INCOME TAXES

The following table presents the components of income tax expense for the years indicated:



	December 31,
	2014			2013			2012
	(In thousands)
Current Income Tax Expense:
Federal	$	(11,459	)	$	(29,591	)	$	(24,177	)
State	(10,823		)	(7,667		)	(1,825		)
Total current income tax expense	(22,282		)	(37,258		)	(26,002		)
Deferred Income Tax (Expense) Benefit:
Federal	(70,662		)	9,099			(2,550		)
State	(19,795		)	(1,586		)	(8,143		)
Total deferred income tax (expense) benefit	(90,457		)	7,513			(10,693		)
Total income tax expense	$	(112,739	)	$	(29,745	)	$	(36,695	)

The following table presents a reconciliation of the recorded income tax expense to the amount of taxes computed by applying the applicable federal statutory income tax rate of 35% to earnings or loss before income taxes for the years indicated:



	December 31,
	2014			2013			2012
	(In thousands)
Computed expected income tax expense at federal statutory rate	$	(98,575	)	$	(26,201	)	$	(32,724	)
State tax expense, net of federal tax benefit	(15,689		)	(6,014		)	(6,479		)
Tax‑exempt interest benefit	4,472			3,979			1,847
Increase in cash surrender value of life insurance	739			407			442
Tax credits	3,567			2,480			1,313
Nondeductible employee compensation	(6,792		)	(4,730		)	(322		)
Nondeductible acquisition‑related expense	(2,994		)	(1,196		)	(532		)
Acquisition‑related securities gain	—			1,828			—
Other, net	2,533			(298		)	(240		)
Recorded income tax expense	$	(112,739	)	$	(29,745	)	$	(36,695	)

The Company had net income taxes receivable of $18.3 million and $39.6 million million at December 31, 2014 and 2013, included in other assets on its consolidated balance sheets.

At the time of the merger with CapitalSource Inc., a valuation allowance of $130.7 million was established against the acquired deferred tax assets (“DTA”). Periodic reviews of the carrying amount of DTA are made to determine if a valuation allowance is necessary. A valuation allowance is required, based on available evidence, when it is more likely than not that all or a portion of a DTA will not be realized due to the inability to generate sufficient taxable income in the period and/or of the character necessary to utilize the benefit of the DTA. All available evidence, both positive and negative, that may affect the realizability of the DTA are identified and considered in determining the appropriate amount of the valuation allowance. As of December 31, 2014, the Company had a valuation allowance of $130.3 million. It is more likely than not that these deferred tax assets subject to a valuation allowance will not be realized primarily due to their character and/or the expiration of the carryforward periods.

We have net operating loss and tax credit carryforwards for federal and state income tax purposes that can be utilized to offset future taxable income. If we were to undergo a change in ownership of more than 50% of our capital stock over a three-year period as measured under Section 382 of the Internal Revenue Code (“the Code”), our ability to utilize our net operating loss forwards and other tax attributes after the ownership change generally would be limited. The annual limit would equal the product of the applicable long term tax exempt rate and the value of the relevant taxable entity’s capital stock immediately before the ownership change. These change of ownership rules generally focus on ownership changes involving stockholders owning directly or indirectly 5% or more (the “5-Percent Shareholders”) of a company’s outstanding stock, including certain public groups of stockholders as set forth under Section 382, and those arising from new stock issuances and other equity transactions, which may limit our willingness and ability to issue new equity. The determination of whether an ownership change occurs is complex and not entirely within our control. No assurance can be given as to whether we have undergone, or in the future will undergo, an ownership change under Section 382 of the Internal Revenue Code.

In April 2014, the Board of Directors adopted a tax benefit preservation plan ("the Tax Plan") which was designed to preserve the net operating loss carryforwards and other tax attributes for the Company. The Tax Plan is intended to discourage persons from becoming 5-Percent Shareholders and existing 5-Percent Shareholders from increasing their beneficial ownership of share.

