8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 21, 2009

UNITED COMMUNITY FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

OHIO	0-024399	34-1856319
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification 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.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Section 2 — Financial Information

Item 2.02 Results of Operation and Financial Condition

(a) On October 21, 2009, United Community Financial Corp. issued a press release announcing its results of operations for the third quarter of 2009. A copy of the press release is attached as Exhibit 99.

Section 9 — Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit
Number	Description
99	Press Release of United Community dated October 21, 2009.	Included herewith.

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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.
By:	/s/ James R. Reske
	James R. Reske, Chief Financial Officer

Date: October 22, 2009

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EXHIBIT INDEX

Exhibit
Number	Description
99	Press Release of United Community dated October 21, 2009.	Included herewith.

4

EX-99

EXHIBIT 99

UNITED COMMUNITY FINANCIAL CORP.
275 West Federal Street
Youngstown, Ohio 44503-1203

FOR IMMEDIATE RELEASE

Media Contact:	Investor Contact:
Susan E. Stricklin	James R. Reske
Vice President, Marketing	Chief Financial Officer
Home Savings	United Community Financial Corp.
(330) 742-0638	(330) 742-0592
sstricklin@homesavings.com	jreske@ucfconline.com

United Community Financial Corp. Announces Third Quarter Performance

Highlights for the third quarter of 2009:

• Net interest margin increased to 3.32% for the quarter

• Capital ratios increased to 8.68% (Tier 1 Leverage) and 13.02% (Total Risk-Based Capital)

• Tangible book value increased to $7.61 per share, up from $7.57 per share as of June 30, 2009

YOUNGSTOWN, Ohio (October 21, 2009) — United Community Financial Corp. (Company) (Nasdaq: UCFC), holding company of The Home Savings and Loan Company (Home Savings), today reported a consolidated net loss of $867,000, or $(0.03) per diluted share, for the three months ended September 30, 2009. This compares to a net loss of $2.9 million, or $(0.10) per diluted share, for the three months ended June 30, 2009, and a net loss of $38.6 million, or $(1.31) per diluted share, for the three months ended September 30, 2008.

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The Company also reported a net loss for the nine months ended September 30, 2009, of $511,000, or $(0.02) per diluted share, compared to a net loss of $31.8 million, or $(1.07) per diluted share, for the nine months ended September 30, 2008.

The loss incurred for the third quarter of 2009 was primarily due to the provision for loan losses as well as write-downs of real estate owned by the Company. The provision for loan losses was $5.6 million and was driven largely by the economic climate in the markets in which the Company does business. The write-downs of real estate owned aggregated $3.9 million during the third quarter of 2009 and were attributable primarily to the decline in market value of certain commercial real estate properties owned by the Company. These costs were offset partially by an increase in net interest income and lower noninterest expenses.

Chairman, President and Chief Executive Officer Douglas M. McKay commented, “Asset quality improvement is and, for the past eighteen months, has been the Home Savings’ most important strategic objective. While deterioration continues, the pace of that deterioration has slowed significantly. Since August of last year we have taken many steps to bring these issues under control and we expect to see the results of our credit function reorganization, and some level of economic stabilization, within the next several quarters.”

Net Interest Income and Margin

Net interest income was $19.4 million in the third quarter of 2009, an increase from $18.7 million for the second quarter of 2009 and an increase from $18.8 million for the third quarter of 2008. Net interest income continued to improve during the third quarter due to an increase in the net interest margin, which increased from 3.12% in the second quarter of 2009 to 3.32% in the third quarter of 2009. The increase in the net interest margin was primarily due to the repricing of certificates of deposit and the replacement of maturing brokered certificates of deposit with lower cost funding.

On a year-to-year basis, the net interest margin for the nine months ended September 30, 2009, increased 33 basis points to 3.16% compared to 2.83% for the nine months ended September 30, 2008. Similar to that of the quarter-to-quarter comparison, the net interest margin increase was due primarily to decreases in the cost of funds exceeding declines in yields earned on loans and securities.

