Note 11—Income Taxes

The following were the components of provision for income taxes for the years ended December 31, 2017, 2016, and 2015:

	2017		2016			2015
Current tax expense:
Federal	$	1,010	$	—		$	250
State and local		1,485		—			57
Total current tax expense		2,495		—			307
Deferred tax expense:
Federal		13,554		478			4,929
State and local		686		136			656
Remeasurement of net deferred tax assets		2,364		—			—
Total deferred tax expense before reversal of valuation allowance		16,604		614			5,585
Deferred tax valuation allowance		—		(61,859	)		(5,585	)
Provision (benefit) for income taxes	$	19,099	$	(61,245	)	$	307

Note 11—Income Taxes (continued)

The following is a reconciliation between the statutory U.S. federal income tax rate of 35% and the effective tax rate:

	2017				2016				2015
Calculated tax benefit at statutory rate		35.0		%		35.0		%		35.0		%
Increase (decrease) in income taxes resulting from:
Reversal of valuation allowance, net of change in estimated Section 382 impact		—				(1,167.6	)			73.4
State taxes, net of federal income tax		6.5				6.1				5.0
Tax exempt income		(0.7	)			(5.3	)			24.2
Non-deductible expenses		0.2				14.8				(137.6	)
Remeasurement of net deferred tax assets		5.8				—				—
Total income tax expense (benefit)		46.8		%		(1,117.0	)	%		—		%

The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017, and ASC 740 requires us to reflect the changes associated with the Tax Act’s provisions in the fourth quarter of 2017. The Tax Act is complex and has extensive implications for the Company’s federal and state taxes. Among other things, the Tax Act reduces the corporate federal income tax rate from 35% to 21%, effective January 1, 2018. Also on December 22, 2017, the SEC issued Staff Accounting Bulletin 118 (SAB 118), which provides guidance on accounting for the Tax Act’s impact. SAB 118 provides a measurement period, not to extend beyond one year from the date of enactment during which a company, acting in good faith, may complete the accounting for the impacts of the Tax Act. At December 31, 2017, the Company’s accounting for the impact of the Tax Act on its net deferred tax assets is based upon reasonable estimates of the tax effects of the Tax Act; however, these estimates may change as additional information and interpretive guidance regarding the provisions of the Tax Act become available. As a result of the rate change, the Company’s net deferred tax assets were required to be revalued during the period in which the new legislation was enacted, and the Company recorded net income tax expense of $7.2 million during the fourth quarter as a result of this change.

Included in the provisional tax expense recorded for the re-measurement of the Company’s net deferred tax assets were deferred items for which the tax effects were originally established through OCI. This results in a disproportionate tax effect for those items still recorded in AOCI. Under GAAP as of December 31, 2017, those items would continue to be reported in AOCI until such time as the underlying transactions were settled and would then be reclassified as a component of the provision for income taxes. However, in February 2018, the FASB issued an ASU that permits entities to reclassify the tax effects stranded in AOCI as a result of the Tax Act to retained earnings. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption in any period permitted. The Company did not early adopt this guidance in 2017.

The income tax benefit for the year ended December 31, 2016 was primarily attributable to the reversal of the Company’s previously established valuation allowance of $61.4 million. Management concluded that no valuation allowance was necessary on the Company’s net deferred tax assets as a result of the Ridgestone acquisition. This determination was based on Ridgestone’s actual pre‑tax income over the prior three years, and pro‑forma combined earnings for the Company and Ridgestone over the prior three years, as well as management’s expectations for sustainable profitability in the future. Management monitors deferred tax assets on a quarterly basis for changes affecting realizability. The valuation allowance could be subject to change in future periods.

Note 11—Income Taxes (continued)

The following were the significant components of the deferred tax assets and liabilities as of December 31, 2017 and 2016:

	2017			2016
Deferred tax assets:
Net operating losses and tax credits	$	42,062		$	61,906
Interest on non-accrual loans		2,755			2,882
Allowance for loan losses and loan basis		13,839			22,017
Deposits		5			316
Alternative minimum tax ("AMT") credit carryforward		2,140			1,073
Other real estate owned		—			214
Net unrealized holding losses on securities available-for-sale		2,766			4,818
Other		2,413			3,241
Total deferred tax assets		65,980			96,467
Deferred tax liabilities:
Other real estate owned		(24	)		—
Premises and equipment		(3,385	)		(6,907	)
Core deposit intangibles		(4,656	)		(7,858	)
Servicing assets		(3,505	)		(7,899	)
Trust preferred securities		(2,465	)		(3,809	)
Unrealized holding gain on cash flow hedges		(1,390	)		(1,491	)
Other		(592	)		(743	)
Total deferred tax liabilities		(16,017	)		(28,707	)
Less valuation allowance on net deferred tax asset		—			—
Net deferred tax assets after valuation allowance	$	49,963		$	67,760

	2017		2016
NOL carryforwards available to offset future taxable income:
Federal gross NOL carryforwards - begin to expire in 2027	$	63,964	$	116,315
Illinois gross NLD carryforwards - begin to expire in 2021		381,471		420,764
AMT credit carryforward - no expiration date		2,140		1,073

Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of net operating loss and credit carryforwards may be limited in the event a cumulative change in ownership of more than 50 percent occurs within a three‑year period. The Company has determined that such an ownership change occurred as of June 28, 2013 as a result of the recapitalization. This ownership change resulted in estimated limitations on the utilization of tax attributes, including net operating loss carryforwards and tax credits. Pursuant to Sections 382 and 383, a portion of the limited net operating loss carryforwards and credits become available to use each year. The Company estimates that approximately $756,000 of the restricted Federal and Illinois net operating losses will become available each year.

The Company and the Bank file consolidated income tax returns. The Company and the Bank are no longer subject to United States federal income tax examinations for years before 2014 and state income tax examinations for years before 2013.