Income Taxes	3 Months Ended
Mar. 31, 2015
Income Taxes
Income Taxes	10. Income Taxes The Company applies an estimated annual effective rate to interim period pre-tax income to calculate the income tax provision for the quarter in accordance with the principal method prescribed by the accounting guidance established for computing income taxes in interim periods. The Company’s effective tax rate was 11.8% and 36.2% during the three months ended March 31, 2015 and 2014, respectively. The decrease in the Company’s effective tax rate during 2015 was primarily due to no income taxes being recorded in connection with the preliminary bargain purchase gain of $82.8 million associated with the SWS Merger because the acquisition was a tax-free reorganization under Section 368(a) of the Internal Revenue Code. In addition, the Company recorded an income tax benefit of $2.1 million as a result of the SWS Merger to reverse the deferred tax liability booked during 2014 associated with the difference between book and tax basis on Hilltop’s investment in SWS common stock prior to the SWS Merger. At March 31, 2015 and December 31, 2014, the Company had net operating loss carryforwards for Federal income tax purposes of $93.2 million and $45.5 million, respectively. This increase in net operating loss carryforwards was a result of the SWS Merger. The net operating loss carryforwards are subject to either separate return year limitations or annual limitations on their usage because of the ownership change. These net operating loss carry-forwards expire in 2023 and later years. The Company expects to realize its current deferred tax asset for these net operating loss carryforwards through the implementation of certain tax planning strategies, core earnings, and reversal of timing differences. The Company has a valuation allowance recorded of $4.1 million at March 31, 2015 against its gross deferred tax asset for capital loss carryforwards. This increase in the valuation allowance of $2.2 million from December 31, 2014 was a result of the SWS Merger. The amount of the deferred tax asset considered realizable, however, could increase during the carryforward period if unexpected capital gains are recognized. The Company has no valuation allowance on the remainder of its deferred tax assets at March 31, 2015 or December 31, 2014. GAAP requires the measurement of uncertain tax positions. Uncertain tax positions are the difference between a tax position taken, or expected to be taken in a tax return, and the benefit recognized for accounting purposes. At March 31, 2015, the total amount of gross unrecognized tax benefits was $1.1 million, of which $0.7 million if recognized, would favorably impact the Company’s effective tax rate. The Company does not anticipate a significant change in the unrecognized tax benefits within the next twelve months. The Company files income tax returns in U.S. federal and numerous state jurisdictions. The Company is subject to tax audits in numerous jurisdictions in the U.S. until the applicable statute of limitations expires. The Company is no longer subject to U.S. federal tax examinations for tax years prior to 2011. The Company is open for various state tax audits for tax years 2010 and later. The Company is currently under income tax examination by several state authorities for tax years 2010, 2011 and 2012. The Company does not expect any significant liability to arise as a result of the examinations.

10. Income Taxes

The Company applies an estimated annual effective rate to interim period pre-tax income to calculate the income tax provision for the quarter in accordance with the principal method prescribed by the accounting guidance established for computing income taxes in interim periods. The Company’s effective tax rate was 11.8% and 36.2% during the three months ended March 31, 2015 and 2014, respectively. The decrease in the Company’s effective tax rate during 2015 was primarily due to no income taxes being recorded in connection with the preliminary bargain purchase gain of $82.8 million associated with the SWS Merger because the acquisition was a tax-free reorganization under Section 368(a) of the Internal Revenue Code. In addition, the Company recorded an income tax benefit of $2.1 million as a result of the SWS Merger to reverse the deferred tax liability booked during 2014 associated with the difference between book and tax basis on Hilltop’s investment in SWS common stock prior to the SWS Merger.

At March 31, 2015 and December 31, 2014, the Company had net operating loss carryforwards for Federal income tax purposes of $93.2 million and $45.5 million, respectively. This increase in net operating loss carryforwards was a result of the SWS Merger. The net operating loss carryforwards are subject to either separate return year limitations or annual limitations on their usage because of the ownership change. These net operating loss carry-forwards expire in 2023 and later years. The Company expects to realize its current deferred tax asset for these net operating loss carryforwards through the implementation of certain tax planning strategies, core earnings, and reversal of timing differences. The Company has a valuation allowance recorded of $4.1 million at March 31, 2015 against its gross deferred tax asset for capital loss carryforwards. This increase in the valuation allowance of $2.2 million from December 31, 2014 was a result of the SWS Merger. The amount of the deferred tax asset considered realizable, however, could increase during the carryforward period if unexpected capital gains are recognized. The Company has no valuation allowance on the remainder of its deferred tax assets at March 31, 2015 or December 31, 2014.

GAAP requires the measurement of uncertain tax positions. Uncertain tax positions are the difference between a tax position taken, or expected to be taken in a tax return, and the benefit recognized for accounting purposes. At March 31, 2015, the total amount of gross unrecognized tax benefits was $1.1 million, of which $0.7 million if recognized, would favorably impact the Company’s effective tax rate. The Company does not anticipate a significant change in the unrecognized tax benefits within the next twelve months.

The Company files income tax returns in U.S. federal and numerous state jurisdictions. The Company is subject to tax audits in numerous jurisdictions in the U.S. until the applicable statute of limitations expires. The Company is no longer subject to U.S. federal tax examinations for tax years prior to 2011. The Company is open for various state tax audits for tax years 2010 and later. The Company is currently under income tax examination by several state authorities for tax years 2010, 2011 and 2012. The Company does not expect any significant liability to arise as a result of the examinations.