INCOME TAXES

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



	Years Ended December 31
	2016			2015		2014
	(Dollars in thousands)
Current expense
Federal	$	26,549		$	11,946	$	14,709
State	8,883			5,052		6,350
Total current expense	35,432			16,998		21,059
Deferred expense (benefit)
Federal	153			8,466		2,877
State	(158		)	1,754		(37		)
Total deferred expense (benefit)	(5		)	10,220		2,840
Total expense	$	35,427		$	27,218	$	23,899

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
	2016					2015					2014
	(Dollars in thousands)
Computed statutory federal income tax provision	$	39,226		35.00	%	$	32,262		35.00	%	$	29,310		35.00	%
State taxes, net of federal tax benefit	5,643			5.03	%	4,500			4.88	%	4,104			4.90	%
Nontaxable interest, net	(996		)	(0.89	)%	(973		)	(1.06	)%	(795		)	(0.95	)%
New Markets Tax Credits	(6,360		)	(5.67	)%	(6,514		)	(7.07	)%	(6,708		)	(8.01	)%
Low Income Housing Project Investments	(1,641		)	(1.46	)%	(1,182		)	(1.28	)%	(594		)	(0.71	)%
Increase in cash surrender value of life insurance and gain on life insurance benefits	(1,431		)	(1.28	)%	(1,292		)	(1.40	)%	(1,782		)	(2.13	)%
Merger and other related costs (non-deductible)	210			0.19	%	185			0.20	%	274			0.33	%
Change in valuation allowance	28			0.02	%	41			0.04	%	—			—	%
Other, net	748			0.67	%	191			0.22	%	90			0.11	%
Total expense	$	35,427		31.61	%	$	27,218		29.53	%	$	23,899		28.54	%

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



	2016			2015
	(Dollars in thousands)
Deferred tax assets
Accrued expenses not deducted for tax purposes	$	15,401		$	14,621
Allowance for loan losses	24,681			22,744
Deferred gain on sale leaseback transaction	1,744			2,158
Derivatives fair value adjustment	—			1,033
Employee and director equity compensation	2,095			2,466
Federal Home Loan Bank borrowings fair value adjustment	82			108
Loan basis difference fair value adjustment	4,336			3,789
Net operating loss carry-forward	69			41
New Markets Tax Credit carry-forward	—			459
Other	1,015			451
Gross deferred tax assets	49,423			47,870
Valuation allowance	(69		)	(41		)
Total deferred tax assets net of valuation allowance	$	49,354		$	47,829
Deferred tax liabilities
Core deposit and other intangibles	$	3,040		$	3,785
Deferred loan fees, net	5,407			4,872
Fixed assets	6,168			7,269
Goodwill	14,737			14,576
Net unrealized gain on securities available for sale	105			805
Derivatives fair value adjustment	454			—
Other	3,909			2,468
Gross deferred tax liabilities	$	33,820		$	33,775
Total net deferred tax asset	$	15,534		$	14,054

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, 2016, excluding the deferred tax asset on certain 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 certain 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 $69,000 at December 31, 2016, attributable to this deferred tax asset.

The Company has utilized all federal net operating loss carry forwards acquired from recent acquisitions that were subject to annual change in ownership limitations under Internal Revenue Code Section 382 as of December 31, 2016. In addition, the Company’s general business credit carry forward from 2015 of $459,000 was fully utilized during 2016. As such, the Company does not have a federal net operating loss carry forward or general business credit carry forward subject to expiration as of December 31, 2016.

Uncertainty in 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 2013 through 2015 tax years including any related income tax filings from its recent Bank acquisitions. 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 Internal Revenue Service ("IRS") and /or state jurisdictions could disagree with the Company's interpretation upon examination. 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, 2014	$	—
Reduction of tax positions for prior years	—
Increase for prior year tax position	—
Increase for current year tax positions	81
Balance at December 31, 2015	$	81
Reduction of tax positions for prior years	—
Increase for prior year tax positions	—
Increase for current year tax positions	30
Balance at December 31, 2016	$	111

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. The table above does not include the indirect federal benefit of state tax positions of approximately $11,000. All of the Company’s unrecognized tax benefits, including the indirect federal benefit of state tax positions, are recorded as a component of income tax expense therefore affecting the effective tax rate. In addition, the Company records interest and penalties related to uncertain tax positions in the provision for income taxes. The Company accrued approximately $11,000 for interest and penalties on uncertain tax positions as of December 31, 2016 and none for 2015, which are not included in the table above.