INCOME TAXES

The provision for (benefit from) income taxes for the years ended December 31, 2013, 2012, and 2011 consisted of the following (in thousands):



	Federal			State			Total
2013
Current	$	2,217		$	(445	)	$	1,772
Deferred	(645		)	220			(425		)
Provision for income taxes	$	1,572		$	(225	)	$	1,347
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
Benefit from income taxes	$	1,579		$	282		$	1,861

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, 2013 and 2012, the Company established a deferred tax valuation allowance in the amount of $108,000 and $110,000, respectively, for California capital loss carryforwards.

Deferred tax assets (liabilities) consisted of the following (in thousands):



	December 31,
	2013			2012
Deferred tax assets:
Allowance for credit losses	$	3,492		$	4,170
Deferred compensation	5,102			3,832
Unrealized loss on available-for-sale investment securities	1,598			—
Net operating loss carryover from acquisition	206			521
Bank premises and equipment	264			862
Mark to market adjustment	154			184
Other deferred taxes	594			253
Other than temporary impairment	289			282
Loan and investment impairment	1,914			352
State Enterprise Zone credit carry-forward	981			783
State capital loss carry-forward	108			110
Alternative minimum tax credit	2,238			1,025
State taxes	32			20
Other	7			7
Partnership income	70			77
Total deferred tax assets	17,049			12,478
Valuation allowance	(108		)	(110		)
Net deferred tax asset after valuation allowance	16,941			12,368
Deferred tax liabilities:
Finance leases	(1,963		)	(2,548		)
Unrealized gain on available-for-sale investment securities	—			(5,305		)
Core deposit intangible	(692		)	(240		)
FHLB stock	(319		)	(241		)
Loan origination costs	(406		)	(256		)
Total deferred tax liabilities	(3,380		)	(8,590		)
Net deferred tax assets	$	13,561		$	3,778

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, 2013, 2012, and 2011 consisted of the following:



	2013		2012		2011
Federal income tax, at statutory rate	34.0	%	34.0	%	34.0	%
State taxes, net of Federal tax benefit	0.4	%	2.8	%	3.6	%
Tax exempt investment security income, net	(20.5	)%	(16.7	)%	(14.0	)%
Bank owned life insurance, net	(1.8	)%	(1.4	)%	(1.6	)%
Solar credits	(1.4	)%	(1.4	)%	(1.6	)%
Change in uncertain tax positions	(1.4	)%	0.5	%	0.5	%
Change in prior year estimates	1.4	%	—	%	—	%
Other	3.4	%	0.5	%	1.4	%
Effective tax rate	14.1	%	18.3	%	22.3	%

At December 31, 2013, the Company had California net operating loss (“NOL”) carry-forwards of approximately $2,885,000 from the Service 1st and Visalia Community Bank acquisitions, subject to an Internal Revenue Code (IRC) Sec. 382 annual limitation of $1,802,000. Management expects to fully utilize the Service 1st and Visalia Community Bank California NOL carry-forwards. California suspended utilization of NOLs for 2009, 2010 and 2011 tax years for taxpayers with business income in excess of $300,000. 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. There are currently no pending U.S. federal, state 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, 2010 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, 2013	$	316
Additions based on tax positions related to the current year	55
Reductions for tax positions of prior years	(191		)
Balance at December 31, 2013	$	180

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, 2013, 2012, and 2011, the Company did not recognize any interest or penalties related to uncertain tax positions.