Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The following table shows the composition of income tax expense.

Year Ended December 31 (Dollars in thousands)	2020		2019		2018
Current:
Federal	$	42,411	$	28,130	$	20,167
State	6,629		5,739		2,996
Total current	49,040		33,869		23,163
Deferred:
Federal	(21,865)		(5,135)		(875)
State	(2,295)		(595)		1,200
Deferred tax liability remeasurement	—		—		(875)
Total deferred	(24,160)		(5,730)		(550)
Total provision	$	24,880	$	28,139	$	22,613

The following table shows the reasons for the difference between income tax expense and the amount computed by applying the statutory federal income tax rate (21%) to income before income taxes.

	2020				2019				2018
Year Ended December 31 (Dollars in thousands)	Amount		Percent of Pretax Income		Amount		Percent of Pretax Income		Amount		Percent of Pretax Income
Statutory federal income tax	$	22,332	21.0	%	$	25,232	21.0	%	$	22,056	21.0	%
(Decrease) increase in income taxes resulting from:
Tax-exempt interest income	(439)		(0.4)		(552)		(0.5)		(650)		(0.6)
State taxes, net of federal income tax benefit	3,424		3.2		4,064		3.4		3,315		3.2
Deferred tax liability remeasurement	—		—		—		—		(875)		(0.8)
Other	(437)		(0.4)		(605)		(0.5)		(1,233)		(1.3)
Total	$	24,880	23.4	%	$	28,139	23.4	%	$	22,613	21.5	%

The tax expense related to gains (losses) on investment securities available-for-sale for the years 2020, 2019, and 2018 was approximately $67,000, $0, and $(83,000), respectively.

The following table shows the composition of deferred tax assets and liabilities as of December 31, 2020 and 2019.

(Dollars in thousands)	2020		2019
Deferred tax assets:
Allowance for credit losses	$	35,696	$	28,792
Tax credit carryforward	8,606		—
Operating lease liability	5,704		5,899
Accruals for employee benefits	2,963		2,842
Capitalized loan costs	893		—
Mortgage servicing	173		—
Other	678		222
Total deferred tax assets	54,713		37,755
Deferred tax liabilities:
Differing depreciable bases in premises and leased equipment	13,118		18,614
Right of use assets - leases	5,737		5,899
Differing bases in assets related to acquisitions	4,160		4,092
Tax advantaged partnerships	3,770		4,383
Net unrealized gains on securities available-for-sale	5,827		1,640
Mortgage servicing	—		394
Capitalized loan costs	—		1,207
Prepaid expenses	334		297
Other	300		544
Total deferred tax liabilities	33,246		37,070
Net deferred tax asset	$	21,467	$	685

No valuation allowance for deferred tax assets was recorded at December 31, 2020 and 2019 as the Company believes it is more likely than not that all of the deferred tax assets will be realized. Additionally, the tax credit carryforward expires in 2040.

The following table shows a reconciliation of the beginning and ending amounts of unrecognized tax benefits.

(Dollars in thousands)	2020		2019		2018
Balance, beginning of year	$	—	$	—	$	1,112
Additions based on tax positions related to the current year	—		—		—
Additions for tax positions of prior years	—		—		—
Reductions for tax positions of prior years	—		—		—
Reductions due to lapse in statute of limitations	—		—		—
Settlements	—		—		(1,112)
Balance, end of year	$	—	$	—	$	—

The total amount of unrecognized tax benefits that would affect the effective tax rate if recognized was zero at December 31, 2020, 2019 and 2018. Interest and penalties are recognized through the income tax provision. For the years 2020, 2019 and 2018, the Company recognized approximately $0.00 million, $0.00 million and $(0.09) million in interest, net of tax effect, and penalties, respectively. There were no accrued interest and penalties at December 31, 2020, 2019 and 2018.

Tax years that remain open and subject to audit include the federal 2017-2020 years and the Indiana 2017-2020 years. Additionally, in 2018 the Company reached a state tax settlement for the 2015-2017 years and as a result, recorded a reduction of unrecognized tax benefits in the amount of $1.11 million. The Company does not anticipate a significant change in the amount of uncertain tax positions within the next 12 months.

The Tax Cuts and Jobs Act was enacted on December 22, 2017. The Act reduced the U.S. federal corporate tax rate from 35% to 21%. At December 31, 2017, the Company had not fully completed its accounting for the tax effects of enactment of the Act and recorded a provisional benefit of $2.61 million which is included as a component of Income Tax Expense on the Consolidated Statements of Income related to the remeasurement of its deferred tax balance. During the third quarter of 2018, the Company completed its accounting for the provisional amounts recognized at December 31, 2017 and recorded an additional $0.88 million benefit as provided by the SEC’s Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act.