Note 13 - Income Taxes

3 Months Ended

Mar. 31, 2012

Income Tax Disclosure [Text Block]

13.  INCOME TAXES

Income tax expense for the three months ended March 31, 2012 was $1.3 million, compared with $1.1 million for the same period in 2011. The Company’s effective tax rate was 32.7% for the three months ended March 31, 2012 compared with 34.9% for the three months ended March 31, 2011. The decrease in the effective income tax rate in 2012 as compared to 2011 was primarily the result of a decrease in state income taxes.  The Texas state tax is based on the Company’s gross margin with limited deductions. Because the Texas state tax allows only limited deductions,  the tax may not correlate from year to year with pre-tax income. The California tax is based on the unitary income of the consolidated group which can vary disproportionately from pre-tax income depending on the apportionment of income among members of the unitary group.

As of March 31, 2012, the Company had approximately $14.8 million in net deferred tax assets. Deferred tax assets are subject to an evaluation of whether it is more likely than not that they will be realized. The Company has not provided a valuation allowance for the net deferred tax assets at March 31, 2012 and December 31, 2011 due primarily to its ability to offset reversals of net deductible temporary differences against income taxes paid in previous years and expected to be paid in future years. In making such judgments, significant weight is given to evidence that can be objectively verified. Because of historical losses that were recorded by the Company for the years ended December 31, 2010 and 2009, and if the Company is unable to generate sufficient taxable income in the future, then the Company may not be able to conclude it is more likely than not that the benefits of the deferred tax assets will be fully realized and may be required to recognize a valuation allowance and a corresponding income tax expense equal to the portion of the deferred tax asset that may not be realized.

The Company forecasts sufficient taxable income, exclusive of tax planning strategies, to fully realize its deferred tax assets. The Company has projected its pretax earnings based upon business that the Company anticipates conducting in the future, which is supported by the Company’s return to an income, rather than loss, position in 2012. During 2010 and 2009, earnings were negatively affected by the large increase in the provisions for loan losses during the sharp economic downturn. The Company reduced its cost structure, and taking this into account, the Company projects that it will generate sufficient pretax earnings within a five-year period.

The U.S. Federal and California State net operating loss carryforward period of 20 years provides sufficient time to utilize the deferred tax assets pertaining to the existing net operating loss carryforwards and any net operating losses that would be created by the reversal of the future net deductions which have not yet been taken.