Note 16 – Income Taxes

Income tax expense (benefit) for year to date June 30, 2014 and June 30, 2013 was as follows:



	June 30, 2014		June 30, 2013
Current federal	$	(61)	$	-
Current state		(16)		-
Deferred federal		1,707		2,360
Deferred state		628		609
Change in valuation allowance		-		(2,969)
	$	2,258	$	-

The following were the components of the deferred tax assets and liabilities as of June 30, 2014 and December 31, 2013:



	June 30, 2014		December 31, 2013
Allowance for loan losses	$	10,857	$	12,725
Deferred compensation		794		788
Amortization of core deposit		1,985		1,656
Goodwill amortization/impairment		14,434		15,252
Stock option expense		595		583
OREO write downs		8,330		10,041
Federal net operating loss (“NOL”) carryforward		29,483		28,023
State net operating loss (“NOL”) carryforward		12,210		11,847
Deferred tax credit		1,444		1,444
Other assets		844		1,166
Total deferred tax assets		80,976		83,525

Accumulated depreciation on premises and equipment		(904)		(1,035)
Accretion on securities		(9)		(8)
Mortgage servicing rights		(2,430)		(2,571)
State tax benefits		(6,813)		(6,994)
Other liabilities		(416)		(178)
Total deferred tax liabilities		(10,572)		(10,786)
Net deferred tax asset before valuation allowance		70,404		72,739
Tax effect on net unrealized losses on securities		3,737		4,927
Valuation allowance		(2,363)		(2,363)
Net deferred tax asset	$	71,778	$	75,303

At June 30, 2014, the Company had $84.2 million federal net operating loss carryforward of which, $25.3 million expires in 2030, $31.4 million expires in 2031, $8.6 million expires in 2032, $15.3 million expires in 2033, and $3.6 million expires in 2034. The Company had $128.5 million state net operating loss carryforward of which, $29.4 million expires in 2021, $95.7 million expires in 2025, and $3.4 million expires in 2026. In addition, the Company had $1.4 million alternative minimum tax credit subject to indefinite carryforward.

The components of the provision for deferred income tax expense (benefit) were as follows:



	June 30, 2014			June 30, 2013
Allowance for loan losses	$		1,868	$	2,178
Deferred Compensation			(6)		(27)
Amortization of core-deposit			(329)		(346)
Stock option expense			(12)		202
OREO write-downs			1,711		3,082
Federal net operating loss carryforward		(1,460)			(2,522)
State net operating loss carryforward			(363)		(644)
Depreciation			(131)		(59)
Net premiums and discounts on securities			1		25
Mortgage servicing rights			(141)		527
Goodwill amortization/impairment			818		759
State tax benefits			(181)		(186)
Change in valuation allowance			-		(2,969)
Other, net			560		(20)
Total deferred tax expense	$		2,335	$	-

Effective tax rates differ from federal statutory rates applied to financial statement income (loss) due to the following:



	June 30, 2014		June 30, 2013
Tax at statutory federal income tax rate	$	2,268	$	3,132
Nontaxable interest income, net of disallowed interest deduction		(125)		(121)
BOLI income		(254)		(404)
State income taxes, net of federal benefit		347		457
Change in valuation allowance		-		(2,969)
Deficiency from restricted stock		-		76
Other, net		22		(171)
Tax at effective tax rate	$	2,258	$	-