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Income Taxes | 12 Months Ended
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Mar. 31, 2012
Income Taxes: |
Income Taxes |
12. | INCOME TAXES
Income tax provision (benefit) for the years ended March 31 consisted of the following (in thousands):
| 2012 |  | 2011 |  | 2010 |
Current | $ | (158 | ) | $ | 324 |  | $ | 18 |
Deferred |  | 8,536 |  |  | 1,841 |  |  | (3,295 | )
Total | $ | 8,378 |  | $ | 2,165 |  | $ | (3,277 | )
The tax effect of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at March 31, 2012 and 2011 are as follows (in thousands):
| 2012 |  | 2011 |
Deferred tax assets: |  |  |  |  |  |
Deferred compensation | $ | 512 |  | $ | 469 |
Loan loss reserve |  | 7,149 |  |  | 5,373 |
Accrued expenses |  | 245 |  |  | 265 |
Accumulated depreciation |  | 568 |  |  | 518 |
Deferred gain on sale |  | 402 |  |  | 460 |
Tax credit carryforwards |  | 6,111 |  |  | - |
Net unrealized loss on securities available for sale |  | 603 |  |  | 730 |
Impairment on investment security |  | 233 |  |  | 233 |
REO expense |  | 2,814 |  |  | 2,833 |
Non-compete |  | 106 |  |  | 119 |
Other |  | 367 |  |  | 205 |
Valuation allowance for deferred tax assets |  | (16,830 | ) |  | - |
Total deferred tax asset |  | 2,280 |  |  | 11,205 |
Deferred tax liabilities: |  |  |  |  |  |
FHLB stock dividend |  | (1,063 | ) |  | (1,063 | )
Purchase accounting |  | (49 | ) |  | (79 | )
Prepaid expense |  | (178 | ) |  | (167 | )
Loan fees/costs |  | (387 | ) |  | (449 | )
Total deferred tax liability |  | (1,677 | ) |  | (1,758 | )
Deferred tax asset, net | $ | 603 |  | $ | 9,447 |
A reconciliation of the Company’s effective income tax rate with the federal statutory tax rate for the years ended March 31 is as follows:
|  | 2012 |  |  | 2011 |  |  | 2010 |
Statutory federal income tax rate |  | 34.0 | % |  | 34.0 | % |  | 34.0 | %
State and local income tax rate |  | 1.5 |  |  | 1.5 |  |  | 1.5 |
ESOP market value adjustment |  | 0.1 |  |  | (0.2 | ) |  | 0.1 |
Interest income on municipal securities |  | 0.1 |  |  | (0.3 | ) |  | 0.4 |
Bank owned life insurance |  | 0.9 |  |  | (3.3 | ) |  | 2.5 |
Valuation adjustment |  | (72.5 | ) |  | - |  |  | - |
Other, net |  | (0.1 | ) |  | 1.7 |  |  | (0.9 | )
Effective federal income tax rate |  | (36.0 | )% |  | 33.4 | % |  | 37.6 | %
There were no taxes related to the gains on sales of securities for the years ended March 31, 2012, 2011 and 2010. The tax effects of certain tax benefits related to stock options are recorded directly to shareholders’ equity. The Bank’s retained earnings at March 31, 2012 and 2011 include base year bad debt reserves, which amounted to $2.2 million, for which no federal income tax liability has been recognized. The amount of unrecognized deferred tax liability at March 31, 2012 and 2011 was $781,000. This represents the balance of bad debt reserves created for tax purposes as of December 31, 1987. These amounts are subject to recapture in the unlikely event that the Company’s banking subsidiaries (1) make distributions in excess of current and accumulated earnings and profits, as calculated for federal tax purposes, (2) redeem their stock, or (3) liquidate. Management does not expect this temporary difference to reverse in the foreseeable future. At March 31, 2012, the Company had a deferred tax asset of $4.9 million and $1.2 million for federal and state, net operating loss carryforwards, respectively, which will expire in 2032. At March 31, 2012 and 2011, the Company had no unrecognized tax benefits or uncertain tax positions. In addition, the Company had no accrued interest or penalties as of March 31, 2012 or 2011. It is the Company’s policy to recognize potential accrued interest and penalties as a component of income tax expense. The Company is subject to U.S. federal income tax and income tax of the State of Oregon. The years 2008 to 2011 remain open to examination for federal income taxes, and years 2007 to 2011 remain open to State examination. In accordance with current accounting guidance, a valuation allowance is required to be recognized if it is “more likely than not” that all or a portion of the deferred tax assets will not be realized. “More likely than not” is defined as greater than 50% probability of occurrence. A determination as to the ultimate realization of the deferred tax assets is dependent upon management’s judgment and evaluation of both positive and negative evidence, forecasts of future taxable income, applicable tax planning strategies, and an assessment of current and future economic and business conditions. Positive evidence reviewed included long-term earnings history prior to recent economic downturn, recent improved performance trends, proven ability to utilize deferred tax credits, projection of future income, capital levels and net operating loss carryback availability. Negative evidence reviewed consisted primarily of the losses sustained by the Company during fiscal year 2012. After considering both the positive and negative factors, management carried a valuation allowance for deferred taxes of $16.8 million as of March 31, 2012. The Company did not have a valuation allowance for deferred tax assets at March 31, 2011.

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