INCOME TAXES

12 Months Ended

Dec. 31, 2020

The provision for income taxes is comprised of the following components:


	Years Ended December 31
	2020		2019		2018
	(Dollars in thousands)
Current expense
Federal	$	32,171	$	27,980	$	25,129
State	17,004		14,359		13,672
Total current expense	49,175		42,339		38,801
Deferred expense (benefit)
Federal	(10,872)		9,080		(3,080)
State	(6,634)		1,514		(1,417)
Total deferred expense (benefit)	(17,506)		10,594		(4,497)
Total expense	$	31,669	$	52,933	$	34,304

The difference between the statutory federal income tax rate and the effective income tax rate reported for the last three years is detailed below:


	Years Ended December 31
	2020				2019				2018
	(Dollars in thousands)
Computed statutory federal income tax provision	$	32,096	21.00	%	$	45,803	21.00	%	$	32,744	21.00	%
State taxes, net of federal tax benefit	8,147		5.33	%	12,262		5.63	%	9,633		6.18	%
CARES Act - net operating loss carryback	(4,809)		(3.15)	%	—		—	%	—		—	%
Low Income Housing Project Investments	(1,851)		(1.21)	%	(1,696)		(0.78)	%	(1,030)		(0.66)	%
Increase in cash surrender value of life insurance	(1,345)		(0.88)	%	(1,144)		(0.52)	%	(1,160)		(0.74)	%
Stock-based compensation	(1,067)		(0.70)	%	(824)		(0.38)	%	(885)		(0.57)	%
Nontaxable interest, net	(723)		(0.47)	%	(757)		(0.35)	%	(566)		(0.36)	%
Change in valuation allowance	—		—	%	17		0.01	%	49		0.03	%

New Markets Tax Credits	—		—	%	(2,675)		(1.23)	%	(3,960)		(2.54)	%
Merger and other related costs (non-deductible)	—		—	%	582		0.27	%	130		0.08	%
Other, net	1,221		0.80	%	1,365		0.63	%	(651)		(0.42)	%
Total expense	$	31,669	20.72	%	$	52,933	24.28	%	$	34,304	22.00	%

On March 27, 2020 the CARES Act was signed into law, allowing the Company to realize a $4.8 million discrete tax benefit. This discrete benefit was associated with revised net operating loss (NOL) carryback provisions. The difference in enacted tax rates between the year of carryback versus carryforward resulted in a benefit recognized in income during the period that included the enactment date. Accordingly, the discrete benefit was fully recognized during the first quarter of 2020.

The tax-effected components of the net deferred tax asset at December 31 of the years presented were as follows:


	2020		2019
	(Dollars in thousands)
Deferred tax assets
Accrued expenses not deducted for tax purposes	$	13,804	$	13,855
Allowance for credit losses	32,265		18,993


Employee and director equity compensation	1,548		1,708

Foreign Tax Credit Carryforward	89		—
Loan basis difference fair value adjustment	4,791		6,804
Net operating loss carry-forward	226		2,546

Operating lease liability	15,846		16,393


Other	999		1,311
Gross deferred tax assets	$	69,568	$	61,610
Valuation allowance	(280)		(187)
Total deferred tax assets net of valuation allowance	$	69,288	$	61,423
Deferred tax liabilities
Core deposit and other intangibles	$	4,344	$	5,802
Deferred loan fees, net	336		4,944
Derivatives fair value adjustment	13,036		6,461
Fixed assets	7,786		8,194
Goodwill	10,947		10,645

Net unrealized gain on securities available for sale	4,152		—

Prepaid pension	3,404		3,487
Right of use asset	12,979		15,911
Other	1,573		3,965
Gross deferred tax liabilities	$	58,557	$	59,409
Total net deferred tax asset	$	10,731	$	2,014

Deferred tax assets are to be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of the tax benefit depends upon the existence of sufficient taxable income in future periods.

At December 31, 2020, the Company had a foreign tax credit carryforward with a related deferred tax asset of $89,000 and net operating loss carryforwards with related deferred tax assets of $226,000, which if not utilized, will expire in 2026 and 2040, respectively. The Company believes that these deferred assets related to its carryforwards will not be fully realized and accordingly recorded a valuation allowance of $280,000 at December 31, 2020. The Company believes that it is more likely than not that the remaining deferred tax assets will be realized through future reversals of existing taxable temporary differences and by offsetting other future taxable income.

Uncertainty in Income Taxes

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction as well as in various states. The Company is subject to U.S. federal, state and local income tax examinations by tax authorities for the 2017 through 2019 tax years including any related income tax filings from its recent acquisitions. The Company believes that its income tax returns have been filed based upon applicable statutes, regulations and case law in effect at the time of filing, however, the Internal Revenue Service ("IRS") and /or state jurisdictions could disagree with the Company's interpretation upon examination. The Company accounts for uncertainties in income taxes by providing a tax reserve for certain positions. The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits:


	(Dollars in thousands)
Balance at December 31, 2018	$	215
Reduction of tax positions for prior years	(127)

Increase for current year tax positions	444
Balance at December 31, 2019	532
Reduction of tax positions for prior years	(58)


Balance at December 31, 2020	$	474

Increases to the Company's unrealized tax positions occur as a result of accruing for the unrecognized tax benefit as well the accrual of interest and penalties related to prior year positions. Decreases in the Company's unrealized tax positions occur as a result of the statute of limitation lapsing on prior year positions and/or settlements relating to outstanding positions. The table above does not include the indirect federal benefit of state tax positions of approximately $104,000. All of the Company’s unrecognized tax benefits, including the indirect federal benefit of state tax positions, are recorded as a component of income tax expense. For the years ended December 31, 2020, 2019 and 2018 the Company recognized approximately $52,000, $10,000 and $24,000, respectively, in the provision for income taxes for interest and penalties related to uncertain tax positions. Accordingly, the Company has accrued approximately $95,000, $43,000 and $53,000 for the payment of interest and penalties as of December 31, 2020, 2019 and 2018, respectively, which are not included in the table above.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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