14.

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,
	2011			2010			2009
Current income tax benefit
Federal	$	(1	)	$	(6,866	)	$	(17,250	)
State		—			—			—

Total current benefit		(1	)		(6,866	)		(17,250	)


Deferred income tax (benefit) expense
Federal		(2,663	)		5,512			(4,873	)
State		—			12			(5	)

Total deferred (benefit) expense		(2,663	)		5,524			(4,878	)

Total current and deferred benefit	$	(2,664	)	$	(1,342	)	$	(22,128	)

For the year ended December 31, 2011, the deferred income tax benefit of $2.7 million consisted of a reduction in the valuation allowance required against the net deferred income tax asset that resulted from favorable net adjustments for deferred income taxes charged against accumulated other comprehensive income. During 2011, $3.3 million of deferred income taxes pertaining to changes in net unrealized gains and losses on available for sale investment securities was charged against other comprehensive income. This amount was partially offset by $648 thousand of deferred income taxes pertaining to pension cost that was credited to other comprehensive income.

There was no excess tax benefit from equity based awards recorded in shareholders' equity during the years ended December 31, 2011 and 2010 and $133 thousand of such tax benefit was recorded during the year ended December 31, 2009.

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,
	2011			2010			2009
U.S. statutory federal income tax rate		35.0	%		35.0	%		35.0	%
Changes from statutory rates resulting from:
Tax-exempt income		4.5			0.9			0.9
Expenses not deductible for tax purposes		(0.2	)		(0.1	)		(0.2	)
Increase in deferred income tax valuation allowance		(29.0	)		(33.4	)		—
Other		(0.1	)		(0.2	)		(0.1	)

Effective tax rate		10.2	%		2.2	%		35.6	%

The Company's consolidated balance sheets included no net deferred tax asset at December 31, 2011 and 2010 because valuation allowances were provided to fully offset the net deferred tax asset as of the end of each period. 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,
	2011			2010
Deferred tax assets
Allowance for loan losses	$	8,959		$	9,427
Nonaccrual loan interest		309			706
Valuation allowance for commercial loans held for sale		330			829
Writedowns of foreclosed real estate		3,095			4,840
Pension plan contributions and accrued liability		2,143			1,825
Recognized built-in loss carryforward		16,923			5,563
Alternative minimum tax credit carryforward		475			475
Federal net operating loss carryforward		3,506			1,420
Other		1,156			791

Deferred tax assets, gross		36,896			25,876
Valuation allowance		(28,068	)		(20,520	)

Deferred tax assets after valuation allowance		8,828			5,356

Deferred tax liabilities
Premises, equipment and capital leases		(1,752	)		(1,467	)
Deferred loan fees and costs, net		(1,592	)		(1,765	)
Unrealized gains on investment securities available for sale		(4,084	)		(773	)
Mortgage-servicing rights		(905	)		(1,014	)
Other		(495	)		(337	)

Total deferred tax liabilities, gross		(8,828	)		(5,356	)

Deferred tax asset, net	$	—		$	—

As of December 31, 2011, the Company had federal net operating loss carryforwards totaling approximately $10.0 million. If not utilized to offset future taxable income, $4.9 million will expire in 2030 and $5.1 million will expire in 2031. During 2009, the U.S. Congress extended the net operating loss carryback period from two years to five years for qualifying institutions. Effective January 1, 2010, the available carryback years for net operating losses under the Internal Revenue Code rules reverted from five years back to two years. At December 31, 2010, the Company had additional carryback capacity to recapture up to $7.4 million of taxes paid in 2008. Accordingly, the Company's income tax receivable of $7.4 million at December 31, 2010 was primarily the result of its taxable net operating loss for the year ended December 31, 2010 which was carried back to 2008. In March 2011, after filing its 2010 federal income tax return, the Company filed a request for refund for this amount, and the refund was received in April 2011.

The Company is subject to U.S. federal and South Carolina state income tax. Tax authorities in various jurisdictions may examine the Company. During 2008, the Internal Revenue Service examined the Company for tax years 2006 through 2007. With few exceptions, the Company and the Bank are not subject to federal and state income tax examinations for taxable years prior to 2008.

As of December 31, 2011, net deferred tax assets, without regard to any valuation allowance, of $28.1 million are recorded in the Company's Consolidated Balance Sheets. The net deferred tax asset is fully offset by a valuation allowance as a result of uncertainty surrounding the ultimate realization of these tax benefits. Based on the Company's projections of future taxable income over the next three years, cumulative tax losses over the previous two years, net operating loss carryforward limitations as discussed below, and available tax planning strategies, the Company initially recorded a valuation allowance against the net deferred tax asset in December 2010. The Company's ongoing analysis indicates that a valuation allowance against the full amount of net deferred tax assets continues to be appropriate at December 31, 2011.

The Private Placement consummated in October 2010 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 NUBIL, which may be subject to similar limitation or deferral. Under the Internal Revenue Code and Regulations, NUBIL realized within 5 years of the change in control are subject to potential limitation, which for the Company is October 7, 2015. 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, 2011, the Company currently estimates that future utilization of net operating loss carryforwards and built-in losses of $53 million generated prior to October 7, 2010 will be limited to $1.1 million per year. In addition, the Company currently estimates that $7.7 million to $9.0 million of the built-in losses may not ultimately be realized. However, this estimate will not be known until the five-year limitation period expires in October 2015.