UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

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

For the transition period from                     to                    

Commission File Number 0-24399

UNITED COMMUNITY FINANCIAL CORP.

(330) 742-0500

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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

UNITED COMMUNITY FINANCIAL CORP.

See Notes to Consolidated Financial Statements.

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UNITED COMMUNITY FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

See Notes to Consolidated Financial Statements.

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UNITED COMMUNITY FINANCIAL CORP.

See Notes to Consolidated Financial Statements.

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UNITED COMMUNITY FINANCIAL CORP.

See Notes to Consolidated Financial Statements.

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UNITED COMMUNITY FINANCIAL CORP.

     1. BASIS OF PRESENTATION

United Community Financial Corp. (United Community) was incorporated under Ohio law in February 1998 by The Home Savings & 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 and loan association (Conversion). Upon consummation of the Conversion on July 8, 1998, United Community became the unitary savings and loan holding company for Home Savings. During 2003, Home Savings changed its charter to a state savings bank charter. Home Savings has 36 full service offices and five loan production offices throughout northern and central Ohio and western Pennsylvania. Butler Wick Corp. (Butler Wick) became a wholly owned subsidiary of United Community on August 12, 1999. Butler Wick is the parent company for two wholly owned subsidiaries: Butler Wick & Co., Inc. and Butler Wick Trust Company. Butler Wick has 15 office locations providing a full range of investment alternatives for individuals, companies and not-for-profit organizations throughout Ohio and western Pennsylvania.

The accompanying consolidated financial statements of United Community have been prepared in accordance with instructions 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 nine months ended September 30, 2004, are not necessarily indicative of the results to be expected for the year ending December 31, 2004. 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, 2003, contained in United Community’s Form 10-K for the year ended December 31, 2003.

     2. STOCK COMPENSATION

Employee compensation expense under stock option plans is reported if options are granted below market price at grant date. Pro forma disclosures of net income and earnings per share are shown using the fair value method of FASB Statement No. 123 to measure expense for options granted after 1994, using an option pricing model to estimate fair value.

Employee compensation expense under stock options is reported using the intrinsic value method. No stock-based compensation cost is reflected in net income, as all options granted had an exercise price equal to or greater than the market price of the underlying common stock at date of grant. The following table illustrates the effect on net income and earnings per share if expense was measured using the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation.

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The pro forma effects are computed using option pricing models, employing the following weighted-average assumptions as of grant date:

     3. IMPAIRED LOANS

     Impaired loans consist of the following:

     4. MORTGAGE BANKING ACTIVITIES

Mortgage loans serviced for others, which are not reported as assets, totaled $646.7 million at September 30, 2004 and $633.2 million at December 31, 2003.

Activity for capitalized mortgage servicing rights, included in other assets, was as follows:

Activity in the valuation allowance for mortgage servicing rights was as follows:

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     5. OTHER POSTRETIREMENT BENEFIT PLANS

Home Savings sponsors a defined benefit health care plan that was curtailed in 2000 to provide postretirement medical benefits for employees who had worked 20 years and attained a minimum age of 60 by September 1, 2000, while in service with Home Savings. The plan is contributory and contains minor cost-sharing features such as deductibles and coinsurance. In addition, postretirement life insurance coverage is provided for employees who were participants prior to December 10, 1976. The life insurance plan is non-contributory. Home Savings’ policy is to pay premiums monthly, with no pre-funding.

Components of net periodic benefit cost/(gain) are as follows:

     6. LONG-TERM INCENTIVE PLAN

On July 12, 1999, shareholders approved the United Community Financial Corp. Long-Term Incentive Plan (Incentive Plan). The purpose of the Incentive 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 and Butler Wick, by facilitating their purchase of an ownership interest in United Community.

