Stock Compensation

9 Months Ended

Sep. 30, 2011

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 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 become 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 shares granted in the third quarter of 2011, all of which become exercisable on July 7, 2013. There were 423,695 stock options granted in 2010 and 32,000 stock options granted in 2009 under the 2007 Plan. For 418,000 of the options granted in 2010, one-half of the total options granted become exercisable on each of December 31, 2010 and 2011. The remainder of the options granted in 2010 become exercisable on October 7, 2012. For the options granted in 2009, one third of the total options granted became exercisable on each of December 31, 2009, and 2010, respectively. The remaining one third of the total options granted becomes exercisable on each of December 31, 2011. 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 $92,000 in stock option expenses for the three months ended September 30, 2011. The Company recognized $251,000 in stock option expense for the nine months ended September 30, 2011. The Company expects to recognize additional expense of $98,000 for the remainder of 2011.

A summary of activity in the 1999 and 2007 Plans is as follows:

	For the nine months ended September 30, 2011
				Weighted		Aggregate
				average		intrinsic value
	Shares			exercise price		(in thousands)
Outstanding at beginning of year		2,237,322		$	6.88
Granted		21,023			1.35
Exercised		—			—
Forfeited		(265,674	)		8.09
Outstanding at end of period		1,992,671		$	6.65	$	—
Options exercisable at end of period		1,670,187		$	7.65	$	—

Information related to the stock option plans for the nine months ended September 30, 2011 follows:

	September 30, 2011
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	$	0.88

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 third quarter 2011 was determined using the following weighted-average assumptions as of the grant date.

	July 7,
	2011
Risk-free interest rate		1.74	%
Expected term (years)		5
Expected stock volatility		81.3
Dividend yield		—	%

Outstanding stock options have a weighted average remaining life of 4.38 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 issue date. A total of 86,519 restricted shares have been issued under the 2007 Plan; 46,640 of which were issued in 2011 and 39,879 of which were issued in 2010. These restricted shares 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 a weighted average period of one year. The Company recognized approximately $21,000 in restricted stock award expenses for the three months ended September 30, 2011. The Company recognized approximately $61,000 in restricted stock award expenses for the nine months ended September 30, 2011. The Company expects to recognize additional expenses of approximately $19,000 for the remainder of 2011.

A summary of changes in the Company’s nonvested restricted shares for the first nine months of 2011 is as follows:

				Weighted
				average grant
	Shares			date fair value
Nonvested shares at January 1, 2011		39,879		$	1.32
Granted		46,640			1.32
Vested		(33,068	)		1.29
Forfeited		—			—
Nonvested shares at September 30, 2011		53,451		$	1.34