Income Taxes

The current and deferred components of income tax expense on the consolidated statements of income were as follows:



	For The Years Ended December 31,
	2015		2014			2013
Current:
Federal	$	7,956	$	11,435		$	11,853
State	71		505			400
	8,027		11,940			12,253
Deferred:
Federal	1,356		(500		)	(121		)
State	524		—			—
	1,880		(500		)	(121		)
Income tax expense	$	9,907	$	11,440		$	12,132

The income tax expense differs from the amount computed by applying the statutory federal income tax rate as a result of the following:



	For The Years Ended December 31,
	2015			2014			2013
Computed tax expense	$	10,801		$	12,604		$	12,220
Increase (reduction) in income taxes resulting from:
Tax exempt income	(1,092		)	(704		)	(510		)
Income from life insurance	(588		)	(503		)	(459		)
Non-deductible acquisition-related costs	467			—			—
State taxes, net of federal benefit	373			328			260
Low income housing credits	(359		)	(286		)	(299		)
Goodwill impairment	—			—			991
Other	305			1			(71		)
Income tax expense	$	9,907		$	11,440		$	12,132
Effective tax rate	32.1		%	31.8		%	34.7		%

Temporary differences between the financial statements carrying amounts and the tax bases of assets and liabilities gave rise to the following deferred tax assets and liabilities:



	December 31,
	2015				2014
	Asset		Liability		Asset		Liability
Net operating loss and tax credit carryforward	$	22,282	$	—	$	—	$	—
Allowance for loan losses	7,416		—		7,397		—
Pension and other benefits	4,488		—		4,018		—
Net unrealized losses on derivative instruments	3,432		—		3,200		—
Purchase accounting and deposit premium	2,856		—		212		—
Deferred compensation and benefits	2,129		—		945		—
Net unrealized losses on AFS securities	2,047		—		171		—
Net unrealized losses on postretirement plans	1,102		—		1,165		—
Allowance for OREO valuation	630		—		107		—
Allowance for OTTI on investments	17		—		71		—
Depreciation	—		4,298		—		1,910
Deferred loan origination fees	—		1,815		—		1,581
Prepaid expenses	—		813		—		620
MSRs	—		757		—		172
Other	1,000		—		1,431		—
	$	47,399	$	7,683	$	18,717	$	4,283

Deferred income taxes have been calculated using a rate of 35%. No valuation allowance was established on the Company's deferred tax assets as of December 31, 2015 or 2014.

In connection with the SBM acquisition, the Company acquired certain net operating losses and tax credit carryforwards as of the acquisition date, including federal net operating losses of $70.9 million related to losses generated by SBM and State of Maine net operating losses of $213,000. The Company determined it would not be able to utilize $6.8 million of the acquired federal net operating losses and wrote-off this amount within purchase accounting. Due to IRC 382(g) limitations, the Company's use of the federal net operating losses acquired is limited to $3.9 million annually (and $803,000 for fiscal year 2015), which was determined using the applicable federal rate (AFR) and the fair value of consideration paid for the acquisition at the acquisition date. The acquired federal net operating losses will expire between 2030 – 2034. The Company assessed the need for a valuation allowance on the acquired federal net operating losses and determined that there was a high likelihood that it will be able to utilize all of the acquired allowable federal net operating losses prior to expiration as the Company has a history of generating taxable income well in excess of the limitation. The acquired State of Maine net operating loss was not subject to any state imposed limitations and was fully utilized in fiscal year 2015. As such, there was no valuation allowance established on any of the deferred tax assets acquired as part of the SBM acquisition.

The Company received notice in 2016 that it will undergo an IRS tax examination for fiscal tax years 2013 and 2014. While not currently under review, the Company's federal income tax return for the fiscal tax year 2012 and state income tax returns for fiscal years 2012, 2013 and 2014 are open to audit by various state authorities. If the Company, as a result of an audit, were assessed interest and penalties, the amounts would be recorded within non-interest expense on the consolidated statements of income.