Income Taxes
The components of the provision (benefit) for income taxes for the years ended December 31, 2017, 2016 and 2015 were as follows (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Current: | | | | | |
Federal | $ | (251,880 | ) | | $ | 51,806 |
| | $ | 18,230 |
|
State | (15,733 | ) | | 27,708 |
| | (2,468 | ) |
| (267,613 | ) | | 79,514 |
| | 15,762 |
|
Deferred: | | | | | |
Federal | 46,377 |
| | 35,045 |
| | 20,509 |
|
State | 11,424 |
| | (4,856 | ) | | 8,962 |
|
| 57,801 |
| | 30,189 |
| | 29,471 |
|
| $ | (209,812 | ) | | $ | 109,703 |
| | $ | 45,233 |
|
A reconciliation of expected income tax expense at the statutory federal income tax rate of 35% to the Company’s effective income tax rate for the years ended December 31, 2017, 2016 and 2015 follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
| Amount | | Percent | | Amount | | Percent | | Amount | | Percent |
Tax expense calculated at the statutory federal income tax rate | $ | 141,561 |
| | 35.00 | % | | $ | 117,405 |
| | 35.00 | % | | $ | 103,912 |
| | 35.00 | % |
Increases (decreases) resulting from: | | | | | | | | | | | |
Income not subject to tax | (29,511 | ) | | (7.30 | )% | | (23,215 | ) | | (6.92 | )% | | (14,279 | ) | | (4.81 | )% |
State income taxes, net of federal tax benefit | 19,332 |
| | 4.78 | % | | 15,894 |
| | 4.74 | % | | 12,889 |
| | 4.34 | % |
Uncertain tax positions - lapse of statute of limitations | (2,696 | ) | | (0.66 | )% | | — |
| | — | % | | (6,166 | ) | | (2.08 | )% |
Discrete income tax benefit | (327,945 | ) | | (81.08 | )% | | — |
| | — | % | | (49,323 | ) | | (16.61 | )% |
Other, net | (10,553 | ) | | (2.61 | )% | | (381 | ) | | (0.12 | )% | | (1,800 | ) | | (0.60 | )% |
| $ | (209,812 | ) | | (51.87 | )% | | $ | 109,703 |
| | 32.70 | % | | $ | 45,233 |
| | 15.24 | % |
The discrete income tax benefit recognized in the year ended December 31, 2017 related to a matter that arose during an ongoing audit of the Company's 2013 federal income tax return. During that audit, the Company asserted that U.S. federal income taxes paid in respect of certain income previously reported by the Company on its 2012, 2013 and 2014 federal income tax returns related to the basis assigned to certain loans acquired in the FSB Acquisition should be refunded to the Company, in light of guidance issued after the relevant returns had been filed (including Treasury Regulations finalized in October 2017 clarifying and modifying the treatment of such acquired loans). The IRS issued a FAA in the fourth quarter of 2017 agreeing with the Company's position. In light of this communication, the Company concluded that it is more likely than not to realize this income tax benefit and recorded the benefit in the fourth quarter of 2017. Prior to receipt of the FAA, the Company had not taken a position reflecting this benefit on any original or amended income tax returns. The discrete income tax benefit recognized includes expected refunds of federal income tax of $295.0 million, as well as $8.7 million in estimated interest on the federal refund and estimated refunds of $24.2 million from certain state and local taxing jurisdictions.
The Company is continuing to evaluate whether it has claims in other state jurisdictions and whether it may have any claims for federal or state income taxes relating to tax years prior to 2012. The Company has not reached any conclusion as to when or to what extent it may have any claims relating to such other state and local taxing jurisdictions or in respect of prior tax years.
The discrete income tax benefit recognized in the year ended December 31, 2015 related to additional tax basis recognized with respect to certain assets. The additional tax basis results in increased taxable losses or reduced taxable income upon the final disposition of those assets.
The Tax Cuts and Jobs Act of 2017 was signed into law on December 22, 2017, reducing the statutory corporate federal income tax rate from 35 percent to 21 percent, effective January 1, 2018. A tax benefit of $3.7 million, representing the impact of the rate change on deferred tax assets and liabilities existing at the date of enactment, was recognized in earnings during the quarter ended December 31, 2017 and is included in the "Other, net" line item in the reconciliation above.
