INCOME TAXES

The provision for (benefit from) income taxes for the years ended December 31, 2012, 2011, and 2010 consisted of the following:



(In thousands)	Federal			State			Total
2012
Current	$	1,196		$	49		$	1,245
Deferred	249			191			440
Provision for income taxes	$	1,445		$	240		$	1,685
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	)

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. The balance of the allowance as of December 31, 2012, was $110,000.

Deferred tax assets (liabilities) consisted of the following:



	December 31,
(In thousands)	2012			2011
Deferred tax assets:
Allowance for credit losses	$	4,170		$	4,690
Deferred compensation	3,832			3,660
Net operating loss carryover from acquisition	521			1,188
Bank premises and equipment	862			909
Mark to market adjustment	184			416
Other deferred taxes	253			231
Other than temporary impairment	282			282
Loan and investment impairment	352			352
State Enterprise Zone credit carry-forward	783			522
State capital loss carry-forward	110			114
Alternative minimum tax credit	1,025			530
State taxes	20			58
Other	7			—
Partnership income	77			74
Total deferred tax assets	12,478			13,026
Valuation allowance	(110		)	(114		)
Net deferred tax asset after valuation allowance	12,368			12,912
Deferred tax liabilities:
Finance leases	(2,548		)	(2,650		)
Unrealized gain on available-for-sale investment securities	(5,305		)	(2,884		)
Core deposit intangible	(240		)	(322		)
FHLB stock	(241		)	(241		)
Loan origination costs	(256		)	(176		)
Total deferred tax liabilities	(8,590		)	(6,273		)
Net deferred tax assets	$	3,778		$	6,639

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, 2012, 2011, and 2010 consisted of the following:



	2012		2011		2010
Federal income tax, at statutory rate	34.0	%	34.0	%	34.0	%
State taxes, net of Federal tax benefit	2.8	%	3.6	%	(3.7	)%
Tax exempt investment security income, net	(16.7	)%	(14.0	)%	(34.7	)%
Bank owned life insurance, net	(1.4	)%	(1.6	)%	(4.6	)%
Solar credits	(1.4	)%	(1.6	)%	(5.4	)%
Change in uncertain tax positions	0.5	%	0.5	%	(1.3	)%
Other	0.5	%	1.4	%	3.0	%
Effective tax rate	18.3	%	22.3	%	(12.7	)%

At December 31, 2012, the Company had Federal and California net operating loss (“NOL”) carry-forwards of approximately $1,110,000 and $2,003,000, 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, 2012, 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, 2009 and by the state and local taxing authorities for the years ended before December 31, 2008.

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



Balance at January 1, 2012	$	255
Additions based on tax positions related to the current year	61
Reductions for tax positions of prior years	—
Balance at December 31, 2012	$	316

This 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, 2012, 2011, and 2010, the Company did not recognize any interest and penalties related to uncertain tax positions.