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INCOME TAXES
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES Income Taxes
Income tax expense consisted of the following components:
 
(Dollars in thousands)202220212020
Current expense
Federal$24,307 $21,397 $34,632 
State3,308 2,289 2,349 
Total current expense27,615 23,686 36,981 
Deferred expense (benefit)
Federal(4,399)10,944 (8,624)
State894 1,143 244 
Total deferred expense (benefit)(3,505)12,087 (8,380)
Income tax expense$24,110 $35,773 $28,601 

The difference between the federal income tax rates applied to income before income taxes and the effective rates were due to the following:
(Dollars in thousands)202220212020
Income taxes computed at federal statutory rate (21%) on income before income taxes
$50,762 $50,596 $38,726 
Benefit from tax-exempt income(5,743)(5,613)(5,901)
Tax credits(37,331)(21,561)(13,064)
Basis reduction on tax credit2,761 1,346 657 
Tax expense (benefit) of equity compensation(154)(243)340 
State income taxes, net of federal tax benefit3,320 2,711 2,049 
Affordable housing investments9,341 7,194 6,635 
Other1,154 1,343 (841)
Income tax expense$24,110 $35,773 $28,601 
The major components of the temporary differences that gave rise to deferred tax assets and liabilities at December 31, 2022, and 2021, were as follows:
(Dollars in thousands)20222021
Deferred tax assets
Allowance for credit losses$30,464 $29,754 
Deferred compensation346 292 
Postretirement benefits other than pension liability636 652 
Accrued stock-based compensation2,216 1,836 
Interest on nonaccrual loans406 442 
Accrued expenses7,454 7,286 
Net unrealized losses on investment securities92,072 0 
State net operating loss1,152 1,746 
Leasing liability15,308 15,794 
Reserve for unfunded commitments4,254 3,049 
Other516 565 
Total deferred tax assets154,824 61,416 
Deferred tax liabilities
Tax depreciation in excess of book depreciation(7,172)(9,117)
FHLB and FRB stock(3,912)(3,836)
Mortgage-servicing rights(3,825)(3,518)
Leasing activities(12,829)(10,860)
Retirement obligation(10,197)(13,754)
Intangible assets(18,462)(16,081)
Deferred loan fees and costs(1,638)(933)
Prepaid expenses(645)(680)
Limited partnership investments(312)(2,957)
Fair value adjustments on business combinations(6,736)(6,900)
Net unrealized gains on investment securities0 (5,791)
Foreign exchange deferred income0 (428)
ASU 2016-01 unrealized gain/loss-equity securities(2,237)(2,339)
Right of use assets(12,911)(13,390)
Other(3,653)(2,426)
Total deferred tax liabilities(84,529)(93,010)
Total net deferred tax asset (liability)$70,295 $(31,594)

At December 31, 2022 and 2021, the Company had a state net operating loss carryforward from MSFG of $1.5 million and $2.3 million. This carryforward begins to expire in 2026. The Company expects to fully utilize this net operating loss and, therefore, a valuation allowance was not required at December 31, 2022 and 2021. The acquired MSFG state net operating loss is subject to IRC Section 382 and is limited annually.

The realization of the Company’s deferred tax assets is dependent upon the Company’s ability to generate taxable income in future periods and the reversal of deferred tax liabilities during the same period. The Company has evaluated the available evidence supporting the realization of its deferred tax assets and determined it is more likely than not that the assets will be realized and thus no valuation allowance was recorded at December 31, 2022 and 2021.

The Bank’s retained earnings at December 31, 2022 and 2021 included base-year bad debt reserves of $16.1 million.  Base-year reserves are subject to recapture in the event the Bank redeems its stock, makes distributions in excess of current and accumulated earnings and profits (as calculated for federal income tax purposes), loses its “bank” status or liquidates.  The
Bank has no intention of meeting any of the criteria for recapture.  Accordingly, a deferred income tax liability of $3.4 million has not been recorded.

At December 31, 2022, 2021 and 2020, First Financial had $1.9 million of unrecognized tax benefits, as determined in FASB ASC Topic 740-10, Income Taxes, that, if recognized, would favorably affect the effective income tax rate in future periods. A progression of gross unrecognized tax benefits as of December 31, 2022, 2021 and 2020 is as follows:
(Dollars in thousands)202220212020
Balance at beginning of year$2,386 $2,386 $3,006 
Settlements0 0 (620)
Balance at end of year$2,386 $2,386 $2,386 

The unrecognized tax benefits relate to state income tax exposures where First Financial believes it is likely that, upon examination, a state may take a position contrary to the position taken by the Company. The Company believes that resolution regarding our uncertain tax positions is reasonably possible within the next twelve months and could result in full, partial or no recognition of the benefit. First Financial recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. At December 31, 2022, 2021 and 2020, the Company had no interest or penalties recorded.

First Financial and its subsidiaries are subject to U.S. federal income tax as well as state and local income tax in several jurisdictions. Tax years prior to 2019 have been closed and are no longer subject to U.S. federal income tax examinations. Tax years 2019 through 2022 remain open to examination by the federal taxing authority. With limited exception, First Financial is no longer subject to state and local income tax examinations for years prior to 2018.