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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes |
NOTE 12 – INCOME TAXES
The components of the provision for income taxes are as follows:
| 2018 |  | 2017 |  | 2016
| (in thousands)
Current tax expense: |  |  |  |  |
Federal | $ | 35,783 |  |  | $ | 19,553 |  |  | $ | 33,872 |
State | 5,352 |  |  | 2,617 |  |  | 1,698 |
| 41,135 |  |  | 22,170 |  |  | 35,570 |
Deferred tax (benefit) expense: |  |  |  |  |  |  |  |
Federal | (16,841 | ) |  | 39,885 |  |  | 7,968 |
State | 283 |  |  | 646 |  |  | 3,086 |
| (16,558 | ) |  | 40,531 |  |  | 11,054 |
Total income tax expense | $ | 24,577 |  |  | $ | 62,701 |  |  | $ | 46,624 |
The differences between the effective income tax rate and the federal statutory income tax rate are as follows:
| 2018 |  | 2017 |  | 2016
Statutory tax rate | 21.0 | % |  | 35.0 | % |  | 35.0 | %
Tax credit investments | (6.1 | ) |  | (7.8 | ) |  | (7.0 | )
Tax-exempt income | (4.1 | ) |  | (6.6 | ) |  | (6.5 | )
Bank owned life insurance | (0.4 | ) |  | (0.4 | ) |  | (0.6 | )
Re-measurement of net deferred tax asset due to the Tax Act | (0.3 | ) |  | 6.7 |  |  | — |
Change in valuation allowance | (0.1 | ) |  | 1.2 |  |  | 0.3 |
Executive compensation | 0.1 |  |  | 0.1 |  |  | 0.1 |
State income taxes, net of federal benefit | 2.0 |  |  | (0.5 | ) |  | 1.2 |
Other, net | (1.6 | ) |  | (1.0 | ) |  | (0.1 | )
Effective income tax rate | 10.5 | % |  | 26.7 | % |  | 22.4 | %
The net deferred tax asset recorded by the Corporation is included in other assets and consists of the following tax effects of temporary differences as of December 31:
| 2018 |  | 2017
| (in thousands)
Deferred tax assets: |  |  |
Allowance for credit losses | $ | 37,906 |  |  | $ | 40,554 |
Tax credit carryforward | 27,615 |  |  | — |
Unrealized holding losses on securities | 12,489 |  |  | 5,830 |
State loss carryforwards | 11,605 |  |  | 11,855 |
Other accrued expenses | 7,232 |  |  | 6,977 |
Deferred compensation | 7,064 |  |  | 7,663 |
Postretirement and defined benefit plans | 5,079 |  |  | 7,274 |
Other-than-temporary impairment of investments | 1,803 |  |  | 2,045 |
Other | 11,127 |  |  | 6,742 |
Total gross deferred tax assets | 121,920 |  |  | 88,940 |
Deferred tax liabilities: |  |  |
Direct leasing | 31,466 |  |  | 21,917 |
Mortgage servicing rights | 8,560 |  |  | 8,204 |
Acquisition premiums/discounts | 5,294 |  |  | 6,030 |
Premises and equipment | 3,579 |  |  | 3,099 |
Intangible assets | 1,292 |  |  | 1,155 |
Other | 12,178 |  |  | 10,420 |
Total gross deferred tax liabilities | 62,369 |  |  | 50,825 |
Net deferred tax asset, before valuation allowance | 59,551 |  |  | 38,115 |
Valuation allowance | (11,605 | ) |  | (11,855 | )
Net deferred tax asset | $ | 47,946 |  |  | $ | 26,260 |
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and/or capital gain income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies, such as those that may be implemented to generate capital gains, in making this assessment. The valuation allowance relates to state deferred tax assets and net operating loss carryforwards for which realizability is uncertain. As of December 31, 2018 and 2017, the Corporation had state net operating loss carryforwards of approximately $347.3 million and $369.1 million, respectively, which are available to offset future state taxable income, and expire at various dates through 2038. The Corporation has $1.7 million of deferred tax assets resulting from unrealized other-than-temporary impairment losses on investment securities, which would be characterized as capital losses for tax purposes. If realized, the income tax benefits of these potential capital losses can only be recognized for tax purposes to the extent of capital gains generated during carryback and carryforward periods. The Corporation currently believes that it has the ability to generate sufficient offsetting capital gains in future periods through the execution of certain tax planning strategies, which may include the sale and leaseback of some or all of its branch and office properties. As such, no valuation allowance for the deferred tax assets related to the realized or unrealized capital losses is considered to be necessary as of December 31, 2018. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Corporation will realize the benefits of its deferred tax assets, net of the valuation allowance, as of December 31, 2018. Uncertain Tax Positions The following summarizes the changes in unrecognized tax benefits for the years ended December 31:
| 2018 |  | 2017 |  | 2016
| (in thousands)
Balance at beginning of year | $ | 2,550 |  |  | $ | 2,438 |  |  | $ | 2,373 |
Current period tax positions | 593 |  |  | 523 |  |  | 456 |
Lapse of statute of limitations | (417 | ) |  | (411 | ) |  | (391 | )
Balance at end of year | $ | 2,726 |  |  | $ | 2,550 |  |  | $ | 2,438 |
