Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Note 18 - Income Taxes

The components of income tax expense (benefit) included in the consolidated statements of income for the years ended December 31, 2020, 2019, and 2018 are presented below:

(in thousands)	2020		2019		2018
Current
Federal	$	187,741	$	112,517	$	75,582
State	9,421		2,085		7,081
Total current income tax expense	197,162		114,602		82,663
Deferred
Federal	(90,777)		46,182		24,894
State	4,585		40,451		11,321
Total deferred income tax (benefit) expense	(86,192)		86,633		36,215
Total income tax expense	$	110,970	$	201,235	$	118,878

Income tax expense does not reflect the tax effects of net unrealized gains (losses) on investment securities available for sale and net unrealized gains (losses) on derivative instruments designated as cash flow hedges. These effects are presented in the consolidated statements of comprehensive income.

Income tax expense as shown in the consolidated statements of income differed from the amounts computed by applying the U.S. federal income tax rate of 21 percent to income before income taxes for the years ended December 31, 2020, 2019, and 2018. A reconciliation of the differences is presented below:

	Years Ended December 31,
(dollars in thousands)	2020			2019			2018
Income tax expense at statutory federal income tax rate	$	101,779		$	160,653		$	114,944
Increase (decrease) resulting from:
State income tax expense, net of federal income tax benefit	11,168			33,764			17,270
Low income housing tax credits and other tax benefits	(13,858)			(8,454)			(6,421)
Low income housing tax credit amortization	11,247			6,871			5,316
Goodwill impairment	9,424			—			—
Income not subject to tax	(9,207)			(6,564)			(3,599)
FDIC premiums	4,744			5,802			2,529
Adjustment related to reduction in U.S. federal statutory income tax rate	—			—			(9,865)
Executive compensation	1,501			6,385			443
General business tax credits	(657)			(678)			(1,163)
Excess tax benefit from share-based compensation	311			(1,337)			(2,801)
Change in valuation allowance	—			—			(3,431)
Other, net	(5,482)			4,793			5,656
Total income tax expense	$	110,970		$	201,235		$	118,878
Effective tax rate	22.9		%	26.3		%	21.7		%

Details for significant portions of the deferred tax assets and liabilities at December 31, 2020 and 2019 are presented below:

(in thousands)	2020		2019
Deferred tax assets
Allowance for loan losses	$	165,691	$	73,929
Lease liability	98,340		99,053
Net operating loss carryforwards	29,684		38,972
Employee benefits and deferred compensation	27,917		28,874
Deferred revenue	24,751		8,237
Non-performing loan interest	12,472		5,232
Fair value of investment securities and loans	10,093		—
Tax credit carryforwards	8,605		21,076
Other	9,819		15,101
Total gross deferred tax assets	387,372		290,474
Less valuation allowance	(19,191)		(18,445)
Total deferred tax assets	368,181		272,029
Deferred tax liabilities
Right-of-use asset	(98,681)		(97,400)
Net unrealized gains (losses) on investment securities available for sale and cash flow hedges	(64,344)		(31,678)
Excess tax over financial statement depreciation	(40,452)		(41,097)
Purchase accounting intangibles	(14,458)		(15,184)
Prepaid expenses	(5,955)		(5,664)
Fair value of investment securities and loans	—		(8,602)
Other	(13,443)		(7,302)
Total gross deferred tax liabilities	(237,333)		(206,927)
Net deferred tax assets	$	130,848	$	65,102

The increase in the valuation allowance for the year ended December 31, 2020 was $746 thousand and relates to state NOLs expected to expire before they can be utilized.

