Income Taxes

12 Months Ended

Dec. 31, 2019

INCOME TAXES

At December 31, 2019, 2018 and 2017 income tax expense consisted of the following:



(Dollars in thousands)	2019		2018			2017
Current tax expense
Federal	$	68,984	$	95,151		$	87,992
State	11,095		21,523			6,116
Total current tax expense	80,079		116,674			94,108
Deferred tax expense (benefit)
Federal	50,522		(10,944		)	115,392
State	4,076		(2,433		)	10,446
Total deferred tax expense (benefit)	54,598		(13,377		)	125,838
Total income tax expense	$	134,677	$	103,297		$	219,946

Income tax expense differed from the amounts computed by applying the statutory federal income tax rate of 21% for 2019 and 2018 and 35% for 2017 to pretax income as a result of the following:



(Dollars in thousands)	2019			2018			2017
Income taxes at federal statutory rates	$	124,330		$	105,758		$	190,294
Increase (reduction) in income taxes resulting from:
Nontaxable income on loans, leases and investments, net of nondeductible expenses	(1,639		)	(1,796		)	(2,525		)
Excess tax benefits of compensation	1,070			371			—
State and local income taxes, including any change in valuation allowance, net of federal income tax benefit	11,985			15,081			10,765
Effect of federal rate change	—			(15,736		)	25,762
Tax credits net of amortization	(4,474		)	(2,891		)	(4,840		)
Other, net	3,405			2,510			490
Total income tax expense	$	134,677		$	103,297		$	219,946

The net deferred tax asset included the following components at December 31, 2019, and 2018:



(Dollars in thousands)	2019		2018
Allowance for loan and lease losses	$	53,073	$	53,391
Operating lease liabilities	17,752		—
Executive separation from service agreements	12,334		7,927
Net operating loss carryforwards	11,085		6,862
Net unrealized loss included in comprehensive income	—		32,663
Employee compensation	13,313		11,145
FDIC assisted transactions timing differences	8,678		7,622
Other reserves	5,001		5,574
Other	10,698		9,555
Deferred tax asset	131,934		134,739
Accelerated depreciation	51,249		4,987
Lease financing activities	8,101		12,674
Operating lease assets	17,837		—
Net unrealized gain on securities included in accumulated other comprehensive loss	1,821		—
Net deferred loan fees and costs	11,781		10,651
Intangible assets	9,148		11,713
Security, loan and debt valuations	5,767		4,557
Pension liability	5,079		6,287
Other	15,993		1,722
Deferred tax liability	126,776		52,591
Net deferred tax asset	$	5,158	$	82,148

At December 31, 2019, $48.3 million of existing gross deferred tax assets related to federal net operating loss carryforwards and $24.6 million to state net operating loss carryforwards which expire in years beginning in 2024. The net operating losses were obtained through various acquisitions and are subject to the annual limitations set forth by Internal Revenue Code Section 382. No valuation allowance was necessary as of December 31, 2019 and 2018, to reduce BancShares’ gross deferred tax asset to the amount more likely than not to be realized.

BancShares regularly adjusts its net deferred tax asset as a result of changes in tax rates in the state where it files tax returns. These changes in tax rates did not have a material impact on tax expense in 2019, 2018, or 2017.

BancShares’ and its subsidiaries’ federal income tax returns for 2016 through 2018 remain open for examination. Generally, BancShares is no longer subject to examination by state and local taxing authorities for taxable years prior to 2014.

The following table provides a rollforward of BancShares’ gross unrecognized tax benefits, excluding interest and penalties, during the years ended December 31, 2019, 2018 and 2017:



(Dollars in thousands)	2019			2018			2017
Unrecognized tax benefits at the beginning of the year	$	28,255		$	29,004		$	28,879
Reductions related to tax positions taken in prior year	(683		)	(1,054		)	(44		)
Additions related to tax positions taken in current year	6,554			1,433			169
Reductions related to lapse of statute of limitations	(1,900		)	(1,128		)	—
Unrecognized tax benefits at the end of the year	$	32,226		$	28,255		$	29,004

All of the unrecognized tax benefits, if recognized, would affect BancShares’ effective tax rate.

BancShares has unrecognized tax benefits relating to uncertain state tax positions in North Carolina and other state jurisdictions resulting from tax filings submitted to the states. No tax benefit has been recorded for these uncertain tax positions in the consolidated financial statements. BancShares does not expect the unrecognized tax benefits to change significantly during 2020.

BancShares recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. For the years ended December 31, 2019, 2018 and 2017, BancShares recorded $429 thousand, $564 thousand and $450 thousand, respectively which primarily represent accrued interest.