11. Income Taxes

The components of consolidated income tax expense (benefit) for the years ended December 31, 2016, 2015 and 2014 are as follows:


	For the year ended December 31,
(in thousands)	2016		2015		2014
Current tax provision:
Federal tax	$	6,823	$	11,346	$	9,590
State tax		1,374		668		(109)
Total current tax provision		8,197		12,014		9,481

Deferred tax provision (benefit):
Federal tax		3,532		(2,793)		3,375
State tax		453		(248)		513
Net operating loss carryforward		-		633		1,649
Total deferred tax provision (benefit)		3,985		(2,408)		5,537

Provision for income taxes	$	12,182	$	9,606	$	15,018
Provision (benefit) related to discontinued operations	$	-	$	(42)	$	129

The primary component of deferred tax expense during 2016 was attributable to timing differences in the allowance for loan and credit losses. At December 31, 2016, the Company did not have any net operating loss carryforwards from any tax jurisdiction. The deferred tax provision (benefit) relating to discontinued operations includes deferred tax expense of $0.8 million and $0.0 million for the years ended December 31, 2015, and 2014, respectively.

A deferred tax asset or liability is recognized for the tax consequences of temporary differences in the recognition of revenue and expense, and unrealized gains and losses, for financial and tax reporting purposes. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some or all of the deferred tax assets may not be realized.

The Company conducted an analysis to assess the need of a valuation allowance at December 31, 2016, 2015 and 2014. As part of this assessment, all available evidence, including both positive and negative, was considered to determine whether based on the weight of such evidence, a valuation allowance for deferred tax assets was needed. In accordance with ASC Topic 740-10, Income Taxes (ASC 740), a valuation allowance is deemed to be needed when, based on the weight of the available evidence, it is more likely than not (a likelihood of more than 50%) that some portion or all of a deferred tax asset will not be realized. The future realization of the tax benefit depends on the existence of sufficient taxable income within the carryback and carryforward periods.

At December 31, 2016 and 2015, the Company was in a positive three-year cumulative income position, had availability in its carryback years to absorb potential deferred income tax asset reversals and had financial forecasts of pre-tax income that were sufficient to absorb the deferred income tax assets. Accordingly, the Company determined that a valuation allowance was not warranted at December 31, 2016 and 2015.

In the first quarter of 2016, the Company adopted ASU 2016-09, which requires the Company to recognize all excess tax benefits or tax deficiencies through the income statement as income tax expense/benefit. Upon exercise or vesting of a share-based award, an excess tax benefit will be recognized if the tax deduction exceeds the compensation cost that was previously recorded for financial statement purposes. Under previous GAAP, any excess tax benefits were recognized in additional paid-in capital to offset current-period and subsequent-period tax deficiencies. A tax benefit of $0.3 million was recorded during the year ended December 31, 2016 as a result of share awards vested/exercised during the year.

The net change in deferred taxes related to investment securities available for sale and cash flow hedges is included in other comprehensive income. The temporary differences, tax effected, which give rise to the Company’s net deferred tax assets at December 31, 2016 and 2015 are as follows:


	At December 31,
(in thousands)	2016		2015
Deferred tax assets:
Allowance for loan and credit losses	$	12,625	$	15,460
Intangible assets		1,403		1,490
Other real estate owned		3,276		3,293
Deferred loan fees		185		295
Other accrued liabilities		1,709		1,268
Stock-based compensation		971		1,186
Interest on nonaccrual loans		216		436
Employee bonus		2,271		2,083
Other		710		1,147
Total deferred tax assets	$	23,366	$	26,658

Deferred tax liabilities:
Deferred initial direct loan costs	$	(1,602)	$	(1,923)
Property, plant and equipment		(1,106)		-
Prepaid assets		(356)		(391)
FHLB stock dividends		(53)		(110)
Investment securities and derivatives		(348)		(2,013)
Total deferred tax liabilities	$	(3,465)	$	(4,437)

Net deferred tax assets	$	19,901	$	22,221

A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense for the years ended December 31, 2016, 2015 and 2014 is shown below:


	For the year ended December 31,
(in thousands)	2016		2015		2014
Computed at the statutory rate (35%)	$	16,479	$	12,511	$	15,325
Increase (decrease) resulting from:
State income taxes - net of federal income tax effect		1,241		919		1,336
Tax exempt income		(5,505)		(4,130)		(2,838)
Nondeductible compensation		88		88		496
Meals and entertainment		198		227		233
Excess tax benefit on stock compensation		(291)		-		-
Other - net		(28)		(9)		466
Actual tax provision	$	12,182	$	9,606	$	15,018

ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. At December 31, 2016 and 2015 the Company did not have any unrecognized benefits.

Penalties and interest are classified as income tax expense when incurred. There were no interest and penalties accrued during the year ended December 31, 2016 and 2015.

The Company files income tax returns in the U.S. federal jurisdiction and in several state jurisdictions.

The following are the major tax jurisdictions in which the Company and its affiliates operate and the earliest tax year subject to examination:


Jurisdiction		Tax year
United States		2013
Colorado		2012
Arizona		2012