments and maturities of:Available for sale securities
    
    
    48,366
    
    
    
    40,736Proceeds from sale of:Available for sale securities
    
    
    49,399
    
    
    
    Real estate owned and other repossessed assets
    
    
    10,875
    
    
    
    2,753Purchases of:Securities available for sale
    
    
    (158,915
    )
    
    
    (45,717
    )Net principal repaid on loans
    
    
    23,891
    
    
    
    78,666Loans purchased
    
    
    (73,823
    )
    
    
    (140,425
    )Purchases of premises and equipment
    
    
    (903
    )
    
    
    (3,364
    )Net cash from investing activities
    
    
    (101,110
    )
    
    
    (67,351
    )Cash Flows from Financing ActivitiesNet (decrease) increase in NOW, savings and money market accounts
    
    
    (34,622
    )
    
    
    14,358Net increase (decrease) in certificates of deposit
    
    
    76,490
    
    
    
    (54,076
    )Net decrease in advance payments by borrowers for taxes and insurance
    
    
    (6,087
    )
    
    
    (5,878
    )Proceeds from FHLB advances
    
    
    581,000
    
    
    
    581,353Repayment of FHLB advances
    
    
    (599,819
    )
    
    
    (541,064
    )Net change in other borrowed funds
    
    
    (14,437
    )
    
    
    49,104Dividends paid
    
    
    (4,064
    )
    
    
    (8,166
    )Proceeds from the exercise of stock options
    
    
    
    
    
    
    176Purchase of treasury stock
    
    
    
    
    
    
    (9,709
    )Net cash from financing activities
    
    
    (1,539
    )
    
    
    26,098(Decrease) increase in cash and cash equivalents
    
    
    (4,217
    )
    
    
    187Cash and cash equivalents, beginning of period
    
    
    37,363
    
    
    
    35,637Cash and cash equivalents, end of period
    
    $
    33,146
    
    
    $
    35,824
 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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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
 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
 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
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3. STOCK COMPENSATION
     For the nine months ended September 30, 2008AggregateWeighted
    
    intrinsicaverage
    
    value (inShares
    
    exercise price
    
    thousands)Outstanding at beginning of year
    
    
    2,043,856
    
    
    $
    9.66Granted
    
    
    237,072
    
    
    
    6.05Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (244,396
    )
    
    
    8.83Outstanding at end of period
    
    
    2,036,532
    
    
    $
    9.34
    
    
    $
    Options exercisable at end of period
    
    
    2,036,532
    
    
    $
    9.34
    
    
    $
    
  September 30,2008Intrinsic value of options exercised
    
    $
    Cash received from option exercises
    
    
    Tax benefit realized from option exercises
    
    
    Weighted average fair value of options granted, per share
    
    
    0.68
  7




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Risk-free interest rate
    
    
    3.03
    %Expected term (years)
    
    
    5Expected stock volatility
    
    
    23.8Dividend yield
    
    
    6.28
    %
  4. SECURITIES
  September 30, 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
    
    $
    49,433
    
    
    $
    194
    
    
    $
    (269
    )
    
    $
    84,388
    
    
    $
    337
    
    
    $
    (126
    )Equity securities
    
    
    1,849
    
    
    
    104
    
    
    
    (564
    )
    
    
    7,064
    
    
    
    221
    
    
    
    (494
    )Mortgage-related securities
    
    
    249,444
    
    
    
    1,045
    
    
    
    (1,431
    )
    
    
    153,301
    
    
    
    977
    
    
    
    (443
    )Total
    
    $
    300,726
    
    
    $
    1,343
    
    
    $
    (2,264
    )
    
    $
    244,753
    
    
    $
    1,535
    
    
    $
    (1,063
    )
    8




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##### Table of Contents



September 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)US Treasury and government sponsored
entities
    
    $
    1,543
    
    
    $
    1,054State and municipal obligations
    
    
    8,672
    
    
    
    3,636Corporate bonds, debentures and notes
    
    
    149
    
    
    
    62Mutual funds
    
    
    
    
    
    
    312Total trading securities
    
    $
    10,364
    
    
    $
    5,064
 5. LOANS
  September 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Real Estate:One- to four-family residential
    
    $
    900,970
    
    
    $
    871,019Multifamily residential
    
    
    197,504
    
    
    
    179,535Nonresidential
    
    
    390,606
    
    
    
    359,070Land
    
    
    24,272
    
    
    
    22,818Construction:One- to four-family residential
    
    
    282,284
    
    
    
    357,153Multifamily and non-residential
    
    
    32,228
    
    
    
    25,191Total real estate
    
    
    1,827,864
    
    
    
    1,814,786Consumer
    
    
    358,454
    
    
    
    349,447Commercial
    
    
    93,449
    
    
    
    103,208Total loans
    
    
    2,279,767
    
    
    
    2,267,441Less:Allowance for loan losses
    
    
    33,186
    
    
    
    32,006Deferred loan fees, net
    
    
    (1,801
    )
    
    
    (1,553
    )Total
    
    
    31,385
    
    
    
    30,453Loans, net
    
    $
    2,248,382
    
    
    $
    2,236,988
  As of or For theNine Months
    
    
    As of or For theEnded
    
    
    Year EndedSeptember 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Balance, beginning of year
    
    $
    32,006
    
    
    $
    16,955Provision for loan losses
    
    
    14,709
    
    
    
