Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The following table presents the components of income tax expense (benefit) for the years ended December 31, 2022, 2021 and 2020:

($ in thousands)	Year Ended December 31,
	2022		2021		2020
Current income tax expense (benefit):
Federal	$	163,797	$	84,249	$	84,560
State	160,629		95,939		74,252
Foreign	3,133		(1,554)		671
Total current income tax expense	327,559		178,634		159,483
Deferred income (benefit) tax expense:
Federal	(23,484)		1,528		(28,093)
State	(21,835)		3,259		(11,671)
Foreign	1,331		(25)		(1,751)
Total deferred income (benefit) tax expense	(43,988)		4,762		(41,515)
Income tax expense	$	283,571	$	183,396	$	117,968

The following table presents the reconciliation of the federal statutory rate to the Company’s effective tax rate for the years ended December 31, 2022, 2021 and 2020:

	Year Ended December 31,
	2022		2021		2020
Statutory U.S. federal tax rate	21.0	%	21.0	%	21.0	%
U.S. state income taxes, net of U.S. federal income tax effect	7.8		7.4		7.2
Tax credits and benefits, net of related expenses	(8.9)		(11.3)		(12.4)
Other, net	0.2		0.3		1.4
Effective tax rate	20.1	%	17.4	%	17.2	%

The following table summarizes the tax effects of temporary differences that give rise to a significant portion of deferred tax assets and liabilities as of December 31, 2022 and 2021:

($ in thousands)	December 31,
	2022		2021
Deferred tax assets:
Allowance for credit losses and nonperforming assets valuation allowance	$	191,187	$	166,398
Investments in qualified affordable housing partnerships, tax credit and other investments, net	21,011		14,977
Stock compensation and other accrued compensation	25,857		23,954
Interest income on nonaccrual loans	5,185		4,192
State taxes	13,259		5,237
Net unrealized losses on debt securities and derivatives	309,837		37,423
Tax credit carryforwards	—		8,692
Premises and equipment	3,827		1,434
Lease liabilities	34,859		31,324
Other	6,169		1,018
Total deferred tax assets	$	611,191	$	294,649
Deferred tax liabilities:
Equipment lease financing	$	27,237	$	26,607
Investments in qualified affordable housing partnerships, tax credit and other investments, net	7,709		12,187
FHLB stock dividends	1,926		1,886
Mortgage servicing assets	1,963		1,759
Acquired debts	1,477		1,536
Prepaid expenses	2,478		1,525
Operating lease right-of-use assets	32,606		29,472
Other	6,270		1,547
Total deferred tax liabilities	$	81,666	$	76,519
Net deferred tax assets	$	529,525	$	218,130

As of both December 31, 2022 and 2021, the Company concluded that no valuation allowance was necessary to reduce the deferred tax assets since estimated future taxable income will be sufficient to utilize these assets. For further information on the Company’s valuation policy on deferred taxes, see Note 1 — Summary of Significant Accounting Policies — Significant Accounting Policies — Income Taxes to the Consolidated Financial Statements in this Form 10-K.

The following table presents a reconciliation of the beginning and ending balances of unrecognized tax benefits for the years ended December 31, 2022, 2021 and 2020:

	Year Ended December 31,
($ in thousands)	2022		2021		2020
Beginning balance	$	5,045	$	5,045	$	—
Additions for tax positions related to prior years	—		—		5,045
Settlements with taxing authorities	(4,568)		—		—
Ending balance	$	477	$	5,045	$	5,045

The Company recognizes interest and penalties, as applicable, related to the underpayment of income taxes as a component of Income tax expense on the Consolidated Statement of Income. In 2022, the Company resolved an issue regarding previously claimed tax credits related to DC Solar and affiliates with the Internal Revenue Service (“IRS”) and remitted the taxes and interest owed on the 2018 tax year. The total amount paid under this settlement was $5.2 million, including $4.6 million of taxes and interest of $599 thousand. The amount of net interest and penalties related to unrecognized tax benefits was immaterial for all periods presented.

The Company files federal income tax returns, as well as returns in various state and foreign jurisdictions. Beginning in the 2012 tax year, the Company has executed a Memorandum of Understanding with the IRS to voluntarily participate in the IRS Compliance Assurance Process (“CAP”). Under the CAP, the IRS audits the tax position of the Company to identify and resolve any tax issues that may arise throughout the tax year. The objective of the CAP is to resolve issues in a timely and contemporaneous manner and eliminate the need for a lengthy post-filing examination. The Company’s 2022 tax year is under the CAP audit. The Company is subject to income tax examination by the IRS for the tax years 2019 and forward. The Company is also subject to tax examination in various state jurisdictions for the tax years 2017 and forward. The Company is currently under examination by certain state and local jurisdictions for tax years 2017 through 2019 in New York, New York City and California. The Company does not believe that the outcome of unresolved issues or claims in any of the tax jurisdictions is likely to be material on the Company’s Consolidated Financial Statements. The Company believes that adequate provisions have been recorded for all income tax uncertainties consistent with ASC 740, Income Taxes as of December 31, 2022.