##### 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, 2010
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 UNITED COMMUNITY FINANCIAL CORP.
  OHIO
    
    0-024399
    
    34-1856319(State or other jurisdiction of incorporation)
    
    (Commission File No.)
    
    (IRS Employer I.D. No.)
 275 West Federal Street, Youngstown, Ohio 44503-1203
 (330) 742-0500
 (Former name or former address, if changed since last report)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ




---



##### 



TABLE OF CONTENTS
 PAGEPart I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Statements of Financial Condition as of September 30, 2010 (Unaudited) and December 31, 2009
    
    
    1Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2010 and 2009 (Unaudited)
    
    
    2Consolidated Statement of Shareholders Equity for the Nine Months ended September 30, 2010 and 2009 (Unaudited)
    
    
    4Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009 (Unaudited)
    
    
    5Notes to Consolidated Financial Statements (Unaudited)
    
    
    6-24Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25-38Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    39Item 4. Controls and Procedures
    
    
    40Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    41Item 1A. Risk Factors
    
    
    41Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 3. Defaults Upon Senior Securities (None)Item 4. (Removed and Reserved)Item 5. Other Information
    
    
    42Item 6. Exhibits
    
    
    42Signatures
    
    
    44ExhibitsExhibit 10.1Exhibit 10.2Exhibit 10.3Exhibit 31.1Exhibit 31.2Exhibit 32




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 (Unaudited)
 September 30,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Assets:Cash and deposits with banks
    
    $
    21,110
    
    
    $
    22,330Federal funds sold and other
    
    
    19,613
    
    
    
    22,744Total cash and cash equivalents
    
    
    40,723
    
    
    
    45,074Securities:Available for sale, at fair value
    
    
    390,636
    
    
    
    281,348Loans held for sale
    
    
    15,376
    
    
    
    10,497Loans, net of allowance for loan losses of $40,884 and $42,287, respectively
    
    
    1,726,381
    
    
    
    1,866,018Federal Home Loan Bank stock, at cost
    
    
    26,464
    
    
    
    26,464Premises and equipment, net
    
    
    22,149
    
    
    
    23,139Accrued interest receivable
    
    
    8,963
    
    
    
    9,090Real estate owned and other repossessed assets
    
    
    40,297
    
    
    
    30,962Core deposit intangible
    
    
    525
    
    
    
    661Cash surrender value of life insurance
    
    
    27,028
    
    
    
    26,198Other assets
    
    
    19,406
    
    
    
    18,976Total assets
    
    $
    2,317,948
    
    
    $
    2,338,427Liabilities and Shareholders EquityLiabilities:Deposits:Interest bearing
    
    $
    1,557,113
    
    
    $
    1,642,722Non-interest bearing
    
    
    127,920
    
    
    
    126,779Total deposits
    
    
    1,685,033
    
    
    
    1,769,501Borrowed funds:Federal Home Loan Bank advances
    
    
    306,606
    
    
    
    221,323Repurchase agreements and other
    
    
    97,802
    
    
    
    96,833Total borrowed funds
    
    
    404,408
    
    
    
    318,156Advance payments by borrowers for taxes and insurance
    
    
    16,037
    
    
    
    19,791Accrued interest payable
    
    
    928
    
    
    
    1,421Accrued expenses and other liabilities
    
    
    10,209
    
    
    
    9,775Total liabilities
    
    
    2,116,615
    
    
    
    2,118,644Shareholders 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 30,925,384 and 30,897,825 shares, respectively
outstanding
    
    
    142,899
    
    
    
    145,775Retained earnings
    
    
    128,476
    
    
    
    148,674Accumulated other comprehensive income
    
    
    2,622
    
    
    
    4,110Unearned employee stock ownership plan shares
    
    
    
    
    
    
    (5,821
    )Treasury stock, at cost, 6,879,073 and 6,906,632 shares, respectively
    
    
    (72,664
    )
    
    
    (72,955
    )Total shareholders equity
    
    
    201,333
    
    
    
    219,783Total liabilities and shareholders equity
    
    $
    2,317,948
    
    
    $
    2,338,427
 See Notes to Consolidated Financial Statements.
  1




---



##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 (Unaudited)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands, except per share data)Interest incomeLoans
    
    $
    24,589
    
    
    $
    29,389
    
    
    $
    75,350
    
    
    $
    90,532Loans held for sale
    
    
    109
    
    
    
    99
    
    
    
    248
    
    
    
    578Available for sale securities
    
    
    3,235
    
    
    
    2,925
    
    
    
    8,716
    
    
    
    8,491Federal Home Loan Bank stock dividends
    
    
    297
    
    
    
    330
    
    
    
    891
    
    
    
    923Other interest earning assets
    
    
    10
    
    
    
    12
    
    
    
    25
    
    
    
    50Total interest income
    
    
    28,240
    
    
    
    32,755
    
    
    
    85,230
    
    
    
    100,574Interest expenseDeposits
    
    
    7,528
    
    
    
    11,037
    
    
    
    25,254
    
    
    
    35,762Federal Home Loan Bank advances
    
    
    984
    
    
    
    1,348
    
    
    
    2,707
    
    
    
    4,775Repurchase agreements and other
    
    
    942
    
    
    
    965
    
    
    
    2,796
    
    
    
    3,216Total interest expense
    
    
    9,454
    
    
    
    13,350
    
    
    
    30,757
    
    
    
    43,753Net interest income
    
    
    18,786
    
    
    
    19,405
    
    
    
    54,473
    
    
    
    56,821Provision for loan losses
    
    
    17,116
    
    
    
    5,579
    
    
    
    39,876
    
    
    
    26,334Net interest income after provision for loan losses
    
    
    1,670
    
    
    
    13,826
    
    
    
    14,597
    
    
    
    30,487Non-interest incomeNon-deposit investment income
    
    
    388
    
    
    
    366
    
    
    
    1,300
    
    
    
    1,074Service fees and other charges
    
    
    1,563
    
    
    
    2,012
    
    
    
    3,738
    
    
    
    6,245Net gains (losses):Securities available for sale
    
    
    781
    
    
    
    481
    
    
    
    7,295
    
    
    
    1,863Other -than-temporary loss in equity securitiesTotal impairment loss
    
    
    (44
    )
    
    
    (572
    )
    
    
    (44
    )
    
    
    (722
    )Loss recognized in other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net impairment loss recognized in earnings
    
    
    (44
    )
    
    
    (572
    )
    
    
    (44
    )
    
    
    (722
    )Mortgage banking income
    
    
    1,419
    
    
    
    559
    
    
    
    2,456
    
    
    
    3,487Real estate owned and other repossessed assets
    
    
    (1,273
    )
    
    
    (3,964
    )
    
    
    (4,512
    )
    
    
    (6,301
    )Gain on sale of retail branch
    
    
    
    
    
    
    
    
    
    
    1,388
    
    
    
    Other income
    
    
    1,281
    
    
    
    1,237
    
    
    
    3,799
    
    
    
    3,421Total non-interest income
    
    
    4,115
    
    
    
    119
    
    
    
    15,420
    
    
    
    9,067Non-interest expenseSalaries and employee benefits
    
    
    7,568
    
    
    
    7,558
    
    
    
    24,847
    
    
    
    23,345Occupancy
    
    
    850
    
    
    
    915
    
    
    
    2,693
    
    
    
    2,798Equipment and data processing
    
    
    1,562
    
    
    
    1,578
    
    
    
    4,949
    
    
    
    4,968Franchise tax
    
    
    498
    
    
    
    537
    
    
    
    1,512
    
    
    
    1,684Advertising
    
    
    205
    
    
    
    261
    
    
    
    574
    
    
    
    677Amortization of core deposit intangible
    
    
    43
    
    
    
    54
    
    
    
    136
    
    
    
    172Deposit insurance premiums
    
    
    1,391
    
    
    
    1,531
    
    
    
    4,311
    
    
    
    6,254Professional fees
    
    
    948
    
    
    
    951
    
    
    
    2,921
    
    
    
    2,574Real estate owned and other repossessed asset expenses
    
    
    1,027
    
    
    
    527
    
    
    
    2,658
    
    
    
    2,282Other expenses
    
    
    1,608
    
    
    
    1,473
    
    
    
    5,358
    
    
    
    4,232Total non-interest expenses
    
    
    15,700
    
    
    
    15,385
    
    
    
    49,959
    
    
    
    48,986Loss from continuing operations before income taxes
    
    
    (9,915
    )
    
    
    (1,440
    )
    
    
    (19,942
    )
    
    
    (9,432
    )Income tax benefit
    
    
    
    
    
    
    (573
    )
    
    
    
    
    
    
    (3,972
    )Net loss from continuing operations
    
    
    (9,915
    )
    
    
    (867
    )
    
    
    (19,942
    )
    
    
    (5,460
    )Discontinued operationsNet income of Butler Wick Corp., net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,949Net loss
    
    $
    (9,915
    )
    
    $
    (867
    )
    
    $
    (19,942
    )
    
    $
    (511
    )
  2




---



##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Loss available to common shareholders
    
    $
    (9,915
    )
    
    $
    (867
    )
    
    $
    (19,942
    )
    
    $
    (511
    )Other comprehensive incomeUnrealized gain/(loss) on securities, net
    
    
    (1,569
    )
    
    
    2,030
    
    
    
    (1,488
    )
    
    
    1,019Comprehensive income (loss)
    
    $
    (11,484
    )
    
