RENASANT CORP

Income Taxes

(In Thousands)

Significant components of the provision for income taxes are as follows for the periods presented:



	Year Ended December 31,
	2017		2016		2015
Current
Federal	$	28,380	$	31,679	$	17,004
State	1,354		2,131		995
	29,734		33,810		17,999
Deferred
Federal	22,314		10,480		12,625
State	1,147		557		1,126
Revaluation of net deferred tax assets as a result of the Tax Cuts and Jobs Act	14,486		—		—
	37,947		11,037		13,751
	$	67,681	$	44,847	$	31,750

The reconciliation of income taxes computed at the United States federal statutory tax rates to the provision for income taxes is as follows, for the periods presented:



	Year Ended December 31,
	2017			2016			2015
Tax at U.S. statutory rate	$	55,955		$	47,522		$	34,918
Increase (decrease) in taxes resulting from:
Tax-exempt interest income	(3,595		)	(3,467		)	(3,377		)
BOLI income	(1,524		)	(1,622		)	(1,264		)
Investment tax credits	(1,591		)	(1,390		)	(1,390		)
Amortization of investment in low-income housing tax credits	1,873			1,742			1,734
State income tax expense, net of federal benefit	1,626			1,747			1,378
Revaluation of net deferred tax assets as a result of the Tax Cuts and Jobs Act	14,486			—			—
Other items, net	451			315			(249		)
	$	67,681		$	44,847		$	31,750

Significant components of the Company’s deferred tax assets and liabilities are as follows for the periods presented:



	December 31,
	2017		2016
Deferred tax assets
Allowance for loan losses	$	13,966	$	19,934
Loans	15,062		23,240
Deferred compensation	7,093		11,254
Net unrealized losses on securities	3,659		10,096
Impairment of assets	1,748		2,512
Net operating loss carryforwards	2,419		2,867
Other	4,722		7,149
Gross deferred tax assets	48,669		77,052
Valuation allowance on state net operating loss carryforwards	—		—
Total deferred tax assets	48,669		77,052
Deferred tax liabilities
Investment in partnerships	757		1,556
Depreciation	3,163		2,517
Mortgage servicing rights	10,139		3,360
Subordinated debt	2,394		4,111
Other	1,859		2,876
Total deferred tax liabilities	18,312		14,420
Net deferred tax assets	$	30,357	$	62,632

The Tax Cuts and Jobs Act (the “Tax Act”), enacted on December 22, 2017, among other things, permanently lowered the statutory federal corporate tax rate from 35% to 21%, effective for tax years including or beginning January 1, 2018. Under the guidance of ASC 740, “Income Taxes” (“ASC 740”), the Company revalued its net deferred tax assets on the date of enactment based on the reduction in the overall future tax benefit expected to be realized at the lower tax rate implemented by the new legislation. After reviewing the Company's inventory of deferred tax assets and liabilities on the date of enactment and giving consideration to the future impact of the lower corporate tax rates and other provisions of the new legislation, the Company's revaluation of its net deferred tax assets was $14,486, which was included in “Income taxes” in the Consolidated Statements of Income. Although in the normal course of business the Company is required to make estimates and assumptions for certain tax items which cannot be fully determined at period end, the Company did not identify items for which the income tax effects of the Tax Act have not been completed as of December 31, 2017 and, therefore, considers its accounting for the tax effects of the Tax Act on its deferred tax assets and liabilities to be complete as of December 31, 2017.

The Company and its subsidiaries file a consolidated U.S. federal income tax return. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending December 31, 2014 through 2016. The Company and its subsidiaries’ state income tax returns are open to audit under the statute of limitations for the years ended December 31, 2013 through 2016.

The Company acquired federal and state net operating losses as part of the Metropolitan and Heritage acquisitions. The federal and state net operating losses acquired in the Metropolitan acquisition were $11,788 and $12,881, respectively, none of which remained to be utilized as of December 31, 2017. The federal net operating loss acquired in the Heritage acquisition totaled $18,321, of which $5,920 remained to be utilized as of December 31, 2017, while state net operating losses totaled $17,168, of which $7,319 remained to be utilized as of December 31, 2017. Both the federal and state net operating losses will expire at various dates beginning in 2031; however, the Company expects to utilize the federal and state net operating losses prior to expiration. Because the benefits are expected to be fully realized, the Company recorded no valuation allowance against the net operating losses for the year end December 31, 2017.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest, related to federal and state income tax matters as of December 31 follows below. These amounts have been adjusted for the change in the tax rate from 35% to 21%.



	2017			2016		2015
Balance at January 1	$	1,510		$	1,485	$	2,653
Additions based on positions related to current period	467			25		367
Additions based on positions related to prior period	—			—		—
Reductions based on positions related to prior period	—			—		(201		)
Settlements	—			—		(1,334		)
Reductions due to lapse of statute of limitations	(371		)	—		—
Balance at December 31	$	1,606		$	1,510	$	1,485

If ultimately recognized, the Company does not anticipate any material increase in the effective tax rate for 2017 relative to any tax positions taken prior to January 1, 2017. The Company had accrued $169, $169 and $125 for interest and penalties related to unrecognized tax benefits as of December 31, 2017, 2016 and 2015, respectively.