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9. Income Taxes | 12 Months Ended
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Jun. 30, 2013
Notes |
9. Income Taxes | 9. Income Taxes Income tax expense (benefit) consists of:
| June 30,
|  | 2013 |  |  | 2012 |  |  | 2011
Current: |  |  |  |  |  |  |  |
Federal | $ | 324 |  | $ | (118) |  | $ | (1,619)
State |  | 44 |  |  | 8 |  |  | 51
Total current expense (benefit) |  | 368 |  |  | (110) |  |  | (1,568)
Deferred: |  |  |  |  |  |  |  |
Federal |  | 911 |  |  | (769) |  |  | (9,664)
State |  | 696 |  |  | 232 |  |  | (2,031)
Total deferred expense (benefit) |  | 1,607 |  |  | (537) |  |  | (11,695)
Total income tax expense (benefit) | $ | 1,975 |  | $ | (647) |  | $ | (13,263)
Income tax expense (benefit) differed from the amounts computed by applying the U.S. federal income tax rate of 34% to pretax income from continuing operations before income taxes as a result of the following:
|  | Year Ended June 30,
|  | 2013 |  | 2012 |  | 2011
|  |  | $ |  | Rate |  |  | $ |  | Rate |  |  | $ |  | Rate
Tax at federal income tax rate |  | $ | 3,749 |  | 34% |  | $ | 1,319 |  | 34% |  | $ | (9,520) |  | (34)%
Increase (decrease) resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tax exempt income |  |  | (1,946) |  | (18) |  |  | (2,136) |  | (55) |  |  | (2,049) |  | (7)
Gain from business combination |  |  | - |  | - |  |  | - |  | - |  |  | (1,987) |  | (7)
Change in valuation allowance for deferred tax assets, allocated to income tax expense |  |  | (390) |  | (4) |  |  | 28 |  | 1 |  |  | 2,028 |  | 7
State tax, net of federal benefit |  |  | 489 |  | 4 |  |  | 156 |  | 4 |  |  | (1,306) |  | (5)
Other |  |  | 73 |  | 1 |  |  | (14) |  | (1) |  |  | (429) |  | (1)
Total |  | $ | 1,975 |  | 18% |  | $ | (647) |  | (17)% |  | $ | (13,263) |  | (47)%
The sources and tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at June 30, 2013 and 2012 are presented below:
|  | June 30,
|  | 2013 |  |  | 2012
Deferred tax assets: |  |  |  |  |
Alternative minimum tax credit | $ | 3,650 |  | $ | 3,422
Allowance for loan losses |  | 12,564 |  |  | 13,281
Deferred compensation and post-retirement benefits |  | 16,998 |  |  | 17,067
Accrued vacation and sick leave |  | 358 |  |  | 361
Impairments on real estate owned |  | 972 |  |  | 1,177
Capital loss carryforward |  | 10 |  |  | 579
Net operating loss carryforward |  | 16,336 |  |  | 16,920
Discount from business combination |  | 509 |  |  | 571
Unrealized loss on securities held for sale |  | 16 |  |  | -
Other |  | 590 |  |  | 896
Total gross deferred tax assets |  | 52,003 |  |  | 54,274
Less valuation allowance |  | (2,178) |  |  | (2,570)
Deferred tax assets |  | 49,825 |  |  | 51,704
Deferred tax (liabilities): |  |  |  |  |
Depreciable basis of fixed assets |  | (1,026) |  |  | (1,257)
Deferred loan fees |  | (530) |  |  | (546)
FHLB stock, book basis in excess of tax |  | (147) |  |  | (777)
Stock Compensation Plans |  | (694) |  |  | -
Unrealized gain on securities available for sale |  | - |  |  | (93)
Other |  | - |  |  | (104)
Total gross deferred tax liabilities |  | (2,397) |  |  | (2,777)
Net deferred tax assets | $ | 47,428 |  | $ | 48,927
The Company has net operating loss carry forwards of $42.9 million and $43.7 million as of June 30, 2013 and June 30, 2012, respectively, with a recorded tax benefit of $16.3 million and $16.9 million included in deferred tax assets. These loss carryforwards will begin to expire for federal tax purposes as of June 30, 2031. The valuation allowance for deferred tax assets as of June 30, 2013 and 2012 was $2,178 and $2,570, respectively. The net change in the total valuation allowance for June 30, 2013 and 2012 was ($392) and $28, respectively, which relates primarily to North Carolina state income taxes due to limitations on state net operating loss carry forwards. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management performed a robust evaluation of the Company’s deferred tax assets at June 30, 2013 and June 30, 2012. Management considered all available positive and negative evidence including the possibility of future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and recent financial performance in making this assessment. Negative evidence considered included the Company’s pre-tax loss for the year ended June 30, 2011 and relatively high net loan chargeoffs during the years ended June 30, 2012 and 2011. Positive evidence considered included pre-tax income for the year ended June 30, 2013 and 2012, the Company’s history of generating taxable income, no prior history of generating loss carry forwards or expiration of loss carry forwards, its regulatory “well capitalized” status, the long-term nature of the deferred compensation deferred tax asset, the Company’s improving credit quality indicators, and its ability to sell its municipal lease portfolio to convert current tax-free income to future taxable income. Based upon this evaluation, management believes there is more positive evidence than negative evidence and it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at June 30, 2013 and June 30, 2012. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if negative trends occur with credit quality and earnings during the carryforward period. Retained earnings at June 30, 2013 and 2012 include $19,570 representing pre-1988 tax bad debt reserve base year amounts for which no deferred tax liability has been provided since these reserves are not expected to reverse and may never reverse. Circumstances that would require an accrual of a portion or all of this unrecorded tax liability are a failure to meet the definition of a bank, dividend payments in excess of current year or accumulated earnings and profits, or other distributions in dissolution or liquidation of the Bank. Income tax returns subsequent to 2009 are subject to examination by the taxing authorities.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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