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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
The components of income tax expense were as follows:
For the Years Ended December 31,
(amounts in thousands)202420232022
Current
Federal$23,723 $42,485 $37,476 
State20,324 15,935 18,880 
Total current expense44,047 58,420 56,356 
Deferred
Federal(1,204)17,478 7,249 
State61 4,699 (342)
Total deferred expense (benefit)(1,143)22,177 6,907 
Income tax expense$42,904 $80,597 $63,263 
Effective tax rates differ from the federal statutory rate of 21% at December 31, 2024, 2023, and 2022, which was applied to income before income tax expense, due to the following:
For the Years Ended December 31,
202420232022
(dollars in thousands)Amount% of pretax incomeAmount% of pretax incomeAmount% of pretax income
Federal income tax at statutory rate$47,118 21.00 %$69,455 21.00 %$61,173 21.00 %
State income tax, net of federal benefit9,831 4.38 16,447 4.97 9,184 3.15 
Tax-exempt interest, net of disallowance(769)(0.34)(769)(0.23)(650)(0.22)
Bank-owned life insurance(2,129)(0.95)1,286 0.39 (3,084)(1.06)
Tax credits, net of basis reduction(19,902)(8.87)(11,199)(3.39)(8,644)(2.97)
Equity-based compensation(1,888)(0.84)(679)(0.21)(2,293)(0.79)
Non-deductible executive compensation2,868 1.28 1,872 0.57 2,074 0.71 
FDIC premium limitation2,440 1.09 1,604 0.49 268 0.09 
Unrecognized tax benefits4,993 2.23 (785)(0.24)3,633 1.25 
Other342 0.14 3,365 1.02 1,602 0.56 
Effective income tax rate$42,904 19.12 %$80,597 24.37 %$63,263 21.72 %
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 assets and liabilities as December 31, 2024 and 2023:
December 31,
(amounts in thousands)20242023
Deferred tax assets
Allowance for credit losses on loans and leases$35,733 $33,978 
Net operating losses551 643 
Compensation and benefits12,716 8,576 
Net deferred loan fees and costs2,032 — 
Lease liability9,951 4,618 
Net unrealized losses on securities34,203 46,281 
Accrued severance797 51 
Other7,467 6,100 
Total deferred tax assets103,450 100,247 
Deferred tax liabilities
Net deferred loan fees and costs— (1,236)
Tax qualified lease adjustments(86,522)(80,749)
Right of use asset(9,278)(4,037)
Other(5,974)(1,614)
Total deferred tax liabilities(101,774)(87,636)
Net deferred tax asset
$1,676 $12,611 
The net deferred tax asset is recorded in other assets and other liabilities at December 31, 2024 and in other assets at December 31, 2023.
Customers had approximately $2.6 million of federal net operating loss carryovers subject to the annual limitation under Section 382 of the Code at December 31, 2024, that begin to expire in 2029. At December 31, 2024, Customers had approximately $122.3 million of Pennsylvania net operating loss carryovers for which a deferred tax asset was not established because realization of the loss carryovers was considered remote.
The following table presents changes in unrecognized tax benefits for the years ended December 31, 2024, 2023, and 2022:
For the Years Ended December 31,
(amounts in thousands)202420232022
Balance at January 1
$1,796 $4,065 $— 
Increases related to prior year tax positions4,987 — 1,221 
Decreases related to prior year tax positions(104)(1,474)— 
Increases related to current year tax positions289 361 2,844 
Settlements(230)(1,156)— 
Lapse of statute— — — 
Balance at December 31
$6,738 $1,796 $4,065 
As of December 31, 2024, all of Customers’ unrecognized tax benefits, if recognized, would impact the effective tax rate. Not included in the table above is $1.7 million of federal income tax benefit on unrecognized state tax benefits recognized in deferred taxes. 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, 2024, 2023 and 2022, Customers recognized $1.3 million, $0.1 million and $1.4 million, respectively, 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 re-evaluation of uncertain tax positions arising in examinations, in appeals, in the courts, or from the closure of tax statutes. While the net effect on the total unrecognized tax benefits during the next twelve months cannot be reasonably estimated, Customers expects a $1.5 million to $2.2 million reduction in unrecognized tax benefits in 2025 due to the closure of tax statutes and/or potential settlement with taxing authorities.
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, 2021, 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. Any potential adjustments for open audits have been considered in the balance of unrecognized tax benefits as of December 31, 2024.