The Incentive Plan provides for the grant of options, which may qualify as either incentive or nonqualified stock options. The Incentive Plan provides that option prices will not be less than the fair market value of the shares at the grant date. The maximum number of common shares that may be issued under the Incentive Plan is 3,471,562, all of which have been granted. All of the options awarded become exercisable on the date of grant. The option period expires 10 years from the date of grant. A summary of activity in the Incentive Plan is as follows:

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     7. SEGMENT INFORMATION

United Community has two principal segments, banking and investment services. Banking provides consumer and corporate banking services. Investment services provide investment brokerage and a network of integrated financial services. Condensed statements of income by operating segment for the three and nine months ended September 30, 2004 and 2003 are as follows:

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     8. EARNINGS PER SHARE

Earnings per share is computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of shares determined for the basic computation plus the dilutive effect of potential common shares that could be issued under outstanding stock options and restricted stock awards. There were stock options for 754,403 shares that were antidilutive for the quarter ended September 30, 2004. There were no stock options that were antidilutive for the quarter ended September 30, 2003. Antidilutive options are not considered in computing earnings per share.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

UNITED COMMUNITY FINANCIAL CORP.

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Forward Looking Statements

Certain statements contained in this report that are not historical facts are forward looking statements that are subject to certain risks and uncertainties. When used in this report, the terms “anticipates,” “plans,” “expects,” “believes,” and similar expressions as they relate to United Community or its management are intended to identify such forward looking statements. United Community’s actual results, performance or achievements materially may differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, and rapidly changing technology affecting financial services.

Comparison of Financial Condition at September 30, 2004 and December 31, 2003

Total assets increased by $150.4 million, or 7.3%, to $2.2 billion at September 30, 2004, compared to December 31, 2003. The net change in assets was a result of increases of $195.9 million in net loans, $21.1 million in loans held for sale, $13.2 million in trading securities and $2.9 million in other assets. These increases were partially offset by decreases of $46.0 million in cash and cash equivalents and $37.7 million in available for sale securities. Total liabilities increased $185.3 million primarily as a result of a $69.1 million increase in interest-bearing deposits, $12.1 million increase in non-interest bearing deposits, $106.2 million increase in short-term borrowed funds and an increase of $7.3 million in long-term borrowed funds.

Cash and deposits with banks decreased $2.7 million, or 7.5%, to $33.6 million at September 30, 2004, compared to $36.3 million at December 31, 2003. Federal funds sold and other overnight funds decreased $43.2 million, or 96.5%, to $1.6 million at September 30, 2004, from $44.8 million at December 31, 2003. The decrease is primarily as a result of the completion of the self-tender offer in March 2004 in which United Community purchased 3,667,227 common shares at $12.50 per share.

Trading securities increased $13.2 million or 84.8% to $28.8 million at September 30, 2004, from $15.6 million at December 31, 2003. The primary reason for the change is an increase in trading securities held in Butler Wick’s portfolio of $15.5 million, most of which relate to repurchase agreements existing at September 30, 2004. Partially offsetting this increase was a decrease in retention plan assets of $2.2 million as a result of payouts to participants.

Available for sale securities decreased $37.7 million or 16.6% from December 31, 2003, to September 30, 2004, as a result of sales aggregating $51.7 million coupled with paydowns and maturities of $40.7 million. Purchases of $56.2 million in securities partially offset the decrease.

Net loans increased $195.9 million, or 12.4%, from December 31, 2003, to September 30, 2004. Home Savings had increases of $73.3 million in real estate loans, $48.7 million in construction loans, $57.1 million in consumer loans and $25.9 million in commercial loans. Loans held for sale also increased $21.1 million, or 56.0%, to $58.8 million at September 30, 2004, compared to $37.7 million at December 31, 2003. In the third quarter of 2004, Home Savings transferred $39.3 million in fixed rate, fixed term second mortgage loans originated by the bank from the portfolio to loans held for sale. Additionally, during the first nine months of 2004, Home Savings sold approximately $120.4 million newly originated fixed-rate loans to help manage interest rate risk. Home Savings anticipates continued sales as a part of its strategic plan to manage interest rate risk.

