Note 12. Income Taxes

Income tax expense included in net income consisted of the following components:


	Years Ended December 31,
(in thousands)	2015			2014			2013
Included in net income
Current federal	$	17,378		$	41,441		$	14,797
Current state		4,241			1,487			(3,207	)

Total current provision		21,619			42,928			11,590

Deferred federal		15,457			21,483			37,403
Deferred state		1,228			2,054			3,517

Total deferred provision		16,685			23,537			40,920

Total included in net income	$	38,304		$	66,465		$	52,510

Included in shareholders’ equity
Deferred tax related to retirement benefits		(11,532	)	$	(14,681	)	$	32,749
Deferred tax related to securities		(6,762	)		6,857			(40,876	)
Deferred tax related to derivatives and hedging		114			(217	)		116

Total included in shareholders’ equity	$	(18,180	)	$	(8,041	)	$	(8,011	)

Temporary differences arise between the tax bases of assets or liabilities and their carrying amounts for financial reporting purposes. The expected tax effects when these differences are resolved are recorded currently as deferred tax assets or liabilities.

Significant components of the Company’s deferred tax assets and liabilities were as follows:


	December 31,
(in thousands)	2015			2014
Deferred tax assets:
Allowance for loan losses	$	72,940		$	57,667
Employee compensation and benefits		26,853			50,361
Loan purchase accounting adjustments		18,977			35,094
Tax credit carryforward		42,850			35,553
Securities		5,038			—
State net operating loss		1,910			1,535
Other		10,928			8,472

Gross deferred tax assets		179,496			188,682

State valuation allowance		(1,910	)		(1,529	)

Subtotal valuation allowance		(1,910	)		(1,529	)

Net deferred tax assets		177,586			187,153

Deferred tax liabilities:
Fixed assets & intangibles		(80,389	)		(88,062	)
Securities		—			(724	)
FDIC indemnification asset		(10,688	)		(18,769	)
Other		(10,679	)		(5,263	)

Gross deferred tax liabilities		(101,756	)		(112,818	)

Net deferred tax asset	$	75,830		$	74,335

Reported income tax expense differed from amounts computed by applying the statutory income tax rate of 35% to earnings before income taxes. The primary differences are due to tax-exempt income and federal and state tax credits. The main source of tax credits has been investments in tax-advantaged securities and tax credit projects. These investments are made primarily in the markets the Company serves and are directed at tax credits issued under the Qualified Zone Academy Bonds (QZAB), Qualified School Construction Bonds (QSCB), as well as Federal and State New Market Tax Credit (NMTC) and Low-Income Housing Tax Credit (LIHTC) programs. The investments generate tax credits which reduce current and future taxes and are recognized when earned as a benefit in the provision for income taxes. A summary of the factors that impacted income tax expense follows:


	Years Ended December 31,
	2015						2014						2013
($ in thousands)	Amount			%			Amount			%			Amount			%
Taxes computed at statutory rate	$	59,418			35	%	$	84,766			35	%	$	75,553			35	%
Increases (decreases) in taxes resulting from:
State income taxes, net of federal income tax benefit		2,595			2			4,649			2			2,352			1
Tax-exempt interest		(7,849	)		(5	)		(6,301	)		(3	)		(6,487	)		(3	)
Bank owned life insurance		(3,798	)		(2	)		(3,554	)		(1	)		(3,926	)		(2	)
Tax credits		(12,495	)		(7	)		(16,577	)		(7	)		(15,743	)		(7	)
Other, net		433			—			3,482			1			761			—

Income tax expense	$	38,304			23	%	$	66,465			27	%	$	52,510			24	%

As of December 31, 2015, the Company had approximately $43 million in federal and state tax credit carryforwards that originated in the tax years from 2011 through 2015. The federal and state carryforwards begin expiring in 2031 and 2020, respectively. These carryforwards are primarily from investments in federal and state NMTC projects. The Company had approximately $37 million in state net operating loss carryforwards that originated in the tax years 2004 through 2015 and that begin expiring in 2019. A valuation allowance has been established for the state net operating loss carryforwards. The impact of this valuation allowance is immaterial to the financial statements. The Company recognized benefits from federal and state NMTC, LIHTC, QZAB, and QSCB.

The tax benefit of a position taken or expected to be taken in a tax return should be recognized when it is more likely than not that the position will be sustained on its technical merits. The liability for unrecognized tax benefits was immaterial at December 31, 2015, 2014 and 2013. The Company does not expect the liability for unrecognized tax benefits to change significantly during 2016. Hancock recognizes interest and penalties, if any, related to income tax matters in income tax expense, and the amounts recognized during 2015, 2014 and 2013 were insignificant.

The Company and its subsidiaries file a consolidated U.S. federal income tax return, as well as filing various state returns. Generally, the returns for years prior to 2011 are no longer subject to examination by taxing authorities.