Management assesses the realizability of deferred tax assets at each reporting period. The determination of whether a valuation allowance for deferred tax assets is appropriate is subject to considerable judgment and requires an evaluation of all the positive and negative evidence. At December 31, 2020, the Company is not in a three-year cumulative loss position; accordingly, it does not have significant negative evidence to consider when evaluating the realization of its deferred tax assets. Positive evidence supporting the realization of the Company’s deferred tax assets at December 31, 2020 includes generation of taxable income in 2020, 2019, and 2018, stable credit quality, strong capital position, as well as sufficient amounts of projected future taxable income, of the appropriate character, to support the realization of the $130.8 million net deferred tax asset at December 31, 2020. Synovus expects to realize its net deferred tax asset of $130.8 million through the reversal of existing taxable temporary differences and projected future taxable income. Based on the assessment of all the positive and negative evidence at December 31, 2020, management has concluded that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.

Synovus expects to realize substantially all of the $130.8 million in net deferred tax assets well in advance of the statutory carryforward period. At December 31, 2020, $111.8 million of existing net deferred tax assets are not related to NOLs or credits and therefore, have no expiration dates. $29.7 million of the deferred tax assets relate to federal and state NOLs which will expire in installments annually through the tax year 2034. State tax credits at December 31, 2020 total $8.6 million and have expiration dates through the tax year 2030.

State NOLs and tax credit carryforwards as of December 31, 2020 are summarized in the following table.

Tax Carryforwards	As of December 31, 2020
(in thousands)	Expiration Dates	Deferred Tax Asset Balance, Gross		Valuation Allowance		Net Deferred Tax Asset Balance		Pre-Tax Earnings Necessary to Realize(1)
Net operating losses - federal	2029-2032	$	19,903	$	(15,852)	$	4,051	$	19,292
Net operating losses - states	2023-2034	15,783		(3,339)		12,444		1,346,109
Other credits - states	2023-2030	12,733		—		12,733		N/A

(1)    N/A indicates credits are not measured on a pre-tax earnings basis.

Synovus is subject to income taxation in the United States and various state jurisdictions. Synovus' federal income tax return is filed on a consolidated basis, while state income tax returns are filed on both a consolidated and separate entity basis. Currently, there are no years for which Synovus filed a federal income tax return that are under examination by the IRS. Additionally, Synovus is no longer subject to income tax examinations by the IRS for years before 2017, and excluding certain limited exceptions, Synovus is no longer subject to income tax examinations by state and local income tax authorities for years before 2016. However, amounts reported as NOLs and tax credit carryovers from closed tax periods remain subject to review by most tax authorities. Although Synovus is unable to determine the ultimate outcome of current and future examinations, Synovus believes that the liability recorded for uncertain tax positions is adequate.

A reconciliation of the beginning and ending amount of unrecognized income tax benefits is as follows (unrecognized state income tax benefits are not adjusted for the federal income tax impact).

	Years Ended December 31,
(in thousands)	2020		2019		2018
Balance at January 1,	$	20,994	$	18,586	$	15,117
Additions based on income tax positions related to current year	461		550		1,165
Additions for income tax positions of prior years(1)	147		—		2,321
Additions from acquisition	—		3,464		—
Reductions for income tax positions of prior years	(327)		(1,589)		—
Statute of limitation expirations	(820)		(17)		(17)
Settlements	(205)		—		—
Balance at December 31,	$	20,250	$	20,994	$	18,586

(1)    Includes deferred tax benefits that could reduce future tax liabilities.

Accrued interest and penalties related to unrecognized income tax benefits are included as a component of income tax expense. Accrued interest and penalties on unrecognized income tax benefits totaled $2.7 million, $3.3 million, and $227 thousand as of December 31, 2020, 2019 and 2018, respectively. Unrecognized income tax benefits as of December 31, 2020, 2019 and 2018 that, if recognized, would affect the effective income tax rate totaled $19.1 million, $20.4 million and $15.2 million (net of the federal benefit on state income tax issues). Accruals and releases of penalties and interest resulted in a benefit of $366 thousand in 2020 and expense of $1.4 million and $193 thousand in 2019 and 2018, respectively. Synovus expects that $83 thousand of uncertain income tax positions will be either settled or resolved during the next twelve months.