    $
    1,163
    
    
    $
    (21,430
    )
    
    $
    508Earnings (loss) per shareBasiccontinuing operations
    
    $
    (0.32
    )
    
    $
    (0.03
    )
    
    $
    (0.66
    )
    
    $
    (0.19
    )Basicdiscontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.17Basic
    
    
    (0.32
    )
    
    
    (0.03
    )
    
    
    (0.66
    )
    
    
    (0.02
    )Dilutedcontinuing operations
    
    
    (0.32
    )
    
    
    (0.03
    )
    
    
    (0.66
    )
    
    
    (0.19
    )Diluteddiscontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.17Diluted
    
    
    (0.32
    )
    
    
    (0.03
    )
    
    
    (0.66
    )
    
    
    (0.02
    )
 See Notes to Consolidated Financial Statements.
  3




---



##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
 (Unaudited)
 UnearnedAccumulated
    
    
    EmployeeOther
    
    
    StockShares
    
    
    Common
    
    
    Retained
    
    
    Comprehensive
    
    
    Ownership
    
    
    TreasuryOutstanding
    
    
    Stock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Plan Shares
    
    
    Stock
    
    
    Total(Dollars in thousands, except share data)Balance
January 1, 2010
    
    
    30,898
    
    
    $
    145,775
    
    
    $
    148,674
    
    
    $
    4,110
    
    
    $
    (5,821
    )
    
    $
    (72,955
    )
    
    $
    219,783Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (19,942
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,942
    )Change in net unrealized gain
on securities, net of tax of $801
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,488
    )
    
    
    
    
    
    
    
    
    
    
    (1,488
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,430
    )Shares allocated to ESOP participants
    
    
    
    
    
    
    (3,078
    )
    
    
    
    
    
    
    
    
    
    
    5,821
    
    
    
    
    
    
    
    2,743Stock based compensation
    
    
    27
    
    
    
    202
    
    
    
    (256
    )
    
    
    
    
    
    
    
    
    
    
    291
    
    
    
    237Balance September 30, 2010
    
    
    30,925
    
    
    $
    142,899
    
    
    $
    128,476
    
    
    $
    2,622
    
    
    $
    
    
    
    $
    (72,664
    )
    
    $
    201,333
 UnearnedAccumulated
    
    
    EmployeeOther
    
    
    StockShares
    
    
    Common
    
    
    Retained
    
    
    Comprehensive
    
    
    Ownership
    
    
    TreasuryOutstanding
    
    
    Stock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Plan Shares
    
    
    Stock
    
    
    Total(Dollars in thousands, except share data)Balance
January 1, 2009
    
    
    30,898
    
    
    $
    146,439
    
    
    $
    165,447
    
    
    $
    3,635
    
    
    $
    (7,643
    )
    
    $
    (72,955
    )
    
    $
    234,923Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    (511
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (511
    )Change in net unrealized gain
on securities, net of tax of $549
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,019
    
    
    
    
    
    
    
    
    
    
    
    1,019Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    508Shares allocated to ESOP participants
    
    
    
    
    
    
    (946
    )
    
    
    
    
    
    
    
    
    
    
    1,366
    
    
    
    
    
    
    
    420Stock based compensation
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75Balance September 30, 2009
    
    
    30,898
    
    
    $
    145,568
    
    
    $
    164,936
    
    
    $
    4,654
    
    
    $
    (6,277
    )
    
    $
    (72,955
    )
    
    $
    235,926
 See
Notes to Consolidated Financial Statements.
  4




---



##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Nine Months Ended September 30,2010
    
    
    2009(Dollars in thousands)Cash Flows from Operating ActivitiesNet loss
    
    $
    (19,942
    )
    
    $
    (511
    )Adjustments to reconcile net loss to net cash provided by operating activitiesProvision for loan losses
    
    
    39,876
    
    
    
    26,334Mortgage banking income
    
    
    (2,456
    )
    
    
    (3,487
    )Net losses on real estate owned and other repossessed assets sold
    
    
    4,512
    
    
    
    6,301Net gain on retail branch sold
    
    
    (1,388
    )
    
    
    Net gain on available for sale securities sold
    
    
    (7,295
    )
    
    
    (1,863
    )Net gains on other assets sold
    
    
    (3
    )
    
    
    (17
    )Other than temporary impairment of securities available for sale
    
    
    44
    
    
    
    722Amortization of premiums and accretion of discounts
    
    
    (649
    )
    
    
    2,148Depreciation and amortization
    
    
    1,484
    
    
    
    1,640Decrease in interest receivable
    
    
    127
    
    
    
    1,229Decrease in interest payable
    
    
    (493
    )
    
    
    (999
    )Decrease (increase) in prepaid and other assets
    
    
    3,175
    
    
    
    (4,977
    )Increase in other liabilities
    
    
    1,179
    
    
    
    2,266Stock based compensation
    
    
    237
    
    
    
    75Net principal disbursed on loans originated for sale
    
    
    (157,723
    )
    
    
    (295,926
    )Proceeds from sale of loans originated for sale
    
    
    153,515
    
    
    
    311,363ESOP Compensation
    
    
    2,743
    
    
    
    420Purchase of interest rate caps
    
    
    (2,126
    )
    
    
    Net change in interest rate caps
    
    
    95
    
    
    
    Operating cash flows from discontinued operations
    
    
    
    
    
    
    (4,949
    )Net cash from operating activities
    
    
    14,912
    
    
    
    39,769Cash Flows from Investing ActivitiesProceeds from principal repayments and maturities of:Securities available for sale
    
    
    68,368
    
    
    
    41,442Proceeds from sale of:Securities available for sale
    
    
    247,129
    
    
    
    76,190Real estate owned and other repossessed assets
    
    
    14,931
    
    
    
    11,459Fixed assets
    
    
    20
    
    
    
    37Purchases of:Securities available for sale
    
    
    (421,856
    )
    
    
    (196,295
    )Net change in loans
    
    
    75,281
    
    
    
    172,872Loans purchased
    
    
    (4,729
    )
    
    
    (2,090
    )Purchases of premises and equipment
    
    
    (487
    )
    
    
    (519
    )Sale of retail branch
    
    
    (22,158
    )
    
    
    Investing cash flows from discontinued operations
    
    
    
    
    
    
    8,123Net cash from investing activities
    
    
    (43,501
    )
    
    
    111,219Cash Flows from Financing ActivitiesNet increase in checking, savings and money market accounts
    
    
    33,952
    
    
    
    38,612Net decrease in certificates of deposit
    
    
    (92,212
    )
    
    
    (169,040
    )Net decrease in advance payments by borrowers for taxes and insurance
    
    
    (3,754
    )
    
    
    (6,856
    )Proceeds from Federal Home Loan Bank advances
    
    
    745,200
    
    
    
    652,400Repayment of Federal Home Loan Bank advances
    
    
    (659,917
    )
    
    
    (642,228
    )Net change in repurchase agreements and other borrowed funds
    
    
    969
    
    
    
    (29,335
    )Net cash from financing activities
    
    
    24,238
    
    
    
    (156,447
    )Change in cash and cash equivalents
    
    
    (4,351
    )
    
    
    (5,459
    )Cash and cash equivalents, beginning of period
    
    
    45,074
    
    
    
    43,417Cash and cash equivalents, end of period
    
    $
    40,723
    
    
    $
    37,958
 See
Notes to Consolidated Financial Statements.
  5




---



##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1. BASIS OF PRESENTATION
     2. REGULATORY ENFORCEMENT ACTION
       6




---



##### Table of Contents



3. DISCONTINUED OPERATIONS
  Nine MonthsEndedSeptember 30,2009IncomeInterest income
    
    $
    32Brokerage commissions
    
    
    Service fees and other charges
    
    
    1,287Underwriting and investment banking
    
    
    Gain on the sale of Butler Wick Trust
    
    
    7,904Other income
    
    
    Total income
    
    
    9,223ExpensesInterest expense on borrowings
    
    
    Salaries and employee benefits
    
    
    1,198Occupancy expenses
    
    
    68Equipment and data processing
    
    
    84Other expenses
    
    
    258Total expenses
    
    
    1,608Income before taxes
    
    
    7,615Income tax
    
    
    2,666Net income
    
    $
    4,949
 4. RECENT ACCOUNTING DEVELOPMENTS
 Accounting for Transfers of Financial Assets: Consolidation
 Amendments to FASB Interpretation No. 46(R) (ASC 810-10): Consolidation of Variable Interest Entities,
  7




---



##### Table of Contents



Improving Disclosures About Fair Value Measurements: Improving Disclosures About Fair Value
Measurements
 Pooled Purchased Loans: Receivables (Topic 310):
Effect of a Loan Modification When the Loan is a Part of a Pool That is Accounted for as a Single
Asset  a consensus of the FASB Emerging Issues Task Force
 Disclosure on Credit Quality:
 5. STOCK COMPENSATION
 Stock Options:
     8




---



##### Table of Contents



For the nine months ended September 30, 2010Weighted
    
    
    Aggregateaverage
    
    
    intrinsic valueShares
    
    
    exercise price
    
    
    (in thousands)Outstanding at beginning of year
    
    
    2,200,672
    
    
    $
    7.95Granted
    
    
    418,200
    
    
    
    2.10Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (363,045
    )
    
