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 2, 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 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)

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 2, 2009, United Community Financial Corp. issued a press release announcing its results of operations for the fourth quarter of 2008. 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	Included herewith.
	dated February 2, 2009.

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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: February 3, 2009

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EX-99

EXHIBIT 99

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

FOR IMMEDIATE RELEASE

Media Contact:	Investor Contact:
Susan 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. Reports Results for the
Fourth Quarter of 2008

YOUNGSTOWN, Ohio (February 2, 2009) – 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 a loss from continuing operations of $4.3 million, or $(0.15) per diluted share, for the three months ended December 31, 2008. This compared to a loss from continuing operations of $7.7 million, or $(0.26) per diluted share, for the three months ended December 31, 2007, and a loss from continuing operations of $39.0 million, or $(1.32) per diluted share, for the three months ended September 30, 2008.

The Company also reported a loss from continuing operations for the year ended December 31, 2008, of $37.2 million, or $(1.26) per diluted share, compared to income from continuing operations of $1.7 million, or $0.06 per diluted share, for the year ended December 31, 2007.

The loss in the fourth quarter of 2008 was primarily the result of provisions for loan losses, as Home Savings set aside $10.6 million against probable losses. This provision expense more than offset pretax earnings from other sources of continuing operations of $3.0 million, resulting in the loss. Despite these results, Home Savings ended the quarter with capital ratios of 8.20% on a Tier 1 leverage basis and 12.06% on a total risk based capital basis, both in excess of regulatory capital requirements.

On December 31, 2008, the Company completed the sale of Butler Wick & Co., Inc., a wholly-owned subsidiary of Butler Wick, to Stifel Financial Corp. for $12.0 million. The Company used $9.8 million of these proceeds to reduce outstanding debt. On January 7, 2009, the Company announced the sale of Butler Wick Trust, a wholly-owned subsidiary of Butler Wick, to Farmers National Banc Corp. As a result, Butler Wick has been reported as a discontinued operation and consolidated financial statement information for all periods presented has been reclassified to reflect this presentation.

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Chairman and Chief Executive Officer Douglas M. McKay commented “We accomplished three important strategic objectives in the fourth quarter.  We negotiated favorable terms on the Butler Wick sale, significantly reduced outstanding debt and successfully met the increased capital requirements set by bank regulators.  Nevertheless, economic conditions facing banks like ours continue to be challenging, including declining real estate collateral valuations and difficulties in the housing sector in general.  As a result, we have increased our provision for loan losses in order to more ably weather the current economic storm.”

Net Interest Income and Margin

Net interest income was $18.6 million for the fourth quarter of 2008, compared to $17.9 million for the fourth quarter of 2007 and $18.8 million for the third quarter of 2008. The lower cost of borrowings and other funding in the declining interest rate environment of the fourth quarter of 2008 more than offset a decline in income earned on loans and securities compared to the fourth quarter of 2007.

Net interest income for the year ended December 31, 2008, was $73.3 million compared to $72.7 million for the year ended December 31, 2007, an increase of $550,000. A decline in interest income of $16.6 million, resulting in part from the sale of $74.0 million of one-to four-family residential mortgages at the end of February 2008, which was substantially offset by a $17.2 million decrease in interest expense on deposits, advances from the Federal Home Loan Bank, repurchase agreements and other borrowings.

Loans and Deposits

Net loan balances at December 31, 2008, decreased $33.5 million compared to the prior year end. The change is largely attributable to a decline in Home Savings construction loan portfolio of $91.2 million, as Home Savings reduced its origination efforts in this portfolio and shifted its focus to permanent real estate lending.

Total deposits at December 31, 2008, were $1.9 billion, an increase of $10.7 million from December 31, 2007. Growth in certificates of deposit and savings accounts during the year was offset partially by a decline in interest bearing checking and money market accounts. Growth in certificates of deposit was due largely to a one-time increase in brokered deposits during the year. To supplement short-term funding, Home Savings obtained brokered certificates of deposit in 2007. Such deposits have maturities ranging from six months to two years. Home Savings cannot renew or extend existing brokered deposits, or obtain new brokered deposits, without regulatory consent. Home Savings does not anticipate seeking such consent to replace these brokered deposits with additional brokered deposits as they mature.

