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)	2021		2020		2019
Current
Federal	$	23,661	$	21,688	$	20,954
State	3,882		4,471		1,932
Deferred
Federal	6,800		(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)	2021		2020		2019
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 costs	419		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 disallowance	253		—		—
Other	(5)		142		(36)
Federal tax provision	30,461		18,991		23,762
State tax provision	3,874		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)	2021		2020
Allowance for credit losses	$	22,686	$	24,158
Other real estate owned	52		422
Accrued stock compensation	2,323		1,973
Federal tax loss carryforward	2,138		2,857
State tax loss carryforward	1,226		1,333
Lease liabilities	9,399		7,101
Net unrealized securities losses	2,287		—
Deferred compensation	3,276		2,565
Accrued interest and fee income	—		995
Other	477		38
Gross deferred tax assets	43,864		41,442
Less: Valuation allowance	—		—
Deferred tax assets net of valuation allowance	43,864		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 America	2018
Florida	2018

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.