10-Q

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, 2011

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.

(Exact name of the registrant as specified in its charter)

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
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (330) 742-0500

Not Applicable

(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 31,000,472 common shares as of October 31, 2011.

TABLE OF CONTENTS

	PAGE
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of September 30, 2011 (Unaudited) and December 31, 2010		1
Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2011 and 2010 (Unaudited)		2
Consolidated Statement of Shareholders’ Equity for the Nine Months ended September 30, 2011 and 2010 (Unaudited)		4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010 (Unaudited)		5
Notes to Consolidated Financial Statements (Unaudited)		6 - 42
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		43-55
Item 3. Quantitative and Qualitative Disclosures about Market Risk		56
Item 4. Controls and Procedures		57
Part II. OTHER INFORMATION
Item 1. Legal Proceedings		58
Item 1A. Risk Factors		58
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		58
Item 3. Defaults Upon Senior Securities (None)
Item 4. (Removed and Reserved)
Item 5. Other Information (None)
Item 6. Exhibits		58
Signatures		59
EX-10.1
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

UNITED COMMUNITY FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

	September 30,			December 31,
	2011			2010
	(Dollars in thousands)
Assets:
Cash and deposits with banks	$	21,355		$	18,627
Federal funds sold		27,803			18,480
Total cash and cash equivalents		49,158			37,107
Securities:
Available for sale, at fair value		416,460			362,042
Loans held for sale		38,366			10,870
Loans, net of allowance for loan losses of $44,162 and $50,883		1,437,575			1,649,486
Federal Home Loan Bank stock, at cost		26,464			26,464
Premises and equipment, net		19,213			22,076
Accrued interest receivable		7,016			7,720
Real estate owned and other repossessed assets		38,316			40,336
Core deposit intangible		379			485
Cash surrender value of life insurance		28,089			27,303
Other assets		9,965			13,409
Total assets	$	2,071,001		$	2,197,298
Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Interest bearing	$	1,535,365		$	1,551,210
Non-interest bearing		152,576			138,571
Total deposits		1,687,941			1,689,781
Borrowed funds:
Federal Home Loan Bank advances		88,324			202,818
Repurchase agreements and other		90,623			97,797
Total borrowed funds		178,947			300,615
Advance payments by borrowers for taxes and insurance		13,202			20,668
Accrued interest payable		793			809
Accrued expenses and other liabilities		7,421			9,370
Total liabilities		1,888,304			2,021,243
Shareholders’ Equity:
Preferred 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 30,984,344 and 30,937,704 shares, respectively, outstanding		142,694			142,318
Retained earnings		102,903			111,049
Accumulated other comprehensive income (loss)		9,141			(4,778	)
Treasury stock, at cost, 6,820,113 and 6,866,753 shares, respectively		(72,041	)		(72,534	)
Total shareholders’ equity		182,697			176,055
Total liabilities and shareholders’ equity	$	2,071,001		$	2,197,298

See Notes to Consolidated Financial Statements.

1

UNITED COMMUNITY FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
	(Dollars in thousands, except per share data)
Interest income
Loans	$	19,558		$	24,589		$	63,489		$	75,350
Loans held for sale		163			109			270			248
Available for sale securities		3,323			3,235			9,264			8,716
Federal Home Loan Bank stock dividends		264			297			858			891
Other interest earning assets		13			10			35			25
Total interest income		23,321			28,240			73,916			85,230
Interest expense
Deposits		5,972			7,528			18,384			25,254
Federal Home Loan Bank advances		793			984			2,414			2,707
Repurchase agreements and other		931			942			2,781			2,796
Total interest expense		7,696			9,454			23,579			30,757
Net interest income		15,625			18,786			50,337			54,473
Provision for loan losses		11,836			17,116			22,272			39,876
Net interest income after provision for loan losses		3,789			1,670			28,065			14,597
Non-interest income
Non-deposit investment income		389			388			1,050			1,300
Service fees and other charges		203			1,563			3,244			3,738
Net gains (losses):
Securities available for sale		1,958			781			3,500			7,295
Other -than-temporary loss in equity securities
Total impairment loss		(35	)		(44	)		(73	)		(44	)
Loss recognized in other comprehensive income		—			—			—			—
Net impairment loss recognized in earnings		(35	)		(44	)		(73	)		(44	)
Mortgage banking income		682			1,419			4,432			2,456
Real estate owned and other repossessed assets		(2,627	)		(1,273	)		(4,981	)		(4,512	)
Gain on sale of retail branch		—			—			—			1,387
Other income		1,346			1,281			4,032			3,800
Total non-interest income		1,916			4,115			11,204			15,420
Non-interest expense
Salaries and employee benefits		7,927			7,568			23,297			24,847
Occupancy		854			850			2,615			2,693
Equipment and data processing		1,592			1,562			4,910			4,949
Franchise tax		370			498			1,241			1,512
Advertising		204			205			466			574
Amortization of core deposit intangible		33			43			106			136
Deposit insurance premiums		1,111			1,391			3,573			4,311
Professional fees		1,290			948			2,545			2,921
Real estate owned and other repossessed asset expenses		361			1,027			2,125			2,658
Other expenses		827			1,608			6,089			5,358
Total non-interest expenses		14,569			15,700			46,967			49,959
Loss before income taxes		(8,864	)		(9,915	)		(7,698	)		(19,942	)
Income tax expense (benefit)		—			—			—			—
Net loss	$	(8,864	)	$	(9,915	)	$	(7,698	)	$	(19,942	)

2

(Continued)

UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Net loss	$	(8,864	)	$	(9,915	)	$	(7,698	)	$	(19,942	)
Other comprehensive income
Unrealized gains (losses) on securities, net		8,218			(1,569	)		13,919			(1,488	)
Comprehensive income (loss)	$	(646	)	$	(11,484	)	$	6,221		$	(21,430	)
Loss per share
Basic	$	(0.29	)	$	(0.32	)	$	(0.25	)	$	(0.66	)
Diluted		(0.29	)		(0.32	)		(0.25	)		(0.66	)

See Notes to Consolidated Financial Statements.

3

UNITED COMMUNITY FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

												Unearned
												Employee
									Accumulated			Stock
									Other			Ownership
	Shares		Common			Retained			Comprehensive			Plan			Treasury
	Outstanding		Stock			Earnings			Income (Loss)			Shares			Stock			Total
	(Dollars in thousands, except per share data)
Balance December 31, 2010		30,938	$	142,318		$	111,049		$	(4,778	)	$	—		$	(72,534	)	$	176,055
Comprehensive income:
Net loss							(7,698	)											(7,698	)
Change in net unrealized gain/(loss) on securities, net of taxes										13,919									13,919
Comprehensive income																			6,221
Stock based compensation		46		376			(448	)								493			421
Balance September 30, 2011		30,984	$	142,694		$	102,903		$	9,141		$	—		$	(72,041	)	$	182,697
Balance December 31, 2009		30,898	$	145,775		$	148,674		$	4,110		$	(5,821	)	$	(72,955	)	$	219,783
Comprehensive income:
Net loss							(19,942	)											(19,942	)
Change in net unrealized gain/(loss) on securities, net of taxes										(1,488	)								(1,488	)
Comprehensive loss																			(21,430	)
Shares allocated to ESOP participants				(3,078	)								5,821						2,743
Stock based compensation		27		202			(256	)								291			237
Balance September 30, 2010		30,925	$	142,899		$	128,476		$	2,622		$	—		$	(72,664	)	$	201,333

See Notes to Consolidated Financial Statements.

4

UNITED COMMUNITY FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2011			2010
	(Dollars in thousands)
Cash Flows from Operating Activities
Net loss	$	(7,698	)	$	(19,942	)
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		22,272			39,876
Mortgage banking income		(4,432	)		(2,456	)
Net losses on real estate owned and other repossessed assets sold		4,981			4,512
Net gain on retail branch sold		—			(1,387	)
Net gain on available for sale securities sold		(3,500	)		(7,295	)
Net loss (gain) on other assets		161			(3	)
Other than temporary impairment of securities available for sale		73			44
Amortization of premiums and accretion of discounts		(405	)		(649	)
Depreciation and amortization		1,314			1,484
Decrease in interest receivable		704			127
Decrease in interest payable		(16	)		(493	)
Decrease in prepaid and other assets		7,308			3,174
(Decrease) increase in other liabilities		(1,948	)		1,179
Stock based compensation		421			237
Net principal disbursed on loans originated for sale		(108,389	)		(157,723	)
Proceeds from sale of loans originated for sale		204,852			153,515
ESOP compensation		—			2,743
Net change in interest rate caps		—			95
Net cash from operating activities		115,698			17,038
Cash Flows from Investing Activities
Proceeds from principal repayments and maturities of:
Securities available for sale		27,037			68,368
Proceeds from sale of:
Securities available for sale		201,856			247,129
Real estate owned and other repossessed assets		14,058			14,931
Premises and equipment		11			20
Purchases of:
Securities available for sale		(268,032	)		(421,856	)
Interest rate caps		—			(2,126	)
Principal disbursed on loans, net of repayments		55,947			75,281
Loans purchased		(3,202	)		(4,729	)
Purchases of premises and equipment		(348	)		(487	)
Sale of retail branch		—			(22,158	)
Net cash from investing activities		27,327			(45,627	)
Cash Flows from Financing Activities
Net increase in checking, savings and money market accounts		70,566			33,952
Net decrease in certificates of deposit		(72,406	)		(92,212	)
Net decrease in advance payments by borrowers for taxes and insurance		(7,466	)		(3,754	)
Proceeds from Federal Home Loan Bank advances		306,000			745,200
Repayment of Federal Home Loan Bank advances		(420,494	)		(659,917	)
Net change in repurchase agreements and other borrowed funds		(7,174	)		969
Net cash from financing activities		(130,974	)		24,238
Change in cash and cash equivalents		12,051			(4,351	)
Cash and cash equivalents, beginning of period		37,107			45,074
Cash and cash equivalents, end of period	$	49,158		$	40,723
See Notes to Consolidated Financial Statements.

5

UNITED COMMUNITY FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

United Community Financial Corp. (United Community or the Company) was incorporated under Ohio law in February 1998 by The Home Savings and Loan Company of Youngstown, Ohio (Home Savings) in connection with the conversion of Home Savings from an Ohio mutual savings and loan association to an Ohio capital stock savings association (Conversion). Upon consummation of the Conversion on July 8, 1998, United Community became the unitary thrift holding company for Home Savings. Home Savings, a state-chartered savings bank, conducts business from its main office located in Youngstown, Ohio, 38 full-service branches and seven loan production offices located throughout Ohio and western Pennsylvania.

The accompanying consolidated financial statements of United Community have been prepared in accordance with instructions relating to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair statement of results for the interim periods.

The results of operations for the three and nine months ended September 30, 2011, are not necessarily indicative of the results to be expected for the year ending December 31, 2011. The consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2010, contained in United Community’s Form 10-K for the year ended December 31, 2010.

Some items in the prior year financial statements were reclassified to conform to the current presentation.

2. REGULATORY ENFORCEMENT ACTION

Before July 21, 2011, the OTS was the federal regulator of savings associations and their holding companies. On July 21, 2010, financial regulatory reform legislation entitled the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (the “Dodd-Frank Act”) was signed into law, substantially altering the regulation of savings associations and savings and loan holding companies. The Dodd-Frank Act required the transfer of OTS functions to the Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), and the Board of Governors of the Federal Reserve System (FRB), as of July 21, 2011. More specifically, as of July 21, 2011, United Community ceased to be regulated by the OTS and is now regulated by the FRB.

As previously disclosed, on August 8, 2008, the board of directors of United Community approved a Stipulation and Consent to the Issuance of an Order to Cease and Desist (the OTS Order) with the Office of Thrift Supervision (OTS), predecessor to United Community’s current primary federal regulator, the Federal Reserve Board. Simultaneously, the board of directors of Home Savings approved a Stipulation and Consent to the Issuance of an Order to Cease and Desist (the Bank Order) with the Federal Deposit Insurance Corporation (FDIC) and the Division of Financial Institutions of the Ohio Department of Commerce (Ohio Division). Although United Community and Home Savings have agreed to the issuance of the OTS Order and the Bank Order, respectively, neither has admitted or denied any allegations of unsafe or unsound banking practices, or any legal or regulatory violations. No monetary penalties were assessed by the OTS, the FDIC, or the Ohio Division.

The OTS Order required United Community to obtain OTS approval prior to: (i) incurring or increasing its debt position; (ii) repurchasing any United Community stock; or (iii) paying any dividends. The OTS Order also required United Community to develop a debt reduction plan and submit the plan to the OTS for approval.

The Bank Order required Home Savings, within specified timeframes, to take or refrain from certain actions, including: (i) retaining a bank consultant to assess Home Savings’ management needs and submitting a management plan that identifies officer positions needed, identifies and establishes board and internal operating committees, evaluates Home Savings’ senior officers, and provides for the hiring of any additional personnel; (ii) seeking regulatory approval prior to adding any individuals to the board of directors or employing any individual as a senior executive officer of Home Savings; (iii) not extending additional credit to classified borrowers; (iv) establishing a compliant Allowance for Loan and Lease Loss methodology; (v) enhancing its risk management policies and procedures; (vi) adopting and implementing plans to reduce its classified assets and delinquent loans, and to reduce loan concentrations in nonowner-occupied commercial real estate and construction, land development, and land loans; (vii) establishing board of directors committees to evaluate and approve certain loans and oversee Home Savings’ compliance with the Bank Order; (viii) revising its loan policy and enhancing its underwriting and credit administration functions; (ix) developing a strategic plan and budget and profit plan; (x) correcting all violations of laws, rules, and regulations and implementing procedures to ensure future compliance; (xi) increasing its Tier 1 leverage ratio to 8.0% and its total risk-based capital ratio to 12.0% by December 31, 2008; and (xii) seeking regulatory approval prior to declaring or paying any cash dividend. See Note 15 for details on current capital levels of Home Savings.

6

Both the OTS Order and the Bank Order remain in effect. Since the issuance of the Bank Order, there has been no change in the requirements of that Order. The OTS Order, however, was subsequently amended effective November 5, 2010. This amendment removed a requirement in the original OTS Order to provide the OTS with a debt reduction plan and added a requirement to provide the OTS with a capital plan. This capital plan is consistent with and incorporated into the strategic planning process that Home Savings has already been undertaking for the past two years under the terms of the Bank Order. The capital plan was submitted to the OTS in December 2010.

3. RECENT ACCOUNTING DEVELOPMENTS

The Financial Accounting Standards Board (FASB) issued new Accounting Standards Updates (ASU) during 2011. Below is a summary of each new ASU.

In April 2011, the FASB amended existing guidance for assisting a creditor in determining whether a restructuring is a troubled debt restructuring. The amendments clarify the guidance for a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. With regard to determining whether a concession has been granted, the ASU clarifies that creditors are precluded from using the effective interest method to determine whether a concession has been granted. The effective interest method discounts estimated future cash payments through the expected life of the loan to the net carrying amount of the loan. In the absence of using the effective interest method, a creditor must now focus on other considerations such as the value of the underlying collateral, evaluation of other collateral or guarantees, the debtor’s ability to access other funds at market rates, interest rate increases and whether the restructuring results in a delay in payment that is insignificant. This guidance is effective for interim and annual reporting periods beginning after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. For purposes of measuring impairment on newly identified troubled debt restructurings, the amendment should be applied prospectively for the first interim period beginning on or after June 15, 2011. The adoption of this guidance did not have a material effect on the Company’s financial statements.

In May 2011, the FASB issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. This guidance is not expected to have a significant impact on the Company’s financial statements.

In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The adoption of this amendment will have no impact on the consolidated financial statements as the current presentation of comprehensive income is already in compliance with this amendment.

4. STOCK COMPENSATION

Stock Options:

On April 26, 2007, shareholders approved the United Community Financial Corp. 2007 Long-Term Incentive Plan (as amended, the 2007 Plan). The purpose of the 2007 Plan is to promote and advance the interests of United Community and its shareholders by enabling United Community to attract, retain and reward directors, directors emeritus, managerial and other key employees of United Community, including Home Savings, by facilitating their purchase of an ownership interest in United Community. The 2007 Plan provides for the issuance of up to 2,000,000 shares that are to be used for awards of restricted stock, stock options, performance awards, stock appreciation rights (SARs), or other forms of stock-based incentive awards. There were 3,866 stock options granted in the first quarter of 2011, all of which become exercisable on January 6, 2013. There were 12,746 stock options granted in the second quarter of 2011, 4,000 of which become exercisable on December 31, 2011, 4,000 of which become exercisable on December 31, 2012 and the remaining 4,746 of which become exercisable on April 7, 2013. There were 4,411 shares granted in the third quarter of 2011, all of which become exercisable on July 7, 2013. There were 423,695 stock options granted in 2010 and 32,000 stock options granted in 2009 under the 2007 Plan. For 418,000 of the options granted in 2010, one-half of the total options granted become exercisable on each of December 31, 2010 and 2011. The remainder of the options granted in 2010 become exercisable on October 7, 2012. For the options granted in 2009, one third of the total options granted became exercisable on each of December 31, 2009, and 2010, respectively. The remaining one third of the total options granted becomes exercisable on each of December 31, 2011. The options must be exercised within 10 years from the date of grant.

7

On July 12, 1999, shareholders approved the United Community Financial Corp. 1999 Long-Term Incentive Plan (as amended, the 1999 Plan). The purpose of the 1999 Plan was the same as the 2007 Plan. The 1999 Plan terminated on May 20, 2009, although the 1999 Plan survives so long as options issued under the 1999 Plan remain outstanding and exercisable.

The 1999 Plan provided for the grant of either incentive or nonqualified stock options. Options were awarded at exercise prices that were not less than the fair market value of the share at the grant date. The maximum number of common shares that could be issued under the 1999 Plan was 3,569,766. Because the 1999 Plan terminated, no additional options may be issued under it. All of the options awarded became exercisable on the date of grant except that options granted in 2009 became exercisable over three years beginning on December 31, 2009. All options expire 10 years from the date of grant.

Expenses related to stock option grants are included with salaries and employee benefits. The Company recognized $92,000 in stock option expenses for the three months ended September 30, 2011. The Company recognized $251,000 in stock option expense for the nine months ended September 30, 2011. The Company expects to recognize additional expense of $98,000 for the remainder of 2011.

A summary of activity in the 1999 and 2007 Plans is as follows:

	For the nine months ended September 30, 2011
				Weighted		Aggregate
				average		intrinsic value
	Shares			exercise price		(in thousands)
Outstanding at beginning of year		2,237,322		$	6.88
Granted		21,023			1.35
Exercised		—			—
Forfeited		(265,674	)		8.09
Outstanding at end of period		1,992,671		$	6.65	$	—
Options exercisable at end of period		1,670,187		$	7.65	$	—

Information related to the stock option plans for the nine months ended September 30, 2011 follows:

	September 30, 2011
Intrinsic value of options exercised		n/a
Cash received from option exercises		n/a
Tax benefit realized from option exercises		n/a
Weighted average fair value of options granted, per share	$	0.88

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model that uses assumptions including the risk-free interest rate, expected term, expected stock volatility, and dividend yield. Expected volatilities are based on historical volatilities of United Community’s common shares. United Community uses historical data to estimate option exercises and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

8

The fair value of options granted during the third quarter 2011 was determined using the following weighted-average assumptions as of the grant date.

	July 7,
	2011
Risk-free interest rate		1.74	%
Expected term (years)		5
Expected stock volatility		81.3
Dividend yield		—	%

Outstanding stock options have a weighted average remaining life of 4.38 years and may be exercised in the range of $1.20 to $12.38.

Restricted Stock Awards:

The 2007 Plan permits the issuance of awards to nonemployee directors. Compensation expense is recognized over the vesting period of the awards based on the market value of the shares at the issue date. A total of 86,519 restricted shares have been issued under the 2007 Plan; 46,640 of which were issued in 2011 and 39,879 of which were issued in 2010. These restricted shares vest on the first anniversary of the grant date. Expenses related to restricted stock awards are included with salaries and employee benefits. The cost will be recognized over a weighted average period of one year. The Company recognized approximately $21,000 in restricted stock award expenses for the three months ended September 30, 2011. The Company recognized approximately $61,000 in restricted stock award expenses for the nine months ended September 30, 2011. The Company expects to recognize additional expenses of approximately $19,000 for the remainder of 2011.

A summary of changes in the Company’s nonvested restricted shares for the first nine months of 2011 is as follows:

				Weighted
				average grant
	Shares			date fair value
Nonvested shares at January 1, 2011		39,879		$	1.32
Granted		46,640			1.32
Vested		(33,068	)		1.29
Forfeited		—			—
Nonvested shares at September 30, 2011		53,451		$	1.34

5. SECURITIES

Components of the available for sale portfolio are as follows:

	September 30, 2011
	(Dollars in thousands)
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
U.S. Treasury and government sponsored entities’ securities	$	67,045	$	1,488	$	—	$	68,533
Equity securities		129		118		—		247
Mortgage-backed securities GSE issued: residential		338,949		8,731		—		347,680
Total	$	406,123	$	10,337	$	—	$	416,460

9

	December 31, 2010
	(Dollars in thousands)
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
U.S. Treasury and government sponsored entities’ securities	$	65,099	$	—	$	(2,164	)	$	62,935
Equity securities		235		159		—			394
Mortgage-backed securities GSE issued: residential		300,290		1,688		(3,265	)		298,713
Total	$	365,624	$	1,847	$	(5,429	)	$	362,042

Debt securities available for sale by contractual maturity, repricing or expected call date are shown below:

	September 30, 2011
	Amortized cost		Fair value
	(Dollars in thousands)
Due in one year or less	$	—	$	—
Due after one year through five years		—		—
Due after five years through ten years		67,045		68,533
Mortgage-related securities		338,949		347,680
Total	$	405,994	$	416,213

Securities pledged for the Company’s investment in VISA stock were approximately $6.1 million at September 30, 2011 and $5.7 million at December 31, 2010. Securities pledged for participation in the Ohio Linked Deposit Program were $419,000 at September 30, 2011, and $864,000 at December 31, 2010. Securities sold under an agreement to repurchase are secured primarily by mortgage-backed securities with a fair value of approximately $115.6 million at September 30, 2011, and $129.4 million at December 31, 2010.

Proceeds from sales of securities available for sale were $85.9 million and $73.1 million for the three months ended September 30, 2011 and 2010, respectively. Gross gains of $2.0 million and $781,000 and no gross losses were realized on these sales during the three months of 2011 and 2010, respectively.

Proceeds from sales of securities available for sale were $201.9 million and $247.1 million for the nine months ended September 30, 2011 and 2010, respectively. Gross gains of $3.5 million and $7.3 million and no gross losses were realized on these sales during the nine months of 2011 and 2010, respectively.

There were no securities with unrealized losses at September 30, 2011.

The following table summarizes the investment securities with unrealized losses at September 30, 2011 and December 31, 2010 by aggregated major security type and length of time in a continuous unrealized loss position:

	December 31, 2010
	(Dollars in thousands)
	Less Than 12 Months					12 Months or More				Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
	Value		Loss			Value		Loss		Value		Loss
U.S. Treasury and government sponsored entities’ securities	$	62,935	$	(2,164	)	$	—	$	—	$	62,935	$	(2,164	)
Mortgage-backed securities GSE issued: residential		203,569		(3,265	)		—		—		203,569		(3,265	)
Total	$	266,504	$	(5,429	)	$	—	$	—	$	266,504	$	(5,429	)

10

The Company evaluates its equity securities for impairment on a quarterly basis. In general, if a security has been in an unrealized loss position for more than twelve months, the Company will realize an Other Than Temporary Impairment (OTTI) charge on the security. If the security has been in an unrealized loss position for less than twelve months, the Company examines the capital levels, nonperforming asset ratios, and liquidity position of the issuer to determine whether or not an OTTI charge is appropriate.

The Company recognized a $35,000 OTTI charge on equity investments with holdings of four other financial institutions in the third quarter of 2011. One financial institution consented to a regulatory enforcement action, diminishing the chance of fair value recovery in the foreseeable future. The other investments were trading below book value and management was not able to determine with reasonable certainty that recovery would occur in the near-term. The Company recognized a $73,000 OTTI charge on equity investments in four other financial institutions in the first nine months of 2011.

As of September 30, 2011, the Company’s security portfolio consisted of 48 securities, none of which was in an unrealized loss position.

6. LOANS

Portfolio loans consist of the following:

	September 30,			December 31,
	2011			2010
	(Dollars in thousands)
Real Estate:
One-to four-family residential	$	677,708		$	757,426
Multi-family residential		125,370			135,771
Nonresidential		303,165			331,390
Land		22,172			25,138
Construction:
One-to four-family residential and land development		66,761			108,583
Multi-family and nonresidential		4,528			15,077
Total real estate		1,199,704			1,373,385
Consumer
Home equity		195,131			220,582
Auto		9,918			11,525
Marine		5,983			7,285
Recreational vehicles		30,908			35,671
Other		3,427			4,390
Total consumer		245,367			279,453
Commercial
Secured		27,227			28,876
Unsecured		8,050			17,428
Total commercial		35,277			46,304
Total loans		1,480,348			1,699,142
Less:
Allowance for loan losses		44,162			50,883
Deferred loan costs, net		(1,389	)		(1,227	)
Total		42,773			49,656
Loans, net	$	1,437,575		$	1,649,486

11

Changes in the allowance for loan losses are as follows:

	Three Months ended			Three Months ended
	September 30, 2011			September 30, 2010
	(Dollars in thousands)
Balance, beginning of period	$	46,223		$	40,728
Provision for loan losses		11,836			17,116
Amounts charged off		(14,320	)		(17,307	)
Recoveries		423			347
Balance, end of period	$	44,162		$	40,884

	Nine Months			Nine Months
	Ended			Ended
	September 30, 2011			September 30, 2010
	(Dollars in thousands)
Balance, beginning of period	$	50,883		$	42,287
Provision for loan losses		22,272			39,876
Amounts charged off		(30,576	)		(42,005	)
Recoveries		1,583			726
Balance, end of period	$	44,162		$	40,884

The following tables present activity and the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of and for the three and nine months ended September 30, 2011 and the year ended December 31, 2010.

Allowance For Loan Losses
(Dollars in thousands)

	Permanent
	Real
	Estate			Construction			Consumer			Commercial
	Loans			Loans			Loans			Loans			Unallocated		Total
For the three months ended September 30, 2011
Beginning balance (6/30/11)	$	31,371		$	6,529		$	4,544		$	3,779		$	—	$	46,223
Provision		7,065			4,734			1,105			(1,068	)		—		11,836
Chargeoffs		(5,536	)		(6,832	)		(1,000	)		(952	)		—		(14,320	)
Recoveries		168			95			136			24			—		423
Net chargeoffs		(5,368	)		(6,737	)		(864	)		(928	)		—		(13,897	)
Ending balance (9/30/11)	$	33,068		$	4,526		$	4,785		$	1,783		$	—	$	44,162
For the nine months ended September 30, 2011
Beginning balance (12/31/10)	$	28,066		$	8,533		$	5,260		$	9,024		$	—	$	50,883
Provision		17,057			6,285			1,887			(2,957	)		—		22,272
Chargeoffs		(12,709	)		(10,589	)		(2,797	)		(4,481	)		—		(30,576	)
Recoveries		654			297			435			197			—		1,583
Net chargeoffs		(12,055	)		(10,292	)		(2,362	)		(4,284	)		—		(28,993	)
Ending balance (9/30/11)	$	33,068		$	4,526		$	4,785		$	1,783		$	—	$	44,162

12

(Continued)

(Dollars in thousands)

	Permanent
	Real
	Estate		Construction		Consumer		Commercial
	Loans		Loans		Loans		Loans		Unallocated		Total
Period-end amount allocated to:
Loans individually evaluated for impairment	$	9,265	$	2,861	$	—	$	111	$	—	$	12,237
Loans collectively evaluated for impairment		23,803		1,665		4,785		1,672		—		31,925
Ending balance	$	33,068	$	4,526	$	4,785	$	1,783	$	—	$	44,162
Period-end balances:
Loans individually evaluated for impairment	$	117,428	$	34,322	$	1,172	$	8,563	$	—	$	161,485
Loans collectively evaluated for impairment		1,010,987		36,967		244,195		26,714		—		1,318,863
Ending balance	$	1,128,415	$	71,289	$	245,367	$	35,277	$	—	$	1,480,348

Allowance For Loan Losses
(Dollars in thousands)

	Permanent
For the twelve months ended	Real Estate			Construction			Consumer			Commercial
December 31, 2010	Loans			Loans			Loans			Loans			Unallocated		Total
Beginning balance (12/31/09)	$	15,288		$	19,020		$	4,959		$	3,020		$	—	$	42,287
Provision		40,595			10,028			4,079			7,725			—		62,427
Chargeoffs		(28,153	)		(20,648	)		(4,316	)		(1,962	)		—		(55,079	)
Recoveries		336			133			538			241			—		1,248
Net chargeoffs		(27,817	)		(20,515	)		(3,778	)		(1,721	)		—		(53,831	)
Ending balance (12/31/10)	$	28,066		$	8,533		$	5,260		$	9,024		$	—	$	50,883
Period-end amount allocated to:
Loans individually evaluated for impairment	$	7,509		$	3,360		$	—		$	2,575		$	—	$	13,444
Loans collectively evaluated for impairment		20,557			5,173			5,260			6,449			—		37,439
Ending balance (12/31/10)	$	28,066		$	8,533		$	5,260		$	9,024		$	—	$	50,883
Period-end balances:
Loans individually evaluated for impairment**	$	101,410		$	47,054		$	1,547		$	6,444		$	—	$	156,455
Loans collectively evaluated for impairment		1,148,315			76,606			277,906			39,860			—		1,542,687
Ending balance (12/31/10)	$	1,249,725		$	123,660		$	279,453		$	46,304		$	—	$	1,699,142

** Revised to include impaired loans without specific allocations.

13

Impaired loans are defined as loans, based on current information and events, it is probable that Home Savings will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement and the loan is non-homogeneous in nature. Impaired loans can be divided into two categories: those with a specific valuation and those without a specific valuation. In general, impaired loans without a specific valuation either has sufficient collateral to support the loan balance, or any collateral shortfall that did exist has been charged off such that the remaining loan balance is dully supported by collateral value (less costs to sell).

Impaired loans consisted of the following:

	As of or for		As of or for		As of or for
	the nine		the twelve		the nine
	months ended		months ended		months ended
	September 30,		December 31,		September 30,
	2011		2010		2010
	(Dollars in thousands)
Impaired loans on which no specific valuation allowance was provided	$	74,561	$	71,853	$	73,027
Impaired loans on which specific valuation allowance was provided		86,924		84,602		68,865
Total impaired loans at end of period	$	161,485	$	156,455	$	141,892
Specific valuation allowances on impaired loans at period-end		12,237		13,444		10,657
Average impaired loans during period		162,521		144,977		130,349
Interest income recognized on impaired loans during the period **		3,469		1,778		1,453
Interest income received on impaired loans during the period **		7,008		4,570		1,453

** Interest income recognized may be less than interest income received on an impaired loan if, for example, payments received on nonaccrual impaired loans are applied to principal reduction.

14

The unpaid principal balance is the total amount of the loan that is due to Home Savings. The recorded investment includes the unpaid principal balance less any charge-offs or partial charge-offs applied to specific loans. The unpaid principal balance and the recorded investment exclude accrued interest receivable and deferred loan costs, both of which are immaterial.

The following table presents loans individually evaluated for impairment by class of loans as of and for the nine months ended September 30, 2011:

Impaired Loans
(Dollars in thousands)

					Allowance
	Unpaid				for Loan		Average		Interest		Cash Basis
	Principal		Recorded		Losses		Recorded		Income		Income
	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no specific allowance recorded
Permanent real estate
One-to four-family residential	$	28,584	$	24,878	$	—	$	25,002	$	510	$	1,004
Multifamily residential		5,170		4,331		—		3,441		—		148
Nonresidential		27,445		26,780		—		22,847		524		1,247
Land		7,465		5,887		—		6,244		15		126
Total		68,664		61,876		—		57,534		1,049		2,525
Construction loans
One-to four-family residential		17,258		10,465		—		17,939		219		280
Multifamily and nonresidential		707		—		—		191		—		—
Total		17,965		10,465		—		18,130		219		280
Consumer loans
Home Equity		2,535		1,050		—		1,194		2		29
Auto		88		68		—		67		1		9
Marine		—		—		—		—		—		—
Recreational vehicle		113		47		—		47		—		2
Other		7		7		—		7		—		—
Total		2,743		1,172		—		1,315		3		40
Commercial loans
Secured		1,272		574		—		1,270		35		43
Unsecured		16,795		474		—		407		13		163
Total		18,067		1,048		—		1,677		48		206
Total	$	107,439	$	74,561	$	—	$	78,656	$	1,319	$	3,051

15

(Continued)

Impaired Loans
(Dollars in thousands)

					Allowance
	Unpaid				for Loan		Average		Interest		Cash Basis
	Principal		Recorded		Losses		Recorded		Income		Income
	Balance		Investment		Allocated		Investment		Recognized		Recognized
With a specific allowance recorded
Permanent real estate
One-to four-family residential	$	5,080	$	4,475	$	586	$	2,809	$	111	$	168
Multifamily residential		4,883		2,847		223		5,175		—		170
Nonresidential		47,710		42,246		6,452		40,139		1,527		1,888
Land		6,421		5,984		2,004		1,960		382		527
Total		64,094		55,552		9,265		50,083		2,020		2,753
Construction loans
One-to four-family residential		40,701		23,857		2,861		25,472		110		694
Multifamily and nonresidential		—		—		—		—		—		—
Total		40,701		23,857		2,861		25,472		110		694
Consumer loans
Home Equity		—		—		—		—		—		—
Auto		—		—		—		—		—		—
Marine		—		—		—		—		—		—
Recreational vehicle		—		—		—		—		—		—
Other		—		—		—		—		—		—
Total		—		—		—		—		—		—
Commercial loans
Secured		7,463		7,114		74		6,146		20		473
Unsecured		401		401		37		2,164		—		37
Total		7,864		7,515		111		8,310		20		510
Total		112,659		86,924		12,237		83,865		2,150		3,957
Total	$	220,098	$	161,485	$	12,237	$	162,521	$	3,469	$	7,008

The difference between the unpaid principal balance of $220,098 and the recorded investment of $161,485 (i.e., $58,613) represents amounts previously charged off by Home Savings. This amount, plus any existing reserves of $12,237, totals $70,850, or 32.2% of the unpaid principal balance of these loans.

16

The following table presents the average recorded investment and interest income associated with impaired loans for the three months ended September 30, 2011:

Impaired Loans
(Dollars in thousands)

	Average					Cash Basis
	Recorded		Interest Income			Income
	Investment		Recognized			Recognized
With no specific allowance recorded
Permanent real estate
One-to four-family residential	$	24,302	$	177		$	502
Multifamily residential		4,249		—			—
Nonresidential		25,770		206			544
Land		6,678		(30	)		24
Total		60,999		353			1,070
Construction loans
One-to four-family residential		14,976		89			13
Multifamily and nonresidential		—		—			—
Total		14,976		89			13
Consumer loans
Home Equity		1,045		(3	)		5
Auto		72		1			4
Marine		—		—			—
Recreational vehicle		47		—			—
Other		7		—			—
Total		1,171		(2	)		9
Commercial loans
Secured		957		15			21
Unsecured		429		8			126
Total		1,386		23			147
Total	$	78,532	$	463		$	1,239

17

(Continued)

Impaired Loans
(Dollars in thousands)

	Average					Cash Basis
	Recorded		Interest Income			Income
	Investment		Recognized			Recognized
With a specific allowance recorded
Permanent real estate
One-to four-family residential	$	4,589	$	72		$	101
Multifamily residential		2,853		—			133
Nonresidential		39,583		794			864
Land		3,494		370			504
Total		50,519		1,236			1,602
Construction loans
One-to four-family residential		24,858		(9	)		349
Multifamily and nonresidential		—		—			—
Total		24,858		(9	)		349
Consumer loans
Home Equity		—		—			—
Auto		—		—			—
Marine		—		—			—
Recreational vehicle		—		—			—
Other		—		—			—
Total		—		—			—
Commercial loans
Secured		7,242		(107	)		192
Unsecured		869		—			1
Total		8,111		(107	)		193
Total	$	83,488	$	1,120		$	2,144
Total	$	162,020	$	1,583		$	3,383

18

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2010:

Impaired Loans
(Dollars in thousands)

					Allowance
	Unpaid				for Loan
	Principal		Recorded		Losses
	Balance		Investment		Allocated
With no specific allowance recorded
Permanent real estate	$	60,516	$	44,666	$	—
Construction loans		31,715		23,465		—
Consumer loans		3,407		1,547		—
Commercial loans		16,148		2,175		—
Total		111,786		71,853		—
With a specific allowance recorded
Permanent real estate		65,869		56,744		7,509
Construction loans		35,777		23,589		3,360
Consumer loans		—		—		—
Commercial loans		5,419		4,269		2,575
Total		107,065		84,602		13,444
Total	$	218,851	$	156,455	$	13,444

19

The following tables present the recorded investment in nonaccrual loans and loans past due over 90 days and still on accrual by class of loans as of September 30, 2011:

Nonaccrual Loans and Loans Past Due Over 90 Days and Still Accruing
(Dollars in thousands)

			Loans past due
			over 90 days
			and still
	Nonaccrual		accruing
Real Estate Loans
Permanent
One-to four-family residential	$	27,250	$	—
Multifamily residential		6,517		—
Nonresidential		44,242		—
Land		11,655		—
Total		89,664		—
Construction Loans
One-to four-family residential		31,166		—
Multifamily and nonresidential		—		—
Total		31,166		—
Consumer Loans
Home Equity		3,273		—
Auto		146		—
Marine		—		—
Recreational vehicle		2,460		3
Other		7		—
Total		5,886		3
Commercial Loans
Secured		6,642		—
Unsecured		719		—
Total		7,361		—
Total	$	134,077	$	3

20

The following tables present the recorded investment in nonaccrual loans and loans past due over 90 days and still on accrual by class of loans as of December 31, 2010:

Nonaccrual Loans and Loans Past Due Over 90 Days and Still Accruing
(Dollars in thousands)

			Loans past due
			over 90 days
			and still
	Nonaccrual		accruing
Real Estate Loans
Permanent
One-to four-family residential	$	27,417	$	—
Multifamily residential		10,983		—
Nonresidential		39,838		—
Land		5,188		—
Total		83,426		—
Construction Loans
One-to four-family residential		40,077		3,944
Multifamily and nonresidential		382		2,032
Total		40,459		5,976
Consumer Loans
Home Equity		3,179		210
Auto		89		—
Marine		—		—
Recreational vehicle		93		144
Other		10		—
Total		3,371		354
Commercial Loans
Secured		1,822		—
Unsecured		4,123		—
Total		5,945		—
Total	$	133,201	$	6,330

21

The following tables present an age analysis of past-due loans, segregated by class of loans as of September 30, 2011:

Past Due Loans
(Dollars in thousands)

					Greater
	30-59		60-89		than 90
	Days Past		Days Past		Days Past		Total Past		Current		Total
	Due		Due		Due		Due		Loans		Loans
Real Estate Loans
Permanent
One-to four-family residential	$	2,495	$	3,768	$	20,825	$	27,088	$	650,620	$	677,708
Multifamily residential		—		—		5,455		5,455		119,915		125,370
Nonresidential		10,424		1,770		33,162		45,356		257,809		303,165
Land		—		417		10,108		10,525		11,647		22,172
Total		12,919		5,955		69,550		88,424		1,039,991		1,128,415
Construction Loans
One-to four-family residential		2,396		900		29,917		33,213		33,548		66,761
Multifamily and nonresidential		—		—		—		—		4,528		4,528
Total		2,396		900		29,917		33,213		38,076		71,289
Consumer Loans
Home Equity		1,788		924		2,263		4,975		190,156		195,131
Auto		60		15		68		143		9,775		9,918
Marine		142		523		—		665		5,318		5,983
Recreational vehicle		1,767		341		806		2,914		27,994		30,908
Other		17		5		7		29		3,398		3,427
Total		3,774		1,808		3,144		8,726		236,641		245,367
Commercial Loans
Secured		34		64		73		171		27,056		27,227
Unsecured		—		146		209		355		7,695		8,050
Total		34		210		282		526		34,751		35,277
Total	$	19,123	$	8,873	$	102,893	$	130,889	$	1,349,459	$	1,480,348

22

The following table presents an age analysis of past-due loans, segregated by class of loans as of December 31, 2010:

Past Due Loans
(Dollars in thousands)

					Greater
	30-59		60-89		than 90
	Days Past		Days Past		Days Past		Total Past		Current		Total
	Due		Due		Due		Due		Loans		Loans
Real Estate Loans
Permanent
One-to four-family residential	$	6,620	$	2,351	$	24,914	$	33,885	$	723,541	$	757,426
Multifamily residential		326		—		9,898		10,224		125,547		135,771
Nonresidential		1,888		13,146		30,382		45,416		285,974		331,390
Land		12		426		5,188		5,626		19,512		25,138
Total		8,846		15,923		70,382		95,151		1,154,574		1,249,725
Construction Loans
One-to four-family residential		3,688		7,579		42,855		54,122		54,461		108,583
Multifamily and nonresidential		—		—		2,414		2,414		12,663		15,077
Total		3,688		7,579		45,269		56,536		67,124		123,660
Consumer Loans
Home Equity		2,003		880		2,519		5,402		215,180		220,582
Auto		194		56		87		337		11,188		11,525
Marine		61		—		—		61		7,224		7,285
Recreational vehicle		1,693		618		188		2,499		33,172		35,671
Other		25		10		9		44		4,346		4,390
Total		3,976		1,564		2,803		8,343		271,110		279,453
Commercial Loans
Secured		163		—		1,822		1,985		26,891		28,876
Unsecured		43		—		3,554		3,597		13,831		17,428
Total		206		—		5,376		5,582		40,722		46,304
Total	$	16,716	$	25,066	$	123,830	$	165,612	$	1,533,530	$	1,699,142

Troubled Debt Restructurings:

Restructured loans were $47.7 million and $44.6 million at September 30, 2011 and December 31, 2010, respectively. The Company has allocated $2.0 million of specific reserves to customers whose loan terms were modified in troubled debt restructurings as of September 30, 2011. The Company had allocated $1.2 million of specific reserves to customers whose loan terms were modified in troubled debt restructurings as of December 31, 2010. Troubled debt restructurings are considered impaired and are included in the table above.

