Income Taxes

12 Months Ended

Dec. 31, 2019

NOTE 15. INCOME TAXES

The following table presents the components of income tax expense for the years indicated:



	Year Ended December 31,
	2019		2018			2017
	(In thousands)
Current Income Tax Expense:
Federal	$	113,807	$	100,466		$	74,769
State	34,575		69,909			38,933
Total current income tax expense	148,382		170,375			113,702
Deferred Income Tax Expense (Benefit):
Federal	5,062		4,746			63,463
State	10,860		(7,143		)	19,748
Total deferred income tax expense (benefit)	15,922		(2,397		)	83,211
Total income tax expense	$	164,304	$	167,978		$	196,913

The following table presents a reconciliation of the recorded income tax expense to the amount of taxes computed by applying the applicable federal statutory income tax rates of 21% for 2019 and 2018 and 35% for 2017 to earnings before income taxes:



	Year Ended December 31,
	2019			2018			2017
	(In thousands)
Computed expected income tax expense at federal statutory rate	$	132,917		$	132,997		$	194,156
State tax expense, net of federal tax benefit	43,575			45,945			33,729
Tax‑exempt interest benefit	(8,092		)	(9,810		)	(15,510		)
Increase in cash surrender value of life insurance	(1,298		)	(1,742		)	(1,853		)
Low income housing tax credits, net of amortization	(3,217		)	(2,025		)	(2,054		)
Nondeductible employee compensation	4,430			2,552			1,781
Nondeductible acquisition‑related expense	—			71			1,608
Nondeductible FDIC premiums	1,302			1,664			—
Change in unrecognized tax benefits	941			(169		)	1,157
Valuation allowance change	(32,036		)	(15,721		)	(13,071		)
Expired capital loss carryforward	3,136			8,097			—
Federal rate change	—			1,859			(1,156		)
State rate and apportionment changes	19,138			3,736			(3,735		)
Other, net	3,508			524			1,861
Recorded income tax expense	$	164,304		$	167,978		$	196,913

The Company recognized $20.0 million, $14.0 million, and $8.4 million of tax credits and other tax benefits associated with its investments in LIHTC partnerships for the years ended December 31, 2019, 2018, and 2017. The amount of amortization of such investments reported in income tax expense under the proportional amortization method of accounting was $16.7 million for 2019, $11.9 million for 2018, and $6.3 million for 2017.

At December 31, 2019, we had no federal net operating loss carryforwards and approximately $669.3 million of unused state net operating loss carryforwards available to be applied against future taxable income. A majority of the state net operating loss carryforwards will expire in varying amounts beginning in 2020 through 2039. A portion of the state net operating loss carryforwards generated after December 31, 2017 will carry forward indefinitely due to the state conformity to the federal net operating loss carryforward provisions as modified by the TCJA.

As of December 31, 2019, for federal tax purposes, we had foreign tax credit carryforwards of $3.4 million. The foreign tax credit carryforwards are available to offset federal taxes on future foreign source income. If not used, these carryforwards will fully expire in 2021.

The following table presents the tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities as of the dates indicated:



	December 31,
	2019			2018
	(In thousands)
Deferred Tax Assets:
Book allowance for loan losses in excess of tax specific charge-offs	$	54,664		$	58,375
Interest on nonaccrual loans	4,550			4,389
Deferred compensation	5,809			6,015
Premises and equipment, principally due to differences in depreciation	3,478			4,506
Foreclosed assets valuation allowance	263			263
State tax benefit	5,721			6,570
Net operating losses	39,517			68,026
Capital loss carryforwards	—			4,212
Accrued liabilities	28,158			35,750
Unrealized loss from FDIC‑assisted acquisitions	1,678			3,559
Unrealized loss on securities available-for-sale	—			2,435
Tax mark-to-market	5,052			—
Equity investments	5,953			4,896
Goodwill	5,434			10,418
Tax credits	3,426			5,237
Lease liability	40,533			—
Other	—			4,887
Gross deferred tax assets	204,236			219,538
Valuation allowance	(46,371		)	(78,407		)
Deferred tax assets, net of valuation allowance	157,865			141,131
Deferred Tax Liabilities:
Core deposit and customer relationship intangibles	9,853			15,159
Deferred loan fees and costs	5,330			7,275
Unrealized gain on securities available‑for‑sale	30,438			—
FHLB stock	647			658
Tax mark-to-market	—			1,636
Subordinated debentures	20,183			23,164
Operating leases	83,878			75,750
ROU assets	36,359			—
Other	2,830			—
Gross deferred tax liabilities	189,518			123,642
Total net deferred tax (liabilities) assets	$	(31,653	)	$	17,489

Based upon our taxpaying history and estimates of taxable income over the years in which the items giving rise to the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deferred tax assets.

The Company had net income taxes receivable of $30.8 million and $38.9 million at December 31, 2019 and December 31, 2018.

As of December 31, 2019 and 2018, the Company had a valuation allowance of $46.4 million and $78.4 million against DTAs. Periodic reviews of the carrying amount of DTAs are made to determine if a valuation allowance is necessary. A valuation allowance is required, based on available evidence, when it is more likely than not that all or a portion of a DTA will not be realized due to the inability to generate sufficient taxable income in the period and/or of the character necessary to utilize the benefit of the DTA. All available evidence, both positive and negative, that may affect the realizability of the DTA is identified and considered in determining the appropriate amount of the valuation allowance. It is more likely than not that these deferred tax assets subject to a valuation allowance will not be realized primarily due to their character and/or the expiration of the carryforward periods.

The net reduction in the total valuation allowance during the year ended December 31, 2019 was $32.0 million. Of this amount, $27.3 million consisted principally of adjustments to state net operating loss DTAs. The adjustment to the state operating loss DTAs at December 31, 2019, was a result of changes in state apportionments. The DTAs had been subjected to a full valuation allowance because the Company had previously determined that they were more likely than not to be expired unused. As a result, the change in the tax attributes supporting the $27.3 million of deferred tax assets had no impact on the Company's effective tax rate for the year ended December 31, 2019. The remaining $4.7 million reduction in the valuation allowance was primarily due to an increase in the amount of foreign tax credit expected to be utilized prior to expiration and adjustments to capital loss carryforwards.

The following table summarizes the activity related to the Company's unrecognized tax benefits for the years indicated:



	Year Ended December 31,
Unrecognized Tax Benefits	2019			2018
	(In thousands)
Balance, beginning of year	$	9,572		$	10,209
Increase based on tax positions related to prior years	1,733			1,278
Reductions related to settlements	(255		)	(684		)
Reductions for tax positions as a result of a lapse of the applicable statute of limitations	(302		)	(1,231		)
Balance, end of year	$	10,748		$	9,572

Unrecognized tax benefits that would have impacted the effective tax rate if recognized	$	6,981		$	5,806

Due to the potential for the resolution of federal and state examinations and the expiration of various statutes of limitations, it is reasonably possible that our gross unrecognized tax benefits may decrease within the next twelve months by as much as $4.5 million.

We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. For the year ended December 31, 2019, we recognized $0.7 million in expense for interest expense and penalties. For the year ended December 31, 2018, we recognized $0.2 million in expense related to these items. For the year ended December 31, 2017, we recognized $0.2 million in expense for interest expense and penalties. We had $1.5 million and $0.8 million accrued for the payment of interest and penalties as of December 31, 2019 and 2018.

We file federal and state income tax returns with the Internal Revenue Service ("IRS") and various state and local jurisdictions and generally remain subject to examinations by these tax jurisdictions for tax years 2015 through 2018. We are currently under examination by certain state jurisdictions for tax years 2012 through 2017.