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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The aggregate amount of income taxes included in the Consolidated Statements of Income and the Consolidated Statements of Equity for the years ended December 31, were as follows:
(Dollars in thousands) |  | 2019 |  | 2018 |  | 2017
Consolidated Statements of Income: |  |  |  |  |  |
Income tax expense/(benefit) |  | $ | 133,291 |  |  | $ | 157,602 |  |  | $ | 131,892 |
Consolidated Statements of Equity: |  |  |  |  |  |  |  |  |
Income tax expense/(benefit) related to: |  |  |  |  |  |  |  |  |
Net unrealized gains/(losses) on pension and other postretirement plans |  | 4,876 |  |  | (177 | ) |  | (832 | )
Net unrealized gains/(losses) on securities available-for-sale |  | 35,062 |  |  | (16,054 | ) |  | (2,955 | )
Net unrealized gains/(losses) on cash flow hedges |  | 5,035 |  |  | (1,360 | ) |  | (3,163 | )
Total |  | $ | 178,264 |  |  | $ | 140,011 |  |  | $ | 124,942 |
The components of income tax expense/(benefit) for the years ended December 31, were as follows:
(Dollars in thousands) |  | 2019 |  | 2018 |  | 2017
Current: |  |  |  |  |  |
Federal |  | $ | 105,294 |  |  | $ | 44,088 |  |  | $ | 10,012 |
State |  | 13,640 |  |  | 9,957 |  |  | 879 |
Deferred: |  |  |  |  |  |  |  |
Federal |  | 5,091 |  |  | 81,852 |  |  | 114,059 |
State |  | 9,266 |  |  | 21,705 |  |  | 6,942 |
Total |  | $ | 133,291 |  |  | $ | 157,602 |  |  | $ | 131,892 |
The Tax Cuts and Jobs Act “Tax Act” was signed into law at the end of 2017. The Tax Act reduced the federal statutory tax rate from 35 percent to 21 percent effective January 1, 2018. FHN recorded approximately $82 million of increase in tax expense related to the effects of the Tax Act during 2017 which was primarily related to an adjustment of DTA balances to the lower federal tax rate. In 2018, FHN recorded a tax benefit of $6.7 million related to the finalization of tax items for the 2017 tax return. A reconciliation of expected income tax expense/(benefit) at the federal statutory rate of 21 percent for 2019 and 2018, respectively, and 35 percent for 2017 to the total income tax expense follows:
(Dollars in thousands) |  | 2019 |  | 2018 |  | 2017
Federal income tax rate |  | 21% |  | 21% |  | 35%
Tax computed at statutory rate |  | $ | 122,989 |  |  | $ | 149,963 |  |  | $ | 108,105 |
Increase/(decrease) resulting from: |  |  |  |  |  |  |  |  |
State income taxes, net of federal income tax benefit |  | 15,319 |  |  | 24,553 |  |  | 4,753 |
Bank-owned life insurance (“BOLI”) |  | (4,915 | ) |  | (3,626 | ) |  | (8,401 | )
401(k) – employee stock ownership plan (“ESOP”) |  | (764 | ) |  | (653 | ) |  | (904 | )
Tax-exempt interest |  | (6,480 | ) |  | (6,538 | ) |  | (7,890 | )
Non-deductible expenses |  | 10,609 |  |  | 8,301 |  |  | 7,558 |
LIHTC credits and benefits, net of amortization |  | (4,419 | ) |  | (7,178 | ) |  | (5,327 | )
Other tax credits |  | — |  |  | (2,825 | ) |  | (2,480 | )
Change in valuation allowance – DTA |  | (74 | ) |  | (73 | ) |  | (40,473 | )
Other changes in unrecognized tax benefits |  | 4,044 |  |  | 6,143 |  |  | 46 |
Effect of Tax Act |  | — |  |  | (6,746 | ) |  | 82,027 |
Other |  | (3,018 | ) |  | (3,719 | ) |  | (5,122 | )
Total |  | $ | 133,291 |  |  | $ | 157,602 |  |  | $ | 131,892 |
As of December 31, 2019, FHN had net deferred tax asset balances related to federal and state income tax carryforwards of $43.8 million and $1.2 million, respectively, which will expire at various dates as follows:
(Dollars in thousands) |  | Expiration Dates |  | Net Deferred Tax Asset Balance
Losses-federal |  | 2028-2033 |  | $ | 43,774 |
Net operating losses-states |  | 2020-2022 |  | 62 |
Net operating losses-states |  | 2025-2035 |  | 1,124 |