The Company has committed to lend additional amounts totaling up to $26.9 million as of September 30, 2011.

During the period ended September 30, 2011, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. Modifications involving a reduction of the stated interest rate of a loan were for periods ranging from six months to 28 years. Modifications involving an extension of the maturity date were for periods ranging from six months to three years.

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The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended September 30, 2011:

			Pre-Modification		Post-
			Outstanding		Modification
			Recorded		Recorded
	Number of loans		Investment		Investment
	(Dollars in thousands)
Real Estate Loans
Permanent
One-to four-family		15	$	1,311	$	1,260
Multifamily residential		—		—		—
Nonresidential		—		—		—
Land		—		—		—
Total		15		1,311		1,260
Construction Loans
One-to four-family residential		—		—		—
Multifamily and nonresidential		—		—		—
Total		—		—		—
Consumer Loans
Home Equity		1		93		93
Auto		—		—		—
Marine		—		—		—
Recreational vehicle		—		—		—
Other		—		—		—
Total		—		93		93
Commercial Loans
Secured		—		—		—
Unsecured		—		—		—
Total		—		—		—
Total Restructured Loans		16	$	1,404	$	1,353

The troubled debt restructurings described above increased the allowance for loan losses by $9,000 and resulted in no charge offs during the three months ending September 30, 2011.

24

The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ended September 30, 2011:

			Pre-
			Modification		Post-
			Outstanding		Modification
			Recorded		Recorded
	Number of loans		Investment		Investment
	(Dollars in thousands)
Real Estate Loans
Permanent
One-to four-family		38	$	4,521	$	4,491
Multifamily residential		2		2,246		2,246
Nonresidential		—		—		—
Land		1		2,027		1,476
Total		41		8,794		8,213
Construction Loans
One-to four-family residential		6		2,890		2,343
Multifamily and nonresidential		—		—		—
Total		6		2,890		2,343
Consumer Loans
Home Equity		1		93		93
Auto		1		21		21
Marine		—		—		—
Recreational vehicle		—		—		—
Other		—		—		—
Total		2		114		114
Commercial Loans
Secured		2		8,809		8,803
Unsecured		—		—		—
Total		2		8,809		8,803
Total Restructured Loans		51	$	20,607	$	19,473

The troubled debt restructurings described above increased the allowance for loan losses by $158,000 and resulted in charge offs of $439,000 during the nine months ended September 30, 2011.

25

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the period ended September 30, 2011:

	Number of		Recorded
	loans		Investment
	(Dollars in thousands)
Real Estate Loans
Permanent
One-to four-family		36	$	3,825
Multifamily residential		3		3,275
Nonresidential		4		2,343
Land		3		1,369
Total		46		10,812
Construction Loans
One-to four-family residential		6		1,696
Multifamily and nonresidential		—		—
Total		6		1,696
Consumer Loans
Home Equity		—		—
Auto		1		5
Marine		—		—
Recreational vehicle		—		—
Other		—		—
Total		1		5
Commercial Loans
Secured		1		6,569
Unsecured		1		—
Total		2		6,569
Total Restructured Loans		55	$	19,082

A troubled debt restructuring is considered to be in payment default once it is 30 days contractually past due under the modified terms.

The troubled debt restructurings that subsequently defaulted described above resulted in chargeoffs of $3.1 million during the period ended September 30, 2011, but had no effect on the allowance for loan losses.

The terms of certain other loans were modified during the period ended September 30, 2011 that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment as of September 30, 2011 of $15.4 million. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Company’s internal underwriting policy.

Certain loans which were modified during the nine months ended September 30, 2011 did not meet the definition of a troubled debt restructuring as the modification was a delay in a payment that was considered to be insignificant had delays in payment ranging from 180 days to 24 months.

26

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes homogenous loans past due 90 cumulative days, and all non-homogenous loans including commercial loans and commercial real estate loans.

Asset quality ratings are divided into two groups: Pass (unclassified) and Classified. Within the Pass group, loans that display potential weakness are risk rated as special mention. In addition, there are three Classified risk ratings: substandard, doubtful and loss. These specific credit risk categories are defined as follows:

Special Mention. Loans classified as special mention have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Loans may be housed in this category for no longer than 12 months during which time information is obtained to determine if the credit should be downgraded to the substandard category.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Loss. Loans classified as loss are considered uncollectible and of such little value, that continuance as assets is not warranted. Although there may be a chance of recovery on these assets, it is not practical or desirable to defer writing off the asset.

The Company monitors loans on a monthly basis to determine if they should be included in one of the categories listed above. All impaired non-homogeneous credits classified as Substandard, Doubtful or Loss are analyzed on an individual basis for a specific reserve requirement. This analysis is performed on each individual credit at least annually or more frequently if warranted.

27

As of September 30, 2011 and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

Loans
(Dollars in thousands)

	Unclassified				Classified
			Special								Total
	Unclassified		Mention		Substandard		Doubtful		Loss		Classified		Total Loans
Real Estate Loans
Permanent
One-to four-family residential	$	641,918	$	3,948	$	31,842	$	—	$	—	$	31,842	$	677,708
Multifamily residential		99,408		7,227		18,735		—		—		18,735		125,370
Nonresidential		172,853		18,890		111,422		—		—		111,422		303,165
Land		8,890		1,211		12,071		—		—		12,071		22,172
Total		923,069		31,276		174,070		—		—		174,070		1,128,415
Construction Loans
One-to four-family residential		29,243		3,214		31,117		3,187		—		34,304		66,761
Multifamily and nonresidential		4,528		—		—		—		—		—		4,528
Total		33,771		3,214		31,117		3,187		—		34,304		71,289
Consumer Loans
Home Equity		191,615		—		3,516		—		—		3,516		195,131
Auto		9,467		293		158		—		—		158		9,918
Marine		5,970		13		—		—		—		—		5,983
Recreational vehicle		28,397		—		2,511		—		—		2,511		30,908
Other		3,413		—		14		—		—		14		3,427
Total		238,862		306		6,199		—		—		6,199		245,367
Commercial Loans
Secured		17,632		258		9,337		—		—		9,337		27,227
Unsecured		5,393		171		2,486		—		—		2,486		8,050
Total		23,025		429		11,823		—		—		11,823		35,277
Total	$	1,218,727	$	35,225	$	223,209	$	3,187	$	—	$	226,396	$	1,480,348

28

As of December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

Loans
(Dollars in thousands)

	Unclassified				Classified
			Special								Total
	Unclassified		Mention		Substandard		Doubtful		Loss		Classified		Total Loans
Real Estate Loans
Permanent
One-to four-family residential	$	723,814	$	2,404	$	31,208	$	—	$	—	$	31,208	$	757,426
Multifamily residential		106,839		6,900		22,032		—		—		22,032		135,771
Nonresidential		200,816		55,197		75,377		—		—		75,377		331,390
Land		9,677		1,100		14,361		—		—		14,361		25,138
Total		1,041,146		65,601		142,978		—		—		142,978		1,249,725
Construction Loans
One-to four-family residential		47,308		6,122		55,021		132		—		55,153		108,583
Multifamily and nonresidential		1,091		13,604		382		—		—		382		15,077
Total		48,399		19,726		55,403		132		—		55,535		123,660
Consumer Loans
Home Equity		216,994		—		3,588		—		—		3,588		220,582
Auto		11,420		—		105		—		—		105		11,525
Marine		7,285		—		0		—		—		—		7,285
Recreational vehicle		35,430		—		241		—		—		241		35,671
Other		4,375		—		15		—		—		15		4,390
Total		275,504		—		3,949		—		—		3,949		279,453
Commercial Loans
Secured		14,608		1,327		12,134		807		—		12,941		28,876
Unsecured		9,327		2,132		4,304		1,665		—		5,969		17,428
Total		23,935		3,459		16,438		2,472		—		18,910		46,304
Total	$	1,388,984	$	88,786	$	218,768	$	2,604	$	—	$	221,372	$	1,699,142

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7. MORTGAGE BANKING ACTIVITIES

Mortgage loans serviced for others, which are not reported in United Community’s assets, totaled $1.1 billion at both September 30, 2011, and December 31, 2010.

Activity for capitalized mortgage servicing rights, included in other assets, was as follows:

	Nine Months
	Ended			Year Ended
	September 30,			December 31,
	2011			2010
	(Dollars in thousands)
Balance, beginning of year	$	6,400		$	6,228
Originations		1,409			2,621
Amortized to expense		(1,560	)		(2,449	)
Balance, end of period		6,249			6,400
Less valuation allowance		(1,415	)		(285	)
Net balance	$	4,834		$	6,115

Activity in the valuation allowance for mortgage servicing rights was as follows:

	Three Months						Twelve Months
	Ended September			Nine Months Ended			Ended December 31,
	30, 2011			September 30, 2011			2010
	(Dollars in thousands)
Balance, beginning of year	$	(58	)	$	(285	)	$	(423	)
Impairment charges		(1,357	)		(1,357	)		(1,279	)
Recoveries		—			227			1,417
Balance, end of period	$	(1,415	)	$	(1,415	)	$	(285	)

Fair value of mortgage servicing rights as of September 30, 2011 was approximately $6.4 million and at December 31, 2010 was approximately $8.2 million.

Key economic assumptions in measuring the value of mortgage servicing rights at June 30, 2011 and December 31, 2010 were as follows:

	September 30,	December 31,
	2011	2010
Weighted average prepayment rate	421 PSA	322 PSA
Weighted average life (in years)	3.65	3.71
Weighted average discount rate	8%	8%

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8. OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS

Real estate owned and other repossessed assets at September 30, 2011 and December 31, 2010 were as follows:

	September 30,			December 31,
	2011			2010
	(Dollars in thousands)
Real estate owned and other repossessed assets	$	46,668		$	47,668
Valuation allowance		(8,352	)		(7,332	)
End of period	$	38,316		$	40,336

Activity in the valuation allowance related to real estate owned was as follows:

	September 30,			December 31,
	2011			2010
	(Dollars in thousands)
Beginning of year	$	7,332		$	7,867
Additions charged to expense		4,040			4,572
Direct write-downs		(3,020	)		(5,107	)
End of period	$	8,352		$	7,332

Expenses related to foreclosed and repossessed assets include:

	For the three months ended September 30,
	2011		2010
	(Dollars in thousands)
Net loss on sales	$	395	$	407
Provision for unrealized losses, net		2,232		866
Operating expenses, net of rental income		361		1,027
Total expenses	$	2,988	$	2,300

	For the nine months ended September 30,
	2011		2010
	(Dollars in thousands)
Net loss on sales	$	941	$	1,282
Provision for unrealized losses, net		4,040		3,230
Operating expenses, net of rental income		2,125		2,658
Total expenses	$	7,106	$	7,170

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9. OTHER BENEFIT PLANS

Home Savings sponsors a defined benefit health care plan. The plan was curtailed in 2000, but continues to provide postretirement medical benefits for employees who had worked 20 years and attained a minimum age of 60 by September 1, 2000, while in service with Home Savings. The plan is contributory and contains minor cost-sharing features such as deductibles and coinsurance. In addition, postretirement life insurance coverage is provided for employees who were participants prior to December 10, 1976. The life insurance plan is non-contributory. Home Savings’ policy is to pay premiums monthly, with no pre-funding.

The benefit obligation was measured on December 31, 2010. Information about changes in obligations of the benefit plan follows:

	September 30, 2011			December 31, 2010
	(Dollars in thousands)
Change in Benefit Obligation:
Benefit obligation at beginning of year	$	2,778		$	3,405
Service cost		—			—
Interest cost		41			185
Actuarial (gain)/loss		—			(670	)
Benefits paid		(124	)		(142	)
Benefit obligation at end of the year	$	2,695		$	2,778
Funded status of the plan	$	(2,695	)	$	(2,778	)

The amounts recognized in accumulated other comprehensive income, net of tax consist of the following:

	September 30, 2011		December 31, 2010
	(Dollars in thousands)
Net gains (losses)	$	—	$	1,015
Prior service credit (cost)		—		1
	$	—	$	1,016

Components of net periodic benefit cost are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(Dollars in thousands)
Service cost	$	—		$	—		$	—		$	—
Interest cost		33			46			99			140
Expected return on plan assets		—			—			—			—
Net amortization of prior service cost		(1	)		(1	)		(1	)		(1	)
Recognized net actuarial gain		(19	)		—			(57	)		—
Net periodic benefit cost/(gain)	$	13		$	45		$	41		$	139
Assumptions used in the valuations were as follows
		5.00	%		5.75	%		5.00	%		5.75	%

401(k) Savings Plan:

Home Savings sponsors a defined contribution 401(k) savings plan, which covers substantially all employees. Under the provisions of the plan, Home Savings’ matching contribution is discretionary and may be changed from year to year. For 2011, Home Savings did not match employee contributions. For 2010, Home Savings’ match was 50% of pre-tax contributions, up to a maximum of 6% of the employees’ base pay. Participants become 100% vested in Home Savings contributions upon completion of three years of service. For the three and nine months ended September 30, 2010, the expense related to this plan were approximately $127,000 and $369,000, respectively.

32

Employee Stock Ownership Plan:

In conjunction with the Conversion, United Community established an Employee Stock Ownership Plan (ESOP) for the benefit of the employees of United Community and Home Savings. All full-time employees who meet certain age and years of service criteria are eligible to participate in the ESOP. The ESOP is a tax-qualified retirement plan designed to invest primarily in the stock of United Community. The ESOP borrowed $26.8 million from United Community to purchase 2,752,615 shares in conjunction with the Conversion. The term of the loan was 15 years and was being repaid primarily with contributions from Home Savings to the ESOP. Additionally, 1,643,817 shares were purchased with the return of capital distribution in 1999. During 2008, 42,890 shares were added to the plan from the stock dividend paid in the fourth quarter of that year.

The loan was collateralized by the common shares held by the ESOP. As the note was repaid, shares were released from collateral based on the proportion of the payment in relation to total payments required to be made on the loan. The shares released from collateral were then allocated to participants on the basis of compensation as described in the plan. Compensation expense is determined by multiplying the per share market price of United Community’s shares at the end of the period by the number of shares to be released. On June 29, 2010, the ESOP paid in full the remaining balance of the loan and Home Savings recognized $1.3 million in additional compensation expense in the second quarter as shares were allocated to plan participants. Proceeds from the ESOP loan prepayment gave United Community the opportunity to infuse approximately $9.0 million of capital into Home Savings, in addition to taking advantage of certain tax benefits available for these types of plans.

There are no shares left to be released for allocation in 2011. During the year ended December 31, 2010, 631,946 shares were released or committed to be released for allocation.

Employee Stock Purchase Plan:

During 2005, United Community established an employee stock purchase plan (ESPP). Under this plan, United Community provides employees of Home Savings the opportunity to purchase United Community Financial Corporation’s common shares through payroll deduction. Participation in the plan is voluntary and payroll deductions are made on an after-tax basis. The maximum amount an employee can have deducted is nine hundred dollars per biweekly pay. Shares are purchased on the open market and administrative fees are paid by United Community. Expense related to this plan is a component of the Shareholder Dividend Reinvestment Plan and the expense recognized is considered immaterial.

Executive Incentive Plan:

On April 28, 2011, the Compensation Committee and the Board of Directors of UCFC approved the 2011 Executive Incentive Plan (the “EIP”). The EIP provides incentive compensation awards to certain named executive officers (the “Named Executive Officers” as defined in the proxy statement filed on March 25, 2011) of UCFC and Home Savings. Executive incentive awards are dependent upon UCFC recognizing net income for the year. The amount of award paid to executives is based upon the actual performance of UCFC for the 12 months ending September 30 compared to the actual performance of a peer group during the same 12 month period. As of September 30, 2011, no expense has been recognized for this plan.

Stay Bonus and Retention Plan:

On April 28, 2011, the Compensation Committee (the “Committee”) and the Boards of Directors of UCFC and Home Savings adopted the Stay Bonus and Retention Plan (the “Retention Plan”) for the purpose of recruiting and retaining qualified officers and employees. The officers and employees recommended for participation by the Committee must be approved by at least a majority of the independent members of the Board. As of the effective date of the Retention Plan, there were twenty-eight participants in the plan. The list of participants may be amended from time to time by the Board and the Committee in their sole and absolute discretion. Each participant must be actively employed by UCFC or Home Savings at the time any award is granted and/or paid.

Each eligible participant will receive a cash award of $1,000 on the first regular pay date occurring in January 2012, subject to all applicable Federal, state and local payroll taxes. If the Board of Home Savings receives official notice that the Bank Order has been terminated, each eligible participant will also be paid a cash award (50% of total award) and granted an equity award (50% of total award). Equity awards will be granted in the form of restricted shares issued under the 2007 Plan and vest one year after the grant date. The total award upon termination of the Bank Order is based upon a specified percentage of each participant’s base salary, which percentage is determined by the Board and may be amended from time to time by the Board and the Committee in their sole and absolute discretion. In the event that a participant’s employment is terminated for cause prior to the date upon which a cash award is actually paid to the participant or the participant’s equity award has vested, the participant forfeits all his or her rights, title or interest in any such cash or equity award, and the participant shall not be entitled to receive all or any part of the cash or equity award.

33

Subject to any limitations contained in the 2007 Plan, the Board may, at any time and from time to time, amend, modify or suspend the Retention Plan and all rules and guidelines under the Retention Plan; provided, however, that no such amendment, modification, suspension or termination shall impair or adversely alter any cash award or equity award previously granted under the Retention Plan without the consent of the affected participant.

For the three and nine months ended September 30, 2011, the expense recognized for this plan was approximately $215,000. Home Savings expects to recognize an additional $129,000 in expense associated with this plan for the remainder of 2011.

10. FAIR VALUE MEASUREMENT

Fair value is the exchange price that would be received for an asset if paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own beliefs about the assumptions that market participants would use in pricing an asset or liability.

United Community uses the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Available for sale securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

Impaired loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Foreclosed assets: Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (OREO) are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

Mortgage servicing rights: Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively based on a valuation model that calculates the present value of estimated future net servicing income.

Loans held for sale: Loans held for sale are carried at the lower of cost or fair value, as determined by outstanding commitments, from third party investors.

34

Assets and Liabilities Measured on a Recurring Basis: Assets and liabilities measured at fair value on a recurring basis are summarized below:

			Fair Value Measurements at September 30, 2011 Using:
			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	September 30,		Assets		Inputs		Inputs
	2011		(Level 1)		(Level 2)		(Level 3)
	(Dollars in thousands)
Assets:
Available for sale securities
US Treasury and government sponsored entities’ securities	$	68,533	$	—	$	68,533	$	—
Equity securities		247		247		—		—
Mortgage-backed GSE securities: residential		347,680		—		347,680		—

			Fair Value Measurements at December 31, 2010 Using:
			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs
	2010		(Level 1)		(Level 2)		(Level 3)
	(Dollars in thousands)
Assets:
Available for sale securities
US Treasury and government sponsored entities’ securities	$	62,935	$	—	$	62,935	$	—
Equity securities		394		394		—		—
Mortgage-backed GSE securities: residential		298,713		—		298,713		—

35

Assets and Liabilities Measured on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

			Fair Value Measurements at September 30, 2011 Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	September 30,		Identical Assets		Inputs		Inputs
	2011		(Level 1)		(Level 2)		(Level 3)
	(Dollars in thousands)
Assets:
Impaired loans
Permanent real estate loans	$	46,287	$	—	$	—	$	46,287
Construction loans		20,996		—		—		20,996
Commercial loans		7,404		—		—		7,404
Mortgage servicing assets		4,014		—		4,014		—
Foreclosed assets
Permanent real estate loans		7,431		—		—		7,431
Construction loans		7,144		—		—		7,144

			Fair Value Measurements at December 31, 2010 Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	December 31,		Identical Assets		Inputs		Inputs
	2010		(Level 1)		(Level 2)		(Level 3)
	(Dollars in thousands)
Assets:
Impaired loans
Permanent real estate loans	$	49,235	$	—	$	—	$	49,235
Construction loans		20,229		—		—		20,229
Commercial loans		1,694		—		—		1,694
Loans held for sale		10,845		—		10,845		—
Mortgage servicing assets		2,278		—		2,278		—
Foreclosed assets
Permanent real estate loans		3,930		—		—		3,930
Construction loans		10,527		—		—		10,527

Impaired loans with specific allocations of the allowance for loan losses, carried at fair value, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $86.9 million at September 30, 2011, with a specific valuation allowance of $12.2 million. This resulted in an additional provision for loan losses of $1.8 million during the three months ended September 30, 2011 and $12.6 million for the nine months ended September 30, 2011. Impaired loans with specific allocations of the allowance for loan losses, carried at fair value, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $68.9 million at September 30, 2010, with a specific valuation allowance of $10.7 million, resulting in additional provision for loan losses of $131,000 during three months ended September 30, 2010, and $7.2 million for the nine months ended September 30, 2010. Impaired loans with specific allocations of the allowance for loan losses, carried at fair value, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $84.6 million at December 31, 2010, with a specific valuation allowance of $13.4 million, resulting in additional provision for loan losses of $47.9 million during 2010.

36

Mortgage servicing rights had a carrying amount of $5.4 million with a valuation allowance of $1.4 million at September 30, 2011, resulting in additional expenses of $1.4 million during the three and nine months ended September 30, 2011. Mortgage servicing rights are valued by an independent third party that is active in purchasing and selling these instruments. The value reflects the characteristics of the underlying loans discounted at a market multiple.

Foreclosed assets, carried at fair value, which are measured for impairment using the fair value of the property less estimated selling costs, had a carrying amount of $22.9 million, with a valuation allowance of $8.4 million at September 30, 2011. This resulted in additional expenses of $2.2 million during the three months ended September 30, 2011 and $4.0 million for the nine months ended September 30, 2011.

In accordance with generally accepted accounting principles, the carrying value and estimated fair values of financial instruments, at September 30, 2011 and December 31, 2010, were as follows:

	September 30, 2011						December 31, 2010
	Carrying			Fair			Carrying			Fair
	Value			Value			Value			Value
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	49,158		$	49,158		$	37,107		$	37,107
Available for sale securities		416,460			416,460			362,042			362,042
Loans held for sale		38,366			38,691			10,870			10,870
Loans, net		1,437,575			1,462,125			1,649,486			1,675,610
Federal Home Loan Bank stock		26,464			n/a			26,464			n/a
Accrued interest receivable		7,016			7,016			7,720			7,720
Liabilities:
Deposits:
Checking, savings and money market accounts		(849,869	)		(849,869	)		(779,301	)		(779,301	)
Certificates of deposit		(838,072	)		(852,192	)		(910,480	)		(925,325	)
Federal Home Loan Bank advances		(88,324	)		(97,089	)		(202,818	)		(210,497	)
Repurchase agreements and other		(90,623	)		(103,096	)		(97,797	)		(107,299	)
Advance payments by borrowers for taxes and insurance		(13,202	)		(13,202	)		(20,668	)		(20,668	)
Accrued interest payable		(793	)		(793	)		(809	)		(809	)

Fair value of financial instruments:

The estimated fair values of financial instruments have been determined by United Community using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that United Community could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Cash and cash equivalents, accrued interest receivable and payable and advance payments by borrowers for taxes and insurance—The carrying amounts as reported in the Statements of Financial Condition are a reasonable estimate of fair value due to their short-term nature.

Securities—Fair values are based on quoted market prices, dealer quotes, and prices obtained from independent pricing services.

Loans held for sale—The fair value of loans held for sale is based on market quotes.

Loans—The fair value is estimated by discounting the future cash flows using the current market rates for loans of similar maturities with adjustments for market and credit risks.

Federal Home Loan Bank stock—It is not practical to determine the fair value of Federal Home Loan Bank stock due to restrictions placed on its transferability.

37

Deposits—The fair value of demand deposits, savings accounts and money market deposit accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using rates currently offered for deposits of similar remaining maturities.

Borrowed funds—For short-term borrowings, fair value is estimated to be carrying value. The fair value of other borrowings is based on current rates for similar financing.

Limitations—Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time United Community’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of United Community’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature, involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on and off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, a significant asset not considered a financial asset is premises and equipment. In addition, tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

11. STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURE

Supplemental disclosures of cash flow information are summarized below.

	For the nine months ended
	September 30, 2011			September 30, 2010
	(Dollars in thousands)
Supplemental disclosures of cash flow information
Cash paid (refunded) during the period for:
Interest on deposits and borrowings	$	23,595		$	31,250
Income taxes		(3,537	)		(984	)
Supplemental schedule of noncash activities:
Transfers from loans to real estate owned and other repossessed assets		17,017			28,777
Transfers from loans to loans held for sale		96,845			—
Transfers from premises and equipment to other assets		1,750			—

12. SEGMENT INFORMATION

All of the Company’s financial service operations are considered by management to be aggregated in one reportable operating segment, which is banking services.

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13. EARNINGS PER SHARE

Earnings per share are computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted earnings per share is 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. Stock options for 1,992,671 shares were anti-dilutive for the three months ended September 30, 2011. There were 2,251,575 stock options for shares that were anti-dilutive for the three months ended September 30, 2010. Stock options for 1,992,497 shares were anti-dilutive for the nine months ended September 30, 2011. There were 2,227,827 stock options for shares that were anti-dilutive for the nine months ended September 30, 2010.

	Three Months Ended
	September 30,
	2011			2010
	(Dollars in thousands)
Numerator:
Net loss	$	(8,864	)	$	(9,915	)
Denominator:
Weighted average common shares outstanding—basic		30,953			30,899
Dilutive effect of stock options		—			—
Weighted average common shares outstanding—dilutive		30,953			30,099
Basic loss per share:		(0.29	)		(0.32	)
Dilutive loss per share:		(0.29	)		(0.32	)

	Nine Months Ended
	September 30,
	2011			2010
	(Dollars in thousands)
Numerator:
Net loss	$	(7,698	)	$	(19,942	)
Denominator:
Weighted average common shares outstanding—basic		30,936			30,301
Dilutive effect of stock options		—			—
Weighted average common shares outstanding—dilutive		30,936			30,301
Basic loss per share:		(0.25	)		(0.66	)
Dilutive loss per share:		(0.25	)		(0.66	)

39

14. OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) included in the Consolidated Statements of Shareholders’ Equity consists of unrealized gains and losses on available for sale securities and changes in unrealized gains and losses on postretirement liability. The change includes reclassification of gains on sales of securities of $3.5 million and impairment charges of $73,000 at September 30, 2011, and gains on sales of securities of $7.3 million and impairment charges of $44,000 at September 30, 2010.

Other comprehensive income (loss) components and related tax effects for the three month periods are as follows:

	Three months ended
	September 30,			September 30,
	2011			2010
	(Dollars in thousands)
Unrealized holding gain (loss) on securities available for sale	$	10,141		$	(1,677	)
Reclassification adjustment for net gains realized in income		(1,923	)		(737	)
Net unrealized gain/(loss)		8,218			(2,414	)
Tax effect		—			845
Net of tax amount	$	8,218		$	(1,569	)

Other comprehensive income (loss) components and related tax effects for the nine month periods are as follows:

	Nine months ended
	September 30,			September 30,
	2011			2010
	(Dollars in thousands)
Unrealized holding gain on securities available for sale	$	17,346		$	4,962
Reclassification adjustment for net gains realized in income		(3,427	)		(7,251	)
Net unrealized gains/(loss)		13,919			(2,289	)
Tax effect		—			801
Net of tax amount	$	13,919		$	(1,488	)

The following is a summary of accumulated other comprehensive income (loss) balances, net of tax:

				Current		Balance at
	Balance at			Period		September 30,
	December 31, 2010			Change		2011
Unrealized gains (losses) on securities available for sale	$	(5,673	)	$	13,919	$	8,246
Unrealized gains on post-retirement benefits		895			—		895
Total	$	(4,778	)	$	13,919	$	9,141

15. REGULATORY CAPITAL REQUIREMENTS

Home Savings is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on Home Savings and United Community. The regulations require Home Savings to meet specific capital adequacy guidelines and the regulatory framework for prompt corrective action that involve quantitative measures of Home Savings’ assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. Home Savings’ capital classification is also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

40

Quantitative measures established by regulation for capital adequacy require Home Savings to maintain minimum amounts and ratios of Tier 1 (or Core) capital (as defined in the regulations) to average total assets (as defined) and of total risk-based capital (as defined) to risk-weighted assets (as defined). Actual and statutory required capital amounts and ratios for Home Savings are presented below.

	As of September 30, 2011
						Minimum Capital
	Actual					Requirements Per Bank Order
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
Total risk-based capital to risk-weighted assets	$	189,362		13.25	%	$	171,471		12.00	%
Tier 1 capital to risk-weighted assets		171,176		11.98	%		*		*
Tier 1 capital to average total assets (Tier 1 leverage ratio)		171,176		8.13	%		168,369		8.00	%

	As of September 30, 2011
						To Be Well Capitalized Under
	Minimum Capital					Prompt Corrective Action
	Requirements Per Regulation					Provisions**
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
Total risk-based capital to risk-weighted assets	$	114,314		8.00	%	$	142,892		10.00	%
Tier 1 capital to risk-weighted assets		*		*			85,735		6.00	%
Tier 1 capital to average total assets (Tier 1 leverage ratio)		84,184		4.00	%		105,230		5.00	%

	As of December 31, 2010
						Minimum Capital
	Actual					Requirements Per Bank Order
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
Total risk-based capital to risk-weighted assets	$	197,891		12.54	%	$	189,412		12.00	%
Tier 1 capital to risk-weighted assets		177,776		11.26	%		*		*
Tier 1 capital to average total assets (Tier 1 leverage ratio)		177,776		7.84	%		181,513		8.00	%

	As of December 31, 2010
						To Be Well Capitalized Under
	Minimum Capital					Prompt Corrective Action
	Requirements Per Regulation					Provisions**
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
Total risk-based capital to risk-weighted assets	$	126,274		8.00	%	$	157,843		10.00	%
Tier 1 capital to risk-weighted assets		*		*			94,706		6.00	%
Tier 1 capital to average total assets (Tier 1 leverage ratio)		90,757		4.00	%		113,446		5.00	%

*	Amount/Ratio is not required under the Bank Order or regulations.
**	As of September 30, 2011 and December 31, 2010, respectively, the FDIC categorized Home Savings as adequately capitalized pursuant to the Bank Order and OTS Order (as amended) discussed in Note 2. Home Savings cannot be considered well capitalized while the Bank Order is in place.

41

As of September 30, 2011 and December 31, 2010, respectively, the FDIC categorized Home Savings as adequately capitalized pursuant to the Bank Order discussed in Note 2. Home Savings cannot be considered well capitalized while the Bank Order is in place. The Bank Order requires Home Savings to measure its Tier 1 Leverage Ratio and Total Risk-based Capital Ratio at the end of every quarter. Under the terms of the Bank Order, if Home Savings’ Tier 1 Leverage Ratio falls below 8.0% or if its Total Risk-based Capital Ratio falls below 12.0% at the end of any given quarter, then Home Savings must restore its capital ratios to the required levels within 90 days. At December 31, 2010, Home Savings’ Tier 1 Leverage Ratio was 7.84% and its Total Risk-based Capital Ratio was 12.54%. Under the terms of the Bank Order, Home Savings was required to and successfully achieved the 8.0% Tier 1 Leverage Ratio by March 31, 2011.

Events beyond management’s control, such as fluctuations in interest rates or a downturn in the economy in areas in which Home Savings’ loans and securities are concentrated, could adversely affect future earnings, and consequently Home Savings’ ability to meet its future capital requirements. Refer to Note 2 for a complete discussion of the regulatory enforcement actions.

16. INCOME TAXES

Management recorded a valuation allowance against deferred tax assets at September 30, 2011 and December 31, 2010, based on its estimate of future reversal and utilization. When determining the amount of deferred tax assets that are more-likely-than-not to be realized, and therefore recorded as a benefit, the Company conducts a regular assessment of all available information. This information includes, but is not limited to, taxable income in prior periods, projected future income, and projected future reversals of deferred tax items. Based on these criteria, the Company determined that it was necessary to establish a full valuation allowance against the entire net deferred tax asset. As of September 30, 2011, the Company has a deferred tax asset of $18.0 million and a deferred tax asset valuation of $18.0 million, resulting in a net deferred tax asset of $0.

17. OTHER EVENTS

On August 31, 2011, Home Savings entered into a Purchase and Assumption Agreement with The Croghan Colonial Bank (“Croghan”), a wholly-owned subsidiary of Croghan Bancshares, Inc., for the sale of four of its western-most branches, located in Fremont, Clyde, Tiffin (Westgate) and downtown Tiffin, Ohio. In the transaction, Croghan will assume all of the deposit liabilities and buy the related fixed assets of the branches. Croghan will pay a premium of 4.0% (or approximately $4.5 million) on all non-jumbo, non-brokered and non-public deposits, which together represent all of the deposits at the branches. In addition, Croghan will acquire performing consumer and residential loans associated with the branches. As of September 30, 2011, there were approximately $111.3 million in deposits and $26.2 million in performing consumer and residential loans at the branches. Home Savings also reclassified $1.8 million in fixed assets from premises and equipment to other assets on the balance sheet at the time of the announcement. Croghan anticipates retaining the Home Savings employees at the branches. The transaction, which is subject to regulatory approval and certain closing conditions, is expected to be completed during the fourth quarter of 2011.

In October 2011, the Investment and Asset/Liability Committees of Home Savings approved the sale of approximately $230.0 million in existing 20-year mortgage-backed securities with a weighted average coupon of 4.30%. The sale of these securities resulted in the recognition of a gain in October of $4.5 million. Proceeds from the sale were reinvested throughout October, in 30-year mortgage-backed securities with a coupon of 4.0%. The Bank also purchased $100.0 million notional value of interest rate caps as part of this strategy to hedge the additional interest rate risk. The caps are for five years and have a strike price of 1.50% on 3 month LIBOR.

42

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 Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Selected financial ratios and other data: (1)
Performance ratios:
Return on average assets (2)		-1.69	%		-1.70	%		-0.48	%		-1.15	%
Return on average equity (3)		-18.98	%		-18.41	%		-5.61	%		-12.11	%
Interest rate spread (4)		2.97	%		3.22	%		3.15	%		3.10	%
Net interest margin (5)		3.18	%		3.42	%		3.36	%		3.33	%
Non-interest expense to average assets		2.78	%		2.69	%		2.94	%		2.88	%
Efficiency ratio (6)		79.67	%		66.80	%		74.27	%		75.76	%
Average interest-earning assets to average interest-bearing liabilities		113.30	%		112.07	%		112.86	%		112.78	%
Capital ratios:
Average equity to average assets		8.90	%		9.23	%		8.60	%		9.49	%
Equity to assets, end of period		8.82	%		8.69	%		8.82	%		8.69	%
Tier 1 leverage ratio		8.13	%		8.23	%		8.13	%		8.23	%
Tier 1 risk-based capital ratio		11.98	%		11.85	%		11.98	%		11.85	%
Total risk-based capital ratio		13.25	%		13.21	%		13.25	%		13.12	%
Asset quality ratios:
Non-performing loans to total loans at end of period (7)		9.33	%		8.27	%		9.33	%		8.27	%
Non-performing assets to average assets (8)		8.22	%		8.74	%		8.10	%		7.91	%
Non-performing assets to total assets at end of period (8)		8.32	%		7.90	%		8.32	%		7.90	%
Allowance for loan losses as a percent of loans		2.98	%		2.31	%		2.98	%		2.31	%
Allowance for loan losses as a percent of nonperforming loans (7)		32.94	%		28.65	%		32.94	%		28.65	%
Texas ratio (9)		76.12	%		75.72	%		76.12	%		75.72	%
Total classified assets as a percent of Tier 1 capital		132.26	%		108.87	%		132.26	%		108.87	%
Total classified loans as a percent of Tier 1 capital and ALLL		105.14	%		89.73	%		105.14	%		89.73	%
Total classified assets as a percent of Tier 1 capital and ALLL		122.93	%		107.06	%		122.93	%		107.06	%
Net charge-offs as a percent of average loans		3.75	%		3.85	%		2.46	%		3.05	%
Total 90+ days past due as a percent of total loans		7.59	%		7.81	%		7.59	%		7.81	%
Office data:
Number of full service banking offices		38			38			38			38
Number of loan production offices		7			6			7			6
Per share data:
Basic earnings (loss) (10)	$	(0.29	)	$	(0.32	)	$	(0.25	)	$	(0.66	)
Diluted earnings (loss) (10)		(0.29	)		(0.32	)		(0.25	)		(0.66	)
Book value (11)		5.90			6.51			5.90			6.51
Tangible book value (12)		5.88			6.48			5.88			6.48

Notes:
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, 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 branch
7.	Nonperforming loans consist of nonaccrual loans and loans past due ninety days and still accruing
8.	Nonperforming assets consist of nonperforming loans, real estate owned and other repossessed assets
9.	Nonperforming assets divided by the sum of tangible common equity and the allowance for loan losses
10.	Net income (loss) divided by the number of basic or diluted shares outstanding
11.	Shareholders’ equity divided by number of shares outstanding
12.	Shareholders’ equity minus core deposit intangible divided by the number of shares outstanding

43

Forward Looking Statements

When used in this Form 10-Q the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including changes in economic conditions in United Community’s market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in Home Savings’ market area, and competition, that could cause actual results to differ materially from results presently anticipated or projected. United Community cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. United Community advises readers that the factors listed above could affect United Community’s financial performance and could cause United Community’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. United Community undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made.

Comparison of Financial Condition at September 30, 2011 and December 31, 2010

Total assets decreased $126.3 million to $2.1 billion at September 30, 2011, compared to December 31, 2010. Contributing to the change were decreases in net loans of $211.9 million, premises and equipment of $2.9 million, real estate owned and other repossessed assets of $2.0 million and other assets of $3.4 million. These decreases were partially offset by increases in available for sale securities of $54.4 million and net loans held for sale of $27.5 million.

Net loans decreased $211.9 million during the first nine months of 2011. The primary source of the decrease was a bulk mortgage loan sale that took place in the second quarter of 2011. The Company sold $70.4 million in fixed rate 15 and 30-year residential mortgage loans and subsequently realized a $2.7 million gain. These mortgage loans were specifically identified based on seasoned loan guidelines using Fannie Mae eligibility criteria and designated for sale in response to the protracted period of lower rates and prepayment speeds being experienced eroded the value of these loans. In addition, reinvestment of proceeds into investment securities provides the Company with more liquidity options. Further contributing to the decline was the reduction in the Company’s construction and segments of its commercial real estate loan portfolios as a result of executing its strategic objective of reducing these portfolios in the current economic environment.

Available for sale securities increased $54.4 million during the first nine months of 2011 as a result of various securities transactions initiated in the first nine months of 2011. During the first nine months of 2011, the Company sold approximately $198.4 million in securities, recognizing $3.5 million in gains. These sales were completed in part to capture a portion of the gains in the portfolio due to continued spread tightening on mortgage-backed and agency securities. The Company offset these sales with $268.0 million in purchases of additional securities. These purchases of higher coupon mortgage-backed securities were made to partially offset the effect of the bulk loan sale. This action will afford the Company some yield protection should longer term rates begin to rise and/or prepayment speeds begin to slow. Maturities and paydowns of $27.1 million accounted for the remainder of the change.

The allowance for loan losses decreased to $44.2 million, which is 2.98% of the net loan portfolio and 32.94% of nonperforming loans as of September 30, 2011, down from $50.9 million or 2.99% of the net loan portfolio and 36.47% of nonperforming loans as of December 31, 2010. A loan loss provision totaling $22.3 million during the nine months ended September 30, 2011 was offset by net charge-offs totaling $29.0 million. Loan losses are charged against the allowance when the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are added back to the allowance. Home Savings’ allowance for loan loss methodology includes allowance allocations calculated in accordance with ASC Topic 310, “Receivables” and allowance allocations calculated in accordance with ASC Topic 450, “Contingencies”. Accordingly, the methodology is based on an analysis using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations, estimated collateral values, general economic conditions in the market area and other factors. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component of the allowance covers pools of loans evaluated as a homogeneous group using a historical charge-off experience factor applied to each pool of loans. The historical charge-off experience factor is also adjusted for certain environmental factors. Home Savings’ process for determining the appropriate level of the allowance for possible loan losses is designed to account for credit deterioration as it occurs. The provision for possible loan losses reflects loan quality trends, including the levels of and trends related to nonaccrual loans, past due loans, classified loans and net charge-offs or recoveries, among other factors.

