Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The provision for income taxes for the years ended December 31 is comprised of the following components:

(In thousands)	2020		2019		2018
Income taxes currently payable	$	65,012	$	29,354	$	41,946
Deferred income taxes	(122)		34,911		8,412
Provision for income taxes	$	64,890	$	64,265	$	50,358

The tax effects of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts that give rise to deferred income tax assets and liabilities, and their approximate tax effects, are as follows as of December 31, 2020 and 2019:

(In thousands)	2020		2019
Deferred tax assets:
Loans acquired	$	10,100	$	20,783
Allowance for credit losses	58,028		16,732
Valuation of foreclosed assets	1,673		2,626
Tax NOLs from acquisition	16,028		18,118
Deferred compensation payable	3,060		2,750
Accrued equity and other compensation	5,905		6,677
Acquired securities	587		3,393
Right-of-use lease liability	7,835		10,221
Allowance for unfunded commitments	5,583		—
Other	7,600		7,886
Gross deferred tax assets	116,399		89,186
Deferred tax liabilities:
Goodwill and other intangible amortization	(38,882)		(41,221)
Accumulated depreciation	(34,667)		(36,554)
Right-of-use lease asset	(7,813)		(10,176)
Unrealized gain on available-for-sale securities	(17,521)		(3,720)
Other	(4,021)		(7,651)
Gross deferred tax liabilities	(102,904)		(99,322)
Net deferred tax asset (liability)	$	13,495	$	(10,136)

A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense is shown below for the years ended December 31: 

(In thousands)	2020		2019		2018
Computed at the statutory rate	$	67,143	$	63,442	$	55,875
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax benefit	6,402		5,860		5,015
Discrete items related to ASU 2016-09	375		(38)		(2,439)
Tax exempt interest income	(6,726)		(4,390)		(3,168)
Tax exempt earnings on BOLI	(1,214)		(852)		(869)
Federal tax credits	(2,177)		(939)		(3,003)
Other differences, net	1,087		1,182		(1,053)
Actual tax provision	$	64,890	$	64,265	$	50,358

The Company follows ASC Topic 740, Income Taxes, which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. ASC Topic 740 also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties. The Company has no history of expiring net operating loss carryforwards and is projecting significant pre-tax and financial taxable income in future years. The Company expects to fully realize its deferred tax assets in the future.

Income tax expense was lower during 2018 largely due to discrete tax benefits related to tax accounting for a cost segregation study, excess tax benefits related to restricted stock and a state tax deferred tax asset (“DTA”) adjustment. The purpose of the cost segregation study was to analyze the costs included in various projects and recognize the benefit of recording tax depreciation in the previous year when the federal rate was higher. The purpose of the state DTA adjustment was due to an analysis of projected state apportionment after certain acquisitions were merged into Simmons Bank.

The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to the statutes of limitation, changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the addition or elimination of uncertain tax positions. Section 382 of the Internal Revenue Code imposes an annual limit on the ability of a corporation that undergoes an “ownership change” to use its U.S. net operating losses to reduce its tax liability. The Company has engaged in two tax-free reorganization transactions in which acquired net operating losses are limited pursuant to Section 382. In total, approximately $71.4 million of federal net operating losses subject to the IRC Section 382 annual limitation are expected to be utilized by the Company, of which $41.4 million is related to the Reliance acquisition that closed during second quarter of 2019. All of the acquired Reliance net operating losses are expected to be fully utilized by 2027, with the remaining acquired net operating loss carryforwards expected to be fully utilized by 2036.

The Company files income tax returns in the U.S. federal jurisdiction. The Company’s U.S. federal income tax returns are open and subject to examinations from the 2017 tax year and forward. The Company’s various state income tax returns are generally open from the 2017 and later tax return years based on individual state statute of limitations.