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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes |
NOTE 12 – INCOME TAXES
The components of the provision for income taxes are as follows:
| 2020 |  | 2019 |  | 2018
| (in thousands)
Current tax expense: |  |  |  |  |
Federal | $ | 38,396 |  |  | $ | 32,610 |  |  | $ | 35,783 |
State | 7,389 |  |  | 5,204 |  |  | 5,352 |
| 45,785 |  |  | 37,814 |  |  | 41,135 |
Deferred tax (benefit) expense: |  |  |  |  |
Federal | (18,131) |  |  | (1,271) |  |  | (16,841) |
State | (3,460) |  |  | 1,106 |  |  | 283 |
| (21,591) |  |  | (165) |  |  | (16,558) |
Total income tax expense | $ | 24,194 |  |  | $ | 37,649 |  |  | $ | 24,577 |
The differences between the effective income tax rate and the federal statutory income tax rate are as follows:
| 2020 |  | 2019 |  | 2018
Statutory tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Tax credit investments | (5.7) |  |  | (4.6) |  |  | (6.1) |
Tax-exempt income | (4.9) |  |  | (3.9) |  |  | (4.1) |
Bank owned life insurance | (0.7) |  |  | (0.4) |  |  | (0.4) |
State income taxes, net of federal benefit | 1.1 |  |  | 0.2 |  |  | 2.0 |
Change in valuation allowance | — |  |  | 1.8 |  |  | (0.1) |
Re-measurement of net DTA due to the Tax Act | — |  |  | — |  |  | (0.3) |
Executive compensation | — |  |  | — |  |  | 0.1 |
FDIC Premium | 0.3 |  |  | — |  |  | — |
Penalties | 0.2 |  |  | — |  |  | — |
Other, net | 0.7 |  |  | 0.2 |  |  | (1.6) |
Effective income tax rate | 12.0 | % |  | 14.3 | % |  | 10.5 | %
The net DTA recorded by the Corporation is included in other assets and consists of the following tax effects of temporary differences as of December 31:
| 2020 |  | 2019
| (in thousands)
Deferred tax assets: |  |  |
Allowance for credit losses | $ | 67,059 |  |  | $ | 37,081 |
Tax credit carryforwards | 39,294 |  |  | 43,133 |
State loss carryforwards | 20,401 |  |  | 16,324 |
Tax credit investments | 10,159 |  |  | 6,799 |
Other accrued expenses | 9,801 |  |  | 8,797 |
Deferred compensation | 8,486 |  |  | 7,752 |
Stock-based compensation | 3,289 |  |  | 2,930 |
Postretirement and defined benefit plans | 1,553 |  |  | 599 |
Other | 12,107 |  |  | 4,246 |
Total gross deferred tax assets | 172,149 |  |  | 127,661 |
Deferred tax liabilities: |  |  |
Equipment lease financing | 44,216 |  |  | 42,273 |
Unrealized holding gains on AFS securities | 23,978 |  |  | 4,223 |
Premises and equipment | 8,876 |  |  | 6,282 |
MSRs | 6,414 |  |  | 8,686 |
Acquisition premiums/discounts | 5,466 |  |  | 5,266 |
Intangible assets | 1,205 |  |  | 1,136 |
Other | 15,811 |  |  | 12,387 |
Total gross deferred tax liabilities | 105,966 |  |  | 80,253 |
Net deferred tax asset, before valuation allowance | 66,183 |  |  | 47,408 |
Valuation allowance | (20,401) |  |  | (16,324) |
Net deferred tax asset | $ | 45,782 |  |  | $ | 31,084 |
In assessing the realizability of DTAs, management considers whether it is more likely than not that some or all of the DTAs will not be realized. The ultimate realization of DTAs is dependent upon the generation of future taxable income and/or capital gain income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies, such as those that may be implemented to generate capital gains, in making this assessment. The valuation allowance relates to state net operating loss carryforwards for which realizability is uncertain. As of December 31, 2020 and 2019, the Corporation had state net operating loss carryforwards of approximately $263.6 million and $392.0 million, respectively, which are available to offset future state taxable income, and expire at various dates through 2040. As of December 31, 2020, based on the level of historical taxable income and projections for future taxable income over the periods in which the DTAs are deductible, management believes it is more likely than not that the Corporation will realize the benefits of its DTAs, net of the valuation allowance. As of December 31, 2020, the Corporation had tax credit carryforwards related to TCIs of approximately $39.3 million. The corporation recorded a DTA of $39.3 million, reflecting the benefit of these tax credit carryforwards. Such DTA will begin to expire in 2040 if not yet utilized. Uncertain Tax Positions The following table summarizes the changes in unrecognized tax benefits for the years ended December 31:
| 2020 |  | 2019 |  | 2018
| (in thousands)
Balance at beginning of year | $ | 2,517 |  |  | $ | 2,726 |  |  | $ | 2,550 |
Current period tax positions | 95 |  |  | 292 |  |  | 593 |
Lapse of statute of limitations | (461) |  |  | (501) |  |  | (417) |