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	Allowance For Loan Losses
	(Dollars in thousands)
	December 31,										September 30,
Real Estate Loans	2010		Provision			Recovery		Chargeoff			2011
Permanent
One-to four-family residential	$	8,139	$	2,454		$	348	$	(3,153	)	$	7,788
Multifamily residential		5,082		(933	)		85		(1,713	)		2,521
Nonresidential		12,559		12,994			112		(6,716	)		18,949
Land		2,286		2,542			109		(1,127	)		3,810
Total		28,066		17,057			654		(12,709	)		33,068
Construction Loans
One-to four-family residential		8,260		6,364			297		(10,488	)		4,433
Multifamily and nonresidential		273		(79	)		—		(101	)		93
Total		8,533		6,285			297		(10,589	)		4,526
Consumer Loans
Home Equity		2,964		145			73		(1,246	)		1,936
Auto		104		(43	)		29		(12	)		78
Marine		361		428			1		(576	)		214
Recreational vehicle		1,519		1,537			85		(694	)		2,447
Other		312		(180	)		247		(269	)		110
Total		5,260		1,887			435		(2,797	)		4,785
Commercial Loans
Secured		2,611		(968	)		56		(1,087	)		612
Unsecured		6,413		(1,989	)		141		(3,394	)		1,171
Total		9,024		(2,957	)		197		(4,481	)		1,783
Total	$	50,883	$	22,272		$	1,583	$	(30,576	)	$	44,162

In the first nine months of 2011, the level of the allowance for loan losses decreased $6.7 million when compared to December 31, 2010. During the first nine months of 2011, the level of net loans charged off exceeded the loan loss provision by approximately $6.7 million. Timing differences can exist between the period in which an initial provision is recognized and the subsequent period in which the loss is confirmed and the resulting charge-off recognized. As a result, it is possible to have charge-offs exceed the provision for loan losses in the various loan categories. There were three major categories, multifamily residential real estate, one-to four-family residential construction and commercial loans (both secured and unsecured), where the level of charge-offs exceeded the provision recognized in 2011. In the fourth quarter of 2010, Home Savings incurred substantial provision expense to increase both the general and specific reserves based on deterioration experienced in the loan portfolio in these three loan categories. In the first nine months of 2011, certain loans were charged off where reserves were established in a previous period. Many of these loans were resolved through note sales, where chargeoffs of $1.8 million in the third quarter of 2011 and $5.4 million in the first nine months of 2011 were necessary to bring the loan balance down to an agreed upon value for resolution. These actions caused the level of loan charge-offs to exceed the provision expense in the current reporting period.

The $1.7 million in charge-offs in multifamily residential loans exceeded the provision by $780,000, and was comprised of three relationships that had $991,000 in specific reserves at December 31, 2010 related to probable incurred losses in connection with these loans. Additionally, the principal balance of loans in this category declined $10.4 million during the first nine months of 2011 resulting in reduced general reserves being required. The historical charge-off factor has also decreased in this category during the first nine months of 2011.

One-to four-family residential construction loan charge-offs exceeded provision expense by approximately $4.1 million in 2011. With regard to the $10.5 million in charge-offs, the Bank had reserved $4.3 million at December 31, 2010. These one-to four-family residential construction loan principal balances have declined $33.9 million, and the historical loss experience has resulted in a decrease in the historical charge-off experience factor through the first nine months of 2011.

45

A total of 31 loans comprise the $4.5 million in secured and unsecured commercial loan charge-offs, which exceeded the provision for this loan loss category by $1.5 million during the first nine months of 2011. As of December 31, 2010, Home Savings had set aside $4.8 million in reserves on these loans. Principal balances in this category have declined $11.0 million since December 31, 2010, to $35.3 million, of which $8.2 million has been individually evaluated for impairment by the Bank. Additionally, a majority of the decline in this portfolio was in the unsecured category, which typically requires higher allowance for loan loss allocation than secured loans, resulting in a reduction to the estimated allowance for loan losses at September 30, 2011.

Accordingly, as a result of reserves being established in previous periods, a decline in principal balances and changes in historical loss factors, the level of charge-offs for the year has exceeded the provision for loan losses in these loan categories.

A nonhomogeneous loan is considered impaired when, based on current information and events, it is probable that Home Savings will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the strength of guarantors (if any). Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the facts and circumstances surrounding the loans and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, the amount of shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis by the fair value of the collateral if the loan is collateral dependent, the present value of expected future cash flows discounted at the loan’s effective interest rate, or the market value of the loan. The following table summarizes the change in impaired loans during the first nine months of 2011.

Impaired Loans
(Dollars in thousands)

	September 30,		December 31,
Real Estate Loans	2011		2010		Change
Permanent
One-to four-family residential	$	29,353	$	25,493	$	3,860
Multifamily residential		7,178		11,487		(4,309	)
Nonresidential		69,026		59,243		9,783
Land		11,871		5,569		6,302
Total		117,428		101,792		15,636
Construction Loans
One-to four-family residential		34,322		46,672		(12,350	)
Multifamily and nonresidential		—		—		—
Total		34,322		46,672		(12,350	)
Consumer Loans
Home Equity		1,050		1,438		(388	)
Auto		68		55		13
Boat		—		—		—
Recreational vehicle		47		47		—
Other		7		7		—
Total		1,172		1,547		(375	)
Commercial Loans
Secured		7,688		2,171		5,517
Unsecured		875		4,273		(3,398	)
Total		8,563		6,444		2,119
Total Impaired Loans	$	161,485	$	156,455	$	5,030

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The increase in impaired loans is primarily attributable to nine loans aggregating $30.3 million, for which, in the opinion of management, Home Savings will not be able to collect all payments of principal or interest due thereon according to their respective contractual terms. These loans were partially offset by twelve loans aggregating $24.4 million being resolved and removed from impaired status. A loan may be resolved through foreclosure and repossession by Home Savings, charged off, sold to a third-party, or by long-term performance according to contractual terms. Over the course of the first nine months of 2011, loans identified for impairment have diminished. During all of 2010, 386 loans aggregating $121.1 million were evaluated and identified as being impaired. During 2011, 216 loans aggregating $68.3 million were evaluated and identified as impaired.

The change in troubled debt restructurings for the nine months ended September 30, 2011 is as follows:

Troubled Debt Restructurings

	September 30,		December 31,
	2011		2010		Change
	(Dollars in thousands)
Real Estate Loans
Permanent
One-to four-family	$	13,896	$	10,830	$	3,066
Multifamily residential		3,275		2,410		865
Nonresidential		19,203		22,313		(3,110	)
Land		1,474		1,344		130
Total		37,848		36,897		951
Construction Loans
One-to four-family residential		2,666		6,879		(4,213	)
Multifamily and nonresidential		—		—		—
Total		2,666		6,879		(4,213	)
Consumer Loans
Home Equity		148		347		(199	)
Auto		23		9		14
Marine		—		—		—
Recreational vehicle		—		—		—
Other		7		7		—
Total		178		363		(185	)
Commercial Loans
Secured		6,965		348		6,617
Unsecured		59		84		(25	)
Total		7,024		432		6,592
Total Restructured Loans	$	47,716	$	44,571	$	3,145

Once a restructured loan has fallen into nonaccrual status, the restructured loan will remain on nonaccrual status for a period of at least six months until the borrower has demonstrated a willingness and ability to make the restructured loan payments. Troubled debt restructured loans that were on nonaccrual status aggregated $16.9 million and $11.2 million at September 30, 2011 and December 31, 2010, respectively. Such loans are considered nonperforming loans. The increase in nonaccruing troubled debt restructured loans can largely be attributed to two loans aggregating $2.8 million, for which, in the opinion of management, Home Savings will not be able to collect all payments of principal or interest due according to contractual terms. Troubled debt restructured loans that were accruing according to their terms aggregated $30.8 million and $33.3 million at September 30, 2011 and December 31, 2010, respectively.

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Nonperforming loans consist of nonaccrual loans and loans past due ninety days and still accruing. Nonperforming loans were $134.1 million, or 9.33% of net loans, at September 30, 2011, compared to $139.5 million, or 8.46% of net loans, at December 31, 2010. The schedule below summarizes the change in nonperforming loans over the first nine months of 2011.

Nonperforming Loans
(Dollars in thousands)

	September 30,		December 31,
	2011		2010		Change
Real Estate Loans
Permanent
One-to four-family residential	$	27,250	$	27,417	$	(167	)
Multifamily residential		6,517		10,983		(4,466	)
Nonresidential		44,243		39,838		4,405
Land		11,655		5,188		6,467
Total		89,665		83,426		6,239
Construction Loans
One-to four-family residential		31,166		44,022		(12,856	)
Multifamily and nonresidential		—		2,413		(2,413	)
Total		31,166		46,435		(15,269	)
Consumer Loans
Home Equity		3,273		3,389		(116	)
Auto		147		89		58
Marine		—		—		—
Recreational vehicle		2,463		237		2,226
Other		7		10		(3	)
Total		5,890		3,725		2,165
Commercial Loans
Secured		6,642		1,822		4,820
Unsecured		719		4,122		(3,403	)
Total		7,361		5,944		1,417
Total Nonperforming Loans	$	134,082	$	139,530	$	(5,448	)

During the first nine months of 2011, two nonresidential loan relationships (consisting of five loans in total), four land loans, three recreational vehicle loans and one secured commercial loan, aggregating $25.8 million, became nonperforming. This was offset by a total of 51 loans (two multifamily loans, three nonresidential loans, 42 construction loans, two nonresidential construction loans and two unsecured commercial loans) being resolved through foreclosure, sales and chargeoffs.

Loans held for sale increased $27.5 million, to $38.4 million at September 30, 2011, compared to $10.9 million at December 31, 2010. During the third quarter, Home Savings has entered into an agreement with another financial institution to sell four of its branches. Part of this sale includes loans aggregating $26.2 million, which were moved from the portfolio to held for sale as of September 30, 2011. The settlement of that branch sale is expected to occur in the fourth quarter of 2011. Home Savings also continues to sell a portion of newly originated mortgage loans into the secondary market as part of its risk management strategy and anticipates continuing to do so in the future.

Federal Home Loan Bank stock remained at $26.5 million for September 30, 2011, and December 31, 2010. During the first nine months of 2011, the Federal Home Loan Bank paid a cash dividend in lieu of a stock dividend to its member banks.

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Real estate owned and other repossessed assets decreased $2.0 million, or 5.0%, during the nine months ended September 30, 2011, as compared to the year ended December 31, 2010. The following table summarizes the activity in real estate owned and other repossessed assets during the period:

	(Dollars in thousands)
	Real Estate Owned			Repossessed Assets			Total
Balance at Beginning of period	$	39,914		$	422		$	40,336
Acquisitions		16,255			1,054			17,309
Sales, net of gains/(losses)		(14,432	)		(857	)		(15,289	)
Additions in valuation allowance charged to expense		(4,040	)		—			(4,040	)
Balance at End of period	$	37,697		$	619		$	38,316

The following table depicts the type of property secured in the satisfaction of loans and the valuation allowance associated with each type as of September 30, 2011:

			Valuation			Net
	Balance		Allowance			Balance
	(Dollars in thousands)
Real estate owned
One-to four-family	$	10,430	$	(362	)	$	10,068
Multifamily residential		4,599		(276	)		4,323
Nonresidential		6,331		(730	)		5,601
One-to four-family residential construction		23,040		(6,984	)		16,060
Land		1,645		—			1,645
Total real estate owned		46,049		(8,352	)		37,697
Repossessed assets
Auto		—		—			—
Marine		200		—			200
Recreational vehicle		419		—			419
Total repossessed assets		619		—			619
Total real estate owned and other repossessed assets	$	46,668	$	(8,352	)	$	38,316

Property acquired in the settlement of loans is recorded at the fair market value of the property secured less costs to sell. Appraisals are obtained at least annually on properties that exceed $1.0 million in value. Based on current appraisals, a valuation allowance may be established to reflect properly the asset at fair market value. The $2.6 million in losses and valuation adjustments recognized on certain real estate owned properties in the third quarter included valuation adjustments of $1.5 million for three specific properties. Home Savings engages experienced professionals to sell real estate owned and other repossessed assets in a timely manner.

Total deposits decreased $1.8 million to $1.7 billion at September 30, 2011, compared to December 31, 2010. The primary cause for the decrease in deposits was due to an overall decline in certificates of deposit. As certificates of deposit mature, the Company was able to successfully retain some of these deposits in other interest-bearing non-time deposit accounts. As of September 30, 2011, Home Savings had no brokered deposits.

Federal Home Loan Bank advances decreased $114.5 million during the first nine months of 2011, due primarily to lower funding needs during the period. Home Savings had approximately $218.7 million in unused borrowing capacity at the FHLB at September 30, 2011.

Advance payments by borrowers for taxes and insurance decreased $7.5 million during the first nine months of 2011. Remittance of real estate taxes and property insurance made on behalf of customers of Home Savings accounted for $3.3 million of the decrease. In addition, funds held for payments received on loans sold where servicing was retained by Home Savings decreased $4.1 million.

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Shareholders’ equity increased $6.6 million to $182.7 million at September 30, 2011, from $176.1 million at December 31, 2010. The change occurred primarily due to the adjustment to other comprehensive income for the valuation of available for sale securities during the period which was offset partially by the net loss recognized by the Company in the period.

As previously disclosed, the Company filed a capital plan with the OTS in December 2010. In keeping with that capital plan, the Company may seek to raise additional equity capital. The type, timing, amount, and terms of possible securities that would be issued in such an offering have yet to be determined. There can be no assurances that such an offering will be completed or that the Company will succeed in this endeavor. However, the Company anticipates that following any such capital raise, it may give existing shareholders an opportunity to participate through a rights offering.

Comparison of Operating Results for the Three Months Ended
September 30, 2011 and September 30, 2010

Net Income (Loss). United Community recognized a net loss for the three months ended September 30, 2011, of $8.9 million, or $(0.29) per diluted share, compared to a net loss of $9.9 million, or $(0.32) per diluted share, for the three months ended September 30, 2010. The primary cause of the change was lower provision for loan losses recognized during the third quarter of 2011. Compared with the third quarter of 2010, net interest income decreased $3.2 million, the provision for loan losses decreased $5.3 million, non-interest income decreased $2.2 million, and non-interest expense decreased $1.1 million. United Community’s annualized return on average assets and return on average equity were (1.69)% and (18.98)%, respectively, for the three months ended September 30, 2011. The annualized return on average assets and return on average equity for the comparable period in 2010 were (1.70)% and (18.41)%, respectively.

Net Interest Income. Net interest income for the three months ended September 30, 2011 was $15.6 million compared to $18.8 for the three months ended September 30, 2010. Total interest income decreased $4.9 million in the third quarter of 2011 compared to the third quarter of 2010, primarily as a result of a decrease of $279.3 million in the average balance of outstanding loans. United Community also experienced a decrease in the yield on net loans of 31 basis points. The change was driven, in part, by the bulk mortgage loan sale in the second quarter of 2011. Further contributing to the decline was the reduction in the Company’s construction and segments of its commercial real estate loan portfolios as a result of executing its strategic objective of reducing these portfolios in the current economic environment.

Total interest expense decreased $1.8 million for the quarter ended September 30, 2011, as compared to the same quarter last year. The change was due primarily to reductions of $1.6 million in interest paid on deposits. The overall decrease in interest expense was attributable to a shift in deposit balances from certificates of deposit to relatively less expensive non-time deposits. The average outstanding balance of certificates of deposit declined by $76.0 million, while non-time deposits increased by $61.3 million. Also contributing to the change was a reduction of 29 basis points in the cost of certificates of deposit, as well as a decrease in the cost of non-time deposits of 29 basis points.

Primarily in the third quarter of 2008, Home Savings offered a 42-month time deposit product (the “Step CDs”) to it customers in order to maintain adequate levels of liquidity as Home Savings entered into the Bank order with regulators. While the Step CDs offered a blended rate over the 42-month term consistent with other 42-month certificates of deposit being offered in Home Savings’ market at that time, the interest rate paid on Step CDs increases in regular intervals over the life of the deposit, such that in the final six months of the deposit prior to maturity, the rate paid is 6.50%. This product generated approximately $140.0 million in deposits, substantially all of which will mature in the first quarter of 2012.

The primary cause of the decrease in interest expense on Federal Home Loan Bank advances was a decrease in the average balance of those funds of $201.7 million, despite an increase in the average rate on those borrowings of 193 basis points in the third quarter of 2011 compared to the same quarter in 2010. The increase in rate is due to the change in the mix of borrowings, in that Home Savings had minimal overnight advances in the third quarter of 2011 with the FHLB. The decrease in interest expense on repurchase agreements and other borrowings was due primarily to a decrease in the average balance of those liabilities of $5.9 million despite a increase in the cost of those liabilities of 20 basis points.

The following table shows the impact of interest rate and outstanding balance (volume) changes compared to the third quarter of last year. The interest rate spread for the three months ended September 30, 2011, compressed to 2.97% compared to 3.22% for the quarter ended September 30, 2010. The net interest margin decreased 24 basis points to 3.18% for the three months ended September 30, 2011 compared to 3.42% for the same quarter in 2010.

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	For the Three Months Ended September 30,
	2011 vs. 2010
	Increase						Total
	(decrease) due to						increase
	Rate			Volume			(decrease)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	(1,293	)	$	(3,738	)	$	(5,031	)
Loans held for sale		(17	)		71			54
Investment securities:
Available for sale		(155	)		243			88
FHLB stock		(33	)		—			(33	)
Other interest-earning assets		(1	)		4			3
Total interest-earning assets	$	(1,499	)	$	(3,420	)	$	(4,919	)
Interest-bearing liabilities:
Savings accounts		(144	)		41			(103	)
NOW and money market accounts		(352	)		55			(297	)
Certificates of deposit		(646	)		(510	)		(1,156	)
Federal Home Loan Bank advances		(353	)		162			(191	)
Repurchase agreements and other		67			(78	)		(11	)
Total interest-bearing liabilities	$	(1,428	)	$	(330	)		(1,758	)
Change in net interest income							$	(3,161	)

Provision for Loan Losses. A provision for loan losses is charged to income to bring the total allowance for loan losses to a level considered by management to be adequate, based on management’s evaluation of such factors as the delinquency status of loans, current economic conditions, the net realizable value of the underlying collateral, changes in the composition of the loan portfolio and prior loan loss experience. The provision for loan losses decreased to $11.8 million in the third quarter of 2011, compared to $17.1 million in the third quarter of 2010. This $5.3 million decrease in the provision for loan losses was primarily a result of decreases in the provision attributable to the permanent real estate portfolio of $3.0 million, and the commercial loan portfolio of $2.6 million as compared to the third quarter of 2010. These decreases were driven primarily by decreases in the volume of outstanding loans as of September 30, 2011, compared to balance outstanding at December 31, 2010.

Despite the decrease in the provision for loan losses in the third quarter of 2011, as compared to the third quarter of 2010, the Bank incurred a specific provision for loan losses of $4.4 million in the third quarter of 2011 for a single nonresidential real estate loan associated with an out-of-state construction project. Moreover, during the third quarter of 2011, an additional loan loss provision of $1.7 million was necessary for one nonresidential loan relationship that had been downgraded. Finally, Home Savings established a specific reserve of $2.1 million for two nonresidential loan relationships during the same time period.

Noninterest Income. Noninterest income decreased in the third quarter of 2011 to $1.9 million, as compared to $4.1 million in the third quarter of 2010. Affecting this comparison was the recognition of lower service fees due to a valuation allowance adjustment of $1.4 million for mortgage servicing rights being established in the third quarter of 2011. The third quarter of 2011 also reflected higher losses for valuation adjustments on three real estate owned properties. This valuation adjustment negatively impacted noninterest income by $3.1 million. These declines in income were offset partially by an increase in gains recognized on the sale of available for sale securities.

Noninterest Expense. Noninterest expense was $14.6 million in the third quarter of 2011, compared to $15.7 million in the third quarter of 2010. The decrease in noninterest expense was driven by lower deposit insurance premiums. Regulatory changes resulting from the enactment of the Dodd-Frank Act revised the calculation of deposit insurance premiums and caused those expenses to decline. Also positively affecting the comparison was the fact that United Community recognized fewer expenses associated with the maintenance of real estate owned and other repossessed assets during the third quarter of 2011 as compared to the same quarter last year. Finally, lower expenses due to the acceleration of expenses associated with negative escrow on loans in bankruptcy or foreclosure were recognized during the period.

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Comparison of Operating Results for the Nine Months Ended
September 30, 2011 and September 30, 2010

Net Income (Loss). United Community recognized a net loss for the nine months ended September 30, 2011, of $7.7 million, or $(0.25) per diluted share, compared to a net loss of $19.9 million, or $(0.66) per diluted share, for the nine months ended September 30, 2010. The primary cause of the change was lower provision for loan losses recognized during the first nine months of 2011. Compared with the first nine months of 2010, net interest income decreased $4.1 million, the provision for loan losses decreased $17.6 million, non-interest income decreased $4.2 million, and non-interest expense decreased $3.0 million. United Community’s annualized return on average assets and return on average equity were (0.48)% and (5.61)%, respectively, for the nine months ended September 30, 2011. The annualized return on average assets and return on average equity for the comparable period in 2010 were (1.15)% and (12.11)%, respectively.

Net Interest Income. Net interest income for the nine months ended September 30, 2011, was $50.3 million compared to $54.5 million for the nine months ended September 30, 2010. Total interest income decreased $11.3 million in the first nine months of 2011 compared to the first nine months of 2010, primarily as a result of a decrease of $231.5 million in the average balance of outstanding loans. United Community also experienced a decrease in the yield on net loans of 19 basis points. The Company’s construction and segments of its commercial real estate loan portfolios declined as a result of executing its strategic objective of reducing specific concentrations in these portfolios in the current economic environment. The bulk mortgage loan sale also decreased the average balance of net loans during the period.

Total interest expense decreased $7.2 million for the nine months ended September 30, 2011, as compared to the same period last year. The change was due primarily to reductions of $6.9 million in interest paid on deposits. The overall decrease in interest expense was attributable to a shift in deposit balances from certificates of deposit to relatively less expensive non-time deposits. The average outstanding balance of certificates of deposit declined by $88.7 million, while non-time deposits increased by $53.5 million. Also contributing to the change was a reduction of 59 basis points in the cost of certificates of deposit.

Primarily in the third quarter of 2008, Home Savings offered a 42-month time deposit product (the “Step CDs”) to its customers in order to maintain adequate levels of liquidity as Home Savings entered into the Bank order with regulators. While the Step CDs offered a blended rate over the 42-month term consistent with other 42-month certificates of deposit being offered in Home Savings’ market at that time, the interest rate paid on Step CDs increases in regular intervals over the life of the deposit, such that in the final six months of the deposit prior to maturity, the rate paid is 6.50%. This product generated approximately $140.0 million in deposits, substantially all of which will mature in the first quarter of 2012.

The primary cause of the decrease in interest expense on Federal Home Loan Bank advances was an increase in the average rate on those borrowings of 123 basis points in the first nine months of 2011 compared to the same period in 2010. The increase in rate is due to the change in the mix of borrowings, in that Home Savings had no overnight advances with the FHLB at September 30, 2011.

52

The following table shows the impact of interest rate and outstanding balance (volume) changes compared to the first nine months of last year. The interest rate spread for the nine months ended September 30, 2011, grew to 3.15% compared to 3.10% for the nine months ended September 30, 2010. The net interest margin increased three basis points to 3.36% for the nine months ended September 30, 2011 compared to 3.33% for the same period in 2010.

	For the Nine Months Ended September 30,
	2011 vs. 2010
	Increase						Total
	(decrease) due to						increase
	Rate			Volume			(decrease)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	(2,451	)	$	(9,410	)	$	(11,861	)
Loans held for sale		9			13			22
Investment securities:
Available for sale		(548	)		1,096			548
FHLB stock		(33	)		—			(33	)
Other interest-earning assets		4			6			10
Total interest-earning assets	$	(3,019	)	$	(8,295	)	$	(11,314	)
Interest-bearing liabilities:
Savings accounts		(296	)		97			(199	)
NOW and money market accounts		(896	)		168			(728	)
Certificates of deposit		(4,041	)		(1,902	)		(5,943	)
Federal Home Loan Bank advances		(771	)		478			(293	)
Repurchase agreements and other		9			(24	)		(15	)
Total interest-bearing liabilities	$	(5,995	)	$	(1,183	)		(7,178	)
Change in net interest income							$	(4,136	)

Provision for Loan Losses. A provision for loan losses is charged to income to bring the total allowance for loan losses to a level considered by management to be adequate, based on management’s evaluation of such factors as the delinquency status of loans, current economic conditions, the net realizable value of the underlying collateral, changes in the composition of the loan portfolio and prior loan loss experience. The provision for loan losses decreased to $22.3 million in the first nine months of 2011, compared to $39.9 million in the first nine months of 2010. This $17.6 million decrease in the provision for loan losses is primarily a result of a decrease in most loan portfolio segments. Specifically, the provision for loan losses recognized on the permanent real estate portfolio decreased $6.3 million, the consumer portfolio decreased $1.5 million, and the commercial portfolio decreased $6.0 million. These decreases are being driven primarily by a decrease in the volume of outstanding loans. An increase in the provision for loan losses recognized on the construction portfolio of $1.1 million partially offset these changes.

Noninterest Income. Noninterest income decreased in the first nine months of 2011 to $11.2 million, as compared to noninterest income in the first nine months of 2010 of $15.4 million. Driving the decrease in noninterest income was the recognition of lower gains on the sale of fewer available for sale securities and the gain recognized on the sale of Home Savings’ Findlay, Ohio branch in the prior year. Partially offsetting these declines was an increase in mortgage banking income due to the $2.7 million gain recognized on the aforementioned bulk mortgage loan sale.

Noninterest Expense. Noninterest expense was $47.0 million in the first nine months of 2011, compared to $50.0 million in the first nine months of 2010. The decrease in noninterest expense was driven by lower salaries and employee benefits paid to employees. This decrease was driven primarily because of the suspension of a matching contribution to the 401(k) plan for 2011 and, to a lesser extent, the Employee Stock Ownership Plan’s repayment in 2010 of the loan made by the Company to the ESOP. Partially offsetting this change was an increase in other expenses due to the acceleration of expenses associated with negative escrow on loans in bankruptcy or foreclosure. Home Savings began recognizing expenses associated with negative escrow sooner than before after determining the possibility of collection was remote.

53

UNITED COMMUNITY FINANCIAL CORP.

AVERAGE BALANCE SHEETS

The following table presents the total dollar amounts of interest income and interest expense on the indicated amounts of average interest-earning assets or interest-bearing liabilities together with the weighted average interest rates for the three month periods ended September 30, 2011 and 2010. Average balance calculations were based on daily balances.

	Three Months Ended September 30,
	2011							2010
	Average		Interest					Average		Interest
	Outstanding		Earned/		Yield/			Outstanding		Earned/		Yield/
	Balance		Paid		Cost			Balance		Paid		Cost
	(Dollars in thousands)
Interest-earning assets:
Net loans (1)	$	1,483,257	$	19,558		5.27	%	$	1,762,551	$	24,589		5.58	%
Net loans held for sale		15,083		163		4.32	%		7,966		109		5.47	%
Investment securities:
Available for sale		405,542		3,323		3.28	%		372,280		3,235		3.48	%
Federal Home Loan Bank stock		26,464		264		3.99	%		26,464		297		4.49	%
Other interest-earning assets		36,627		13		0.14	%		25,631		10		0.16	%
Total interest-earning assets		1,966,973		23,321		4.74	%		2,194,892		28,240		5.15	%
Noninterest-earning assets		130,852							139,605
Total assets	$	2,097,825						$	2,334,497
Interest-bearing liabilities:
NOW and money market accounts	$	445,043	$	493		0.44	%	$	417,983	$	790		0.76	%
Savings accounts		247,497		104		0.17	%		213,269		207		0.39	%
Certificates of deposit		853,516		5,375		2.52	%		929,513		6,531		2.81	%
Federal Home Loan Bank advances		97,675		793		3.25	%		299,384		984		1.31	%
Repurchase agreements and other		92,390		931		4.03	%		98,322		942		3.83	%
Total interest-bearing liabilities		1,736,121		7,696		1.77	%		1,958,471		9,454		1.93	%
Noninterest-bearing liabilities		174,928							160,578
Total liabilities		1,911,049							2,119,049
Equity		186,776							215,448
Total liabilities and equity	$	2,097,825						$	2,334,497
Net interest income and interest rate spread			$	15,625		2.97	%			$	18,786		3.22	%
Net interest margin						3.18	%						3.42	%
Average interest-earning assets to average interest-bearing liabilities						113.30	%						112.07	%

(1) Nonaccrual loans are included in the average balance at a yield of 0%.

54

UNITED COMMUNITY FINANCIAL CORP.

AVERAGE BALANCE SHEETS

The following table presents the total dollar amounts of interest income and interest expense on the indicated amounts of average interest-earning assets or interest-bearing liabilities together with the weighted average interest rates for the nine month periods ended September 30, 2011 and 2010. Average balance calculations were based on daily balances.

	Nine Months Ended September 30,
	2011							2010
	Average		Interest					Average		Interest
	Outstanding		Earned/		Yield/			Outstanding		Earned/		Yield/
	Balance		Paid		Cost			Balance		Paid		Cost
	(Dollars in thousands)
Interest-earning assets:
Net loans (1)	$	1,573,394	$	63,489		5.38	%	$	1,804,936	$	75,350		5.57	%
Net loans held for sale		6,964		270		5.17	%		6,632		248		4.99	%
Investment securities:
Available for sale		361,911		9,264		3.41	%		315,365		8,716		3.69	%
Federal Home Loan Bank stock		26,464		858		4.32	%		26,464		891		4.49	%
Other interest-earning assets		30,200		35		0.15	%		24,504		25		0.14	%
Total interest-earning assets		1,998,933		73,916		4.93	%		2,177,901		85,230		5.22	%
Noninterest-earning assets		130,012							134,836
Total assets	$	2,128,945						$	2,312,737
Interest-bearing liabilities:
NOW and money market accounts	$	435,599	$	1,749		0.54	%	$	409,788	$	2,477		0.81	%
Savings accounts		238,635		418		0.23	%		210,975		617		0.39	%
Certificates of deposit		881,906		16,217		2.45	%		970,766		22,160		3.04	%
Federal Home Loan Bank advances		118,343		2,414		2.72	%		242,214		2,707		1.49	%
Repurchase agreements and other		96,615		2,781		3.84	%		97,431		2,796		3.83	%
Total interest-bearing liabilities		1,771,098		23,579		1.78	%		1,931,174		30,757		2.12	%
Noninterest-bearing liabilities		174,776							162,062
Total liabilities		1,945,874							2,093,236
Equity		183,071							219,501
Total liabilities and equity	$	2,128,945						$	2,312,737
Net interest income and interest rate spread			$	50,337		3.15	%			$	54,473		3.10	%
Net interest margin						3.36	%						3.33	%
Average interest-earning assets to average interest-bearing liabilities						112.86	%						112.78	%

(1) Nonaccrual loans are included in the average balance at a yield of 0%.

55

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Qualitative Aspects of Market Risk. The principal market risk affecting United Community is interest rate risk. United Community is subject to interest rate risk to the extent that its interest earning assets reprice differently than its interest bearing liabilities. Interest rate risk is defined as the sensitivity of United Community’s earnings and net asset values to changes in interest rates. As part of its efforts to monitor and manage the interest rate risk, the Board of Directors of Home Savings has adopted an interest rate risk policy that requires the Home Savings Board to review quarterly reports related to interest rate risk and annually set exposure limits for Home Savings as a guide to management in setting and implementing day to day operating strategies.

Quantitative Aspects of Market Risk. As part of its interest rate risk analysis, Home Savings uses the “net portfolio value” (NPV) and net interest income methodology. Generally, NPV is the discounted present value of the difference between incoming cash flows on interest earning and other assets and outgoing cash flows on interest bearing and other liabilities. The application of the methodology attempts to quantify interest rate risk as the change in the NPV and net interest income that would result from various levels of theoretical basis point changes in market interest rates.

Home Savings uses an NPV and earnings simulation model prepared internally as its primary method to identify and manage its interest rate risk profile. The model is based on actual cash flows and repricing characteristics for all financial instruments and incorporates market-based assumptions regarding the impact of changing interest rates on future volumes and the prepayment rate of applicable financial instruments. Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates also are incorporated into the model. These assumptions are inherently uncertain and, as a result, the model cannot precisely measure NPV or net interest income or precisely predict the impact of fluctuations in interest rates on net interest rate changes as well as changes in market conditions and management strategies.

Presented below are analyses of Home Savings’ interest rate risk as measured by changes in NPV and net interest income for instantaneous and sustained parallel shifts of 100 basis point increments in market interest rates. As noted, for the quarter ended September 30, 2011, the percentage changes fall within the policy limits set by the Board of Directors of Home Savings as the minimum NPV ratio and the maximum change in interest income the Home Savings Board deems advisable in the event of various changes in interest rates. See the table below for Board adopted policy limits.

Quarter Ended September 30, 2011
NPV as % of portfolio value of assets													Next 12 months net interest income
													(Dollars in thousands)
										Internal
Change in										policy
rates				Internal						limitations					Internal
(Basis	NPV			policy			Change in			on NPV					policy
points)	Ratio			limitations			%			Change			$ Change		limitations			% Change
300		10.15	%		6.00	%		0.84	%		25.00	%	$	3,279		-15.00	%		5.40	%
200		10.69			7.00			1.38			25.00			3,129		-10.00			5.15
100		10.60			7.00			1.29			25.00			2,349		-5.00			3.87
Static		9.31			8.00			—			—			—		—			—

56

Year Ended December 31, 2010
NPV as % of portfolio value of assets													Next 12 months net interest income
													(Dollars in thousands)
										Internal
Change in										policy
rates				Internal						limitations						Internal
(Basis	NPV			policy			Change in			on NPV						policy
points)	Ratio			limitations			%			Change			$ Change			limitations			% Change
300		7.37	%		6.00	%		-2.04	%		25.00	%	$	(121	)		-15.00	%		-0.17	%
200		8.33			7.00			-1.08			25.00			123			-10.00			0.17
100		9.08			7.00			-0.33			25.00			215			-5.00			0.30
Static		9.41			8.00			—			—			—			—			—

Due to a low interest rate environment, it was not possible to calculate results for a drop in interest rates.

As with any method of measuring interest rate risk, certain shortcomings are inherent in the NPV approach. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. In addition, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Further, in the event of a change in interest rates, expected rates of prepayment on loans and early withdrawal levels from certificates of deposit may deviate significantly from those assumed in making risk calculations.

Potential Impact of Changes in Interest Rates. Home Savings’ profitability depends to a large extent on its net interest income, which is the difference between interest income from loans and securities and interest expense on deposits and borrowings. Like most financial institutions, Home Savings’ short-term interest income and interest expense are affected significantly by changes in market interest rates and other economic factors beyond its control.

In the last twelve months, Home Savings has experienced the positive impact of a steeper yield curve. The net interest margin has benefited from the repricing of certificates of deposit at lower levels as loan yields have stabilized.

ITEM 4. Controls and Procedures

An evaluation was carried out by United Community’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of United Community’s disclosure controls and procedures (as defined in Rules 13a-15(e)/15d-15(e) of the Securities Exchange Act of 1934) as of September 30, 2011. Based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that United Community’s disclosure controls and procedures were effective as of September 30, 2011. During the quarter ended September 30, 2011, there were no changes in United Community’s internal controls over financial reporting that have materially affected or are reasonably likely to materially affect United Community’s internal controls over financial reporting.

57

PART II. OTHER INFORMATION

UNITED COMMUNITY FINANCIAL CORP.

ITEM 1 — Legal Proceedings

United Community and its subsidiaries are parties to litigation arising in the normal course of business. While it is impossible to determine the ultimate resolution of these contingent matters, management believes any resulting liability would not have a material effect upon United Community’s financial statements.

ITEM 1A — Risk Factors

There have been no significant changes in United Community’s risk factors as outlined in United Community’s Form 10-K for the period ended December 31, 2010. The risk factors described in the Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that management currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results. Moreover, the Company undertakes no obligation and disclaims any intention to publish revised information or updates to forward looking statements contained in such risk factors or in any other statement made at any time by the Company or any of its directors, officers, employees or other representatives, unless and until any such revisions or updates are expressly required to be disclosed by securities laws or regulations.

ITEM 2 — Unregistered Sales of Equity Securities and Use of Proceeds

There were no purchases of UCFC shares during the quarter ended September 30, 2011.

ITEM 6 — Exhibits

Exhibits

Exhibit Number		Description
	3.1	Articles of Incorporation
	3.2	Amended Code of Regulations
	10.1	Purchase and Assumption Agreement
	31.1	Section 302 Certification by Chief Executive Officer
	31.2	Section 302 Certification by Chief Financial Officer
	32	Certification of Statements by Chief Executive Officer and Chief Financial Officer
	101	Interactive Data File

58

UNITED COMMUNITY FINANCIAL CORP.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

UNITED COMMUNITY FINANCIAL CORP.

Date: November 14, 2011	/S/ Patrick W. Bevack Patrick W. Bevack
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: November 14, 2011	/S/ James R. Reske James R. Reske, CFA
	Treasurer and Chief Financial Officer
	(Principal Financial Officer)

59

UNITED COMMUNITY FINANCIAL CORP.

Exhibit 3.1

Incorporated by reference to the Registration Statement on Form S-1 filed by United Community on March 13, 1998 with the Securities and Exchange Commission (SEC), Exhibit 3.1.

Exhibit 3.2

Incorporated by reference to the 1998 Form 10-K filed by United Community on March 31, 1999 with the SEC, film number 99582343, Exhibit 3.2.

60

EX-10.1

Exhibit 10.1

PURCHASE AND ASSUMPTION AGREEMENT

by and between

The Croghan Colonial Bank,

as Buyer,

and

The Home Savings and Loan Company of Youngstown, Ohio,

as Seller

Dated August 31, 2011

TABLE OF CONTENTS

	Page
1. Purchase and Sale of Assets		1
(a) Purchased Assets		1
(b) Excluded Assets		2
2. Assumption of Liabilities; Excluded Liabilities		3
(a) Assumed Liabilities		3
(b) Excluded Liabilities		3
(c) Deposit Liabilities in IRAs		3
3. Calculation and Allocation of Purchase Price		4
(a) Purchase Price		4
(b) Adjustments to Purchase Price		4
(c) Allocation of the Purchase Price		6
(d) Proration; Other Effective Time Adjustments		7
4. Payment of the Purchase Price and other Amounts		7
(a) Payment of Estimated Payment Amount		7
(b) Method of Payment of all Amounts		7
(c) Instruments		7
5. Closing and Closing Date		8
(a) Closing		8
(b) Location		8
(c) Data Processing Conversion		8
6. Obligations at Closing		8
(a) Seller Deliveries		8
(b) Buyer Deliveries		9
(c) Loan Documents and Loan Files		10
(d) Collateral Assignments and Filing		11
(e) Power of Attorney		11
(f) Premises Filings		11
7. Conditions Precedent to Seller’s Obligations		11
8. Conditions Precedent to Buyer’s Obligations		12

i

TABLE OF CONTENTS
(continued)

	Page
9. Representations and Warranties of Seller		13
(a) Corporate Organization		13
(b) Title to Assets		13
(c) Premises		13
(d) Environmental Matters		14
(e) Assigned Loans		15
(f) Deposit Liabilities		16
(g) Safe Deposit Boxes		16
(h) Branch Business		16
(i) Regulatory Approval		16
(j) Power, Authority and Enforceability		16
(k) No Conflict		17
(l) Required Consents		17
(m) Condition and Sufficiency		17
(n) Employee Matters		17
(o) Tax Matters		18
(p) ERISA		18
(q) Assigned Contracts		18
(r) Brokers		18
(s) Disclaimers of, and Limitations on, Representations and Warranties		19
10. Representations and Warranties of Buyer		19
(a) Corporate Organization		19
(b) Power, Authority and Enforceability		19
(c) No Conflict		20
(d) Buyer Due Diligence; Acceptance of Assets and Liabilities		20
(e) Regulatory Approvals		20
(f) Financing; Capital		20
(g) Broker		21
(h) Limitation of Representations and Warranties		21
11. Seller’s Pre-Closing Covenants		21
12. Buyer Pre-Closing Covenants		22

ii

TABLE OF CONTENTS
(continued)

	Page
13. Additional Covenants		22
(a) Servicing Prior to Closing Date		22
(b) Servicing Post Closing Date		23
(c) Retention of and Access to Files Following the Closing Date		23
(d) Non-Solicitation of Employees; No Hire		23
(e) Non-Solicitation of Customers		24
(f) Prohibition on De Novo Branches		24
(g) Insurance		24
(h) Additional Assigned Loans		24
14. Regulatory Compliance, Conversion and Transition Matters		25
(a) Regulatory Filings by Buyer and Approvals		25
(b) Transitional Arrangements		25
(c) Customers		26
(d) Contracts with Depositors		26
(e) Direct Deposits		27
(f) Direct Debits		27
(g) Interest Reporting and Withholding		28
(h) Negotiable Instruments		28
(i) ATM/Debit Cards; POS Cards		28
(j) Data Processing Agreement and Hardware		29
(k) Loan Collections		29
(l) Access to Properties, Books and Records		29
(m) Employees and Employee Benefits		30
(n) Transitional Matters		31
(o) Assumption of IRAs		31
(p) Title Insurance		32
(q) Overdrafts		32
15. Name Change, etc.		33
16. Contracts		33
17. Indemnification		34
(a) Survival of Representations, Warranties and Covenants		34
(b) Indemnification by Seller		34
(c) Indemnification by Buyer		34

iii

TABLE OF CONTENTS
(continued)

	Page
(d) Indemnification Procedures		35
(e) Limitations on Indemnification with Respect to Representations and Warranties		36
(f) Exclusive Remedy		36
18. Taxes		36
19. No Partnership or Joint Venture		37
20. Further Assurances		37
21. Amendment; Waiver		37
22. Termination of Agreement		37
(a) Mutual Agreement		37
(b) Legal Proceeding		37
(c) Representation, Warranty, Covenant or Other Agreement		37
(d) After Specified Date		37
(e) Failure of Regulatory Approval		38
(f) Insolvency Proceeding		38
23. Responsibilities Upon Termination		38
24. Entire Agreement		38
25. Notices		39
26. Governing Law and Jurisdiction		39
27. Descriptive Headings		39
28. Parties in Interest; Third Party Beneficiaries		40
29. Expenses and Brokers		40
30. Specific Performance		40
31. Assignability		40
32. Counterparts		40
33. Press Releases		40
34. Confidentiality		41
35. Disclosure Schedules		41
36. Jury Waiver		41
37. Severability		41

iv

List of Schedules to the Agreement and Exhibits

Schedules to the Agreement

Schedule 1(a)(1)	Premises
Schedule 1(a)(4)	Prepaid Expenses
Schedule 1(a)(5)	Assigned Loans
Schedule 1(a)(6)	Assigned Contracts
Schedule 1(a)(7)	Safe Deposit Agreements
Schedule 2(a)(1)	Deposit Liabilities
Schedule 2(a)(5)	Accrued Liabilities
Schedule 14(m)	Branch Employees
Schedule 14(n)	Transitional Matters
Schedule X-1	List of ATMs
Schedule X-2	Branches
Schedule X-3	Knowledge Groups (Seller and Buyer)
Schedule X-4	Permitted Liens

Exhibits

A	Bill of Sale
B	Assignment and Assumption Agreement
C	Draft Closing Statement (form)
D	Notice of Transfer of Loan
E	Endorsement Form
F	Assignment of Liens and Documents
G	UCC-3 Assignments of Financing Statements
H	Form of Limited Power of Attorney

v

PURCHASE AND ASSUMPTION AGREEMENT

THIS PURCHASE AND ASSUMPTION AGREEMENT (this “Agreement”) is made as of August 31, 2011, by and between THE CROGHAN COLONIAL BANK, an Ohio chartered bank having its executive offices at 323 Croghan Street, Fremont, Ohio 43420 (the “Buyer”), and THE HOME SAVINGS AND LOAN COMPANY OF YOUNGSTOWN, OHIO, an Ohio chartered stock savings bank having its executive offices at 275 West Federal Street, Youngstown, Ohio 44503 (the “Seller”).

