Note L

Income Taxes

The provision (benefit) for income taxes is as follows:

	Year Ended December 31
	2014		2013		2012
	(In thousands)
Current
Federal	$	310	$	160	$	0
State		12		7		7

Deferred
Federal		3,440		(30,540)		0
State		782		(10,012)		(7)

	$	4,544	$	(40,385)	$	0

The difference between the total expected tax benefit (computed by applying the U.S. Federal tax rate of 35% to pretax income in 2014, 2013 and 2012) and the reported income tax provision (benefit) relating to income (loss) before before income taxes is as follows:

	Year Ended December 31
	2014		2013		2012
	(In thousands)
Tax rate applied to income (loss) before income taxes	$	3,583	$	4,061	$	(249)
Increase (decrease) resulting from the effects of:
Nondeductible acquisition costs		554		0		0
Tax exempt interest on obligations of states and political subdivisions and bank owned life insurance		(293)		(148)		(118)
State income taxes		(278)		(259)		(27)
Stock compensation		92		4		28
Expiration of capital loss carryforward		0		0		354
Other		92		38		53
Federal tax provision before valuation allowance		3,750		3,696		41
State tax provision before valuation allowance		794		740		76
Total income tax provision		4,544		4,436		117
Change in valuation allowance		0		(44,821)		(117)
Income tax provision (benefit)	$	4,544	$	(40,385)	$	0

The net deferred tax assets (liabilities) are comprised of the following:

	December 31
	2014		2013
	(In thousands)
Allowance for loan losses	$	6,926	$	8,139
Other real estate owned.		1,562		899
Section 382 limitation		1,383		0
Accrued stock compensation		721		528
Federal tax loss carryforward		38,703		42,776
State tax loss carryforward		7,468		7,925
Alternative minimum tax carryforward		2,136		1,304
Net unrealized securities losses		3,035		6,503
Deferred compensation..		1,643		1,169
Accrued interest and fee income		3,270		0
Other		7,428		273
Gross deferred tax assets		74,275		69,516
Less: Valuation allowance		0		0
Deferred tax assets net of valuation allowance		74,275		69,516

Depreciation		(1,334)		(1,365)
Deposit base intangible		(2,976)		(233)
Accrued interest and fee income		0		(1,060)
Other		(3,165)		0
Gross deferred tax liabilities		(7,475)		(2,658)

Net deferred tax assets	$	66,800	$	66,858

At December 31, 2014, the Company's deferred tax assets of $66.8 million consists of approximately $52.6 million of net U.S. federal deferred tax assets and $14.2 million of net state deferred tax assets.

Management assesses the necessity of a valuation allowance recorded against deferred tax assets at each reporting period. The determination of whether a valuation allowance for net deferred tax assets is appropriate is subject to considerable judgment and requires an evaluation of all positive and negative evidence. Based on an assessment of all of the evidence, including favorable trending in asset quality and certainty regarding the amount of future taxable income that the Company forecasts, management concluded that it was more likely than not that its net deferred tax assets will be realized based upon future taxable income. Management’s confidence in the realization of projected future taxable income is based upon analysis of the Company’s risk profile and its trending financial performance, including credit quality. The Company believes it can confidently and reasonably predict future results of operations that result in taxable income at sufficient levels over the future period of time that the Company has available to realize its net deferred tax asset.

Management expects to realize the $66.8 million in net deferred tax assets well in advance of the statutory carryforward period. At December 31, 2014, approximately $38.7 million of deferred tax assets relate to federal net operating losses which will expire in annual installments beginning in 2029 through 2032. Additionally, $7.5 million of the deferred tax assets relate to state net operating losses which will expire in annual installments beginning in 2028 through 2034. Tax credit carryforwards at December 31, 2014 include federal alternative minimum tax credits totaling $2.1 million which have an unlimited carryforward period. Remaining deferred tax assets are not related to net operating losses or credits and therefore, have no expiration date.

Prior to the third quarter of 2013, the Company was unable to conclude that there was sufficient evidence to support that the deferred tax asset was more likely than not realizable and to support the reversal of its deferred tax asset valuation allowance of $44.8 million. The deferred tax asset valuation allowance was reversed after the achievement of operating results for the third quarter and nine months of 2013 that demonstrated the continuation of increasing income before tax results.

A valuation allowance could be required in future periods based on the assessment of positive and negative evidence. Management’s conclusion at December 31, 2014 that it is more likely than not that the net deferred tax asset of $66.8 million will be realized is based upon estimates of future taxable income that are supported by internal projections which consider historical performance, various internal estimates and assumptions, as well as certain external data, all of which management believes to be reasonable although inherently subject to judgment. If actual results differ significantly from the current estimates of future taxable income, even if caused by adverse macro-economic conditions, a valuation allowance may need to be recorded for some or all of the Company’s deferred tax assets. Such an increase to the deferred tax asset valuation allowance could have a material adverse effect on the Company’s financial condition and results of operations.

The Company recognizes interest and penalties, as appropriate, as part of the provisioning for income taxes. No interest or penalties were accrued at December 31, 2014.

The Company has no unrecognized income tax benefits or provisions due to uncertain income tax positions. The Internal Revenue Service (IRS) examined the federal income tax returns for the years 2006, 2007, 2008 and 2009. The IRS did not propose any adjustments related to this examination. The following are the major tax jurisdictions in which the Company operates and the earliest tax year subject to examination:

Jurisdiction		Tax Year
United States of America		2011
Florida		2011

Income taxes related to securities transactions were $181,000, $162,000 and $2,939,000 in 2014, 2013 and 2012, respectively.