UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

For the quarterly period ended March 31, 2005

o	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.

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. 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 14 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 three months ended March 31, 2005, are not necessarily indicative of the results to be expected for the year ending December 31, 2005. 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, 2004, contained in United Community’s Form 10-K for the year ended December 31, 2004.

     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, “Accounting for Stock-Based Compensation,” 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.

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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. SECURITIES

United Community categorizes securities as available for sale and trading. Components of the available for sale portfolio are as follows:

United Community’s trading securities are carried at fair value and consist of the following:

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     4. LOANS

Portfolio loans consist of the following:

Changes in the allowance for loan loss are as follows:

Nonaccrual loans were $27.2 million and $20.9 million at March 31, 2005 and December 31, 2004, respectively. Restructured loans were $1.7 million and $1.3 million at March 31, 2005 and December 31, 2004, respectively. Loans greater than ninety days past due and still accruing were $225,000 and $377,000 at March 31, 2005 and December 31, 2004, respectively.

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Impaired loans consist of the following:

     5. MORTGAGE BANKING ACTIVITIES

Mortgage loans serviced for others, which are not reported in United Community’s assets, totaled $677.8 million at March 31, 2005 and $667.0 million at December 31, 2004.

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:

Key economic assumptions used in measuring the value of mortgage servicing rights at March 31, 2005 and December 31, 2004 were as follows:

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     6. 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 are as follows:

     7. 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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     8. 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 months ended March 31, 2005 and 2004 are as follows:

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     9. 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 quarters ended March 31, 2005 and 2004. Antidilutive options are not considered in computing earnings per share.

     10. LOSS CONTINGENCY

From time to time, the Company is involved in various lawsuits and claims which arise in the normal course of business. Some of these proceedings seek relief or damages that are substantial. Nonetheless, based upon the advice of counsel, management is of the opinion that any liabilities that may result from these lawsuits and claims will not have a material effect on the financial statements of United Community.

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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 may differ materially 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 March 31, 2005 and December 31, 2004

Total assets increased by $57.4 million, or 2.5%, to $2.3 billion at March 31 2005, compared to December 31, 2004. The net change in assets was a result of increases of $102.9 million in net loans, $5.1 million in trading securities, $1.3 million in real estate owned and other repossessed assets and $1.2 million in premises and equipment. These increases were offset partially by decreases of $38.7 in loans held for sale, $14.1 million in available for sale securities and $1.5 million in other assets. Total liabilities increased $56.8 million primarily as a result of $34.2 million in short-term borrowings, a $24.4 million increase in interest-bearing deposits and $2.0 million in accrued expenses and other liabilities.

Trading securities increased $5.1 million or 15.8% to $37.4 million at March 31, 2005, from $32.3 million at December 31, 2004. The reason for the change was an increase in trading securities held in Butler Wick’s portfolio of $5.1 million, the bulk of which relate to repurchase agreements existing at March 31, 2005.

Available for sale securities decreased $14.1 million or 7.1% from December 31, 2004, to March 31, 2005, as a result of sales aggregating $17.3 million coupled with paydowns and maturities of $18.1 million. Purchases of $24.4 million in securities partially offset the decrease.

During the first quarter of 2005, Home Savings reclassified approximately $37.1 million in fixed rate, fixed-term second mortgage loans from held for sale to the loan portfolio. In connection with the reclassification, a charge of $244,000 was recorded to write the loans down to their fair market value. This transfer, along with loan originations, purchases and repayments, and the sale of $6.0 million in non-performing loans, resulted in net loans increasing by $102.9 million, or 5.7%, from December 31, 2004 to March 31, 2005. No gains or losses were recorded on the sale of non-performing loans. Home Savings had increases of $49.7 million in real estate loans, $24.1 million in construction loans, $28.0 million in consumer loans and $1.4 million in commercial loans.

Loans held for sale decreased $38.7 million, or 65.4%, to $20.4 million at March 31, 2005, compared to $59.1 million at December 31, 2004. This change is due to the reclassification discussed above, along with the net impact of loan originations, purchases and sales. Home Savings sells loans as part of its risk management strategy and anticipates continuing to do so in the future. Home Savings also purchases loans, both for its portfolio and to be sold in the secondary market. As interest rates continue to rise, management anticipates lower originations, resulting in fewer loan sales and reduced gains from those sales.

The allowance for loan losses decreased to $15.8 million at March 31, 2005, from $15.9 million at December 31, 2004. The allowance for loan losses is monitored closely and may increase or decrease depending on a variety of factors such as levels and trends of delinquencies, chargeoffs and recoveries, non-performing loans, and potential risk in the portfolios. The allowance for loan losses as a percentage of total loans decreased to 0.82% at March 31, 2005, compared to 0.87% at December 31, 2004.

