Note 13: Taxes on Income

The components of taxes on income follow:


	For the Year Ended December 31,
(Dollars in thousands)	2016		2015		2014
Current tax (benefit) expense:
Federal	$	8,809	$	7,534	$	3,251
State		173		143		186
Deferred tax expense (benefit):
Federal		44		1,126		7,970
State		783		990		1,210
Taxes on income	$	9,809	$	9,793	$	12,617

A reconciliation from the expected tax expense (benefit) using the U.S. Federal income tax rate of 35% to consolidated effective income tax expense (benefit) follows:


	For the Year Ended December 31,
(Dollars in thousands)	2016		2015		2014
Computed tax (benefit) expense at statutory rates	$	9,630	$	9,520	$	11,777
Increase (decrease) in income taxes resulting from:
Benefit of income not subject to U.S. Federal income tax		(632)		(621)		(209)
Expenses not deductible for U.S. Federal income tax		216		220		129
State income taxes, net of Federal income tax benefit		621		736		907
Other		(26)		(62)		13
Taxes on income	$	9,809	$	9,793	$	12,617

The calculated year-to-date effective tax rate is 35.7% for 2016, 36.0% for 2015, and 37.5% for 2014.

At December 31, 2013, we had $10.7 million federal net operating loss carryforward expiring in 2031, $53.1 million of state net operating loss carryforward expiring in 2031, and $0.6 million of state net operating loss carryforward expiring in 2021. In addition, we had $2.5 million alternative minimum tax credit that can be carried forward indefinitely. During 2014, we fully utilized the remaining federal net operating loss carryforward and the alternative minimum tax credit that had been carried forward. At December 31, 2016, we had $10.3 million of state net operating loss carryforward expiring in 2031.

A deferred tax asset or liability is recognized for the tax consequences of temporary differences in the recognition of certain income and expense items for financial statement reporting purposes. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. It was determined that no valuation allowance was required for both 2016 and 2015.

Net deferred tax assets of $13.2 million and $14.0 million at December 31, 2016 and 2015, respectively, are reflected in the accompanying Consolidated Statements of Financial Condition in other assets.

Temporary differences that give rise to the deferred tax assets include the following:


		At December 31,
(Dollars in thousands)		2016		2015
Deferred tax assets:
	Provision for loan losses	$	10,976	$	10,291
	Net operating loss carryforward		380		858
	Write-downs on other real estate		-		57
	Nonaccrual loan interest		510		603
	Deferred compensation & profit sharing accrual		782		711
	Investments		306		311
	Section 597 gain - FDIC-assisted acquisition		388		472
	Accrued expenses		859		1,013
	Loan purchase accounting adjustment		1,392		2,725
	Stock-based compensation		805		629
	Other		659		(2)
Total deferred tax assets			17,057		17,668

Deferred tax liabilities:
	Accumulated depreciation		(2,966)		(2,877)
	Amortizable assets		(933)		(1,089)
	Dividend - Equity vs. Cost Method		(471)		(393)
	Prepaid expenses		(110)		(109)
	FHLB stock dividends		(65)		(132)
Total deferred tax liabilities			(4,545)		(4,600)
	Deferred taxes payable on investment
	securities available for sale		643		885
Net deferred tax asset		$	13,155	$	13,953

We or one of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are no longer subject to U.S. federal or state tax examinations for years before 2013. Additionally, as procedurally required, our company’s 2010 and 2011 federal returns were examined in connection with the 2011 net operating loss carryback and no adjustments were required.

Unrecognized Tax Benefits – ASC 740, Income Taxes, provides guidance on the recognition, measurement, and classification of income tax uncertainties, along with any related interest and penalties. As of December 31, 2016, we have no unrecognized tax benefits related to Federal or State income tax matters and do not anticipate any changes within the next twelve months. Additionally, no interest and penalties have been accrued related to uncertain tax positions.