Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income tax expense reflects the following expense (benefit) components:

	Years ended December 31,
(In thousands)	2020		2019		2018
Current:
Federal	$	73,172	$	84,447	$	58,334
State and local	17,417		18,595		13,409
Total current	90,589		103,042		71,743
Deferred:
Federal	(23,799)		811		8,508
State and local	(7,437)		116		964
Total deferred	(31,236)		927		9,472
Total federal	49,373		85,258		66,842
Total state and local	9,980		18,711		14,373
Income tax expense	$	59,353	$	103,969	$	81,215

Included in the Company's income tax expense for the years ended December 31, 2020, 2019, and 2018, are net tax credits of approximately $1.1 million, $4.8 million, and $1.2 million, respectively. The $1.1 million of net tax credits in 2020 includes $0.8 million of expense for reductions in federal and state research tax credits previously estimated and recognized for 2018 and 2019.

The $4.8 million of net tax credits in 2019 includes $3.0 million related to federal and state research tax credits, $2.4 million of which relates to the Company’s qualifying technology expenditures incurred between 2015 and 2017, and those estimated for 2018.

The following table reflects a reconciliation of reported income tax expense to the amount that would result from applying the federal statutory rate of 21.0%:

	Years ended December 31,
	2020				2019				2018
(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent
Income tax expense at federal statutory rate	$	58,795	21.0	%	$	102,205	21.0	%	$	92,743	21.0	%
Reconciliation to reported income tax expense:
SALT expense, net of federal	7,884		2.8		14,782		3.0		11,354		2.6
Tax-exempt interest income, net	(7,181)		(2.6)		(6,752)		(1.4)		(6,475)		(1.5)
Increase in cash surrender value of life insurance	(3,058)		(1.1)		(3,069)		(0.6)		(3,069)		(0.7)
Tax deficiencies (excess tax benefits), net	484		0.2		(2,251)		(0.4)		(4,483)		(1.0)
Non-deductible FDIC Deposit insurance premiums	2,172		0.8		1,904		0.4		2,215		0.5
Tax Act impacts, net (1)	—		—		—		—		(10,982)		(2.5)
Other, net	257		0.1		(2,850)		(0.6)		(88)		—
Income tax expense and effective tax rate	$	59,353	21.2	%	$	103,969	21.4	%	$	81,215	18.4	%

(1)Included in the Tax Act impacts, net for 2018 are $10.4 million of tax planning benefits related to the Tax Cuts and Jobs Act of 2017 (Tax Act).

The following table reflects the significant components of the DTAs, net:

	At December 31,
(In thousands)	2020		2019
Deferred tax assets:
Allowance for loan and lease losses	$	93,791	$	53,851
Net operating loss and credit carry forwards	66,840		69,827
Compensation and employee benefit plans	27,643		24,518
Lease liabilities under operating leases	41,679		45,923
Deferred loan fees, net	2,397		—
Net unrealized loss on derivatives	—		1,650
Other	6,353		7,871
Gross deferred tax assets	238,703		203,640
Valuation allowance	37,374		38,181
Total deferred tax assets, net of valuation allowance	$	201,329	$	165,459
Deferred tax liabilities:
Net unrealized gain on securities available for sale	$	24,364	$	6,430
Net unrealized gain on derivatives	7,616		—
ROU assets under operating leases	33,569		40,908
Equipment financing leases	38,511		31,332
Premises and equipment	6,735		7,838
Loan origination costs, net	—		6,816
Goodwill and other intangible assets	5,954		6,172
Other	3,294		3,988
Gross deferred tax liabilities	120,043		103,484
Deferred tax assets, net	$	81,286	$	61,975

The Company's DTAs, net increased by $19.3 million during 2020, reflecting the $31.2 million deferred tax benefit, a $15.9 million benefit recorded directly to shareholders' equity upon the January 1, 2020 adoption of CECL, and a $27.8 million expense allocated directly to shareholders' equity.

The valuation allowance of $37.4 million and $38.2 million at December 31, 2020 and December 31, 2019, respectively, is attributable to SALT net operating loss carryforwards, and the $0.8 million decrease during 2020 is associated with a related decrease in the Company's gross DTAs for those carryforwards, resulting in no net change to its overall DTAs, net.

SALT net operating loss carryforwards approximated $1.1 billion at December 31, 2020 and are scheduled to expire in varying amounts during tax years 2024 through 2032. The valuation allowance has been established for approximately $630.8 million of those net operating loss carryforwards estimated to expire unused. Credit carryovers of $0.3 million, net at December 31, 2020 have a five-year carryover period and are scheduled to expire in varying amounts during tax years 2023 through 2025.

Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize its total DTAs, net of the valuation allowance. Although taxable income in prior years is no longer able to be included as a source of taxable income, due to the general repeal of the carryback of net operating losses under the Tax Act, significant positive evidence remains in support of management's conclusion regarding the realizability of the Company's DTAs, including projected future reversals of existing taxable temporary differences and book-taxable income levels in recent and projected in future years. There can, however, be no assurance that any specific level of future income will be generated or that the Company’s DTAs will ultimately be realized.

A deferred tax liability of $15.3 million has not been recognized for certain thrift bad-debt reserves, established before 1988, that would become taxable upon the occurrence of certain events: distributions by Webster Bank in excess of certain earnings and profits; the redemption of Webster Bank’s stock; or liquidation. Webster does not expect any of those events to occur. At December 31, 2020 the cumulative taxable temporary differences applicable to those reserves approximated $58.0 million.