INCOME TAXES

The following table presents the components of the provision for income taxes included in the Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014 (in thousands):



	Years Ended December 31
	2016		2015			2014
Current
Federal	$	29,787	$	24,683		$	23,411
State	2,477		1,399			1,444
Total Current	32,264		26,082			24,855

Deferred
Federal	9,908		(3,310		)	2,764
State	2,083		(23		)	(567		)
Total Deferred	11,991		(3,333		)	2,197

Provision for income taxes	$	44,255	$	22,749		$	27,052

The following table presents the reconciliation of the federal statutory rate to the actual effective rate for the years ended December 31, 2016, 2015 and 2014:



	Years Ended December 31
	2016		2015		2014
Federal income tax statutory rate	35.0	%	35.0	%	35.0	%
Increase (decrease) in tax rate due to:
Tax-exempt interest	(2.6	)	(3.9	)	(2.6	)
Investment in life insurance	(1.2	)	(1.3	)	(0.8	)
State income taxes, net of federal tax offset	2.2		1.1		1.1
Tax credits	(0.8	)	(1.6	)	(0.8	)
Merger and acquisition costs	—		1.9		0.7
Other	1.5		2.3		0.7
Effective income tax rate	34.1	%	33.5	%	33.3	%

The following table reflects the effect of temporary differences that gave rise to the components of the net deferred tax asset as of December 31, 2016 and 2015 (in thousands):



	December 31
	2016			2015
Deferred tax assets:
Loan loss and REO	$	36,719		$	33,312
Deferred compensation	23,189			19,253
Net operating loss carryforward	82,714			91,893
Federal and state tax credits	7,711			7,877
State net operating losses	7,396			8,692
Loan discount	9,696			13,412
Other	6,217			5,620
Total deferred tax assets	173,642			180,059
Deferred tax liabilities:
Depreciation	(2,218		)	(1,103		)
Deferred loan fees, servicing rights and loan origination costs	(13,291		)	(9,884		)
Intangibles	(11,178		)	(13,320		)
Financial instruments accounted for under fair value accounting	(16,186		)	(17,112		)
Unrealized (gain) loss on securities - available-for-sale	(880		)	(1,475		)
Total deferred tax liabilities	(43,753		)	(42,894		)
Deferred income tax asset	129,889			137,165
Valuation allowance	(2,195		)	(2,195		)
Deferred tax asset, net	$	127,694		$	134,970

At December 31, 2016, the Company has federal net operating loss carryforwards of approximately $236.3 million. The Company also has $145.8 million state net operating loss carryforwards, which the Company has established a $2.2 million valuation reserve against. The federal and state net operating losses will expire, if unused, by the end of 2034. The Company has federal general business credit carryforwards at December 31, 2016 of $3.3 million, which will expire, if unused, by the end of 2031. The Company also has federal alternative minimum tax credit carryforwards of $4.2 million, which are available to reduce future federal regular income taxes, if any, over an indefinite period. Additionally, at December 31, 2016, the Company has state credit carryovers of $193,000. At December 31, 2015, the Company had federal and state net operating loss carryforwards of approximately $262.5 million and $167.6 million, respectively, and federal general business credits carryforwards of $3.3 million. At that same date, the Company also had federal alternative minimum tax credit carryforwards of approximately $4.2 million. The 2015 state net operating loss carryovers obtained from acquisitions were previously reported on a partially tax effected basis as $23.0 million.

As a consequence of our acquisition of Starbuck Bancshares, Inc., the Company experienced a change in control within the meaning of Section 382 of the Internal Revenue Code of 1986 (Code). In addition, the underlying Section 382 limitations at Starbuck Bancshares, Inc. prior to the Company's acquisition continue to apply to the Company. Section 382 limits the ability of a corporate taxpayer to use net operating loss carryforwards, general business credits, and recognized built-in-losses, on an annual basis, incurred prior to the change in control against income earned after the change in control. As a result of the Section 382 limitations, the Company is limited to utilizing $21.5 million (after the application of the Section 382 limitations carried over from Starbuck Bancshares, Inc.) of federal net operating loss carryforwards, general business credits, and recognized built-in losses on an annual basis. The applicable state Section 382 limitations range from $525,000 to $21.5 million. The Company has provided a $2.2 million valuation reserve against the portion of its various state net operating loss carryforwards and tax credits that it believes it is more likely than not that it will not realize the benefit because the application of the Section 382 limitations at the state level is based on future apportionment rates.

In addition, as a consequence of Banner's capital raise in June 2010, the Company experienced a change in control within the meaning of Section 382 of the Code. As a result of the Section 382 limitations, the Company is limited to utilizing $6.9 million of net operating loss carryforwards which existed prior to the acquisition of Starbuck Bancshares, Inc., on an annual basis. Based on its analysis, the Company believes it is more likely than not that the June 2010 change in control will not impact its ability to utilize all of the related available net operating loss carryforwards, general business credits, and recognized built-in-losses.

Retained earnings at December 31, 2016 and 2015 included approximately $5.4 million in tax basis bad debt reserves for which no income tax liability has been recorded. In the future, if this tax bad debt reserve is used for purposes other than to absorb bad debts or the Company no longer qualifies as a bank or is completely liquidated, the Company will incur a federal tax liability at the then-prevailing corporate tax rate, established as $1.9 million at December 31, 2016.

Tax credit investments: The Company invests in low income housing tax credit funds that are designed to generate a return primarily through the realization of federal tax credits. The Company accounts for these investments by amortizing the cost of tax credit investments over the life of the investment using a proportional amortization method and tax credit investment amortization expense is a component of the provision for income taxes.

The following table presents the balances of the Company's tax credit investments and related unfunded commitments at December 31, 2016 and 2015 (in thousands):



	December 31, 2016		December 31, 2015
Tax credit investments	$	4,654	$	5,326
Unfunded commitments—tax credit investments	665		1,398

The following table presents other information related to the Company's tax credit investments for the years ended December 31, 2016 and 2015 (in thousands):



	For the year ended December 31,
	2016		2015
Tax credits and other tax benefits recognized	$	1,136	$	1,273
Tax credit amortization expense included in provision for income taxes	672		1,000