NOTE 15. INCOME TAXES

The income tax expense in the consolidated statements of income consists of the following:

	For the Years Ended December 31,
	2016		2015		2014
	(dollars in thousands)

Current – federal	$	28,749	$	15,215	$	10,499
Current - state		3,550		1,026		467
Deferred - federal		2,460		(344)		6,516
Deferred - state		(1,613)		-		-
	$	33,146	$	15,897	$	17,482

The Company’s income tax expense differs from the amounts computed by applying the federal income tax statutory rates to income before income taxes. A reconciliation of the differences is as follows:

	For the Years Ended December 31,
	2016		2015		2014
	(dollars in thousands)
Tax at federal income tax rate	$	36,836	$	19,860	$	19,672
Change resulting from:
Tax-exempt interest		(3,916)		(2,490)		(1,647)
Increase in cash value of bank owned life insurance		(607)		(484)		(568)
State income tax, net of federal benefit		695		667		304
Other		138		(1,656)		(279)
Provision for income taxes	$	33,146	$	15,897	$	17,482

Net deferred income tax assets of $40,776,000 and $19,459,000 at December 31, 2016 and 2015, respectively, are included in other assets. The components of deferred income taxes are as follows:

	December 31,
	2016		2015
	(dollars in thousands)
Deferred tax assets
Allowance for loan losses	$	8,731	$	7,372
Deferred compensation		1,648		1,202
Deferred gain on interest rate swap		296		381
Unrealized loss on interest rate swap		342		504
Nonaccrual interest		17		49
Purchase accounting adjustments		13,444		10,825
Goodwill and intangible assets		7,488		9,357
Other real estate owned		6,244		8,597
Net operating loss tax carryforward		26,414		11,179
AMT credit carryforward		813		-
Unrealized loss on securities available for sale		665		-
Capitalized costs, accrued expenses and other		680		200
		66,782		49,666
Deferred tax liabilities
Depreciation and amortization		6,188		5,591
Mortgage servicing rights		1,412		715
Subordinated debentures		9,428		7,732
FDIC-assisted transaction adjustments		8,978		14,446
Unrealized gain on securities available for sale		-		1,723
		26,006		30,207
Net deferred tax asset	$	40,776	$	19,459

At December 31, 2016, the Company had federal net operating loss carryforwards of approximately $72.37 million which expire at various dates from 2028 to 2035. At December 31, 2015, the Company had federal net operating loss carryforwards of approximately $31.90 million which expire at various dates from 2028 to 2033. At December 31, 2016, the Company had state net operating loss carryforwards of approximately $73.27 million which expire at various dates from 2033 to 2034. At December 31, 2015, the Company had state net operating loss carryforwards of approximately $32.59 million which expire in 2033. The federal net operating loss carryforwards are subject to limitations pursuant to section 382 of the Internal Revenue Code and are expected to be recovered over the next 17 to 19 years. The state net operating loss carryforwards are subject to similar limitations and are expected to be recovered over the next 17 to 18 years. Deferred tax assets are recognized for net operating losses because the benefit is more likely than not to be realized.

The Company did not record any interest and penalties related to income taxes for the years ended December 31, 2016, 2015 and 2014, and the Company did not have any amount accrued for interest and penalties at December 31, 2016, 2015 and 2014.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the various states. The Company is no longer subject to examination by taxing authorities for years before 2013.