Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

At December 31, 2020, 2019 and 2018 income tax expense consisted of the following:

(Dollars in thousands)	2020		2019		2018
Current tax expense
Federal	$	137,162	$	68,984	$	95,151
State	14,532		11,095		21,523
Total current tax expense	151,694		80,079		116,674
Deferred tax (benefit) expense
Federal	(28,535)		50,522		(10,944)
State	3,000		4,076		(2,433)
Total deferred tax (benefit) expense	(25,535)		54,598		(13,377)
Total income tax expense	$	126,159	$	134,677	$	103,297

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

(Dollars in thousands)	2020		2019		2018
Income taxes at federal statutory rates	$	129,755	$	124,330	$	105,758
Increase (reduction) in income taxes resulting from:
Nontaxable income on loans, leases and investments, net of nondeductible expenses	(1,581)		(1,639)		(1,796)
Excess tax benefits of compensation	1,146		1,070		371
State and local income taxes, including any change in valuation allowance, net of federal income tax benefit	13,850		11,985		15,081
Effect of federal rate change	—		—		(15,736)
Tax credits net of amortization	(5,367)		(4,474)		(2,891)
Repayment of claim of right income	(13,926)		—		—
Other, net	2,282		3,405		2,510
Total income tax expense	$	126,159	$	134,677	$	103,297

The net deferred tax liability included the following components at December 31, 2020, and 2019:

(Dollars in thousands)	2020		2019
Allowance for credit losses	$	52,293	$	53,073
Operating lease liabilities	15,737		17,752
Executive separation from service agreements	8,989		12,334
Net operating loss carryforwards	9,545		11,085
Employee compensation	16,083		13,313
FDIC assisted transactions timing differences	—		8,678
Other reserves	5,376		5,001
Other	6,898		10,698
Deferred tax asset	114,921		131,934
Accelerated depreciation	14,984		51,249
Lease financing activities	15,265		8,101
Operating lease assets	15,670		17,837
Net unrealized gain on securities included in accumulated other comprehensive loss	24,857		1,821
Net deferred loan fees and costs	13,975		11,781
Intangible assets	13,012		9,148
Security, loan and debt valuations	2,051		5,767
FDIC assisted transactions timing differences	2,393		—
Pension liability	44,549		5,079
Other	10,193		15,993
Deferred tax liability	156,949		126,776
Net deferred tax (liability) asset	$	(42,028)	$	5,158

At December 31, 2020, the gross tax benefit related to net operating loss carryforwards were $41.7 million and $19.5 million related to federal and state taxes, respectively. These carryforwards 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, 2020 and 2019, to reduce BancShares’ gross deferred tax asset to the amount more likely than not to be realized.

Income tax expense for 2020 was favorably impacted by $13.9 million due to BancShares’ decision in the second quarter to utilize an allowable alternative for computing its 2020 federal income tax liability. The allowable alternative provides BancShares the ability to use the federal income tax rate for certain current year deductible amounts related to prior year FDIC-assisted acquisitions that was applicable when these amounts were originally subjected to tax.

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 2020, 2019 or 2018.

BancShares’ and its subsidiaries’ federal income tax returns for 2017 through 2019 remain open for examination. Generally, BancShares is no longer subject to examination by state and local taxing authorities for taxable years prior to 2015.

The following table provides a rollforward of BancShares’ gross unrecognized tax benefits, excluding interest and penalties, during the years ended December 31, 2020, 2019 and 2018:

(Dollars in thousands)	2020		2019		2018
Unrecognized tax benefits at the beginning of the year	$	32,226	$	28,255	$	29,004
Additions (reductions) related to tax positions taken in prior year	153		(683)		(1,054)
Additions related to tax positions taken in current year	1,295		6,554		1,433
Settlements	(1,516)		—		—
Reductions related to lapse of statute of limitations	(783)		(1,900)		(1,128)
Unrecognized tax benefits at the end of the year	$	31,375	$	32,226	$	28,255

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 2021.

BancShares recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. BancShares recognized $467 thousand, ($135) thousand and $114 thousand for the years ended December 31, 2020, 2019 and 2018, respectively. BancShares had $896 thousand and $429 thousand accrued for the payment of interest and penalties as of December 31, 2020 and 2019, respectively.