Income Taxes

Income tax expense for the years ended December 31, 2016, 2015 and 2014 consists of the following:



	Year Ended December 31,
	2016			2015		2014
	(In Thousands)
Current:
Federal	$	2,839		$	5,881	$	4,235
State	425			1,338		1,459
Current tax expense	3,264			7,219		5,694
Deferred:
Federal	(1,000		)	1,036		1,299
State	(108		)	122		90
Deferred tax (benefit) expense	(1,108		)	1,158		1,389
Total income tax expense	$	2,156		$	8,377	$	7,083

Deferred income tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax basis. Net deferred tax assets are included in accrued interest receivable and other assets in the Consolidated Balance Sheets.

The significant components of the Corporation’s deferred tax assets and liabilities were as follows:



	December 31, 2016		December 31, 2015
	(In Thousands)
Deferred tax assets:
Allowance for loan and lease losses	$	8,177	$	6,422
SBA recourse reserve	720		—
Excess book basis over tax basis for net assets acquired	336		697
Deferred compensation	951		1,305
State net operating loss carryforwards	548		666
Non-accrual loan interest	815		813
Capital loss carryforwards	32		33
Unrealized losses on securities	349		50
Other	394		342
Total deferred tax assets before valuation allowance	12,322		10,328
Valuation allowance	—		(68		)
Total deferred tax assets	12,322		10,260
Deferred tax liabilities:
Leasing and fixed asset activities	7,389		6,878
Loan servicing asset	780		612
Other	101		137
Total deferred tax liabilities	8,270		7,627
Net deferred tax asset	$	4,052	$	2,633

The tax effects of unrealized gains and losses on securities are components of other comprehensive income. A reconciliation of the change in net deferred tax assets to deferred tax expense as of December 31, 2016, 2015 and 2014 was as follows:



	December 31, 2016			December 31, 2015			December 31, 2014
	(In Thousands)
Change in net deferred tax assets	$	1,419		$	(970	)	$	(119	)
Deferred taxes allocated to other comprehensive income	(311		)	(188		)	352
Acquired deferred tax assets	—			—			(1,622		)
Deferred income tax benefit (expense)	$	1,108		$	(1,158	)	$	(1,389	)

Realization of the deferred tax asset over time is dependent upon the Corporation generating sufficient taxable earnings in future periods. In making the determination that the realization of the deferred tax was more likely than not, the Corporation considered several factors including its recent earnings history, its expected earnings in the future, appropriate tax planning strategies and expiration dates associated with operating loss carry forwards.

The Corporation had state net operating loss carryforwards of approximately $10.7 million and $12.9 million at December 31, 2016 and 2015, respectively, which can be used to offset future state taxable income. The Corporation believes it will be able to fully utilize its Wisconsin state net operating losses under this law and therefore no valuation allowance has been established as of December 31, 2016.

The provision for income taxes differs from that computed at the federal statutory corporate tax rate as follows:



	Year Ended December 31,
	2016			2015			2014
	(Dollars in Thousands)
Income before income tax expense	$	17,065		$	24,891		$	21,222
Tax expense at statutory federal rate of 35%, 34.42% and 34% applied to income before income tax expense, respectively	$	5,973		$	8,568		$	7,305
State income tax, net of federal effect	206			968			1,000
Tax-exempt security and loan income, net of TEFRA adjustments	(1,114		)	(879		)	(736		)
Bank-owned life insurance	(341		)	(330		)	(296		)
Non-deductible transaction costs	—			—			124
Tax credits, net	(2,696		)	(246		)	(375		)
Other	128			296			61
Total income tax expense	$	2,156		$	8,377		$	7,083
Effective tax rate	12.63		%	33.65		%	33.38		%

As of December 31, 2016, there were no uncertain tax positions outstanding. The summary of all of the Corporation’s uncertain tax positions totaled $27,000 at December 31, 2015. There were no material additions to or reductions from these uncertain tax positions for the year ended December 31, 2016. As of December 31, 2016, tax years remaining open for the State of Wisconsin tax were 2012 through 2015. Federal tax years that remained open were 2013 through 2015. As of December 31, 2016, there were also no unrecognized tax benefits that are expected to significantly increase or decrease within the next twelve months.