TRUSTMARK CORP

Note 13 – Income Taxes

The income tax provision included in the consolidated statements of income was as follows for the periods presented ($ in thousands):

	Years Ended December 31,
Current	2017			2016		2015
Federal	$	16,959		$	10,355	$	18,448
State		5,687			2,698		2,166
Deferred
Federal		7,280			15,647		12,865
State		1,820			2,353		1,935
Income tax provision excluding deferred tax asset
revaluation and reversal of valuation allowance		31,746			31,053		35,414

Deferred tax expense (benefit) - re-measurement of deferred tax assets		25,619			—		—
Deferred tax expense (benefit) - reversal of valuation allowance		(8,650	)		—		—
Income tax provision	$	48,715		$	31,053	$	35,414

Trustmark maintained a valuation allowance for deferred tax assets of $8.7 million at December 31, 2016 that was related to unrealized built-in losses from a prior acquisition. Trustmark has determined that based on the weight of the available evidence that it is more likely than not that all deferred tax assets will be realized as of December 31, 2017. Therefore, the valuation allowance was reversed as of December 31, 2017, resulting in a decrease of $8.7 million to income tax expense for the year.

The re-measurement of the deferred tax assets and liabilities during 2017 resulted from the enactment of the Tax Reform Act, which was signed into law on December 22, 2017. Under the Tax Reform Act, corporate statutory income tax rates were reduced from 35.0% to 21.0% effective January 1, 2018. Trustmark re-measured its deferred tax assets and liabilities to reflect the future realization of these assets and liabilities at the lower tax rate. This re-measurement resulted in an increase to tax expense and a decrease to the net deferred tax asset of $25.6 million for the year ended December 31, 2017.

For the periods presented, the income tax provision differs from the amount computed by applying the statutory federal income tax rate of 35.0% to income before income taxes as a result of the following ($ in thousands):

	Years Ended December 31,
	2017			2016			2015
Income tax computed at statutory tax rate	$	54,021		$	48,812		$	53,008
Tax exempt interest		(7,611	)		(6,780	)		(5,908	)
Nondeductible interest expense		407			201			119
State income taxes, net		3,697			1,754			1,408
Income tax credits, net		(15,793	)		(16,183	)		(15,283	)
Death benefit gains		(3,268	)		—			—
Reversal of valuation allowance		(8,650	)		—			—
Re-measurement of deferred tax assets		25,619			—			—
Other		293			3,249			2,070
Income tax provision	$	48,715		$	31,053		$	35,414

Temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities gave rise to the following net deferred tax assets at December 31, 2017 and 2016, which are included in other assets ($ in thousands):

	December 31,
	2017		2016
Deferred tax assets:
Loan purchase accounting	$	3,638	$	9,341
Other real estate		13,403		25,750
Allowance for loan losses		20,203		31,618
Deferred compensation		15,184		21,893
Realized built-in losses		12,932		18,699
Securities		4,869		9,256
Pension and other postretirement benefit plans		5,453		15,545
Interest on nonaccrual loans		774		2,093
Unrealized losses on securities available for sale		5,874		3,629
Stock-based compensation		2,067		3,031
Federal carryovers		4,569		—
Other		8,964		13,731
Gross deferred tax asset		97,930		154,586
Valuation allowance		—		(8,650	)
Deferred tax asset net of valuation allowance		97,930		145,936

Deferred tax liabilities:
Goodwill and other identifiable intangibles		16,729		25,666
Premises and equipment		11,877		19,391
Mortgage servicing rights		9,964		12,159
Securities		1,345		1,697
Leases		—		60
Other		5,040		6,891
Gross deferred tax liability		44,955		65,864
Net deferred tax asset	$	52,975	$	80,072

Trustmark has completed its accounting for the effects of the Tax Reform Act on its deferred tax assets and liabilities. In the course of normal operations, Trustmark is required to make reasonable estimates for certain tax items which could not be fully determined at year-end, but will be finalized when its tax return is filed in October 2018. However, Trustmark does not believe that any adjustments resulting from the finalization of the tax return will have a material impact on its financial statements.

The following table provides a summary of the changes during the 2017 calendar year in the amount of unrecognized tax benefits that are included in other liabilities in the consolidated balance sheet ($ in thousands):

Balance at January 1, 2017	$	1,734
Increases due to tax positions taken during the current year		303
Decreases due to tax positions taken during a prior year		(853	)
Decreases due to the lapse of applicable statute of limitations during the current year		(79	)
Decreases due to settlements with taxing authorities during the current year		—
Balance at December 31, 2017	$	1,105

Accrued interest, net of federal benefit, at December 31, 2017	$	217

Unrecognized tax benefits that would impact the effective tax rate, if recognized, at December 31, 2017	$	883

Interest and penalties related to unrecognized tax benefits, if any, are recorded in income tax expense. With limited exception, Trustmark is no longer subject to U.S. federal, state and local audits by tax authorities for 2011 and earlier tax years. Trustmark does not anticipate a significant change to the total amount of unrecognized tax benefits within the next twelve months.