Note 11. Income Taxes

Income tax expense (benefit) attributable to continuing operations for each of the years ended December 31 is as follows (in thousands):

	2014			2013		2012
Current tax expense :
Federal	$	34,068		$	26,317	$	19,096
State		719			-		-
Total current tax expense	$	34,787			26,317		19,096
Deferred tax expense (benefit):
Federal		(1,260	)		240		485
State		1,655			1,601		1,063
Total deferred tax expense		395			1,841		1,548
Total income tax expense	$	35,182		$	28,158	$	20,644

Pinnacle Financial's income tax expense (benefit) differs from the amounts computed by applying the Federal income tax statutory rates of 35% to income (loss) before income taxes. A reconciliation of the differences for each of the years in the three-year period ended December 31, 2014 is as follows (in thousands):

	2014			2013			2012

Income tax expense at statutory rate	$	36,978		$	30,059		$	21,885
State excise tax expense, net of federal tax effect		1,827			1,601			1,063
Tax-exempt securities		(2,675	)		(2,603	)		(2,517	)
Federal tax credits		-			-			-
Bank owned life insurance		(849	)		(740	)		(322	)
Insurance premiums		(401	)		(349	)		(243	)
Change in uncertain tax positions		392			-			-
Other items		(91	)		190			778
Deferred tax valuation allowance		-			-			-
Income tax expense	$	35,182		$	28,158		$	20,644

Pinnacle Financial's effective tax rate for 2014 and 2013 differs from the Federal income tax statutory rate of 35% primarily due to a state excise tax expense, investments in bank qualified municipal securities, bank owned life insurance, and tax savings from our captive insurance subsidiary, PNFP Insurance, Inc.

The components of deferred income taxes included in other assets in the accompanying consolidated balance sheets at December 31, 2014 and 2013 are as follows (in thousands):

	2014		2013
Deferred tax assets:
Loan loss allowance	$	25,783	$	26,134
Loans		971		914
Insurance		773		732
Accrued liability for supplemental retirement agreements		531		538
Restricted stock and stock options		4,159		4,100
Net operating loss carryforward		377		1,914
Other real estate owned		1,540		2,231
Other deferred tax assets		1,525		1,177
Total deferred tax assets		35,659		37,740

Deferred tax liabilities:
Depreciation and amortization		4,827		6,145
Core deposit intangible asset		904		1,242
Securities		5,954		(1,704	)
Cash flow hedge		161		2,591
REIT dividends		1,523		1,393
FHLB related liabilities		1,187		1,316
Other deferred tax liabilities		489		521
Total deferred tax liabilities		15,045		11,504
Net deferred tax assets	$	20,614	$	26,236

ASC 740, Income Taxes, defines the threshold for recognizing the benefits of tax return positions in the financial statements as "more-likely-than-not" to be sustained by the taxing authority. This section also provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties, and includes guidance concerning accounting for income tax uncertainties in interim periods.

A reconciliation of the beginning and ending unrecognized tax benefit related to State uncertain tax positions is as follows (in thousands):

	2014		2013		2012
Balance at January 1,	$	-		-		-
Increases due to tax positions taken during the current year		-		-		-
Increases due to tax positions taken during a prior year		546		-		-
Decreases due to the laspse of the statute of limitations during the current year		-		-		-
Decreases due to settlements with the taxing authorities during the current year		-		-		-
Balance at December 31,	$	546		-		-

Pinnacle Financial's policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The total amounts of interest and penalties recorded in the income statement for the year ended December 31, 2014 was $140,000. No interest and penalties were recorded for each of the years ended December 31, 2013 and December 31, 2012.