    28,750Amounts charged off
    
    
    (14,121
    )
    
    
    (14,220
    )Recoveries
    
    
    592
    
    
    
    521Balance, end of period
    
    $
    33,186
    
    
    $
    32,006
 9




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##### Table of Contents



As of or Forthe Nine
    
    
    As of or ForMonths Ended
    
    
    the YearSeptember 30,
    
    
    Ended2008
    
    

    December 31, 2007(Dollars in thousands)Impaired loans on which no specific valuation allowance was provided
    
    $
    37,494
    
    
    $
    30,475Impaired loans on which a specific valuation allowance was provided
    
    
    44,432
    
    
    
    53,902Total impaired loans at period-end
    
    $
    81,926
    
    
    $
    84,377Specific valuation allowances on impaired loans at period-end
    
    $
    11,561
    
    
    $
    13,165Average impaired loans during the period
    
    
    82,087
    
    
    
    63,468Interest income recognized on impaired loans during the period
    
    
    424
    
    
    
    348Interest income received on impaired loans during the period
    
    
    424
    
    
    
    348
 6. MORTGAGE BANKING ACTIVITIES
   As of or for theNine MonthsEnded
    
    
    As of or for theSeptember 30,
    
    
    Year Ended2008
    
    
    December 31, 2007(Dollars in thousands)Balance, beginning of year
    
    $
    6,184
    
    
    $
    6,820Originations
    
    
    1,179
    
    
    
    1,268Amortized to expense
    
    
    (1,494
    )
    
    
    (1,904
    )Balance, end of period
    
    $
    5,869
    
    
    $
    6,184
  September 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Balance, beginning of year
    
    $
    (562
    )
    
    $
    (435
    )Impairment charges
    
    
    (5
    )
    
    
    (562
    )Recoveries
    
    
    562
    
    
    
    435Balance, end of period
    
    $
    (5
    )
    
    $
    (562
    )
  10




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##### Table of Contents



September 30,
    
    December 31,2008
    
    2007Weighted average prepayment rate
    
    180 PSA
    
    272 PSAWeighted average life (in years)
    
    
    3.60
    
    
    
    3.87Weighted average discount rate
    
    
    8
    %
    
    
    8
    %
 7. OTHER POSTRETIREMENT BENEFIT PLANS
   Three Months Ended September 30,2008
    
    
    2007(Dollars in thousands)Service cost
    
    $
    
    
    
    $
    Interest cost
    
    
    49
    
    
    
    56Expected return on plan assets
    
    
    
    
    
    
    Net amortization of prior service cost
    
    
    (1
    )
    
    
    (1
    )Net amortization of actuarial gain
    
    
    (3
    )
    
    
    Net periodic benefit cost
    
    $
    45
    
    
    $
    55Assumptions used in the
valuations were as follows:Weighted average discount rate
    
    
    6.00
    %
    
    
    5.50
    %
 Nine Months Ended September 30,2008
    
    
    2007(Dollars in thousands)Service cost
    
    $
    
    
    
    $
    Interest cost
    
    
    145
    
    
    
    167Expected return on plan assets
    
    
    
    
    
    
    Net amortization of prior service cost
    
    
    (1
    )
    
    
    (1
    )Net amortization of actuarial gain
    
    
    (9
    )
    
    
    Net periodic benefit cost
    
    $
    135
    
    
    $
    166Assumptions used in the
valuations were as follows:Weighted average discount rate
    
    
    6.00
    %
    
    
    5.50
    %
 11




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##### Table of Contents



8. FAIR VALUE MEASUREMENT
        Fair Value Measurements at September 30, 2008 Using:Quoted Prices inActive Markets
    
    
    
    
    
    Significantfor Identical
    
    Significant Other
    
    UnobservableSeptember 30,
    
    Assets
    
    Observable
    
    Inputs2008
    
    (Level 1)
    
    Inputs (Level 2)
    
    (Level 3)Assets:Trading securities
    
    $
    10,364
    
    
    $
    10,364
    
    
    $
    
    
    
    $
    Available for sale securities
    
    
    300,726
    
    
    
    1,524
    
    
    
    299,202
    
    
    
    
  Fair Value Measurements at September 30, 2008 Using:Quoted Prices inActive Markets
    
    
    
    
    
    Significantfor Identical
    
    Significant Other
    
    UnobservableSeptember 30,
    
    Assets
    
    Observable
    
    Inputs2008
    
    (Level 1)
    
    Inputs (Level 2)
    
    (Level 3)Assets:Impaired loans
    
    $
    32,871
    
    
    
    
    
    
    
    
    
    
    $
    32,871
  12




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##### Table of Contents



9.
    
    STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURE
  September 30, 2008
    
    September 30, 2007(Dollars in thousands)Supplemental disclosures of cash flow informationCash paid during the period for:Interest on deposits and borrowings, net of amounts capitalized
    
    $
    63,763
    
    
    $
    69,277Interest capitalized on borrowings
    
    
    
    
    
    
    17Income taxes
    
    
    3,859
    
    
    
    9,434Supplemental schedule of noncash activities:Transfers from loans to real estate owned and other repossessed assets
    
    
    23,754
    
    
    
    11,720
 10. SEGMENT INFORMATION
  For the Three Months Ended September 30, 2008Banking
    
    
    InvestmentServices
    
    
    Services
    
    
    Total(Dollars in thousands)Interest income
    
    $
    37,748
    
    
    $
    174
    
    
    $
    37,922Interest expense
    
    
    18,951
    
    
    
    56
    
    
    
    19,007Provision for loan loss
    
    
    8,995
    
    
    
    
    
    
    
    8,995Net interest income after
provision for loan loss
    
    
    9,802
    
    
    
    118
    
    
    
    9,920Securities available for sale write-down
    
    
    (5,029
    )
    
    
    
    
    
    
    (5,029
    )Non-interest income
    
    
    2,654
    
    
    
    8,338
    
    
    
    10,992Goodwill impairment charge
    
    
    33,593
    
    
    
    
    
    
    
    33,593Non-interest expense
    
    
    15,923
    
    
    
    7,836
    
    
    
    23,759Income (loss) before tax
    
    
    (42,089
    )
    
    
    620
    
    
    
    (41,469
    )Income tax expense (benefit)
    
    
    (3,132
    )
    
    
    217
    
    
    
    (2,915
    )Net income (loss)
    
    $
    (38,957
    )
    
    $
    403
    
    
    $
    (38,554
    )
 For the Three Months Ended September 30, 2007Banking
    
    
    InvestmentServices
    
    
    Services
    
    
    Total(Dollars in thousands)Interest income
    
    $
    42,105
    
    
    $
    285
    
    
    $
    42,390Interest expense
    
    
    24,433
    
    
    
    79
    
    
    
    24,512Provision for loan loss
    
    
    5,363
    
    
    
    
    
    
    
    5,363Net interest income after
provision for loan loss
    
    
    12,309
    
    
    
    206
    
    
    
    12,515Non-interest income
    
    
    4,121
    
    
    
    7,988
    
    
    
    12,109Non-interest expense
    
    
    13,462
    
    
    
    7,270
    
    
    
    20,732Income before tax
    
    
    2,968
    
    
    
    924
    
    
    
    3,892Income tax expense
    
    
    983
    
    
    
    326
    
    
    
    1,309Net income
    
    $
    1,985
    
    
    $
    598
    
    
    $
    2,583
 13




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##### Table of Contents



For the Nine Months Ended September 30, 2008Banking
    
    
    InvestmentServices
    
    
    Services
    
    
    Total(Dollars in thousands)Interest income
    
    $
    115,577
    
    
    $
    590
    
    
    $
    116,167Interest expense
    
    
    60,923
    
    
    
    177
    
    
    
    61,100Provision for loan loss
    
    
    14,709
    
    
    
    
    
    
    
    14,709Net interest income after
provision for loan loss
    
    
    39,945
    
    
    
    413
    
    
    
    40,358Securities available for sale write-down
    
    
    (5,029
    )
    
    
    
    
    
    
    (5,029
    )Non-interest income
    
    
    11,833
    
    
    
    24,640
    
    
    
    36,473Goodwill impairment charge
    
    
    33,593
    
    
    
    
    
    
    
    33,593Non-interest expense
    
    
    46,047
    
    
    
    23,325
    
    
    
    69,372Income (loss) before tax
    
    
    (32,891
    )
    
    
    1,728
    
    
    
    (31,163
    )Income tax expense (benefit)
    
    
    (3
    )
    
    
    622
    
    
    
    619Net income (loss)
    
    $
    (32,888
    )
    
    $
    1,106
    
    
    $
    (31,782
    )
 For the Nine Months Ended September 30, 2007Banking
    
    
    InvestmentServices
    
    
    Services
    
    
    Total(Dollars in thousands)Interest income
    
    $
    126,370
    
    
    $
    849
    
    
    $
    127,219Interest expense
    
    
    71,525
    
    
    
    263
    
    
    
    71,788Provision for loan loss
    
    
    10,432
    
    
    
    
    
    
    
    10,432Net interest income after
provision for loan loss
    
    
    44,413
    
    
    
    586
    
    
    
    44,999Non-interest income
    
    
    11,436
    
    
    
    24,307
    
    
    
    35,743Non-interest expense
    
    
    41,310
    
    
    
    22,164
    
    
    
    63,474Income before tax
    
    
    14,539
    
    
    
    2,729
    
    
    
    17,268Income tax expense
    
    
    5,145
    
    
    
    940
    
    
    
    6,085Net income
    
    $
    9,394
    
    
    $
    1,789
    
    
    $
    11,183
 
 14




---



##### Table of Contents



11. EARNINGS PER SHARE
  For the Three Months
    
    
    For the Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except per share data)Net income applicable to common stock
    
    $
    (38,554
    )
    
    $
    2,583
    
    
    $
    (31,782
    )
    
    $
    11,183Weighted average common shares outstanding
    
    
    28,692
    
    
    
    28,489
    
    
    
    28,561
    
    
    
    28,792Dilutive effect of stock options
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    205Weighted average common shares outstanding
for dilutive computation
    
    
    28,692
    
    
    
    28,532
    
    
    
    28,561
    
    
    
    28,997Basic earnings per share as reported
    
    $
    (1.34
    )
    
    $
    0.09
    
    
    $
    (1.11
    )
    
    $
    0.39Diluted earnings per share as reported
    
    $
    (1.34
    )
    
    $
    0.09
    
    
    $
    (1.11
    )
    
    $
    0.38
 12. OTHER BORROWINGS
     13. BROKERED CERTIFICATES OF DEPOSIT
  15




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##### Table of Contents



14. REGULATORY ENFORCEMENT ACTION
     15. GOODWILL
   16. PARTICIPATION IN THE U.S. TREASURY CAPITAL PURCHASE PROGRAM
  16




