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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The provision for income taxes is as follows:
 For the Year Ended December 31,
(In thousands)202120202019
Current   
Federal$23,661 $21,688 $20,954 
State3,882 4,471 1,932 
Deferred
Federal6,800 (2,697)2,808 
State(8)(644)4,179 
 $34,335 $22,818 $29,873 
The difference between the total expected tax expense (computed by applying the U.S. Federal tax rate of 21% to pretax income) and the reported income tax provision relating to income before income taxes is as follows:
 For the Year Ended December 31,
(In thousands)202120202019
Tax rate applied to income before income taxes$33,335 $21,122 $27,008 
Increase (decrease) resulting from the effects of:
Tax law change— (375)— 
Nondeductible acquisition costs419 199 125 
Tax exempt interest on loans, obligations of states and political subdivisions and bank owned life insurance(1,276)(1,110)(1,282)
State income taxes(813)(804)(1,283)
Tax credit investments(213)(72)(72)
Stock compensation(1,239)(111)(698)
Executive compensation disallowance253 — — 
Other(5)142 (36)
Federal tax provision30,461 18,991 23,762 
State tax provision3,874 3,827 6,111 
Total income tax provision$34,335 $22,818 $29,873 
 
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,
(In thousands)20212020
Allowance for credit losses$22,686 $24,158 
Other real estate owned52 422 
Accrued stock compensation2,323 1,973 
Federal tax loss carryforward2,138 2,857 
State tax loss carryforward1,226 1,333 
Lease liabilities9,399 7,101 
Net unrealized securities losses2,287 — 
Deferred compensation3,276 2,565 
Accrued interest and fee income— 995 
Other477 38 
Gross deferred tax assets43,864 41,442 
Less: Valuation allowance— — 
Deferred tax assets net of valuation allowance43,864 41,442 
Core deposit base intangible(3,134)(3,234)
Accrued interest and fee income(1,660)— 
Net unrealized securities gains— (5,890)
Premises and equipment(776)(534)
Right of use assets(8,645)(6,262)
Other(2,328)(1,893)
Gross deferred tax liabilities(16,543)(17,813)
Net deferred tax assets$27,321 $23,629 
Included in the table above is the effect of temporary differences associated with the Company's investments in debt securities accounted for under ASC Topic 320, for which no deferred tax expense or benefit was recognized. These items are recorded as Accumulated Other Comprehensive Income in the shareholders' equity section of the consolidated balance sheet. In 2021, unrealized losses of $9.3 million resulted in a deferred tax asset of $2.3 million. In 2020, unrealized gains of $26.3 million resulted in a deferred tax liability of $5.9 million.
At December 31, 2021, the Company's net deferred tax assets (“DTAs”) of $27.3 million consisted of $20.8 million of net U.S. federal DTAs and $6.5 million of net state DTAs. At December 31, 2020, the Company's net DTAs of $23.6 million consisted of $18.0 million of U.S. federal DTAs and $5.6 million of net state DTAs.
Management assesses the necessity of a valuation allowance recorded against DTAs at each reporting period. The determination of whether a valuation allowance for net DTAs is appropriate is subject to considerable judgment and requires an evaluation of all positive and negative evidence. Based on an assessment of all of the evidence, including favorable trending in asset quality and certainty regarding the amount of future taxable income that the Company forecasts, management concluded that it was more likely than not that its net DTAs will be realized based upon future taxable income. Management's confidence in the realization of projected future taxable income is based upon analysis of the Company's risk profile and its trending financial performance, including credit quality. The Company believes it can reasonably predict future results of operations that result in taxable income at sufficient levels over the future period of time that the Company has available to realize its net DTA.