Asset Quality

The provision for loan losses decreased to $5.6 million in the third quarter of 2009, compared to $12.3 million in the second quarter of 2009 and $9.0 million in the third quarter of 2008. The provision for loan losses was $26.3 million for the nine months ended September 30, 2009, compared to $14.7 million for the nine months ended September 30, 2008. Net loan charge-offs were $6.6 million in the third quarter of 2009, compared to $10.3 million in the preceding quarter and $4.7 million in the third quarter a year ago. Net charge-offs in the third quarter of 2009 occurred primarily as a result of the performance and declining real estate values of the non-residential real estate and construction loan portfolios, although the net charge-offs also included partial charge-offs of select one-to four-family mortgage loans, multifamily loans and non-residential real estate loans, as Home Savings recognized losses on these loans to appropriately reflect the current value of the collateral.

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The allowance for loan losses increased to $38.8 million, or 1.91% of the loan portfolio as of September 30, 2009, compared to $36.0 million or 1.61% of the loan portfolio as of December 31, 2008. Nonperforming assets, which consists of nonperforming loans, real estate owned and other repossessed assets, increased $5.4 million to $141.3 million at September 30, 2009, compared to $135.9 million at September 30, 2008. An increase in nonperforming loans of $7.1 million was offset partially by a decrease in other real estate owned due to increased sales and market valuation adjustments.

Noninterest Income

In the third quarter of 2009, the Company recognized noninterest income of $119,000, compared to $6.2 million in the preceding quarter and a loss of $2.4 million in the third quarter of 2008. The change in noninterest income recognized in the third quarter of 2009 as compared to the second quarter was primarily the result of a $2.8 million increase in losses recognized on the valuation and disposal of real estate owned, higher other-than-temporary-impairment charges on available for sale securities, fewer gains recognized on the sale of available for sale securities, and fewer gains recognized on the sale of loans. The Company recognized $3.9 million in losses in the third quarter of 2009 on real estate owned to reflect declining property values compared to $621,000 in the previous quarter. The change in noninterest income recognized in the third quarter of 2009 as compared to the same quarter last year was the result of a $4.6 million decrease in other-than-temporary-impairment charges on available for sale securities, offset primarily by an increase in losses of $2.8 million recognized on the valuation and disposal of real estate owned.

Noninterest income for the nine months ended September 30, 2009, was $9.1 million, compared to $6.8 million for the similar period in 2008. The increase in noninterest income recognized in the first nine months of 2009 compared to the first nine months of 2008 is due primarily to lower other-than-temporary-impairment charges recognized on available for sale securities, higher gains recognized on the sale of available for sale securities and higher gains on the sale of loans. These increases more than offset increases in losses recognized on the valuation and disposition of other real estate owned.

Noninterest Expense

Noninterest expense was $15.4 million in the third quarter of 2009, compared to $17.2 million in the second quarter of 2009 and $49.5 million for the third quarter of 2008. The decreased expense in the third quarter of 2009 as compared to the second quarter is a result of lower federal deposit insurance premiums, fewer expenses related to maintenance and real estate taxes on real estate owned and lower salary and employee benefit expenses. The change in deposit insurance was caused primarily by special assessments on all insured financial institutions levied during the second quarter of 2009. The decreased expense in the third quarter of 2009 as compared to the same quarter last year is a result of the recognition of a goodwill impairment charge of $33.6 million in the third quarter of 2008.

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Noninterest expense was $49.0 million through the first nine months of 2009, compared to $79.6 million for the first nine months of 2008. The change is primarily a result of the goodwill impairment charge recognized in the third quarter of 2008, and decreased salary and employee benefit expenses in the third quarter of 2009. These positive changes were offset partially by increased federal deposit insurance premiums and higher expenses related to maintenance and real estate taxes on real estate owned.

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Financial Condition

Total assets were $2.5 billion at September 30, 2009, a decrease of $155.9 million compared to December 31, 2008. The change is attributable to declines in all major segments of Home Savings’ loan portfolio. Home Savings’ construction and commercial loan portfolios declined due to the strategic objective of reducing concentrations in these portfolios. Furthermore, due to a much lower interest rate environment, refinance activity has accelerated in 2009. The result of this acceleration was a decline in the portfolio of one-to four-family loans as existing loans in the portfolio were refinanced and a majority of the newly originated loans were sold into the secondary market. The decrease in loans was partially offset by an increase in securities available for sale.

Total liabilities decreased by $156.9 million during the first nine months of 2009. Total deposits at September 30, 2009, were $1.8 billion, a decrease of $130.4 million from December 31, 2008 largely as a result of maturities of brokered deposits of $130.0 million during the first nine months of 2009 and a decrease of $39.0 million in retail certificates of deposit, which were partially offset by an increase of $42.3 million in savings and checking deposits.