The allowance for loan losses increased to $25.1 million at September 30, 2004, from $15.1 million at December 31, 2003. The increase in the allowance was primarily a result of a determination that impairment charges were necessary for 25 consumer loans and two commercial loans. Those loans are part of a group of 87 loans, consisting of a $5 million commercial line of credit to a boat dealer, with a current principal balance of approximately $4.8 million, a $500,000 standby letter of credit issued on behalf of that dealer (and fully drawn upon), and 85 consumer loans made to purchasers of boats from that dealer with an unpaid principal balance of $33.4 million at September 30, 2004.

In August 2004 and October 2004, the Company recorded and announced impairment charges totaling $4.0 million in the third quarter for the two commercial and 21 of the consumer loans in this group. Based on current information regarding the collateral securing, and/or the collectability, of these 87 loans which became known to the Company after the end of the quarter, the Company determined an additional impairment charge of $4.4 million was required, bringing the total impairment charges on these loans to $8.4 million. At September 30, 2004, the outstanding principal balance of these impaired loans was $15.2 million, which includes $9.9 million of consumer loans and $5.3 million of commercial loans. The Company has reviewed these 87 loans based upon the facts and circumstances existing as of the date of this report. No assurance can be made at this time that additional impairment charges may not be required on these 87 loans if the facts and circumstances change or if one or more adverse court judgments against Home Savings occur. See Note 9 to the financial statements for a complete summary of loss contingencies.

The total outstanding balance of all impaired loans was $20.8 million at September 30, 2004. See Note 3 to the financial statements for a complete summary of impaired loans. The allowance for loan losses as a percentage of total loans increased 46 basis points to 1.40% at September 30, 2004, compared to December 31, 2003. The allowance for loan losses as a percentage of non-performing loans increased to 160.9% at September 30, 2004, compared to 100.7% at December 31, 2003.

Nonperforming assets include nonaccrual and restructured loans as well as real estate owned. Nonaccrual loans increase $1.5 million during the first nine months of 2004. Restructured loans decreased $842,000 while real estate owned decreased $600,000 to offset the change in nonaccrual loans. Total nonaccrual and restructured loans accounted for 0.85% of net loans receivable at September 30, 2004, and 0.94% of net loans receivable at December 31, 2003. Total nonperforming assets were 0.73% of total assets at September 30, 2004, compared to 0.79% at December 31, 2003.

The Company regularly reviews its allowance for loan losses at the end of each month to determine the adequacy of the allowance. No assurance can be given that additional impairment charges may not be required in future periods, which could adversely affect earnings.

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Accrued interest receivable increased $1.0 million or 12.0% to $9.5 million at September 30, 2004, compared to $8.4 million at December 31, 2003. The increase is primarily due to increases in the accruals for interest due from mortgage loans of $168,000, installment loans of $258,000, education loans of $105,000 and commercial loans of $499,000.

Other assets increased by $2.9 million, or 26.4%, to $13.8 million at September 30, 2004, from $10.9 million at December 31, 2003. The primary reason for the change is an increase of $1.4 million in accounts receivable at Butler Wick as a result of an increase in receivables from brokers and dealers. Increases in prepaid Ohio franchise tax of $428,000 and deferred taxes of $367,000 also contributed to the change.

Total deposits increased $81.2 million, or 5.7% from December 31, 2003, to September 30, 2004. This increase mainly is due to a $1.4 million increase in savings accounts, a $12.3 million increase in NOW accounts and a $70.8 million increase in certificates of deposit.

Other borrowed funds, consisting of both long and short term debt, increased $113.5 million to $452.0 million at September 30, 2004, compared to $338.5 million at December 31, 2003. The increase is due to an increase in overnight advances from the Federal Home Loan Bank (FHLB) by Home Savings of $77.2 million, an increase in long-term advances from the FHLB by Home Savings of $16.5 million, sweep repurchase agreements by Home Savings of $3.9 million and $14.9 million in short term borrowings at Butler Wick. The borrowings were used to fund loan growth in excess of deposit growth, to complete the self-tender offer and to fund security purchases at Butler Wick.

