Note 12. Income Taxes

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

	2015		2014			2013
Current tax expense :
Federal	$	41,365	$	34,068		$	26,317
State		48		719			-
Total current tax expense	$	41,413		34,787			26,317
Deferred tax expense (benefit):
Federal		5,281		(1,260	)		240
State		895		1,655			1,601
Total deferred tax expense (benefit)		6,176		395			1,841
Total income tax expense	$	47,589	$	35,182		$	28,158

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, 2015 is as follows (in thousands):

	2015			2014			2013

Income tax expense at statutory rate	$	50,084		$	36,978		$	30,059
State excise tax expense, net of federal tax effect		983			1,827			1,601
Tax-exempt securities		(2,543	)		(2,675	)		(2,603	)
Federal tax credits		-			-			-
Bank owned life insurance		(892	)		(849	)		(740	)
Insurance premiums		(306	)		(401	)		(349	)
Change in uncertain tax positions		-			392			-
Other items		263			(90	)		190
Income tax expense	$	47,589		$	35,182		$	28,158

Pinnacle Financial's effective tax rate for 2015 and 2014 differs from the Federal income tax statutory rate of 35% primarily due to a state excise tax expense, investments in bank qualified municipal securities, our real estate investment trust, participation in the Community Investment Tax Credit (CITC) program, bank owned life insurance and tax savings from our captive insurance subsidiary, PNFP Insurance, Inc. offset in part by the limitation on deductibility of meals and entertainment expense.

The components of deferred income taxes included in other assets in the accompanying consolidated balance sheets at December 31, 2015 and 2014 are as follows (in thousands):

	2015		2014
Deferred tax assets:
Loan loss allowance	$	24,959	$	25,783
Loans		11,568		971
Insurance		823		773
Accrued liability for supplemental retirement agreements		3,549		531
Restricted stock and stock options		4,824		4,159
Cash flow hedge		949		-
Net operating loss carryforward		171		377
Other real estate owned		587		1,540
Other deferred tax assets		2,984		1,525
Total deferred tax assets		50,414		35,659

Deferred tax liabilities:
Depreciation and amortization		6,941		4,827
Core deposit intangible asset		3,786		904
Securities		2,337		5,954
Cash flow hedge		-		161
REIT dividends		1,772		1,523
FHLB related liabilities		1,385		1,187
Mortgage servicing rights		2,582		-
Other deferred tax liabilities		1,546		489
Total deferred tax liabilities		20,349		15,045
Net deferred tax assets	$	30,065	$	20,614

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):

	2015			2014		2013
Balance at January 1,	$	391			-		-
Decreases due to tax positions taken during the current year		(257	)		-		-
Increases due to tax positions taken during a prior year		-			391		-
Decreases due to the lapse 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,	$	134			391		-

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 years ended December 31, 2015 and 2014 were a benefit of $96,000 and expense of $140,000, respectively. No interest and penalties were recorded for the year ended December 31, 2013.