Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

At December 31, 2021, 2020 and 2019 income tax expense consisted of the following:

(Dollars in thousands)	2021		2020		2019
Current tax expense
Federal	$	140,405	$	137,162	$	68,984
State	21,383		14,532		11,095
Total current tax expense	161,788		151,694		80,079
Deferred tax (benefit) expense
Federal	(6,234)		(28,535)		50,522
State	(1,352)		3,000		4,076
Total deferred tax (benefit) expense	(7,586)		(25,535)		54,598
Total income tax expense	$	154,202	$	126,159	$	134,677

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)	2021		2020		2019
Income taxes at federal statutory rates	$	147,349	$	129,755	$	124,330
Increase (reduction) in income taxes resulting from:
Nontaxable income on loans, leases and investments, net of nondeductible expenses	(1,523)		(1,581)		(1,639)
Excess tax benefits of compensation	1,507		1,146		1,070
State and local income taxes, including any change in valuation allowance, net of federal income tax benefit	15,825		13,850		11,985
Tax credits net of amortization	(5,078)		(5,367)		(4,474)
Repayment of claim of right income	(2,254)		(13,926)		—
Other, net	(1,624)		2,282		3,405
Total income tax expense	$	154,202	$	126,159	$	134,677

The net deferred tax liability included the following components at December 31, 2021, and 2020:

(Dollars in thousands)	2021		2020
Allowance for credit losses	$	39,759	$	52,293
Operating lease liabilities	14,267		15,737
Executive separation from service agreements	7,835		8,989
Net operating loss carryforwards	7,843		9,545
Net unrealized loss included in accumulated other comprehensive income (loss)	4,630		—
Accelerated depreciation	3,645		—
Employee compensation	18,860		16,083
Other reserves	6,135		5,376
Other	5,845		6,898
Deferred tax asset	108,819		114,921
Accelerated depreciation	—		14,984
Lease financing activities	7,725		15,265
Operating lease assets	13,996		15,670
Net unrealized gain on securities included in accumulated other comprehensive income (loss)	—		24,857
Net deferred loan fees and costs	14,662		13,975
Intangible assets	14,257		13,012
Security, loan and debt valuations	5,960		2,051
FDIC assisted transactions timing differences	—		2,393
Pension assets	64,068		44,549
Other	20,998		10,193
Deferred tax liability	141,666		156,949
Net deferred tax liability	$	(32,847)	$	(42,028)

At December 31, 2021, the gross tax benefit related to net operating loss carryforwards was $34.7 million and $15.9 million related to federal and state taxes, respectively. The carryforwards expire in years beginning in 2030 and 2024 for federal and state taxes, respectively. 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, 2021 or 2020 to reduce BancShares’ gross deferred tax asset to the amount more likely than not to be realized.

Income tax expense for 2021 and 2020 was favorably impacted by $2.3 million and $13.9 million, respectively, due to BancShares’ decision in the second quarter of 2020 to utilize an allowable alternative for computing its 2021 and 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 liability as a result of changes in tax rates in the states where it files tax returns. These changes in tax rates did not have a material impact on tax expense in 2021, 2020 or 2019.

BancShares federal income tax returns for 2018 through 2020 remain open for examination by the Internal Revenue Service. Generally, BancShares is no longer subject to examination by state and local taxing authorities for taxable years prior to 2016.

The following table provides a roll forward of BancShares’ gross unrecognized tax benefits, excluding interest and penalties, during the years ended December 31, 2021, 2020 and 2019:

(Dollars in thousands)	2021		2020		2019
Unrecognized tax benefits at the beginning of the year	$	31,375	$	32,226	$	28,255
Additions (reductions) related to tax positions taken in prior year	(321)		153		(683)
Additions related to tax positions taken in current year	1,373		1,295		6,554
Settlements	(1,601)		(1,516)		—
Reductions related to lapse of statute of limitations	(394)		(783)		(1,900)
Unrecognized tax benefits at the end of the year	$	30,432	$	31,375	$	32,226

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. It is reasonably possible that these uncertain state tax positions will be either settled or resolved in the next twelve months. A range of the reasonably possible change cannot be made.

BancShares recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. Accruals and releases of interest and penalties resulted in a benefit of $381 thousand and $135 thousand for the years ended December 31, 2021 and 2019, respectively, and an expense of $467 thousand for the year ended December 31, 2020. BancShares had $515 thousand and $896 thousand accrued for the payment of interest and penalties as of December 31, 2021 and 2020, respectively.