A deferred tax asset (“DTA”) or deferred tax liability (“DTL”) is recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The tax consequence is calculated by applying enacted statutory tax rates, applicable to future years, to these temporary differences. In order to support the recognition of the DTA, FHN’s management must believe that the realization of the DTA is more likely than not. FHN evaluates the likelihood of realization of the DTA based on both positive and negative evidence available at the time, including (as appropriate) scheduled reversals of DTLs, projected future taxable income, tax planning strategies, and recent financial performance. Realization is dependent on generating sufficient taxable income prior to the expiration of the carryforwards attributable to the DTA. In projecting future taxable income, FHN incorporates assumptions including the estimated amount of future state and federal pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates used to manage the underlying business. As of December 31, 2019, FHN's net DTA was $69.0 million compared to the $127.9 million at December 31, 2018. At December 31, 2019, FHN's gross DTA (net of a valuation allowance) and gross DTL were $250.6 million and $181.6 million, respectively. Although realization is not assured, FHN believes that it meets the more-likely-than-not requirement with respect to the net DTA after valuation allowance. Temporary differences which gave rise to deferred tax assets and deferred tax liabilities on December 31, 2019 and 2018 were as follows:
(Dollars in thousands) |  | 2019 |  | 2018
Deferred tax assets: |  |  |  |  |  |
Loss reserves |  | $ | 58,251 |  |  | $ | 65,015 |
Employee benefits |  | 68,254 |  |  | 64,843 |
Accrued expenses |  | 4,340 |  |  | 15,763 |
Lease liability |  | 55,543 |  |  | — |
Federal loss carryforwards |  | 43,774 |  |  | 49,821 |
State loss carryforwards |  | 1,186 |  |  | 7,225 |
Investment in debt securities (ASC 320) (a) |  | — |  |  | 24,863 |
Other |  | 19,255 |  |  | 27,168 |
Gross deferred tax assets |  | 250,603 |  |  | 254,698 |
Valuation allowance |  | — |  |  | (74 | )
Deferred tax assets after valuation allowance |  | $ | 250,603 |  |  | $ | 254,624 |
Deferred tax liabilities: |  |  |  |  |  |
Depreciation and amortization |  | $ | 50,725 |  |  | $ | 51,519 |
Investment in debt securities (ASC 320) (a) |  | 10,154 |  |  | — |
Equity investments |  | 3,656 |  |  | 7,705 |
Other intangible assets |  | 56,352 |  |  | 57,632 |
Prepaid expenses |  | 10,024 |  |  | 9,218 |
ROU lease asset |  | 50,151 |  |  | — |
Other |  | 540 |  |  | 683 |
Gross deferred tax liabilities |  | 181,602 |  |  | 126,757 |
Net deferred tax assets |  | $ | 69,001 |  |  | $ | 127,867 |
(a) Tax effects of unrealized gains and losses are tracked on a security-by-security basis. The total unrecognized tax benefits (“UTB”) at December 31, 2019 and 2018, was $24.4 million and $20.2 million, respectively. To the extent such unrecognized tax benefits as of December 31, 2019 are subsequently recognized, $18.4 million of tax benefits would impact tax expense and FHN’s effective tax rate in future periods. FHN is currently in audit in several jurisdictions. It is reasonably possible that the UTB related to federal and state exposures could decrease by $6.7 million and $.5 million, respectively during 2020 if audits are completed and settled and if the applicable statutes of limitations expire as scheduled. FHN recognizes interest accrued and penalties related to UTB within income tax expense. FHN had approximately $2.9 million and $1.6 million accrued for the payment of interest as of December 31, 2019 and 2018, respectively. The total amount of interest and penalties recognized in the Consolidated Statements of Income during both 2019 and 2018 was an expense of $1.3 million. The rollforward of unrecognized tax benefits is shown below:
(Dollars in thousands) |  |
Balance at December 31, 2017 |  | $ | 4,271 |
Increases related to prior year tax positions |  | 16,695 |
Increases related to current year tax positions |  | 1,576 |
Settlements |  | (2,080 | )
Lapse of statutes |  | (278 | )
Balance at December 31, 2018 |  | $ | 20,184 |
Increases related to prior year tax positions |  | 2,522 |
Increases related to current year tax positions |  | 2,170 |
Lapse of statutes |  | (460 | )
Balance at December 31, 2019 |  | $ | 24,416 |

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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