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Income Taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Note 14 – Income Taxes

The Tax Cuts and Jobs Act (the “Tax Act”) enacted in December 2017 reduced the federal corporate income tax rate from 35% to 21% effective January 1, 2018. As a result of the Tax Act, we recorded a $14.6 million reduction in the value of our net deferred tax asset, which was recorded as additional income tax expense during 2017. We had net deferred tax assets (deferred tax assets in excess of deferred tax liabilities) of $33.0 million and $28.8 million at December 31, 2018 and 2017, respectively, which related primarily to our allowance for credit losses, and loan origination fees. Management believes it is more likely than not that all of the deferred tax assets will be realized. Federal and state income tax expense consists of the following for the years ended December 31:

(dollars in thousands)		2018				2017				2016
Current federal income tax expense		$	39,498			$	59,019			$	53,290
Current state income tax expense			15,931				7,511				13,733
Total current tax expense			55,429				66,530				67,023

Deferred federal income tax expense (benefit)			(2,634	)			18,459				(5,523	)
Deferred state income tax expense (benefit)			(863	)			515				(105	)
Total deferred tax expense (benefit)			(3,497	)			18,974				(5,628	)

Total income tax expense		$	51,932			$	85,504			$	61,395

Temporary timing differences between the amounts reported in the financial statements and the tax bases of assets and liabilities result in deferred taxes. The table below summarizes significant components of our deferred tax assets and liabilities utilizing federal corporate income tax rates of 21% as of December 31, 2018 and 2017 and 35% as of December 31, 2016:

(dollars in thousands)		2018				2017				2016
Deferred tax assets
Allowance for credit losses		$	18,101			$	16,568			$	23,738
Deferred loan fees and costs			6,733				6,741				10,728
Deferred rent			1,026				1,009				1,483
Stock-based compensation			1,722				847				3,037
Net operating loss			2,003				2,032				2,695
Unrealized loss on securities available-for-sale			2,756				1,312				1,303
Unrealized loss on interest rate swap derivatives			—				—				284
SERP			1,497				1,373				2,088
Premises and equipment			795				33				3,838
Other			287				35				477
Total deferred tax assets			34,920				29,950				49,671

Unrealized gain on interest rate swap derivatives			(965	)			(578	)			—
Excess servicing			(77	)			(99	)			(191	)
Intangible assets			(223	)			(503	)			(1,260	)
Other liabilities			(328	)			—				—
Total deferred tax liabilities			(1,593	)			(1,180	)			(1,451	)
Net deferred income tax amount		$	33,327			$	28,770			$	48,220

A reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate for the years ended December 31 follows:

		2018				2017				2016
Statutory federal income tax rate			21.00	%			35.00	%			35.00	%
Increase (decrease) due to
State income taxes			5.83				3.41				5.57
Deferred tax adjustment related to Tax Act			—				7.85				—
Tax exempt interest and dividend income			(1.13	)			(0.61	)			(0.98	)
Stock-based compensation expense			0.01				0.01				0.01
Other			(0.28	)			0.38				(1.01	)
Effective tax rates			25.43	%			46.04	%			38.59	%

The Company is currently estimating that its effective tax rate for 2019 will be in the range of 25% to 26%. The net operating loss carry forward acquired in conjunction with the Fidelity acquisition is subject to annual limits under Section 382 of the Internal Revenue Code of $718 thousand and expires in 2027. The Company remains subject to examination for the years ending after December 31, 2014.