Balance at end of year | $ | 2,151 |  |  | $ | 2,517 |  |  | $ | 2,726 |
Virtually all of the Corporation’s unrecognized tax benefits are for positions that are taken on an annual basis on state tax returns. Increases to unrecognized tax benefits will occur as a result of accruing for the nonrecognition of the position for the current year. Decreases will occur as a result of the lapsing of the statute of limitations for the oldest outstanding year which includes the position. These offsetting increases and decreases are likely to continue in the future, including over the next twelve months. While the net effect on total unrecognized tax benefits during this period cannot be reasonably estimated, approximately $513,000 is expected to reverse in 2021 due to lapsing of the statute of limitations. Decreases can also occur throughout the settlement of positions with taxing authorities. As of December 31, 2020, if recognized, all of the Corporation’s unrecognized tax benefits would impact the effective tax rate. Not included in the table above is $468,000 of federal income tax benefit on unrecognized state tax benefits which, if recognized, would also impact the effective tax rate. Interest accrued related to unrecognized tax benefits is recorded as a component of income tax expense. Penalties, if incurred, would also be recognized in income tax expense. The Corporation recognized approximately $(17,000) and $22,000 in 2020 and 2019, respectively, for interest and penalties in income tax expense related to unrecognized tax positions. As of December 31, 2020 and 2019, total accrued interest and penalties related to unrecognized tax positions were approximately $680,000 and $697,000, respectively. The Corporation files income tax returns in the federal and various state jurisdictions. In most cases, unrecognized tax benefits are related to tax years that remain subject to examination by the relevant taxing authorities. With few exceptions, the Corporation is no longer subject to federal, state and local examinations by tax authorities for years before 2017. Tax Credit Investments The TCIs are included in other assets, with any unfunded equity commitments recorded in other liabilities on the consolidated balance sheets. Certain TCIs qualify for the proportional amortization method and are amortized over the period the Corporation expects to receive the tax credits, with the expense included within income taxes on the consolidated statements of income. Other TCIs are accounted for under the equity method of accounting, with amortization included within non-interest expense on the consolidated statements of income. This amortization includes equity in partnership losses and the systematic write-down of investments over the period in which income tax credits are earned. All of the TCIs are evaluated for impairment at the end of each reporting period. The following table presents the balances of the Corporation's TCIs and related unfunded commitments as of December 31:
|  |  | 2020 |  | 2019
Included in other assets: |  | ( in thousands)
Affordable housing tax credit investments, net |  | $ | 152,203 |  |  | $ | 153,351 |
Other tax credit investments, net |  | 59,224 |  |  | 64,354 |
| Total TCIs, net |  | $ | 211,427 |  |  | $ | 217,705 |
Included in other liabilities: |  |  |  |
Unfunded affordable housing tax credit commitments |  | $ | 31,562 |  |  | $ | 16,684 |
Other tax credit liabilities |  | 49,491 |  |  | 55,105 |
| Total unfunded tax credit commitments and liabilities |  | $ | 81,053 |  |  | $ | 71,789 |
The following table presents other information relating to the Corporation's TCIs for the years ended December 31:
|  | 2020 |  | 2019 |  | 2018
|  | ( in thousands)
Components of income taxes: |  |  |  |  |
Affordable housing tax credits and other tax benefits | $ | (28,777) |  |  | $ | (30,642) |  |  | $ | (30,721) |
Other tax credit investment credits and tax benefits | (4,163) |  |  | (4,542) |  |  | (6,385) |
Amortization of affordable housing investments, net of tax benefit | 20,429 |  |  | 22,184 |  |  | 21,569 |
Deferred tax expense | 921 |  |  | 954 |  |  | 1,341 |
| Total reduction in income tax expense | $ | (11,590) |  |  | $ | (12,046) |  |  | $ | (14,196) |
Amortization of TCIs: |  |  |  |  |
Affordable housing tax credits investment | $ | 4,087 |  |  | $ | 3,344 |  |  | $ | 3,355 |
Other tax credit investment amortization | 2,039 |  |  | 2,677 |  |  | 8,094 |
| Total amortization of TCIs | $ | 6,126 |  |  | $ | 6,021 |  |  | $ | 11,449 |

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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