Note 15 - Income Taxes

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

15.      Income Taxes

The following table summarizes income tax expense (benefit) attributable to continuing operations for the periods indicated (in thousands).

	For the years ended December 31,
	2013			2012		2011
Current income tax expense (benefit)
Federal	$	181		$	-	$	(1	)
State		1,238			-		-
Total current expense (benefit)		1,419			-		(1	)
Deferred income tax expense (benefit)
Federal		(19,798	)		2,721		(2,663	)
State		(36	)		-		-
Total deferred expense (benefit)		(19,834	)		2,721		(2,663	)
Total current and deferred expense (benefit)	$	(18,415	)	$	2,721	$	(2,664	)

For the year ended December 31, 2013, the deferred income tax benefit of $19.8 million consisted primarily of a $22.4 million decrease in the valuation allowance previously required against the net deferred tax asset as of December 31, 2012. As of December 31, 2013, we determined that no vauation allowance was necessary due to sustained trends in quarterly profitability, projected reversals of existing taxable temporary differences and projections of future taxable income. The deferred income tax benefit was partially offset by a decrease in net deferred tax assets arising during 2013.

No excess tax benefit from equity-based awards were recorded in shareholders’ equity during the years ended December 31, 2013, 2012 and 2011.

The following table reconciles the Company’s statutory federal income tax rate to the effective income tax rate for the periods indicated.

	For the years ended December 31,
	2013			2012			2011
U.S. statutory federal income tax rate		35.0	%		35.0	%		35.0	%
Changes from statutory rates resulting from:
State income tax, net of federal benefit		8.6			-			-
Tax-exempt income		(1.5	)		(74.1	)		4.5
Expenses not deductible for tax purposes		0.3			2.6			(0.2	)
(Decrease) increase in deferred tax asset valuation allowance		(240.0	)		352.2			(29.0	)
Other		0.1			1.9			(0.1	)
Effective income tax rate		(197.5	)%		317.6	%		10.2	%

The following table summarizes the Company’s gross deferred tax assets, related valuation allowance and gross deferred tax liabilities at the dates indicated (in thousands).

	December 31,
	2013			2012
Deferred tax assets
Allowance for loan losses	$	5,770		$	6,239
Nonaccrual loan interest		202			239
Writedowns of foreclosed real estate		2,369			2,062
Pension Plan contributions and accrued liability		463			1,389
Recognized built-in loss carryforward		7,689			16,236
Alternative minimum tax credit carryforward		493			475
Federal net operating loss carryforward		6,072			8,379
Unrealized losses on investment securities available for sale		1,829			-
Equity-based compensation		1,047			710
Other		365			1,382
Deferred tax assets, gross		26,299			37,111
Valuation allowance		-			(31,086	)
Deferred tax assets, net of valuation allowance		26,299			6,025
Deferred tax liabilities
Premises, equipment and capital leases		(1,380	)		(1,565	)
Deferred loan fees and costs, net		(1,592	)		(1,532	)
Unrealized gains on investment securities available for sale		-			(912	)
Servicing rights		(874	)		(905	)
Other		(366	)		(401	)
Deferred tax liabilities, gross		(4,212	)		(5,315	)
Deferred tax asset, net	$	22,087		$	710

As of December 31, 2013, the Company had federal net operating loss carryforwards of $17.3 million. If not utilized to offset future taxable income, $0.4 million of the net operating loss carryforwards will expire in 2030, $6.5 million will expire in 2031, $10.3 million will expire in 2032 and $0.1 million will expire in 2033. For the year ended December 31, 2013, the Company utilized a total of $7.4 million of federal net operating loss carryforwards to offset federal taxable income generated during the period. This amount was comprised of $4.4 million of federal net operating loss carryforwards that would have expired in 2030 and $3.0 million that would have expired in 2031.

As of December 31, 2013, net deferred tax assets of $22.1 million were recorded in the Company’s Consolidated Balance Sheet, a portion of which includes the after-tax impact of net operating loss carryforwards. Based on available information as of this date, the Company determined that a valuation allowance against the deferred tax asset was not necessary. As a result of a sustained trend in profitability that began in the third quarter 2012, projected reversals of existing taxable temporary differences during applicable future periods and projections of future taxable income exclusive of reversing temporary differences and carryforwards, during 2013, the Company recorded an income tax benefit of $22.4 million related to the reversal of the $31.1 million valuation allowance on net deferred tax assets that existed at December 31, 2012. The Company also eliminated $8.7 million of deferred tax assets and the related valuation allowance during 2013 as we concluded it was probable that these assets will expire without being utilized due to limitations on deductibility of net operating losses and realized built-in losses as described below.

In 2010, the Company consummated a private placement (the “Private Placement”). The Private Placement was considered a change in control under the Internal Revenue Code and Regulations. Accordingly, the Company was required to evaluate potential limitation or deferral of our ability to carryforward pre-acquisition net operating losses and to determine the amount of net unrealized pre-acquisition built-in losses which are subject to similar limitation or deferral. Under the Internal Revenue Code and Regulations, net unrealized pre-acquisition built-in losses realized within five years of the change in control on October 7, 2010 are subject to potential limitation. Through that date, the Company will continue to analyze its ability to utilize such losses to offset anticipated future taxable income as pre-acquisition built-in losses are ultimately realized. As of December 31, 2013, the Company estimates that future utilization of built-in losses of $53 million generated prior to the Private Placement will be limited to $1.1 million per year. During 2013, the Company further determined that it was probable that $8.7 million of deferred tax assets related to built-in losses will not ultimately be realized and, accordingly, wrote-off both the deferred tax asset and related valuation allowance associated with these built-in losses. However, this estimate will not be conclusively confirmed until the five-year limitation period expires in October 2015.

The Company is subject to U.S. federal and South Carolina state income tax. Tax authorities in various jurisdictions may examine the Company. The Company is not currently undergoing a U.S. federal or South Carolina state examination; however, tax years going back to 2010 are generally considered subject to examination based on federal and state regulations.