Note 22 - Income Taxes

The components of income tax expense included in the consolidated statements of income for the years ended December 31, 2015, 2014, and 2013 are presented below:



(in thousands)	2015		2014	2013
Current
Federal	$	6,163	5,140	5,460
State	4,424		150	(2,630	)
Total current income tax expense	10,587		5,290	2,830
Deferred
Federal	108,877		92,360	78,870
State	13,027		9,660	11,545
Total deferred income tax expense	121,904		102,020	90,415
Total income tax expense	$	132,491	107,310	93,245

Note: The table above does not reflect amounts relating to share-based compensation transactions that were charged or credited directly to shareholders' equity. The amounts charged or credited to shareholder's equity for the years ended December 31, 2015, 2014, and 2013 were an increase of $1.7 million, a decrease of $3.2 million, and an increase of $317 thousand, respectively.

Income tax expense does not reflect the tax effects of unrealized gains (losses) on investment securities available for sale and unamortized actuarial gains on post-retirement unfunded health benefits. This information is 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 35 percent to income before income taxes. A reconciliation of the differences for the years ended December 31, 2015, 2014 and 2013 is shown below:



	Years Ended December 31,
(in thousands)	2015			2014		2013
Income tax expense at statutory federal income tax rate	$	125,501		105,896		88,420
Increase (decrease) resulting from:
State income tax expense, net of federal income tax effect	12,870			8,014		9,877
Tax-exempt income	(835		)	(1,076	)	(1,407	)
Tax credits	(1,173		)	(1,123	)	(1,473	)
Cash surrender value of life insurance	(2,885		)	(2,928	)	(2,932	)
Change in valuation allowance, federal and state	(589		)	(2,273	)	(4,083	)
Other, net	(398		)	800		4,843
Total income tax expense	$	132,491		107,310		93,245

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities at December 31, 2015 and 2014 are presented below.



(in thousands)	2015			2014
Deferred tax assets
Net operating loss carryforwards	$	308,617		422,968
Allowance for loan losses	103,884			111,814
Tax credit carryforwards	59,434			52,194
Deferred revenue	16,529			18,770
Share-based compensation	10,800			12,152
Non-performing loan interest	16,604			20,366
Net unrealized losses on investment securities available for sale	3,072			—
Other	28,950			34,576
Total gross deferred tax assets	547,890			672,840
Less valuation allowance	(11,713		)	(12,303	)
Total deferred tax assets	536,177			660,537
Deferred tax liabilities
Excess tax over financial statement depreciation	(8,564		)	(10,546	)
Net unrealized gains on investment securities available for sale	—			(7,893	)
Ownership interest in partnership	(4,537		)	(5,933	)
Fixed assets held for sale	(5,985		)	(7,287	)
Other	(5,143		)	(6,414	)
Total gross deferred tax liabilities	(24,229		)	(38,073	)
Net deferred tax asset	$	511,948		622,464

The net decrease in the valuation allowance for the years ended December 31, 2015 and 2014 was $589 thousand and $2.3 million, respectively. The net decrease in the valuation allowance for the years ended December 31, 2015 and 2014 was due to expiring unused state credits.

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, 2015, 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, 2015 includes generation of taxable income in 2015, 2014, and 2013, continued improvement in credit quality, record of long-term positive earnings prior to the most recent economic downturn, the Company’s strong capital position, as well as sufficient amounts of projected future taxable income, of the appropriate character, to support the realization of $511.9 million of the Company’s net deferred tax asset at December 31, 2015. The Company expects to realize its net deferred tax asset of $511.9 million at December 31, 2015 through the reversal of existing taxable temporary differences and projected future taxable income. The valuation allowance of $11.7 million at December 31, 2015 relates to specific state income tax credits that have various expiration dates through the tax year 2019, and are expected to expire before they can be realized. Based on the assessment of all the positive and negative evidence at December 2015 and 2014, 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 $511.9 million in net deferred tax assets well in advance of the statutory carryforward period. At December 31, 2015, $155.6 million of existing deferred tax assets are not related to net operating losses or credits and therefore, have no expiration dates. $256.8 million of the remaining deferred tax assets relate to federal net operating losses which expire in years beginning in 2030 through 2032. Additionally, $51.8 million of the deferred tax assets relate to state net operating losses which will expire in installments annually through the tax year 2035. Tax credit carryforwards at December 31, 2015 include federal alternative minimum tax credits totaling $31.7 million which have an unlimited carryforward period. Other federal and state tax credits at December 31, 2015 total $27.7 million and have expiration dates through the tax year 2035.

Federal and state NOL and tax credit carryforwards as of December 31, 2015 are summarized in the following table.



Tax Carryforwards	As of December 31, 2015
(in thousands)	Expiration Dates	Deferred Tax Asset Balance		Valuation Allowance		Net Deferred Tax Asset Balance	Pre-Tax Earnings Necessary to Realize
Net operating losses - federal	2030-2032	$	256,807	—		256,807	733,734
General business credits - federal	2028-2035	11,667		—		11,667	N/A⁽¹⁾
Net operating losses - states	2016-2019	10		—		10	689,362
Net operating losses - states	2024-2028	4,031		—		4,031	660,830
Net operating losses - states	2029-2035	54,674		—		54,674	1,744,165
Other credits - states	2016-2019	11,800		(11,713	)	87	N/A⁽¹⁾
Other credits - states	2020-2025	2,777		—		2,777	N/A⁽¹⁾
Alternative minimum tax credits - federal	None	31,745		—		31,745	N/A⁽²⁾
Other credits - states	None	1,445		—		1,445	N/A⁽¹⁾

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

⁽²⁾Alternative minimum tax credits can be carried forward indefinitely.

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; however, a state tax examination from the Department of Revenue for Louisiana is currently in progress. Synovus is no longer subject to income tax examinations by the IRS for years before 2011, and excluding certain limited exceptions, Synovus is no longer subject to income tax examinations by state and local income tax authorities for years before 2011. However, amounts reported as net operating losses and tax credit carryovers from closed tax periods remain subject to review by most taxing 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)	2015			2014
Balance at January 1,	$	13,023		912
Additions based on income tax positions related to current year	—			—
Additions for income tax positions of prior years *	8			12,318
Deductions for income tax positions of prior years	—			(52	)
Statute of limitation expirations	(286		)	(155	)
Settlements	—			—
Balance at December 31,	$	12,745		13,023

* 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 $105 thousand and $96 thousand as of January 1 and December 31, 2015, respectively. Unrecognized income tax benefits as of January 1 and December 31, 2015 that, if recognized, would affect the effective income tax rate totaled $8.5 million and $8.3 million (net of the federal benefit on state income tax issues), respectively, which includes interest and penalties of $68 thousand and $63 thousand, respectively. Synovus expects that $320 thousand of uncertain income tax positions will be either settled or resolved during the next twelve months.