Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

Income Taxes

11. Income Taxes

Income taxes for the years ended December 31 consisted of the following:

	2011		2010			2009
	(in thousands)
Current income tax provision:
Federal	$	3,781	$	1,697		$	953
State	1,386		602			791
Total current income tax provision	5,167		2,299			1,744
Deferred income tax provision (benefit):
Federal	899		(121		)	(1,250		)
State	345		(95		)	(581		)
Total deferred income tax provision (benefit)	1,244		(216		)	(1,831		)
Total income tax provision (benefit)	$	6,411	$	2,083		$	(87	)

A reconciliation from statutory federal income taxes to the Company’s effective income taxes for the years ended December 31 are as follows:

	2011			2010			2009
	(in thousands)
Statutory federal income tax provision (benefit)	$	5,774		$	2,149		$	(186	)
California franchise tax (benefit), net of federal income tax effect	1,214			335			139
Other, including tax exempt income	(577		)	(401		)	(40		)
Total income tax provision (benefit)	$	6,411		$	2,083		$	(87	)

Deferred tax assets (liabilities) were comprised of the following temporary differences between the financial statement carrying amounts and the tax basis of assets at December 31:

	2011			2010
	(in thousands)
Deferred tax assets:
Accrued expenses	$	652		$	842
Depreciation on premises and equipment	98			185
Net operating loss	4,283			4,490
Allowance for loan losses, net of bad debt charge-offs	3,507			3,981
State taxes	471			—
Unrealized losses on available for sale securities	—			639
Capital loss on mutual funds	814			1,034
Other-than-temporary impairment	2,068			1,977
Restricted stock and options expense	6			7
Other	73			21
Total deferred tax assets	11,972			13,176
Deferred tax liabilities:
State taxes	—			(757		)
Federal Home Loan Bank stock dividends	(758		)	(1,073		)
Deferred FDIC gain	(1,641		)	—
Depreciation	—			—
Unrealized gain on available for sale securities	(222		)	—
Other	(353		)	(243		)
Total deferred tax liabilities	(2,974		)	(2,073		)
Net deferred tax asset	$	8,998		$	11,103

At December 31, 2011, there was no valuation allowance against the Company’s deferred tax asset.  The Company has a net operating loss carryforward of approximately $10.5 million for federal income tax purposes which expires in 2023.  In addition, the Company has a net operating loss carryforward of approximately $5.6 million for California franchise tax purposes. However, the state of California has suspended the net operating loss deduction utilization for the tax years 2008, 2009, 2010 and 2011.  The net operating loss deduction for the state is now scheduled to expire in 2017.  With the completion of the secondary offering in October 2003, the Company had an “ownership change” as defined under Internal Revenue Code Section 382.  Under Section 382, which has also been adopted under California law, if during any three-year period there is more than a 50 percentage point change in the ownership of the Company, then the future use of any pre-change net operating losses or built-in losses of the Company are subject to an annual percentage limitation based on the value of the company at the ownership change date.  The ownership change reduced the net operating loss carryforward for federal and state tax purposes.  The annual usable net operating loss carryforward going forward is approximately $932,000 per year.

As of December 31, 2011, tax years for 2008 through 2010 remain open to audit by the Internal Revenue Service and 2007 through 2010 by the California state tax authority.  Currently, the Bank is undergoing an examination of its 2007, 2008, and 2009 income tax returns by the California Franchise Tax Board.  In connection with a previous examination, the state examiners reviewed, among other matters, whether our enterprise zone net interest deductions taken in tax years 2005 and 2006 were allowable.  After their examination, the state disallowed our enterprise zone net interest deductions of $141,000 for the year ended December 31, 2005 and $121,000 for the year ended December 31, 2006.  Based on their findings, the Company recorded an additional income tax for years 2005 through 2009 of $445,000, in 2009.