    
    8.13Outstanding at end of period
    
    
    2,255,827
    
    
    $
    6.83
    
    
    $
    Options exercisable at end of period
    
    
    1,628,974
    
    
    $
    8.69
    
    
    $
    1
  September 30, 2010Intrinsic value of options exercised
    
    
    n/aCash received from option exercises
    
    
    n/aTax benefit realized from option exercises
    
    
    n/aWeighted average fair value of options granted, per
share
    
    $
    1.34
   April 29, 2010Risk-free interest rate
    
    
    2.49
    %Expected term (years)
    
    
    5Expected stock volatility
    
    
    77.2Dividend yield
    
    
    
    %
  Restricted Stock Awards:
   9




---



##### Table of Contents



Weightedaverage grantdate fairShares
    
    
    valueNonvested shares at January 1, 2010
    
    
    
    
    
    $
    Granted
    
    
    27,559
    
    
    
    1.27Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Nonvested shares at September 30, 2010
    
    
    27,559
    
    
    $
    1.27
 6. SECURITIES
  September 30, 2010(Dollars in thousands)Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury and government
sponsored entities securities
    
    $
    65,347
    
    
    $
    328
    
    
    $
    
    
    
    $
    65,675Equity securities
    
    
    249
    
    
    
    148
    
    
    
    
    
    
    
    397Mortgage-backed securities GSE
issued: residential
    
    
    321,352
    
    
    
    3,624
    
    
    
    (412
    )
    
    
    324,564Total
    
    $
    386,948
    
    
    $
    4,100
    
    
    $
    (412
    )
    
    $
    390,636
 December 31, 2009(Dollars in thousands)Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury and government
sponsored entities securities
    
    $
    48,717
    
    
    $
    313
    
    
    $
    (108
    )
    
    $
    48,922Equity securities
    
    
    472
    
    
    
    236
    
    
    
    
    
    
    
    708Mortgage-backed securities GSE
issued: residential
    
    
    226,182
    
    
    
    5,536
    
    
    
    
    
    
    
    231,718Total
    
    $
    275,371
    
    
    $
    6,085
    
    
    $
    (108
    )
    
    $
    281,348
  September 30, 2010(Dollars in thousands)Amortized
    
    
    FairCost
    
    
    Value$
    Due in one year or less
    
    $
    Due after one year through five years
    
    
    
    
    
    
    Due after five years through ten years
    
    
    65,347
    
    
    
    65,675Mortgage-backed securities: residential
    
    
    321,352
    
    
    
    324,564Total
    
    $
    386,699
    
    
    $
    390,239
  10




---



##### Table of Contents



September 30, 2010(Dollars in thousands)Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossU.S. Treasury and government
sponsored entities securities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed securities
GSE issued: residential
    
    
    91,644
    
    
    
    (412
    )
    
    
    
    
    
    
    
    
    
    
    91,644
    
    
    
    (412
    )Total
    
    $
    91,644
    
    
    $
    (412
    )
    
    $
    
    
    
    $
    
    
    
    $
    91,644
    
    
    $
    (412
    )
 December 31, 2009(Dollars in thousands)Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossU.S. Treasury and government
sponsored entities securities
    
    $
    27,898
    
    
    $
    (108
    )
    
    $
    
    
    
    $
    
    
    
    $
    27,898
    
    
    $
    (108
    )Equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mortgage-backed securities
GSE issued: residential
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    Total
    
    $
    27,905
    
    
    $
    (108
    )
    
    $
    
    
    
    $
    
    
    
    $
    27,905
    
    
    $
    (108
    )
     11




---



##### Table of Contents



Other-Than-Temporary-Impairment
        7. LOANS
  September 30,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Real Estate:One- to four-family residential
    
    $
    778,005
    
    
    $
    773,831Multifamily residential
    
    
    136,681
    
    
    
    150,480Nonresidential
    
    
    355,914
    
    
    
    397,895Land
    
    
    25,413
    
    
    
    23,502Construction:One- to four-family residential
    
    
    117,297
    
    
    
    178,095Multifamily and non-residential
    
    
    14,537
    
    
    
    13,741Total real estate
    
    
    1,427,847
    
    
    
    1,537,544Consumer
    
    
    289,296
    
    
    
    309,202Commercial
    
    
    48,902
    
    
    
    60,217Total loans
    
    
    1,766,045
    
    
    
    1,906,963Less:Allowance for loan losses
    
    
    40,884
    
    
    
    42,287Deferred loan fees, net
    
    
    (1,220
    )
    
    
    (1,342
    )Total
    
    
    39,664
    
    
    
    40,945Loans, net
    
    $
    1,726,381
    
    
    $
    1,866,018
  12




---



##### Table of Contents



Three months
    
    
    Three monthsended
    
    
    endedSeptember 30,
    
    
    September 30,2010
    
    
    2009(Dollars in thousands)Balance, beginning of period
    
    $
    40,728
    
    
    $
    39,832Provision for loan losses
    
    
    17,116
    
    
    
    5,579Amounts charged off
    
    
    (17,307
    )
    
    
    (6,728
    )Recoveries
    
    
    347
    
    
    
    162Balance, end of period
    
    $
    40,884
    
    
    $
    38,845
 Nine months
    
    
    Nine months
    
    
    Twelve monthsended
    
    
    ended
    
    
    endedSeptember 30,
    
    
    September 30,
    
    
    December 31,2010
    
    
    2009
    
    
    2009(Dollars in thousands)Balance, beginning of period
    
    $
    42,287
    
    
    $
    35,962
    
    
    $
    35,962Provision for loan losses
    
    
    39,876
    
    
    
    26,334
    
    
    
    49,074Amounts charged off
    
    
    (42,005
    )
    
    
    (24,234
    )
    
    
    (43,692
    )Recoveries
    
    
    726
    
    
    
    783
    
    
    
    943Balance, end of period
    
    $
    40,884
    
    
    $
    38,845
    
    
    $
    42,287
   As of or for the
    
    
    As of or forNine
    
    
    the YearMonths Ended
    
    
    EndedSeptember 30,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Impaired loans on which no specific valuation allowance was provided
    
    $
    73,027
    
    
    $
    82,443Impaired loans on which a specific valuation allowance was provided
    
    
    68,865
    
    
    
    36,362Total impaired loans at period-end
    
    $
    141,892
    
    
    $
    118,805Specific valuation allowances on impaired loans at period-end
    
    $
    10,657
    
    
    $
    4,064Average impaired loans during the period
    
    
    130,349
    
    
    
    103,026Interest income recognized on impaired loans during the period
    
    
    1,453
    
    
    
    2,056Interest income received on impaired loans during the period
    
    
    1,453
    
    
    
    2,056
  13




---



##### Table of Contents



8. MORTGAGE BANKING ACTIVITIES
   Nine Months Ended
    
    
    Year EndedSeptember 30, 2010
    
    
    December 31, 2009(Dollars in thousands)Balance, beginning of year
    
    $
    6,228
    
    
    $
    5,562Originations
    
    
    1,517
    
    
    
    3,220Amortized to expense
    
    
    (1,779
    )
    
    
    (2,554
    )Balance, end of period
    
    
    5,966
    
    
    
    6,228Less valuation allowance
    
    
    (1,598
    )
    
    
    (423
    )Net balance
    
    $
    4,368
    
    
    $
    5,805
  Nine Months Ended
    
    
    Year EndedSeptember 30, 2010
    
    
    December 31, 2009(Dollars in thousands)Balance, beginning of year
    
    $
    (423
    )
    
    $
    (2,233
    )Impairment charges
    
    
    (1,279
    )
    
    
    Recoveries
    
    
    104
    
    
    
    1,810Balance, end of period
    
    $
    (1,598
    )
    
    $
    (423
    )
   September 30,
    
    
    December 31,2010
    
    
    2009Weighted average prepayment rate
    
    529 PSA
    
    
    325 PSAWeighted average life (in years)
    
    3.52
    
    
    3.65Weighted average discount rate
    
    8%
    
    
    8%
 9. OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS
  September 30,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Real estate owned and other repossessed assets
    
    $
    48,250
    
    
    $
    38,829Valuation allowance
    
    
    (7,953
    )
    
    
    (7,867
    )End of period
    
    $
    40,297
    
    
    $
    30,962
  14




---



##### Table of Contents



September 30,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Beginning of year
    
    $
    7,867
    
    
    $
    2,754Additions charged to expense
    
    
    3,230
    
    
    
    7,925Direct write-downs
    
    
    (3,144
    )
    
    
    (2,812
    )End of period
    
    $
    7,953
    
    
    $
    7,867
  For the three months ended
    
    
    For the nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands)
    
    
    (Dollars in thousands)Net loss (gain) on sales
    
    $
    407
    
    
    $
    137
    
    
    $
    1,282
    
    
    $
    1,287Provision for unrealized losses, net
    
    
    866
    
    
    
    3,827
    
    
    
    3,230
    
    
    
    5,014Operating expenses, net of rental
income
    
    
    1,066
    
    
    
    527
    
    
    
    2,658
    
    
    
    2,282Total expenses
    
    $
    2,339
    
    
    $
    4,491
    
    
    $
    7,170
    
    
    $
    8,583
 10. OTHER POSTRETIREMENT BENEFIT PLANS
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)
    
    
    (In thousands)Service cost
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest cost
    
    
    46
    
    
    
    47
    
    
    
    140
    
    
    
    141Expected return on plan assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net amortization of prior service cost
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )
    
    
    Recognized net actuarial gain
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (12
    )Net periodic benefit cost/(gain)
    