We had available at December 31, 2014, approximately $446.4 million of unused federal net operating loss carryforwards that may be applied against future taxable income. If not used, these carryforwards will begin to expire in 2030 and fully expire in 2031. We had available at December 31, 2014, approximately $936.3 million of unused state net operating loss carryforwards that may be applied against future taxable income. The state net operating loss carryforwards will expire in varying amounts beginning in 2015 through 2033.

As of December 31, 2014, for federal tax purposes, we had capital loss carryforwards of $135.8 million, of which $132.4 million was acquired as a result of the merger with CapitalSource Inc. If not used, these carryforwards will begin to expire in 2015 and will fully expire in 2019.

As of December 31, 2014, for federal tax purposes, we had foreign tax credit carryforwards of $28.6 million, all of which was acquired as a result of the merger with CapitalSource Inc. The foreign tax credit carryforwards are available to offset future federal taxable income. If not used, these carryforwards will begin to expire in 2016 and fully expire in 2021. We also had Low Income Housing Tax Credit carryforwards of $3.3 million, which if not used, will expire in 2034.

The following table presents the tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities as of the dates indicated:



	December 31,
	2014			2013
	(In thousands)
Deferred Tax Assets:
Book allowance for loan losses in excess of tax specific charge-offs	$	100,981		$	45,840
Interest on nonaccrual loans	7,394			444
Deferred compensation	4,585			4,541
Premises and equipment, principally due to differences in depreciation	5,359			3,643
Foreclosed assets valuation allowance	7,353			9,784
Assets acquired in FDIC‑assisted acquisition	10,217			16,375
State tax benefit	5,009			2,368
Net operating losses	207,575			197
Capital loss carryforwards	57,494			—
Accrued liabilities	36,115			16,629
Other	6,254			8,084
Equity Investments	8,666			568
Goodwill	44,372			6,595
Deferred loan fees and costs	—			378
Tax credits	32,183			—
Unrealized loss on securities available‑for‑sale	—			2,424
Gross deferred tax assets	533,557			117,870
Valuation Allowance	(130,282		)	—
Deferred tax assets, net of valuation allowance	403,275			117,870
Deferred Tax Liabilities:
Core deposit and customer relationship intangibles	3,978			6,022
Deferred loan fees and costs	17,594			—
Unrealized gain on securities available‑for‑sale	17,926			—
FHLB stock	2,820			7,123
Subordinated debentures	40,369			1,003
Operating Leases	34,136			—
Unrealized income from FDIC‑assisted acquisition	2,041			24,086
Gross deferred tax liabilities	118,864			38,234
Total net deferred tax asset	$	284,411		$	79,636

Based upon our taxpaying history and estimates of taxable income over the years in which the items giving rise to the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences.

We had no unrecognized net tax benefit positions at December 31, 2013 and 2012. The increase of unrecognized tax benefits related to the merger with CapitalSource Inc. was $18.7 million. The schedule below details the activities during 2014.



	Unrecognized
	Tax Benefits
	(In thousands)
Balance, December 31, 2013	$	—
Increase related to CapitalSource Inc. merger	18,724
Increase based on tax positions related to prior years	2,371
Reductions related to settlements	(293		)
Reductions for tax positions as a result of a lapse of the applicable statute of limitations	(301		)
Balance, December 31, 2014	$	20,501

As of December 31, 2014, our unrecognized tax benefit that may affect the effective tax rate was $2.4 million. Due to the potential for the resolution of federal and state examinations and the expiration of various statutes of limitations, it is reasonably possible that our gross unrecognized tax benefits may decrease within the next twelve months by as much as $2.0 million.

We recognize accrued interest and penalties related to unrecognized tax benefits as a component of income taxes. For the year ended December 31, 2014 we recognized $0.2 million in interest expense and penalties. We had $3.3 million ($3.1 million is related to the merger) accrued for the payment of interest and penalties as of December 31, 2014. The amount of interest and penalties accrued and recognized for the years ended December 31, 2013 and 2012 was minimal and immaterial to our financial results.

We file income tax returns with the United States and various states, local and foreign jurisdictions and generally remain subject to examinations by these tax jurisdictions for tax years 2006 through 2013. We are currently under examination by the United States for tax years 2008 through 2012 and certain state jurisdictions for tax years 2006 through 2012.