Note L—Income Taxes

The company operates predominantly in the United States and is subject to corporate net income taxes for federal and state purposes. The company also has minimal operations in foreign jurisdictions. In prior years these taxes were not considered material to the overall financial statements.

The components of income tax expense (benefit) included in the statements of continuing operations are as follows:


	For the years ended
	December 31,
	2015	2014	2013
	(in thousands)
Current tax provision (benefit)
Federal	$ 286	$ (3,663)	$ 4,723
Foreign	353
State	727	2,730	2,244
	1,366	(933)	6,967
Deferred tax provision (benefit)
Federal	132	(13,705)	(208)
State	(48)	115	8
	84	(13,590)	(200)
	$ 1,450	$ (14,523)	$ 6,767

The differences between applicable income tax expense (benefit) from continuing operations and the amounts computed by applying the statutory federal income tax rate of 34% for 2015, 2014 and 2013, respectively, are as follows:


	For the years ended
	December 31,
	2015	2014	2013
	(in thousands)

Computed tax expense at statutory rate	$ 2,713	$ 2,479	$ 6,897
State taxes	448	1,877	1,486
Tax-exempt interest income	(4,165)	(4,304)	(1,898)
Foreign income tax rate difference	(163)	(591)	-
Meals and entertainment	196	-	-
Other nondeductible items	1,020	-	-
Valuation allowance - domestic	884	(14,485)	-
Valuation allowance - foreign	395	354	-
Other	122	147	282
	$ 1,450	$ (14,523)	$ 6,767

Deferred income taxes are provided for the temporary difference between the financial reporting basis and the tax basis of the Company’s assets and liabilities. Cumulative temporary differences recognized in the financial statement of position are as follows:


	For the years ended
	December 31,
	2015	2014
	(in thousands)
Deferred tax assets:
Allowance for loan and lease losses	$ 1,496	$ 1,236
Non-accrual interest	1,994	1,223
Deferred compensation	1,309	1,451
State taxes	1,029	2,107
Nonqualified stock options	3,195	2,962
Stock appreciation rights	100	100
Tax deductible goodwill	8,063	9,082
Depreciation	-	206
Other than temporary impairment	147	147
Partnership interest, Walnut St basis difference	1,654	1,654
Fair value adjustment to investments	362	-
Loan charges	14,372	16,745
Unrealized loss on AFS securities	1,028	-
AMT tax credit	1,535	1,092
Federal net operating loss	6,124	5,940
Foreign net operating loss	1,032	637
Other	1,822	3,748
Total gross deferred tax assets	45,262	48,330
Federal and state valuation allowance	(5,304)	(5,252)
Foreign valuation allowance	(1,032)	(637)

Deferred tax liabilities:
Unrealized gains on investment securities available for sale	-	6,642
Discount on Class A notes	2,126	2,126
Depreciation	593	-
Total deferred tax liabilities	2,719	8,768
Net deferred tax asset	$ 36,207	$ 33,673

The Company has a federal net operating loss carryforward of approximately $18 million that will expire in 2035. The Company has approximately $55 million of state net operating losses from several states that will expire at varying times over the next 20 years. Additionally, the Company has alternative minimum tax credits of $1.5 million to offset taxable income in the future that may be carried forward indefinitely.

Management assesses all available positive and negative evidence to determine whether it is more likely than not that the Company will able to recognize the existing deferred tax assets. As part of the restatement of the Company’s financial statements for the years ended December 31, 2010, 2011, 2012 and 2013 and for the interim periods included within such years and for the quarters ended March 31, 2014, June 30, 2014 and September 30, 2014, additional deferred tax assets were generated and available for the year ended December 31, 2014. Management evaluated those newly-generated assets and increased the valuation allowance accordingly. The majority of the increase in assets and corresponding increase in the valuation allowance is recognized as a component of discontinued operations. The federal and state valuation allowance at December 31, 2015 and 2014, respectively, was $5.3 million and $5.2 million and is primarily related to assets included in discontinued operations. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if the negative evidence is no longer present or diminishes due to growth of positive evidence.

The Company does not provide for deferred taxes on the excess of the financial reporting over the tax basis in our investments in foreign subsidiaries that are essentially permanent in duration. The determination of the additional deferred taxes that have not been provided for is not practicable. From its European operations, the Company has net operating loss carryforwards of approximately $10.3 million which may be carried forward indefinitely provided there is no change in ownership or nature of trade of the company within a period of expire over the next three years. These losses have generated deferred tax assets in the amount of $1.0 million which have a full valuation allowance at December 31, 2015.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	For the years ended
	December 31,
	2015	2014	2013

	(in thousands)

Beginning balance at January 1	$ 313	$ 352	$ 230
Increases (decreases) in tax provisions for prior years	27	(39)	122
Gross unrecognized tax benefits at December 31	$ 340	$ 313	$ 352

Management does not believe these amounts will significantly increase or decrease within 12 months of December 31, 2015. The total amount of unrecognized tax benefits, if recognized, will impact the effective tax rate.

The Company files federal and state returns in jurisdictions with varying statutes of limitations. The 2012 through 2014 tax years generally remain subject to examination by federal and most state tax authorities. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in income tax expense for all periods presented. To date, no amounts of interest or penalties relating to unrecognized tax benefits have been recorded.