Note 11: Income Taxes

Income tax expense (benefit) for years ending December 31, 2015, 2014 and 2013 were as follows:



	2015		2014		2013
Current federal	$	220	$	122	$	105
Current state		-		6		29
Deferred federal		7,023		3,120		2,780
Deferred state		1,733		4,876		989
Change in valuation allowance		-		(2,363)		(74,145)
	$	8,976	$	5,761	$	(70,242)

The following were the components of the deferred tax assets and liabilities as of December 31, 2015 and December 31, 2014:


	2015		2014
Allowance for loan losses	$	7,099	$	9,579
Deferred compensation		690		787
Amortization of core deposit		1,629		1,859
Goodwill amortization/impairment		11,623		13,129
Stock based compensation		814		663
OREO write-downs		6,917		8,639
Federal net operating loss (“NOL”) carryforward		24,105		27,001
State net operating loss (“NOL”) carryforward		8,746		9,405
Deferred tax credit		1,749		1,551
Other assets		792		1,006
Total deferred tax assets		64,164		73,619

Accumulated depreciation on premises and equipment		(601)		(802)
Mortgage servicing rights		(2,484)		(2,320)
State tax benefits		(4,686)		(5,290)
Other liabilities		(336)		(394)
Total deferred tax liabilities		(8,107)		(8,806)
Net deferred tax asset before adjustments related to other comprehensive loss		56,057		64,813
Tax effect of adjustments related to other comprehensive loss		8,495		5,328
Net deferred tax asset	$	64,552	$	70,141

At December 31, 2015, the Company had a $68.9 million federal net operating loss carryforward of which, $13.6 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 $112.9 million state net operating loss carryforward of which, $17.2 million expires in 2021, and $95.7 million expires in 2025. In addition, the Company had a $1.7 million alternative minimum tax credit subject to indefinite carryforward. Included in the tax effect of adjustments related to other comprehensive loss above are net unrealized losses on held-to-maturity securities that were transferred from available-for-sale securities of $2.4 million and $2.8 million as of December 31, 2015 and December 31, 2014, respectively.

The components of the provision for deferred income tax expense (benefit) for the years ending December 31 were as follows:



	2015		2014		2013
Provision for loan losses	$	2,480	$	3,146	$	5,511
Deferred Compensation		97		1		(109)
Amortization of core deposit		230		(203)		(691)
Stock based compensation		(151)		(80)		202
OREO write-downs		1,722		1,402		6,591
Federal net operating loss carryforward		2,896		1,022		(7,287)
State net operating loss carryforward		659		2,442		(1,661)
Deferred tax credit		(198)		(107)		-
Depreciation		(201)		(233)		(28)
Net premiums and discounts on securities		-		(8)		(114)
Mortgage servicing rights		164		(251)		752
Goodwill amortization/impairment		1,506		2,123		1,544
State tax benefits		(604)		(1,704)		(321)
Change in valuation allowance		-		(2,363)		(74,145)
Other, net		156		446		(620)
Total deferred tax expense	$	8,756	$	5,633	$	(70,376)

Effective tax rates differ from federal statutory rates applied to financial statement income (loss) for the years ended December 31 due to the following:


	2015		2014		2013
Tax at statutory federal income tax rate	$	8,526	$	5,564	$	4,145
Nontaxable interest income, net of disallowed interest deduction		(253)		(233)		(245)
BOLI income		(487)		(508)		(694)
State income taxes, net of federal benefit		1,126		872		662
Change in valuation allowance		-		(2,363)		(74,145)
Deficiency from restricted stock		-		-		10
Impact of Illinois tax rate change		-		2,363		-
Other, net		64		66		25
Tax at effective tax rate	$	8,976	$	5,761	$	(70,242)

The Company evaluated positive and negative evidence in order to determine if it was more likely than not that the deferred tax asset would be recovered through future income. Significant positive evidence evaluated included recent and projected earnings, significantly improved asset quality and an improved capital position. Negative evidence identified included a reduction in net interest margin as a result of the current rate environment, and historic runoff of loans.