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 previously had a full valuation allowance against its net deferred tax assets. 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.

In evaluating the ability to recover deferred tax assets within the jurisdiction from which they arise, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and results of recent operations. In projecting future taxable income, the Company begins with historical results adjusted for the results of discontinued operations and changes in accounting policies and incorporates assumptions including the amount of future state and federal pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts and future taxable income and are consistent with the plans and estimates management uses to manage the underlying business.

After analysis of all available positive and negative evidence, the Company reversed substantially all of its valuation allowance against its net deferred tax assets, which was reflected as a benefit for income taxes in the consolidated statements of income and as an adjustment to accumulated other comprehensive income during the fourth quarter of 2013. The Company concluded that, as of December 31, 2013, it was more likely than not that substantially all of its net deferred tax assets would be realized in future years. This conclusion was primarily based on projected future taxable income, in addition to cumulative earnings resulting from eight consecutive quarters of profitability (excluding the goodwill impairment charge recognized during the fourth quarter of 2013), significant improvement in asset quality metrics and certain other relevant factors. If the Company’s estimate of realizability of its net deferred tax assets changes in the future, an adjustment to the valuation allowance would be recorded, which would either increase or decrease income tax expense in such period.

The valuation allowance reserves for certain state net operating loss carryovers, federal and state tax credits and capital loss carryovers which are projected to expire prior to their utilization, based upon projected taxable income at December 31, 2013. The Company has reserved for this benefit in its valuation allowance but will continue to evaluate the potential future utilization of these items and will record an adjustment to the valuation allowance in the period a change is warranted.

A summary of the Company’s deferred tax assets and deferred tax liabilities at March 31, 2014 and December 31, 2013 is as follows:



	March 31, 2014			December 31, 2013
	(dollars expressed in thousands)
Gross deferred tax assets	$	375,092		359,261
Unrecognized tax benefits for uncertain tax positions	(879		)	—
Valuation allowance	(43,380		)	(43,380	)
Deferred tax assets, net of valuation allowance	330,833			315,881
Deferred tax liabilities	49,609			28,397
Net deferred tax assets	$	281,224		287,484

At March 31, 2014 and December 31, 2013, for federal income tax purposes, the Company had net operating loss carryforwards of approximately $565.9 million and $571.8 million, respectively. For state income tax purposes, the Company had net operating loss carryforwards of approximately $785.4 million at March 31, 2014 and December 31, 2013, and a related deferred tax asset of $66.7 million and $66.6 million, respectively.