INCOME TAXES

The provision for income taxes is comprised of the following components:



	Years Ended December 31
	2014			2013		2012
	(Dollars in thousands)
Current expense
Federal	$	14,709		$	9,570	$	11,928
State	6,350			4,357		4,664
Total current expense	21,059			13,927		16,592
Deferred expense (benefit)
Federal	2,877			1,598		(1,183		)
State	(37		)	959		(736		)
Total deferred expense (benefit)	2,840			2,557		(1,919		)
Total expense	$	23,899		$	16,484	$	14,673

The difference between the statutory federal income tax rate of 35% and the effective income tax rate reported for the last three years is detailed below:



	Years Ended December 31
	2014					2013					2012
	(Dollars in thousands)
Computed statutory federal income tax provision	$	29,310		35.00	%	$	23,359		35.00	%	$	20,055		35.00	%
State taxes, net of federal tax benefit	4,104			4.90	%	3,455			5.17	%	2,553			4.46	%
Nontaxable interest, net	(795		)	(0.95	)%	(557		)	(0.83	)%	(542		)	(0.95	)%
New Market Tax Credits	(6,708		)	(8.01	)%	(9,000		)	(13.48	)%	(6,371		)	(11.12	)%
Low Income Housing Project Investments	(594		)	(0.71	)%	(194		)	(0.29	)%	(196		)	(0.34	)%
Increase in cash surrender value of life insurance and tax exempt gain on benefit payments	(1,782		)	(2.13	)%	(1,209		)	(1.81	)%	(1,612		)	(2.81	)%
Merger and other related costs (non-deductible)	274			0.33	%	366			0.55	%	404			0.71	%
Other, net	90			0.11	%	264			0.39	%	382			0.66	%
Total expense	$	23,899		28.54	%	$	16,484		24.70	%	$	14,673		25.61	%

The tax-effected components of the net deferred tax asset at December 31 were as follows:



	2014		2013
	(Dollars in thousands)
Deferred tax assets
Accrued expenses not deducted for tax purposes	$	10,666	$	8,530
Allowance for loan losses	22,462		21,743
Deferred gain on sale leaseback transaction	2,579		3,104
Derivatives fair value adjustment	1,882		3,440
Employee and director equity compensation	2,380		2,351
Federal Home Loan Bank borrowings fair value adjustment	83		220
Loan basis difference fair value adjustment	2,094		1,819
Net operating loss carry-forward	230		1,671
Net unrealized loss on securities available for sale	—		1,418
New Markets Tax Credit carry-forward	521		2,257
Other-than-temporary impairment on securities	4,072		4,074
Other	1,426		1,481
Total	$	48,395	$	52,108
Deferred tax liabilities
Core deposit and other intangibles	$	3,194	$	4,052
Deferred loan fees, net	4,164		3,530
Fixed assets	4,875		5,571
Goodwill	14,194		13,030
Net unrealized gain on securities available for sale	2,075		—
Other	1,180		956
Total	$	29,682	$	27,139
Total net deferred tax asset	$	18,713	$	24,969

The Company has determined that a valuation allowance is not required for any of its deferred tax assets since it is more likely than not that these assets will be realized principally through the utilization of carry-back provisions to taxable income on prior years and future reversals of existing taxable temporary differences and by offsetting other future taxable income.

Uncertainty in Income Taxes

From time to time, the Internal Revenue Service (the "IRS") may review and/or challenge specific tax positions taken by the Company in its ordinary course of business. The Company believes that its income tax returns have been filed based upon applicable statutes, regulations and case law in effect at the time of filing, however, the IRS could disagree with the Company's interpretation. The Company accounts for uncertainties in income taxes by providing a tax reserve for certain positions. The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits:



	(Dollars in thousands)
Balance at December 31, 2012	$	126
Reduction of tax positions for prior years	(113		)
Increase for prior year tax position	42
Increase for current year tax positions	—
Balance at December 31, 2013	$	55
Reduction of tax positions for prior years	(55		)
Increase for prior year tax positions	—
Increase for current year tax positions	—
Balance at December 31, 2014	$	—

Increases to the Company's unrealized tax positions occur as a result of accruing for the unrecognized tax benefit as well the accrual of interest and penalties related to prior year positions. Decreases in the Company's unrealized tax positions occur as a result of the statute of limitation lapsing on prior year positions and/or settlements relating to outstanding positions. All of the Company’s unrecognized tax benefits, if recognized, would be recorded as a component of income tax expense therefore affecting the effective tax rate. The Company records interest and penalties related to uncertain tax positions in the provision for income taxes.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction as well as in various states. The Company is subject to U.S. federal, state and local income tax examinations by tax authorities for the 2011 through 2013 tax years including any related income tax filings from its recent Bank acquisitions. The Company is utilizing net operating loss carry forwards acquired from the Central and Mayflower acquisitions that are subject to annual change in ownership limitations. In addition, the Company has a general business credit carry forward that resulted from 2014 operations that can be used to reduce future federal income tax. The net operating loss carry forwards of $607,000 will expire at various dates through 2031 and the general business credit carryforward of $521,000 will expire in 2034. The Company anticipates utilizing these carry forwards prior to their expirations.