Income Taxes

12 Months Ended

Dec. 31, 2019

The following table presents the components of income tax provision included in the Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017:


(in thousands)	Current		Deferred		Total
Year ended December 31, 2019:
Federal	$	90,227	$	(5,123)	$	85,104
State	28,125		1,579		29,704
Total provision for income taxes	$	118,352	$	(3,544)	$	114,808
Year ended December 31, 2018:
Federal	$	68,651	$	11,655	$	80,306
State	18,960		7,157		26,117
Total provision for income taxes	$	87,611	$	18,812	$	106,423
Year ended December 31, 2017:
Federal	$	19,287	$	66,559	$	85,846
State	10,015		10,869		20,884
Total provision for income taxes	$	29,302	$	77,428	$	106,730

The following table presents a reconciliation of income taxes computed at the Federal statutory rate to the actual effective rate for the years ended December 31, 2019, 2018 and 2017:


	2019		2018		2017
Statutory Federal income tax rate	21.0	%	21.0	%	35.0	%
State tax, net of Federal benefit	5.0	%	5.0	%	4.0	%
Nondeductible FDIC premiums	0.2	%	0.3	%	—	%
Nondeductible executive compensation	—	%	0.1	%	0.3	%
Tax-exempt income	(1.2)	%	(1.2)	%	(2.0)	%
BOLI	(0.4)	%	(0.4)	%	(1.0)	%

Revaluation effect of the Tax Cuts and Jobs Act of 2017	—	%	—	%	(5.8)	%
Other	(0.1)	%	0.4	%	0.1	%
Effective income tax rate	24.5	%	25.2	%	30.6	%

The following table reflects the effects of temporary differences that give rise to the components of the net deferred tax liabilities recorded on the consolidated balance sheets as of December 31, 2019 and 2018:


(in thousands)	December 31, 2019		December 31, 2018
Deferred tax assets:
Allowance for loan and lease losses	$	41,176	$	37,767
Operating lease liabilities	30,750		—
Accrued severance and deferred compensation	16,131		15,378
Acquired loans	9,953		14,342
Accrued bonuses	6,993		7,936






State taxes	5,906		3,639
Unrealized losses on investment securities	—		15,086
Other	10,737		14,023
Total gross deferred tax assets	121,646		108,171
Deferred tax liabilities:
Residential mortgage servicing rights	30,901		44,598
Direct financing leases	29,741		22,640
Operating lease right-of-use asset	28,506		—
Fair market value adjustment on junior subordinated debentures	27,404		20,752

Deferred loan fees and costs	21,450		19,841
Goodwill	11,703		9,880

Unrealized gains on investment securities	8,014		—

Other	15,765		15,216
Total gross deferred tax liabilities	173,484		132,927
Valuation allowance	(1,090)		(1,090)
Net deferred tax liabilities	$	(52,928)	$	(25,846)

The Company believes it is more likely than not that the benefit from certain state net operating loss ("NOL") carryforwards will not be realized and therefore has provided a valuation allowance of $1.1 million as of both December 31, 2019 and 2018, on the deferred tax assets relating to these state NOL carryforwards. The Company has determined that no other valuation allowance for the remaining deferred tax assets is required as management believes it is more likely than not that the remaining gross deferred tax assets, net of the valuation allowance, of $120.6 million and $107.1 million at December 31, 2019 and 2018, respectively, will be realized principally through future reversals of existing taxable temporary differences. Management further believes that future taxable income will be sufficient to realize the benefits of temporary deductible differences that cannot be realized through carry-back to prior years or through the reversal of future temporary taxable differences.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, as well as the majority of states and Canada. The Company is no longer subject to U.S. and Canadian tax examinations for years before 2016, and is no longer subject to state tax examinations for years before 2015, with the exception of California, where the statute is still open for tax years 2012 and 2013.

The Company periodically reviews its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This review takes into consideration the status of current taxing authorities' examinations of the Company's tax returns, recent positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment.

The Company had gross unrecognized tax benefits in the amounts of $4.3 million and $5.0 million recorded as of December 31, 2019 and 2018, respectively. If recognized, the unrecognized tax benefit would reduce the 2019 annual effective tax rate by 0.8%. Interest on unrecognized tax benefits is reported by the Company as a component of tax expense. As of December 31, 2019 and 2018, the accrued interest related to unrecognized tax benefits is $70,000 and $351,000, respectively.

During 2019, a settlement was entered into with California for the 2005 to 2011 tax years resulting in the reversal of $516,000 of gross unrecognized tax benefits. The 2019 gross unrecognized tax benefits also includes a $183,000 reversal related to a partial refund for amended returns filed with California for the 2012 and 2013 tax years, for which $1.7 million of unrecognized tax benefits was recorded in 2018.

Detailed below is a reconciliation of the Company's gross unrecognized tax benefits for the years ended December 31, 2019 and 2018, respectively:


(in thousands)	2019		2018
Balance, beginning of period	$	4,971	$	3,079

Changes for tax positions of current year	34		165
Changes for tax positions of prior years	—		1,727
Settlement	(698)		—

Balance, end of period	$	4,307	$	4,971