Asset Quality

The provision for loan losses was $10.6 million in the fourth quarter of 2008, compared to $9.0 million in the third quarter of 2008 and $18.3 million in the fourth quarter of 2007. On a year-to-date basis, the provision for loan losses was $25.3 million in 2008 versus $28.8 million in the

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prior year. The provision remains high compared to experience as a result of credit quality issues associated primarily with the construction loan portfolio.

Net loan charge-offs were $8.0 million in the fourth quarter of 2008, compared to $4.8 million in the preceding quarter and $10.1 million in the fourth quarter a year ago. Net charge-offs for the year were $21.4 million compared to $13.7 million in the prior year. The continued high level of net charge-offs is largely a result of the performance of the construction loan portfolio. Foreclosures accelerated in this portfolio primarily due to the economic downturn within the housing sector. The level of net charge-offs also was negatively impacted by partial charge-offs of select one-to four-family mortgage loans during the fourth quarter, as Home Savings recognized losses on these loans to appropriately reflect the value of the collateral.

The allowance for loan losses was $36.0 million or 1.61% of portfolio loans as of December 31, 2008, compared to $32.0 million or 1.41% of portfolio loans as of December 31, 2007, an increase of 12.4%. Nonperforming assets were $135.9 million at December 31, 2008, compared to $111.6 million at December 31, 2007. Total nonperforming assets have increased primarily as a result of the increase in the level of foreclosures, resulting in an increase in Home Savings’ portfolio of other real estate owned. Total nonperforming loans have also increased, but to a much lesser extent. Total nonperforming loans at December 31, 2008, were $106.7 million compared to $101.1 million at December 31, 2007. The increase in nonperforming loans was comprised of increases of $6.8 million in nonperforming real estate loans and $1.1 million in nonperforming consumer loans, partially offset by a decrease in nonperforming construction loans of $1.5 million.

Noninterest Income

In the fourth quarter of 2008, the Company recognized negative noninterest income of $1.0 million, compared to a negative $2.4 million in the preceding quarter and positive income of $2.9 million in the fourth quarter of 2007. The net loss in noninterest income recognized in the fourth quarter is attributable largely to a $2.2 million decline in value of Home Savings’ mortgage servicing rights during the period and a $293,000 loss recognized on the value of loans held for sale.

Losses on the disposition and valuation of real estate owned and other repossessed assets aggregated $1.9 million in the fourth quarter of 2008, compared to $1.2 million in the previous quarter and $515,000 in the fourth quarter of 2007. These losses have increased due to a decline in the value of collateral obtained in the settlement of loans during the period.

Home Savings recognized additional impairment charges to its Fannie Mae auction rate pass through trust security in the fourth quarter of 2008. Home Savings recognized an additional impairment charge of $223,000 in the fourth quarter of 2008. In the third quarter of 2008, Home Savings recognized an impairment charge of $4.7 million against this security. In addition, a write-down of the Company’s equity investment in the common shares of three financial institutions of $835,000 was recognized in the fourth quarter of 2008. These shares have traded below the Company’s cost basis for an extended period and a forecasted recovery was unable to be determined.  

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Noninterest income was $5.8 million for the twelve months ended December 31, 2008, compared to $14.3 million for the twelve months ended December 31, 2007. The $8.5 million decrease was attributable to the write-down of mortgage servicing rights, valuation of the loans held for sale portfolio and impairment charges recognized on investment securities in 2008, compared to 2007.

Noninterest Expense

Noninterest expense was $14.5 million in the fourth quarter of 2008, compared to $49.5 million in the third quarter of 2008, and $14.3 million for the fourth quarter of 2007. The change from the prior quarter is due to the $33.6 million goodwill impairment charge recognized in the third quarter, offset by increased expenses related to maintaining other real estate owned prior to its sale. Expenses to maintain other real estate owned remained high throughout 2008 due to the increase in the number of properties acquired by the Company in resolving nonperforming loans.

Noninterest expense was $94.2 million for all of 2008, compared to $55.6 million for all of 2007. As described above, the increase is largely attributable to the goodwill impairment charge recognized in the third quarter of 2008, as well as increased expenses related to maintaining other real estate owned prior to its sale and a rise in FDIC insurance expense.

Financial Condition

Total assets were $2.6 billion at December 31, 2008, a decrease of $153.6 million compared to December 31, 2007. During the year, loans decreased $33.5 million as a result of efforts to effectively increase capital ratios and decrease selected loan concentration ratios. Furthermore, loans held for sale decreased $71.2 million as a result of a planned sale of one-to four-family mortgage loans earlier in the year. The Company recorded a goodwill impairment charge of $33.6 million during the year, eliminating all of its goodwill. The elimination of goodwill as a result of the impairment charge had no impact on the Company’s tangible book value, regulatory capital ratios or cash.

