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Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

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 $29.8 million and $33.3 million at December 31, 2019 and 2018, 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)		2019			2018			2017
Current federal income tax expense		$	39,756		$	39,498		$	59,019
Current state income tax expense			14,153			15,931			7,511
Total current tax expense			53,909			55,429			66,530

Deferred federal income tax expense (benefit)			78			(2,634)			18,459
Deferred state income tax expense (benefit)			(139)			(863)			515
Total deferred tax expense (benefit)			(61)			(3,497)			18,974

Total income tax expense		$	53,848		$	51,932		$	85,504

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, 2019, 2018, and 2017:


(dollars in thousands)		2019			2018			2017
Deferred tax assets
Allowance for credit losses		$	19,144		$	18,101		$	16,568
Deferred loan fees and costs			6,354			6,733			6,741
Deferred rent			—			1,026			1,009
Leases			673			—			—
Stock-based compensation			674			1,722			847
Net operating loss			1,285			2,003			2,032
Unrealized loss on securities available-for-sale			—			2,756			1,312
Unrealized loss on interest rate swap derivatives			53			—			—
SERP			1,541			1,497			1,373
Premises and equipment			914			795			33
Other assets			816			287			35
Total deferred tax assets			31,454			34,920			29,950

Deferred tax liabilities
Unrealized net gain on securities available-for-sale			(1,081)			—			—
Unrealized gain on interest rate swap derivatives			—			(965)			(578)
Excess servicing			(51)			(77)			(99)
Intangible assets			(9)			(223)			(503)
Other liabilities			(509)			(328)			—
Total deferred tax liabilities			(1,650)			(1,593)			(1,180)
Net deferred income tax amount		$	29,804		$	33,327		$	28,770

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


		2019		2018		2017
Statutory federal income tax rate		21.00	%	21.00	%	35.00	%
Increase (decrease) due to:
State income taxes		5.73		5.83		3.41
Deferred tax adjustment		0.49		—		7.85
Tax exempt interest and dividend income		(0.35)		(1.13)		(0.61)
Stock-based compensation expense		1.15		0.01		0.01
Other		(0.61)		(0.28)		0.38
Effective tax rate		27.41	%	25.43	%	46.04	%

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, 2015.