Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

INCOME TAXES

15. INCOME TAXES

The income tax benefit consists of the following components:

		September 30,			September 30,			September 30,
	Year ended December 31,
	2011			2010			2009
	(Dollars in thousands)
Current	$	—		$	(3,881	)	$	(4,670	)
Deferred		(148	)		(10,652	)		(4,090	)
Establish valuation allowance		148			14,302			7,600
Total	$	—		$	(231	)	$	(1,160	)

Effective tax rates differ from the statutory federal income tax rate of 35% due to the following:

		September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	Year ended December 31,
	2011						2010						2009
	Dollars			Rate			Dollars			Rate			Dollars			Rate
	(Dollars in thousands)
Tax (benefit) at statutory rate	$	81			35.0	%	$	(13,126	)		35.0	%	$	(8,009	)		35.0	%
Increase (decrease) due to:
Tax exempt income		(1	)		-0.4			(3	)		—			(4	)		—
Life insurance		(367	)		-159.5			(377	)		1.0			(379	)		1.7
Other		139			60.5			(1,027	)		2.7			(368	)		1.6
Valuation allowance		148			64.4			14,302			(38.1	)		7,600			(33.2	)
Income tax provision (benefit)	$	—			0.0	%	$	(231	)		0.6	%	$	(1,160	)		5.1	%

Significant components of the deferred tax assets and liabilities are as follows:

		September 30,			September 30,
	December 31,
	2011			2010
	(Dollars in thousands)
Deferred tax assets:
Loan loss reserves	$	14,795		$	17,809
Postretirement benefits		1,292			1,328
Other real estate owned valuation		3,067			2,566
Unrealized loss on available for sale securities		—			1,254
Tax credits carryforward		224			238
Securities impairment charges		244			266
Interest on nonaccrual loans		2,408			2,030
Net operating loss carryforward		10,879			9,683
Purchase accounting adjustment		25			—
Other		468			118
Less: Valuation allowance		(22,204	)		(25,248	)
Deferred tax assets		11,198			10,044
Deferred tax liabilities:
Purchase accounting adjustments		—			12
Deferred loan fees		500			443
Federal Home Loan Bank stock dividends		6,715			6,715
Mortgage servicing rights		1,606			2,140
Unrealized gain on securities available for sale		1,938			—
Postretirement benefits accrual		121			121
Prepaid expenses		318			548
Other		—			65
Deferred tax liabilities		11,198			10,044
Net deferred tax asset	$	—		$	—

Management recorded a valuation allowance against deferred tax assets at December 31, 2010 and December 31, 2011 primarily based on its cumulative pre-tax losses during the past three years. When determining the amount of deferred tax assets that are more-likely-than-not to be realized, and therefore recorded as a benefit, the Company conducts a regular assessment of all available information. This information includes, but is not limited to, taxable income in prior periods, projected future income and projected future reversals of deferred tax items. Based on these criteria, the Company determined that it was necessary to establish a full valuation allowance against the entire net deferred tax asset. A portion of the change in the valuation allowance is attributable to other comprehensive income for each period.

In 2011, United Community generated a taxable loss of $3.6 million. In 2010, United Community generated a taxable loss of $37.7 million of which $10.2 million was carried back to 2008. United Community received a $3.5 million refund in 2011 related to the carry back claim. The remaining net operating loss from 2010 of $27.5 million and the 2011 Net operating loss of $3.6 million, will be carried forward to use against future taxable income with an expiration date of December 31, 2030 and December 31, 2031, respectively. In addition, United Community is carrying forward $224,000 of alternative minimum tax credits. The alternative minimum tax credits are carried forward indefinitely.

Retained earnings at December 31, 2011 included approximately $21.1 million for which no provision for federal income taxes has been made. This amount represents the tax bad debt reserve at December 31, 1987, which is the end of United Community’s base year for purposes of calculating the bad debt deduction for tax purposes. If this portion of retained earnings is used in the future for any purpose other than to absorb bad debts, the amount used will be added to future taxable income. The unrecorded deferred tax liability on the above amount at December 31, 2011 was approximately $7.3 million.

As of December 31, 2011 and December 31, 2010, United Community had no unrecognized tax benefits or accrued interest and penalties recorded. United Community does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months. United Community will record interest and penalties as a component of income tax expense.

United Community and Home Savings are subject to U.S. federal income tax and United Community is subject to Ohio income tax. Home Savings is subject to tax in Ohio based upon its net worth. United Community and Home Savings also file state income tax returns in Pennsylvania, Indiana and Florida. United Community is no longer subject to examination by taxing authorities for years prior to 2008.