INCOME TAXES

The components of income tax (benefit) expense for the years ended December 31 are as follows:



	Years ended December 31,
(in thousands)	2013			2012			2011
Current:
Federal	$	24,029		$	20,984		$	11,628
State and local	2,890			2,085			1,907
Deferred	(9,943		)	(8,535		)	(733		)
Total income tax expense	$	16,976		$	14,534		$	12,802

A reconciliation of expected income tax expense, computed by applying the statutory federal income tax rate of 35% in 2013, 2012, and 2011 to income before income taxes and the amounts reflected in the consolidated statements of operations is as follows:



	Years ended December 31,
(in thousands)	2013			2012			2011
Income tax expense at statutory rate	$	17,528		$	14,991		$	13,379
Increase (reduction) in income tax resulting from:
Tax-exempt income, net	(1,128		)	(853		)	(717		)
State and local income taxes, net	1,314			1,232			994
Bank-owned life insurance, net	(484		)	(353		)	(270		)
Non-deductible expenses	222			326			335
Change in estimated rate for deferred taxes	336			—			(1,180		)
Tax benefits of LIHTC investments, net	(204		)	(211		)	(174		)
Other, net	(608		)	(598		)	435
Total income tax expense	$	16,976		$	14,534		$	12,802

The amount of tax credits and other tax benefits from low-income housing tax credit ("LIHTC") investments recognized during the year were $1.1 million, $1.1 million, and $1.0 million during the years ended December 31, 2013, 2012, and 2011, respectively. The amount recognized as a component of income tax expense per the table above was $0.2 million, $0.2 million, and $0.2 million for the years ended December 31, 2013, 2012, and 2011, respectively. As of December 31, 2013 and 2012, the carrying value of the investments related to low-income housing tax credits was $4.2 million and $5.1 million, respectively. No impairment losses have been recognized from forfeiture or ineligibility of tax credits or other circumstances during the life of any of the investments. As of December 31, 2013, the Company has future capital commitments of $0.6 million related to low-income housing tax credit investments. The capital commitments are expected to be called between the years 2014 - 2024.

A net deferred income tax asset of $39.4 million and $21.8 million is included in other assets in the consolidated balance sheets at December 31, 2013 and 2012, respectively. The tax effect of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities is as follows:



	Years ended December 31,
(in thousands)	2013		2012
Deferred tax assets:
Allowance for loan losses	$	16,365	$	17,846
Asset purchase tax basis difference, net	16,238		18,399
Basis difference on other real estate	1,611		1,222
Deferred compensation	4,604		2,815
Goodwill and other intangible assets	10,799		12,657
Accrued compensation	2,046		1,700
Unrealized losses on securities available for sale	2,672		—
Other, net	796		115
Total deferred tax assets	$	55,131	$	54,754

Deferred tax liabilities:
FDIC loss guarantee receivable, net	$	12,280	$	23,259
Unrealized gains on securities available for sale	—		4,960
State tax credits held for sale, net of economic hedge	1,368		1,875
Core deposit intangibles	2,075		2,881
Total deferred tax liabilities	15,723		32,975
Net deferred tax asset	$	39,408	$	21,779

A valuation allowance is provided on deferred tax assets when it is more likely than not that some portion of the assets will not be realized. The Company did not have any valuation allowances for federal income taxes as of December 31, 2013 or 2012. Management believes it is more likely than not that the results of future operations will generate sufficient federal taxable income to realize the deferred federal tax assets. Due to positive evidence about the Company's ability to generate taxable income in the future, the Company reversed its state valuation allowance in 2012. Accordingly, the Company had no state tax valuation allowance as of December 31, 2013 and 2012.

The Company and its subsidiaries file income tax returns in the federal jurisdiction and in nine states. With few exceptions, the Company is no longer subject to federal, state or local income tax audits by tax authorities for years before 2010. The Company is not currently under audit by any taxing jurisdiction.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense and classifies such interest and penalties in the liability for unrecognized tax benefits. The amounts accrued for interest and penalties as of December 31, 2013, 2012, and 2011 were not significant.

As of December 31, 2013, the gross amount of unrecognized tax benefits was $1.3 million and the total amount of net unrecognized tax benefits that would impact the effective tax rate, if recognized, was $0.8 million. As of December 31, 2012 and 2011, the total amount of the net unrecognized tax benefits that would impact the effective tax rate, if recognized, was $0.8 million and $0.7 million, respectively. The Company believes it is reasonably possible that the gross amount of unrecognized benefits will be reduced by approximately $0.3 million as a result of a lapse of statute of limitations in the next 12 months.

The activity in the gross liability for unrecognized tax benefits was as follows:



(in thousands)	2013			2012			2011
Balance at beginning of year	$	1,148		$	1,057		$	4,003
Additions based on tax positions related to the current year	233			347			311
Additions for tax positions of prior years	53			49			38
Reductions for tax positions of prior years	—			—			(2,849		)
Settlements or lapse of statute of limitations	(177		)	(305		)	(446		)
Balance at end of year	$	1,257		$	1,148		$	1,057