3.	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.

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.

There were 2,192 stock options granted in 2015 and there were 1,794 stock options granted in 2014 under the 2007 Plan. The options must be exercised within 10 years from the date of grant. Expenses related to stock option grants are included with salaries and employee benefits. The Company recognized $6,200 in stock option expenses for the three months ended March 31, 2015. The Company recognized $6,400 in stock option expenses for the three months ended March 31, 2014. The Company expects to recognize additional expense of $15,000 for the remainder of 2015 and $5,000 in 2016.

A summary of activity in the plans is as follows:

	For the three months ended
	March 31, 2015
				Weighted		Aggregate
				average		intrinsic value
	Shares			exercise price		(in thousands)
Outstanding at beginning of year		579,905		$	2.52
Granted		2,192		5.35
Exercised		(8,000	)	2
Forfeited and expired		—			—
Outstanding at end of period		574,097		2.54		$	1,710
Options exercisable at end of period		556,631		2.49		$	1,686

Information related to the stock option plans for the three months ended March 31, 2015 follows:

	March 31, 2015
Intrinsic value of options exercised	$	26,400
Cash received from option exercises		16,000
Tax benefit realized from option exercises		—
Weighted average fair value of options granted, per share	$	1.93

As of March 31, 2015, the cost of nonvested stock options is expected to be recognized over a weighted-average period of 2.0 years.

The fair value of options granted during the first quarter of 2015 was determined using the following weighted-average assumptions as of the grant date:

	January 8, 2015
Risk-free interest rate		1.49	%
Expected term (years)		5
Expected stock volatility		36.66	%
Dividend yield		0.75	%

Outstanding stock options have a weighted average remaining life of 4.76 years and may be exercised in the range of $1.20 to $5.89.

Restricted Stock Awards:

The 2007 Plan permits the issuance of restricted stock awards to employees and nonemployee directors. Nonvested shares at March 31, 2015 aggregated 314,951, of which 80,441 will vest during 2015, 88,851 will vest in 2016, 84,284 will vest in 2017 and 61,375 will vest in 2018. Expenses related to restricted stock awards are charged to salaries and employee benefits and are recognized over the vesting period of the awards based on the market value of the shares at the grant date. The Company recognized approximately $190,000 in restricted stock award expenses for the three months ended March 31, 2015, and approximately $179,000 in restricted stock award expenses for the three months ended March 31, 2014. The Company expects to recognize additional expenses of approximately $458,000 in 2015, $456,000 in 2016, $255,000 in 2017 and $83,000 in 2018.

A summary of changes in the Company’s nonvested restricted shares for the three months ended March 31, 2015 is as follows:

	For the three months ended
	March 31, 2015
				Weighted
				average
				grant date
	Shares			fair value
Nonvested at beginning of year		223,624		$	3.88
Granted		125,026			5.31
Vested		(25,608	)		4.11
Forfeited		(8,091	)		4.87
Nonvested shares at end of period		314,951		$	4.40

Executive Incentive Plan

The Executive Incentive Plan (“EIP”) provides incentive compensation awards to certain officers of the Company. Executive incentive awards are generally based upon the actual performance of the Company for the twelve months ending December 31, compared to the actual performance of a peer group during the same twelve month period. The target incentive awards for each year are measured as a percentage of the base salary of participating officers. Once the awards under the EIP are calculated, they are paid 80% in cash and 20% in restricted stock. The restricted stock will be granted and vest equally over three years, beginning on the first anniversary of the date the restricted stock is issued. The Company incurred $68,000 in expense for the restricted stock portion of the EIP and $168,000 for the cash portion of the EIP in the three months ended March 31, 2015. The Company incurred $107,000 in expense for the restricted stock portion of the EIP and $100,000 for the cash portion of the EIP in three months ended March 31, 2014. Restricted stock expenses for the EIP are included in the total restricted stock expenses discussed above.

Long-term Incentive Plan

The Long-term Incentive Plan (“LTIP”) provides a long-term incentive compensation opportunity to certain executive officers, whose participation and target award opportunities will be approved by the Compensation Committee of the Board of Directors. Each participant in the LTIP will be granted a target number of Performance Share Units (“PSUs”). Target PSUs will be determined as a percentage of base salary and translated into share units based on the Company’s average stock price at the appropriate measurement date. The performance period for the annual grant for a given year will be from January 1, year 1 through December 31, year 3. The Company incurred $48,000 in expense for the LTIP in the three months ended March 31, 2015. The Company incurred $50,000 in expense for the LTIP in the three months ended March 31, 2014.