Income Taxes

12 Months Ended

Dec. 31, 2018

Note 14 – Income Taxes

The income tax provision included in the consolidated statements of income was as follows for the periods presented ($ in thousands):

	Years Ended December 31,
	2018		2017			2016
Current
Federal	$	4,532	$	16,959		$	10,355
State		5,997		5,687			2,698
Deferred
Federal		9,392		7,280			15,647
State		2,348		1,820			2,353
Income tax provision excluding deferred tax asset revaluation and reversal of valuation allowance		22,269		31,746			31,053

Deferred tax expense (benefit) - re-measurement of deferred tax assets		—		25,619			—
Deferred tax expense (benefit) - reversal of valuation allowance		—		(8,650	)		—
Income tax provision	$	22,269	$	48,715		$	31,053

Trustmark maintained a valuation allowance for deferred tax assets of $8.7 million at December 31, 2016 that was related to unrealized built-in losses from a prior acquisition. Trustmark determined that based on the weight of the available evidence that it is more likely than not that all deferred tax assets will be realized as of December 31, 2017. Therefore, the valuation allowance was reversed as of December 31, 2017, resulting in a decrease of $8.7 million to income tax expense for the year.

The re-measurement of the deferred tax assets and liabilities during 2017 resulted from the enactment of the Tax Reform Act, which was signed into law on December 22, 2017. Under the Tax Reform Act, corporate statutory income tax rates were reduced from 35.0% to 21.0% effective January 1, 2018. Trustmark re-measured its deferred tax assets and liabilities to reflect the future realization of these assets and liabilities at the lower tax rate. This re-measurement resulted in an increase to tax expense and a decrease to the net deferred tax asset of $25.6 million for the year ended December 31, 2017.

For the periods presented, the income tax provision differs from the amount computed by applying the statutory federal income tax rate in effect for each respective period to income before income taxes as a result of the following ($ in thousands):

	Years Ended December 31,
	2018			2017			2016
Income tax computed at statutory tax rate	$	36,089		$	54,021		$	48,812
Tax exempt interest		(4,533	)		(7,611	)		(6,780	)
Nondeductible interest expense		416			407			201
State income taxes, net		4,738			3,697			1,754
Income tax credits, net		(15,404	)		(15,793	)		(16,183	)
Death benefit gains		(268	)		(3,268	)		—
Reversal of valuation allowance		—			(8,650	)		—
Re-measurement of deferred tax assets		—			25,619			—
Other		1,231			293			3,249
Income tax provision	$	22,269		$	48,715		$	31,053

Temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities gave rise to the following net deferred tax assets at December 31, 2018 and 2017, which are included in other assets on the accompanying consolidated balance sheets ($ in thousands):

	December 31,
	2018		2017
Deferred tax assets:
Loan purchase accounting	$	1,564	$	3,638
Other real estate		7,284		13,403
Allowance for loan losses		20,638		20,203
Deferred compensation		15,607		15,184
Realized built-in losses		12,182		12,932
Securities		3,929		4,869
Pension and other postretirement benefit plans		4,108		5,453
Interest on nonaccrual loans		806		774
Unrealized losses on securities available for sale		10,679		5,874
Stock-based compensation		2,192		2,067
Federal carryovers		1,606		4,569
Other		9,179		8,964
Gross deferred tax asset		89,774		97,930

Deferred tax liabilities:
Goodwill and other identifiable intangibles		16,229		16,729
Premises and equipment		12,109		11,877
Mortgage servicing rights		14,415		9,964
Securities		1,519		1,345
Other		5,600		5,040
Gross deferred tax liability		49,872		44,955
Net deferred tax asset	$	39,902	$	52,975

The following table provides a summary of the changes during the 2018 calendar year in the amount of unrecognized tax benefits that are included in other liabilities in the consolidated balance sheet ($ in thousands):

Balance at January 1, 2018	$	1,105
Change due to tax positions taken during the current year		282
Change due to tax positions taken during a prior year		56
Change due to the lapse of applicable statute of limitations during the current year		(194	)
Change due to settlements with taxing authorities during the current year		—
Balance at December 31, 2018	$	1,249

Accrued interest, net of federal benefit, at December 31, 2018	$	212

Unrecognized tax benefits that would impact the effective tax rate, if recognized, at December 31, 2018	$	988

Interest and penalties related to unrecognized tax benefits, if any, are recorded in income tax expense. With limited exception, Trustmark is no longer subject to U.S. federal, state and local audits by tax authorities for 2012 and earlier tax years. Trustmark does not anticipate a significant change to the total amount of unrecognized tax benefits within the next twelve months.