RECITALS

A. Subject to the terms and conditions of this Agreement, Seller is willing to sell, and Buyer is willing to purchase, certain assets of Seller as specified in this Agreement; and

B. Buyer is willing to assume and discharge certain of the deposit liabilities of Seller and certain other obligations and liabilities of Seller on the terms and subject to the conditions of this Agreement.

AGREEMENTS

In consideration of the mutual covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Purchase and Sale of Assets.

(a) Purchased Assets. Subject to the terms and conditions of this Agreement, including the assumption by Buyer of the Liabilities, at the Closing, Seller shall grant, sell, convey, assign, transfer and deliver to Buyer, and Buyer shall buy, accept and receive from Seller, all of Seller’s right, title and interest, free and clear of all Liens (other than Permitted Liens), as of the close of business on the Closing Date (the “Effective Time”), in and to the following assets:

(1) The real estate owned in fee simple by the Seller and the buildings or other improvements thereon that are used in the operation of Seller’s business at the Branches and described in Schedule 1(a)(1) (the “Premises”);

(2) All of the tangible personal property of Seller located in or affixed to the Premises, including, but not limited to, the furniture, fixtures, equipment, on-premises ATMs, security systems, safe deposit boxes (including keys, but exclusive of contents), vaults, telephone numbers, sign structures (exclusive of signage containing any trade name, trademark or service mark, if any, of Seller), and supplies (excluding any items consumed or disposed of, but including new items acquired or obtained, in the ordinary course of the operation of the Branches through the Effective Time) (collectively, the “Personal Property”);

(3) All vault and teller cash, petty cash, on-premises ATM cash, coin on hand, any other cash and all cash equivalents at the Branches (collectively, the “Cash on Hand”);

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(4) Those prepaid expenses set forth on Schedule 1(a)(4) that would otherwise appear as an asset in respect of the Branches on the financial statements of Seller prepared in accordance with GAAP (the “Prepaid Expenses”);

(5) The Assigned Loans, including Accrued Interest, Escrow Account Balances, the collateral for the Assigned Loans, the Loan Files and Loan Documents, and all servicing rights related to such Assigned Loans pursuant to Section 13(b);

(6) Those Personal Property leases, licenses, contracts and other agreements identified on Schedule 1(a)(6) that relate to the Branches (“Assigned Contracts”);

(7) The Safe Deposit Agreements;

(8) The Records; and

(9) The rights of action and claims related to the Assets, except to the extent exclusively relating to Excluded Liabilities.

The foregoing assets identified in (1) through (9) are herein referred to collectively as the “Assets.”

(b) Excluded Assets. Seller shall not be deemed by this Agreement to have granted, sold, assigned, transferred or encumbered, and Buyer shall not be deemed by this Agreement to have purchased, acquired or received, any assets of Seller other than the Assets. Without limiting the generality of the foregoing, the following are expressly excluded from the Assets:

(1) Seller’s trademarks, tradenames, medallion program stamps, signs (excluding signage structures), logos and proprietarily marked stationery, forms, labels, shipping materials, brochures, advertising materials, in-branch marketing fixtures and similar property;

(2) Any security hardware and systems, telephone systems, including telephones and handsets, computers, including servers and workstations, switches and other data communication hardware, scanners, data lines and similar property, together with any software installed on or accessed through any of such systems, computers or hardware; provided, however, that Seller shall be responsible for any costs associated with damage to any Asset purchased by Buyer as a result of Seller’s retention of the excluded assets in this Subsection (b)(2).

(3) The right of Seller or its affiliates to receive income relating to annuities or other investment products sold by Seller to customers of the Branches;

(4) Assets relating to trust accounts (other than accounts relating to IRAs) administered at the Branches; and

(5) Seller’s rights in and to the routing and transit numbers of the Branches.

(6) Any Assigned Loan or Additional Assigned Loan that Buyer has directed, in its sole and absolute discretion, Seller to delete from the Schedule 1(a)(5) up to five Business Days prior to Closing.

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2. Assumption of Liabilities; Excluded Liabilities.

(a) Assumed Liabilities. Subject to satisfaction of the terms and conditions of this Agreement, Buyer shall pay, perform and assume the following liabilities of Seller and will perform and discharge the following duties, responsibilities and obligations of Seller that are to be paid or performed or discharged from and after the Effective Time:

(1) The Deposit Liabilities, including IRAs to the extent contemplated by Section 2(c), and the liabilities associated with the Escrow Account Balances;

(2) The Assigned Contracts (subject to Section 16);

(3) Funding commitments under the Assigned Loans, including Unfunded Advances, and the servicing of the Assigned Loans;

(4) The Safe Deposit Agreements;

(5) The accrued liabilities, if any, described in Schedule 2(a)(5) (the “Accrued Liabilities”), which under no circumstance shall include any liability or obligation for any Employee Benefit Plan of Seller or any payments under any Employee Benefit Plan of Seller; and

(6) Taxes Buyer is responsible for, which are described by Section 18, and any Taxes with respect to the Assets or the Branches for any taxable period (or portion thereof) that begins after the Effective Time.

The foregoing liabilities identified in (1) through (6) are herein referred to collectively as the “Liabilities.”

(b) Excluded Liabilities. Other than the Liabilities, which Buyer is expressly assuming pursuant to this Agreement, Buyer shall not assume or be bound by any duties, responsibilities, obligations or liabilities of Seller, or of any of its Affiliates, of any kind or nature, known, unknown, contingent or otherwise, including, without limitation, (i) any Tax liability of Seller or any of its Affiliates, including any Tax liability related to the ownership of the Assets, or operation of the Branches, on or prior to the Effective Time, except as explicitly provided herein; (ii) any liability of Seller or any of its Affiliates under this Agreement; and (iii) any liability relating to or arising out of any deposit excluded under the definition of Deposit Liabilities (collectively the “Excluded Liabilities”).

(c) Deposit Liabilities in IRAs. With respect to Deposit Liabilities in IRAs, Seller will use its reasonable best efforts to cooperate with Buyer in taking any action reasonably necessary to accomplish either the appointment of Buyer as successor custodian or the delegation to Buyer (or to an Affiliate of Buyer) of Seller’s authority and responsibility as custodian of each such IRA, including, but not limited to, sending to the depositors thereof appropriate notices, cooperating with Buyer in soliciting consents from such depositors, and filing any appropriate applications with applicable regulatory authorities. If, notwithstanding the foregoing, as of the Effective Time, Buyer shall be unable to retain Deposit Liabilities in respect of an IRA, such Deposit Liabilities shall be deemed to be an “Excluded Liability” for purposes of this Agreement.

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3. Calculation and Allocation of Purchase Price.

(a) Purchase Price. Subject to Section 3(b), the purchase price for the Assets (the “Purchase Price”) will be an amount equal to the sum of the following:

(1) $1,750,000.00 for the Premises;

(2) $22,621.57 for the Personal Property;

(3) The aggregate amount of the Cash on Hand as of the Effective Time;

(4) The aggregate amount of the Prepaid Expenses as of the Effective Time, determined in accordance with GAAP;

(5) The aggregate outstanding principal amount of the Assigned Loans (other than the Additional Assigned Loans) less a one percent (1.0%) discount, plus the aggregate amount of Accrued Interest, plus the balances of any transferred Escrow Account Balance, all as of the Effective Time;

(6) The aggregate outstanding principal amount of the Additional Assigned Loans, which shall be transferred at par, plus the aggregate amount of Accrued Interest, plus the balances of any transferred Escrow Account Balance, all as of the Effective Time;

(7) Any proration amounts attributable to Buyer as determined in accordance with Section 3(d); plus

(8) The Deposit Premium.

(b) Adjustments to Purchase Price.

(1) Solely for purposes of facilitating the calculation of the cash due Buyer or Seller, as applicable, on the Closing Date, Seller shall provide to Buyer prior to the Closing Date the Draft Closing Statement.

(2) On or before 12:00 noon Eastern Time on the 30th day following the Closing Date (the “Adjustment Date”), Seller shall deliver to Buyer the Final Closing Statement and Seller shall make available to Buyer such work papers, schedules and other supporting data used to calculate and prepare the Final Closing Statement (and as may be requested by Buyer) to enable Buyer to verify such determinations set forth in the Final Closing Statement.

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(3) If, within 30 days following the date of receipt by Buyer of the Final Closing Statement, Buyer does not dispute any items contained in the Final Closing Statement or omitted therefrom, then the Final Closing Statement shall be final and binding upon the parties. In the event that Buyer disputes any items contained in the Final Closing Statement or omitted therefrom, such disputes shall be resolved in the following manner:

(A) Buyer shall notify Seller in writing (the “Notice of Disagreement”) of such dispute within 30 days after Buyer’s receipt of the Final Closing Statement, which notice shall specify in reasonable detail the nature of the dispute, indicating those specific items that are in dispute (the “Disputed Items”). Any items in the Final Closing Statement that are not Disputed Items shall be final, binding and conclusive for all purposes hereunder.

(B) During the 30-day period following Seller’s receipt of a Notice of Disagreement from Buyer, Seller and Buyer shall use commercially reasonable efforts to resolve the Disputed Items. If, at the end of such 30-day period, the parties have reached written agreement with respect to all or a portion of the matters covered by a Notice of Disagreement, the Final Closing Statement shall be adjusted to reflect such mutual written agreement and shall become final, binding and conclusive upon the parties hereto with respect to all matters that are not Unresolved Changes.

(C) If, at or before the end of the 30-day period specified in Section 3(b)(3)(B) above, Buyer and Seller shall have failed to reach a written agreement with respect to all or a portion of such Disputed Items (those Disputed Items that remain in dispute at the end of such period are the “Unresolved Changes”), then Buyer and Seller shall promptly refer the Unresolved Changes to Crowe Horwath LLP, or, in the event such accounting firm refuses or is unable to make a determination, a mutually agreeable nationally recognized independent certified public accounting firm (the “Firm”) to make a determination as to the subject matter of the Unresolved Changes. If Buyer and Seller fail to agree on a Firm within 15 days after the end of the 30-day period specified in Section 3(b)(3)(B) above, the Firm shall be selected by the American Arbitration Association. The Firm shall be directed to issue its written decision regarding the Unresolved Changes as promptly as practicable and in any event within 30 days following the submission of the Unresolved Changes to the Firm for resolution, and such decision, and the Final Closing Statement as adjusted to reflect the Firm Determination, shall be final, binding and conclusive on the parties. Seller and Buyer agree to fully cooperate with and provide any information requested by such Firm. In the event Unresolved Changes are submitted to the Firm for resolution as provided herein, the fees, charges and expenses of the Firm (the “Firm Expenses”) shall be borne and paid equally by Buyer and Seller. As used in this subsection C, “Disputed Amount” means the difference between Buyer’s and Seller’s respective calculations of the Unresolved Changes, and “Firm Determination” means the amount with respect to the Unresolved Changes determined by the Firm in accordance with this subsection C.

(4) On or before 12:00 noon Eastern Time on the fifth Business Day after the Adjusted Payment Amount shall have become final and binding or, in the case of a dispute, the date of the resolution of the dispute pursuant to Section 3(b)(3) above, if the Adjusted Payment Amount is greater than the Estimated Payment Amount, then Seller shall pay to Buyer an amount in dollars equal to such excess, plus interest on such excess amount from the Closing Date up to, but excluding, the payment date, at the Federal Funds Rate, or if the Adjusted Payment Amount is less than the Estimated Payment Amount, then Buyer shall pay to Seller an amount in dollars equal to such shortfall, plus interest on such shortfall from the Closing Date up to, but excluding, the payment date, at the Federal Funds Rate.

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(c) Allocation of the Purchase Price.

(1) Buyer shall prepare a proposed allocation of the Purchase Price among the Assets in accordance with Section 1060 of the Code, which proposed allocation shall be delivered to Seller for review and comment within 30 days following the final determination of the Final Closing Statement (the “Proposed Allocation Statement”). Seller shall provide to Buyer in writing within 15 days of the receipt of such Proposed Allocation Statement any objections thereto.

(2) If, within 15 days following the receipt of the Proposed Allocation Statement, Seller does not dispute any items contained in the Proposed Allocation Statement, then the Proposed Allocation Statement shall be final and binding upon the parties (the “Final Allocation Determination”). In the event that Seller disputes any items contained in the Proposed Allocation Statement, such disputes shall be resolved in the following manner:

(A) Seller shall notify Buyer in writing (the “Notice of Allocation Disagreement”) of such dispute within 15 days following Seller’s receipt of the Proposed Allocation Statement, which notice shall specify in reasonable detail the nature of the dispute, indicating those specific items that are in dispute (the “Seller Disputed Items”). To the extent that Seller provides a Notice of Allocation Disagreement within such 15-day period, all items that are not Seller Disputed Items shall be final, binding and conclusive for all purposes hereunder.

(B) During the 15-day period following Buyer’s receipt of a Notice of Allocation Disagreement, Seller and Buyer shall use commercially reasonable efforts to resolve any Seller Disputed Items. If, at or before the end of such 15-day period, the parties have reached written agreement with respect to all matters covered by a Notice of Allocation Disagreement, the Proposed Allocation Statement shall be adjusted to reflect such written agreement and shall become the Final Allocation Determination.

(C) If, at the end of the 15-day period specified in Section 3(c)(2)(B) above, Buyer and Seller shall have failed to reach a written agreement with respect to all or a portion of such Seller Disputed Items (those Seller Disputed Items that remain in dispute at the end of such period are the “Unresolved Allocation Changes”), then Buyer and Seller shall promptly refer the Unresolved Allocation Changes to Crowe Horwath LLP, or, in the event such accounting firm refuses or is unable to make a determination, a mutually agreeable Firm to make a determination as to the subject matter of the Unresolved Allocation Changes. If Buyer and Seller fail to agree on a Firm within 15 days after the end of the 15-day period specified in Section 3(c)(2)(B) above, the Firm shall be selected by the American Arbitration Association. The Firm shall issue its written decision as promptly as practicable and in any event within 15 days following the submission of the Unresolved Allocation Changes to the Firm for resolution, and such decision shall be final, binding and conclusive on the parties and become the Final Allocation Determination. In the event Unresolved Allocation Changes are submitted to the Firm for resolution as provided herein, the costs of engaging the Firm shall be paid by Buyer and Seller equally.

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(3) Buyer and Seller and their Affiliates shall file all Tax Returns (including, but not limited to, Internal Revenue Service Form 8594) in all respects and for all purposes consistent with such Final Allocation Determination. Seller shall use commercially reasonably efforts to deliver to Buyer all such documents and other information as Buyer may reasonably request in order to prepare the Proposed Allocation Statement contemplated by Section 3(c)(1) above and any Tax Returns for taxable periods beginning on or after the Closing Date. No party shall take any position (whether in audits, Tax Returns or otherwise) that is inconsistent with such Final Allocation Determination unless required to do so by applicable Legal Requirement.

(d) Proration; Other Effective Time Adjustments.

(1) Except as otherwise specifically provided in this Agreement, it is the intention of the parties that the Branches will be operated by Seller for Seller’s account until the Effective Time, and that the Branches will be operated by Buyer for Buyer’s account, and Buyer will hold the Assets and assume the Liabilities for its own account, from and after the Effective Time. Thus, except as otherwise specifically provided in this Agreement, items of income and expense, as determined in accordance with GAAP, shall be prorated as of the Effective Time and settled between Seller and Buyer, whether or not such proration would normally be made as of such time. Items of proration will be an adjustment to the Purchase Price unless otherwise agreed by the parties hereto.

(2) For purposes of this Agreement, items of proration and other adjustments shall include, but are not limited to: (i) personal and real property Taxes and assessments, which shall be pro-rated in the manner set forth in Section 18 (other than such sales, real estate, use and property taxes that arise as a result of the transactions contemplated by this Agreement that shall be paid by Buyer in accordance with Section 18); (ii) amounts prepaid and unused for safe deposit box rentals; (iii) insurance premiums paid or payable to the FDIC attributable to insurance coverage for the Deposit Liabilities; (iv) fees for customary annual or periodic licenses or permits; (v) water, sewer, fuel and utility charges; and (vi) other prepaid items of income and expense, in each case calculated as of Effective Time; provided that items of proration and other adjustments shall not include commitment and other fees paid in advance with respect to the Assigned Loans, which fees shall be retained by Seller and not shared with Buyer.

4. Payment of the Purchase Price and other Amounts.

(a) Payment of Estimated Payment Amount. At Closing, (1) if the Estimated Payment Amount as set forth on the Draft Closing Statement is a positive amount, Seller shall pay to Buyer an amount in dollars equal to such positive amount, or (2) if the Estimated Payment Amount as set forth on the Draft Closing Statement is a negative amount, Buyer shall pay to Seller an amount in dollars equal to the absolute value of such negative amount.

(b) Method of Payment of all Amounts. All payments to be made hereunder by one party to the other shall be made by wire transfer of immediately available funds (to such account as the appropriate party shall advise not later than two Business Days prior to the Closing Date).

(c) Instruments. If any instrument of transfer contemplated herein shall be recorded in any public record before the Closing and thereafter the Closing does not occur, then at the request of such transferring party the other party will deliver (or execute and deliver) such instruments and take such other action as such transferring party shall reasonably request to revoke such purported transfer.

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5. Closing and Closing Date.

(a) Closing. The consummation of the transactions contemplated by this Agreement (the “Closing”) will take place as soon as reasonably practicable, following the satisfaction, or where legally permitted, the waiver of conditions set forth in Sections 7 and 8 (including, without limitation, the receipt by Seller of the Required Consents, the receipt by Buyer of all Regulatory Approvals, and expiration of any applicable statutory waiting periods), but in no event later than December 31, 2011, or such other date to which this may be extended in accordance with Section 22(d) (the “Closing Date”).

(b) Location. The Closing will held at the offices of Vorys, Sater, Seymour & Pease LLP at 1375 East Ninth Street, 2100 One Cleveland Center, Cleveland, Ohio 44114, or such other place as may be agreed to by the parties.

(c) Data Processing Conversion. Unless the parties agree pursuant to Section 14(b) that the conversion of the data processing with respect to the Branches and the Assets and Liabilities will be performed other than on the weekend immediately following the Closing Date, the Closing Date shall be on a Friday and such conversion will be completed prior to the opening of business on the following Monday. The date upon which the conversion of the data processing shall be referred to in this Agreement as the “Data Processing Conversion Date”.

6. Obligations at Closing.

(a) Seller Deliveries. At Closing, Seller shall deliver to Buyer the following:

(1) Duly executed deeds and all other instruments of conveyance as may be necessary to sell, transfer, assign and convey all right, title and interest in and to the Premises to Buyer;

(2) A duly executed bill of sale in substantially the form of Exhibit A attached hereto pursuant to which the Personal Property shall be transferred to Buyer;

(3) Rights to possession of the Assigned Contracts, Required Consents and other written agreements, contracts, leases and other documentation that relate to the Assets and Liabilities and the Safe Deposit Agreements;

(4) Rights to possession of the Loan Files and Loan Documents and the collateral security held by Seller as security for any Assigned Loan, with physical possession of such as provided for in Section 6(c);

(5) Certified copies of resolutions of Seller’s board of directors authorizing the execution and delivery of this Agreement

(6) Copies of the Records;

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(7) Such instruments of assumption of Liabilities as are required to effectively assign and transfer the obligations for the Liabilities to the Buyer and for Buyer to assume those Liabilities as provided herein, including, without limitation, an assignment and assumption agreement in substantially the form set forth on Exhibit B attached hereto with respect to the Liabilities, duly executed by Seller (the “Assignment and Assumption Agreement”);

(8) A payoff letter from the FHLB and any other secured lender releasing any Liens that may exist on the Assigned Loans described on Section 9(e)(7);

(9) Updated schedules of Assets and Liabilities and the Seller Disclosure Schedule as of a date mutually agreed upon by the parties;

(10) Seller’s resignation as trustee or custodian, as applicable, with respect to each IRA that represents part of the Deposit Liabilities, and designation of Buyer as successor trustee or custodian with respect thereto, as contemplated by Section 2(c);

(11) The certificate of Seller’s officer required by Section 8(7);

(12) The Draft Closing Statement (which shall have been furnished to Buyer prior to the Closing Date) in substantially the form of Exhibit C;

(13) A certification of non-foreign status meeting the requirements of Treasury Regulation 1.1445-2(b)(2), duly executed and acknowledged substantially in the form of the sample certificates set forth in Treasury Regulation Section 1.1445-2(b)(2)(iv);

(14) The Cash On Hand;

(15) The Estimated Payment Amount (if required pursuant to Section 4(a));

(16) A complete set of keys for each Branch, including but not limited to keys for safe deposit boxes, vaults and ATMs and combinations for all combination locks, appropriately tagged for identification and any manuals, access codes, passwords or specifications with respect to vaults and ATMs;

(17) A list of Deposit Liabilities, corresponding interest rates paid on the Deposit Liabilities and other information necessary for Buyer to verify the rates paid by Seller on Deposit Liabilities (which shall be as of the date that is the fifth Business Day prior to the Closing Date); and

(18) Such other documents as the parties may determine are reasonably necessary to consummate the transactions contemplated hereby.

(b) Buyer Deliveries. At the Closing, Buyer will deliver to Seller the following:

(1) Certified copies of resolutions of Buyer’s board of directors authorizing the execution and delivery of this Agreement and the consummation of the transactions set forth in this Agreement;

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(2) Such instruments of assumption of Liabilities as are required to effectively assign and transfer the obligations for the Liabilities to the Buyer and for Buyer to assume those Liabilities as provided herein, including, without limitation, the Assignment and Assumption Agreement, duly executed by Buyer;

(3) The certificate of Buyer’s officer as required by Section 7(6);

(4) Evidence of the Regulatory Approvals and the satisfaction of all required conditions of such Regulatory Approvals;

(5) Buyer’s acceptance of its appointment as successor trustee or custodian, as applicable, of the IRAs that are part of the Deposit Liabilities and the assumption of the fiduciary obligations of the trustee or custodian with respect thereto, as contemplated by Section 2(c);

(6) The Estimated Payment Amount (if required pursuant to Section 4(a)); and

(7) Such other documents as the parties may determine are reasonably necessary to consummate the transactions contemplated hereby.

(c) Loan Documents and Loan Files.

(1) Not later than five business days following the Closing Date, Buyer or its designee may pick up at Seller’s offices at 275 West Federal Street, Youngstown, Ohio 44503, the Loan Files and the Loan Documents (reasonably organized and cataloged), in the medium (including imaged documents) then maintained by Seller.

(2) Promptly upon execution of this Agreement, Buyer shall provide Seller in writing with the exact name to which the Assigned Loans are to be endorsed, or whether any Assigned Loans should be endorsed in blank. Seller shall complete such endorsements and deliver the Loan Documents, along with assignments of real property security instruments in recordable form and assignments of financing statements, in a form reasonably satisfactory to Buyer, at or prior to the Closing Date, including, but not limited to the following:

(A) For each of the Assigned Loans, a notice of transfer of Assigned Loan substantially in the form attached hereto as Exhibit D (and such other instrument or form reasonably satisfactory to Buyer’s counsel and as otherwise required by any Legal Requirement) to be sent by Buyer informing each borrower under each of the Assigned Loans of the transfer of the Assigned Loans and related servicing to Buyer;

(B) For each of the original Notes, an endorsement made pursuant to an Allonge in substantially the form attached hereto as Exhibit E (and such other instrument or form reasonably satisfactory to Buyer’s counsel and as otherwise required by any Legal Requirement);

(C) For each of the Assigned Loans, an Assignment of Liens and Documents and Amendment to Mortgage (the “Assignment”) for the Loan Documents and related rights and liens, substantially in the form of Exhibit F (and such other instrument or form satisfactory to Buyer’s counsel as otherwise required by any Legal Requirement) attached hereto with all blanks appropriately completed; and

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(D) For each of the Assigned Loans, one or more UCC-3 Assignments of Financing Statements (the “UCC-3s”), to be filed by Buyer, at its expense, with the Secretary of State where each borrower is formed and/or in the county where each real property is located, as applicable, a form of which is attached hereto as Exhibit G, evidencing the assignment to Buyer of all Seller’s right, title and interest in and to any security interests in personal property and fixtures created by the Loan Documents and held by Seller that are in effect on the Closing Date.

(d) Collateral Assignments and Filing. Seller shall take all such reasonable actions as requested by Buyer to assist Buyer in obtaining the valid perfection of a lien or security interest in the collateral, if any, securing each Assigned Loan sold on the Closing Date in favor of Buyer or its designated assignee as secured party. Any such action shall be the responsibility of Buyer and at Buyer’s sole expense, and Buyer shall reimburse Seller for all reasonable third party costs incurred in connection therewith.

(e) Power of Attorney. Seller shall execute and deliver to Buyer (together with the Loan Files and Loan Documents and assignments), a limited power of attorney substantially in the form attached as Exhibit H and such other instrument or form reasonably satisfactory to Buyer’s counsel and as otherwise required by any Legal Requirement, authorizing Buyer and its representatives to transfer to Buyer any Asset, file or record assignments of collateral security, and endorse in Seller’s name any checks, drafts, notes or other documents received in payment of the Assigned Loans after the Closing.

(f) Premises Filings. Promptly following the Closing Date, Buyer shall, at its expense, file or record, or cause to be filed or recorded, any and all documents necessary in order that the legal and equitable title to Premises as provided herein be duly vested in Buyer.

7. Conditions Precedent to Seller’s Obligations. The obligations of Seller to consummate the transactions contemplated by this Agreement are, at the option of Seller, subject to satisfaction of the following Conditions Precedent at or before Closing or at or before such time as expressly set forth below:

(1) The Regulatory Approvals of Seller, if any, shall have been made or obtained and shall remain in full force and effect, and all statutory waiting periods applicable to the transactions contemplated hereby shall have expired or terminated and no such Regulatory Approval shall have resulted in the imposition of a Burdensome Regulatory Condition;

(2) Buyer shall have duly and timely performed in all material respects its covenants and agreements herein contained on or prior to the Closing Date, but only to the extent that such covenants and agreements, by their terms, are required to have been performed prior to Closing;

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(3) Each of the representations and warranties of Buyer contained or referred to in this Agreement shall be true and correct in all material respects as though made at the Closing (except to the extent such representations and warranties speak of an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date);

(4) No Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Legal Requirement or Order (whether temporary, preliminary or permanent) that prohibits or makes illegal, or materially restricts, the consummation of the transactions contemplated by this Agreement or materially alters the terms of this Agreement;

(5) No Legal Proceedings shall have been instituted against Seller where the determination of liability against Seller would reasonably be expected to have a material and adverse effect on the ability of Seller to consummate the transactions contemplated by this Agreement; and

(6) There shall have been delivered to Seller a certificate confirming items (2) and (3) above and Section 8(1), dated as of the Closing Date, and signed on behalf of the Buyer by a duly authorized officer of Buyer.

(7) Buyer shall have delivered the closing deliverables set forth in Section 6(b).

8. Conditions Precedent to Buyer’s Obligations. The obligations of Buyer to consummate the transactions contemplated by this Agreement are, at the option of Buyer, subject to the following Conditions Precedent at or before Closing or at or before such time as expressly set forth below:

(1) The Regulatory Approvals of Buyer, if any, shall have been made or obtained and shall remain in full force and effect, and all statutory waiting periods applicable to the transactions contemplated hereby shall have expired or terminated, and no such Regulatory Approval shall have resulted in the imposition of a Burdensome Regulatory Condition;

(2) Seller shall have duly and timely performed in all material respects its covenants and agreements contained herein on or prior to the Closing Date, but only to the extent that such covenants and agreements, by their terms, are required to have been performed prior to Closing;

(3) Each of the representations and warranties of Seller contained or referred to in this Agreement shall be true and correct in all material respects as though made at the Closing (except to the extent such representations and warranties speak of an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date);

(4) No Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Legal Requirement or Order (whether temporary, preliminary or permanent) that is in effect and that prohibits or makes illegal, or materially impacts, the consummation of the transactions contemplated by this Agreement or materially alters the terms of this Agreement;

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(5) No Legal Proceedings shall have been instituted against Buyer where the determination of liability against Buyer would reasonably be expected to have a Material Adverse Effect or a material and adverse effect on the ability of Buyer to consummate the transactions contemplated by this Agreement;

(6) Buyer shall have received all title, survey and environmental reports set forth in Sections 14(p) and (q);

(7) There shall have been delivered to Buyer a certificate confirming items (2) and (3) above and Section 7(1), dated as of the Closing Date, and signed on behalf of Seller by a duly authorized officer of Seller; and

(8) Seller shall have delivered the closing deliverables set forth in Section 6(a).

9. Representations and Warranties of Seller. Seller represents and warrants to Buyer as follows, subject to the exceptions disclosed in writing in the Seller Disclosure Schedule and delivered as of the date of this Agreement:

(a) Corporate Organization. Seller is a chartered stock savings bank validly existing and in good standing under the laws of the State of Ohio, and is entitled to own its properties where such properties are now owned and operated and has the requisite power and authority to conduct its business as now being conducted at the Branches. Seller is an insured depository institution pursuant to the provisions of the Federal Deposit Insurance Act, as amended.

(b) Title to Assets. Seller is the lawful owner of, or otherwise has the contractual right to use all of the Assets. Each of the Assets are free and clear of all Liens other than Permitted Liens. Subject to and upon the execution of the documents of transfer, conveyance and assignment by Seller as provided herein at Closing and the receipt of the consents and approvals as set forth herein, Seller has the right to sell, convey, transfer, assign and deliver to Buyer all of Seller’s right, title and interest in and to the Assets free and clear of any Lien other than Permitted Liens.

(c) Premises.

(1) Except as set forth on Schedule 9(c)(1) of the Seller Disclosure Schedule, during the period of Seller’s ownership of the Premises, Seller has not received and has no Knowledge of any written notice of violation, citations, summonses, subpoenas, compliance orders, directives, suits, other legal process, or other written notice of potential liability under applicable zoning, building, fire and other applicable Legal Requirement relating to the Premises that would reasonably be expected to have a material and adverse effect on the operation of the Premises as a retail banking branch or otherwise on a basis consistent with its current use.

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(2) Seller has not received any notice of a condemnation or similar proceeding relating to the Premises.

(3) Except as set forth on Schedule 9(c)(3) of the Seller Disclosure Schedule, Seller has received no notice of any existing or pending special assessments affecting the Premises that may be assessed by any Governmental Entity, water or sewer authority, drainage district or any other special taxing district.

(4) There are no recorded outstanding agreements, options, rights of first offer, rights of first refusal or other commitments of any nature obligating Seller to transfer any of the Premises or rights or interests therein to any other Person.

(5) There are no leases, subleases, licenses or other rental agreements or occupancy agreements that grant any possessory interest in and to any space situated on or in the Premises or that otherwise give rights with regard to the use of the Premises or any portion thereof.

(6) The Premises (or the use and operation of any component, portion or area of any such premises) are in compliance in all material respects with all applicable Legal Requirements and there are presently and validly in effect all Government Authorizations necessary for the operation of each of the Premises as a retail banking branch or otherwise on a basis consistent with its current use.

(d) Environmental Matters.

(1) The Premises are in compliance with Applicable Environmental Laws, and no Hazardous Substances are used, handled, stored, discharged, released or disposed of on, at or under the Premises in violation of any Applicable Environmental Laws. To the Knowledge of Seller, there are no present or past conditions on the Premises involving or resulting from a past or present storage, spill, discharge, leak, emission, injection, escape, dumping or release of any kind whatsoever of any Hazardous Substances or from any generation, transportation, treatment, storage, disposal, use or handling of any Hazardous Substances on the Premises. Seller has not received notice of, nor are there outstanding or, to the Knowledge of Seller, pending, any public or private claims, lawsuits, citations, investigations, or notices or orders of non-compliance relating to the environmental condition of the Premises, nor, to Seller’s Knowledge, are there any facts or circumstances reasonably likely to indicate such conditions exist. The Premises are not undergoing remediation or cleanup of Hazardous Substances by Seller. Seller has not received notification from any Person that any Hazardous Substance has been disposed of, buried beneath, percolated beneath or otherwise exists on the Premises.

(2) To Seller’s Knowledge, Seller has maintained secured creditor liability exemptions pursuant to 42 U.S.C. § 9601(20) and similar applicable Legal Requirements, has not participated in management nor otherwise exercised control over any borrower such that Seller would be subject to any liability with respect to any environmental matters in connection with any security, any borrower’s operations or any borrower’s property, and has not foreclosed on a loan or taken over security in a manner that would result in liability under Environmental Laws.

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(e) Assigned Loans.

(1) All Assigned Loans have been made and maintained (including the risk rating of and loan loss reserves applicable to the Assigned Loans) in the ordinary course of business, in accordance with Seller’s customary lending standards and written loan policies (or in accordance with exceptions made in accordance with such standards and policies) and in compliance with all applicable Legal Requirements. Seller has complied in all material respects with all applicable Legal Requirements on consumer credit, equal credit opportunity and truth-in-lending with respect to the Assigned Loans.

(2) The loan files for each Assigned Loan (the “Loan Files”) contain originally executed notes or certified copies of original executed notes, leases and/or other evidences of indebtedness, and any documents evidencing any collateral or other financial accommodations relating to the Assigned Loans (the “Loan Documents”).

(3) Except as set forth on Schedule 9(e)(3) of the Seller Disclosure Schedule, no Assigned Loan is (i) 90 days or more past due in the payment of any required principal or interest, or (ii) on non-accrual status. To the Knowledge of Seller, the Loan Documents contain genuine signatures of the parties thereto, including, but not limited to makers and endorsers and of Seller. To the Knowledge of Seller, the Loan Documents are enforceable by Seller or its successors and assigns in accordance with their respective terms (except as such enforceability may be limited by bankruptcy or creditors’ relief laws of general application), represent the valid and legally binding obligation of the obligor, maker, co-maker, guarantor, endorser or debtor (such Person referred to as an “Obligor”) thereunder, and are evidenced by legal, valid and binding instruments executed by the Obligor, each of which at the time of such execution had, to the Knowledge of the Seller, capacity to contract, and none of the obligations represented by the Loan Documents have been modified, subordinated, altered, forgiven, discharged or otherwise disposed of except as indicated by the Loan Documents contained among the Loan Files or as a result of bankruptcy or other debtor’s relief laws of general application. To the Knowledge of Seller, no Obligor on any Assigned Loan is in bankruptcy and none of the Assigned Loans are subject to any offsets or claims of offset, or claims of other liability on the part of Seller. Seller has made no commitment to make or modify the terms and conditions of any Assigned Loan other than as set forth in the Loan Files.

(4) No Assigned Loan has been sold to another Person by Seller or is otherwise subject to an agreement to repurchase (other than Seller’s obligations to Buyer hereunder).

(5) The servicing practices of Seller used with respect to the Assigned Loans have been consistent with commercially reasonable practices in the industry and have been in compliance in all material respects with all Legal Requirements.

(6) No borrower, customer or other party in connection with the Assigned Loans has notified Seller, or has asserted against Seller, in each case in writing, any “lender liability” or similar claim.

(7) Seller is the sole owner and holder of the Assigned Loans, has all power and authority to hold the Assigned Loans and has good and marketable title to the Assigned Loans free and clear of any Lien other than Permitted Liens.

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(8) Except as set forth in this Section 9(e), Seller makes no representation or warranty of any kind to Buyer relating to the Assigned Loans and Seller shall not be responsible for (i) the sufficiency, value or collectability of the Assigned Loans or any document, instrument or agreement in the Loan Files, (ii) any representation, warranty or statement made by an obligor or other party in or in connection with any Assigned Loan, (iii) the financial condition or creditworthiness of any primary or secondary obligor under any Assigned Loan or any guarantor or surety or other obligor thereof, (iv) the performance by any guarantor, surety or other obligor or compliance with any of the terms or provisions of any of the documents, instruments and agreements relating to any Assigned Loan, or (v) inspecting any of the property, books or records of any guarantor, surety or other obligor.

(f) Deposit Liabilities. The Deposit Liabilities are genuine obligations of Seller and have been originated or extended and administered in material compliance with the documents governing the relevant type of Deposit Liabilities and all applicable Legal Requirements. The Deposit Liabilities are insured by the FDIC through the Deposit Insurance Fund to the fullest extent provided for by applicable Legal Requirement and all premiums and assessments due to date in connection with such insurance have been paid. All interest has been accrued on the Deposit Liabilities and Seller’s records accurately reflect such accrual of interest in accordance with GAAP. As of the date of this Agreement, except as set forth on Schedule 9(f) of the Seller Disclosure Schedule, Seller has not received written notice of any loss or potential loss of any material business or customers related to the Assigned Loans or the Deposit Liabilities.

(g) Safe Deposit Boxes. Seller is in compliance in all material respects with the terms and conditions of the Safe Deposit Agreements.

(h) Branch Business. The business at the Branches has been conducted in material compliance with Seller’s policies and procedures and all Legal Requirements. Except as set forth on Schedule 9(h) of the Seller Disclosure Schedule, there are no Legal Proceedings or Orders entered or pending or, to the Knowledge of Seller, threatened against or affecting the Assets, Liabilities, or the business of Seller as it relates to or is conducted at the Branches.

(i) Regulatory Approval. Except as set forth on Schedule 9(i) of the Seller Disclosure Schedule, there are no pending or, to the Knowledge of Seller, threatened Legal Proceedings between Seller and any Governmental Entity relating to the Branches or the Assets. As of the date of this Agreement, Seller has not received any written indication, or, to the Knowledge of Seller, oral notification, from any Governmental Entity that such Governmental Entity would oppose or refuse to grant any Regulatory Approval required for the execution of this Agreement, and consummation of the transactions contemplated herein, by Seller.

(j) Power, Authority and Enforceability. Seller has the requisite power and authority to enter into, deliver and perform this Agreement and any instruments or other documents executed pursuant hereto. This Agreement and any instruments or other documents executed pursuant hereto, and the execution, delivery and performance of this Agreement and thereof, have been duly authorized and approved by all necessary corporate action on the part of Seller. This Agreement has been duly and validly executed and delivered by Seller and, assuming due authorization, execution and delivery by Buyer, constitutes a valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as enforcement may be limited by receivership, conservatorship and supervisory powers of bank regulatory agencies generally, as well as bankruptcy, insolvency, reorganization, moratorium or other laws of general applicability relating to or affecting creditors’ rights, or the limiting effect of rules of law governing specific performance, equitable relief and other equitable remedies or the waiver of rights or remedies.

