The Company calculates its provision for federal and state income taxes based on current tax law. The reported tax provision differs from the amounts currently receivable or payable because some income and expense items are recognized

in different time periods for financial reporting purposes than for income tax purposes. The following is a summary of income tax expense for the years ended December 31, 2019, 2018, and 2017:

Excess tax benefits recognized for the years ended December 31, 2019, 2018, and 2017 reduced income tax expense by $4.6 million, $6.8 million, and $9.5 million, respectively. In the reconciliation of income tax expense presented below, the reduction of income tax expense from excess tax benefits recognized is included as a component of the “Other” line item.

In December 2017, the Tax Cuts and Jobs Act (“Tax Reform”) was enacted. The Tax Reform significantly reduced the federal income tax rate from 35.0% to 21.0%. GAAP requires an entity to account for the impact of a tax law change in the period of enactment. Accordingly, as of December 31, 2017, the Company revalued its deferred tax assets and deferred tax liabilities using the new federal income tax rate of 21.0%, which is the rate at which the Company expects the deferred assets and liabilities to reverse in the future. Deferred tax assets decreased as the future benefit from these assets will be less than previously expected, resulting in an increase to deferred tax expense for the year ended December 31, 2017. Deferred tax liabilities also decreased as the future payment of taxes from these liabilities will be less than previously expected, resulting in a decrease to deferred tax expense for the year ended December 31, 2017. As the Company had more deferred tax liabilities than deferred tax assets as of December 31, 2017, the impact of Tax Reform on deferred tax expense for the year ended December 31, 2017 was an overall significant decrease in deferred tax expense as shown above.

Tax Reform changed the rules related to the deductibility of executive compensation under the provisions of Section 162(m) of the Internal Revenue Code (“162(m)”). Tax Reform also contains provisions for determining whether compensation agreements executed prior to Tax Reform follow the 162(m) guidance prior or subsequent to Tax Reform. During the third quarter of 2018, the Treasury Department issued initial guidance for determining, among other things, whether a compensation agreement in place prior to Tax Reform follows the 162(m) guidance prior or subsequent to Tax Reform. Based on the information available as of December 31, 2019 and 2018, the Company believed that it may be more likely than not these compensation agreements will follow the guidance subsequent to Tax Reform, resulting in no tax deductibility for the book expense associated with these compensation agreements. Accordingly, as of December 31, 2018, the Company recorded a 100% valuation allowance on the associated deferred tax assets, resulting in a $2.8 million charge to deferred tax expense for the year ended December 31, 2018, which increased the effective tax rate by 1.3%. During the year ended December 31, 2019, performance awards for executives for which the Company had previously recorded a valuation allowance vested, resulting in a decrease in deferred tax assets and the reversal of the corresponding valuation allowance of $1.8 million.

A reconciliation of the statutory federal tax expense to the income tax expense in the accompanying statements of income follows:

(1)	The statutory federal rate was 21% for the year ended December 31, 2019 and 2018 and 35% for the year ended December 31, 2017.

Deferred Tax Assets/Liabilities

The tax effects of temporary differences between reported earnings and taxable earnings consisted of the following:


	As of December 31,
Components of Deferred Tax Liabilities, Net (in thousands)	2019		2018
Deferred Tax Assets
Compensation related	$	8,227	$	16,753
Credit losses		3,133		1,202
Valuation allowance		(1,049)		(2,838)
Total deferred tax assets	$	10,311	$	15,117

Deferred Tax Liabilities
Mark-to-market of derivatives and loans held for sale	$	(5,396)	$	(8,582)
Mortgage servicing rights related		(139,115)		(125,084)
Acquisition related (1)		(7,292)		(4,396)
Depreciation		(1,812)		(2,005)
Other		(3,507)		(592)
Total deferred tax liabilities	$	(157,122)	$	(140,659)
Deferred tax liabilities, net	$	(146,811)	$	(125,542)

(1)	Acquisition-related deferred tax liabilities consist of book-to-tax differences associated with basis step ups related to the amortization of goodwill recorded from acquisitions, acquisition-related costs capitalized for tax purposes, and book-to-tax differences in intangible asset amortization.

The Company believes it is more likely than not that it will generate sufficient taxable income in future periods to realize the deferred tax assets.

Tax Uncertainties

The Company periodically assesses its liabilities and contingencies for all periods open to examination by tax authorities based on the latest available information. Where the Company believes it is more likely than not that a tax position will not be sustained, management records its best estimate of the resulting tax liability, including interest, in the consolidated financial statements. As of December 31, 2019, based on all known facts and circumstances and current tax law, management believes that there are no tax positions for which it is reasonably possible that the unrecognized tax benefits will significantly increase or decrease over the next 12 months, producing, individually or in the aggregate, a material effect on the Company’s results of operations, financial condition, or cash flows.