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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES
15. INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax return and separate state income tax returns. The Company's income tax provision consists of the following:
 
Year ended December 31,
(Dollars in thousands)202120202019
Current income taxes:
Federal taxes$32,836 $57,716 $31,401 
State and local taxes13,421 6,768 7,977 
Deferred income taxes:
Federal taxes37,251 (32,962)5,987 
State and local taxes2,587 114 1,087 
Total$86,095 $31,636 $46,452 
Current federal income taxes include taxes on income that cannot be offset by net operating loss carryforwards.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following is a summary of the significant components of the Company's deferred tax assets and liabilities as of December 31, 2021 and 2020:
 
(Dollars in thousands)20212020
Deferred tax assets:
Allowance for credit losses$19,847 $48,050 
Purchase accounting adjustments—loans10,264 18,084 
Reserves and other accruals16,444 17,115 
Investments2,038 2,045 
Derivatives4,181 5,009 
Employee benefit plans1,340 2,504 
Lease liabilities33,501 34,955 
Unrealized losses on available-for-sale securities10,642 — 
Other (1)
479 821 
Total deferred tax assets $98,736 $128,583 
Deferred tax liabilities:
Unrealized gains on available-for-sale securities$— $(18,997)
Legal settlement(3,150)— 
Accelerated depreciation(4,467)(4,233)
Right of use assets(30,268)(31,707)
Deferred loan costs(230)(783)
Intangibles(20,897)(22,373)
Other (2)
(756)(1,278)
Total deferred tax liabilities(59,768)(79,371)
Net deferred tax asset$38,968 $49,212 
(1)Other deferred tax assets includes deferred gains and net operating losses.
(2)Other deferred tax liabilities includes derivatives and reverse mortgages.
Included in the table above is the effect of certain temporary differences for which no deferred tax expense or benefit was recognized. In 2021, such items consisted primarily of $10.6 million of unrealized losses on certain investments in debt and equity securities accounted for under ASC 320 and $1.5 million of unrealized losses related to postretirement benefit obligations accounted for under ASC 715. In 2020, they consisted primarily of $19.0 million of unrealized gains on certain investments in debt and equity securities and $1.6 million of unrealized losses related to postretirement benefit obligations.
Based on the Company's history of prior earnings and its expectations of the future, it is anticipated that operating income and the reversal pattern of its temporary differences will, more likely than not, be sufficient to realize a net deferred tax asset of $39.0 million at December 31, 2021.
Pursuant to accounting guidance, The Company is not required to provide deferred taxes on Beneficial’s tax loan loss reserve as of December 31, 1987. As of December 31, 2021, Beneficial had unrecognized deferred income taxes of approximately $1.7 million with respect to this reserve. This reserve could be recognized as taxable income and create a current and/or deferred tax liability using the income tax rates then in effect if one of the following occur: (1) the Bank’s retained earnings represented by this reserve are used for distributions in liquidation or for any other purpose other than to absorb losses from bad debts; (2) the Bank fails to qualify as a Bank, as provided by the Internal Revenue Code; or (3) there is a change in federal tax law.
A reconciliation showing the differences between the Company's effective tax rate and the U.S. Federal statutory tax rate is as follows:
 
Year ended December 31,
Year Ended December 31,202120202019
Statutory federal income tax rate21.0 %21.0 %21.0 %
State tax, net of federal tax benefit3.9 3.7 3.5 
Adjustment to net deferred tax asset for enacted changes in tax laws and rates— (1.2)— 
Tax-exempt interest(0.2)(0.7)(0.6)
Bank-owned life insurance income(0.1)(0.2)(0.1)
Excess tax benefits from share-based compensation(0.1)— (1.0)
Nondeductible acquisition costs0.2 — 0.2 
Federal tax credits, net of amortization(0.5)(0.8)(0.2)
Nondeductible compensation— — 0.9 
Other(0.1)— 0.2 
Effective tax rate24.1 %21.8 %23.9 %
As a result of the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, the Company recorded $0.4 million of income tax benefit in 2021, compared to less than $0.1 million of income tax expense and $2.0 million of income tax benefit in 2020 and 2019, respectively, related to excess tax benefits from stock compensation. This accounting standard will result in volatility to future effective tax rates.
The Company has $0.5 million of remaining Federal NOLs. Such NOLs expire beginning in 2030 and, due to Internal Revenue Service (IRS) limitations, $0.1 million are being utilized each year. Accordingly, the Company fully expects to utilize all of these NOLs. The Company has no state NOLs.
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. Benefits from tax positions are recognized in the financial statements only when it is more-likely-than-not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. ASC 740 also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties.
There were no unrecognized tax benefits as of December 31, 2021. The Company records interest and penalties on potential income tax deficiencies as income tax expense. The Company's federal and state tax returns for the 2018 through 2021 tax years are subject to examination as of December 31, 2021, while tax years 2018 through 2021 generally remain subject to examination by state taxing jurisdictions. No federal or state income tax return examinations are currently in process. The Company does not expect to record or realize any material unrecognized tax benefits during 2022.
As a result of the adoption of ASC 326 - Credit Losses on January 1, 2020, the tax impact relating to the incremental provision for expected credit losses from financial assets held at amortized cost has been reflected as a credit to retained earnings to reflect the tax impact of increased credit reserves. Accordingly, $8.5 million of such impact has been reflected as an income tax credit and deferred tax asset on the Company's Consolidated Statements of Financial Condition.
Section 2303(b) of the CARES act provides the Company with an opportunity to carry back net operating losses (NOLs) arising from 2018, 2019 and 2020 to the prior five tax years. The Company has such NOLs reflected on its balance sheet as a portion of its current tax receivables, which were previously valued at the federal corporate income tax rate of 21%. However, the provisions of the CARES Act provide for NOL carryback claims to be calculated based on a rate of 35%, which was the federal corporate tax rate in effect for the carryback years. Consequently, effective March 31, 2020, the Company has revalued the benefit from its NOLs to reflect a 35% tax rate, which resulted in the recognition of an additional $1.7 million income tax benefit and deferred tax asset on the Company's Consolidated Statements of Financial Condition.
The amortization of the low-income housing credit investments has been reflected as income tax expense in the amount of $3.6 million for the year ended December 31, 2021, compared to $3.3 million and $3.0 million for the years ended December 31, 2020 and December 31, 2019, respectively.
The amount of affordable housing tax credits, amortization and tax benefits recorded as income tax expense for the year ended December 31, 2021 were $3.5 million, $3.6 million and $0.7 million respectively. The carrying value of the investment in affordable housing credits is $39.6 million December 31, 2021, compared to $26.6 million December 31, 2020.