15.	INCOME TAXES

Significant components of the deferred tax assets and liabilities are as follows:

	September 30, 2014			December 31, 2013
	(Dollars in thousands)
Deferred tax assets:
Loan loss reserves	$	6,346		$	7,391
Postretirement benefits		1,090			1,162
Other real estate owned valuation		1,227			1,421
Tax credits carryforward		576			339
Securities impairment charges		—			153
Unrealized loss on securities available for sale		5,869			14,138
Interest on nonaccrual loans		897			758
Net operating loss carryforward		22,827			26,708
Purchase accounting adjustment		79			70
Accrued bonuses		278			456
Other		697			295
Less: Valuation allowance		(1,146	)		(42,802	)
Deferred tax assets		38,740			10,089

Deferred tax liabilities:
Deferred loan fees		321			405
Federal Home Loan Bank stock dividends		4,585			6,715
Mortgage servicing rights		1,984			2,079
Postretirement benefits accrual		640			640
Prepaid expenses		181			250
Deferred tax liabilities		7,711			10,089
Net deferred tax asset	$	31,029		$	—

As of September 30, 2014, the net deferred tax asset (DTA) was $31.0 million, and as of December 31, 2013, the net DTA (prior to any valuation allowance) was $42.8 million. Management recorded a valuation allowance against the net deferred tax assets at December 31, 2013 based on consideration of, but not limited to, its cumulative pre-tax losses during the past three years, the composition of recurring and non-recurring income from operations over the past several years and the magnitude of recent taxable income as compared to net operating loss carryforwards.

The remaining $1.1 million of valuation allowance is expected to reverse due to operating income projected for the remainder of 2014. The realization of a DTA is assessed and a valuation allowance is recorded if it is “more likely than not” that all or a portion of the DTA will not be realized. “More likely than not” is defined as the DTA being more than 50% likely of being realized. All available evidence, both positive and negative is considered to determine whether, based on the weight of that evidence, a valuation allowance against the net DTA is required. In assessing the need for a valuation allowance, the Company considered all available evidence about the realization of the DTA both positive and negative, that could be objectively verified.

Positive evidence considered included (1) the Company’s recent history of quarterly pre-tax earnings (with the most recent quarterly loss being recorded for the quarter ended September 30, 2012), (2) expectations for sustained and continued profitability with sufficient taxable income to fully utilize the remaining net deferred tax benefits (3) significant reductions in the level of non-performing assets since their peak, which was the primary source of the losses generated in prior periods (4) resolution to an executive search placed on a key management position (5) evaluation of core earnings (6) adequacy of capital to fund balance sheet and future growth and (7) cost-saving initiatives triggered during 2014.

Negative evidence considered was (1) the uncertainty about the potential impact on future earnings from nonperforming assets along with (2) former pre-tax losses reported by the Company. As the number of consecutive periods of profitability increased and the level of profits are indicative of on-going results, the weight of cumulative losses as negative evidence decreased. A reduction in the weight given to such losses is further validated given that the source of the losses was due to an elevated level of problem assets and related credit costs, which have since been significantly reduced due to the bulk asset sale in 2012 and as evidenced by the improvements in the Company’s asset quality metrics.

After weighing both the positive and negative evidence, management determined that a valuation allowance on the net DTA was no longer warranted as of June 30, 2014. For a more detailed discussion of the Company’s tax calculation, see Note 14 to the consolidated financial statements, included in Item 8 of the Company’s Form 10-K.

Net operating loss carryforwards begin to expire in the year ending December 31, 2030.

The Company’s ultimate realization of the DTA is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the nature and amount of historical and projected future taxable income, the scheduled reversal of deferred tax assets and liabilities, and available tax planning strategies in making this assessment. The amount of deferred taxes recognized could be impacted by changes to any of these variables.