Shareholders’ equity decreased $34.8 million, or 12.4%, to $245.0 million at September 30, 2004, from $279.8 million at December 31, 2003, primarily due to the self-tender offer. United Community repurchased 3,667,227 shares, or 10.4% of the shares outstanding, at a total price of $45.9 million. Also contributing to the decrease was a decrease in other comprehensive income of $303,000 caused by unrealized losses on the available for sale securities portfolio. Tangible book value and book value per share were $6.68 and $7.86, respectively as of September 30, 2004, and $7.11 and $8.21, respectively, at December 31, 2003.

Comparison of Operating Results for the Three Months Ended
September 30, 2004 and September 30, 2003

Net Income. Net income for the three months ended September 30, 2004 was $194,000, or $0.01 per diluted share, compared to net income of $5.8 million, or $0.17 per diluted share, for the three months ended September 30, 2003. Net interest income increased $959,000 and the provision for loan losses increased $8.7 million. Noninterest income decreased $1.6 million and noninterest expense decreased $651,000. United Community’s annualized return on average assets and return on average equity were 0.03% and 0.31%, respectively, for the three months ended September 30, 2004. The annualized return on average assets and return on average equity for the comparable period in 2003 were 1.17% and 8.28%, respectively.

Net Interest Income. Net interest income for the quarter ended September 30, 2004 was $18.5 million compared to $17.5 million for the same period last year. Interest income increased $1.9 million for the third quarter as compared to the third quarter of 2003. The increase was caused by an increase in income on net loans of $2.4 million as a result of an increase in the average balance of $311.6 million. Also contributing to the increase was the increase in the average balance of trading securities of $19.3 million, causing an increase in interest earned of $77,000. These increases were partially offset by decreases in interest earned on loans held for sale of $460,000 and interest earned on securities available for sale of $94,000. The decrease in interest on loans held for sale is a result of a decrease in the average balance of $33.9 million along with a 119 basis point reduction in yield on those assets. The decrease in income earned on securities available for sale is a result of a $59.7 million decrease in the average balance of those assets.

Total interest expense increased $982,000 for the quarter ended September 30, 2004, as compared to the same quarter last year. The increase was due to increases in interest expense on other borrowed funds of $799,000 and deposits of $183,000. The increase in interest expense on other borrowed funds was due to an increase in the average balance of those liabilities of $216.4 million, partially offset by a 124 basis point decline in the cost of those funds. An increase in the average balance of certificates of deposit of $50.2 million drove the increase in interest expense on deposits.

The following table provides specific information about interest rate and outstanding balance (volume) changes compared to the third quarter of last year. The interest rate spread for the three months ended September 30, 2004 was 3.30% compared to 3.50%

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for the quarter ended September 30, 2003. Net interest margin declined 24 basis points to 3.55% for the three months ended September 30, 2004 compared to 3.79% for the same quarter in 2003.

Provision for Loan Losses. A provision for loan losses is charged to operations to bring the total allowance for loan losses to a level considered by management to be adequate to provide for probable incurred losses based on management’s evaluation of such factors as the delinquency status of loans, current economic conditions, the fair value of the underlying collateral, changes in the composition of the loan portfolio and prior loan loss experience. Based on those factors, a $9.2 million provision for loan losses was recorded during the third quarter of 2004 compared to $571,000 for the same period in 2003. The increase in the provision for loan losses was primarily a result of a determination during the quarter that impairment charges were necessary for 25 consumer loans and two commercial loans. At September 30, 2004, the outstanding principal balance of these loans was $15.2 million, which includes $9.9 million of consumer loans and $5.3 million of commercial loans. Home Savings’ allowance for loan losses totaled $25.1 million at September 30, 2004, which was 1.40% of total loans, compared to 1.04% at September 30, 2003. The allowance for loan losses as a percent of non-performing loans increased to 160.92% at September 30, 2004 compared to 97.72% at September 30, 2003.