Shareholders’ equity increased $1.0 million at September 30, 2009, compared to December 31, 2008. The change was primarily attributable to an increase in other comprehensive income, due to an increase in unrealized gains on available for sale securities offset by the net loss incurred during the first nine months of 2009. Tangible book value per share as of September 30, 2009, was $7.61, an increase from $7.57 as of December 31, 2008.

Home Savings is a wholly-owned subsidiary of the Company and operates 39 full-service banking offices and six loan production offices located throughout Ohio and western Pennsylvania. Additional information on the Company and Home Savings may be found on the Company’s web site: www.ucfconline.com.

###

When used in this press release, the words or phrases “believes,” “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 the Company’s market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company’s market area, and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company advises readers that the factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

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The Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

10

UNITED COMMUNITY FINANCIAL CORP.

	As of			As of
	September 30, 2009			December 31, 2008
	(Dollars in thousands, except per share data)
SELECTED FINANCIAL CONDITION DATA (UNAUDITED):
ASSETS
Cash and cash equivalents	$	37,958		$	43,417
Securities		296,461			215,731
Federal Home Loan Bank stock, at cost		26,464			26,464
Loans held for sale		4,082			16,032
Loans:
Real estate		1,432,859			1,497,940
Construction		203,798			291,152
Consumer		320,106			348,834
Commercial		71,727			101,489
Allowance for loan losses		(38,845	)		(35,962	)
Net loans		1,989,645			2,203,453
Real estate owned and other repossessed assets		27,607			29,258
Core deposit intangible		712			884
Cash surrender value of life insurance		25,904			25,090
Assets of discontinued operations—Butler Wick Corp.		—			5,562
Other assets		53,352			52,182
Total assets	$	2,462,185		$	2,618,073
LIABILITIES
Deposits:
Interest-bearing	$	1,640,411		$	1,779,676
Noninterest-bearing		115,092			106,255
Deposits		1,755,503			1,885,931
Federal Home Loan Bank advances		347,775			337,603
Repurchase agreements and other		95,934			125,269
Liabilities of discontinued operations—Butler Wick Corp.		—			2,388
Other liabilities		27,047			31,959
Total liabilities		2,226,259			2,383,150
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 issued and 30,897,825 outstanding		145,568			146,439
Retained earnings		164,936			165,447
Accumulated other comprehensive income		4,654			3,635
Unearned employee stock ownership plan shares		(6,277	)		(7,643	)
Treasury stock, at cost; 2009 and 2008 — 6,906,632 shares		(72,955	)		(72,955	)
Total shareholders’ equity		235,926			234,923
Total liabilities and shareholders’ equity	$	2,462,185		$	2,618,073
Book value per share	$	7.64		$	7.60
Tangible book value per share	$	7.61		$	7.57

UNITED COMMUNITY FINANCIAL CORP.

	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,
	2009			2009			2008			2009			2008
	(Dollars in thousands, except per share data)
SELECTED EARNINGS DATA (UNAUDITED):
Interest income	$	32,755		$	33,391		$	37,748		$	100,574		$	115,578
Interest expense		13,350			14,704			18,951			43,753			60,923
Net interest income		19,405			18,687			18,797			56,821			54,655
Provision for loan losses		5,579			12,311			8,995			26,334			14,709
Noninterest income:
Non-deposit investment income		366			404			419			1,074			1,329
Service fees and other charges		2,012			2,721			2,103			6,245			6,391
Net gains (losses):
Securities		481			1,382			(14	)		1,863			950
Other-than-temporary impairment of securities		(572	)		—			(5,029	)		(722	)		(5,029	)
Loans sold		559			1,788			292			3,487			2,871
Real estate owned and other repossessed assets		(3,964	)		(1,182	)		(1,156	)		(6,301	)		(2,830	)
Other income:		1,237			1,092			1,011			3,421			3,122
Total noninterest income		119			6,205			(2,374	)		9,067			6,804
Noninterest expense:
Salaries and employee benefits		7,558			7,764			8,228			23,345			26,288
Goodwill impairment charge		—			—			33,593			—			33,593
Occupancy		915			899			910			2,798			2,757
Equipment and data processing		1,578			1,660			1,839			4,968			5,108
Amortization of core deposit intangible		54			58			69			172			220
Deposit insurance premiums		1,531			2,940			1,546			6,254			1,816
Professional fees		951			907			885			2,574			2,136
Real estate owned and other repossessed asset expenses		527			804			449			2,282			1,536
Other noninterest expense		2,271			2,170			1,998			6,593			6,187
Total noninterest expense		15,385			17,202			49,517			48,986			79,641
Loss before taxes and discontinued operations		(1,440	)		(4,621	)		(42,089	)		(9,432	)		(32,891	)
Income tax benefit		(573	)		(1,707	)		(3,132	)		(3,972	)		(3	)
Net loss before discontinued operations		(867	)		(2,914	)		(38,957	)		(5,460	)		(32,888	)
Net income from discontinued operations— Butler Wick Corp., net of tax		—			—			403			4,949			1,106
Net loss	$	(867	)	$	(2,914	)	$	(38,554	)	$	(511	)	$	(31,782	)
Basic earnings (loss) from continuing operations	$	(0.03	)	$	(0.10	)	$	(1.32	)	$	(0.19	)	$	(1.11	)
Basic earnings from discontinued operations		—			—			0.01			0.17			0.04
Basic earnings (loss)		(0.03	)		(0.10	)		(1.31	)		(0.02	)		(1.07	)
Diluted earnings (loss) from continuing operations		(0.03	)		(0.10	)		(1.32	)		(0.19	)		(1.11	)
Diluted earnings from discontinued operations		—			—			0.01			0.17			0.04
Diluted earnings (loss)		(0.03	)		(0.10	)		(1.31	)		(0.02	)		(1.07	)