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##### Table of Contents



17. OTHER COMPREHENSIVE INCOME (LOSS)
   September 30,
    
    
    December 31,2008
    
    
    2007Unrealized holding gain (loss) on securities
available for sale and postretirement benefits
    
    $
    2,647
    
    
    $
    3,016Reclassification adjustment for losses (gains)
realized in income
    
    
    4,041
    
    
    
    5Net unrealized gains (losses)
    
    
    (1,394
    )
    
    
    3,011Tax effect (35%)
    
    
    (488
    )
    
    
    1,054Net of tax amount
    
    $
    (906
    )
    
    $
    1,957
  Balance at
    
    
    Current
    
    
    Balance atDecember 31,
    
    
    Period
    
    
    September 30,2007
    
    
    Change
    
    
    2008Unrealized gains (losses) on securities
available for sale
    
    $
    359
    
    
    $
    (906
    )
    
    $
    (547
    )Unrealized gains on post-retirement benefits
    
    
    302
    
    
    
    
    
    
    
    302Total
    
    $
    661
    
    
    $
    (906
    )
    
    $
    (245
    )
 17




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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 NineMonths Ended
    
    Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Selected financial ratios and other data: (1)Performance ratios:Return on average assets (2)
    
    
    (5.57
    )%
    
    
    0.38
    %
    
    
    (1.54
    )%
    
    
    0.55
    %Return on average equity (3)
    
    
    (54.84
    )%
    
    
    3.63
    %
    
    
    (14.96
    )%
    
    
    5.21
    %Interest rate spread (4)
    
    
    2.61
    %
    
    
    2.33
    %
    
    
    2.48
    %
    
    
    2.42
    %Net interest margin (5)
    
    
    2.92
    %
    
    
    2.78
    %
    
    
    2.84
    %
    
    
    2.88
    %Non-interest expense to average assets
    
    
    8.29
    %
    
    
    3.05
    %
    
    
    4.99
    %
    
    
    3.12
    %Efficiency ratio (6)
    
    
    76.24
    %
    
    
    68.52
    %
    
    
    74.01
    %
    
    
    68.94
    %Average interest-earning assets to average interest-
bearing liabilities
    
    
    110.52
    %
    
    
    111.86
    %
    
    
    111.22
    %
    
    
    112.35
    %Capital ratios:Average equity to average assets
    
    
    10.17
    %
    
    
    10.47
    %
    
    
    10.29
    %
    
    
    10.56
    %Equity to assets, end of period
    
    
    8.59
    %
    
    
    10.10
    %
    
    
    8.59
    %
    
    
    10.10
    %Tier 1 leverage ratio
    
    
    7.43
    %
    
    
    8.03
    %
    
    
    7.43
    %
    
    
    8.03
    %Tier 1 risk-based capital ratio
    
    
    9.86
    %
    
    
    9.94
    %
    
    
    9.86
    %
    
    
    9.94
    %Total risk-based capital ratio
    
    
    11.78
    %
    
    
    12.44
    %
    
    
    11.78
    %
    
    
    12.44
    %Asset quality ratios:Non-performing loans to total loans at end of period (7)
    
    
    4.73
    %
    
    
    4.40
    %
    
    
    4.73
    %
    
    
    4.40
    %Non-performing assets to average assets (8)
    
    
    4.58
    %
    
    
    4.14
    %
    
    
    4.61
    %
    
    
    4.15
    %Non-performing assets to total assets at end of period
    
    
    4.65
    %
    
    
    4.10
    %
    
    
    4.65
    %
    
    
    4.10
    %Allowance for loan losses as a percent of loans
    
    
    1.45
    %
    
    
    1.03
    %
    
    
    1.45
    %
    
    
    1.03
    %Allowance for loan losses as a percent of
non-performing loans (7)
    
    
    31.23
    %
    
    
    23.61
    %
    
    
    31.23
    %
    
    
    23.61
    %Office data:Number of full service banking offices
    
    
    39
    
    
    
    38
    
    
    
    39
    
    
    
    38Number of loan production offices
    
    
    6
    
    
    
    5
    
    
    
    6
    
    
    
    5Number of brokerage offices
    
    
    21
    
    
    
    20
    
    
    
    21
    
    
    
    21Number of trust offices
    
    
    2
    
    
    
    2
    
    
    
    2
    
    
    
    2Per share data:Basic earnings (loss) per share (9)
    
    $
    (1.34
    )
    
    $
    0.09
    
    
    $
    (1.11
    )
    
    $
    0.39Diluted earnings (loss) per share (9)
    
    $
    (1.34
    )
    
    $
    0.09
    
    
    $
    (1.11
    )
    
    $
    0.38Book value (10)
    
    $
    7.80
    
    
    $
    9.21
    
    
    $
    7.80
    
    
    $
    9.21Tangible book value (11)
    
    $
    7.77
    
    
    $
    8.05
    
    
    $
    7.77
    
    
    $
    8.05Market value as a percent of book value (12)
    
    
    64
    %
    
    
    78
    %
    
    
    64
    %
    
    
    78
    %
 
 (1)
    
    Ratios for the three and nine month periods are annualized where appropriate.(2)
    
    Net income (loss) divided by average total assets.(3)
    