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(k) No Conflict. The execution, delivery and performance of this Agreement and any instruments and documents executed pursuant hereto by Seller do not, and will not:

(1) violate any provision of the organizational documents of Seller,

(2) subject to the receipt of all regulatory approvals required by this Agreement as set forth in Schedule 9(k)(2) of the Seller Disclosure Schedule (the “Regulatory Approvals”), constitute a breach or violation of, or default under, any Legal Requirement, Order or Governmental Authorization to which Seller is subject, which breach, violation or default, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, or

(3) subject to the receipt of all consents required by this Agreement as set forth on Schedule 9(k)(3) of the Seller Disclosure Schedule (the “Consents” and together with the Regulatory Approvals collectively referred to as, the “Required Consents”), constitute a breach or violation of, or default under, any agreement or instrument of Seller or to which Seller is subject or by which Seller is otherwise bound, which breach, violation or default, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, or

(4) result in the creation of any Lien upon any of the Assets.

(l) Required Consents. Other than the Regulatory Approvals, no notices, reports or other filings are required to be made by Seller with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by Seller from, any Governmental Entity in connection with the execution and delivery of this Agreement by Seller and the consummation of the transactions contemplated by this Agreement by Seller. Other than the Required Consents, there are no consents or approvals of any third party required to be obtained in connection with the execution and delivery of this Agreement by Seller and the consummation of the transactions contemplated by this Agreement by Seller.

(m) Condition and Sufficiency. All material Personal Property is in good working order, ordinary wear and tear excepted, and is fit for the purpose for which it is used by Seller in the conduct of the business of the Branches. The Premises and Personal Property are sufficient to operate the Branches in the manner presently operated by Seller.

(n) Employee Matters. Seller is not a party to any collective bargaining agreement, and there are no labor unions representing any employees at the Branches. To Seller’s Knowledge, there are no organizational or other activities by labor unions to organize the employees at the Branches.

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(o) Tax Matters.

(1) Seller has filed all Tax Returns that it was required to file with respect to the ownership of the Assets and the operation of the Branches. All such Tax Returns were correct and complete in all material respects and were prepared in substantial compliance with all laws and regulations, and all Taxes shown as due thereon have been paid or will be paid prior to Closing. Seller is not the beneficiary of any extension of time within which to file any Tax Return related to Seller’s ownership of the Assets or operation of the Branches. No claim has been made by a Governmental Entity within the past three years in a jurisdiction where Seller does not file Tax Returns that it is or may be subject to taxation by that jurisdiction as a result of its ownership of the Assets or operation of the Branches. There are no liens on any of the Real Property that arose in connection with any failure (or alleged failure) to pay any Tax other than Permitted Exceptions.

(2) To the Knowledge of Seller, Seller has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee employed at any of the Branches and all Forms W-2 and 1099 required with respect thereto have been properly completed and timely filed.

(p) ERISA.

(1) Neither Seller nor any ERISA Affiliate have any liability or liabilities under any Employee Benefit Plan that will become a liability or liabilities of Buyer or any Affiliate of Buyer or result in any Lien on the Assets or on any other assets of Buyer and Buyer’s Affiliates.

(2) None of the Assets (i) are “plan assets” of any Employee Benefit Plan, (ii) are subject to any Lien or other encumbrance relating to any Employee Benefit Plan under ERISA, the Code or otherwise, or (iii) otherwise have been identified or earmarked as available for or relating to benefits under any Employee Benefit Plan.

(q) Assigned Contracts. The Assigned Contracts, if any, are the valid and binding obligation of Seller, and, to the Knowledge of Seller, of each other party thereto. Except as would not reasonably be expected to have a Material Adverse Effect, there does not exist with respect to Seller’s obligations thereunder, or, to the Knowledge of Seller with respect to the obligations of each other party thereto, any material default, or event or condition that constitutes or, after notice or passage of time or both, would constitute a material default on the part of Seller or such other party, as applicable, under the Assigned Contracts.

(r) Brokers. Other than the retention of ParaCap Group, LLC to act as financial advisor to the transaction, Seller has not employed or contracted with any broker, finder, investment banker or other financial advisor or incurred any liability for brokerage fees, commissions, finders’ fees or other like payment in connection with the transactions contemplated hereunder. Seller shall pay, and hold the Buyer harmless against, any liability, loss or expense (including, without limitation, reasonable attorneys’ fees and out-of-pocket expenses) arising in connection with any claims for brokerage commissions, finders’ fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement binding upon the Seller.

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(s) Disclaimers of, and Limitations on, Representations and Warranties. Except for the representations and warranties specifically set forth in this Section 9, neither Seller nor any of its agents, Affiliates or representatives, nor any other Person, makes or shall be deemed to make any representation or warranty to Buyer, express or implied, at law or in equity, with respect to the transactions contemplated hereby, including without limitation:

(1) Seller makes no representations or warranties, express or implied, as to the physical condition of the Personal Property or the Premises (including any improvements and fixtures constituting the Branch and ATMs), other than the representations and warranties expressly made in Section 9, all of which are being sold or transferred and assigned “AS IS”, “WHERE IS”, without recourse and with all faults, without any obligation on the part of Seller, at the Closing Date, subject, however, to Seller’s representations and warranties made in this Section 9 as qualified by the Seller Disclosure Schedule.

(2) Seller makes no representations or warranties to Buyer, express or implied, as to whether, or the length of time during which, any accounts relating to Deposit Liabilities or and Assigned Loans will be maintained by the owners of such Deposit Liabilities or Assigned Loans after the Closing Date.

10. Representations and Warranties of Buyer. Buyer represents and warrants to Seller as follows, subject to the exceptions disclosed in writing in the Buyer Disclosure Schedule and delivered as of the date of this Agreement:

(a) Corporate Organization. Buyer is a chartered stock bank duly organized and existing in good standing under the laws of the State of Ohio.

(b) Power, Authority and Enforceability. Buyer has the requisite power and authority to enter into, deliver and perform this Agreement and any instruments or other documents executed pursuant hereto. This Agreement and any instruments or other documents executed pursuant hereto, and the execution, delivery and performance of this Agreement and thereof, have been duly authorized and approved by all necessary corporate action on the part of Buyer. This Agreement has been duly and validly executed and delivered by Buyer and, assuming due authorization, execution and delivery by Seller, constitutes a valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as enforcement may be limited by receivership, conservatorship and supervisory powers of bank regulatory agencies generally, as well as bankruptcy, insolvency, reorganization, moratorium or other laws of general applicability relating to or affecting creditors’ rights, or the limiting effect of rules of law governing specific performance, equitable relief and other equitable remedies or the waiver of rights or remedies.

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(c) No Conflict. The execution and delivery of this Agreement and any instruments and documents executed pursuant hereto by Buyer do not and, subject to the receipt of all Regulatory Approvals, the consummation of the transactions contemplated by this Agreement will not:

(1) constitute a breach or violation of or default under any Legal Requirement, judgment, order, governmental permit or the organizational documents or any license of Buyer, or to which Buyer is subject, which breach, violation or default would materially and adversely affect the transactions contemplated hereby, or

(2) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event that, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any lien upon any of its assets under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Buyer is a party, or by which it or any of its properties or assets may be bound or affected, which breach, violation or default would prevent or materially delay Buyer from performing its obligations under this Agreement in all material respects.

(d) Buyer Due Diligence; Acceptance of Assets and Liabilities “As Is”. Buyer has, or will have had prior to the Closing, an opportunity to conduct an independent inspection and investigation of the condition of all portions of the Assigned Loans and related Assets and all other matters relating to or affecting the transactions contemplated by this Agreement that Buyer has deemed necessary or appropriate and that in proceeding with this transaction Buyer is doing so based solely upon such independent inspections and investigations and the provisions of this Agreement. Buyer acknowledges and agrees that, except as expressly set forth in this Agreement, Seller makes no representations or warranties whatsoever, express or implied.

(e) Regulatory Approvals.

(1) Except for the Regulatory Approvals set forth on Schedule 10(e) of the Buyer Disclosure Schedule, no consents or approvals of or filings or registrations with any Governmental Entity, or any third party are necessary in connection with the execution and delivery by Buyer of this Agreement or the consummation by Buyer of the transactions contemplated hereby.

(2) As of the date of this Agreement, Buyer has not received any written indication, or, to the Knowledge of Buyer, oral notification, from any Governmental Entity that such Governmental Entity would oppose or refuse to grant a regulatory approval regarding execution of this Agreement by Buyer and consummation of the transactions contemplated herein by Buyer. There are no pending or, to Buyer’s Knowledge, threatened actions, proceedings or allegations by any Person or Governmental Entity against Buyer that has or would reasonably be expected to have a material and adverse effect on Buyer’s ability to perform its obligations under this Agreement in all material respects.

(f) Financing; Capital. Buyer has, or will have prior to the Closing, the necessary funding and capital to complete the transactions contemplated by this Agreement as of the date of this Agreement and at the Closing. Prior to the date of this Agreement, Buyer has executed, and provided Seller with a copy of, a binding commitment letter, acceptable to Buyer, for all additional funding Buyer may require to complete the transactions contemplated by this Agreement.

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(g) Broker. Other than the retention of Austin Associates, LLC to act as financial advisor to the transaction Buyer has not employed or contracted with any broker, finder, investment banker, or other financial advisor or incurred any liability for brokerage fees, commissions, finders’ fees or other like payment in connection with the transactions contemplated hereunder. Buyer shall pay, and hold the Seller harmless against, any liability, loss or expense (including, without limitation, reasonable attorneys’ fees and out-of-pocket expenses) arising in connection with any claims for brokerage commissions, finders’ fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement binding upon the Buyer.

(h) Limitation of Representations and Warranties. Except for the representations and warranties specifically set forth in this Section 10, neither Buyer nor any of its agents, Affiliates or representatives, nor any other Person, makes or shall be deemed to make any representation or warranty to Seller, express or implied, at law or in equity, with respect to the transactions contemplated hereby and Buyer hereby disclaims any such representation or warranty whether by Buyer or any of its officers, directors, employees, agents or representatives or any other Person.

11. Seller’s Pre-Closing Covenants. During the period from the date of this Agreement to the Closing Date, Seller (i) shall, with respect to the Branches, Assets and Liabilities, use its commercially reasonable best efforts to preserve its business relationship with depositors, customers and others having business relationships with it and whose accounts will be retained at the Branches, (ii) will underwrite and administer the Assigned Loans in accordance with prudent, safe and sound underwriting and administration practices and applicable Legal Requirements, (iii) will maintain the Branches and Personal Property in their current condition, ordinary wear and tear excepted; and (iv) will conduct the business of the Branches and preserve the Assets and Liabilities in accordance with prudent, safe and sound commercial banking practices and applicable Legal Requirements. Seller covenants with Buyer that, from the date of this Agreement to Closing, Seller, except with the prior written consent of Buyer, will not:

(1) Sell, transfer, assign, lease, mortgage, pledge or otherwise dispose of or encumber or enter into any contract, agreement, or understanding to sell, transfer, assign, lease, mortgage, pledge or otherwise dispose of or encumber any of the Assets (other than use of Cash on Hand in the ordinary course of business consistent with past practice) or Liabilities existing on the date of this Agreement.

(2) Except in the ordinary course of business and in a manner consistent with safe and sound banking practices, modify the interest rate or structure, or amend, extend or renew any term of any Assigned Loans, grant any interest deferral or fee waivers, or deviate from industry standard and commercially reasonable collection procedures, including, without limitation, modification of payment terms or due date(s).

(3) Establish new Deposit Liabilities at the Branches other than in the ordinary course of business.

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(4) File any application or give any notice to relocate or close the Branches or relocate or close the Branches, except for any notice that may be required to be filed in order to consummate the transactions contemplated hereunder.

(5) Transfer any of Seller’s employees at the Branches to another branch or office of Seller or any of its Affiliates.

(6) Transfer to or from any of the Branches to or from any of Seller’s other operations or branches or those of its Affiliates any Assets or any Deposit Liabilities, except upon the unsolicited request of a depositor or customer.

(7) Take any action that is intended or is reasonably likely to result in (x) any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Closing, (y) any of the covenants or conditions to the transactions contemplated hereby not being materially satisfied or (z) a material violation of any provision of this Agreement except as may be required by applicable Legal Requirement.

(8) Agree with, or commit to, any Person to do any of the things described in clauses (1) through (8) of this Section 11 except as expressly contemplated hereby.

12. Buyer Pre-Closing Covenants. Buyer covenants with Seller that Buyer:

(1) Will timely satisfy all of its obligations described in Section 14(a).

(2) Will not fail to comply with any Legal Requirement or order applicable to it if such failure would have a Material Adverse Effect on Buyer’s ability to complete the transactions contemplated by this Agreement or to receive the requisite approvals from Governmental Entities.

(3) Will not take any action that is intended or is reasonably likely to result in (x) any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Closing, (y) any of the covenants or conditions to the transactions contemplated hereby not being materially satisfied or (z) a material violation of any provision of this Agreement except as may be required by applicable Legal Requirement.

(4) Will remain in compliance at all times with all of the covenants set forth in the executed commitment letter described in Section 10(f).

13. Additional Covenants.

(a) Servicing Prior to Closing Date. With respect to the Assigned Loans from the date of this Agreement until the Closing Date, Seller shall provide servicing of such Assigned Loans that is consistent with safe and sound banking practices and the servicing provided with respect to its loans that are not Assigned Loans. Further, without the prior written consent of Buyer (which consent shall not be unreasonably withheld or delayed), Seller shall not (a) except as required by Legal Requirement or the terms of the Loan Documents, release any collateral or any party from any liability on or with respect to any of the Assigned Loans; (b) compromise or settle any material claims of any kind or character with respect to the Assigned Loans; or (c) amend or waive any of the material terms of any Assigned Loan as set forth in the Loan Documents on the date of this Agreement.

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(b) Servicing Post Closing Date. The Assigned Loans shall be sold on a servicing-released basis (and without limitation, any related escrow deposits shall be transferred to Buyer). As of the Closing Date, all rights, obligations, liabilities and responsibilities with respect to the servicing of the Assigned Loans after the Closing Date will be assumed by Buyer. Buyer shall thereafter service the Assigned Loans in a reasonable manner and in accordance with industry standards. Seller shall be discharged and indemnified by Buyer from all claims, liability reasonable expense with respect to servicing of the Assigned Loans after the Closing and Buyer shall not assume and shall be discharged and indemnified by Seller from all claims, liability and reasonable expense with respect to servicing of the Assigned Loans on or prior to the Closing.

(c) Retention of and Access to Files Following the Closing Date.

(1) Each party agrees that it will preserve and safely keep, for as long as may be required by applicable Legal Requirement, all of the files, books of account and records of the Branches referred to in this Agreement for the joint benefit of itself and the other party, and that it will permit the other party or its representatives, at any reasonable time and at such party’s expense, to inspect, make extracts from or copies of, any such files, books of account or records as such party shall deem necessary.

(2) In the event that some of Seller’s records concerning the Assets or the Deposits cannot reasonably be segregated from Seller’s records regarding accounts not transferred pursuant to this Agreement, Seller will not deliver such records to Buyer but will preserve and safely keep such records for as long as may be required by applicable Legal Requirement. For a period of one year after the Closing Date, Seller shall provide research and account history services related to any such records to Buyer at Buyer’s request. Such services shall be provided on the same service schedule as services then provided by Seller to its customers, and Buyer shall pay the same rates for such services as Seller then charges its existing customers.

(d) Non-Solicitation of Employees; No Hire. For a period of 18 months following the Closing Date, (i) neither Seller nor Buyer will (and shall cause their Affiliates not to), without the prior written consent of other party, solicit (other than general solicitations through newspapers or other media of general circulation not targeted at such employees) any employees of the other party, and (ii) neither party will induce or attempt to induce any employee of the other party to leave the employ of Buyer or Seller as the case may be.

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(e) Non-Solicitation of Customers. For a period of 18 months following the Closing Date, Seller will not (and shall cause its Affiliates not to) call upon or solicit the business of any customer of the Branches whose deposit account is assumed by Buyer as a Deposit Liability or whose loan is purchased by Buyer as an Assigned Loan (each, a “Restricted Customer”), or induce or attempt to induce any Restricted Customer not to do business with Buyer or the Branches after Closing, in each case, for the purpose of (and in each case only as such solicitation or other contact relates to) engaging in any activities that compete with the business of the Branches; provided, however, (i) this restriction shall not restrict Seller, its Affiliates or any of their successors or assigns from (A) using newspaper, radio, television, internet or similar advertisements of a general nature or (B) calling upon or soliciting in the ordinary course consistent with past practices any existing customer of Seller’s investment division; (ii) to the extent Seller is a lender to a Restricted Customer and such loan is not an Assigned Loan, then nothing in this Section 13(e) shall preclude, prohibit or restrict Seller from engaging in any business activity whatsoever with such Restricted Customer; and (iii) nothing in this section shall preclude, prohibit or restrict Seller from engaging in business activity with any customer, whether a Restricted Customer or not, who seeks the services of Seller.

(f) Prohibition on De Novo Branches. For a period of 18 months following the Closing Date, Seller will not (and shall cause its Affiliates not to) open a de novo branch within the counties of Seneca and Sandusky, Ohio; provided, however, this restriction shall not restrict Seller, its Affiliates or any of their successors or assigns from acquiring or otherwise merging, transferring, liquidating or consolidating with or into any entity that operates a branch within such restricted area.

(g) Insurance. Seller will maintain in effect until the Effective Time all casualty and public liability policies relating to the Branches, the Premises and the activities conducted thereon and maintained by Seller on the date of this Agreement or procure comparable replacement policies and maintain such replacement policies in effect until the Effective Time at equal or greater coverage levels. Buyer shall provide all casualty and public liability insurance for the Branches after the Effective Time. In the event of any material damage, destruction or condemnation affecting the Premises between the date of this Agreement and the Effective Time, Buyer shall have the right to (i) require Seller to take reasonable steps to repair or replace the damaged or destroyed property, (ii) require Seller to deliver to Buyer at Closing any insurance proceeds and other payments received by Seller as a result thereof unless, in the case of damage or destruction, Seller has repaired or replaced the damaged or destroyed property, or (iii) in the event of a casualty loss to any Branch where (a) the estimated cost of restoration to such Branch is equal to or greater than 50% of the net book value of the Branch or (b) the Branch cannot reasonably be restored within six (6) months from the date the damage is incurred, terminate this Agreement solely with respect to the Assets and Liabilities related to such damaged Branch.

(h) Additional Assigned Loans. Promptly following the date of this Agreement, the parties will agree on a schedule and process for providing the relevant information relating to consumer loans (“Additional Loan Information”) originated after June 30, 2011 through the fifteenth Business Day prior to the Closing Date (with Additional Loan Information provided to Buyer not less frequently than monthly and the final delivery of Additional Loan Information, if any, not later than the tenth Business Day prior to the Closing Date) such that Buyer deems reasonably necessary to enable it to determine whether to designate such consumer loans as “Additional Assigned Loans.” The parties will further agree on a schedule for Buyer to designate such consumer loans as “Additional Assigned Loans,” which shall occur not later than five Business Days prior to the Closing Date, and with respect to any Additional Loan Information provided within ten Business Days of the Closing Date. Unless the parties otherwise agree in writing, consumer loans originated after the fifteenth Business Day prior to the Closing Date shall not be Additional Assigned Loans. Any consumer loans originated after June 30, 2011 that Buyer does not designate as Additional Assigned Loans pursuant to the agreed upon process shall not be an Assigned Loan, Additional Assigned Loan or constitute a part of the Assets and may, without regard to any other provisions of this Agreement, be transferred by Seller to another Seller banking branch, together with any related servicing or other rights or collateral.

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14. Regulatory Compliance, Conversion and Transition Matters; Title, Survey and Environmental Reports.

(a) Regulatory Filings by Buyer and Approvals. As promptly as practicable, but in no event more than ten Business Days after the date of this Agreement, Buyer shall prepare, submit and/or file all applications, filings, notices, consents, permits or registrations required by Buyer to obtain the Regulatory Approvals. Buyer shall take all steps necessary to obtain each such Regulatory Approval as promptly as practicable. Seller and Buyer will use reasonable best efforts to cooperate in connection with obtaining the Regulatory Approvals (including the furnishing of any information that may be required to obtain the Regulatory Approvals). Each party will provide the other with copies of any public portions of applications prior to filing. Each party will provide the other with copies of all written correspondence relating to the applications as promptly as possible after its receipt or issuance. If any Governmental Entity shall require the modification of any of the terms and provisions of this Agreement as a condition to granting any Regulatory Approval, the parties hereto will negotiate in good faith to seek a prompt, mutually agreeable adjustment to the terms of the transaction contemplated hereby.

(b) Transitional Arrangements. Seller and Buyer agree to cooperate and to proceed as follows to effect the transfer of account record responsibility for the Branches:

(1) As soon as practicable after the execution of this Agreement by the parties hereto, but in no event later than 30 days after the date of this Agreement, Seller will meet with Buyer to investigate, confirm and agree upon mutually acceptable transaction settlement procedures and specifications, files, deliverables, procedures and schedules, for the transfer of account record responsibility for the Branches. Not later than 45 Business Days after the date of this Agreement, Seller shall, to the extent reasonably possible, deliver to Buyer the specifications and conversion sample files to consist of live data of all accounts. Buyer shall provide Seller with all reasonably necessary information to facilitate Seller’s delivery of the sample to Buyer.

(2) After Buyer has tested and confirmed the conversion sample files, Seller shall provide Buyer with account information, as of the most recent practicable date, including complete name and address, account master file, ATM account number information, applicable transaction and stop/hold/caution information, account-to-account relationship information and any other related information with respect to the Deposit Liabilities. Seller shall, upon reasonable written request, but not later than 30 days after such request, provide to Buyer an updated version of such records.

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(3) Seller shall provide Buyer within a commercially reasonable timeframe after the close of business on the Closing Date, a final conversion file containing all such information as of close of business on the Closing Date.

(c) Customers.

(1) Buyer shall, at its expense, as soon as practicable after the execution and delivery of this Agreement, prepare and mail to each holder of Deposit Liabilities (and on the day immediately following the Closing Date, Buyer shall mail to each holder of Deposit Liabilities for deposit accounts opened by customers between the date of this Agreement and the close of business on the Closing Date), a joint letter with Seller, in the form and substance reasonably satisfactory to each of the parties, informing such depositor of the nature of the transaction contemplated by this Agreement and the continuing availability of services to be provided by Buyer on and after the Closing Date.

(2) Each of Seller and Buyer shall provide, or join in providing where appropriate, all notices to customers of the Branches and other Persons that Seller or Buyer is required to give under Legal Requirement or the terms of any other agreement between Seller and any customer in connection with the transactions contemplated hereby. A party required to send or publish any notice or communication pursuant to this Section 14(c)(2) shall furnish to the other party a copy of the proposed form of such notice or communication at least five (5) Business Days in advance of the date of the first mailing, posting, or other dissemination thereof to customers, and shall not unreasonably refuse to amend such notice to incorporate any changes that the other such party reasonably proposes as necessary to comply with Legal Requirement. All costs and expenses of any notice or communication sent or published by Buyer or Seller shall be the responsibility of the party sending such notice or communication and, except as provided in Section 14(c)(1) above, all costs and expenses of any joint notice or communication shall be shared equally by Seller and Buyer. As soon as reasonably practicable and in any event within 30 days after the date of this Agreement, Seller shall provide to Buyer a report of the names and addresses of the owners of the Deposit Liabilities, and the lessees of the safe deposit boxes as of the date of this Agreement in connection with the mailing of such materials.

(3) No communications by Buyer, and no communications by Seller outside the ordinary course of business, to any such owners, borrowers or lessees shall be made prior to the Closing Date except as provided in this Agreement or otherwise agreed to by the parties.

(d) Contracts with Depositors. Buyer will timely perform, honor, and assume all contractual deposit agreements and relationships between Seller and Seller’s depositors with regard to the Deposit Liabilities after the Closing and will do so in compliance with applicable Legal Requirements. No later than 30 days after the Data Processing Conversion Date, Buyer shall settle all checks, deposits, debits, returns, and other items that are presented to Seller after the Closing for the Deposit Liabilities.

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(e) Direct Deposits. Seller will use its reasonable best efforts to transfer to Buyer on the Closing Date all of those automated clearing house (“ACH”) and FedWire direct deposit arrangements related (by agreement or other standing arrangement) to the Deposit Liabilities. For a period of 30 days following the Data Processing Conversion Date, in the case of ACH direct deposits to accounts containing Deposit Liabilities (the final Business Day of such period being the “ACH Direct Deposit Cut-Off Date”), Seller shall transfer to Buyer all received ACH Direct Deposits each Business Day in accordance with Seller’s customary procedures. Such 30 day time period may be extended by an additional 30 days if the parties mutually agree to such extension based on the volume of the items presented, and Buyer shall reimburse Seller for the costs and expenses associated with such services provided during the additional 30 day period. Seller will provide standard NACHA files. If any manipulation of the file is required by Buyer, Seller will charge $200 per hour for programming expense. In the event Seller must obtain such services from a third party, Buyers shall reimburse Seller for the costs and expenses of such services immediately upon demand, unless Buyer elects to manipulate such file at Buyer’s sole cost. Buyer will send NACHA compliant Notice of Change on each transfer received. On each Business Day, for a period of 30 days following the Data Processing Conversion Date (the final Business Day of such period being the “FedWire Direct Deposit Cut-Off Date”), FedWire direct deposits received by Seller shall be returned (as soon as is practicable after receipt) to the originator with an indication of Buyer’s correct Wire Room contact information and an instruction that such wire should be sent to Buyer. Compensation for ACH direct deposits or FedWire direct deposits not forwarded to Buyer on the same Business Day as that on which Seller has received such deposits will be handled in accordance with the applicable rules established by the United States Council on International Banking. After the respective ACH Direct Deposit Cut-Off Date or FedWire Direct Deposit Cut-Off Date, Seller may discontinue accepting and forwarding ACH and FedWire entries and funds and return such direct deposits to the originators marked “Account Sold”. Seller and its Affiliates shall not be liable for any overdrafts that may thereby be created. Thirty days prior to Closing, Seller will no longer be obligated to accept new direct deposit arrangements related to the Branches. At the time of the ACH Direct Deposit Cut-Off Date, Buyer will provide ACH originators with account numbers relating to the Deposit Liabilities.

(f) Direct Debits. After the notice provided in Section 14(c)(1), Buyer shall send appropriate notice to all customers having accounts constituting Deposit Liabilities, the terms of which provide for direct debit of such accounts by third parties, instructing such customers concerning the transfer of customer direct debit authorizations from Seller to Buyer. Such notice shall be in a form reasonably agreed to by the parties hereto. For a period of 30 days following the Data Processing Conversion Date, Seller shall transfer to Buyer all received direct debits on accounts constituting Deposit Liabilities each Business Day in accordance with Seller’s customary procedures. Such 30 day time period may be extended by an additional 30 days if the parties mutually agree to such extension based on the volume of the items presented, and Buyer shall reimburse Seller for the costs and expenses associated with such services provided during the additional 30 day period. Buyer will send NACHA compliant Notice of Change on each direct debit received. Thereafter, Seller may discontinue forwarding such entries and return them to the originators marked “Account Sold”. Thirty days prior to Closing, Seller will no longer be obligated to accept new direct debit arrangements related to the Branches. On the Data Processing Conversion Date, Buyer shall provide ACH originators of such Direct Debits with account numbers relating to the Deposit Liabilities.

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(g) Interest Reporting and Withholding.

(1) Unless otherwise agreed to by the parties, Seller will report to applicable taxing authorities and holders of Deposit Liabilities, with respect to the period from January 1 of the year in which the Closing occurs through the Closing Date, all interest (including dividends and other distributions with respect to money market accounts) credited to, withheld from and any early withdrawal penalties imposed upon the Deposit Liabilities. Buyer will report to the applicable taxing authorities and holders of Deposit Liabilities, with respect to all periods from the day after the Closing Date, all such interest credited to, withheld from and any early withdrawal penalties imposed upon the Deposit Liabilities. Any amounts required by any Governmental Entity to be withheld from any of the Deposit Liabilities through the Closing Date will be withheld by Seller in accordance with Legal Requirements or appropriate notice from any Governmental Entity and will be remitted by Seller to the appropriate agency on or prior to the applicable due date. Any such withholding required to be made subsequent to the Closing Date will be withheld by Buyer in accordance with Legal Requirements or appropriate notice from any Governmental Entity and will be remitted by Buyer to the appropriate agency on or prior to the applicable due date.

(2) Unless otherwise agreed by the parties, Seller shall be responsible for delivering to payees all IRS notices with respect to information reporting and Tax identification numbers required to be delivered through the Closing Date with respect to the Deposit Liabilities, and Buyer shall be responsible for delivering to payees all such notices required to be delivered following the Closing Date with respect to the Deposit Liabilities.

(3) Unless otherwise agreed by the parties, Seller will timely make all required reports to applicable taxing authorities and to obligors on Assigned Loans, with respect to the period from January 1 of the year in which the Closing occurs through the Closing Date concerning all interest and points received by Seller, and Buyer will timely make all required reports to applicable taxing authorities and to obligors on Assigned Loans, with respect to all periods from the day after the Closing Date concerning all such interest and points received.

(h) Negotiable Instruments. Seller will remove any supply of Seller’s money orders, official checks, gift checks, travelers’ checks or any other negotiable instruments located at the Branches on the Closing Date.

(i) ATM/Debit Cards; POS Cards. Seller will provide Buyer with a list of ATM access/debit cards and Point-of-Sale (“POS”) cards issued by Seller to depositors of any Deposit Liabilities, and a record thereof in a format reasonably agreed to by the parties containing all addresses therefor, as soon as reasonably possible and in no event later than 30 days after the date of this Agreement. At or promptly after the Closing, Seller will provide Buyer with a revised record through the Closing. In instances where a depositor of a Deposit Liability made an assertion of error regarding an account pursuant to the Electronic Funds Transfer Act and Federal Reserve Board Regulation E, and Seller, prior to the Closing, re-credited the disputed amount to the relevant account during the conduct of the error investigation, Buyer agrees to comply with a written request from Seller to debit such account in a stated amount and remit such amount to Seller, to the extent of the balance of funds available in the accounts. Seller agrees to indemnify Buyer for any Losses that Buyer may incur as a result of complying with such request from Seller. Buyer shall reissue ATM access/debit cards to depositors of any Deposit Liabilities not earlier than 45 days nor later than 15 days prior to the Closing Date, which cards shall be effective as of the day following the Closing Date. Buyer and Seller agree to settle any and all ATM transactions and POS transactions effected on or before the Closing Date, but processed after the Closing Date, as soon as practicable following the processing thereof.

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(j) Data Processing Agreement and Hardware. Seller will provide Buyer in advance of the Data Processing Conversion Date upon reasonable prior notice:

(1) Full system files including loan, Deposit, CIF, safe deposit, debit/ATM card data. Upon the request of Buyer, such files will be delivered (i) within 45 days after signing the Agreement and (ii) following Seller’s nightly processing at the end of the Closing Date. A trial balance will be provided for each set. Any additional files can be produced by the Seller at a cost to Buyer of $2,500.00 per set.

(2) A list of retail internet banking and bill pay customers will be delivered 30 days prior to the Data Processing Conversion Date.

(3) If Buyer elects to convert bill payment history and scheduled payments, Buyer is responsible for all expenses charged by, and making arrangements with, the Seller’s third party payment processor.

(4) Stop payments, holds, scheduled transfers and special instructions for deposit accounts will be provided by Seller.

(k) Loan Collections. Buyer and Seller shall make appropriate arrangements with each other to provide for settlement by the party receiving payments of all payments of any kind made in relation to the Assigned Loans that are presented to a party after the Closing and with regard to loans that are owned by the other party. These arrangements shall be performed by both parties in good faith prior to and after the Closing.

(l) Access to Properties, Books and Records. Until the Closing, Seller shall, upon reasonable prior written notice and during regular business hours cooperate with Buyer to provide Buyer and its officers and authorized agents and representatives access to the properties (including visiting the Branches for integration planning purposes and inspection of the physical condition of the Real Property, Premises and other tangible Assets), books, records, files (including all of the Loan Files), documents and other information relating to the Assets and Liabilities as Buyer may reasonably request. Buyer and Seller each will identify to the other, within ten days after the date of this Agreement, a selected group of their respective salaried personnel that shall constitute a “transition group” and will be available to Seller and Buyer, respectively, at reasonable times (limited to normal operating hours) to provide information and assistance in connection with Buyer’s investigation of matters relating to the Assets and Liabilities. Such transition group also will work cooperatively to identify and resolve issues arising from any commingling of Seller’s records with respect to the Branches with Seller’s records for its other branches and operations not subject to this Agreement. Seller shall furnish Buyer with such additional financial and operating data and other information about Seller’s business operations at the Branches as the Seller determines may be reasonably necessary for the orderly transfer of the business operations of the Branches, the Assets and the Assumed Liabilities. Until the Closing, Buyer shall have the right to review, upon reasonable request and at mutually convenient times with Seller, all loan files and documentation related to the Assigned Loans and the Additional Assigned Loans.

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(m) Employees and Employee Benefits.

(1) Buyer shall make commercially reasonable efforts to hire Seller’s staff at the Branches. Schedule 14(m) contains a list of all current employees of Seller employed at the Branches, including the employee’s name and position. Buyer shall make a written offer of employment to each employee of Seller selected by Buyer to be an employee of Buyer following the Closing Date. Each offer of employment shall be effective on the Closing Date. No later than 30 days following the date of this Agreement, (i) Buyer shall communicate the offers of employment consistent with the terms of this Section 14(m) to those employees to whom it determines to extend an offer and (ii) Buyer shall provide Seller with a written list of those employees to whom Buyer will make an offer of employment, and Seller shall take such action as is necessary to terminate such employees not included on such list or transfer their employment within Seller and its affiliates, in both cases effective as of the Closing Date. Each employee who accepts Buyer’s offer of employment (regardless of whether they are active employees or on leave of absence status as of the Closing Date) shall be a “Hired Employee” for purposes of this Agreement, effective upon the Closing Date and this date shall be referred to as the Hired Employee’s “Transfer Date.” Subject to applicable Legal Requirements, on and after the Closing Date, the Hired Employees shall become employees of Buyer, and Buyer shall have the right to dismiss any or all Hired Employees at any time, with or without cause, and to change the terms and conditions of their employment (including compensation and employee benefits provided to them). Each employee who is not offered employment by Buyer, or who fails to accept Buyer’s offer of employment shall be an “Excluded Employee” for purposes of this Agreement. Nothing in this Agreement shall give any employee any rights to claim status as a third party beneficiary of this Agreement.

(2) Buyer shall reimburse Seller for overtime or any other wages and all associated Taxes incurred by Seller in connection with any interviewing, training or orientation conducted by Buyer, its employees, officers, directors, agents or representatives prior to the Closing Date, which such interviewing, training or orientation shall only occur outside of normal business hours.

(3) Except as expressly provided in this Agreement, Seller shall pay, discharge, and be responsible for (but only to the extent required by Seller’s Employee Benefit Plans and/or applicable Legal Requirement), and shall indemnify Buyer and its Affiliates for (i) all salary, wages (including, without limitation, payment for any and all accrued paid time off, vacation, sick time or personal days accrued by the Hired Employees as of the Transfer Date), bonuses, commissions and any other form of compensation (including, without limitation, any deferred compensation) arising out of the employment of the Hired Employees prior to the Transfer Date, and (ii) any employee benefits under the Seller’s Employee Benefit Plans arising out of Seller’s employment of the Hired Employees, including, without limitation, welfare benefits with respect to claims incurred prior to the Transfer Date but reported after the Transfer Date. Following the Closing, Hired Employees shall become employees of Buyer.

(4) Seller and the Employee Benefit Plans shall retain responsibility for all claims incurred by employees prior to the date they become Hired Employees.

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(5) Seller shall be solely and fully responsible for the Excluded Employees in the transfer of Excluded Employees to other positions with Seller or in the termination of their employment with Seller. Seller shall be fully liable for any claims, demands, damages orders, awards and/or judgments arising out of or relating in any way to Seller’s treatment of and/or termination of Excluded Employees, including but not limited to any obligations that may arise under the Federal or any applicable state or local Worker Adjustment and Retraining Notification (“WARN”) law. Buyer shall indemnify, defend and hold harmless Seller and its directors, officers, directors, agents and Affiliates from and against any claims, damages, suits, liability, administrative actions, costs and expenses, including reasonable attorneys’ fees, arising out of or in any way in connection with the Hired Employees, which relates to any act or omission occurring on or after the Closing Date.

(6) Pursuant to Treasury Regulations Section 1.409A-1(h)(4), Seller and Buyer agree that, on the Closing Date, each Hired Employee shall be treated as having a “separation from service” with Seller and Seller’s Affiliates for purposes of Section 409A of the Code and Treasury Regulations Section 1.409A-1(h).

(7) It is understood and agreed that (i) Buyer’s employment of any Hired Employee as set forth in this Section 14(m) shall not constitute an employee benefit plan or a commitment, contract or understanding (express or implied) of an obligation on the part of Buyer to a post-Closing employment relationship of any fixed term or duration or upon any terms or conditions other than those that Buyer may establish pursuant to individual offers of employment, and (ii) employment offered by Buyer to any Hired Employee is “at will” and may be terminated by Buyer or by a Hired Employee at any time for any reason (subject to any written commitments to the contrary made by Buyer to a Hired Employee and subject to any Legal Requirement). Nothing in this Agreement shall be deemed to prevent or restrict in any way the right of Buyer to terminate, reassign, promote or demote any of the Hired Employees after the Closing Date or to change adversely or favorably the title, powers, duties, responsibilities, functions, locations, salaries, other compensation, or terms or conditions of employment of such Hired Employees. Nothing in this Agreement shall create any employee benefit plan or be construed as requiring any compensation or employee benefit plan, program or arrangement to be maintained by Buyer for any Hired Employee at, or for any specified period after, the Closing Date.

(n) Transitional Matters. Without in any way limiting the generality of the foregoing provisions, Buyer and Seller shall cooperate with regard to the transitional matters as set forth on Schedule 14(n).

(o) Assumption of IRAs. Subject to Sections 2(c) and 6(b)(5), Buyer agrees that after the Closing, it will perform all of the duties so delegated as successor custodian and comply with the terms of Seller’s agreement with the depositor of the IRA Account Deposits affected thereby.

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(p) Title Insurance. Within ten (10) days after execution of this Agreement, Seller shall obtain for the Premises, at Seller’s expense, a title commitment issued by a title company or qualified law firm as determined by Seller (a “Title Company”), naming Buyer as the proposed insured, wherein Title Company shall agree to issue or obtain an ALTA form of owner’s insurance policy of title insurance (a “Title Commitment”). Within ten (10) days after execution of this Agreement, Buyer shall obtain, at Buyer’s expense, surveys for the Premises (each a “Survey”). Each Title Commitment shall include Title Company’s requirements to issue a title policy with respect to the Premises. Buyer shall have 30 days after receipt of the preliminary title commitment in which to raise a Title Objection (defined below) to Seller (those matters to which the Buyer does not so object shall become Permitted Liens). If any of the following shall occur (collectively, a “Title Objection”): (i) any Title Commitment or other evidence of title or search of the appropriate real estate records discloses that any party other than Seller or one of its Affiliates has title to the insured estate covered by the Title Commitment; (ii) any title exception (other than a Permitted Lien) is disclosed in Schedule B to any Title Commitment; or (iii) a Survey discloses any matter that affects Buyer’s use of the Premises for the purpose of operating the relevant Branch, then, in each such case, Seller shall have, at its option and without any obligation to do so, 30 days after receipt of such notification of objection in which to cure or remove a Title Objection to Buyer’s satisfaction, all of which shall be at Seller’s expense. If Seller does not do so, then Buyer may at any time prior to Closing send Seller written notice terminating this Agreement; otherwise, Buyer shall be deemed to have waived and accepted such matter, Lien or defect as a Permitted Lien. Any Title Objection that Title Company is willing to insure over on terms reasonably acceptable to Buyer is herein referred to as an “Insured Exception.” Any premiums for such title insurance policy, recording costs and other similar costs, fees and expenses, if any, relating to the sale and transfer of the Premises, shall be borne by Buyer.

(q) Environmental Assessment. Immediately upon execution of this Agreement, Seller shall provide to Buyer copies of any Phase I and/or Phase II of the Real Property in Seller’s possession. Within ten (10) days after execution of this Agreement, Buyer may obtain, at Buyer’s expense, a Phase I ESA of the Real Property conducted by an independent environmental investigations and testing firm selected by Buyer and reasonably acceptable to Seller. Buyer shall promptly deliver to Seller a copy of any resulting ESA report. In the event any Phase I ESA identifies a Recognized Environmental Condition and recommends a Phase II ESA, Buyer may order the completion of such Phase II ESA within five (5) days of its receipt of the Phase I ESA, at Buyer’s, by an independent environmental investigations and testing firm selected by Buyer and reasonably acceptable to Seller. Further, Buyer shall give Seller written notice within fifteen (15) days after receipt of the Phase II ESA of any material REC that Buyer reasonably deems unacceptable. Seller may either elect to cure such condition(s) to the reasonable satisfaction of Buyer or notify Buyer in writing within fifteen (15) Business Days after receipt of Buyer’s timely notice of Seller’s election not to cure the same. If Seller elects not to cure, Buyer may elect to proceed toward Closing or provide written notice of termination to Seller within five (5) Business Days of the receipt of Seller’s notice. Buyer’s failure to deliver any notice required hereunder on a timely basis shall constitute a waiver of any objections Buyer may have had with respect to the condition of the Real Property. Buyer and its employees, agents and representatives shall keep all contents of any assessment confidential and disclose the contents thereof only with the prior written consent of Seller or as may be required under applicable law.

