NOTE 13—INCOME TAXES

Income Tax Expense

The Company calculates its provision for federal and state income taxes based on current tax law. The reported tax provision differs from the amounts currently receivable or payable because some income and expense items are recognized in different time periods for financial reporting purposes than for income tax purposes. The following is a summary of income tax expense for the years ended December 31, 2016, 2015, and 2014:


	For the year ended December 31,
(in thousands)	2016		2015		2014
Current
Federal	$	28,699	$	29,117	$	19,309
State		5,176		5,325		2,959
Total	$	33,875	$	34,442	$	22,268

Deferred
Federal	$	32,159	$	14,571	$	8,862
State		5,436		2,348		1,398
Total	$	37,595	$	16,919	$	10,260

Items charged or credited directly to stockholders' equity
Federal	$	—	$	1,218	$	(33)
State		—		192		(5)
Total	$	—	$	1,410	$	(38)
Income tax expense	$	71,470	$	52,771	$	32,490

As more fully described in NOTE 2, in 2016, the Company adopted a new accounting standard that requires excess tax benefits from stock compensation to be recorded as a reduction to income tax expense instead of being recorded directly to equity. Excess tax benefits recognized in 2016 reduced income tax expense by $0.6 million.

A reconciliation of the statutory federal tax expense to the income tax expense in the accompanying statements of income follows:


	For the year ended December 31,
(in thousands)	2016		2015		2014
Statutory federal expense (35%)	$	65,023	$	47,378	$	29,369
Statutory state income tax expense, net of federal tax benefit		6,714		4,611		2,805
Other		(267)		782		316
Income tax expense	$	71,470	$	52,771	$	32,490

Deferred Tax Assets/Liabilities

The tax effects of temporary differences between reported earnings and taxable earnings consisted of the following:


	As of December 31,
(in thousands)	2016		2015
Deferred Tax Assets
Compensation related	$	17,341	$	12,273
Credit losses		1,269		1,994
Acquisition related (1)		—		1,929
Other		407		1,270
Total deferred tax assets	$	19,017	$	17,466

Deferred Tax Liabilities
Mark-to-market of derivatives and loans held for sale	$	(19,934)	$	(9,745)
Mortgage servicing rights related		(135,519)		(107,166)
Acquisition related (1)		(722)		—
Depreciation		(1,862)		(1,980)
Total deferred tax liabilities	$	(158,037)	$	(118,891)
Deferred tax liabilities, net	$	(139,020)	$	(101,425)

(1)

Acquisition-related deferred tax assets and deferred tax liabilities consist of book-to-tax differences associated with basis step ups related to the amortization of goodwill recorded from acquisitions, acquisition-related costs capitalized for tax purposes, and book-to-tax differences in intangible asset amortization.

The Company believes it is more likely than not that it will generate sufficient taxable income in future periods to realize the deferred tax assets.

Tax Uncertainties

The Company periodically assesses its liabilities and contingencies for all periods open to examination by tax authorities based on the latest available information. Where the Company believes it is more likely than not that a tax position will not be sustained, management records its best estimate of the resulting tax liability, including interest, in the consolidated financial statements. As of December 31, 2016, based on all known facts and circumstances and current tax law, management believes that there are no tax positions for which it is reasonably possible that the unrecognized tax benefits will significantly increase or decrease over the next 12 months, producing, individually or in the aggregate, a material effect on the Company’s results of operations, financial condition, or cash flows.