Deferred Income Taxes

9 Months Ended

Sep. 30, 2011

Deferred Income Taxes [Abstract]

Deferred Income Taxes

15. Deferred Income Taxes

Deferred taxes are provided using the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Excluding unrealized losses on available-for-sale securities, the Company has recorded a 100% deferred tax valuation allowance related to various temporary differences, principally consisting of the provision for loan losses and its net operating loss carryforwards.

In the third quarter of 2011, the Company, excluding discontinued operations, recorded $1.3 million of federal income tax expense to increase its deferred tax valuation allowance established on previously recorded deferred tax assets. The tax expense resulted from adjustment of the deferred tax liability related to the decrease in the Company's available-for-sale investment portfolio. The Company also recorded a deferred tax valuation allowance on the tax benefit related to the loss recognized during the nine months ended September 30, 2011, due to the uncertainty of future taxable income necessary to fully realize the recorded net deferred tax asset.

Changes in net deferred tax asset were as follows:

(dollars in thousands)	September 30,			December 31,
	2011			2010
Balance at beginning of year	$	925		$	447
Income tax effect from change in unrealized gains on available-for-sale securities		(326	)		2,212
Employee benefit plan		—			(427	)
Deferred income tax benefit on continuing operations		40,871			52,083
Deferred income tax benefit on discontinuing operations		213			—
Valuation allowance on deferred tax assets		(41,204	)		(53,390	)
Balance at end of period	$	479		$	925

The components of deferred tax assets and liabilities and the tax effect of each are as follows:

(dollars in thousands)	September 30,			December 31,
	2011			2010
Deferred tax assets:
Allowance for loan losses	$	18,029		$	37,388
Net operating loss		91,060			36,902
Compensation and benefit plans		2,015			2,102
Fair value basis of loans		—			—
Pension and other post-retirement benefits		1,284			1,451
Interest rate swap		—			—
Other real estate owned		8,263			3,815
Net unrealized securities losses		17			343
Other		718			701
Subtotal deferred tax assets		121,386			82,702
Less: Valuation allowance		(116,939	)		(75,735	)
Total deferred tax assets		4,447			6,967
Deferred tax liabilities:
Core deposit intangible		1,412			1,648
Mortgage servicing rights		—			931
Depreciable basis of premises and equipment		934			1,251
Net deferred loan fees and costs		811			898
Net unrealized securities gains		—			—
SAB 109 valuation		—			265
Other		811			1,049
Total deferred tax liabilities		3,968			6,042
Net deferred tax assets	$	479		$	925

As of September 30, 2011 and December 31, 2010, net deferred income tax assets totaling $479,300 and $924,700, respectively, are recorded on the Company's balance sheet. No valuation allowance is recorded for unrealized losses on investment securities because it is not more likely than not that the Company will have to sell these securities at a loss.