Annual report pursuant to Section 13 and 15(d)

Note 16 - Income Taxes

v3.22.0.1
Note 16 - Income Taxes
 12 Months Ended
Dec. 31, 2021
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

NOTE 16.         INCOME TAXES

 

The components of income tax expense are as follows:

 

   

Year Ended December 31,

  
   

2021

    

2020

    

2019

  
   

(In Thousands)

  

Current tax expense:

                        

Federal

   $ 45,248     $ 50,016     $ 36,683  

State

     5,428       4,350       2,012  

Total current tax expense

     50,676       54,366       38,695  

Deferred tax (benefit) expense:

                        

Federal

     (5,596 )     (9,342 )     (166 )

State

     535       (385 )     (911 )

Total deferred tax (benefit)

     (5,061 )     (9,727 )     (1,077 )

Total income tax expense

   $ 45,615     $ 44,639     $ 37,618  

 

The Company’s total income tax expense differs from the amounts computed by applying the Federal income tax statutory rates to income before income taxes. A reconciliation of the differences is as follows:

 

   

Year Ended December 31, 2021

  
   

Amount

    

% of Pre-tax Earnings

  
   

(In Thousands)

  

Income tax at statutory federal rate

   $ 53,203       21.00

%

Effect on rate of:

                

State income tax, net of federal tax effect

     4,952       1.95

%

Tax-exempt income, net of expenses

     (242 )     (0.10

)%

Bank-owned life insurance contracts

     (1,395 )     (0.55

)%

Excess tax benefit from stock compensation

     (2,335 )     (0.92

)%

Federal tax credits

     (11,019 )     (4.35

)%

Other

     2,451       0.97

%

Effective income tax and rate

   $ 45,615       18.00

%

 

   

Year Ended December 31, 2020

  
   

Amount

    

% of Pre-tax Earnings

  
   

(In Thousands)

  

Income tax at statutory federal rate

   $ 44,984       21.00 %

Effect on rate of:

                

State income tax, net of federal tax effect

     3,230       1.51 %

Tax-exempt income, net of expenses

     (354 )     (0.17 )%

Bank-owned life insurance contracts

     (1,325 )     (0.62 )%

Excess tax benefit from stock compensation

     (1,306 )     (0.61 )%

Federal tax credits

     (563 )     (0.26 )%

Other

     (27 )     (0.01 )%

Effective income tax and rate

   $ 44,639       20.84 %

 

   

Year Ended December 31, 2019

  
   

Amount

    

% of Pre-tax Earnings

  
   

(In Thousands)

  

Income tax at statutory federal rate

   $ 39,241       21.00

%

Effect on rate of:

                

State income tax, net of federal tax effect

     822       0.44

%

Tax-exempt income, net of expenses

     (461 )     (0.25

)%

Bank-owned life insurance contracts

     (787 )     (0.42

)%

Excess tax benefit from stock compensation

     (1,405 )     (0.75

)%

Federal tax credits

     (170 )     (0.09

)%

Other

     378       0.20

%

Effective income tax and rate

   $ 37,618       20.13

%

 

The components of net deferred tax asset are as follows:

 

   

December 31,

  
   

2021

    

2020

  
   

(In Thousands)

  

Deferred tax assets:

                

Allowance for credit losses

   $ 29,237     $ 21,600  

Other real estate owned

     520       728  

Nonqualified equity awards

     816       873  

Nonaccrual interest

     289       322  

State tax credits

     3,988       6,091  

Deferred loan fees

     5,087       5,875  

Reserve for unfunded commitments

     435       600  

Accrued bonus

     3,910       2,594  

Capital loss carryforward

     1,867       1,480  

Lease liability

     4,654       2,671  

Deferred revenue

     31       42  

Other deferred tax assets

     1,429       885  

Total deferred tax assets

     52,263       43,761  
                 

Deferred tax liabilities:

                

Net unrealized gain on securities available for sale

     3,723       5,360  

Depreciation

     4,872       4,011  

Prepaid expenses

     607       543  

Investments

     696       79  

Right-of-use assets and other leasing transactions

     4,495       2,622  

Acquired intangible assets

     6       74  

Other deferred tax liabilities

     92       -  

Total deferred tax liabilities

     14,491       12,689  

Net deferred tax assets

   $ 37,772     $ 31,072  

 

The Company believes its net deferred tax asset is recoverable as of December 31, 2021 based on the expectation of future taxable income and other relevant considerations.

 

Pursuant to ASC 740-10-30-2 Income Taxes, deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 

 

The Company and its subsidiaries file a consolidated U.S. Federal income tax return and various consolidated and separate company state income tax returns. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31, 2018 through 2021. The Company is also currently open to audit by several state departments of revenue for the years ended December 31, 2018 through 2021. The audit periods differ depending on the date the Company began business activities in each state. Currently, there are no years for which the Company filed a federal or state income tax return that are under examination by the IRS or any state department of revenue.

 

Accrued interest and penalties on unrecognized income tax benefits totaled $169,000 and $152,000 as of December 31, 2021 and 2020, respectively. Unrecognized income tax benefits as of December 31, 2021 and December 31, 2020, that, if recognized, would impact the effective income tax rate totaled $3,659,000 and $3,238,000 (net of the federal benefit on state income tax issues), respectively. The Company does not expect any of the uncertain tax positions to be settled or resolved during the next twelve months.

 

The following table presents a summary of the changes during 2021, 2020 and 2019 in the amount of unrecognized tax benefits that are included in the consolidated balance sheets.

 

   

2021

    

2020

    

2019

  
   

(In Thousands)

  

Balance, beginning of year

   $ 3,238     $ 2,683     $ 2,133  

Increases related to prior year tax positions

     864       997       998  

Decreases related to prior year tax positions

     -       -       -  

Increases related to current year tax positions

     -       -       -  

Settlements

     -       -       -  

Lapse of statute

     (443 )     (442 )     (448 )

Balance, end of year

   $ 3,659     $ 3,238     $ 2,683