ServisFirst Bancshares, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

INCOME TAXES

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 18.

INCOME TAXES

The components of income tax expense are as follows:

	Year Ended December 31,
	2015		2014		2013

	(In Thousands)
Current tax expense:
Federal	$	28,517	$	25,929	$	21,264
State		1,824		693		899
Total current tax expense		30,341		26,622		22,163
Deferred tax expense (benefit):
Federal		(3,277)		(3,778)		(1,616)
State		(1,599)		(1,243)		(189)
Total deferred tax expense		(4,876)		(5,021)		(1,805)
Total income tax expense	$	25,465	$	21,601	$	20,358

The Company’s total income tax expense differs from the amounts computed by applying the Federal income tax statutory rates to income before income taxes. A reconciliation of the differences is as follows:

	Year Ended December 31, 2015
	Amount		% of Pre-tax Earnings
	(In Thousands)
Income tax at statutory federal rate	$	31,152		35.00	%
Effect on rate of:
State income tax, net of federal tax effect		146		0.16	%
Tax-exempt income, net of expenses		(1,308)		(1.47)	%
Bank owned life insurance contracts		(917)		(1.03)	%
Incentive stock option expense		3		-	%
Federal tax credits		(3,600)		(4.04)	%
Other		(11)		(0.01)	%
Effective income tax and rate	$	25,465		28.61	%

	Year Ended December 31, 2014
	Amount		% of Pre-tax Earnings
	(In Thousands)
Income tax at statutory federal rate	$	25,892		35.00	%
Effect on rate of:
State income tax, net of federal tax effect		(358)		(0.49)	%
Tax-exempt income, net of expenses		(1,316)		(1.78)	%
Bank owned life insurance contracts		(798)		(1.08)	%
Incentive stock option expense		(18)		(0.02)	%
Federal tax credits		(1,659)		(2.24)	%
Other		(142)		(0.19)	%
Effective income tax and rate	$	21,601		29.20	%

	Year Ended December 31, 2013
	Amount		% of Pre-tax Earnings
	(In Thousands)
Income tax at statutory federal rate	$	21,691		35.00	%
Effect on rate of:
State income tax, net of federal tax effect		462		0.75	%
Tax-exempt income, net of expenses		(1,200)		(1.94)	%
Bank owned life insurance contracts		(698)		(1.13)	%
Incentive stock option expense		66		0.11	%
Other		37		0.06	%
Effective income tax and rate	$	20,358		32.85	%

The components of net deferred tax asset are as follows:

	December 31,
	2015		2014

	(In Thousands)
Deferred tax assets:
Allowance for loan losses	$	16,482	$	13,491
Other real estate owned		1,136		1,319
Nonqualified equity awards		1,576		1,594
Nonaccrual interest		441		444
State tax credits		2,313		987
Investments		1,826		667
Deferred loan fees		642		87
Reserve for unfunded commitments		190		-
Differences in amounts reflected in financial statements and income tax basis of assets acquired and liabilities assumed in acquisition		972		-
Acquired net operating losses		1,398		-
Other deferred tax assets		228		117
Total deferred tax assets		27,204		18,706

Deferred tax liabilities:
Net unrealized gain on securities available for sale		1,641		2,418
Depreciation		1,285		421
Prepaid expenses		202		151
Acquired intangible assets		651		-
Total deferred tax liabilities		3,779		2,990
Net deferred tax assets	$	23,425	$	15,716

The Company believes its net deferred tax asset is recoverable as of December 31, 2015 based on the expectation of future taxable income and other relevant considerations.

The Company and its subsidiaries file a consolidated U.S. Federal income tax return and various consolidated and separate company state income tax returns. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31, 2012 through 2015. The Company is also currently open to audit by several state departments of revenue for the years ended December 31, 2012 through 2015. The audit periods differ depending on the date the Company began business activities in each state. Currently, there are no years for which the Company filed a federal or state income tax return that are under examination by the IRS or any state department of revenue.

Accrued interest and penalties on unrecognized income tax benefits totaled $61,000 and $12,000 as of December 31, 2015 and 2014, respectively. Unrecognized income tax benefits as of December 31, 2014 and December 31, 2015, that, if recognized, would impact the effective income tax rate totaled $804,000 and $1,173,000 (net of the federal benefit on state income tax issues), respectively. The Company does not expect any of the uncertain tax positions to be settled or resolved during the next twelve months.

The following table presents a summary of the changes during 2015, 2014 and 2013 in the amount of unrecognized tax benefits that are included in the consolidated balance sheets.

	2015		2014		2013
	(In Thousands)
Balance, beginning of year	$	804	$	437	$	161
Increases related to prior year tax positions		369		367		276
Decreases related to prior year tax positions		-		-		-
Increases related to current year tax positions		-		-		-
Settlements		-		-		-
Lapse of statute		-		-		-
Balance, end of year	$	1,173	$	804	$	437