The income tax note shown in NMBT's 2010 annual report is reproduced below. NMBT is a Connecticut bank with $300 million in assets. Net income of $2,792,000 was reported in 2010 ($2,159,000 in 2009).
The following table represents a reconciliation of the provision for income taxes as shown in the statements of operations with that which would be computed by applying the statutory federal income tax rate (34%) to income before income taxes:

NMBT will only recognize a deferred tax asset when, based on available evidence, realization is more likely than not. A valuation reserve is established for tax benefits available but for which realization is in doubt. In 2010, NMBT reduced the valuation allowance to approximately 6% of the deferred tax asset to recognize the remaining available Federal income tax benefits which NMBT expected to utilize, and other book/tax temporary differences. At December 31, 2010, NMBT recorded a valuation reserve against 100% of the State and Federal capital loss carryforwards which NMBT does not expect to utilize.
Required:
a. Explain the differences between the company's tax and book accounting. (Focus on the general explanation, not the specifics of the bank's accounts)
b. What information does this note contain that is relevant to a potential investor in NMBT's common stock?
c. What role did management judgment play in determining the company's provision for income taxes? (The income tax note is one of the more complex and difficult notes to understand. Do not be discouraged if you do not understand all of its content. The purpose behind the problem is to illustrate the role of notes in financial reporting.)

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Reconciliation of the Provision for Income Taxes Dollars in thousands Federal income tax provision at statutory rate Increase (decrease) in income taxes résulting from: Years Ended December 31, 2009 2008 $1,078 $917 $571 2010 153 168 State income taxes, net of federal tax effect Changes in valuation allowances and other deferred 142 (701) 640)(471) 71 5 379$537 $339 tax adjustments Other (140) 107 Actual provision for income taxes Current income tax expense: 5431 215 646 Federal 5546 $572 232 238 810 (267) 241) (471) $379 $537 $339 State 778 Deferred income tax benefit Total provision for income taxes The tax effect of temporary differences giving rise to NMBT's deferred tax assets and liabilities at Decembr 31, 2010 and 2009 are as follows Dollars in thousands 2010 2009 Deferred Tax Assets Allowance for loan losses Deferred compensation Capital loss carryforward Deferred loan fees Real estate owned Other Total deferred tax assets Deferred Tax Liabilities Depreciation Securities Total deferred tax liabilities Valuation allowance Net deferred tax assets 771 867 410 304 156 12 75 1,385 1,824 452 105 (83) 165 (25) 307) (106)(162) 6(469) (105)(499) $ 856 $1,174