INCOME TAXES

12 Months Ended

Dec. 31, 2024

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)	2024		2023		2022
Current income taxes:
Federal taxes	$	69,589	$	81,674	$	63,203
State and local taxes	22,337		19,968		18,763
Deferred income taxes:
Federal taxes	(6,817)		(5,331)		(4,094)
State and local taxes	(1,345)		(66)		89
Total	$	83,764	$	96,245	$	77,961

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, 2024 and 2023:

 

(Dollars in thousands)	2024		2023
Deferred tax assets:
Allowance for credit losses	$	42,441	$	40,518
Purchase accounting adjustments—loans	8,094		10,285
Reserves and other accruals	33,250		25,093
Net operating losses	2,131		2,725
Derivatives	3,258		2,806
Lease liabilities	31,996		31,835
Unrealized losses on available-for-sale securities	193,956		186,775
Other(1)	1,379		1,422
Total deferred tax assets	$	316,505	$	301,459
Deferred tax liabilities:
Accelerated depreciation	(5,735)		(5,790)
Right of use assets	(27,536)		(27,426)
Intangibles	(31,278)		(33,675)
Other(2)	(3,795)		(4,306)
Total deferred tax liabilities	(68,344)		(71,197)
Net deferred tax asset	$	248,161	$	230,262

(1)Other deferred tax assets includes investments, deferred gains, tax credits in 2024 and 2023, and reverse mortgages in 2023.

(2)Other deferred tax liabilities includes derivatives, partnership investments, and employee benefit plans in 2024 and 2023, reverse mortgages in 2024, and deferred loan costs in 2023.

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 $248.2 million at December 31, 2024. 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 $10.1 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,	2024		2023		2022
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
State tax, net of federal tax benefit	4.7		4.4		5.1
Tax-exempt interest	(0.7)		(0.6)		(0.5)
Bank-owned life insurance income	(0.1)		(0.1)		—
Nondeductible acquisition costs	—		—		0.1
Federal tax credits, net of amortization	(1.3)		(0.5)		(0.4)
Nondeductible compensation	0.1		0.1		0.2
Nondeductible goodwill	—		—		0.5
Surrender of bank-owned life insurance policies	—		1.9		—
Other	0.4		0.1		(0.1)
Effective tax rate	24.1	%	26.3	%	25.9	%

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, during 2023, 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, 2024. 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 2021 through 2024 tax years are subject to examination as of December 31, 2024. 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 2025.

The amortization of the low-income housing credit investments has been reflected as income tax expense in the amount of $5.3 million for the year ended December 31, 2024, compared to $3.9 million and $4.8 million for the years ended December 31, 2023 and December 31, 2022, respectively.

The amount of affordable housing tax credits, amortization and tax benefits recorded as income tax expense for the year ended December 31, 2024 were $5.8 million, $5.3 million and $1.7 million respectively. The carrying value of the investment in affordable housing credits is $94.3 million at December 31, 2024, compared to $87.1 million at December 31, 2023.