Entity information:
19. INCOME TAXES
The Company and its subsidiaries are subject to U.S. federal income tax and state income tax in those jurisdictions where they operate. The Bank is not subject to state income tax in its primary place of business (Virginia), rather it is subject to Virgina franchise tax. The Company is no longer subject to examination by Federal or State taxing authorities for the years before December 31, 2013. As of December 31, 2016 and December 31, 2015 the Company did not have any unrecognized tax benefits. The Company does not expect the amount of any unrecognized tax benefits to significantly increase in the next twelve months. The Company recognizes interest related to income tax matters as interest expense and penalties related to income tax matters as other non-interest expense. As of December 31, 2016 and December 31, 2015, the Company does not have any amounts accrued for interest and/or penalties.

Table 19.1: Components of Income Tax Expense
 
For the Year Ended December 31,
 
2016
 
2015
 
2014
 
($ in thousands)
Current:
 
 
 
 
 
Federal
$
8,707

 
$
6,519

 
$
2,903

State
869

 
488

 
249

Total current tax expense (benefit)
$
9,576

 
$
7,007

 
$
3,152

Deferred:
 
 
 
 
 
Federal
$
881

 
$
(525
)
 
$
1,142

State
(326
)
 
(13
)
 
59

Total deferred tax expense (benefit)
$
555

 
$
(538
)
 
$
1,201

Total income tax expense (benefit)
$
10,131

 
$
6,469

 
$
4,353



Table 19.2: Components of Income Tax Expense (Benefit)
 
For the Year Ended December 31,
 
2016
 
2015
 
2014
 
($ in thousands)
Current tax expense (benefit)
$
9,576

 
$
7,007

 
$
3,152

Deferred tax expense (benefit)
555

 
(538
)
 
1,201

Tax expense (benefit) recorded in OCI
(1,383
)
 
(351
)
 
1,061

Total income tax expense/(benefit)
$
8,748

 
$
6,118

 
$
5,414



Table 19.3: Reconciliation of Income Tax Expense at Statutory Tax Rate to Actual Tax Expense
 
For the Year Ended December 31,
 
2016
 
2015
 
2014
 
($ in thousands)
Tax expense at statutory rate
$
9,848

 
$
6,553

 
$
4,684

Increase (decrease) due to:
 
 
 
 
 
State income tax, net of federal tax benefit
353

 
305

 
97

Deferred income tax expense rate change
35

 
(211
)
 
—

Earnings on bank-owned life insurance
(126
)
 
(131
)
 
(124
)
Tax-exempt interest, net
(35
)
 
(26
)
 
(35
)
Tax credits
(90
)
 
—

 
—

Nondeductible expenses
89

 
20

 
16

Stock option expense
135

 
56

 
29

Change in valuation allowance
(264
)
 
64

 
(432
)
Other
186

 
(161
)
 
118

Income tax expense
$
10,131

 
$
6,469

 
$
4,353

Statutory tax rate
35.0
%
 
35.0
%
 
34.0
%
Effective tax rate
36.0
%
 
34.5
%
 
31.6
%


Table 19.4: Components of Deferred Tax Assets and Liabilities
 
As of December 31,
 
2016
 
2015
 
($ in thousands)
Deferred tax assets:
 
 
 
Net operating loss carry forwards
$
2,120

 
$
2,987

Tax credit carry forwards
251

 
251

Unrealized losses on available-for-sale securities
1,492

 
110

Bad debts
5,018

 
4,507

Other real estate owned
59

 
—

Acquisition fair value adjustments
—

 
435

Nonaccrual loan interest
321

 
651

Compensation related
1,614

 
971

Deferred rent
940

 
574

Other
209

 
80

Valuation allowance
—

 
(264
)
Total deferred tax assets
12,024

 
10,302

Deferred tax liabilities:
 
 
 
Deferred loan costs
(1,795
)
 
(1,446
)
Acquisition fair value adjustments
(517
)
 
—

Depreciation
(653
)
 
(671
)
Intangibles amortization
(115
)
 
(69
)
Other
—

 
—

Total deferred tax liabilities
(3,080
)
 
(2,186
)
Net deferred tax assets
$
8,944

 
$
8,116



The net operating loss carry forward acquired in conjunction with the First Liberty Bancorp acquisition in 2006 is subject to annual limits under Section 382 of the Internal Revenue Code of $0.3 million and expires in 2025. In conjunction with the acquisition of Alliance in 2012, the net operating loss carry forward is subject to annual limits under Section 382 of the Internal Revenue Code of $0.8 million and begins to expire in 2029.
In accordance with ASC Topic 740, the Company may establish a reserve against deferred tax assets in those cases where realization is less than certain, although no such reserves exist at December 31, 2016.