(r) Overdrafts. Prior to the Closing, Seller agrees to cooperate with Buyer and to identify for Buyer those accounts related to Deposit Liabilities for which provisional credit has been given and that contain uncollected funds in the normal course of business, utilizing discretionary overdraft processes.

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15. Name Change, etc. Immediately after the Closing (but under no circumstances later than the next Business Day immediately following the Closing), Buyer will (a) change the name and logo on all documents and facilities relating to the Assets and the Liabilities to Buyer’s or one of its division’s name and logo, (b) deliver notice, via regular or electronic mail or otherwise, to all Persons whose Assigned Loans, Deposit Liabilities or safe deposit agreements are transferred under this Agreement of the consummation of the transactions contemplated by this Agreement, and (c) provide all appropriate notices to the FDIC and any other regulatory authorities required as a result of the consummation of such transactions. Seller shall cooperate with any commercially reasonable request of Buyer directed to accomplish the removal of Seller’s signage by Buyer and the installation of Buyer’s signage by Buyer at the Branches; provided, however, that (i) all such costs and expenses of removals and all such costs and expenses of installations shall be at the expense of Buyer, (ii) such removals and installations shall be performed in such a manner that does not unreasonably interfere with the normal business activities and operations of the Branches by Seller prior to Closing, (iii) such installed signage shall comply with all applicable zoning and permitting laws and regulations, and (iv) such installed signage shall be covered in such a way as to make Buyer signage unreadable at all times prior to the Closing, but such cover shall display the name and/or logo of Seller (or of Seller or its other Affiliates) in a manner reasonably acceptable to Seller. Buyer agrees not to use any forms or other documents bearing Seller or any of its Affiliates’ name or logo after the Closing without the prior written consent of Seller, and, if such consent is given, Buyer agrees that all such forms or other documents to which such consent relates will be stamped or otherwise marked in such a way that identifies Buyer as the party using the form or other document. Not more than ten nor less than five days prior to the Data Processing Conversion Date, Buyer will mail new checks reflecting its transit and routing numbers to customers of the Branches with check writing privileges. Buyer shall use its reasonable best efforts to cause these customers to begin using such checks and cease using checks bearing Seller’s name.

16. Contracts. To the extent that the assignment of any of the Assigned Contracts, commitments or other assets included in the Assets requires the consent of any other party thereto, neither this Agreement nor any action taken pursuant to its provisions shall constitute an assignment or an agreement to assign any Assigned Contract, commitment or other asset if such assignment or agreement to assign would constitute a breach thereof. Seller shall, prior to the Closing, use commercially reasonable efforts to obtain the consent of any party to each such Assigned Contract, commitment or other asset to its assignment to Buyer in all cases where such consent is necessary. Buyer agrees to provide reasonable cooperation in connection therewith (including, providing relevant information requested by the applicable lessors or other third parties regarding Buyer’s financial capability to fulfill the obligations of the Assigned Contracts, but such cooperation by Buyer shall not include Buyer agreeing to any amendment to any Assigned Contract, other than to reflect the change from Seller to Buyer). If any such consent is not obtained, Seller shall cooperate with Buyer in any lawful and reasonable arrangement designed to provide to Buyer the benefits under any such Assigned Contract, commitment or other asset. Any costs incurred in obtaining any consents or assignments of such Assigned Contracts, commitments or other assets shall be borne by Seller.

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17. Indemnification.

(a) Survival of Representations, Warranties and Covenants.

(1) The representations and warranties of the parties shall survive until the first anniversary of the Closing Date except that (i) the representations and warranties set forth in Sections 9(a) (Corporate Organization), 9(b) (Title to Assets), 9(j) (Power, Authority and Enforceability), 10(a) (Corporate Organization), and 10(b) (Power, Authority and Enforceability) shall survive indefinitely (the “Fundamental Representations”), (ii) the representations and warranties set forth in Sections 9(o) (Tax Matters) and 9(p) (ERISA) shall survive until 30 days following the expiration of the applicable statute of limitations, and (iii) the representations and warranties set forth in 9(d) (Environmental Matters) shall survive until the second anniversary of the Closing Date (such time periods are referred to as the “Survival Period”). The parties hereto specifically intend that the statutory statutes of limitations of Legal Requirements applicable to each of the representations and warranties be superseded and replaced by the relevant Survival Period.

(2) All of the covenants or other agreements of the parties contained in this Agreement shall survive in perpetuity, unless and to the extent that such covenant or agreement is limited by a specific period of time expressly set forth therein or non-compliance with such covenant or agreement is waived in writing by the party entitled to such performance.

(b) Indemnification by Seller. Seller shall indemnify and hold harmless Buyer and its directors, officers, directors, agents and Affiliates from and against any and all Losses that they may suffer, incur or sustain arising out of or in connection with:

(1) any breach of representation or warranty of Seller in this Agreement or in connection with any certificate or instrument delivered in connection herewith;

(2) any breach of covenant or agreement on the part of Seller under this Agreement or in connection with any certificate or instrument delivered in connection herewith;

(3) any Legal Proceeding arising from Seller’s ownership and use of the Assets, responsibility for Liabilities and operation of the Branches or from the Premises prior to the Effective Time;

(4) the commencement of any Insolvency Proceeding with respect to Seller or any claim relating to fraudulent transfers or conveyance regarding the Assets; or

(5) the Excluded Liabilities, the Excluded Deposits, and/or Seller’s assets that are not Assets.

(c) Indemnification by Buyer. Buyer agrees to indemnify and hold harmless Seller and its respective employees, officers, directors, agents and Affiliates from and against and Losses that they may suffer, incur or sustain arising out of or in connection with:

(1) any breach of representation or warranty of Buyer in this Agreement or in any certificate or instrument delivered in connection herewith;

(2) any breach of covenant or agreement on the part of Buyer under this Agreement or in any certificate or instrument delivered in connection herewith; or

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(3) any Legal Proceeding arising from Buyer’s ownership or use of the Assets, responsibilities for Liabilities or operation of the Branches, all after the Effective Time.

(d) Indemnification Procedures.

(1) A claim for indemnification for any matter not involving a Third Party Claim may be asserted by written notice to the Indemnifying Party, which notice shall include a reasonable description of the basis for the claim, and shall be paid within ten Business Days of the receipt of such notice.

(2) In the event that any Legal Proceedings shall be instituted or that any Third Party Claim is asserted, the Indemnified Party shall as soon as reasonably practicable cause written notice of the assertion of any Third Party Claim of which it has knowledge, which is covered by this Section 17 to be forwarded to the Indemnifying Party. If the Indemnifying Party acknowledges in writing its obligation to indemnify the Indemnified Party hereunder against any Losses that may result from such Third Party Claim, the Indemnifying Party shall have the right, at its sole expense, to be represented by counsel and to defend against, negotiate, settle or otherwise deal with any Third Party Claim that relates to any Losses for which indemnification is sought hereunder. If the Indemnifying Party elects to defend against, negotiate, settle or otherwise deal with any Third Party Claim that relates to any Losses for which indemnification is sought hereunder, it shall within ten days (or sooner, if the nature of the Third Party Claim so requires) of receipt of notice of the Third Party Claim notify the Indemnified Party of its intent to do so. If the Indemnifying Party elects not to defend against, negotiate, settle or otherwise deal with any Third Party Claim that relates to any Losses for which indemnification is sought hereunder, or fails to notify the Indemnified Party of its election within the timeframe provided for herein, the Indemnified Party may then, but only then, defend against, negotiate, settle or otherwise deal with such Third Party Claim and the Indemnifying Party shall reimburse the Indemnified Party for the reasonable actual expenses of defending such Third Party Claim upon submission of periodic bills. If the Indemnifying Party assumes the defense of the Third Party Claim, the Indemnified Party may participate, at its own expense, in the defense of such Third Party Claim; provided, that such Indemnified Party shall be entitled to participate in any such defense with separate counsel at the expense of the Indemnifying Party if (i) so requested by the Indemnifying Party to participate, (ii) upon the reasonable advice of counsel to the Indemnified Party a conflict or potential conflict exists between the interests of the Indemnified Party and the Indemnifying Party that would make such separate representation advisable, or (iii) such claim is based upon an investigation, inquiry, or other proceeding by a Governmental Entity; and provided, further, that the Indemnifying Party shall not be required to pay for more than one such counsel (and any appropriate local counsel) for the Indemnified Parties in connection with such Third Party Claim. The parties hereto agree to cooperate fully with each other in connection with the defense, negotiation or settlement of any such Third Party Claim.

(3) After any final judgment or award shall have been rendered by a governmental body of competent jurisdiction and the expiration of the time in which to appeal therefrom, or a settlement shall have been consummated, or the Indemnified Party and the Indemnifying Party shall have arrived at a mutually binding agreement with respect to a Third Party Claim hereunder, the Indemnified Party shall forward to the Indemnifying Party notice of any sums due and owing (including any bills, records or other documentation supporting such sums) by the Indemnifying Party pursuant to this Agreement with respect to such matter and the Indemnifying Party shall be required to pay all of the sums so due and owing to the Indemnified Party by wire transfer of immediately available funds within five Business Days after the date of such notice. Any indemnification of the Buyer pursuant to this Section 17 shall be effected by wire transfer of immediately available funds from Seller to an account designated in writing by the Buyer within five Business Days after the determination thereof.

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(4) The failure of the Indemnified Party to give reasonably prompt notice of any Third Party Claim shall not release, waive or otherwise affect the Indemnifying Party’s obligations with respect thereto except to the extent that the Indemnifying Party can demonstrate actual Loss and prejudice as a result of such failure or delay.

(e) Limitations on Indemnification with Respect to Representations and Warranties. Notwithstanding the foregoing, there shall be no liability for Seller or Buyer under this Section 17 in respect of breaches of representations and warranties (claims arising under subsection (b)(1) and subsection (c)(1)), unless the amount of Losses incurred by an Indemnified Party on account thereof exceeds $50,000.00 in the aggregate (the “Deductible Amount”), and then only for those Losses in excess of the Deductible Amount. An Indemnifying Parties’ liability to an Indemnified Party (and to all other Indemnified Parties, jointly and severally, as a group) under this Section 17 in respect of breaches of representations and warranties (claims arising under subsection (b)(1) and subsection (c)(1)) shall be limited to $350,000 (the “Indemnification Cap”). Notwithstanding the foregoing under this Section 17(e), no Deductible Amount will be required to be met and there will be no Indemnification Cap for any Losses related to a breach of a Fundamental Representation.

(f) Exclusive Remedy. After the Closing, the parties’ sole and exclusive recourse against each other, and any obligation to an Indemnified Party, for any Losses arising out of or relating to this Agreement and the transactions contemplated hereby (including any claims or causes of action arising from or under any statute or the common law) shall be expressly limited to this Section 17, and the parties hereby waive all rights and remedies not set forth in this Section 17.

18. Taxes. Seller shall be solely responsible for all of Seller’s federal, foreign, state and local income, sales, use, excise and other Taxes applicable to its business and to the Assets and all Taxes resulting or arising from its payroll arising prior to the Closing with such Taxes computed as if such taxable period ended as of the close of business on the Closing Date. Any filing, bulk sale, recordation, or similar Taxes that are payable or arise as a result of this Agreement or the consummation of the transactions contemplated by this Agreement shall be borne by the Buyer. Notwithstanding the foregoing, (a) general real estate Taxes and installments of special assessments due and payable with respect to the Branches in the calendar year 2010 and all prior years will be paid by Seller, and (b) general real estate Taxes and installments of special assessments due and payable for calendar year 2011 shall be allocated between Seller and Buyer as of the Closing Date where Seller’s share shall be calculated based on a fraction, the numerator of which is the number of calendar days in 2011 prior to Closing and the denominator is 365. Solely for purposes of this Section 18, real estate Taxes and installments of special assessments shall be deemed to be “due and payable” in the first calendar year in which such payment can be made without incurring interest or penalties for late payment.

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19. No Partnership or Joint Venture. No activity of Buyer or Seller before, on or after the Closing shall state or imply that Seller and Buyer are in any way involved as partners, joint venturers or otherwise.

20. Further Assurances. Except as specifically provided in this Agreement, Seller shall assist Buyer in the ordinary transition of the operations of the Branches and, from time to time, Buyer or Seller, as the case may be, shall cause to be executed and delivered to the other party all such other instruments and shall take or cause to be taken such further or other action as may reasonably and in good faith be deemed by the other party to be necessary or desirable in order to further assure the performance by Buyer or Seller, as the case may be, of any of their respective obligations under this Agreement.

21. Amendment; Waiver. The terms, provisions, and conditions of this Agreement may not be changed, modified or amended in any manner except in a writing executed by both parties. The waiver of any breach of any provision of this Agreement by any party hereto shall not be deemed to be a waiver of any preceding or subsequent breach of this Agreement and no such waiver shall be effective unless in writing signed by the party granting such waiver.

22. Termination of Agreement. This Agreement may be terminated, and the transactions contemplated by this Agreement may be abandoned, at any time before the Closing as follows:

(a) Mutual Agreement. By mutual written consent of Seller and Buyer;

(b) Legal Proceeding. By either Seller or Buyer in the event of a Legal Proceeding that would prohibit the terminating party from consummating the transactions contemplated hereby under the standard set forth in Section 7(5) or 8(5), as applicable;

(c) Representation, Warranty, Covenant or Other Agreement. By either Seller or Buyer (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein) in the event of a material breach by the other of any of its representations, warranties, covenants or agreements contained in this Agreement that is not cured or cannot be cured within 30 days after written notice of such termination has been delivered to the breaching party and that, in the case of a breach of representation or warranty, would if occurring or continuing on the Closing Date, permit the terminating party not to consummate the transactions contemplated hereby under the standard set forth in Section 7(3)or 8(3), as applicable; provided, that termination pursuant to this Section 22(c) shall not relieve the breaching party of liability for Losses arising out of or related to such breach;

(d) After Specified Date. By either Seller or Buyer, if the Closing does not occur (other than through the failure of any party seeking to terminate this Agreement to comply fully with its material obligations under this Agreement) on or before December 31, 2011, or such later date mutually agreed upon by the parties in writing; provided, however, that such termination date shall automatically be extended until February 29, 2012, if the impediment to Closing is based upon (i) a delay in the receipt of the Regulatory Approvals required by this Agreement, or (ii) an inability to complete the data processing conversion due to circumstances outside the control of Buyer and Seller;

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(e) Failure of Regulatory Approval. By Buyer or Seller (1) immediately upon receipt of notice that any Regulatory Approval has been denied; or (2) if Buyer has been requested to withdraw any regulatory application that is required for the transactions contemplated hereby to be consummated; provided, however, that Buyer or Seller shall have no right to terminate this Agreement pursuant to this Section 22(e)(2) if such request for withdrawal is due to such party’s failure to perform the covenants and agreements of such party set forth herein; or

(f) Insolvency Proceeding. By Seller or Buyer, if an Insolvency Proceeding shall have been commenced with respect to Seller or Buyer, as the case may be. Either party shall provide the other with advance written notice in the event a party intends to commence an Insolvency Proceeding and shall provide the other party with written notice as soon as such party learns of any third party’s intention to do so.

23. Responsibilities Upon Termination. Each party’s right of termination under Section 22 is in addition to any other rights it may have under this Agreement or otherwise. Upon termination of this Agreement, each party shall bear its own costs and expenses, and none of the parties hereto shall have any liability or further obligation hereunder to any other party, except for the obligations in Section 34, which shall continue to survive and except that nothing herein will relieve or release any party from liability at law or in equity and damages that flow therefrom for any fraud, willful misconduct or breach of this Agreement.

24. Entire Agreement. This Agreement, including all exhibits and schedules of this Agreement, constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter of this Agreement; provided, however, that the terms of any confidentiality agreement between the parties hereto previously entered into, to the extent not inconsistent with any provisions of this Agreement, shall continue to apply, except that, upon consummation of the transactions contemplated hereby, Buyer’s confidentiality obligation under such confidentiality agreement shall terminate with respect to that portion of the confidential information relating to the Branches, Assets and Liabilities.

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25. Notices. All notices, requests, demands or other communications hereunder shall be in writing and shall be given by facsimile, electronic transmission or by registered or certified mail return receipt requested to the other party as follows:

if to the Buyer:	Personal & Confidential Croghan Colonial Bank
	323 Croghan Street
	Fremont, Ohio 43420
	Attn: Rick Robertson, President and CEO
	Tel: (419) 355-2232
	Fax: (419) 355-2293
with a copy to:	Shumaker, Loop & Kendrick, LLP
	1000 Jackson Street
	Toledo, Ohio 43604
	Attn: Martin D. Werner, Esq.
	Tel: (419) 241-9000
	Fax: (419) 241-6894
if to the Seller:	Personal & Confidential
	The Home Savings and Loan Company of Youngstown, Ohio
	275 West Federal Street
	Youngstown, Ohio 44503-1203
	Attn: General Counsel
	Tel: (330) 742-0572
	Fax: (812) 461-5959
with a copy to:	Vorys, Sater, Seymour and Pease LLP
	221 East Fourth Street
	2000 Atrium Two
	Cincinnati, Ohio 45202
	Attn: Kimberly J. Schaefer, Esq.
	Tel: (513) 723-4068
	Fax: (513) 852-7892

or to such other address or to such other Person any party may designate in a writing given to the other party as provided herein.

26. Governing Law and Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without regard to the conflicts of law provisions thereof, and applicable federal laws of the United States. Any claim or action brought under or based on this Agreement shall be brought in any state or federal court having jurisdiction over Mahoning County, Ohio and the parties hereby consent to jurisdiction of same.

27. Descriptive Headings. The descriptive headings in this Agreement are inserted for convenience and reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement.

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28. Parties in Interest; Third Party Beneficiaries. This Agreement shall be binding upon and will inure solely to the benefit of the parties hereto, and to their respective successors and permitted assigns. Except as provided in Section 17, nothing in this Agreement, expressed or implied, is intended, or shall be construed, to confer upon or give to any Person (other than the parties hereto and their successors and permitted assigns) any rights or remedies under or by reason of this Agreement or any term, provision, condition, undertaking, warranty, representation, indemnity, covenant or agreement contained herein.

29. Expenses and Brokers. Except as otherwise expressly provided for herein, the parties hereto agree that each shall pay its respective costs and expenses of performance of and compliance with the covenants, conditions, and agreements to be performed or complied with by it hereunder. Buyer and Seller will each be responsible for their respective data processing conversion and de-conversion charges, if any, that may be assessed by their respective data processing vendors.

30. Specific Performance. The parties agree that irreparable damage would occur in the event that provisions contained in this Agreement are not performed in accordance with its specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement (including the parties’ obligation to consummate this Agreement subject to the terms of this Agreement) in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which the parties are entitled at law or in equity or under this Agreement.

31. Assignability. Neither Buyer nor Seller may assign any of their rights, liabilities or obligations under the Agreement without the prior written consent of the other party to this Agreement, provided that Buyer may assign its rights, liabilities and obligations under the Agreement to any one of its Affiliates. Any purported assignment in contravention of this Section 31 shall be void.

32. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. If Buyer and Seller so elect, this Agreement shall be deemed to be executed at such time as all parties exchange duly executed signature pages via facsimile or other electronic transmission, provided that each party shall thereafter mail to the other party an original of this Agreement bearing such party’s signature.

33. Press Releases. Prior to the Closing Date, neither Buyer, Seller nor any of their respective Affiliates shall directly or indirectly make or cause to be made any press release for general circulation, public announcement or disclosure or issue any notice or communication to employees with respect to any of the transactions contemplated hereby without the prior written consent of the other party (which consent shall not be unreasonably withheld, conditioned or delayed). Buyer and Seller each agree that, without the other party’s prior written consent, neither Buyer, Seller nor any of their respective Affiliates shall release or disclose any of the terms or conditions of the transactions contemplated herein to any other Person. Notwithstanding the foregoing, each party may make such public disclosure as, upon advice of its counsel and with as much prior notice to the other party as reasonably practicable, may be required by Legal Requirement or as necessary to obtain the Regulatory Approvals or to comply with the federal securities laws. Buyer and Seller have agreed upon the form and substance of their press releases to be issued by them announcing the execution of this Agreement and the purchase and sale of the Branches contemplated hereby, which shall be issued promptly (at such time as shall be mutually agreeable by the parties) and simultaneously following the execution and delivery of this Agreement.

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34. Confidentiality. All information disclosed or furnished by one party to another, whether orally or in writing, in connection with this Agreement and Buyer’s due diligence examination of Seller shall be deemed to be proprietary and confidential information of the disclosing party. The receiving party agrees not to disclose such information to any third party other than its representatives or employees or, upon the advice of its counsel, as may be required by Legal Requirements or as necessary to obtain the Regulatory Approvals or to comply with the federal securities laws as necessary, or as otherwise contemplated in this Agreement or the exhibits and schedules hereto. In connection with any such disclosure, the disclosing party shall give the other party as much prior notice to the other party as is reasonably practicable. Regardless of whether Closing occurs hereunder, each party agrees that it shall not use or disclose, and shall cause its Affiliates not to use or disclose the proprietary or confidential information of the other party for any purpose, including the solicitation of customers or business of the other party, for a period of two years.

35. Disclosure Schedules. Simultaneously with the execution of this Agreement, Buyer is delivering to Seller the Buyer Disclosure Schedule and Seller is delivering to Buyer the Seller Disclosure Schedule, each with numbered sections corresponding to sections in this Agreement. Any matter disclosed in any section of a Disclosure Schedule shall be deemed disclosed in all other sections of the applicable Disclosure Schedule to the extent that such disclosure is reasonably apparent to be applicable to such other sections, notwithstanding the reference to a particular section or subsection. The inclusion of any information in a Disclosure Schedule shall not be deemed an admission or acknowledgement by the disclosing party that such information is required to be set forth therein or that such information is material or that such information constitutes or would reasonably be expected to constitute a Material Adverse Effect.

36. Jury Waiver. SELLER AND BUYER DO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THEIR RIGHT TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL OR WRITTEN) OR ANY ACTION OF EITHER PARTY ARISING OUT OF OR RELATED IN ANY MANNER TO THIS AGREEMENT, THE LOANS, THE LOAN DOCUMENTS OR THE PROPERTY. THIS WAIVER IS A MATERIAL INDUCEMENT FOR SELLER TO ENTER INTO THIS AGREEMENT AND SHALL SURVIVE THE CLOSING OR ANY TERMINATION OF THIS AGREEMENT.

37. Severability. If any provision of this Agreement, as applied to any party or circumstance shall be judged by a court of competent jurisdiction to be void, invalid or unenforceable, the same shall in no way effect any other provision of this Agreement, the application of any such provision and any other circumstances or the validity or enforceability of the other provisions of this Agreement.

[Signature page follows.]

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The parties have caused this Agreement to be executed on their behalf by duly authorized officers.

THE CROGHAN COLONIAL BANK, as Buyer
By:
	Name:	Rick M. Robertson
	Title:	President and CEO
THE HOME SAVINGS AND LOAN
COMPANY OF YOUNGSTOWN, OHIO,
as Seller
By:
	Name: Title:	Jude J. Nohra Senior Vice President, General Counsel and Secretary

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ANNEX I
Definitions

“Accrued Interest” shall mean, as of any date, with respect to (a) the Deposit Liabilities, the interest, dividends, fees, costs and other charges that have been accrued but not paid, credited, or charged to the Deposit Liabilities, all as set forth in Seller’s general ledger and (b) in the case of the Assigned Loans, the interest, fees, costs, premiums, consignment fees and other charges that have been accrued or charged, but not collected on the Assigned Loans.

“Accrued Liabilities” has the meaning set forth in Section Error! Reference source not found.

“ACH” has the meaning set forth in Section 14(e).

“ACH Direct Deposit Cut-Off Date” has the meaning set forth in Section 14(e).

“Additional Loan Information” has the meaning set forth in Section 13(h).

“Additional Assigned Loans” means any consumer loan originated after June 30, 2011 through the fifth Business Day prior to the Closing Date that Buyer, in its sole discretion, shall have the exclusive right and option to purchase from Seller pursuant to Section 13(h).

“Adjusted Payment Amount” means as of the Closing Date (x) the aggregate balance (including Accrued Interest) of the Deposits and Accrued Liabilities, minus (y) the Purchase Price, each as set forth on the Final Closing Statement. For avoidance of doubt, the Adjusted Payment Amount may be a negative amount.

“Adjustment Date” has the meaning set forth in Section 3(b)(2).

“Affiliate” means any Person or entity that controls, is controlled by or is under common control with Seller or Buyer, as the case may be.

“Affiliated Person” shall mean a director, officer or 5% or greater stockholder, spouse or other person living in the same household of such director, officer or stockholder, or any company, partnership or trust in which any of the foregoing persons is an officer, 10% or greater stockholder, general partner or 10% or greater trust beneficiary

“Agreement” has the meaning set forth in the preamble.

“Applicable Environmental Laws” shall mean any Legal Requirement pertaining to Hazardous Substances, pollution, contamination, human and worker health and safety, greenhouse gases/climate change, and otherwise regarding the environment, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. §§9601, et seq.; the Resource Conservation and Recovery Act, as amended 42 U.S.C. §§6901, et seq.; the Clean Water Act, 33 U.S.C. §§1251, et seq.; the Safe Drinking Water Act, 42 U.S.C. 300f-300j; the Occupational Safety and Health Administration Act of 1970 (29 U.S.C. 651 et seq., the Hazardous Materials Transportation Act, as amended, 40 U.S.C. § 1801, et seq., as amended; and the federal Clean Air Act, 42 U.S.C. § 7401 et seq., as amended.

“Assets” has the meaning set forth in Section 1.

“Assigned Contracts” has the meaning set forth in Section 1(a)(6).

“Assigned Loans” means, collectively, the loans and lines of credit that are listed in Schedule 1(a)(5), plus any Additional Assigned Loans as may be added to Schedule 1(a)(5) pursuant to Section 13(h). On or prior to the Closing Date, Buyer may elect to delete any asset from the definition of Assigned Loans, in its sole and absolute discretion, up to five Business Days prior to Closing.

“Assignment” has the meaning set forth in Section 6(c)(2)(C).

“Assignment and Assumption Agreement” has the meaning set forth in Section 6(a)(7).

“ATMs” shall mean those full service and cash dispensing automated teller machines identified in Schedule X-1 of this Agreement.

“Branch” or “Branches” shall mean Seller’s branch banking offices listed in Schedule X-2 of this Agreement.

“Burdensome Regulatory Condition” shall mean any condition or restriction set forth in a Regulatory Approval that would reasonably be expected to materially adversely affect the party receiving such approval.

“Business Day” shall mean any day other than a Saturday or Sunday or any other day on which banks in the State of Ohio are not permitted to be open.

“Buyer” has the meaning set forth in the preamble.

“Buyer Disclosure Schedule” means the disclosure schedule delivered by Buyer to Seller concurrently with the execution and delivery of this Agreement.

“Cash on Hand” has the meaning set forth in Section 1(a)(3).

“Closing” has the meaning set forth in Section 5(a).

“Closing Date” has the meaning set forth in Section 5(a).

“COBRA” means the requirements of Part 6 of Subtitle B of Title I of ERISA and Code Section 4980B and of any similar state law.

“Code” shall mean the Internal Revenue Code of 1986, as amended.

“Conditions Precedent” means the conditions that must be satisfied by Buyer before Seller is obligated to close under this Agreement pursuant to Section 7, and the conditions that must be satisfied by Seller before Buyer is obligated to close under this Agreement pursuant to Section 8.

“Consents” has the meaning set forth in Section 9(k)(3).

“Core Deposits” shall mean all deposits held at the Branches, excluding (i) public funds, (ii) brokered deposits, (iii) out-of-market CDs and (iv) CDs over $250,000.00.

“Data Processing Conversion Date” has the meaning set forth in Section 5(c).

“Deductible Amount” has the meaning set forth in Section 17(e).

“Deposit Liabilities” or “Deposit Liability” shall mean Seller’s obligations and liabilities relating to Seller’s deposit accounts at the Branches that are listed on Schedule 2(a)(1) and that are opened on behalf of a customer between the date of this Agreement and the close of business on the Closing Date that are added to Schedule 2(a)(1), together with Accrued Interest thereon, all as exists at the close of business on the Closing Date.

“Deposit Premium” shall mean the product of four percent (4.0%) of the average daily dollar amount of Core Deposits during the 30-day period ending on the fifth Business Day preceding the Closing Date; provided, however, that in no event shall the Deposit Premium exceed $4,600,000.

“Disputed Amount” has the meaning set forth in Section 3(b)(3)(C).

“Disputed Items” has the meaning set forth in Section 3(b)(3)(A).

“Draft Closing Statement” means a draft closing statement substantially in the form attached hereto as Exhibit C, prepared by Seller, as of the close of business on the fifth Business Day preceding the Closing Date, setting forth an estimated calculation of the Estimated Purchase Price and the Estimated Payment Amount as reasonably mutually agreed upon by Seller and Buyer.

“Effective Time” has the meaning set forth in Section 1(a).

“Employee Benefit Plan” means “employee benefit plan” as defined in Section 3(3) of ERISA and any other bonus, incentive compensation, deferred compensation, profit sharing, stock option, stock appreciation right, stock bonus, stock purchase, employee stock ownership, savings, severance, change in control, supplemental unemployment, layoff, salary continuation, retirement, severance, pension, health, life insurance, disability, accident, group insurance, vacation, holiday, sick leave, fringe benefit or welfare plan, and any other employment, consulting, employee compensation or benefit plan, agreement, policy, practice, commitment, contract or understanding (whether qualified or nonqualified, currently effective or terminated, written or unwritten) related thereto (i) that is or was maintained or contributed to by Seller or any entity or trade or business (whether or not incorporated) that together with Seller is treated as a single employer under any of Sections 414(b), (c), (m) or (o) of the Code or Section 4001(a)(14) of ERISA (each an “ERISA Affiliate”), or (ii) with respect to which Seller or any of its ERISA Affiliates has or may have any liability or liabilities, and/or (iii) provides benefits, or describes policies or procedures applicable to any current or former employee, officer, director, consultant, service provider or contractor of Seller or an ERISA Affiliate, regardless of how (or whether) liabilities for the provision of benefits are accrued or assets are acquired or dedicated with respect to the funding thereof.

“ESA” shall mean an environmental site assessment.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

“Escrow Account Balances” means the account balances of all escrow accounts transferred as part of the Assigned Loans.

“Estimated Payment Amount” means (x) the aggregate balance (including Accrued Interest) of the Deposit Liabilities, Accrued Liabilities, if any, and Taxes Buyer is responsible for paying under Section 2(a)(6) minus (y) the Estimated Purchase Price, each as set forth on the Draft Closing Statement as reasonably mutually agreed by Seller and Buyer prior to Closing. For avoidance of doubt, the Estimated Payment Amount may be a negative amount.

“Estimated Purchase Price” shall mean the estimate of the Purchase Price for purposes of, and as set forth on the Draft Closing Statement as reasonably and mutually agreed upon by Buyer and Seller prior to Closing.

“Excluded Deposits” shall mean all of Seller’s obligations and liabilities relating to Seller’s deposit accounts at the Branches that are (a) Excluded IRAs or (b) subject to any order, agreement or encumbrance that materially restricts the payment of funds from such accounts at Branches.

“Excluded Employees” has the meaning set forth in Section 14(m).

“Excluded IRA” shall mean an IRA that if, pursuant to the terms of the documentation governing any such IRA or applicable Legal Requirement, (a) Seller is not permitted to appoint Buyer as successor trustee or custodian, or the IRA grantor objects in writing to such designation, or is entitled to, and does, in fact, name a successor trustee or custodian other than Buyer, or (b) such IRA includes assets that are not deposit accounts subject to transfer to Buyer and that would result in a loss of qualification of such IRA under the Code or applicable IRS regulations upon transfer to Buyer.

“Excluded Liabilities” has the meaning set forth in Section 2(b).

“FDIC” shall mean the Federal Deposit Insurance Corporation.

“Federal Funds Rate” shall mean the average of the high and low rates quoted for Federal Funds in the Money Rates column of The Wall Street Journal from the Closing Date adjusted as such average may increase or decrease during the period between the Closing Date and the date of the applicable payment.

“FedWire Direct Deposit Cut-Off Date” has the meaning set forth in Section 14(e).

“Final Allocation Determination” has the meaning set forth in Section 3(c)(2).

“Final Closing Statement” means a final closing statement, prepared by Seller, on or before the 30th day following the Closing Date setting forth the Purchase Price and each component thereof, and the Adjusted Payment Amount and each component thereof.

“Firm” has the meaning set forth in Section 3(b)(3)(C).

“Firm Determination” has the meaning set forth in Section 3(b)(3)(C).

“Firm Expenses” has the meaning set forth in Section 3(b)(3)(C).

“Fundamental Representations” has the meaning set forth in Section 17(a)(1).

“GAAP” means generally accepted accounting principles in the United States of America from time to time, consistently applied.

“Government Authorization” means any consent, license, franchise registration, certification, certificate of public convenience, authorization or permit issued, granted, given or otherwise made available by or under the authority of any Government Entity or to any Legal Requirement.

“Governmental Entity” means any government or governmental regulatory body thereof, or political subdivision thereof, whether foreign, federal, state or local, or any agency, instrumentality or authority thereof, or any court or arbitrator (public or private).

“Hazardous Substance or Substances” means any hazardous or toxic substances, materials or wastes, including, but not limited to those substances, materials, and wastes listed in the United States Department of Transportation’s Hazardous Materials Table (49 CFR Part 172.101) or by the United States Environmental Protection Agency as hazardous substances (40 CFR Part 302) and amendments thereto, or such substances, materials and wastes that are or become regulated under any applicable Legal Requirement. Hazardous Substances shall include, but not be limited to: (i) petroleum, and fractions thereof, including but not limited to, gasoline and diesel, additives and components thereof, fuel oil, sludge, oil refuse, and oil mixed with wastes; (ii) asbestos and asbestos containing materials; (iii) mold, (iv) radionuclides or radioactive materials and substances, (v) medical waste, (iii) polychlorinated biphenyls (PCBs); (iv) substances designated as a “hazardous substance” pursuant to Section 311 of the Clean Water Act, 33 U.S.C. § 1321 or pursuant to Section 307 of the Clean Water Act, 33 U.S.C. § 1317; (v) defined as a “hazardous waste”, “universal waste,” and other forms of waste pursuant to the Resource Conservation and Recovery Act, 42 U.S.C. §6903, as amended; (vi) defined as a “hazardous substance” pursuant to Section 101 of the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq., as amended; (vii) included as a hazardous material, substance or related material in the Hazardous Materials Transportation Act, as amended, 40 U.S.C. § 1801, et seq., as amended; or (viii) listed as a hazardous air pollutant pursuant to the federal Clean Air Act, 42 U.S.C. § 7401 et seq., as amended.

“Hired Employee” has the meaning set forth in Section 14(m).

“Indemnification Cap” has the meaning set forth in Section 17(e).

“Indemnified Party” means, with respect to a particular matter, a Person who is requesting indemnification from another party hereto pursuant to Section 17.

“Indemnifying Party” means, with respect to a particular matter, a Person who is being asked to provide indemnification under Section 17 to another party.

“Insolvency Proceeding” means a voluntary insolvency, bankruptcy, receivership, custodianship, liquidation, dissolution, reorganization, assignment for the benefit of creditors or similar proceeding.

“Insured Exception” has the meaning set forth in Section 14(p).

“IRA” means an “individual retirement account” or similar account created by a trust for the exclusive benefit of any individual or his beneficiaries in accordance with the provisions of Section 408 of the Code. An IRA shall be a Deposit Liability to the extent it is not an Excluded IRA.

“Knowledge” means, with respect to Buyer and Seller, the actual knowledge of any of Buyer’s or Seller’s, as applicable, officers involved in the negotiation of this Agreement and that are listed in Schedule X-3 of this Agreement.

“Legal Proceeding” means any judicial, administrative or arbitral actions, suits, mediations, investigations, inquiries, proceedings (public or private) or claims (including counterclaims) by or before a Governmental Entity, including any civil, criminal, investigative or informal actions, audits, demands, claims, hearings, litigations, disputes, inquiries, investigations or other proceedings of any kind or nature.

“Legal Requirement” means any federal, state, or local law, constitution, ordinance, code, rule of common law, regulation, statute or treaty, as in effect as of or prior to the date of this Agreement that is applicable to Seller’s operation of its business, or Seller’s use or ownership of the Assets, at the Branches.

“Liabilities” has the meaning set forth in Section 2.

“Lien” shall mean any lien, easement, restriction, pledge, charge, encumbrance, security interest, mortgage, deed of trust, lease, option or other adverse claim of any nature whatsoever and of any kind or description, that, in each case, do not materially and adversely affect the use of the properties or assets subject thereto or affected thereby or that otherwise do not materially impair the business operations at such properties.

“Loan Documents” has the meaning set forth in Section 9(e)(2).

“Loan Files” has the meaning set forth in Section 9(e)(2).

“Loss” or “Losses” means the amount of losses, liabilities, damages (including forgiveness or cancellation of obligations) and reasonable expenses (including reasonable expenses of investigation and reasonable attorneys’ fees and expenses in connection with any action, suit or proceeding) actually incurred or suffered by the indemnified party or its Affiliates in connection with the matters described in Section 17, less the amount of any amount actually recovered under insurance policies (net of all third party costs and expenses incurred in pursuing any such insurance recovery, including, but not limited to, those relating to deductibles and actual premium adjustments directly resulting from such damage, loss, liability or expense) or third party indemnification obligations or other actual recovery directly related to such losses.

“Material Adverse Effect” shall mean (a) with respect to Seller, any circumstance, event, development, change in or effect that is materially adverse to the business, financial condition or results of operations of the business represented by the Branches, or the Assets and Liabilities, taken as a whole; provided, however, that “Material Adverse Effect” shall not include any adverse change, event, development or effect arising from or relating to the public announcement of this Agreement or the other agreements contemplated hereby, including the impact thereof on customers and employees, and (b) with respect to Buyer, a material adverse effect on the ability of Buyer to perform any of its financial or other obligations under this Agreement, including the ability of Buyer to timely consummate the transactions as contemplated by this Agreement.

“Net Book Value” of any Asset or Liability as of any date or time shall mean the carrying value of such Asset or Liability, net of any applicable depreciation or amortization, as reflected on the books of Seller in accordance with GAAP and pursuant to the accounting policies and practices of the Seller, consistently applied, as of such date and time.

“Notice of Allocation Disagreement” has the meaning set forth in Section 3(c)(2)(A).

“Notice of Disagreement” has the meaning set forth in Section 3(b)(3)(A).

“Obligor” has the meaning set forth in Section 9(e)(3).

“Order” means any order, injunction, judgment, doctrine, decree, ruling, writ, assessment or arbitration award of a Governmental Entity.

“Permitted Liens” shall mean (i) Liens for Taxes, assessments, charges or levies of a Governmental Entity not yet due and payable, incurred in the ordinary course of business and that are not material, individually or in the aggregate, to the overall value of any Asset to which such Lien(s) attach; (ii) mechanics’, builders’, workmen’s, repairmen’s, warehousemen’s, landlord’s, carriers’ or other like Liens (including Liens created by operation of law) for amounts not delinquent or which are being contested in good faith by appropriate proceedings and are identified as such in Schedule X-4 of this Agreement; (iii) zoning, entitlement, building, planning, land use and environmental restrictions or regulations and other Legal Requirements; (iv) such other imperfections in title, easements, charges, restrictions and Liens which do not materially detract from, materially diminish the value of or materially interfere with the present use of the affected property and are identified as such in Schedule X-4 of this Agreement; and (v) Liens consented to by Buyer.

“Person” shall mean any individual, partnership, joint venture, corporation, trust, limited liability company, association, unincorporated organization, Government Entity or other entity.

“Personal Property” has the meaning set forth in Section 1(a)(2).

“POS” has the meaning set forth in Section 14(i).

“Premises” has the meaning set forth in Section 1(a)(1).

“Prepaid Expenses” has the meaning set forth in Section 1(a)(4).

“Proposed Allocation Statement” has the meaning set forth in Section 3(c)(1).

“Purchase Price” has the meaning set forth in Section 3(a).

“REC” or “Recognized Environmental Condition” means the presence or likely presence of any hazardous substances or petroleum products on a property under conditions that indicate an existing release, a past release, or a material threat of a release of any hazardous substances or petroleum products into structures on the property or into the ground, groundwater, or surface water of the property. The term REC is not intended to include de minimis conditions that generally do not present a material risk of harm to public health or the environment and that generally would not be the subject of an enforcement action if brought to the attention of appropriate governmental agencies.