    $
    45
    
    
    $
    43
    
    
    $
    139
    
    
    $
    129Assumptions used in the
valuations were as follows:Weighted average discount rate
    
    
    5.75
    %
    
    
    6.00
    %
    
    
    5.75
    %
    
    
    6.00
    %
  15




---



##### Table of Contents



11. FAIR VALUE MEASUREMENT
        Fair Value Measurements at September 30, 2010 Using:Quoted Prices inActive Markets
    
    
    
    
    
    
    Significantfor Identical
    
    
    Significant Other
    
    
    UnobservableSeptember 30,
    
    
    Assets
    
    
    Observable
    
    
    Inputs2010
    
    
    (Level 1)
    
    
    Inputs (Level 2)
    
    
    (Level 3)(Dollars in thousands)Assets:Available for sale securitiesUS Treasury and government
sponsored entities
securities
    
    $
    65,675
    
    
    $
    
    
    
    $
    65,675
    
    
    $
    Equity securities
    
    
    397
    
    
    
    397
    
    
    
    
    
    
    
    Mortgage-backed
securities: residential
    
    
    324,564
    
    
    
    
    
    
    
    324,564
    
    
    
    Interest rate caps
    
    
    2,030
    
    
    
    
    
    
    
    2,030
    
    
    
    
 Fair Value Measurements at December 31, 2009 Using:Quoted Prices inActive Markets
    
    
    
    
    
    
    Significantfor Identical
    
    
    Significant Other
    
    
    UnobservableDecember 31,
    
    
    Assets
    
    
    Observable
    
    
    Inputs2009
    
    
    (Level 1)
    
    
    Inputs (Level 2)
    
    
    (Level 3)(Dollars in thousands)Assets:Available for sale securitiesUS Treasury and government
sponsored entities
securities
    
    $
    48,922
    
    
    $
    
    
    
    $
    48,922
    
    
    $
    Equity securities
    
    
    708
    
    
    
    708
    
    
    
    
    
    
    
    Mortgage-backed
securities: residential
    
    
    231,718
    
    
    
    
    
    
    
    231,718
    
    
    
    
  16




---



##### Table of Contents



Fair Value Measurements at September 30, 2010 Using:Quoted Prices inActive Markets
    
    
    
    
    
    
    Significantfor Identical
    
    
    Significant Other
    
    
    UnobservableSeptember 30,
    
    
    Assets
    
    
    Observable
    
    
    Inputs2010
    
    
    (Level 1)
    
    
    Inputs (Level 2)
    
    
    (Level 3)(Dollars in thousands)Assets:Impaired loans
    
    $
    58,208
    
    
    $
    
    
    
    $
    
    
    
    $
    58,208Mortgage servicing assets
    
    
    4,310
    
    
    
    
    
    
    
    4,310
    
    
    
    Foreclosed assets
    
    
    14,538
    
    
    
    
    
    
    
    
    
    
    
    14,538
 Fair Value Measurements at December 31, 2009 Using:Quoted Prices inActive Markets
    
    
    
    
    
    
    Significantfor Identical
    
    
    Significant Other
    
    
    UnobservableDecember 31,
    
    
    Assets
    
    
    Observable
    
    
    Inputs2009
    
    
    (Level 1)
    
    
    Inputs (Level 2)
    
    
    (Level 3)(Dollars in thousands)Assets:Impaired loans
    
    $
    32,298
    
    
    $
    
    
    
    $
    
    
    
    $
    32,298Mortgage servicing assets
    
    
    1,865
    
    
    
    
    
    
    
    1,865
    
    
    
    Foreclosed assets
    
    
    19,534
    
    
    
    
    
    
    
    
    
    
    
    19,534
     17




---



##### Table of Contents



September 30, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    Value(Dollars in thousands)Assets:Cash and cash equivalents
    
    $
    40,723
    
    
    $
    40,723
    
    
    $
    45,074
    
    
    $
    45,074Securities:Available for sale
    
    
    390,636
    
    
    
    390,636
    
    
    
    281,348
    
    
    
    281,348Loans held for sale
    
    
    15,376
    
    
    
    15,655
    
    
    
    10,497
    
    
    
    10,551Loans, net
    
    
    1,726,381
    
    
    
    1,749,133
    
    
    
    1,866,018
    
    
    
    1,873,776Federal Home Loan Bank stock
    
    
    26,464
    
    
    
    n/a
    
    
    
    26,464
    
    
    
    n/aAccrued interest receivable
    
    
    8,963
    
    
    
    8,963
    
    
    
    9,090
    
    
    
    9,090Liabilities:Deposits:Checking, savings and money market accounts
    
    
    (756,987
    )
    
    
    (756,987
    )
    
    
    (729,512
    )
    
    
    (729,512
    )Certificates of deposit
    
    
    (928,046
    )
    
    
    (937,229
    )
    
    
    (1,039,989
    )
    
    
    (1,051,133
    )Federal Home Loan Bank advances
    
    
    (306,606
    )
    
    
    (314,343
    )
    
    
    (221,323
    )
    
    
    (227,350
    )Repurchase agreements and other
    
    
    (97,802
    )
    
    
    (110,935
    )
    
    
    (96,833
    )
    
    
    (105,546
    )Advance payments by borrowers for taxes
and insurance
    
    
    (16,037
    )
    
    
    (16,037
    )
    
    
    (19,791
    )
    
    
    (19,791
    )Accrued interest payable
    
    
    (928
    )
    
    
    (928
    )
    
    
    (1,421
    )
    
    
    (1,421
    )
 Fair value of financial instruments:
  Cash and cash equivalents, accrued interest receivable and payable and advance payments by
borrowers for taxes and insurance
 Securities
 Loans held for sale
 Loans
 Federal Home Loan Bank stock
 Deposits
 Borrowed funds
  18




---



##### Table of Contents



Limitations
  12. STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURE
  For the nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009(Dollars in thousands)Supplemental disclosures of cash flow informationCash paid during the period for:Interest on deposits and borrowings
    
    $
    31,250
    
    
    $
    44,752Income taxes
    
    
    
    
    
    
    600Supplemental schedule of noncash activities:Transfers from loans to real estate owned and
other repossessed assets
    
    
    28,777
    
    
    
    16,109Transfers from loans to loans held for sale
    
    
    
    
    
    
    69,842
 13. SEGMENT INFORMATION
    19




---



##### Table of Contents



14. EARNINGS PER SHARE
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator:Income (loss) from continuing operations
    
    $
    (9,915
    )
    
    $
    (867
    )
    
    $
    (19,942
    )
    
    $
    (5,460
    )Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,949Net loss
    
    $
    (9,915
    )
    
    $
    (867
    )
    
    $
    (19,942
    )
    
    $
    (511
    )Denominator:Weighted average common shares outstandingbasic
    
    
    30,899
    
    
    
    29,803
    
    
    
    30,301
    
    
    
    29,702Dilutive effect of stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares outstandingdilutive
    
    
    30,899
    
    
    
    29,803
    
    
    
    30,301
    
    
    
    29,702Basic earnings (loss) per share:Basic earnings (loss) per common share continuing operations
    
    $
    (0.32
    )
    
    $
    (0.03
    )
    
    $
    (0.66
    )
    
    $
    (0.19
    )Basic earnings per common share-discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.17Basic earnings (loss) per common share
    
    
    (0.32
    )
    
    
    (0.03
    )
    
    
    (0.66
    )
    
    
    (0.02
    )Dilutive earnings (loss) per share:Dilutive earnings (loss) per common share continuing
operations
    
    
    (0.32
    )
    
    
    (0.03
    )
    
    
    (0.66
    )
    
    
    (0.19
    )Dilutive earnings per common share-discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.17Dilutive earnings (loss) per common share
    
    
    (0.32
    )
    
    
    (0.03
    )
    
    
    (0.66
    )
    
    
    (0.02
    )
 15. BROKERED CERTIFICATES OF DEPOSIT
   20




---



##### Table of Contents



16. OTHER COMPREHENSIVE INCOME (LOSS)
   Three months ended September 30,2010
    
    
    2009(Dollars in thousands)Unrealized holding gain (loss) on securities available for sale
    
    $
    (1,677
    )
    
    $
    3,032Unrealized holding gain (loss) on postretirement benefits
    
    
    
    
    
    
    Reclassification adjustment for (gains) losses realized in income
    
    
    (737
    )
    
    
    91Net unrealized gains
    
    
    (2,414
    )
    
    
    3,123Tax effect (35%)
    
    
    845
    
    
    
    (1,093
    )Net of tax amount
    
    $
    (1,569
    )
    
    $
    2,030
 Nine months ended September 30,2010
    
    
    2009(Dollars in thousands)Unrealized holding gain (loss) on securities available for sale
    
    $
    4,962
    
    
    $
    2,709Unrealized holding gain (loss) on postretirement benefits
    
    
    
    
    
    
    Reclassification adjustment for (gains) losses realized in income
    
    
    (7,251
    )
    
    
    (1,141
    )Net unrealized gains
    
    
    (2,289
    )
    
    
    1,568Tax effect (35%)
    
    
    801
    
    
    
    (549
    )Net of tax amount
    
    $
    (1,488
    )
    
    $
    1,019
  Balance at
    
    
    Current
    
    
    Balance atDecember 31,
    
    
    Period
    
    
    September 30,2009
    
    
    Change
    
    
    2010Unrealized gains (losses) on securities available for sale
    
    $
    3,885
    
    
    $
    (1,488
    )
    
