Income Taxes

12 Months Ended

Dec. 31, 2019

(In Thousands)

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



	Year Ended December 31,
	2019		2018		2017
Current
Federal	$	23,786	$	22,658	$	28,380
State	4,264		2,625		1,354
	28,050		25,283		29,734
Deferred
Federal	17,331		13,369		22,314
State	2,710		3,075		1,147
Revaluation of net deferred tax assets as a result of the Tax Cuts and Jobs Act	—		—		14,486
	20,041		16,444		37,947
	$	48,091	$	41,727	$	67,681

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,
	2019			2018			2017
Tax at U.S. statutory rate	$	45,294		$	39,616		$	55,955
Increase (decrease) in taxes resulting from:
Tax-exempt interest income	(1,205		)	(1,433		)	(3,595		)
BOLI income	(1,283		)	(975		)	(1,524		)
Investment tax credits	(1,863		)	(1,863		)	(1,591		)
Amortization of investment in low-income housing tax credits	1,575			1,592			1,873
State income tax expense, net of federal benefit	5,509			4,502			1,626
Revaluation of net deferred tax assets as a result of the Tax Cuts and Jobs Act	—			—			14,486
Other items, net	64			288			451
	$	48,091		$	41,727		$	67,681

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



	December 31,
	2019		2018
Deferred tax assets
Allowance for loan losses	$	14,304	$	14,097
Loans	10,284		18,655
Deferred compensation	12,050		10,001
Net unrealized losses on securities	—		6,180
Impairment of assets	1,108		1,280
Net operating loss carryforwards	9,387		19,065
Lease liabilities under operating leases	22,686		—
Other	934		9,800
Total deferred tax assets	70,753		79,078
Deferred tax liabilities
Net unrealized gains on securities	190		—
Investment in partnerships	967		1,572
Fixed assets	2,952		3,865
Mortgage servicing rights	13,472		12,350
Junior subordinated debt	2,304		1,607
Intangibles	—		6,190
Lease right-of-use asset	21,727		—
Other	1,859		1,792
Total deferred tax liabilities	43,471		27,376
Net deferred tax assets	$	27,282	$	51,702

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 2019 or 2018.

The effective tax rate was 22.30% and 22.12% for the year ended December 31, 2019 and 2018, respectively. 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, 2016 through 2018. The Company and its subsidiaries’ state income tax returns are open to audit under the statute of limitations for the years ended December 31, 2016 through 2018.

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 $81,288 and approximately $55,067, 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, 2019, there are federal and state net operating losses without expiration periods, related to the Brand acquisition, of $32,014 and $36,973, respectively. The federal and state net operating losses acquired in the Heritage acquisition were $18,321 and $16,849, respectively, of which $3,992 and $3,313 remain to be utilized as of December 31, 2019. 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, 2019.

The table below presents the breakout of net operating losses as of the dates presented.



	December 31,
	2019		2018
Net Operating Losses
Federal	$	36,006	$	76,919
State	40,806		65,583

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%.



	2019			2018		2017
Balance at January 1	$	1,919		$	1,606	$	1,510
Additions based on positions related to current period	158			313		467
Reductions based on positions related to prior period	(1,410		)	—		—
Reductions due to lapse of statute of limitations	—			—		(371		)
Balance at December 31	$	667		$	1,919	$	1,606

If ultimately recognized, the Company does not anticipate any material increase in the effective tax rate for 2019 relative to any tax positions taken prior to January 1, 2019. The Company had accrued $105, $244 and $169 for interest and penalties related to unrecognized tax benefits as of December 31, 2019, 2018 and 2017, respectively.