“Records” means all original notes, instruments, guaranties and pledges associated with the Assigned Loans and all other original (or duplicates to the extent not available) records, documents, account cards, books, reports, tapes, files, title policies, or where reasonable and appropriate copies thereof (for each case whether or not in electronic form), in Seller’s possession or otherwise reasonably available that pertain to and are used by Seller to administer, reflect, monitor, evidence or record information respecting the business or conduct of the Branches, the Assets, the Liabilities, or the Deposits Liabilities, including all such records maintained to comply with any Legal Requirement to which the Deposits Liabilities are subject, including but not limited to applicable unclaimed property and escheat laws; provided, however, it is understood and agreed that Seller shall be permitted to retain such books and records that contain information exclusively relating to other assets and liabilities not constituting Assets and Assumed Liabilities; provided further that in any such case Seller shall provide to Buyer such portions or copies of such records as are (i) reasonably necessary to vest in Buyer title to any of the Assets or for the enforcement of Buyer’s rights, title or interest in the Assets or the Liabilities or (ii) reasonably necessary and material to Buyer’s conduct of the business of the Branches after the Closing.

“Regulatory Approvals” has the meaning set forth in Section 9(k)(2).

“Required Consents” has the meaning set forth in Section 9(k)(3).

“Restricted Customer” has the meaning set forth in Section 13(e).

“Safe Deposit Agreements” means any and all agreements relating to safe deposit boxes at the Branches transferred to Buyer under this Agreement.

“Seller” has the meaning set forth in the preamble.

“Seller Disclosure Schedule” means the disclosure schedule delivered by Seller to Buyer concurrently with the execution and delivery of this Agreement.

“Seller Disputed Items” has the meaning set forth in Section 3(c)(2)(A).

“Survival Period” has the meaning set forth in Section 17(a)(1).

“Tax” or “Taxes” means all taxes, assessments, charges, duties, fees, levies, imposts or other similar charges imposed by a Governmental Entity (whether disputed or not), including all income, franchise, profits, capital gains, capital stock, transfer, gross receipts, sales, use, service, occupation, ad valorem, property, excise, severance, windfall profits, premium, stamp, license, payroll, employment, social security, unemployment, disability, environmental (including taxes under Code Section 59A), alternative minimum, add-on, value-added, withholding and other taxes, assessments, charges, duties, fees, levies, imposts or other similar charges of any kind whatsoever (whether payable directly or by withholding and whether or not requiring the filing of a Tax Return), and all estimated taxes, deficiency assessments, additions to tax, additional amounts imposed by any Governmental Entity, penalties and interest.

“Tax Return” means any return (including any information return), report, statement, schedule, notice, form, or other document or information related to Seller’s ownership of the Assets or operation of the Branches filed with or submitted to, or required to be filed with or submitted to, any Governmental Entity in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax.

“Third Party Claim” means any Legal Proceeding by a Person not a party to this Agreement and not an Affiliate of one of the parties hereto.

“Title Commitment” has the meaning set forth in Section 14(p).

“Title Company” has the meaning set forth in Section 14(p).

“Title Objections” has the meaning set forth in Section 14(p).

“Transfer Date” has the meaning set forth in Section 14(m).

“UCC-3s” has the meaning set forth in Section 6(c)(2)(D).

“Unfunded Advances” shall mean an advance requested under an Assigned Loan on or prior to the Effective Time pursuant to the terms and provisions of such Assigned Loan that Seller is not obligated to fund until after the Effective Time.

“Unresolved Allocation Changes” has the meaning set forth in Section 3(c)(2)(C).

“Unresolved Changes” has the meaning set forth in Section 3(b)(3)(C).

“WARN” has the meaning set forth in Section 14(m)(5).

EX-31.1

EXHIBIT 31.1

RULE 13a-14(a)/15d-14(a) CERTIFICATION

I, Patrick W. Bevack, certify that:

1) I have reviewed this report on Form 10-Q of United Community Financial Corp.

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/S/ Patrick W. Bevack Patrick W. Bevack

President and Chief Executive Officer

(Principal Executive Officer)

November 14, 2011

EX-31.2

EXHIBIT 31.2

RULE 13a-14(a)/15d-14(a) CERTIFICATION

I, James R. Reske, certify that:

1) I have reviewed this report on Form 10-Q of United Community Financial Corp.

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

c) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

d) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/S/ James R. Reske James R. Reske, CFA

Treasurer and Chief Financial Officer

(Principal Financial Officer)

November 14, 2011

EX-32

EXHIBIT 32

UNITED COMMUNITY FINANCIAL CORP.

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of United Community Financial Corp. (the “Company”) on Form 10-Q for the period ending September 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/S/ Patrick W. Bevack Patrick W. Bevack	/S/ James R. Reske James R. Reske, CFA
President and Chief Executive Officer	Treasurer and Chief Financial Officer
(Principal Executive Officer)	(Principal Financial Officer)
November 14, 2011	November 14, 2011

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Consolidated Statements of Financial Condition (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data	Sep. 30, 2011	Dec. 31, 2010
Securities:
Net of allowance for loan losses	$ 44,162	$ 50,883
Shareholders' Equity:
Preferred stock, par value
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued
Common stock, par value
Common stock, shares authorized	499,000,000	499,000,000
Common stock, shares issued	37,804,457	37,804,457
Common stock, shares outstanding	30,984,344	30,937,704
Treasury stock, shares	6,820,113	6,866,753

XML

Consolidated Statements of Income and Comprehensive Income (Unaudited) (USD $) In Thousands, except Per Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Interest income
Loans	$ 19,558	$ 24,589	$ 63,489	$ 75,350
Loans held for sale	163	109	270	248
Available for sale securities	3,323	3,235	9,264	8,716
Federal Home Loan Bank stock dividends	264	297	858	891
Other interest earning assets	13	10	35	25
Total interest income	23,321	28,240	73,916	85,230
Interest expense
Deposits	5,972	7,528	18,384	25,254
Federal Home Loan Bank advances	793	984	2,414	2,707
Repurchase agreements and other	931	942	2,781	2,796
Total interest expense	7,696	9,454	23,579	30,757
Net interest income	15,625	18,786	50,337	54,473
Provision for loan losses	11,836	17,116	22,272	39,876
Net interest income after provision for loan losses	3,789	1,670	28,065	14,597
Non-interest income
Non-deposit investment income	389	388	1,050	1,300
Service fees and other charges	203	1,563	3,244	3,738
Net gains (losses):
Securities available for sale	1,958	781	3,500	7,295
Other -than-temporary loss in equity securities
Total impairment loss	(35)	(44)	(73)	(44)
Loss recognized in other comprehensive income	0	0	0	0
Net impairment loss recognized in earnings	(35)	(44)	(73)	(44)
Mortgage banking income	682	1,419	4,432	2,456
Real estate owned and other repossessed assets	(2,627)	(1,273)	(4,981)	(4,512)
Gain on sale of retail branch				1,387
Other income	1,346	1,281	4,032	3,800
Total non-interest income	1,916	4,115	11,204	15,420
Non-interest expense
Salaries and employee benefits	7,927	7,568	23,297	24,847
Occupancy	854	850	2,615	2,693
Equipment and data processing	1,592	1,562	4,910	4,949
Franchise tax	370	498	1,241	1,512
Advertising	204	205	466	574
Amortization of core deposit intangible	33	43	106	136
Deposit insurance premiums	1,111	1,391	3,573	4,311
Professional fees	1,290	948	2,545	2,921
Real estate owned and other repossessed asset expenses	361	1,027	2,125	2,658
Other expenses	827	1,608	6,089	5,358
Total non-interest expenses	14,569	15,700	46,967	49,959
Loss before income taxes	(8,864)	(9,915)	(7,698)	(19,942)
Income tax expense (benefit)	0	0	0	0
Net loss	(8,864)	(9,915)	(7,698)	(19,942)
Net loss	(8,864)	(9,915)	(7,698)	(19,942)
Other comprehensive income
Unrealized gains (losses) on securities, net	8,218	(1,569)	13,919	(1,488)
Comprehensive income (loss)	$ (646)	$ (11,484)	$ 6,221	$ (21,430)
Loss per share
Basic	$ (0.29)	$ (0.32)	$ (0.25)	$ (0.66)
Diluted	$ (0.29)	$ (0.32)	$ (0.25)	$ (0.66)

XML

Other Events

9 Months Ended

Sep. 30, 2011

Other Events [Abstract]

OTHER EVENTS

17. OTHER EVENTS

On August 31, 2011, Home Savings entered into a Purchase and Assumption Agreement with The Croghan Colonial Bank (“Croghan”), a wholly-owned subsidiary of Croghan Bancshares, Inc., for the sale of four of its western-most branches, located in Fremont, Clyde, Tiffin (Westgate) and downtown Tiffin, Ohio. In the transaction, Croghan will assume all of the deposit liabilities and buy the related fixed assets of the branches. Croghan will pay a premium of 4.0% (or approximately $4.5 million) on all non-jumbo, non-brokered and non-public deposits, which together represent all of the deposits at the branches. In addition, Croghan will acquire performing consumer and residential loans associated with the branches. As of September 30, 2011, there were approximately $111.3 million in deposits and $26.2 million in performing consumer and residential loans at the branches. Home Savings also reclassified $1.8 million in fixed assets from premises and equipment to other assets on the balance sheet at the time of the announcement. Croghan anticipates retaining the Home Savings employees at the branches. The transaction, which is subject to regulatory approval and certain closing conditions, is expected to be completed during the fourth quarter of 2011.

In October 2011, the Investment and Asset/Liability Committees of Home Savings approved the sale of approximately $230.0 million in existing 20-year mortgage-backed securities with a weighted average coupon of 4.30%. The sale of these securities resulted in the recognition of a gain in October of $4.5 million. Proceeds from the sale were reinvested throughout October, in 30-year mortgage-backed securities with a coupon of 4.0%. The Bank also purchased $100.0 million notional value of interest rate caps as part of this strategy to hedge the additional interest rate risk. The caps are for five years and have a strike price of 1.50% on 3 month LIBOR.

XML

Document and Entity Information (USD $) In Millions, except Share data	9 Months Ended
	Sep. 30, 2011	Oct. 31, 2011	Sep. 30, 2010
Document and Entity Information [Abstract]
Entity Registrant Name	UNITED COMMUNITY FINANCIAL CORP
Entity Central Index Key	0000707886
Document Type	10-Q
Document Period End Date	Sep. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 50.9
Entity Common Stock, Shares Outstanding		31,000,472

XML

Loans

9 Months Ended

Sep. 30, 2011

Loans [Abstract]

LOANS

6. LOANS

Portfolio loans consist of the following:

	September 30,			December 31,
	2011			2010
	(Dollars in thousands)
Real Estate:
One-to four-family residential	$	677,708		$	757,426
Multi-family residential		125,370			135,771
Nonresidential		303,165			331,390
Land		22,172			25,138
Construction:
One-to four-family residential and land development		66,761			108,583
Multi-family and nonresidential		4,528			15,077
Total real estate		1,199,704			1,373,385
Consumer
Home equity		195,131			220,582
Auto		9,918			11,525
Marine		5,983			7,285
Recreational vehicles		30,908			35,671
Other		3,427			4,390
Total consumer		245,367			279,453
Commercial
Secured		27,227			28,876
Unsecured		8,050			17,428
Total commercial		35,277			46,304
Total loans		1,480,348			1,699,142
Less:
Allowance for loan losses		44,162			50,883
Deferred loan costs, net		(1,389	)		(1,227	)
Total		42,773			49,656
Loans, net	$	1,437,575		$	1,649,486

Changes in the allowance for loan losses are as follows:

	Three Months ended			Three Months ended
	September 30, 2011			September 30, 2010
	(Dollars in thousands)
Balance, beginning of period	$	46,223		$	40,728
Provision for loan losses		11,836			17,116
Amounts charged off		(14,320	)		(17,307	)
Recoveries		423			347
Balance, end of period	$	44,162		$	40,884

	Nine Months			Nine Months
	Ended			Ended
	September 30, 2011			September 30, 2010
	(Dollars in thousands)
Balance, beginning of period	$	50,883		$	42,287
Provision for loan losses		22,272			39,876
Amounts charged off		(30,576	)		(42,005	)
Recoveries		1,583			726
Balance, end of period	$	44,162		$	40,884

The following tables present activity and the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of and for the three and nine months ended September 30, 2011 and the year ended December 31, 2010.

Allowance For Loan Losses
(Dollars in thousands)

	Permanent
	Real
	Estate			Construction			Consumer			Commercial
	Loans			Loans			Loans			Loans			Unallocated		Total
For the three months ended September 30, 2011
Beginning balance (6/30/11)	$	31,371		$	6,529		$	4,544		$	3,779		$	—	$	46,223
Provision		7,065			4,734			1,105			(1,068	)		—		11,836
Chargeoffs		(5,536	)		(6,832	)		(1,000	)		(952	)		—		(14,320	)
Recoveries		168			95			136			24			—		423
Net chargeoffs		(5,368	)		(6,737	)		(864	)		(928	)		—		(13,897	)
Ending balance (9/30/11)	$	33,068		$	4,526		$	4,785		$	1,783		$	—	$	44,162
For the nine months ended September 30, 2011
Beginning balance (12/31/10)	$	28,066		$	8,533		$	5,260		$	9,024		$	—	$	50,883
Provision		17,057			6,285			1,887			(2,957	)		—		22,272
Chargeoffs		(12,709	)		(10,589	)		(2,797	)		(4,481	)		—		(30,576	)
Recoveries		654			297			435			197			—		1,583
Net chargeoffs		(12,055	)		(10,292	)		(2,362	)		(4,284	)		—		(28,993	)
Ending balance (9/30/11)	$	33,068		$	4,526		$	4,785		$	1,783		$	—	$	44,162

(Dollars in thousands)

	Permanent
	Real
	Estate		Construction		Consumer		Commercial
	Loans		Loans		Loans		Loans		Unallocated		Total
Period-end amount allocated to:
Loans individually evaluated for impairment	$	9,265	$	2,861	$	—	$	111	$	—	$	12,237
Loans collectively evaluated for impairment		23,803		1,665		4,785		1,672		—		31,925
Ending balance	$	33,068	$	4,526	$	4,785	$	1,783	$	—	$	44,162
Period-end balances:
Loans individually evaluated for impairment	$	117,428	$	34,322	$	1,172	$	8,563	$	—	$	161,485
Loans collectively evaluated for impairment		1,010,987		36,967		244,195		26,714		—		1,318,863
Ending balance	$	1,128,415	$	71,289	$	245,367	$	35,277	$	—	$	1,480,348

Allowance For Loan Losses
(Dollars in thousands)

	Permanent
For the twelve months ended	Real Estate			Construction			Consumer			Commercial
December 31, 2010	Loans			Loans			Loans			Loans			Unallocated		Total
Beginning balance (12/31/09)	$	15,288		$	19,020		$	4,959		$	3,020		$	—	$	42,287
Provision		40,595			10,028			4,079			7,725			—		62,427
Chargeoffs		(28,153	)		(20,648	)		(4,316	)		(1,962	)		—		(55,079	)
Recoveries		336			133			538			241			—		1,248
Net chargeoffs		(27,817	)		(20,515	)		(3,778	)		(1,721	)		—		(53,831	)
Ending balance (12/31/10)	$	28,066		$	8,533		$	5,260		$	9,024		$	—	$	50,883
Period-end amount allocated to:
Loans individually evaluated for impairment	$	7,509		$	3,360		$	—		$	2,575		$	—	$	13,444
Loans collectively evaluated for impairment		20,557			5,173			5,260			6,449			—		37,439
Ending balance (12/31/10)	$	28,066		$	8,533		$	5,260		$	9,024		$	—	$	50,883
Period-end balances:
Loans individually evaluated for impairment**	$	101,410		$	47,054		$	1,547		$	6,444		$	—	$	156,455
Loans collectively evaluated for impairment		1,148,315			76,606			277,906			39,860			—		1,542,687
Ending balance (12/31/10)	$	1,249,725		$	123,660		$	279,453		$	46,304		$	—	$	1,699,142

** Revised to include impaired loans without specific allocations.

Impaired loans are defined as loans, based on current information and events, it is probable that Home Savings will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement and the loan is non-homogeneous in nature. Impaired loans can be divided into two categories: those with a specific valuation and those without a specific valuation. In general, impaired loans without a specific valuation either has sufficient collateral to support the loan balance, or any collateral shortfall that did exist has been charged off such that the remaining loan balance is dully supported by collateral value (less costs to sell).

Impaired loans consisted of the following:

	As of or for		As of or for		As of or for
	the nine		the twelve		the nine
	months ended		months ended		months ended
	September 30,		December 31,		September 30,
	2011		2010		2010
	(Dollars in thousands)
Impaired loans on which no specific valuation allowance was provided	$	74,561	$	71,853	$	73,027
Impaired loans on which specific valuation allowance was provided		86,924		84,602		68,865
Total impaired loans at end of period	$	161,485	$	156,455	$	141,892
Specific valuation allowances on impaired loans at period-end		12,237		13,444		10,657
Average impaired loans during period		162,521		144,977		130,349
Interest income recognized on impaired loans during the period **		3,469		1,778		1,453
Interest income received on impaired loans during the period **		7,008		4,570		1,453

** Interest income recognized may be less than interest income received on an impaired loan if, for example, payments received on nonaccrual impaired loans are applied to principal reduction.

The unpaid principal balance is the total amount of the loan that is due to Home Savings. The recorded investment includes the unpaid principal balance less any charge-offs or partial charge-offs applied to specific loans. The unpaid principal balance and the recorded investment exclude accrued interest receivable and deferred loan costs, both of which are immaterial.

The following table presents loans individually evaluated for impairment by class of loans as of and for the nine months ended September 30, 2011:

Impaired Loans
(Dollars in thousands)

					Allowance
	Unpaid				for Loan		Average		Interest		Cash Basis
	Principal		Recorded		Losses		Recorded		Income		Income
	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no specific allowance recorded
Permanent real estate
One-to four-family residential	$	28,584	$	24,878	$	—	$	25,002	$	510	$	1,004
Multifamily residential		5,170		4,331		—		3,441		—		148
Nonresidential		27,445		26,780		—		22,847		524		1,247
Land		7,465		5,887		—		6,244		15		126
Total		68,664		61,876		—		57,534		1,049		2,525
Construction loans
One-to four-family residential		17,258		10,465		—		17,939		219		280
Multifamily and nonresidential		707		—		—		191		—		—
Total		17,965		10,465		—		18,130		219		280
Consumer loans
Home Equity		2,535		1,050		—		1,194		2		29
Auto		88		68		—		67		1		9
Marine		—		—		—		—		—		—
Recreational vehicle		113		47		—		47		—		2
Other		7		7		—		7		—		—
Total		2,743		1,172		—		1,315		3		40
Commercial loans
Secured		1,272		574		—		1,270		35		43
Unsecured		16,795		474		—		407		13		163
Total		18,067		1,048		—		1,677		48		206
Total	$	107,439	$	74,561	$	—	$	78,656	$	1,319	$	3,051

Impaired Loans
(Dollars in thousands)

					Allowance
	Unpaid				for Loan		Average		Interest		Cash Basis
	Principal		Recorded		Losses		Recorded		Income		Income
	Balance		Investment		Allocated		Investment		Recognized		Recognized
With a specific allowance recorded
Permanent real estate
One-to four-family residential	$	5,080	$	4,475	$	586	$	2,809	$	111	$	168
Multifamily residential		4,883		2,847		223		5,175		—		170
Nonresidential		47,710		42,246		6,452		40,139		1,527		1,888
Land		6,421		5,984		2,004		1,960		382		527
Total		64,094		55,552		9,265		50,083		2,020		2,753
Construction loans
One-to four-family residential		40,701		23,857		2,861		25,472		110		694
Multifamily and nonresidential		—		—		—		—		—		—
Total		40,701		23,857		2,861		25,472		110		694
Consumer loans
Home Equity		—		—		—		—		—		—
Auto		—		—		—		—		—		—
Marine		—		—		—		—		—		—
Recreational vehicle		—		—		—		—		—		—
Other		—		—		—		—		—		—
Total		—		—		—		—		—		—
Commercial loans
Secured		7,463		7,114		74		6,146		20		473
Unsecured		401		401		37		2,164		—		37
Total		7,864		7,515		111		8,310		20		510
Total		112,659		86,924		12,237		83,865		2,150		3,957
Total	$	220,098	$	161,485	$	12,237	$	162,521	$	3,469	$	7,008

The difference between the unpaid principal balance of $220,098 and the recorded investment of $161,485 (i.e., $58,613) represents amounts previously charged off by Home Savings. This amount, plus any existing reserves of $12,237, totals $70,850, or 32.2% of the unpaid principal balance of these loans.

The following table presents the average recorded investment and interest income associated with impaired loans for the three months ended September 30, 2011:

Impaired Loans
(Dollars in thousands)

	Average					Cash Basis
	Recorded		Interest Income			Income
	Investment		Recognized			Recognized
With no specific allowance recorded
Permanent real estate
One-to four-family residential	$	24,302	$	177		$	502
Multifamily residential		4,249		—			—
Nonresidential		25,770		206			544
Land		6,678		(30	)		24
Total		60,999		353			1,070
Construction loans
One-to four-family residential		14,976		89			13
Multifamily and nonresidential		—		—			—
Total		14,976		89			13
Consumer loans
Home Equity		1,045		(3	)		5
Auto		72		1			4
Marine		—		—			—
Recreational vehicle		47		—			—
Other		7		—			—
Total		1,171		(2	)		9
Commercial loans
Secured		957		15			21
Unsecured		429		8			126
Total		1,386		23			147
Total	$	78,532	$	463		$	1,239

Impaired Loans
(Dollars in thousands)

	Average					Cash Basis
	Recorded		Interest Income			Income
	Investment		Recognized			Recognized
With a specific allowance recorded
Permanent real estate
One-to four-family residential	$	4,589	$	72		$	101
Multifamily residential		2,853		—			133
Nonresidential		39,583		794			864
Land		3,494		370			504
Total		50,519		1,236			1,602
Construction loans
One-to four-family residential		24,858		(9	)		349
Multifamily and nonresidential		—		—			—
Total		24,858		(9	)		349
Consumer loans
Home Equity		—		—			—
Auto		—		—			—
Marine		—		—			—
Recreational vehicle		—		—			—
Other		—		—			—
Total		—		—			—
Commercial loans
Secured		7,242		(107	)		192
Unsecured		869		—			1
Total		8,111		(107	)		193
Total	$	83,488	$	1,120		$	2,144
Total	$	162,020	$	1,583		$	3,383

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2010:

Impaired Loans
(Dollars in thousands)

					Allowance
	Unpaid				for Loan
	Principal		Recorded		Losses
	Balance		Investment		Allocated
With no specific allowance recorded
Permanent real estate	$	60,516	$	44,666	$	—
Construction loans		31,715		23,465		—
Consumer loans		3,407		1,547		—
Commercial loans		16,148		2,175		—
Total		111,786		71,853		—
With a specific allowance recorded
Permanent real estate		65,869		56,744		7,509
Construction loans		35,777		23,589		3,360
Consumer loans		—		—		—
Commercial loans		5,419		4,269		2,575
Total		107,065		84,602		13,444
Total	$	218,851	$	156,455	$	13,444

The following tables present the recorded investment in nonaccrual loans and loans past due over 90 days and still on accrual by class of loans as of September 30, 2011:

Nonaccrual Loans and Loans Past Due Over 90 Days and Still Accruing
(Dollars in thousands)

			Loans past due
			over 90 days
			and still
	Nonaccrual		accruing
Real Estate Loans
Permanent
One-to four-family residential	$	27,250	$	—
Multifamily residential		6,517		—
Nonresidential		44,242		—
Land		11,655		—
Total		89,664		—
Construction Loans
One-to four-family residential		31,166		—
Multifamily and nonresidential		—		—
Total		31,166		—
Consumer Loans
Home Equity		3,273		—
Auto		146		—
Marine		—		—
Recreational vehicle		2,460		3
Other		7		—
Total		5,886		3
Commercial Loans
Secured		6,642		—
Unsecured		719		—
Total		7,361		—
Total	$	134,077	$	3

The following tables present the recorded investment in nonaccrual loans and loans past due over 90 days and still on accrual by class of loans as of December 31, 2010:

Nonaccrual Loans and Loans Past Due Over 90 Days and Still Accruing
(Dollars in thousands)

			Loans past due
			over 90 days
			and still
	Nonaccrual		accruing
Real Estate Loans
Permanent
One-to four-family residential	$	27,417	$	—
Multifamily residential		10,983		—
Nonresidential		39,838		—
Land		5,188		—
Total		83,426		—
Construction Loans
One-to four-family residential		40,077		3,944
Multifamily and nonresidential		382		2,032
Total		40,459		5,976
Consumer Loans
Home Equity		3,179		210
Auto		89		—
Marine		—		—
Recreational vehicle		93		144
Other		10		—
Total		3,371		354
Commercial Loans
Secured		1,822		—
Unsecured		4,123		—
Total		5,945		—
Total	$	133,201	$	6,330

The following tables present an age analysis of past-due loans, segregated by class of loans as of September 30, 2011:

Past Due Loans
(Dollars in thousands)

					Greater
	30-59		60-89		than 90
	Days Past		Days Past		Days Past		Total Past		Current		Total
	Due		Due		Due		Due		Loans		Loans
Real Estate Loans
Permanent
One-to four-family residential	$	2,495	$	3,768	$	20,825	$	27,088	$	650,620	$	677,708
Multifamily residential		—		—		5,455		5,455		119,915		125,370
Nonresidential		10,424		1,770		33,162		45,356		257,809		303,165
Land		—		417		10,108		10,525		11,647		22,172
Total		12,919		5,955		69,550		88,424		1,039,991		1,128,415
Construction Loans
One-to four-family residential		2,396		900		29,917		33,213		33,548		66,761
Multifamily and nonresidential		—		—		—		—		4,528		4,528
Total		2,396		900		29,917		33,213		38,076		71,289
Consumer Loans
Home Equity		1,788		924		2,263		4,975		190,156		195,131
Auto		60		15		68		143		9,775		9,918
Marine		142		523		—		665		5,318		5,983
Recreational vehicle		1,767		341		806		2,914		27,994		30,908
Other		17		5		7		29		3,398		3,427
Total		3,774		1,808		3,144		8,726		236,641		245,367
Commercial Loans
Secured		34		64		73		171		27,056		27,227
Unsecured		—		146		209		355		7,695		8,050
Total		34		210		282		526		34,751		35,277
Total	$	19,123	$	8,873	$	102,893	$	130,889	$	1,349,459	$	1,480,348

The following table presents an age analysis of past-due loans, segregated by class of loans as of December 31, 2010:

Past Due Loans
(Dollars in thousands)

					Greater
	30-59		60-89		than 90
	Days Past		Days Past		Days Past		Total Past		Current		Total
	Due		Due		Due		Due		Loans		Loans
Real Estate Loans
Permanent
One-to four-family residential	$	6,620	$	2,351	$	24,914	$	33,885	$	723,541	$	757,426
Multifamily residential		326		—		9,898		10,224		125,547		135,771
Nonresidential		1,888		13,146		30,382		45,416		285,974		331,390
Land		12		426		5,188		5,626		19,512		25,138
Total		8,846		15,923		70,382		95,151		1,154,574		1,249,725
Construction Loans
One-to four-family residential		3,688		7,579		42,855		54,122		54,461		108,583
Multifamily and nonresidential		—		—		2,414		2,414		12,663		15,077
Total		3,688		7,579		45,269		56,536		67,124		123,660
Consumer Loans
Home Equity		2,003		880		2,519		5,402		215,180		220,582
Auto		194		56		87		337		11,188		11,525
Marine		61		—		—		61		7,224		7,285
Recreational vehicle		1,693		618		188		2,499		33,172		35,671
Other		25		10		9		44		4,346		4,390
Total		3,976		1,564		2,803		8,343		271,110		279,453
Commercial Loans
Secured		163		—		1,822		1,985		26,891		28,876
Unsecured		43		—		3,554		3,597		13,831		17,428
Total		206		—		5,376		5,582		40,722		46,304
Total	$	16,716	$	25,066	$	123,830	$	165,612	$	1,533,530	$	1,699,142

Troubled Debt Restructurings:

Restructured loans were $47.7 million and $44.6 million at September 30, 2011 and December 31, 2010, respectively. The Company has allocated $2.0 million of specific reserves to customers whose loan terms were modified in troubled debt restructurings as of September 30, 2011. The Company had allocated $1.2 million of specific reserves to customers whose loan terms were modified in troubled debt restructurings as of December 31, 2010. Troubled debt restructurings are considered impaired and are included in the table above.

The Company has committed to lend additional amounts totaling up to $26.9 million as of September 30, 2011.

During the period ended September 30, 2011, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. Modifications involving a reduction of the stated interest rate of a loan were for periods ranging from six months to 28 years. Modifications involving an extension of the maturity date were for periods ranging from six months to three years.

The following table presents loans by class modified as troubled debt restructurings that occurred during the three months ended September 30, 2011:

			Pre-Modification		Post-
			Outstanding		Modification
			Recorded		Recorded
	Number of loans		Investment		Investment
	(Dollars in thousands)
Real Estate Loans
Permanent
One-to four-family		15	$	1,311	$	1,260
Multifamily residential		—		—		—
Nonresidential		—		—		—
Land		—		—		—
Total		15		1,311		1,260
Construction Loans
One-to four-family residential		—		—		—
Multifamily and nonresidential		—		—		—
Total		—		—		—
Consumer Loans
Home Equity		1		93		93
Auto		—		—		—
Marine		—		—		—
Recreational vehicle		—		—		—
Other		—		—		—
Total		—		93		93
Commercial Loans
Secured		—		—		—
Unsecured		—		—		—
Total		—		—		—
Total Restructured Loans		16	$	1,404	$	1,353

The troubled debt restructurings described above increased the allowance for loan losses by $9,000 and resulted in no charge offs during the three months ending September 30, 2011.

The following table presents loans by class modified as troubled debt restructurings that occurred during the nine months ended September 30, 2011:

			Pre-
			Modification		Post-
			Outstanding		Modification
			Recorded		Recorded
	Number of loans		Investment		Investment
	(Dollars in thousands)
Real Estate Loans
Permanent
One-to four-family		38	$	4,521	$	4,491
Multifamily residential		2		2,246		2,246
Nonresidential		—		—		—
Land		1		2,027		1,476
Total		41		8,794		8,213
Construction Loans
One-to four-family residential		6		2,890		2,343
Multifamily and nonresidential		—		—		—
Total		6		2,890		2,343
Consumer Loans
Home Equity		1		93		93
Auto		1		21		21
Marine		—		—		—
Recreational vehicle		—		—		—
Other		—		—		—
Total		2		114		114
Commercial Loans
Secured		2		8,809		8,803
Unsecured		—		—		—
Total		2		8,809		8,803
Total Restructured Loans		51	$	20,607	$	19,473

The troubled debt restructurings described above increased the allowance for loan losses by $158,000 and resulted in charge offs of $439,000 during the nine months ended September 30, 2011.

The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the period ended September 30, 2011:

	Number of		Recorded
	loans		Investment
	(Dollars in thousands)
Real Estate Loans
Permanent
One-to four-family		36	$	3,825
Multifamily residential		3		3,275
Nonresidential		4		2,343
Land		3		1,369
Total		46		10,812
Construction Loans
One-to four-family residential		6		1,696
Multifamily and nonresidential		—		—
Total		6		1,696
Consumer Loans
Home Equity		—		—
Auto		1		5
Marine		—		—
Recreational vehicle		—		—
Other		—		—
Total		1		5
Commercial Loans
Secured		1		6,569
Unsecured		1		—
Total		2		6,569
Total Restructured Loans		55	$	19,082

A troubled debt restructuring is considered to be in payment default once it is 30 days contractually past due under the modified terms.

The troubled debt restructurings that subsequently defaulted described above resulted in chargeoffs of $3.1 million during the period ended September 30, 2011, but had no effect on the allowance for loan losses.

The terms of certain other loans were modified during the period ended September 30, 2011 that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment as of September 30, 2011 of $15.4 million. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Company’s internal underwriting policy.

Certain loans which were modified during the nine months ended September 30, 2011 did not meet the definition of a troubled debt restructuring as the modification was a delay in a payment that was considered to be insignificant had delays in payment ranging from 180 days to 24 months.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes homogenous loans past due 90 cumulative days, and all non-homogenous loans including commercial loans and commercial real estate loans.

Asset quality ratings are divided into two groups: Pass (unclassified) and Classified. Within the Pass group, loans that display potential weakness are risk rated as special mention. In addition, there are three Classified risk ratings: substandard, doubtful and loss. These specific credit risk categories are defined as follows:

Special Mention. Loans classified as special mention have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Loans may be housed in this category for no longer than 12 months during which time information is obtained to determine if the credit should be downgraded to the substandard category.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Loss. Loans classified as loss are considered uncollectible and of such little value, that continuance as assets is not warranted. Although there may be a chance of recovery on these assets, it is not practical or desirable to defer writing off the asset.

The Company monitors loans on a monthly basis to determine if they should be included in one of the categories listed above. All impaired non-homogeneous credits classified as Substandard, Doubtful or Loss are analyzed on an individual basis for a specific reserve requirement. This analysis is performed on each individual credit at least annually or more frequently if warranted.

As of September 30, 2011 and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

Loans
(Dollars in thousands)

	Unclassified				Classified
			Special								Total
	Unclassified		Mention		Substandard		Doubtful		Loss		Classified		Total Loans
Real Estate Loans
Permanent
One-to four-family residential	$	641,918	$	3,948	$	31,842	$	—	$	—	$	31,842	$	677,708
Multifamily residential		99,408		7,227		18,735		—		—		18,735		125,370
Nonresidential		172,853		18,890		111,422		—		—		111,422		303,165
Land		8,890		1,211		12,071		—		—		12,071		22,172
Total		923,069		31,276		174,070		—		—		174,070		1,128,415
Construction Loans
One-to four-family residential		29,243		3,214		31,117		3,187		—		34,304		66,761
Multifamily and nonresidential		4,528		—		—		—		—		—		4,528
Total		33,771		3,214		31,117		3,187		—		34,304		71,289
Consumer Loans
Home Equity		191,615		—		3,516		—		—		3,516		195,131
Auto		9,467		293		158		—		—		158		9,918
Marine		5,970		13		—		—		—		—		5,983
Recreational vehicle		28,397		—		2,511		—		—		2,511		30,908
Other		3,413		—		14		—		—		14		3,427
Total		238,862		306		6,199		—		—		6,199		245,367
Commercial Loans
Secured		17,632		258		9,337		—		—		9,337		27,227
Unsecured		5,393		171		2,486		—		—		2,486		8,050
Total		23,025		429		11,823		—		—		11,823		35,277
Total	$	1,218,727	$	35,225	$	223,209	$	3,187	$	—	$	226,396	$	1,480,348

As of December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

Loans
(Dollars in thousands)

	Unclassified				Classified
			Special								Total
	Unclassified		Mention		Substandard		Doubtful		Loss		Classified		Total Loans
Real Estate Loans
Permanent
One-to four-family residential	$	723,814	$	2,404	$	31,208	$	—	$	—	$	31,208	$	757,426
Multifamily residential		106,839		6,900		22,032		—		—		22,032		135,771
Nonresidential		200,816		55,197		75,377		—		—		75,377		331,390
Land		9,677		1,100		14,361		—		—		14,361		25,138
Total		1,041,146		65,601		142,978		—		—		142,978		1,249,725
Construction Loans
One-to four-family residential		47,308		6,122		55,021		132		—		55,153		108,583
Multifamily and nonresidential		1,091		13,604		382		—		—		382		15,077
Total		48,399		19,726		55,403		132		—		55,535		123,660
Consumer Loans
Home Equity		216,994		—		3,588		—		—		3,588		220,582
Auto		11,420		—		105		—		—		105		11,525
Marine		7,285		—		0		—		—		—		7,285
Recreational vehicle		35,430		—		241		—		—		241		35,671
Other		4,375		—		15		—		—		15		4,390
Total		275,504		—		3,949		—		—		3,949		279,453
Commercial Loans
Secured		14,608		1,327		12,134		807		—		12,941		28,876
Unsecured		9,327		2,132		4,304		1,665		—		5,969		17,428
Total		23,935		3,459		16,438		2,472		—		18,910		46,304
Total	$	1,388,984	$	88,786	$	218,768	$	2,604	$	—	$	221,372	$	1,699,142

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Statement of Cash FLows Supplemental Disclosure

9 Months Ended

Sep. 30, 2011

Statement of Cash Flows Supplemental Disclosure [Abstract]

STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURE

11. STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURE

Supplemental disclosures of cash flow information are summarized below.

	For the nine months ended
	September 30, 2011			September 30, 2010
	(Dollars in thousands)
Supplemental disclosures of cash flow information
Cash paid (refunded) during the period for:
Interest on deposits and borrowings	$	23,595		$	31,250
Income taxes		(3,537	)		(984	)
Supplemental schedule of noncash activities:
Transfers from loans to real estate owned and other repossessed assets		17,017			28,777
Transfers from loans to loans held for sale		96,845			—
Transfers from premises and equipment to other assets		1,750			—

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Regulatory Enforcement Action

9 Months Ended

Sep. 30, 2011

Regulatory Enforcement Action [Abstract]

REGULATORY ENFORCEMENT ACTION

2. REGULATORY ENFORCEMENT ACTION

Before July 21, 2011, the OTS was the federal regulator of savings associations and their holding companies. On July 21, 2010, financial regulatory reform legislation entitled the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (the “Dodd-Frank Act”) was signed into law, substantially altering the regulation of savings associations and savings and loan holding companies. The Dodd-Frank Act required the transfer of OTS functions to the Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), and the Board of Governors of the Federal Reserve System (FRB), as of July 21, 2011. More specifically, as of July 21, 2011, United Community ceased to be regulated by the OTS and is now regulated by the FRB.

As previously disclosed, on August 8, 2008, the board of directors of United Community approved a Stipulation and Consent to the Issuance of an Order to Cease and Desist (the OTS Order) with the Office of Thrift Supervision (OTS), predecessor to United Community’s current primary federal regulator, the Federal Reserve Board. Simultaneously, the board of directors of Home Savings approved a Stipulation and Consent to the Issuance of an Order to Cease and Desist (the Bank Order) with the Federal Deposit Insurance Corporation (FDIC) and the Division of Financial Institutions of the Ohio Department of Commerce (Ohio Division). Although United Community and Home Savings have agreed to the issuance of the OTS Order and the Bank Order, respectively, neither has admitted or denied any allegations of unsafe or unsound banking practices, or any legal or regulatory violations. No monetary penalties were assessed by the OTS, the FDIC, or the Ohio Division.

The OTS Order required United Community to obtain OTS approval prior to: (i) incurring or increasing its debt position; (ii) repurchasing any United Community stock; or (iii) paying any dividends. The OTS Order also required United Community to develop a debt reduction plan and submit the plan to the OTS for approval.

The Bank Order required Home Savings, within specified timeframes, to take or refrain from certain actions, including: (i) retaining a bank consultant to assess Home Savings’ management needs and submitting a management plan that identifies officer positions needed, identifies and establishes board and internal operating committees, evaluates Home Savings’ senior officers, and provides for the hiring of any additional personnel; (ii) seeking regulatory approval prior to adding any individuals to the board of directors or employing any individual as a senior executive officer of Home Savings; (iii) not extending additional credit to classified borrowers; (iv) establishing a compliant Allowance for Loan and Lease Loss methodology; (v) enhancing its risk management policies and procedures; (vi) adopting and implementing plans to reduce its classified assets and delinquent loans, and to reduce loan concentrations in nonowner-occupied commercial real estate and construction, land development, and land loans; (vii) establishing board of directors committees to evaluate and approve certain loans and oversee Home Savings’ compliance with the Bank Order; (viii) revising its loan policy and enhancing its underwriting and credit administration functions; (ix) developing a strategic plan and budget and profit plan; (x) correcting all violations of laws, rules, and regulations and implementing procedures to ensure future compliance; (xi) increasing its Tier 1 leverage ratio to 8.0% and its total risk-based capital ratio to 12.0% by December 31, 2008; and (xii) seeking regulatory approval prior to declaring or paying any cash dividend. See Note 15 for details on current capital levels of Home Savings.

Both the OTS Order and the Bank Order remain in effect. Since the issuance of the Bank Order, there has been no change in the requirements of that Order. The OTS Order, however, was subsequently amended effective November 5, 2010. This amendment removed a requirement in the original OTS Order to provide the OTS with a debt reduction plan and added a requirement to provide the OTS with a capital plan. This capital plan is consistent with and incorporated into the strategic planning process that Home Savings has already been undertaking for the past two years under the terms of the Bank Order. The capital plan was submitted to the OTS in December 2010.

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Other Real Estate Owned and Other Repossessed Assets

9 Months Ended

Sep. 30, 2011

Other Real Estate Owned And Other Repossessed Assets [Abstract]

OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS

8. OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS

Real estate owned and other repossessed assets at September 30, 2011 and December 31, 2010 were as follows:

	September 30,			December 31,
	2011			2010
	(Dollars in thousands)
Real estate owned and other repossessed assets	$	46,668		$	47,668
Valuation allowance		(8,352	)		(7,332	)
End of period	$	38,316		$	40,336

Activity in the valuation allowance related to real estate owned was as follows:

	September 30,			December 31,
	2011			2010
	(Dollars in thousands)
Beginning of year	$	7,332		$	7,867
Additions charged to expense		4,040			4,572
Direct write-downs		(3,020	)		(5,107	)
End of period	$	8,352		$	7,332

Expenses related to foreclosed and repossessed assets include:

	For the three months ended September 30,
	2011		2010
	(Dollars in thousands)
Net loss on sales	$	395	$	407
Provision for unrealized losses, net		2,232		866
Operating expenses, net of rental income		361		1,027
Total expenses	$	2,988	$	2,300

	For the nine months ended September 30,
	2011		2010
	(Dollars in thousands)
Net loss on sales	$	941	$	1,282
Provision for unrealized losses, net		4,040		3,230
Operating expenses, net of rental income		2,125		2,658
Total expenses	$	7,106	$	7,170

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Earnings Per Share

9 Months Ended

Sep. 30, 2011

Earnings Per Share [Abstract]

EARNINGS PER SHARE

13. EARNINGS PER SHARE

Earnings per share are computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted earnings per share is 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. Stock options for 1,992,671 shares were anti-dilutive for the three months ended September 30, 2011. There were 2,251,575 stock options for shares that were anti-dilutive for the three months ended September 30, 2010. Stock options for 1,992,497 shares were anti-dilutive for the nine months ended September 30, 2011. There were 2,227,827 stock options for shares that were anti-dilutive for the nine months ended September 30, 2010.

