Income Taxes
Income tax expense consisted of the following:
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
| (In Thousands) |
Current income tax expense: | | | | | |
Federal | $ | 158,531 |
| | $ | 154,572 |
| | $ | 275,135 |
|
State | 19,588 |
| | 13,322 |
| | 12,409 |
|
Total | 178,119 |
| | 167,894 |
| | 287,544 |
|
Deferred income tax expense (benefit): | | | | | |
Federal | 141,093 |
| | (19,973 | ) | | (102,070 | ) |
State | (3,136 | ) | | (1,900 | ) | | (8,972 | ) |
Total | 137,957 |
| | (21,873 | ) | | (111,042 | ) |
Total income tax expense | $ | 316,076 |
| | $ | 146,021 |
| | $ | 176,502 |
|
Income tax expense differed from the amount computed by applying the federal statutory income tax rate to pretax earnings for the following reasons:
|
| | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
| Amount | | Percent of Pretax Earnings | | Amount | | Percent of Pretax Earnings | | Amount | | Percent of Pretax Earnings |
| (Dollars in Thousands) |
Income tax expense at federal statutory rate | $ | 271,902 |
| | 35.0 | % | | $ | 181,140 |
| | 35.0 | % | | $ | 239,351 |
| | 35.0 | % |
Increase (decrease) resulting from: | | | | | | | | | | | |
Goodwill impairment | — |
| | — |
| | 20,965 |
| | 4.0 |
| | 5,950 |
| | 0.9 |
|
Tax-exempt interest income | (56,814 | ) | | (7.3 | ) | | (51,246 | ) | | (9.9 | ) | | (49,170 | ) | | (7.2 | ) |
Change in valuation allowance | (1,167 | ) | | (0.2 | ) | | 402 |
| | 0.1 |
| | (2,029 | ) | | (0.3 | ) |
Bank owned life insurance | (5,988 | ) | | (0.8 | ) | | (6,035 | ) | | (1.2 | ) | | (6,082 | ) | | (0.9 | ) |
Income tax credits | (25,635 | ) | | (3.3 | ) | | (11,257 | ) | | (2.2 | ) | | (10,238 | ) | | (1.5 | ) |
State income tax, net of federal income taxes | 14,118 |
| | 1.8 |
| | 7,106 |
| | 1.4 |
| | 4,154 |
| | 0.6 |
|
Revaluation of net deferred tax assets (1) | 121,244 |
| | 15.7 |
| | — |
| | — |
| | — |
| | — |
|
Other | (1,584 | ) | | (0.2 | ) | | 4,946 |
| | 1.0 |
| | (5,434 | ) | | (0.8 | ) |
Income tax expense | $ | 316,076 |
| | 40.7 | % | | $ | 146,021 |
| | 28.2 | % | | $ | 176,502 |
| | 25.8 | % |
(1) Includes approximately $40 million of expense related to items in accumulated other comprehensive income in which the related tax effects were originally recognized in other comprehensive income.
On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act into legislation, which reduces the corporate tax rate from 35% to 21% effective January 1, 2018. ASC Topic 740, Income Taxes, requires the effect of a change in tax laws or rates to be recognized as of the date of enactment. The Company has recorded tax expense of $121.2 million, primarily due to the remeasurement of deferred tax assets and liabilities at the federal tax rate of 21%. At December 31, 2017, the Company has recorded the effects of the change in tax law for the deferred tax assets and tax liabilities for which the accounting is complete and reported provisional amounts for the effects of the tax law changes for the deferred tax assets and liabilities for which the accounting is not complete, but for which a reasonable estimate can be determined. The Company may have to adjust the provisional amounts when it obtains, prepares or analyzes additional information about facts and circumstances that existed at the enactment date when the Company files its federal tax return for the tax year 2018 but no later than the measurement period of one year.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below.