Total liabilities decreased by $118.8 million during the year. Federal Home Loan Bank advances decreased by $99.7 million in keeping with reductions in the securities and loan portfolios throughout the year. Over the course of 2008, the Company also paid down approximately $29.4 million on a line of credit with JP Morgan Chase Bank, N.A. under which $36.3 million had been outstanding. In January 2009, the Company paid down an additional $1.8 million on this line of credit, further reducing the balance to $5.0 million.

Shareholders’ equity decreased $34.8 million during the year ended December 31, 2008. The decrease was attributable primarily to the net loss recognized during the year. Book value per share and tangible book value per share as of December 31, 2008, were $7.60 and $7.57, respectively. At December 31, 2007, book value per share and tangible book value per share were $8.73 and $7.60, respectively.

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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.

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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 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.

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.

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UNITED COMMUNITY FINANCIAL CORP.

	As of			As of
	December 31, 2008			December 31, 2007
	(Dollars in thousands, except per share data)
SELECTED FINANCIAL CONDITION DATA (UNAUDITED):
ASSETS
Cash and cash equivalents	$	43,417		$	33,502
Securities		215,731			240,347
Federal Home Loan Bank stock, at cost		26,464			25,432
Loans held for sale		16,032			87,236
Loans:
Real estate		1,497,940			1,433,995
Construction		291,152			382,344
Consumer		348,834			349,447
Commercial		101,489			103,208
Allowance for loan losses		(35,962	)		(32,006	)
Net loans		2,203,453			2,236,988
Real estate owned and other repossessed assets		29,258			10,510
Goodwill		—			33,593
Core deposit intangible		884			1,169
Cash surrender value of life insurance		25,090			24,053
Assets of discontinued operations—Butler Wick Corp.		5,562			20,314
Other assets		40,533			46,895
Total assets	$	2,606,424		$	2,760,039
LIABILITIES
Deposits:
Interest-bearing	$	1,779,676		$	1,768,757
Noninterest-bearing		106,255			106,449
Deposits		1,885,931			1,875,206
Federal Home Loan Bank advances		337,603			437,253
Repurchase agreements and other		125,269			149,533
Liabilities of discontinued operations—Butler Wick Corp.		2,388			4,371
Other liabilities		20,310			23,962
Total liabilities		2,371,501			2,490,325
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 and 30,051,773 outstanding		146,439			146,683
Retained earnings		165,447			213,727
Accumulated other comprehensive income		3,635			661
Unearned employee stock ownership plan shares		(7,643	)		(9,465	)
Treasury stock, at cost; 2008—6,906,632 shares and 2007— 7,752,684 shares		(72,955	)		(81,892	)
Total shareholders’ equity		234,923			269,714
Total liabilities and shareholders’ equity	$	2,606,424		$	2,760,039
Book value per share	$	7.60		$	8.73
Tangible book value per share	$	7.57		$	7.60

UNITED COMMUNITY FINANCIAL CORP.

