Income Taxes

Income taxes for the years ended December 31 consisted of the following:



	2017		2016		2015
	(dollars in thousands)
Current income tax provision:
Federal	$	18,644	$	16,928	$	12,460
State	7,062		4,655		4,144
Total current income tax provision	25,706		21,583		16,604
Deferred income tax provision (benefit):
Federal	8,294		2,379		(887		)
Effect of Tax Act	5,633		—		—
State	2,493		1,253		(508		)
Total deferred income tax provision (benefit)	16,420		3,632		(1,395		)
Total income tax provision	$	42,126	$	25,215	$	15,209

A reconciliation from statutory federal income taxes, that are based on a statutory rate of 35%, to the Company's effective income taxes for the years ended December 31 is as follows:



	2017			2016			2015
	(dollars in thousands)
Statutory federal income tax provision	$	35,778		$	22,863		$	14,253
State taxes, net of federal income tax effect	6,720			4,135			2,886
Cash surrender life insurance	(645		)	(407		)	(483		)
Tax exempt interest	(1,660		)	(764		)	(742		)
Merger costs	824			533			447
LIHTC investments	(1,031		)	(909		)	(871		)
Effect of the Tax Act	5,633			—			—
Excess tax benefit of stock-based compensation	(1,995		)	—			—
Prior year true-up	(1,108		)	—			—
Other	(390		)	(236		)	(281		)
Total income tax provision	$	42,126		$	25,215		$	15,209

Deferred tax assets (liabilities) were comprised of the following temporary differences between the financial statement carrying amounts and the tax basis of assets at December 31:



	2017			2016			2015
	(dollars in thousands)
Deferred tax assets:
Accrued expenses	$	2,463		$	2,839		$	1,717
Net operating loss	4,834			3,977			5,192
Allowance for loan losses, net of bad debt charge-offs	8,400			8,061			6,252
Deferred compensation	3,074			2,348			2,547
State taxes	1,500			1,879			1,451
Depreciation	—			1,090			651
Loan discount	8,642			3,477			—
Stock-based compensation	1,914			1,108			639
Unrealized loss on available for sale securities	—			1,939			—
Capital loss carryover	380			—			—
AMT credit	107			—			—
Total deferred tax assets	31,314			26,718			18,449
Deferred tax liabilities:
Deferred FDIC gain	(524		)	(1,675		)	(1,656		)
Core deposit intangibles	(11,691		)	(3,331		)	(2,266		)
Loan origination costs	(3,368		)	(4,208		)	—
Depreciation	(699		)	—			—
Unrealized loss on available for sale securities	(188		)	—			(231		)
Other	(1,199		)	(697		)	(2,785		)
Total deferred tax liabilities	(17,669		)	(9,911		)	(6,938		)
Valuation allowance	(380		)	—			—
Net deferred tax asset	$	13,265		$	16,807		$	11,511

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). Among other changes, the Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%. The Company has recorded an income tax expense of $5.6 million related to the remeasurement of federal net deferred tax assets resulting from the permanent reduction in the U.S. statutory corporate tax rate to 21% from 35%. The Company is still completing its analysis of the impact of the Tax Act and will record any adjustments to the provisional amount as a component of income tax expense during the measurement period provided for in SAB 118.

The Company accounts for income taxes by recognizing deferred tax assets and liabilities based upon temporary differences between the amounts for financial reporting purposes and tax basis of its assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the existence of any cumulative losses in the current year and the prior two years, the forecasts of future income, applicable tax planning strategies, and assessments of current and future economic and business conditions. This analysis is updated quarterly and adjusted as necessary. Based on the analysis, the Company has determined that a valuation allowance for deferred tax assets was not required as of December 31, 2016 and December 31, 2015. As of December 31, 2017, the Company recorded a valuation allowance of $380,000 against the capital loss carryover deferred tax asset, as the Company does not believe it will generate sufficient capital gain before the capital loss carryover expires.

Section 382 of the Internal Revenue Code imposes limitations on a corporation’s ability to use any net unrealized built in losses and other tax attributes, such as net operating loss and tax credit carryforwards, when it undergoes a 50% ownership change over a designated testing period. The Company has a Section 382 limited net operating loss carry forward of approximately $17.4 million for federal income tax purposes, which is scheduled to expire in 2026. In addition, the Company has a Section 382 limited net operating loss carry forward of approximately $14.7 million for California franchise tax purposes, which is scheduled to expire in 2020. The Company is expected to fully utilize the federal and California net operating loss carryforward before it expires with the application of the Section 382 annual limitation.

The Company and its subsidiaries are subject to U.S. Federal income tax as well as income and franchise tax in multiple state jurisdictions. The statute of limitations related to the consolidated Federal income tax returns is closed for all tax years up to and including 2013. The expiration of the statute of limitations related to the various state income and franchise tax returns varies by state. The Company is currently not under examination in any taxing jurisdiction.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2017 and 2016 is as follows:



	2017		2016
	(dollars in thousands)
Balance at January 1,	$	—	$	—
Additions based on tax positions related to prior years	2,906		—
Balance at December 31,	$	2,906	$	—

The total amount of unrecognized tax benefits was $2.9 million and $0 at December 31, 2017 and 2016 and is primarily comprised of unrecognized tax benefits from an acquisition during 2017. The total amount of tax benefits that, if recognized, would favorably impact the effective tax rate was $0 at December 31, 2017. The Company does not believe that the unrecognized tax benefits will change within the next twelve months.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. The Company had accrued for $104,000 and $0 of the interest and penalties at December 31, 2017 and 2016, respectively.