Income Taxes

12 Months Ended

Dec. 31, 2020

The following table presents the components of income tax provision for the years ended December 31, 2020, 2019 and 2018:


(in thousands)	Current		Deferred		Total
Year ended December 31, 2020:
Federal	$	96,575	$	(46,556)	$	50,019
State	33,368		(16,387)		16,981
Total provision for income taxes	$	129,943	$	(62,943)	$	67,000
Year ended December 31, 2019:
Federal	$	90,227	$	(5,123)	$	85,104
State	28,125		1,579		29,704
Total provision for income taxes	$	118,352	$	(3,544)	$	114,808
Year ended December 31, 2018:
Federal	$	68,651	$	11,655	$	80,306
State	18,960		7,157		26,117
Total provision for income taxes	$	87,611	$	18,812	$	106,423

The following table presents a reconciliation of income taxes computed at the Federal statutory rate to the actual effective rate for the years ended December 31, 2020, 2019 and 2018:


	2020		2019		2018
Statutory Federal income tax rate	21.0	%	21.0	%	21.0	%
State tax, net of Federal benefit	(1.0)	%	5.0	%	5.0	%
Impairment of goodwill	(25.0)	%	—	%	—	%
Nondeductible FDIC premiums	(0.1)	%	0.2	%	0.3	%
Nondeductible executive compensation	—	%	—	%	0.1	%
Tax-exempt income	0.3	%	(1.2)	%	(1.2)	%
BOLI	0.2	%	(0.4)	%	(0.4)	%

Other	—	%	(0.1)	%	0.4	%
Effective income tax rate	(4.6)	%	24.5	%	25.2	%

The following table reflects the effects of temporary differences that give rise to the components of the net deferred tax liabilities recorded in other liabilities on the consolidated balance sheets as of December 31, 2020 and 2019:


(in thousands)	December 31, 2020		December 31, 2019
Deferred tax assets:
Allowance for credit losses	$	86,120	$	41,176
Operating lease liabilities	29,239		30,750
Accrued severance and deferred compensation	16,729		16,131
Accrued bonuses	9,002		6,993
Acquired loans	7,387		9,953






State taxes	6,707		5,906
Accrued reserves	6,193		2,379

Other	15,075		8,358
Total gross deferred tax assets	176,452		121,646
Deferred tax liabilities:
Unrealized gains on investment securities	35,234		8,014
Fair market value adjustment on junior subordinated debentures	32,251		27,404
Operating lease right-of-use asset	27,010		28,506
Direct financing leases	25,802		29,741
Residential mortgage servicing rights	25,476		30,901

Deferred loan fees and costs	19,564		21,450
Goodwill	—		11,703


Other	15,466		15,765
Total gross deferred tax liabilities	180,803		173,484
Valuation allowance	(1,090)		(1,090)
Net deferred tax liabilities	$	(5,441)	$	(52,928)

As of December 31, 2020 and 2019, the Company's gross deferred tax assets included $1.5 million and $1.7 million, respectively, of state NOL carryfowards expiring in tax years 2029-2031. The Company believes it is more likely than not that the benefit from certain state NOL carryforwards will not be realized and therefore has provided a valuation allowance of $1.1 million as of both December 31, 2020 and 2019, on the deferred tax assets relating to these state NOL carryforwards. The Company has determined that no other valuation allowance for the remaining deferred tax assets is required as management believes it is more likely than not that the remaining gross deferred tax assets, net of the valuation allowance, of $175.4 million and $120.6 million at December 31, 2020 and 2019, respectively, will be realized principally through future reversals of existing taxable temporary differences. Management further believes that future taxable income will be sufficient to realize the benefits of temporary deductible differences that cannot be realized through carry-back to prior years or through the reversal of future temporary taxable differences.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, as well as the majority of states and Canada. The Company is no longer subject to U.S. and Canadian tax examinations for years before 2017, and is no longer subject to state tax examinations for years prior to 2016, with the exception of California, where the statute is still open for tax years 2012 and 2013.

The Company periodically reviews its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This review takes into consideration the status of current taxing authorities' examinations of the Company's tax returns, recent positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment.

The Company had gross unrecognized tax benefits in the amount of $4.3 million recorded as of December 31, 2020 and 2019. If recognized, the unrecognized tax benefit would reduce the 2020 annual effective tax rate by 0.3%. Interest on unrecognized tax benefits is reported by the Company as a component of tax expense. As of December 31, 2020 and 2019, the accrued interest related to unrecognized tax benefits is $64,000 and $70,000, respectively.

During 2019, a settlement was entered into with California for the 2005 to 2011 tax years resulting in the reversal of $516,000 of gross unrecognized tax benefits. The 2019 gross unrecognized tax benefits also includes a $183,000 reversal related to a partial refund for amended returns filed with California for the 2012 and 2013 tax years, for which $1.7 million of unrecognized tax benefits was recorded in 2018.

Detailed below is a reconciliation of the Company's gross unrecognized tax benefits for the years ended December 31, 2020 and 2019, respectively:


(in thousands)	2020		2019
Balance, beginning of period	$	4,307	$	4,971

Changes for tax positions of current year	10		34

Settlement	—		(698)

Balance, end of period	$	4,317	$	4,307

- 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.

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