STOCK COMPENSATION

Stock Options:

On April 30, 2015, shareholders approved the United Community Financial Corp. 2015 Long Term Incentive Compensation Plan (the 2015 Plan). The purpose of the 2015 Plan is to provide a means through which United Community may attract and retain employees and non-employee directors, to provide incentives that align their interest with those of United Community’s shareholders and promote the success of United Community’s business. All employees and non-employee directors are eligible to participate in the 2015 Plan. The 2015 Plan provides for the issuance of up to 1,200,000 shares that are to be used for awards of stock options, stock awards, stock units, stock appreciation rights, annual bonus awards and long-term incentive awards.

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 was 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 was terminated on April 30, 2015 upon the adoption of the 2015 Plan, although the 2007 Plan survives so long as awards issued under the 2007 Plan remain outstanding and exercisable. The 2007 Plan provided for the issuance of up to 2,000,000 shares that were 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.

There were no stock options granted in the three months ended March 31, 2016 and there were 2,192 stock options granted in the three months ended March 31, 2015. 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 $3,000 in stock option expense for the three months ended March 31, 2016. The Company recognized $6,000 in stock option expense for the three months ended March 31, 2015. The Company expects to recognize additional expense of $5,000 for the remainder of 2016, and $1,000 in 2017.

A summary of activity in the plans is as follows:

	For the three months ended
	March 31, 2016
				Weighted		Aggregate
				average		intrinsic value
	Shares			exercise price		(in thousands)
Outstanding at beginning of year		572,323		$	2.56
Granted		—			—
Exercised		(8,000	)		1.48
Forfeited and expired		(600	)		2.10
Outstanding at end of period		563,723			2.58	$	1,854
Options exercisable at end of period		551,775			2.53	$	1,845

Information related to the stock option plans for the three months ended March 31, 2016 and 2015 follows:

	March 31, 2016		March 31, 2015
Intrinsic value of options exercised	$	33,920	$	26,400
Cash received from option exercises		11,000		16,000
Tax benefit realized from option exercises		—		—
Weighted average fair value of options granted, per share	$	—	$	1.93

As of March 31, 2016, the cost of nonvested stock options is expected to be recognized over a weighted-average period of 1.25 years.

The Company did not grant options during the three months ended March 31, 2016. The fair value of options granted during the three months ended March 31, 2015 was determined using the following weighted-average assumptions as of the grant date:

	Three months ended
	March 31, 2015
Risk-free interest rate		1.49	%
Expected term (years)		5
Expected stock volatility		36.66	%
Dividend yield		0.75	%

Outstanding stock options at March 31, 2016 have a weighted average remaining life of 3.80 years and may be exercised in the range of $1.20 to $5.89.

Restricted Stock Awards:

The 2007 Plan permitted and the 2015 plan permits the issuance of restricted stock awards to employees and nonemployee directors. Nonvested shares at March 31, 2016 aggregated 370,510, of which 67,103 will vest during the remainder of 2016, 127,316 will vest in 2017, 97,224 will vest in 2018 and 78,867 will vest in 2019. 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 fair value of the shares at the grant date. The Company recognized approximately $215,000 and $190,000 in restricted stock award expenses for the three months ended March 31, 2016 and 2015, respectively. The Company expects to recognize additional expenses of approximately $667,000 in 2016, $549,000 in 2017, $383,000 in 2018 and $102,000 in 2019. The total average per share value of shares vested during the three months ended March 31, 2016 was $5.70.

A summary of changes in the Company’s nonvested restricted shares for the three months ended March 31, 2016 is as follows:

	For the three months ended
	March 31, 2016
				Weighted
				average
				grant date
	Shares			fair value
Nonvested at beginning of year		260,490		$	4.68
Granted		159,238		$	5.95
Vested		(48,204	)	$	4.74
Forfeited		(1,014	)	$	3.59
Nonvested shares at end of period		370,510		$	5.22

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 and individual participant performance 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 vest equally over three years, beginning on the first anniversary of the date the restricted stock is issued. The Company incurred $76,000 in expense for the restricted stock portion of the EIP and $325,000 for the cash portion of the EIP for the three months ended March 31, 2016, respectively. 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 for the three months ended March 31, 2015, respectively. 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 $96,000 for the LTIP for the three months ended March 31, 2016. The Company incurred $48,000 in expense for the LTIP for the three months ended March 31, 2015.