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

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

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.

		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.

UNITED COMMUNITY FINANCIAL CORP.

		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	)

(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.

UNITED COMMUNITY FINANCIAL CORP.

																		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.

UNITED COMMUNITY FINANCIAL CORP.

		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.

UNITED COMMUNITY FINANCIAL CORP.

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.

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.

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

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.

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

(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

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

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