
Year Ended December 31	2020		2019		2018
(in millions)
Current income taxes:
Federal taxes	$	71	$	47	$	41
State taxes	5		4		6
Total current income taxes	76		51		47
Deferred income taxes:
Federal taxes	(20)		30		32
State taxes	1		3		—
Total deferred income taxes	(19)		33		32
Total income taxes	$	57	$	84	$	79


Year Ended December 31	2020		2019		2018
Statutory federal tax rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	1.6		1.1		1.1

Tax-exempt interest	(2.8)		(2.2)		(2.1)
Cash surrender value on BOLI	(0.8)		(0.5)		(0.5)
Tax credits	(6.3)		(4.2)		(2.8)
Affordable housing cost amortization, net of tax benefits	2.5		1.4		0.7
Tax Cuts and Jobs Act revaluation of net deferred tax assets	—		—		(0.4)
Other items	1.5		1.1		0.6
Effective tax rate	16.7	%	17.7	%	17.6	%

The effective tax rates in 2020, 2019 and 2018, respectively, were lower than the 21% statutory federal tax rate primarily due to the tax benefits resulting from renewable energy investment and historic tax credits, tax-exempt income on investments and loans and income from BOLI. For the years ended December 31, 2020, 2019 and 2018, we recognized net investment tax credits of $8.3 million, $7.9 million and $6.5 million, respectively, using the flow-through method of accounting for income tax credits.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and tax purposes. DTAs and DTLs are measured based on the enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid.


December 31	2020		2019
(in millions)
Deferred tax assets:
Allowance for credit losses	$	80	$	43
Discounts on loans acquired in a business combination	16		41
Net operating loss/tax credit carryforwards	38		38
Deferred compensation	12		11
Securities impairments	1		1
Pension and other defined benefit plans	2		3
Lease liability	30		29
Net unrealized securities losses	—		2
Other	14		8
Total	193		176
Valuation allowance	(33)		(28)
Total deferred tax assets	160		148
Deferred tax liabilities:
Loan costs	(6)		(15)
Depreciation	(12)		(19)
Prepaid expenses	(1)		(1)
Amortizable intangibles	(13)		(15)
Lease financing	(32)		(35)

Mortgage servicing rights	(8)		(9)
Lease ROU asset	(28)		(27)
Net unrealized securities gains	(7)		—
Other	(2)		(2)
Total deferred tax liabilities	(109)		(123)
Net deferred tax assets	$	51	$	25

We establish a valuation allowance when it is more likely than not that we will not be able to realize the benefit of the DTAs or when future deductibility is uncertain. Periodically, the valuation allowance is reviewed and adjusted based on management’s assessment of realizable DTAs. As of December 31, 2020, the valuation allowance of $32.6 million primarily includes unused federal and state net operating loss carryforwards expiring from 2021 to 2040 and $3.3 million of state tax credit carryforwards. We anticipate that neither the state net operating loss and state tax credit carryforwards nor the other net DTAs at certain of our subsidiaries will be utilized and, as such, have recorded a valuation allowance against the DTAs related to these items.

As of December 31, 2020, we had approximately $22.0 million of federal net operating loss and built-in loss carryforwards and $3.5 million of state tax credit carryforwards, net of valuation allowances. The utilization of these tax attributes is subject to annual limitations under Section 382 of the Internal Revenue Code, or a similar state-level statute, which will cause the utilization of these attributes to be deferred over a number of years, not to exceed beyond 2036. We have determined that we will likely have sufficient taxable income in the years during which these tax attributes are available to be utilized and, consequently, have determined that no additional valuation allowance against the recorded DTA is warranted.

We account for uncertainties in income taxes in accordance with ASC 740, Income Taxes. At December 31, 2020 and 2019, we have approximately $2.0 million and $1.6 million, respectively, of unrecognized tax benefits related to uncertain tax positions. As of December 31, 2020, $1.8 million of these tax benefits would affect the effective tax rate if recognized. We recognize

potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. To the extent interest is not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.

We file numerous income tax returns in the U.S. federal jurisdiction and in several state jurisdictions. We are no longer subject to U.S. federal income tax examinations for years prior to 2017. With limited exception, we are no longer subject to state income tax examinations for years prior to 2017. We anticipate that a reduction in the unrecognized tax benefit of up to $0.07 million may occur in the next twelve months from the expiration of statutes of limitations which would result in a reduction in income taxes.