Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Provision for Federal Income Taxes Components

The current and deferred components of the provision for income taxes were as follows:



	Years Ended December 31,
(Dollars in thousands)	2018			2017			2016
Current income tax expense (benefit)
Federal	$	(653	)	$	14,665		$	19,144
State	321			20			(423		)
Total current income tax expense	(332		)	14,685			18,721
Deferred income tax expense
Federal	41,687			92,636			23,649
State	229			548			442
Total deferred income tax expense	41,916			93,184			24,091
Change in valuation allowance	317			(1,089		)	(706		)
Income tax provision	$	41,901		$	106,780		$	42,106

Schedule of Federal Effective Income Tax Rate Reconciliation

A reconciliation of expected income tax expense at the federal statutory income tax rate and the amounts recorded in the Consolidated Financial Statements were as follows:



	Years Ended December 31,
	2018					2017					2016
(Dollars in thousands)	Amount			Rate		Amount			Rate		Amount			Rate
Tax at statutory rate	$	68,443		21.0	%	$	89,706		35.0	%	$	52,548		35.0	%
Changes resulting from:
Tax-exempt interest income	(6,513		)	(2.0	)	(9,001		)	(3.5	)	(5,320		)	(3.5	)
State taxes, net of federal benefit	434			0.1		369			0.1		13			—
Change in valuation allowance	317			0.1		(1,089		)	(0.4	)	(706		)	(0.5	)
Bank-owned life insurance adjustments	(838		)	(0.2	)	(1,696		)	(0.7	)	(832		)	(0.6	)
Director plan change in control	—			—		—			—		(508		)	(0.3	)
Income tax credits, net	(16,148		)	(4.9	)	(11,449		)	(4.4	)	(2,454		)	(1.6	)
Nondeductible transaction expenses				—		156			0.1		2,100			1.4
Nondeductible FDIC insurance premiums	1,095			0.3		—			—		—			—
Tax benefit in excess of compensation costs on share-based payments⁽¹⁾	(1,782		)	(0.5	)	(5,886		)	(2.3	)	(2,240		)	(1.5	)
Impact of the Tax Cuts and Jobs Act⁽²⁾	(2,939		)	(0.9	)	46,660			18.2		—			—
Other, net	(168		)	(0.1	)	(990		)	(0.4	)	(495		)	(0.4	)
Income tax expense	$	41,901		12.9	%	$	106,780		41.7	%	$	42,106		28.0	%


⁽¹⁾	Represents excess tax benefits resulting from the exercise or settlement of share-based payment transactions.

⁽²⁾

The year ended December 31, 2017 included the initial calculated impact of the enactment of H.R.1 (the "Tax Cuts and Jobs Act"), which required a revaluation of net deferred tax assets and liabilities. The year ended December 31, 2018 included the impact of analyzing additional information in the year following the enactment date of the Tax Cuts and Jobs Act that was not previously available, as allowed by Staff Accounting Bulletin (SAB) No. 118, issued in late December 2017. See below for further details.

Schedule of Deferred Tax Assets and Liabilities

The significant components of the deferred tax assets and liabilities at December 31, 2018 and 2017 were as follows:



	December 31,
(Dollars in thousands)	2018			2017
Deferred tax assets:
Allowance for loan losses	$	24,019		$	20,446
Acquisition-related fair value adjustments	16,511			27,607
Unrealized loss on securities	10,040			2,751
Accrued stock-based compensation	3,239			4,082
Loss and tax credit carry forwards	30,169			57,969
Nonaccrual loan interest	10,830			6,155
Accrued expense	7,397			9,200
Other	4,888			9,330
Total deferred tax assets	107,093			137,540
Deferred tax liabilities:
Loan servicing rights	14,941			13,446
Core deposit intangible assets	4,966			6,022
Goodwill	4,281			4,076
Deferred loan fees	4,963			4,551
Prepaid expenses	5,625			7,390
Other	5,894			3,184
Total deferred tax liabilities	40,670			38,669
Net deferred tax asset before valuation allowance	66,423			98,871
Valuation allowance	(1,467		)	(1,150		)
Net deferred tax asset	$	64,956		$	97,721

Summary of the loss attributes, Section 382 limitations, and tax expiration periods

The following table is a summary of the loss attributes, Section 382 limitations, and tax expiration periods as of December 31, 2018.



	From the Acquisition of:
				Talmer Bancorp and Talmer Bank Prior Ownership Changes
(Dollars in thousands)	Monarch			First Place Holdings/First Place Bank			Talmer West Bank		First of Huron Corp./Signature Bank		From 2009 Ownership change			Not Limited by Section 382			Total
Tax Loss and Credit Carryforwards as of 12/31/18:
Years Expiring (except AMT Credits)	2026-2034			2027-2031			2028-2032		2029-2032		2027-2029
Annual Section 382 limitation-base⁽¹⁾	$	673		$	6,650		$	3,028	$	365	$	145		$	—		$ N/A
Gross Federal Net Operating Losses	12,350			—			41,039		247		1,595			—			55,231
Gross Capital Losses	—			—			—		—		—			6,987			6,987
Realized Built-in Losses	—			61,317			8,936		—		—			—			70,253
Business Tax Credits	1,651			781			—		—		—			—			2,432
Less amounts not recorded due to Sec 382 Limitation	(1,738		)	(140		)	—		—		(145		)	—			(2,023	)
Alternative Minimum Tax Credits - no expiration	106			2,115			—		303		—			—			2,524
Valuation Allowance	—			—			—		—		—			(1,467		)	(1,467	)


⁽¹⁾	In respect to the Monarch acquisition, in addition to the statutory "base" Section 382 limitation, recognized built in gain increases the Section 382 limitation during the five year period beginning on the acquisition date. The Corporation estimates that the recognized built in gain will total $1.6 million.