SANDY SPRING BANCORP INC

Note 15 – Income Taxes

The following table provides the components of income tax expense for the years ended December 31:

(In thousands)			2017		2016		2015
Current income taxes:
Federal			$	22,355	$	18,699	$	17,890
State				5,146		4,692		4,140
	Total current			27,501		23,391		22,030
Deferred income taxes:
Federal				6,973		516		10
State				252		(167)		(13)
	Total deferred			7,225		349		(3)
		Total income tax expense	$	34,726	$	23,740	$	22,027

The Company does not have uncertain tax positions that are deemed material, and did not recognize any adjustments for unrecognized tax benefits.

Temporary differences between the amounts reported in the financial statements and the tax bases of assets and liabilities result in deferred taxes. Deferred tax assets and liabilities, shown as the sum of the appropriate tax effect for each significant type of temporary difference, are presented in the following table at December 31 for the years indicated:

(In thousands)				2017		2016
Deferred Tax Assets:
	Allowance for loan losses			$	12,024	$	17,517
	Employee benefits				1,398		2,034
	Pension plan OCI				3,318		5,433
	Deferred loan fees and costs				416		457
	Non-qualified stock option expense				429		555
	Losses on other real estate owned				42		43
	Other than temporary impairment				217		322
	Loan and deposit premium/discount				91		187
	Reserve for recourse loans				133		199
	Merger Expenses				299		-
	Other				7		9
		Gross deferred tax assets			18,374		26,756

Deferred Tax Liabilities:
	Unrealized gains on investments available-for-sale				(307)		(1,065)
	Pension plan costs				(2,735)		(3,550)
	Depreciation				(1,852)		(1,179)
	Intangible assets				(1,264)		(1,721)
	Bond accretion				(146)		(133)
	Other				(204)		(155)
		Gross deferred tax liabilities			(6,508)		(7,803)
			Net deferred tax asset	$	11,866	$	18,953

The reconcilements between the statutory federal income tax rate and the effective rate for the years ended December 31 are presented in the following table:

(Dollars in thousands)			2017				2016				2015
					Percentage of				Percentage of				Percentage of
					Pre-Tax				Pre-Tax				Pre-Tax
			Amount		Income		Amount		Income		Amount		Income
Income tax expense at federal statutory rate			$	30,776	35.0	%	$	25,194	35.0	%	$	23,584	35.0	%
Increase (decrease) resulting from:
	Tax exempt income, net			(3,929)	(4.5)			(3,606)	(5.0)			(3,457)	(5.1)
	Bank-owned life insurance			(841)	(0.9)			(862)	(1.1)			(900)	(1.3)
	State income taxes, net of federal income tax benefits			3,508	4.0			2,965	4.1			2,687	4.0
	Federal tax rate change			5,544	6.3			-	-			-	-
	Other, net			(332)	(0.4)			49	-			113	0.1
		Total income tax expense and rate	$	34,726	39.5	%	$	23,740	33.0	%	$	22,027	32.7	%

The Tax Cuts and Jobs Act (the Act) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21% for years beginning on or after January 1, 2018. The Company recorded a provisional amount to deferred tax expense of $5.5 million, which was primarily due to a re-measurement of deferred tax assets and liabilities at the newly enacted rate. Certain deferred tax assets and liabilities were re-measured based on the rates at which they are expected to reverse in the future, which is generally 21%. The Company is analyzing certain aspects of the Act along with the recently issued FASB guidance on reclassification of the tax effects stranded in OCI, which could potentially affect the measurement of these balances or give rise to new deferred tax amounts.