NOTE 12 — INCOME TAXES

Income tax expense (benefit) for the years ended December 31, 2014, 2013, and 2012 consisted of the following:

	Years Ended December 31,
(Dollars in thousands)	2014			2013		2012
Income tax expense (benefit):
Current	$	6,005		$	242	$	132
Deferred		4,814			1,884		1,846
Change in valuation allowance for deferred tax asset		(441	)		7		(7,372	)
Income tax expense (benefit)	$	10,378		$	2,133	$	(5,394	)

Effective tax rates differ from federal statutory rates applied to income before income taxes due to the following:

	Years Ended December 31,
(Dollars in thousands)	2014			2013			2012
Tax provision computed at federal statutory rate	$	10,436		$	5,290		$	1,931
Effect of:
State taxes, net		1,160			148			85
Change in effective tax rate		(528	)		—			—
Bargain purchase gain		—			(3,065	)		—
Transaction costs		—			259			—
Noncontrolling interest in subsidiary		(22	)		(215	)		—
Bank-owned life insurance		(165	)		(40	)		—
Tax exempt interest		(189	)		(42	)		—
Change in valuation allowance		(441	)		7			(7,372	)
Other		127			(209	)		(38	)
Income tax expense (benefit)	$	10,378		$	2,133		$	(5,394	)

Deferred income taxes reflect the net tax effects of temporary differences between the recorded amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2014 and 2013 are as follows:

	Years Ended December 31,
(Dollars in thousands)	2014			2013
Deferred tax assets
Federal net operating loss carryforwards	$	11,570		$	12,596
State net operating loss carryforwards		2,296			2,811
Capital loss carryforwards		—			379
Acquired loan basis		5,422			8,876
Other real estate owned		1,543			1,684
AMT credit carryforward		1,634			1,768
Acquired deposit basis		158			633
Allowance for loan losses		3,081			564
Other		587			2,595
Total deferred tax assets		26,291			31,906
Deferred tax liabilities
Goodwill and intangible assets		4,025			5,135
Fair value adjustment on junior subordinated debentures		3,182			3,451
Unrealized gain on securities available for sale		534			56
Other		1,436			858
Total deferred tax liabilities		9,177			9,500
Net deferred tax asset before valuation allowance		17,114			22,406
Valuation allowance		(1,158	)		(1,599	)
Net deferred tax asset	$	15,956		$	20,807

The Company’s federal net operating loss carryforwards as of December 31, 2014 and 2013 were $33,444,000 and $37,048,000, respectively. These net operating loss carryforwards begin to expire in 2029. At December 31, 2014, the Company had state net operating loss carryforwards in Illinois, Iowa and Wisconsin of $17,477,000, $32,812,000, and $2,645,000, respectively. At December 31, 2013, the Company had state net operating loss carryforwards in Illinois, Iowa and Wisconsin of $22,141,000, $33,189,000, and $2,799,000, respectively. These net operating loss carryforwards expire beginning in 2021 through 2034. The Company has a valuation allowance on the net operating loss carryforwards for certain states and certain other investments that are not expected to be realized before expiration.

An Internal Revenue Code Section 382 (Section 382) ownership change was triggered during 2013. A significant portion of the deferred tax asset relating to the Company’s net operating loss and Alternative Minimum Tax credit carry-forwards are subject to the annual limitation rules under Section 382 from the EJ Financial Corp. (EJ) and NBI acquisitions and the 2013 share exchange. The utilization of tax carryforward attributes acquired from the EJ acquisition is subject to an annual limitation of $341,000. The utilization of tax carryforward attributes acquired from the NBI acquisition is subject to an annual limitation of $2,040,000. Any remaining tax attribute carryforwards generated prior to the 382 ownership change in 2013 are subject to an annual limitation of $3,696,000.

At December 31, 2014 and 2013, the Company had no amounts recorded for uncertain tax positions and does not expect any material changes in uncertain tax benefits during the next 12 months. The Company is subject to U.S. federal income tax as well as income tax in various states. The Company is not subject to examination by taxing authorities for years prior to 2011.