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## NOTES TO FINANCIAL STATEMENTS 

## 8. INCOME TAXES (Continued) 

Deferred tax assets (liabilities) consisted of the following: 

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Included in the valuation allowance against the deferred tax assets is the 2009 loss on sale of FNMA Preferred Stock. The loss on the preferred shares is accorded ordinary treatment for federal income tax purposes, but treated as a capital loss for California tax purposes. For California, capital losses are deductible only to the extent they offset capital gains within five years of the date that the loss is realized for tax. Management believes that a valuation allowance is appropriate against the California capital loss exposure in the amount of $141,979 at December 31, 2011 and 2010. This valuation allowance is included as a component in the full valuation allowance against the Bank’s deferred tax assets. 

At December 31, 2011, the Bank had Federal and State net operating loss carry-forwards (NOLs) of $2,421,000 and $3,782,000, respectively. The Federal and State NOLs begin to expire in 2027 and 2019, respectively. 

The Bank files income tax returns in the U.S federal and California jurisdictions. There are currently no pending U.S. federal or state income tax or non-U.S. income tax examinations by tax authorities. The Bank is subject to tax examinations by U.S. Federal and state taxing authorities for all tax returns filed since its inception. 

As of December 31, 2011 and 2010, there were no unrecognized tax benefits or interest and penalties accrued by the Bank. 

