Note L

Income Taxes

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

	Year Ended December 31
	2015		2014		2013
	(In thousands)
Current
Federal	$	578	$	310	$	160
State		61		12		7

Deferred
Federal		10,818		3,440		(30,540)
State		2,070		782		(10,012)

	$	13,527	$	4,544	$	(40,385)

The difference between the total expected tax benefit (computed by applying the U.S. Federal tax rate of 35% to pretax income in 2015, 2014 and 2013) and the reported income tax provision (benefit) relating to income (loss) before before income taxes is as follows:

	Year Ended December 31
	2015		2014		2013
	(In thousands)
Tax rate applied to income (loss) before income taxes	$	12,484	$	3,583	$	4,061
Increase (decrease) resulting from the effects of:
Nondeductible acquisition costs		441		554		0
Tax exempt interest on obligations of states and political subdivisions and bank owned life insurance		(761)		(293)		(148)
State income taxes		(746)		(278)		(259)
Nontaxable bargain purchase gain		(146)		0		0
Stock compensation		127		92		4
Other		(3)		92		38
Federal tax provision before valuation allowance		11,396		3,750		3,696
State tax provision before valuation allowance		2,131		794		740
Total income tax provision		13,527		4,544		4,436
Change in valuation allowance		0		0		(44,821)
Income tax provision (benefit)	$	13,527	$	4,544	$	(40,385)

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

	December 31
	2015		2014
	(In thousands)
Allowance for loan losses	$	7,759	$	6,926
Other real estate owned		1,737		1,562
Accrued stock compensation		1,235		721
Federal tax loss carryforward		33,507		39,974
State tax loss carryforward		6,767		7,580
Alternative minimum tax carryforward		3,355		2,136
Net unrealized securities losses		3,906		3,035
Deferred compensation		1,829		1,643
Accrued interest and fee income		2,404		3,270
Other		7,194		7,428
Gross deferred tax assets		69,693		74,275
Less: Valuation allowance		0		0
Deferred tax assets net of valuation allowance		69,693		74,275

Depreciation		(1,211)		(1,334)
Deposit base intangible		(3,452)		(2,976)
Other		(4,756)		(3,165)
Gross deferred tax liabilities		(9,419)		(7,475)

Net deferred tax assets	$	60,274	$	66,800

Included in the table above is the effect of certain temporary differences for which no deferred tax expense or benefit was recognized. The effect of these items is instead recorded as Accumulated Other Comprehensive Income in the shareholder's equity section of consolidated balance sheet. In 2015, such items consisted primarily of $3.9 million of unrealized lossess on certain investments in debt and equity securities accounted for under ASC 320. In 2014, they consisted primarily of $3.0 million of unrealized losses on certain investments in debt and equity securities.

At December 31, 2015, the Company's deferred tax assets of $60.2 million consists of approximately $47.5 million of net U.S. federal deferred tax assets and $12.7 million of net state deferred tax assets.

As a result of the acquisition of Grand Bankshares (Grand), the Company recorded a net deferred tax asset (DTA) of $5.3 million, Prior to the acquisition, Grand had recorded a full valuation allowance on its DTA due to the uncertainty as to its future realization. Included in this DTA are $9.1 million of federal net operating loss (NOL) carry-overs and $91,000 of alternative minimum tax credit carryovers. There are also $9.1 million of state NOL carryovers. Both the federal and state NOL's expire beginning in 2029, while the tax credits have an indefintite life. Grand actually had $31.8 million of federal and state NOL's at acquisition date. However, due to Internal Revenue Code limitations on the use of acquired NOL's, it was determined that only $9.1 million of the NOL's could be used prior to their expiration. Accordingly the $22.7 million of NOL's expected to expire were not recorded during purchase accounting.

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 $60.2 million in net deferred tax assets well in advance of the statutory carryforward period. At December 31, 2015, approximately $33.5 million of deferred tax assets relate to federal net operating losses which will expire in annual installments beginning in 2029 through 2032. Additionally, $6.8 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, 2015 include federal alternative minimum tax credits totaling $3.4 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, 2015 that it is more likely than not that the net deferred tax asset of $60.2 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, 2015.

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 through 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		2012
Florida		2012

Income taxes related to securities transactions were $62,000, $181,000 and $162,000 in 2015, 2014 and 2013,

respectively.