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, 2017

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 2014.

On December 22, 2017, the Tax Act was signed into law. Among other things, the Tax Act permanently reduced the corporate tax rate to 21% from the prior maximum rate of 35%, effective for tax years including or commencing January 1, 2018. As a result of the reduction of the corporate tax rate to 21%, companies are required to revalue their deferred tax assets and liabilities as of the date of enactment, with resulting tax effects accounted for in the fourth quarter of 2017. The Company continues to evaluate the impact on its 2017 tax expense of the revaluation required by the lower corporate tax rate implemented by the Tax Act, which management has estimated to fall between $5.0 million and $8.0 million. During the fourth quarter of 2017, the Company recorded $6.3 million in additional tax expense based on the Company's preliminary analysis of the impact of the Tax Act. The Company's preliminary estimate of the impact of the Tax Act is based on currently available information and interpretation of its provisions. The actual results may differ from the current estimate due to, among other things, further guidance that may be issued by U.S. tax authorities or regulatory bodies and/or changes in interpretations and assumptions that the Company has preliminarily made. The Company's evaluation of the impact of the Tax Act is subject to refinement for up to one year after enactment per the guidance under ASC 740, Accounting for Uncertainty in Income Taxes, and SAB 118.

Net deferred tax assets and liabilities consist of the following components as of December 31, 2017 and 2016 (dollars in thousands):



	2017		2016
Deferred tax assets:
Allowance for loan losses	$	8,024	$	13,017
Benefit plans	2,517		3,898
Acquisition accounting	4,911		11,297
OREO	1,673		3,156
Prime loan swap	1,640		3,147
Net operating losses, net of valuation allowance	3,624		—
Other	2,393		4,905
Total deferred tax assets	$	24,782	$	39,420
Deferred tax liabilities:
Acquisition accounting	$	5,923	$	11,645
Premises and equipment	3,626		4,843
Securities available for sale	1,479		1,818
Other	529		806
Total deferred tax liabilities	11,557		19,112
Net deferred tax asset	$	13,225	$	20,308

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 concluded in previous periods that it would not be able to utilize. 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 in accordance with ASC 740-10-30. Based on its latest analysis, at December 31, 2017, management concluded that it is more likely than not that the Company would be able to fully realize its deferred tax asset related to net operating losses generated at the state level and adjusted its valuation allowance accordingly. The Company's state net operating loss carryovers 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, 2017, 2016, and 2015 consists of the following (dollars in thousands):



	2017		2016		2015
Current tax expense	$	27,763	$	26,535	$	24,521
Deferred tax expense (benefit) ⁽¹⁾	5,624		243		(1,212		)
Income tax expense	$	33,387	$	26,778	$	23,309

(1) The deferred tax expense for the year ended December 31, 2017 includes the impact of the Tax Act.

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, 2017, 2016, and 2015, due to the following (dollars in thousands):



	2017			2016			2015
Computed "expected" tax expense	$	37,208		$	36,489		$	31,636
(Decrease) in taxes resulting from:
Tax-exempt interest income, net	(6,112		)	(6,087		)	(5,865		)
Valuation allowance adjustment	(2,982		)	—			—
Impact of the Tax Act	6,250			—			—
Other, net	(977		)	(3,624		)	(2,462		)
Income tax expense	$	33,387		$	26,778		$	23,309

The effective tax rates were 31.4%, 25.7%, and 25.8% for years ended December 31, 2017, 2016, and 2015, respectively. Tax credits totaled approximately $858,000, $2.0 million, and $913,000 for the years ended December 31, 2017, 2016, and 2015, respectively. The increase in the effective tax rate in 2017 compared to prior years was primarily related to the impact of the Tax Act.