    Net income (loss) 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 and goodwill impairment charge, divided by the sum of net interest income and noninterest income, excluding securities write-downs and
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 ( loss) 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. UCFC shares closed at $5.00 per share on September 30, 2008, as quoted on the NASDAQ stock market. 18




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Forward Looking Statements
  Comparison of Financial Condition at September 30, 2008 and December 31, 2007
       19




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##### Table of Contents



Allowance For Loan LossesDecember 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    September 30,2007
    
    
    Provision
    
    
    Recovery
    
    
    Chargeoff
    
    
    2008Real Estate LoansPermanentOne-to four-family
    
    $
    2,803
    
    
    $
    1,781
    
    
    $
    17
    
    
    $
    (2,276
    )
    
    $
    2,325Multifamily residential
    
    
    2,365
    
    
    
    2,123
    
    
    
    3
    
    
    
    (641
    )
    
    
    3,850Nonresidential
    
    
    4,488
    
    
    
    607
    
    
    
    3
    
    
    
    (575
    )
    
    
    4,523Land
    
    
    629
    
    
    
    (146
    )
    
    
    
    
    
    
    
    
    
    
    483Total
    
    
    10,285
    
    
    
    4,365
    
    
    
    23
    
    
    
    (3,492
    )
    
    
    11,181Construction LoansOne-to four-family residential
    
    
    11,892
    
    
    
    5,528
    
    
    
    10
    
    
    
    (6,391
    )
    
    
    11,039Multifamily and nonresidential
    
    
    607
    
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    595Total
    
    
    12,499
    
    
    
    5,516
    
    
    
    10
    
    
    
    (6,391
    )
    
    
    11,634Consumer LoansHome Equity
    
    
    1,260
    
    
    
    1,054
    
    
    
    
    
    
    
    (1,186
    )
    
    
    1,128Auto
    
    
    447
    
    
    
    (134
    )
    
    
    33
    
    
    
    (72
    )
    
    
    274Marine
    
    
    1,468
    
    
    
    264
    
    
    
    62
    
    
    
    (316
    )
    
    
    1,478Recreational vehicle
    
    
    2,050
    
    
    
    (89
    )
    
    
    103
    
    
    
    (616
    )
    
    
    1,448Other
    
    
    260
    
    
    
    256
    
    
    
    260
    
    
    
    (447
    )
    
    
    329Total
    
    
    5,485
    
    
    
    1,351
    
    
    
    458
    
    
    
    (2,637
    )
    
    
    4,657Commercial LoansSecured
    
    
    2,375
    
    
    
    1,540
    
    
    
    
    
    
    
    (1,417
    )
    
    
    2,498Unsecured
    
    
    1,362
    
    
    
    1,937
    
    
    
    101
    
    
    
    (184
    )
    
    
    3,216Total
    
    
    3,737
    
    
    
    3,477
    
    
    
    101
    
    
    
    (1,601
    )
    
    
    5,714Total
    
    $
    32,006
    
    
    $
    14,709
    
    
    $
    592
    
    
    $
    (14,121
    )
    
    $
    33,186
 20




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##### Table of Contents



Nonperforming LoansSeptember 30,
    
    
    December 31,
    
    
    
    
    
    
    2008 Interest2008
    
    
    2007
    
    
    Change
    
    
    ForegoneReal Estate LoansPermanentOne-to four-family
    
    $
    16,923
    
    
    $
    12,752
    
    
    $
    4,171
    
    
    $
    472Multifamily residential
    
    
    15,490
    
    
    
    13,604
    
    
    
    1,886
    
    
    
    623Nonresidential
    
    
    13,679
    
    
    
    13,597
    
    
    
    82
    
    
    
    110Land
    
    
    3,717
    
    
    
    3,700
    
    
    
    17
    
    
    
    322Total
    
    
    49,809
    
    
    
    43,653
    
    
    
    6,156
    
    
    
    1,527Construction LoansOne-to four-family residential
    
    
    42,363
    
    
    
    44,680
    
    
    
    (2,317
    )
    
    
    245Multifamily and nonresidential
    
    
    816
    
    
    
    825
    
    
    
    (9
    )
    
    
    75Total
    
    
    43,179
    
    
    
    45,505
    
    
    
    (2,326
    )
    
    
    320Consumer LoansHome Equity
    
    
    2,123
    
    
    
    2,454
    
    
    
    (331
    )
    
    
    61Auto
    
    
    196
    
    
    
    211
    
    
    
    (15
    )
    
    
    Marine
    
    
    2,617
    
    
    
    1,714
    
    
    
    903
    
    
    
    66Recreational vehicle
    
    
    790
    
    
    
    376
    
    
    
    414
    
    
    
    23Other
    
    
    22
    
    
    
    64
    
    
    
    (42
    )
    
    
    3Total
    
    
    5,748
    
    
    
    4,819
    
    
    
    929
    
    
    
    153Commercial LoansSecured
    
    
    4,027
    
    
    
    4,554
    
    
    
    (527
    )
    
    
    406Unsecured
    
    
    288
    
    
    
    184
    
    
    
    104
    
    
    
    51Total
    
    
    4,315
    
    
    
    4,738
    
    
    
    (423
    )
    
    
    457Restructured Loans
    
    
    3,199
    
    
    
    2,341
    
    
    
    858
    
    
    
