Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

Income Taxes

Note 12. Income Taxes

The components of income taxes consist of (dollars in thousands):

	Years Ended December 31,
	2019		2018		2017
Current expense:
Federal	$	22,479	$	18,076	$	27,168
State		8,910		9,807		4,117
Deferred expense:
Federal		(380)		5,068		11,583
State		476		2,048		2,517
Total income tax expense	$	31,485	$	34,999	$	45,385

A reconciliation of federal and state income taxes at statutory rates to the income taxes included in the accompanying Consolidated Statements of Income is as follows:

	Years Ended December 31,
	2019		2018		2017
	% of		% of		% of
	Pretax		Pretax		Pretax
	Income		Income		Income
Income tax at federal statutory rate	21.0	%	21.0	%	35.0	%
Effect of:
TCJA	—	%	—	%	7.5	%
Tax-exempt interest, net	(1.7)	%	(1.3)	%	(2.1)	%
Stock incentive	(0.1)	%	(0.3)	%	(0.5)	%
State income taxes, net	5.5	%	7.3	%	4.0	%
Income on bank owned life insurance	(0.9)	%	(0.6)	%	(0.9)	%
Tax credit investments	(1.3)	%	—	%	—	%
Other, net	0.9	%	—	%	(1.0)	%
	23.4	%	26.1	%	42.0	%

On December 22, 2017, TCJA was signed into law and became effective January 2018. The TCJA reduced the corporate tax rate as well as adjusted tax rates, deductions and exemptions for individuals and businesses alike. The Company took a non-recurring, non-cash charge of $8.1 million in the fourth quarter of 2017 as a result of the revaluation of the Company’s net deferred tax position following the enactment of the TCJA.

Net deferred taxes at December 31, 2019 and 2018 in the accompanying Consolidated Balance Sheets, include the following amounts of deferred tax assets and liabilities (dollars in thousands).

	2019		2018
Deferred tax assets:
Unrealized losses on debt securities available for sale	$	—	$	2,716
Allowance for loan losses		15,416		14,885
Stock-based compensation		2,069		2,208
Deferred compensation		166		1,454
Affordable housing partnerships and other investments		777		691
Purchase accounting adjustments		11,301		4,563
Accrued vacation		827		744
Lease liability		2,650		—
Employee costs		1,048		260
Other		809		1,095
	$	35,063	$	28,616
Deferred tax liabilities:
Unrealized gains on debt securities available for sale		(6,032)		—
Basis in premises and equipment		(4,222)		(1,213)
Affordable housing partnerships and other investments		(1,411)		(1,868)
Purchase accounting adjustments		(1,023)		(1,102)
Mortgage servicing assets		(3,717)		(1,159)
Basis in core deposit and customer intangible assets		(17,120)		(9,299)
Deferred loan origination costs		(1,730)		(1,593)
Lease right of use asset		(2,633)		—
Unrealized gain on equity securities		(593)		(662)
Other		(508)		(322)
	$	(38,989)	$	(17,218)
Net operating loss carryforward, net of valuation allowance		—		33
Net deferred tax (liability) asset	$	(3,926)	$	11,431

At December 31, 2019, the Company had no net operating loss carryforward remaining.

Management believes that it is more likely than not that the other deferred tax assets included in the accompanying Consolidated Balance Sheets will be fully realized. The Company has determined that no valuation allowance is required for any deferred tax assets as of December 31, 2019 and 2018.