Income Taxes

12 Months Ended

Dec. 31, 2019

Note 19 – Income Taxes

The components of consolidated income tax expense are as follows (in thousands):


	Year Ended December 31,
	2019		2018		2017
Current tax expense
Federal	$	20,403	$	13,109	$	17,835
State	12,655		9,323		6,650
	$	33,058	22,432		24,485
Deferred tax expense
Federal	695		1,842		11,418
State	997		758		1,055
	1,692		2,600		12,473
Total tax expense	$	34,750	$	25,032	$	36,958

A deferred tax asset or liability is recognized for the tax consequences of temporary differences in the recognition of revenue and expense for financial and tax reporting purposes. The net change during the year in the deferred tax asset or liability results in a deferred tax expense or benefit.

On December 22, 2017, President Donald Trump signed into law “H.R.1”, commonly known as the “Tax Cuts and Jobs Act”, which among other items reduced the Federal corporate tax rate from 35% to 21%. The Company’s deferred tax expense as of December 31, 2017 included $7,416,000 from the re-measurement of deferred taxes and $226,000 from an acceleration of amortization expense on the low income housing tax credit investments.

The Company recognized, as components of tax expense, tax credits and other tax benefits, and amortization expense relating to our investments in Qualified Affordable Housing Projects as follows for the periods indicated (in thousands):


	Year Ended December 31,
	2019		2018		2017
Tax credits and other tax benefits – decrease in tax expense	$	(2,546)	$	(1,993)	$	(1,753)
Amortization – increase in tax expense	$	2,705	$	1,814	$	1,611

The carrying value of Low Income Housing Tax Credit Funds was $28,480,000 and $23,885,000 as of December 31, 2019 and 2018, respectively. As of December 31, 2019, the Company has committed to make additional capital contributions to the Low Income Housing Tax Credit Funds in the amount of $13,137,000, and these contributions are expected to be made over the next several years.

The provisions for income taxes applicable to income before taxes for the years ended December 31, 2019, 2018 and 2017 differ from amounts computed by applying the statutory Federal income tax rates to income before taxes. The effective tax rate and the statutory federal income tax rate are reconciled as follows:


	Year Ended December 31,
	2019		2018		2017
Federal statutory income tax rate	21.0	%	21.0	%	35.0	%
State income taxes, net of federal tax benefit	7.9		8.6		6.9
Tax Cuts and Jobs Act impact of federal rate change	—		—		9.6
Tax-exempt interest on municipal obligations	(0.7)		(1.0)		(1.9)
Tax-exempt life insurance related income	(0.6)		(0.6)		(1.3)
Low income housing tax credits	(2.3)		(2.2)		(2.3)
Low income housing tax credit amortization	2.1		2.0		2.1
Equity compensation	(0.4)		(0.4)		(1.1)
Non-deductible merger expenses	—		0.2		0.2
Other	0.4		(0.8)		0.5
Effective Tax Rate	27.4	%	26.8	%	47.7	%

The temporary differences, tax effected, which give rise to the Company’s net deferred tax asset recorded in other assets are as follows as of December 31 for the years indicated (in thousands):


	December 31,
	2019		2018
Deferred tax assets:
Allowance for losses and reserve for unfunded commitments	$	9,871	$	10,394
Deferred compensation	2,342		2,780
Accrued pension liability	3,309		9,734
Other accrued expenses	1,678		1,175
Additional unfunded status of the supplemental retirement plans	9,868		1,420
Operating lease liability	8,142		—
State taxes	2,441		1,864
Share based compensation	803		1,132
Nonaccrual interest	649		814
Acquisition cost basis	4,556		6,714
Unrealized loss on securities	—		6,201
Tax credits	576		623
Net operating loss carryforwards	1,578		2,442
Other	348		423
Total deferred tax assets	46,161		45,716
Deferred tax liabilities:
Securities income	(762)		(1,020)
Depreciation	(6,109)		(5,572)
Right of use asset	(8,242)		—
Merger related fixed asset valuations	(30)		(26)
Securities accretion	(560)		(426)
Mortgage servicing rights valuation	(1,813)		(2,073)
Unrealized gain on securities	(1,001)		—
Core deposit intangible	(6,453)		(8,234)
Junior subordinated debt	(1,672)		(1,729)
Prepaid expenses and other	(469)		(582)
Total deferred tax liability	(27,111)		(19,662)
Net deferred tax asset	$	19,050	$	26,054

As part of the merger with FNB Bancorp in 2019 and North Valley Bancorp in 2014, TriCo acquired federal and state net operating loss carryforwards, capital loss carryforwards, and tax credit carryforwards. These tax attribute carryforwards will be subject to provisions of the tax law that limit the use of such losses and credits generated by a company prior to the date certain ownership changes occur. The amount of the Company’s net operating loss carryforwards that would be subject to these limitations as of December 31, 2019 were none for federal and $18,590,000 for California. The amount of the Company’s tax credits that would be subject to these limitations as of December 31, 2019 are $63,000 and $648,000 for federal and California, respectively. Due to the limitation, a significant portion of the state tax credits will expire regardless of whether the Company generates future taxable income. As such, the Company has recorded the future benefit of these tax credits on the books at the value which is more likely than not to be realized. These tax loss and tax credit carryforwards expire at various dates beginning in 2019.

The Company believes that a valuation allowance is not needed to reduce the deferred tax assets as it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets, including the tax attribute carryforwards acquired as part of the FNB Bancorp and North Valley Bancorp merger.

Disclosure of unrecognized tax benefits at December 31, 2019 and 2018 were not considered significant for disclosure purposes. Management does not expect the unrecognized tax benefit will materially change in the next 12 months. During the years ended December 31, 2019 and December 31, 2018 the Company did not recognize and significant amounts related to interest and penalties associated with taxes. The Company files income tax returns in the U.S. federal jurisdiction, and California. With few exceptions, the Company is no longer subject to U.S. federal and state/local income tax examinations by tax authorities for years before 2016 and 2015, respectively.