Income Taxes

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



	For The Year Ended December 31,
	2016			2015		2014
Current:
Federal	$	17,854		$	7,956	$	11,435
State	930			71		505
	18,784			8,027		11,940
Deferred:
Federal	(1,258		)	1,356		(500		)
State	(54		)	524		—
	(1,312		)	1,880		(500		)
Income tax expense	$	17,472		$	9,907	$	11,440

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 Year Ended December 31,
	2016			2015			2014
Computed tax expense	$	20,139		$	10,801		$	12,604
Increase (reduction) in income taxes resulting from:
Tax exempt income	(1,312		)	(1,092		)	(704		)
Income from life insurance	(908		)	(588		)	(503		)
Share-based awards⁽¹⁾	(701		)	—			—
State taxes, net of federal benefit	565			373			328
Low income housing credits	(376		)	(359		)	(286		)
Non-deductible acquisition-related costs	—			467			—
Other	65			305			1
Income tax expense	$	17,472		$	9,907		$	11,440
Income before income taxes	$	57,539		$	30,859		$	36,010
Effective tax rate	30.4		%	32.1		%	31.8		%

(1) Prior to the adoption of ASU 2016-09, the Company accounted for its windfall tax benefits or shortfalls generated upon exercise of a non-qualified stock option or a disqualifying incentive stock option, or upon vesting of its restricted shares through shareholders' equity (or as income tax expense to the extent the Company did not have a windfall tax benefit surplus). Upon adoption, the Company has accounted for its windfall tax benefits and shortfalls generated within income tax expense on the consolidated statements of income as a discrete period item in the quarter generated.

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,
	2016					2015
(Calculated using a 35% deferred income tax rate)	Asset		Liability			Asset		Liability
Net operating loss and tax credit carryforward	$	20,977	$	—		$	22,282	$	—
Allowance for loan losses	8,094		—			7,416		—
Pension and other benefits	5,141		—			4,488		—
Net unrealized losses on AFS securities	3,227		—			2,047		—
Net unrealized losses on derivative instruments	3,066		—			3,432		—
Purchase accounting and deposit premium	1,430		—			2,856		—
Deferred compensation and benefits	1,791		—			2,129		—
Net unrealized losses on postretirement plans	1,147		—			1,102		—
Depreciation	—		(4,520		)	—		(4,298		)
Deferred loan origination fees	—		(2,046		)	—		(1,815		)
Other	956		—			77		—
	45,829		(6,566		)	45,829		(6,113		)
Valuation allowance on deferred tax assets			—					—
Net deferred tax assets			$	39,263				$	39,716

In connection with the Merger, the Company acquired certain net operating losses and tax credit carryforwards as of the acquisition date, including federal net operating losses of $71.2 million 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 Internal Revenue Code of 1986, as amended, Section 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 and the fair value of consideration paid for the acquisition at the acquisition date. The acquired federal net operating losses will expire between 2030 and 2034. The Company has 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. As such, there was no valuation allowance established on any of the deferred tax assets acquired as part of the Merger.

Income tax returns for the year ended December 31, 2013 through 2015 are open to audit by federal and various state authorities and currently the Company's federal income tax returns for 2013 and 2014 are undergoing an IRS examination. If the Company, as a result of this audit or any future audit, was assessed interest and penalties, the amounts would be recorded within non-interest expense on the consolidated statements of income.