INCOME TAXES

12 Months Ended

Dec. 31, 2023

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)	2023		2022		2021
Current income taxes:
Federal taxes	$	81,674	$	63,203	$	32,836
State and local taxes	19,968		18,763		13,421
Deferred income taxes:
Federal taxes	(5,331)		(4,094)		37,251
State and local taxes	(66)		89		2,587
Total	$	96,245	$	77,961	$	86,095

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, 2023 and 2022:

 

(Dollars in thousands)	2023		2022
Deferred tax assets:
Allowance for credit losses	$	40,518	$	33,323
Purchase accounting adjustments—loans	10,285		13,807
Reserves and other accruals	25,093		23,189
Investments	763		1,579
Net operating losses	2,725		3,315
Derivatives	2,806		3,521
Lease liabilities	31,835		33,236
Unrealized losses on available-for-sale securities	186,775		212,222
Other(1)	659		1,360
Total deferred tax assets	$	301,459	$	325,552
Deferred tax liabilities:
Accelerated depreciation	(5,790)		(5,994)
Right of use assets	(27,426)		(28,859)
Intangibles	(33,675)		(35,610)
Other(2)	(4,306)		(4,333)
Total deferred tax liabilities	(71,197)		(74,796)
Net deferred tax asset	$	230,262	$	250,756

(1)Other deferred tax assets includes deferred gains, tax credits, and reverse mortgages in 2023 and 2022, and employee benefit plans in 2022.

(2)Other deferred tax liabilities includes deferred loan costs, derivatives and partnership investments in 2023 and 2022, and employee benefit plans in 2023.

Included in the table above are deferred taxes recorded in accumulated other comprehensive income (loss). At December 31, 2023, such items consisted primarily of deferred tax assets of $186.8 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, 2022, the deferred tax assets consisted primarily of $212.2 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 $230.3 million at December 31, 2023. 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 $13.0 million of remaining Federal net operating losses (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,	2023		2022		2021
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
State tax, net of federal tax benefit	4.4		5.1		3.9
Tax-exempt interest	(0.6)		(0.5)		(0.2)
Bank-owned life insurance income	(0.1)		—		(0.1)
Excess tax benefits from share-based compensation	—		—		(0.1)
Nondeductible acquisition costs	—		0.1		0.2
Federal tax credits, net of amortization	(0.5)		(0.4)		(0.5)
Nondeductible compensation	0.1		0.2		—
Nondeductible goodwill	—		0.5		—
Surrender of bank-owned life insurance policies	1.9		—		—
Other	0.1		(0.1)		(0.1)
Effective tax rate	26.3	%	25.9	%	24.1	%

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.

Based on recent changes in the interest rate environment lowering our yields on our Bank Owned Life Insurance (BOLI) policies and the termination of a stable value protection wrap policy, we surrendered $65.5 million of previously acquired BOLI policies. This resulted in a taxable gain of $22.6 million and corresponding income tax charge of $7.1 million

There were no unrecognized tax benefits as of December 31, 2023. 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 2020 through 2023 tax years are subject to examination as of December 31, 2023. 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 2024.

The amortization of the low-income housing credit investments has been reflected as income tax expense in the amount of $3.9 million for the year ended December 31, 2023, compared to $4.8 million and $3.6 million for the years ended December 31, 2022 and December 31, 2021, respectively.

The amount of affordable housing tax credits, amortization and tax benefits recorded as income tax expense for the year ended December 31, 2023 were $4.7 million, $3.9 million and $1.9 million respectively. The carrying value of the investment in affordable housing credits is $87.1 million December 31, 2023, compared to $69.0 million December 31, 2022.