FEDERAL INCOME TAXES

12 Months Ended

Jun. 30, 2012

FEDERAL INCOME TAXES

NOTE 10—FEDERAL INCOME TAXES

Income tax expense (benefit) was as follows:

	2012			2011			2010
Current expense (benefit)	$	—		$	(450,281	)	$	(4,695,438	)
Deferred expense (benefit)		(218,999	)		(2,978,446	)		5,426,287
Benefit of operating loss carryforwards		—			—			—
Establishment of valuation allowance		—			3,550,566			—
Total	$	(218,999	)	$	121,839		$	730,849

For 2012, the tax benefit reflected in continuing operations relates to adjustments between other comprehensive income and continuing operations tax expense due to accounting rules related to intraperiod allocation of tax between components of the financial statements.

The provision for federal income taxes differs from the amounts computed by applying the U.S. federal income tax statutory rate to income before federal income taxes. These differences are reconciled as follows:

	2012						2011						2010
	Amount			%			Amount			%			Amount			%
Computed expected tax	$	(542,526	)		35.0	%	$	(3,349,248	)		35.0	%	$	760,097			35.0	%
Increase (decrease) in tax resulting from:
Effect of graduated rates		15,501			(1.0	)		95,693			(1.0	)		(21,717	)		(1.0	)
Bank-owned life insurance		(77,715	)		5.0			(93,859	)		1.0			(85,006	)		(3.9	)
Stock compensation		12,536			(0.8	)		39,849			(0.4	)		31,971			1.5
Increase in deferred tax valuation allowance		369,528			(23.9	)		3,550,566			(37.1	)		—			0.0
Other, net		3,677			(0.2	)		(121,162	)		1.2			45,504			2.1
	$	(218,999	)		14.1	%	$	121,839			(1.3	)%	$	730,849			33.7	%

The net tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at June 30, 2012 and 2011 are:

	2012			2011
Deferred tax assets:
Loan loss reserves	$	7,314,023		$	7,380,529
Deferred compensation		179,258			165,118
Deferred loan fees, net		123,361			340,042
Unrealized gains on loans and securities held for sale		108,246			41,852
Net operating loss carryforward		5,532,746			4,476,068
Other		93,425			131,765
Total gross deferred tax assets		13,351,059			12,535,374
Deferred tax liabilities:
FHLB stock dividend		(2,041,343	)		(2,041,343	)
Originated mortgage servicing asset		(2,334,894	)		(2,556,558	)
Fixed assets		(293,669	)		(336,641	)
Prepaid franchise tax		(122,767	)		(154,652	)
Debt discharge income deferral		(2,788,000	)		(2,788,000	)
Other		(982,187	)		(239,509	)
Total gross deferred tax liabilities		(8,562,860	)		(8,116,703	)
Deferred tax asset before valuation allowance	$	4,788,199		$	4,418,671
Deferred tax valuation allowance		(4,788,199	)		(4,418,671	)
Total net deferred tax asset	$	—		$	—

Management recorded net deferred tax assets at year end 2012 and 2011 of $4.8 million and $4.4 million respectively. A valuation allowance is established to reduce the deferred tax asset if it is more likely than not that the related tax benefits will not be realized. In management’s opinion, it is more likely than not that the tax benefits will not be realized; consequently, a valuation allowance has been established as of June 30, 2011 and increased as of June 30, 2012. 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 carry a valuation allowance against deferred tax assets of $4.8 million at June 30, 2012 and $4.4 million at June 30, 2011 to reduce the carrying amount of the Company’s net deferred tax asset to zero.

As of June 30, 2012, the Company has net operating loss carryforwards of approximately $3,888,000 from the year ending June 30, 2012, $11,758,000 from June 30, 2011 and $627,000 from June 30, 2010. The related net operating loss carry-forward periods expire in 2030, 2031 and 2032, respectively.

Accumulated deficits at June 30, 2012 and 2011 include approximately $4,516,000 for which no provision for federal income tax has been made. The related unrecorded deferred tax liability was approximately $1,535,000 at June 30, 2012 and 2011. This amount represents allocations of income during years prior to 1988 to bad debt reserve deductions for tax purposes only. These reserves will be recaptured into taxable income in the event of certain distributions and redemptions. Such recapture would create income for tax purposes only, which would be subject to income taxes at the then current corporate income tax rate, resulting in a charge to income tax expense. Recapture would not occur upon the reorganization, merger, or acquisition of Park View Federal, or if the Bank is merged or liquidated tax-free into a bank or undergoes a charter change. If Park View Federal fails to qualify as a bank or merges into a nonbank entity, these reserves will be recaptured into taxable income, resulting in a charge to income tax expense.