	Three Months Ended									Twelve Months Ended
	December 31,			September 30,			December 31,			December 31,
	2008			2008			2007			2008			2007
	(Dollars in thousands, except per share data)
SELECTED EARNINGS DATA (UNAUDITED):
Interest income	$	36,601		$	37,748		$	42,445		$	152,178		$	168,815
Interest expense		17,993			18,951			24,578			78,916			96,103
Net interest income		18,608			18,797			17,867			73,262			72,712
Provision for loan losses		10,620			8,995			18,318			25,329			28,750
Noninterest income:
Non-deposit investment income		296			419			370			1,624			1,429
Service fees and other charges		(214	)		2,103			1,538			6,177			7,707
Net gains (losses):
Securities		948			(15	)		(35	)		1,898			10
Other-than-temporary impairment of securities		(1,058	)		(5,029	)		—			(6,087	)		—
Loans sold		(62	)		292			545			2,809			2,624
Real estate owned and other repossessed assets		(1,933	)		(1,164	)		(515	)		(4,770	)		(1,061	)
Other income:		1,004			1,019			963			4,133			3,592
Total noninterest income		(1,019	)		(2,375	)		2,866			5,784			14,301
Noninterest expense:
Salaries and employee benefits		6,281			8,228			7,714			32,570			33,128
Goodwill impairment charge		—			33,593			—			33,593			—
Occupancy		975			909			901			3,731			3,443
Equipment and data processing		1,707			1,839			1,598			6,814			6,501
Amortization of core deposit intangible		65			69			84			285			365
Other noninterest expense		5,517			4,878			4,030			17,193			12,201
Total noninterest expense		14,545			49,516			14,327			94,186			55,638
Income (loss) before taxes and discontinued operations		(7,576	)		(42,089	)		(11,912	)		(40,469	)		2,625
Income tax expense (benefit)		(3,236	)		(3,132	)		(4,231	)		(3,240	)		911
Net income (loss) before discontinued operations		(4,340	)		(38,957	)		(7,681	)		(37,229	)		1,714
Net income from discontinued operations— Butler Wick Corp., net of tax		843			403			631			1,950			2,419
Net income (loss)	$	(3,497	)	$	(38,554	)	$	(7,050	)	$	(35,279	)	$	4,133
Basic earnings (loss) from continuing operations	$	(0.15	)	$	(1.32	)	$	(0.26	)	$	(1.26	)	$	0.06
Basic earnings from discontinued operations		0.03			0.01			0.02			0.06			0.08
Basic earnings (loss)		(0.12	)		(1.31	)		(0.24	)		(1.20	)		0.14
Diluted earnings (loss) from continuing operations		(0.15	)		(1.32	)		(0.26	)		(1.26	)		0.06
Diluted earnings from discontinued operations		0.03			0.01			0.02			0.06			0.08
Diluted earnings (loss)		(0.12	)		(1.31	)		(0.24	)		(1.20	)		0.14

UNITED COMMUNITY FINANCIAL CORP.

	Three Months Ended			Three Months Ended			Three Months Ended
	December 31,			September 30,			December 31,
	2008			2008			2007
	(Dollars and share data in thousands)
AVERAGE DAILY BALANCE OF SELECTED FINANCIAL           CONDITION DATA (UNAUDITED):
Net loans (including allowance for loan losses of $35,962, $33,186 and $32,006, respectively)	$	2,228,768		$	2,235,986		$	2,308,157
Loans held for sale		6,764			7,241			16,327
Securities		233,233			300,972			235,702
Other interest-earning assets		44,123			33,575			28,657
Total interest-earning assets		2,512,888			2,577,774			2,588,843
Assets of discontinued operations—Butler Wick Corp.		26,948			22,305			23,630
Total assets		2,666,295			2,766,282			2,759,181
Certificates of deposit		1,233,233			1,207,454			1,142,379
Interest-bearing checking, demand and savings accounts		553,287			610,548			586,075
Other interest-bearing liabilities		483,826			525,801			598,339
Total interest-bearing liabilities		2,270,346			2,343,803			2,326,793
Noninterest-bearing deposits		109,162			111,956			105,458
Total noninterest-bearing liabilities		135,435			133,054			138,178
Liabilities of discontinued operations—Butler Wick Corp.		14,304			8,232			5,527
Total liabilities		2,420,085			2,485,089			2,470,498
Shareholders’ equity		246,210			281,193			288,683
SUPPLEMENTAL LOAN DATA:
Loans originated	$	76,002		$	186,624		$	247,607
Loans purchased		27,571			40,959			59,777
Loans sold		24,362			24,785			49,002
Loan charge-offs		7,967			4,843			10,243
Recoveries on loans		123			135			124
	As of			As of			As of
	December 31,			September 30,			December 31,
	2008			2008			2007
	(Dollars in thousands)
SUPPLEMENTAL DATA:
Nonaccrual loans	$	98,253		$	99,207		$	97,499
Restructured loans		1,797			3,199			2,342
Total nonperforming loans		106,681			106,250			101,056
Real estate owned and other repossessed assets		29,258			20,549			10,510
Total nonperforming assets		135,939			129,799			111,565
Mortgage loans serviced for others		921,000			928,234			876,147
Securities trading, at fair value		—			—			312
Securities available for sale, at fair value		215,731			296,779			240,035
Federal Home Loan Bank stock, at cost		26,464			26,464			25,432
REGULATORY CAPITAL DATA:
Tier 1 leverage ratio		8.20	%		7.43	%		7.48	%
Tier 1 risk-based capital ratio		10.80	%		9.86	%		9.26	%
Total risk-based capital ratio		12.06	%		11.78	%		11.88	%