Income Taxes

The reported income tax expense and effective tax rate in the Consolidated Statements of Income differs from the amounts computed by applying the statutory corporate tax rate as follows for the years ended December 31:



	2016					2015					2014
(Dollars in thousands)	Amount			Rate		Amount			Rate		Amount			Rate
Income tax computed at statutory federal tax rate	$	15,785		35.0	%	$	5,051		34.1	%	$	8,462		35.0	%
Differences in rate resulting from:
Tax-exempt interest income	(1,170		)	(2.6	)%	(1,109		)	(7.5	)%	(726		)	(3.0	)%
Investments in tax credit funds	(164		)	(0.4	)%	(123		)	(0.8	)%	(481		)	(2.0	)%
Bank owned life insurance	(495		)	(1.1	)%	(204		)	(1.4	)%	(37		)	—	%
Other, net	169			0.4	%	260			1.8	%	276			1.0	%
Income tax expense	$	14,125		31.3	%	$	3,875		26.2	%	$	7,494		31.0	%

Peoples' reported income tax expense consisted of the following for the years ended December 31:



(Dollars in thousands)	2016			2015			2014
Current income tax expense	$	16,587		$	5,457		$	3,659
Deferred income tax (benefit) expense	(2,462		)	(1,582		)	3,835
Income tax expense	$	14,125		$	3,875		$	7,494

The significant components of Peoples' deferred tax assets and liabilities consisted of the following at December 31:



(Dollars in thousands)	2016		2015
Deferred tax assets:
Allowance for loan losses	$	12,578	$	12,144
Accrued employee benefits	3,826		3,763
Investments	2,884		2,447
Bank premises and equipment	349		1,060
Other	1,190		2,183
Gross deferred tax assets	$	20,827	$	21,597
Valuation allowance	1,341		605
Total deferred tax assets	$	19,486	$	20,992
Deferred tax liabilities:
Purchase accounting adjustments	$	10,845	$	11,342
Deferred loan income	3,181		2,260
Available-for-sale securities	312		1,544
Other	1,305		664
Total deferred tax liabilities	$	15,643	$	15,810
Net deferred tax asset	$	3,843	$	5,182

The tax loss carryforward related to the NB&T acquisition at December 31, 2015 will be recognized in accordance with 26 U.S. Code §382 limitation of net operating loss carry forward guidance. As of December 31, 2016, Peoples had a net operating loss carryforward of approximately $3.1 million for tax purposes, which will be available to offset future taxable income. If not used, this carryforward will expire in 2035.

The $1.3 million valuation allowance was related to a partnership investment and was recorded for deferred tax assets at December 31, 2016, as it was and remains more likely than not that the $3.8 million of gross deferred tax assets may not be realized in future periods.

The federal income tax expense on securities transactions approximated $326,000 in 2016, $255,000 in 2015 and $139,000 in 2014.

Income tax benefits are recognized in the Consolidated Financial Statements for a tax position only if it is considered "more likely than not" of being sustained on audit, based solely on the technical merits of the income tax position. If the recognition criteria are met, the amount of income tax benefits to be recognized are measured based on the largest income tax benefit that is more than 50 percent likely to be realized on ultimate resolution of the tax position. The following table provides a reconciliation of uncertain tax positions at December 31:



(Dollars in thousands)	2016			2015
Uncertain tax positions, beginning of year	$	417		$	240
Gross increase based on tax positions related to current year	113			182
Gross increase for tax position taken during prior years	45			—
Gross decrease for tax positions taken during prior years	—			(2		)
Gross decrease due to the statute of limitations	(53		)	(3		)
Uncertain tax positions, end of year	$	522		$	417

Peoples' income tax returns are subject to review and examination by federal and state taxing authorities. Peoples is currently open to audit under the applicable statutes of limitations by the Internal Revenue Service for the years ended December 31, 2013 through 2015. The years open to examination by state taxing authorities vary by jurisdiction.