A valuation allowance could be required in future periods based on the assessment of positive and negative evidence. Management's conclusion at December 31, 2021 that it is more likely than not that the net DTAs of $27.3 million will be realized is based upon estimates of future taxable income that are supported by internal projections which consider historical performance, various internal estimates and assumptions, as well as certain external data, all of which management believes to be reasonable although inherently subject to judgment. If actual results differ significantly from the current estimates of future taxable income, even if caused by adverse macro-economic conditions, a valuation allowance may need to be recorded for some
or all of the Company's DTAs. The establishment of a DTA valuation allowance could have a material adverse effect on the Company's financial condition and results of operations.
Management expects to realize the $27.3 million in net DTAs well in advance of the statutory carryforward period. At December 31, 2021, approximately $2.1 million of DTAs related to federal net operating losses which will expire in annual installments beginning in 2029 through 2032. Additionally, $1.2 million of the DTAs related to state net operating losses which will expire in annual installments beginning in 2029 through 2034. Remaining DTAs are not related to net operating losses or credits and therefore, have no expiration date.
The Company recognizes interest and penalties, as appropriate, as part of the provisioning for income taxes. No interest or penalties were accrued at December 31, 2021.
In accordance with ASC Topic 718, Compensation – Stock Compensation, the Company recognized $0.9 million, $0.1 million and $0.8 million in 2021, 2020, and 2019, respectively, of discrete tax benefits related to share-based compensation.
In accordance with ASC Topic 323, Investments-Equity Method and Joint Ventures, amortization of the Company's low-income housing credit investments of $1.6 million, $0.9 million and $0.9 million was reflected as income tax expense for the years ended December 31, 2021, 2020, and 2019, respectively. The amounts of affordable housing tax credits, amortization and tax benefits recorded as income tax expense for the year ended December 31, 2021 were $1.2 million, $1.6 million, and $0.7 million, respectively. The amounts of affordable housing tax credits, amortization and tax benefits recorded as income tax expense for the year ended December 31, 2020 were $0.8 million, $0.9 million and $0.2 million, respectively, and for the year ended December 31, 2019 were $0.8 million, $0.9 million and $0.2 million, respectively. The carrying value of the affordable housing credit investments was $30.1 million and $16.4 million at December 31, 2021 and 2020, respectively, of which $23.2 million and $9.9 million, respectively, was unfunded.
The Company has no unrecognized income tax benefits or provisions due to uncertain income tax positions. 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. The following are the major tax jurisdictions in which the Company operates and the earliest tax year, exclusive of the impact of the net operating loss carryforwards, subject to examination:
Jurisdiction Tax Year
United States of America2018
Florida2018
In September 2019, the State of Florida announced a reduction in the corporate income tax rate from 5.5% to 4.458% for the years 2019, 2020 and 2021. This change resulted in additional income tax expense of $1.1 million upon the write down in 2019 of deferred tax assets affected by the change. During 2021, the State of Florida announced a temporary further reduction in the corporate income tax rate from 4.458% to 3.535%, retroactive to the beginning of 2021. The tax rate increased to 5.5% effective January 1, 2022, resulting in a tax benefit of $0.8 million which was recognized in 2021 upon the adjustment of the value of deferred tax assets affected by the change.
As a result of the adoption of ASC 326 - Credit Losses on January 1, 2020, the tax impact relating to the incremental allowance for expected credit losses on loans held at amortized cost was reflected as a credit to retained earnings to reflect the tax impact of increased credit reserves. Accordingly, $5.5 million of such impact was reflected as an income tax credit and deferred tax asset on the Company's Consolidated Statements of Financial Condition.
On March 27, 2020, the CARES Act was enacted, and Section 2303(b) of this act provided the Company with an opportunity to carry back net operating losses arising from 2018, 2019 and 2020 to the prior five tax years. Such NOLs were previously valued at the current 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 many of the carryback years. Consequently, for the year ended December 31, 2020, the Company filed amended tax returns and recorded the resulting benefit reflecting taxes recoverable at the 35% tax rate. This resulted in the recognition in 2020 of an additional $0.4 million income tax benefit on the Company's Consolidated Statements of Income.