Noninterest Income. Noninterest income decreased $1.6 million, or 15.8%, from $10.3 million for the three months ended September 30, 2003, to $8.7 million for the three months ended September 30, 2004, primarily due to decreases of $1.6 million in gains on loans sold and $243,000 in gains on trading securities. Gains on loans sold decreased $1.6 million, or 67.0% as a result of less activity in the secondary market in the third quarter of 2004 compared to the same period in 2003. During the third quarter of 2003, Home Savings sold newly originated loans to help manage interest rate risk. These sales resulted in gains of approximately $2.4 million compared to $807,000 in gains on newly originated loans during the same period in 2004. The decrease in gains on trading securities of $243,000 is related to the market valuation adjustment of retention plan assets as well as larger losses recognized in Butter Wick’s trading portfolio during the third quarter of 2004 compared to the same period of 2003. Also contributing

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to the decrease in noninterest income is a decline in fee income of $491,000 for underwriting and investment banking activity in the third quarter of 2004 compared to 2003. Increases in service fees and other charges of $818,000 from $2.2 million at September 30, 2003 to $3.1 million at September 30, 2004 helped to offset these decreases. Home Savings had increases in OverdraftHonor™ fees of $136,000, non-sufficient funds and stop payment fees of $108,000 and collection fees on loans serviced for others of $68,000. In addition, Home Savings benefited from reduced amortization of mortgage servicing rights, which decreased $470,000.

Noninterest Expense. Total noninterest expense decreased $651,000, or 3.5%, to $17.7 million for the three months ended September 30, 2004, from $18.4 million for the three months ended September 30, 2003. The decrease primarily is due to a $452,000 decrease in salaries and employee benefits, a decrease in advertising expense of $331,000, and a decrease in equipment and data processing expense of $125,000. The decrease in salaries and employee benefits is primarily due to lower expenses incurred in connection with the recognition and retention plan as well as the change in market value of retention plan assets and decreased provisions for incentives. These decreases were partially offset by an increase of $339,000 in other expenses.

Federal Income Taxes. The provision for income taxes decreased $3.1 million, or 99.1% as a result of lower pretax income for the third quarter of 2004 compared to the third quarter of 2003. The effective tax rate for the quarter ending September 30, 2004 was 13.0% compared to 35.0% for the quarter ending September 30, 2003.

Comparison of Operating Results for the Nine Months Ended
September 30, 2004 and September 30, 2003

Net Income. Net income for the nine months ended September 30, 2004 was $10.7 million, or $0.36 per diluted share, compared to net income of $17.8 million, or $0.55 per diluted share, for the nine months ended September 30, 2003. Net interest income increased $490,000 and the provision for loan losses increased by $8.1 million. Noninterest income decreased $3.8 million and noninterest expense decreased $250,000. United Community’s annualized return on average assets and return on average equity were 0.67% and 5.55%, respectively, for the nine months ended September 30, 2004. The annualized return on average assets and return on average equity for the comparable period in 2003 were 1.19% and 8.58%, respectively.

Net Interest Income. Net interest income for the nine months ended September 30, 2004 was $54.7 million compared to $54.2 million for the same period last year. Interest income decreased $1.4 million for the first nine months of 2004 as compared to the first nine months of 2003. The decrease was caused by decreases in interest earned on available for sale securities of $1.6 million driven by a decrease in the average balance of available for sale securities at Home Savings of $73.8 million, partially offset by an increase in the average balance in Butler Wick’s portfolio of $2.3 million. Also contributing to the change in interest income was a decrease in interest earned on loans held for sale of $1.0 million as a result of a $25.5 million decrease in the average balance and a 68 basis point reduction in yield earned on those assets. Partially offsetting the reduction was an increase in interest earned on net loans of $1.2 million attributable to the increase in the average balance of net loans of $228.7 million.

Interest expense on deposits decreased $3.4 million as a result of a 26 basis point decrease in interest paid on deposits and a $10.8 million decrease in the average balance of certificates of deposit, a decrease of $22.5 million in the average balance of savings accounts and a decrease of $10.2 million in the average balance of interest bearing NOW and money market accounts. These decreases were offset by an increase in interest expense on other borrowed funds of $1.5 million. The increase is primarily a result of an increase in the average balance of other borrowed funds at Home Savings of $147.1 million and an increase in the average balance of other borrowed funds at Butler Wick of $13.3 million. This increase partially was offset by a decrease of 118 basis points in the cost of those funds for the period ending September 30, 2004 as compared to the same period in 2003.

