Note 17. Income Taxes

Income tax expense included in net income consisted of the following components (in thousands):


	Years Ended December 31,
	2011			2010			2009
Current federal	$	7,400		$	20,707		$	15,816
Current state		1,961			600			(241	)

Total current provision		9,361			21,307			15,575


Deferred federal		9,735			(10,676	)		6,753
Deferred state		(1,032	)		(926	)		591

Total deferred provision		8,703			(11,602	)		7,344

Total tax expense	$	18,064		$	9,705		$	22,919

Temporary differences arise between the tax bases of assets or liabilities and their carrying amounts for financial reporting purposes. The expected tax effects when these differences are resolved are recorded currently as deferred tax assets or liabilities. Significant components of the Company's deferred tax assets and liabilities were as follows (in thousands):


	December 31,
	2011			2010
Deferred tax assets:
Allowance for loan losses	$	85,289		$	30,356
Employee compensation and benefits		40,013			27,086
Loan purchase accounting adjustments		241,412			126,536
Demand deposits		2,308			1,218
Capital loss		—			153
Tax credit carryforward		25,465			663
Federal net operating loss		24,524			104
State net operating loss		2,958			1,274
Other		23,128			1,637

Gross deferred tax assets		445,097			189,027


Federal valuation allowance		—			(84	)
State valuation allowance		(2,415	)		(1,274	)

Subtotal valuation allowance		(2,415	)		(1,358	)


Net deferred tax assets		442,682			187,669

Deferred tax liabilities:
Fixed assets & intangibles		(135,987	)		(31,159	)
FHLB Stock Dividend		(1,119	)		(3,520	)
Securities		(55,642	)		(15,932	)
Deferred gain on acquisition		(13,232	)		(17,907	)
FDIC Indemnification Asset		(83,348	)		(104,785	)
Other		(7,594	)		(7,825	)

Gross deferred tax liabilities		(296,922	)		(181,128	)

Net deferred tax asset (liability)	$	145,760		$	6,541

Reported income tax expense differed from amounts computed by applying the statutory income tax rate of 35% to earnings before income taxes because of the following factors (in thousands):

		$33,188			$33,188			$33,188			$33,188			$33,188			$33,188
	Years Ended December 31,
	2011						2010						2009
	Amount			%			Amount			%			Amount			%
Taxes computed at statutory rate	$	33,188			35	%	$	21,669			35	%	$	34,195			35	%
Increases (decreases) in taxes resulting from:
State income taxes, net of federal income tax benefit		689			1	%		(410	)		-1	%		706			1	%
Tax-exempt interest		(6,892	)		-8	%		(6,747	)		-11	%		(6,703	)		-7	%
Bank owned life insurance		(3,352	)		-4	%		(1,918	)		-3	%		(2,097	)		-2	%
Tax credits		(8,384	)		-9	%		(3,702	)		-6	%		(3,923	)		-4	%
Merger transaction costs		2,178			3	%		—			0	%		—			0	%
Other, net		637			1	%		813			1	%		741			1	%

Income tax expense	$	18,064			19	%	$	9,705			15	%	$	22,919			24	%

As of December 31, 2011, the Company had approximately $68 million in federal net operating loss carryforwards that originated primarily in the 2009 and 2010 tax year. The Company also had approximately $25 million in federal tax credit carryforwards that originated in the tax years from 2008 through 2010. The federal net operating loss carry forwards will begin expiring in 2029, and the federal tax credit carryforwards will begin to expire in 2028. The Company also had approximately $72 million in state net operating loss carryforwards that originated in the tax years 2002 through 2011. A state valuation allowance has been established for approximately $57 million of the state net operating loss carryforwards. The state net operating losses will begin expiring in 2017.

The tax benefit of a position taken or expected to be taken in a tax return should be recognized when it is more likely than not that the position will be sustained on its technical merits. The liability for unrecognized tax benefits was immaterial at December 31, 2011 and 2010. The Company does not expect the liability for unrecognized tax benefits to change significantly during 2012. Hancock recognizes interest and penalties, if any, accrued related to income tax matters in income tax expense, and the amounts recognized during 2011, 2010 and 2009 were insignificant.

The Company and its subsidiaries file a consolidated U.S. federal income tax return, as well as filing various returns in the states where its banking offices are located. The returns for years before 2008 are no longer subject to examination by taxing authorities.