13. Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law. The TCJA makes broad and complex changes to the U.S. tax code that affected our income tax rate in 2017. The TCJA reduces the U.S. federal corporate income tax rate from 35% to 21%. The TCJA also establishes new tax laws that will affect 2018.
ASC 740 requires a company to record the effects of a tax law change in the period of enactment, however, shortly after the enactment of the TCJA, the SEC staff issued SAB 118, which allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law. The measurement period ends when the company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.
The following is a summary of the components of the provision (benefit) for income taxes for the years ended December 31, 2017, 2016 and 2015:
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| (In thousands) | ||||||||||||
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Current: |
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Federal |
$ | 76,569 | $ | 77,418 | $ | 61,007 | ||||||
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State |
25,347 | 15,377 | 12,117 | |||||||||
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Total current |
101,916 | 92,795 | 73,124 | |||||||||
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Deferred: |
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Federal |
25,607 | 10,600 | 5,980 | |||||||||
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State |
8,477 | 2,105 | 1,188 | |||||||||
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Total deferred |
34,084 | 12,705 | 7,168 | |||||||||
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Income tax expense |
$ | 136,000 | $ | 105,500 | $ | 80,292 | ||||||
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The reconciliation between the statutory federal income tax rate and effective income tax rate is as follows for the years ended December 31, 2017, 2016 and 2015:
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
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Statutory federal income tax rate |
35.00 | % | 35.00 | % | 35.00 | % | ||||||
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Effect of non-taxable interest income |
(1.57 | ) | (1.52 | ) | (1.91 | ) | ||||||
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Effect of gain on acquisitions |
(0.49 | ) | — | (0.26 | ) | |||||||
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Stock compensation |
(0.67 | ) | — | — | ||||||||
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State income taxes, net of federal benefit |
4.05 | 4.08 | 4.02 | |||||||||
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Effect of tax rate change |
13.62 | — | — | |||||||||
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Other |
0.23 | (0.23 | ) | (0.10 | ) | |||||||
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Effective income tax rate |
50.17 | % | 37.33 | % | 36.75 | % | ||||||
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As of December 31, 2017, the Company performed an analysis to determine the impact of the revaluation of the deferred tax asset of approximately $113.5 million. The impact as of December 31, 2017 of this was a one-time non-cash charge to the income statement of approximately $36.9 million that reduced the Company’s 2017 earnings.
The types of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities, and their approximate tax effects, are as follows:
| December 31, 2017 | December 31, 2016 | |||||||
| (In thousands) | ||||||||
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Deferred tax assets: |
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Allowance for loan losses |
$ | 29,515 | $ | 31,381 | ||||
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Deferred compensation |
1,142 | 3,925 | ||||||
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Stock compensation |
2,731 | 669 | ||||||
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Real estate owned |
1,731 | 2,296 | ||||||
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Unrealized loss on securities available-for-sale |
1,471 | — | ||||||
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Loan discounts |
32,784 | 9,157 | ||||||
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Tax basis premium/discount on acquisitions |
8,802 | 14,757 | ||||||
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Investments |
1,155 | 1,957 | ||||||
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Other |
11,663 | 8,361 | ||||||
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Gross deferred tax assets |
90,994 | 72,503 | ||||||
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Deferred tax liabilities: |
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Accelerated depreciation on premises and equipment |
291 | 2,154 | ||||||
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Unrealized gain on securities available-for-sale |
— | 258 | ||||||
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Core deposit intangibles |
11,258 | 4,950 | ||||||
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FHLB dividends |
1,625 | 1,926 | ||||||
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Other |
1,256 | 1,917 | ||||||
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Gross deferred tax liabilities |
14,430 | 11,205 | ||||||
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Net deferred tax assets |
$ | 76,564 | $ | 61,298 | ||||
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The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and the states of Arkansas, Alabama, Florida, New York and California. The Company is no longer subject to U.S. federal and state tax examinations by tax authorities for years before 2013.
The Company recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense. During the years ended December 31, 2017, 2016 and 2015, the Company did not recognize any significant interest or penalties. The Company did not have any interest or penalties accrued at December 31, 2017, 2016 and 2015.