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): February 1, 2007

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 No.)	(IRS Employer I.D. No.)

275 Federal Plaza West, 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 (see General Instruction A.2. below):

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))

TABLE OF CONTENTS

EX-99

Section 2 — Financial Information

Item 2.02. Results of Operation and Financial Condition

     (a) On February 1, 2007, United Community Financial Corp. issued a press release discussing its earnings for the fourth quarter of 2006. 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 February 1, 2007.	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/ Patrick A. Kelly
		Patrick A. Kelly, Chief Financial Officer
Date: February 1, 2007

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EX-99

EXHIBIT 99

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

FOR IMMEDIATE RELEASE

Contact:
Patrick A. Kelly
Chief Financial Officer
(330) 742-0500, Ext. 2592

United Community Financial Corp. Announces Earnings for the Fourth
Quarter and the Year Ended December 31, 2006.

YOUNGSTOWN, Ohio (February 1, 2007) — United Community Financial Corp. (Company) (Nasdaq: UCFC), holding company of The Home Savings and Loan Company (Home Savings) and Butler Wick Corp. (Butler Wick), today reported net income of $5.7 million, or $0.19 per diluted share, for the three months ended December 31, 2006, compared to $5.4 million, or $0.19 per diluted share, for the three months ended December 31, 2005. Return on average equity for the three months ended December 31, 2006 was 8.00% compared to 8.12% for the same period in 2005. Return on average assets was 0.85% for the three months ended December 31, 2006. Return on average assets was 0.87% for the three months ended December 31, 2005.

Net income for the year ended December 31, 2006 was a record high $24.1 million, or $0.82 per diluted share, compared to $23.2 million, or $0.80 per diluted share, for the year ended December 31, 2005. Return on average equity for the year ended December 31, 2006 was 8.72% compared to 8.89% for the year ended December 31, 2005. Return on average assets was 0.92% for the year ended December 31, 2006. Return on average assets was 0.96% for the year ended December 31, 2005.

Chairman and Chief Executive Officer Douglas M. McKay commented, “We are pleased with the results of 2006, which is our most profitable year in the Company’s history despite a challenging interest rate environment and uncertainty in portions of our market area. As we begin 2007, we will continue to build on our most effective strategic initiatives for increasing both net interest income and non-interest income, and continuing to manage expenses while maintaining our focus on profitability, growth and sound capital management with the ultimate goal of increasing shareholder value.”

Fourth Quarter Results

Net interest income for the three months ended December 31, 2006 was $19.3 million compared to $20.6 million for the three months ended December 31, 2005. An increase of $5.2 million in interest earned on loans was exceeded by an increase in interest paid on deposits of $5.4 million,

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an increase in interest paid of $780,000 on Federal Home Loan Bank advances and $527,000 in interest paid on repurchase agreements and other borrowings.

Net interest margin for the three months ended December 31, 2006 was 3.04% compared to 3.48% for the three months ended December 31, 2005. An increase in non-accrual loans along with the migration of checking and savings balances to higher cost money market accounts and certificates of deposit led to this decline. The Company will continue to manage the loan portfolio composition through product emphasis and pricing, along with the pricing of deposits in an effort to minimize future narrowing of the margin.

The Company recorded a provision for loan losses of $1.3 million for both the three months ended December 31, 2006 and 2005. In determining the level of loan loss provision, the Company continues to evaluate the entire loan portfolio, including past loan loss experience, loan portfolio growth, information about specific borrower situations, estimated collateral values, general economic conditions and other factors. Net loan chargeoffs for the three months ended December 31, 2006 were $948,000 compared to $836,000 for the three months ended December 31, 2005.

Non-interest income was $10.7 million for the fourth quarter of 2006, compared to $9.3 million recorded for the fourth quarter of 2005. This change is primarily a result of many factors, including higher income from brokerage commissions, underwriting and investment banking income and gains on loans sold.

