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,
	2017			2016			2015
Current:
Federal	$	14,529		$	17,854		$	7,956
State	1,289			930			71
	15,818			18,784			8,027
Deferred:
Change in federal corporate income tax rate⁽¹⁾	14,263			—			—
Federal	4,117			(1,258		)	1,356
State	(320		)	(54		)	524
	18,060			(1,312		)	1,880
Income tax expense	$	33,878		$	17,472		$	9,907

(1)

On December 22, 2017, the Tax Act was enacted, reducing the U.S. federal corporate income tax rate from 35.0% to 21.0%. ASC Topic 740, Accounting for Income Taxes (“ASC 740”), requires companies to recognize the effect of tax law changes in the period of enactment even though the effective date for most provisions of the Tax Act was January 1, 2018. As of December 31, 2017, the Company has completed its accounting for the tax effects of the Tax Act, which resulted in a reduction to net deferred tax assets and a corresponding charge to income tax expense of $14.3 million.

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,
	2017			2016			2015
Computed tax expense	$	21,824		$	20,139		$	10,801
Increase (reduction) in income taxes resulting from:
Change in federal corporate income tax rate	14,263			—			—
Tax exempt income	(1,291		)	(1,312		)	(1,092		)
Income from life insurance	(829		)	(908		)	(588		)
State taxes, net of federal benefit	630			565			373
Share-based awards⁽¹⁾	(390		)	(701		)	—
Low income housing credits	(366		)	(376		)	(359		)
Non-deductible acquisition-related costs	—			—			467
Other	37			65			305
Income tax expense	$	33,878		$	17,472		$	9,907
Income before income taxes	$	62,354		$	57,539		$	30,859
Effective tax rate	54.3		%	30.4		%	32.1		%

(1)

The Company adopted the provisions of ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, in calendar year 2016. Prior to adoption, it 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 now accounts 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,
	2017⁽¹⁾					2016⁽²⁾
	Asset		Liability			Asset		Liability
Net operating loss and tax credit carryforward	$	12,078	$	—		$	20,977	$	—
Allowance for loan losses	5,201		—			8,094		—
Pension and other benefits	3,363		—			5,141		—
Net unrealized losses on AFS securities	2,821		—			3,227		—
Net unrealized losses on derivative instruments	1,623		—			3,066		—
Deferred compensation and benefits	1,199		—			1,791		—
Net unrealized losses on postretirement plans	1,092		—			1,147		—
Purchase accounting and deposit premium	461		—			1,430		—
Depreciation	—		(2,857		)	—		(4,520		)
Deferred loan origination fees	—		(1,510		)	—		(2,046		)
Other	—		(695		)	956		—
	27,838		(5,062		)	45,829		(6,566		)
Valuation allowance on deferred tax assets			—					—
Net deferred tax assets			$	22,776				$	39,263


(1)	At December 31, 2017, the Company's deferred tax assets and liabilities were calculated using a 21.5% deferred tax rate.


(2)	At December 31, 2016, the Company's deferred tax assets and liabilities were calculated using a 35.0% deferred tax rate.

In connection with the acquisition of SBM on October 16, 2016, 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, no valuation allowance has been established on its acquired federal net operating losses or tax credit carryforwards as of December 31, 2017 or 2016.

As of December 31, 2017, the Company's federal income tax returns for the year ended December 31, 2016 and 2015 were open to audit by federal authorities and state income tax returns for the year ended December 31, 2016, 2015 and 2014 were open to audit by state authorities. During the year ended December 31, 2017, the IRS completed its examination of the Company's 2013 and 2014 federal income tax returns, which resulted in no material changes to the Company's consolidated financial statements.