Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The components of income tax expense (benefit) for the years ended December 31, are as follows:

	Year ended December 31,
($ in thousands)	2021		2020		2019
Current:
Federal	$	29,835	$	25,132	$	15,470
State and local	5,198		5,009		2,027
Total current	35,033		30,141		17,497
Deferred:
Federal	870		(10,651)		4,262
State and local	(325)		(1,927)		1,538
Total deferred	545		(12,578)		5,800
Total income tax expense	$	35,578	$	17,563	$	23,297

A reconciliation of expected income tax expense, computed by applying the statutory federal income tax rate in 2021, 2020, and 2019 to income before income taxes and the amounts reflected in the consolidated statements of operations is as follows:

	Year ended December 31,
($ in thousands)	2021		2020		2019
Income tax expense at statutory rate	$	35,413	$	19,309	$	24,368
Increase (reduction) in income tax resulting from:
Tax-exempt interest income, net	(3,198)		(2,010)		(962)
State and local income taxes, net	4,936		3,254		2,816
Bank-owned life insurance, net	(713)		(778)		(628)
Non-deductible expenses	1,090		637		749
Tax benefit of low-income housing tax credit ("LIHTC") investments, net	(132)		(444)		(278)
Excess tax benefits	146		(175)		(526)
Federal tax credits	(1,136)		(1,327)		(913)
Non-taxable donation to charitable foundation	(263)		—		(420)
Other, net	(565)		(903)		(909)
Total income tax expense	$	35,578	$	17,563	$	23,297

The net amount recognized as a component of tax expense for tax credits, other tax benefits, and amortization from LIHTC investments recognized per the table above was $0.1 million for the year ended December 31, 2021. The net amount recognized as a benefit component of income tax expense per the table above was $0.4 million for the year ended December 31, 2020, and $0.3 million for the year ended December 31, 2019. As of December 31, 2021 and 2020, the carrying value of the investments related to low-income housing tax credits was $7.6 million and $4.2 million, respectively. No impairment losses have been recognized from forfeiture or ineligibility of tax credits or other circumstances during the life of any of the investments.

A net deferred income tax asset of $40.9 million and $29.8 million is included in other assets in the consolidated balance sheets at December 31, 2021 and 2020, respectively. The tax effect of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities is as follows:

	Year ended December 31,
($ in thousands)	2021		2020
Deferred tax assets:
Allowance for loan losses	$	36,550	$	34,031
Loans held-for-sale	6,971		8,058
Other real estate	305		896
Deferred compensation	2,704		2,585
Accrued compensation	5,881		5,391
Net operating losses and tax credits	6,061		6,460
Other deferred tax assets	5,671		3,086
Total deferred tax assets	64,143		60,507
Deferred tax liabilities:
Acquired loans	1,709		3,413
Unrealized gains on securities	6,171		12,189
Intangible assets	8,789		7,800
Other deferred tax liabilities	3,754		4,369
Total deferred tax liabilities	20,423		27,771
Net deferred tax asset before valuation allowance	43,720		32,736
Less: valuation allowance	2,830		2,932
Net deferred tax asset	$	40,890	$	29,804

As part of the Trinity Capital Corporation acquisition in 2019, the company acquired net operating loss, tax credit, and capital loss deferred tax assets. Net operating losses originated in the years 2012, 2014-2017, and 2019 and will expire in the years between 2032-2037. Tax credit carryforwards originated in years 2010-2015 and will expire in the years between 2030-2035.

A valuation allowance is provided on deferred tax assets when it is more likely than not that some portion of the assets will not be realized. In 2019, as part of the Trinity Capital Corporation acquisition, the company acquired net operating loss, tax credit, and capital loss deferred tax assets. The company determined it was more likely than not that some of the assets would not be realized. As such, the company has a valuation allowance recorded of $2.8 million and $2.9 million as of December 31, 2021 and 2020, respectively.

The Company and its subsidiaries file income tax returns in the federal jurisdiction and in thirty states. The Company is no longer subject to federal, state or local income tax audits by tax authorities for years before 2017, with the exception of 2016 being an open year by one state taxing authority. Net operating losses generated prior to 2016 that are utilized going forward would still be subject to examination.

As of December 31, 2021, the gross amount of unrecognized tax benefits was $2.7 million and the total amount of net unrecognized tax benefits that would impact the effective tax rate, if recognized, was $2.5 million. As of December 31, 2020 and 2019, the total amount of the net unrecognized tax benefits that would impact the effective tax rate, if recognized, was $3.1 million and $1.1 million, respectively. The Company believes it is reasonably possible the gross amount of unrecognized benefits will be reduced by approximately $0.4 million as a result of a lapse of statute of limitations in the next 12 months. The Company is under audit by the state of Missouri, and while the Company has concluded it has adequately provided for uncertain tax positions, the outcome of such audits are always uncertain and could result in additional tax expense, though immaterial.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense and classifies such interest and penalties in the liability for unrecognized tax benefits. The amount accrued for interest and penalties was $0.5 million as of December 31, 2021, $0.9 million for 2020 and was not significant for 2019.

The activity in the gross liability for unrecognized tax benefits was as follows:

($ in thousands)	2021		2020		2019
Balance at beginning of year	$	3,157	$	1,497	$	1,301
Additions based on tax positions related to the current year	563		395		401
Additions for tax positions of prior years	436		1,556		62
Settlements for tax positions of prior years	(1,289)		—		—
Settlements or lapse of statute of limitations	(170)		(291)		(267)
Balance at end of year	$	2,697	$	3,157	$	1,497