INCOME TAXES

The components of income tax expense were as follows:



	For the Years Ended December 31,
	2015			2014			2013
(amounts in thousands)
Current	$	40,004		$	26,361		$	15,394
Deferred	(10,092		)	(6,187		)	2,210
Total	$	29,912		$	20,174		$	17,604

Effective tax rates differ from the federal statutory rate of 35%, which is applied to income before income tax expense, due to the following:



	For the Years Ended December 31,
	2015					2014					2013
	Amount			% of pretax income		Amount			% of pretax income		Amount			% of pretax income
(amounts in thousands)
Federal income tax at statutory rate	$	30,973		35.00	%	$	22,185		35.00	%	$	17,604		35.00	%
State income tax	1,434			1.62		1,355			2.14		353			0.70
Tax-exempt interest, net of disallowance	(277		)	(0.31	)	(249		)	(0.39	)	(148		)	(0.30	)
Bank-owned life insurance	(2,422		)	(2.73	)	(1,296		)	(2.04	)	(868		)	(1.73	)
Other	204			0.22		(1,821		)	(2.88	)	663			1.33
Effective income tax rate	$	29,912		33.80	%	$	20,174		31.83	%	$	17,604		35.00	%

Customers accounts for income taxes under the liability method of accounting for income taxes. The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. Customers determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

A tax position is recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation process, if any. A tax position that meets the more likely than not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more likely than not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment.

At December 31, 2015 and 2014, Customers had no ASC 740-10 unrecognized tax benefits. Customers does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months. Customers recognizes interest and penalties on unrecognized tax benefits in other expense.

Realization of deferred tax assets is dependent upon the generation of future taxable income or the existence of sufficient taxable income within the carry-back period. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. In assessing the need for a valuation allowance, management considers the scheduled reversal of the deferred tax liabilities, the level of historical taxable income, and the projected future taxable income over the periods in which the temporary differences comprising the deferred tax assets will be deductible. Based on its assessment, management determined that no valuation allowance is necessary at December 31, 2015 and 2014.

Deferred income taxes reflect temporary differences in the recognition of revenue and expenses for tax reporting and financial statement purposes, principally because certain items are recognized in different periods for financial reporting and tax return purposes. The following represents the Bancorp's deferred tax asset and liabilities as December 31, 2015 and 2014:



	December 31,
	2015			2014
(amounts in thousands)
Deferred tax assets:
Allowance for loan losses	$	13,248		$	11,555
Net unrealized losses on securities	3,112			—
OREO expenses	728			588
Non-accrual interest	840			541
Net operating losses	2,290			1,892
Deferred compensation	1,337			1,361
Equity-based compensation	5,196			3,751
Fair value adjustments on acquisitions	428			—
Cash flow hedge	1,679			681
Incentive compensation	2,497			1,558
Other	1,374			1,120
Total deferred tax assets	32,729			23,047
Deferred tax liabilities:
Fair value adjustments on acquisitions	—			(2,002		)
Net unrealized gains on securities	—			(615		)
Net deferred loan fees	(2,688		)	(4,524		)
Bank premises and equipment	(875		)	(1,009		)
Other	(592		)	(1,140		)
Total deferred tax liabilities	(4,155		)	(9,290		)
Net deferred tax asset	$	28,574		$	13,757

Customers had approximately $6.5 million of federal net operating loss carryovers at December 31, 2015, that expire in 2025 through 2031.

Customers is subject to U.S. federal income tax as well as income tax in various state and local taxing jurisdictions. Generally, Customers is no longer subject to examination by federal, state and local taxing authorities for years prior to December 31, 2012.