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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
The components of income tax expense from continuing operations were as follows:
For the Years Ended December 31,
(amounts in thousands)202220212020
Current
Federal$37,476 $50,971 $30,158 
State18,880 18,215 10,825 
Total current expense56,356 69,186 40,983 
Deferred
Federal7,249 14,957 4,882 
State(342)2,797 852 
Total deferred expense6,907 17,754 5,734 
Income tax expense$63,263 $86,940 $46,717 
Effective tax rates differ from the federal statutory rate of 21% at December 31, 2022, 2021, and 2020, which was applied to income before income tax expense, due to the following:
For the Years Ended December 31,
202220212020
(dollars in thousands)Amount% of pretax incomeAmount% of pretax incomeAmount% of pretax income
Federal income tax at statutory rate$61,173 21.00 %$92,654 21.00 %$39,849 21.00 %
State income tax, net of federal benefit9,184 3.15 16,863 3.82 9,225 4.86 
Tax-exempt interest, net of disallowance(650)(0.22)(670)(0.15)(492)(0.26)
Bank-owned life insurance(3,084)(1.06)(1,927)(0.44)(1,579)(0.83)
Tax credits, net of basis reduction(8,644)(2.97)(11,284)(2.92)(1,062)(0.61)
Equity-based compensation(2,293)(0.79)(8,237)(1.87)185 0.10 
Non-deductible executive compensation2,074 0.71 3,195 0.72 454 0.24 
Unrecorded basis difference in foreign subsidiaries— — — — (304)(0.16)
Recorded basis difference in foreign subsidiaries— — (4,217)(1.00)— — 
Unrecognized tax benefits3,633 1.25 — — — — 
Other1,870 0.65 563 0.54 441 0.28 
Effective income tax rate$63,263 21.72 %$86,940 19.70 %$46,717 24.62 %
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, 2022 and 2021:
December 31,
(amounts in thousands)20222021
Deferred tax assets
Allowance for credit losses on loans and leases$33,463 $36,111 
Net operating losses734 825 
Compensation and benefits7,748 8,356 
Net deferred loan fees and costs11,330 — 
Lease liability4,868 3,806 
Net unrealized losses on securities57,302 1,748 
Accrued severance4,741 4,740 
Other3,569 3,080 
Total deferred tax assets123,755 58,666 
Deferred tax liabilities
Net deferred loan fees and costs— (6,405)
Tax qualified lease adjustments(71,860)(50,605)
Right of use asset(4,122)(3,321)
Other(1,964)(1,173)
Total deferred tax liabilities(77,946)(61,504)
Net deferred tax asset (liability)$45,809 $(2,838)
The net deferred tax asset (liability) is recorded in other assets or accrued interest payable and other liabilities at December 31, 2022 and 2021.
Customers had approximately $3.5 million of federal and state net operating loss carryovers subject to the annual limitation under the Internal Revenue Code Section 382 at December 31, 2022, that begin to expire in 2028.
The following table presents changes in unrecognized tax benefits for the years ended December 31, 2022, 2021, and 2020:
For the Years Ended December 31,
(amounts in thousands)202220212020
Balance at January 1,$— $— $— 
Increases related to prior year tax positions1,221 — — 
Decreases related to prior year tax positions— — — 
Increases related to current year tax positions2,844 — — 
Settlements— — — 
Lapse of statute— — — 
Balance at December 31,$4,065 $— $— 
As of December 31, 2022, all of Customers unrecognized tax benefits, if recognized, would impact the effective tax rate. Not included in the table above is $1.1 million of federal income tax benefit on unrecognized state tax benefits recognized in deferred taxes which could also impact the effective tax rate. Customers recognizes interest related to unrecognized tax benefits in income tax expense and penalties in other non-interest expense. During the year ended December 31, 2022, Customers recognized $1.4 million of interest related to unrecognized tax benefits in income tax expense.
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, 2019, with the exception of New York State and New York City. In January 2023, Customers settled the audit examination with New York State. It is reasonably possible that the balance of unrecognized tax benefits could increase or decrease over the next twelve months due to the completion of tax authorities' examinations or the expiration of statutes of limitations. While the net effect on the total unrecognized tax benefits during the next twelve months cannot be reasonably estimated, Customers expects a $1.3 million reduction in unrecognized tax benefits in 2023 due to the settlement of the New York State examination, of which $0.6 million will affect the effective tax rate.