Federal and State Income Taxes

12 Months Ended

Dec. 31, 2017

The Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017 and resulted in a decrease in the federal marginal corporate income tax rate from 35 percent to 21 percent beginning in 2018. As a result of the Tax Act, the Company incurred a one-time tax expense adjustment of $19,699,000 during 2017 due to the Company’s revaluation of the deferred tax assets and deferred tax liabilities (“net deferred tax asset”). This adjustment is reflected in the following tables.

The following table is a summary of consolidated income tax expense:


	Years ended
(Dollars in thousands)	December 31, 2019		December 31, 2018	December 31, 2017
Current
Federal	$	34,461	21,510	29,555
State	14,545		11,960	9,183
Total current income tax expense	49,006		33,470	38,738
Deferred ¹
Federal	(279)		5,372	22,246
State	(77)		1,489	3,641
Total deferred income tax (benefit) expense	(356)		6,861	25,887
Total income tax expense	$	48,650	40,331	64,625

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¹Includes tax benefit of operating loss carryforwards of $317,000, $443,000 and $644,000 for the years ended December 31, 2019, 2018, and 2017, respectively.

Combined federal and state income tax expense differs from that computed at the federal statutory corporate income tax rate as follows:


	Years ended
	December 31, 2019		December 31, 2018		December 31, 2017
Federal statutory rate	21.0	%	21.0	%	35.0	%
State taxes, net of federal income tax benefit	4.4	%	4.8	%	4.6	%
Tax rate change	—	%	—	%	10.9	%
Tax-exempt interest income	(3.7	%)	(5.0	%)	(10.5	%)
Tax credits	(4.5	%)	(4.2	%)	(3.2	%)
Other, net	1.6	%	1.6	%	(1.1	%)
Effective income tax rate	18.8	%	18.2	%	35.7	%

The tax effect of temporary differences which give rise to a significant portion of deferred tax assets and deferred tax liabilities are as follows:


(Dollars in thousands)	December 31, 2019		December 31, 2018
Deferred tax assets
Allowance for loan and lease losses	$	31,698	33,313
Operating lease liabilities	11,127		—
Deferred compensation	7,447		6,251
Employee benefits	6,646		5,652
Acquisition fair market value adjustments	5,480		6,380
Net operating loss carryforwards	2,209		2,525


Available-for-sale debt securities	—		2,244
Other	3,891		3,841
Total gross deferred tax assets	68,498		60,206
Deferred tax liabilities
Intangibles	(16,469)		(12,667)
Depreciation of premises and equipment	(13,987)		(10,776)
Available-for-sale debt securities	(13,652)		—
Operating lease ROU assets	(10,506)		—

Deferred loan costs	(7,311)		(6,436)

FHLB stock dividends	(1,486)		(2,722)
Other	(3,050)		(4,041)
Total gross deferred tax liabilities	(66,461)		(36,642)
Net deferred tax asset	$	2,037	23,564

The Company has federal net operating loss carryforwards of $8,038,000 expiring between 2030 and 2035. The Company has Colorado net operating loss carryforwards of $11,989,000 expiring between 2031 and 2032. The net operating loss carryforwards originated from acquisitions.

The Company and the Bank file consolidated income tax returns in the following jurisdictions: federal, Montana, Idaho, Utah, Colorado and Arizona. Wyoming, Washington and Nevada do not impose a corporate income tax. All required income tax returns have been timely filed. The following schedule summarizes the years that remain subject to examination as of December 31, 2019:


			Years ended December 31,
Federal			2005, 2008, 2010, 2011, 2012, 2013, 2016, 2017 and 2018
Montana			2016, 2017 and 2018
Idaho			2016, 2017 and 2018
Utah			2016, 2017 and 2018
Colorado			2010, 2011, 2012, 2015, 2016, 2017 and 2018
Arizona			2015, 2016, 2017 and 2018

The Company had no unrecognized income tax benefits as of December 31, 2019 and 2018. The Company recognizes interest related to unrecognized income tax benefits in interest expense and penalties are recognized in other expense. Interest expense and penalties recognized with respect to income tax liabilities for the years ended December 31, 2019, 2018, and 2017 was not significant. The Company had no accrued liabilities for the payment of interest or penalties at December 31, 2019 and 2018.

The Company has assessed the need for a valuation allowance and determined that a valuation allowance was not necessary at December 31, 2019 and 2018. The Company believes that it is more-likely-than-not that the Company’s deferred tax assets will be realizable by offsetting future taxable income from reversing taxable temporary differences and anticipated future taxable income (exclusive of reversing temporary differences). In its assessment, the Company considered its strong earnings history, no history of income tax credit carryforwards expiring unused, and no expected future net operating losses (for tax purposes).