INCOME TAXES

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



(Dollars in thousands)	2014			2013		2012
Current tax expense
Federal	$	84,430		$	46,848	$	89,939
State	13,941			7,080		9,212
Total current tax expense	98,371			53,928		99,151
Deferred tax (benefit) expense
Federal	(30,658		)	38,731		(26,501		)
State	(2,681		)	8,915		(7,921		)
Total deferred tax (benefit) expense	(33,339		)	47,646		(34,422		)
Total income tax expense	$	65,032		$	101,574	$	64,729

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:



(Dollars in thousands)	2014			2013			2012
Income taxes at statutory rates	$	71,258		$	93,956		$	68,993
Increase (reduction) in income taxes resulting from:
Nontaxable income on loans, leases and investments, net of nondeductible expenses	(1,832		)	(1,185		)	(1,309		)
State and local income taxes, including change in valuation allowance, net of federal income tax benefit	7,319			10,397			839
Acquisition stock settlement	(10,185		)	—			—
Tax credits net of amortization	(2,896		)	(960		)	(2,372		)
Other, net	1,368			(634		)	(1,422		)
Total income tax expense	$	65,032		$	101,574		$	64,729

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



(Dollars in thousands)	2014		2013
Allowance for loan and lease losses	$	79,537	$	90,790
Pension liability	15,391		2,593
Executive separation from service agreements	23,849		9,321
State operating loss carryforward	29		36
Unrealized loss on cash flow hedge	1,673		2,786
Net unrealized loss on securities included in accumulated other comprehensive loss	—		6,541
Accelerated depreciation	5,550		—
FDIC assisted transactions timing differences	71,219		42,016
Other reserves	15,326		6,958
Other	25,746		10,569
Deferred tax asset	238,320		171,610
Accelerated depreciation	—		4,382
Lease financing activities	10,762		10,216
Net unrealized gain on securities included in accumulated other comprehensive loss	3,245		—
Net deferred loan fees and costs	4,772		4,302
Intangible assets	7,729		17,558
Security, loan and debt valuations	34,289		—
Other	11,395		4,564
Deferred tax liability	72,192		41,022
Net deferred tax asset	$	166,128	$	130,588

Amounts for 2013 and 2012 periods have been updated to reflect the fourth quarter 2014 adoption of Accounting Standard Update (ASU) 2014-01 related to qualified affordable housing projects. Under this standard, amortization of investments in qualified affordable housing projects is reported within income tax expense.

On October 1, 2014, Bancorporation merged with and into BancShares in a statutory merger treated as a "reorganization" within the meaning of section 368(a) of the Internal Revenue Code of 1986 as amended. Income tax expense has been adjusted for the settlement of the ownership of Bancorporation stock at the date of the merger. Income tax expense has also been adjusted for the revaluation of the acquired deferred inventory to reflect the rates that will apply under currently enacted tax law when the temporary differences are expected to reverse.

No valuation allowance was necessary as of December 31, 2014 to reduce BancShares’ gross state deferred tax asset to the amount that is more likely than not to be realized.

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, 2014 and 2013, and changes in the liability were not significant during 2014, 2013 and 2012. BancShares does not expect the liability for unrecognized tax benefits to change significantly during 2015. BancShares recognizes interest and penalties, if any, related to income tax matters in income tax expense, and the amounts recognized during 2014, 2013 and 2012 were not material.

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. The lower corporate income tax rate resulted in a reduction in the deferred tax asset and an increase in income tax expense in 2013.

BancShares, its subsidiaries', and Bancorporation's federal income tax returns are currently under examination for 2010 and 2012, and in California for 2009 and 2010. 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.