Income Taxes

12 Months Ended

Dec. 31, 2019

Tax Cuts and Jobs Act. The Tax Cuts and Jobs Act was enacted on December 22, 2017. Among other things, the new law (i) established a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminated the corporate alternative minimum tax and allowed the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limited the deduction for net interest expense incurred by U.S. corporations, (iv) allowed businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminated or reduced certain deductions related to meals and entertainment expenses, (vi) modified the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarified the definition of a covered employee and (vii) limited the deductibility of deposit insurance premiums. The Tax Cuts and Jobs Act also significantly changes U.S. tax law related to foreign operations, however, such changes do not currently impact us.

Income Taxes. Income tax expense was as follows:



	2019			2018			2017
Current income tax expense	$	48,256		$	840		$	58,707
Deferred income tax expense (benefit)	7,614			52,923			(14,493		)
Income tax expense, as reported	$	55,870		$	53,763		$	44,214

Effective tax rate	11.2		%	10.6		%	10.8		%

A reconciliation between reported income tax expense and the amounts computed by applying the U.S. federal statutory income tax rate of 21% in 2019 and 2018 and 35% in 2017 to income before income taxes is presented in the following table.



	2019			2018			2017
Income tax expense computed at the statutory rate	$	104,888		$	106,823		$	142,927
Effect of tax-exempt interest	(49,166		)	(49,700		)	(81,034		)
Tax benefit on dividends paid in our 401k plan	(1,743		)	(1,551		)	(2,372		)
Bank owned life insurance income	(774		)	(710		)	(1,116		)
Non-deductible compensation	1,708			210			158
Non-deductible FDIC premiums	1,267			1,771			—
Non-deductible meals and entertainment	1,299			1,193			983
Net tax benefit from stock-based compensation	(2,447		)	(3,865		)	(9,062		)
Deferred tax adjustment related to reduction in U.S. federal statutory income tax rate	—			(231		)	(4,047		)
Correction for prior year tax-exempt interest	—			—			(2,906		)
Other	838			(177		)	683
Income tax expense, as reported	$	55,870		$	53,763		$	44,214

Income tax expense for 2017 was impacted by the adjustment of our deferred tax assets and liabilities related to the reduction in the U.S. federal statutory income tax rate to 21% under the Tax Cuts and Jobs Act. As a result of the new law, and as detailed in the table above, we recognized a provisional net tax benefit totaling $4.0 million in 2017 and an additional net tax benefit resulting from a finalization of those calculations totaling $231 thousand in 2018. Income tax expense for 2017 was also impacted by the correction of an over-accrual of taxes that resulted from incorrectly classifying certain tax-exempt loans as taxable for federal income tax purposes since 2013. As a result, we recognized tax benefits of $2.9 million in 2017 related to the 2013 through 2016 tax years, as detailed in the table above. There were no unrecognized tax benefits during any of the reported periods. Interest and/or penalties related to income taxes are reported as a component of income tax expense. Such amounts were not significant during the reported periods.

Year-end deferred taxes are presented in the table below. Deferred taxes are based on the U.S. statutory federal income tax rate of 21%.



	2019			2018
Deferred tax assets:
Lease liabilities under operating leases	$	67,975		$	—
Allowance for loan losses	27,755			27,748
Net actuarial loss on defined benefit post-retirement benefit plans	12,210			12,626
Stock-based compensation	11,211			10,622
Bonus accrual	5,055			4,586
Net unrealized loss on securities available for sale and transferred securities	—			4,283
Deferred loan and lease origination fees	2,254			2,153
Other	2,163			4,761
Total gross deferred tax assets	128,623			66,779
Deferred tax liabilities:
Net unrealized gain on securities available for sale and transferred securities	(83,281		)	—
Right-of-use assets under operating leases	(63,463		)	—
Premises and equipment	(29,730		)	(23,859		)
Intangible assets	(12,642		)	(10,726		)
Defined benefit post-retirement benefit plans	(9,419		)	(9,452		)
Partnership interests	(2,894		)	—
Leases	(1,572		)	(1,709		)
Other	(1,440		)	(1,257		)
Total gross deferred tax liabilities	(204,441		)	(47,003		)
Net deferred tax asset (liability)	$	(75,818	)	$	19,776

No valuation allowance for deferred tax assets was recorded at December 31, 2019 and 2018 as management believes it is more likely than not that all of the deferred tax assets will be realized against deferred tax liabilities and projected future taxable income. There were no unrecognized tax benefits during any of the reported periods.

We file income tax returns in the U.S. federal jurisdiction. We are no longer subject to U.S. federal income tax examinations by tax authorities for years before 2016.