Non-interest expense decreased $417,000 for the quarter ended December 31, 2006, compared to the quarter ended December 31, 2005. The change is a result of a decrease in salaries and employee benefits of $286,000 and a decrease in other expenses of $326,000. These decreases were offset partially by increases in occupancy expenses, equipment and data processing expenses and franchise tax.

Year-to-date Results

Net interest income for the year ended December 31, 2006 increased $2.2 million, or 2.9% over the same period in 2005. The change is due primarily to increases of $27.3 million in interest earned on loans and $2.2 million in interest earned on available for sale securities, which were offset by increases in interest expense of $20.7 million on deposits, $3.9 million on Federal Home Loan Bank advances and $2.5 million on repurchase agreements and other borrowings. An increase in the average outstanding balance of net loans and changing interest rates equally accounted for the change in net interest income earned on loans. Rising interest rates and a migration to higher cost accounts accounted for $18.8 million of the change in interest bearing liabilities. The remaining change is a result of an increase in the average balance of those liabilities of $8.4 million.

The Company’s net interest margin for the year ended December 31, 2006 was 3.26%, which decreased by 21 basis points compared to 2005. This change was a result of the continued flat yield curve, the continued migration of checking and savings accounts to higher costing money market accounts and certificates of deposit and the increase in non-accrual loans. The Company

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will continue to manage the composition of its assets and liabilities to help mitigate the effects of a flat yield curve.

The provision for loan losses was $4.3 million, an increase of $1.3 million, for the twelve months ended December 31, 2006, compared to the twelve months ended December 31, 2005. Management estimates the provision required based on an analysis using past loan loss experience, loan portfolio growth, information about specific borrower situations, estimated collateral values, general economic conditions and other factors. Based on this analysis, management allocated $2.1 million to the consumer loan portfolio and $1.1 million to the construction loan portfolio and reduced reserves by $1.0 million in the real estate portfolio and $790,000 in the commercial portfolio. Net loan chargeoffs for the twelve months ended December 31, 2006 were $3.1 million compared to $3.2 million for the twelve months ended December 31, 2005.

Non-interest income increased $2.0 million for the year ended December 31, 2006, compared to the year ended December 31, 2005. The increase is due to higher brokerage commissions received in 2006, higher service fee income earned by Home Savings and Butler Wick and higher gains recognized on the sale of loans. Partially offsetting the increase was a decrease in underwriting and investment banking fees and a decrease in gains recognized on the sale of securities.

Non-interest expense increased $937,000 during the period ended December 31, 2006, compared to the same period in 2005. This change is a result of employee compensation and benefits increasing $971,000, which is attributable to higher employee incentives and higher employment taxes. Offsetting the aforementioned increase was a decrease in equipment and data processing expenses, the amortization of the core deposit intangible and other expenses.

During the period ended December 31, 2006, the Company recorded a $13.0 million provision for income taxes. This is an increase of $1.1 million over the same period in 2005 as a result of higher pre-tax income earned in 2006 compared to 2005. The effective tax rate at December 31, 2006 was 35.0% compared to 33.9% at December 31, 2005.

Financial Condition

Total assets increased $174.7 million to $2.7 billion at December 31, 2006, from $2.5 billion at December 31, 2005. This change was due primarily to increases in net loans of $156.1 million and securities of $35.6 million. These increases were offset partially by a decrease in margin accounts of $15.7 million.

During the year ended December 31 2006, growth of $156.1 million occurred in the loan portfolio, net of allowance for loan losses. Real estate loans increased $161.5 million, consumer loans increased $22.1 million and commercial loans increased $16.0 million. These increases were offset by a decrease in construction loans of $42.2 million. The allowance for loan losses was $17.0 million at December 31, 2006, compared to $15.7 million at December 31, 2005. Management estimates the allowance required based on an analysis using past loan loss experience, the nature and volume of the portfolio, information about specific borrower

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situations, estimated collateral values, general economic conditions in the market area and other factors. The allowance for loan losses as a percentage of total loans was 0.75% at December 31, 2006 and 0.74% at December 31, 2005.