The following table provides specific information about interest rate and outstanding balance (volume) changes compared to the first nine months of last year. The interest rate spread for the nine months ended September 30, 2004 was 3.39% compared to 3.54% for the nine months ended September 30, 2003. Net interest margin declined 20 basis points to 3.65% for the nine months ended September 30, 2004, compared to 3.85% for the same period in 2003.

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Provision for Loan Losses. A provision for loan losses is charged to operations to bring the total allowance for loan losses to a level considered by management to be adequate to provide for probable incurred losses based on management’s evaluation of such factors as the delinquency status of loans, current economic conditions, the fair value of the underlying collateral, changes in the composition of the loan portfolio and prior loan loss experience. Based on those factors, an $11.1 million provision for loan losses was recorded for the first nine months of 2004 compared to $3.0 million during the first nine months of 2003. The increase was due largely to the impairment charges in the third quarter of 2004 discussed above. Home Savings’ allowance for loan losses totaled $25.1 million at September 30, 2004, which was 1.40% of total loans, compared to 1.04% at September 30, 2003. The allowance for loan losses as a percent of non-performing loans increased to 160.92% at September 30, 2004 compared to 97.72% at September 30, 2003.

Noninterest Income. Noninterest income decreased $3.8 million, or 12.0%, from $31.4 million for the nine months ended September 30, 2003, to $27.7 million for the nine months ended September 30, 2004, due to decreases of $8.4 million in gains on loans sold and $489,000 in gains on trading securities. Gains on loans sold decreased as a result of less activity in the secondary market during the first nine months of 2004 compared to the same period in 2003. During the first nine months of 2003, Home Savings sold newly originated loans and fixed rate loans from the portfolio to help manage interest rate risk. These sales resulted in gains of approximately $10.9 million compared to $2.5 million in gains on newly originated loans sold during the same period in 2004. The decrease in gains on trading securities of $489,000 is related to lower gains realized on retention plan assets for the first nine months of 2004 compared to 2003. Partially offsetting these decreases were increases in service fees and other charges of $3.0 million, brokerage commissions of $1.5 million and gains on sales of available for sale securities of $593,000.

Service fees and other charges increased $3.0 million, or 52.5% for the first nine months of 2004 as compared to the first nine months of 2003. Factors contributing to the increase include an increase in OverdraftHonor™ fees of $1.3 million at Home Savings as well an increase at Home Savings of $298,000 in loan servicing fee income and a $1.1 million decrease in mortgage servicing rights amortization. Butler Wick’s increase in service fees of $397,000 also contributed to the increase. Brokerage commissions increased $1.5 million, or 13.9% when comparing September 30, 2004 to the same period in 2003. The increase is

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due to higher commissions earned as a result of increased trading activity at Butler Wick. The increase in gains on sales of available for sale securities in 2004 of $593,000 was a result of more security sales in 2004 versus 2003.

Noninterest Expense. Total noninterest expense decreased $250,000 for the first nine months of 2004 when compared to the first nine months of 2003. The decrease can be attributable to decreases in equipment and data processing expense of $408,000, advertising expense of $311,000 and amortization expense related to the core deposit intangible asset of $336,000. Partially offsetting the decrease in these expenses was an increase in salaries and employee benefits expense of $526,000 in 2004 compared to 2003.

Federal Income Taxes. The provision for income taxes decreased $4.0 million, or 41.7%, during the first nine months of 2004 compared to the same period in 2003 as a result of lower pretax income in 2004 than in 2003. The effective tax rate for the nine months ended September 30, 2004 was 34.4% as compared to 35.0% for the same period in 2003.

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UNITED COMMUNITY FINANCIAL CORP.
AVERAGE BALANCE SHEETS

The following table presents the total dollar amounts of interest income and interest expense on the indicated amounts of average interest-earning assets or interest-bearing liabilities together with the weighted average interest rates for the three month periods ended September 30, 2004 and 2003. Average balance calculations were based on daily balances.