The total outstanding balance of all impaired loans was $13.7 million at March 31, 2005. See Note 3 to the financial statements for a complete summary of impaired loans.

Non-performing assets include non-performing loans as well as real estate owned and other repossessed assets. Non-performing loans increased $7.0 million to $29.2 million during the first three months of 2005. This increase is primarily attributable to loans to a single commercial borrower secured by commercial real estate, which Home Savings is actively working to resolve. At the end of the first quarter, the value of the collateral exceeded the indebtedness. Real estate owned increased $478,000 and repossessed assets also increased $820,000. Total non-performing loans were 1.52% of net loans at March 31, 2005, up from 1.22% of net loans at December 31, 2004. The allowance for loan losses as a percentage of non-performing loans was 54.1% at March 31, 2005, compared to 71.6% at December 31, 2004. Total non-performing assets were 1.37% of total assets at March 31, 2005, compared to 1.04% at December 31, 2004.

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Premises and equipment increased $1.2 million from December 31, 2004 to March 31, 2005. The increase was due to capitalization of additional expenses related to the construction of a new branch, which opened in the first quarter of 2005. Land purchased for possible branch expansion also contributed to the increase. Accumulated depreciation decreased as older assets were replaced with newer ones at the new branch.

Accrued interest receivable increased $796,000 or 8.4% to $10.2 million at March 31, 2005, compared to $9.4 million at December 31, 2004. The increase was primarily due to increases in the accrued interest due from mortgage loans of $607,000, installment loans of $23,000, commercial loans of $136,000 and investment securities at Home Savings of $160,000. Butler Wick also contributed to the increase with an increase of $99,000 in interest receivable from investments and due from customers. An increase in the reserve for uncollected interest during the first quarter of $242,000 partially offset the above mentioned increases.

Other assets decreased by $1.5 million, or 10.6%, to $12.7 million at March 31, 2005, from $14.2 million at December 31, 2004. The primary reason for the change was a decrease of $738,000 in deferred taxes of United Community, a decrease of $390,000 for a security that settled after year-end and a decrease of $351,000 in accounts receivable at Butler Wick as a result of a decrease in receivables from brokers and dealers.

Total deposits increased $24.0 million, or 1.6% from December 31, 2004, to March 31, 2005. This increase mainly was due to a $54.5 million increase in certificates of deposit offset by decreases of $24.0 million in NOW accounts and $6.4 million in savings accounts.

Other borrowed funds, consisting of both long- and short-term debt, increased $34.1 million to $517.6 million at March 31, 2005, compared to $483.5 million at December 31, 2004. The increase was due to an increase in overnight advances from the Federal Home Loan Bank (FHLB) by Home Savings of $22.2 million, sweep repurchase agreements by Home Savings of $2.9 million and $6.7 million in short-term borrowings at Butler Wick. The borrowings were used to fund loan growth in excess of deposit growth and to fund security purchases at Butler Wick.

Shareholders’ equity increased $560,000, to $252.9 million at March 31, 2005, from $252.3 million at December 31, 2004. Earnings from Home Savings of $4.8 million and $165,000 from Butler Wick for the quarter were offset by dividend payments to shareholders’ of $2.4 million and a decrease in other comprehensive income of $2.0 million as a result of the market valuation of available for sale securities.

Comparison of Operating Results for the Three Months Ended
March 31, 2005 and March 31, 2004

Net Income. Net income for the three months ended March 31, 2005 was $4.9 million, or $0.17 per diluted share, compared to net income of $5.5 million, or $0.18 per diluted share, for the three months ended March 31, 2004. Net interest income increased $774,000 and the provision for loan losses increased $174,000. Noninterest income decreased $1.5 million and noninterest expense increased $143,000. United Community’s annualized return on average assets and return on average equity were 0.85% and 7.62%, respectively, for the three months ended March 31, 2005. The annualized return on average assets and return on average equity for the comparable period in 2004 were 1.07% and 8.02%, respectively.

