12. INCOME TAXES

The Company files a consolidated income tax return with the federal government and the state of Alabama. ALC files a Mississippi state income tax return related to operations from its Mississippi branches. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service and the states in which it files for the years ended December 31, 2008 through 2011.

As of December 31, 2011, the Company had no unrecognized tax benefits related to federal or state income tax matters and does not anticipate any material increase or decrease in unrecognized tax benefits relative to any tax positions taken prior to December 31, 2011. As of December 31, 2011, the Company had accrued no interest and no penalties related to uncertain tax positions.

The consolidated provisions for and (benefits from) income taxes for the years ended December 31, 2011 and 2010 were as follows:


	2011			2010
				(Restated)
Federal
Current	$	(2,768,621	)	$	1,846,646
Deferred		(2,212,325	)		(4,297,059	)

		(4,980,946	)		(2,450,413	)
State
Current		(525,015	)		304,208
Deferred		(452,347	)		(879,548	)

		(977,362	)		(575,340	)

Total	$	(5,958,308	)	$	(3,025,753	)

The consolidated tax benefit differed from the amount computed by applying the federal statutory income tax rate of 34% as follows:


	2011			2010
				(Restated)
Income tax expense at federal statutory rate	$	(5,111,566	)	$	(2,152,822	)
Increase (decrease) resulting from:
Tax-exempt interest		(406,292	)		(396,673	)
State income tax expense, net of federal income tax benefit		(645,059	)		(253,152	)
Low income housing tax credits		—			(71,463	)
Other		204,609			(151,643	)

Total	$	(5,958,308	)	$	(3,025,753	)

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2011 and 2010 are presented below:


	2011		2010
			(Restated)
Deferred tax assets:
Allowance for loan losses	$	8,461,338	$	7,955,659
Accrued vacation		59,821		54,963
Deferred compensation		1,405,533		1,388,009
Deferred commission and fees		427,927		403,837
Impairment OREO		2,451,955		1,192,983
Other		234,658		60,364

Total gross deferred tax assets		13,041,232		11,055,815
Deferred tax liabilities:
Premises and equipment		328,771		259,254
Goodwill amortization		—		948,863
Gain on sale of investments		—		4,720
Unrealized gain on securities available-for-sale		1,802,802		2,046,902
Other		487,018		343,520

Total gross deferred tax liabilities		2,618,591		3,603,259

Net deferred tax asset, included in other assets	$	10,422,641	$	7,452,556

The Company's determination of the realization of the net deferred tax asset is based on its assessment of all available positive and negative evidence. The Company is currently in a three-year cumulative loss position, which represents negative evidence. Of the $10.4 million net deferred tax asset, $8.5 million relates to the provision for loan losses, $2.4 million relates to impairment of OREO and $1.4 million resulted from deferred compensation.

At December 31, 2011, positive evidence supporting the realization of the deferred tax asset includes a strong earnings history, exclusive of the loss that created the future deductible amount, coupled with evidence indicating that the loss is an aberration rather than a continuing condition. The Company has a strong capital position and a history of pre-tax earnings. The Company believes that, as of year-end 2011, impaired loans have been identified and adequately reserved, and management has projected future income over the next five years, although there can be no assurance that such income will be realized due to unanticipated changes in economic and competitive factors. The Company has strong earnings exclusive of loan loss provisions and other real estate write-downs, which created the most significant portion of the deferred asset. These provisions and write-downs resulted primarily from one type of loan – real estate development. Management has assessed the risk in the remaining development portfolio, and, although there can be no assurance that such income will be realized due to unanticipated changes in economic and competitive factors, management has projected taxable income over the next five years, resulting from reduced provisions for loan losses and write-down of OREO. Except in unusual circumstances, the Company no longer invests in these types of loans.

There is sufficient positive taxable income in tax years 2009 and 2010 to fully absorb the expected 2011 taxable loss. Additionally, after carryback of the 2011 loss, the Company still has approximately $4.2 million in 2010 taxable income to carryback a loss from 2012 if necessary. In addition to the remaining taxable income available in a carryback year, the Company has a full 20-year carryforward period for federal tax purposes and eight years for the State of Alabama to absorb and use any operating losses triggered as a result of reversing deductible differences, such as loan charge-offs or sales of other real estate. The Company has projected future taxable income over the next five tax years, although there can be no assurance that such income will be realized due to unanticipated changes in economic and competitive factors. Further positive evidence includes the Company's strong capital position and history of significant pre-tax earnings, which the Company believes outweighs the negative evidence of recent pre-tax losses. Accordingly, a valuation allowance has not been established at December 31, 2011.