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Income Taxes
12 Months Ended
Dec. 31, 2022
Income Taxes  
Income Taxes

Note 12—Income Taxes

The provision for income taxes consists of the following:

Year Ended December 31,

 

(Dollars in thousands)

2022

2021

2020

 

Current:

    

    

    

    

    

    

Federal

$

5,940

$

43,959

$

16,245

State

 

7,044

 

16,512

 

13,296

Total current tax expense

 

12,984

 

60,471

 

29,541

Deferred:

Federal

 

103,875

 

61,521

 

(36,801)

State

 

20,454

 

6,744

 

(9,400)

Total deferred tax expense (benefit)

 

124,329

 

68,265

 

(46,201)

Provision (benefit) for income taxes

$

137,313

$

128,736

$

(16,660)

The provision for income taxes differs from that computed by applying the federal statutory income tax rate of 21% in 2022, 2021 and 2020 to income before provision for income taxes, as indicated in the following analysis:

Year Ended December 31,

 

(Dollars in thousands)

2022

2021

2020

 

Income taxes at federal statutory rate

    

$

133,006

    

$

126,899

    

$

21,834

Increase (reduction) of taxes resulting from:

State income taxes, net of federal tax benefit

 

21,491

 

18,372

 

3,077

Non-deductible merger expenses

415

1,344

Increase in cash surrender value of BOLI policies

(5,105)

(3,866)

(2,389)

Tax-exempt interest

 

(7,828)

 

(5,450)

 

(2,257)

Income tax credits

 

(13,667)

 

(11,759)

 

(7,138)

Non-deductible FDIC premiums

3,287

2,380

1,364

Non-deductible executive compensation

4,319

530

1,016

Benefit of tax loss carryback under CARES Act

(31,468)

Other, net

 

1,395

 

1,630

 

(2,043)

$

137,313

$

128,736

$

(16,660)

The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are

expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

As a result of the CARES Act, tax law changed to include the ability to carry back net operating losses ("NOLs") generated in 2018 through 2020 for five years, which was previously disallowed under The Tax Reform Act. Due to differences in tax and GAAP accounting rules, which relates to a tax method change to fair value for loans, the Company filed a short period tax return as of the merger date, which generated a net operating loss (“NOL”). This loss was carried back to the 2015 through 2017 tax years at a 35% tax rate, generating an income tax benefit of $31.5 million during 2020.

The components of the net deferred tax asset are as follows:

December 31,

 

(Dollars in thousands)

2022

2021

 

Allowance for credit losses

    

$

101,416

    

$

81,767

Share-based compensation

 

10,509

 

6,290

Pension plan and post-retirement benefits

 

1,157

 

752

Deferred compensation

 

14,583

 

14,437

Purchase accounting adjustments

 

1,484

 

Accrued expenses

6,953

Other real estate owned

 

877

 

1,577

Net operating loss and tax credit carryforwards

 

27,271

 

20,659

Nonaccrual Interest

566

88

Lease liability

27,675

28,514

Mark to market assets

 

 

11,788

Unrealized losses on investment securities available for sale

215,013

6,691

Other

 

1,277

 

719

Total deferred tax assets

 

408,781

 

173,282

Depreciation

 

22,442

 

21,028

Intangible assets

 

23,558

 

27,732

Net deferred loan costs

 

10,431

 

3,579

Right of use assets

25,848

27,136

Prepaid expense

 

836

 

725

Mark to market liabilities

110,122

Tax deductible goodwill

 

9,090

 

5,994

Mortgage servicing rights

21,371

16,100

Purchase accounting adjustments

890

Other

 

1,776

 

302

Total deferred tax liabilities

 

225,474

 

103,486

Net deferred tax assets before valuation allowance

 

183,307

 

69,796

Less, valuation allowance

 

(5,506)

 

(4,832)

Net deferred tax assets

$

177,801

$

64,964

The Company had federal NOL and realized built-in loss carryforwards of $78.5 million and $61.8 million for the years ended December 31, 2022 and 2021, respectively, which expire in varying amounts between 2026 to 2036. All of the Company's loss carryforwards are subject to Section 382 of the Internal Revenue Code, which places an annual limitation on the amount of federal net operating loss carryforwards which the Company may utilize after a change in control, and also limits the Company's ability to utilize certain tax deductions (realized built-in losses or “RBIL”) due to the existence of a Net Unrealized Built-in Loss (“NUBIL”) at the time of the change in control. The Company acquired federal net operating loss carryforwards of $48.4 million in the acquisition of Atlantic Capital Bank in the current year. Of that amount, $40.6 million was from previous acquisitions by Atlantic Capital, and $7.8 million was generated on the final tax return filing. The NOL of $7.8 million was fully utilized in the current year by the Company. The other NOLs of $40.6 million acquired from Atlantic Capital are subject to a combined annual Section 382 limitation of $4.8 million. In total, the allowable deduction for all loss carryforwards on an annual basis is $25.5 million. The Company is allowed to carry forward any such limited RBIL under terms similar to those related to NOLs.

The Company also has acquired state net operating losses in Georgia, Florida and Alabama. These are also subject to annual limitations under Section 382, similar to the federal NOLs. The company expects all Section 382 limited carryforwards to be realized within the applicable carryforward period.

The Company has state net operating loss carryforwards of $160.4 million and $169.4 million for the years ended December 31, 2022 and 2021, respectively, most of which expire in varying amounts through 2039. There is a

valuation allowance of $5.5 million on $137.7 million of state operating loss carryforwards at the parent company for which realizability is uncertain.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible.  Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deferred tax assets, net of the valuation allowance at December 31, 2022.

As of December 31, 2022, the Company had no material unrecognized tax benefits or accrued interest and penalties. It is the Company's policy to account for interest and penalties accrued relative to unrecognized tax benefits as a component of income tax expense.

Generally, the Company's federal and state income tax returns are no longer subject to examination by taxing authorities for years prior to 2019.