Net Interest Income. Net interest income for the quarter ended March 31, 2005 was $18.8 million compared to $18.0 million for the same period last year. Interest income increased $3.7 million for the first quarter of 2005 compared to the first quarter of 2004. The increase was caused by an increase in income on net loans of $3.4 million as a result of an increase in the average balance of $234.5 million. Interest earned on loans held for sale increased $284,000 as a result of a $29.0 million increase in the average balance of those assets. The average balance of trading securities increased $18.0 million, causing an increase in interest earned of $141,000. Interest earned on margin accounts at Butler Wick increased $106,000 as the average balance of those assets increased $1.5 million and the yield earned increased 2.29% over the same period in 2004. These increases were partially offset by a decrease in the amount of interest earned on available for sale securities as the average balance of the portfolio declined $30.7 million. Sales, paydowns and maturities were all factors in the decline in the average balance of available for sale securities, as previously discussed.

Total interest expense increased nearly $3.0 million for the quarter ended March 31, 2005, as compared to the same quarter last year. The increase was due to increases in interest expense on other borrowed funds of $1.5 million and deposits of $1.5 million. The increase in interest expense on other borrowed funds was due to an increase in the average balance of those liabilities of $171.2 million. Interest expense on certificates of deposit was the primary reason for the increase in interest expense on total

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deposits. Home Savings had an increase in the average balance of certificates of deposit of $115.5 million as well as an increase of 27 basis points paid on those deposits.

The following table provides specific information about interest rate and outstanding balance (volume) changes compared to the first quarter of last year. The interest rate spread for the three months ended March 31, 2005 was 3.19% compared to 3.47% for the quarter ended March 31, 2004. Net interest margin declined 30 basis points to 3.46% for the three months ended March 31, 2005 compared to 3.76% for the same quarter in 2004.

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 $633,000 provision for loan losses was recorded during the first quarter of 2005 compared to $459,000 for the same period in 2004. The increase in the provision for loan losses primarily was caused by a change in the mix of all loans in the portfolio in recent years to include more construction, commercial, and commercial real estate loans which involve a higher level of credit risk. These factors all required a higher provision for loan losses than if the portfolio had remained primarily comprised of one- to four-family mortgage loans. Home Savings’ allowance for loan losses totaled $15.8 million at March 31, 2005, which was 0.82% of total loans, compared to 0.91% at March 31, 2004. The allowance for loan losses as a percent of non-performing loans decreased to 54.1% at March 31, 2005 compared to 116.2% at March 31, 2004, due to a $7.0 million increase in non-performing loans.

Noninterest Income. Noninterest income decreased $1.5 million, or 14.2%, from $10.3 million for the three months ended March 31, 2004, to $8.9 million for the three months ended March 31, 2005, primarily due to decreases of $653,000 in gains on loans sold, $449,000 in gains on the sale of available for sale securities, $367,000 in gains on trading securities and $251,000 in underwriting and investment banking income. Gains on loans sold decreased $653,000, or 72.5% as a result of less activity in the secondary market in the first quarter of 2005 compared to the same period in 2004 due to rising interest rates. To help manage

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interest rate risk, Home Savings sells some newly originated loans. These sales resulted in gains of $901,000 in the first quarter of 2004 compared to $248,000 in the first quarter of 2005. The decrease in gains on the sale of available for sale securities was caused by fewer securities sold in 2005 than in 2004. The decrease in gains on trading securities of $367,000 is largely due to losses of $187,000 recognized on Butler Wick’s $35.5 million trading portfolio during the first quarter of 2005 compared to gains of $49,000 recognized on a balance of $24.0 million in the same period of 2004. Also contributing to the decrease in noninterest income is a decline in fee income of $251,000 for underwriting and investment banking activity in the first quarter of 2005 compared to 2004 as a result of fewer bond issues underwritten in 2005. Increases in service fees and other charges of $228,000 from $2.9 million at March 31, 2004 to $3.1 million at March 31, 2005 helped to offset these decreases. Butler Wick realized larger fees of $190,000 for services to customers and Home Savings realized $38,000 more in income.

Noninterest Expense. Total noninterest expense increased $143,000 to $19.7 million for the three months ended March 31, 2005, from $19.5 million for the three months ended March 31, 2004. The increase primarily is due to a $359,000 increase in other expenses, a $134,000 increase in occupancy expenses and a $95,000 increase in Ohio franchise tax expense. These increases were offset by a $315,000 reduction in advertising expense, $71,000 in lower expenses related to the amortization of the core deposit intangible and $53,000 in salaries and employee benefits expenses. The increase in other expense is related to increases in legal and audit fees for the Company.

Federal Income Taxes. The provision for income taxes decreased $444,000, or 15.3% as a result of lower pretax income for the first quarter of 2005 compared to the first quarter of 2004. The effective tax rate for the quarter ending March 31, 2005 was 33.4% compared to 34.6% for the quarter ending March 31, 2004.

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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 months ended March 31, 2005 and March 31, 2004. Average balance calculations were based on daily balances.