    $
    2,397Unrealized gains (losses) on post-retirement benefits
    
    
    225
    
    
    
    
    
    
    
    225Total
    
    $
    4,110
    
    
    $
    (1,488
    )
    
    $
    2,622
 17. REGULATORY CAPITAL REQUIREMENTS
   21




---



##### Table of Contents



As of September 30, 2010Minimum CapitalRequirementsActual
    
    
    Per Bank OrderAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(In thousands)Total risk-based capital to risk-weighted assets
    
    $
    212,223
    
    
    
    13.12
    %
    
    $
    194,109
    
    
    
    12.00
    %Tier 1 capital to risk-weighted assets
    
    
    191,749
    
    
    
    11.85
    %
    
    
    *
    
    
    
    *Tier 1 capital to average total assets
    
    
    191,749
    
    
    
    8.23
    %
    
    
    186,352
    
    
    
    8.00
    %
 As of September 30, 2010Minimum Capital
    
    
    To Be Well CapitalizedRequirements
    
    
    Under Prompt CorrectivePer Regulation
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(In thousands)Total risk-based capital to risk-weighted assets
    
    $
    129,406
    
    
    
    8.00
    %
    
    $
    161,757
    
    
    
    10.00
    %Tier 1 capital to risk-weighted assets
    
    
    *
    
    
    
    *
    
    
    
    97,054
    
    
    
    6.00
    %Tier 1 capital to average total assets
    
    
    93,176
    
    
    
    4.00
    %
    
    
    116,470
    
    
    
    5.00
    %
 As of December 31, 2009Minimum CapitalRequirementsActual
    
    
    Per Bank OrderAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(In thousands)Total risk-based capital to risk-weighted assets
    
    $
    220,395
    
    
    
    12.80
    %
    
    $
    206,674
    
    
    
    12.00
    %Tier 1 capital to risk-weighted assets
    
    
    198,610
    
    
    
    11.53
    %
    
    
    *
    
    
    
    *Tier 1 capital to average total assets
    
    
    198,610
    
    
    
    8.22
    %
    
    
    193,316
    
    
    
    8.00
    %
 As of December 31, 2009Minimum Capital
    
    
    To Be Well CapitalizedRequirements
    
    
    Under Prompt CorrectivePer Regulation
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(In thousands)Total risk-based capital to risk-weighted assets
    
    $
    137,783
    
    
    
    8.00
    %
    
    $
    172,229
    
    
    
    10.00
    %Tier 1 capital to risk-weighted assets
    
    
    *
    
    
    
    *
    
    
    
    103,337
    
    
    
    6.00
    %Tier 1 capital to average total assets
    
    
    96,658
    
    
    
    4.00
    %
    
    
    120,822
    
    
    
    5.00
    %
 *
    
    Amount/Ratio is not required under the Bank Order or regulations.    22




---



##### Table of Contents



18. EMPLOYEE STOCK OWNERSHIP PLAN
   19. DERIVATIVES
   September 30,2010Notional amounts
    
    $
    30,000,000Weighted average strike rate, based on three-month Libor
    
    
    2.00
    %Weighted average maturity
    
    
    7.5 yearsFair value of combined interest rate caps
    
    $
    2,030,377
  September 30,2010Interest rate caps
    
    $
    (65,992
    )
  23




---



##### Table of Contents



September 30,2010Freestanding derivative assets not designated as hedges:Interest rate caps
    
    $
    2,096,369Valuation adjustment
    
    
    (65,992
    )Net derivative assets not designated as hedges
    
    $
    2,030,377
  20. Income Taxes
   24




---



##### 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 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Selected financial ratios and other data: (1)Performance ratios:Return on average assets (2)
    
    
    -1.70
    %
    
    
    -0.14
    %
    
    
    -1.15
    %
    
    
    -0.03
    %Return on average equity (3)
    
    
    -18.41
    %
    
    
    -1.45
    %
    
    
    -12.11
    %
    
    
    -0.28
    %Interest rate spread (4)
    
    
    3.22
    %
    
    
    3.04
    %
    
    
    3.10
    %
    
    
    2.86
    %Net interest margin (5)
    
    
    3.42
    %
    
    
    3.32
    %
    
    
    3.33
    %
    
    
    3.16
    %Non-interest expense to average assets
    
    
    2.69
    %
    
    
    2.49
    %
    
    
    2.88
    %
    
    
    2.58
    %Efficiency ratio (6)
    
    
    66.80
    %
    
    
    65.02
    %
    
    
    75.76
    %
    
    
    68.72
    %Average interest-earning assets to average interest-bearing liabilities
    
    
    112.08
    %
    
    
    112.39
    %
    
    
    112.78
    %
    
    
    112.18
    %Capital ratios:Average equity to average assets
    
    
    9.23
    %
    
    
    9.70
    %
    
    
    9.49
    %
    
    
    9.62
    %Equity to assets, end of period
    
    
    8.69
    %
    
    
    9.58
    %
    
    
    8.69
    %
    
    
    9.58
    %Tier 1 leverage ratio
    
    
    8.23
    %
    
    
    8.68
    %
    
    
    8.23
    %
    
    
    8.68
    %Tier 1 risk-based capital ratio
    
    
    11.85
    %
    
    
    11.77
    %
    
    
    11.85
    %
    
    
    11.77
    %Total risk-based capital ratio
    
    
    13.12
    %
    
    
    13.03
    %
    
    
    13.12
    %
    
    
    13.03
    %Asset quality ratios:Non-performing loans to total loans at end of period (7)
    
    
    8.27
    %
    
    
    5.82
    %
    
    
    8.27
    %
    
    
    5.82
    %Non-performing assets to average assets (8)
    
    
    8.74
    %
    
    
    5.65
    %
    
    
    7.91
    %
    
    
    5.50
    %Non-performing assets to total assets at end of
period (8)
    
    
    7.90
    %
    
    
    5.66
    %
    
    
    7.90
    %
    
    
    5.66
    %Allowance for loan losses as a percent of loans
    
    
    2.31
    %
    
    
    1.98
    %
    
    
    2.31
    %
    
    
    1.98
    %Allowance for loan losses as a percent of nonperforming loans (7)
    
    
    28.65
    %
    
    
    34.75
    %
    
    
    28.65
    %
    
    
    34.75
    %Texas ratio (9)
    
    
    75.72
    %
    
    
    50.86
    %
    
    
    75.72
    %
    
    
    50.86
    %Total classified assets as a percent of Tier 1 capital
    
    
    108.87
    %
    
    
    77.59
    %
    
    
    108.87
    %
    
    
    77.59
    %Net charge-offs as a percent of average loans
    
    
    3.85
    %
    
    
    1.31
    %
    
    
    3.05
    %
    
    
    1.50
    %Total 90+ days past due as a percent of total loans
    
    
    7.81
    %
    
    
    5.11
    %
    
    
    7.81
    %
    
    
    5.11
    %Office data:Number of full service banking offices
    
    
    38
    
    
    
    39
    
    
    
    38
    
    
    
    39Number of loan production offices
    
    
    6
    
    
    
    6
    
    
    
    6
    
    
    
    6Per share data:Basic earnings (loss) from continuing operations (10)
    
    $
    (0.32
    )
    
    $
    (0.03
    )
    
    $
    (0.66
    )
    
    $
    (0.19
    )Basic earnings from discontinued operations (10)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.17Basic earnings (loss) (10)
    
    
    (0.32
    )
    
    
    (0.03
    )
    
    
    (0.66
    )
    
    
    (0.02
    )Diluted earnings (loss) from continuing operations (10)
    
    
    (0.32
    )
    
    
    (0.03
    )
    
    
    (0.66
    )
    
    
    (0.19
    )Diluted earnings from discontinued operations (10)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.17Diluted earnings (loss) (10)
    
    
    (0.32
    )
    
    
    (0.03
    )
    
    
    (0.66
    )
    
    
    (0.02
    )Book value (11)
    
    
    6.51
    
    
    
    7.64
    
    
    
    6.51
    
    
    
    7.64Tangible book value (12)
    
    
    6.49
    
    
    
    7.61
    
    
    
    6.49
    
    
    
    7.61
 Notes:1.
    
    Ratios for the three and nine month periods are annualized where appropriate2.
    
    Net income (loss) divided by average total assets3.
    
    Net income (loss) divided by average total equity4.
    
    Difference between weighted average yield on interest-earning assets and weighted average cost of interest-bearing liabilities5.
    
    Net interest income as a percentage of average interest-earning assets6.
    
    Noninterest expense, excluding the amortization of core deposit intangible, divided by the sum of net interest income and noninterest income, excluding gains and losses on securities, other than temporary
impairment charges, gains and losses on foreclosed assets and gain on the sale of a retail branch7.
    
    Nonperforming loans consist of nonaccrual loans and loans past due ninety days and still accruing8.
    
    Nonperforming assets consist of nonperforming loans, real estate owned and other repossessed assets9.
    
    Nonperforming assets divided by the sum of tangible common equity and the allowance for loan losses10.
    
    Net income (loss) divided by the number of basic or diluted shares outstanding11.
    
    Shareholders equity divided by number of shares outstanding12.
    