Non-performing loans consist of loans past due 90 days and on a non-accrual status, past due 90 days and still accruing, past due less than 90 days and on a non-accrual status and restructured loans. Non-performing loans increased $29.2 million from $24.3 million at December 31, 2005 to $53.4 million at December 31, 2006. The change occurred primarily in the construction loan and non-residential real estate segments of the portfolio. The Company believes the impact on the allowance for loan losses will remain minimal because the collateral value of the real estate remains above the current loan balances.

The growth in the loan portfolio was funded by an increase in liabilities of $158.1 million. During 2006, the Company experienced increases in money market accounts and certificates of deposit aggregating $205.2 million and an increase in repurchase agreements and other borrowings of $23.3 million, which were partially offset by a decrease in savings deposits of $64.1 million and in advances from the Federal Home Loan Bank of $10.3 million.

Shareholders’ equity increased $16.6 million, or 6.3%, during the year ending December 31, 2006. The increase primarily was attributable to increased earnings for the period offset by dividend payments made to shareholders. Book value per share and tangible book value per share as of December 31, 2006, were $9.08 and $7.95, respectively. For the period ending December 31, 2005, book value per share and tangible book value per share were $8.52 and $7.37, respectively.

Home Savings and Butler Wick are wholly owned subsidiaries of the Company. Home Savings operates 37 full service banking offices and 6 loan production offices located throughout Ohio and Western Pennsylvania. Butler Wick has 21 offices providing full service retail brokerage, capital markets and trust services throughout Ohio and Western Pennsylvania. Additional information on the Company, Home Savings and Butler Wick may be found on the Company’s web site: www.ucfconline.com.

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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 Home Savings’ market area, demand for investments in Butler Wick’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 publicly release 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.

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UNITED COMMUNITY FINANCIAL CORP.

	As of			As of
	December 31, 2006			December 31, 2005
	(Dollars in thousands, except per share data)
SELECTED FINANCIAL CONDITION DATA (UNAUDITED):
ASSETS
Cash and cash equivalents	$	35,637		$	37,545
Securities		248,317			212,682
Federal Home Loan Bank stock, at cost		25,432			24,006
Loans held for sale		26,960			29,109
Loans:
Real estate		1,393,814			1,232,318
Construction		414,141			456,346
Consumer		345,607			323,515
Commercial		116,952			100,977
Allowance for loan losses		(16,955	)		(15,723	)
Net loans		2,253,559			2,097,433
Real estate owned and other repossessed assets		3,242			2,514
Goodwill		33,593			33,593
Core deposit intangible		1,534			2,118
Cash surrender value of life insurance		23,137			22,260
Other assets		52,134			67,590
Total assets	$	2,703,545		$	2,528,850
LIABILITIES
Deposits:
Interest-bearing	$	1,720,426		$	1,584,926
Noninterest-bearing		102,509			96,918
Federal Home Loan Bank advances		465,253			475,549
Repurchase agreements and other		98,511			75,214
Other liabilities		35,513			31,508
Total liabilities		2,422,212			2,264,115
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		145,834			143,896
Retained earnings		220,527			207,120
Accumulated other comprehensive income		(1,296	)		(1,845	)
Unearned compensation		(11,287	)		(13,108	)
Treasury stock, at cost; 6,827,143 and 6,742,345 shares, respectively		(72,445	)		(71,328	)
Total shareholders’ equity		281,333			264,735
Total liabilities and shareholders’ equity	$	2,703,545		$	2,528,850
Book value per share	$	9.08		$	8.52
Tangible book value per share	$	7.95		$	7.37

UNITED COMMUNITY FINANCIAL CORP.

