Income Taxes

6 Months Ended

Jun. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

BancShares’ global effective income tax rate was 24.2% and 6.3% for the three and six months ended June 30, 2022, respectively, and 23.1% and 23.0% for the three and six months ended June 30, 2021, respectively. The increase in the rate from a year-ago quarter was primarily driven by the increase in state and local taxes resulting from the CIT Merger. The decrease in the rate from the year-ago six-month period was primarily driven by the non-taxable nature of the bargain purchase gain arising from the CIT Merger.

The quarterly income tax expense is based on a projection of BancShares’ annual effective tax rate. This annual effective tax rate is applied to the year-to-date consolidated pre-tax income to determine the interim provision for income taxes before discrete items. The effective tax rate each period is also impacted by a number of factors, including the relative mix of domestic and international earnings, effects of changes in enacted tax laws, adjustments to the valuation allowances, and discrete items. The currently forecasted effective tax rate may vary from the actual year-end 2022 effective tax rate due to the changes in these factors.

Uncertain Tax Benefits

BancShares’ recognizes tax benefits when it is more likely than not that the position will prevail, based solely on the technical merits under the tax law of the relevant jurisdiction. BancShares will recognize the tax benefit if the position meets this recognition threshold determined based on the largest amount of the benefit that is more than likely to be realized.

Net Operating Loss Carryforwards and Valuation Adjustments

As a result of the CIT Merger, BancShares’ net deferred tax liabilities increased by approximately $297 million. That amount included an increase to deferred tax assets (“DTAs”) primarily from net operating losses, capitalized costs and tax credits net of deferred tax liabilities primarily from operating leases.

BancShares’ ability to recognize DTAs is evaluated on a quarterly basis to determine if there are any significant events that would affect our ability to utilize existing DTAs. If events are identified that affect our ability to utilize our DTAs, valuation adjustments may be adjusted accordingly.