Stock Compensation

6 Months Ended

Jun. 30, 2012

Stock Compensation [Abstract]

STOCK COMPENSATION

4. STOCK COMPENSATION

Stock Options:

On April 26, 2007, shareholders approved the United Community Financial Corp. 2007 Long-Term Incentive Plan (as amended, the 2007 Plan). The purpose of the 2007 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, by facilitating their purchase of an ownership interest in United Community. The 2007 Plan provides for the issuance of up to 2,000,000 shares that are to be used for awards of restricted stock, stock options, performance awards, stock appreciation rights (SARs), or other forms of stock-based incentive awards. There were 2,757 stock options granted in the second quarter of 2012, all of which become exercisable on April 5, 2014. There were 4,629 stock options granted in the first quarter of 2012, all of which become exercisable on January 5, 2014. There were 3,866 stock options granted in the first quarter of 2011, all of which become exercisable on January 6, 2013. There were 12,746 stock options granted in the second quarter of 2011, 4,000 of which became exercisable on December 31, 2011, 4,000 of which become exercisable on December 31, 2012 and the remaining 4,746 of which become exercisable on April 7, 2013. There were 4,411 stock options granted in the third quarter of 2011, all of which become exercisable on July 7, 2013. There were 4,687 stock options granted in the fourth quarter of 2011, all of which become exercisable on October 6, 2013. The options must be exercised within 10 years from the date of grant.

On July 12, 1999, shareholders approved the United Community Financial Corp. 1999 Long-Term Incentive Plan (as amended, the 1999 Plan). The purpose of the 1999 Plan was the same as the 2007 Plan. The 1999 Plan terminated on May 20, 2009, although the 1999 Plan survives so long as options issued under the 1999 Plan remain outstanding and exercisable.

The 1999 Plan provided for the grant of either incentive or nonqualified stock options. Options were awarded at exercise prices that were not less than the fair market value of the share at the grant date. The maximum number of common shares that could be issued under the 1999 Plan was 3,569,766. Because the 1999 Plan terminated, no additional options may be issued under it. All of the options awarded became exercisable on the date of grant except that options granted in 2009 became exercisable over three years beginning on December 31, 2009. All options expire 10 years from the date of grant.

Expenses related to stock option grants are included with salaries and employee benefits. The Company recognized $4,347 in stock option expenses for the three months ended June 30, 2012. The Company recognized $8,226 in stock option expenses for the six months ended June 30, 2012. The Company expects to recognize additional expense of $9,007 for the remainder of 2012, $8,436 in 2013 and $1,406 in 2014.

A summary of activity in the plans is as follows:

	For the six months ended June 30, 2012
	Shares			Weighted average exercise price		Aggregate intrinsic value (in thousands)
Outstanding at beginning of year		1,992,132		$	6.63
Granted		7,386			1.60
Exercised		—			—
Forfeited		(300,290	)		7.16
Outstanding at end of period		1,699,228		$	6.51	$	737
Options exercisable at end of period		1,664,637		$	6.62	$	683

Information related to the stock option plans for the six months ended June 30, 2012 follows:

	June 30, 2012
Intrinsic value of options exercised		n/a
Cash received from option exercises		n/a
Tax benefit realized from option exercises		n/a
Weighted average fair value of options granted, per share	$	1.02

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes valuation model that uses assumptions including the risk-free interest rate, expected term, expected stock volatility, and dividend yield. Expected volatilities are based on historical volatilities of United Community’s common shares. United Community uses historical data to estimate option exercises and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The fair value of options granted during the second quarter 2012 was determined using the following weighted-average assumptions as of the grant date.

	April 5, 2012
Risk-free interest rate		0.93	%
Expected term (years)		5
Expected stock volatility		63.2	%
Dividend yield		—	%

Outstanding stock options have a weighted average remaining life of 4.35 years and may be exercised in the range of $1.20 to $12.38.

Restricted Stock Awards:

The 2007 Plan permits the issuance of awards to nonemployee directors. Compensation expense is recognized over the vesting period of the awards based on the market value of the shares at the grant date. A total of 389,626 restricted shares have been issued under the 2007 Plan; 286,979 of which were issued in 2012, 62,768 of which were issued in 2011 and 39,879 of which were issued in 2010. The grants in 2012 include 141,600 shares that vested immediately. The remaining 141,600 shares granted in 2012 vest equally over the three quarters ending June 30, 2012, September 30, 2012 and December 31, 2012. Restricted shares aggregating 21,847 issued in 2012 and those shares issued in 2011 and 2010 either have or will vest on the first anniversary of the grant date. Expenses related to restricted stock awards are included with salaries and employee benefits. The cost will be recognized over an average period of one year. The Company recognized approximately $124,000 in restricted stock award expenses for the three months ended June 30, 2012. The Company recognized approximately $500,000 in restricted stock award expenses for the six months ended June 30, 2012. The Company expects to recognize additional expenses of approximately $183,000 for the remainder of 2012, $239,000 in 2013 and $152,000 in 2014.

A summary of changes in the Company’s nonvested restricted shares for the first half 2012 is as follows:

	Shares			Weighted average grant date fair value
Nonvested shares at January 1, 2012		59,019		$	1.30
Granted		286,979			1.32
Vested		(227,695	)		1.30
Nonvested shares at June 30, 2012		118,303		$	1.34