NOTE 14 – INCOME TAXES

The realization of the Company’s net deferred tax assets is based on the expectation of future taxable income and the utilization of tax planning strategies. The Company has a full valuation allowance against its net deferred tax assets at June 30, 2011 and December 31, 2010. The deferred tax asset valuation allowance was recorded in accordance with ASC Topic 740, “Income Taxes.” Under ASC Topic 740, the Company is required to assess whether it is “more likely than not” that some portion or all of its deferred tax assets will not be realized. Pursuant to ASC Topic 740, concluding that a deferred tax asset valuation allowance is not required is difficult when there is significant evidence which is objective and verifiable, such as the lack of recoverable taxes, excess of reversing deductible differences over reversing taxable differences and cumulative losses in recent years. If, in the future, the Company generates taxable income on a sustained basis, management may conclude the deferred tax asset valuation allowance is no longer required, which would result in the reversal of a portion or all of the deferred tax asset valuation allowance, which would be reflected as a benefit for income taxes in the consolidated statements of operations.

A summary of the Company’s deferred tax assets and deferred tax liabilities at June 30, 2011 and December 31, 2010 is as follows:

	June 30,			December 31,
	2011			2010
	(dollars expressed in thousands)
Gross deferred tax assets	$	395,614		387,202
Valuation allowance		(369,775	)	(369,198	)
Deferred tax assets, net of valuation allowance		25,839		18,004
Deferred tax liabilities		33,021		25,186
Net deferred tax liabilities	$	(7,182	)	(7,182	)

The Company’s valuation allowance was $369.8 million and $369.2 million at June 30, 2011 and December 31, 2010, respectively. At June 30, 2011 and December 31, 2010, for federal income tax purposes, the Company had net operating loss carryforwards of approximately $537.7 million and $478.3 million, respectively, and for state income tax purposes, the Company had net operating loss carryforwards of approximately $642.9 million and $567.3 million, respectively, and a related deferred tax asset of $50.9 million and $43.7 million, respectively.

At June 30, 2011 and December 31, 2010, the Company’s unrecognized tax benefits for uncertain tax positions, excluding interest and penalties, were $1.4 million and $1.3 million, respectively. At June 30, 2011 and December 31, 2010, the total amount of unrecognized tax benefits that would affect the provision for income taxes, prior to the consideration of the deferred tax asset valuation allowance, was $920,000 and $837,000, respectively. During the six months ended June 30, 2011 and 2010, the Company recorded additional liabilities for unrecognized tax benefits of $128,000 and $122,000, respectively.

It is the Company’s policy to separately disclose any interest or penalties arising from the application of federal or state income taxes. Interest related to unrecognized tax benefits is included in interest expense and penalties related to unrecognized tax benefits are included in noninterest expense. At June 30, 2011 and December 31, 2010, interest accrued for unrecognized tax positions was $218,000 and $180,000, respectively. The Company recorded interest expense of $21,000 and $38,000 related to unrecognized tax benefits for the three and six months ended June 30, 2011, respectively, compared to $62,000 and $119,000 for the comparable periods in 2010. There were no penalties for uncertain tax positions accrued at June 30, 2011 and December 31, 2010, nor did the Company recognize any expense for penalties during the three and six months ended June 30, 2011 and 2010.

The Company continually evaluates the unrecognized tax benefits associated with its uncertain tax positions. It is reasonably possible that the total unrecognized tax benefits as of June 30, 2011 could decrease by approximately $305,000 by December 31, 2011, as a result of the lapse of statutes of limitations or potential settlements with the federal and state taxing authorities, of which the impact to the provision for income taxes, prior to the consideration of the deferred tax asset valuation allowance, is estimated to be approximately $198,000. It is also reasonably possible that this decrease could be substantially offset by new matters arising during the same period.

The Company files consolidated and separate income tax returns in the U.S. federal jurisdiction and in various state jurisdictions. Management of the Company believes the accrual for tax liabilities is adequate for all open audit years based on its assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter. This assessment relies on estimates and assumptions. The Company’s federal income tax returns through 2008 have been examined by the IRS. Years subsequent to 2008 could contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing or inclusion of revenue and expenses. The Company has recorded a tax benefit only for those positions that meet the “more likely than not” standard. The Company’s current estimate of the resolution of various state examinations, none of which are in process, is reflected in accrued income taxes; however, final settlement of the examinations or changes in the Company’s estimate may result in future income tax expense or benefit.

The Company is no longer subject to U.S. federal, Florida, Illinois and Missouri income tax examination by the tax authorities for the years prior to 2007, and prior to 2006 for California and Texas. The Company had a federal tax examination for tax years through 2008, which was closed during 2010, and a California tax examination for the 2004 and 2005 tax years, which was closed during 2008. An Illinois tax examination of the 2007 and 2008 tax years was completed during the second quarter of 2011 with no changes to the returns as originally filed.