Income Taxes

12 Months Ended

Dec. 31, 2020

INCOME TAXES

The components of income tax expense were as follows:


	For the Years Ended December 31,
(amounts in thousands)	2020		2019		2018
Current
Federal	$	29,478	$	2,973	$	4,509
State	10,220		5,304		5,547
Total current expense	39,698		8,277		10,056

Deferred
Federal	2,880		13,175		9,702
State	802		1,341		(399)
Total deferred expense	3,682		14,516		9,303

Income tax expense	$	43,380	$	22,793	$	19,359

Effective tax rates differ from the federal statutory rate of 21% at December 31, 2020, December 31, 2019, and 2018, which was applied to income before income tax expense, due to the following:


	For the Years Ended December 31,
	2020				2019				2018
(amounts in thousands)	Amount		% of pretax income		Amount		% of pretax income		Amount		% of pretax income
Federal income tax at statutory rate	$	36,951	21.00	%	$	21,445	21.00	%	$	19,121	21.00	%
State income tax, net of federal benefit	8,564		4.87		5,249		5.14		4,067		4.47
Tax-exempt interest, net of disallowance	(492)		(0.28)		(385)		(0.38)		(360)		(0.40)
Bank-owned life insurance	(1,579)		(0.90)		(1,677)		(1.64)		(1,547)		(1.70)
Tax credits	(2,034)		(1.16)		(1,266)		(1.24)		(444)		(0.49)
Equity-based compensation	185		0.11		132		0.13		(547)		(0.60)
Non-deductible executive compensation	751		0.43		440		0.43		230		0.25
Unrecorded basis difference in foreign subsidiaries	(304)		(0.17)		(144)		(0.14)		343		0.38
Enactment of federal tax reform	—		—		—		—		(21)		(0.02)
Other	1,338		0.75		(1,001)		(0.98)		(1,483)		(1.63)
Effective income tax rate	$	43,380	24.65	%	$	22,793	22.32	%	$	19,359	21.26	%

At December 31, 2020 and 2019, Customers had no ASC 740-10 unrecognized tax benefits. Customers does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months. Customers recognizes interest and penalties on unrecognized tax benefits in other expense.

Deferred income taxes reflect temporary differences in the recognition of revenue and expenses for tax reporting and financial statement purposes, principally because certain items are recognized in different periods for financial reporting and tax return purposes. The following represents Customers' deferred tax asset and liabilities as December 31, 2020 and 2019:


	December 31,
(amounts in thousands)	2020		2019
Deferred tax assets
Allowance for credit losses on loans and leases	$	37,503	$	14,616



Net operating losses	1,910		1,494


Compensation and benefits	8,654		5,839

Cash flow hedge	10,703		5,557


Section 197 intangibles	1,373		1,196
Deferred income	1,419		1,182
Lease liability	4,972		5,523
Other	2,631		1,307
Total gross deferred tax assets	69,165		36,714
Less: valuation allowance	(994)		(486)
Net deferred tax assets	68,171		36,228
Deferred tax liabilities
Fair value adjustments on acquisitions	(570)		(506)

Bank premises and equipment	(5,546)		(6,074)
Tax qualified lease adjustments	(38,527)		(30,496)
Right of use asset	(4,598)		(5,232)
Net unrealized gains on securities	(8,194)		(5,020)
Other	(2,600)		(640)
Total deferred tax liabilities	(60,035)		(47,968)
Net deferred tax asset/(liability)	$	8,136	$	(11,740)

The net deferred tax asset at December 31, 2020 is recorded in other assets and the net deferred tax liability at December 31, 2019 is recorded in other liabilities.

Customers had approximately $4.4 million of federal and state net operating loss carryovers subject to the annual limitation under Internal Revenue code Section 382 at December 31, 2020, that begin to expire in 2027. Customers also has state net operating loss carryovers for some states that begin to expire in 2037. Customers believes it is more likely than not the benefit of these state net operating loss carryovers generated by BankMobile Technologies, Inc. will not be realized. As such, there is a valuation allowance on the deferred tax assets of the jurisdictions in which the net operating losses relate.

Customers is subject to U.S. federal income tax as well as income tax in various state and local taxing jurisdictions. Generally, Customers is no longer subject to examination by federal, state, and local taxing authorities for years prior to the year ended December 31, 2017. Customers is currently under audit by New York for the 2015-2017 tax years and by New York City for the 2016-2017 tax years. Customers believes that the resolution of these examinations will not have a material effect on the consolidated financial statements.

- 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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