    Total Nonperforming Loans
    
    $
    106,250
    
    
    $
    101,056
    
    
    $
    5,194
    
    
    $
    2,457
   21




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##### Table of Contents



Impaired LoansSeptember 30,
    
    
    December 31,2008
    
    
    2007
    
    
    ChangeReal Estate LoansPermanentOne-to four-family
    
    $
    2,252
    
    
    $
    2,681
    
    
    $
    (429
    )Multifamily residential
    
    
    15,770
    
    
    
    13,604
    
    
    
    2,166Nonresidential
    
    
    13,817
    
    
    
    13,597
    
    
    
    220Land
    
    
    3,700
    
    
    
    3,700
    
    
    
    Total
    
    
    35,539
    
    
    
    33,582
    
    
    
    1,957Construction LoansOne-to four-family residential
    
    
    38,639
    
    
    
    43,518
    
    
    
    (4,879
    )Multifamily and nonresidential
    
    
    816
    
    
    
    825
    
    
    
    (9
    )Total
    
    
    39,455
    
    
    
    44,343
    
    
    
    (4,888
    )Consumer LoansHome Equity
    
    
    
    
    
    
    
    
    
    
    Auto
    
    
    
    
    
    
    
    
    
    
    Boat
    
    
    2,617
    
    
    
    1,714
    
    
    
    903Recreational vehicle
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    2,617
    
    
    
    1,714
    
    
    
    903Commercial LoansSecured
    
    
    4,027
    
    
    
    4,554
    
    
    
    (527
    )Unsecured
    
    
    288
    
    
    
    184
    
    
    
    104Total
    
    
    4,315
    
    
    
    4,738
    
    
    
    (423
    )Total Impaired Loans
    
    $
    81,926
    
    
    $
    84,377
    
    
    
    (2,451
    )
     22




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##### Table of Contents



23




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##### Table of Contents



Comparison of Operating Results for the Three Months Ended
September 30, 2008 and September 30, 2007
 Net Income (Loss).
 Net Interest Income.
    24




---



##### Table of Contents



For the Three Months Ended September 30,2008 vs. 2007Increase
    
    
    Total(decrease) due to
    
    
    increaseRate
    
    
    Volume
    
    
    (decrease)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    (4,497
    )
    
    $
    (463
    )
    
    $
    (4,960
    )Loans held for sale
    
    
    (25
    )
    
    
    (122
    )
    
    
    (147
    )Investment securities:Trading
    
    
    2
    
    
    
    25
    
    
    
    27Available for sale
    
    
    54
    
    
    
    740
    
    
    
    794FHLB stock
    
    
    (77
    )
    
    
    12
    
    
    
    (65
    )Other interest-earning assets
    
    
    (120
    )
    
    
    3
    
    
    
    (117
    )Total interest-earning assets
    
    $
    (4,663
    )
    
    $
    195
    
    
    $
    (4,468
    )Interest-bearing liabilities:Savings accounts
    
    
    14
    
    
    
    1
    
    
    
    15NOW and money market accounts
    
    
    (1,696
    )
    
    
    247
    
    
    
    (1,449
    )Certificates of deposit
    
    
    (2,694
    )
    
    
    1,703
    
    
    
    (991
    )Federal Home Loan Bank advances
    
    
    (1,777
    )
    
    
    (911
    )
    
    
    (2,688
    )Repurchase agreements and other
    
    
    (341
    )
    
    
    (51
    )
    
    
    (392
    )Total interest-bearing liabilities
    
    $
    (6,494
    )
    
    $
    989
    
    
    
    (5,505
    )Change in net interest income
    
    
    
    
    
    
    
    
    
    $
    1,037
 Provision for Loan Losses.
 Non-interest Income.
 Non-interest Expense.
 Comparison of Operating Results for the Nine Months Ended
September 30, 2008 and September 30 2007
 Net Income (Loss).
 25




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##### Table of Contents



Net Interest Income.
     26




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##### Table of Contents



For the Nine Months Ended September 30,2008 vs. 2007Increase
    
    
    Total(decrease) due to
    
    
    increaseRate
    
    
    Volume
    
    
    (decrease)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    (11,376
    )
    
    $
    (759
    )
    
    $
    (12,135
    )Loans held for sale
    
    
    (107
    )
    
    
    (309
    )
    
    
    (416
    )Investment securities:Trading
    
    
    3
    
    
    
    29
    
    
    
    32Available for sale
    
    
    185
    
    
    
    1,731
    
    
    
    1,916FHLB stock
    
    
    (214
    )
    
    
    17
    
    
    
    (197
    )Other interest-earning assets
    
    
    (258
    )
    
    
    6
    
    
    
    (252
    )Total interest-earning assets
    
    $
    (11,767
    )
    
    $
    715
    
    
    $
    (11,052
    )Interest-bearing liabilities:Savings accounts
    
    
    (170
    )
    
    
    169
    
    
    
    (1
    )NOW and money market accounts
    
    
    (4,225
    )
    
    
    1,704
    
    
    
    (2,521
    )Certificates of deposit
    
    
    (3,132
    )
    
    
    1,225
    
    
    
    (1,907
    )Federal Home Loan Bank advances
    
    
    (4,712
    )
    
    
    (1,720
    )
    
    
    (6,432
    )Repurchase agreements and other
    
    
    (336
    )
    
    
    509
    
    
    
    173Total interest-bearing liabilities
    
    $
    (12,575
    )
    
    $
    1,887
    
    
    
    (10,688
    )Change in net interest income
    
    
    
    
    
