Income Taxes

Income tax expense (benefit) for the years ended December 31, 2015, 2014 and 2013 is summarized as follows:



	Years Ended December 31,
(Dollars in thousands)	2015			2014			2013
Current income taxes:
Federal	$	62,584		$	75,945		$	67,449
State	9,417			10,397			16,046
Foreign	(39		)	4,566			2,196
Total current income taxes	$	71,962		$	90,908		$	85,691
Deferred income taxes:
Federal	$	15,550		$	466		$	1,813
State	5,962			6,113			(114		)
Foreign	1,542			(2,454		)	(160		)
Total deferred income taxes	$	23,054		$	4,125		$	1,539
Total income tax expense	$	95,016		$	95,033		$	87,230

The Company's income before income taxes in 2015, 2014 and 2013 includes $3.9 million, $3.8 million and $4.3 million, respectively, of foreign income attributable to its Canadian subsidiary.

The tax effect of fair value adjustments on securities available-for-sale and derivative instruments in cash flow hedges are recorded directly to shareholders' equity as part of other comprehensive income (loss) and are reflected on the Consolidated Statements of Comprehensive Income. In addition, tax expense of $1.9 million, $594,000, and $831,000 in 2015, 2014 and 2013, respectively, related to the exercise and expiration of certain stock options and vesting and issuance of restricted shares and performance stock awards pursuant to the Stock Incentive Plans and the issuance of shares pursuant to the Directors Deferred Fee and Stock Plan, was recorded directly to shareholders’ equity.

A reconciliation of the differences between taxes computed using the statutory Federal income tax rate of 35% and actual income tax expense is as follows:



	Years Ended December 31,
(Dollars in thousands)	2015			2014			2013
Income tax expense based upon the Federal statutory rate on income before income taxes	$	88,118		$	86,251		$	78,554
Increase (decrease) in tax resulting from:
Tax-exempt interest, net of interest expense disallowance	(2,878		)	(1,936		)	(1,423		)
State taxes, net of federal tax benefit	9,996			10,731			10,355
Income earned on bank owned life insurance	(1,562		)	(896		)	(1,157		)
Non-deductible compensation costs	528			561			654
Meals, entertainment and related expenses	1,283			1,026			993
Foreign subsidiary, net	148			775			588
Tax benefits related to tax credit investments	(778		)	(1,498		)	(1,553		)
Other, net	161			19			219
Income tax expense	$	95,016		$	95,033		$	87,230

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2015 and 2014 are as follows:



	Years Ended December 31,
(Dollars in thousands)	2015		2014
Deferred tax assets:
Allowance for credit losses	$	39,561	$	35,455
Deferred compensation	25,492		19,349
Covered assets	17,754		18,246
Stock-based compensation	9,760		10,735
Other real estate owned	7,610		7,546
Foreign net operating loss carryforward	6,616		2,521
Federal net operating loss carryforward	4,705		2,108
AMT credit carryforward	1,498		1,177
Foreign tax credit carryforward	—		302
Nonaccrued interest	1,603		1,329
Mortgage banking recourse obligation	1,565		1,206
Discount on purchased loans	749		—
Net unrealized losses on securities included in other comprehensive income	11,476		6,242
Net unrealized losses on derivatives included in other comprehensive income	1,386		1,601
Other	3,361		3,523
Total gross deferred tax assets	133,136		111,340
Deferred tax liabilities:
Premises and equipment	33,423		35,902
Equipment leasing	15,089		—
Goodwill and intangible assets	8,198		3,501
Fair value adjustments on loans	6,086		9,444
Deferred loan fees and costs	6,045		4,927
Capitalized servicing rights	3,330		3,037
FHLB stock dividends	904		1,416
Discount on purchased loans	—		11,324
Other	5,874		5,625
Total gross deferred liabilities	78,949		75,176
Net deferred tax assets	$	54,187	$	36,164

Management has determined that a valuation allowance is not required for the deferred tax assets at December 31, 2015 because it is more likely than not that these assets could be realized through carry back to taxable income in prior years, future reversals of existing taxable temporary differences, tax planning strategies and future taxable income. This conclusion is based on the Company's historical earnings, its current level of earnings and prospects for continued growth and profitability.

The Company has a Federal AMT credit carryforward of $1.5 million which has no expiration date and a Federal NOL carryforward of $13.4 million that begins to expire in 2028 through 2034 and is subject to Internal Revenue Code Section 382 annual limitation. These credit and loss carryforwards were a result of acquisitions made in 2012, 2013 and 2015. The Company has a Foreign NOL carryforward of $25.1 million that begins to expire in 2034 through 2035. Management believes it is more likely than not that it will be able to fully utilize the Federal and Foreign NOLs and tax credits in future tax years.

The Company is required to record a liability (or a reduction of an asset) for the uncertainty associated with certain tax positions. This liability, if any, reflects the fact that the Company has not recognized the benefit associated with the tax position. The Company had no unrecognized tax benefits at December 31, 2014 and it did not have increases or decreases in unrecognized tax benefits during 2015 and does not have any tax positions for which unrecognized tax benefits must be recorded at December 31, 2015. In addition, for the year ended December 31, 2015, the Company has no interest or penalties relating to income tax positions recognized in the income statement or in the balance sheet. If the Company were to record interest and penalties associated with uncertain tax positions or as a result of an audit by a tax jurisdiction, the interest and penalties would be included in income tax expense. The Company does not believe it is reasonably possible that unrecognized tax benefits will significantly change in the next 12 months.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in numerous state jurisdictions and in Canada. In the ordinary course of business we are routinely subject to audit by the taxing authorities of these jurisdictions. Currently, the Company's U.S. federal income tax returns are open and subject to audit for the 2012 tax return year forward, and in general, the Company's state income tax returns are open and subject to audit from the 2012 tax return year forward, subject to individual state statutes of limitation. The Company's Canadian subsidiary's Canadian income tax returns are also subject to audit for the 2012 tax return year forward.