INCOME TAXES

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

16. 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)	2022		2021		2020
Current income taxes:
Federal taxes	$	63,203	$	32,836	$	57,716
State and local taxes	18,763		13,421		6,768
Deferred income taxes:
Federal taxes	(4,094)		37,251		(32,962)
State and local taxes	89		2,587		114
Total	$	77,961	$	86,095	$	31,636

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, 2022 and 2021:

 

(Dollars in thousands)	2022		2021
Deferred tax assets:
Allowance for credit losses	$	33,323	$	19,847
Purchase accounting adjustments—loans	13,807		10,264
Reserves and other accruals	23,189		16,444
Investments	1,579		2,038
Net operating losses	3,315		96
Derivatives	3,521		4,181
Employee benefit plans	181		1,340
Lease liabilities	33,236		33,501
Unrealized losses on available-for-sale securities	212,222		10,642
Other(1)	1,179		383
Total deferred tax assets	$	325,552	$	98,736
Deferred tax liabilities:
Legal settlement	—		(3,150)
Accelerated depreciation	(5,994)		(4,467)
Right of use assets	(28,859)		(30,268)
Deferred loan costs	(53)		(230)
Intangibles	(35,610)		(20,897)
Other(2)	(4,280)		(756)
Total deferred tax liabilities	(74,796)		(59,768)
Net deferred tax asset	$	250,756	$	38,968

(1)Other deferred tax assets includes deferred gains and tax credits in 2022 and 2021, and reverse mortgages in 2022.

(2)Other deferred tax liabilities includes derivatives and partnership investments in 2022 and 2021, and reverse mortgages in 2021.

Included in the table above are deferred taxes recorded in accumulated OCI. At December 31, 2022, such items consisted primarily of deferred tax assets of $212.2 million of unrealized losses on certain investments in debt securities accounted for under ASC 320 and $1.5 million of unrealized losses related to postretirement benefit obligations accounted for under ASC 715. At December 31, 2021, the deferred tax assets consisted primarily of $10.6 million of unrealized gains on certain investments in debt securities and $1.5 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 $250.8 million at December 31, 2022. The Company reduces the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. The need to establish valuation allowances for deferred tax assets is assessed quarterly. In assessing the requirement for, and amount of, a valuation allowance in accordance with the more likely than not standard for all periods, the Company considers all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the generation of future profitability, the reversal of deferred tax liabilities, and tax planning strategies.

The Company has $15.8 million of remaining Federal NOLs. Such NOLs expire beginning in 2030 and, due to Internal Revenue Service (IRS) limitations, $2.8 million are being utilized each year. Accordingly, the Company fully expects to utilize all of these NOLs. The Company has no state NOLs. Finally, the Company has $0.5 million of alternative minimum tax credits that have no expiration date and are fully expected to be utilized.

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,	2022		2021		2020
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
State tax, net of federal tax benefit	5.1		3.9		3.7
Adjustment to net deferred tax asset for enacted changes in tax laws and rates	—		—		(1.2)
Tax-exempt interest	(0.5)		(0.2)		(0.7)
Bank-owned life insurance income	—		(0.1)		(0.2)
Excess tax benefits from share-based compensation	—		(0.1)		—
Nondeductible acquisition costs	0.1		0.2		—
Federal tax credits, net of amortization	(0.4)		(0.5)		(0.8)
Nondeductible compensation	0.2		—		—
Nondeductible goodwill	0.5		—		—
Other	(0.1)		(0.1)		—
Effective tax rate	25.9	%	24.1	%	21.8	%

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.

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, 2022. 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 2019 through 2022 tax years are subject to examination as of December 31, 2022. 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 2023.

The amortization of the low-income housing credit investments has been reflected as income tax expense in the amount of $4.8 million for the year ended December 31, 2022, compared to $3.6 million and $3.3 million for the years ended December 31, 2021 and December 31, 2020, respectively.

The amount of affordable housing tax credits, amortization and tax benefits recorded as income tax expense for the year ended December 31, 2022 were $4.3 million, $4.8 million and $1.3 million respectively. The carrying value of the investment in affordable housing credits is $69.0 million December 31, 2022, compared to $39.6 million December 31, 2021.