INCOME TAXES

On December 22, 2017, the Tax Act was signed into law. At December 31, 2017, the Company has not completed its accounting for the tax effect of enactment of the Tax Act; however, it made a reasonable estimate of the effects on its existing deferred tax balances. One of the provisions included in the Tax Act was the reduction in the maximum federal corporate income tax rate from 35% to 21%, effective January 1, 2018. As a result of this rate reduction, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21% for Federal tax purposes. However, the Company is still analyzing certain aspects of the Tax Act and redefining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement of deferred tax assets and liabilities was $1.9 million. The Company also recognized a provisional estimate of $466,000 to reassess the value of its low income housing projects investments ("LIHTC investments"), The impact of these provisional estimates are included in the disclosures below.

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



	Years Ended December 31
	2017		2016			2015
	(Dollars in thousands)
Current expense
Federal	$	28,852	$	26,549		$	11,946
State	9,278		8,883			5,052
Total current expense	38,130		35,432			16,998
Deferred expense (benefit)
Federal	7,953		153			8,466
State	1,258		(158		)	1,754
Total deferred expense (benefit)	9,211		(5		)	10,220
Total expense	$	47,341	$	35,427		$	27,218

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
	2017					2016					2015
	(Dollars in thousands)
Computed statutory federal income tax provision	$	47,091		35.00	%	$	39,226		35.00	%	$	32,262		35.00	%
State taxes, net of federal tax benefit	6,817			5.07	%	5,643			5.03	%	4,500			4.88	%
Revaluation of net deferred tax assets	1,895			1.41	%	—			—	%	—			—	%
Merger and other related costs (non-deductible)	213			0.16	%	210			0.19	%	185			0.20	%
Change in valuation allowance	31			0.02	%	28			0.02	%	41			0.04	%
New Markets Tax Credits	(3,960		)	(2.94	)%	(6,360		)	(5.67	)%	(6,514		)	(7.07	)%
Increase in cash surrender value of life insurance	(1,445		)	(1.07	)%	(1,431		)	(1.28	)%	(1,292		)	(1.40	)%
Stock-based compensation	(1,258		)	(0.94	)%	—			—	%	—			—	%
Low Income Housing Project Investments	(1,253		)	(0.93	)%	(1,641		)	(1.46	)%	(1,182		)	(1.28	)%
Nontaxable interest, net	(987		)	(0.73	)%	(996		)	(0.89	)%	(973		)	(1.06	)%
Other, net	197			0.15	%	748			0.67	%	191			0.22	%
Total expense	$	47,341		35.20	%	$	35,427		31.61	%	$	27,218		29.53	%

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



	2017			2016
	(Dollars in thousands)
Deferred tax assets
Accrued expenses not deducted for tax purposes	$	9,268		$	15,401
Allowance for loan losses	16,702			24,681
Deferred gain on sale leaseback transaction	909			1,744
Employee and director equity compensation	1,559			2,095
Federal Home Loan Bank borrowings fair value adjustment	26			82
Loan basis difference fair value adjustment	3,070			4,336
Net operating loss carry-forward	127			69
Net unrealized loss on securities available for sale	106			—
Other	527			1,015
Gross deferred tax assets	32,294			49,423
Valuation allowance	(121		)	(69		)
Total deferred tax assets net of valuation allowance	$	32,173		$	49,354
Deferred tax liabilities
Core deposit and other intangibles	$	2,057		$	3,040
Deferred loan fees, net	4,275			5,407
Fixed assets	5,270			6,168
Goodwill	10,265			14,737
Net unrealized gain on securities available for sale	—			105
Derivatives fair value adjustment	524			454
Other	4,307			3,909
Gross deferred tax liabilities	$	26,698		$	33,820
Total net deferred tax asset	$	5,475		$	15,534

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, 2017, 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 $121,000 at December 31, 2017, 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, 2017. In addition, 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, 2017.

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 2014 through 2016 tax years including any related income tax filings from its recent 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, 2015	$	81
Reduction of tax positions for prior years	—
Increase for prior year tax position	—
Increase for current year tax positions	30
Balance at December 31, 2016	$	111
Reduction of tax positions for prior years	—
Increase for prior year tax positions	—
Increase for current year tax positions	31
Balance at December 31, 2017	$	142

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 $21,000. 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. During the years ended December 31, 2017 and 2016, the Company recognized approximately $18,000 and $11,000 in the provision for income taxes for interest and penalties related to uncertain tax positions. There were no such amounts recorded in the tax provision in 2015. As such, the Company has accrued approximately $29,000 and $11,000 for the payment of interest and penalties as of December 31, 2017 and 2016, respectively, which are not included in the table above.