WASHINGTON — Federal regulators have cracked down on the $2.7 billion-asset United Community Financial Corp. of Youngstown, Ohio, and its Home Savings and Loan Co., saying they must improve their management, lending practices, and capital position.

The thrift holding company announced Wednesday that it entered a cease-and-desist order Aug. 8 with the Office of Thrift Supervision, and that Home Savings agreed to an order with the Federal Deposit Insurance Corp. and Ohio regulators.

United Community said the FDIC now considers Home Savings in "troubled condition" and has ordered it to raise capital. As of June 30 the unit had a Tier 1 capital ratio of 7.77% and a risk-based capital ratio of 11.77%. The FDIC said the Tier 1 ratio must reach 8% by yearend, and the risk-based ratio must reach 12%.

Under the orders, United Community must file a debt reduction plan and receive OTS approval before issuing new debt or paying dividends.

Home Savings is required to submit a written plan to improve its business strategy, profitability, capital position, information technology, audit routines, liquidity, management, and organizational structure.

The orders followed a routine examination in January, and United Community said many of the initiatives have been in place since last year.

Observers said that in the current environment, the orders could make it more difficult for the thrift and its parent to raise capital.

"The problem you run into is when the market sees an order issue of this nature is that it becomes extremely difficult to raise capital. … The implication is that the bank could fail, which significantly increases the risk profile from an investor's perspective," said Joseph Lynyak, a partner at Venable LLP.

Lawyers said the fact that the FDIC had designated Home Savings as troubled was a sign it has a limited window to correct problems.

In its order, the FDIC cited Home Savings for its management policies, loan underwriting, hazardous lending and lax collection practices, and risk management. The agency ordered the thrift to develop a new management plan within 90 days. It prohibited the thrift from lending to any borrower who has been charged off the books or classified as a loss. It also required Home Savings to set up a loan and lease loss methodology within 30 days, and a risk management plan within 90 days.

It ordered Home Savings to implement a plan to reduce nonowner-occupied commercial real estate concentration within 60 days and adopt a plan to reduce delinquent loans within 45 days.

Further, the regulator ordered the thrift to form a loan committee to review and monitor the status of problem loans and renewal of loans. Home Savings' board must establish a plan for loan policy and procedure.

"Sounds like they believe the incumbent management is either the cause of the problems or not dealing with the problems," said Bert Ely, an independent consultant in Alexandria, Va.

But Kip Weissman, a partner at Luse Gorman Pomerenk & Schick PC, said the company looked like it was "far from out of gas."

"It's reflective of the environment we are in," he said. "The regulators are less patient than they were, and we have a tough economic environment."

United Community said it expects earnings to drop in the short term as a result of compliance costs, but it expects that to be offset eventually by lower loan-loss provisions and chargeoff expenses.

Douglas McKay, the chairman and chief executive for United Community and its thrift, tried to assuage concerns about his company's health. "Federal deposit insurance remains intact, and Home Savings maintains a level of capital adequacy that further secures that safety," he said in a press release. "We have been and will continue to implement strategies to raise regulatory capital ratios even further, however, so that by the time this process ends, we will be an even stronger company."

United Community had been struggling with credit issues recently. It reported that its second-quarter net income dropped 30.8% from a year earlier, to $2.7 million. Its nonperforming assets rose 7.2% from the end of last year, to $119.6 million at the end of the quarter.

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