INCOME TAXES

The provision for (benefit from) income taxes for the years ended December 31, 2011, 2010, and 2009 consisted of the following:



	Federal			State			Total
	(In thousands)
2011
Current	$	686		$	(95	)	$	591
Deferred	893			377			1,270
Provision for income taxes	$	1,579		$	282		$	1,861
2010
Current	$	1,472		$	496		$	1,968
Deferred	(1,677		)	(660		)	(2,337		)
Benefit from income taxes	$	(205	)	$	(164	)	$	(369	)
2009
Current	$	(1,374	)	$	(90	)	$	(1,464	)
Deferred	804			(16		)	788
Benefit from income taxes	$	(570	)	$	(106	)	$	(676	)

The determination of the amount of deferred income tax assets which are more likely than not to be realized is primarily dependent on projections of future earnings, which are subject to uncertainty and estimates that may change given economic conditions and other factors. The realization of deferred income tax assets is assessed and a valuation allowance is recorded if it is more likely than not that all or a portion of the deferred tax asset will not be realized. More likely than not is defined as greater than a 50% chance. All available evidence, both positive and negative is considered to determine whether, based on the weight of the evidence, a valuation allowance is needed. Based on management's analysis as of December 31, 2011, the Company established a deferred tax valuation allowance in the amount of $114,000 for California capital loss carryforwards.

Deferred tax assets (liabilities) consisted of the following:



	December 31,
	2011			2010
	(In thousands)
Deferred tax assets:
Allowance for credit losses	$	4,690		$	4,370
Deferred compensation	3,660			3,445
Net operating loss carryover from acquisition	1,188			1,959
Bank premises and equipment	909			907
Mark to market adjustment	416			551
Other deferred taxes	231			682
Other then temporary impairment	282			653
Other real estate	—			566
Loan and investment impairment	352			383
State Enterprise Zone credit carry-forward	522			343
State capital loss carry-forward	114			120
Alternative minimum tax credit	530			138
State taxes	58			144
Other reserves	—			10
Partnership income	74			39
Total deferred tax assets	13,026			14,310
Valuation allowance	(114		)	—
Net deferred tax asset after valuation allowance	12,912			14,310
Deferred tax liabilities:
Finance leases	(2,650		)	(2,581		)
Unrealized gain on available-for-sale investment securities	(2,884		)	(676		)
Core deposit intangible	(322		)	(493		)
FHLB stock	(241		)	(254		)
Loan origination costs	(176		)	(189		)
Total deferred tax liabilities	(6,273		)	(4,193		)
Net deferred tax assets	$	6,639		$	10,117

The provision for income taxes differs from amounts computed by applying the statutory Federal income tax rates to operating income before income taxes. The significant items comprising these differences for the years ended December 31, 2011, 2010, and 2009 consisted of the following:



	2011		2010		2009
Federal income tax, at statutory rate	34.0	%	34.0	%	34.0	%
State taxes, net of Federal tax benefit	3.6	%	(3.7	)%	(3.7	)%
Tax exempt investment security income, net	(14.0	)%	(34.7	)%	(52.4	)%
Bank owned life insurance, net	(1.6	)%	(4.6	)%	(6.9	)%
Solar credits	(1.6	)%	(5.4	)%	(15.7	)%
Change in uncertain tax positions	0.5	%	(1.3	)%	7.7	%
Other	1.4	%	3.0	%	1.7	%
Effective tax rate	22.3	%	(12.7	)%	(35.3	)%

At December 31, 2011, the Company had Federal and California net operating loss (“NOL”) carry-forwards of approximately $5,794,000 and $5,949,000, respectively from the Service 1st acquisition, subject to an Internal Revenue Code (IRC) Sec. 382 annual limitation of $1,133,000. Management expects to fully utilize the Service 1st Federal and California NOL carry-forward. The Federal NOL will begin to expire in 2028. California suspended utilization of NOLs for 2009, 2010 and 2011 tax years for taxpayers with business income in excess of $500,000. The California NOL will begin to expire in 2019.

The Company and its Subsidiary file income tax returns in the U.S. federal and California jurisdictions. The Company conducts all of its business activities in the State of California. As of December 31, 2011, the Company had one state income tax examination in process. The outcome of the examination is not settled. There are currently no pending U.S. federal or local income tax examinations by those taxing authorities. The Company is no longer subject to the examination by U.S. federal taxing authorities for the years ended before December 31, 2008 and by the state and local taxing authorities for the years ended before December 31, 2007.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):



Balance at January 1, 2011	$	211
Additions based on tax positions related to the current year	57
Reductions for tax positions of prior years	(13		)
Balance at December 31, 2011	$	255

Of this total, $255,000 represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. The Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months.

During the years ended December 31, 2011 and 2010, the Company did not recognize any interest and penalties related to uncertain tax positions. In 2009, the Company recognized $32,000 of interest related to the pending state tax examination and no penalties related to uncertain tax positions.