	Three Months Ended
	September 30,
	2011			2010
	(Dollars in thousands)
Numerator:
Net loss	$	(8,864	)	$	(9,915	)
Denominator:
Weighted average common shares outstanding—basic		30,953			30,899
Dilutive effect of stock options		—			—
Weighted average common shares outstanding—dilutive		30,953			30,099
Basic loss per share:		(0.29	)		(0.32	)
Dilutive loss per share:		(0.29	)		(0.32	)

	Nine Months Ended
	September 30,
	2011			2010
	(Dollars in thousands)
Numerator:
Net loss	$	(7,698	)	$	(19,942	)
Denominator:
Weighted average common shares outstanding—basic		30,936			30,301
Dilutive effect of stock options		—			—
Weighted average common shares outstanding—dilutive		30,936			30,301
Basic loss per share:		(0.25	)		(0.66	)
Dilutive loss per share:		(0.25	)		(0.66	)

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Other Benefit Plans

9 Months Ended

Sep. 30, 2011

Other Benefit Plans [Abstract]

OTHER BENEFIT PLANS

9. OTHER BENEFIT PLANS

Home Savings sponsors a defined benefit health care plan. The plan was curtailed in 2000, but continues to provide postretirement medical benefits for employees who had worked 20 years and attained a minimum age of 60 by September 1, 2000, while in service with Home Savings. The plan is contributory and contains minor cost-sharing features such as deductibles and coinsurance. In addition, postretirement life insurance coverage is provided for employees who were participants prior to December 10, 1976. The life insurance plan is non-contributory. Home Savings’ policy is to pay premiums monthly, with no pre-funding.

The benefit obligation was measured on December 31, 2010. Information about changes in obligations of the benefit plan follows:

	September 30, 2011			December 31, 2010
	(Dollars in thousands)
Change in Benefit Obligation:
Benefit obligation at beginning of year	$	2,778		$	3,405
Service cost		—			—
Interest cost		41			185
Actuarial (gain)/loss		—			(670	)
Benefits paid		(124	)		(142	)
Benefit obligation at end of the year	$	2,695		$	2,778
Funded status of the plan	$	(2,695	)	$	(2,778	)

The amounts recognized in accumulated other comprehensive income, net of tax consist of the following:

	September 30, 2011		December 31, 2010
	(Dollars in thousands)
Net gains (losses)	$	—	$	1,015
Prior service credit (cost)		—		1
	$	—	$	1,016

Components of net periodic benefit cost are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
	(Dollars in thousands)
Service cost	$	—		$	—		$	—		$	—
Interest cost		33			46			99			140
Expected return on plan assets		—			—			—			—
Net amortization of prior service cost		(1	)		(1	)		(1	)		(1	)
Recognized net actuarial gain		(19	)		—			(57	)		—
Net periodic benefit cost/(gain)	$	13		$	45		$	41		$	139
Assumptions used in the valuations were as follows
		5.00	%		5.75	%		5.00	%		5.75	%

401(k) Savings Plan:

Home Savings sponsors a defined contribution 401(k) savings plan, which covers substantially all employees. Under the provisions of the plan, Home Savings’ matching contribution is discretionary and may be changed from year to year. For 2011, Home Savings did not match employee contributions. For 2010, Home Savings’ match was 50% of pre-tax contributions, up to a maximum of 6% of the employees’ base pay. Participants become 100% vested in Home Savings contributions upon completion of three years of service. For the three and nine months ended September 30, 2010, the expense related to this plan were approximately $127,000 and $369,000, respectively.

Employee Stock Ownership Plan:

In conjunction with the Conversion, United Community established an Employee Stock Ownership Plan (ESOP) for the benefit of the employees of United Community and Home Savings. All full-time employees who meet certain age and years of service criteria are eligible to participate in the ESOP. The ESOP is a tax-qualified retirement plan designed to invest primarily in the stock of United Community. The ESOP borrowed $26.8 million from United Community to purchase 2,752,615 shares in conjunction with the Conversion. The term of the loan was 15 years and was being repaid primarily with contributions from Home Savings to the ESOP. Additionally, 1,643,817 shares were purchased with the return of capital distribution in 1999. During 2008, 42,890 shares were added to the plan from the stock dividend paid in the fourth quarter of that year.

The loan was collateralized by the common shares held by the ESOP. As the note was repaid, shares were released from collateral based on the proportion of the payment in relation to total payments required to be made on the loan. The shares released from collateral were then allocated to participants on the basis of compensation as described in the plan. Compensation expense is determined by multiplying the per share market price of United Community’s shares at the end of the period by the number of shares to be released. On June 29, 2010, the ESOP paid in full the remaining balance of the loan and Home Savings recognized $1.3 million in additional compensation expense in the second quarter as shares were allocated to plan participants. Proceeds from the ESOP loan prepayment gave United Community the opportunity to infuse approximately $9.0 million of capital into Home Savings, in addition to taking advantage of certain tax benefits available for these types of plans.

There are no shares left to be released for allocation in 2011. During the year ended December 31, 2010, 631,946 shares were released or committed to be released for allocation.

Employee Stock Purchase Plan:

During 2005, United Community established an employee stock purchase plan (ESPP). Under this plan, United Community provides employees of Home Savings the opportunity to purchase United Community Financial Corporation’s common shares through payroll deduction. Participation in the plan is voluntary and payroll deductions are made on an after-tax basis. The maximum amount an employee can have deducted is nine hundred dollars per biweekly pay. Shares are purchased on the open market and administrative fees are paid by United Community. Expense related to this plan is a component of the Shareholder Dividend Reinvestment Plan and the expense recognized is considered immaterial.

Executive Incentive Plan:

On April 28, 2011, the Compensation Committee and the Board of Directors of UCFC approved the 2011 Executive Incentive Plan (the “EIP”). The EIP provides incentive compensation awards to certain named executive officers (the “Named Executive Officers” as defined in the proxy statement filed on March 25, 2011) of UCFC and Home Savings. Executive incentive awards are dependent upon UCFC recognizing net income for the year. The amount of award paid to executives is based upon the actual performance of UCFC for the 12 months ending September 30 compared to the actual performance of a peer group during the same 12 month period. As of September 30, 2011, no expense has been recognized for this plan.

Stay Bonus and Retention Plan:

On April 28, 2011, the Compensation Committee (the “Committee”) and the Boards of Directors of UCFC and Home Savings adopted the Stay Bonus and Retention Plan (the “Retention Plan”) for the purpose of recruiting and retaining qualified officers and employees. The officers and employees recommended for participation by the Committee must be approved by at least a majority of the independent members of the Board. As of the effective date of the Retention Plan, there were twenty-eight participants in the plan. The list of participants may be amended from time to time by the Board and the Committee in their sole and absolute discretion. Each participant must be actively employed by UCFC or Home Savings at the time any award is granted and/or paid.

Each eligible participant will receive a cash award of $1,000 on the first regular pay date occurring in January 2012, subject to all applicable Federal, state and local payroll taxes. If the Board of Home Savings receives official notice that the Bank Order has been terminated, each eligible participant will also be paid a cash award (50% of total award) and granted an equity award (50% of total award). Equity awards will be granted in the form of restricted shares issued under the 2007 Plan and vest one year after the grant date. The total award upon termination of the Bank Order is based upon a specified percentage of each participant’s base salary, which percentage is determined by the Board and may be amended from time to time by the Board and the Committee in their sole and absolute discretion. In the event that a participant’s employment is terminated for cause prior to the date upon which a cash award is actually paid to the participant or the participant’s equity award has vested, the participant forfeits all his or her rights, title or interest in any such cash or equity award, and the participant shall not be entitled to receive all or any part of the cash or equity award.

Subject to any limitations contained in the 2007 Plan, the Board may, at any time and from time to time, amend, modify or suspend the Retention Plan and all rules and guidelines under the Retention Plan; provided, however, that no such amendment, modification, suspension or termination shall impair or adversely alter any cash award or equity award previously granted under the Retention Plan without the consent of the affected participant.

For the three and nine months ended September 30, 2011, the expense recognized for this plan was approximately $215,000. Home Savings expects to recognize an additional $129,000 in expense associated with this plan for the remainder of 2011.

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Mortgage Banking Activities

9 Months Ended

Sep. 30, 2011

Mortgage Banking Activities [Abstract]

MORTGAGE BANKING ACTIVITIES

7. MORTGAGE BANKING ACTIVITIES

Mortgage loans serviced for others, which are not reported in United Community’s assets, totaled $1.1 billion at both September 30, 2011, and December 31, 2010.

Activity for capitalized mortgage servicing rights, included in other assets, was as follows:

	Nine Months
	Ended			Year Ended
	September 30,			December 31,
	2011			2010
	(Dollars in thousands)
Balance, beginning of year	$	6,400		$	6,228
Originations		1,409			2,621
Amortized to expense		(1,560	)		(2,449	)
Balance, end of period		6,249			6,400
Less valuation allowance		(1,415	)		(285	)
Net balance	$	4,834		$	6,115

Activity in the valuation allowance for mortgage servicing rights was as follows:

	Three Months						Twelve Months
	Ended September			Nine Months Ended			Ended December 31,
	30, 2011			September 30, 2011			2010
	(Dollars in thousands)
Balance, beginning of year	$	(58	)	$	(285	)	$	(423	)
Impairment charges		(1,357	)		(1,357	)		(1,279	)
Recoveries		—			227			1,417
Balance, end of period	$	(1,415	)	$	(1,415	)	$	(285	)

Fair value of mortgage servicing rights as of September 30, 2011 was approximately $6.4 million and at December 31, 2010 was approximately $8.2 million.

Key economic assumptions in measuring the value of mortgage servicing rights at June 30, 2011 and December 31, 2010 were as follows:

	September 30,	December 31,
	2011	2010
Weighted average prepayment rate	421 PSA	322 PSA
Weighted average life (in years)	3.65	3.71
Weighted average discount rate	8%	8%

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Cash Flows from Operating Activities
Net loss	$ (7,698)	$ (19,942)
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	22,272	39,876
Mortgage banking income	(4,432)	(2,456)
Net losses on real estate owned and other repossessed assets sold	4,981	4,512
Net gain on retail branch sold		(1,387)
Net gain on available for sale securities sold	(3,500)	(7,295)
Net loss (gain) on other assets	161	(3)
Other than temporary impairment of securities available for sale	73	44
Amortization of premiums and accretion of discounts	(405)	(649)
Depreciation and amortization	1,314	1,484
Decrease in interest receivable	704	127
Decrease in interest payable	(16)	(493)
Decrease in prepaid and other assets	7,308	3,174
(Decrease) increase in other liabilities	(1,948)	1,179
Stock based compensation	421	237
Net principal disbursed on loans originated for sale	(108,389)	(157,723)
Proceeds from sale of loans originated for sale	204,852	153,515
ESOP compensation		2,743
Net change in interest rate caps		95
Net cash from operating activities	115,698	17,038
Proceeds from principal repayments and maturities of:
Securities available for sale	27,037	68,368
Proceeds from sale of:
Securities available for sale	201,856	247,129
Real estate owned and other repossessed assets	14,058	14,931
Premises and equipment	11	20
Purchases of:
Securities available for sale	(268,032)	(421,856)
Interest rate caps		(2,126)
Principal disbursed on loans, net of repayments	55,947	75,281
Loans purchased	(3,202)	(4,729)
Purchases of premises and equipment	(348)	(487)
Sale of retail branch		(22,158)
Net cash from investing activities	27,327	(45,627)
Cash Flows from Financing Activities
Net increase in checking, savings and money market accounts	70,566	33,952
Net decrease in certificates of deposit	(72,406)	(92,212)
Net decrease in advance payments by borrowers for taxes and insurance	(7,466)	(3,754)
Proceeds from Federal Home Loan Bank advances	306,000	745,200
Repayment of Federal Home Loan Bank advances	(420,494)	(659,917)
Net change in repurchase agreements and other borrowed funds	(7,174)	969
Net cash from financing activities	(130,974)	24,238
Change in cash and cash equivalents	12,051	(4,351)
Cash and cash equivalents, beginning of period	37,107	45,074
Cash and cash equivalents, end of period	$ 49,158	$ 40,723

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Recent Accounting Developments

9 Months Ended

Sep. 30, 2011

RECENT ACCOUNTING DEVELOPMENTS [Abstract]

RECENT ACCOUNTING DEVELOPMENTS

3. RECENT ACCOUNTING DEVELOPMENTS

The Financial Accounting Standards Board (FASB) issued new Accounting Standards Updates (ASU) during 2011. Below is a summary of each new ASU.

In April 2011, the FASB amended existing guidance for assisting a creditor in determining whether a restructuring is a troubled debt restructuring. The amendments clarify the guidance for a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. With regard to determining whether a concession has been granted, the ASU clarifies that creditors are precluded from using the effective interest method to determine whether a concession has been granted. The effective interest method discounts estimated future cash payments through the expected life of the loan to the net carrying amount of the loan. In the absence of using the effective interest method, a creditor must now focus on other considerations such as the value of the underlying collateral, evaluation of other collateral or guarantees, the debtor’s ability to access other funds at market rates, interest rate increases and whether the restructuring results in a delay in payment that is insignificant. This guidance is effective for interim and annual reporting periods beginning after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. For purposes of measuring impairment on newly identified troubled debt restructurings, the amendment should be applied prospectively for the first interim period beginning on or after June 15, 2011. The adoption of this guidance did not have a material effect on the Company’s financial statements.

In May 2011, the FASB issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. This guidance is not expected to have a significant impact on the Company’s financial statements.

In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The adoption of this amendment will have no impact on the consolidated financial statements as the current presentation of comprehensive income is already in compliance with this amendment.

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Stock Compensation

9 Months Ended

Sep. 30, 2011

Stock Compensation [Abstract]

STOCK COMPENSATION

4. STOCK COMPENSATION

Stock Options:

On April 26, 2007, shareholders approved the United Community Financial Corp. 2007 Long-Term Incentive Plan (as amended, the 2007 Plan). The purpose of the 2007 Plan is to promote and advance the interests of United Community and its shareholders by enabling United Community to attract, retain and reward directors, directors emeritus, managerial and other key employees of United Community, including Home Savings, by facilitating their purchase of an ownership interest in United Community. The 2007 Plan provides for the issuance of up to 2,000,000 shares that are to be used for awards of restricted stock, stock options, performance awards, stock appreciation rights (SARs), or other forms of stock-based incentive awards. There were 3,866 stock options granted in the first quarter of 2011, all of which become exercisable on January 6, 2013. There were 12,746 stock options granted in the second quarter of 2011, 4,000 of which become exercisable on December 31, 2011, 4,000 of which become exercisable on December 31, 2012 and the remaining 4,746 of which become exercisable on April 7, 2013. There were 4,411 shares granted in the third quarter of 2011, all of which become exercisable on July 7, 2013. There were 423,695 stock options granted in 2010 and 32,000 stock options granted in 2009 under the 2007 Plan. For 418,000 of the options granted in 2010, one-half of the total options granted become exercisable on each of December 31, 2010 and 2011. The remainder of the options granted in 2010 become exercisable on October 7, 2012. For the options granted in 2009, one third of the total options granted became exercisable on each of December 31, 2009, and 2010, respectively. The remaining one third of the total options granted becomes exercisable on each of December 31, 2011. The options must be exercised within 10 years from the date of grant.

On July 12, 1999, shareholders approved the United Community Financial Corp. 1999 Long-Term Incentive Plan (as amended, the 1999 Plan). The purpose of the 1999 Plan was the same as the 2007 Plan. The 1999 Plan terminated on May 20, 2009, although the 1999 Plan survives so long as options issued under the 1999 Plan remain outstanding and exercisable.

The 1999 Plan provided for the grant of either incentive or nonqualified stock options. Options were awarded at exercise prices that were not less than the fair market value of the share at the grant date. The maximum number of common shares that could be issued under the 1999 Plan was 3,569,766. Because the 1999 Plan terminated, no additional options may be issued under it. All of the options awarded became exercisable on the date of grant except that options granted in 2009 became exercisable over three years beginning on December 31, 2009. All options expire 10 years from the date of grant.

Expenses related to stock option grants are included with salaries and employee benefits. The Company recognized $92,000 in stock option expenses for the three months ended September 30, 2011. The Company recognized $251,000 in stock option expense for the nine months ended September 30, 2011. The Company expects to recognize additional expense of $98,000 for the remainder of 2011.

A summary of activity in the 1999 and 2007 Plans is as follows:

	For the nine months ended September 30, 2011
				Weighted		Aggregate
				average		intrinsic value
	Shares			exercise price		(in thousands)
Outstanding at beginning of year		2,237,322		$	6.88
Granted		21,023			1.35
Exercised		—			—
Forfeited		(265,674	)		8.09
Outstanding at end of period		1,992,671		$	6.65	$	—
Options exercisable at end of period		1,670,187		$	7.65	$	—

Information related to the stock option plans for the nine months ended September 30, 2011 follows:

	September 30, 2011
Intrinsic value of options exercised		n/a
Cash received from option exercises		n/a
Tax benefit realized from option exercises		n/a
Weighted average fair value of options granted, per share	$	0.88

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model that uses assumptions including the risk-free interest rate, expected term, expected stock volatility, and dividend yield. Expected volatilities are based on historical volatilities of United Community’s common shares. United Community uses historical data to estimate option exercises and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The fair value of options granted during the third quarter 2011 was determined using the following weighted-average assumptions as of the grant date.

	July 7,
	2011
Risk-free interest rate		1.74	%
Expected term (years)		5
Expected stock volatility		81.3
Dividend yield		—	%

Outstanding stock options have a weighted average remaining life of 4.38 years and may be exercised in the range of $1.20 to $12.38.

Restricted Stock Awards:

The 2007 Plan permits the issuance of awards to nonemployee directors. Compensation expense is recognized over the vesting period of the awards based on the market value of the shares at the issue date. A total of 86,519 restricted shares have been issued under the 2007 Plan; 46,640 of which were issued in 2011 and 39,879 of which were issued in 2010. These restricted shares vest on the first anniversary of the grant date. Expenses related to restricted stock awards are included with salaries and employee benefits. The cost will be recognized over a weighted average period of one year. The Company recognized approximately $21,000 in restricted stock award expenses for the three months ended September 30, 2011. The Company recognized approximately $61,000 in restricted stock award expenses for the nine months ended September 30, 2011. The Company expects to recognize additional expenses of approximately $19,000 for the remainder of 2011.

A summary of changes in the Company’s nonvested restricted shares for the first nine months of 2011 is as follows:

				Weighted
				average grant
	Shares			date fair value
Nonvested shares at January 1, 2011		39,879		$	1.32
Granted		46,640			1.32
Vested		(33,068	)		1.29
Forfeited		—			—
Nonvested shares at September 30, 2011		53,451		$	1.34

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Segment Information

9 Months Ended

Sep. 30, 2011

Segment Information [Abstract]

SEGMENT INFORMATION

12. SEGMENT INFORMATION

All of the Company’s financial service operations are considered by management to be aggregated in one reportable operating segment, which is banking services.

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Securities

9 Months Ended

Sep. 30, 2011

Securities [Abstract]

SECURITIES

5. SECURITIES

Components of the available for sale portfolio are as follows:

	September 30, 2011
	(Dollars in thousands)
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
U.S. Treasury and government sponsored entities’ securities	$	67,045	$	1,488	$	—	$	68,533
Equity securities		129		118		—		247
Mortgage-backed securities GSE issued: residential		338,949		8,731		—		347,680
Total	$	406,123	$	10,337	$	—	$	416,460

	December 31, 2010
	(Dollars in thousands)
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
U.S. Treasury and government sponsored entities’ securities	$	65,099	$	—	$	(2,164	)	$	62,935
Equity securities		235		159		—			394
Mortgage-backed securities GSE issued: residential		300,290		1,688		(3,265	)		298,713
Total	$	365,624	$	1,847	$	(5,429	)	$	362,042

Debt securities available for sale by contractual maturity, repricing or expected call date are shown below:

	September 30, 2011
	Amortized cost		Fair value
	(Dollars in thousands)
Due in one year or less	$	—	$	—
Due after one year through five years		—		—
Due after five years through ten years		67,045		68,533
Mortgage-related securities		338,949		347,680
Total	$	405,994	$	416,213

Securities pledged for the Company’s investment in VISA stock were approximately $6.1 million at September 30, 2011 and $5.7 million at December 31, 2010. Securities pledged for participation in the Ohio Linked Deposit Program were $419,000 at September 30, 2011, and $864,000 at December 31, 2010. Securities sold under an agreement to repurchase are secured primarily by mortgage-backed securities with a fair value of approximately $115.6 million at September 30, 2011, and $129.4 million at December 31, 2010.

Proceeds from sales of securities available for sale were $85.9 million and $73.1 million for the three months ended September 30, 2011 and 2010, respectively. Gross gains of $2.0 million and $781,000 and no gross losses were realized on these sales during the three months of 2011 and 2010, respectively.

Proceeds from sales of securities available for sale were $201.9 million and $247.1 million for the nine months ended September 30, 2011 and 2010, respectively. Gross gains of $3.5 million and $7.3 million and no gross losses were realized on these sales during the nine months of 2011 and 2010, respectively.

There were no securities with unrealized losses at September 30, 2011.

The following table summarizes the investment securities with unrealized losses at September 30, 2011 and December 31, 2010 by aggregated major security type and length of time in a continuous unrealized loss position:

	December 31, 2010
	(Dollars in thousands)
	Less Than 12 Months					12 Months or More				Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
	Value		Loss			Value		Loss		Value		Loss
U.S. Treasury and government sponsored entities’ securities	$	62,935	$	(2,164	)	$	—	$	—	$	62,935	$	(2,164	)
Mortgage-backed securities GSE issued: residential		203,569		(3,265	)		—		—		203,569		(3,265	)
Total	$	266,504	$	(5,429	)	$	—	$	—	$	266,504	$	(5,429	)

The Company evaluates its equity securities for impairment on a quarterly basis. In general, if a security has been in an unrealized loss position for more than twelve months, the Company will realize an Other Than Temporary Impairment (OTTI) charge on the security. If the security has been in an unrealized loss position for less than twelve months, the Company examines the capital levels, nonperforming asset ratios, and liquidity position of the issuer to determine whether or not an OTTI charge is appropriate.

The Company recognized a $35,000 OTTI charge on equity investments with holdings of four other financial institutions in the third quarter of 2011. One financial institution consented to a regulatory enforcement action, diminishing the chance of fair value recovery in the foreseeable future. The other investments were trading below book value and management was not able to determine with reasonable certainty that recovery would occur in the near-term. The Company recognized a $73,000 OTTI charge on equity investments in four other financial institutions in the first nine months of 2011.

As of September 30, 2011, the Company’s security portfolio consisted of 48 securities, none of which was in an unrealized loss position.

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Regulatory Capital Requirements

9 Months Ended

Sep. 30, 2011

Regulatory Capital Requirements [Abstract]

REGULATORY CAPITAL REQUIREMENTS

15. REGULATORY CAPITAL REQUIREMENTS

Home Savings is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on Home Savings and United Community. The regulations require Home Savings to meet specific capital adequacy guidelines and the regulatory framework for prompt corrective action that involve quantitative measures of Home Savings’ assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. Home Savings’ capital classification is also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation for capital adequacy require Home Savings to maintain minimum amounts and ratios of Tier 1 (or Core) capital (as defined in the regulations) to average total assets (as defined) and of total risk-based capital (as defined) to risk-weighted assets (as defined). Actual and statutory required capital amounts and ratios for Home Savings are presented below.

	As of September 30, 2011
						Minimum Capital
	Actual					Requirements Per Bank Order
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
Total risk-based capital to risk-weighted assets	$	189,362		13.25	%	$	171,471		12.00	%
Tier 1 capital to risk-weighted assets		171,176		11.98	%		*		*
Tier 1 capital to average total assets (Tier 1 leverage ratio)		171,176		8.13	%		168,369		8.00	%

	As of September 30, 2011
						To Be Well Capitalized Under
	Minimum Capital					Prompt Corrective Action
	Requirements Per Regulation					Provisions**
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
Total risk-based capital to risk-weighted assets	$	114,314		8.00	%	$	142,892		10.00	%
Tier 1 capital to risk-weighted assets		*		*			85,735		6.00	%
Tier 1 capital to average total assets (Tier 1 leverage ratio)		84,184		4.00	%		105,230		5.00	%

	As of December 31, 2010
						Minimum Capital
	Actual					Requirements Per Bank Order
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
Total risk-based capital to risk-weighted assets	$	197,891		12.54	%	$	189,412		12.00	%
Tier 1 capital to risk-weighted assets		177,776		11.26	%		*		*
Tier 1 capital to average total assets (Tier 1 leverage ratio)		177,776		7.84	%		181,513		8.00	%

	As of December 31, 2010
						To Be Well Capitalized Under
	Minimum Capital					Prompt Corrective Action
	Requirements Per Regulation					Provisions**
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
Total risk-based capital to risk-weighted assets	$	126,274		8.00	%	$	157,843		10.00	%
Tier 1 capital to risk-weighted assets		*		*			94,706		6.00	%
Tier 1 capital to average total assets (Tier 1 leverage ratio)		90,757		4.00	%		113,446		5.00	%

*	Amount/Ratio is not required under the Bank Order or regulations.
**	As of September 30, 2011 and December 31, 2010, respectively, the FDIC categorized Home Savings as adequately capitalized pursuant to the Bank Order and OTS Order (as amended) discussed in Note 2. Home Savings cannot be considered well capitalized while the Bank Order is in place.

As of September 30, 2011 and December 31, 2010, respectively, the FDIC categorized Home Savings as adequately capitalized pursuant to the Bank Order discussed in Note 2. Home Savings cannot be considered well capitalized while the Bank Order is in place. The Bank Order requires Home Savings to measure its Tier 1 Leverage Ratio and Total Risk-based Capital Ratio at the end of every quarter. Under the terms of the Bank Order, if Home Savings’ Tier 1 Leverage Ratio falls below 8.0% or if its Total Risk-based Capital Ratio falls below 12.0% at the end of any given quarter, then Home Savings must restore its capital ratios to the required levels within 90 days. At December 31, 2010, Home Savings’ Tier 1 Leverage Ratio was 7.84% and its Total Risk-based Capital Ratio was 12.54%. Under the terms of the Bank Order, Home Savings was required to and successfully achieved the 8.0% Tier 1 Leverage Ratio by March 31, 2011.

Events beyond management’s control, such as fluctuations in interest rates or a downturn in the economy in areas in which Home Savings’ loans and securities are concentrated, could adversely affect future earnings, and consequently Home Savings’ ability to meet its future capital requirements. Refer to Note 2 for a complete discussion of the regulatory enforcement actions.

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Consolidated Statements of Shareholders' Equity (Unaudited) (USD $) In Thousands	Total USD ($)	Common Shares USD ($)	Retained Earnings USD ($)	Accumulated Other Comprehensive Income USD ($)	Unearned Employee Stock Ownership Plan Shares	Treasury Stock USD ($)
Beginning balance at Dec. 31, 2009	$ 219,783	$ 145,775	$ 148,674	$ 4,110		$ (72,955)
Beginning balance, shares at Dec. 31, 2009		30,898			(5,821)
Comprehensive income:
Net loss	(19,942)		(19,942)
Change in net unrealized gain/(loss) on securities, net of taxes	(1,488)			(1,488)
Comprehensive income	(21,430)
Shares allocated to ESOP participants	2,743	(3,078)
Shares allocated to ESOP participants, shares					5,821
Stock based compensation	237	202	(256)			291
Stock based compensation, shares		27
Ending balance at Sep. 30, 2010	201,333	142,899	128,476	2,622		(72,664)
Ending balance, shares at Sep. 30, 2010		30,925			0
Beginning balance at Dec. 31, 2010	176,055	142,318	111,049	(4,778)		(72,534)
Beginning balance, shares at Dec. 31, 2010		30,938			0
Comprehensive income:
Net loss	(7,698)		(7,698)
Change in net unrealized gain/(loss) on securities, net of taxes	13,919			13,919
Comprehensive income	6,221
Stock based compensation	421	376	(448)			493
Stock based compensation, shares		46
Ending balance at Sep. 30, 2011	$ 182,697	$ 142,694	$ 102,903	$ 9,141		$ (72,041)
Ending balance, shares at Sep. 30, 2011		30,984			0

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Income Taxes

9 Months Ended

Sep. 30, 2011

Income Taxes [Abstract]

INCOME TAXES

16. INCOME TAXES

Management recorded a valuation allowance against deferred tax assets at September 30, 2011 and December 31, 2010, based on its estimate of future reversal and utilization. When determining the amount of deferred tax assets that are more-likely-than-not to be realized, and therefore recorded as a benefit, the Company conducts a regular assessment of all available information. This information includes, but is not limited to, taxable income in prior periods, projected future income, and projected future reversals of deferred tax items. Based on these criteria, the Company determined that it was necessary to establish a full valuation allowance against the entire net deferred tax asset. As of September 30, 2011, the Company has a deferred tax asset of $18.0 million and a deferred tax asset valuation of $18.0 million, resulting in a net deferred tax asset of $0.

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Basis of Presentation

9 Months Ended

Sep. 30, 2011

Basis of Presentation [Abstract]

BASIS OF PRESENTATION

1. BASIS OF PRESENTATION

United Community Financial Corp. (United Community or the Company) was incorporated under Ohio law in February 1998 by The Home Savings and Loan Company of Youngstown, Ohio (Home Savings) in connection with the conversion of Home Savings from an Ohio mutual savings and loan association to an Ohio capital stock savings association (Conversion). Upon consummation of the Conversion on July 8, 1998, United Community became the unitary thrift holding company for Home Savings. Home Savings, a state-chartered savings bank, conducts business from its main office located in Youngstown, Ohio, 38 full-service branches and seven loan production offices located throughout Ohio and western Pennsylvania.

The accompanying consolidated financial statements of United Community have been prepared in accordance with instructions relating to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments) that are, in the opinion of management, necessary for a fair statement of results for the interim periods.

The results of operations for the three and nine months ended September 30, 2011, are not necessarily indicative of the results to be expected for the year ending December 31, 2011. The consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2010, contained in United Community’s Form 10-K for the year ended December 31, 2010.

Some items in the prior year financial statements were reclassified to conform to the current presentation.

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Fair Value Measurement

9 Months Ended

Sep. 30, 2011

Fair Value Measurement [Abstract]

FAIR VALUE MEASUREMENT

10. FAIR VALUE MEASUREMENT

Fair value is the exchange price that would be received for an asset if paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own beliefs about the assumptions that market participants would use in pricing an asset or liability.

United Community uses the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Available for sale securities: The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

Impaired loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Foreclosed assets: Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned (OREO) are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

Mortgage servicing rights: Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively based on a valuation model that calculates the present value of estimated future net servicing income.

Loans held for sale: Loans held for sale are carried at the lower of cost or fair value, as determined by outstanding commitments, from third party investors.

Assets and Liabilities Measured on a Recurring Basis: Assets and liabilities measured at fair value on a recurring basis are summarized below:

			Fair Value Measurements at September 30, 2011 Using:
			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	September 30,		Assets		Inputs		Inputs
	2011		(Level 1)		(Level 2)		(Level 3)
	(Dollars in thousands)
Assets:
Available for sale securities
US Treasury and government sponsored entities’ securities	$	68,533	$	—	$	68,533	$	—
Equity securities		247		247		—		—
Mortgage-backed GSE securities: residential		347,680		—		347,680		—

			Fair Value Measurements at December 31, 2010 Using:
			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs
	2010		(Level 1)		(Level 2)		(Level 3)
	(Dollars in thousands)
Assets:
Available for sale securities
US Treasury and government sponsored entities’ securities	$	62,935	$	—	$	62,935	$	—
Equity securities		394		394		—		—
Mortgage-backed GSE securities: residential		298,713		—		298,713		—

Assets and Liabilities Measured on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

			Fair Value Measurements at September 30, 2011 Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	September 30,		Identical Assets		Inputs		Inputs
	2011		(Level 1)		(Level 2)		(Level 3)
	(Dollars in thousands)
Assets:
Impaired loans
Permanent real estate loans	$	46,287	$	—	$	—	$	46,287
Construction loans		20,996		—		—		20,996
Commercial loans		7,404		—		—		7,404
Mortgage servicing assets		4,014		—		4,014		—
Foreclosed assets
Permanent real estate loans		7,431		—		—		7,431
Construction loans		7,144		—		—		7,144

			Fair Value Measurements at December 31, 2010 Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	December 31,		Identical Assets		Inputs		Inputs
	2010		(Level 1)		(Level 2)		(Level 3)
	(Dollars in thousands)
Assets:
Impaired loans
Permanent real estate loans	$	49,235	$	—	$	—	$	49,235
Construction loans		20,229		—		—		20,229
Commercial loans		1,694		—		—		1,694
Loans held for sale		10,845		—		10,845		—
Mortgage servicing assets		2,278		—		2,278		—
Foreclosed assets
Permanent real estate loans		3,930		—		—		3,930
Construction loans		10,527		—		—		10,527

Impaired loans with specific allocations of the allowance for loan losses, carried at fair value, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $86.9 million at September 30, 2011, with a specific valuation allowance of $12.2 million. This resulted in an additional provision for loan losses of $1.8 million during the three months ended September 30, 2011 and $12.6 million for the nine months ended September 30, 2011. Impaired loans with specific allocations of the allowance for loan losses, carried at fair value, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $68.9 million at September 30, 2010, with a specific valuation allowance of $10.7 million, resulting in additional provision for loan losses of $131,000 during three months ended September 30, 2010, and $7.2 million for the nine months ended September 30, 2010. Impaired loans with specific allocations of the allowance for loan losses, carried at fair value, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $84.6 million at December 31, 2010, with a specific valuation allowance of $13.4 million, resulting in additional provision for loan losses of $47.9 million during 2010.

Mortgage servicing rights had a carrying amount of $5.4 million with a valuation allowance of $1.4 million at September 30, 2011, resulting in additional expenses of $1.4 million during the three and nine months ended September 30, 2011. Mortgage servicing rights are valued by an independent third party that is active in purchasing and selling these instruments. The value reflects the characteristics of the underlying loans discounted at a market multiple.

Foreclosed assets, carried at fair value, which are measured for impairment using the fair value of the property less estimated selling costs, had a carrying amount of $22.9 million, with a valuation allowance of $8.4 million at September 30, 2011. This resulted in additional expenses of $2.2 million during the three months ended September 30, 2011 and $4.0 million for the nine months ended September 30, 2011.

In accordance with generally accepted accounting principles, the carrying value and estimated fair values of financial instruments, at September 30, 2011 and December 31, 2010, were as follows:

	September 30, 2011						December 31, 2010
	Carrying			Fair			Carrying			Fair
	Value			Value			Value			Value
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	49,158		$	49,158		$	37,107		$	37,107
Available for sale securities		416,460			416,460			362,042			362,042
Loans held for sale		38,366			38,691			10,870			10,870
Loans, net		1,437,575			1,462,125			1,649,486			1,675,610
Federal Home Loan Bank stock		26,464			n/a			26,464			n/a
Accrued interest receivable		7,016			7,016			7,720			7,720
Liabilities:
Deposits:
Checking, savings and money market accounts		(849,869	)		(849,869	)		(779,301	)		(779,301	)
Certificates of deposit		(838,072	)		(852,192	)		(910,480	)		(925,325	)
Federal Home Loan Bank advances		(88,324	)		(97,089	)		(202,818	)		(210,497	)
Repurchase agreements and other		(90,623	)		(103,096	)		(97,797	)		(107,299	)
Advance payments by borrowers for taxes and insurance		(13,202	)		(13,202	)		(20,668	)		(20,668	)
Accrued interest payable		(793	)		(793	)		(809	)		(809	)

Fair value of financial instruments:

The estimated fair values of financial instruments have been determined by United Community using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that United Community could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Cash and cash equivalents, accrued interest receivable and payable and advance payments by borrowers for taxes and insurance—The carrying amounts as reported in the Statements of Financial Condition are a reasonable estimate of fair value due to their short-term nature.

Securities—Fair values are based on quoted market prices, dealer quotes, and prices obtained from independent pricing services.

Loans held for sale—The fair value of loans held for sale is based on market quotes.

Loans—The fair value is estimated by discounting the future cash flows using the current market rates for loans of similar maturities with adjustments for market and credit risks.

Federal Home Loan Bank stock—It is not practical to determine the fair value of Federal Home Loan Bank stock due to restrictions placed on its transferability.

Deposits—The fair value of demand deposits, savings accounts and money market deposit accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using rates currently offered for deposits of similar remaining maturities.

Borrowed funds—For short-term borrowings, fair value is estimated to be carrying value. The fair value of other borrowings is based on current rates for similar financing.

Limitations—Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time United Community’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of United Community’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature, involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on and off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, a significant asset not considered a financial asset is premises and equipment. In addition, tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

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Other Comprehensive Income (Loss)

9 Months Ended

Sep. 30, 2011

Other Comprehensive Income (Loss) [Abstract]

OTHER COMPREHENSIVE INCOME (LOSS)

14. OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) included in the Consolidated Statements of Shareholders’ Equity consists of unrealized gains and losses on available for sale securities and changes in unrealized gains and losses on postretirement liability. The change includes reclassification of gains on sales of securities of $3.5 million and impairment charges of $73,000 at September 30, 2011, and gains on sales of securities of $7.3 million and impairment charges of $44,000 at September 30, 2010.

Other comprehensive income (loss) components and related tax effects for the three month periods are as follows:

	Three months ended
	September 30,			September 30,
	2011			2010
	(Dollars in thousands)
Unrealized holding gain (loss) on securities available for sale	$	10,141		$	(1,677	)
Reclassification adjustment for net gains realized in income		(1,923	)		(737	)
Net unrealized gain/(loss)		8,218			(2,414	)
Tax effect		—			845
Net of tax amount	$	8,218		$	(1,569	)

Other comprehensive income (loss) components and related tax effects for the nine month periods are as follows:

	Nine months ended
	September 30,			September 30,
	2011			2010
	(Dollars in thousands)
Unrealized holding gain on securities available for sale	$	17,346		$	4,962
Reclassification adjustment for net gains realized in income		(3,427	)		(7,251	)
Net unrealized gains/(loss)		13,919			(2,289	)
Tax effect		—			801
Net of tax amount	$	13,919		$	(1,488	)

The following is a summary of accumulated other comprehensive income (loss) balances, net of tax:

				Current		Balance at
	Balance at			Period		September 30,
	December 31, 2010			Change		2011
Unrealized gains (losses) on securities available for sale	$	(5,673	)	$	13,919	$	8,246
Unrealized gains on post-retirement benefits		895			—		895
Total	$	(4,778	)	$	13,919	$	9,141

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Consolidated Statements of Financial Condition (Unaudited) (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010
Assets:
Cash and deposits with banks	$ 21,355	$ 18,627
Federal funds sold	27,803	18,480
Total cash and cash equivalents	49,158	37,107
Securities:
Available for sale, at fair value	416,460	362,042
Loans held for sale	38,366	10,870
Loans, net of allowance for loan losses of $44,162 and $50,883	1,437,575	1,649,486
Federal Home Loan Bank stock, at cost	26,464	26,464
Premises and equipment, net	19,213	22,076
Accrued interest receivable	7,016	7,720
Real estate owned and other repossessed assets	38,316	40,336
Core deposit intangible	379	485
Cash surrender value of life insurance	28,089	27,303
Other assets	9,965	13,409
Total assets	2,071,001	2,197,298
Deposits:
Interest bearing	1,535,365	1,551,210
Non-interest bearing	152,576	138,571
Total deposits	1,687,941	1,689,781
Borrowed funds:
Federal Home Loan Bank advances	88,324	202,818
Repurchase agreements and other	90,623	97,797
Total borrowed funds	178,947	300,615
Advance payments by borrowers for taxes and insurance	13,202	20,668
Accrued interest payable	793	809
Accrued expenses and other liabilities	7,421	9,370
Total liabilities	1,888,304	2,021,243
Shareholders' Equity:
Preferred stock-no par value; 1,000,000 shares authorized and unissued
Common stock 0 par value; 499,000,000 shares authorized; 37,804,457 shares issued and 30,984,344 and 30,937,704 shares, respectively, outstanding	142,694	142,318
Retained earnings	102,903	111,049
Accumulated other comprehensive income (loss)	9,141	(4,778)
Treasury stock, at cost, 6,820,113 and 6,866,753 shares, respectively	(72,041)	(72,534)
Total shareholders' equity	182,697	176,055
Total liabilities and shareholders' equity	$ 2,071,001	$ 2,197,298