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2006			2005			2006			2005
	(Dollars in thousands, except per share data)
SELECTED EARNINGS DATA (UNAUDITED):
Interest income	$	42,692		$	37,330		$	165,430		$	136,052
Interest expense		23,389			16,723			84,428			57,296
Net interest income		19,303			20,607			81,002			78,756
Provision for loan losses		1,322			1,275			4,347			3,028
Noninterest income:
Brokerage commissions		5,193			4,510			19,882			18,508
Service fees and other charges		2,979			3,216			12,546			12,471
Underwriting and investment banking		594			115			814			876
Net gains (losses):
Securities		(14	)		80			56			463
Loans sold		1,044			574			2,943			2,250
Other		(45	)		(162	)		(63	)		(22	)
Other income:		982			990			4,096			3,714
Total noninterest income		10,733			9,323			40,274			38,260
Noninterest expense:
Salaries and employee benefits		13,140			13,426			52,272			51,301
Occupancy		1,120			1,087			4,450			4,115
Equipment and data processing		2,298			2,207			8,998			9,067
Amortization of core deposit intangible		205			255			584			770
Other noninterest expense		3,208			3,413			13,514			13,628
Total noninterest expense		19,971			20,388			79,818			78,881
Income before taxes		8,743			8,267			37,111			35,107
Income taxes		3,074			2,840			13,000			11,910
Net income	$	5,669		$	5,427		$	24,111		$	23,197
Basic earnings per share	$	0.19		$	0.19		$	0.83		$	0.81
Diluted earnings per share	$	0.19		$	0.19		$	0.82		$	0.80
Dividends paid per share	$	0.09		$	0.0825		$	0.36		$	0.330

UNITED COMMUNITY FINANCIAL CORP.

	Three Months Ended		Three Months Ended		Three Months Ended
	December 31,		September 30,		June 30,
	2006		2006		2006
	(Dollars and share data in thousands)
AVERAGE DAILY BALANCE OF SELECTED FINANCIAL CONDITION DATA (UNAUDITED)
Net loans (including allowance for loan losses of $16,955, $16,582 and $15,970, respectively)	$	2,247,958	$	2,214,216	$	2,175,424
Loans held for sale		28,649		39,855		42,931
Securities		227,943		215,377		223,903
Margin accounts		16		13,766		16,366
Other interest-earning assets		32,224		28,449		28,946
Total interest-earning assets		2,536,790		2,511,663		2,487,570
Total assets		2,677,818		2,651,565		2,623,217
Certificates of deposit		1,140,926		1,119,756		1,099,823
Interest-bearing checking, demand and savings accounts		559,322		558,389		553,644
Other interest-bearing liabilities		557,785		562,849		559,287
Total interest-bearing liabilities		2,258,033		2,240,994		2,212,754
Noninterest-bearing deposits		97,116		96,905		96,889
Total noninterest-bearing liabilities		136,214		133,187		136,572
Total liabilities		2,394,247		2,374,181		2,349,326
Shareholders’ equity		283,571		277,384		273,891
Common shares outstanding for basic EPS calculation		29,096		28,999		29,029
Common shares outstanding for diluted EPS calculation		29,493		29,381		29,388
SUPPLEMENTAL LOAN DATA:
Loans originated	$	270,843	$	247,363	$	285,187
Loans purchased		54,384		65,151		66,601
Loans sold		57,469		71,311		54,379
Loan chargeoffs		1,046		920		902
Recoveries on loans		98		56		79

	As of			As of			As of
	December 31,			September 30,			June 30,
	2006			2006			2006
	(Dollars in thousands)
SUPPLEMENTAL DATA:
Nonaccrual loans	$	52,646		$	35,617		$	27,161
Restructured loans		1,385			1,026			1,483
Real estate owned and other repossessed assets		3,242			3,679			2,927
Total nonperforming assets		58,069			41,552			32,273
Mortgage loans serviced for others		861,543			879,745			854,347
Securities trading, at fair value		10,786			4,514			7,031
Securities available for sale, at fair value		237,531			209,794			214,619
Federal Home Loan Bank stock, at cost		25,432			25,053			24,696
Number of full time equivalent employees		807			816			830
REGULATORY CAPITAL DATA
Tier 1 leverage ratio		7.68	%		8.67	%		8.49	%
Tier 1 risk-based capital ratio		9.49	%		10.64	%		10.34	%
Total risk-based capital ratio		11.70	%		11.43	%		11.10	%