Annual report pursuant to Section 13 and 15(d)

Note 16 - Income Taxes

v3.22.4
Note 16 - Income Taxes
 12 Months Ended
Dec. 31, 2022
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,

  
   

2022

    

2021

    

2020

  
   

(In Thousands)

  

Current tax expense:

                        

Federal

   $ 56,318     $ 45,248     $ 50,016  

State

     3,621       5,428       4,350  

Total current tax expense

     59,939       50,676       54,366  

Deferred tax (benefit) expense:

                        

Federal

     (4,110 )     (5,596 )     (9,342 )

State

     1,495       535       (385 )

Total deferred tax (benefit)

     (2,615 )     (5,061 )     (9,727 )

Total income tax expense

   $ 57,324     $ 45,615     $ 44,639  

 

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, 2022

  
   

Amount

    

% of Pre-tax Earnings

  
   

(In Thousands)

  

Income tax at statutory federal rate

   $ 64,796       21.00

 %

Effect on rate of:

                

State income tax, net of federal tax effect

     7,247       2.35

 %
Tax-exempt income, net of expenses     (188 )     (0.06 )%
Bank-owned life insurance contracts     (1,812 )     (0.59 )%
Excess tax benefit from stock compensation     (1,091 )     (0.35 )%
Federal tax credits, net of related amortization     (11,131 )     (3.61 )%
Other     (497 )     (0.16 )%

Effective income tax and rate

   $ 57,324       18.58

 %

 

   

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, net of related amortization     (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

 %

 

The components of net deferred tax asset are as follows:

 

   

December 31,

  
   

2022

    

2021

  
   

(In Thousands)

  

Deferred tax assets:

                

Allowance for credit losses

   $ 36,720     $ 29,237  

Other real estate owned

     316       520  

Nonqualified equity awards

     1,229       816  

Nonaccrual interest

     289       289  

State tax credits

     1,795       3,988  

Deferred loan fees

     4,720       5,087  

Reserve for unfunded commitments

     144       435  

Accrued bonus

     4,540       3,910  

Capital loss carryforward

     1,889       1,867  

Lease liability

     4,923       4,654  

Deferred revenue

     20       31  

Net unrealized loss on securities available for sale

     16,339       -  

Other deferred tax assets

     60       1,429  

Total deferred tax assets

     72,984       52,263  
                 

Deferred tax liabilities:

                

Net unrealized gain on securities available for sale

     -       3,723  

Depreciation

     4,431       4,872  

Prepaid expenses

     975       607  

Investments

     1,054       696  

Right-of-use assets and other leasing transactions

     4,723       4,495  

Acquired intangible assets

     -       6  

Other deferred tax liabilities

     1,353       92  

Total deferred tax liabilities

     12,536       14,491  

Net deferred tax assets

   $ 60,448     $ 37,772  

 

The Company believes its net deferred tax asset is recoverable as of December 31, 2022 and 2021 based on the expectation of future taxable income and other relevant considerations.

 

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, 2019 through 2022. The Company is also currently open to audit by several state departments of revenue for the years ended December 31, 2019 through 2022. The audit periods differ depending on the date the Company began business activities in each state.

 

Accrued interest and penalties on unrecognized income tax benefits totaled $0 and $169,000 as of December 31, 2022 and 2021, respectively. Interest and penalties related to unrecognized income tax benefits are recorded in the provision for income taxes. Unrecognized income tax benefits as of December 31, 2022 and December 31, 2021, that, if recognized, would impact the effective income tax rate totaled $0 and $3,659,000 (net of the federal benefit on state income tax issues), respectively. The Company does not have any unrecognized tax benefits as of December 31, 2022.

 

The following table presents a summary of the changes during 2022, 2021 and 2020 in the amount of unrecognized tax benefits that are included in the consolidated balance sheets.

 

   

2022

    

2021

    

2020

  
   

(In Thousands)

  

Balance, beginning of year

   $ 3,659     $ 3,238     $ 2,683  

Increases related to prior year tax positions

     -       864       997  

Decreases related to prior year tax positions

     (2,860 )     -       -  

Increases related to current year tax positions

     -       -       -  

Settlements

     -       -       -  

Lapse of statute

     (799 )     (443 )     (442 )

Balance, end of year

   $ -     $ 3,659     $ 3,238