As of December 31, 2018, if recognized, all of the Corporation’s unrecognized tax benefits would impact the effective tax rate. Not included in the table above is $589,000 of federal income tax benefits on unrecognized state tax benefits which, if recognized, would also impact the effective tax rate. Interest accrued related to unrecognized tax benefits is recorded as a component of income tax expense. Penalties, if incurred, would also be recognized in income tax expense. The Corporation recognized approximately $59,000 and $42,000 in 2018 and 2017, respectively, for interest and penalties in income tax expense related to unrecognized tax positions. As of December 31, 2018 and 2017, total accrued interest and penalties related to unrecognized tax positions were approximately $675,000 and $616,000, respectively. The Corporation and its subsidiaries file income tax returns in the federal and various state jurisdictions. In most cases, unrecognized tax benefits are related to tax years that remain subject to examination by the relevant taxing authorities. With few exceptions, the Corporation is no longer subject to federal, state and local examinations by tax authorities for years before 2015. Qualified Affordable Housing Projects and Other Tax Credit Investments The Corporation's Tax Credit Investments are primarily related to investments promoting qualified affordable housing projects and investments in community development entities. The majority of these tax-advantaged investments support the Corporation's regulatory compliance with the Community Reinvestment Act ("CRA"). The Corporation's investments in these projects generate a return primarily through the realization of federal income tax credits and deductions for operating losses over a specified time period. The Corporation's Tax Credit Investments are included in other assets on the consolidated balance sheets, with any unfunded equity commitments carried in other liabilities on the consolidated balance sheets. Certain Tax Credit Investments qualify for the proportional amortization method and are amortized over the period the Corporation expects to receive the tax credits, with the expense included within income taxes on the consolidated statements of income. Other Tax Credit Investments are accounted for under the equity method of accounting, with amortization included within non-interest expense on the consolidated statements of income. This amortization includes equity in partnership losses and the systematic write-down of investments over the period in which income tax credits are earned. All of the tax credit investments are evaluated for impairment at the end of each reporting period. The following table presents the balances of the Corporation's affordable housing tax credit investments, other tax credit investments and related unfunded commitments as of December 31:
|  |  | 2018 |  | 2017 |  | 2016
Included in other assets: |  | (in thousands)
Affordable housing tax credit investments, net |  | $ | 170,401 |  |  | $ | 191,771 |  |  | $ | 169,382 |
Other tax credit investments, net |  | 72,584 |  |  | 79,753 |  |  | 89,881 |
| Total tax credit investments, net |  | $ | 242,985 |  |  | $ | 271,524 |  |  | $ | 259,263 |
Included in other liabilities: |  |  |  |  |  |
Unfunded affordable housing tax credit commitments |  | $ | 23,196 |  |  | $ | 68,848 |  |  | $ | 40,634 |
Other tax credit liabilities |  | 59,823 |  |  | 62,049 |  |  | 69,132 |
| Total unfunded tax credit commitments and liabilities |  | $ | 83,019 |  |  | $ | 130,897 |  |  | $ | 109,766 |
The following table presents other information relating to the Corporation's affordable housing tax credit investments and other tax credit investments for the years ended December 31:
|  |  | 2018 |  | 2017 |  | 2016
|  |  | (in thousands)
Components of Income Taxes: |  |  |  |  |  |
Affordable housing tax credits and other tax benefits |  | $ | (30,721 | ) |  | $ | (25,642 | ) |  | $ | (23,571 | )
Other tax credit investment credits and tax benefits |  | (6,385 | ) |  | (15,791 | ) |  | (8,761 | )
Amortization of affordable housing investments, net of tax benefit |  | 21,569 |  |  | 16,958 |  |  | 15,574 |
Deferred tax expense |  | 1,341 |  |  | 6,201 |  |  | 2,177 |
| Total reduction in income tax expense |  | $ | (14,196 | ) |  | $ | (18,274 | ) |  | $ | (14,581 | )
Amortization of Tax Credit Investments: |  |  |  |  |  |
Affordable housing tax credits investment |  | $ | 3,355 |  |  | $ | — |  |  | $ | — |
Other tax credit investment amortization |  | 8,094 |  |  | 11,028 |  |  | — |
| Total amortization of tax credit investments recorded in non-interest expense |  | $ | 11,449 |  |  | $ | 11,028 |  |  | $ | — |

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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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