Income Taxes
The provision for income taxes charged to operations consists of the following for the years ended September 30, 2017, 2016 and 2015: |
| | | | | | | | | | | |
| September 30, |
| 2017 | | 2016 | | 2015 |
| (dollars in thousands) |
Currently paid or payable | | | | | |
Federal | $ | 56,171 |
| | $ | 51,749 |
| | $ | 38,105 |
|
State | 10,639 |
| | 8,677 |
| | 7,342 |
|
Total | 66,810 |
| | 60,426 |
| | 45,447 |
|
Deferred tax (benefit) expense | | | | | |
Federal | 2,477 |
| | (1,513 | ) | | 6,688 |
|
State | 154 |
| | $ | (50 | ) | | $ | 352 |
|
Total | 2,631 |
| | (1,563 | ) | | 7,040 |
|
Total provision for income taxes | $ | 69,441 |
| | $ | 58,863 |
| | $ | 52,487 |
|
The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate of 35% to pretax income due to the following for the years ended September 30, 2017, 2016 and 2015: |
| | | | | | | | | | | |
| September 30, |
| 2017 | | 2016 | | 2015 |
| (dollars in thousands) |
Income tax expense computed at the statutory rate | $ | 74,979 |
| | $ | 63,041 |
| | $ | 56,543 |
|
Increase (decrease) in income taxes resulting from: | | | | | |
State income taxes, net of federal benefit | 7,015 |
| | 5,608 |
| | 4,772 |
|
Tax exempt interest income | (7,973 | ) | | (7,534 | ) | | (6,560 | ) |
Tax benefit of stock-based compensation plans | (2,153 | ) | | — |
| | — |
|
Other | (2,427 | ) | | (2,252 | ) | | (2,268 | ) |
Income tax expense, as reported | $ | 69,441 |
| | $ | 58,863 |
| | $ | 52,487 |
|
Net deferred tax assets (liabilities) consist of the following components at September 30, 2017 and 2016: |
| | | | | | | |
| September 30, |
| 2017 | | 2016 |
| (dollars in thousands) |
Deferred tax assets: | | | |
Allowance for loan and lease losses | $ | 23,730 |
| | $ | 24,016 |
|
Compensation | 6,227 |
| | 6,306 |
|
Net operating loss carryforward | — |
| | 17 |
|
Securities available for sale | 3,413 |
| | — |
|
Other real estate owned | 763 |
| | 1,231 |
|
Core deposit intangible and other fair value adjustments | 6,058 |
| | 7,303 |
|
Excess tax basis of FDIC indemnification asset and clawback liability | 4,563 |
| | 2,514 |
|
Excess tax basis of loans acquired over carrying value | 9,417 |
| | 12,896 |
|
Other reserves | 4,406 |
| | 2,989 |
|
Other | 6,922 |
| | 4,580 |
|
Total deferred tax assets | 65,499 |
| | 61,852 |
|
Deferred tax liabilities: | | | |
Goodwill and other intangibles | (13,784 | ) | | (11,555 | ) |
Securities available for sale | — |
| | (3,398 | ) |
Premises and equipment | (8,828 | ) | | (7,758 | ) |
Other | (487 | ) | | (795 | ) |
Total deferred tax liabilities | (23,099 | ) | | (23,506 | ) |
Net deferred tax assets | $ | 42,400 |
| | $ | 38,346 |
|
At September 30, 2017 the Company had an income tax receivable from the IRS of $4.6 million, which is included in other assets on the consolidated balance sheets. At September 30, 2016, the Company had an income tax receivable from the IRS of $0.2 million and an income tax payable of $1.6 million to National Americas Holdings, LLC (the parent company of NAI prior to its dissolution), the net of which is included in other assets on the consolidated balance sheets.
Management has determined a valuation reserve is not required for the deferred tax assets as of September 30, 2017 and 2016 because it is more likely than not these assets could be realized through carry back to taxable income in prior years, future reversals of existing taxable temporary differences, and future taxable income.
Due to the HF Financial acquisition, the Company maintains an unrecaptured tax bad debt reserve of approximately $4.8 million related to HF Financial’s pre-1987 tax bad debt reserve for which no deferred federal income tax liability has been recognized. These amounts represent an allocation of income to bad debt deductions for tax purposes only. If the Bank no longer qualifies as a bank, or in the event of a liquidation of the Bank, income would be created for tax purposes only, which would be subject to the then current corporate income tax rate. The unrecorded deferred income tax liability on the above amount for financial statement purposes is approximately $1.8 million.
Uncertain tax positions were not significant at September 30, 2017 or 2016.
The Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2013.