Income Taxes

12 Months Ended

Dec. 31, 2017

The current and deferred amounts of income tax expense (benefit) were as follows.



	Years Ended December 31,
	2017		2016		2015
	($ in Thousands)
Current
Federal	$	76,525	$	73,781	$	82,449
State	11,576		2,885		2,560
Total current	88,101		76,666		85,009
Deferred
Federal	19,755		3,338		(10,606		)
State	1,647		7,318		7,084
Total deferred	21,402		10,656		(3,522		)
Total income tax expense	$	109,503	$	87,322	$	81,487

Temporary differences between the amounts reported in the financial statements and the tax bases of assets and liabilities resulted in deferred taxes. Deferred tax assets and liabilities at December 31 were as follows.



	2017			2016
	($ in Thousands)
Deferred tax assets
Allowance for loan losses	$	66,377		$	100,891
Allowance for other losses	7,095			11,080
Accrued liabilities	3,884			5,969
Deferred compensation	20,015			33,169
Benefit of tax loss and credit carryforwards	8,438			7,882
Nonaccrual interest	1,619			1,085
Net unrealized losses on available-for-sale securities	15,968			16,980
Net unrealized losses on pension and postretirement benefits	9,928			21,218
Other	3,954			8,128
Total deferred tax assets	137,278			206,402
Valuation allowance for deferred tax assets	(269		)	—
Total deferred tax assets after valuation allowance	137,009			206,402

Deferred tax liabilities
Prepaid expenses	49,695			70,943
Goodwill	19,144			27,365
Mortgage banking activities	10,949			17,569
Deferred loan fee income	11,467			16,474
State deferred taxes	2,001			3,800
Lease financing	535			1,975
Bank premises and equipment	5,063			7,698
Other	4,838			8,594
Total deferred tax liabilities	103,692			154,418
Net deferred tax assets	$	33,317		$	51,984

At December 31, 2016, there was no valuation allowance for deferred tax assets. Management had determined that it was more likely than not that these assets could be realized through carry back to taxable income in prior years, future reversals of existing taxable temporary differences and future taxable income. The conclusion was based on the Corporation's historical earnings, its current level of earnings and prospects for continued growth and profitability. At December 31, 2017 the valuation allowance for deferred tax assets of approximately $269,000 was related to the deferred tax benefit of specific federal tax loss carryforwards of $3 million from the acquisition of Whitnell & Co. in 2017.



	2017		2016
	($ in Thousands)
Valuation allowance for deferred tax assets, beginning of year	$	—	$	—
Increase (decrease) in current year	269		—
Valuation allowance for deferred tax assets, end of year	$	269	$	—

At December 31, 2017 the Corporation had state net operating loss carryforwards of $78 million (of which $16 million was acquired from various acquisitions) that will begin expiring in 2032. The Corporation acquired Whitnell & Co. in October of 2017 which had federal net operating loss carryforwards at the time of acquisition. As a result of the change in control of the acquired subsidiary, Section 382 of the Internal Revenue Code places an annual limitation on the use of the subsidiary's net operating loss carryforwards. At December 31, 2017 the Corporation had federal net operating loss carryforwards from this acquisition of $3 million. The federal carryforwards, if unused, expire in calendar years 2029 through 2032.

The effective income tax rate differs from the statutory federal tax rate. The major reasons for this difference were as follows.



	2017		2016		2015
Federal income tax rate at statutory rate	35.0	%	35.0	%	35.0	%
Increases (decreases) resulting from:
Tax-exempt interest and dividends	(4.1	)%	(4.8	)%	(5.0	)%
State income taxes (net of federal benefit)	2.7	%	2.3	%	2.3	%
Bank owned life insurance	(1.7	)%	(1.7	)%	(1.2	)%
Tax effect of tax credits and benefits, net of related expenses	(0.5	)%	(0.8	)%	(0.5	)%
Tax reserve adjustments	(1.2	)%	0.3	%	(0.6	)%
Net tax benefit from stock-based compensation	(1.3	)%	(0.4	)%	—	%
Tax Cuts and Jobs Act impact on deferred remeasurement	3.5	%	—	%	—	%
Other	(0.1	)%	0.5	%	0.2	%
Effective income tax rate	32.3	%	30.4	%	30.2	%

Included in the Company’s income tax expense as of December 31, 2017 is tax expense from the remeasurement of deferred taxes totaling $12 million and an acceleration of amortization expense on the low income housing tax credit investment portfolio of $1 million related to the enactment of the Tax Act.

Savings banks acquired by the Corporation in 1997 and 2004 qualified under provisions of the Internal Revenue Code that permitted them to deduct from taxable income an allowance for bad debts that differed from the provision for such losses charged to income for financial reporting purposes. Accordingly, no provision for income taxes has been made for $100 million of retained income at December 31, 2017. If income taxes had been provided, the deferred tax liability would have been approximately $25 million. Management does not expect this amount to become taxable in the future; therefore, no provision for income taxes has been made.

The Corporation and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Corporation’s federal income tax returns are open and subject to examination from the 2014 tax return year and forward. The years open to examination by state and local government authorities varies by jurisdiction.

A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows.



	2017			2016
	($ in Millions)
Balance at beginning of year	$	10		$	9
Subtractions for tax positions related to prior years	(5		)	—
Subtractions for settlements with tax authorities	(1		)	—
Additions for tax positions related to current year	—			1
Balance at end of year	$	4		$	10

At December 31, 2017 and 2016, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $3 million and $7 million, respectively.

The Corporation recognizes interest and penalties accrued related to unrecognized tax benefits in the income tax expense line of the consolidated statements of income. Interest and penalty benefit was $1 million as of December 31, 2017 and none as of December 31, 2016. Accrued interest and penalties were $1 million and $2 million at December 31, 2017 and 2016, respectively. Management does not anticipate significant adjustments to the total amount of unrecognized tax benefits within the next twelve months.