Atlantic Union Bankshares Corporation 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

The Company files income tax returns in the U.S., the Commonwealth of Virginia, and other states. With few exceptions, the Company is no longer subject to U.S. federal or state income tax examinations by tax authorities for years prior to 2013.

Net deferred tax assets and liabilities consist of the following components as of December 31, 2016 and 2015 (dollars in thousands):



	2016		2015
Deferred tax assets:
Allowance for loan losses	$	13,017	$	11,916
Benefit plans	3,898		3,475
Acquisition accounting	11,297		13,888
Stock grants	1,371		1,679
Other real estate owned	3,156		4,589
Securities available for sale	291		105
Prime loan swap	3,147		2,724
Investments in pass through entities	835		1,366
Other	2,408		2,212
Total deferred tax assets	$	39,420	$	41,954
Deferred tax liabilities:
Acquisition accounting	$	11,645	$	13,282
Premises and equipment	4,843		4,588
Securities available for sale	1,818		6,861
Other	806		2,429
Total deferred tax liabilities	19,112		27,160
Net deferred tax asset	$	20,308	$	14,794

In assessing the ability to realize deferred tax assets, management considers the scheduled reversal of temporary differences, projected future taxable income, and tax planning strategies. At December 31, 2016, management continued to believe that it is not likely that the Company would realize its deferred tax asset related to net operating losses generated at the state level and accordingly maintained a valuation allowance of $2.2 million compared to a valuation allowance of $1.7 million at December 31, 2015. The Bank is not subject to a state income tax in its primary place of business (Virginia). The Company’s other subsidiaries are subject to state income taxes and have generated losses for state income tax purposes for which the Company is currently not able to utilize. The primary driver in management’s estimate of the recoverability of the state net operating loss is related to the continued state losses of the consolidated group (excluding the Bank). The Company had state net operating loss carryovers of $57.7 million and $46.3 million for the years ended December 31, 2016 and 2015, respectively, which will begin to expire after 2026.

The Company has analyzed the tax positions taken or expected to be taken in its tax returns and concluded it has no liability related to uncertain tax positions in accordance with applicable ASC 740, Accounting for Uncertainty in Income Taxes, regulations.

The provision for income taxes charged to operations for the years ended December 31, 2016, 2015, and 2014 consists of the following (dollars in thousands):



	2016		2015			2014
Current tax expense	$	26,535	$	24,521		$	15,481
Deferred tax expense (benefit)	243		(1,212		)	2,644
Income tax expense	$	26,778	$	23,309		$	18,125

The income tax expense differs from the amount of income tax determined by applying the U.S. federal income tax rate to pre-tax income for the years ended December 31, 2016, 2015, and 2014, due to the following (dollars in thousands):



	2016			2015			2014
Computed "expected" tax expense	$	36,489		$	31,636		$	24,601
(Decrease) in taxes resulting from:
Tax-exempt interest income, net	(6,087		)	(5,865		)	(5,181		)
Other, net	(3,624		)	(2,462		)	(1,295		)
Income tax expense	$	26,778		$	23,309		$	18,125

The effective tax rates were 25.7%, 25.8%, and 25.8% for years ended December 31, 2016, 2015, and 2014, respectively. Tax credits totaled approximately $2.0 million, $913,000, and $667,000 for the years ended December 31, 2016, 2015, and 2014, respectively.