XML 29 R17.htm IDEA: XBRL DOCUMENT v3.24.1.1.u2
Income Taxes
 3 Months Ended
Mar. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Income tax expense for the three months ended March 31, 2024 and 2023 differs from the amount computed by applying the statutory federal income tax rate to income before income taxes. The sources and tax effects of the differences are as follows:
 Three Months Ended March 31,
 20242023
U.S. federal statutory tax rate21.0 %21.0 %
State income taxes, net of federal tax benefit(1.4)0.8 
Foreign tax rate differential(1.5)(0.5)
General business credits(11.5)(3.4)
IRC 162(m) limitation(3.6)1.6 
Stock-based compensation22.7 3.7 
Bank owned life insurance income(2.9)(1.6)
Bank owned life insurance surrender9.3 — 
Nondeductible expenses2.6 0.8 
Other0.1 (0.1)
Effective tax rate34.8 %22.3 %
Note 10—Income Taxes (continued)
The effective tax rate for the three months ended March 31, 2024 and 2023 differs from the statutory federal income tax rate of 21%, primarily due to state income taxes, net of federal tax benefits, general business credits, stock-based compensation, cash surrender value growth in bank owned life insurance policies, and the Internal Revenue Code (the "IRC") 162(m) limitation on the deductibility of executive compensation. The net increase in the effective tax rate for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 is primarily due to the impact of a $0.2 million increase in tax expense associated with shortfalls from stock-based compensation and the initiated surrender of a portion of our existing bank owned life insurance policies which resulted in a tax charge of $0.5 million and a surrender penalty of $0.2 million. We recognized a discrete tax expense related to tax shortfalls from stock-based compensation of $1.5 million for the three months ended March 31, 2024, compared to a $1.3 million discrete tax expense for the prior year comparable period. These increases were partially offset by a decrease of $1.0 million in the amount of compensation expense that was subject to the IRC 162(m) limitation on the deductibility of certain executive compensation, a decrease of $0.5 million in state income taxes, net of federal benefits, and the impact of general business credits.
We have made a policy election to account for Global Intangible Low-Taxed Income ("GILTI") in the year the GILTI tax is incurred. For the three months ended March 31, 2024 and 2023, the provision for GILTI tax expense was not material to our financial statements.
We establish a valuation allowance when we consider it more-likely-than-not that some portion or all of the deferred tax assets will not be realized. As of March 31, 2024 and 2023, we did not have a valuation allowance on any of our deferred tax assets as we believe it is more-likely-than-not that we will realize the benefits of our deferred tax assets.
We are subject to examination by the Internal Revenue Service, or IRS, and various state tax authorities. We remain subject to examination of our federal income tax returns for the years ended December 31, 2017 through 2023. We generally remain subject to examination of our various state income tax returns for a period of four to five years from the respective dates that the returns were filed. The IRS initiated an examination of our 2017 U.S. federal tax return during the second quarter ended June 30, 2020, and the examination remains ongoing as of March 31, 2024. We do not expect that this examination will have a material impact on our consolidated financial statements.
As of March 31, 2024, we had federal net operating loss carryforwards of approximately $13.1 million and state net operating loss carryforwards of approximately $108.1 million, which will be available to offset future income. If not used, the federal net operating losses will expire between 2029 and 2035. Of our total state net operating loss carryforwards, approximately $59.0 million will expire between 2026 and 2042, while the remaining balance of approximately $49.1 million does not expire and carries forward indefinitely. The net operating losses are subject to an annual IRC Section 382 limitation, which restricts their utilization against taxable income in future periods. In addition, we have state business tax credits of approximately $21.2 million that can be carried forward indefinitely and other state business tax credits of approximately $0.6 million that will start to expire on December 31, 2024 and continue to expire through December 31, 2027.
As of March 31, 2024 and December 31, 2023, we had a liability of $13.5 million and $12.1 million, respectively, for unrecognized tax benefits related to various federal and state income tax matters excluding interest, penalties and related tax benefits. The reconciliation of the beginning unrecognized tax benefits balance to the ending balance is as follows:
Three Months Ended March 31,
20242023
(In thousands)
Beginning balance$12,109 $11,178 
Increases related to positions taken during prior years1,380 1,260 
Decreases related to positions settled with tax authorities— (90)
Ending balance$13,489 $12,348 
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate $12,980 $11,917 
As of March 31, 2024 and 2023, we recognized accrued interest and penalties related to unrecognized tax benefits of approximately $1.4 million and $1.0 million, respectively.