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

Annual report pursuant to Section 13 and 15(d)

Note 16 - Income Taxes

Note 16 - Income Taxes

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 16. INCOME TAXES

The components of income tax expense are as follows:

	Year Ended December 31,
	2020			2019			2018
	(In Thousands)
Current tax expense:
Federal	$	50,016		$	36,683		$	43,207
State		4,350			2,012			2,950
Total current tax expense		54,366			38,695			46,157
Deferred tax (benefit) expense:
Federal		(9,342	)		(166	)		(12,636	)
State		(385	)		(911	)		(1,619	)
Total deferred tax (benefit) expense		(9,727	)		(1,077	)		(14,255	)
Total income tax expense	$	44,639		$	37,618		$	31,902

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, 2020
	Amount			% of Pre-tax Earnings
	(In Thousands)
Income tax at statutory federal rate	$	44,984			21.00	%
Effect on rate of:
State income tax, net of federal tax effect		3,230			1.51	%
Tax-exempt income, net of expenses		(354	)		(0.17	%)
Bank owned life insurance contracts		(1,325	)		(0.62	%)
Excess tax benefit from stock compensation		(1,306	)		(0.61	%)
Federal tax credits		(563	)		(0.26	%)
Other		(27	)		(0.01	%)
Effective income tax and rate	$	44,639			20.84	%

	Year Ended December 31, 2019
	Amount			% of Pre-tax Earnings
	(In Thousands)
Income tax at statutory federal rate	$	39,241			21.00	%
Effect on rate of:
State income tax, net of federal tax effect		822			0.44	%
Tax-exempt income, net of expenses		(461	)		(0.25	%)
Bank owned life insurance contracts		(787	)		(0.42	%)
Excess tax benefit from stock compensation		(1,405	)		(0.75	%)
Federal tax credits		(170	)		(0.09	%)
Other		378			0.20	%
Effective income tax and rate	$	37,618			20.13	%

	Year Ended December 31, 2018
	Amount			% of Pre-tax Earnings
	(In Thousands)
Income tax at statutory federal rate	$	35,457			21.00	%
Effect on rate of:
State income tax, net of federal tax effect		808			0.48	%
Tax-exempt income, net of expenses		(655	)		(0.39	%)
Bank owned life insurance contracts		(657	)		(0.39	%)
Excess tax benefit from stock compensation		(3,118	)		(1.84	%)
Federal tax credits		(113	)		(0.07	%)
Other		180			0.10	%
Effective income tax and rate	$	31,902			18.89	%

The components of net deferred tax asset are as follows:

	December 31,
	2020		2019
	(In Thousands)
Deferred tax assets:
Allowance for credit losses	$	21,600	$	17,733
Other real estate owned		728		225
Nonqualified equity awards		873		953
Nonaccrual interest		322		231
State tax credits		6,091		7,787
Investments		-		1,119
Deferred loan fees		5,875		891
Reserve for unfunded commitments		600		183
Accrued bonus		2,594		2,029
Capital loss carryforward		1,480		-
Lease liability		2,671		-
Deferred revenue		42		-
Differences in amounts reflected in financial statements and income tax basis of assets acquired and liabilities assumed in acquisition		-		121
Other deferred tax assets		885		487
Total deferred tax assets		43,761		31,759

Deferred tax liabilities:
Net unrealized gain on securities available for sale		5,360		1,515
Depreciation		4,011		4,021
Prepaid expenses		543		516
Investments		79		-
Right-of-use assets and other leasing transactions		2,622		-
Acquired intangible assets		74		141
Total deferred tax liabilities		12,689		6,193
Net deferred tax assets	$	31,072	$	25,566

The Company believes its net deferred tax asset is recoverable as of December 31, 2020 based on the expectation of future taxable income and other relevant considerations.

Pursuant to ASC 740-10-30-2 Income Taxes, deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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, 2017 through 2020. The Company is also currently open to audit by several state departments of revenue for the years ended December 31, 2017 through 2020. 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 $152,000 and $135,000 as of December 31, 2020 and 2019, respectively. Unrecognized income tax benefits as of December 31, 2020 and December 31, 2019, that, if recognized, would impact the effective income tax rate totaled $3,238,000 and $2,683,000 (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 2020, 2019 and 2018 in the amount of unrecognized tax benefits that are included in the consolidated balance sheets.

	2020			2019			2018
	(In Thousands)
Balance, beginning of year	$	2,683		$	2,133		$	1,779
Increases related to prior year tax positions		997			998			799
Decreases related to prior year tax positions		-			-			-
Increases related to current year tax positions		-			-			-
Settlements		-			-			-
Lapse of statute		(442	)		(448	)		(445	)
Balance, end of year	$	3,238		$	2,683		$	2,133

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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