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
| (In Thousands) |
Deferred tax assets: | | | |
Allowance for loan losses | $ | 197,563 |
| | $ | 309,655 |
|
Accrued expenses | 89,847 |
| | 121,459 |
|
Loan valuation | — |
| | 48,880 |
|
Net unrealized losses on investment securities available for sale, hedging instruments and defined benefit plan adjustment | 73,424 |
| | 98,916 |
|
Other real estate owned | 467 |
| | 567 |
|
Nonaccrual interest | 17,737 |
| | 22,707 |
|
Federal net operating loss carryforwards | 6,906 |
| | 15,041 |
|
Other | 35,416 |
| | 57,216 |
|
Gross deferred taxes | 421,360 |
| | 674,441 |
|
Valuation allowance | (11,641 | ) | | (14,639 | ) |
Total deferred tax assets | 409,719 |
| | 659,802 |
|
Deferred tax liabilities: | | | |
Premises and equipment | 147,542 |
| | 243,113 |
|
Core deposit and other acquired intangibles | 6,864 |
| | 13,117 |
|
Capitalized loan costs | 32,584 |
| | 47,527 |
|
Loan valuation | 1,648 |
| | — |
|
Other | 12,832 |
| | 24,309 |
|
Total deferred tax liabilities | 201,470 |
| | 328,066 |
|
Net deferred tax asset | $ | 208,249 |
| | $ | 331,736 |
|
As of December 31, 2017 and 2016, the Company has approximately $14.1 million and $24.1 million of federal net operating loss carryforwards for future utilization, primarily attributable to Simple in 2017 and 2016. These losses begin to expire in 2034. The Company believes that it is more likely than not that the benefit from these deferred tax assets will be realized.
A real estate investment subsidiary of the Company has net operating loss carryforwards of approximately $18.8 million at both December 31, 2017 and 2016. These losses begin to expire in 2030. The Company has determined that it is more likely than not the benefit from this deferred tax asset will not be realized in the carryforward period and has recorded a full valuation allowance of approximately $4.0 million and $6.6 million against the assets at December 31, 2017 and 2016, respectively.
Additionally, the Company has state net operating loss carryforwards of approximately $231.0 million and $238.0 million at December 31, 2017 and 2016, respectively. These state net operating losses expire in years 2018 through 2034. The Company believes it is more likely than not the benefit from certain state net operating loss carryforwards will not be realized, and, accordingly, has established a valuation allowance associated with these net operating loss carryforwards. The Company had recorded a valuation allowance of approximately $7.7 million and $8.0 million at December 31, 2017 and 2016, respectively, related to these state net operating loss carryforwards.
The following is a tabular reconciliation of the total amounts of the gross unrecognized tax benefits.
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
| (In Thousands) |
Unrecognized income tax benefits, at beginning of year | $ | 13,615 |
| | $ | 16,552 |
| | $ | 28,286 |
|
Increases for tax positions related to: | | | | | |
Prior years | 414 |
| | — |
| | 58 |
|
Current year | 2,196 |
| | 1,933 |
| | 1,537 |
|
Decreases for tax positions related to: | | | | | |
Prior years | — |
| | (2,185 | ) | | (85 | ) |
Current year | — |
| | — |
| | — |
|
Settlement with taxing authorities | — |
| | (1,174 | ) | | (583 | ) |
Expiration of applicable statutes of limitation | (1,309 | ) | | (1,511 | ) | | (12,661 | ) |
Unrecognized income tax benefits, at end of year | $ | 14,916 |
| | $ | 13,615 |
| | $ | 16,552 |
|
During the years ended December 31, 2017, 2016 and 2015, the Company recognized benefits of $(872) thousand, $(1.8) million and $(3.2) million, respectively, for interest and penalties related to the unrecognized tax benefits noted above. At December 31, 2017 and 2016, the Company had approximately $4.3 million and $5.1 million, respectively, of accrued interest and penalties recognized related to unrecognized tax benefits within accrued expenses and other liabilities. Included in the balance of unrecognized tax benefits at December 31, 2017, 2016 and 2015 were $14.9 million, $13.6 million and $16.6 million, respectively, of tax benefits that, if recognized after the balance sheet date, would affect the effective tax rate.
The Company and its subsidiaries are routinely examined by various taxing authorities. The following table summarizes the tax years that are either currently under examination or remain open under the statute of limitations and subject to examination by the major tax jurisdictions in which the Company operates:
|
| | |
Jurisdictions | | Open Tax Years |
Federal | | 2014-2017 |
Various states (1) | | 2006-2017 |
(1)Major state tax jurisdictions include Alabama, California, Texas and New York.
The Company believes that it has adequately reserved on federal and state issues and any variance on final resolution, whether over or under the reserve amount, would be immaterial to the financial statements.
It is reasonably possible that the above unrecognized tax benefits could be reduced by approximately $7 million in 2018 due to statute expiration and audit settlement.