| INCOME TAXES |
The components of income tax expense are as follows: | | | Year Ended December 31, | | | | | 2014 | | 2013 | | 2012 | | | | | | | | (In Thousands) | | | | | | Current tax expense: | | | | | | | | | | | | Federal | | $ | 25,929 | | $ | 21,264 | | $ | 17,993 | | | State | | | 693 | | | 899 | | | 1,308 | | | Total current tax expense | | | 26,622 | | | 22,163 | | | 19,301 | | | Deferred tax expense (benefit): | | | | | | | | | | | | Federal | | | (3,778) | | | (1,616) | | | (1,999) | | | State | | | (1,243) | | | (189) | | | (182) | | | Total deferred tax expense | | | (5,021) | | | (1,805) | | | (2,181) | | | Total income tax expense | | $ | 21,601 | | $ | 20,358 | | $ | 17,120 | |
The Company’s total income tax expense differs from the amounts computed by applying the Federal income tax statutory rates to income before income taxes. A reconciliation of the differences is as follows: | | | Year Ended December 31, 2014 | | | | | Amount | | % of Pre-tax
Earnings | | | | | (In Thousands) | | | | | | Income tax at statutory federal rate | | $ | 25,892 | | | 35.00 | % | | Effect on rate of: | | | | | | | | | State income tax, net of federal tax effect | | | (358) | | | (0.49) | % | | Tax-exempt income, net of expenses | | | (1,316) | | | (1.78) | % | | Bank owned life insurance contracts | | | (798) | | | (1.08) | % | | Incentive stock option expense | | | (18) | | | (0.02) | % | | Federal tax credits | | | (1,659) | | | (2.24) | % | | Other | | | (142) | | | (0.19) | % | | Effective income tax and rate | | $ | 21,601 | | | 29.20 | % | | | | Year Ended December 31, 2013 | | | | | Amount | | % of Pre-tax
Earnings | | | | | (In Thousands) | | | | | | Income tax at statutory federal rate | | $ | 21,691 | | | 35.00 | % | | Effect on rate of: | | | | | | | | | State income tax, net of federal tax effect | | | 462 | | | 0.75 | % | | Tax-exempt income, net of expenses | | | (1,200) | | | (1.94) | % | | Bank owned life insurance contracts | | | (698) | | | (1.13) | % | | Incentive stock option expense | | | 66 | | | 0.11 | % | | Other | | | (37) | | | (0.06) | % | | Effective income tax and rate | | $ | 20,284 | | | 32.85 | % | | | | Year Ended December 31, 2012 | | | | | Amount | | % of Pre-tax
Earnings | | | | | (In Thousands) | | | | | | Income tax at statutory federal rate | | $ | 18,047 | | | 35.00 | % | | Effect on rate of: | | | | | | | | | State income tax, net of federal tax effect | | | 732 | | | 1.42 | % | | Tax-exempt income, net of expenses | | | (1,007) | | | (1.95) | % | | Bank owned life insurance contracts | | | (568) | | | (1.10) | % | | Incentive stock option expense | | | 121 | | | 0.23 | % | | Other | | | (206) | | | (0.40) | % | | Effective income tax and rate | | $ | 17,119 | | | 33.20 | % |
The components of net deferred tax asset are as follows: | | | December 31, | | | | | 2014 | | 2013 | | | | | (In Thousands) | | | Deferred tax assets: | | | | | | | | | Allowance for loan losses | | $ | 13,491 | | $ | 11,844 | | | Other real estate owned | | | 1,319 | | | 1,222 | | | Nonqualified equity awards | | | 1,594 | | | 773 | | | Nonaccrual interest | | | 444 | | | 374 | | | State tax credits | | | 987 | | | - | | | Investments | | | 667 | | | - | | | Deferred loan fees | | | 87 | | | - | | | Other deferred tax assets | | | 117 | | | 141 | | | Total deferred tax assets | | | 18,706 | | | 14,354 | | | | | | | | | | | | Deferred tax liabilities: | | | | | | | | | Net unrealized gain on securities available for sale | | | 2,418 | | | 2,102 | | | Depreciation | | | 421 | | | 514 | | | Prepaid expenses | | | 151 | | | 161 | | | Deferred loan fees | | | - | | | 83 | | | Investments | | | - | | | 229 | | | Other deferred tax liabilities | | | - | | | 247 | | | Total deferred tax liabilities | | | 2,990 | | | 3,336 | | | Net deferred income tax assets | | $ | 15,716 | | $ | 11,018 | | The Company believes its net deferred tax asset is recoverable as of December 31, 2014 based on the expectation of future taxable income and other relevant considerations. The Company and its subsidiaries file a consolidated U.S. Federal income tax return and various consolidated and separate company state income tax returns. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31, 2011 through 2014. The Company is also currently open to audit by several state departments of revenue for the years ended December 31, 2011 through 2014. The audit periods differ depending on the date the Company began business activities in each state. Currently, there are no years for which the Company filed a federal or state income tax return that are under examination by the IRS or any state department of revenue. Accrued interest and penalties on unrecognized income tax benefits totaled $6,000 and $12,000 as of January 1, 2014 and December 31, 2014, respectively. Unrecognized income tax benefits as of December 31, 2013 and December 31, 2014, that, if recognized, would impact the effective income tax rate totaled $437,000 and $804,000 (net of the federal benefit on state income tax issues), respectively. The Company does not expect any of the uncertain tax positions to be settled or resolved during the next twelve months.
The following table presents a summary of the changes during 2014, 2013 and 2012 in the amount of unrecognized tax benefits that are included in the consolidated balance sheets. | | | 2014 | | 2013 | | 2012 | | | | | | | | (In Thousands) | | | | | | Balance, beginning of year | | $ | 437 | | $ | 161 | | $ | - | | | Increases related to prior year tax positions | | | 367 | | | 276 | | | - | | | Decreases related to prior year tax positions | | | - | | | - | | | - | | | Increases related to current year tax positions | | | - | | | - | | | 161 | | | Settlements | | | - | | | - | | | - | | | Lapse of statute | | | - | | | - | | | - | | | Balance, end of year | | $ | 804 | | $ | 437 | | $ | 161 | |
|