    
    
    
    
    $
    (364
    )
 Provision for Loan Losses.
 Non-interest Income.
 Non-interest Expense.
 Impact of Cease and Desist Orders on Future Earnings.
    27




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
AVERAGE BALANCE SHEETS
  Three Months Ended September 30,2008
    
    
    2007Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Cost
    
    
    Balance
    
    
    Paid
    
    
    Cost(Dollars In thousands)Interest-earning assets:Net loans (1)
    
    $
    2,235,986
    
    
    $
    33,503
    
    
    
    5.99
    %
    
    $
    2,263,546
    
    
    $
    38,463
    
    
    
    6.80
    %Net loans held for sale
    
    
    7,241
    
    
    
    76
    
    
    
    4.20
    %
    
    
    18,605
    
    
    
    223
    
    
    
    4.79
    %Investment securities:Trading
    
    
    8,421
    
    
    
    81
    
    
    
    3.90
    %
    
    
    5,701
    
    
    
    54
    
    
    
    3.79
    %Available for sale
    
    
    305,024
    
    
    
    3,823
    
    
    
    5.01
    %
    
    
    245,884
    
    
    
    3,029
    
    
    
    4.93
    %FHLB stock
    
    
    26,116
    
    
    
    352
    
    
    
    5.39
    %
    
    
    25,432
    
    
    
    417
    
    
    
    6.56
    %Other interest-earning assets
    
    
    9,308
    
    
    
    87
    
    
    
    3.74
    %
    
    
    9,169
    
    
    
    204
    
    
    
    8.90
    %Total interest-earning assets
    
    
    2,592,096
    
    
    
    37,922
    
    
    
    5.85
    %
    
    
    2,568,337
    
    
    
    42,390
    
    
    
    6.60
    %Noninterest-earning assets
    
    
    174,186
    
    
    
    
    
    
    
    
    
    
    
    151,234Total assets
    
    $
    2,766,282
    
    
    
    
    
    
    
    
    
    
    $
    2,719,571Interest-bearing liabilities:NOW and money market accounts
    
    $
    427,339
    
    
    $
    2,115
    
    
    
    1.98
    %
    
    $
    401,458
    
    
    $
    3,564
    
    
    
    3.55
    %Savings accounts
    
    
    183,209
    
    
    
    206
    
    
    
    0.45
    %
    
    
    182,720
    
    
    
    191
    
    
    
    0.42
    %Certificates of deposit
    
    
    1,207,454
    
    
    
    12,140
    
    
    
    4.02
    %
    
    
    1,096,057
    
    
    
    13,131
    
    
    
    4.79
    %Federal Home Loan Bank advances
    
    
    385,506
    
    
    
    3,069
    
    
    
    3.18
    %
    
    
    470,031
    
    
    
    5,758
    
    
    
    4.90
    %Repurchase agreements and other
    
    
    141,827
    
    
    
    1,477
    
    
    
    4.17
    %
    
    
    145,860
    
    
    
    1,868
    
    
    
    5.12
    %Total interest-bearing liabilities
    
    
    2,345,335
    
    
    
    19,007
    
    
    
    3.24
    %
    
    
    2,296,126
    
    
    
    24,512
    
    
    
    4.27
    %Noninterest-bearing liabilities
    
    
    139,754
    
    
    
    
    
    
    
    
    
    
    
    138,833Total liabilities
    
    
    2,485,089
    
    
    
    
    
    
    
    
    
    
    
    2,434,959Equity
    
    
    281,193
    
    
    
    
    
    
    
    
    
    
    
    284,612Total liabilities and equity
    
    $
    2,766,282
    
    
    
    
    
    
    
    
    
    
    $
    2,719,571Net interest income and interest
rate spread
    
    
    
    
    
    $
    18,915
    
    
    
    2.61
    %
    
    
    
    
    
    $
    17,878
    
    
    
    2.33
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.92
    %
    
    
    
    
    
    
    
    
    
    
    2.78
    %Average interest-earning assets
to average interest-bearing
liabilities
    
    
    
    
    
    
    
    
    
    
    110.52
    %
    
    
    
    
    
    
    
    
    
    
    111.86
    %
 
 (1)
    
    Nonaccrual loans are included in the average balance at a yield of 0%. 28




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 AVERAGE BALANCE SHEETS
  Nine Months Ended September 30,2008
    
    
    2007Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Cost
    
    
    Balance
    
    
    Paid
    
    
    Cost(Dollars In thousands)Interest-earning assets:Net loans (1)
    
    $
    2,240,853
    
    
    $
    103,246
    
    
    
    6.14
    %
    
    $
    2,255,789
    
    
    $
    115,381
    
    
    
    6.82
    %Net loans held for sale
    
    
    10,690
    
    
    
    352
    
    
    
    4.39
    %
    
    
    19,633
    
    
    
    768
    
    
    
    5.22
    %Investment securities:Trading
    
    
    7,572
    
    
    
    211
    
    
    
    3.73
    %
    
    
    6,503
    
    
    
    179
    
    
    
    3.67
    %Available for sale
    
    
    296,538
    
    
    
    10,978
    
    
    
    4.94
    %
    
    
    249,681
    
    
    
    9,062
    
    
    
    4.84
    %FHLB stock
    
    
    25,776
    
    
    
    1,032
    
    
    
    5.34
    %
    
    
    25,432
    
    
    
    1,229
    
    
    
