Note 12: Income Taxes

Income tax expense for years ending December 31, 2016, 2015 and 2014 were as follows:



	2016		2015		2014
Current federal	$	399	$	220	$	122
Current state		-		-		6
Deferred federal		6,824		7,023		3,120
Deferred state		1,597		1,733		4,876
Change in valuation allowance		-		-		(2,363)
Total income tax expenses	$	8,820	$	8,976	$	5,761

The following were the components of the deferred tax assets and liabilities as of December 31, 2016 and December 31, 2015:


	2016		2015
Allowance for loan losses	$	7,057	$	7,099
Deferred compensation		735		690
Amortization of core deposit intangible		1,401		1,629
Goodwill amortization/impairment		10,127		11,623
Stock based compensation		946		814
OREO write-downs		5,110		6,917
Federal net operating loss (“NOL”) carryforward		19,362		24,105
State net operating loss (“NOL”) carryforward		7,735		8,746
Deferred tax credit		2,058		1,749
Other assets		1,199		792
Total deferred tax assets		55,730		64,164

Accumulated depreciation on premises and equipment		(681)		(601)
Mortgage servicing rights		(2,760)		(2,484)
State tax benefits		(4,127)		(4,686)
Other liabilities		(526)		(336)
Total deferred tax liabilities		(8,094)		(8,107)
Net deferred tax asset before adjustments related to other comprehensive loss		47,636		56,057
Tax effect of adjustments related to other comprehensive loss		5,828		8,495
Net deferred tax asset	$	53,464	$	64,552

At December 31, 2016, the Company had a $55.3 million federal net operating loss carryforward of which, $31.4 million expires in 2031, $8.6 million expires in 2032, and $15.3 million expires in 2033. The Company had a $99.9 million state net operating loss carryforward of which, $2.8 million expires in 2021, $15,000 expires in 2024, $96.5 million expires in 2025, $317,000 expires in 2026, $52.000 expires in 2027 and $177,000 expires in 2028. In addition, the Company had a $2.1 million alternative minimum tax credit subject to indefinite carryforward. Included in the tax effect of adjustments related to other comprehensive loss above are net unrealized losses on held-to-maturity securities that were transferred from available-for-sale securities of $2.4 million as of December 31, 2015.

The components of the provision for deferred income tax expense for the years ending December 31 were as follows:



	2016		2015		2014
Provision for loan losses	$	42	$	2,480	$	3,146
Deferred Compensation		(45)		97		1
Amortization of core deposit intangible		228		230		(203)
Stock based compensation		(132)		(151)		(80)
OREO write-downs		1,807		1,722		1,402
Federal net operating loss carryforward		4,743		2,896		1,022
State net operating loss carryforward		1,011		659		2,442
Deferred tax credit		(309)		(198)		(107)
Depreciation		80		(201)		(233)
Net premiums and discounts on securities		-		-		(8)
Mortgage servicing rights		276		164		(251)
Goodwill amortization/impairment		1,496		1,506		2,123
State tax benefits		(559)		(604)		(1,704)
Change in valuation allowance		-		-		(2,363)
Other, net		(217)		156		446
Total deferred tax expense	$	8,421	$	8,756	$	5,633

Effective tax rates differ from federal statutory rates applied to financial statement income for the years ended December 31 due to the following:


	2016		2015		2014
Tax at statutory federal income tax rate	$	8,577	$	8,526	$	5,564
Nontaxable interest income, net of disallowed interest deduction		(347)		(253)		(233)
BOLI income		(449)		(487)		(508)
State income taxes, net of federal benefit		1,148		1,126		872
Change in valuation allowance		-		-		(2,363)
Impact of Illinois tax rate change		-		-		2,363
Other, net		(109)		64		66
Total tax at effective tax rate	$	8,820	$	8,976	$	5,761

The Company evaluated positive and negative evidence in order to determine if it was more likely than not that the deferred tax asset would be recovered through future income. Significant positive evidence evaluated included recent and projected earnings, significantly improved asset quality and an improved capital position. No negative evidence was noted.