Note 12—Income Taxes

The provision for income taxes consists of the following:


	Year Ended December 31,
(Dollars in thousands)	2016		2015		2014
Current:
Federal	$	37,187	$	41,527	$	8,577
State		3,325		2,327		1,609
Total current tax expense		40,512		43,854		10,186
Deferred:
Federal		11,684		6,344		26,156
State		564		704		(351)
Total deferred tax expense		12,248		7,048		25,805
Provision for income taxes	$	52,760	$	50,902	$	35,991

The provision for income taxes differs from that computed by applying the federal statutory income tax rate of 35% to income before provision for income taxes, as indicated in the following analysis:


	Year Ended December 31,
(Dollars in thousands)	2016		2015		2014
Income taxes at federal statutory rate	$	53,915	$	52,631	$	39,000
Increase (reduction) of taxes resulting from:
State income taxes, net of federal tax benefit		2,527		1,970		818
Non-deductible merger expenses		686		—		—
Tax-exempt interest		(1,956)		(1,842)		(1,778)
Income tax credits		(2,068)		(1,781)		(1,257)
Dividends received deduction		(12)		(8)		(5)
Other, net		(332)		(68)		(787)
	$	52,760	$	50,902	$	35,991

The components of the net deferred tax asset are as follows:


	December 31,
(Dollars in thousands)	2016		2015
Allowance for loan losses	$	14,913	$	13,680
Other-than-temporary impairment on securities		295		295
Share-based compensation		3,915		1,224
Pension plan and post-retirement benefits		1,450		1,449
Deferred compensation		3,155		2,832
Purchase accounting adjustments		34,499		45,066
Other real estate owned		962		1,468
Tax deductible goodwill		682		1,361
Net operating loss carryforwards		14,645		15,757
Cash flow hedge		190		274
Unrealized losses on investment securities available for sale		1,053		—
Other		688		563
Total deferred tax assets		76,447		83,969
Gain on FDIC assisted transaction deferred for tax purposes		3,540		4,493
Unrealized gains on investment securities available for sale		—		1,595
Depreciation		7,510		6,589
Intangible assets		11,239		13,328
Deferred loan fees		7,911		5,404
Prepaid expense		523		524
Mortgage servicing rights		10,380		9,375
Other		2,219		3,098
Total deferred tax liabilities		43,322		44,406
Net deferred tax assets before valuation allowance		33,125		39,563
Less, valuation allowance		(2,002)		(1,736)
Net deferred tax assets	$	31,123	$	37,827

The Company had federal net operating loss (“NOL”) carryforwards of $27.9 million and $31.3 million for the years ended December 31, 2016 and 2015, respectively, which expire in varying amounts through 2033. As a result of the Peoples and Savannah ownership changes in 2012, Section 382 of the Internal Revenue Code places an annual limitation of the amount of federal net operating loss carryforwards which the Company may utilize. Additionally, section 382 limits the Company’s ability to utilize certain tax deductions (realized built‑in losses or “RBIL”) due to the existence of a Net Unrealized Built‑in Loss (“NUBIL”) at the time of the change in control. The Company is allowed to carry forward any such RBIL under terms similar to those related to NOLs. Consequently, $8.9 million of the Company’s NOL carryforwards attributed to the Peoples acquisition are subject to annual limitations of $1.5 million, and $18.9 million of the Company’s NOL carryforwards attributed to the Savannah acquisition are subject to annual limitation of $2.0 million. All of the NUBIL limitations were exhausted as of December 31, 2013. The Company expects all section 382 limited carryforwards to be realized within the applicable carryforward period.

The Company had state net operating loss carryforwards of $72.1 million and $64.4 million for the years ended December 31, 2016 and 2015 respectively, which expire in varying amounts through 2036. There is a valuation allowance of $2.0 million that relates to the parent company’s state operating loss carryforwards for which realizability is uncertain. The change in the valuation allowance for the years ended December 31, 2016, 2015, and 2014 was immaterial.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deferred tax assets, net of the valuation allowance at December 31, 2016.

As of December 31, 2016, the Company had no material unrecognized tax benefits or accrued interest and penalties. It is the Company’s policy to account for interest and penalties accrued relative to unrecognized tax benefits as a component of income tax expense.

Federal tax returns for 2014 and subsequent tax years remain subject to examination by taxing authorities as of December 31, 2016. State tax returns for 2013 and subsequent tax years remain subject to examination by taxing authorities as of December 31, 2016.