INCOME TAXES

The components of income tax expense for the years ended December 31 are as follows:



	Years ended December 31,
(in thousands)	2018		2017		2016
Current:
Federal	$	9,621	$	15,845	$	17,005
State and local	2,432		1,377		1,734
Total current	12,053		17,222		18,739
Deferred:
Federal	2,812		20,989		5,959
State and local	495		116		1,304
Total deferred	3,307		21,105		7,263
Total income tax expense	$	15,360	$	38,327	$	26,002

A reconciliation of expected income tax expense, computed by applying the statutory federal income tax rate in 2018, 2017, and 2016 to income before income taxes and the amounts reflected in the consolidated statements of operations is as follows:



	Years ended December 31,
(in thousands)	2018			2017			2016
Income tax expense at statutory rate	$	21,961		$	30,281		$	26,194
Increase (reduction) in income tax resulting from:
Tax-exempt income, net	(506		)	(961		)	(945		)
State and local income taxes, net	2,423			1,676			1,673
Bank-owned life insurance, net	(452		)	(715		)	(544		)
Non-deductible expenses	294			407			263
Change in estimated rate for deferred taxes	—			12,117			302
Tax benefits of LIHTC investments, net	(50		)	(257		)	(181		)
Excess tax benefits	(1,631		)	(2,141		)	—
Federal tax credits	(4,627		)	(1,701		)	(62		)
Subsidiary dividend timing election	(2,728		)	—			—
Other, net	676			(379		)	(698		)
Total income tax expense	$	15,360		$	38,327		$	26,002

The net amount recognized as a component of tax expense for tax credits, other tax benefits, and amortization from low-income housing tax credit (“LIHTC”) investments recognized per the table above was $0.1 million for the year ended December 31, 2018. The net amount recognized as a component of income tax expense per the table above was $0.3 million for the year ended December 31, 2017, and $0.2 million for the year ended December 31, 2016. As of December 31, 2018 and 2017, the carrying value of the investments related to low-income housing tax credits was $1.4 million and $1.3 million, respectively. No impairment losses have been recognized from forfeiture or ineligibility of tax credits or other circumstances during the life of any of the investments. As of December 31, 2018, the Company has future capital commitments of $4.3 million related to low-income housing tax credit investments. The capital commitments are expected to be called between the years 2019 - 2020.

A net deferred income tax asset of $20.7 million and $22.5 million is included in other assets in the consolidated balance sheets at December 31, 2018 and 2017, respectively. The tax effect of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities is as follows:



	Years ended December 31,
(in thousands)	2018			2017
Deferred tax assets:
Allowance for loan losses	$	10,742		$	10,516
Basis difference on PCI assets, net	3,677			5,748
Basis difference on Other real estate	81			694
Deferred compensation	2,480			2,719
Goodwill and other intangible assets	989			2,151
Accrued compensation	1,130			646
Unrealized losses on securities available for sale	3,019			1,490
Other deferred tax assets	1,786			2,150
Total deferred tax assets	23,904			26,114

Deferred tax liabilities:
State tax credits held for sale, net of economic hedge	—			26
Core deposit intangibles	2,112			2,731
Other deferred tax liabilities	1,068			855
Total deferred tax liabilities	3,180			3,612
Net deferred tax asset	$	20,724		$	22,502
Deferred tax rate	24.7		%	24.7		%

A valuation allowance is provided on deferred tax assets when it is more likely than not that some portion of the assets will not be realized. The Company did not record a valuation allowance for any federal or state deferred income tax assets as of December 31, 2018 or 2017.

The Company and its subsidiaries file income tax returns in the federal jurisdiction and in ten states. The Company is no longer subject to federal, state or local income tax audits by tax authorities for years before 2015, with the exception of 2014 being an open year by one state taxing authority. The Company is not currently under audit by any taxing jurisdiction.

As of December 31, 2018, the gross amount of unrecognized tax benefits was $1.3 million and the total amount of net unrecognized tax benefits that would impact the effective tax rate, if recognized, was $0.9 million. As of December 31, 2017 and 2016, the total amount of the net unrecognized tax benefits that would impact the effective tax rate, if recognized, was $0.8 million and $0.8 million, respectively. The Company believes it is reasonably possible that the gross amount of unrecognized benefits will be reduced by approximately $0.2 million as a result of a lapse of statute of limitations in the next 12 months.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense and classifies such interest and penalties in the liability for unrecognized tax benefits. The amounts accrued for interest and penalties as of December 31, 2018, 2017, and 2016 were not significant.

The activity in the gross liability for unrecognized tax benefits was as follows:



(in thousands)	2018			2017			2016
Balance at beginning of year	$	1,244		$	1,180		$	1,359
Additions based on tax positions related to the current year	367			331			239
Additions for tax positions of prior years	50			41			39
Settlements or lapse of statute of limitations	(360		)	(308		)	(457		)
Balance at end of year	$	1,301		$	1,244		$	1,180