    Shareholders equity minus core deposit intangible divided by the number of shares outstanding  25




---



##### Table of Contents



Forward Looking Statements
   Comparison of Financial Condition at September 30, 2010 and December 31, 2009
      26




---



##### Table of Contents



Allowance For Loan Losses(Dollars in thousands)December 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    September 30,2009
    
    
    Provision
    
    
    Recovery
    
    
    Chargeoff
    
    
    2010Real Estate LoansPermanentOne-to four-family residential
    
    $
    6,546
    
    
    $
    6,759
    
    
    $
    170
    
    
    $
    (5,320
    )
    
    $
    8,155Multifamily residential
    
    
    2,182
    
    
    
    3,757
    
    
    
    
    
    
    
    (2,812
    )
    
    
    3,127Nonresidential
    
    
    5,894
    
    
    
    12,247
    
    
    
    16
    
    
    
    (9,033
    )
    
    
    9,124Land
    
    
    666
    
    
    
    641
    
    
    
    
    
    
    
    (329
    )
    
    
    978Total
    
    
    15,288
    
    
    
    23,404
    
    
    
    186
    
    
    
    (17,494
    )
    
    
    21,384Construction LoansOne-to four-family residential
    
    
    18,787
    
    
    
    8,137
    
    
    
    117
    
    
    
    (19,654
    )
    
    
    7,387Multifamily and nonresidential
    
    
    233
    
    
    
    339
    
    
    
    
    
    
    
    (310
    )
    
    
    262Total
    
    
    19,020
    
    
    
    8,476
    
    
    
    117
    
    
    
    (19,964
    )
    
    
    7,649Consumer LoansHome Equity
    
    
    2,390
    
    
    
    1,570
    
    
    
    66
    
    
    
    (1,066
    )
    
    
    2,960Auto
    
    
    162
    
    
    
    (30
    )
    
    
    45
    
    
    
    (68
    )
    
    
    109Marine
    
    
    701
    
    
    
    474
    
    
    
    9
    
    
    
    (682
    )
    
    
    502Recreational vehicle
    
    
    1,392
    
    
    
    1,179
    
    
    
    39
    
    
    
    (1,315
    )
    
    
    1,295Other
    
    
    314
    
    
    
    177
    
    
    
    257
    
    
    
    (424
    )
    
    
    324Total
    
    
    4,959
    
    
    
    3,370
    
    
    
    416
    
    
    
    (3,555
    )
    
    
    5,190Commercial LoansSecured
    
    
    1,084
    
    
    
    2,196
    
    
    
    5
    
    
    
    (588
    )
    
    
    2,697Unsecured
    
    
    1,936
    
    
    
    2,430
    
    
    
    2
    
    
    
    (404
    )
    
    
    3,964Total
    
    
    3,020
    
    
    
    4,626
    
    
    
    7
    
    
    
    (992
    )
    
    
    6,661Total
    
    $
    42,287
    
    
    $
    39,876
    
    
    $
    726
    
    
    $
    (42,005
    )
    
    $
    40,884
   27




---



##### Table of Contents



Impaired Loans(Dollars in thousands)September 30,
    
    
    December 31,2010
    
    
    2009
    
    
    ChangeReal Estate LoansPermanentOne-to four-family residential
    
    $
    23,904
    
    
    $
    18,764
    
    
    $
    5,140Multifamily residential
    
    
    12,811
    
    
    
    7,863
    
    
    
    4,948Nonresidential
    
    
    44,587
    
    
    
    25,686
    
    
    
    18,901Land
    
    
    6,571
    
    
    
    5,160
    
    
    
    1,411Total
    
    
    87,873
    
    
    
    57,473
    
    
    
    30,400Construction LoansOne-to four-family residential
    
    
    45,480
    
    
    
    53,666
    
    
    
    (8,186
    )Multifamily and nonresidential
    
    
    382
    
    
    
    392
    
    
    
    (10
    )Total
    
    
    45,862
    
    
    
    54,058
    
    
    
    (8,196
    )Consumer LoansHome Equity
    
    
    1,207
    
    
    
    2,088
    
    
    
    (881
    )Auto
    
    
    58
    
    
    
    30
    
    
    
    28Boat
    
    
    
    
    
    
    1,103
    
    
    
    (1,103
    )Recreational vehicle
    
    
    127
    
    
    
    353
    
    
    
    (226
    )Other
    
    
    49
    
    
    
    8
    
    
    
    41Total
    
    
    1,441
    
    
    
    3,582
    
    
    
    (2,141
    )Commercial LoansSecured
    
    
    2,790
    
    
    
    3,365
    
    
    
    (575
    )Unsecured
    
    
    3,926
    
    
    
    327
    
    
    
    3,599Total
    
    
    6,716
    
    
    
    3,692
    
    
    
    3,024Total Impaired Loans
    
    $
    141,892
    
    
    $
    118,805
    
    
    $
    23,087
  28




---



##### Table of Contents




    
    Transfer from the borrower to Home Savings of receivables from third parties, real
estate, or other assets to fully or partially satisfy a debt (including a transfer
resulting from foreclosure or repossession).
 
    
    Issuance or other granting of an equity interest to Home Savings by the borrower to
satisfy fully or partially a debt unless the equity interest is granted pursuant to
existing terms for converting the debt into an equity interest.
 
    
    Modification of the terms of a debt, such as one or a combination of:
 
    
    Reduction of the stated interest rate for the remaining original life of the debt.
 
    
    Extension of the maturity date or dates at a stated interest rate lower
than the current market rate for new debt with similar risk.
 
    
    Reduction of the face amount or maturity amount of the debt as stated
in the instrument or other agreement.
 
    
    Reduction of accrued interest.
  
    
    the fair value of cash, other assets, or an equity interest accepted by Home Savings
from a borrower in full satisfaction of its receivable at least equals the recorded
investment in the loan;
 
    
    the fair value of cash, other assets, or an equity interest transferred by a borrower to
Home Savings in full settlement of its loan at least equals the carrying amount of the
loan;
 
    
    Home Savings reduces the effective interest rate on the loan primarily to reflect a
decrease in market interest rates in general or a decrease in the risk so as to maintain a
relationship with a borrower that can readily obtain funds from other sources at the
current market interest rate; or
 
    
    Home Savings issues, in exchange for the original loan, a new marketable loan having an
effective interest rate based on its market price that is at or near the current market
interest rates of loans with similar maturity dates and stated interest rates issued by
other banks.
  29




---



##### Table of Contents



Troubled Debt RestructuringsSeptember 30,
    
    
    December 31,2010
    
    
    2009
    
    
    Change(In thousands)Real Estate LoansPermanentOne-to four-family
    
    $
    7,545
    
    
    $
    2,167
    
    
    $
    5,378Multifamily residential
    
    
    2,410
    
    
    
    
    
    
    
    2,410Nonresidential
    
    
    7,535
    
    
    
    3,595
    
    
    
    3,940Land
    
    
    2,141
    
    
    
    1,050
    
    
    
    1,091Total
    
    
    19,631
    
    
    
    6,812
    
    
    
    12,819Construction LoansOne-to four-family residential
    
    
    7,752
    
    
    
    15,213
    
    
    
    (7,461
    )Multifamily and nonresidential
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    7,752
    
    
    
    15,213
    
    
    
    (7,461
    )Consumer LoansHome Equity
    
    
    325
    
    
    
    240
    
    
    
    85Auto
    
    
    12
    
    
    
    18
    
    
    
    (6
    )Marine
    
    
    
    
    
    
    
    
    
    
    Recreational vehicle
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    8
    
    
    
    (8
    )Total
    
    
    337
    
    
    
    266
    
    
    
    71Commercial LoansSecured
    
    
    350
    
    
    
    357
    
    
    
    (7
    )Unsecured
    
    
    118
    
    
    
    
    
    
    
    118Total
    
    
    468
    
    
    
    357
    
    
    
    111Total Restructured Loans
    
    $
    28,188
    
    
    $
    22,648
    
    
    $
    5,540
   30




---



##### Table of Contents



Nonperforming Loans(Dollars in thousands)September 30,
    
    
    December 31,2010
    
    
    2009
    
    
    ChangeReal Estate LoansPermanentOne-to four-family residential
    
    $
    27,505
    
    
    $
    26,766
    
    
    $
    739Multifamily residential
    
    
    12,443
    
    
    
    7,863
    
    
    
    4,580Nonresidential
    
    
    44,561
    
    
    
    24,091
    
    
    
    20,470Land
    
    
    5,943
    
    
    
    5,160
    
    
    
    783Total
    
    
    90,452
    
    
    
    63,880
    
    
    
    26,572Construction LoansOne-to four-family residential
    
    
    40,000
    
    
    
    42,819
    
    
    
    (2,819
    )Multifamily and nonresidential
    
    
    2,414
    
    
    
    392
    
    
    
    2,022Total
    
    
    42,414
    
    
    
    43,211
    
    
    
    (797
    )Consumer LoansHome Equity
    
    
    3,156
    
    
    
    3,168
    
    
    
    (12
    )Auto
    
    
    60
    
    
    
    148
    
    
    
    (88
    )Marine
    
    
    
    
    
    
    1,103
    
    
    
    (1,103
    )Recreational vehicle
    
    
    279
    
    
    
    900
    
    
    
    (621
    )Other
    
    
    48
    
    
    
    64
    
    
    
    (16
    )Total
    
    
    3,543
    
    
    
    5,383
    
    
    
    (1,840
    )Commercial LoansSecured
    
    
    2,440
    
    
    
    3,061
    
    
    
    (621
    )Unsecured
    
    
    3,864
    
    
    
    352
    
    
    
