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Income Taxes | 12 Months Ended
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Dec. 31, 2023
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) | 2023 |  | 2022 |  | 2021
Current |  |  |  |  |
Federal | $ | 42,485 |  |  | $ | 37,476 |  |  | $ | 50,971 |
State | 15,935 |  |  | 18,880 |  |  | 18,215 |
Total current expense | 58,420 |  |  | 56,356 |  |  | 69,186 |
Deferred |  |  |  |  |
Federal | 17,478 |  |  | 7,249 |  |  | 14,957 |
State | 4,699 |  |  | (342) |  |  | 2,797 |
Total deferred expense | 22,177 |  |  | 6,907 |  |  | 17,754 |
Income tax expense | $ | 80,597 |  |  | $ | 63,263 |  |  | $ | 86,940 |
Effective tax rates differ from the federal statutory rate of 21% at December 31, 2023, 2022, and 2021, which was applied to income before income tax expense, due to the following:
| For the Years Ended December 31,
| 2023 |  | 2022 |  | 2021
(dollars in thousands) | Amount |  | % of pretax income |  | Amount |  | % of pretax income |  | Amount |  | % of pretax income
Federal income tax at statutory rate | $ | 69,455 |  |  | 21.00 | % |  | $ | 61,173 |  |  | 21.00 | % |  | $ | 92,654 |  |  | 21.00 | %
State income tax, net of federal benefit | 16,447 |  |  | 4.97 |  |  | 9,184 |  |  | 3.15 |  |  | 16,863 |  |  | 3.82 |
Tax-exempt interest, net of disallowance | (769) |  |  | (0.23) |  |  | (650) |  |  | (0.22) |  |  | (670) |  |  | (0.15) |
Bank-owned life insurance | 1,286 |  |  | 0.39 |  |  | (3,084) |  |  | (1.06) |  |  | (1,927) |  |  | (0.44) |
Tax credits, net of basis reduction | (11,199) |  |  | (3.39) |  |  | (8,644) |  |  | (2.97) |  |  | (11,284) |  |  | (2.92) |
Equity-based compensation | (679) |  |  | (0.21) |  |  | (2,293) |  |  | (0.79) |  |  | (8,237) |  |  | (1.87) |
Non-deductible executive compensation | 1,872 |  |  | 0.57 |  |  | 2,074 |  |  | 0.71 |  |  | 3,195 |  |  | 0.72 |
FDIC premium limitation | 1,604 |  |  | 0.49 |  |  | 268 |  |  | 0.09 |  |  | 285 |  |  | 0.06 |
Recorded basis difference in foreign subsidiaries | — |  |  | — |  |  | — |  |  | — |  |  | (4,217) |  |  | (1.00) |
Unrecognized tax benefits | (785) |  |  | (0.24) |  |  | 3,633 |  |  | 1.25 |  |  | — |  |  | — |
Other | 3,365 |  |  | 1.02 |  |  | 1,602 |  |  | 0.56 |  |  | 278 |  |  | 0.48 |
Effective income tax rate | $ | 80,597 |  |  | 24.37 | % |  | $ | 63,263 |  |  | 21.72 | % |  | $ | 86,940 |  |  | 19.70 | %
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, 2023 and 2022:
| December 31,
(amounts in thousands) | 2023 |  | 2022
Deferred tax assets |  |  |
Allowance for credit losses on loans and leases | $ | 33,978 |  |  | $ | 33,463 |
Net operating losses | 643 |  |  | 734 |
Compensation and benefits | 8,576 |  |  | 7,748 |
Net deferred loan fees and costs | — |  |  | 11,330 |
Lease liability | 4,618 |  |  | 4,868 |
Net unrealized losses on securities | 46,281 |  |  | 57,302 |
Accrued severance | 51 |  |  | 4,741 |
Other | 6,100 |  |  | 3,569 |
Total deferred tax assets | 100,247 |  |  | 123,755 |
Deferred tax liabilities |  |  |
Net deferred loan fees and costs | (1,236) |  |  | — |
Tax qualified lease adjustments | (80,749) |  |  | (71,860) |
Right of use asset | (4,037) |  |  | (4,122) |
Other | (1,614) |  |  | (1,964) |
Total deferred tax liabilities | (87,636) |  |  | (77,946) |
Net deferred tax asset | $ | 12,611 |  |  | $ | 45,809 |
The net deferred tax asset is recorded in other assets at December 31, 2023 and 2022. Customers had approximately $3.1 million of federal and state net operating loss carryovers subject to the annual limitation under the Internal Revenue Code Section 382 at December 31, 2023, that begin to expire in 2028. The following table presents changes in unrecognized tax benefits for the years ended December 31, 2023, 2022, and 2021:
| For the Years Ended December 31,
(amounts in thousands) | 2023 |  | 2022 |  | 2021
Balance at January 1 | $ | 4,065 |  |  | $ | — |  |  | $ | — |
Increases related to prior year tax positions | — |  |  | 1,221 |  |  | — |
Decreases related to prior year tax positions | (1,474) |  |  | — |  |  | — |
Increases related to current year tax positions | 361 |  |  | 2,844 |  |  | — |
Settlements | (1,156) |  |  | — |  |  | — |
Lapse of statute | — |  |  | — |  |  | — |
Balance at December 31 | $ | 1,796 |  |  | $ | 4,065 |  |  | $ | — |
As of December 31, 2023, all of Customers’ unrecognized tax benefits, if recognized, would impact the effective tax rate. Not included in the table above is $0.4 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 years ended December 31, 2023 and 2022, Customers recognized $0.1 million and $1.4 million of interest related to unrecognized tax benefits in income tax expense. It is reasonably possible that over the next twelve months the amount of unrecognized tax benefits may change from the reevaluation of uncertain tax positions arising in examinations, in appeals, in the courts, or from the closure of tax statutes. Customers does not expect any significant increase or decrease to the balance of unrecognized tax benefits in the next twelve months. 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, 2020, with the exception of New Jersey and New York City. In 2023, Customers settled the audit examination with New York State for the 2015-2017 tax years and with New York City for the 2016-2018 tax years. Customers is currently under audit by New Jersey for the 2018 tax year and by New York City for the 2019-2021 tax years.

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