INCOME TAXES

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



	Years Ended December 31
	2015		2014			2013
	(Dollars in thousands)
Current expense
Federal	$	11,946	$	14,709		$	9,570
State	5,052		6,350			4,357
Total current expense	16,998		21,059			13,927
Deferred expense (benefit)
Federal	8,466		2,877			1,598
State	1,754		(37		)	959
Total deferred expense (benefit)	10,220		2,840			2,557
Total expense	$	27,218	$	23,899		$	16,484

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
	2015					2014					2013
	(Dollars in thousands)
Computed statutory federal income tax provision	$	32,262		35.00	%	$	29,310		35.00	%	$	23,359		35.00	%
State taxes, net of federal tax benefit	4,500			4.88	%	4,104			4.90	%	3,455			5.17	%
Nontaxable interest, net	(973		)	(1.06	)%	(795		)	(0.95	)%	(557		)	(0.83	)%
New Markets Tax Credits	(6,514		)	(7.07	)%	(6,708		)	(8.01	)%	(9,000		)	(13.48	)%
Low Income Housing Project Investments	(1,182		)	(1.28	)%	(594		)	(0.71	)%	(194		)	(0.29	)%
Increase in cash surrender value of life insurance and tax exempt gain on benefit payments	(1,292		)	(1.40	)%	(1,782		)	(2.13	)%	(1,209		)	(1.81	)%
Merger and other related costs (non-deductible)	185			0.20	%	274			0.33	%	366			0.55	%
Change in valuation allowance	41			0.04	%	—			—	%	—			—	%
Other, net	191			0.22	%	90			0.11	%	264			0.39	%
Total expense	$	27,218		29.53	%	$	23,899		28.54	%	$	16,484		24.70	%

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



	2015			2014
	(Dollars in thousands)
Deferred tax assets
Accrued expenses not deducted for tax purposes	$	14,621		$	10,997
Allowance for loan losses	22,744			22,462
Deferred gain on sale leaseback transaction	2,158			2,579
Derivatives fair value adjustment	1,033			1,882
Employee and director equity compensation	2,466			2,380
Federal Home Loan Bank borrowings fair value adjustment	108			83
Loan basis difference fair value adjustment	3,789			2,094
Net operating loss carry-forward	41			213
New Markets Tax Credit carry-forward	459			521
Other-than-temporary impairment on securities	—			4,072
Other	451			2,141
Gross deferred tax assets	47,870			49,424
Valuation allowance	(41		)	—
Total deferred tax assets net of valuation allowance	$	47,829		$	49,424
Deferred tax liabilities
Core deposit and other intangibles	$	3,785		$	3,194
Deferred loan fees, net	4,872			4,164
Fixed assets	7,269			4,875
Goodwill	14,576			14,194
Net unrealized gain on securities available for sale	805			2,074
Other	2,468			2,210
Total	$	33,775		$	30,711
Total net deferred tax asset	$	14,054		$	18,713

Deferred tax assets are to be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of the tax benefit depends upon the existence of sufficient taxable income within the carry-back and future periods.

The Company believes that it is more likely than not that its deferred tax assets as of December 31, 2015, excluding the deferred tax asset on state net operating losses, will be realized through the utilization of carry-back provisions to taxable income on prior years, future reversals of existing taxable temporary differences and by offsetting other future taxable income. The Company believes it is more likely than not that the deferred tax asset related to state net operating losses generated from the Company's investments in low income housing partnerships, which expire over a 20-year period, will not be realized and has recorded a valuation allowance of $41,000 at December 31, 2015, attributable to this deferred tax asset.

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, 2013	$	55
Reduction of tax positions for prior years	(55		)
Increase for prior year tax position	—
Increase for current year tax positions	—
Balance at December 31, 2014	$	—
Reduction of tax positions for prior years	—
Increase for prior year tax positions	—
Increase for current year tax positions	81
Balance at December 31, 2015	$	81

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 2012 through 2014 tax years including any related income tax filings from its recent Bank acquisitions. The Company has utilized net operating loss carry forwards acquired from the Central and Peoples acquisitions that are subject to annual change in ownership limitations under Internal Revenue Code Section 382. In addition, the Company has a general business credit carry forward that resulted from 2015 operations that can be used to reduce future federal income tax. The general business credit carryforward of $459,000 will expire in 2035. The Company anticipates utilizing these carry forwards prior to their expirations.