    3,512Total
    
    
    6,304
    
    
    
    3,413
    
    
    
    2,891Total Nonperforming Loans
    
    $
    142,713
    
    
    $
    115,887
    
    
    $
    26,826
     31




---



##### Table of Contents



Real Estate
    
    
    RepossessedOwned
    
    
    Assets
    
    
    Total(In thousands)Balance at December 31, 2009
    
    $
    30,340
    
    
    $
    622
    
    
    $
    30,962Acquisitions
    
    
    27,127
    
    
    
    1,648
    
    
    
    28,775Sales
    
    
    (14,274
    )
    
    
    (1,936
    )
    
    
    (16,210
    )Provision for unrealized losses
    
    
    (3,230
    )
    
    
    
    
    
    
    (3,230
    )Balance at September 30, 2010
    
    $
    39,963
    
    
    $
    334
    
    
    $
    40,297
  Valuation
    
    
    NetBalance
    
    
    Allowance
    
    
    Balance(In thousands)Real estate ownedOne-to four-family
    
    $
    8,705
    
    
    $
    (77
    )
    
    $
    8,628Multifamily residential
    
    
    6,377
    
    
    
    (1,038
    )
    
    
    5,339Nonresidential
    
    
    7,278
    
    
    
    (1,916
    )
    
    
    5,362One-to four-family residential construction
    
    
    25,556
    
    
    
    (4,922
    )
    
    
    20,634Land
    
    
    
    
    
    
    
    
    
    
    Total real estate owned
    
    
    47,916
    
    
    
    (7,953
    )
    
    
    39,963Repossessed assetsAuto
    
    
    
    
    
    
    
    
    
    
    Marine
    
    
    200
    
    
    
    
    
    
    
    200Recreational vehicle
    
    
    134
    
    
    
    
    
    
    
    134Total repossessed assets
    
    
    334
    
    
    
    
    
    
    
    334Total real estate owned and other
repossessed assets
    
    $
    48,250
    
    
    $
    (7,953
    )
    
    $
    40,297
     32




---



##### Table of Contents



Comparison of Operating Results for the Three Months Ended
September 30, 2010 and September 30, 2009
 Net Income (Loss).
 Net Interest Income.
    33




---



##### Table of Contents



For the Three Months Ended September 30,2010 vs. 2009Increase
    
    
    Total(decrease) due to
    
    
    increaseRate
    
    
    Volume
    
    
    (decrease)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    (1,429
    )
    
    $
    (3,371
    )
    
    $
    (4,800
    )Loans held for sale
    
    
    18
    
    
    
    (9
    )
    
    
    9Investment securities:Available for sale
    
    
    (320
    )
    
    
    631
    
    
    
    311FHLB stock
    
    
    (33
    )
    
    
    
    
    
    
    (33
    )Other interest-earning assets
    
    
    (7
    )
    
    
    5
    
    
    
    (2
    )Total interest-earning assets
    
    $
    (1,771
    )
    
    $
    (2,744
    )
    
    $
    (4,515
    )Interest-bearing liabilities:Savings accounts
    
    
    (51
    )
    
    
    22
    
    
    
    (29
    )NOW and money market accounts
    
    
    (374
    )
    
    
    108
    
    
    
    (266
    )Certificates of deposit
    
    
    (1,952
    )
    
    
    (1,262
    )
    
    
    (3,214
    )Federal Home Loan Bank advances
    
    
    (282
    )
    
    
    (81
    )
    
    
    (363
    )Repurchase agreements and other
    
    
    (31
    )
    
    
    8
    
    
    
    (23
    )Total interest-bearing liabilities
    
    $
    (2,690
    )
    
    $
    (1,205
    )
    
    
    (3,895
    )Change in net interest income
    
    
    
    
    
    
    
    
    
    $
    (620
    )
 Provision for Loan Losses.
 Noninterest Income.
 Noninterest Expense.
  34




---



##### Table of Contents



Comparison of Operating Results for the Nine Months Ended
September 30, 2010 and September 30, 2009
 Net Income (Loss).
 Net Interest Income.
    35




---



##### Table of Contents



For the Nine Months Ended September 30,2010 vs. 2009Increase
    
    
    Total(decrease) due to
    
    
    increaseRate
    
    
    Volume
    
    
    (decrease)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    (3,671
    )
    
    $
    (11,511
    )
    
    $
    (15,182
    )Loans held for sale
    
    
    61
    
    
    
    (391
    )
    
    
    (330
    )Investment securities:Available for sale
    
    
    (579
    )
    
    
    804
    
    
    
    225FHLB stock
    
    
    (32
    )
    
    
    
    
    
    
    (32
    )Other interest-earning assets
    
    
    (38
    )
    
    
    13
    
    
    
    (25
    )Total interest-earning assets
    
    $
    (4,259
    )
    
    $
    (11,085
    )
    
    $
    (15,344
    )Interest-bearing liabilities:Savings accounts
    
    
    (163
    )
    
    
    76
    
    
    
    (87
    )NOW and money market accounts
    
    
    (1,095
    )
    
    
    302
    
    
    
    (793
    )Certificates of deposit
    
    
    (5,417
    )
    
    
    (4,211
    )
    
    
    (9,628
    )Federal Home Loan Bank advances
    
    
    (1,024
    )
    
    
    (1,044
    )
    
    
    (2,068
    )Repurchase agreements and other
    
    
    (58
    )
    
    
    (362
    )
    
    
    (420
    )Total interest-bearing liabilities
    
    $
    (7,757
    )
    
    $
    (5,239
    )
    
    
    (12,996
    )Change in net interest income
    
    
    
    
    
    
    
    
    
    $
    (2,348
    )
 Provision for Loan Losses.
 Noninterest Income.
 Noninterest Expense.
   36




---



##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
AVERAGE BALANCE SHEETS
  Three Months Ended September 30,2010
    
    
    2009Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Cost
    
    
    Balance
    
    
    Paid
    
    
    Cost(Dollars in thousands)Interest-earning assets:Net loans (1)
    
    $
    1,762,551
    
    
    $
    24,589
    
    
    
    5.58
    %
    
    $
    2,000,419
    
    
    $
    29,389
    
    
    
    5.88
    %Net loans held for sale
    
    
    7,966
    
    
    
    109
    
    
    
    5.47
    %
    
    
    9,088
    
    
    
    99
    
    
    
    4.36
    %Investment securities:Available for sale
    
    
    372,280
    
    
    
    3,235
    
    
    
    3.48
    %
    
    
    281,343
    
    
    
    2,925
    
    
    
    4.16
    %Federal Home Loan Bank stock
    
    
    26,464
    
    
    
    297
    
    
    
    4.49
    %
    
    
    26,464
    
    
    
    330
    
    
    
    4.99
    %Other interest-earning assets
    
    
    25,631
    
    
    
    10
    
    
    
    0.16
    %
    
    
    20,775
    
    
    
    12
    
    
    
    0.23
    %Total interest-earning assets
    
    
    2,194,892
    
    
    
    28,240
    
    
    
    5.15
    %
    
    
    2,338,089
    
    
    
    32,755
    
    
    
    5.60
    %Noninterest-earning assets
    
    
    139,605
    
    
    
    
    
    
    
    
    
    
    
    129,745Total assets
    
    $
    2,334,497
    
    
    
    
    
    
    
    
    
    
    $
    2,467,834Interest-bearing liabilities:NOW and money market accounts
    
    $
    417,983
    
    
    $
    790
    
    
    
    0.76
    %
    
    $
    383,323
    
    
    $
    1,056
    
    
    
    1.10
    %Savings accounts
    
    
    213,269
    
    
    
    207
    
    
    
    0.39
    %
    
    
    196,974
    
    
    
    236
    
    
    
    0.48
    %Certificates of deposit
    
    
    929,513
    
    
    
    6,531
    
    
    
    2.81
    %
    
    
    1,082,946
    
    
    
    9,745
    
    
    
    3.60
    %Federal Home Loan Bank advances
    
    
    299,384
    
    
    
    984
    
    
    
    1.31
    %
    
    
    319,551
    
    
    
    1,348
    
    
    
    1.69
    %Repurchase agreements and other
    
    
    98,322
    
    
    
    942
    
    
    
    3.83
    %
    
    
    97,512
    
    
    
    965
    
    
    
    3.96
    %Total interest-bearing liabilities
    
    
    1,958,471
    
    
    
    9,454
    
    
    
    1.93
    %
    
    
    2,080,306
    
    
    
    13,350
    
    
    
    2.57
    %Noninterest-bearing liabilities
    
    
    160,578
    
    
    
    
    
    
    
    
    
    
    
    148,179Total liabilities
    
    
    2,119,049
    
    
    
    
    
    
    
    
    
    
    
    2,228,485Equity
    
    
    215,448
    
    
    
    
    
    
    
    
    
    
    
    239,349Total liabilities and equity
    
    $
    2,334,497
    
    
    
    
    
    
    
    
    
    
    $
    2,467,834Net interest income and interest
rate spread
    
    
    
    
    
    $
    18,786
    
    
    
    3.22
    %
    
    
    
    
    
    $
    19,405
    
    
    
    3.04
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.42
    %
    
    
    
    
    
    
    
    
    
    
    3.32
    %Average interest-earning assets to
average interest-bearing
liabilities
    
    
    
    
    
    
    
    
    
    
    112.07
    %
    
    
    
    
    
    
    
    
    
    
    112.39
    %
 (1)
    