The components of deferred tax assets and liabilities at December 31, 2017 and 2016 were as follows (in thousands):
|
| | | | | | | |
| 2017 | | 2016 |
Deferred tax assets: | | | |
Excess of tax basis over carrying value of acquired loans | $ | 66,395 |
| | $ | 130,004 |
|
Allowance for loan and lease losses | 33,309 |
| | 52,670 |
|
Net operating loss and tax credit carryforwards | 15,892 |
| | 11,641 |
|
Other | 31,859 |
| | 51,911 |
|
Gross deferred tax assets | 147,455 |
| | 246,226 |
|
Deferred tax liabilities: | | | |
Net unrealized gains on investment securities available for sale | 24,657 |
| | 30,566 |
|
Lease financing, due to differences in depreciation | 113,161 |
| | 145,700 |
|
Other | 13,468 |
| | 7,020 |
|
Gross deferred tax liabilities | 151,286 |
| | 183,286 |
|
Net deferred tax asset (liability) | $ | (3,831 | ) | | $ | 62,940 |
|
Based on the evaluation of available evidence, management has concluded that it is more likely than not that the existing deferred tax assets will be realized. The primary factors supporting this conclusion are the amount of taxable income available for carryback and the amount of future taxable income that will result from the scheduled reversal of existing deferred tax liabilities.
At December 31, 2017, remaining carryforwards included federal net operating loss carryforwards in the amount of $10.0 million, expiring from 2029 through 2032, Florida net operating loss carryforwards in the amount of $100.4 million, expiring from 2030 through 2036, and state tax credit carryforwards in the amount of $9.4 million, expiring through 2018.
Deferred tax benefits of $2.0 million were recognized for the year ended December 31, 2015 related to enacted changes in state tax laws.
The Company has investments in affordable housing limited partnerships which generate federal Low Income Housing Tax Credits and other tax benefits. The balance of these investments, included in other assets in the accompanying consolidated balance sheet, was $64 million and $71 million at December 31, 2017 and 2016, respectively. Unfunded commitments for affordable housing investments, included in other liabilities in the accompanying consolidated balance sheet, were $26 million and $53 million at December 31, 2017 and 2016, respectively. The maximum exposure to loss as a result of the Company's involvement with these limited partnerships at December 31, 2017 was approximately $72 million. While the Company believes the likelihood of potential losses from these investments is remote, the maximum exposure was determined by assuming a scenario where the projects completely fail and do not meet certain government compliance requirements resulting in recapture of the related tax credits. These investments did not have a material impact on income tax expense for the years ended December 31, 2017, 2016 and 2015.
The Company has a liability for unrecognized tax benefits relating to uncertain state tax positions in several jurisdictions. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for the years ended December 31, 2017, 2016 and 2015 follows (in thousands):
|
| | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
Balance, beginning of period | $ | 72,736 |
| | $ | 43,412 |
| | $ | 36,622 |
|
Additions for tax positions related to the current year | 1,882 |
| | 2,713 |
| | 2,909 |
|
Additions for tax positions related to prior periods | 1,661 |
| | 25,168 |
| | 11,618 |
|
Reductions due to changes in tax positions taken | (15,316 | ) | | — |
| | — |
|
Reductions due to settlements with taxing authorities | — |
| | (200 | ) | | (246 | ) |
Reductions due to lapse of the statute of limitations | (2,229 | ) | | — |
| | (5,438 | ) |
| 58,734 |
| | 71,093 |
| | 45,465 |
|
Interest and penalties | 486 |
| | 1,643 |
| | (2,053 | ) |
Balance, end of period | $ | 59,220 |
| | $ | 72,736 |
| | $ | 43,412 |
|
As of December 31, 2017, 2016 and 2015, the Company had $43.6 million, $45.0 million and $27.0 million of unrecognized state tax benefits, net of federal tax benefits, that if recognized would have impacted the effective tax rate. Unrecognized tax benefits related to state income tax contingencies that may decrease during the 12 months subsequent to December 31, 2017 as a result of settlements with taxing authorities range from zero to $41.2 million.
Interest and penalties related to unrecognized tax benefits are included in the provision for income taxes in the consolidated statements of income. At December 31, 2017 and 2016, accrued interest and penalties included in the consolidated balance sheets, net of federal tax benefits, were $3.2 million and $2.5 million, respectively. The total amounts of interest and penalties, net of federal tax benefits, recognized through income tax expense were $0.3 million, $1.1 million and $(1.8) million in 2017, 2016 and 2015, respectively.
The Company and its subsidiaries file a consolidated federal income tax return as well as combined state income tax returns where combined filings are required. Income tax returns for the tax years ended December 31, 2017, 2016, 2015, 2014 and 2013 remain subject to examination in the U.S. Federal and various state tax jurisdictions. The tax years ended December 31, 2009, 2010, 2011 and 2012 remain subject to examination by certain states.