15. INCOME TAXES

The provision for income taxes charged to operations consists of the following:



	Year Ended December 31,
	2015		2014			2013
	(in thousands)
Current	$	61,040	$	55,572		$	43,547
Deferred	3,254		(7,182		)	(13,717		)
Total tax provision	$	64,294	$	48,390		$	29,830

The reconciliation between the statutory federal income tax rate and the Company’s effective tax rate are summarized as follows:



	Year Ended December 31,
	2015			2014			2013
	(in thousands)
Income tax at statutory rate	$	90,489		$	69,125		$	50,979
Increase (decrease) resulting from:
State income taxes, net of federal benefits	5,783			4,904			3,016
Bank owned life insurance	(1,365		)	(1,578		)	(1,683		)
Tax-exempt income	(20,226		)	(15,006		)	(7,308		)
Deferred tax asset valuation allowance	(2,290		)	(2,104		)	(2,391		)
Bargain purchase gain	—			—			(3,775		)
Low income housing tax credits	(5,223		)	(3,872		)	(2,105		)
Tax benefit related to Western Liberty acquisition	—			—			(3,738		)
Other, net	(2,874		)	(3,079		)	(3,165		)
Total tax provision	$	64,294		$	48,390		$	29,830

The effective tax rate for the year ended December 31, 2015 was 24.87%, compared to 24.50% for the year ended December 31, 2014, and 20.48% for the year ended December 31, 2013. There was not a significant change in the effective tax rate from 2014 compared to 2015. The increase in the effective tax rate from 2013 compared to 2014 is primarily due to the increase in pre-tax book income and the absence of acquisition related benefits for the year ended December 31, 2014 compared to 2013.

The cumulative tax effects of the primary temporary differences are shown in the following table:



	December 31,
	2015			2014
	(in thousands)
Deferred tax assets:
Allowance for credit losses	$	47,431		$	42,038
Fair market value adjustment related to acquired loans	13,930			8,250
Stock-based compensation	12,069			4,749
Net operating loss carryovers	9,255			8,453
Tax credit carryovers	9,052			9,617
Startup costs and other amortization	4,771			5,113
Allowance for other assets acquired through foreclosure, net	4,280			7,343
Section 382 limited NUBILs	3,284			3,657
Other	13,686			8,188
Total gross deferred tax assets	117,758			97,408
Deferred tax asset valuation allowance	—			(2,290		)
Total deferred tax assets	117,758			95,118
Deferred tax liabilities:
Unrealized gain on debt instruments measured at fair value	(7,537		)	—
Deferred loan costs	(7,400		)	(6,041		)
Unrealized gain on AFS securities	(6,353		)	(9,949		)
Core deposit intangible	(6,093		)	(1,006		)
Premises and equipment	(2,039		)	(4,049		)
Unrealized gains on financial instruments measured at fair value	(1,000		)	(9,798		)
Other	(984		)	(1,589		)
Total deferred tax liabilities	(31,406		)	(32,432		)
Deferred tax assets, net	$	86,352		$	62,686

Deferred tax assets and liabilities are included in the Consolidated Financial Statements at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be reversed. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

For the year ended December 31, 2015, the net deferred tax assets increased $23.7 million to $86.4 million. This overall increase in the net deferred tax asset was primarily the result of increases to deferred tax assets from the effects of the Bridge acquisition; a change in fair market value of junior subordinated debt and AFS securities; and the increase in the allowance for credit losses.

Although realization is not assured, the Company believes that the realization of the recognized deferred tax asset of $86.4 million at December 31, 2015 is more-likely-than-not based on expectations as to future taxable income and based on available tax planning strategies within the meaning of ASC 740, Income Taxes, that could be implemented if necessary to prevent a carryover from expiring.

As of December 31, 2015 and 2014, the Company had a deferred tax valuation allowance of zero and $1.8 million, respectively, related to net capital loss carryovers from the sale of preferred stock investments and zero and $0.5 million, respectively, related to IRC Section 382 limitations associated with the Company's acquisition of Western Liberty.

The deferred tax asset related to federal and state NOL carryovers outstanding at December 31, 2015 and 2014 available to reduce the tax liability in future years totaled $9.3 million and $8.5 million, respectively. The respective $9.3 million and $8.5 million of tax benefits relate entirely to federal NOL carryovers (subject to an annual limitation imposed by IRC Section 382). The Company’s ability to use federal NOL carryovers, as well as its ability to use certain future tax deductions called NUBILs associated with the Company's acquisitions of Western Liberty and Centennial, will be subject to separate annual limitations of $1.8 million and $1.6 million of deductions from taxable income, respectively. In management’s opinion, it is more-likely-than-not that the results of future operations will generate sufficient taxable income to realize all of the deferred tax benefits related to these NOL carryovers and NUBILs.

The Company files income tax returns in the U.S. federal jurisdiction and in various states. With few exceptions, the Company is no longer subject to U.S. federal, state, or local income tax examinations by tax authorities for years before 2011.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the Consolidated Financial Statements in the period in which, based on all available evidence, management believes it is more-likely-than-not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above would be reflected as a liability for unrecognized tax benefits in the accompanying Consolidated Balance Sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

The total gross activity of unrecognized tax benefits related to uncertain tax positions are shown in the following table:



	December 31,
	2015		2014
	(in thousands)
Beginning balance	$	—	$	—
Gross Increases
Tax positions in prior periods	1,038		—
Current period tax positions	—		—
Gross decreases
Tax positions in prior periods	—		—
Settlements	—		—
Lapse of statute of limitations	—		—
Ending balance	$	1,038	$	—

As of December 31, 2015, the total amount of unrecognized tax benefits, net of associated deferred tax benefit, that would impact the effective tax rate, if recognized, is $0.7 million. There were no unrecognized tax benefits as of December 31, 2014.

Interest and penalties related to unrecognized tax benefits are recognized in the provision for income taxes. During the year ended December 31, 2015, the Company recognized as part of its provision for income taxes, $0.1 million in penalties associated with unrecognized tax benefits and no amounts for interest. There were no amounts for interest and penalties recognized during the years ended December 31, 2014 and 2013.

As of December 31, 2015, the Company has accrued a $0.1 million liability for penalties and a $0.1 million liability for interest. As of December 31, 2014, there were no amounts accrued for interest or penalties.

Investments in LIHTC

The Company invests in LIHTC funds that are designed to generate a return primarily through the realization of federal tax credits.

Investments in LIHTC and unfunded LIHTC obligations are included as part of other assets and other liabilities, respectively, in the Consolidated Balance Sheets and total $152.7 million and $61.2 million, respectively, as of December 31, 2015, compared to $126.6 million and $51.4 million as of December 31, 2014. For the years ended December 31, 2015, 2014, and 2013, $14.4 million, $10.6 million, and $5.9 million of amortization related to LIHTC investments was recognized as a component of income tax expense, respectively.