    Nonaccrual loans are included in the average balance at a yield of 0%.  37




---



##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
AVERAGE BALANCE SHEETS
  Nine Months Ended September 30,2010
    
    
    2009Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Cost
    
    
    Balance
    
    
    Paid
    
    
    Cost(Dollars in thousands)Interest-earning assets:Net loans (1)
    
    $
    1,804,936
    
    
    $
    75,350
    
    
    
    5.57
    %
    
    $
    2,077,786
    
    
    $
    90,532
    
    
    
    5.81
    %Net loans held for sale
    
    
    6,632
    
    
    
    248
    
    
    
    4.99
    %
    
    
    16,918
    
    
    
    578
    
    
    
    4.56
    %Investment securities:Available for sale
    
    
    315,365
    
    
    
    8,716
    
    
    
    3.69
    %
    
    
    257,371
    
    
    
    8,491
    
    
    
    4.40
    %Federal Home Loan Bank stock
    
    
    26,464
    
    
    
    891
    
    
    
    4.49
    %
    
    
    26,464
    
    
    
    923
    
    
    
    4.65
    %Other interest-earning assets
    
    
    24,504
    
    
    
    25
    
    
    
    0.14
    %
    
    
    20,473
    
    
    
    50
    
    
    
    0.33
    %Total interest-earning assets
    
    
    2,177,901
    
    
    
    85,230
    
    
    
    5.22
    %
    
    
    2,399,012
    
    
    
    100,574
    
    
    
    5.59
    %Noninterest-earning assets
    
    
    134,836
    
    
    
    
    
    
    
    
    
    
    
    133,510Assets of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,379Total assets
    
    $
    2,312,737
    
    
    
    
    
    
    
    
    
    
    $
    2,533,901Interest-bearing liabilities:NOW and money market accounts
    
    $
    409,788
    
    
    $
    2,477
    
    
    
    0.81
    %
    
    $
    378,407
    
    
    $
    3,270
    
    
    
    1.15
    %Savings accounts
    
    
    210,975
    
    
    
    617
    
    
    
    0.39
    %
    
    
    193,115
    
    
    
    704
    
    
    
    0.49
    %Certificates of deposit
    
    
    970,766
    
    
    
    22,160
    
    
    
    3.04
    %
    
    
    1,134,282
    
    
    
    31,788
    
    
    
    3.74
    %Federal Home Loan Bank advances
    
    
    242,214
    
    
    
    2,707
    
    
    
    1.49
    %
    
    
    322,725
    
    
    
    4,775
    
    
    
    1.97
    %Repurchase agreements and other
    
    
    97,431
    
    
    
    2,796
    
    
    
    3.83
    %
    
    
    110,029
    
    
    
    3,216
    
    
    
    3.90
    %Total interest-bearing liabilities
    
    
    1,931,174
    
    
    
    30,757
    
    
    
    2.12
    %
    
    
    2,138,558
    
    
    
    43,753
    
    
    
    2.73
    %Noninterest-bearing liabilities
    
    
    162,062
    
    
    
    
    
    
    
    
    
    
    
    149,328Liabilities of discontinued
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,360Total liabilities
    
    
    2,093,236
    
    
    
    
    
    
    
    
    
    
    
    2,290,246Equity
    
    
    219,501
    
    
    
    
    
    
    
    
    
    
    
    243,655Total liabilities and equity
    
    $
    2,312,737
    
    
    
    
    
    
    
    
    
    
    $
    2,533,901Net interest income and interest
rate spread
    
    
    
    
    
    $
    54,473
    
    
    
    3.10
    %
    
    
    
    
    
    $
    56,821
    
    
    
    2.86
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.33
    %
    
    
    
    
    
    
    
    
    
    
    3.16
    %Average interest-earning assets
to average interest-bearing
liabilities
    
    
    
    
    
    
    
    
    
    
    112.78
    %
    
    
    
    
    
    
    
    
    
    
    112.18
    %
 (1)
    
    Nonaccrual loans are included in the average balance at a yield of 0%.  38




---



##### 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, 2010NPV as % of portfolio value of assets
    
    
    Next 12 months net interest income(Dollars in thousands)InternalpolicyChange
    
    
    
    
    
    
    
    
    limitationsin rates
    
    
    
    
    
    Internal policy limitations
    
    
    
    
    
    
    
    
    
    
    on(Basis
    
    NPV
    
    
    Minimum
    
    
    Maximum
    
    
    Change
    
    
    $
    
    
    maximum
    
    
    %points)
    
    Ratio
    
    
    level
    
    
    change
    
    
    in %
    
    
    Change
    
    
    change
    
    
    Change300
    
    
    8.24
    %
    
    
    6.00
    %
    
    
    -35.00
    %
    
    
    -0.14
    %
    
    $
    (3,652
    )
    
    
    -15.00
    %
    
    
    -4.81
    %200
    
    
    9.01
    %
    
    
    7.00
    %
    
    
    
    
    
    
    0.62
    %
    
    
    (2,023
    )
    
    
    -10.00
    %
    
    
    -2.67
    %100
    
    
    9.08
    %
    
    
    7.00
    %
    
    
    
    
    
    
    0.70
    %
    
    
    (968
    )
    
    
    -5.00
    %
    
    
    -1.28
    %Static
    
    
    8.38
    %
    
    
    8.00
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  39




---



##### Table of Contents



Year Ended December 31, 2009NPV as % of portfolio value of assets
    
    
    Next 12 months net interest income(Dollars in thousands)InternalpolicyChange
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    limitationsin rates
    
    
    
    
    
    Internal policy limitations
    
    
    
    
    
    
    
    
    
    
    on(Basis
    
    NPV
    
    
    Minimum
    
    
    Maximum
    
    
    Change
    
    
    $
    
    
    maximum
    
    
    %points)
    
    Ratio
    
    
    level
    
    
    change
    
    
    in %
    
    
    Change
    
    
    change
    
    
    Change300
    
    
    8.19
    %
    
    
    6.00
    %
    
    
    -35.00
    %
    
    
    -1.76
    %
    
    $
    (4,414
    )
    
    
    -15.00
    %
    
    
    -5.67
    %200
    
    
    9.31
    %
    
    
    7.00
    %
    
    
    
    
    
    
    -0.64
    %
    
    
    (2,125
    )
    
    
    -10.00
    %
    
    
    -2.73
    %100
    
    
    10.03
    %
    
    
    7.00
    %
    
    
    
    
    
    
    0.80
    %
    
    
    (640
    )
    
    
    -5.00
    %
    
    
    -0.82
    %Static
    
    
    9.95
    %
    
    
    8.00
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   Potential Impact of Changes in Interest Rates.
  
 ITEM 4. Controls and Procedures
   40




---



##### Table of Contents



PART II. OTHER INFORMATION
 UNITED COMMUNITY FINANCIAL CORP.
 
 ITEM 1   Legal Proceedings
  
 ITEM 1A   Risk Factors
 The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 may
adversely affect our business, financial condition and results of operations.
   
    
    the Dodd-Frank Act abolishes the OTS and transfers its functions to other federal
banking agencies;
 
    
    the Dodd-Frank Act creates a Consumer Financial Protection Bureau with broad powers to
adopt and enforce consumer protection regulations;
 
    
    new capital regulations for thrift holding companies will be adopted and any new trust
preferred securities will no longer count toward Tier I capital;
 
    
    the federal law prohibition on the payment of interest on commercial demand deposit
accounts will be eliminated effective in July 2011;
 
    
    the standard maximum amount of deposit insurance per customer is permanently increased
to $250,000, and non-interest bearing transaction accounts will have unlimited insurance
through December 31, 2013;
 
    
    the assessment base for determining deposit insurance premiums will be expanded to
include liabilities other than just deposits; and
 
    
    new corporate governance requirements applicable generally to all public companies in
all industries will require new compensation practices, including requiring companies to
claw back incentive compensation under certain circumstances, to provide shareholders
the opportunity to cast a non-binding vote on executive compensation, and to consider the
independence of compensation advisers, and new executive compensation disclosure
requirements.
   41




---



##### Table of Contents



The Companys results of operations, financial condition or liquidity may be adversely impacted by
issues arising in foreclosure practices, including delays in the foreclosure process related to
certain industry deficiencies, as well as potential losses in connection with actual or projected
repurchases and indemnification payments related to mortgages sold into the secondary market.
     
 ITEM 2  Unregistered Sales of Equity Securities and Use of Proceeds
  
 ITEM 5  Other Information
   42




---



##### Table of Contents



ITEM 6  Exhibits
  Exhibit Number
    
    Description3.1
    
    
    Articles of Incorporation3.2
    
    
    Amended Code of Regulations10.1
    
    
    2010 Director Sub-Plan to the United Community Financial Corp. Amended
and Restated 2007 Long-Term Incentive Plan10.2
    
    
    Amended Order to Cease and Desist10.3
    
    
    Stipulation and Consent to Issuance of Amended Order to Cease and Desist31.1
    
    
    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
  43




---



##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 
 SIGNATURES
  UNITED COMMUNITY FINANCIAL CORP.Date: November 12, 2010
    /S/ Douglas M. McKayDouglas M. McKayPresident and Chief Executive Officer
(Principal Executive Officer)Date: November 12, 2010
    /S/ James R. ReskeJames R. Reske, CFATreasurer and Chief Financial Officer
(Principal Financial Officer)  44




---



##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 Exhibit 3.1
  Exhibit 3.2