Income Taxes

6 Months Ended

Jun. 30, 2019

INCOME TAXES

The provision for income taxes is comprised of the following components for the periods indicated below:



	Three Months Ended June 30,					Six Months Ended June 30,
(In thousands)	2019		2018			2019		2018
Income taxes currently payable	$	12,757	$	15,652		$	23,074	$	25,697
Deferred income taxes	2,859		(1,869		)	4,940		2,052
Provision for income taxes	$	15,616	$	13,783		$	28,014	$	27,749

The tax effects of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities, and their appropriate tax effects, are as follows:



(In thousands)	June 30, 2019		December 31, 2018
Deferred tax assets:
Loans acquired	$	17,480	$	12,536
Allowance for loan losses	15,744		13,947
Valuation of foreclosed assets	2,706		1,474
Tax NOLs from acquisition	19,159		7,242
Deferred compensation payable	2,492		2,707
Accrued equity and other compensation	7,494		8,182
Acquired securities	2,598		397
Unrealized loss on available-for-sale securities	—		9,196
Other	6,916		7,042
Gross deferred tax assets	74,589		62,723



(In thousands)	June 30, 2019			December 31, 2018
Deferred tax liabilities:
Goodwill and other intangible amortization	$	(34,590	)	$	(30,471	)
Accumulated depreciation	(12,871		)	(13,361		)
Unrealized gain on available-for-sale securities	(4,150		)	—
Other	(5,447		)	(5,360		)
Gross deferred tax liabilities	(57,058		)	(49,192		)

Net deferred tax asset, included in other assets	$	17,531		$	13,531

A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown for the periods indicated below:



	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2019			2018			2019			2018
Computed at the statutory rate (21%)	$	14,955		$	14,143		$	27,575		$	27,851
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax benefit	1,420			1,265			2,765			3,087
Tax exempt interest income	(1,024		)	(782		)	(1,985		)	(1,459		)
Tax exempt earnings on BOLI	(215		)	(190		)	(394		)	(376		)
Federal tax credits	(729		)	—			(1,458		)	—
Other differences, net	1,209			(653		)	1,511			(1,354		)
Actual tax provision	$	15,616		$	13,783		$	28,014		$	27,749

The Company follows ASC Topic 740, Income Taxes, which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. ASC Topic 740 also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties. The Company has no history of expiring net operating loss carryforwards and is projecting significant pre-tax and financial taxable income in 2019 and in future years. The Company expects to fully realize its deferred tax assets in the future.

The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to the statutes of limitation, changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the addition or elimination of uncertain tax positions.

Section 382 of the Internal Revenue Code imposes an annual limit on the ability of a corporation that undergoes an “ownership change” to use its U.S. net operating losses to reduce its tax liability. The Company has engaged in two tax-free reorganization transactions in which acquired net operating losses are limited pursuant to Section 382. In total, approximately $91.3 million of federal net operating losses subject to the IRC Sec 382 annual limitation are expected to be utilized by the Company, of which $58.5 million was added due to the Reliance acquisition during second quarter 2019. All of the acquired Reliance net operating losses will be fully utilized by 2029, with the remaining acquired net operating loss carryforwards fully utilized by 2036.

The Company files income tax returns in the U.S. federal jurisdiction. The Company’s U.S. federal income tax returns are open and subject to examinations from the 2015 tax year and forward. The Company’s various state income tax returns are generally open from the 2015 and later tax return years based on individual state statute of limitations.