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, 2016

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 18.

INCOME TAXES

The components of income tax expense are as follows:

	Year Ended December 31,
	2016		2015		2014
	(In Thousands)
Current tax expense:
Federal	$	29,813	$	28,517	$	25,929
State		1,254		1,824		693
Total current tax expense		31,067		30,341		26,622
Deferred tax expense (benefit):
Federal		(662)		(3,277)		(3,778)
State		(1,066)		(1,599)		(1,243)
Total deferred tax (benefit)		(1,728)		(4,876)		(5,021)
Total income tax expense	$	29,339	$	25,465	$	21,601

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, 2016
	Amount		% of Pre-tax Earnings
	(In Thousands)
Income tax at statutory federal rate	$	38,786		35.00	%
Effect on rate of:
State income tax, net of federal tax effect		254		0.23	%
Tax-exempt income, net of expenses		(1,322)		(1.20)	%
Bank owned life insurance contracts		(978)		(0.88)	%
Excess tax benefit from stock compensation		(4,788)		(4.32)	%
Federal tax credits		(2,652)		(2.40)	%
Other		39		0.04	%
Effective income tax and rate	$	29,339		26.47	%

	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	%

The components of net deferred tax asset are as follows:

	December 31,
	2016		2015
	(In Thousands)
Deferred tax assets:
Allowance for loan losses	$	19,699	$	16,482
Other real estate owned		737		1,136
Nonqualified equity awards		1,234		1,576
Nonaccrual interest		501		441
State tax credits		3,475		2,313
Investments		2,173		1,826
Deferred loan fees		707		642
Reserve for unfunded commitments		190		190
Accrued bonus		1,817		-
Differences in amounts reflected in financial statements and income tax basis of assets acquired and liabilities assumed in acquisition		448		972
Acquired net operating losses		27		1,398
Net unrealized loss on securities available for sale		331		-
Other deferred tax assets		122		228
Total deferred tax assets		31,461		27,204

Deferred tax liabilities:
Net unrealized gain on securities available for sale		-		1,641
Depreciation		3,606		1,285
Prepaid expenses		198		202
Acquired intangible assets		525		651
Total deferred tax liabilities		4,329		3,779
Net deferred tax assets	$	27,132	$	23,425

The Company believes its net deferred tax asset is recoverable as of December 31, 2016 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, 2013 through 2016. The Company is also currently open to audit by several state departments of revenue for the years ended December 31, 2013 through 2016. 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 $94,000 and $61,000 as of December 31, 2016 and 2015, respectively. Unrecognized income tax benefits as of December 31, 2016 and December 31, 2015, that, if recognized, would impact the effective income tax rate totaled $1,375,000 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 2016, 2015 and 2014 in the amount of unrecognized tax benefits that are included in the consolidated balance sheets.

	2016		2015		2014
	(In Thousands)
Balance, beginning of year	$	1,173	$	804	$	437
Increases related to prior year tax positions		364		369		367
Decreases related to prior year tax positions		-		-		-
Increases related to current year tax positions		-		-		-
Settlements		-		-		-
Lapse of statute		(162)		-		-
Balance, end of year	$	1,375	$	1,173	$	804