Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Income Taxes

Note 22—Income Taxes

The components of consolidated income tax expense are as follows:

	2012			2011			2010
	(in thousands)
Current tax expense
Federal	$	9,895		$	9,645		$	5,509
State		3,425			3,238			1,824
		13,320			12,883			7,333
Deferred tax benefit
Federal		(235	)		(1,298	)		(3,586	)
State		(148	)		(393	)		(1,281	)
		(383	)		(1,691	)		(4,867	)
Total tax expense	$	12,937		$	11,192		$	2,466

A deferred tax asset or liability is recognized for the tax consequences of temporary differences in the recognition of revenue and expense for financial and tax reporting purposes. The net change during the year in the deferred tax asset or liability results in a deferred tax expense or benefit.

Taxes recorded directly to shareholders’ equity are not included in the preceding table. These taxes (benefits) relating to changes in unfunded status of the supplemental retirement plans amounting to ($2,000) in 2012, $828,000 in 2011, and ($684,000) in 2010, and unrealized gains and losses on available-for-sale investment securities amounting to ($880,000) in 2012, $1,090,000 in 2011, and ($17,000) in 2010, taxes (benefits) related to employee stock options of $13,000 in 2012, $114,000 in 2011, and $0 in 2010, and taxes (benefits) related to changes in joint beneficiary agreement liability of $64,000 in 2012, ($105,000) in 2011, and $0 in 2010, were recorded directly to shareholders’ equity.

The temporary differences, tax effected, which give rise to the Company’s net deferred tax asset recorded in other assets are as follows as of December 31 for the years indicated:

	2012			2011
	(in thousands)
Deferred tax assets:
Allowance for losses	$	19,073		$	20,457
Deferred compensation		3,254			3,452
Accrued pension liability		5,272			4,709
Accrued bonus		980			—
Other accrued expenses		879			—
Unfunded status of the supplemental retirement plans		1,600			1,598
State taxes		1,297			1,106
Intangible amortization		—			53
Stock option expense		1,879			1,436
Nonaccrual interest		1,889			2,280
Joint beneficiary agreement liability		—			1,041
Acquisition cost basis		482			113
OREO write downs		1,103			1,300
Other, net		—			218
Total deferred tax assets		37,708			37,763
Deferred tax liabilities:
Securities income		(1,038	)		(1,197	)
Unrealized gain on securities		(3,547	)		(4,427	)
Depreciation		(344	)		(427	)
Merger related fixed asset valuations		(379	)		(379	)
Securities accretion		(150	)		(168	)
Mortgage servicing rights valuation		(1,641	)		(1,503	)
Indemnification asset		(840	)		(1,852	)
Prepaid expenses and other		(834	)		—
Total deferred tax liability		(8,773	)		(9,953	)
Net deferred tax asset	$	28,935		$	27,810

The Company believes that a valuation allowance is not needed to reduce the deferred tax assets as it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.

The Company had no unrecognized tax benefits at December 31, 2012, December 31, 2011 or December 31, 2010. During the year ended December 31, 2012, the Company recognized interest and penalties related to taxes of $22,000 and $5,000, respectively. During the years ended December 31, 2011 and 2010 the Company recognized no interest and penalties. The Company files income tax returns in the U.S. federal jurisdiction, and California. With few exceptions, the Company is no longer subject to U.S. federal and state/local income tax examinations by tax authorities for years before 2009 and 2008, respectively.

The provisions for income taxes applicable to income before taxes for the years ended December 31, 2012, 2011 and 2010 differ from amounts computed by applying the statutory Federal income tax rates to income before taxes. The effective tax rate and the statutory federal income tax rate are reconciled as follows:

	Years Ended December 31,
	2012			2011			2010
Federal statutory income tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax benefit		6.7			6.2			4.2
Tax-exempt interest on municipal obligations		(0.5	)		(0.6	)		(2.8	)
Tax-exempt life insurance related income		(2.0	)		(3.1	)		(7.6	)
Non-deductible joint beneficiary agreement expense		0.3			—			—
Other		1.0			0.1			0.3
Effective Tax Rate		40.5	%		37.6	%		29.1	%