Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes

Income Taxes

Note 12—Income Taxes

The provision for income taxes consists of the following:

	Year Ended December 31,
(Dollars in thousands)	2023		2022		2021
Current:
Federal	$	111,433	$	5,940	$	43,959
State		23,157		7,044		16,512
Total current tax expense		134,590		12,984		60,471
Deferred:
Federal		738		103,875		61,521
State		1,216		20,454		6,744
Total deferred tax expense		1,954		124,329		68,265
Provision for income taxes	$	136,544	$	137,313	$	128,736

The provision for income taxes differs from that computed by applying the federal statutory income tax rate of 21% in 2023, 2022 and 2021 to income before provision for income taxes, as indicated in the following analysis:

	Year Ended December 31,
(Dollars in thousands)	2023		2022		2021
Income taxes at federal statutory rate	$	132,479	$	133,006	$	126,899
Increase (reduction) of taxes resulting from:
State income taxes, net of federal tax benefit		19,123		21,491		18,372
Non-deductible merger expenses		—		415		—
Increase in cash surrender value of BOLI policies		(5,605)		(5,105)		(3,866)
Tax-exempt interest		(7,016)		(7,828)		(5,450)
Income tax credits		(14,253)		(13,667)		(11,759)
Non-deductible FDIC premiums		5,330		3,287		2,380
Non-deductible executive compensation		4,745		4,319		530
Other, net		1,741		1,395		1,630
	$	136,544	$	137,313	$	128,736

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.

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

	December 31,
(Dollars in thousands)	2023		2022
Allowance for credit losses	$	123,496	$	101,416
Share-based compensation		10,425		10,509
Pension plan and post-retirement benefits		371		1,157
Deferred compensation		14,039		14,583
Purchase accounting adjustments		1,439		1,484
Capitalized research and development costs		4,524		—
Accrued expenses		14,470		6,953
Other real estate owned		—		877
FDIC special assessment		6,168		—
Net operating loss and tax credit carryforwards		20,263		27,271
Nonaccrual Interest		1,773		566
Lease liability		26,076		27,675
Unrealized losses on investment securities available for sale		142,543		215,013
Other		2,201		1,277
Total deferred tax assets		367,788		408,781
Depreciation		10,439		22,442
Intangible assets		17,764		23,558
Net deferred loan costs		16,468		10,431
Right of use assets		24,161		25,848
Prepaid expense		809		836
Mark to market liabilities		92,505		110,122
Tax deductible goodwill		12,398		9,090
Mortgage servicing rights		20,863		21,371
Other real estate owned		192		—
Other		3,950		1,776
Total deferred tax liabilities		199,549		225,474
Net deferred tax assets before valuation allowance		168,239		183,307
Less, valuation allowance		(3,885)		(5,506)
Net deferred tax assets	$	164,354	$	177,801

The Company had federal NOL and realized built-in loss carryforwards of $61.0 million and $78.5 million for the years ended December 31, 2023 and 2022, 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 2022. 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 2022 by SouthState. The other acquired NOLs 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 $17.5 million as of December 31, 2023. The Company is allowed to carry forward any such limited RBIL under terms similar to those related to NOLs. The Company also has an immaterial amount of credit carryforwards, which it expects to fully utilize within the carryforward period.

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 also has immaterial state credit carryforwards. The company expects all Section 382 limited state carryforwards and all state credit carryforwards to be realized within the applicable carryforward period.

The Company has state net operating loss carryforwards of $115.4 million and $160.4 million for the years ended December 31, 2023 and 2022, respectively, most of which expire in varying amounts through 2040. There is a valuation allowance of $3.9 million on $96.8 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, taxable income in carryback years, 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, 2023.

A reconciliation of the beginning balance and ending amount of unrecognized tax benefits is as follows:

	Year Ended December 31,
(Dollars in thousands)	2023
Balance at beginning of year	$	—
Increases related to prior year tax positions		12,352
Increases related to current year tax positions		693
Balance at end of year	$	13,045

Accrued interest and penalties on unrecognized tax benefits totaled $1.7 million and $0 as of December 31, 2023 and 2022, respectively. In prior years the Company had no unrecognized tax benefits. Interest and penalties related to unrecognized tax benefits are recorded in interest expense and penalties. Unrecognized tax benefits as of December 31, 2023 and December 31, 2022, that, if recognized, would impact the effective tax rate totaled $0 for each period.

The Company’s unrecognized tax benefit relates to accrual deductions, which if challenged by taxing authorities, may be reduced. The Company intends to remediate the uncertainty by filing a change in accounting method with the taxing authority during the period ended December 31, 2024. Upon filing such change, the Company will no longer have any uncertainty regarding its tax position and expects the above amounts to reverse in their entirety.

Generally, the Company's federal and state income tax returns are no longer subject to examination by taxing authorities for years prior to 2020.