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Income Taxes

12 Months Ended

Dec. 31, 2020

Note 13—Income Taxes

The provision for income taxes consists of the following:


	Year Ended December 31,
(Dollars in thousands)	2020		2019		2018
Current:
Federal	$	16,245	$	40,375	$	25,275
State		13,296		4,965		6,783
Total current tax expense		29,541		45,340		32,058
Deferred:
Federal		(36,801)		(1,598)		12,557
State		(9,400)		200		769
Total deferred tax (benefit) expense		(46,201)		(1,398)		13,326
(Benefit) provision for income taxes	$	(16,660)	$	43,942	$	45,384

The provision for income taxes differs from that computed by applying the federal statutory income tax rate of 21% in 2020, 2019 and 2018 to income before provision for income taxes, as indicated in the following analysis:


	Year Ended December 31,
(Dollars in thousands)	2020		2019		2018
Income taxes at federal statutory rate	$	21,834	$	48,389	$	47,094
Increase (reduction) of taxes resulting from:
State income taxes, net of federal tax benefit		3,077		4,080		5,916
Non-deductible merger expenses		1,344		—		—
Increase in cash surrender value of BOLI policies		(2,389)		(1,210)		(1,261)
Tax-exempt interest		(2,257)		(1,877)		(2,037)
Income tax credits		(7,138)		(6,881)		(3,118)
Non-deductible FDIC premiums		1,364		133		191
Non-deductible executive compensation		1,016		315		305
Revaluation of net deferred tax asset due to tax law change		—		—		(991)
Benefit of tax loss carryback under CARES Act		(31,468)		—		—
Other, net		(2,043)		993		(715)
	$	(16,660)	$	43,942	$	45,384

Tax Reform Act of 2017, among other things, lowered the maximum corporate tax rate from 35% to 21% beginning in 2018. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. As a result of the Tax Reform Act, the Company revalued its deferred tax assets and liabilities through the provision for income taxes.

The SEC staff issued Staff Accounting Bulletin No. 118 in December 2017 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company recognized a provisional tax impact of $26.6 million as additional income tax expense related to the revaluation of deferred tax assets and liabilities and included that amount in its consolidated financial statements for the year ended December 31, 2017. In addition to that, during 2018, the Company finalized its calculation for the revaluation of deferred tax assets and liabilities and recorded that impact in its consolidated financial statements for the year ended December 31, 2018.

The CARES Act was passed in March, 2020 in response to the global pandemic. As a result of the legislation, tax law changed to include the ability to carry back net operating losses ("NOLs") generated in 2018 through 2020 for five years, which was previously disallowed under The Tax Reform Act. Due to differences in tax and GAAP accounting rules, which relates to a tax method change to fair value for loans, the Company filed a short period tax return as of the merger date, which generated a NOL. This loss was carried back to the 2013 through 2015 tax years at a 35% tax rate, generating one time income tax benefit of $31.5 million.

The components of the net deferred tax asset are as follows:


	December 31,
(Dollars in thousands)	2020		2019
Allowance for credit losses	$	119,602	$	14,468
Other-than-temporary impairment on securities		268		250
Share-based compensation		2,807		4,975
Pension plan and post-retirement benefits		516		494
Deferred compensation		13,671		12,475
Purchase accounting adjustments		11,772		24,530
Other real estate owned		899		380
Net operating loss and tax credit carryforwards		26,229		10,347
Deferred loan fees and costs		12,826		—
Nonaccrual Interest		3,141		—
Lease liability		28,179		19,146
Cash flow hedge		—		3,034
Other		603		1,040
Total deferred tax assets		220,513		91,139
Unrealized gains on investment securities available for sale		13,026		2,373
Depreciation		18,326		6,585
Intangible assets		34,648		9,979
Net deferred loan costs		—		9,082
Right of use assets		27,012		19,465
Prepaid expense		1,950		474
Tax deductible goodwill		1,302		810
Mortgage servicing rights		6,134		6,688
Other		1,534		480
Total deferred tax liabilities		103,932		55,936
Net deferred tax assets before valuation allowance		116,581		35,203
Less, valuation allowance		(5,635)		(3,887)
Net deferred tax assets	$	110,946	$	31,316

The Company had federal net operating loss (“NOL”) and realized built-in loss carryforwards of $91.9 million and $31.5 million for the years ended December 31, 2020 and 2019, respectively, which expire in varying amounts between 2026 to 2036. All of the Company’s loss carryforwards are subject to Section 382 of the Internal Revenue Code, which places an annual limitation on the amount of federal net operating loss carryforwards which the Company may utilize after a change in control, and also limits the Company’s ability to utilize certain tax deductions (Realized Built-in Losses or RBIL) due to the existence of a Net Unrealized Built-in Loss (“NUBIL”) at the time of the change in control. The Company is allowed to carry forward any such limited RBIL under terms similar to those related to NOLs.

The Company acquired federal net operating loss carryforwards of $62.9 million in the 2020 merger with CSFL. These acquired NOLs are subject to a combined annual Section 382 limitation of $16.0 million. In total, the combined allowable deduction for all loss carryforwards on an annual basis is $20.7 million.

The Company also has acquired state net operating losses in Georgia, Florida and Alabama. These are also subject to annual limitations under Section 382, similar to the federal NOLs. The Company expects all Section 382 limited carryforwards to be realized within the applicable carryforward period.

The Company has state net operating loss carryforwards of $222.9 million and $108.6 million for the years ended December 31, 2020 and 2019, respectively, most of which expire in varying amounts through 2038. There is a valuation allowance of $7.1 million that relates to the parent company’s state operating loss carryforwards for which realizability is uncertain. The change in the valuation allowance for the current year was $3.2 million and for years ended December 31, 2019 and 2018, the change was immaterial.

During 2020, there were two events that impacted deferred taxes, but were not recorded through deferred tax expense (continuing operations); the impact of the adoption of CECL booked through retained earnings and recording of

deferred taxes acquired as part of the CenterState merger. The combined impact of those items in 2020 was $48.8 million.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deferred tax assets, net of the valuation allowance at December 31, 2020.

As of December 31, 2020, the Company has no material unrecognized tax benefits or accrued interest and penalties. It is the Company’s policy to account for interest and penalties accrued relative to unrecognized tax benefits as a component of income tax expense.

Generally, the Company’s federal and state income tax returns are no longer subject to examination by taxing authorities for years prior to 2017.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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