Income Taxes

12 Months Ended

Jun. 30, 2012

Income Taxes:

Income Taxes

9. Income Taxes:

The Corporation utilizes the asset and liability method of accounting for income taxes whereby deferred tax assets are recognized for deductible temporary differences and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.  The provision for income taxes for the periods indicated consisted of the following:

(In Thousands)		Year Ended June 30,
		2012	2011	2010
Current:
	Federal	$ 4,984	$   4,484	$ (1,601	)
	State	1,662	1,643	(155	)
		6,646	6,127	(1,756	)
Deferred:
	Federal	947	2,911	2,189
	State	335	1,011	307
		1,282	3,922	2,496
Provision for income taxes		$ 7,928	$ 10,049	$     740

The Corporation’s tax benefit from non qualified equity compensation in fiscal 2012 was $9,000, while there were no deferred tax benefits from non-qualified equity compensation in fiscal 2011 or 2010.

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to net income (loss) before income taxes as a result of the following differences for the periods indicated:

		Year Ended June 30,
		2012						2011						2010
(In Thousands)		Amount			Tax Rate			Amount			Tax Rate			Amount			Tax Rate
Federal income tax at statutory rate		$	6,558			35.0	%	$	8,144			35.0	%	$	649			35.0	%
State income tax			1,300			6.9			1,638			7.0			111			6.0
Changes in taxes resulting from:
	Bank-owned life insurance		(66	)		(0.4	)		(70	)		(0.3	)		(70	)		(3.8	)
	Non-deductible expenses		33			0.2			31			0.1			25			1.4
	Non-deductible stock-based compensation		110			0.6			172			0.8			26			1.4
	Other		(7	)		-			134			0.6			(1	)		(0.1	)
Effective income tax		$	7,928			42.3	%	$	10,049			43.2	%	$	740			39.9	%

Deferred tax assets at June 30, 2012 and 2011 by jurisdiction were as follows:

(In Thousands)	June 30,
	2012	2011
Deferred taxes – federal	$ 5,873	$ 6,812
Deferred taxes – state	2,775	3,109
Total net deferred tax assets	$8,648	$ 9,921

Net deferred tax assets at June 30, 2012 and 2011 were comprised of the following:

(In Thousands)		June 30,
		2012		2011
Loss reserves		$ 13,858		$ 15,194
Non-accrued interest		237		248
Deferred compensation		3,425		3,282
Accrued vacation		281		226
Depreciation		28		-
State taxes		181		27
Other		159		17
	Total deferred tax assets	18,169		18,994
FHLB – San Francisco stock dividends		(3,015	)	(3,655	)
Unrealized gain on derivative financial instruments, at fair value		(1,238	)	(603	)
Unrealized gain on loans held for sale, at fair value		(2,133	)	(2,844	)
Unrealized gain on investment securities		(399	)	(379	)
Unrealized gain on interest-only strips		(53	)	(83	)
Deferred loan costs		(2,683	)	(1,434	)
Depreciation		-		(75	)
	Total deferred tax liabilities	(9,521	)	(9,073	)
	Net deferred tax assets	$   8,648		$   9,921

The net deferred tax assets were included in prepaid expenses and other assets in the Consolidated Statements of Financial Condition.  The Corporation analyzes the deferred tax assets to determine whether a valuation allowance is required based on the more likely than not criteria that such assets will be realized principally through future taxable income.  This criteria takes into account the actual earnings and the estimates of profitability.  The Corporation may carryback net federal tax losses to the preceding five taxable years and forward to the succeeding 20 taxable years.  At June 30, 2012, the Corporation had no federal and $4.1 million in state net tax loss carryforwards.  Based on management’s consideration of historical and anticipated future income before income taxes, as well as the reversal period for the items giving rise to the deferred tax assets and liabilities, a valuation allowance was not considered necessary at June 30, 2012 and 2011 and management believes it is more likely than not the Corporation will realize its deferred tax asset.

In the quarter ended June 30, 2012, the Corporation recorded an $825,000 tax liability as a result of a prior period adjustment for fiscal 2009 and an $825,000 charge against retained earnings in stockholders’ equity, pursuant to ASC 740-10: “Income Taxes,” see Note 1 on “Income taxes.”

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended June 30, 2012, 2011, and 2010 is as follows (in thousands):

	2012	2011	2010
Balance at July 1	$ 1,961	$ 1,961	$ 1,961
Additions based on tax positions related to the current year	-	-	-
Addition for tax positions of prior years	-	-	-
Reduction for tax positions of prior years	-	-	-
Settlements	-	-	-
Balance at June 30	$ 1,961	$ 1,961	$ 1,961

Retained earnings at June 30, 2012 included approximately $9.0 million (pre-1988 bad debt reserve for tax purposes) for which federal income tax of $3.1 million had not been provided.  If the amounts that qualify as deductions for federal income tax purposes are later used for purposes other than for bad debt losses, including distribution in liquidation, they will be subject to federal income tax at the then-current corporate tax rate.  If those amounts are not so used, they will not be subject to tax even in the event the Bank were to convert its charter from a thrift to a bank.