INCOME TAXES

At December 31, income tax expense consisted of the following:



(Dollars in thousands)	2016		2015			2014
Current tax expense
Federal	$	84,946	$	105,367		$	84,430
State	7,493		16,111			13,941
Total current tax expense	92,439		121,478			98,371
Deferred tax expense (benefit)
Federal	23,144		(2,758		)	(30,658		)
State	10,002		3,308			(2,681		)
Total deferred tax (benefit) expense	33,146		550			(33,339		)
Total income tax expense	$	125,585	$	122,028		$	65,032

Income tax expense does not reflect the tax effects of unrealized gains and losses, the net change from defined benefit pension plans and other income and expenses recorded in accumulated other comprehensive income (AOCI).

Income tax expense differed from the amounts computed by applying the federal income tax rate of 35 percent to pretax income as a result of the following:



(Dollars in thousands)	2016			2015			2014
Income taxes at federal statutory rates	$	122,874		$	116,345		$	71,258
Increase (reduction) in income taxes resulting from:
Nontaxable income on loans, leases and investments, net of nondeductible expenses	(2,901		)	(3,020		)	(1,832		)
State and local income taxes, including change in valuation allowance, net of federal income tax benefit	11,372			12,622			7,319
Acquisition stock settlement	(98		)	—			(10,185		)
Tax credits net of amortization	(4,138		)	(3,060		)	(2,896		)
Other, net	(1,524		)	(859		)	1,368
Total income tax expense	$	125,585		$	122,028		$	65,032

The net deferred tax asset included the following components at December 31:



(Dollars in thousands)	2016		2015
Allowance for loan and lease losses	$	80,939	$	78,878
Pension liability	15,679		7,206
Executive separation from service agreements	14,278		9,856
State net operating loss carryforward	—		21
Federal net operating loss carryforward from Cordia acquisition	5,019		—
Unrealized loss on cash flow hedge	—		537
Net unrealized loss on securities included in accumulated other comprehensive loss	26,832		9,379
Accelerated depreciation	133		13,195
FDIC assisted transactions timing differences	52,579		66,456
Other reserves	10,504		10,772
Other	26,663		29,279
Deferred tax asset	232,626		225,579
Lease financing activities	11,651		15,492
Net deferred loan fees and costs	10,867		6,051
Intangible assets	6,335		2,040
Security, loan and debt valuations	22,656		31,486
Other	8,501		12,026
Deferred tax liability	60,010		67,095
Net deferred tax asset	$	172,616	$	158,484

At December 31, 2016, $14.3 million of existing gross deferred tax assets relate to net operating loss carryforwards which expire in years beginning in 2024 through 2034. The net operating losses were acquired through the acquisition of Cordia and are subject to the annual limitation set forth by Internal Revenue Code Section 382. No valuation allowance was necessary at December 31, 2016 or 2015 to reduce BancShares’ gross deferred tax asset to the amount that is more likely than not to be realized.

During the third quarters of 2016 and 2015, BancShares adjusted its net deferred tax asset as a result of reductions in the North Carolina corporate income tax rate that were enacted July 23, 2013. The lower corporate income tax rate resulted in a reduction in the deferred tax asset and an increase in income tax expense in 2016 and 2015. The lower state corporate income tax rate did not have a material impact on income tax expense.

On October 1, 2014, Bancorporation merged with and into BancShares in a statutory merger treated as a "reorganization" within the meaning of section 368(a) of the Internal Revenue Code of 1986 as amended. Income tax expense in 2014 was adjusted for the settlement of the ownership of Bancorporation stock at the date of the merger. Income tax expense was also adjusted for the revaluation of the acquired deferred inventory to reflect the rates that will apply under currently enacted tax law when the temporary differences are expected to reverse.

BancShares and its subsidiaries' federal income tax returns for 2013 through 2015 remain open for examination. Generally, the state jurisdictions in which BancShares files income tax returns are subject to examination for a period up to four years after returns are filed. BancShares state tax returns are currently under exam by North Carolina for 2012 and Missouri for 2011 through 2015.

The following table provides a rollforward of Bancshares’ gross unrecognized tax benefits, excluding interest and penalties, during the years ended December 31:



(Dollars in thousands)	2016			2015			2014
Unrecognized tax benefits at the beginning of the year	$	5,975		$	3,865		$	2,823
Reductions related to tax positions taken in prior year	(327		)	(79		)	—
Additions related to tax positions taken in current year	23,231			2,189			1,042
Settlements	—			—			—
Unrecognized tax benefits at the end of the year	$	28,879		$	5,975		$	3,865

All of the unrecognized tax benefits, if recognized, would affect Bancshares’ effective tax rate.

BancShares has unrecognized tax benefits relating to uncertain state tax positions in North Carolina and other state jurisdictions resulting from tax filings submitted to the states. No tax benefit has been recorded for these uncertain tax positions in the financial statements. Bancshares does not expect the unrecognized tax benefits to change significantly during 2017.

BancShares recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. For the years ended December 31, 2016, 2015 and 2014, Bancshares recorded $357 thousand, $298 thousand and $1.1 million which primarily represent accrued interest.