Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

Income Taxes

Note 13:  INCOME TAXES

The following table presents the components of the provision for income tax (benefit) expense included in the Consolidated Statement of Operations for the years ended December 31, 2011, 2010 and 2009 (in thousands):

	Years Ended December 31
		2011			2010			2009
Current	$	--		$	3,025		$	(17,983	)
Deferred		(3,322	)		(21,183	)		(9,070	)
Increase in valuation allowance		3,322			36,171			--
Provision for (benefit from) income taxes	$	--		$	18,013		$	(27,053	)

The following tables present the reconciliation of the provision for income taxes computed at the federal statutory rate to the actual effective rate for the years ended December 31, 2011, 2010 and 2009 (dollars in thousands):

	Years Ended December 31
		2011			2010			2009
Provision for (benefit from) income taxes computed at federal statutory rate	$	1,910		$	(15,359	)	$	(21,986	)
Increase (decrease) in taxes due to:
Tax-exempt interest		(1,616	)		(1,471	)		(2,108	)
Investment in life insurance		(663	)		(683	)		(758	)
State income taxes (benefit), net of federal tax          Offset		(2,260	)		(495	)		(819	)
Tax credits		(840	)		(816	)		(864	)
Valuation allowance		3,322			36,171			--
Other		147			666			(518	)
Provision for (benefit from) income taxes	$	--		$	18,013		$	(27,053	)

	Years Ended December 31
		2011		2010		2009
Federal income tax statutory rate		35.0	%	35.0	%	35.0	%
Increase (decrease) in tax rate due to:
Tax-exempt interest		(29.6	)	3.4		3.4
Investment in life insurance		(12.1	)	1.6		1.2
State income taxes (benefit), net of federal tax          Offset		(41.5	)	1.1		1.3
Tax credits		(15.4	)	1.9		1.4
Valuation allowance		60.9		(82.4	)	--
Other		2.7		(1.6	)	0.8
Effective income tax rate		--	%	(41.0	)%	43.1	%

The following table reflects the effect of temporary differences that gave rise to the components of the net deferred tax asset as of December 31, 2011 and 2010 (in thousands):

	December 31
		2011			2010
Deferred tax assets:
REO and loan loss reserves	$	31,156		$	40,652
Deferred compensation		6,032			6,765
Net operating loss carryforward		27,992			21,161
Low income housing tax credits		7,202			3,319
Other		309			--
Total deferred tax assets		72,691			71,897
Deferred tax liabilities:
FHLB stock dividends		(6,137	)		(6,230	)
Depreciation		(3,570	)		(4,405	)
Deferred loan fees, servicing rights and loan origination costs		(4,863	)		(4,646	)
Intangibles		(2,243	)		(3,041	)
Financial instruments accounted for under fair value accounting		(16,499	)		(16,983	)
Total deferred tax liabilities		(33,312	)		(35,305	)
Deferred income tax asset		39,379			36,592
Unrealized gain on securities available-for-sale		(1,151	)		(421	)
Valuation allowance		(38,228	)		(36,171	)
Deferred tax asset, net	$	--		$	--

The ultimate realization of deferred tax assets is dependent upon the existence, or generation, of taxable income in the periods when those temporary differences and net operating loss and credit carryforwards are deductible.  Management considers the scheduled reversal of deferred tax liabilities, taxes paid in carryback years, projected future taxable income, available tax planning strategies, and other factors in making this assessment.  As of December 31, 2011 and 2010, based on available evidence, management believed it was not more likely than not that the net deferred tax assets would be realized in the future.  Accordingly, a valuation allowance for the net amount of the deferred tax assets was maintained at December 31, 2011 and 2010.  The valuation allowance increased by $36.2 million in 2010 and increased by $2.1 million in 2011.  There was no valuation allowance as of December 31, 2009.

At December 31, 2011, the Company had federal and state net operating loss carryforwards of approximately $73.3 million and $21.7 million, respectively, which will expire, if unused, by the end of 2031.  The Company also has federal and state tax credit carryforwards of $6.5 million and $0.7 million, respectively, which will expire, if unused, by the end of 2031.

As of December 31, 2011, the Company has an insignificant amount of unrecognized tax benefits for uncertain tax positions, none of which would materially affect the effective tax rate if recognized. The Company does not anticipate that the amount of unrecognized tax benefits will significantly increase or decrease in the next twelve months. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in the income tax expense. The amount of interest and penalties accrued for the years ended December 31, 2011 and 2010 is immaterial. The Company files consolidated income tax returns in Oregon and Idaho and for federal purposes. The tax years which remain subject to examination by the taxing authorities are the years ending December 31, 2006 through 2010.

Retained earnings at December 31, 2011 and 2010 include approximately $5.4 million in tax basis bad debt reserves for which no income tax liability has been booked.  In the future, if this tax bad debt reserve is used for purposes other than to absorb bad debts or the Company no longer qualifies as a bank or is completely liquidated, the Company will incur a federal tax liability at the then-prevailing corporate tax rate, established as $1.9 million at December 31, 2011.