INCOME TAXES

At December 31, income tax expense consisted of the following:



	2013		2012			2011
	(dollars in thousands)
Current tax expense
Federal	$	41,996	$	85,875		$	108,639
State	7,080		9,212			23,101
Total current tax expense	49,076		95,087			131,740
Deferred tax expense (benefit)
Federal	38,974		(27,344		)	(12,127		)
State	8,915		(7,921		)	(4,510		)
Total deferred tax expense (benefit)	47,889		(35,265		)	(16,637		)
Total income tax expense	$	96,965	$	59,822		$	115,103

Income tax expense differed from the amounts computed by applying the federal income tax rate of 35 percent to pretax income as a result of the following:



	2013			2012			2011
	(dollars in thousands)
Income taxes at statutory rates	$	92,633		$	67,959		$	108,546
Increase (reduction) in income taxes resulting from:
Nontaxable income on loans, leases and investments, net of nondeductible expenses	(1,185		)	(1,309		)	(1,481		)
State and local income taxes, including change in valuation allowance, net of federal income tax benefit	10,397			839			12,084
Tax credits	(5,569		)	(7,279		)	(5,166		)
Other, net	689			(388		)	1,120
Total income tax expense	$	96,965		$	59,822		$	115,103

During the third quarter of 2013, BancShares adjusted its net deferred tax asset as a result of reductions in the North Carolina corporate income tax rate that were enacted July 23, 2013, and will become effective January 1, 2014, and January 1, 2015. The lower corporate income tax rate resulted in a reduction in the deferred tax asset and an increase in current period income tax expense. The lower effective tax rate for 2012 also reflects the impact of a $6.4 million credit to income tax expense resulting from the favorable outcome of state tax audits for the period 2008-2010, net of additional federal taxes.

The net deferred tax asset included the following components at December 31:



	2013		2012
	(dollars in thousands)
Allowance for loan and lease losses	$	90,790	$	124,928
Pension liability	2,593		46,178
Executive separation from service agreements	9,940		10,123
State operating loss carryforward	79		652
Unrealized loss on cash flow hedge	2,786		4,106
Net unrealized loss on securities included in accumulated other comprehensive loss	6,541		—
Other	17,884		19,465
Deferred tax asset	130,613		205,452
Accelerated depreciation	6,226		12,465
Lease financing activities	10,216		10,366
Net unrealized gains on securities included in accumulated other comprehensive loss	—		13,292
Net deferred loan fees and costs	4,115		3,714
Intangible asset	11,929		11,897
Gain on FDIC-assisted transactions, deferred for tax purposes	57,895		29,694
Other	6,352		5,373
Deferred tax liability	96,733		86,801
Net deferred tax asset	$	33,880	$	118,651

No valuation allowance was necessary as of December 31, 2013, to reduce BancShares’ gross state deferred tax asset to the amount that is more likely than not to be realized.

BancShares and its subsidiaries' federal income tax returns for 2010 through 2012 remain open for examination. Generally, the state jurisdictions in which BancShares files income tax returns are subject to examination for a period up to four years after returns are filed.

Under GAAP, the benefit of a position taken or expected to be taken in a tax return should be recognized when it is more likely than not that the position will be sustained based on its technical merit. The liability for unrecognized tax benefits was not material at December 31, 2013, and 2012, and changes in the liability were not material during 2013, 2012 and 2011. BancShares does not expect the liability for unrecognized tax benefits to change significantly during 2014. BancShares recognizes interest and penalties, if any, related to income tax matters in income tax expense, and the amounts recognized during 2013, 2012 and 2011 were not material.