Income Taxes

(In Thousands)

Significant components of the provision for income taxes are as follows for the periods presented:



	Year Ended December 31,
	2018		2017		2016
Current
Federal	$	22,658	$	28,380	$	31,679
State	2,625		1,354		2,131
	25,283		29,734		33,810
Deferred
Federal	13,369		22,314		10,480
State	3,075		1,147		557
Revaluation of net deferred tax assets as a result of the Tax Cuts and Jobs Act	—		14,486		—
	16,444		37,947		11,037
	$	41,727	$	67,681	$	44,847

The reconciliation of income taxes computed at the United States federal statutory tax rates to the provision for income taxes is as follows, for the periods presented:



	Year Ended December 31,
	2018			2017			2016
Tax at U.S. statutory rate	$	39,616		$	55,955		$	47,522
Increase (decrease) in taxes resulting from:
Tax-exempt interest income	(1,433		)	(3,595		)	(3,467		)
BOLI income	(975		)	(1,524		)	(1,622		)
Investment tax credits	(1,863		)	(1,591		)	(1,390		)
Amortization of investment in low-income housing tax credits	1,592			1,873			1,742
State income tax expense, net of federal benefit	4,502			1,626			1,747
Revaluation of net deferred tax assets as a result of the Tax Cuts and Jobs Act	—			14,486			—
Other items, net	288			451			315
	$	41,727		$	67,681		$	44,847

Significant components of the Company’s deferred tax assets and liabilities are as follows for the periods presented:



	December 31,
	2018		2017
Deferred tax assets
Allowance for loan losses	$	14,097	$	13,966
Loans	18,655		15,062
Deferred compensation	10,001		7,093
Net unrealized losses on securities	6,180		3,659
Impairment of assets	1,280		1,748
Net operating loss carryforwards	19,065		2,419
Other	3,610		4,722
Gross deferred tax assets	72,888		48,669
Valuation allowance on state net operating loss carryforwards	—		—
Total deferred tax assets	72,888		48,669
Deferred tax liabilities
Investment in partnerships	1,572		757
Depreciation	3,865		3,163
Mortgage servicing rights	12,350		10,139
Subordinated debt	1,607		2,394
Other	1,792		1,859
Total deferred tax liabilities	21,186		18,312
Net deferred tax assets	$	51,702	$	30,357

The Tax Cuts and Jobs Act (the “Tax Act”), enacted on December 22, 2017, among other things, permanently lowered the statutory federal corporate tax rate from 35% to 21%, effective for tax years including or beginning January 1, 2018. Under the guidance of ASC 740, “Income Taxes” (“ASC 740”), the Company revalued its net deferred tax assets on the date of enactment based on the reduction in the overall future tax benefit expected to be realized at the lower tax rate implemented by the new legislation. After reviewing the Company's inventory of deferred tax assets and liabilities on the date of enactment and giving consideration to the future impact of the lower corporate tax rates and other provisions of the new legislation, the Company's revaluation of its net deferred tax assets was $14,486, which was included in “Income taxes” in the Consolidated Statements of Income for the year ended December 31, 2017. No further adjustments related to the Tax Act were required in 2018.

The Company and its subsidiaries file a consolidated U.S. federal income tax return. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending December 31, 2015 through 2017. The Company and its subsidiaries’ state income tax returns are open to audit under the statute of limitations for the years ended December 31, 2015 through 2017.

The Company acquired federal and state net operating losses as part of its previous acquisitions, with varying expiration periods. The federal and state net operating losses acquired in the Brand acquisition were $83,960 and approximately $67,168, respectively, all created in 2018. As part of the Tax Act and corresponding state tax laws, the federal net operating losses and the majority of the state net operating losses created by Brand during 2018 have an indefinite carryforward period. As of December 31, 2018, there are federal and state net operating losses, related to the Brand acquisition, without expiration periods of $71,963 of and $63,218, respectively. The federal and state net operating losses acquired in the Heritage acquisition were $18,321 and $16,877, respectively, of which $4,956 and $2,365 remain to be utilized as of December 31, 2018. These losses begin to expire in 2029 and are expected to be fully utilized. Because the benefits are expected to be fully realized, the Company recorded no valuation allowance against the net operating losses for the year end December 31, 2018.

The table below presents the breakout of net operating losses for the periods presented.



	December 31,
	2018		2017
Net Operating Losses
Federal	$	76,919	$	5,920
State	65,583		7,319

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest, related to federal and state income tax matters as of December 31 follows below. These amounts have been adjusted for the change in the tax rate from 35% to 21%.



	2018		2017			2016
Balance at January 1	$	1,606	$	1,510		$	1,485
Additions based on positions related to current period	313		467			25
Reductions due to lapse of statute of limitations	—		(371		)	—
Balance at December 31	$	1,919	$	1,606		$	1,510

If ultimately recognized, the Company does not anticipate any material increase in the effective tax rate for 2018 relative to any tax positions taken prior to January 1, 2018. The Company had accrued $244, $169 and $169 for interest and penalties related to unrecognized tax benefits as of December 31, 2018, 2017 and 2016, respectively.