BANK MUTUAL CORP

12. Income Taxes

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and Wisconsin and Minnesota. The Company is no longer subject to U.S. federal and state income tax examinations for years prior to 2013 and 2012, respectively. If any interest and/or penalties would be imposed by an appropriate taxing authority, the Company would report the interest component as a reduction of income before income taxes and would report penalties through income tax expense. The Company had no material uncertain tax positions and had not recorded a liability for unrecognized tax benefits as of or during the three years ended December 31, 2016.

The Company’s provision for income taxes consists of the following for the periods indicated:

	Year Ended December 31
	2016		2015		2014
Current income tax expense:
Federal	$	6,835	$	201	$	476
State		152		6		824
Current income tax expense		6,987		207		1,300
Deferred income tax expense:
Federal		1,253		6,450		5,888
State		1,872		1,678		1,662
Deferred income tax expense		3,125		8,128		7,550
Income tax expense	$	10,112	$	8,335	$	8,850

Income tax expense differs from the provision computed at the federal statutory corporate rate as follows:

	Year Ended December 31
	2016		2015		2014
Income before income taxes	$	27,066	$	22,512	$	23,504
Tax expense at federal statutory rate	$	9,473	$	7,879	$	8,230
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax benefit		1,316		1,095		1,095
Bank-owned life insurance		(636)		(654)		(977)
State income tax settlement, net of federal benefit		–		–		518
Other		(41)		15		(16)
Income tax expense	$	10,112	$	8,335	$	8,850

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company’s deferred tax assets and liabilities are summarized as follows:

	December 31
	2016		2015
Deferred tax assets:
Loan loss reserves	$	8,005	$	7,082
Pension		7,177		7,407
State net operating losses		2,073		3,532
Deferred compensation		1,719		1,766
Non-deductible losses on foreclosed real estate		1,008		1,431
Restricted stock amortization		589		458
Unrealized loss on investment securities		213		–
Other-than-temporary impairment of investment securities		185		237
Federal net operating losses and AMT credits		–		3,136
Other		1,489		1,317
Total deferred tax assets		22,458		26,366
Deferred tax liabilities:
Mortgage servicing rights		2,636		2,892
Purchase accounting adjustments		2,325		2,575
Property and equipment depreciation		1,332		2,395
FHLB stock dividends		1,200		1,200
Unrealized gain on investment securities		–		483
Other		422		336
Total deferred tax liabilities		7,915		9,881
Net deferred tax asset	$	14,543	$	16,485

As of December 31, 2016, the Company had $40,387 in net operating loss carryovers for state income tax purposes. The net operating loss carryovers expire in various years through 2031 if unused.