INCOME TAX (Tables)

12 Months Ended

Dec. 31, 2012

Composition of income tax expense (benefit)

The composition of income tax expense (benefit) for the years ended December 31 follows:

	2012		2011			2010
	(In thousands)
Current	$	-	$	(413	)	$	(57	)
Deferred		-		(646	)		(1,533	)
Establishment of valuation allowance		-		847			-
Income tax benefit	$	-	$	(212	)	$	(1,590	)

Reconciliation of income tax benefit computed by applying the statutory federal income tax rate

A reconciliation of income tax benefit to the amount computed by applying the statutory federal income tax rate of 35% in each year presented to the income (loss) before income tax for the years ended December 31 follows:

	2012			2011			2010
	(In thousands)
Statutory rate applied to income (loss) before income tax	$	9,169		$	(7,144	)	$	(6,405	)
Net change in valuation allowance		(8,730	)		9,369			5,672
Bank owned life insurance		(568	)		(657	)		(671	)
Tax-exempt income		(453	)		(521	)		(800	)
Share-based compensation		258			-			-
U.S. Treasury warrant		100			(398	)		(138	)
Non-deductible meals, entertainment and memberships		55			50			36
Trust preferred securities exchange costs		-			-			352
Other, net		169			(911	)		364
Income tax benefit	$	-		$	(212	)	$	(1,590	)

Summary of deferred tax assets and deferred tax liabilities

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 follow:

	2012			2011
	(In thousands)
Deferred tax assets
Loss carryforwards	$	39,593		$	25,686
Allowance for loan losses		15,502			20,616
Fixed assets		2,664			3,109
Alternative minimum tax credit carry forward		2,577			2,577
Purchase premiums, net		2,413			4,416
Valuation allowance on other real estate owned		2,085			5,129
Share based payments		817			1,006
Vehicle service contract counterparty contingency reserve		765			12,377
Unrealized loss on trading securities		591			603
Other than temporary impairment charge on securities available for sale		507			427
Deferred compensation		512			482
Loss reimbursement on sold loans reserve		501			524
Non accrual loan interest income		325			443
Unrealized loss on derivative financial instruments		259			539
Reserve for unfunded lending commitments		209			450
Unrealized loss on securities available for sale		181			1,252
Mepco claims expense		-			546
Other		162			112
Gross deferred tax assets		69,663			80,294
Valuation allowance		(65,117	)		(75,199	)
Total net deferred tax assets		4,546			5,095
Deferred tax liabilities
Mortgage servicing rights		3,855			3,930
Deferred loan fees		373			356
Federal Home Loan Bank stock		318			318
Unrealized gain on loans held for sale		-			491
Gross deferred tax liabilities		4,546			5,095
Net deferred tax assets	$	-		$	-

Schedule of federal net operating loss forwards

At December 31, 2012, we had $0.3 million of federal capital loss carryforwards that expire in 2014 and federal net operating loss ("NOL") carryforwards of approximately $111.9 million which, if not used against taxable income, will expire as follows:

	(In thousands)

2017	$	3,437
2018		189
2022		194
2023		359
2029		25,467
2030		26,254
2031		17,170
2032		38,865
Total	$	111,935

Schedule of changes in unrecognized tax benefits

	2012			2011			2010
	(In thousands)

Balance at beginning of year	$	2,139		$	2,393		$	1,981
Additions based on tax positions related to the current year		15			23			445
Reductions due to the statute of limitations		(56	)		(277	)		(33	)
Reductions due to settlements		(227	)		-			-
Balance at end of year	$	1,871		$	2,139		$	2,393