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INCOME TAXES

12 Months Ended

Dec. 31, 2023

INCOME TAXES

INCOME TAXES

18. INCOME TAXES

​

Allocation of federal and state income tax between current and deferred portion is as follows:

​

​	​	​	​	​	​	​	​	​	​
Years Ended December 31, (in thousands)		2023			2022			2021
​	​	​	​	​	​	​	​	​	​
Current expense:	​	​	​	​	​	​	​	​	​
Federal	​	$	22,015	​	$	24,537	​	$	19,348
State	​		5,237	​		5,939	​		4,169
​	​	​	​	​	​	​	​	​	​
Deferred expense:	​	​	​	​	​	​	​	​	​
Federal	​	​	(3,329)	​	​	(4,273)	​	​	(246)
State	​		(1,084)	​		(464)	​		560
Total	​	$	22,839	​	$	25,739	​	$	23,831

​

Effective tax rates differ from federal statutory rate applied to income before income taxes due to the following:

​

​	​	​	​	​	​	​	​	​
Years Ended December 31,	​		2023		2022		2021
​	​	​	​	​	​	​	​	​
Federal corporate tax rate	​		21.00	%	21.00	%	21.00	%
Effect of:	​	​	​	​	​	​	​	​
State taxes, net of federal benefit	​		2.90	​	3.70	​	3.32	​
Low-income housing and R&D tax credits	​		(2.67)	​	(1.88)	​	(1.76)	​
Nontaxable income	​		(1.38)	​	(1.00)	​	(1.06)	​
Tax benefit of vesting employee benefits	​	​	(0.06)	​	(0.01)	​	(0.20)	​
Other, net	​		0.38	​	0.22	​	0.08	​
Effective tax rate	​		20.17	​	22.03	​	21.38	​

​

Year-end DTAs and DTLs were due to the following:

​

​	​	​	​	​	​	​
December 31, (in thousands)		2023			2022
​	​	​	​	​	​	​
Deferred tax assets:	​	​	​	​	​	​
Allowance for credit losses	​	$	20,654	​	$	17,427
Operating lease liabilities	​	​	8,940	​	​	9,362
Accrued expenses	​		6,285	​		5,901
Net operating loss carryforward(1)	​		1,191	​		1,371
Acquisition fair value adjustments	​	​	55	​	​	101
Other-than-temporary impairment	​		582	​		567
R&D Capitalization	​		4,492	​		2,271
Unrealized investment security losses	​	​	6,803	​	​	10,657
Other	​		2,337	​		2,248
Total deferred tax assets	​		51,339	​		49,905
​	​	​	​	​	​	​
Deferred tax liabilities:	​	​	​	​	​	​
Right of use assets - operating leases	​	​	(8,726)	​	​	(9,166)
Depreciation and amortization	​	​	(2,805)	​	​	(2,835)
Federal Home Loan Bank dividends	​		(757)	​		(745)
Deferred loan costs	​		(2,732)	​		(2,153)
Lease Financing Receivables	​	​	(3,058)	​	​	(1,996)
Mortgage servicing rights	​		(1,864)	​		(2,172)
Unrealized investment securities gains	​		—	​		—
Total deferred tax liabilities	​		(19,942)	​		(19,067)
​	​	​	​	​	​	​
Less: Valuation allowance	​		—	​		—
Net deferred tax asset	​	$	31,397	​	$	30,838

(1) The Company has federal and state net operating loss carryforwards (acquired in its 2016 Cornerstone acquisition) of $5.1 million (federal) and $2.6 million (state). These carryforwards begin to expire in 2030 for both federal and state purposes. The use of these federal and state carryforwards is each limited under IRC Section 382 to $722,000 annually for federal and $634,000 annually for state. Finally, the Company has state AMT credit carryforwards of $15,000 with no expiration date.

​

Unrecognized Tax Benefits

​

The following table shows a reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

​

​	​	​	​	​	​	​	​	​	​
Years Ended December 31, (in thousands)		2023			2022			2021
​	​	​	​	​	​	​	​	​	​
Balance, beginning of period	​	$	2,866	​	$	2,191	​	$	1,941
Additions based on tax related to the current period	​		280	​		950	​		433
Additions for tax positions of prior periods	​		36	​		—	​		253
Reductions due to the statute of limitations	​		(320)	​		(275)	​		(436)
Balance, end of period	​	$	2,862	​	$	2,866	​	$	2,191

​

Of the 2023 total, $2.4 million represented the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. 

It is the Company’s policy to recognize interest and penalties as a component of income tax expense related to its unrecognized tax benefits. Amounts related to interest and penalties recorded in the income statements for the years ended December 31, 2023, 2022, and 2021, and accrued on the balance sheets as of December 31, 2023, 2022, and 2021 are presented below:

​

​	​	​	​	​	​	​	​	​	​
Years Ended December 31, (in thousands)		2023			2022			2021
​	​	​	​	​	​	​	​	​	​
Interest and penalties recorded in the income statement as a component of income tax expense	​	$	314	​	$	72	​	$	267
Interest and penalties accrued on balance sheet	​		1,163	​		849	​		777

​

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by taxing authorities for all years prior to and including 2019. With a few exceptions, which are immaterial in the aggregate, the Company is no longer subject to state income tax examinations for all years prior to and including 2018.

​

Low-Income Housing Tax Credits Investments and Obligations

​

The Company is a limited partner in several low-income housing partnerships whose purpose is to invest in qualified affordable housing. The Company expects to recover its remaining investments in these partnerships through the use of tax credits that are generated by the investments.

​

The following table summarizes information related to the Company’s qualified low-income housing investments and obligations:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

December 31, (in thousands)

​

2023

2022

​

​

​

​

​

​

​

Unfunded

​

​

​

​

​

Unfunded

Investment

Accounting Method

​

​

Investments

​

​

Obligations

​

​

Investments

​

​

Obligations

Low-income housing tax credit - Gross

Proportional amortization

​

$

57,596

​

$

58,619

​

$

42,306

​

$

43,609

Life-to-date amortization

​

​

​

(15,904)

​

​

NA

​

​

(10,591)

​

​

NA

Low-income housing tax credit - Net

​

​

$

41,692

​

$

58,619

​

$

31,715

​

$

43,609

​

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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.

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