Income Tax Expense

On December 22, 2017, the Tax Act was signed into law. The enactment of the Tax Act in 2017 required companies to revalue and reassess deferred tax assets and liabilities reflecting the new federal income tax rate. As a result, in December 2017, Washington Trust's net deferred tax assets were written down by $6.2 million, with a corresponding increase to income tax expense. The majority of the provisions of the Tax Act will take effect on January 1, 2018. The provisions that impact Washington Trust include the reduction of the corporate income tax rate from 35% to 21%, changes to the deductibility of certain meals and entertainment expenses, and changes to the deductibility of executive compensation. The Tax Act also accelerates expensing of certain depreciable property for assets placed in service after September 27, 2017 and before January 1, 2023.

Effective January 1, 2017, Washington Trust adopted Accounting Standards Update No. 2016-09, "Improvements to Employee Share-Based Payment Accounting." Under this accounting standard, excess tax benefits on the settlement of share-based awards are recognized as a reduction to income tax expense in the period that they occur. In 2017, income tax expense was reduced by the recognition of $508 thousand in excess tax benefits on the settlement of share-based awards. Prior to 2017, such excess tax benefits were recognized as additional paid in capital in shareholders' equity and did not impact income tax expense.

The following table presents the components of income tax expense:



(Dollars in thousands)
Years ended December 31,	2017			2016		2015
Current tax expense:
Federal		$23,827			$19,444		$17,864
State	2,201			2,061		1,194
Total current tax expense	26,028			21,505		19,058
Deferred tax expense (benefit):
Federal	5,717			796		2,003
State	(30		)	72		(183		)
Total deferred tax expense	5,687			868		1,820
Total income tax expense		$31,715			$22,373		$20,878

Total income tax expense varies from the amount determined by applying the Federal income tax rate to income before income taxes. The following table presents the reasons for the differences:



(Dollars in thousands)
Years ended December 31,	2017			2016			2015
Tax expense at Federal statutory rate		$27,174			$24,099			$22,520
(Decrease) increase in taxes resulting from:
Tax-exempt income	(1,313		)	(1,599		)	(1,604		)
Dividends received deduction	(55		)	(58		)	(57		)
BOLI	(757		)	(930		)	(694		)
Stock based compensation	(481		)	—			—
Federal tax credits	(364		)	(364		)	(364		)
Change in fair value of contingent consideration	(225		)	(314		)	—
Acquisition related expenses	—			—			318
State income tax expense, net of federal income tax benefit	1,411			1,387			658
Adjustment to net deferred tax assets for enacted changes in federal tax law	6,170			—			—
Other	155			152			101
Total income tax expense		$31,715			$22,373			$20,878

The following table presents the approximate tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities:



(Dollars in thousands)
December 31,	2017			2016
Deferred tax assets:
Allowance for loan losses		$6,225			$9,621
Defined benefit pension obligations	1,767			3,804
Deferred compensation	3,334			3,991
Deferred loan origination fees	1,325			1,999
Stock based compensation	1,240			1,519
Net unrealized losses on securities available for sale	2,314			4,008
Other	2,281			3,495
Deferred tax assets	18,486			28,437
Deferred tax liabilities:
Amortization of intangibles	(2,148		)	(3,765		)
Deferred loan origination costs	(3,550		)	(5,156		)
Loan servicing rights	(849		)	(1,293		)
Other	(1,200		)	(1,419		)
Deferred tax liabilities	(7,747		)	(11,633		)
Net deferred tax asset		$10,739			$16,804

The Corporation’s net deferred tax asset is included in other assets in the Consolidated Balance Sheets. Management has determined that a valuation allowance is not required for any of the deferred tax assets since it is more-likely-than-not that these assets will be realized primarily through future reversals of existing taxable temporary differences or by offsetting projected future taxable income.

The Corporation had no unrecognized tax benefits as of December 31, 2017 and 2016.

The Corporation files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Corporation is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2014.