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 (SARs), 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 with respect to awards issued under the 2007 Plan that 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, SARs, or other forms of stock-based incentive awards. Because the 2007 Plan terminated, no additional awards may be made under it.

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 with respect to 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 50,000 stock options granted under the 2015 Plan during the nine months ended September 30, 2018 and none granted during the nine months ended September 30, 2017. Pursuant to the terms of the 2015 Plan, any options granted must be exercised within 10 years from the date of grant. Expenses related to prior stock option grants are included with salaries and employee benefits. The Company recognized $19,000 and $51,000 in stock option expense for the three and nine months ended September 30, 2018, respectively. The Company recognized $0 and $1,000 in stock option expense for the three and nine months ended September 30, 2017, respectively. The Company expects to recognize an additional $19,000 in stock option expense for the remainder of 2018.

A summary of option activity for the nine months ended September 30, 2018 in the 2015 Plan, the 2007 Plan and the 1999 Plan is as follows:

	For the nine months ended
	September 30, 2018
				Weighted		Aggregate
				average		intrinsic value
	Shares			exercise price		(in thousands)
Outstanding at beginning of year		260,533		$	2.55
Granted		50,000			9.66
Exercised		(70,101	)		3.31
Forfeited and expired		—			—
Outstanding at end of period		240,432			3.81	$	1,408
Shares subject to options exercisable at end of period		190,432			2.28	$	1,408

Information related to stock options for the nine months ended September 30, 2018 and 2017 follows:

	September 30, 2018		September 30, 2017
Intrinsic value of options exercised	$	450,000	$	487,000
Cash received from option exercises		232,000		216,000
Tax benefit realized from option exercises		67,000		170,523
Weighted average fair value of options granted, per share	$	1.54	$	—

Information related to stock options granted during the nine months ended September 30, 2018 were as follows:

	Nine Months Ended
	September 30, 2018
Risk-free interest rate		2.69	%
Expected term (years)		5
Expected stock volatility		19.68	%
Dividend yield		2.48	%

As of September 30, 2018, there were 50,000 nonvested stock options outstanding.

Outstanding stock options at September 30, 2018 have a weighted average remaining life of 3.68 years and may be exercised in the range of $1.20 to $9.66 per share.

Restricted Stock Awards:

The 2007 Plan permitted and the 2015 Plan permits the issuance of restricted stock awards to eligible employees and nonemployee directors. Nonvested shares at September 30, 2018 aggregated 227,651, of which 7,113 are expected to vest during the remainder of 2018, 128,034 in 2019, 37,744 in 2020 and 54,760 in 2021. Expense related to restricted stock awards is charged to salaries and employee benefits and is recognized over the vesting period of the awards based on the fair value of the shares at the grant date. The Company recognized approximately $243,000 and $714,000 in restricted stock award expense for the three and nine months ended September 30, 2018, respectively. The Company recognized approximately $240,000 and $696,000 in restricted stock award expense for the three and nine months ended September 30, 2017, respectively. The Company expects to recognize additional expenses related to restricted stock awards of approximately $223,000 in 2018, $539,000 in 2019, $310,000 in 2020 and $150,000 in 2021. The total average per share fair value of shares vested during the nine months ended September 30, 2018 was $9.64.

A summary of changes in the Company’s nonvested restricted shares for the nine months ended September 30, 2018 is as follows:

	For the nine months ended
	September 30, 2018
				Weighted
				average
				grant date
	Shares			fair value
Nonvested at beginning of year		277,035		$	6.73
Granted		83,407		$	10.19
Vested		(128,192	)	$	6.30
Forfeited		(4,599	)	$	8.33
Nonvested shares at end of period		227,651		$	8.10

Annual Incentive Plan

The Annual Incentive Plan (AIP) provides incentive compensation awards to certain officers of the Company. Annual 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 AIP are calculated, they are paid in cash and/or restricted stock. The restricted stock vests equally over three years, beginning on the first anniversary of the date the restricted stock is issued. The Company incurred $94,000 and $284,000 in expense for the restricted stock portion of the AIP for the three and nine months ended September 30, 2018 and $416,000 and $1.3 million for the cash portion of the AIP for the three and nine months ended September 30, 2018. The Company incurred $100,000 and $222,000 in expense for the restricted stock portion of the AIP for the three and nine months ended September 30, 2017 and $431,000 and $1.3 million for the cash portion of the AIP for the three and nine months ended September 30, 2017.

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 $167,000 and $548,000 in expense for the LTIP for the three and nine months ended September 30, 2018. The Company incurred $146,000 and $295,000 in expense for the LTIP for the three and nine months ended September 30, 2017.