UNITED COMMUNITY FINANCIAL CORP.

	Three Months Ended			Three Months Ended			Three Months Ended
	September 30,			June 30,			September 30,
	2009			2009			2008
	(Dollars in thousands)
AVERAGE DAILY BALANCE OF SELECTED FINANCIAL CONDITION DATA (UNAUDITED):
Net loans (including allowance for loan losses of $38,845, $39,832 and $33,186, respectively)	$	2,001,178		$	2,075,751		$	2,235,986
Loans held for sale		8,329			17,658			7,241
Securities		281,343			250,655			300,972
Other interest-earning assets		57,219			48,160			33,575
Total interest-earning assets		2,338,089			2,392,224			2,577,774
Assets of discontinued operations—Butler Wick Corp.		—			512			22,305
Total assets		2,467,834			2,526,224			2,766,282
Certificates of deposit		1,082,946			1,144,895			1,207,454
Interest-bearing checking, demand and savings accounts		580,297			571,399			610,548
Other interest-bearing liabilities		417,063			407,101			525,801
Total interest-bearing liabilities		2,080,306			2,123,395			2,343,803
Noninterest-bearing deposits		124,933			116,459			111,956
Total noninterest-bearing liabilities		148,179			152,622			139,054
Liabilities of discontinued operations—Butler Wick Corp.		—			4,311			8,232
Total liabilities		2,228,485			2,280,328			2,485,089
Shareholders’ equity		239,349			246,096			281,193
SUPPLEMENTAL LOAN DATA:
Loans originated	$	108,092		$	194,345		$	186,624
Loans purchased		81			1,010			40,959
Loans sold		43,113			128,456			24,785
Loan charge-offs		6,728			10,815			4,843
Recoveries on loans		162			480			135
	As of			As of			As of
	September 30,			June 30,			September 30,
	2009			2009			2008
	(Dollars in thousands)
SUPPLEMENTAL DATA:
Nonaccrual loans	$	107,462		$	96,501		$	99,207
Restructured loans		1,949			2,494			3,199
Total nonperforming loans		113,741			102,002			106,250
Real estate owned and other repossessed assets		27,607			33,077			20,549
Total nonperforming assets		141,348			135,079			126,799
Mortgage loans serviced for others		991,618			992,236			928,234
Securities available for sale, at fair value		296,461			255,845			296,778
Federal Home Loan Bank stock, at cost		26,464			26,464			26,464
PERFORMANCE AND REGULATORY CAPITAL DATA:
Return on average assets		-0.14	%		-0.46	%		-5.57	%
Return on average equity		-1.45	%		-4.74	%		-54.84	%
Net interest margin		3.32	%		3.12	%		2.92	%
Efficiency ratio		65.02	%		69.38	%		70.06	%
Tier 1 leverage ratio		8.68	%		8.50	%		7.43	%
Tier 1 risk-based capital ratio		11.76	%		11.50	%		9.86	%
Total risk-based capital ratio		13.02	%		12.76	%		11.78	%