    6.44
    %Other interest-earning assets
    
    
    7,921
    
    
    
    348
    
    
    
    5.86
    %
    
    
    7,844
    
    
    
    600
    
    
    
    10.20
    %Total interest-earning assets
    
    
    2,589,350
    
    
    
    116,167
    
    
    
    5.98
    %
    
    
    2,564,882
    
    
    
    127,219
    
    
    
    6.61
    %Noninterest-earning assets
    
    
    163,989
    
    
    
    
    
    
    
    
    
    
    
    145,057Total assets
    
    $
    2,753,339
    
    
    
    
    
    
    
    
    
    
    $
    2,709,939Interest-bearing liabilities:NOW and money market accounts
    
    $
    446,017
    
    
    $
    7,766
    
    
    
    2.32
    %
    
    $
    392,939
    
    
    $
    10,287
    
    
    
    3.49
    %Savings accounts
    
    
    181,038
    
    
    
    584
    
    
    
    0.43
    %
    
    
    189,422
    
    
    
    585
    
    
    
    0.41
    %Certificates of deposit
    
    
    1,152,175
    
    
    
    37,657
    
    
    
    4.36
    %
    
    
    1,119,117
    
    
    
    39,564
    
    
    
    4.71
    %Federal Home Loan Bank advances
    
    
    397,083
    
    
    
    9,952
    
    
    
    3.34
    %
    
    
    448,487
    
    
    
    16,384
    
    
    
    4.87
    %Repurchase agreements and other
    
    
    151,749
    
    
    
    5,141
    
    
    
    4.52
    %
    
    
    132,976
    
    
    
    4,968
    
    
    
    4.98
    %Total interest-bearing liabilities
    
    
    2,328,062
    
    
    
    61,100
    
    
    
    3.50
    %
    
    
    2,282,941
    
    
    
    71,788
    
    
    
    4.19
    %Noninterest-bearing liabilities
    
    
    142,074
    
    
    
    
    
    
    
    
    
    
    
    140,731Total liabilities
    
    
    2,470,136
    
    
    
    
    
    
    
    
    
    
    
    2,423,672Equity
    
    
    283,203
    
    
    
    
    
    
    
    
    
    
    
    286,267Total liabilities and equity
    
    $
    2,753,339
    
    
    
    
    
    
    
    
    
    
    $
    2,709,939Net interest income and interest
rate spread
    
    
    
    
    
    $
    55,067
    
    
    
    2.48
    %
    
    
    
    
    
    $
    55,431
    
    
    
    2.42
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.84
    %
    
    
    
    
    
    
    
    
    
    
    2.88
    %Average interest-earning assets
to average interest-bearing
liabilities
    
    
    
    
    
    
    
    
    
    
    111.22
    %
    
    
    
    
    
    
    
    
    
    
    112.35
    %
 
 (1)
    
    Nonaccrual loans are included in the average balance at a yield of 0%. 29




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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 September 30, 2008NPV as % of portfolio value of assets
    
    Next 12 months net interest income(Dollars in thousands)Internal policyInternal policy
    
    
    
    
    
    
    
    
    
    limitations onChange in rates
    
    
    
    
    
    limitations as to
    
    
    
    
    
    
    
    
    
    maximum(Basis points)
    
    NPV Ratio
    
    minimum %
    
    Change in %
    
    $ Change
    
    change
    
    % Change+300
    
    
    7.91
    %
    
    
    5.00
    %
    
    
    (2.71
    )%
    
    $
    (7,970
    )
    
    
    (15.00
    )%
    
    
    (10.20
    )%+200
    
    
    9.03
    
    
    
    6.00
    
    
    
    (1.59
    )
    
    
    (4,881
    )
    
    
    (10.00
    )
    
    
    (6.24
    )+100
    
    
    9.77
    
    
    
    6.00
    
    
    
    (0.86
    )
    
    
    (2,111
    )
    
    
    (5.00
    )
    
    
    (2.70
    )Static
    
    
    10.62
    
    
    
    7.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100)
    
    
    10.72
    
    
    
    6.00
    
    
    
    0.10
    
    
    
    903
    
    
    
    (5.00
    )
    
    
    1.16
 30




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##### Table of Contents



Year Ended December 31, 2007NPV as % of portfolio value of assets
    
    Next 12 months net interest income(Dollars in thousands)Change in rates
    
    
    
    
    
    Internal policy
    
    
    
    
    
    
    
    
    
    Internal policy(Basis points)
    
    NPV Ratio
    
    limitations
    
    Change in %
    
    $ Change
    
    limitations
    
    % Change+   300
    
    
    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
  31




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##### Table of Contents



PART II. OTHER INFORMATION
 UNITED COMMUNITY FINANCIAL CORP.
 
 ITEM 1   Legal Proceedings
  
 ITEM 1A   Risk Factors
  Cease
and desist orders restrict dividends and certain business
activities.
   
 ITEM 2  Unregistered Sales of Equity Securities and Use of Proceeds
  
 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
 32




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UNITED COMMUNITY FINANCIAL CORP.
 
 SIGNATURES
   Date: November 10, 2008
    /S/ Douglas M. McKayDouglas M. McKayChief Executive OfficerDate: November 10, 2008
    /S/ James R. ReskeJames R. Reske, CFAChief Financial Officer 33




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UNITED COMMUNITY FINANCIAL CORP.
 Exhibit 3.1
  Exhibit 3.2
  34