Note 16 – Income Taxes

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



	September 30, 2014		September 30, 2013
Current federal	$	(62)	$	129
Current state		(17)		35
Deferred federal		3,017		2,935
Deferred state		1,046		1,049
Change in valuation allowance		-		(74,145)
	$	3,984	$	(69,997)

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



	September 30, 2014		December 31, 2013
Allowance for loan losses	$	10,648	$	12,725
Deferred compensation		798		788
Amortization of core deposit		1,993		1,656
Goodwill amortization/impairment		14,042		15,252
Stock option expense		642		583
OREO write downs		8,901		10,041
Federal net operating loss (“NOL”) carryforward		27,882		28,023
State net operating loss (“NOL”) carryforward		11,768		11,847
Deferred tax credit		1,453		1,444
Other assets		983		1,166
Total deferred tax assets		79,110		83,525

Accumulated depreciation on premises and equipment		(834)		(1,035)
Accretion on securities		(31)		(8)
Mortgage servicing rights		(2,491)		(2,571)
State tax benefits		(6,667)		(6,994)
Other liabilities		(411)		(178)
Total deferred tax liabilities		(10,434)		(10,786)
Net deferred tax asset before valuation allowance		68,676		72,739
Tax effect on net unrealized losses on securities		5,062		4,927
Valuation allowance		(2,363)		(2,363)
Net deferred tax asset	$	71,375	$	75,303

At September 30, 2014, the Company had a $79.7 million federal net operating loss carryforward of which, $24.4 million expires in 2030, $31.4 million expires in 2031, $8.6 million expires in 2032, and $15.3 million expires in 2033. The Company had a $123.9 million state net operating loss carryforward of which, $28.2 million expires in 2021, and $95.7 million expires in 2025. In addition, the Company had a $1.5 million alternative minimum tax credit subject to indefinite carryforward.

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



	September 30, 2014		September 30, 2013
Allowance for loan losses	$	2,077	$	4,536
Deferred Compensation		(10)		(40)
Amortization of core-deposit		(337)		(519)
Stock option expense		(59)		177
OREO write-downs		1,140		5,560
Federal net operating loss carryforward		141		(5,634)
State net operating loss carryforward		79		(1,248)
Deferred tax credit		(9)		-
Depreciation		(201)		(117)
Net premiums and discounts on securities		23		(109)
Mortgage servicing rights		(80)		596
Goodwill amortization/impairment		1,210		1,151
State tax benefits		(327)		(333)
Change in valuation allowance		-		(74,145)
Other, net		416		(36)
Total deferred tax expense	$	4,063	$	(70,161)

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



	September 30, 2014		September 30, 2013
Tax at statutory federal income tax rate	$	3,896	$	4,156
Nontaxable interest income, net of disallowed interest deduction		(182)		(183)
BOLI income		(360)		(553)
State income taxes, net of federal benefit		606		780
Change in valuation allowance		-		(74,145)
Deficiency from restricted stock		-		10
Other, net		24		(62)
Tax at effective tax rate	$	3,984	$	(69,997)