Income Taxes

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The effective income tax rate was 22.8% for the third quarter of 2021, compared with 18.6% for the third quarter of 2020. The effective income tax rate for the first nine months of 2021 and 2020 was 22.2% and 18.5%, respectively. These rates were reduced by nontaxable municipal interest income and nontaxable income from certain bank-owned life insurance, and were increased by the non-deductibility of Federal Deposit Insurance Corporation (“FDIC”) premiums, certain executive compensation plans, and other fringe benefits. Compared with 2021, the 2020 tax rate was also lower as a result of the proportional increase in nontaxable items and tax credits relative to pretax book income.

The amount of our net deferred tax liability (“DTL”) was $26 million at September 30, 2021, compared with $3 million at December 31, 2020. The increase in the net DTL was primarily due to the negative provision for credit losses, and was partially offset by an increase in unrealized losses in AOCI related to investment securities.

We had no valuation allowance at September 30, 2021 and December 31, 2020. We regularly evaluate deferred tax assets to determine whether a valuation allowance is required. This evaluation considers all available evidence, both positive and negative, based on the more likely than not criteria that such assets will be realized. This evaluation also includes, but is not limited to (1) available carryback potential to prior tax years, (2) potential future reversals of existing deferred tax liabilities, which historically has a reversal pattern generally consistent with deferred tax assets, (3) potential tax planning strategies, and (4) future projected taxable income. Based on our evaluation, and considering the weight of the positive evidence compared with the negative evidence, we concluded a valuation allowance was not required at September 30, 2021.